001 Dart Philippines Inc. v Spouses Calogcog

001 Dart Philippines, Inc. v Sps. Francisco and Erlinda AUTHOR: Keith NOTE/S: Calogcog [G.R. No. 149241; Aug 24, 2009] TOPIC: Abuse of Right (NCC 19) PONENTE: Nachura, J. FACTS: 1. Dart PH entered into a distributorship agreement with the respondent spouses for the direct selling distribution of Tupperware product. 1.1 their contract was entered into on Mar. 3, 1986, it was to expire in Mar. 31, 1987 (1 year) 1.2 this was subject to an “automatic renewal clause” for 2 1-year terms 1.3 Another distributorship agreement was entered into on Apr. 1, 1991 and was to expire 1 year later, and also renewable on a yearly basis. 2. After the expiration, Dart PH informed the respondent spouses that they’re not willing to renew anymore because of the latter’s violation 3. The respondent spouses made a handwritten promise to comply with the terms. 4. Dart PH was convinced to enter again to renew (until Sept. 30, 1992) 5. Dart PH now subject the respondent spouses’ books for audit. 5.1 a 2nd audit was made and now the respondent spouses refused to have their books audited. 5.2 The consequence of their refusal meant that they can only order stocks on a “pre-paid basis” 6. Before the expiry (in #4, i.e. Sept. 29, 1992), respondent spouses filed before the RTC a case for damages + injunction against Dart PH. 6.1 the allegation was that Dart abused its right when they subjected the respondents to audit and when they only accepted order on a “prepaid basis” 6.2 damages were allegedly 1.3m 7. RTC: writ of PI issued + RTC ordered Dart PH to comply with terms of contract. 8. Dart PH filed for certiorari with CA. 8.1 Contract had long expired. 9. CA: RTC committed GADALEJ because the Distributorship agreement had long expired (nothing to enforce anymore) 10. Respondents moved for the admission of their supplemental complaint with the RTC. 10.1 respondents alleged that Dart PH refused to award benefits to its sales force 10.2 also, there’s violation of the Distributorship agreement because the products on hand and in their custody were not paid, Dart refused to transfer its goodwill, Dart’s action resulted in loss of sales force and that Dart made “inutile respondents’ investment in their building” 10.3 Damages amounted to: 1m for the products on hand; 4.495m for the “good will”; and another 3m for the “cost of the building” 11. RTC: admitted the supplemental complaint 12. RTC: in favor of respondent spouses 12.1 2nd audit by Dart PH (see 5.1) was unreasonable; 12.2 shift to “prepaid basis” from credit basis was act of harassment 12.3 Dart had not valid reason to deny renewal of Dist. Agreement 12.4 Ultimately, respondents suffered damages 13. Appeal was taken by Dart PH 14. CA: affirmed RTC 15. Hence, this Pet for Review on Certiorari. ISSUE: Whether or not Dart PH abused its right when it conducted a 2nd audit, changed the terms to a pre-paid basis, and ultimately when it denied to renew their agreement? HELD: No. there were violations already pointed out in their very first agreement (see #1), which caused the respondents to give a hand written promise (see #3) RATIO: 1. The correspondence prompted respondents to make a handwritten promise that they would observe and comply with the terms and conditions of the distributorship agreement. 1.1 This promise notwithstanding, Dart PH was not barred from exercising its right in the agreement to conduct an audit review of respondents’ account. 1.2 Thus, an audit was made in July 1992.

1.3 In September 1992, petitioner informed respondents that it was causing the conduct of a second audit review. And as explained in petitioner’s September 11, 1992 correspondence to respondents, the second audit was intended to cover the period not subject of the initial audit (the period prior to January 1 to June 30, 1992, and the period from July 1, 1992 to September 1992). 1.4 Because respondents objected to the second audit, petitioner exercised its option under the agreement to vary the manner in which orders are processed—this time, instead of the usual credit arrangement, petitioner only admitted respondents’ purchase orders on pre-paid basis. 1.5 It may be noted that petitioner still processed respondents’ orders and that the pre-paid basis was only implemented during the last month of the agreement, in September 1992. With the expiry of the distributorship agreement on September 30, 1992, petitioner no longer acceded to a renewal of the same. 2. From these facts, we find that bad faith cannot be attributed to the acts of petitioner. Petitioner’s exercise of its rights under the agreement to conduct an audit, to vary the manner of processing purchase orders, and to refuse the renewal of the agreement was supported by legitimate reasons, principally, to protect its own business. 3. The exercise of its rights was not impelled by any evil motive designed, whimsically and capriciously, to injure or prejudice respondents. The rights exercised were all in accord with the terms and conditions of the distributorship agreement, which has the force of law between them. 4. Clearly, petitioner could not be said to have committed an abuse of its rights. It may not be amiss to state at this juncture that a complaint based on Article 19 of the Civil Code must necessarily fail if it has nothing to support it but innuendos and conjectures. CASE LAW/ DOCTRINE: A complaint based on Article 19 of the Civil Code must necessarily fail if it has nothing to support it but innuendos and conjectures.