1/14/2017 G.R.No.

L64693

TodayisSaturday,January14,2017

RepublicofthePhilippines
SUPREMECOURT
Manila

ENBANC

G.R.No.L64693April27,1984

LITAENTERPRISES,INC.,petitioner,
vs.
SECONDCIVILCASESDIVISION,INTERMEDIATEAPPELLATECOURT,NICASIOM.OCAMPOand
FRANCISCAP.GARCIA,respondents.

ManuelA.Concordiaforpetitioner.

NicasioOcampoforhimselfandonbehalfofhiscorrespondents.

ESCOLIN,J.: + . w p h !1

"Expactoillicitononorituractio"[Noactionarisesoutofanillicitbargain]isthetunehonoredmaximthatmustbe
appliedtothepartiesinthecaseatbar.Havingenteredintoanillegalcontract,neithercanseekrelieffromthe
courts,andeachmustbeartheconsequencesofhisacts.

Thefactualbackgroundofthiscaseisundisputed.

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents,
purchasedininstallmentfromtheDeltaMotorSalesCorporationfive(5)ToyotaCoronaStandardcarstobeused
astaxicabs.Sincetheyhadnofranchisetooperatetaxicabs,theycontractedwithpetitionerLitaEnterprises,Inc.,
through its representative, Manuel Concordia, for the use of the latter's certificate of public convenience in
considerationofaninitialpaymentofP1,000.00andamonthlyrentalofP200.00pertaxicabunit.ToeffectuateId
agreement, the aforesaid cars were registered in the name of petitioner Lita Enterprises, Inc, Possession,
however, remained with tile spouses Ocampo who operated and maintained the same under the name Acme
Taxi,petitioner'stradename.

Aboutayearlater,onMarch18,1967,oneofsaidtaxicabsdrivenbytheiremployee,EmeterioMartin,collided
withamotorcyclewhosedriver,oneFloranteGalvez,diedfromtheheadinjuriessustainedtherefrom.Acriminal
case was eventually filed against the driver Emeterio Martin, while a civil case for damages was instituted by
Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises, Inc., as registered owner of the
taxicabinthelattercase,CivilCaseNo.72067oftheCourtofFirstInstanceofManila,petitionerLitaEnterprises,
Inc.wasadjudgedliablefordamagesintheamountofP25,000.00andP7,000.00forattorney'sfees.

Thisdecisionhavingbecomefinal,awritofexecutionwasissued.Oneofthevehiclesofrespondentspouseswith
Engine No. 2R914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the
highest bidder. Another car with Engine No. 2R915036 was likewise levied upon and sold at public auction for
P8,000.00toacertainMr.Lopez.

Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He
requestedthemanagerofpetitionerLitaEnterprises,Inc.toturnovertheregistrationpaperstohim,butthelatter
allegedlyrefused.Hence,heandhiswifefiledacomplaintagainstLitaEnterprises,Inc.,RositaSebastianVda.de
Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of motor vehicles with
damages,docketedasCivilCaseNo.90988oftheCourtofFirstInstanceofManila.Trialonthemeritsensued
andonJuly22,1975,thesaidcourtrenderedadecision,thedispositiveportionofwhichreads: t . h q w

WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de
Galvez,VisayanSurety&InsuranceCompanyandtheSheriffofManilaareconcerned.

DefendantLitaEnterprises,Inc.,isorderedtotransfertheregistrationcertificateofthethreeToyota
carsnotlevieduponwithEngineNos.2R230026,2R688740and2R585884[Exhs.A,B,CandD]
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byexecutingadeedofconveyanceinfavoroftheplaintiff.

Plaintiffis,however,orderedtopayLitaEnterprises,Inc.,therentalsinarrearsforthecertificateof
convenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three
cars.(AnnexA,RecordonAppeal,p.102103,Rollo)

PetitionerLitaEnterprises,Inc.movedforreconsiderationofthedecision,butthesamewasdeniedbythecourta
quoonOctober27,1975.(p.121,Ibid.)

On appeal by petitioner, docketed as CAG.R. No. 59157R, the Intermediate Appellate Court modified the
decisionbyincludingaspartofitsdispositiveportionanotherparagraph,towit: t . h q w

IntheeventtheconditionofthethreeToyotarearswillnolongerservethepurposeofthedeedof
conveyance because of their deterioration, or because they are no longer serviceable, or because
they are no longer available, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair
marketvalueasofJuly22,1975.(Annex"D",p.167,Rollo.)

Itsfirstandsecondmotionsforreconsiderationhavingbeendenied,petitionercametoUs,prayingthat: t . h q w

1....

2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or
amendingthedecisionofpublicrespondentsothat:

(a) the additional paragraph added by the public respondent to the DECISION of the lower court
(CFI)bedeleted

(b)thatprivaterespondentsbedeclaredliabletopetitionerforwhateveramountthelatterhaspaid
or was declared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita
Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died as a result ot the gross
negligence of private respondents' driver while driving one private respondents' taxicabs. (p. 39,
Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system",
whereby a person who has been granted a certificate of convenience allows another person who owns motors
vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege
conferredbythegovernment.Abuseofthisprivilegebythegranteesthereofcannotbecountenanced.The"kabit
system"hasbeenIdentifiedasoneoftherootcausesoftheprevalenceofgraftandcorruptioninthegovernment
transportationoffices.InthewordsofChiefJusticeMakalintal,1"thisisapernicioussystemthatcannotbetooseverelycondemned.
Itconstitutesanimpositionuponthegoofaithofthegovernment.

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
fundamentalprinciplethatthecourtwillnotaideitherpartytoenforceanillegalcontract,butwillleavethemboth
whereitfindsthem.Uponthispremise,itwasflagranterroronthepartofboththetrialandappellatecourtsto
have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It
provides: t . h q w

ART.1412.iftheactinwhichtheunlawfulorforbiddencauseconsistsdoesnotconstituteacriminal
offense,thefollowingrulesshallbeobserved

(1)whenthefault,isonthepartofbothcontractingparties,neithermayrecoverwhathehasgiven
byvirtueofthecontract,ordemandtheperformanceoftheother'sundertaking.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by
prescription.AsthisCourtsaidinEugeniov.Perdido,2"themerelapseoftimecannotgiveefficacytocontractsthat
arenullvoid."

The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where
commonlawprevails.UnderAmericanjurisdiction,thedoctrineisstatedthus:"Thepropositionisuniversalthat
no action arises, in equity or at law, from an illegal contract no suit can be maintained for its specific
performance,ortorecoverthepropertyagreedtobesoldordelivered,ordamagesforitspropertyagreedtobe
soldordelivered,ordamagesforitsviolation.Therulehassometimesbeenlaiddownasthoughitwasequally
universal,thatwherethepartiesareinparidelicto,noaffirmativereliefofanykindwillbegiventooneagainstthe
other."3Althoughcertainexceptionstotheruleareprovidedbylaw,Weseenocogentreasonwhythefullforceoftherule
shouldnotbeappliedintheinstantcase.

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WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia,
Plaintiffs,versusLitaEnterprises,Inc.,etal.,Defendants"oftheCourtofFirstInstanceofManilaandCAG.R.No.
59157R entitled "Nicasio Ocampo and Francisca P. Garica, PlaintiffsAppellees, versus Lita Enterprises, Inc.,
DefendantAppellant,"oftheIntermediateAppellateCourt,aswellasthedecisionsrenderedthereinarehereby
annuleledandsetaside.Nocosts.

SOORDERED. 1 w p h 1 . t

Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, MelencioHerrera,
Plana,Relova,Gutierrez,Jr.andDelaFuente,JJ.,concur.

Aquino,J.,tooknopart.

Footnotes t . h q w

1Dizonv.Octavio,51O.G.4059.

297Phil.41.

3Pomeroy'sEquityJurisprudence,Vol.3,5thed.,p.728.

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