G.R. No. L-65510, 9 March 1987, 148 SCRA 347


Pedro Nale bought from Teja Marketing a motorcycle with complete accessories and a sidecar. A chattel mortgage was constituted as a security for the payment of the balance of the purchase price. The records of the Land Transportation Commission show that the motorcycle sold to the defendant 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 the defendant had no franchise of his own and he attached the unit to the plaintiff’s MCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearly registration of the motorcycle with the Land Transportation Commission. The plaintiff, however failed to register the motorcycle on that year on the ground that the defendant 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, the plaintiff said that the defendant was hiding the motorcycle from him. Lastly, the plaintiff also explained that 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 for the reason that all motorcycle purchased from the plaintiff 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 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.


Whether the defendant can recover damages against the plaintiff?


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 out rightly penalized as a criminal offense, the kabit system is invariably recognized as being contrary to public policy and, therefore, void and in existent 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 then. Upon this premise it would be error to accord the parties relief from their predicament.

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