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TEJA Marketing v.

IAC (Celebrado)
G.R. No. L-65510 | March 9, 1987 | 2
Division | Paras, J.

Pedro Nale bought from Teja Marketing a motorcycle worth P8,000.00. Out of the total purchase
price, Nale gave a down-payment with a promise that he would pay Teja the balance within 60 days.
Nale failed to comply so upon his own request, the period of paying the balance was extended but he
still stopped paying. Teja made demands but to no avail.
The records of the Land Transportation Commission show that the motorcycle was first (chattel)
mortgaged to Teja by Angel Jaucian (though Teja and Jaucian are one and the same), because Nale
had no franchise of his own and he attached it to Tejas MCH Line. Teja also undertakes the yearly
registration of the motorcycle but failed to do so due to failure to comply with some requirements.
Nale purchased the motorcycle for the purpose of engaging and using the same in the transportation
business and for this purpose said trimobile unit was attached to Tejas transportation line who had
the franchise, so much so that in the registration certificate, the latter appears to be the owner of the
The IAC rendered a decision that they are in pari delicto, thus, reversing the damages awarded to

Whether or not they are in pari delicto. YES.

YES. The parties 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 inexistent under Art. 1409 CC. 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. Upon this premise it would be error to accord the parties relief from
their predicament. Art. 1412 CC denies them such aid.
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.