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Republic of the PhilippinesSUPREME COURT

ManilaSECOND DIVISION

G.R. No. L-65510 March 9, 1987

TEJA MARKETING AND/OR ANGEL JAUCIAN, petitioner,vs.HONORABLE INTERMEDIATE APPELLATE COURT * AND PEDRO N. NALE, respondents.Cirilo A. Diaz, Jr. for petitioner.Henry V. Briguera for private respondent.

PARAS, J .:"'Ex pacto illicito' non oritur actio" (No action arises out of illicit bargain) is the time-honored maxim that must be applied to theparties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear theconsequences of his acts." (Lita Enterprises vs. IAC, 129 SCRA 81.)

The factual background of this case is undisputed. The same is narrated by the respondent court in its now assailed decision, asfollows:

On May 9, 1975, the defendant bought from the plaintiff a motorcycle with complete accessories and a sidecarin the total consideration of P8,000.00 as shown by Invoice No. 144 (Exh. "A"). Out of the total purchase pricethe defendant gave a downpayment of P1,700.00 with a promise that he would pay plaintiff the balance withinsixty days. The defendant, however, failed to comply with his promise and so upon his own request, the periodof paying the balance was extended to one year in monthly installments until January 1976 when he stoppedpaying anymore. The plaintiff made demands but just the same the defendant failed to comply with the samethus forcing the plaintiff to consult a lawyer and file this action for his damage in the amount of P546.21 for

attorney's fees and P100.00 for expenses of litigation. The plaintiff also claims that as of February 20, 1978, thetotal account of the defendant was already P2,731.06 as shown in a statement of account (Exhibit. "B"). Thisamount includes not only the balance of P1,700.00 but an additional 12% interest per annum on the saidbalance from January 26, 1976 to February 27, 1978; a 2% service charge; and P 546.21 representingattorney's fees.In this particular transaction a chattel mortgage (Exhibit 1) was constituted as a security for the payment of thebalance of the purchase price. It has been the practice of financing firms that whenever there is a balance ofthe purchase price the registration papers of the motor vehicle subject of the sale are not given to the buyer.The records of the LTC show that the motorcycle sold to the defendant was first mortgaged to the TejaMarketing by Angel Jaucian though the Teja Marketing and Angel Jaucian are one and the same, because itwas made to appear that way only as the defendant had no franchise of his own and he attached the unit to theplaintiff's MCH Line. The agreement also of the parties here was for the plaintiff to undertake the yearlyregistration of the motorcycle with the Land Transportation Commission. Pursuant to this agreement thedefendant on February 22, 1976 gave the plaintiff P90.00, the P8.00 would be for the mortgage fee and the

P82.00 for the registration fee of the motorcycle. The plaintiff, however failed to register the motorcycle on thatyear on the ground that the defendant failed to comply with some requirements such as the payment of theinsurance premiums and the bringing of the motorcycle to the LTC for stenciling, the plaintiff saying that thedefendant was hiding the motorcycle from him. Lastly, the plaintiff explained also that though the ownership ofthe motorcycle was already transferred to the defendant the vehicle was still mortgaged with the consent of thedefendant to the Rural Bank of Camaligan for the reason that all motorcycle purchased from the plaintiff oncredit was rediscounted with the bank.On his part the defendant did not dispute the sale and the outstanding balance of P1,700. 00 still payable to theplaintiff. The defendant was persuaded to buy from the plaintiff the motorcycle with the side car because of thecondition that the plaintiff would be the one to register every year the motorcycle with the Land TransportationCommission. In 1976, however, the plaintfff failed to register both the chattel mortgage and the motorcycle withthe LTC notwithstanding the fact that the defendant gave him P90.00 for mortgage fee and registration fee andhad the motorcycle insured with La Perla Compana de Seguros (Exhibit "6") as shown also by the Certificate ofcover (Exhibit "3"). Because of this failure of the plaintiff to comply with his obligation to register the motorcycle

the defendant suffered damages when he failed to claim any insurance indemnity which would amount to noless than P15,000.00 for the more than two times that the motorcycle figured in accidents aside from the loss ofthe daily income of P15.00 as boundary fee beginning October 1976 when the motorcycle was impounded bythe LTC for not being registered.The defendant disputed the claim of the plaintiff that he was hiding from the plaintiff the motorcycle resulting inits not being registered. The truth being that the motorcycle was being used for transporting passengers and itkept on travelling from one place to another. The motor vehicle sold to him was mortgaged by the plaintiff withthe Rural Bank of Camaligan without his consent and knowledge and the defendant was not even given a copyof the mortgage deed. The defendant claims that it is not true that the motorcycle was mortgaged because ofre-discounting for rediscounting is only true with Rural Banks and the Central Bank. The defendant puts theblame on the plaintiff for not registering the motorcycle with the LTC and for not giving him the registrationpapers inspite of demands made. Finally, the evidence of the defendant shows that because of the filing of thiscase he was forced to retain the services of a lawyer for a fee on not less than P1,000.00.

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xxx xxx xxx

... it also appears and the Court so finds that defendant purchased the motorcycle in question, particularly forthe purpose of engaging and using the same in the transportation business and for this purpose said trimobileunit was attached to the plaintiffs transportation line who had the franchise, so much so that in the registrationcertificate, the plaintiff appears to be the owner of the unit. Furthermore, it appears to have been agreed,further between the plaintiff and the defendant, that plaintiff would undertake the yearly registration of the unit inquestion with the LTC. Thus, for the registration of the unit for the year 1976, per agreement, the defendantgave to the plaintiff the amount of P82.00 for its registration, as well as the insurance coverage of the unit.

Eventually, petitioner Teja Marketing and/or Angel Jaucian filed an action for "Sum of Money with Damages" against privaterespondent Pedro N. Nale in the City Court of Naga City. The City Court rendered judgment in favor of petitioner, the dispositive

portion of which reads:WHEREFORE, decision is hereby rendered dismissing the counterclaim and ordering the defendant to payplaintiff the sum of P1,700.00 representing the unpaid balance of the purchase price with legal rate of interestfrom the date of the filing of the complaint until the same is fully paid; to pay plaintiff the sum of P546.21 asattorney's fees; to pay plaintiff the sum of P200.00 as expenses of litigation; and to pay the costs.SO ORDERED.

On appeal to the Court of First Instance of Camarines Sur, the decision was affirmed in toto. Private respondent filed a petitionfor review with the Intermediate Appellate Court and on July 18, 1983 the said Court promulgated its decision, the pertinentportion of which reads

However, as the purchase of the motorcycle for operation as a trimobile under the franchise of the privaterespondent Jaucian, pursuant to what is commonly known as the "kabit system", without the prior approval ofthe Board of Transportation (formerly the Public Service Commission) was an illegal transaction involving thefictitious registration of the motor vehicle in the name of the private respondent so that he may traffic with theprivileges of his franchise, or certificate of public convenience, to operate a tricycle service, the parties being in

pari delicto, neither of them may bring an action against the other to enforce their illegal contract [Art. 1412 (a),Civil Code].xxx xxx xxx

WHEREFORE, the decision under review is hereby set aside. The complaint of respondent Teja Marketingand/or Angel Jaucian, as well as the counterclaim of petitioner Pedro Nale in Civil Case No. 1153 of the Courtof First Instance of Camarines Sur (formerly Civil Case No. 5856 of the City Court of Naga City) are dismissed.No pronouncement as to costs.SO ORDERED.

The decision is now before Us on a petition for review, petitioner Teja Marketing and/or Angel Jaucian presenting a loneassignment of error whether or not respondent court erred in applying the doctrine of "pari delicto."We find the petition devoid of merit.Unquestionably, the parties herein operated under an arrangement, commonly known as the "kabit system" whereby a personwho has been granted a certificate of public convenience allows another person who owns motor vehicles to operate under suchfranchise 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 theprevalence 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 publicpolicy and, therefore, void and in existent under Article 1409 of the Civil Code. It is a fundamental principle that the court will notaid either party to enforce an illegal contract, but will leave both where it finds then. Upon this premise it would be error to accordthe parties relief from their predicament. Article 1412 of the Civil Code denies them such aid. It provides:

Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, thefollowing rules shall be observed:1. When the fault is on the part of both contracting parties, neither may recover that he has given by virtue ofthe contract, or demand, the performance of the other's undertaking.

The defect of in existence of a contract is permanent and cannot be cured by ratification or by prescription. The mere lapse oftime cannot give efficacy to contracts that are null and void.

WHEREFORE, the petition is hereby dismissed for lack of merit. The assailed decision of the Intermediate Appellate Court (nowthe Court of Appeals) is AFFIRMED. No costs.

SO ORDERED.Fernan (Chairman), Gutierrez, Jr., Padilla, Bidin and Cortez, JJ., concur.Alampay, J., took no part.

Republic of the PhilippinesSUPREME COURT

ManilaFIRST DIVISION

G.R. No. L-26815 May 26, 19810ADOLFO L. SANTOS, petitioner,vs.ABRAHAM SIBUG and COURT OF APPEALS, respondents.

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MELENCIO-HERRERA, J .:1wph1.tThe controversy in this case will be resolved on the basis of the following facts and expositions. Prior to April 26, 1963 (theACCIDENT DATE), Vicente U. Vidad (VIDAD, for short) was a duly authorized passenger jeepney operator. Also prior to theACCIDENT DATE, petitioner Adolfo L. Santos (SANTOS, for short) was the owner of a passenger jeep, but he had no certificateof public convenience for the operation of the vehicle as a public passenger jeep. SANTOS then transferred his jeep to the nameof VIDAD so that it could be operated under the latter's certificate of public convenience. ln other words, SANTOS became whatis known in ordinary parlance as akabitoperator. For the protection of SANTOS, VIDAD executed a re-transfer document to theformer, which was to be a private document presumably to be registered if and where it was decided that the passenger jeep ofSANTOS was to be withdrawn from the kabitarrangement.

On the ACCIDENT DATE, private respondent Abraham Sibug (SIBUG for short) was bumped by a passenger jeepney operated

by VIDAD and driven by Severe Gragas. As a result thereof, SIBUG filed a complaint for damages against VIDAD and Gragaswith the Court of First Instance of Manila, Branch XVII, then presided by Hon. Arsenic Solidum. That Civil Case will hereinafterbe referred to as the BRANCH XVII CASE.On December 5, 1963, a judgment was rendered by Branch XVII, sentencing VIDAD and Gragas, jointly and severally, to paySIBUG the sums of P506.20 as actual damages; P3,000.00 as moral damages; P500.00 as attorney's fees, and costs. 1On April 10, 1964, the Sheriff of Manila levied on a motor vehicle, with Plate No. PUJ-343-64, registered in the name of VIDAD,and scheduled the public auction sale thereof on May 8,1964.On April 11, 1964, SANTOS presented a third-party claim with the Sheriff alleging actual ownership of the motor vehicle leviedupon, and stating that registration thereof in the name of VIDAD was merely to enable SANTOS to make use of VIDAD'SCertificate of Public Convenience. After the third-party complaint was filed, SIBUG submitted to the Sheriff a bond issued by thePhilippine Surety Insurance Company (THE BONDING COMPANY, for short), To save the Sheriff from liability if he were toproceed with the sale and if SANTOS' third-party claim should be ultimately upheld.On April 22, 1964, that is, before the scheduled sale of May 8, 1964, SANTOS instituted an action for Damages and injunctionwith a prayer for Preliminary Mandatory Injunction against SIBUG; VIDAD; and the Sheriff in Civil Case No. 56842 ofBranch X,

of the same Court of First Instance of Manila (hereinafter referred to as the BRANCH X CASE). The complaint was lateramended to include the BONDING COMPANY as a party defendant although its bond had not become effective. ln theComplaint, SANTOS alleged essentially that he was the actual owner of the motor vehicle subject of levy: that a fictitious Deedof Sale of said motor vehicle was executed by him in VIDAD'S favor for purposes of operating said vehicle as a passengerjeepney under the latter's franchise; that SANTOS did not receive any payment from VIDAD in consideration of said sale; that toprotect SANTOS' proprietary interest over the vehicle in question, VIDAD in turn had executed a Deed of Sale in favor ofSANTOS on June 27, 1962; that SANTOS was not a party in the BRANCH XVII CASE and was not in any manner liable to theregistered owner VIDAD and the driver Gragas; that SANTOS derived a daily income of P30.00 from the operation of said motorvehicle as a passenger jeepney and stood to suffer irreparable damage will possession of said motor vehicle were not restoredto him. SANTOS then prayed that 1,) pending trial, a Writ of Preliminary Mandatory injunction be issued ex-parte commandingthe Sheriff of Manila to restore the motor vehicle to him and that the Sheriff be enjoined from proceeding with its sale; 2) that,after trial, the Deed of Sale in favor of VIDAD be declared absolutely fictitious and, therefore, null and void, and adjudgingSANTOS to be the absolute owner of the vehicle in questioned and 3) that damages be awarded to SANTOS as proven duringthe trial plus attorney's fees in the amount of P450.00 and costs. 2

No public sale was conducted on May 8, 1964. On May 11, 1964, Branch Xissued a Restraining Order enjoining the Sherifffrom conducting the public auction sale of the motor vehicle levied upon. 3 The Restraining Order was issued wrongfully. Underthe provisions of Section 17, Rule 39, the action taken by the Sheriff cannot be restrained by another Court or by another Branchof the same Court. The Sheriff has the right to continue with the public sale on his own responsibility, or he can desist fromconducting the public sale unless the attaching creditor files a bond securing him against the third-party-claim. But the decisionto proceed or not with the public sale lies with him. As said in Uy Piaoco vs. Osmea 9 Phil. 299, 307, "the powers of the Sheriffinvolve both discretional power and personal liability." The mentioned discretional power and personal liability have been furtherelucidated in Planes andVerdon vs. Madrigal & Co., et al., 94 Phil. 754, where it was held. 1wph1.t

The duty of the sheriff in connection with the execution and satisfaction of judgment of the court is governed byRule 39 of the Rules of Court. Section 15 thereof provides for the procedure to be. followed where the propertylevied on execution 'is claimed by a by person. lf the third-party claim is sufficient, the sheriff, upon receiving it,is not bound to proceed with the levy of the property, unless he is given by the judgment creditor an indemnitybond against the claim (Mangaoang vs. Provincial Sheriff, 91 Phil., 368). Of course, the sheriff may proceedwith the levy even without the Indemnity bond, but in such case he will answer for any damages with his own

personal funds (Waits vs. Peterson, et al., S Phil. 419 Alzua et al. vs. Johnson, 21 Phil., 308; Consults No. 341de los abogados de Smith, Bell & Co., 48 Phil., 565). And the rule also provides that nothing therein containedshall prevent a third person from vindicating his claim to the property by any proper action (Sec. 15 of Rule39.).

It appears from the above that if the attaching creditor should furnish an adequate bond. the Sheriff has to proceed with thepublic auction. When such bond is not filed, then the Sheriff shall decide whether to proceed. or to desist from proceeding, withthe public auction. lf he decides to proceed, he will incur personal liability in favor of the successful third-party claimant.On October 14, 1965, Branch Xaffirmed SANTOS' ownership of the jeepney in question based on the evidence adduced, anddecreed: 1wph1.t

WHEREFORE, judgment is hereby rendered, enjoining the defendants from proceeding with the sale ofthe vehicle in question ordering its return to the plaintiff and furthermore sentencing the defendantAbraham Sibug to pay the plaintiff the sum of P15.00 a day from April 10, 1964 until the vehicle isreturned to him, and P500.00 as attorney's fee's as well as the costs. 4

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This was subsequently amended on December 5, 1965, upon motion for reconsideration filed by SANTOS, to include theBONDING COMPANY as jointly slid severally liable with SIBUG. 51wp h 1.t

... provided that the liability of the Philippine Surety & insurance Co., Inc. shall in no case exceed P6,500.00.Abraham Sibug is furthermore condemned to pay the Philippine Surety & Insurance Co., Inc. the same sums itis ordered to pay under this decision.

The jugdment in the BRANCH X CASE appears to be quite legally unpalatable For instance, since the undertaking furnished tothe Sheriff by the BONDING COMPANY did not become effective for the reason that the jeep was not sold, the public salethereof having been restrained, there was no reason for promulgating judgment against the BONDING COMPANY. lt has alsobeen noted that the Complaint against VIDAD was dismissed.Most important of all, the judgment against SIBUG was inequitable. ln asserting his rights of ownership to the vehicle in

question, SANTOS candidly admitted his participation in the illegal and pernicious practice in the transportation business knownas the kabitsystem. Sec.. 20 (g) of the Public Service Act, then the applicable law, specifically provided: 1wph1.t

... it shall be unlawful for any public service or for the owner, lessee or operator thereof, without the approvaland authorization of the Commission previously had ... (g) to sell, alienate, mortgage, encumber or lease itsproperty, franchise, certificates, privileges, or rights, or any part thereof.

In this case, SANTOS had fictitiously sold the jeepney to VIDAD, who had become the registered owner and operator of recordat the time of the accident. lt is true that VIDAD had executed a re-sale to SANTOS, but the document was not registered.Although SANTOS, as the kabitwas the true owner as against VIDAD, the latter, as the registered owner/operator and granteeof the franchise, is directly and primarily responsible and liable for the damages caused to SIBUG, the injured party, as a

consequence of the negligent or careless operation of the vehicle. 6This ruling is based on the principle that the operator ofrecord is considered the operator of the vehicle in contemplation of law as regards the public and third persons 7even if thevehicle involved in the accident had been sold to another where such sale had not been approved by the then Public ServiceCommission. 8For the same basic reason, as the vehicle here in question was registered in VIDAD'S name, the levy onexecution against said vehicle should be enforced so that the judgment in the BRANCH XVII CASE may be satisfied,

notwithstanding the fact that the secret ownership of the vehicle belonged to another. SANTOS, as the kabitshould not beallowed to defeat the levy on his vehicle and to avoid his responsibilities as a kabitowner for he had led the public to believe thatthe vehicle belonged to VIDAD. This is one way of curbing the pernicious kabitsystem that facilitates the commission of fraudagainst the travelling public.

As indicated in the Erezo case, supra, SANTOS' remedy. as the real owner of the vehicle, is to go against VIDAD, the actualoperator who was responsible for the accident, for the recovery of whatever damages SANTOS may suffer by reason of theexecution. In fact, if SANTOS, as the kabithad been impleaded as a party defendant in the BRANCH XVII CASE, he should beheld jointly and severally liable with VIDAD and the driver for damages suffered by SIBUG, 9 as well as for exemplarydamages. 10From the judgment in the BRANCH X CASE SIBUG appealed. Meanwhile, SANTOS moved for immidiately execution. SIBUGopposed it on the ground that Branch Xhad no jurisdiction over the BRANCH XVII CASE, and that Branch Xhad no power tointerfere by injunction with the judgment of Branch XVII a Court of concurrent or coordinate jurisdiction. 11On November 13, 1965, Branch Xreleased an order authorizing immediate execution on the theory that the BRANCH X CASEis "principally an action for the issuance of a writ of prohibition to forbid the Sheriff from selling at public auction property not

belonging to the judgment creditor (sic) and there being no attempt in this case to interfere with the Judgment or decree ofanother court of concurrent jurisdiction." 12Without waiting for the resolution of his Motion for Reconsideration, SIBUG sought relief from respondent Appellate Court in aPetition for certiorari with Preliminary injunction. On November 18, 1965, respondent Court of Appeals enjoined the enforcementof the Branch XDecision and the Order of execution issued by said Branch. 13On September 28, 1966, respondent Count ofAppeals rendered the herein challenged Decision nullifying the judgment renderred in the Branch XCase and permanentlyrestraining V from taking cognizance of the BRANCH X CASE SANTOS. It ruled that: 1wph1.t

... the respondent Court Branch X, indeed, encroached and interfered with the judgment of Branch XVIIwhen it issued a restraining order and finally a decision permanently enjoining the other court fromexcuting the decision rendered in Civil Case No. 54335. This to our mind constitutes an interference withthe powers and authority of the other court having co-equal and coordinate jurisdiction. To rule otherwise,would indubitably lead to confusion which might hamper or hinder the proper administration of justice. ... 1

Respondent Court further held that SANTOS may not be permitted to prove his ownership over a particular vehicle being leviedupon but registered in another's name in a separated action, observing that: 1wph1.t

As the vehicle in question was registered in the name of Vicente U. Vidad, the government or any personaffected by the representation that said vehicle is registered under the name of a particular person had the rightto rely on his declaration of ownership and registration: and the registered owner or any other person for thatmatter cannot be permitted to repudiate said declaration with the objective of proving that said registeredvehicle is owned by another person and not by the registered owner (sec. 68, (a), Rule 123, and art. 1431, NewCivil Code)xxx xxx xxxWere we to allow a third person to prove that he is the real owner of a particular vehicle and not the registeredowner it would in effect be tantamount to sanctioning the attempt of the registered owner of the particularvehicle in evading responsibility for it cannot be dispelled that the door would be opened to collusion between aperson and a registered owner for the latter to escape said responsibility to the public or to any person. ...

SANTOS now seeks a review of respondent Court's Decision contending that: 1wph1.t

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1) The respondent Court of Appeals erred in holding that Branch X of the Court of First Instance of Manila hasno jurisdiction to restrain by Writ of Injunction the auction sale of petitioner's motor vehicle to satisfy thejudgment indebtedness of another person:

2) The respondent Court of Appeals erred in holding that petitioner as owner of a motor vehicle that was leviedupon pursuant to a Writ of Execution issued by Branch XVII of the Court of i stance of Manila in Civil Case No.54335 cannot be allowed to prove in a separate suit filed in Branch X of the same court (Civil Case No. 56842)that he is the true owner of the said motor vehicle and not its registered owner;

3) The respondent Court of Appeals erred in declaring null and void the decision of the Court of First Instanceof Manila (Branch X ) in Civil Case No. 56482.

We gave due course to the Petition for Review on certiorari on December 14, 1966 and considered the case submitted for

decision on July 20, 1967.One of the issues ventilated for resolution is the general question of jurisdiction of a Court of First Instance to issue, at theinstance of a third-party claimant, an Injunction restraining the execution sale of a passenger jeepney levied upon by a judgmentcreditor in another Court of First Instance. The corollary issue is whether or not the third-party claimant has a right to vindicatehis claim to the vehicle levied upon through a separate action.Since this case was submitted for decision in July, 1967, this Court, inArabay, lnc. vs. Hon. Serafin Salvador, 15speaking throughMr. Justice Ramon Aquino, succinctly held: 1wph1.t

It is noteworthy that, generally, the rule, that no court has authority to interfere by injunction with the judgmentsor decrees of a concurrent or coordinate jurisdiction having equal power to grant the injunctive relief, is appliedin cases, where no third-party claimant is involved, in order to prevent one court from nullifying the judgment orprocess of another court of the same rank or category, a power which devolves upon the proper appellatecourt.xxx xxx xxxWhen the sheriff, acting beyond the bounds of his authority, seizes a stranger's property, the writ of injunction,

which is issued to stop the auction sale of that property, is not an interference with the writ of execution issuedby another court because the writ of execution was improperly implemented by the sheriff. Under that writ, hecould attach the property of the judgment debtor. He is not authorized to levy upon the property of the third-party claimant (Polaris Marketing Corporation vs. Plan, L-40666, January 22, 1976, 69 SCRA 93, 97; ManilaHerald Publishing Co., Inc. vs. Ramos, 88 Phil. 94, 102).

An earlier case,Abiera vs. Hon. Court of Appeals, et al., 16explained the doctrine more extensively: 1wph1.tCourts; Jurisdiction Courts without power to interfere by injunction with judgments or decrees of a court ofconcurrent jurisdiction. No court has power to interfere by injunction with the judgments or decrees of a courtof concurrent or coordinate jurisdiction having equal power to grant the relief sought by injunction.

Same, Same; Same; When applicable. For this doctrine to apply, the injunction issued by one court mustinterfere with the judgment or decree issued by another court of equal or coordinate jurisdiction and the reliefsought by such injunction must be one which could be granted by the court which rendered the judgment orissued the decree.Same, Same Same; Exception Judgment rendered by another court in favor of a third person who claims

property levied upon on execution.

Under section 17 of Rule 39 a third person who claims property leviedupon on execution may vindicate such claim by action. A judgment rendered in his favor - declaring him to bethe owner of the property - would not constitute interference with the powers or processes of the court whichrendered the judgment to enforce which the execution was levied. lf that be so - and it is so because theproperty, being that of a stranger, is not subject to levy - then an interlocutory order, such as injunction, upon aclaim and prima facie showing of ownership by the claimant, cannot be considered as such interference either.

Execution; Where property levied on claimed by third person; "Action" in section l7, Rule 39 of the Rules ofCourt, interpretedThe right of a person who claims to be the owner of property levied upon on execution tofile a third-party claim with the sheriff is not exclusive, and he may file an action to vindicate his claim even ifthe judgment creditor files an indemnity bond in favor of the sheriff to answer for any damages that may besuffered by the third party claimant. By "action", as stated in the Rule, what is meant is a separate andindependent action.

Applied to the case at bar, it mill have to be held that, contrary to the rationale in the Decision of respondent Court, it wasappropriate, as a matter of procedure, for SANTOS, as an ordinary third-party claimant, to vindicate his claim of ownership in a

separate action under Section 17 of Rule 39. And the judgment rendered in his favor by Branch X, declaring him to be the ownerof the property, did not as a basic proposition, constitute interference with the powers or processes of Branch XVIIwhichrendered the judgment, to enforce which the was levied upon. And this is so because property belonging to a stranger is notordinarily subject to levy. While it is true that the vehicle in question was in custodia legis, and should not be interfered withwithout the permission of the proper Court, the property must be one in which the defendant has proprietary interest. Where theSheriff seizes a stranger's property, the rule does not apply and interference with his custody is not interference with anotherCourt's Order of attachment. 17However, as a matter of substance and on the merits, the ultimate conclusion of respondent Court nullifying the DecisionofBranch Xpermanently enjoining the auction sale, should be upheld. Legally speaking, it was not a "stranger's property" thatwas levied upon by the Sheriff pursuant to the judgment rendered by Branch XVII. The vehicle was, in fact, registered in thename of VIDAD, one of the judgment debtors. And what is more, the aspect of public service, with its effects on the riding public,is involved. Whatever legal technicalities may be invoked, we find the judgment of respondent Court of Appeals to be inconsonance with justice.

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WHEREFORE, as prayed for by private respondent Abraham Sibug, the petition for review on certiorari filed by Adolfo L. Santosis dismissed with costs against the petitioner.SO ORDERED.Makasiar, Guerrero and De Castro, * JJ., concur.1wph1.tTeehankee (Chairman), concurs in the result.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANCG.R. No. L-64693 April 27, 1984LITA ENTERPRISES, INC., petitioner,vs.SECOND CIVIL CASES DIVISION, INTERMEDIATE APPELLATE COURT, NICASIO M. OCAMPO and FRANCISCA P.GARCIA, respondents.Manuel A. Concordia for petitioner.Nicasio Ocampo for himself and on behalf of his correspondents.

ESCOLIN, J .:+. wp h!1"Ex pacto illicito non oritur actio"[No action arises out of an illicit bargain] is the tune-honored maxim that must be applied to theparties in the case at bar. Having entered into an illegal contract, neither can seek relief from the courts, and each must bear theconsequences of his acts.The factual background of this case is undisputed.

Sometime in 1966, the spouses Nicasio M. Ocampo and Francisca Garcia, herein private respondents, purchased in installmentfrom the Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs. Since they had nofranchise to operate taxicabs, they contracted with petitioner Lita Enterprises, Inc., through its representative, Manuel Concordia,for the use of the latter's certificate of public convenience in consideration of an initial payment of P1,000.00 and a monthlyrental of P200.00 per taxicab unit. To effectuate Id agreement, the aforesaid cars were registered in the name of petitioner LitaEnterprises, Inc, Possession, however, remained with tile spouses Ocampo who operated and maintained the same under thename Acme Taxi, petitioner's trade name.About a year later, on March 18, 1967, one of said taxicabs driven by their employee, Emeterio Martin, collided with amotorcycle whose driver, one Florante Galvez, died from the head injuries sustained therefrom. A criminal case was eventuallyfiled against the driver Emeterio Martin, while a civil case for damages was instituted by Rosita Sebastian Vda. de Galvez, heirof the victim, against Lita Enterprises, Inc., as registered owner of the taxicab in the latter case, Civil Case No. 72067 of theCourt of First Instance of Manila, petitioner Lita Enterprises, Inc. was adjudged liable for damages in the amount of P25,000.00and P7,000.00 for attorney's fees.This decision having become final, a writ of execution was issued. One of the vehicles of respondent spouses with Engine No.

2R-914472 was levied upon and sold at public auction for 12,150.00 to one Sonnie Cortez, the highest bidder. Another car withEngine No. 2R-915036 was likewise levied upon and sold at public auction for P8,000.00 to a certain Mr. Lopez.Thereafter, in March 1973, respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the managerof petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the latter allegedly refused. Hence, he and hiswife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda. de Galvez, Visayan Surety & Insurance Co. and theSheriff of Manila for reconveyance of motor vehicles with damages, docketed as Civil Case No. 90988 of the Court of FirstInstance of Manila. Trial on the merits ensued and on July 22, 1975, the said court rendered a decision, the dispositive portion ofwhich reads: t.hqw

WHEREFORE, the complaint is hereby dismissed as far as defendants Rosita Sebastian Vda. de Galvez,Visayan Surety & Insurance Company and the Sheriff of Manila are concerned.Defendant Lita Enterprises, Inc., is ordered to transfer the registration certificate of the three Toyota cars notlevied upon with Engine Nos. 2R-230026, 2R-688740 and 2R-585884 [Exhs. A, B, C and D] by executing adeed of conveyance in favor of the plaintiff.Plaintiff is, however, ordered to pay Lita Enterprises, Inc., the rentals in arrears for the certificate ofconvenience from March 1973 up to May 1973 at the rate of P200 a month per unit for the three cars. (AnnexA, Record on Appeal, p. 102-103, Rollo)

Petitioner Lita Enterprises, Inc. moved for reconsideration of the decision, but the same was denied by the court a quo onOctober 27, 1975. (p. 121, Ibid.)On appeal by petitioner, docketed as CA-G.R. No. 59157-R, the Intermediate Appellate Court modified the decision by includingas part of its dispositive portion another paragraph, to wit: t.hqw

In the event the condition of the three Toyota rears will no longer serve the purpose of the deed of conveyancebecause of their deterioration, or because they are no longer serviceable, or because they are no longeravailable, then Lita Enterprises, Inc. is ordered to pay the plaintiffs their fair market value as of July 22, 1975.(Annex "D", p. 167, Rollo.)

Its first and second motions for reconsideration having been denied, petitioner came to Us, praying that: t.hqw1. ...

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2. ... after legal proceedings, decision be rendered or resolution be issued, reversing, annulling or amendingthe decision of public respondent so that:(a) the additional paragraph added by the public respondent to the DECISION of the lower court (CFI) bedeleted;(b) that private respondents be declared liable to petitioner for whatever amount the latter has paid or wasdeclared liable (in Civil Case No. 72067) of the Court of First Instance of Manila to Rosita Sebastian Vda. deGalvez, as heir of the victim Florante Galvez, who died as a result ot the gross negligence of privaterespondents' driver while driving one private respondents' taxicabs. (p. 39, Rollo.)

Unquestionably, the parties herein operated under an arrangement, comonly known as the "kabit system", whereby a personwho has been granted a certificate of convenience allows another person who owns motors 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 privilegeby the grantees thereof cannot be countenanced. The "kabit system" has been Identified as one of the root causes of theprevalence of graft and corruption in the government transportation offices. In the words of Chief Justice Makalintal, 1 "this is apernicious system that cannot be too severely condemned. It constitutes an imposition upon the goo faith of the government.

Although not outrightly penalized as a criminal offense, the "kabit system" is invariably recognized as being contrary to publicpolicy and, therefore, void and inexistent under Article 1409 of the Civil Code, It is a fundamental principle that the court will notaid either party to enforce an illegal contract, but will leave them both where it finds them. Upon this premise, it was flagrant erroron the part of both the trial and appellate courts to have accorded the parties relief from their predicament. Article 1412 of theCivil Code denies them such aid. It provides:t.hqw

ART. 1412. 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 ofthe contract, or demand the performance of the other's undertaking.

The defect of inexistence of a contract is permanent and incurable, and cannot be cured by ratification or by prescription. As this

Court said in Eugenio v. Perdido,2

"the mere lapse of time cannot give efficacy to contracts that are null void."The principle ofin pari delicto is well known not only in this jurisdiction but also in the United States where common law prevails.Under American jurisdiction, the doctrine is stated thus: "The proposition is universal that 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 ordelivered, or damages for its property agreed to be sold or delivered, or damages for its violation. The rule has sometimes beenlaid down as though it was equally universal, that where the parties are in pari delicto, no affirmative relief of any kind will be

given to one against the other." 3Although certain exceptions to the rule are provided by law, We see no cogent reason why thefull force of the rule should not be applied in the instant case.WHEREFORE, all proceedings had in Civil Case No. 90988 entitled "Nicasio Ocampo and Francisca P. Garcia, Plaintiffs, versusLita Enterprises, Inc., et al., Defendants"of the Court of First Instance of Manila and CA-G.R. No. 59157-R entitled "NicasioOcampo and Francisca P. Garica, Plaintiffs-Appellees, versus Lita Enterprises, Inc., Defendant-Appellant,"of the IntermediateAppellate Court, as well as the decisions rendered therein are hereby annuleled and set aside. No costs.SO ORDERED. 1wph1.t

Feranando, C.J., Teehankee, Makasiar, Concepcion, Jr., Guerrero, Abad Santos, De Castro, Melencio-Herrera, Plana, Relova,

Gutierrez, Jr. and De la Fuente, JJ., concur.Aquino, J., took no part.

SECOND DIVISION[G.R. No. 125817. January 16, 2002]

ABELARDO LIM and ESMADITO GUNNABAN, pet i t ioners, vs. COURT OFAPPEALS and DONATO H. GONZALES, respondents.

D E C I S I O NBELLOSILLO, J.:

When a passenger jeepney covered by a certificate of public convenience is sold toanother who continues to operate it under the same certificate of public convenienceunder the so-called kabitsystem, and in the course thereof the vehicle meets an accidentthrough the fault of another vehicle, may the new owner sue for damages against theerring vehicle? Otherwise stated, does the new owner have any legal personality to bringthe action, or is he the real party in interest in the suit, despite the fact that he is not theregistered owner under the certificate of public convenience?

Sometime in 1982 private respondent Donato Gonzales purchased an Isuzupassenger jeepney from Gomercino Vallarta, holder of a certificate of public conveniencefor the operation of public utility vehicles plying the Monumento-Bulacan route. Whileprivate respondent Gonzales continued offering the jeepney for public transport services

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he did not have the registration of the vehicle transferred in his name nor did he secure forhimself a certificate of public convenience for its operation. Thus Vallarta remained onrecord as its registered owner and operator.

On 22 July 1990, while the jeepney was running northbound along the North DiversionRoad somewhere in Meycauayan, Bulacan, it collided with a ten-wheeler-truck owned bypetitioner Abelardo Lim and driven by his co-petitioner Esmadito Gunnaban. Gunnabanowned responsibility for the accident, explaining that while he was traveling towards

Manila the truck suddenly lost its brakes. To avoid colliding with another vehicle, heswerved to the left until he reached the center island. However, as the center islandeventually came to an end, he veered farther to the left until he smashed into a Ferrozaautomobile, and later, into private respondent's passenger jeepney driven by one VirgilioGonzales. The impact caused severe damage to both the Ferroza and the passenger

jeepney and left one (1) passenger dead and many others wounded.Petitioner Lim shouldered the costs for hospitalization of the wounded, compensated

the heirs of the deceased passenger, and had the Ferroza restored to good condition. Healso negotiated with private respondent and offered to have the passenger jeepneyrepaired at his shop. Private respondent however did not accept the offer so Lim offered

himP20,000.00, the assessment of the damage as estimated by his chiefmechanic. Again, petitioner Lim's proposition was rejected; instead, private respondentdemanded a brand-new jeep or the amount of P236,000.00. Lim increased his bidto P40,000.00 but private respondent was unyielding. Under the circumstancesnegotiations had to be abandoned; hence, the filing of the complaint for damages byprivate respondent against petitioners.

In his answer Lim denied liability by contending that he exercised due diligence inthe selection and supervision of his employees. He further asserted that as the jeepneywas registered in Vallartas name, it was Vallarta and not private respondent who was thereal party in interest.[1]For his part, petitioner Gunnaban averred that the accident was a

fortuitous event which was beyond his control.[2]Meanwhile, the damaged passenger jeepney was left by the roadside to corrode and

decay. Private respondent explained that although he wanted to take his jeepney homehe had no capability, financial or otherwise, to tow the damaged vehicle.[3]

The main point of contention between the parties related to the amount of damagesdue private respondent. Private respondent Gonzales averred that per estimate made byan automobile repair shop he would have to spend P236,000.00 to restore his jeepney toits original condition.[4]On the other hand, petitioners insisted that they could have thevehicle repaired for P20,000.00.[5]

On 1 October 1993 the trial court upheld private respondent's claim and awardedhim P236,000.00 with legal interest from 22 July 1990 as compensatory damagesandP30,000.00 as attorney's fees. In support of its decision, the trial court ratiocinatedthat as vendee and current owner of the passenger jeepney private respondent stood forall intents and purposes as the real party in interest. Even Vallarta himself supportedprivate respondent's assertion of interest over the jeepney for, when he was called totestify, he dispossessed himself of any claim or pretension on the property. Gunnabanwas found by the trial court to have caused the accident since he panicked in the face ofan emergency which was rather palpable from his act of directing his vehicle to a perilous

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streak down the fast lane of the superhighway then across the island and ultimately to theopposite lane where it collided with the jeepney.

On the other hand, petitioner Lim's liability for Gunnaban's negligence was premisedon his want of diligence in supervising his employees. It was admitted during trial thatGunnaban doubled as mechanic of the ill-fated truck despite the fact that he was neithertutored nor trained to handle such task.[6]

Forthwith, petitioners appealed to the Court of Appeals which, on 17 July 1996,

affirmed the decision of the trial court. In upholding the decision of the court a quo theappeals court concluded that while an operator under the kabitsystem could not suewithout joining the registered owner of the vehicle as his principal, equity demanded thatthe present case be made an exception.[7]Hence this petition.

It is petitioners' contention that the Court of Appeals erred in sustaining the decision ofthe trial court despite their opposition to the well-established doctrine that an operator of avehicle continues to be its operator as long as he remains the operator ofrecord. According to petitioners, to recognize an operator under the kabitsystem as thereal party in interest and to countenance his claim for damages is utterly subversive ofpublic policy. Petitioners further contend that inasmuch as the passenger jeepney was

purchased by private respondent for only P30,000.00, an award of P236,000.00 isinconceivably large and would amount to unjust enrichment.[8]

Petitioners' attempt to illustrate that an affirmance of the appealed decision could besupportive of the pernicious kabitsystem does not persuade. Their labored efforts todemonstrate how the questioned rulings of the courts a quo are diametrically opposed tothe policy of the law requiring operators of public utility vehicles to secure a certificate ofpublic convenience for their operation is quite unavailing.

The kabitsystem is an arrangement whereby a person who has been granted acertificate of public convenience allows other persons who own motor vehicles to operatethem under his license, sometimes for a fee or percentage of the earnings.[9]Although the

parties to such an agreement are not outrightly penalized by law, the kabitsystem isinvariably recognized as being contrary to public policy and therefore void and inexistentunder Art. 1409 of the Civil Code.

In the early case ofDizon v. Octavio[10]the Court explained that one of the primaryfactors considered in the granting of a certificate of public convenience for the business ofpublic transportation is the financial capacity of the holder of the license, so that liabilitiesarising from accidents may be duly compensated. The kabit system renders illusorysuch purpose and, worse, may still be availed of by the grantee to escape civil liabilitycaused by a negligent use of a vehicle owned by another and operated under hislicense. If a registered owner is allowed to escape liability by proving who the supposedowner of the vehicle is, it would be easy for him to transfer the subject vehicle to anotherwho possesses no property with which to respond financially for the damagedone. Thus, for the safety of passengers and the public who may have been wronged anddeceived through the baneful kabitsystem, the registered owner of the vehicle is notallowed to prove that another person has become the owner so that he may be therebyrelieved of responsibility. Subsequent cases affirm such basic doctrine.[11]

It would seem then that the thrust of the law in enjoining the kabit system is not somuch as to penalize the parties but to identify the person upon whom responsibility may

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be fixed in case of an accident with the end view of protecting the riding public. The policytherefore loses its force if the public at large is not deceived, much less involved.

In the present case it is at once apparent that the evil sought to be prevented inenjoining the kabit system does not exist. First, neither of the parties to thepernicious kabitsystem is being held liable for damages. Second, the case arose fromthe negligence of another vehicle in using the public road to whom no representation, ormisrepresentation, as regards the ownership and operation of the passenger jeepney was

made and to whom no such representation, or misrepresentation, was necessary. Thus itcannot be said that private respondent Gonzales and the registered owner of the jeepneywere in estoppel for leading the public to believe that the jeepney belonged to theregistered owner. Third, the riding public was not bothered nor inconvenienced at the veryleast by the illegal arrangement. On the contrary, it was private respondent himself whohad been wronged and was seeking compensation for the damage done tohim. Certainly, it would be the height of inequity to deny him his right.

In light of the foregoing, it is evident that private respondent has the right to proceedagainst petitioners for the damage caused on his passenger jeepney as well as on hisbusiness. Any effort then to frustrate his claim of damages by the ingenuity with which

petitioners framed the issue should be discouraged, if not repelled.In awarding damages for tortuous injury, it becomes the sole design of the courts to

provide for adequate compensation by putting the plaintiff in the same financial position hewas in prior to the tort. It is a fundamental principle in the law on damages that adefendant cannot be held liable in damages for more than the actual loss which he hasinflicted and that a plaintiff is entitled to no more than the just and adequate compensationfor the injury suffered. His recovery is, in the absence of circumstances giving rise to anallowance of punitive damages, limited to a fair compensation for the harm done. The lawwill not put him in a position better than where he should be in had not the wronghappened.[12]

In the present case, petitioners insist that as the passenger jeepney was purchased in1982 for only P30,000.00 to award damages considerably greater than this amount wouldbe improper and unjustified. Petitioners are at best reminded that indemnification fordamages comprehends not only the value of the loss suffered but also that of the profitswhich the obligee failed to obtain. In other words, indemnification for damages is notlimited to damnum emergens or actual loss but extends to lucrum cessans or the amountof profit lost.[13]

Had private respondent's jeepney not met an accident it could reasonably be expectedthat it would have continued earning from the business in which it was engaged. Privaterespondent avers that he derives an average income of P300.00 per day from hispassenger jeepney and this earning was included in the award of damages made by thetrial court and upheld by the appeals court. The award therefore of P236,000.00 ascompensatory damages is not beyond reason nor speculative as it is based on areasonable estimate of the total damage suffered by private respondent, i.e. damagewrought upon his jeepney and the income lost from his transportationbusiness. Petitioners for their part did not offer any substantive evidence to refute theestimate made by the courts a quo.

However, we are constrained to depart from the conclusion of the lower courts thatupon the award of compensatory damages legal interest should be imposed beginning 22

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July 1990, i.e. the date of the accident. Upon the provisions of Art. 2213 of the Civil Codeinterest "cannot be recovered upon unliquidated claims or damages, except when thedemand can be established with reasonable certainty." It is axiomatic that if the suit werefor damages, unliquidated and not known until definitely ascertained, assessed anddetermined by the courts after proof, interest at the rate of six percent (6%) per annumshould be from the date the judgment of the court is made (at which time the quantificationof damages may be deemed to be reasonably ascertained).[14]

In this case, the matter was not a liquidated obligation as the assessment of thedamage on the vehicle was heavily debated upon by the parties with private respondent'sdemand for P236,000.00 being refuted by petitioners who argue that they could have thevehicle repaired easily for P20,000.00. In fine, the amount due private respondent wasnot a liquidated account that was already demandable and payable.

One last word. We have observed that private respondent left his passenger jeepneyby the roadside at the mercy of the elements. Article 2203 of the Civil Code exhortsparties suffering from loss or injury to exercise the diligence of a good father of a family tominimize the damages resulting from the act or omission in question. One who is injuredthen by the wrongful or negligent act of another should exercise reasonable care and

diligence to minimize the resulting damage. Anyway, he can recover from thewrongdoer money lost in reasonable efforts to preserve the property injured and forinjuries incurred in attempting to prevent damage to it.[15]

However we sadly note that in the present case petitioners failed to offer in evidencethe estimated amount of the damage caused by private respondent's unconcern towardsthe damaged vehicle. It is the burden of petitioners to show satisfactorily not only that theinjured party could have mitigated his damages but also the amount thereof; failing in thisregard, the amount of damages awarded cannot be proportionately reduced.

WHEREFORE, the questioned Decision awarding private respondent DonatoGonzales P236,000.00 with legal interest from 22 July 1990 as compensatory damages

andP30,000.00 as attorney's fees is MODIFIED. Interest at the rate of six percent (6%)per annum shall be computed from the time the judgment of the lower court is made untilthe finality of this Decision. If the adjudged principal and interest remain unpaid thereafterthe interest shall be twelve percent (12%) per annum computed from the time judgmentbecomes final and executory until it is fully satisfied.

Costs against petitioners.SO ORDERED.Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.

Republic of the Philippines

SUPREME COURTManila

SECOND DIVISIONG.R. No. L-57493 January 7, 1987BALIWAG TRANSIT, INC., petitioner,vs.THE HON. COURT OF APPEALS AND ROMAN MARTINEZ, respondents.Sta. Maria & Associates for petitioner.Felimon A. Imazan for respondent Roman Martinez.

PARAS, J .:This is a petition for review on certiorari, seeking the reversal of the decision of the Court of Appeals dated June 4, 1981, thedispositive portion of which reads:

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WHEREFORE, the resolution (decision) of the Social Security Commission in SSC Case No. 3272 is herebyset aside and another one entered: ordering respondent Baliwag Transit, Inc. to remit to the Social SecurityCommission the premium contributions for the petitioner for the years 1958 to May 1963 and from 1967 toMarch 1971, inclusive, plus penalties thereon at the rate of 3% per month of delinquency.

Two passenger bus lines with similar buses and similar routes were being operated by firm names "Baliwag Transit' and"Baliwag Transit, Inc." (BTI) the herein petitioner. The former was owned by the late Pascual Tuazon who continued to operate ituntil his death on January 26, 1972, while the latter was owned by petitioner corporation, incorporated in the year 1968 andexisting until the present time. Both bus lines operate under different grants of franchises by the Public Service Commission(Brief for Petitioner, p.11), but were issued only one ID Number 03-22151 by the Social Security System (Rollo, p. 66).

Private respondent claiming to be an employee of both bus lines with one ID Number, filed a petition with the Social Security

Commision on August 14, 1975 which was docketed as SSC Case No. 3272 to compel BTI to remit to the Social Security privaterespondent's SSS Premium contributions for the years 1958 to March, 1963 and from 1967 to March 1971. He alleged that hewas employed by petitioner from 1947 to 1971 as conductor and later as inspector with corresponding salary increases and thatpetitioner deducted from his salaries, premium contributions, but what was remitted to the SSS was only for a period coveringJune, 1963 to 1966, at a much lesser amount.In its answer, BTI denied having employed private respondent Ramon Martinez, the truth being that he was employed byPascual Tuazon who since 1948 owned and operated buses under the trade name Baliwag Transit which were separate anddistinct from the buses operated by petitioner company owned by Mrs. Victoria Vda. de Tengco. Both bus lines had differentoffices, different maintenance and repair shops, garages, books of account, and managers. The employment of privaterespondent lasted until 1971 when his employer Pascual Tuazon became bankrupt. It was the latter which deducted from privaterespondent the amount corresponding to his SSS contributions for the years in question but allegedly did not remit the same.Finally, herein petitioner BTI claims that private respondent allowed 17 years to elapse and at a time when Pascual Tuazon wasalready dead before filing the subject petition with the Social Security Commission. (Rollo, p. 18). lwphl@itAfter trial on the merits, the Social Security Commission on September 12, 1979, entered a resolution in SSC Case No. 3272,

the dispositive portion of which reads:PREMISES CONSIDERED, this Commission finds and so holds that there existed no employer-employeerelationship between the petitioner and respondent as would warrant further remittance of SSS contributions forand in behalf of petitioner Roman Martinez.Consequently, this petition is hereby dismissed for lack of merit,SO ORDERED.

On appeal ,the Court of Appeals finding that the late Pascual Tuazon operated his buses under the "Kabit" System reversed andset aside the foregoing resolution as follows:

WHEREFORE, the resolution (decision) of the Social Security Commission in SSC Case No. 3272 is herebyset aside and another one entered ordering respondent Baliwag Transit, Inc. to remit to the Social SecurityCommission the premium contributions for the petitioner for the years 1958 to May 1963 and from 1967 toMarch 1971, inclusive, plus penalties thereon at the rate of 3% per month of delinquency.SO ORDERED.

Herein petitioner filed a Motion for Reconsideration with respondent Court of Appeals, which Motion was later denied.

Hence, this petition.In the resolution of August 26, 1981 of the Second Division of this Court, respondents were required to comment (Rollo, p. 64)which was complied with on September 21, 1981 (Rollo, pp. 65-71). On October 5, 198 1, petitioner filed its Reply (Rollo, pp. 73-75) in compliance with the resolution of September 30, 1981 (Rollo, p. 71). In the resolution of December 7, 1981, the petitionwas given due course (Rollo, p. 81). The brief for petitioner-appellant was filed on March 27, 1982 (Rollo, p. 89) while privaterespondent filed a manifestation and motion to be excused for not filing private respondent's brief and to be allowed to adopt ashis arguments the comments he filed on September 19, 1981 and his brief with the Court of Appeals (Rollo, p. 92). Saidmanifestation and motion was noted in the resolution of June 23, 1982 (Rollo, p. 93) and this case was submitted for deliberationin the resolution of February 3, 1984 (Rllo, p. 94).Petitioners raised the following assignment of errors:I. THAT THE FINDINGS OF THE RESPONDENT HONORABLE COURT OF APPEALS TO THE EFFECT THAT THEVEHICLES OF THE LATE PASCUAL TUAZON WERE "ATTACHED" OR "KABIT" WITH PETITIONER, BALIWAG TRANSIT,INC. MAY NOT HAVE BEEN SUPPORTED BY SUBSTANTIAL EVIDENCE.II. GRANTING THAT THE VEHICLES OF THE LATE PASCUAL TUAZON WERE INDEED "ATTACHED" OR "KABIT" WITH

PETITIONER BALIWAG TRANSIT, INC. EMPLOYER- EMPLOYEE RELATIONS MAY NOT EXTENT TC COVER OR INCLUDETHE EMPLOYEES OF THE ACTUAL OWNER OF THE VEHICLES AS EMPLOYEES ALSO OF THE HOLDER OF THECERTIFICATE OF PUBLIC CONVENIENCE WHICH IS IN THIS CASE, PETITIONER BALIWAG TRANSIT, INC.However, the main issue in this case is whether or not the issuance by the Social Security System of one SSS-ID-Number to twobus lines necessarily indicates that one of them, operates his buses under the "Kabit System."The answer is in the negative.The "Kabit System" has been defined by the Supreme Court as an arrangement "whereby a person who has been granted acertificate of convenience allows another person who owns motor vehicles to operate under such franchise for a fee." (LitaEnterprises, Inc. v. Second Civil Cases Division, IAC, et al., G.R. No. 64693, April 27, 1984). lwphl@it

The determining factor, therefore, is the possession of a franchise to operate which negates the existence of the "Kabit System"and not the issuance of one SSS ID Number for both bus lines from which the existence of said system was inferred.In the instant case, the findings of the Court of Appeals are as follows:

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... It is very obvious from the foregoing narration of facts that the late Pascual Tuazon, during the time materialto this case, operated his buses under the "kabit" Syetem; that is, while actually he was the owner and operatorof public utility buses, maintaining his own drivers, conductors, inspectors and other employees, his buses werenot registered with the Public Service Commission (now the Bureau of Land Transportation) in his own name.Instead, his buses were absorbed and registered as owned and operated by the "Baliwag Transit," which wasthe firm name owned and used by his niece, Victoria Vda. de Tengco.It is well settled that the findings of facts of the Court of Appeals ... are conclusive on the parties and on thisCourt, unless ... (2) the inference made is manifestly mistaken; ... (4) the judgment is based onmisapprehension of facts; ... (6) the Court of Appeals went beyond the issues of the case and its findings arecontrary to the admissions of both appellant appellant and appellees; (7) the findings of facts of the Court of

Appeals are contrary to those of the trial court; ... (Sacay v. Sandiganbayan, G.R. No. 66497-98, July 10,1986).

In the case at bar, it is undisputed that as testified to, lot only by seven (7) witnesses presented by the petitioner but also by theSocial Security System witness Mangowan Macalaba, Clerk I ,of the R & A Division of the Board of Transportation, who hadaccess to the records of said office with respect to applications and grant of franchises of public utility vehicles, that Victoria Vda.de Tengco and Pascual Tuazon were granted separate franchises to operate public utility buses, under Cases Nos. 15904,114913, 11564, 103366, 64157 and 65894 for the former and Case No. 69-4592 and Case No. 697775 for the latter, bothoperating between Manila and Baliuag routes. However, the franchises of Pascual Tuazon were cancelled on December 16,1971 and may 14, 1972 respectively (Rollo, p. 22), when the latter terminated his operation.It is thus evident that both bus lines operated under their own franchises but opted to retain the firm name "Baliwag Transit" withslight modification, by the inclusion of the word "Inc." in the case of herein petitioner, obviously to take advantage of the goodwillsuch firm name enjoys with the riding public. Conversely, the conclusion of the Court of Appeals that the late Pascual Tuazon,during the time material to this case operated his buses under the "Kabit System" on the ground that while he was actually theowner and operator, his buses were not registered with the Public Service Commission (now the Bureau of Land Transportation)

in his own name, is not supported by the records. Much less can it be said that there is an analogy between the case at bar andthe cited case of Doligosa, et al. v. Decolongon, et al. (3 CA Nos. 1135, 1142-43) to the extent that Baliwag Transit, Inc. beingthe ostensible operator of the buses actually owned by Pascual Tuazon, should be held liable for the contributions collected orought to be collected from private respondent (Rollo, pp. 53-54), presumably to discourage the proliferating "Kabit System" inpublic utility vehicles.While it is admitted that petitioner was the one who remitted the SSS premiums of private respondent, it has also beenestablished by testimonies of witnesses that such arrangement was done purposely to accommodate the request of the latePascual Tuazon, the uncle of Victoria Vda. de Tengco and the money came from him. On the other hand, there is no reasonwhy such testimonies should not be given credence as the records fail to show that said witnesses have any motive or reason tofalsify or perjure their testimonies (Rollo, pp. 23-24).Moreover, the Social Security Commission after several hearings had been conducted, arrived at the following conclusion:

It was established during the hearings that petitioner Roman Martinez was employed by, worked for and tookorders from Pascual Tuazon and was authorized to get "vales" from the conductors of the trucks of Mr. Tuazon.This was admitted got "vales" from the buses of Pascual Tuazon (TSN. pp. 24-25, May 7, 1976 and Exhibits "3"

to "49").On the other hand, there is no evidence introducted to show that petitioner ever received salaries fromrespondent or from Mrs. Victoria Vda. de Tengco and neither had he been under the orders of the latter. Theonly basis upon which petitioner anchors his claim despite his actual employment by Pascual Tuazon was theuse by the latter of the trade name, Baliwag Transit, in the operation of his (Mr. Tuazon's) own buses which thelatter had every reason to do since he laboriously helped and organized said firm until it gained cognizance bythe public.It is, therefore, clear that even long before the incorporation of the Baliwag Transit in 1968 petitioner wasalready an employee of the late Pascual Tuazon who despite having separate office, employees and buseswhich were operated under the line of the Baliwag Transit did not report him for coverage to the SSS. Sadlyenough petitioner who claims to be an employee of the respondent did not refute, by way of submitting rebuttalevidence, the testimonies given by respondent's witnesses that he was an employee of the late PascualTuazon and not of said respondent or of Mrs. Victoria Tuazon and not of said respondent or of Mr. Victoria Vdade Tengco. Indeed, there is a reasonable basis to believe that he would not attempt to do so if only to be

consistent with his stand when he filed a case before the National Labor Relations Commission, a claim againsboth the late Pascual Tuazon and the respondent, He is now concentrating his action against the respondent inview of the death of Pascual Tuazon who during his lifetime sold his trucks and became bankrupt Exhibit "2") Resolution, September 14, 1979, pp. 29-31). (Rollo, pp. 28-30)

It has been uniformly held by this Court that it is sufficient that administrative findings of fact are supported by evidence on therecord, or stated negatively, it is sufficient that findings of fact are not shown to be unsupported by evidence.The Court has also held further that "in reviewing administrative decisions, the reviewin/g court cannot re-examine thesufficiency of the evidence as if originally instituted therein, and receive additional evidence that was not submitted to theadministrative agency concerned. The findings of fact must be respected, so long as they are supported by substantial evidenceeven if not overwhelming or preponderant." (Police Commission v. Lood, 127 SCRA 758 [1984]). lwphl@itThus, the employer-employee relationship between the late Pascual Tuazon and herein private respondent, having beenestablished, the remittance of SSS contributions of the latter, is the responsibility of his employer Tuazon, regardless of theexistence or non-existence of the "Kabit System."

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Moreover, private respondent having allowed seventeen (17) years to elapse before filing his petition with the Social SecuritySystem, has undoubtedly slept on his rights and his cause of action has already prescribed under Article 1144(2) of the CivilCode (Central Azucarrera del Davao v. Court of Appeals, 137 SCRA 296 [1985]; applied by analogy).

PREMISES CONCERNED, the decision of respondent Court of Appeals dated June 4, 1981 is hereby REVERSED and SETASIDE, and the Resolution of the Social Security Commission dated September 12, 1979 is hereby REINSTATED.SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

EN BANCG.R. No. L-9907 June 30, 1958LOURDES J. LARA, ET AL., plaintiffs-appellants,vs.BRIGIDO R. VALENCIA, defendant-appellant.Castillo, Cervantes, Occea, Lozano, Montana, Cunanan, Sison and Castillo and Eligio G. Lagman for defendant-appellant.Donato C. Endriga and Emigdio Dakanay for plaintiffs-appellants.BAUTISTA ANGELO, J .:This is an action for damages brought by plaintiffs against defendant in the Court of First Instance of Davao for the death of oneDemetrio Lara, Sr. allegedly caused by the negligent act of defendant. Defendant denied the charge of negligence and set upcertain affirmative defenses and a counterclaim.The court after hearing rendered judgment ordering defendant to pay the plaintiffs the following amount: (a) P10,000 as moraldamages; (b) P3,000 as exemplary damages; and (c) P1,000 as attorney's fees, in addition to the costs of action. Both partiesappealed to this Court because the damages claimed in the complaint exceed the sum of P50,000.

In their appeal, plaintiffs claim that the court a quo erred in disregarding their claim of P41,400 as actual or compensatorydamages and in awarding as attorneys' fees only the sum of P1,000 instead of P3,000 as agreed upon between plaintiffs andtheir counsel. Defendant, on the other hand, disputes the finding of the court a quo that the oath of Demetrio Lara, Sr. was dueto the negligence of defendant and the portion of the judgment which orders dependant to pay to plaintiffs moral and exemplarydamages as well as attorneys' fees, said defendant contending that the court should have declared that the death of Lara wasdue to unavoidable accident.The deceased was an inspector of the Bureau of Forestry stationed in Davao with an annual salary of P1,800. The defendant isengaged in the business of exporting logs from his lumber concession in Cotabato. Lara went to said concession uponinstructions of his chief to classify the logs of defendant which were about to be loaded on a ship anchored in the port of Parang.The work Lara of lasted for six days during which he contracted malaria fever. In the morning of January 9, 1954, Lara who thenin a hurry to return to Davao asked defendant if he could take him in his pick-up as there was then no other means oftransportation, to which defendant agreed, and in that same morning the pick-up left Parang bound for Davao taking along sixpassengers, including Lara.The pick-up has a front seat where the driver and two passengers can be accommodated and the back has a steel flooring

enclosed with a steel walling of 16 to 17 inches tall on the sides and with a 19 inches tall walling at the back. Before leavingParang, the sitting arrangement was as follows: defendant was at the wheel and seated with him in the front seat were Mrs.Valencia and Nicanor Quinain; on the back of the pick-up were two improvised benches placed on each side, and seated on theright bench were Ricardo Alojipan and Antonio Lagahit, and on the left one Bernardo and Pastor Geronimo. A person by thename of Leoning was seated on a box located on the left side while in the middle Lara sat on a bag. Before leaving Parang,defendant invited Lara to sit with him on the front seat but Lara declined. It was their understanding that upon reaching barrioSamoay, Cotabato, the passengers were to alight and take a bus bound for Davao, but when they arrived at that place, onlyBernardo alighted and the other passengers requested defendant to allow them to ride with him up to Davao because there wasthen no available bus that they could take in going to that place. Defendant again accommodated the passengers.When they continued their trip, the sitting arrangement of the passengers remained the same, Lara being seated on a bag in themiddle with his arms on a suitcase and his head cove red by a jacket. Upon reaching Km. 96, barrio Catidtuan, Lara accidentallyfell from the pick-up and as a result he suffered serious injuries. Valencia stopped the pick-up to see what happened to Lara. Hesought the help of the residents of that place and applied water to Lara but to no avail. They brought Lara to the nearest placewhere they could find a doctor and not having found any they took him to St. Joseph's Clinic of Kidapawan. But when Lara

arrived he was already dead. From there they proceeded to Davao City and immediately notified the local authorities. Aninvestigation was made regarding the circumstances surrounding the death of Lara but no criminal action was taken againstdefendant.It should be noted that the deceased went to the lumber concession of defendant in Parang, Cotabato upon instructions of hischief in order to classify the logs of defendant which were then ready to be exported and to be loaded on a ship anchored in theport of Parang. It took Lara six days to do his work during which he contracted malaria fever and for that reason he evinced adesire to return immediately to Davao. At that time, there was no available bus that could take him back to Davao and so herequested the defendant if he could take him in his own pick-up. Defendant agreed and, together with Lara, other passengerstagged along, most of them were employees of the Government. Defendant merely accommodated them and did not chargethem any fee for the service. It was also their understanding that upon reaching barrio Samoay, the passengers would alight andtransfer to a bus that regularly makes the trip to Davao but unfortunately there was none available at the time and so the samepassengers, including Lara, again requested the defendant to drive them to Davao. Defendant again accommodated them andupon reaching Km. 96, Lara accidentally fell suffering fatal injuries.

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It therefore appears that the deceased, as well his companions who rode in the pick-up of defendant, were merelyaccommodation passengers who paid nothing for the service and so they can be considered as invited guests within themeaning of the law. As accommodation passengers or invited guests, defendant as owner and driver of the pick-up owes tothem merely the duty to exercise reasonable care so that they may be transported safely to their destination. Thus, "The rule isestablished by the weight of authority that the owner or operator of an automobile owes the duty to an invited guestto exercisereasonable care in its operation, and not unreasonably to expose him to danger and injury by increasing the hazard of travel.This rule, as frequently stated by the courts, is that an owner of an automobile owes a guest the duty to exercise ordinary orreasonable care to avoid injuring him. Since one riding in an automobile is no less a guest because he asked for the privilege ofdoing so, the same obligation of care is imposed upon the driver as in the case of one expressly invited to ride" (5 Am. Jur., 626-627). Defendant, therefore, is only required to observe ordinary care, and is not in duty bound to exercise extraordinary diligence

as required of a common carrier by our law (Articles 1755 and 1756, new Civil Code).The question that now arises is: Is there enough evidence to show that defendant failed to observe ordinary care or diligence intransporting the deceased from Parang to Davao on the date in question?The trial court answered the question in the affirmative but in so doing it took into account only the following facts:

No debe perderse de vista el hecho, que los negocios de exportacion de trozos del demandado tiene un volumen deP1,200. Lara era empleado de la Oficina de Montes, asalariado por el gobierno, no pagado por el demandado paraclassificar los trozos exportados; debido a los trabajos de classificacion que duro 6 dias, en su ultimo dia Lara nodurmio toda la noche, al dia siguiente, Lara fue atacado de malaria, tenia inflamada la cara y cuerpo, sufria dolores decabeza con erupciones en la cara y cuerpo; que en la manana, del dia 2 de enero de 1954, fecha en que Lara salio deDavao para Parang, en aeroplano para clasificar los trozos del demandado, el automobil de este condujo a aquel alaerodromo de Davao.

x x x x x x x x x

El viaje de Cotabato a Davao no es menos de 8 horas, su carretera esta en malas condiciones, desnivelada, conpiedras salientes y baches, que hacen del vehiculo no estable en su marcha. Lara estaba enfermo de cierta gravedad,

tenia el cuerpo y cara inflamados, atacado de malaria, con dolores de cabeza y con erupciones en la cara y cuerpo.A la vista de estos hechos, el demandado debia de saber que era sumamente peligroso llevar 5 pasajeros en la partetrasera del pick-up; particularmente, para la salud de Lara; el permitirlo, el demandado no ha tomado las precausiones,para evitar un posible accidente fatal. La negative de Lara de ocupar el asiento delantero del pick-up no constituye ajuicio del Juzgado una defensa, pues el demendado conociendo el estado delicado de salud de Lara, no debio dehaber permitido que aquel regrese a Davao en su pick-up; si querria prestar a aquel un favor, debio de haver provisto aLara de un automobil para su regrese a Davao, ya que el demendado es un millionario; si no podia prestar a aquel estefavor, debio de haver dejado a Lara en Samuay para coger aquel un camion de pasajero de Cotabato a Davao.

Even if we admit as true the facts found by the trial court, still we find that the same are not sufficient to show that defendant hasfailed to take the precaution necessary to conduct his passengers safely to their place of destination for there is nothing there toindicate that defendant has acted with negligence or without taking the precaution that an ordinary prudent man would havetaken under similar circumstances. It should be noted that Lara went to the lumber concession of defendant in answer to a callof duty which he was bound to perform because of the requirement of his office and he contracted the malaria fever in thecourse of the performance of that duty. It should also be noted that defendant was not in duty bound to take the deceased in his

own pick-up to Davao because from Parang to Cotabato there was a line of transportation that regularly makes trips for thepublic, and if defendant agreed to take the deceased in his own car, it was only to accommodate him considering his feverishcondition and his request that he be so accommodated. It should also be noted that the passengers who rode in the pick-up ofdefendant took their respective seats therein at their own choice and not upon indication of defendant with the particularity thatdefendant invited the deceased to sit with him in the front seat but which invitation the deceased declined. The reason for thiscan only be attributed to his desire to be at the back so that he could sit on a bag and travel in a reclining position because suchwas more convenient for him due to his feverish condition. All the circumstances therefore clearly indicate that defendant haddone what a reasonable prudent man would have done under the circumstances.

There is every reason to believe that the unfortunate happening was only due to an unforeseen accident accused by the factthat at the time the deceased was half asleep and must have fallen from the pick-up when it ran into some stones causing it tojerk considering that the road was then bumpy, rough and full of stones.The finding of the trial court that the pick-up was running at more than 40 kilometers per hour is not supported by the evidence.This is a mere surmise made by the trial court considering the time the pick-up left barrio Samoay and the time the accidentoccured in relation to the distance covered by the pick-up. And even if this is correct, still we say that such speed is not

unreasonable considering that they were traveling on a national road and the traffic then was not heavy. We may rather attributethe incident to lack of care on the part of the deceased considering that the pick-up was open and he was then in a crouchingposition. Indeed, the law provides that "A passenger must observe the diligence of a good father of a family to avoid injury tohimself" (Article 1761, new Civil Code), which means that if the injury to the passenger has been proximatelycaused by his ownnegligence, the carrier cannot be held liable.All things considered, we are persuaded to conclude that the accident occurred not due to the negligence of defendant but tocircumstances beyond his control and so he should be exempt from liability.Wherefore, the decision appealed from is reversed, without pronouncement as to costs.Paras, C. J., Bengzon, Reyes, A., Concepcion, Reyes, J. B. L., Endencia and Felix, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

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THIRD DIVISIONG.R. No. 162267 July 4, 2008PCI LEASING AND FINANCE, INC., petitioner,vs.UCPB GENERAL INSURANCE CO., INC., respondent.

D E C I S I O NAUSTRIA-MARTINEZ, J .:Before the Court is a Petition for Review on Certiorariunder Rule 45 of the Rules of Court, seeking a reversal of the Decision1ofthe Court of Appeals (CA) dated December 12, 2003 affirming with modification the Decision of the Regional Trial Court (RTC)of Makati City which ordered petitioner and Renato Gonzaga (Gonzaga) to pay, jointly and severally, respondent the amount

of P244,500.00 plus interest; and the CA Resolution2

dated February 18, 2004 denying petitioner's Motion for Reconsideration.The facts, as found by the CA, are undisputed:

On October 19, 1990 at about 10:30 p.m., a Mitsubishi Lancer car with Plate Number PHD-206 owned by UnitedCoconut Planters Bank was traversing the Laurel Highway, Barangay Balintawak, Lipa City. The car was insured withplantiff-appellee [UCPB General Insurance Inc.], then driven by Flaviano Isaac with Conrado Geronimo, the Asst.Manager of said bank, was hit and bumped by an 18-wheeler Fuso Tanker Truck with Plate No. PJE-737 and TrailerPlate No. NVM-133, owned by defendants-appellants PCI Leasing & Finance, Inc. allegedly leased to and operated bydefendant-appellant Superior Gas & Equitable Co., Inc. (SUGECO) and driven by its employee, defendant appellantRenato Gonzaga.

The impact caused heavy damage to the Mitsubishi Lancer car resulting in an explosion of the rear part of the car. Thedriver and passenger suffered physical injuries. However, the driver defendant-appellant Gonzaga continued on its [sic]way to its [sic] destination and did not bother to bring his victims to the hospital.Plaintiff-appellee paid the assured UCPB the amount of P244,500.00 representing the insurance coverage of thedamaged car.

As the 18-wheeler truck is registered under the name of PCI Leasing, r