Title
Nestle Philippines, Inc. vs. FY Sons, Inc.
Case
G.R. No. 150780
Decision Date
May 5, 2006
Nestle terminated FY Sons' distributorship, alleging unpaid accounts; courts ruled Nestle failed to prove claims, awarded FY Sons damages, and refunded security deposit.
distributorship agreement
termination
alleged violations

Case Summary (G.R. No. 150780)

Factual Background

Nestle Philippines, Inc. and FY Sons, Incorporated entered into a distributorship relationship under a written agreement. The respondent assigned a time deposit of P500,000 owned by one Calixto Laureano to secure its credit purchases from the petitioner, and Laureano executed a special power of attorney authorizing the respondent to use the time deposit as collateral. The distributorship covered several northern Luzon areas. The parties renewed and supplemented the agreement at the turn of 1990.

Disputed Transactions and Termination

In July 1990 petitioner fined respondent P20,000 for an alleged unauthorized sale and the respondent paid. In September 1990 petitioner imposed a P40,000 fine for another alleged violation, which the respondent refused to pay. On October 19, 1990 respondent complained by counsel about petitioner’s alleged breaches and bad faith and demanded damages. On November 5, 1990 petitioner sent a demand letter and notice of termination, alleging unpaid accounts of P995,319.81, and subsequently applied the P500,000 time deposit as partial payment when the accounts were not settled. The respondent then filed suit for damages alleging that petitioner had acted in bad faith, failed to provide marketing support, deliberately failed to supply stocks, supported a non-distributor, concocted falsified charges to justify termination, seized the time deposit without basis, and unilaterally suspended supply.

Trial Court Proceedings and Judgment

In Civil Case No. 90-3169 the Makati City RTC found for the respondent. The RTC held that petitioner terminated the distributorship without just cause and committed acts in bad faith. The RTC awarded P1,000,000 as actual damages, P100,000 as exemplary damages, P100,000 as attorney’s fees, ordered three-fourths of costs against the defendant, and nonetheless ordered the plaintiff to pay the defendant P53,214.26 as an established amount due.

Court of Appeals Disposition

On appeal the Court of Appeals affirmed with modification. The CA increased the award of actual damages from P1,000,000 to P1,500,000 and deleted the RTC’s order that the plaintiff pay P53,214.26 to the defendant. The CA found that petitioner failed to provide distributorship support, unjustifiably refused deliveries, imposed an unfounded fine, and did not prove respondent’s alleged outstanding obligation; the CA therefore concluded that petitioner terminated the agreement in bad faith and was liable for damages.

Issues Raised in the Supreme Court Petition

Petitioner sought relief under Rule 45, Rules of Court, advancing four principal grounds: that a respondent officer’s alleged admission established an unpaid balance of around P900,000; that the CA erred in disregarding testimony of petitioner’s witness, Cristina Rayos, who prepared the statement of account and whose testimony petitioner claimed fell within the business-entries exception; that the CA erred in awarding actual damages and ordering refund of the P500,000 time deposit because petitioner validly terminated under Art. 1191 of the Civil Code and contractual provisions; and that the CA erred by not awarding petitioner’s counterclaim for unpaid accounts.

Petitioner's Contentions on Judicial Admission and Proof of Accounts

Petitioner emphasized a single statement by respondent’s director, Florentino Yue, Jr., contending that it amounted to a judicial admission that respondent owed the petitioner an unpaid balance of around P900,000 and that this justified termination. Petitioner also relied on the testimony of Cristina Rayos and the statement of account she prepared to prove the alleged arrears, invoking the business-records exception to the hearsay rule.

Respondent's Position at Trial and on Appeal

Respondent maintained that Yue’s isolated statement was merely a description of petitioner’s allegation and not an admission of liability. Respondent also maintained that the invoices and delivery orders were concocted to justify termination, that petitioner failed to supply marketing support, and that petitioner acted in bad faith. Respondent presented evidence of its losses and sought damages in the amounts set forth in its complaint.

Supreme Court Analysis on the Alleged Judicial Admission

The Court examined Mr. Yue’s testimony in context and concluded that his remark was not a judicial admission of indebtedness. The remark was made in response to the presiding judge’s question about the asserted ground for termination and was followed by testimony that the petitioner had written to the respondent claiming an indebtedness of about P900,000. The Court held that this isolated statement, taken out of context, did not conclusively establish respondent’s indebtedness and therefore did not support petitioner’s contention that termination was valid.

Supreme Court Analysis of the Business-Entries Exception and the Rayos Testimony

The Court analyzed the testimony of Cristina Rayos and the documentary evidence underlying petitioner’s claim of unpaid accounts. Rayos admitted she was not involved in deliveries, that invoices were unsigned, and that she lacked personal knowledge of whether the deliveries occurred and whether the documents accurately reflected deliveries. Applying Section 43, Rule 130, Rules of Court, the Court held that the business-entries exception did not apply because Rayos lacked the requisite personal knowledge of the transactions and merely compiled records received from others. The Court further noted the self-serving nature of petitioner’s documents and the absence of any competent witness to identify signatures and receipt of goo

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