CALIBRE TRADERS, INC., MARIO SISON SEBASTIAN, AND MINDA BLANCO SEBASTIAN, PETITIONERS, VS. BAYER PHILIPPINES, INC., RESPONDENT.

Calibre Traders versus Bayer Philippines

The Case

This is a case about a distributor who stopped paying and then sued its supplier for damages. Calibre Traders, together with the spouses Mario Sison Sebastian and Minda Blanco Sebastian, brought an action for damages against Bayer Philippines, Incorporated, accusing it of maliciously manipulating accounts, withholding rebates, refusing to supply goods, and favoring new dealers in order to drive Calibre out of business. Bayer Philippines denied the charge and counterclaimed for the unpaid price of goods it had delivered. The case matters because it is the Supreme Court's clean statement on the burden of proving bad faith in a claim for abuse of rights, and on when a counterclaim is compulsory rather than permissive, so that docket fees need not be paid for it.

Procedural History

Calibre filed its complaint for damages before the Regional Trial Court of Pasig. Bayer Philippines answered and set up a counterclaim for collection, and it moved to implead the Sebastian spouses as co-defendants because they had bound themselves as solidary debtors under the distributorship agreement. The trial court granted the motion to implead. The spouses answered, adopting Calibre's defenses, and raised the objection that the counterclaim against them was permissive and that no docket fees had been paid for it.

The trial court decided in favor of Calibre. It held that Calibre was justified in withholding payment because Bayer Philippines had deliberately delayed the reconciliation of accounts, and it found Bayer Philippines liable for abuse of rights and unfair competition. It dismissed the counterclaim twice over: for lack of merit, and because the counterclaim was permissive and no docket fees had been paid.

Bayer Philippines appealed to the Court of Appeals. The Court of Appeals reversed the trial court. It found no proof of malice, held that the counterclaim was compulsory and so needed no docket fees, and ordered Calibre and the Sebastian spouses to pay the unpaid account with interest. The Court of Appeals denied reconsideration, and the case came to the Supreme Court by petition for review on certiorari.

Facts

Calibre was one of Bayer Philippines' distributors of agricultural chemicals in Pangasinan and Tarlac. Its last distributorship agreement ran from June 1989 to June 1991. Bayer Philippines stopped delivering stocks on July 31, 1989, after Calibre failed to settle unpaid accounts totaling 1,751,064.56 pesos. As an authorized dealer, Calibre enjoyed discounts and rebates, but the parties disagreed on whether Calibre was entitled to them and on how they should be computed. Calibre knew its debts were due, yet it withheld payment precisely to compel Bayer Philippines to reconcile the accounts.

On August 16, 1989, Calibre wrote Bayer Philippines asking for a reconciliation and listing claims amounting to 968,265.82 pesos, covering interest allegedly charged against a volume rebate, retroactive special rebates, unearned special rebates, differences between claimed amounts and credit memos, sales returns, and volume and prompt payment rebates. Follow-up letters were sent in September, October, and November. Bayer Philippines' credit and collection officer met with Calibre's general manager, Mario Sebastian, on September 29, 1989, but the attempt to settle failed. A second meeting took place on October 27, 1989, and its results were put in writing in Bayer Philippines' letter of November 10, 1989, which answered Calibre's claims point by point, granting some and explaining the refusal of others.

Bayer Philippines' assistant sales manager then offered to grant Calibre's claims so that the account might finally be settled, and Bayer Philippines confirmed that offer in its letter of November 24, 1989, granting several claims and asking for full payment of 934,086.92 pesos by December 8, 1989, failing which the offer would be cancelled. Calibre did not accept. It wrote back expressing discontent, then demanded 10,000,000 pesos in damages. Bayer Philippines replied, reminding Calibre that it owed 1,272,103.07 pesos as of December 31, 1989. Calibre then sued for damages, and Bayer Philippines counterclaimed for the unpaid account.

Issues

• Whether or not Calibre is entitled to an award of damages against Bayer Philippines for abuse of rights and unfair competition.
• Whether or not the counterclaim of Bayer Philippines is compulsory, so that it may be granted even without payment of docket and filing fees.

Applicable Provisions

Article 19 of the Civil Code, the abuse of rights provision on which Calibre's claim rests, provides:

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.

This is the standard against which Bayer Philippines' conduct is measured, and the Court finds no departure from it.

Article 20 of the Civil Code, which supplies the consequence of a breach of that standard, provides:

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

Because no breach of Article 19 was shown, this liability never arose.

Article 28 of the Civil Code, on unfair competition, provides:

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.

The Court finds no force, deceit, machination, or oppressive method in Bayer Philippines' acts, so this provision does not apply.

Ruling

On the first issue, the Court held that no form of damages may be awarded to Calibre because it failed to prove its right to relief. The trial court's award rested on a finding of malice or bad faith, and the Court agreed with the Court of Appeals that there was no adequate proof of abuse of rights. Good faith is presumed, and the burden of proving bad faith rests on the party alleging it; in civil cases, the party who alleges a fact and substantially asserts the affirmative of the issue must prove it. Calibre failed to discharge that burden. Bayer Philippines never ignored the request for reconciliation: it sent representatives, answered the claims point by point, and granted additional concessions in a second letter. If the second letter seemed inconsistent with the first, bad faith cannot be imputed, since a party is not precluded from making prompt corrections in its computations. The disagreement was an honest difference in computation and a variance of opinion on the validity of the claims, not manipulation. Payment was a precondition for discounts and rebates under the agreements, so Bayer Philippines could not be blamed for disallowing some claims, and it was justified in stopping supply while the account remained outstanding. Calibre never even specified the unwarranted penalties it alleged.

On the appointment of other distributors, the Court found no abuse. The distributorship agreement was on a non-exclusive basis, and Bayer Philippines reserved the right to appoint other dealers. That the new dealers were former customers or salesmen of Calibre, or their relatives, did not prove an intention to drive Calibre out of business; Bayer Philippines merely extended the same business opportunities to others. An increase in the number of distributors naturally reduces the volume sales of each, and competition is part of business risk.

On the second issue, the Court upheld the Court of Appeals. The counterclaim arose out of the same dealership agreement on which Calibre's complaint was based, and so it was compulsory and required no docket fees. Calibre never denied owing Bayer Philippines, and the evidence of the amount owed stood unrebutted, so the award of the unpaid account with interest was justified.

Doctrine

First, a claim for abuse of rights under Article 19 of the Civil Code requires proof of bad faith, and bad faith is never presumed. The party who alleges it carries the burden of proving it, and a mere disagreement over the computation of rebates and discounts, or a variance of opinion on the validity of claims, is not bad faith.

Second, an offer of compromise is not an admission of liability. It admits only that there is a dispute and that an amount is being paid to buy peace, consistent with the policy of the law to encourage compromises.

Third, where the dealership agreement is expressly non-exclusive, the supplier may appoint other distributors in the same area, and the resulting decline in a dealer's sales volume is a business risk, not an injury for which the supplier is liable.

Fourth, a counterclaim is compulsory, and needs no docket fees, when it arises out of the same contract or transaction that is the subject of the complaint.

Disposition

The petition was denied and the decision of the Court of Appeals was affirmed, so Calibre and the Sebastian spouses lost and were ordered to pay Bayer Philippines the unpaid account with interest.

Remember This

Memorize this line: good faith is presumed, and the burden of proving bad faith rests on the party alleging it. Examiners use this case to test abuse of rights under Article 19, the rule that a compromise offer is not an admission of liability, and the distinction between a compulsory and a permissive counterclaim for purposes of docket fees.