Short answer. A contract entered into for an illegal purpose produces no effect whatever. Article 1352 of the Civil Code treats a contract with no cause, or with an unlawful cause, as void, so no court will enforce it. A cause is unlawful when it is contrary to law, morals, good customs, public order or public policy.
What the law says
Contracts without cause, or with unlawful cause, produce no effect whatever.
Civil Code, Article 1352 — Contracts Without or With Unlawful Cause. Read the full provision →
Cause is not the same as your private motive
Cause is the essential reason the law recognises for each party’s undertaking: in a sale, the price for the seller and the thing for the buyer. Motive is the personal reason a party had for entering the deal, and it is normally irrelevant. The two collapse into one, however, when the illegal motive is the very reason the contract exists — a lease of a house taken specifically to run an illegal business, or a loan advanced knowing it will fund a crime. Once the unlawful purpose becomes the cause of the agreement, the contract has no valid cause and produces nothing.
Nothing to enforce, and often nothing to recover
Because such a contract is void, neither side can sue on it. A court will not order delivery, will not award the agreed price, and will not enforce a penalty clause attached to it. Worse, the Civil Code generally leaves parties who are equally at fault where it finds them: someone who paid money under an illegal arrangement usually cannot get it back, because the courts will not lend their machinery to either participant. There are narrow exceptions where one party is less guilty, was the victim of the scheme, or repudiated the arrangement before the unlawful purpose was carried out.
How this shows up in ordinary transactions
Most people meet this rule in unremarkable settings: a side agreement to understate a sale price so less tax is paid, a promise to pay someone to withdraw a criminal complaint, an arrangement letting a disqualified person hold land through a nominee, or an employment clause surrendering rights the law says cannot be surrendered.
The practical warning is that the void clause takes your remedy with it. If the arrangement collapses you may hold nothing enforceable, and the very document you would rely on may be evidence against you. Before signing anything whose purpose you are uneasy about, have the arrangement reviewed rather than papered over.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Maria B. Ching vs. Joseph C. Goyanko, Jr., et al, G.R. No. 165879, November 10, 2006 — read the decision on LawPhil →
- Timoteo Bacalso and Diosdada Bacalso vs. Gregoria B. Aca-Ac, et al, G.R. No. 172919, January 13, 2016 — read the decision on LawPhil →
- Solidstate Multi-Purpose Corp. vs. Sps. Erlinda Catienza-Vaillaverde & Victor Villaverde, G.R. No. 175118, July 21, 2008 — read the decision on LawPhil →
- Sps. Col. Pedro L. Lumbres etc. vs. Sps. Pedro B. Tablada, Jr. etc, G.R. No. 165831, February 23, 2007 — read the decision on LawPhil →