G.R. No. 214046, February 05, 2020
TOCOMS PHILIPPINES, INC., PETITIONER, VS. PHILIPS ELECTRONICS AND LIGHTING, INC., RESPONDENT.

FACTS

Petitioner Tocoms Philippines, Inc. (Tocoms) filed a suit for damages and injunction (Civil Case No. 73779-TG) against several defendants, including respondent Philips Electronics and Lighting, Inc. (PELI). Tocoms alleged that it was appointed as a distributor of Philips Domestic Appliance through a Distribution Agreement with Philips Singapore, represented in the Philippines by PELI, which was regularly renewed yearly from 2001 to 2008. Tocoms claimed it consistently met sales targets and established the products in the market. Before the end of 2012, Tocoms made marketing disclosures and complied with requirements for renewal. However, in a January 2, 2013 meeting, PELI’s General Manager handed Tocoms a letter from PELI’s Vice President/Manager Asia Pacific informing that the Distributorship Agreement would not be renewed. Tocoms alleged the termination was sudden and without sufficient notice. It further claimed that as early as December 2012, PELI, with malice and bad faith and in collusion with a new distributor, Fabriano, had been selling the products to Fabriano at a much lower price, causing Tocoms prejudice, including client returns of inventory. Tocoms also alleged PELI made an unreasonable, one-sided demand to buy-back Tocoms’ inventory at heavily discounted rates and recalled Import Commodity Clearance (ICC) stickers, coercing acceptance. Tocoms demanded a buy-back on different terms, which PELI refused. The complaint prayed for actual and exemplary damages, attorney’s fees, and a temporary restraining order/preliminary injunction to enjoin the change in distributorship and direct release of ICC stickers.
PELI filed a Motion to Dismiss on grounds of invalid service of summons, not being a real party-in-interest, improper venue, and failure of the complaint to state a cause of action. The Regional Trial Court denied the motion. PELI filed a Petition for Certiorari with the Court of Appeals (CA). The CA granted the petition, reversing the trial court and holding that the trial court committed grave abuse of discretion in denying the motion to dismiss because the complaint failed to state a cause of action. The CA held that the complaint’s essential thrust was a prayer for damages resulting from the non-renewal of the Distributorship Agreement. In determining whether the complaint failed to state a cause of action, the appellate court considered not only the complaint and its annexes but also evidence presented by PELI in the hearing on Tocoms’ application for a Writ of Preliminary Injunction, citing Santiago v. Pioneer Savings and Loan Bank. It found the Distribution Agreement was non-exclusive and had already expired when the complaint was filed. Tocoms’ motion for reconsideration was denied, prompting this Petition for Review on Certiorari.

ISSUE

Whether the Court of Appeals erred in holding that the trial court committed grave abuse of discretion in denying PELI’s Motion to Dismiss on the ground that the complaint failed to state a cause of action.

RULING

Yes. The Supreme Court granted the petition, reversed the CA Decision and Resolution, and reinstated the trial court’s orders denying the Motion to Dismiss. The Court held that the CA erred in ruling that the complaint failed to state a cause of action.
The Court reiterated the settled rule that in resolving a motion to dismiss based on failure to state a cause of action, the trial court must base its decision only on the allegations in the complaint, and hypothetically admit the truth of such allegations. The exception allowing consideration of evidence aliunde, as established in Tan v. Director of Forestry, applies only when, during a hearing on a preliminary injunction, the plaintiff had the opportunity to present evidence supporting the complaint’s allegations and availed of it, thereby being estopped from invoking the general rule. In this case, the CA incorrectly applied this exception. The hearing on the application for a preliminary injunction was for the limited purpose of determining whether an injunction should issue, not for a full-blown trial on the merits. Tocoms did not present evidence to prove the allegations in its complaint during that hearing; instead, PELI presented evidence. Therefore, the Tan exception did not apply, and the CA should have limited its review to the complaint’s allegations.
Examining the complaint alone, the Court found that Tocoms sufficiently alleged a cause of action. A cause of action exists if the complaint states the plaintiff’s primary right and the defendant’s corresponding duty, and a violation of that right by the defendant. The complaint alleged that PELI, through its officers, acted with malice and bad faith by: (1) suddenly terminating the distributorship without sufficient notice; (2) colluding with a new distributor to sell products at lower prices while Tocoms was still the distributor, causing client returns and losses; (3) making a coercive, unreasonable buy-back offer; and (4) recalling ICC stickers to prevent Tocoms from selling its inventory. These acts, if proven, could constitute actionable wrongs under Articles 19, 20, and 21 of the Civil Code (Human Relations provisions), which enjoin every person to act with justice, give everyone their due, and observe honesty and good faith, and for which any wilful act or omission causing damage to another obliges the doer to pay for the damage done. The complaint did not merely seek damages for the non-renewal of the contract but for PELI’s alleged tortious acts of bad faith and unfair dealing surrounding the termination and its aftermath. Whether the Distribution Agreement was exclusive or non-exclusive, or had expired, was a matter of defense requiring a trial on the merits. For purposes of a motion to dismiss, the complaint’s allegations were sufficient to constitute a cause of action. Consequently, the trial court correctly denied the Motion to Dismiss, and the CA committed reversible error in ruling otherwise.