158 - LITA ENTERPRISES, INC.,vs. IAC - 2

OBLIGATIONS AND CONTRACTS SLC-LAW
CASE 158: LITA ENTERPRISES, INC.,vs. IAC

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-64693 April 27, 1984
LITA ENTERPRISES, INC., petitioner,

vs.
SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA, respondents.
Manuel A. Concordia for petitioner.
Nicasio Ocampo for himself and on behalf of his correspondents.
ESCOLIN, J.: Plaintiff is, however, ordered to pay Lita Enterprises,

Inc., the rentals in arrears for the certificate of
convenience from March 1973 up to May 1973 at the
"Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is
rate of P200 a month per unit for the three cars.
the tune-honored maxim that must be applied to the parties in the case at
(Annex A, Record on Appeal, p. 102-103, Rollo)
bar. Having entered into an illegal contract, neither can seek relief from the
courts, and each must bear the consequences of his acts.
Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision,
but the same was denied by the court a quo on October 27, 1975. (p.
The factual background of this case is undisputed.
121, Ibid.)
Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia,

On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate
herein private respondents, purchased in installment from the Delta Motor
Appellate Court modified the decision by including as part of its dispositive
Sales Corporation five (5) Toyota Corona Standard cars to be used as
portion another paragraph, to wit:
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 In the event the condition of the three Toyota rears
consideration of an initial payment of P1,000.00 and a monthly rental of will no longer serve the purpose of the deed of
P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were conveyance because of their deterioration, or because
registered in the name of petitioner Lita Enterprises, Inc, Possession, they are no longer serviceable, or because they are no
however, remained with tile spouses Ocampo who operated and maintained longer available, then Lita Enterprises, Inc. is ordered
the same under the name Acme Taxi, petitioner's trade name. to pay the plaintiffs their fair market value as of July
22, 1975. (Annex "D", p. 167, Rollo.)
About a year later, on March 18, 1967, one of said taxicabs driven by their
employee, Emeterio Martin, collided with a motorcycle whose driver, one Its first and second motions for reconsideration having been denied,
Florante Galvez, died from the head injuries sustained therefrom. A criminal petitioner came to Us, praying that:
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
1. ...
the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in
the latter case, Civil Case No. 72067 of the Court of First Instance of Manila,
petitioner Lita Enterprises, Inc. was adjudged liable for damages in the 2. ... after legal proceedings, decision be rendered or
amount of P25,000.00 and P7,000.00 for attorney's fees. resolution be issued, reversing, annulling or amending
the decision of public respondent so that:
This decision having become final, a writ of execution was issued. One of the
vehicles of respondent spouses with Engine No. 2R-914472 was levied upon (a) the additional paragraph added by the public
and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest respondent to the DECISION of the lower court (CFI) be
bidder. Another car with Engine No. 2R-915036 was likewise levied upon and deleted;
sold at public auction for P8,000.00 to a certain Mr. Lopez.
(b) that private respondents be declared liable to
Thereafter, in March 1973, respondent Nicasio Ocampo decided to register petitioner for whatever amount the latter has paid or
his taxicabs in his name. He requested the manager of petitioner Lita was declared liable (in Civil Case No. 72067) of the
Enterprises, Inc. to turn over the registration papers to him, but the latter Court of First Instance of Manila to Rosita Sebastian
allegedly refused. Hence, he and his wife filed a complaint against Lita Vda. de Galvez, as heir of the victim Florante Galvez,
Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance who died as a result ot the gross negligence of private
Co. and the Sheriff of Manila for reconveyance of motor vehicles with respondents' driver while driving one private
damages, docketed as Civil Case No. 90988 of the Court of First Instance of respondents' taxicabs. (p. 39, Rollo.)
Manila. Trial on the merits ensued and on July 22, 1975, the said court
rendered a decision, the dispositive portion of which reads: Unquestionably, the parties herein operated under an arrangement, comonly
known as the "kabit system", whereby a person who has been granted a
WHEREFORE, the complaint is hereby dismissed as far certificate of convenience allows another person who owns motors vehicles
as defendants Rosita Sebastian Vda. de Galvez, Visayan to operate under such franchise for a fee. A certificate of public convenience
Surety & Insurance Company and the Sheriff of Manila is a special privilege conferred by the government . Abuse of this privilege by
are concerned. 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
Defendant Lita Enterprises, Inc., is ordered to transfer
Makalintal, 1 "this is a pernicious system that cannot be too severely
the registration certificate of the three Toyota cars not
condemned. It constitutes an imposition upon the goo faith of the
levied upon with Engine Nos. 2R-230026, 2R-688740
government.
and 2R-585884 [Exhs. A, B, C and D] by executing a
deed of conveyance in favor of the plaintiff.
Although not outrightly penalized as a criminal offense, the "kabit system" is
invariably recognized as being contrary to public policy and, therefore, void
Page 1 of 2 © MALENAB
OBLIGATIONS AND CONTRACTS SLC-LAW
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:
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 what 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 incurable, and

cannot be cured by ratification or by prescription. As this Court said
in Eugenio v. Perdido, 2 "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." 3 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.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio
Ocampo and Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al.,
Defendants" of the Court of First Instance of Manila and CA-G.R. No. 59157-R
entitled "Nicasio Ocampo and Francisca P. Garica, Plaintiffs-Appellees, versus
Lita Enterprises, Inc., Defendant-Appellant," of the Intermediate Appellate
Court, as well as the decisions rendered therein are hereby annuleled and set
aside. No costs.
SO ORDERED.
Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad

Santos, De Castro, Melencio-Herrera, Plana, Relova, Gutierrez, Jr. and De la
Fuente, JJ., concur.
Aquino, J., took no part.
Page 2 of 2 © MALENAB

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OBLIGATIONS AND CONTRACTS SLC-LAW

CASE 158: LITA ENTERPRISES, INC.,vs. IAC

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

LITA ENTERPRISES, INC., petitioner,

Manuel A. Concordia for petitioner.

Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J.: Plaintiff is, however, ordered to pay Lita Enterprises,

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia,

ART. 1412. if the act in which the unlawful or forbidden

(1) when the fault, is on the part of both contracting

The defect of inexistence of a contract is permanent and incurable, and

Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad

Aquino, J., took no part.

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