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M e m o r a n d u m

TO: Atty. Bernardo Calderon
FROM: Rubert Jim Tuan
RE: In Pari Delicto in void contracts as a cause of action
DATE: December 11, 2013

Question Presented
Whether the doctrine of in pari delicto in void contracts may be raised by the plaintiff as a cause
of action.

Short Answer
As a general rule, no, the only remedy is one on behalf of the State to prosecute the parties for
violating the law. However, Art. 1416 of the Civil Code admits of an exception to the in pari
delicto principle.

Discussion
In pari delicto is "a universal doctrine which holds that no action arises, in equity or at law, from
an illegal contract; no suit can be maintained for its specific performance, or to recover the
property agreed to be sold or delivered, or the money agreed to be paid, or damages for its
violation; and where the parties are in pari delicto, no affirmative relief of any kind will be given
to one against the other." [Moreno, Philippine Law Dictionary (1988)]

Under the doctrine of in pari delicto, a plaintiff who has participated in wrongdoing may not
recover from the wrongdoing. This doctrine is frequently used as an affirmative defense in cases
of void contracts where defendant proves facts independent of the plaintiffs cause of action.
This rule may also be pleaded in a motion to dismiss when the allegations in the complaint itself
establishes this defense.

The law that governs this rule is found in articles 1411 and 1412 of the New Civil Code:

Art. 1411. 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.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to comply with his promise. (1305)

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Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he has
given by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is
not at fault, may demand the return of what he has given without any obligation to comply his
promise. (1306)

In the case of BPI vs IAC (Aug. 19, 1988), the Supreme Court ruled that "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 cause of action against
each other. . ." [Art. 1411, New Civil Code.] The only remedy is one on behalf of the State to
prosecute the parties for violating the law.

The rule is outlined in the case of Ubarra vs. Mapalad (Mar. 22, 1993):

the rule on pari delicto is a rule in civil law. It is principally governed by Articles 1411 and 1412
of the Civil Code under the Chapter on Void or Inexistent Contracts, and presupposes a situation
where the parties are in culpability similarly situated, i.e., in eodem loco (Jandusay vs. Court of
Appeals, 172 SCRA 376 [1989]). That this rule can by no means apply in a criminal case is
evidenced by the aforesaid Article 1411 which provides in part that "[W]hen 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." Secondly, in view of the broader grounds of public policy, the rule may not be
invoked against the State. Thirdly, in the prosecution of public crimes, the complainant is the
State i.e., the People of the Philippines while the private offended party is but a complaining
witness. Any criminal act perpetrated by the latter on the occasion of the commission of the
crime, or which may have given rise to the criminal act imputed to the accused is not the act or
conduct of the State and can by no means bind it under the doctrine of pari delicto. To rule
otherwise would be to establish a dangerous doctrine which would irreparably weaken the very
foundations of the criminal justice system and frustrate the administration of justice. Whatever
wrongful act may have been committed by the offended party may only be invoked to justify the
accused's own act or mitigate his liability.

In the case of Menchavez vs Teves, Jr (Jan 26, 2005), the court admits of some exceptions
which permit the return of that which may have been given under a void contract:

A void contract is equivalent to nothing; it produces no civil effect.23 It does not create, modify or
extinguish a juridical relation. Parties to a void agreement cannot expect the aid of the law; the
courts leave them as they are, because they are deemed in pari delicto or "in equal fault." To this
rule, however, there are exceptions that permit the return of that which may have been given
under a void contract. One of the exceptions is found in Article 1412 of the Civil Code, which
states:
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"Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute
a criminal offense, the following rules shall be observed:
"(1) When the fault is on the part of both contracting parties, neither may recover what he
has given by virtue of the contract, or demand the performance of the others
undertaking;
"(2) When only one of the contracting parties is at fault, he cannot recover what he has
given by reason of the contract, or ask for the fulfillment of what has been promised him.
The other, who is not at fault, may demand the return of what he has given without any
obligation to comply with his promise."

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Justice Vitug cites some of these exceptions, under which recovery may be made by any of the
following:

"(a) The innocent party (Arts. 1411-1412, Civil Code);
"(b) The debtor who pays usurious interest (Art. 1413, Civil Code);
"(c) The party repudiating the void contract before the illegal purpose is accomplished or before
damage is caused to a third person and if public interest is subserved by allowing recovery (Art.
1414, Civil Code);
"(d) The incapacitated party if the interest of justice so demands (Art. 1515, Civil Code);
"(e) The party for whose protection the prohibition by law is intended if the agreement is not
illegal per se but merely prohibited and if public policy would be enhanced by permitting
recovery (Art. 1416, Civil Code); and
"(f) The party for whose benefit the law has been intended such as in price ceiling laws (Art. 1417,
Civil Code) and labor laws (Arts. 1418-1419, Civil Code)." Vitug, Civil Law Annotated, Vol. III
(2003), pp. 159-160.

However, in Acabal vs Acabal (Mar. 31, 2005), the Supreme Court had occasioned to rule on an
exception to the in pari delicto principle:

The principle of pari delicto is grounded on two premises: first, that courts should not lend their
good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to
an admitted wrongdoer is an effective means of deterring illegality.This doctrine of ancient vintage
is not a principle of justice but one of policy as articulated in 1775 by Lord Mansfield in Holman v.
Johnson:

The objection, that a contract is immoral or illegal as between the plaintiff and defendant, sounds
at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection
is ever allowed; but it is founded in general principles of policy, which the defendant has the
advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so
say. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to
a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiffs
own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression
of a positive law of this country, there the court says he has no right to be assisted. It is upon that
ground the court goes; not for the sake of the defendant, but because they will not lend their aid
to such a plaintiff. So if the plaintiff and the defendant were to change sides, and the defendant
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was to bring his action against the plaintiff, the latter would then have the advantage of it; for
where both are equally in fault potior est conditio defendentis.
Thus, to serve as both a sanction and as a deterrent, the law will not aid either party to an illegal
agreement and will leave them where it finds them.

The principle of pari delicto, however, is not absolute, admitting an exception under Article 1416
of the Civil Code.

ART. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition
by the law is designed for the protection of the plaintiff, he may, if public policy is thereby
enhanced, recover what he has paid or delivered.

Under this article, recovery for what has been paid or delivered pursuant to an inexistent contract
is allowed only when the following requisites are met: (1) the contract is not illegal per se but
merely prohibited; (2) the prohibition is for the protection of the plaintiffs; and (3) if public policy is
enhanced thereby.


Conclusion
Void contracts, having been executed against the provisions of a mandatory/prohibitory law,
afford neither of the parties a cause of action against the other.

There are instances, however that admits of some exceptions which permit the return of that
which may have been given under a void contract.

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