G.R. No. L-9506; June 30, 1956
SY SUAN and PRICE INCORPORATED, petitioners, vs. PABLO L. REGALA, respondent.

FACTS

Petitioner Sy Suan, as president and general manager of co-petitioner Price Incorporated, executed a special power of attorney in favor of respondent Pablo L. Regala on April 11, 1953. This authorized Regala to prosecute the corporation’s pending applications for import licenses for industrial starch with the Import Control Office. Prior to this, Sy Suan and Regala had verbally agreed that Regala’s compensation for securing the licenses would be ten percent (10%) of the total value of the amounts approved on the applications. Regala followed up the applications, and on May 19, 1953, the Import Control Office issued the corresponding licenses. Petitioners paid Regala P3,000 on account. Regala filed an action to recover the alleged unpaid balance of his 10% commission, which the Court of Appeals granted. Petitioners appealed, assailing the verbal contract as null and void for being contrary to public policy.

ISSUE

Whether the verbal contract for a 10% commission for securing import licenses is valid or is null and void for being contrary to public policy.

RULING

The Supreme Court ruled that the contract is null and void ab initio for being contrary to public policy. The Court reversed the decision of the Court of Appeals.
The contract is what is commonly known as a “10% contract,” which the Court found to be inimical to public interest. The Court took judicial notice of the government policy, revealed in Sections 15 and 18 of Republic Act 650, that applications for import licenses should be acted upon strictly on their merits and without the intervention of intermediaries. The law prohibits applicants from paying, and public officials from receiving, any unauthorized fee or compensation in connection with the issuance of licenses. The intervention of an intermediary like the respondent serves no legitimate purpose where licenses are granted solely on merit. Instead, such intervention would tend to influence or possibly corrupt the judgment of public officials, an eventuality the law precisely sought to avoid.
The Court applied the doctrine established in Tee vs. Tacloban Electric & Ice Plant Co., Inc., which involved a similar 10% contract for obtaining a dollar allocation and was declared void as contrary to good customs, public order, and public policy. The Court held that agreements whose purpose or tendency is to create a situation detrimental to the public interest are against public policy and void under Articles 1306 and 1409 of the Civil Code. The potential for harm to the public welfare is sufficient to invalidate such contracts; actual injury need not be shown.