E. Razon, Inc. vs. Philippine Ports Authority

A contract entered into in violation of the Anti-Graft and Corrupt Practices Act is null and void, and no judicial action is necessary for its annulment, allowing the government agency to unilaterally cancel it.

Petitioner E. Razon, Inc. (ERI), later known as Metro Port Services, Inc. (MPSI), is a Philippine corporation organized to bid for the contract to manage piers in South Harbor, Manila. Co-petitioner Enrique Razon was the original majority equity owner. The Philippine Ports Authority (PPA) is the government agency charged with supervising, controlling, and regulating ports. The dispute centers on the management contract for arrastre services executed between ERI and PPA, which was tainted by the transfer of 60% of ERI's equity to Alfredo "Bejo" Romualdez, brother-in-law of then President Marcos, in violation of Section 5 of Republic Act No. 3019.

Petitioner E. Razon, Inc. (ERI), organized in 1962 with Enrique Razon as the 100% equity owner, was awarded a five-year contract in 1966 to operate the arrastre service for Piers 3 and 5 at South Harbor, Manila. When the Bureau of Customs called for a new bidding in 1971, ERI sought to enjoin the bidding and compel the renewal of its contract. The Supreme Court eventually directed the final award in favor of ERI as the best bidder, leading to the execution of a management contract on January 18, 1974, for a term of five years, renewable for another five years.

In late 1978, Enrique Razon was allegedly coerced by emissaries from then President Marcos into endorsing in blank ERI's stock certificates covering 60% equity without receiving any payment. The shares were later registered under Maximum Trading and Industrial Corporation (MATICO) and controlled by Alfredo "Bejo" Romualdez, the President's brother-in-law. A new group took over ERI's management, changing its corporate name to Metro Port Services, Inc. (MPSI), while Razon was retained as President with reduced powers. When the contract expired on December 31, 1978, it was extended and subsequently replaced by a new eight-year contract executed on June 27, 1980, effective July 1, 1980.

Following the ouster of the Marcos administration in February 1986, Razon regained control of MPSI, reorganized the Board of Directors, and secured the reconveyance of the 60% equity from MATICO. On July 18, 1986, truckers staged a demonstration at South Harbor complaining about Razon's management. That afternoon, the Philippine Ports Authority (PPA) sent a letter demanding an explanation for various complaints and contract violations by 9:00 A.M. the following day. Razon prepared a letter stating he would reply early next week, but it was never delivered. On July 19, 1986, PPA unilaterally canceled the management contract and took over operations, subsequently appointing Marina Port Services, Inc. as interim operator on July 21, 1986.

Petitioners then filed a petition for certiorari with the Supreme Court and a similar complaint with the Regional Trial Court of Manila, leading to accusations of forum-shopping. The Supreme Court initially dismissed both actions and suspended petitioners' counsels, but later lifted the suspension and allowed the intervention of Marina Port Services, Inc. to accord petitioners access to the courts on the merits of the PPA's cancellation.

• Due Process: Petitioner maintained that they were denied their right to due process when respondent PPA cancelled the Management Contract without prior hearing and investigation.
• Nature of the Contract: Petitioner argued that the management contract is not an ordinary commercial contract but more in the nature of a franchise or license impressed with property rights, which cannot be cancelled without according them the opportunity to be heard.
• Regulatory vs. Proprietary Function: Petitioner asserted that respondent PPA was acting as a regulatory body exercising adjudicatory powers rather than a party to a contract exercising its right to rescission, making the cancellation null and void for violating due process.
• Vitiated Consent: Petitioner alleged that the transfer of 60% equity to Alfredo "Bejo" Romualdez was obtained through force and duress and without monetary consideration, making the transfer voidable for lack of consent or void for being fictitious.

• Nullity of Contract: Respondent argued that the cancelled contract was previously awarded to Metro Port Services, Inc., controlled by Alfredo "Bejo" Romualdez, and being the fruit of corruption in the Marcos government, it is a nullity that petitioners cannot enforce.
• Forfeiture of Victim Status: Respondent contended that Razon forfeited his claim as a victim of the Marcos regime by admitting he agreed to front for Romualdez's illegal dealings with the PPA.
• Admission of Violations: Respondent pointed out that petitioners admitted sufficient grounds for PPA's cancellation of the arrastre contract by acknowledging mismanagement, thus barring them from complaining.
• No Prior Hearing Required: Respondent argued that under the circumstances, PPA was not required to hear petitioners prior to cancelling the contract.
• Validity of Marina's Appointment: Respondent maintained that given the validity of PPA's cancellation and takeover, the designation of Marina Port Services, Inc. as interim operator is not for petitioners to question, and Marina is qualified for the task.

• Validity of the Management Contract: Whether the management contract between E. Razon, Inc. and the Philippine Ports Authority is null and void for having been entered into in violation of the Anti-Graft and Corrupt Practices Act.
• Unilateral Cancellation: Whether the Philippine Ports Authority could unilaterally cancel the management contract without prior hearing and judicial action.
• Due Process: Whether petitioners were denied due process by the unilateral cancellation of the contract.

• Validity of the Management Contract: Yes. The management contract is null and void for being expressly prohibited by law under Section 5 of Republic Act No. 3019 and Article 1409(7) of the Civil Code, as it was entered into while the company was controlled by Alfredo "Bejo" Romualdez, a relative of the then President.
• Unilateral Cancellation: Yes. No judicial action is necessary for the annulment of a void contract; any such action would be merely declaratory, thus PPA was well within its rights to unilaterally cancel and treat the contract as avoided.
• Due Process: No. Petitioners were not denied due process because the contract was void ab initio and did not require a hearing for its cancellation; moreover, even if the contract were valid, the grave violations committed by MPSI justified immediate termination.

• Validity of the Management Contract: The management contract was executed while E. Razon, Inc. was controlled by Alfredo "Bejo" Romualdez, brother-in-law of then President Marcos. Under Section 5 of the Anti-Graft and Corrupt Practices Act (R.A. No. 3019), Romualdez was prohibited from intervening in any transaction or business with the government by reason of his relationship with the President. Consequently, the management contract is null and void under Article 1409(7) of the Civil Code. Furthermore, the transfer of 60% equity to Romualdez was null and void, not for vitiated consent or lack of consideration, but for having an unlawful cause—obtaining a government contract in violation of law. The motive to contract with the government, which Romualdez was prohibited from doing, predetermines the purpose of the contract and is regarded as the causa. Razon was deemed a participant in the unlawful purpose because he facilitated it and shared in the benefits. Being the direct result of a previous illegal contract, the management contract is null and void under Article 1422 of the Civil Code.
• Unilateral Cancellation: Elementary in the law of contracts is the principle that no judicial action is necessary for the annulment of a void contract; any action would merely be declaratory. Thus, PPA acted within its rights to unilaterally cancel and treat the contract as avoided, and no arbitrariness can be attached to its exercise of this right.
• Due Process: Even assuming the contract were valid and subsisting, the violations committed by MPSI, which were grave and serious, justified immediate termination. PPA, as the agency charged with supervising ports, has the expertise to determine the capability of Marina Port Services, Inc. to discharge its tasks. Absent clear grave abuse of discretion, the Court will not disturb PPA's judgment.

• Nullity of Contracts Prohibited by Law — A contract is void and of no effect if it is expressly prohibited by law. Under Section 5 of R.A. No. 3019, relatives of the President are prohibited from intervening in government transactions. A management contract entered into by a company controlled by the President's brother-in-law is null and void under Article 1409(7) of the Civil Code.
• Unlawful Cause and Motive as Causa — While the cause of a contract must not be confused with the motives of the parties, an exception applies when the motive predetermines the purpose of the contract. If the motive is to obtain a government contract in violation of law, the transfer of shares to facilitate this is null and void for having an unlawful cause.
• Annulment of Void Contracts — No judicial action is necessary for the annulment of a void contract. Any action for that purpose would be merely declaratory. A party may unilaterally treat a void contract as avoided without need of court intervention.
• Participant in Unlawful Design — A party is deemed a participant in the unlawful intention if, with knowledge thereof, he does anything which facilitates the carrying out of such purpose, particularly if he shares in the benefits of the violation of law.

• "The invalidity springs not from vitiated consent nor absolute want of monetary consideration, but for its having had an unlawful cause — that of obtaining a government contract in violation of law." — This passage explains why the transfer of shares to Romualdez was void, establishing that the unlawful motive to secure a government contract in violation of the Anti-Graft law constitutes an unlawful cause.
• "Being the direct consequence and result of a previous illegal contract, the Management Contract itself is null and void as provided in Article 1422 of the Civil Code." — This establishes the link between the void transfer of shares and the void management contract, applying Article 1422 of the Civil Code on contracts that are the direct result of a previous illegal contract.
• "Elementary in the law of contracts is the principle that no judicial action is necessary for the annulment of a void contract. Any such action would be merely declaratory." — This articulates the doctrine that allows a party to unilaterally cancel a void contract without judicial intervention, justifying PPA's unilateral cancellation.

• Virata vs. Bocar, 50 SCRA 468 — Cited as the prior Supreme Court resolution directing the final award of the arrastre contract to E. Razon, Inc. as the best bidder.
• Liguez vs. Court of Appeals, 102 Phil. 577 — Cited for the exception that the motive may be regarded as causa when it predetermines the purpose of the contract.
• Meralco Securities Corp. vs. Savellano, 117 SCRA 804 and Anglo-Fil Trading Corp. vs. Lazaro, 124 SCRA 494 — Cited for the principle that the Court will not disturb the judgment of an administrative agency, absent clear grave abuse of discretion.

• Section 5, Republic Act No. 3019 (Anti-Graft and Corrupt Practices Act) — Prohibits relatives of the President from intervening directly or indirectly in any transaction or business with the government. Applied to invalidate the management contract because ERI was controlled by Alfredo "Bejo" Romualdez, the President's brother-in-law.
• Article 1409(7), Civil Code of the Philippines — States that contracts expressly prohibited by law are void and inexistent. Applied to declare the management contract null and void for violating Section 5 of R.A. No. 3019.
• Article 1422, Civil Code of the Philippines — Provides that a contract that is the direct result of a previous illegal contract is null and void. Applied to invalidate the management contract as the direct consequence of the illegal transfer of shares to Romualdez.
• Section 6(ii), Presidential Decree No. 857 — Defines the powers and duties of the Philippine Ports Authority to supervise, control, regulate, and operate ports. Cited to support PPA's authority to determine the capability of Marina Port Services, Inc.

Teehankee, C.J., Yap, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Sarmiento, and Cortes, JJ., concurred.