10/1/2019 G.R. No.

L-64693

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Republic of the Philippines

EN BANC

G.R. No. L-64693 April 27, 1984

LITA ENTERPRISES, INC., petitioner,

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.: ñé+.£ªwph!1

"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune-honored maxim that mu
applied to the parties in the case at bar. Having entered into an illegal contract, neither can seek relief from
courts, and each must bear the consequences of his acts.

The factual background of this case is undisputed.

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purch
in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxi
Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., throug
representative, Manuel Concordia, for the use of the latter's certificate of public convenience in consideration
initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id agreement
aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession, however, remained
tile spouses Ocampo who operated and maintained the same under the name Acme Taxi, petitioner's trade nam

About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided
a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal
was eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by R
Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the taxicab i
latter case, Civil Case No. 72067 of the Court of First Instance of Manila, petitioner Lita Enterprises, Inc.
adjudged liable for damages in the amount of P25,000.00 and P7,000.00 for attorney's fees.

This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses
Engine No. 2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the hig
bidder. Another car with Engine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000
a certain Mr. Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He reque
the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter alle
refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Ga
Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with dama
docketed as Civil Case No. 90988 of the Court of First Instance of Manila. Trial on the merits ensued and on
22, 1975, the said court rendered a decision, the dispositive portion of which reads: têñ.£îhqwâ£

WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda
Galvez, Visayan Surety & Insurance Company and the Sheriff of Manila are concerned.

Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three To
cars not levied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and

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executing a deed of conveyance in favor of the plaintiff.

Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certifica
convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three
(Annex A, Record on Appeal, p. 102-103, Rollo)

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the co
quo on October 27, 1975. (p. 121, Ibid.)

On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the dec
by including as part of its dispositive portion another paragraph, to wit: têñ.£îhqwâ£

In the event the condition of the three Toyota rears will no longer serve the purpose of the de
conveyance because of their deterioration, or because they are no longer serviceable, or because
are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market v
as of July 22, 1975. (Annex "D", p. 167, Rollo.)

Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: têñ.£îhqwâ£

1. ...

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annullin
amending the decision of public respondent so that:

(a) the additional paragraph added by the public respondent to the DECISION of the lower court
be deleted;

(b) that private respondents be declared liable to petitioner for whatever amount the latter has pa
was declared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to R
Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the g
negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39, R

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whe
a person who has been granted a certificate of convenience allows another person who owns motors vehicl
operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred b
government . Abuse of this privilege by the grantees thereof cannot be countenanced. The "kabit system" has
Identified as one of the root causes of the prevalence of graft and corruption in the government transport
offices. In the words of Chief Justice Makalintal, 1 "this is a pernicious system that cannot be too severely condemned. It constitu
imposition upon the goo faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being con
to public policy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental prin
that the court will not aid either party to enforce an illegal contract, but will leave them both where it finds t
Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the pa
relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides: têñ.£îhqwâ£

ART. 1412. if the act in which the unlawful or forbidden cause consists does not constitute a cri
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 give
virtue of the contract, or demand the performance of the other's undertaking.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification o
prescription. As this Court said in Eugenio v. Perdido, 2 "the mere lapse of time cannot give efficacy to contracts
are null void."

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where com
law prevails. Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that no a
arises, in equity or at law, from an illegal contract; no suit can be maintained for its specific performance,
recover the property agreed to be sold or delivered, or damages for its property agreed to be sold or delivere
damages for its violation. The rule has sometimes been laid down as though it was equally universal, that wher
parties are in pari delicto, no affirmative relief of any kind will be given to one against the other." 3 Although ce
exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should n
applied in the instant case.

WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Ga
Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of First Instance of Manila and CA-G.R
59157-R entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises,

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Defendant-Appellant," of the Intermediate Appellate Court, as well as the decisions rendered therein are he
annuleled and set aside. No costs.

SO ORDERED. 1äwphï1.ñët

Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-He
Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.

Aquino, J., took no part.

Footnotes têñ.£îhqwâ£

1 Dizon v. Octavio, 51 O.G. 4059.

2 97 Phil. 41.

3 Pomeroy's Equity Jurisprudence, Vol. 3, 5th ed., p. 728.

The Lawphil Project - Arellano Law Foundation

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