SECON

CI!IL CASES

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-64693 April 27, 1984 LITA ENTERPRISES, INC., petitioner, vs. I!ISION, INTERME IATE APPELLATE COURT, NICASIO M. OCAMPO "#$ %RANCISCA P. GARCIA, respondents.

Manuel A. Concordia for petitioner. Nicasio Ocampo for himself and on behalf of his correspondents. ESCOLIN, J.:+.wph!1 "Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain] is the tune honored !a"i! that !ust be applied to the parties in the case at bar. #aving entered into an illegal contract, neither can see$ relief fro! the courts, and each !ust bear the conse%uences of his acts. &he factual bac$ground of this case is undisputed. 'o!eti!e in ()**, the spouses Nicasio M. +ca!po and ,rancisca -arcia, herein private respondents, purchased in install!ent fro! the .elta Motor 'ales Corporation five /01 &o2ota Corona 'tandard cars to be used as ta"icabs. 'ince the2 had no franchise to operate ta"icabs, the2 contracted 3ith petitioner 4ita Enterprises, 5nc., through its representative, Manuel Concordia, for the use of the latter6s certificate of public convenience in consideration of an initial pa2!ent of P(,777.77 and a !onthl2 rental of P877.77 per ta"icab unit. &o effectuate 5d agree!ent, the aforesaid cars 3ere registered in the na!e of petitioner 4ita Enterprises, 5nc, Possession, ho3ever, re!ained 3ith tile spouses +ca!po 3ho operated and !aintained the sa!e under the na!e Ac!e &a"i, petitioner6s trade na!e. About a 2ear later, on March (9, ()*:, one of said ta"icabs driven b2 their e!plo2ee, E!eterio Martin, collided 3ith a !otorc2cle 3hose driver, one ,lorante -alve;, died fro! the head in<uries sustained therefro!. A cri!inal case 3as eventuall2 filed against the driver E!eterio Martin, 3hile a civil case for da!ages 3as instituted b2 Rosita 'ebastian =da. de -alve;, heir of the victi!, against 4ita Enterprises, 5nc., as registered o3ner of the ta"icab in the latter case, Civil Case No. :87*: of the Court of ,irst 5nstance of Manila, petitioner 4ita Enterprises, 5nc. 3as ad<udged liable for da!ages in the a!ount of P80,777.77 and P:,777.77 for attorne26s fees. &his decision having beco!e final, a 3rit of e"ecution 3as issued. +ne of the vehicles of respondent spouses 3ith Engine No. 8R )(>>:8 3as levied upon and sold at public auction for (8,(07.77 to one 'onnie Corte;, the highest bidder. Another car 3ith Engine No. 8R )(07?* 3as li$e3ise levied upon and sold at public auction for P9,777.77 to a certain Mr. 4ope;. &hereafter, in March ():?, respondent Nicasio +ca!po decided to register his ta"icabs in his na!e. #e re%uested the !anager of petitioner 4ita Enterprises, 5nc. to turn over the registration papers to hi!, but the latter allegedl2 refused. #ence, he and his 3ife filed a co!plaint against 4ita Enterprises, 5nc., Rosita 'ebastian =da. de -alve;, =isa2an 'uret2 @ 5nsurance Co. and the 'heriff of Manila for reconve2ance of !otor vehicles 3ith da!ages, doc$eted as Civil Case No. )7)99 of the Court of ,irst 5nstance of Manila. &rial on the !erits ensued and on Aul2 88, ():0, the said court rendered a decision, the dispositive portion of 3hich readsB t.h !" C#ERE,+RE, the co!plaint is hereb2 dis!issed as far as defendants Rosita 'ebastian =da. de -alve;, =isa2an 'uret2 @ 5nsurance Co!pan2 and the 'heriff of Manila are concerned. .efendant 4ita Enterprises, 5nc., is ordered to transfer the registration certificate of the three &o2ota cars not levied upon 3ith Engine Nos. 8R 8?778*, 8R *99:>7 and 8R 09099> [E"hs. A, B, C and .] b2 e"ecuting a deed of conve2ance in favor of the plaintiff. Plaintiff is, ho3ever, ordered to pa2 4ita Enterprises, 5nc., the rentals in arrears for the certificate of convenience fro! March ():? up to Ma2 ():? at the rate of P877 a !onth per unit for the three cars. /Anne" A, Record on Appeal, p. (78 (7?, Rollo1 Petitioner 4ita Enterprises, 5nc. !oved for reconsideration of the decision, but the sa!e 3as denied b2 the court a uo on +ctober 8:, ():0. /p. (8(, #bid.1 +n appeal b2 petitioner, doc$eted as CA -.R. No. 0)(0: R, the 5nter!ediate Appellate Court !odified the decision b2 including as part of its dispositive portion another paragraph, to 3itB t.h !" 5n the event the condition of the three &o2ota rears 3ill no longer serve the purpose of the deed of conve2ance because of their deterioration, or because the2 are no longer serviceable, or because the2 are no longer available, then 4ita Enterprises, 5nc. is ordered to pa2 the plaintiffs their fair !ar$et value as of Aul2 88, ():0. /Anne" D.D, p. (*:, Rollo.1 5ts first and second !otions for reconsideration having been denied, petitioner ca!e to Es, pra2ing thatB t.h !" (. ...

8. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or a!ending the decision of public respondent so thatB /a1 the additional paragraph added b2 the public respondent to the .EC5'5+N of the lo3er court /C,51 be deletedF /b1 that private respondents be declared liable to petitioner for 3hatever a!ount the latter has paid or 3as declared liable /in Civil Case No. :87*:1 of the Court of ,irst 5nstance of Manila to Rosita 'ebastian =da. de -alve;, as heir of the victi! ,lorante -alve;, 3ho died as a result ot the gross negligence of private respondents6 driver 3hile driving one private respondents6 ta"icabs. /p. ?), Rollo.1 En%uestionabl2, the parties herein operated under an arrange!ent, co!onl2 $no3n as the D$abit s2ste!D, 3hereb2 a person 3ho has been granted a certificate of convenience allo3s another person 3ho o3ns !otors vehicles to operate under such franchise for a fee. A certificate of public convenience is a special privilege conferred b2 the govern!ent . Abuse of this privilege b2 the grantees thereof cannot be countenanced. &he D$abit s2ste!D has been 5dentified as one of the root causes of the prevalence of graft and corruption in the govern!ent transportation offices. 5n the 3ords of Chief Austice Ma$alintal, 1 Dthis is a pernicious s2ste! that cannot be too severel2 conde!ned. 5t constitutes an i!position upon the goo faith of the govern!ent. Although not outrightl2 penali;ed as a cri!inal offense, the D$abit s2ste!D is invariabl2 recogni;ed as being contrar2 to public polic2 and, therefore, void and ine"istent under Article (>7) of the Civil Code, 5t is a funda!ental principle that the court 3ill not aid either part2 to enforce an illegal contract, but 3ill leave the! both 3here it finds the!. Epon this pre!ise, it 3as flagrant error on the part of both the trial and appellate courts to have accorded the parties relief fro! their predica!ent. Article (>(8 of the Civil Code denies the! such aid. 5t providesB t.h !" AR&. (>(8. if the act in 3hich the unla3ful or forbidden cause consists does not constitute a cri!inal offense, the follo3ing rules shall be observedF /(1 3hen the fault, is on the part of both contracting parties, neither !a2 recover 3hat he has given b2 virtue of the contract, or de!and the perfor!ance of the other6s underta$ing. &he defect of ine"istence of a contract is per!anent and incurable, and cannot be cured b2 ratification or b2 prescription. As this Court said in Eu$enio %. &erdido, 2 Dthe !ere lapse of ti!e cannot give efficac2 to contracts that are null void.D &he principle of in pari delicto is 3ell $no3n not onl2 in this <urisdiction but also in the Enited 'tates 3here co!!on la3 prevails. Ender A!erican <urisdiction, the doctrine is stated thusB D&he proposition is universal that no action arises, in e%uit2 or at la3, fro! an illegal contractF no suit can be !aintained for its specific perfor!ance, or to recover the propert2 agreed to be sold or delivered, or da!ages for its propert2 agreed to be sold or delivered, or da!ages for its violation. &he rule has so!eti!es been laid do3n as though it 3as e%uall2 universal, that 3here the parties are in pari delicto' no affir!ative relief of an2 $ind 3ill be given to one against the other.D 3 Although certain e"ceptions to the rule are provided b2 la3, Ce see no cogent reason 3h2 the full force of the rule should not be applied in the instant case. C#ERE,+RE, all proceedings had in Civil Case No. )7)99 entitled D Nicasio Ocampo and (rancisca &. )arcia' &laintiffs' %ersus *ita Enterprises' #nc.' et al.' +efendants" of the Court of ,irst 5nstance of Manila and CA -.R. No. 0)(0: R entitled D Nicasio Ocampo and (rancisca &. )arica' &laintiffs,Appellees' %ersus *ita Enterprises' #nc.' +efendant,Appellant'" of the 5nter!ediate Appellate Court, as 3ell as the decisions rendered therein are hereb2 annuleled and set aside. No costs. '+ +R.ERE..-.!ph/-.0t (eranando' C.1.' 2eehan3ee' Ma3asiar' Concepcion' 1r.' )uerrero' Abad 4antos' +e Castro' Melencio,5errera' &lana' 6elo%a' )utierre7' 1r. and +e la (uente' 11.' concur. A uino' 1.' too3 no part.

CASE DIGEST

%ACTS& +ca!po and -arcia G purchased in install!ent fro! the .elta Motor 'ales Corporation 0 &o2ota Corona 'tandard cars to be used as ta"icabsF the2 had no franchise to operate ta"icabs, so the2 contracted 3ith 4ita Enterprises for the use of the latterHs certificate of public convenience in consideration of an initial pa2!ent of (,777.77 and a !onthl2 rental of 877.77 per ta"icab unitF the aforesaid cars 3ere then registered in the na!e of 4ita Enterprises.

+ne of the ta"icabs driven b2 +ca!po and -arciaHs e!plo2ee, E!eterio Martin, collided 3ith a !otorc2cle 3hose driver, ,lorante -alve;, died fro! the head in<uries sustained therefro!. A cri!inal case 3as filed against the driver Martin, 3hile a civil case for da!ages 3as instituted b2 heir of the victi! against 4ita Enterprises. ISSUE& C+N 4ita Enterprises is liable to the heir of the victi! 3ho died as a result of the gross negligence of +ca!po and -arciaHs driver 3hile driving one private respondentHs ta"icabs 'EL & Ies. (")i* +,+*-. G s2ste! 3hereb2 a person 3ho has been granted a certificate of convenience allo3s another person 3ho o3ns !otors vehicles to operate under such franchise for a feeF contrar2 to public polic2 and, therefore, void and ine"istent under Article (>7) of the Civil CodeF as a result, the court 3ill not aid either part2 to enforce an illegal contract, but 3ill leave the! both 3here it finds the! /pari delicto rule1. Art. (>(8B J5f the act in 3hich the unla3ful or forbidden cause consists does not constitute a cri!inal offense, the follo3ing rules shall be observedF /(1 3hen the fault, is on the part of both contracting parties, neither !a2 recover 3hat he has given b2 virtue of the contract, or de!and the perfor!ance of the otherHs underta$ing.K &he defect of ine"istence of a contract is per!anent and incurable, and cannot be cured b2 ratification or b2 prescription.