Ouano v.

CA
GR L40204 # | August 21, 1990
Petitioner: Paterno Ouano
Respondent: Court of Appeals, Francisco Echavez
(Article 1409(1) of the Civil Code, Contracts)
DOCTRINE
A contract is void where the purpose is contrary to law. The agreement therefore being in 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.
FACTS
1. A parcel of land (Lot 3A1) in Mandaue, Cebu was owned by Rehabilitation Finance Corporation (RFC)
now known as the Development Bank of the Philippines (DBP). The lots of Ouano and Echavez were
adjoining it.
2. The parcel of land was offered for sale by public bidding. During the first bidding, Ouano’s protest
caused the bidding process to be nullified.
3. Prior to the second 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. To ensure success of their enterprise, they also agreed to induce the only other party
known to be interested in the property-a group headed by a Mrs. Bonsucan to desist from presenting
a bid
4. Bonsucan agreed to withdraw, in fact withdrew, Ouano's wife paid it P2,000 as reimbursement for
their expenses.
5. Echavez, as expected, emerged as the highest bidder for P27,826.00.
6. A week later, Echavez sent a letter to Ouano regarding the P2,000.00 paid by the latter's wife to the
Bonsucan group. The letter contained
a. Ouano will be given 250sqm right in front of his house in payment of the P2,000 he has
advanced.
b. The proposed delineation of the land in the form of a sketch.
c. A handwritten agreement prepared by Echavez
i. That both are delineating the land because of the agreement prior to the second
bidding.
ii. That all the legal expenses incurred in connection with the acquisition, will be levied
as a whole against Echavez, but if such expenses are levied separately after RFC
consents to the subdivision and registration to their respective names, then
expenses will be borne individually.
d. Echavez set down in writing a computation of the sharing of expenses.
7. Ouano and his wife delivered sums of money to Echavez.
8. RFC never approved of the sharing agreement between Echavez and Ouano regarding the lot. It
approved the sale to Echavez only on the condition that the purchase price be paid in cash. Echavez
had a hard time in complying, taking four years and patient negotiation for him to acquire the title.
Eventually, torrens title was issued in Echavez’ name,
9. Ouano tried to cause DBP to accept and implement the sharing agreement or allow him to pay full
price in his behalf.
10. Ouano filed for specific performance and reconveyance in the CFI against Echavez and DBP to honor
the sharing agreement.
11. Trial court found that the sharing agreement could not be enforced since in the absence of consent of
RFC and that the agreement had an unlawful cause and involved a felony under the RPC
(machinations in public auctions). TC ordered Ouano to vacate said lot.
12. CA affirmed.
ISSUE/S
W/N the sharing agreement between Ouano and Echavez is valid – NO.
PROVISIONS
Art. 1409(1).
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. […]

RULING & RATIO

No. The acts of Ouano and Echavez constituted a crime.

 They 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 and in fact succeeded in
causing another bidder to stay away from the auction
 They committed the felony of machinations in public auctions defined and penalized in Article 185 of
the Revised 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 pari delicto
principle.

DISPOSITION
WHEREFORE, the appealed decision of the Court of Appeals is MODIFIED, so that in addition to affirming the
Trial Court's judgment dismissing Ouano's complaint and Echavez's counterclaim in Civil Case No. R-8011,
Lot No. 3-A-1 subject of said case is ordered FORFEITED in its entirety in favor of the Government of the
Philippines. No pronouncement as to costs. Let copy of this Decision be furnished the Solicitor General.