540 Phil. 389
CHICO-NAZARIO, J.:
The Company agrees:By virtue of the execution of the aforequoted Supervisor's Agreement, respondent Luna became part of the independent sales force of petitioner Avon.
x x x x
1) To allow the Supervisor to purchase at wholesale the products of the Company.
x x x x
The Supervisor agrees:
1) To purchase products from the Company exclusively for resale and to be responsible for obtaining all permits and licenses required to sell the products on retail.
x x x x
The Company and the Supervisor mutually agree:
x x x x
2) That this agreement in no way makes the Supervisor an employee or agent of the Company, therefore, the Supervisor has no authority to bind the Company in any contracts with other parties.
3) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned, and shall have the sole discretion to determine where and how products purchased from the Company will be sold. However, the Supervisor shall not sell such products to stores, supermarkets or to any entity or person who sells things at a fixed place of business.
4) That this agreement supersedes any agreement/s between the Company and the Supervisor.
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company.
6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other.
x x x x.[4]
We all love our work as independent dealers and we all love to continue in this livelihood. Because my livelihood is important to me, I have asked the legal opinion of a leading Makati law office regarding my status as an independent dealer, I am sharing this opinion with you.In a letter[5] dated 11 October 1988, petitioner Avon, through its President and General Manager, Jose Mari Franco, notified respondent Luna of the termination or cancellation of her Supervisor's Agreement with petitioner Avon. Said letter reads in part:
I have asked their advice on three specific things:
1) May the company legally change the conditions of the existing "Supervisor's Agreement" without the Supervisor's consent? If I should refuse to sign the new Agreement, may the company terminate my dealership?
On the first issue, my lawyers said that the company cannot change the existing "Agreement" without my consent, and that it would be illegal if the company will compel me to sign the new agreement.
2) Is Section 5 of the "Supervisor's Agreement" which says that a dealer may only sell products sold by the company, legal?
My lawyers said that Section 5 of the Supervisors Agreement is NOT valid because it is contrary to public policy, being an unreasonable restraint of trade.
3) Is Section 6 of the "Supervisor's Agreement" which authorizes the company to terminate the contract at any time, with or without cause, legal?
My lawyer said Section 6 is NOT valid because it is contrary to law and public policy. The company cannot terminate the "Supervisor's Agreement" without a valid cause.
Therefore, I can conclude that I don't violate Section 5 if I sell any product which is not in direct competition with the company's products, and there is no valid reason for the company to terminate my dealership contract if I sell a non-competitive product.
Dear co-supervisor[s], let us all support the reasonable and legal policies of the company. However, we must all be conscious of our legal rights and be ready to protect ourselves if they are trampled upon.
I hope we will all stay together selling Avon products for a long time and at the same time increase our earning opportunity by engaging in other businesses without being afraid to do so.
In September, (sic) 1988, you brought to our attention that you signed up as Group Franchise Director of another company, Sandré Philippines, Inc. (SPI).Aggrieved, respondent Luna filed a complaint for damages before the RTC of Makati City, Branch 138. The complaint was docketed as Civil Case No. 88-2595.
Not only that. You have also sold and promoted products of SPI (please refer for example to SPI Invoice No. 1695 dated Sept. 30, 1988). Worse, you promoted/sold SPI products even to several employees of our company including Mary Arlene Nolasco, Regina Porter, Emelisa Aguilar, Hermie Esteller and Emma Ticsay.
To compound your violation of the above-quoted provision, you have written letters to other members of the Avon salesforce inducing them to violate their own contracts with our company. x x x.
For violating paragraph 5 x x x, the Company, pursuant to paragraph 6 of the same Agreement, is terminating and canceling its Supervisor's Agreement with you effective upon your receipt of this notice. We regret having to do this, but your repeated disregard of the Agreement, despite warnings, leaves (sic) the Company no other choice.
x x x x
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered in favor of the plaintiff, and against defendant, Avon, ordering the latter:On 8 February 1996, petitioner Avon filed a Notice of Appeal dated the same day. In an Order[7] dated 15 February 1996, the RTC gave due course to the appeal and directed its Branch Clerk of Court to transmit the entire records of the case to the Court of Appeals, which docketed the appeal as CA G.R. CV No. 52550.
1) to pay moral damages to the plaintiff in the amount of P100,000.00 with interest from the date of this judgment up to the time of complete payment;
2) to pay attorney's fees in the amount of P20,000.00;
3) to pay the costs.[6]
WHEREFORE, the foregoing premises considered, the decision appealed from is hereby AFFIRMED in toto.[8]The Issues
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DECLARING THAT THE SUPERVISOR'S AGREEMENT EXECUTED BETWEEN AVON AND RESPONDENT LUNA AS NULL AND VOID FOR BEING AGAINST PUBLIC POLICY;The Court's RulingII.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT AVON HAD NO RIGHT TO TERMINATE OR CANCEL THE SUPERVIOSR'S AGREEMENT;III.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN UPHOLDING THE AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES IN FAVOR OF RESPONDENT LUNA; andIV.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT AWARDING ATTORNEY'S FEES AND LITIGATION EXPENSES IN FAVOR OF PETITIONER.
x x x xshould be interpreted to apply solely to those products directly in competition with those of petitioner Avon's, i.e., cosmetics and/or beauty supplies and lingerie products. Its declaration is anchored on the fact that Avon products, at that time, were not in any way similar to the products sold by Sandré Philippines, Inc. At that time, the latter was merely selling vitamin products. Put simply, the products of the two companies do not compete with each other. The appellate court ratiocinated that:
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. [Emphasis supplied.]
x x x If the agreement were interpreted otherwise, so as to include products that do not directly compete with the products of defendant-appellant Avon, such would result in absurdity. x x x [A]greements which prohibit a person from engaging in any enterprise whether similar or not to the enterprise of the employer constitute an unreasonable restraint of trade, thus, it is void as against public policy.[11]Petitioner Avon disputes the abovestated conclusion reached by the Court of Appeals. It argues that the latter went beyond the literal and obvious intent of the parties to the subject contract when it interpreted the abovequoted clause to apply only to those products that do not compete with that of petitioner Avon's; and that the words "only and exclusively" need no other interpretation other than the literal meaning – that "THE SUPERVISORS CANNOT SELL THE PRODUCTS OF OTHER COMPANIES WHETHER OR NOT THEY ARE COMPETING PRODUCTS."[12]
The exclusivity clause was directed against the supervisors selling other products utilizing their training and experience, and capitalizing on Avon's existing network for the promotion and sale of the said products. The exclusivity clause was meant to protect Avon from other companies, whether competitors or not, who would exploit the sales and promotions network already established by Avon at great expense and effort.On the other hand, in her Memorandum, respondent Luna counters that "there is no allegation nor any finding by the trial court or the Court of Appeals of an 'existing nationwide sales and promotions network established by Avon' or 'Avon's existing sales promotions network' or 'Avon's tried and tested sales and promotions network' nor the alleged damage caused to such system caused by other companies." Further, well worth noting is the opinion of respondent Luna's counsel which started the set off the series of events which culminated to the termination or cancellation of the Supervisor's Agreement. In response to the query-letter[13] of respondent Luna, the latter's legal counsel opined that, as allegedly held in the case of Ferrazzini v. Gsell,[14] paragraph 5 of the subject Supervisor's Agreement "not only prohibits the supervisor from selling products which compete with the company's product but restricts likewise the supervisor from engaging in any industry which involves sales in general."[15] Said counsel thereafter concluded that the subject provision in the Supervisor's Agreement constitutes an unreasonable restraint of trade and, therefore, void for being contrary to public policy.
x x x x
Obviously, Sandre Phils., Inc. did not have the (sic) its own trained personnel and network to sell and promote its products. It was precisely why Sandre simply invited, and then and there hired Luna and other Avon supervisors and dealers to sell and promote its products. They had the training and experience, they also had a ready market for the other products – the customers to whom they had been selling the Avon products. It was easy to entice the supervisors to sign up. The supervisors could continue to sell Avon products, and at the same time earn additional income by selling other products.
This is most unfair to Avon. The other companies cannot ride on and exploit the training and experience of the Avon sales force to sell and promote their own products. [Emphasis supplied.]
The Company and the Supervisor mutually agree:In business parlance, this is commonly termed as the "exclusivity clause." This is defined as agreements which prohibit the obligor from engaging in "business" in competition with the obligee.
x x x x
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company. [Emphasis supplied.]
SEC. 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.First off, restraint of trade or occupation embraces acts, contracts, agreements or combinations which restrict competition or obstruct due course of trade.[16]
[T]here is no difference in principle between the public policy (orden público) in the in the two jurisdictions (United States and the Philippine Islands) as determined by the Constitution, laws, and judicial decisions.
In the United States it is well settled that contracts in undue or unreasonable restraint of trade are unenforcible because they are repugnant to the established public policy in that country. Such contracts are illegal in the sense that the law will not enforce them. The Supreme Court in the United States, in Oregon Steam Navigation Co. vs. Winsor )20 Will., 64), quoted with approval in Gibbs v. Consolidated gas Co. of Baltimore (130 U.S., 396), said:"Cases must be judged according to their circumstances, and can only be rightly judged when reason and grounds of the rule are carefully considered. There are two principle grounds on which the doctrine is founded that a contract in restraint of trade is void as against public policy. One is, the injury to the public by being deprived of the restricted party's industry; and the other is, the injury to the party himself by being precluded from pursuing his occupation, and thus being prevented from supporting himself and his family."
[R]epresents in the law of persons the public, social and legal interest, that which is permanent and essential of the institutions, that which, even if favoring an individual in whom the right lies, cannot be left to his own will. It is an idea which, in cases of the waiver of any right, is manifested with clearness and force. [20]As applied to agreements, Quintus Mucius Scaevola, another distinguished civilist gives the term "public policy" a more defined meaning:
Agreements in violation of orden público must be considered as those which conflict with law, whether properly, strictly and wholly a public law (derecho) or whether a law of the person, but law which in certain respects affects the interest of society. [21]Plainly put, public policy is that principle of the law which holds that no subject or citizen can lawfully do that which has a tendency to be injurious to the public or against the public good.[22] As applied to contracts, in the absence of express legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good, or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends clearly to undermine the security of individual rights, whether of personal liability or of private property.[23]
The Company and the Supervisor mutually agree:In the case of Petrophil Corporation v. Court of Appeals,[33] this Court already had the opportunity to opine that termination or cancellation clauses such as that subject of the case at bar are legitimate if exercised in good faith. The facts of said case likewise involved a termination or cancellation clause that clearly provided for two ways of terminating the contract, i.e., with or without cause. The utilization of one mode will not preclude the use of the other. Therein, we stated that the finding that the termination of the contract was "for cause," is immaterial. When petitioner terminated the contract "without cause," it was required only to give x x x a 30-day prior written notice, which it did.
x x x x
6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other. [Emphasis supplied.]