FIRST DIVISION

[G.R. No. L-44346. May 31, 1979]

INTERNATIONAL HARVESTER MACLEOD, INC., Petitioner, v.

THE COURT OF APPEALS and TANSIONG LIM, Respondents.

Salcedo, Del Rosario, Bito, Misa & Lozada for Petitioner.

Basilio H. Alo for Private Respondent.

SYNOPSIS

By way of counterclaim to petitioner’s complaint, respondent sought to

recover a commission of 2% of petitioner’s total volume of sales. The
counterclaim was based on an oral agreement between petitioner’s
Manager and respondent, whereby the latter would use his personal
influence with President Garcia to convince the latter to improve or, at
least, maintain petitioner’s dollar allocation. Respondent’s evidence is
to the effect that due to the rigid import controls imposed by the
Government, petitioner’s dollar allocation had been reduced, resulting
in a tremendous decrease in its volume of sales; that when petitioner
failed to obtain a reconsideration of the Monetary Board’s policy
decision of slashing the dollar allocations of alien importers under the
"Filipino First Policy" petitioner sought respondent’s aid, promising to
give the latter 2% of petitioner’s volume of sales during President
Garcia’s term, should he succeed in his mission of securing an
exception to the policy decision. Respondent claimed that petitioner’s
volume of sales increased because of his intervention.

The lower court sustained respondent’s counterclaim and ordered

petitioner to pay respondent P1,838,096.09 representing the 2%
commission. The Court of Appeals affirmed the decision with
modification. On petition for review, the Supreme Court nullified the
agreement, modified the decision by eliminating the award of
P1,838,096.09 and affirmed the decision in all other respects.

SYLLABUS
 1. CONTRACTS; VALIDITY; INFLUENCE PEDDLING; ANTI-GRAFT AND
CORRUPT PRACTICES ACT. — Any agreement entered into because of
the actual or supposed influence administrative or executive officers in
the discharge of their duties, which contemplates the use of personal
influence and personal solicitation rather than any appeal to the
judgment of the officer on the merits of the object sought is contrary
to public policy, and is null and void, and therefore, unenforceable
before Court of justice. It was to give statutory imprimatur to public
policy that Republic Act 3019, the Anti-Graft and Corrupt Practices Act
was enacted on August 1, 1960.

2. ID.; ID.; ID.; DOLLAR ALLOCATIONS; PUBLIC INTEREST DEMANDS

UNIFORM APPLICATION OF FOREIGN EXCHANGE RESTRICTIONS. —
Public interest demand that applications for foreign exchange be
considered, acted upon or disposed of strictly on the basis of the
merits and demerits of each case, without the intervention of
intermediaries, and the exigencies of public welfare require that
proceedings for the determination of such applications be deducted in
the most impersonal and impartial manner to forestall favoritism or
the commission of other irregularities in relation thereto or, at least to
minimize the opportunities therefor or the possibility thereof.

DECISION

MELENCIO-HERRERA, J.:

This is a Petition for Review of the Decision of the Court of Appeals *

affirming with modification the judgment, in respondent Tansiong
Lim’s favor, of the Court of First Instance of Bohol in an action for sum
of money filed by petitioner against Lim.

The facts of the case are as follows: chanrob1es virtual 1aw library

On November 24, 1964, petitioner International Harvester Macleod,

Inc. and private respondent Tansiong Lim entered into a dealership
agreement (Exhs. "A", "B" and "C") whereby the latter was appointed
dealer of the former in the island province of Bohol for the sale and
service of International trucks and equipment and farm tractors. The
dealership agreements had for their consideration discounts and terms
laid down in petitioner’s Schedule of Discounts and Terms of
Dealership Applying to Goods Covered by Dealer Sales and Service
Agreements (Exh. "D").

On September 14, 1965, petitioner filed a Complaint with prayer for

Preliminary Writ of Attachment with the Court of First Instance of
Bohol for the recovery of the sum of P76,806.88 allegedly due it from
respondent Lim under their dealership agreement and which the latter
had refused to pay in spite of repeated oral and written demands. It
was then prayed that a Writ of Preliminary Attachment be issued
against respondent Lim’s properties as security for the satisfaction of
any judgment that may be recovered; and that respondent Lim be
ordered to pay the sum of P76,806.88, with interest from August 1,
1965 until fully paid, the sum of P19,000.00 as and for attorney’s fees
and the costs of suit.

On September 28, 1965, respondent Lim filed his Answer averring that
he had asked for a liquidation of his accounts with petitioner, which
the latter neglected to give him; that without such liquidation, he could
not determine his indebtedness, if any; and that in the remote
possibility that petitioner’s demand is correct, he, nevertheless, has no
obligation to pay the same for the reason that the former has
monetary obligations to him which were much more than its claim. By
way of counterclaim, respondent Lim alleged that as a consequence of
the rigid import controls imposed by the Government, petitioner’s
dollar allocations had been reduced resulting in a tremendous decrease
of its volume of sales in 1958; that in order to remedy the situation as
it was expected that further reduction of its dollar allocations would be
made the following year, petitioner’s President, Mr. Paul Wood, asked
him, prior to February 25, 1959, to bring to the attention of then
President Carlos P. Garcia the detrimental effects of the import control
on petitioner’s business and on the entire nation; that on February 28,
1959, Mr. Wood delivered to him the letter dated February 25, 1959,
giving him authority to meet President Garcia, together with a copy of
General Letter No. 77 addressed to all employees of petitioner; that on
the same date, Mr. Wood verbally promised to give him two percent of
petitioner’s volume of sales for the duration of the term of President
Garcia, should its business improve as a result of his mission; that as a
result of his intervention, petitioner’s volume of sales increased in the
ensuing fiscal years; and that, consequently, he is entitled to receive
2% of petitioner’s total volume of sales from March 1, 1959 to
December 31, 1961, when President Garcia’s term of office expired. He
then prayed for the dismissal of the Complaint, the payment of his
share of 2% of petitioner’s total volume of sales from March 1, 1959 to
December 31, 1961, upon a determination of said amount, as well as
the sums of P20,000.00 as moral damages and P5,000.00 as
attorney’s fees.
chanrobles virtual lawlibrary

It appears that in a letter dated September 24, 1965, petitioner

advised respondent Lim of the termination of their dealership
agreement effective October 1, 1965. Consequently, respondent Lim
filed a Supplemental Counterclaim against petitioner for the amount of
P170,000.00 by way of damages by reason of the illegal termination of
their dealership agreement.

In Its Answer to respondent Lim’s counterclaims, petitioner denied

knowledge of his agreement with Mr. Paul Wood regarding the
payment of 2% of the total volume of its sales contending that the
increase in its volume of sales was not due to respondent Lim’s
intervention as he had nothing to do with the management of its
business; that not being a stockholder, he is not entitled to any
percentage of its volume of sales; and that it has all the right to
terminate their dealership agreement for violation thereof by
respondent Lim.

On March 21, 1966, after the pre-trial, the trial Court issued a
Resolution denying petitioner’s Motion for dismissal of the Complaint
without prejudice, as well as respondent’s Motion to Dismiss for
petitioner’s non-appearance, and ordered respondent Lim to pay
petitioner, within ninety (90) days from notice, the sum of P63,453.67,
with interest at the legal rate. In an Order dated December 7, 1966,
the Court a quo set aside the Resolution of March 21, 1966 and
dismissed the Complaint and counterclaim with prejudice. However, in
an Order dated May 26, 1967, the Resolution of March 21, 1966 was
reinstated.

Thereafter, trial was held with respect to the other issues, including
respondent Lim’s counterclaim regarding the payment of his
commission of 2% of petitioner’s total volume of sales, pursuant to his
agreement with Mr. Paul Wood.
On October 11, 1971, the trial Court rendered judgment, decreeing: jgc:chanrobles.com.ph

"In the light of all the foregoing, the Court renders judgment in the
entire case as follows:jgc:chanrobles.com.ph

"DEFENDANT TANSIONG LIM SHALL PAY: chanrob1es virtual 1aw library

(a) To the Clerk of Court the docketing fee on defendant’s permissive

counterclaim, once determined how much;

(b) Inasmuch as the amount of P63,453.67 that resulted from the pre-
trial is not yet executed, defendant Tansiong Lim is ordered, as part of
this judgment, to pay the sum of P63,453.67 until it is fully satisfied
and this amount shall be a lien on the judgment against International
Harvester Macleod, Inc.; and

(c) Tansiong Lim’s contract as dealer of plaintiff is declared terminated

upon finality of this decision.

"PLAINTIFF INTERNATIONAL HARVESTER MACLEOD, INC.: chanrob1es virtual 1aw library

(a) Shall pay to defendant Tansiong Lim P1,838,096.09 representing

two per cent (2%) of plaintiff’s total volume of sales (which was
P91,904,804.50), corresponding to the period from March 1959 to
December 31, 1961, with legal interest at the rate of 6% per annum
from October 1, 1965, until it is fully satisfied; and

(b) Shall pay to defendant Tansiong Lim P10,000.00 for the spare
parts which were in Tansiong Lim’s store and which are no longer
usable due to natural occurrences, with legal interest of 6% per
annum from December 6, 1965 until it is fully satisfied.

"Without pronouncement as to costs." cralaw virtua1aw library

On appeal, respondent Court affirmed the above-quoted judgment

with modification by requiring the payment of interest at the legal rate
on the sum of P63,453.67 until the same shall have been fully
satisfied; and by eliminating that portion requiring petitioner
International Harvester Macleod, Inc. to pay private respondent
Tansiong Lim the sum of P10,000.00 for spare parts.
Its Motion for Reconsideration of the Decision of the appellate Court
having been denied, petitioner filed the present Petition, which was
given course, raising the following questions of law:
chanrob1es virtual 1aw library

"I

WHETHER OR NOT A CONFIDENTIAL ORAL AGREEMENT SUPPOSEDLY

ENTERED INTO BY RESPONDENT LIM AND PETITIONER’S FORMER
PRESIDENT, MR. PAUL WOOD (NOW DECEASED) WHEREUNDER
RESPONDENT LIM WAS ALLEGEDLY PROMISED A 2% COMMISSION ON
ALL OF PETITIONER’S SALES FOR AS LONG AS THE NOW LATE
PRESIDENT CARLOS P. GARCIA IS THE INCUMBENT PRESIDENT OF
THE REPUBLIC OF THE PHILIPPINES, IN THE EVENT RESPONDENT LIM,
WHO CLAIMS CLOSE ASSOCIATION AND INFLUENCE OVER PRESIDENT
GARCIA, SUCCEEDS IN PREVENTING A REDUCTION OR AT LEAST
SHOULD BE ABLE TO MAINTAIN PETITIONER’S DOLLAR ALLOCATIONS
IS CONTRARY TO PUBLIC POLICY, GOOD CUSTOMS, PUBLIC ORDER,
PUBLIC MORALS AND LAW AS IN FACT SIMILARLY FOUND BY THIS
HONORABLE COURT IN TEE VS. TACLOBAN ELECTRIC COMPANY (105,
Phil. 168) AND SY SUAN VS. REGALA (105 PHIL. 1024) WHERE THE
NOTORIOUS CONTRACTS COMMONLY KNOWN AS ‘10% CONTRACTS’
WERE CONDEMNED AS INIMICAL TO PUBLIC INTEREST.

"II

WHETHER OR NOT SUCH AGREEMENT, WHICH IS CONTINGENT UPON

SUCCESS, IS OF A NATURE THAT TENDS TO MISCHIEF AND TO
INJURE PUBLIC CONFIDENCE IN THE ADMINISTRATION OF JUSTICE
AND HENCE, AS GENERALLY HELD BY THE AUTHORITIES, WOULD BE
CONTRARY TO PUBLIC POLICY, GOOD CUSTOMS, PUBLIC ORDER,
PUBLIC MORALS AND LAW.

"III

WHETHER OR NOT A COURT CAN CONSIDER AS EVIDENCE

DEPOSITIONS WHICH WERE INCOMPLETE SINCE THE EXHIBITS
REFERRED TO THEREIN WERE NOT ATTACHED; WERE NEITHER
MARKED AS EXHIBITS NOR WERE FORMALLY OFFERED IN EVIDENCE
NOR WERE OPENED IN COURT THE PRESENCE OF THE PARTIES.

"IV

WHETHER OR NOT A DEPOSITION OF A WITNESS IS ADMISSIBLE IN

EVIDENCE WHEN THE DEPONENT IS AVAILABLE TO TESTIFY AND IN
FACT TESTIFIED IN OPEN COURT.

"V

WHETHER OR NOT THE CONCLUSION OF THE COURT OF APPEALS

REGARDING THE EXISTENCE OF AN ORAL AGREEMENT INVOLVING
THE PAYMENT OF P1.8 MILLION AS A COMMISSION IS CORRECT,
PROPER OR JUSTIFIED IN THE LIGHT OF THE PLEADINGS OF THE
PARTIES AND THE ADMITTED OR PROVEN FACTS OF THE CASE AND
ESPECIALLY SO WHEN IT IS CONSIDERED (A) THAT THE CLAIM FOR
P1.8 MILLION WAS INTERPOSED FOR THE FIRST TIME SIX (6) YEARS
AFTER THE AGREEMENT WAS MADE AND ONLY THE FORM OF A
COUNTERCLAIM AND (B) WHEN THE CONCLUSION AS TO THE
EXISTENCE OF THE ORAL AGREEMENT WAS BASED SOLELY ON
DEPOSITIONS WHICH ARE INADMISSIBLE." cralaw virtua1aw library

In sustaining the validity of the agreement with respect to the

payment of the 2% commission, respondent Court found no similarity
between the case at bar and the cases cited by petitioner, Tee v.
Tacloban Electric & Ice Plant Co., Inc. and Sy Suan v. Regala, 1
wherein this Court ruled that contracts providing for a 10%
commission for securing import licenses or dollar allocations are null
and void as being against public policy. Said respondent Court: jgc:chanrobles.com.ph

". . . We find nothing against public policy in the agreement in

question. Appellee Tansiong Lim was requested only to present the
case of appellant, with the aid of certain documents, to the President,
taking into account his accessibility to President Garcia whom he saw
almost every Sunday. It is not Tansiong Lim’s influence with President
Garcia that induced his choice for the mission of making an appeal to
the President against reduction of appellant’s dollar allocation, for in
arming him with documents to support the appeal, appellant did not
rely on influence but on the merits of its case. If instead of Tansiong
Lim, it was a high official of appellant who had gone to see President
Garcia for the same mission and succeeded in presenting the
appellant’s case and obtaining the relief sought, there would seem to
be nothing immoral or illegal in the act. As to the payment of the
commission, it was but natural for Tansiong Lim, who is a mere dealer,
not an official of the appellant company, to deserve and be entitled to
some compensation.

"Neither was there anything inherently immoral in making the appeal

to President Garcia with the objective of showing how detrimental is it
for the economy for appellant’s allocation to be reduced, affecting as it
does also the well-being and livelihood of hundreds of employees and
workers of appellant. The President has made a decision, and it is only
to reconsider the decision to appellant’s favor that the latter sought
appellee’s service for a fee. This is not following up a dollar quota
application. It is to ask for a reconsideration of a policy decision laid
down by the President. It is not suggested that the President was
going to be shared in the 2% commission of Tansiong Lim as to taint
the whole proceedings, within the contemplation of the agreement,
with impropriety that will make the agreement itself void as against
public morals or policy. The matter taken up with President Garcia
comes within the legitimate exercise of his presidential prerogatives.
No hint is given that his decision or action would be influenced by
Tansiong Lim’s closeness to him as a friend, much less by money
consideration. Hence, the agreement is neither void as against public
policy in general, nor as against the spirit of the Anti-Graft Law, which
incidentally, was not yet in force when the agreement was forged." cralaw virtua1aw library

We find it difficult to uphold the above-observations of respondent

Court.

It is true that protests against the policy of the Monetary Board

reducing dollar allocations were filed by alien importers and that the
protests filed by American importers, which included petitioner, were
denied by President Garcia, as may be gleaned from the following
statements appearing in the February 23, 1959 issue of the Official
Gazette, reading thus: chanrobles law library : red

"February 20, PRESIDENT GARCIA announced today he will give the

Central Bank time to act on protests against the reduction of dollar
allocations for the current quarter of all alien importers, except
American importers." (Emphasis supplied)

"The President received at Malacañang British Ambassador George

Clutton, who verbally transmitted to him the protests of some
members of the local diplomatic corps against the ‘Filipino First Policy’
in the grant of dollar allocations. The President also received officials
and members of the International Chamber of Commerce who
presented a resolution protesting against the policy adopted by the
Monetary Board on January 5, 1959." 2

The evidence for respondent Lim then is to the effect that as a

consequence of rigid import controls imposed by the Government, the
dollar allocation of petitioner had been reduced, resulting in a
tremendous decrease in its volume of sales in 1958, and that in a
meeting he had with petitioner’s President and General Manager, Mr.
Paul Wood, on February 25, 1959, the latter promised to give him a
commission of 2% of petitioner’s total volume of sales should he
succeed in having petitioner’s dollar allocation improved or, at least,
maintained, for the duration of the term of then President Carlos P.
Garcia. Thus, as respondent Court itself stated in its Decision,
respondent Lim’s counterclaim was based on an oral agreement he
had with Mr. Paul Wood whereby he (Lim) would use his personal
influence and association with President Garcia to improve or, at least,
maintain petitioner’s dollar allocation. Respondent Lim himself admits
that the fact that he was a close friend of President Garcia might have
been one of the considerations taken into account by petitioner in
entreating him to undertake the job of bringing the matter of its
disastrous condition to the attention of the President. 3

There is also evidence to show that Mr. Paul Wood had wanted to see
respondent Lim as early as October, 1958 (Exhibit "42"). However, the
meeting between the two did not materialize until sometime in the
third week of February, 1959, when Mr. N. L. Valeriano, who was also
one of petitioner’s dealers, conveyed to respondent Lim Mr. Wood’s
urgent desire to have a conference with him on February 25, 1959.
The conference on February 25, 1959 must have been prompted by
President Garcia’s denial, on February 20, 1959, of the protests filed
by American importers against the reduction of their dollar allocations.

It must be conceded that Mr. Paul Wood armed respondent Lim with
some documents to support his appeal to the President to improve or,
at least, maintain petitioner’s dollar allocations, to wit: Exhibit "24",
which is a letter of Mr. Wood to respondent Lim expressing his wish
that President Garcia would read petitioner’s General Letter No. 77
(Exhibit "26") addressed to its dealers informing them of the reduction
of its dollar allocations for the first quarter of 1959 by 30.9%, resulting
in its inability to meet service parts requirements of dealers and
customers; Exhibit "25", which is petitioner’s Memorandum to its
employees informing them of the reduction of employment and sales
as a consequence of its reduced dollar allocations; and Exhibit "27",
which is a brochure showing that petitioner’s retail business is handled
solely by Filipino dealers whose employees are all Filipinos. Evidently,
said documents, on their face, tend to support petitioner’s appeal for
the maintenance or improvement of the latter’s dollar allocations. In
other words, having failed in its attempt to obtain a reconsideration of
the policy of the Monetary Board reducing the dollar allocations of
American importers, petitioner then sought the aid of respondent Lim,
who could see President Garcia "anytime", 4 for the purpose of using
Lim’s influence to convince the latter to improve, or, at least maintain
petitioner’s dollar allocation.

We find as untenable the finding that the circumstances obtaining

herein are dissimilar to the factual setting in Sy Suan v. Regala, supra,
wherein it was succinctly stated: jgc:chanrobles.com.ph

". . . (S)uch intervention would not render an unmeritorious

application deserving, nor undeserving applications meritorious, but
would serve no other purpose than to influence, or possibly corrupt, in
unmeritorious cases, the judgment of the public official or officials
performing an act or service connected with the issuance of import
license or quota allocation — an eventuality which the law precisely
sought to avoid." cralaw virtua1aw library

As announced by then President Garcia, the protests of American

importers against the reduction of their dollar allocations were not to
be entertained. The approach by respondent to President Garcia could
not but be for any other purpose but to influence him through personal
connections to make an exception in petitioner’s case. Clearly, an
agreement to this effect should be declared as against public policy.
Any agreement entered into because of the actual or supposed
influence which the party has, engaging him to influence
administrative or executive officers in the discharge of their duties,
which contemplates the use of personal influence and personal
solicitation rather than any appeal to the judgment of the officer on
the merits of the object sought, is contrary to public policy. 5

Nor can we agree with the appellate Court’s observation that the cases
of Tee v. Tacloban Electric & Ice Plant Co., Inc. and Sy Suan v. Regala
are not applicable to the case at bar as it does not involve following up
of dollar allocations. The fact that respondent Lim’s mission, for which
he was promised a 2% commission, involved an appeal to President
Garcia for a reconsideration of a policy decision reducing petitioner’s
dollar allocations does not make the present case essentially different
from the above-cited cases. The doctrines enunciated in said two cases
that public interest demands that applications for foreign exchange be
considered, acted upon or disposed of strictly on the basis of the
merits and demerits of each case, without the intervention of
intermediaries, and that the exigencies of public welfare require that
proceedings for the determination of such applications be conducted in
the most impersonal and impartial manner to forestall favoritism or
the commission of other irregularities in relation thereto or, at least to
minimize the opportunities therefor or the possibility thereof, are
equally applicable to the case at bar. In fact, even with more reason
considering that reconsideration of the policy decision slashing the
dollar allocations of alien importers, affecting as it did public interest,
had to be applied uniformly without exception. That private
respondent’s "influence" with President Garcia was the only causative
factor that improved petitioner’s business in subsequent years has not
been satisfactorily and convincingly proven.

Consequently, it is our considered opinion that the agreement between

respondent Lim and petitioner is null and void, for being against public
policy, and, therefore, unenforceable before a Court of justice. It was
to give statutory imprimatur to such public policy that Republic Act No.
3019, the Anti-Graft and Corrupt Practices Act, was enacted on August
17, 1960, incorporating the following provision: chanrobles law library

"SEC. 4. Prohibition on private individuals. — (a) It shall be unlawful

for any person having family or close personal relation with any public
official to capitalize or exploit or take advantage of such family or close
personal relation by directly or indirectly requesting or receiving any
present, gift or material or pecuniary advantage from any other person
having some business, transaction, application, request or contract
with the government, in which such public official has to intervene.
Family relation shall include the spouse or relatives by consanguinity
or affinity in the third civil degree. The word ‘close personal relation’
shall include close personal friendship, social and fraternal
connections, and professional employment all giving rise to intimacy
which assures free access to such public officer." cralaw virtua1aw library

The foregoing conclusion renders a determination of the other issues

raised by petitioner unnecessary.

WHEREFORE, the decision of the Court of Appeals is modified by

eliminating the award in favor of respondent Lim in the amount of
P1,838,096.09, representing 2% of petitioner’s total volume of sales
corresponding to the period from March, 1959 to December 31, 1961,
but affirmed in all other respects.

No pronouncement as to costs.

SO ORDERED.