TEJA MARKETING AND/OR ANGEL JAUCIAN v. IAC COURT and PEDRO NALE

TEJA MARKETING AND/OR ANGEL JAUCIAN v. IAC COURT and PEDRO NALE

G.R. No. 65510

March 9, 1987

J. PARAS

FACTS:

On May 9, 1975, Pedro Nale bought from the plaintiff a motorcycle with complete accessories and a sidecar in the total consideration of P8,000.00. Downpayment of P1,700.00 with a promise that he would pay the balance within 60 days. However, he 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. There was a chattel mortgage as a security, where it was made to show that it was sold to the Pedro was first mortgaged to the Teja Marketing by Angel Jaucian, though the Teja Marketing and Angel Jaucian are one and the same. It was made to appear that way because Pedro had no franchise of his own and he attached the unit to the plaintiff's MCH Line. Also, Teja Marketing/ Angel Jaucian was to undertake the yearly registration of the motorcycle. Lastly, the plaintiff explained also that though the ownership of the motorcycle was already transferred to the Pedro, 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.

Pedro does not deny the sale and its terms. He however claims that he was not hiding the motorcycle, as it was only being used for transporting passengers and it kept on travelling from one place to another. Also, the vehicle sold to him 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. Lastly, the plaintiff is to blame for not registering the motorcycle with the LTC and for not giving him the registration papers inspite of demands made. 

The lower court found that Pedro purchased the motorcycle particularly for the purpose of engaging and using the same in the transportation business. For this purpose the trimobile unit was attached to the plaintiffs 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, by both parties, 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.

CA on appeal held that the purchase for the said operation was commonly known as the "kabit system.” Without the prior approval of the Board of Transportation, it 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. Thus, parties in this case was in pari delicto.

ISSUE: WON the arrangement between the parties can be considered as a legal contract. NO

RULING:

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 in existent 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 both where it finds then. The defect of in existence 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.