Teja Marketing v. Intermediate Appellate Court
REITERATIONFacts
The Antecedents: Pedro N. Nale (defendant) purchased a motorcycle with accessories and a sidecar from Teja Marketing and/or Angel Jaucian (plaintiff) for P8,000.00, with a downpayment of P1,700.00 and a promise to pay the balance within sixty days. The period was extended to one year in monthly installments, but Nale eventually stopped paying in January 1976. A chattel mortgage was constituted as security. The parties also agreed that the plaintiff would undertake the yearly registration of the motorcycle. Nale gave P90.00 for mortgage and registration fees for 1976 and insured the motorcycle. The plaintiff failed to register the motorcycle, citing Nale's alleged failure to comply with requirements and hiding the motorcycle. Nale claimed damages due to the failure to register, including inability to claim insurance indemnity and loss of daily income when the motorcycle was impounded. Nale also alleged the motorcycle was mortgaged to a bank without his consent. Procedural History: The plaintiff filed an action for Sum of Money with Damages. The City Court ruled in favor of the plaintiff, ordering Nale to pay the unpaid balance, interest, attorney's fees, and expenses of litigation. The Court of First Instance affirmed this decision. The Intermediate Appellate Court (IAC) set aside the decision, dismissing both the complaint and counterclaim, applying the doctrine of pari delicto due to the illegal 'kabit system' transaction. The Petition: Teja Marketing and/or Angel Jaucian filed a petition for review, questioning the IAC's application of the pari delicto doctrine.
Issue(s)
Whether the respondent court erred in applying the doctrine of 'pari delicto' in light of the 'kabit system' and its implications on contract enforceability and public policy.
Ruling
The petition is dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court is affirmed.
Ratio Decidendi
On the issue of applying the doctrine of 'pari delicto': The Supreme Court affirmed the Intermediate Appellate Court's decision, holding that the respondent court did not err in applying the doctrine of pari delicto. The Court found that the parties operated under the 'kabit system,' where a franchise holder allows another to operate under their franchise for a fee. This system was identified as contrary to public policy and therefore void and inexistent under Article 1409 of the Civil Code. The Court reiterated the time-honored maxim, "'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain), meaning that neither party can seek relief from the courts to enforce an illegal contract. Both parties must bear the consequences of their acts, as they are considered in pari delicto (in equal fault). The defect of inexistence of a contract is permanent and cannot be cured by ratification or prescription; the mere lapse of time cannot give efficacy to null and void contracts. Therefore, it was an error to accord the parties relief from their predicament, as Article 1412 of the Civil Code denies such aid when both parties are at fault. The Court emphasized that a certificate of public convenience is a special privilege, and its abuse through the 'kabit system' cannot be countenanced.
Main Doctrine
The 'kabit system,' being contrary to public policy, renders contracts entered into under such arrangement void and inexistent. Consequently, neither party can seek relief from the courts to enforce the illegal contract, as they are considered in pari delicto.