Case Summary (G.R. No. 191002)
Key Dates and Procedural History
– December 1, 1999: Total and Tyreplus execute a one-year non-exclusive, non-transferable distributorship agreement.
– January 31 & February 10, 2000: Lim informs Total that Tyreplus has changed its name to Superpro; new agreement signed.
– March 9, 2000: Total issues pre-termination notices to Tyreplus and Superpro and demands payment.
– RTC decision (November 15, 2005): upholds Total’s pre-termination, awards damages against Tyreplus.
– CA decision (February 29, 2012): reverses, holds Total estopped and grants various damages to respondents.
– SC decision (June 23, 2020): resolves petition for review on certiorari.
Applicable Law
– 1987 Philippine Constitution.
– Civil Code provisions on contracts, assignment (Arts. 1314–1320), estoppel, damages (Arts. 2199, 2226–2229), and legal interest (Art. 2198).
– Doctrine of corporate fiction and alter ego to pierce corporate veil in case of bad faith or gross negligence.
Factual Background
Tyreplus entered into a non-exclusive, non-transferable distributorship agreement with Total. Article 9 of the agreement prohibited assignment without Total’s prior written consent. Shortly thereafter, Lim purportedly dissolved Tyreplus and notified Total that its new corporate name was Superpro. Total signed a separate distributorship agreement with Superpro, after which Superpro stored and distributed products originally meant for Tyreplus. Lim also secured a P500,000 bank guaranty from PSBank “to answer for the obligations of Superpro and its predecessor Tyreplus.” Total later discovered that Tyreplus and Superpro were distinct entities and pre-terminated both agreements, demanding payment of P472,926.30. Tyreplus and Lim sued for damages; Total counterclaimed for breach and recovery of unpaid obligations.
Issue
Whether the Court of Appeals correctly ruled that Total lacked basis to pre-terminate its distributorship agreement with Tyreplus despite Tyreplus’s unauthorized transfer of its rights and obligations to Superpro.
Estoppel and Contractual Breach
The Supreme Court held that Total was not estopped from terminating the Tyreplus agreement. Estoppel requires intentional or negligent misrepresentation inducing reliance to one’s prejudice. Total reasonably relied on Lim’s repeated representations—as President of Tyreplus and Superpro—that Tyreplus had merely changed its name. Only after execution of the Superpro agreement did Lim disclose that Superpro was a separate entity. Tyreplus’s assignment of its distributorship to Superpro without Total’s written consent violated Articles 2 and 9 of the agreement and justified pre-termination.
Personal Liability of Edgardo Lim
Corporate obligations are generally separate from those of officers. To pierce the corporate veil, bad faith or gross negligence by the officer must be clearly and convincingly established. Lim knowingly misled Total, secured bank guaranties for Tyreplus’s debts, ordered stop-payments on checks, and pursued damages against Total in his capacity as corporate President. His misuse of Tyreplus to effect an unauthorized assignment and deceive Total constituted bad faith. Accordingly, Lim is jointly and severally liable with Tyreplus.
Damages and Interest
Actual Damages
– P401,308.64 for promotional and advertising materials, supported by bill of lading.
Exemplary Damages
– P50,000.00 for breach of contract to serve as corrective measure.
Attorney’s Fees
– P94,585.26, equivalent to
Case Syllabus (G.R. No. 191002)
Facts and Background
- On December 1, 1999, Tyreplus Industrial Sales, Inc., through its President Edgardo Lim, entered into a one-year Commercial Distributorship Agreement with Total Petroleum Philippines Corporation granting Tyreplus non-exclusive, non-transferable distribution rights in Southern Mindanao.
- Tyreplus was obliged to market, promote, maintain sales records, forecast purchases, and refrain from dealing in competing products without Total’s written consent.
- Lim procured six vehicles for distribution, but admitted some were not exclusively used for Total products.
- On December 31, 1999, Tyreplus’s General Manager resigned; Lim assumed full operations and discovered the former manager’s misconduct.
Commercial Distributorship Agreements
- Article 2: TPPC granted non-exclusive, non-transferable rights; Tyreplus must cease dealing in competing products and obtain TPPC’s written consent for any interest in other oil products.
- Article 4: Tyreplus’s duties included efficient marketing, maintaining product quality and packaging, sales and inventory reports, sales forecasts, advertising programs, and submission to TPPC inspections.
- Article 9: The agreement was personal to Tyreplus and prohibited assignment or transfer without TPPC’s prior written approval.
Change of Corporate Name and New Agreement
- January 31, 2000: Lim, on “Superpro Ind. Sales Corp.” letterhead, informed Total that Tyreplus had changed its trade name to Superpro Industrial Sales Corporation.
- February 4 & 10, 2000: Lim met TPPC executives and delivered Superpro’s Articles of Incorporation showing incorporation on February 8, 2000, for similar purposes as Tyreplus.
- On that same date, Total executed a new, substantively identical Distributorship Agreement with Superpro, Lim signing as President.
- Post-agreement, Total products destined for Tyreplus were warehoused and distributed by Superpro.
Bank Undertaking and Financial Arrangements
- February 11, 2000: PSBank issued a Letter of Undertaking pledging a ₱500,000 credit line “to answer for the obligations of Superpro, and its predecessor Tyreplus,” subject to Lim’s conformity and Tyreplus’s default.
- February 25, 2000: Lim, under Superpro letterhead, guaranteed that “all billings to Tyreplus will be guaranteed payment by Superpro” and enclosed five post-dated checks totaling ₱447,117.66.