Facts:

The case involves Avon Cosmetics, Incorporated and its employee, Leticia H. Luna. Respondent Luna began her career in 1972 as a franchise dealer for Beautifont, Inc., which was acquired by Avon in 1978. Luna continued with Avon, where she worked as a supervisor and participated as a make-up artist for the company’s Theatrical Promotions Group. On November 5, 1985, Luna and Avon entered into a Supervisor's Agreement that outlined her rights and responsibilities. The agreement stated that Luna was to purchase and sell Avon products exclusively, and crucially, it included a clause that explicitly denied her status as an employee or agent of Avon.

In late 1988, Luna accepted an invitation to sell products for SandrA Philippines, Inc., a company operating in the direct selling of vitamins. She began selling these products while still under her agreement with Avon. Following this, Luna sought a legal opinion regarding the terms of her Supervisor's Agreement, and upon receiving

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Facts:

Background of the Parties

• Respondent Leticia H. Luna filed a complaint alleging violations arising from her long-term work history with Beautifont, Inc. and its successor, Avon Cosmetics, Inc.
• Luna began working for Beautifont, Inc. in 1972, later becoming a Supervisor and a make-up artist for theatrical promotions, and continued her employment after Avon acquired Beautifont in 1978.

The Supervisor’s Agreement

• On 5 November 1985, Luna and petitioner Avon executed a Supervisor’s Agreement which:
• Allowed Luna to purchase Avon products at wholesale exclusively for resale.
• Stipulated that Luna was not an employee or agent of Avon and had no authority to bind the company.
• Required Luna to sell or promote only and exclusively Avon’s products, with the express prohibition against selling to outlets like stores or supermarkets.
• Contained a termination clause permitting either party to terminate the agreement at will, with or without cause, upon giving notice.
• Superseded any previous agreements between the parties.
• By entering into the Agreement, Luna became part of Avon’s independent sales force.

Circumstances Leading to the Dispute

• In the latter part of 1988, Luna became concurrently involved with SandrA Philippines, Inc. as a Group Franchise Director while remaining a Group Supervisor for Avon.
• SandrA Philippines, Inc. engaged in selling vitamins and food supplements, products that were not considered direct competitors to Avon’s cosmetics.
• Luna sought legal advice regarding the effect of the Supervisor’s Agreement; her counsel opined that:
• The clause restricting sales to Avon products (Section 5) unlawfully restrained trade, stating it was contrary to law and public policy.
• The termination clause (Section 6), which allowed termination “with or without cause,” was similarly invalid.
• Acting on the legal opinion, Luna circulated a letter to her Avon colleagues cautioning them about the restrictive provisions and asserting her legal rights.
• On 11 October 1988, Avon, via its President and General Manager, terminated Luna’s Supervisor’s Agreement alleging:
• Luna’s concurrent engagement with SandrA Philippines, Inc.
• Her promotion and sale of products of SandrA, including to Avon employees.
• A breach of the exclusivity clause compelling loyalty to Avon’s product line.

Judicial Proceedings Up to the Appeal

• Luna filed a complaint for damages before the Regional Trial Court (RTC) of Makati City, Branch 138, which was docketed as Civil Case No. 88-2595.
• On 26 January 1996, after trial, the RTC rendered judgment in favor of Luna:
• Awarding moral damages of P100,000.00 plus interest.

ii. Awarding attorney’s fees of P20,000.00. iii. Ordering payment of the costs.

Issue:

• Whether the Court of Appeals erred in declaring the Supervisor’s Agreement, particularly its exclusivity clause (Section 5), null and void for being contrary to public policy.
• Whether the Court of Appeals erred in holding that petitioner Avon had no right to terminate or cancel the Supervisor’s Agreement under its termination clause (Section 6).
• Whether the Court of Appeals committed error in upholding the award of moral damages and attorney’s fees in favor of respondent Luna.
• Whether the Court of Appeals erred in not awarding attorney’s fees and litigation expenses in favor of petitioner Avon.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

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