GR L 64693; (April, 1984) (Digest)
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.
FACTS
The spouses Nicasio Ocampo and Francisca Garcia purchased five Toyota cars to operate as taxicabs but lacked a franchise. They entered into an agreement with Lita Enterprises, Inc. for the use of its certificate of public convenience, paying an initial fee and monthly rentals. The vehicles were registered under Lita Enterprises’ name, but the spouses retained possession and operated them under the trade name “Acme Taxi.” This arrangement constitutes the illegal “kabit system.”
In 1967, one taxicab, driven by the spouses’ employee, figured in a fatal accident. The victim’s heir filed a civil case for damages against Lita Enterprises as the registered owner. A final judgment held Lita Enterprises liable, leading to the levy and auction sale of two of the spouses’ vehicles to satisfy the award. Subsequently, the spouses filed a complaint to compel Lita Enterprises to reconvey the registration papers of the three remaining cars.
ISSUE
Whether the courts can grant relief to either party under an illegal “kabit system” contract.
RULING
No. The Supreme Court annulled the decisions of the lower courts, applying the maxim ex pacto illicito non oritur actio (no action arises from an illicit bargain). The “kabit system” is a pernicious practice contrary to public policy and is void under Article 1409 of the Civil Code. As an illegal contract, it suffers from the defect of inexistence, which is permanent and cannot be cured by ratification or prescription.
Both parties were in pari delicto (in equal fault). Under Article 1412(1) of the Civil Code, when both parties are at fault in an illegal contract that does not constitute a criminal offense, neither can recover what has been given nor demand performance of the undertaking. The fundamental judicial policy is to leave the parties where they are, without affording relief, to deter such illicit arrangements. Consequently, the trial court erred in ordering the reconveyance of vehicles, and the appellate court erred in modifying that judgment. All proceedings in the reconveyance case were set aside.