1987 – Teja Marketing v. IAC, GR No. L-65510 (Trimobile, Kabit System, In Pari Delicto, No relief from unlawful contracts)

3.1. DATE OF PROMULGATION

• March 9, 1987

3.2. DECIDING COURT

• Supreme Court of the Philippines

3.3. DIVISION

• Second Division

3.4. PONENTE

• Paras

3.5. CONCURRENCE AND ATTENDANCE

3.6. SEPARATE OPINIONS

3.7.PARTIES

3.8. COUNSEL

3.9. NATURE OF ACTION

• Petition for Review on an IAC decision

3.10. LAWS AND PROVISIONS CITED

• Article 1409, Civil Code
• Article 1412, Civil Code

3.11. CASES CITED

• Lita Enterprises v. IAC, 129 SCRA 81

4.1. FACTS

• 1975, May 9
  • the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. “A”). Out of the total purchase price the defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff the balance within sixty days. The defendant, however, failed to comply with his promise and so upon his own request, the period of paying the balance was extended to one year in monthly installments.
• In 1976, January, defendant stopped paying anymore.

4.2. PROCEDURAL HISTORY

• City Court of Naga
  • 1978, February 20
  • Defendant’s actions caused plaintiff to consult a lawyer and file this action for his damage.
  • Plaintiff claims the following:
    • As of February 20, 1978, the total account of the defendant was already P2,731,05 as shown in a statement of account (Exhibit “B”). This amount includes not only the balance of P1,700.00 but an additional 12% interest per annum on the said balance from January 26, 1976 to February 27, 1978; a 2% service charge; and P546.21 representing attorney’s fees.
    • The defendant claimed the following:
  • Did not dispute the sale and outstanding balance payable to the plaintiff
  • Was persuaded to buy from the plaintiff the motorcycle with the side car because of the condition that the plaintiff would be the one to register every year the motorcycle with the LTC
  • In 1976, plaintiff failed to register both the chattel mortgage and the motorcycle with the LTC despite the defendant giving the plaintiff the mortgage fee and registeration fee and having the motorcycle issued with La Perla Compana de Seguros.
  • Defendant disputed the claim that he was hiding from the plaintiff the motorcycle. As it appears, the motorcycle was being used for transporting passengers and was used to travel from one place to another.
  • Defendant claimed that the mortgage status of the vehicle with the Rural Bank of Camaligan was done without his consent and knowledge, and that it was not because of re-discounting.
  • He claims that the plaintiff is to be blamed for not registering the vehicles and not giving the registration papers back to him.
  • The court found the following:
    • The motorcycle sold to the defendant was first mortgaged to plaintiff, because it was made to appear that only as the defendant has no franchise of his own and he attached the unit to the plaintiff’s MCH Line
    • The agreement was also for the plaintiff to undertake the yearly registration of the motorcycle with the LTC
    • On 1976, February 22, defendant gave plaintiff P90, the P8 would be for the mortgage fee and the P82 for the registration fee
    • The plaintiff failed to register the motorcycle on that year on the ground that the defendant failed to comply with the following requirements: payment of insurance premiums, bringing of the motorcycle to the LTC for stencilling.
    • The plaintiff claimed the defendant was hiding the motorcycle from him.
    • The plaintiff explained that even though the ownership of the motorcycle was already transferred to the defendant the vehicle was still mortgaged with the consent of the defendant to the Rural Bank of Camaligan because all motorcycle purchased from the plaintiff was rediscounted with the bank.
    • The defendant purchased said motorcycle for use in the transportation business; therefore this trimobile unit was attached the plaintiff’s transportation line who had the franchise, so much so that in the registration certificate, the plaintiff appears to be the owner of the unit.
  • Plaintiff filed an action for “Sum of Money with Damages” against defendant.
  • The court ruled in favor of plaintiff, with the defendant ordered to pay the following:
    • P1,700 representing the unpaid balance of the purchase prise with legal rate of interest
    • P54.21 as attorney’s fees
    • P200 as expense in litigation
    • Pay the costs
• CFI Camarines Sur
  • On appeal, affirmed in toto the City Court decision.
• Intermediate Appellate Court
  • IAC dismissed the complaint and counterclaim related to the case, ruling as follows:
    • “However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private respondent Jaucian, pursuant to what is commonly known as the ‘kabit system,’ without the prior approval of the Board of Transportation (formerly the Public Service Commission) was an illegal transaction involving the fictitious registration of the motor vehicle in the name of the private respondent so that he may traffic with the privileges of his franchise, or certificate of public convenience, to operate a tricycle service, the parties being in pari delicto, neither of them may bring an action against the other to enforce their illegal contract [Art. 1412 (a), Civil Code].“
• Supreme Court
  • Hence, this petition for review.

4.3. ISSUES

• Whether respondent court erred in applying the doctrine of “pari delicto”?

4.4. HELD

• Whether respondent court erred in applying the doctrine of “pari delicto”?
  • No
  • We find the petition devoid of merit.
  • Unquestionably, the parties herein operated under an arrangement, commonly known as the “kabit system” whereby a person who has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred by the government. Abuse of this privilege by the grantees thereof cannot be countenanced. The “kabit system” has been identified as one of the root causes of the prevalence of graft and corruption in the government transportation offices.
  • Although not outrightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code. It is a fundamental principle that the court will not aid either party to enforce an illegal contract, but will leave both where it finds them. Upon this premise it would be error to accord the parties relief from their predicament.
  • Article 1412 of the Civil Code denies them such aid. It provides:
    • “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 that he has given by virtue of the contract, or demand, the performance of the other’s undertaking.“
  • The defect of inexistence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse of time cannot give efficacy to contracts that are null and void.

4.5. DISPOSITION

• Petition dismissed for lack of merit. IAC decision affirmed. No costs.

4.6. SEPARATE OPINION

• None.