Teja Marketing vs.

IAC
148 SCRA 347

Nature:
Petition for review. Petitioner Teja Marketing and/or Angel Jaucian presenting a lone assignment of error — whether
or not respondent court erred in applying the doctrine of "pari delicto

Facts:
Respondent purchased from petitioner a tiyajle. Such tiyalje amounted to a total value of P800. Respondent was
able to pay the purchase price but however left a balance of P1, 700. Subsequently, a chattel mortgage was
executed over the said balance. It was found by the court that the defendant purchased the motorcycle for the
purpose of engaging and using the same for transportation business. To be able to use the vehicle, the tricycle was
attached to the plaintiff’s transportation line, which had the franchise. In effect, the registration certificate is under
petitioner’s name. It appeared that they agreed that the petitioner would undertake the yearly registration of the
unit in the Land Transportation Commission.

Issue:
Whether or not relief may be granted to any of the parties.

Held:
The Supreme Court held that neither of the two parties are entitled for relief. Both parties have entered into an illegal
contract, thus no action arises out from any illicit transaction. The parties operated under an agreement known as
the “Kabit System”. Such system operates when a person who has been granted a certificate of public convenience
allows another person who owns a motor vehicle to operate under such franchise for a fee. A certificate of public
convenience is a special privilege which cannot be countenanced. This illegitimate arrangement has been recognized
as one of the root causes of the frequency of graft and corruption in the government transportation affairs. It is
declared void it being against public policy. It is a fundamental principle that the court will not aid either party to
enforce an illegal contract and will leave both where it finds them. The defects of the contract are permanent and
cannot be ratified. Thus, both parties are culpable of their illicit indenture.