DIGEST: Coca-Cola v. Sps. Bernardo, G.R. No. 190667, November 07, 2016

Complaint for Damages

COCA-COLA BOTTLERS PHILIPPINES, INC., v. SPOUSES JOSE R. BERNARDO AND LILIBETH R. BERNARDO, DOING BUSINESS UNDER THE NAME AND STYLE "JOLLY BEVERAGE ENTERPRISES,"

G.R. No. 190667

First Division

November 07, 2016

Sereno, C.J.

Facts:

                Sps. Bernardo, doing business as “Jolly Beverage Enterprises”, were distributors of petitioner’s products from 1987-1999. In their agreement, Coca Cola will extend cash assistance and trade discount incentives to the respondent while the latter undertook to sell petitioner's products exclusively, meet the sales quota of 7,000 cases per month, and assist petitioner in its marketing efforts in exchange. Before the expiration of their contract, Coca Cola required the respondents to submit a list of their customers on the pretext that it would formulate a policy defining its territorial dealership in Quezon City and as a condition for the renewal of their contract. Despite their compliance, the contract was not renewed.

Respondents later on found out that, Coca Cola started to reach out to the persons whose names were on the list and that the respondent’s delivery trucks were being trailed by petitioner's agents; and that as soon as the trucks left, the latter would approach the former's customers. Further, respondents found out that petitioner had employed a different pricing scheme, such that the price given to distributors was significantly higher than that given to supermarkets. It also enticed direct buyers and sari-sari store owners in the area with its "Coke Alok" promo, in which it gave away one free bottle for every case purchased. It further engaged a store adjacent to respondents' warehouse to sell the former's products at a substantially lower price.

The respondents filed a case against Coca-Cola PH, for violation of Articles 19, 20, 21, and 28 of the Civil Code and alleging that the acts of petitioner constituted dishonesty, bad faith, gross negligence, fraud, and unfair competition in commercial enterprise.

Issue:

Whether the acts of the petitioner constitutes a violation of the petitioner’s right under Articles 19, 20, 21, and 28 of the Civil Code.

Ruling:

Yes. The SC held that the acts of the petitioner constitutes abuse of rights and unfair competition under the Civil Code. The SC denied the Petition and affirmed but modified the damages awarded by the lower court, that it shall earn legal interest of 6% per annum from the date of finality of the Decision until its full satisfaction.

According to the SC, the petitioner shall liable for damages for abuse of rights and unfair competition under the Civil Code. Both the RTC and the CA found that petitioner had employed oppressive and high-handed schemes to unjustly limit the market coverage and diminish the investment returns of respondents. The CA summarized its findings as follows:

This [cut-throat competition] is precisely what appellant did in order to take over the market: directly sell its products to or deal them off to competing stores at a price substantially lower than those imposed on its wholesalers. As a result, the wholesalers suffered losses, and in [respondents'] case, laid of a number of employees and alienated the patronage of its major customers including small-scale stores.

It must be emphasized that petitioner is not only a beverage giant, but also the manufacturer of the products; hence, it sets the price. In addition, it took advantage of the information provided by respondents to facilitate its takeover of the latter's usual business area. Distributors like respondents, who had assisted petitioner in its marketing efforts, suddenly found themselves with fewer customers. Other distributors were left with no choice but to fold.

Articles 19, 20, and 21 of the Civil Code provide the legal bedrock for the award of damages to a party who suffers damage whenever another person commits an act in violation of some legal provision; or an act which, though not constituting a transgression of positive law, nevertheless violates certain rudimentary rights of the party aggrieved. The provisions read:

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage.

In Albenson Enterprises Corp. v. CA, this Court held that under any of the above provisions of law, an act that causes injury to another may be made the basis for an award of damages. As explained by this Court in GF Equity, Inc. v. Valenzona:

The exercise of a right ends when the right disappears; and it disappears when it is abused, especially to the prejudice of others. The mask of a right without the spirit of justice which gives it life is repugnant to the modern concept of social law. It cannot be said that a person exercises a right when he unnecessarily prejudices another or offends morals or good customs. Over and above the specific precepts of positive law are the supreme norms of justice which the law develops and which are expressed in three principles: honeste vivere, alterum non laedere and jus suum quique tribuere; and he who violates them violates the law. For this reason, it is not permissible to abuse our rights to prejudice others.

Meanwhile, the use of unjust, oppressive, or high-handed business methods resulting in unfair competition also gives a right of action to the injured party. Article 28 of the Civil Code provides:

Art. 28. Unfair competition in agricultural, commercial or industrial enterprises or in labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage.

Petitioner cites Tolentino, who in turn cited Colin and Capitant. According to the latter, the act of "a merchant [who] puts up a store near the store of another and in this way attracts some of the latter's patrons" is not an abuse of a right. The scenario in the present case is vastly different: the merchant was also the producer who, with the use of a list provided by its distributor, knocked on the doors of the latter's customers and offered the products at a substantially lower price. Unsatisfied, the merchant even sold its products at a preferential rate to another store within the vicinity. Jurisprudence holds that when a person starts an opposing place of business, not for the sake of profit, but regardless of Joss and for the sole purpose of driving a competitor out of business, in order to take advantage of the effects of a malevolent purpose, that person is guilty of a wanton wrong.