[56] LITA ENTERPRISES, INC. v. SECOND CIVIL CASES DIVISION, INTERMEDIATE 4.
4. Possession, however, remained with the respondent spouses Ocampo
APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P. GARCIA
G.R. No. L-64693 | April 27, 1984 | Escolin, J.
Topic: Transportation Law; General Discussion; Kabit System
Ex pacto illicito non oritur actio" [No action arises out of an illicit bargain]
SUMMARY: Spouses bought five taxicabs. They don’t have a CPC. Therefore, they
went to Lita Enterprises so that they can operate their taxicabs under the later’s
trade name. When one of the cars figured in an accident and two were levied to pay
off the civil damages, the spouses sought to recover back the taxicabs. Lita
Enterprises refused to return them. The Court however held that those operating
under the guise of a ‘kabit system’ are in a void arrangement being contrary to
public policy. Since it found that both parties are in pari delicto, it would leave the
parties as they were and all prior decisions of the tc and iac ordering the return of
the taxicabs were annulled.
DOCTRINE: Although not outrightly penalized as a criminal offense, the "kabit
system" is contrary to public policy and, therefore, void and inexistent under
Article 1409 of the Civil Code. Where the parties are in pari delicto, no affirmative
relief of any kind will be given to one against the other.
FACTS:
1. Spouses Nicasio M. Ocampo and Francisca Garcia, herein private
respondents, purchased in installment five (5) Toyota Corona Standard
cars to be used as taxicabs.
2. Since they had no franchise to operate taxicabs, they contracted with
petitioner Lita Enterprises, Inc., for the use of the latter's certificate of
public convenience in consideration of an initial payment of P1,000.00
and a monthly rental of P200.00 per taxicab unit.
3. To effectuate the agreement, the aforesaid cars were registered in the
name of petitioner Lita Enterprises, Inc,
a. They have operated and maintained the taxicabs under the
name Acme Taxi, petitioner's trade name.
5. About a year later, one of said taxicabs driven by their employee collided
with a motorcycle and killed its driver.
6. A criminal case was eventually filed against the taxicab driver, while a civil
case for damages was instituted by the heir of the victim, against Lita
Enterprises, Inc., as registered owner of the taxicab
a. In the civil case, Lita Enterprises, Inc. was adjudged liable for
damages in the amount of P25,000.00 and P7,000.00 for
attorney's fees.
b. A writ of execution was issued and two of the vehicles were
levied and sold in an auction sale.
7. Thereafter, respondent Nicasio Ocampo decided to register his taxicabs
in his name.
8. He requested the manager of petitioner Lita Enterprises, Inc. to turn over
the registration papers to him, but the latter allegedly refused.
9. Hence, A complaint was filed against Lita Enterprises, Inc for
reconveyance of motor vehicles with damages
a. CFI ordered that Lita Enterprises, Inc. transfer the three cars not
levied to Sps. Ocampo
10. IAC would affirm the CFI but since the condition of the three Toyota rears
will no longer serve the purpose of the deed of conveyance because of
their deterioration, or because they are no longer serviceable, or because
they are no longer available, then Lita Enterprises, Inc. is ordered to pay
the [Ocampos] their fair market value
ISSUE AND RATIO:
W/N the Decision of the IAC ordering Lina Enterprises to pay respondent spouses
the FMV of the taxicabs was proper - NO. Parties are in pari delicto and the Court
shall not come into their aid.
1. [Definition] Kabit system - a person who has been granted a certificate
of convenience allows another person who owns motors vehicles to RULING:
operate under such franchise for a fee.
WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and
2. A certificate of public convenience is a special privilege conferred by the Francisca P. Garcia, Plaintiffs, versus Lita Enterprises, Inc., et al., Defendants" of the Court of
government . First Instance of Manila and CA-G.R. No. 59157-R entitled "Nicasio Ocampo and Francisca
3. The "kabit system" has been Identified as one of the root causes of the P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant," of the
Intermediate Appellate Court, as well as the decisions rendered therein are hereby
prevalence of graft and corruption in the government transportation
annuleled and set aside. No costs.
offices.
4. Although not outrightly penalized as a criminal offense, the "kabit SO ORDERED.

system" is contrary to public policy and, therefore, void and inexistent Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro,
Melencio-Herrera, Plana, Relova, Gutierrez, Jr. and De la Fuente, JJ., concur.
under Article 1409 of the Civil Code.
5. It is a fundamental principle that the court will not aid either party to Aquino, J., took no part.
enforce an illegal contract, but will leave them both where it finds them.
a. Upon this premise, it was flagrant error on the part of both the
trial and appellate courts to have accorded the parties relief from
their predicament.
b. The Court cited Art. 1412 which provides:
if the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the
following rules shall be observed;

(1) when the fault, is on the part of both contracting

parties, neither may recover what he has given by virtue
of the contract, or demand the performance of the
other's undertaking.
6. The defect of inexistence of a contract is permanent and incurable, and
cannot be cured by ratification or by prescription.
7. Pari delicto doctrine - no action arises, in equity or at law, from an illegal
contract; no suit can be maintained for its specific performance, or to
recover the property agreed to be sold or delivered, or damages for its
property agreed to be sold or delivered, or damages for its violation.
8. Where the parties are in pari delicto, no affirmative relief of any kind will
be given to one against the other.