What is "In Pare Delicto"?

"In pare delicto" is a doctrine which stipulates that the guilty parties to an illegal contract are not entitled to any relief.  It literally means that both parties are in equal fault and it follows that both of them can't recover from each of them any damages or any other relief from law.

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In a recent decided case from the Supreme Court of the Philippines, particularly the case of Gonzalo vs. Tarnate, Jr. (G.R. No. 160600), the doctrine of "in pare delicto" was put to a test.  This case sprung out from a prohibited subcontracting of a contract with a DPWH pursuant to Sec. 6 of PD 1594.  However, Gonzalo as a contractor of DPWH subcontracted Tarnate, Jr. As a consequence, Gonzalo and Tarnate, Jr. entered into a deed of assignment contract in favor of the latter.  However, later on, Tarnate learned that Gonzalo unilaterally rescinded the deed of assignment.  Hence, Tarnate, Jr. filed a case in the Regional Trial Court.

The initial finding of RTC was in favor of Tarnate, Jr.  Gonzalo was ordered to comply with his obligations under the deed of assignment but without the award of exemplary damages in favor of Tarnate, Jr. for failure to show that the defendant Gonzalo acted in wanton, fraudulent, reckless, oppressive or malevolent manner.

Gonzalo appealed the case to the Court of Appeals (CA).  The CA did not apply the doctrine of "in pare delicto" to the case explaining that the said doctrine is only applicable if the fault of one party was more or less equivalent to the fault of the other party.  The CA ruled in favor of Tarnate, Jr. again this time.  It found that Gonzalo is more guilty than Tarnate, Jr to the extent of violating the deed of assignment.  It declared Gonzalo to pay Tarnate, Jr. the agreed 10% retention fee (based from the deed of assignment) for the said amount had unjustly enriched Gonzalo.  It was noted that Gonzalo made use of the equipment of Tarnate, Jr. for the DPWH project.

Gonzalo filed a petition for review of the decision of the CA before the Supreme Court.  The SC denied Gonzalo's petition.  Below are the very significant provisions (most are based from the Civil Code of the Philippines) and findings of the Supreme Court on this case:

1. Illegal subcontract -  The SC ruled that the subcontract was illegal because it did not comply with the requirements of PD 1594.  It is clear from the provisions of PD 1594 that every contractor is prohibited from subcontracting with or assigning to another person any contract or project that he has with DPWH unless the DPWH Secretary has approved the subcontracting assignment.
2. Illegal deed of assignment -  The deed of assignment is also illegal because it sprung from an illegal subcontract.  Since there was no legal subcontract that existed, there will be no legal deed of assignment to speak of.  
3. Article 1409 of the Civil Code - This provides that "a contract whose cause, object or purpose is contrary to law is void or not existing."  A void contract can not produce a valid one.
4. Article 1422 of the Civil Code - This also provides that "a contract which is the direct result of a previous illegal contract is also void and inexistent."
5. Article 1412 of the Civil Code - This provides that the guilty parties to an illegal contract cannot recover from one another and are not entitled to an affirmative relief because they are "in pare delicto" or in equal fault.
6. Article 22 of the Civil Code - This provision states that "every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him."

The final decision of SC is in favor of Tarnate, Jr.  The previous decision of the RTC and CA to properly adjudged Gonzalo to be liable for Tarnate, Jr. in the amount of 10% retention fee are confirmed as correct.  Gonzalo's defense of his payment of the 10% retention fee was conditioned that Tarnate has to pay his personal debt to Congressman Dominguez was set aside.  Burdening Tarnate to pay his personal debt would constitute an another unjust enrichment case.  However, there was no damages in favor of Tarnate, Jr. since the contract was void.  A void and nonexistent contract produces no juridical tie between the parties involved.  

The doctrine of "in pare delicto" as in this case, can not prevent a recovery if doing so violates the public policy against unjust enrichment.  Gonzalo's unjust enrichment overcome the doctrine of "in pare delicto".  In addition, the illegality of their contract should not be allowed to deprive Tarnate, Jr. from being fully compensated what is recoverable including the imposition of a legal interest of 6% per annum. But, this is without the award for moral damages, attorney's fees and litigation expenses.  Gonzalo as the petitioner has been ordered to pay for costs of the suit.