INTERNATIONAL HARVESTER MACLEOD, INC., PETITIONER, VS. THE COURT OF APPEALS AND TANSIONG LIM, RESPONDENTS.

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:

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.

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:

“In the light of all the foregoing, the Court renders judgment
in the entire case as follows:

“DEFENDANT TANSIONG LIM SHALL PAY:

(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 pretrial 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.:

(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.”

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:

“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.”

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 vs. Tacloban
Electric & Ice Plant Co., Inc. and Sy Suan vs. 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:

“x x x 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.”

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:

“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.” (underlining 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 vs. Regala, supra,
wherein it was succinctly stated:

“x x x (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.”

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 vs. Tacloban Electric & Ice Plant
Co., Inc. and Sy Suan vs. 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:

“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.”

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.

Teehankee, (Chairman), Makasiar, Fernandez, and
Guerrero, JJ., concur.

De Castro, J., took no part.

* Special First
Division composed of C. Pascual, P. de Castro, and M.
V. Agcaoili, JJ.

^[1] 105 Phil. 168, 1024 (1959).

^[2] Official
Gazette, Vol. No. 8, p. 1; Record on Appeal, p. 265.

^[3] p. 3, Brief for Private Respondent.

^[4] T.s.n. December
16, 1970, p. 39.

^[5]
17 Am Jur 2d p. 579.