1. US V.
BARRIAS PLAINTIFF’S DEFENSE: Collector of Customs submitted a memorandum, stating that:
GR NO. 4349 I SEPT 24, 1908 I 11 PHIL 327 I Digested by: Marga Ablen
TOPIC: LTFRB cannot redelegate its delegated power to a common carrier
PARTIES: Plaintiff- appellee – US; Defendant-appellant – Aniceto Barrias
Definitions in case asked:
Lighterage – the conveyance or loading and unloading of cargo by means of a lighter
Lighter - shallow-draft boat or barge, usually flat-bottomed, used in unloading (lightening) or
loading ships offshore
FACTS:
The defendant was charged with a violation of paragraphs 70 and 83 of Circular No. 397 of
the Insular Collector of Customs. It was proved before the CFI Manila that being the captain
of the lighter Maude, he was moving her and directing her movement, when heavily laden
with hemp, in the Pasig River, by bamboo poles in the hands of the crew, and without a
steam, sail, or any other external power. (SAGWAN)
However, as mandated under Paragraph 70 of Circular No. 397, "No heavily loaded casco,
lighter, or other similar craft shall be permitted to move in the Pasig River without being
towed by steam or moved by other adequate power." Paragraph 83 provided the penalty that
the person offending shall be liable to a fine of not less than P5 and not more than P500, in the
discretion of the court.
CONTENTIONS OF DEFENDANT BEFORE THE SC: The counsel for the appellant
attacked the validity of paragraph 70 on two grounds:
1. that it is unauthorized by section 19 of Act No. 355; and
2. that if the Philippine Commission authorized the Collector to promulgate such a law, they
are void, as constituting an illegal delegation of legislative power.
Attorney-General supported the defendant’s argument.
Under Secs 1, 2 & 3 of Act No. 1136, passed April 29, 1904, the Collector of Customs is
authorized to license craft engaged in the lighterage or other exclusive harbor business of the
ports of the Islands, and, with certain exceptions, all vessels engaged in lightering are required
to be so licensed. Sections 5 and 8 read as follows:
SEC. 5. The Collector of Customs for the Philippine Islands is hereby authorized, empowered,
and directed to promptly make and publish suitable rules and regulations to carry this law into
effect and to regulate the business herein licensed.
SEC. 8. Any person who shall violate the provisions of this Act, or of any rule or regulation
made and issued by the Collector of Customs for the Philippine Islands, under and by
authority of this Act, shall be deemed guilty of a misdemeanor, and upon conviction shall be
punished by imprisonment for not more than six months, or by a fine of not more than one
hundred dollars, United States currency, or by both such fine and imprisonment, at the
discretion of the court: Provided, That violations of law may be punished either by the method
prescribed in section seven hereof, or by that prescribed in this section, or by both.
ISSUE: Whether the authority conferred by the Philippine Commission to the Collector of
Customs to promulgate Circular 397 constitutes an invalid delegation of legislative power.
RULING: (note: the 2nd contention of the defendant as to the invalidity of the delegation of
legislative power is encapsulated in the entirety of the ruling)
YES, the promulgation of Circular 397 constitutes an invalid delegation of legislative power
only in so far as PENAL PROVISION is concerned.
ON THE REGULATIONS IMPOSED BY THE COLLECTOR OF CUSTOMS – VALID.
There is no difficulty in sustaining the regulation (par. 70) of the Collector as coming within
the terms of section 5. The necessity of confiding to some local authority the framing,
changing, and enforcing of harbor regulations is recognized throughout the world, as each
region and each harbor requires peculiar rules more minute than could be enacted by the
central lawmaking power, and which, when kept within their proper scope, are in their nature
police regulations not involving an undue grant of legislative power.
In this case, the Lighterage, mentioned in the Act, is the business in which this vessel was
engaged, and when heavily laden with hemp she was navigating the Pasig River below the
Bridge of Spain, in Manila. This spot is near the mouth of the river, the docks whereof are
used to take on and discharge freight, and we entertain no doubt that it was in a right sense a
part of the harbor. The Court found that regulations imposed by the Collector of Customs
under Circular 357 are acceptable in connection to the mandate of Sec. 5 of Act 1136, and
hence sustains that the defendant is guilty of a misdemeanor.
ON THE IMPOSABLE PENALTY – INVALID DELEGATION.
One of the settled maxims in constitutional law is, that the power conferred upon the
legislature to make laws cannot be delegated by that department to any other body or
authority. Where the sovereign power of the State has located the authority, there it must
remain; and by the constitutional agency alone the laws must be made until the constitution
itself is changed. The fixing of penalties for criminal offenses is the exercise of a legislative
power which cannot be delegated to a subordinate authority.
IN SUM: The legislature could delegate to another agency the authority to make rules and
regulations, however, the penalty for the violation of such rules and regulations is a matter
purely in the hands of the legislature and therefore must be consistent with the provided penal
provisions as in this case, is Sec. 8 of the Act 1136 wherein conviction shall be punished by
imprisonment for not more than six months, or by a fine of not more than one hundred dollars,
United States currency, or by both such fine and imprisonment, at the discretion of the court.
Since it has been proved that the defendant was guilty of a misdemeanor, the penalty that he is
to be charged must be what is provided under Sec. 8 of Act 1136.
DISPOSITION: So much of the judgment of the Court of First Instance as convicts the
defendant of a violation of Acts Nos. 355 and 1235 are hereby revoked, and he is hereby
convicted of a misdemeanor and punished by a fine of 25 dollars, with the costs of both
instances. So ordered.
Note: The court did not discuss the validity of Act 355 and 1235 (1st contention of the
defendant), it only focused on the validity of Act 1136 and the invalidity of the delegation of
power as to penal provisions.
2. BALIWAG TRANSIT, INC., petitioner, vs. THE HON. COURT OF APPEALS AND
ROMAN MARTINEZ, respondents.
G.R. No. L-57493
January 7, 1987
PARAS, J.:
Topic: Kabit system
Petitioner: BALIWAG TRANSIT, INC. owned by Mrs. Victoria Vda. de Tengco
Private respondent: Roman Martinez- employee of Baliwag Transit owned by Pascual Tuazon
FACTS:
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 it until his death on January
26, 1972, while the latter was owned by petitioner corporation, incorporated in the year 1968
and existing until the present time.
Both bus lines operate under different grants of franchises by the Public Service Commission,
but were issued only one ID Number 03-22151 by the Social Security System.
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 private respondent's SSS
Premium contributions for the years 1958 to March, 1963 and from 1967 to March 1971.
Private respondent’s contention:
He alleged that he was employed by petitioner from 1947 to 1971 as conductor and later as
inspector with corresponding salary increases and that petitioner deducted from his salaries,
premium contributions, but what was remitted to the SSS was only for a period covering June,
1963 to 1966, at a much lesser amount.
Petitioner’s contention:
BTI denied having employed private respondent Ramon Martinez, the truth being that he was
employed by Pascual Tuazon who since 1948 owned and operated buses under the trade name
Baliwag Transit which were separate and distinct from the buses operated by petitioner
company owned by Mrs. Victoria Vda. de Tengco. Both bus lines had different offices,
different maintenance and repair shops, garages, books of account, and managers. The
employment of private respondent lasted until 1971 when his employer Pascual Tuazon
became bankrupt. It was the latter which deducted from private respondent the amount
corresponding to his SSS contributions for the years in question but allegedly did not remit
the same.
BTI claims that private respondent allowed 17 years to elapse and at a time when Pascual
Tuazon was already dead before filing the subject petition with the Social Security
Commission.
Social Security Commission entered a resolution in SSC Case No. 3272:
There existed no employer-employee relationship between the petitioner and respondent as
would warrant further remittance of SSS contributions for and in behalf of petitioner Roman
Martinez.
Court of Appeals:
The late Pascual Tuazon operated his buses under the "Kabit" System.
It reversed and set aside the resolution of the Social Security Commission in SSC Case No.
3272 and ordering respondent Baliwag Transit, Inc. to remit to the Social Security
Commission the premium contributions for the petitioner for the years 1958 to May 1963 and
from 1967 to March 1971, inclusive, plus penalties thereon at the rate of 3% per month of
delinquency.
Petitioner’s action:
Herein petitioner filed a Motion for Reconsideration with respondent Court of Appeals, which
Motion was later denied.
Hence, this petition.
ISSUE:
Whether or not the issuance by the Social Security System of one SSS-ID-Number to two bus
lines necessarily indicates that one of them, operates his buses under the "Kabit System”.
RULING:
NO, the issuance by the SSS of one ID to two bus lines does not necessarily indicate that one
of them operates under the “Kabit system”
The "Kabit System" has been defined by the Supreme Court as an arrangement "whereby a
person who has been granted a certificate of convenience allows another person who owns
motor vehicles to operate under such franchise for a fee."
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 case at bar, it is undisputed that as testified to, not only by seven (7) witnesses
presented by the petitioner but also by the Social Security System witness Mangowan
Macalaba, Clerk I of the R & A Division of the Board of Transportation, who had access 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, both operating between Manila and Baliuag routes. However,
the franchises of Pascual Tuazon were cancelled on December 16, 1971 and May 14, 1972
respectively, 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" with slight modification, by the inclusion of the word "Inc." in
the case of herein petitioner, obviously to take advantage of the goodwill such 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 the owner 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.
While it is admitted that petitioner was the one who remitted the SSS premiums of private
respondent, it has also been established by testimonies of witnesses that such arrangement
was done purposely to accommodate the request of the late Pascual Tuazon, the uncle of
Victoria Vda. de Tengco and the money came from him. On the other hand, there is no reason
why such testimonies should not be given credence as the records fail to show that said
witnesses have any motive or reason to falsify or perjure their testimonies
Moreover, the Social Security Commission after several hearings had been conducted, arrived
at the following conclusion:
1. It was established during the hearings that petitioner Roman Martinez was employed
by, worked for and took orders 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.
2. There is no evidence introducted to show that petitioner ever received salaries from
respondent or from Mrs. Victoria Vda. de Tengco and neither had he been under the orders of
the latter. The only basis upon which petitioner anchors his claim despite his actual
employment by Pascual Tuazon was the use by the latter of the trade name, Baliwag Transit,
in the operation of his (Mr. Tuazon's) own buses which the latter had every reason to do since
he laboriously helped and organized said firm until it gained cognizance by the public.
3. It is, therefore, clear that even long before the incorporation of the Baliwag Transit in
1968 petitioner was already an employee of the late Pascual Tuazon who despite having
separate office, employees and buses which were operated under the line of the Baliwag
Transit did not report him for coverage to the SSS.
Thus, the employer-employee relationship between the late Pascual Tuazon and herein private
respondent, having been established, the remittance of SSS contributions of the latter, is the
responsibility of his employer Tuazon, regardless of the existence or non-existence of the
"Kabit System."
Moreover, private respondent having allowed seventeen (17) years to elapse before filing his
petition with the Social Security System, has undoubtedly slept on his rights and his cause of
action has already prescribed under Article 1144(2) of the Civil Code
PREMISES CONCERNED, the decision of respondent Court of Appeals dated June 4, 1981
is hereby REVERSED and SET ASIDE, and the Resolution of the Social Security
Commission dated September 12, 1979 is hereby REINSTATED.
3. Lim v. CA
G.R. No. 125817 |Jan. 16, 2002| Digested by: Veth Alido
Topic: Kabit system
Parties: ABELARDO LIM (Owner of the 10-wheeler truck) and ESMADITO GUNNABAN
(Truck driver), petitioners | COURT OF APPEALS and DONATO H. GONZALES
(buyer/new owner of the jeep), respondents
DOCTRINE: It would seem then that the thrust of the law in enjoining the kabit system is not
so much as to penalize the parties but to identify the person upon whom responsibility may be
fixed in case of an accident with the end view of protecting the riding public. The policy,
therefore, loses its force if the public at large is not deceived, much less involved.
Facts:
1982- Donato Gonzales purchased an Isuzu passenger jeepney from Gomercino Vallarta,
holder of a certificate of public convenience for the operation of public utility vehicles plying
the Monumento-Bulacan route.
While private respondent Gonzales continued offering the jeepney for public transport
services, he did not have the registration of the vehicle transferred in his name nor did he
secure for himself a certificate of public convenience for its operation. Thus Vallarta
remained on record as its registered owner and operator.
July 22, 1990- while the jeepney was running northbound along the North Diversion Road
somewhere in Meycauayan, Bulacan, it collided with a ten-wheeler truck of herein petitioners
Lim and Gunnaban.
Gunnaban owned responsibility for the accident, explaining that while he was traveling
towards Manila the truck suddenly lost its brakes. To avoid collision he swerved the truck to
the center island and veered to the left until he smashed into a Ferroza automobile, and later,
into private respondent’s passenger jeepney driven by one Virgilio Gonzales. The impact
caused damage to both the Ferroza and the passenger jeepney and left one passenger dead and
others wounded.
Lim shouldered the medical treatment of the injured and compensated the heirs of the
deceased passenger. He also restored the damage vehicles, and negotiated with Gonzales by
offering to repair Gonzales’ jeep at Lim’s shop. In the alternative, Lim offered P20,000 as
compensation for the vehicular damage. However, Gonzales did not accept the offer and
demanded a brand new jeep and the amount of P236,000. Gonzales thereafter denied Lim’s
increased offer of P40,000.
Gonzales then filed a complaint for damages against herein petitioners.
Lim denied liability contending that he exercised due diligence in the selection and
supervision of his employees. Also, Lim alleged that Vallarta (original owner), and not
Gonzales, was the real party-in-interest because Gonzales was working under the kabit system
which is against public policy.
Gunnaban averred that the accident was a fortuitous event which was beyond his control.
During trial, the damaged jeepney was left by the roadside to corrode and decay. Private
respondent explained that although he wanted to take his jeepney home he had no capability,
financial or otherwise, to tow the damaged vehicle.
October 1, 1993- the Trial Court ruled in favor of Gonzales ratiocinating that as vendee and
current owner of the passenger jeepney, private respondent stood for all intents and purposes
as the real party--in-interest.
July 17, 1996- the Court of Appeals affirmed the decision of the trial court concluding that
while an operator under the kabit system could not sue without joining the registered owner of
the vehicle as his principal, equity demanded that the present case be made an exception.
Hence this petition.
Issues:
1. Whether or not Donato Gonzales is a real party in interest given that he is working under
the kabit system.
2. Whether or not the amount of the damages was proper.
3. Whether or not legal interest should be awarded.
Ruing:
1. YES. The evil sought to be prevented by the prohibition against the kabit system is
not present in this case. The purpose of the liability under the kabit system is to identify the
person to be held liable by passengers who are injured by those operating under such system.
This is absent in the case at hand.
What is the kabit system?
The kabit system is an arrangement whereby a person who has been granted a certificate of
public convenience allows other persons who own motor vehicles to operate them 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 kabit system is invariably recognized as
being contrary to public policy and therefore void and inexistent under Art. 1409 of the Civil
Code.
Dizon v. Octavio- the Court explained that one of the primary factors considered in the
granting of a certificate of public convenience for the business of public transportation is the
financial capacity of the holder of the license, so that liabilities arising from accidents may be
duly compensated. The kabit system renders illusory such purpose and, worse, may still be
availed of by the grantee to escape civil liability caused by a negligent use of a vehicle owned
by another and operated under his license. If a registered owner is allowed to escape liability
by proving who the supposed owner of the vehicle is, it would be easy for him to transfer the
subject vehicle to another who possesses no property with which to respond financially for the
damage done. Thus, for the safety of passengers and the public who may have been wronged
and deceived through the baneful kabit system, the registered owner of the vehicle is not
allowed to prove that another person has become the owner so that he may be thereby relieved
of responsibility. Subsequent cases affirm such basic doctrine.
It would seem then that the thrust of the law in enjoining the kabit system is not so much as to
penalize the parties but to identify the person upon whom responsibility may be fixed in case
of an accident with the end view of protecting the riding public. The policy, therefore, loses
its force if the public at large is not deceived, much less involved.
The evil sought to be prevented is not present here because:
First, neither of the parties to the pernicious kabit system is being held liable for damages.
Second, the case arose from the negligence of another vehicle in using the public road to
whom no representation, or misrepresentation, as regards the ownership and operation of the
passenger jeepney was made and to whom no such representation, or misrepresentation, was
necessary. Thus it cannot be said that private respondent Gonzales and the registered owner of
the jeepney were in estoppel for leading the public to believe that the jeepney belonged to the
registered owner.
Third, the riding public was not bothered nor inconvenienced at the very least by the illegal
arrangement. On the contrary, it was private respondent himself who had been wronged and
was seeking compensation for the damage done to him. Certainly, it would be the height of
inequity to deny him his right.
2. YES. Petitioners are not only liable for the damage done on the vehicle of Gonzales,
but also for the profits he lost because of the accident. It is a fundamental principle in the law
on damages that a defendant cannot be held liable in damages for more than the actual loss
which he has inflicted and that a plaintiff is entitled to no more than the just and adequate
compensation for the injury suffered. His recovery is, in the absence of circumstances giving
rise to an allowance of punitive damages, limited to a fair compensation.
Indemnification for damages is not limited to damnum emergens or actual loss but extends to
lucrum cessans or the amount of profit lost.
Had private respondent’s jeepney not met an accident it could reasonably be expected that it
would have continued earning from the business in which it was engaged. Private respondent
avers that he derives an average income of P300.00 per day from his passenger jeepney and
this earning was included in the award of damages made by the trial court and upheld by the
appeals court. The award therefore of P236,000.00 as compensatory damages is not beyond
reason nor speculative as it is based on a reasonable estimate of the total damage suffered by
private respondent, i.e. damage wrought upon his jeepney and the income lost from his
transportation business. Petitioners for their part did not offer any substantive evidence to
refute the estimate made by the courts a quo.
3. NO. The amount due from Lim was not demandable yet. Legal interest “cannot be
recovered upon unliquidated claims or damages, except when the demand can be established
with reasonable certainty.” In addition, interest at the rate of six percent (6%) per annum
should be from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to be reasonably ascertained).
In this case, the matter was not a liquidated obligation as the assessment of the damage on the
vehicle was heavily debated upon by the parties with private respondent’s demand for
P236,000.00 being refuted by petitioners who argue that they could have the vehicle repaired
easily for P20,000.00. In fine, the amount due private respondent was not a liquidated account
that was already demandable and payable.
One who is injured then by the wrongful or negligent act of another should exercise
reasonable care and diligence to minimize the resulting damage. Anyway, he can recover
from the wrongdoer money lost in reasonable efforts to preserve the property injured and for
injuries incurred in attempting to prevent damage to it.
The Court have observed that private respondent left his passenger jeepney by the roadside at
the mercy of the elements. Article 2203 of the Civil Code exhorts parties suffering from loss
or injury to exercise the diligence of a good father of a family to minimize the damages
resulting from the act or omission in question. However, we sadly note that in the present case
petitioners failed to offer in evidence the estimated amount of the damage caused by private
respondent’s unconcern towards the damaged vehicle. It is the burden of petitioners to show
satisfactorily not only that the injured party could have mitigated his damages but also the
amount thereof; failing in this regard, the amount of damages awarded cannot be
proportionately reduced.
Notes:
The main point of contention between the parties related to the amount of damages due
private respondent. Private respondent Gonzales averred that per estimate made by an
automobile repair shop he would have to spend ₱236,000.00 to restore his jeepney to its
original condition. On the other hand, petitioners insisted that they could have the vehicle
repaired for ₱20,000.00.
4. LITA ENTERPRISES, INC. VS IAC, OCAMPO, GARCIA || G.R. NO. 64693 ||
APRIL 27, 1984
Topic: Kabit system not a criminal offense but void under civil law
BABS
PETITIONER: LITA ENTERPRISES, INC.
PUBLIC RESPONDENT: INTERMEDIATE APPELLATE COURT
PRIVATE RESPONDENT: NICASIO OCAMPO, FRANCISCA GARCIA
FACTS:
The spouses Nicasio M. Ocampo and Francisca Garcia, purchased in installment from the
Delta Motor Sales Corporation five (5) Toyota Corona Standard cars to be used as taxicabs.
Since they had no franchise 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
monthly rental of P200.00 per taxicab unit.
To effectuate said agreement, the aforesaid cars were registered in the name of petitioner Lita
Enterprises, Inc. Possession, however, remained with the spouses Ocampo who operated and
maintained the same under the name Acme Taxi, petitioner's trade name.
Then, one of said taxicabs driven by their employee, Emeterio Martin, collided with a
motorcycle whose driver, one Florante Galvez, died from the head injuries sustained
therefrom.
A criminal case was filed against the driver Emeterio Martin, while a civil case for damages
was instituted by Rosita Sebastian Vda. de Galvez, heir of the victim, against Lita Enterprises,
Inc., as registered owner of the taxicab.
In the civil case, petitioner Lita Enterprises was adjudged liable for damages.
This decision having become final, a writ of execution was issued. Two of the cars of private
respondent were sold at public auction to Sonnie Cortrz (the first one), and to Mr. Lopez.
Respondent Nicasio Ocampo decided to register his taxicabs in his name. He requested the
manager of petitioner Lita Enterprises, Inc. to turn over the registration papers to him, but the
latter allegedly refused.
Hence, he and his wife filed a complaint against Lita Enterprises, Inc., Rosita Sebastian Vda.
de Galvez, Visayan Surety & Insurance Co. and the Sheriff of Manila for reconveyance of
motor vehicles with damages
CIF: ordered the petitioner to transfer the cars to plaintiff spouses
Petitioner: that private respondents be declared liable to petitioner for whatever amount the
latter has paid or was declared liable (in Civil Case No. 72067) of the Court of First Instance
of Manila to Rosita Sebastian Vda. de Galvez, as heir of the victim Florante Galvez, who died
as a result of the gross negligence of private respondents' driver while driving one private
respondents' taxicabs."
ISSUE: Whether private respondents should be held liable to the petitioner for whatever
amount the latter has paid to the heir of the deceased.
RULING: NO.
WHAT IS KABIT SYSTEM?; KABIT SYSTEM IS NOT OUTRIGHTLY PENALIZED
Unquestionably, the parties herein operated under an arrangement, commonly known as the
"kabit system", whereby a person who has been granted a certificate of convenience allows
another person who owns motor vehicles to operate under such franchise for a fee.
Although not outrightly penalized as a criminal offense, the "kabit system" is invariably
recognized as being contrary to public policy and, therefore, void and inexistent under Artic1e
1409 of the Civil Code.It is a fundamental principle that the court will not aid either party to
enforce an illegal contract, but will leave them both where it finds them. 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. Article 1412 of the Civil Code denies them such aid.
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, "the mere lapse of
time cannot give efficacy to contracts that are null and void."
PARTIES ARE IN PARI DELICTO
The principle of in pari delicto is well known not only in this jurisdiction but also in the
United States where common law prevails.
Under American jurisdiction, the doctrina 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 or delivered, or damages for
its violation.
The rule has sometimes been laid 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."
NOTES:
Art. 1412
"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 of the contract, or demand the performance of the other's undertaking."

5. PAGUIO TRANSPORT CORPORATION vs. NATIONAL LABOR RELATIONS
COMMISSION and WILFREDO MELCHOR | G.R. No. 119500 | August 28, 1998
Assigned: Bonifacio
Topic: Boundary system
PARTIES: Petitioner - PAGUIO TRANSPORT CORPORATION; Private respondent -
WILFREDO MELCHOR
FACTS:
Private respondent Wilfredo Melchor was hired by the petitioner company as a taxi driver
under the boundary system. He was engaged to drive the taxi unit assigned to him on a 24-
hour schedule per trip every 2 days, for which he used to earn an average income from P500-
P700 per trip, exclusive of the P650 boundary and other deductions.
On Nov. 24, 1993, private respondent met a vehicular accident along Quirino Avenue near the
PNR Station and Plaza Dilao when he accidentally bumped a car which stopped at the
intersection even when the traffic light was green and go.
After he submitted the traffic accident report to the office of petitioner, he was allegedly
advised to stop working and have a rest. After several days, he allegedly reported for work
only to be told that his service was no longer needed.
Private respondent filed a complaint for illegal dismissal. The Labor Arbiter rendered a
decision in favor of private respondent, which was affirmed by the NLRC. It held that private
respondent was an illegally dismissed employee of petitioner, and the latter was liable for
back wages.
Hence, this petition.
Petitioner’s contentions:
There was no illegal dismissal, there being in the first place no employer-employee
relationship because their arrangement was one called a “boundary system,” wherein
petitioner had no control over the number of hours the private respondent had to work and the
routes he had to take.
Petitioner also asserts that private respondent's involvement in three vehicular accidents [(1)
August 3, which resulted in damages to the petitioner in the amount of P150.00; (2) August 4,
P615 in damages; (3) 4 November 1993, P25,370.00 in damages] within a span of several
months constitutes just cause for his dismissal.
Petitioner insists that private respondent was accorded due process, because he was allowed to
explain his side and to show cause why he should still be allowed to act as one of petitioner's
drivers.
Petitioner invokes the doctrine of strained relations as a result of private respondent's
"reckless and incompetent manner of driving compounded by the damages suffered by
petitioner in terms of repairs, related expenses, and the institution of the instant case, the
relationship between the parties are so strained as to preclude a harmonious working
atmosphere to the prejudice of the petitioner as well as private respondent.
ISSUE: WON there was illegal dismissal of private respondent. (YES)
RULING:
On Employer-Employee Relationship: Petitioner’s argument does not persuade.This Court
already ruled that the relationship of taxi owners and taxi drivers is the same as that between
jeepney owners and jeepney drivers under the "boundary system." In both cases, the
employer-employee relationship was deemed to exist. In the case of Martinez, it held that In
the lease of chattels[,] the lessor loses complete control over the chattel leased, while In the
case of jeepney owners/operators and jeepney drivers, the former exercise supervision and
control over the latter. The fact that the drivers do not receive fixed wages but get only the
excess of that so-called boundary they pay to the owner/operator is not sufficient to withdraw
the relationship between them from that of employer and employee.
On Just Cause for Dismissal: Petitioner’s argument does not persuade. Petitioner did not
submit any proof to support these allegations. Well-settled is the rule that the employer has
the burden of proving that the dismissal of an employee is for a just cause. The failure of the
employer to discharge this burden means that the dismissal is not justified and that the
employee is entitled to reinstatement and back wages.
DISPOSITION: WHEREFORE, the petition is hereby DISMISSED for utter lack of merit,
and
the assailed Decision and Resolution are hereby AFFIRMED. Costs against petitioners.

Private respondent's admission that he was involved in the November 4, 1993 accident did not
give petitioner a just cause to dismiss him. Mere involvement in an accident, absent any
showing of fault or recklessness on the part of an employee, is not a valid ground for
dismissal.

On Due Process: Petitioner’s argument does not persuade. The Court has consistently held
that in the dismissal of employees, the twin requirements of notice and hearing are essential
elements of due process. The employer must furnish the worker two written notices: (1) one 6. JARDIN V. NATIONAL LABOR RELATIONS COMMISSION
to apprise him of the particular acts or omissions for which his dismissal is sought and (2) the
other to inform him of his employer's decision to dismiss him. As to the requirement of a G.R. NO. 119268. FEB. 23, 2000
hearing, the essence of due process lies simply in an opportunity to be heard, and not always
TOPIC: RELATIONSHIP BETWEEN THE OWNER OF THE VEHICLE AND THE
and indispensably in an actual hearing.
DRIVER UNDER A “BOUNDARY SYSTEM”
In the present case, petitioner failed to present proof, other than its bare allegations, that it had
complied with these requirements. Private respondent, in fact, was not given notice that he
was being dismissed. Private respondent was merely asked to explain the vehicular accident Petitioners: Angel Jardin, Demetrio Calagos, Urbano Marcos, Rosendo Marcos, Luis De Los
per se, not his defense against a charge of dismissal arising from the vehicular accident. He Angeles, Joel Ordeniza and Amado Centeno
became aware of his employer's intention to dismiss him only when he was actually told not
to report for work anymore. Private Respondent: Goodman Taxi (Philjama International, Inc.)

On Strained Relations: We are not persuaded. Strained relations must be demonstrated as a
fact. Petitioner failed to do so. Its allegation that private respondent was incompetent and
reckless in his manner of driving, which led to his involvement in three vehicular accidents, is
not supported by the records. As earlier noted, no evidence was properly submitted by
petitioner to prove or give credence to his assertions.
On Reinstatement and Back Wages: Because he was illegally dismissed, private respondent is
entitled to reinstatement and back wages pursuant to Section 279 of the Labor Code. The back
wages ought to be computed from the time of the illegal dismissal to the time of
reinstatement, either actual or in the payroll, without any deduction or qualification.
Public Respondent: NLRC
FACTS:
Petitioners were drivers of private respondent's taxicabs under the boundary system. Under
this arrangement, private respondent regularly deducts from petitioners’ daily earnings the
amount of P30.00 supposedly for the washing of the taxi units.
Believing that the deduction is illegal, petitioners decided to form a labor union, become
leaders and active members of the proposed union to protect their rights and interests.

Upon learning about the plan of petitioners, private respondent refused to let petitioners drive
their taxicabs
Aggrieved, petitioners filed with the labor arbiter a complaint against private respondent for
unfair labor practice, illegal dismissal and illegal deduction of washing fees.
The labor arbiter dismissed said complaint for lack of merit but was reversed and set aside by
the NLRC on appeal. The labor tribunal declared that petitioners are employees of private
respondent, and, as such, their dismissal must be for just cause and after due process.
After Private respondent's second motion for reconsideration, the NLRC ruled that it lacks
jurisdiction over the case as petitioners and private respondent have no employer-employee
relationship. It held that the relationship of the parties is leasehold which is covered by the
Civil Code rather than the Labor Code
Expectedly, petitioners sought reconsideration of the labor tribunal's latest decision which was
denied. Hence, the instant petition.
Petitioner’s contention:
The existence of an employer-employee relationship between the parties is already a settled
issue constituting res judicata, which the nlrc has no more jurisdiction to reverse, alter or
modify.
Existing jurisprudence on the matter supports the view that petitioners-taxi drivers are
employees of respondent taxi company
Respondent’s contention:
Based on the four-fold test and the control test the relationship of the parties is more of a
leasehold or one that is covered by a charter agreement under the Civil Code rather than the
Labor Code
“it is clear that the respondent does not pay the drivers, the complainants herein, their wages.
Instead, the drivers pay a certain fee for the use of the vehicle. On the matter of control, the
drivers, once they are out plying their trade, are free to choose whatever manner they conduct
their trade and are beyond the physical control of the owner/operator; they themselves
determine the amount of revenue they would want to earn in a day's driving; and, more
significantly aside from the fact that they pay for the gasoline they consume, they likewise
shoulder the cost of repairs on damages sustained by the vehicles they are driving.”
ISSUE:
WON NLRC erred in ruling that petitioner taxi drivers are not employees of respondent
company. (YES)
RULING:
YES, NLRC erred in ruling that petitioner taxi drivers are not employees of respondent
company. There is an existing employer-employee relationship as supported by existing
jurisprudence.
In a number of cases decided by this Court, we ruled that the relationship between jeepney
owners/operators on one hand and jeepney drivers on the other under the boundary system is
that of employer-employee and not of lessor-lessee.
We explained that in the lease of chattels, the lessor loses complete control over the chattel
leased although the lessee cannot be reckless in the use thereof, otherwise he would be
responsible for the damages to the lessor. In the case of jeepney owners/operators and jeepney
drivers, the former exercise supervision and control over the latter.
The management of the business is in the owner's hands. The owner as holder of the
certificate of public convenience must see to it that the driver follows the route prescribed by
the franchising authority and the rules promulgated as regards its operation. Now, the fact that
the drivers do not receive fixed wages but get only that in excess of the so-called "boundary"
they pay to the owner/operator is not sufficient to withdraw the relationship between them
from that of employer and employee.
We have applied by analogy the abovestated doctrine to the relationships between bus
owner/operator and bus conductor, auto-calesa owner/operator and driver, and recently
between taxi owners/operators and taxi drivers. Hence, petitioners are undoubtedly employees
of private respondent because as taxi drivers they perform activities which are usually
necessary or desirable in the usual business or trade of their employer.
7. DINGLASAN (Petitioner) VS. NATIONAL LABOR UNION (Respondent)
G.R. No. L-14183
Nov. 28, 1959
Topic: Relationship between the owner of the vehicle and the driver under a “boundary
system”
Digested by: kjapz
FACTS:
1. Respondent National Labot Union filed a complaint for alleged unfair labor practice
committed by petitioner Benedicto Dinglasan for locking out from employment 46 drivers
who are members of the National Labor Union.
2. CONTENTIONS OF PETITIONER DINGLASAN (WITH REGARDS TO THE
EXISTENCE OF EMPLOYER -EMPLOYEE RELATIONSHIP):
a. The court (Court of Industrial Relations) had no jurisdiction over his person and the
subject matter of the action, and that the National Labor Union was not the real party in
interest;
b. There was no employer-employee relationship between Dinglasan and the drivers,
the relationship being allegedly one of lessor-lessee only, as the jeeps being used by the said
drivers were rented out by Dinglasan under the so-called “boundary system”.
4. CONTENTIONS OF THE PARTIES (WITH REGARDS TO THE UNFAIR
LABOR PRACTICE):
a. Respondent National Labor Union contended that Dinglasan, upon learning that his
drivers had formed a labor union, refused to let them use and operate the jeepneys regularly
assigned to them, which act allegedly constitutes an unlawful lockout and an unfair labor
practice.
b. Petitioner Dinglasan contended that he did not lock out his drivers. Believing honestly
that there was no employer-employee relationship between him and the drivers, and fearing
that the drivers were intending to declare a strike and might abandon his jeepneys in the
streets, he decided, as a precautionary measure to protect his interest, to suspend their
operation temporarily and consult his attorney. Upon his counsel’s advice, he immediately
announced to the drivers the following morning that they could take out the jeepneys. Most of
the drivers refused to return to operate.
ISSUES:
1. WON there is employer-employee relationship between the owner (Dinglasan) and the
drivers of the jeeps. (YES)
2. WON Dinglasan committed an unfair labor practice. (NO)
RULING:
1. The drivers did not invest a single centavo in the business and Dinglasan is the
exclusive owner of the jeeps. The management of the business is in the Dinglasan's hands. For
even if the drivers of the jeeps take material possession of the jeeps, still Dinglasan as owner
thereof and holder of a certificate of public convenience is entitled to exercise supervision
over the drivers by seeing to it that they follow the route prescribed by the Public Service
Commission.
The only features that would make the relationship of lessor and lessee between the
respondent, owner of the jeeps, and the drivers, members of the petitioner union, are the fact
that he does not pay them any fixed wage but their compensation is the excess of the total
amount of fares earned or collected by them over and above the amount of P7.50 which they
agreed to pay to Dinglasan, and the fact that the gasoline burned by the jeeps is for the
account of the drivers. These two features are not, however, sufficient to withdraw the
relationship between them from that of employer-employee, because the estimated earnings
for fares must be over and above the amount they agreed to pay to Dinglasan for a ten-hour
shift or ten-hour a day operation of the jeeps. Not having any interest in the business because
they did not invest anything in the acquisition of the jeeps and did not participate in the
management thereof, their service as drivers of the jeeps being their only contribution to the
business, the relationship of lessor and lessee cannot be sustained.
2. Dinglasan could not to be held guilty of unfair labor practice. The cessation of the
operation of the jeepney was not due to any willful, unfair and discriminatory act of
Dinglasan but was the result of the drivers' voluntary and deliberate refusal to return to work.
While the said drivers may be entitled to reinstatement, there is no justification for their
receiving back wages for the period that they themselves refused to return to work.