Case Title: Barons Marketing Corp., petitioner, vs.

Court of Appeals and Phelps Dodge

Phils., Inc. Respondents.
GR No.: 126436
Date: February 9, 1998
Ponente: Kapunan, J.
Doctrine:
 Good faith is presumed and that the burden of proving bad faith rests upon the party alleging the
same.
 A person who, in exercising his rights, does not act in abusive manner is not deemed to have
acted in manner contrary to morals, good customs or public policy as to violate the provisions of
Article 21 of the Civil Code.
Facts:
August 31, 1973, Private respondent, Phelp Dodge, appointed herein petitioner, Barons
Marketing, as one of its dealers of electrical and cables. Barons was given by the Phelp 60 days credit
for its purchases of latter’s electrical products. This credit term was to be reckoned from date of
delivery by private respondent of its product to petitioner. During the period covering December 1983
to August 1987, petitioner purchased on credit from private respondent various electrical wires and
cables in total amount of P4, 102,438.30. The electrical products were sold by petitioner to
MERALCO. In sales invoice issued by the private respondent to petitioner for subject purchases it is
stipulated that an interest of 12 % on amount due for attorney’s fee and collection fee. However on
September 1987, petitioner only paid P800,00 out of the total purchase and despite several demands
by the private respondent, petitioner wrote to the latter if it could pay its outstanding obligation by
installments of P500,000 plus 1% interest per month but private respondent rejected the offer and
reiterated the demand to pay in full amount. Consequently, orivate respondent filed a complaint for
recovery of the outstanding obligation. Petitioner interposed a counterclaim against private
respondent alleging that it suffered injury to its reputation due to the private respondent’s act.
RTC and CA ruled in favor of Phelp Dodge Phils.
Issue:
WON private respondent is guilty of abuse of right under Article 21 of the Civil Code.
Ruling:
NO. SC ruled in negative.
It is an elementary rule in this jurisdiction that good faith is presumed and that the burden of
proving the bad faith rests upon the party alleging the same. Here, petitioner failed to prove bad faith
on the part of private respondent. Petitioner’s allegation that private respondent was motivated by
desire to terminate its agency relationship with petitioner so that private respondent itself may deal
directly with Meralco is simply not supported by the evidence. At most, such supposition is merely
speculative.
Also, private respondent was driven by very legitimate reasons for rejecting petitioner’s offer
and instituting the action for collection before the trial court. As pointed out by the respondent,
corporation has its own cash position to protect in order for it to pay its own obligations.This is not
sucj a lame and poor rationalization as petitioner purports it to be. For if private respondent were to
be required to accept petitioner’s offer, there would be no reason for the latter to reject similar offers
from its other debtor. Such is inimical to interests of any enterprise especially a profit-oriented one
like private respondent. The latter is merely exercising his rights and not an abuse thereof. Thus, it did
not act in manner contrary to morals, good customs and public policy as to violate the provisions of
Article 21 of the Civil Code.
 Dispositive Portion:
WHEREFORE, the decision of the Court of Appeals is hereby MODIFIED in that the
attorney’s and collection fees are reduced to ten percent (10%) of the principal but affirmed in all
other respects.
SO ORDERED.