G.R. No. 70451 - Gaw vs. Intermediate Appellate Court

Case Summary (G.R. No. 70451)

Factual Background

Henry H. Gaw was an exclusive dealer of white cement for Prime White Cement Corporation (PWCC) under a five-year dealership agreement that required a monthly minimum delivery and specified deposits aggregating to P500,000.00. To increase his allocation, Gaw and Uy Diet Tan executed a marketing agreement on February 2, 1979 providing that Tan would deposit P250,000.00 with PWCC in his own name, pay Gaw a premium of P0.70 per bag, invoice sales in his own name, and otherwise act as marketing arm of Gaw. Tan tendered a check for P250,000.00 on February 8, 1979 but PWCC refused to accept it in Tan's name allegedly because acceptance would effectively make Tan a dealer and breach existing dealership exclusivity. PWCC advised deposit be made in Gaw's name; Tan offered to so deposit but PWCC declined to give effect to the marketing arrangement.

Procedural Origins and First Injunctive Order

After PWCC's refusal, Tan sued Gaw for specific performance with damages and sought preliminary injunctive relief in Civil Case No. Q-27097. On March 9, 1979 Judge Ricardo P. Tensuan granted an ex parte urgent motion and ordered maintenance of the status quo, restraining Gaw from continuing the acts complained of and setting a preliminary injunction hearing. Tan later withdrew that complaint for health reasons, and the case was dismissed on July 25, 1979.

Gaw's Damages Action and Trial Court Ruling

On November 19, 1979 Gaw filed Civil Case No. Q-28799 against Tan for damages, alleging that the March 9, 1979 restraining order forced him to suspend performance under a newly executed fifty-seven-month contract with Mandee Commercial and caused unrealized profits of P370,500.00. After trial, the Court of First Instance, through Judge Jose P. Castro, found that the March 9 order restrained Gaw and compelled him to stop implementation of his contract with Mandee, thereby causing damage. The court rendered judgment on February 15, 1982 ordering Tan to pay Gaw P20,000.00 as reasonable actual damages and P10,000.00 as attorney's fees; the court denied moral damages and dismissed Tan's counterclaim.

Intermediate Appellate Court Ruling

Tan appealed. The IAC reversed the trial court. It held that Gaw's claim for damages should have been presented in Civil Case No. Q-27097 and that a successful claim grounded on a restraining order requires proof that the order was maliciously procured and without probable cause, following Aquino v. Socorro. The IAC found Tan not shown to have acted maliciously or without probable cause. The IAC also considered Tan's counterclaim speculative and therefore denied relief on the counterclaim, but nonetheless awarded Tan P100,000.00 as reasonable actual damages in unrealized profits and P20,000.00 as attorney's fees, and ordered Gaw to pay those sums.

Issues Presented to the Supreme Court

Gaw lodged a petition for review on certiorari raising alleged errors of law and fact by the IAC. The core disputes before the Supreme Court concerned (a) which party bore responsibility for nonimplementation of the marketing agreement; (b) whether the restraining order caused the asserted unrealized profits; (c) whether Gaw had the remedy of bond or otherwise had to prove malicious prosecution and lack of probable cause to recover damages; and (d) whether Tan proved actual damages for unrealized profits on his counterclaim.

Standard of Review and Exception Applied

The Court reiterated that its jurisdiction in petitions from the Court of Appeals or the then IAC is generally confined to errors of law, with findings of fact by the appellate court presumed conclusive. The Court acknowledged established exceptions permitting review of factual findings where there is conflict between the trial court and the appellate court, or where findings rest on speculation, grave abuse, misapprehension, or other enumerated grounds. The Court concluded that this case invoked the exception because the IAC and the trial court reached conflicting factual conclusions on implementation of the marketing agreement and causation.

Findings on Implementation and the Parties' Conduct

The Court agreed with the IAC that the marketing agreement was not effectively frustrated by unilateral action of Tan. The Court observed that Tan acted in accordance with paragraph 2 of the marketing agreement when he tendered the P250,000.00 deposit and, when PWCC objected to a deposit in his name, Tan offered to have the deposit made in Gaw's name. The Court found that Gaw did not cooperate, instead negotiating with Mandee Commercial, and thus bore partial responsibility for nonimplementation. The Court emphasized that written contracts govern the parties' rights and duties under Section 9, Rule 130, and that allegations of novation under Article 1293, Civil Code were not established because PWCC's consent to any substitution had not been proven.

Causation, Remedy and Malicious Prosecution

The Court held that Gaw's claim for unrealized profits lacked a causal and legal basis. It found that the Mandee contract had been entered into on March 9, 1979 before Gaw received the copy of the restraining order on March 12, 1979, and that Mandee's refusal to proceed was explained by market conditions independent of the injunctive order. Even assuming the order contributed to the failure of the Mandee arrangement, the Court reiterated that a plaintiff seeking damages for consequences of an injunction must prove the malicious procurement of the prior suit and lack of probable cause, as enunciated in Aquino v. Socorro. The Court noted that Gaw had not invoked the bond remedy in Civil Case No. Q-27097 and therefore could not dispense with proof of malicious prosecution in the separate damages action; absent such proof, the filing of suit by Tan was within his rights and any loss to Gaw was damnum absque injuria.

Findings on Tan's Claim for Unrealized Profits

Although the IAC

Case Syllabus (G.R. No. 70451)

Parties and Procedural Posture

Henry H. Gaw filed a petition for review on certiorari assailing the decision of the then Intermediate Appellate Court reversing the judgment of the then Court of First Instance of Rizal, Branch IX.
Uy Diet Tan was the private respondent and counterclaimant in the related proceedings below.
The trial court rendered judgment in favor of Gaw and awarded P20,000.00 as actual damages and P10,000.00 as attorney's fees.
The then Intermediate Appellate Court reversed the trial court and awarded Tan P100,000.00 as actual damages and P20,000.00 as attorney's fees.
The Supreme Court reviewed errors of law assigned against the appellate court and, finding conflicting factual findings, reviewed certain factual issues as an exception to the rule of finality of appellate findings.

Key Factual Allegations

Gaw was an exclusive dealer of white cement for Prime White Cement Corporation (PWCC) under a five-year dealership agreement requiring a monthly minimum purchase and an initial deposit of P200,000.00.
Gaw entered into a marketing agreement dated February 2, 1979 with Tan whereby Tan would secure at least 50% of Gaw's allocation, deposit P250,000.00 with PWCC, pay Gaw P0.70 per bag, and make an advance payment of P5,000.00 deductible from premiums.
Tan tendered a P250,000.00 check to PWCC on February 8, 1979 but PWCC refused to accept the deposit in Tan's name on the ground that acceptance would effectively make Tan a dealer and violate the exclusive dealership arrangement.
Tan attempted to have the deposit accepted in Gaw's name and wrote PWCC and Gaw seeking accommodation, but Gaw did not accept the P250,000.00 and negotiated instead with Mandee Commercial.
Gaw contracted with Mandee Commercial on March 9, 1979 for supply of 3,250 bags monthly for fifty-seven months at a P2.00 mark-up per bag, financed in part by other funds to reach P500,000.00.
Tan sued Gaw for specific performance on March 5, 1979 and obtained an ex parte order maintaining status quo on March 9, 1979, which Gaw received on March 12, 1979.
Tan later withdrew his specific performance complaint for health reasons and the complaint was dismissed on July 25, 1979.
Gaw sued Tan for damages on November 19, 1979 alleging loss of unrealized profits from the Mandee contract and other expenses.

Agreements and Contract Terms

The dealership agreement required Gaw to take delivery of at least 2,600 bags monthly and included an initial P200,000.00 deposit and an option to increase allocation and loan to P500,000.00 within 90 days.
The marketing agreement stipulated that Tan would receive at least 3,250 bags monthly, deposit P250,000.00 with PWCC in his own name, receive repayment at P10,000.00 monthly for thirty months, pay Gaw P0.70 per bag, advance P5,000.00 deductible from premiums, invoice and pay PWCC in Tan's name, and bear taxes on withdrawals.
The marketing agreement expressly provided that it would be co-terminous with Gaw's contract with PWCC and would be extended if PWCC extended the dealership.

Trial Court Findings

The Court of First Instance found that the March 9, 1979 status quo order was not a mere maintenance order but restrained Gaw and compelled him to stop performance of the Mandee contract, thereby causing unrealized profits and damage.
The trial court held that Tan had effectively failed to implement the marketing agreement for reasons including his failure to deposit P5,000.00, and that Gaw suffered damages as a result of the restraining order.
The trial court awarded Gaw P20,000.00 as reasonable actual damages and P10,000.00 as attorney's fees and dismissed Tan's counterclaim.

Appellate Court Findings

The then Intermediate Appellate Court found that the dispute over damages should have been litigated in Civil Case No. Q-27097 and that the marketing agreement was implementable.
The appellate court concluded that Tan's deposit of P250,000.00 in his own name comports with the express terms of the marketing agreement and that Gaw failed to cooperate to have PWCC accept the deposit in Gaw's name when necessary.
The appellate court attributed primary responsibility for non-implementation to Gaw and found Tan's counterclaim for P1,452,500.00 speculative, but nonetheless awarded Tan P100,000.00 as reasonable actual damages and P20,000.00 as attorney's fees.

Issues Presented

Whether the then Intermediate Appellate Court erred in reversing the trial court's award of damages to Gaw.
Whether Gaw was entitle