Teja Marketing v IAC | Paras | 1987  ALSO, this is recognized as being contrary to

public policy and, therefore, void and in

FACTS: existent under Art. 14091 of the CC
 Nale bought from Teja Marketing a  Thus the fundamental principle that the court
motorcycle. A downpayment was given and a will not aid either party to enforce an illegal
chattel mortgage was executed to secure the contract, but will leave both where it finds then
payment of the balance (It was made to appear applies in this case
that the motorcycle sold to Nale was first
mortgaged to Teja so that Nale can attach the
unit to the Teja’s MCH Line since he had no
franchise of his own  Kabit System)
 One of their agreements is that Teja would
undertake the yearly registration of the
motorcycle with the Land Transportation
Commission (LTC). Nale claimed that this was
the main reason why he was induced to but the
vehice from Teja
 However, despite Nale’s payment to Teja of the
mortgage and registration fee, the latter still
failed to register the said motorcycle. As a
result, Nale suffered damages when he failed
to claim any insurance indemnity aside from
the loss of his daily income when the
motorcycle was impounded by the LTC for not
being registered
 Eventually, Nale failed to pay Teja and so the
latter filed an action for a sum of money. Teja
claimed that Nale was hiding the vehicle from
it that’s why it was not able to register the
vehicle.
 However, Nale filed a counterclaim blaming
Teja for the non-registration of the motorcycle
 The City Court, which was affirmed by the
CFI, ruled in favor of Teja
 The IAC held that since the purchase of the
motorcycle was done pursuant to the “kabit
system”, which is an illegal transaction, the
parties are in pari delicto. Thus, neither of
them may bring an action against the other to
enforce their illegal contract.

ISSUE: WoN the IAC erred in applying the

doctrine of pari delicto

DECISION: NO
 CPC is a special privilege conferred by the
government. As such it should not be abuse.
 IN THIS CASE, by operating under the kabit
system, the parties abused such privilege
 Kabit System is an arrangement whereby a
person who has been granted a CPC allows
another person who owns motor vehicles to
operate under such franchise for a fee. This
system has been identified as one of the root
causes of the prevalence of graft and 1
Art. 1409. The following contracts are inexistent and void
corruption in the government transportation
from the beginning:
offices.
(1) Those whose cause, object or purpose is contrary to law,
morals, good customs, public order or public policy

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