Appeal by certiorari  against  the decision of the Court of  Appeals  adjudging  respondent  Pablo L.  Regala  the sum of P6,998.85, with legal interest, said to be the unpaid balance due him from  petitioners Sy Suan and Price Incorporated,  as a result  of their verbal  contract whereby the said petitioners agreed to  pay 10 % of the value  of the licenses which respondent might  obtain from  the defunct Import Control Commission for the importation of  industrial  starch for candy manufacture,  plus P500 as  attorney's fees, and  costs.

The facts of the case  as found by the Court of Appeals are as follows:

"That on April 11, 1953, defendant Sy  Suan, who was at the time president  and general manager of his  co-defendant [Price Incorporated] and owner  of practically all  the capital stock of said corporation,  executed  in favor of plaintiff a special power of attorney authorizing the latter  to prosecute the former's applications for import licenses with the Import Control Office per Exhibit 'B.'  At the time of the execution of the said power of attorney, defendants  had  pending' in the Import Control Office the following applications:  Application No. 001705 for industrial starch  in the sum of $16,477.34 filed on  April 6, 1953  in the name of  defendant, Price Incorporated; Application  No.  001797 for industrial starch in the sum of  $21,678.48  filed on April 6, 1953 in the name of defendant Price Incorporated; and Application No.  001800 for industrial starch in the sum of $15,778.11 filed on Aprils, 1953 in the name of  defendant  Price Incorporated (Exh, 'A').   Pursuant to said special power  of attorney, plaintiff followed up  and prosecuted  the  above-mentioned applications with and through  the different offices  and divisions of  the Import  Control Office,  conferring with  the corresponding  Import  Control  officials. On  or about May  19, 1953, the Import Control  Office issued the following licenses as  a result of  the effort made by the  herein  plaintiff: license No. 15030 on  Application No. 001795;  License  No. 15029 of Application No. 001797; and License  No. 15028 on Application No. 001800, the amount  of which had been reduced to $11,888.50.

"Shortly before  the  execution of the special power  of attorney above referred to, plaintiff  and defendant Sy Suan agreed verbally that  plaintiff's services for  securing the said  licenses  would be paid  or compensated with  ten  (10%)  per cent  of the total value of the  amounts approved  on the said applications.  On May 19, 1953, upon  the release of  the aforementioned  licenses, defendants paid  the plaintiff  the sum  of P3,000.00 on  account of the latter's services."

Under the facts  above set forth  and  from the briefs submitted, the main issue  in this appeal  is  the  validity of the parole  contract of remuneration which petitioners assail as  contravening  public policy  and interest, hence null and void ab initio.

Petitioners argue that the 10% commission sought by respondent and  granted  by the  Court of  Appeals is  inimical  to  public policy  in that it tends to  increase  the cost  of production  of candies which  they  manufacture; that this  increase  will  necessarily  be passed on to  the consuming public by way of increased prices, thus frustrating the avowed purpose of the government to lighten the burden  of the people and to place essential consumers goods such as candies within the reach of the masses; that  if the giving of 10%  to intermediaries  in  the procurement of import  licenses is sanctioned, this practice would serve as a deterrent, rather than an incentive, to the  creation of  new  industries encouraged  by  the government,  as it would syphon off a substantial percentage of the capital  invested by the fledging  industries  to the private pockets of so-called "tenpercenters;" and that inasmuch as  the granting of licenses  depends  solely upon the  merits  of  each application, the  intervention of  such intermediaries  would  tend to influence  and  corrupt the judgment of the government agencies processing the application.

Against this argument, respondent claims that the contract in question is not violative of sound public policy; that  a  contract  should not be  declared void as against public policy except when the cases is clear and free from doubt and the  injury to the public is substantial and not theoretical or problematical; that the usual and most important function of courts of justice is rather to maintain and  enforce contracts  than to enable  parties thereto  to escape their obligation  on the  pretext  of public policy, unless it clearly appears that they contravene  public right or public welfare;  and that contracts,  when entered into freely and  voluntarily, should be enforced  by courts  of justice.

Upon careful consideration of the contentions of  both parties, we find  undeniable that the contract in question sought to be enforced by the respondent and assailed by petitioners as null and void for being against public policy, is what is commonly .known as 10% contracts' which the press decries and the public condemns as inimical to public interest.   We can  take judicial notice that this kind  of contract  sprouted as  a result of the controls  imposed by the government on imports and dollar allocations, despite the enunciated government  policy that  applications  for imports and foreign exchange should be considered  and acted upon  strictly on  the  basis of merit of each  application and without the intervention of intermediaries, which policy is revealed by Sections 15 and 18 of Republic Act 650 which read:

"SEC. 15. The president may  summarily  bar  firms or individuals from  filing applications for import and/or from doing business in the Philippines for any of the following acts:

"1.  *  * *.
"2.  *  * *.
"3.  The payment to any public official, directly or indirectly, of any fee, premium  or compensation  other than  those allowed  by laws  or  regulations,  in connection with the issuance  or granting of quota allocations  or licenses."

"SEC, 18. The penalty or fine  of not less than" two thousand  pesos (P2,000)  nor more than twenty thousand pesos (P20,000)  or imprisonment  of not  less than two years  nor  more  than  five years, or both  such fine and imprisonment at the  discretion of the Court shall  be imposed upon persons who may  he  found guilty of the following acts:

"1.  *  * *.
"2.  *  * *.
"3.  The receiving or accepting by any public official  or employee directly or indirectly, of  fees,  premiums or compensation  of any kind other than those allowed by law or by the rules  and  regulations, for the performance of any act  or  service  connected  with the issuance of import license or quota allocation."

If  the granting of  import  licenses or  quota allocations depended solely upon the merits of  each application, there being a prohibition to  firms or  individuals  applying for such  licenses or quota allocations  from paying  "to  any public official, directly or indirectly, of any fee, premium or  compensation  other than those allowed by law or  regulations, in  connection  with the issuance or granting of quota  allocations  or  licenses,"  and  these  officials  are equally  prohibited from "receiving or accepting,  directly or  indirectly, of fees, premiums or compensations of  any kind  other than those allowed by law or  by,the rules  and regulations,  for the performance of any  act  or service connected with the issuance  of import  license or  quota allocation,"  certainly the intervention  of intermediaries, such  as herein respondent, would be unwarranted  and uncalled for,  as such 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  Impart  license  or quota   allocation an  eventuality Which the law precisely sought to avoid.

The present case is  similar to that of Mathew S. Tee vs. Tacloban   Electric &  Ice Plant  Co.,  Inc.,  et  al.,^* L-11980, February 14, 1959.  In  that  case,  Mathew S. Tee was approached by the agents of the Tacloban  Electric for him to secure dollar  allocation from  the Central Bank for the  company,  upon  payment  of  the "standard fee" of 10% of the value of the allocation obtained.  Tee filed the necessary papers, followed them up for six months, and  finally obtained the  allocation  of  $243,500.00  for the company.  Upon failure to collect his 10%, Tee filed the appropriate action with the  Court of  First  Instance of  Manila,  where  defendants  moved to  dismiss the complaint, which was granted, on  the ground that the contract was null and  void  ab initio as being against public morals and public policy.   On appeal, we  sustained the dismissal and  held that said contract was  really contrary to  good customs/ public order  and public policy.   The doctrine laid down in that case is certainly applicable to the present, as both involve the collection of  10% of the value of the license that may have been obtained.

Respondent claims, however, that there  is  no evidence showing that the contract in question has  violated  any public policy.   We do not agree to this, as the very contract in question is self-evident.  As we have cited in the aforementioned case.

"It is a general rule that agreements against  public policy are illegal and void.  Under the principles  relating to the doctrine of public policy, as applied to the law of contracts, courts of justice will not recognize or uphold any transaction which, in its object operation, or tendency, is calculated to be prejudicial to the public welfare, to sound morality, or to civic honesty.  The test is  whether the parties  have stipulated for something inhibited by  the law or inimical  to, or inconsistent with,  the public  welfare.  An agreement is against public policy if it is  injurious to the interests of the public, contravenes some established interest of society, violates some public statute, is against  good morals, ends to interfere with the public welfare or  society, or as it is sometimes put, if it is at war with the interests of society and is in conflict with the morals of the time.  An agreement  either to do anything  which, or not to do anything the omission of which,  is in  any degree clearly injurious  to the  public and an  agreement of such a nature that it cannot be  carried  into  execution without  reaching  beyond the parties  and exercising an injurious influence  over the community at large are against public policy.  There are  many things which the law does not prohibit, in the sense of attaching  penalties, but which  are so  mischievous  in their nature  and tendency  that  on grounds of public policy they cannot be admitted  as  the subject of a valid contract.  The question whether a contract is against public policy depends upon  its purpose and  tendency, and  not upon the fact that  no harm  result from it.  In other words, all  agreements the purpose.of  which is to create a situation  which tends to operate to the detriment of the  public  interest  are against  public policy and void,  whether in the  particular case the purpose  of the agreement is or is not effectuated.   For a particular undertaking  to be against public policy actual injury need not be shown; it is enough if the potentialities for harm are present."  (12 Am. Jur., pp. 662-664)

On the other hand,  Articles 1306  and  1409  of the new Civil Code provide:

"ART. 1306. The  contracting parties  may  establish  such  stipulations, clauses, terms and  conditions as  they, may deem convenient provided they are not.contrary to law, morals, good customs, public order, or  public policy."

"ART. 1409. The following contracts  are inexistent and void from the beginning:

(1) Those whose  cause,  object or  purpose  is  contrary  to  law, morals, good customs, public order or public  policy."

Wherefore, the   decision   of  the Court  of  Appeals  is hereby reversed, without costs.

Paras, C.  J.,  Bengzon, Padilla, Montemayor,  Bautista Angelo, Concepcion, and Barrera, JJ., concur.

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^* Supra, p. 168.