TOCOMS PHILIPPINES V PHILIPS ELECTRONICS

GR NO 214046, FEBRUARY 5, 2020, SECOND DIVISION

PONENTE: REYES, J;

NATURE OF THE ACTION: DAMAGES

FACTS:

TOCOMS and PHILIPPINES entered into contract of distribution agreement for the distribution of
the latter’s product. The agreement was renewed on a yearly basis from 2001 to 2013 when PHILIPS
communicated to TOCOMS that it would not renew its distribution agreement since it had engaged
another company for the distribution of its product. TOCOMS added that PHILIPS gave unreasonable
demand to buy-back the product covered by the distribution agreement. As a result, it had suffered loss,
and demanded PHILIPS to pay damages. The latter filed a motion to dismiss on the ground of improper
venue and lack of jurisdiction over the person of PHILIPPS. The CA reversed the dismissal of the motion
to dismiss in which it ruled that the complaint failed to state cause of action since the distribution
agreement is non-exclusive in character.

ISSUE:

WHETHER THE COMPLAINT STATES CAUSE OF ACTION ON ACCOUNT OF THE DAMAGES

SUFFERED BY RESPONDENT FOR THE VIOLATION OF THE DISTRIBUTION AGREEMENT

RULING:

Yes, the complaint states cause of action for damages. Petitioner alleges in its complaint that it
had already revealed to the respondent its marketing plan when the latter surreptitiously engaged
another distributor to the prejudice of the former. Also, respondent was alleged to have colluded with
Fabriano to the prejudice of the petitioner. The complaint is for damages based on violation of Article 19
of the Civil Code. The Court ruled that the principle of abuse of rights may be invoked if it is proven that
a right or duty was exercised in bad faith, regardless of whether it was for the sole intent of injuring
another. Thu, it is the absence of good faith which is essential to the application of this principle. The
test of sufficiency of cause of action is whether, by hypothetically admitting allegations in the complaint,
the court can render a judgement. The Court found that, by hypothetically admitting the allegations for
violation of Article 19, it can render a judgement of damages under Article 21.