G.R. No. L-72405. May 29, 1987.
PACMAC, INC., petitioner, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT and VULCAN INDUSTRIAL & MINERAL EXPLORATION CORPORATION, respondents.

FACTS

Petitioner PACMAC, Inc. filed a complaint against respondent Vulcan Industrial & Mineral Exploration Corporation (formerly Vulcan Manufacturing Co., Inc.) for damages arising from the alleged unilateral termination of an exclusive distributorship agreement. PACMAC claimed that since 1953, it had been the exclusive distributor of Vulcan’s products under an arrangement where Vulcan set both the purchase and resale prices. This relationship allegedly ended on August 3, 1965, when Vulcan ceased deliveries, accusing PACMAC of distributing a competing product. Vulcan denied the existence of a permanent exclusive distributorship and counterclaimed for unpaid purchases amounting to over P300,000. The trial court found that the parties, initially under common control and management, operated under an informal exclusive arrangement. This was later formalized in a 1962 written contract for two specific products, which was not renewed but where dealings continued. Vulcan terminated the relationship in 1965.
The trial court ruled in favor of PACMAC, awarding actual, exemplary damages, and attorney’s fees, but also upheld Vulcan’s counterclaim. After compensation, a net balance was found due to Vulcan. The Intermediate Appellate Court reversed, dismissing both the complaint and the counterclaim, holding that no exclusive distributorship existed after the 1962 written contract expired and that Vulcan’s termination was justified due to PACMAC’s alleged breach.

ISSUE

Whether the Intermediate Appellate Court erred in reversing the trial court’s finding that an exclusive distributorship arrangement existed between the parties, the breach of which entitled PACMAC to damages.

RULING

The Supreme Court reversed the Intermediate Appellate Court and reinstated the trial court’s decision. The legal logic centered on the factual findings of the trial court, which were binding on review. The High Court emphasized that the existence of the exclusive distributorship was a factual issue conclusively established by the trial court based on evidence, including the long-standing course of dealing (since 1953), the 1962 written contract for specific products, and the continued practice thereafter. The appellate court’s contrary conclusion constituted a reversible error, as it improperly re-evaluated the evidence and departed from the trial court’s factual findings, which were supported by the record.
The Supreme Court upheld the trial court’s determination that Vulcan’s termination in 1965 was a breach of this ongoing arrangement, done in bad faith, as Vulcan had begun selling directly to the market while still dealing with PACMAC. The award of damages was thus proper. The Court also affirmed the trial court’s meticulous computation of actual damages based on the diminution of PACMAC’s net income and the compensation of mutual obligations, resulting in a net amount due to Vulcan. The legal interest on this net balance was also sustained. The reinstated judgment reflected a complete adjudication of the reciprocal claims arising from the breached distributorship contract.