CASE DIGEST: Ouano v. CA



PATERNO J. OUANO, petitioner, vs. COURT OF APPEALS and FRANCISCO B. ECHAVEZ, respondents

G.R. No. 40203, August 21 1990

 

FACTS:

A 3,710 sq. m. lot identified as Philippine Railway Lot No. 3-A-1 was offered for sale by public bidding by the Rehabilitation Finance Corporation (RFC) on April 1, 1958. Prior to that bidding, Ouano and Echavez orally agreed that only Echavez would make a bid, and that if it was accepted, they would divide the property in proportion to their adjoining properties. They also agreed to induce the only other party known to be interested in the property, Mrs. Bonsucan’s group, to desist from presenting a bid.

                Two weeks after Echavez won the bid, a document simply entitled “Agreement” was signed by him and Ouano. The document was prepared by Echavez in his own handwriting stating that they would request RFC to have the said lot subdivided into 2 portions and that they would share proportionately all legal expenses that may be assessed and incurred in connection with the acquisition of the said lot.                However, RFC never approved the sharing agreement between Echavez and Ouano. Eventually, a Torrens title for the lot was issued in Echavez’ name only. 

ISSUE: W/N the agreement between Echavez and Ouano is valid.

RULING:

                Ouano and Echavez had promised to share in the property in question as a consideration for Ouano’s refraining from taking part in the public auction, and they had attempted to cause in fact succeeded in causing another bidder to stay away from the auction in order to cause reduction of the price of the property auctioned. In doing so, they committed the felony of machinations in public auctions defined and penalized in Article 185 of the Revise Penal Code.

                The agreement therefore being criminal in character, the parties not only have no action against each other but are both liable to prosecution and the things and price of their agreement subject to disposal according to the provisions of the criminal code. This, in accordance with the so-called pari delicto principle set out in the Civil Code.

                Article 1409 of said Code declares as “inexistent and void from the beginning” those contracts, among others, “whose cause, object or purpose is contrary to law, morals good customs, public order of public policy, or “expressly prohibited x x by law”. Such contracts “cannot be ratified;” “the right to set up the defense of illegality (cannot) be waived;” and, Article 1410 adds, the “action or defense for the declaration of the inexistence x x (thereof) does not prescribe.” Furthermore, according to the Article 1411 of the same Code –

“x x. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code, relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.”

                Article 1411 also dictates the proper disposition of the land involve, i.e., “the forfeiture of the proceeds of the crime and the instruments or tools with which it was committed,” as mandated by the provisions of Article 45 of the Revised Penal Code, this being obviously the provision “ of the Penal Code relative to the disposal of effects or instruments of a crime” that Article 1411 makes “applicable to the things or the price of the contract”. 


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