LITA ENTERPRISES VS.

IAC (129 SCRA 464)

FACTS:

Spouses Nicasio Ocampo and Francisca Garcia (private respondents) purchased 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 Enterprise, Inc., through its representative Manuel
Concordia, for the use of the latter’s certificate of public convenience for a consideration
of P1, 000.00 and a monthly rental of P200.00/taxicab unit. For the agreement to take
effect, the cars were registered in the name of Lita Enterprises, Inc. The possession,
however, remains with spouses Ocampo and Garcia who operated and maintained the
same under Acme Taxi, petitioner’s trade name.

A year later, one of the taxicabs, driven by their employee, Emeterio Martin, collided
with a motorcycle. Unfortunately the driver of the motorcycle, Florante Galvez died from
the injuries it sustained.

Criminal case was filed against Emeterio Martin, while a civil case was filed by the heir
of the victim against Lita Enterprises. In the decision of the lower court Lita Enterprises
was held liable for damages for the amount of P25, 000.00 and P7, 000.00 for
attorney’s fees.

A writ of execution for the decision followed, 2 of the cars of the respondent’s spouses
were levied and were sold to a public auction.

On March 1973, respondent Ocampo decided to register his taxicabs in his own name.
The manager of petitioner refused to give him the registration papers. Thus, making
spouses file a complaint against petitioner. In the decision, Lita Enterprise was ordered
to return the three certificate of registration not levied in the prior case.

Petitioner now prays that private respondent be held liable to pay the amount they have
given to the heir of Galvez.

ISSUE:

Whether or not petitioner can recover from private respondent, knowing they are in an
arrangement known as “kabit system”.

HELD:

“Kabit system” is defined as, when a person who has been granted a certificate of
convenience allows another person who owns a motor vehicle to operate under such
franchise for a fee. This system is not penalized as a criminal offense but is recognized
as one that is against public policy; therefore it is void and inexistent.
It is fundamental that the court will not aid either of the party to enforce an illegal
contract, but will leave them both where it finds them. Upon this premise, it was flagrant
error on the part of both trial and appellate courts to have accorded the parties relief
from their predicament. Specifically Article 1412 states that:

“If the act in which the unlawful or forbidden cause consists does not constitute a
criminal offense, the following rules shall be observed: “when the fault, is on the part of
both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other’s undertaking.”

The principle of in pari delicto is evident in this case. “the proposition is universal that no
action arises, in equity or at law, from an illegal contract; no suit can be maintained for
its specific performance, or to recover the property agreed to sold or delivered, or
damages for its property agreed to be sold or delivered, or damages for its violation.”
The parties in this case are in pari delicto, therefore no affirmative relief can be granted
to them.

TEJA MARKETING V. IAC (GR L-65510, 9 March 1987)

FACTS:

On 9 May 1975, Pedro N. Nale bought from Teja Marketing (and/or Angel Jaucian) a
motorcycle with complete accessories and a sidecar in the total consideration of
P8,000.00 as shown by Invoice 144. Out of the total purchase price Nale gave a
downpayment of P1,700.00 with a promise that he would pay plaintiff the balance within
60 days. Nale, however, failed to comply with his promise and so upon his own request,
the period of paying the balance was extended to 1 year in monthly installments until
January 1976 when he stopped paying anymore. In this particular transaction a chattel
mortgage was constituted as a security for the payment of the balance of the purchase
price. The motorcycle sold to Nale was first mortgaged to the Teja Marketing by Angel
Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because it
was made to appear that way only as Nale had no franchise of his own and he attached
the unit to Teja Marketing’s MCH Line. The agreement was that Teja Marketing
undertakes the yearly registration of the motorcycle with the Land Transportation
Commission (LTC). Pursuant to the agreement and on 22 February 1976, Nale gave
Teja Marketing P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the
registration fee of the motorcycle. Teja Marketing, however, failed to register the
motorcycle on that year on the ground that Nale failed to comply with some
requirements such as the payment of the insurance premiums and the bringing of the
motorcycle to the LTC for stenciling. Further, although the ownership of the motorcycle
was already transferred to Nale the vehicle was still mortgaged with the consent of Nale
to the Rural Bank of Camaligan for the reason that all motorcycle purchased from Teja
Marketing on credit was rediscounted with the bank. Teja Marketing made demands for
the payment of the motorcycle but just the same Nale failed to comply, thus forcing Teja
Marketing to consult a lawyer and file an action for damage before the City Court of
Naga in the amount of P546.21 for attorney’s fees and P100.00 for expenses of
litigation. Teja Marketing also claimed that as of 20 February 1978, the total account of
Nale was already P2,731,05 as shown in a statement of account; includes not only the
balance of P1,700.00 but an additional 12% interest per annum on the said balance
from 26 January 1976 to 27 February 1978; a 2% service charge; and P546.21
representing attorney’s fees. On his part, Nale did not dispute the sale and the
outstanding balance of P1,700.00 still payable to Teja Marketing; but contends that
because of this failure of Teja Marketing to comply with his obligation to register the
motorcycle, Nale suffered damages when he failed to claim any insurance indemnity
which would amount to no less than P15,000.00 for the more than 2 times that the
motorcycle figured in accidents aside from the loss of the daily income of P15.00 as
boundary fee beginning October 1976 when the motorcycle was impounded by the LTC
for not being registered. The City Court rendered judgment in favor of Teja Marketing,
dismissing the counterclaim, and ordered Nale to pay Teja Marketing the sum of
P1,700.00 representing the unpaid balance of the purchase price with legal rate of
interest from the date of the filing of the complaint until the same is fully paid; the sum of
P546.21 as attorney’s fees; the sum of P200.00 as expenses of litigation; and the costs.

On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in
toto. Nale filed a petition for review with the Intermediate Appellate Court. On 18 July
1983, the appellate court set aside the decision under review on the basis of doctrine of
“pari delicto,” and accordingly, dismissed the complaint of Teja Marketing, as well as the
counterclaim of Nale; without pronouncements as to costs. Hence, the petition for
review was filed by Teja Marketing and/or Angel Jaucian.

The Supreme Court dismissed the petition for lack of merit; and affirmed the assailed
decision of the Intermediate Appellate Court (now the Court of Appeals); without costs.

ISSUE:

Whether the defendant can recover damages against the plaintiff?

HELD:

1. Nature of the kabit system

Herein, the parties 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.

2. Kabit system, although not penalized as a criminal offense, is contrary to

public policy
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.

3. Article 1412 NCC

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 that “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.”

4. Inexistent contract cannot be cured by ratification nor by prescription

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.

5. Ex pacto illicito non oritur actio

“‘Ex pacto illicito’ non oritur actio’ (No action arises out of illicit bargain) is the time-
honored maxim that must be applied to the parties in the present case. Having entered
into an illegal contract, neither can seekrelief from the courts, and each must bear the
consequences of his acts.” (Lita Enterprises vs. IAC, 129 SCRA 81.)

URBANO MAGBOO V. DELFIN BERNARDO 7 SCRA 952

FACTS:

Urbano and Emilia Magboo are the parents of Cesar Magboo, a child of 8 years old,
who lived with them and was under their custody until his death on 24 October 1956
when he was killed in a motor vehicle accident, the fatal vehicle being a passenger
jeepney with Plate AC-1963 (56) owned by Delfin Bernardo. At the time of the accident,
said passenger jeepney was driven by Conrado Roque. The contract between Roque
and Bernardo was that Roque was to pay to Bernardo the sum of P8.00, which he paid
to Bernardo, for privilege of driving the jeepney on 24 October 1956, it being their
agreement that whatever earnings Roque could make out of the use of the jeepney in
transporting passengers from one point to another in the City of Manila would belong
entirely to Roque. As a consequence of the accident and as a result of the death of
Cesar Magboo in said accident, Roque was prosecuted for homicide thru reckless
imprudence before the CDI of Manila (Criminal Case 37736), and that upon arraignment
Roque pleaded guilty to the information and was sentenced to 6 months of arresto
mayor, with the accessory penalties of the law; to indemnify the heirs of the deceased in
the sum of P3,000.00, with subsidiary imprisonment in case of insolvency, and to pay
the costs.
Pursuant to said judgment Roque served his sentence but he was not able to pay the
indemnity because he was insolvent.

An action was filed by the spouses Magboo against Bernardo is for enforcement of his
subsidiary liability as employer in accordance with Article 103, Revised Penal Code.
The trial court (CFI of Manila) ordered Bernardo to pay the spouses P3,000.00 and
costs. Bernardo appealed to the Court of Appeals, which certified the case to the
Supreme Court on the ground that only questions of law are involved.

The Supreme Court affirmed the judgment appealed from, with costs against Bernardo.

ISSUE:

Whether or not an employer-employee relationship between the jeepney operator and

the driver?

HELD:

Boundary system; Employer-Employee relationship exists; NLU vs. Dinglasan as

cited in Doce vs. WCC.
In National Labor Union vs. Dinglasan, 52 O.G. No. 4, 1933, it was held that the
features which characterize the “boundary system” — namely, the fact that the driver
does not receive a fixed wage but gets only the excess of the amount of fares collected
by him over the amount he pays to the jeep-owner, and that the gasoline consumed by
the jeep is for the account of the driver — are not sufficient to withdraw the relationship
between them from that of the employer and employee. The ruling was subsequently
cited and applied in Doce vs. Workmen’s Compensation Commission, L9417, 22
December 1958, which involved the liability of a bus owner for injury compensation to a
conductor working under the “boundary system.”

Principle applied in negligence cases concerning right of third parties to recover

damages for injuries sustained
The same principle applies with greater reason in negligence cases concerning the right
of third parties to recover damages for injuries sustained. In Montoya vs. Ignacio, L-
5868, December 29, 1953, the owner and operator of a passenger jeepney leased it to
another, but without the approval of the Public Service Commission. In a subsequent
collision a passenger died. The Court ruled that since the lease was made without such
approval, which was required by law, the owner continued to be the operator of the
vehicle in legal contemplation and as such was responsible for the consequences
incident to its operation. The same responsibility was held to attach in a case where the
injured party was not a passenger but a third person, who sued on the theory of culpa
aquiliana (Timbol vs. Osias, L-7547, April 30, 1955). There is no reason why a different
rule should be applied in a subsidiary liability case under Article 103 of the Revised
Penal Code. As in the existence of an employer-employee relationship between the
owner of the vehicle and the driver. Indeed to exempt from liability the owner of a public
vehicle who operates it under the “boundary system” on the ground that he is a mere
lessor would be not only to abet flagrant violations of the Public Service Law but also to
place the riding public at the mercy of reckless and irresponsible drivers — reckless
because the measure of their earnings depends largely upon the number of trips they
make and, hence, the speed at which they drive; and irresponsible because most if not
all of them are in no position to pay the damages they might cause. (See Erezo vs.
Jepte, L-9605, September 30, 1957).

3. Bernardo did not aid Roque in criminal case, cannot escape subsidiary liability
as provided by Article 103 RPC

With respect to Bernardo’s contention that he was taken unaware by the spontaneous
plea of guilt entered by Roque, and that he did not have a chance to prove the
innocence of Roque, the Court holds that at this stage, it is already too late to try the
criminal case all over again. His allegation that he relied on his belief that Roque would
defend himself and they had sufficient proof to show that Roque was not guilty of the
crime charged cannot be entertained. He should have taken it to himself to aid in the
defense of Roque. Having failed to take this step and the accused having been declared
guilty by final judgment of the crime of homicide thru reckless imprudence, there
appears no more way for him to escape his subsidiary liability as provided for in Article
103 of the Revised Penal Code.

AIR FRANCE VS CARRASCOSO (18 SCRA 155)

FACTS:

Plaintiff, a civil engineer, was a member of a group of 48 Filipino pilgrims that left Manila
for Lourdes on March 30, 1958.

On March 28, 1958, the defendant, Air France, through its authorized agent, Philippine
Air Lines, Inc., issued to plaintiff a "first class" round trip airplane ticket from Manila to
Rome. From Manila to Bangkok, plaintiff traveled in "first class", but at Bangkok, the
Manager of the defendant airline forced plaintiff to vacate the "first class" seat that he
was occupying because, in the words of the witness Ernesto G. Cuento, there was a
"white man", who, the Manager alleged, had a "better right" to the seat. When asked to
vacate his "first class" seat, the plaintiff, as was to be expected, refused, and told
defendant's Manager that his seat would be taken over his dead body; a commotion
ensued, and, according to said Ernesto G. Cuento, "many of the Filipino passengers got
nervous in the tourist class; when they found out that Mr. Carrascoso was having a hot
discussion with the white man [manager], they came all across to Mr. Carrascoso and
pacified Mr. Carrascoso to give his seat to the white man" and plaintiff reluctantly gave
his "first class" seat in the plane after being threatened that he will be thrown out of the
plane if he does not oblige. The captain of the plane, when asked to intervene, refused
to do so.

ISSUE:
Whether or not there was bad faith on the part of Air France, petitioner, entitling Rafael
Carrascoso, respondent for moral and exemplary damages as against the petitioner?

HELD:

The court held in favor of the respondent, Carrascoso.

The responsibility of an employer for the tortious act of its employees need not be
essayed. It is well settled in law. For the willful malevolent act of petitioner's manager,
petitioner, his employer, must answer.

A contract to transport passengers is quite different in kind and degree from any other
contractual relation. And this, because of the relation which an air-carrier sustains with
the public. Its business is mainly with the traveling public. It invites people to avail of the
comforts and advantages it offers. The contract of air carriage, therefore, generates a
relation attended with a public duty. Neglect or malfeasance of the carrier's employees,
naturally, could give ground for an action for damages.

Passengers do not contract merely for transportation. They have a right to be treated by
the carrier's employees with kindness, respect, courtesy and due consideration. They
are entitled to be protected against personal misconduct, injurious language, indignities
and abuses from such employees. So it is that any rule or discourteous conduct on the
part of employees towards a passenger gives the latter an action for damages against
the carrier.

The court held that the judgment of the Court of Appeals does not suffer from reversible
error. CA decision affirmed.

TIU VS. ARRIESGADO G.R. NO. 138060, SEPTEMBER 1, 2004

FACTS:

At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks
and General Merchandise" bearing plate number GBP-675 was loaded with firewood in
Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela,
Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The driver,
Sergio Pedrano, then parked along the right side of the national highway and removed
the damaged tire to have it vulcanized at a nearby shop, about 700 meters away.
Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and
instructed the latter to place a spare tire six fathoms away behind the stalled truck to
serve as a warning for oncoming vehicles. The trucks tail lights were also left on. It was
about 12:00 a.m., March 16, 1987.

At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven
by Virgilio Te Laspiñas was cruising along the national highway of Sitio Aggies,
Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and
had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses
Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of
the bus, about three (3) or four (4) places from the front seat.

As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then
about 25 meters away. He applied the breaks and tried to swerve to the left to avoid
hitting the truck. But it was too late; the bus rammed into the trucks left rear. The impact
damaged the right side of the bus and left several passengers injured. Pedro Arriesgado
lost consciousness and suffered a fracture in his right colles. His wife, Felisa, was
brought to the Danao City Hospital. She was later transferred to the Southern Island
Medical Center where she died shortly thereafter.

Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of

carriage, damages and attorneys fees before the Regional Trial Court of Cebu City,
Branch 20, against the petitioners, D Rough Riders bus operator William Tiu and his
driver, Virgilio Te Laspiñas on May 27, 1987. The respondent alleged that the
passenger bus in question was cruising at a fast and high speed along the national
road, and that petitioner Laspiñas did not take precautionary measures to avoid the
accident.

The petitioners, for their part, filed a Third-Party Complaint against the following:
respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s
insurer; respondent Benjamin Condor, the registered owner of the cargo truck; and
respondent Sergio Pedrano, the driver of the truck. They alleged that petitioner
Laspiñas was negotiating the uphill climb along the national highway of Sitio Aggies,
Poblacion, Compostela, in a moderate and normal speed. It was further alleged that the
truck was parked in a slanted manner, its rear portion almost in the middle of the
highway, and that no early warning device was displayed. Petitioner Laspiñas promptly
applied the brakes and swerved to the left to avoid hitting the truck head-on, but despite
his efforts to avoid damage to property and physical injuries on the passengers, the
right side portion of the bus hit the cargo truck’s left rear.

HELD:

The rules which common carriers should observe as to the safety of their passengers
are set forth in the Civil Code, Articles 1733, 1755and 1756. It is undisputed that the
respondent and his wife were not safely transported to the destination agreed upon. In
actions for breach of contract, only the existence of such contract, and the fact that the
obligor, in this case the common carrier, failed to transport his passenger safely to his
destination are the matters that need to be proved. This is because under the said
contract of carriage, the petitioners assumed the express obligation to transport the
respondent and his wife to their destination safely and to observe extraordinary
diligence with due regard for all circumstances. Any injury suffered by the passengers in
the course thereof is immediately attributable to the negligence of the carrier. Upon the
happening of the accident, the presumption of negligence at once arises, and it
becomes the duty of a common carrier to prove that he observed extraordinary
diligence in the care of his passengers. It must be stressed that in requiring the highest
possible degree of diligence from common carriers and in creating a presumption of
negligence against them, the law compels them to curb the recklessness of their
drivers. While evidence may be submitted to overcome such presumption of negligence,
it must be shown that the carrier observed the required extraordinary diligence, which
means that the carrier must show the utmost diligence of very cautious persons as far
as human care and foresight can provide, or that the accident was caused by fortuitous
event. As correctly found by the trial court, petitioner Tiu failed to conclusively rebut
such presumption. The negligence of petitioner Laspiñas as driver of the passenger bus
is, thus, binding against petitioner Tiu, as the owner of the passenger bus engaged as a
common carrier.