TEJA MARKETING AND/OR ANGEL JAUCIAN, PETITIONER, VS. HONORABLE INTERMEDIATE APPELLATE COURT AND PEDRO N. NALE, RESPONDENTS.

“‘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 case at bar.  Having entered into an illegal contract, neither
can seek relief from the courts, and each must bear the consequences of his
acts.” (Lita
Enterprises vs. IAC,
129 SCRA 81.)

The factual background of this case is undisputed. 
The same is narrated by the respondent court in its now assailed
decision, as follows:

“On May 9, 1975,
the defendant bought from the plaintiff a motorcycle with complete accessories
and a sidecar in the total consideration of P8,000.00
as shown by Invoice No. 144 (Exh. “A”). 
Out of the total purchase price the defendant gave a downpayment of P1,700.00
with a promise that he would pay plaintiff the balance within sixty
days.  The defendant, however, failed to comply with his
promise and so upon his own request, the period of paying the
balance was extended to one year in monthly installments until January 1976 when
he stopped paying anymore.  The plaintiff made demands
but just the same the defendant failed to comply with the same thus forcing the
plaintiff to consult a lawyer and file this
action for his damage in the amount of P546.21 for attorney’s fees and
P100.00 for expenses of litigation.  The plaintiff
also claims that as of February 20, 1978, the total account
of the defendant was already P2,731.05 as shown in a
statement of account (Exhibit “B”).  This amount includes not only
the balance of P1,700.00 but an additional 12% interest
per annum on the said balance from January 26, 1976 to February 27, 1978;
a 2% service charge; and P546.21 representing attorney’s
fees.

“In this particular transaction a chattel mortgage (Exhibit 1) was
constituted as a security for the payment of the balance of the purchase
price.  It has been the practice of financing firms that whenever
there is a balance of the purchase price the registration papers of the motor
vehicle subject of the sale are not given to the buyer.  The
records of the LTC 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. 
Pursuant to this agreement the defendant on February 22, 1976 gave the
plaintiff P90.00, the P8.00 would be for the mortgage fee and the P82.00 for the
registration fee of the motorcycle.  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 saying that the defendant was hiding
the motorcycle from him.  Lastly, the plaintiff explained also 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.

“On his part the defendant did not dispute the sale and the
outstanding balance of P1,700.00 still payable to the
plaintiff.  The defendant was persuaded to buy from the
plaintiff the motorcycle with the side car because of the condition that the
plaintiff would be the one to register every year the motorcycle with the Land
Transportation Commission.  In 1976, however, the plaintiff failed
to register both the chattel mortgage and the motorcycle with the LTC
notwithstanding the fact that the defendant gave him P90.00 for mortgage fee and
registration fee and had the motorcycle insured with La Perla Compana de Seguros (Exhibit “6”) as shown also by the Certificate of
cover (Exhibit “3”).  Because of this failure of the plaintiff to
comply with his obligation to register the motorcycle the defendant suffered
damages when he failed to claim any insurance indemnity which would amount to no
less than P15,000.00 for the more than two 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 defendant disputed the claim of the plaintiff that he was
hiding from the plaintiff the motorcycle resulting in its not being
registered.  The truth being that the motorcycle was being used for
transporting passengers and it kept on travelling from
one place to another.  The motor vehicle sold to him was mortgaged
by the plaintiff with the Rural Bank of Camaligan
without his consent and knowledge and the defendant was not even given a copy of
the mortgage deed.  The defendant claims that it is not true that
the motorcycle was mortgaged because of re-discounting for re-discounting is
only true with Rural Banks and the Central Bank.  The defendant
puts the blame on the plaintiff for not registering the motorcycle with the LTC
and for not giving him the registration papers inspite
of demands made.  Finally, the evidence of the defendant shows that
because of the filing of this case he was forced to retain the services of a
lawyer for a fee on not less than P1,000.00.

xxx

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xxx

“x x x it also
appears and the Court so finds that defendant purchased the motorcycle in
question, particularly for the purpose of engaging and using the same in the
transportation business and for this purpose said trimobile unit was
attached to the plaintiff’s transportation line who had the franchise, so much
so that in the registration certificate, the plaintiff appears to be the owner
of the unit.  Furthermore, it appears to have been
agreed, further between the plaintiff and the defendant, that plaintiff would
undertake the yearly registration of the unit in question with the LTC. 
Thus, for the registration of the unit for the year 1976, per agreement,
the defendant gave to the plaintiff the amount of P82.00 for its registration,
as well as the insurance coverage of the
unit.”

Eventually, petitioner Teja Marketing
and/or Angel Jaucian filed an action for “Sum of Money
with Damages” against private respondent Pedro N. Nale
in the City Court of Naga City. 
The City Court rendered judgment in favor of petitioner, the dispositive portion of which reads:

“WHEREFORE, decision is
hereby rendered dismissing the counterclaim and ordering the defendant to pay
plaintiff 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; to pay plaintiff the sum of P546.21 as attorney’s fees; to
pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the
costs.

“SO ORDERED.”

On appeal to the Court of First Instance of Camarines Sur, the decision was
affirmed in toto. 
Private respondent filed a petition for review with the Intermediate
Appellate Court and on July 18, 1983, the said Court promulgated its decision,
the pertinent portion of which reads —

“However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the private respondent
Jaucian, pursuant to what is commonly known as the
‘kabit system,’ without the prior approval of
the Board of Transportation (formerly the Public Service Commission) was an
illegal transaction involving the fictitious registration of the motor vehicle
in the name of the private respondent so that he may traffic with
the privileges of his franchise, or certificate of public
convenience, to operate a tricycle service, the parties being in pari
delicto, neither of them may bring an action
against the other to enforce their illegal contract [Art. 1412
(a), Civil Code].”

xxx

xxx

xxx

“WHEREFORE, the decision under review is hereby set aside. 
The complaint of respondent Teja Marketing and/or Angel Jaucian, as well as the counterclaim of petitioner Pedro
Nale in Civil Case No. 1153 of the Court of First
Instance of Camarines Sur
(formerly Civil Case No. 5856 of the City Court of Naga City) are dismissed.  No
pronouncement as to costs.

“SO
ORDERED.”

The decision is now before Us on a
petition for review, petitioner Teja Marketing and/or
Angel Jaucian presenting a lone assignment of error —
whether or not respondent court erred in applying the doctrine of “pari delicto.”

We find the petition devoid of merit.

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 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
then.  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:

“Art. 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 that he
has given by virtue of the contract, or demand, the
performance of the other’s undertaking.”

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.

WHEREFORE, the petition is hereby dismissed for lack of
merit.  The assailed decision of the Intermediate Appellate Court
(now the Court of Appeals) is AFFIRMED.  No costs.

SO
ORDERED.

Fernan, (Chairman), Gutierrez, Jr., Padilla, Bidin, and Cortes,
JJ., concur.

Alampay, J., no part.