Case Digest (G.R. No. L-34767)
Facts:
Operators Incorporated v. American Biscuit Co. Inc., G.R. No. L-34767; Associated Biscuit, Inc. v. American Biscuit Co. Inc. and Operators Incorporated, G.R. No. L-35024; American Biscuit Co. Inc. v. Associated Biscuit Co. Inc. and Operators Incorporated, G.R. No. L-35073, October 23, 1987, Supreme Court Second Division, Sarmiento, J., writing for the Court.The dispute arose from contracts through which American Biscuit Company, Inc. (ABC), then in financial distress, turned over operation of its business. On September 26, 1953 ABC and Operators Incorporated executed the Operating Contract (Exh. A), by which Operators assumed operation of ABC’s business, agreed to answer ABC’s existing obligations to creditors, and to pay ABC a share of gross profits (20% increasing later to 30%); the contract fixed a ten-year term (with renewal option) and provided liquidated damages of P300,000 for breach and an arbitration clause (para. 13).
On June 12, 1954 ABC, Operators and Associated Biscuit Operators, Inc. (Associated) executed a Tripartite Agreement (Exh. B) whereby Associated obtained exclusive rights to manufacture and market ABC’s biscuit products under terms of the Operating Contract; Exh. B specified capitalization, machinery acquisition, monthly allowances to ABC, and incorporated certain provisions of Exh. A, making Operators and Associated jointly and severally liable for specified obligations. Operators and Associated then formalized their mutual allocation of rights on June 17, 1954.
After these agreements Operators ran ABC’s chiclet and bubble-gum operations; Associated prepared to operate the biscuit department and imported machinery. By March 1955 tensions over use of premises and equipment produced a division of the factory and allocation of machinery. Operators paid on a China Banking Corporation loan arranged to be shared 50–50 between Operators and Associated, but the Court of Appeals found that Associated failed to make its agreed payments and defaulted on its share of monthly overhead allowances; Associated also removed and sold certain machinery in 1957, representing them to be free of encumbrances.
ABC filed suit (Civil Case No. 37540) against Operators and Associated seeking rescission/cancellation of the Operating Contract and Tripartite Agreement, receivership over Associated, and damages, alleging Associated’s failure to pay creditor obligations, failure to pay monthly overhead, and unauthorized removal of machinery. Operators answered, claimed novation by the Tripartite Agreement and counterclaimed for breach by ABC of the arbitration clause; Associated denied liability, alleged it paid a substantial portion and stopped payments when ABC deprived it of dollar allocations, and filed a cross-claim against Operators.
The trial court dismissed the claims of all parties. The Court of Appeals modified, holding that Associated was the transgressor...(Pro-only)
Issues:
- Should the appeals of American Biscuit and Operators have been dismissed for failing to make specific assignments of error?
- Did Associated breach the Operating Contract and the Tripartite Agreement by failing to pay ABC’s creditors, failing to pay monthly overhead advances, and by disposing of machinery?
- Is Operators solidarily liable with Associated for ABC’s obligations under the Operating Contract and Tripartite Agreement?
- Was ABC’s suit subject to the contracts’ arbitration clause and did ABC improperly disregard arbitration by including Operators in the court action?
- Could Associated validly claim a contractual righ...(Pro-only)
Ruling:
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Ratio:
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Doctrine:
- (Pro-only)