GR 122823; (November, 1999) (Digest)
G.R. No. 122823 November 25, 1999
SEA COMMERCIAL COMPANY, INC., petitioner, vs. THE HONORABLE COURT OF APPEALS, JAMANDRE INDUSTRIES, INC. and TIRSO JAMANDRE, respondents.
FACTS
Petitioner SEA Commercial Company, Inc. (SEACOM) and respondent Jamandre Industries, Inc. (JII) entered into a dealership agreement, later amended to be non-exclusive, appointing JII as a dealer for SEACOM’s agricultural machinery in Iloilo and Capiz. Tirso Jamandre executed a suretyship agreement for JII’s obligations. SEACOM filed a collection suit for an unpaid balance of P18,843.85. JII denied the obligation and counterclaimed for damages, alleging that after it had conducted demonstrations and secured approval from the Farm System Development Corporation (FSDC) for a sale of 24 Mitsubishi power tillers, SEACOM, using this information, directly dealt with FSDC and sold 21 units, depriving JII of unrealized profits.
The trial court ordered JII to pay its outstanding obligation but also granted JII’s counterclaim for unrealized profits, moral and exemplary damages, and attorney’s fees. The Court of Appeals affirmed, holding SEACOM liable for damages despite the absence of an agency relationship, finding it acted in bad faith by competing with its own dealer, violating Article 19 of the Civil Code.
ISSUE
Whether the Court of Appeals erred in holding SEACOM liable for damages and unrealized profits to JII based on bad faith under Article 19 of the Civil Code, notwithstanding the non-exclusive nature of their dealership agreement.
RULING
The Supreme Court affirmed the liability of SEACOM. The legal logic centers on the principle of abuse of right under Article 19 of the Civil Code, which mandates that every person must act with justice, give everyone his due, and observe honesty and good faith. The Court ruled that while the dealership was non-exclusive, this contractual right must be exercised in a manner consistent with good faith. SEACOM’s actions constituted bad faith. JII, as the designated dealer, invested effort and expense in promoting the products and securing the FSDC transaction. For SEACOM to then use the information and market groundwork developed by JII to directly compete for and secure the same sale was an unjust and dishonest exercise of its rights, violating the basic norms of human relations.
This abuse of right rendered SEACOM liable for the unrealized profits JII would have earned from the FSDC sale. The award of moral damages, however, was modified. As a corporation, JII is generally not entitled to moral damages for injury to feelings. The award was properly attributed to individual respondent Tirso Jamandre, who testified to his mental anguish. The Court upheld the finding that SEACOM’s act of competing with its own dealer, exploiting the dealer’s preparatory work, changed the competitive scenario to the dealer’s grave prejudice, making the dealership agreement inutile and warranting an award of damages under Article 19.