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


Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installment from the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had no franchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia, for the use of the latter’s certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthly rental of P200.00 per taxicab unit. To effectuate Id 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’s trade name.About a year later one of said taxicabs driven by their employee, Emeterio Martin, collided with a motorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal 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 taxicab in the latter case. Petitioner Lita Enterprises, Inc. was adjudged liable for damages by the CFI.This decision having become final, a writ of execution was issued. Two of the vehicles of respondent spouses were levied upon and sold at public auction.Thereafter, Nicasio Ocampo decided to register his taxicabs in his name. He requested the manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Mrs. de Galvez and the Sheriff of Manila for reconveyance of motor vehicles with damages.


Whether or not petitioner has a cause of action against defendants.



Unquestionably, the parties herein operated under an arrangement, commonly 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 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. In the words of Chief Justice Makalintal, “this is a pernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the government.

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 them both where it finds them. Upon this premise, it was flagrant error on the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides,Article 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 what he has given by virtue of the contract, or demand the performance of the other’s undertaking.Having entered into an illegal contract, neither can seek relief from the courts, and each must bear the consequences of his acts.The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this Court said in Eugenio v. Perdido, “the mere lapse of time cannot give efficacy to contracts that are null void.”The principle of in pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails. Under American jurisdiction, the doctrine is stated thus: “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 be sold or delivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes been laid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be given to one against the other.” Although certain exceptions to the rule are provided by law, We see no cogent reason why the full force of the rule should not be applied in the instant case.

* Case digest by Jan Robert M. Corre, LLB-4, Andres Bonifacio Law School, SY 2018-2019