PILIPINAS SHELL PETROLEUM CORPORATION, PETITIONER, VS. SERGIO LICUP, RESPONDENT.

Pilipinas Shell Petroleum versus Licup

The Case

This is a petition for review on certiorari brought by Pilipinas Shell Petroleum Corporation against Sergio Licup, arising from a complaint for specific performance and damages concerning a Sublease and Dealership Agreement, or SLDA, over a gasoline station. Licup sued Shell after Shell notified him of its intention to terminate the SLDA without stating any cause, which the trial court and the Court of Appeals found to violate the express terms of the agreement, resulting in awards of actual, moral and exemplary damages and attorney's fees. The case matters for two reasons: it illustrates the rule that a party who terminates a contract must comply with the stipulated manner and cause for termination, and it ends not with a litigated ruling on the merits but with a judicial approval of a compromise agreement, which is itself a doctrine every examinee should know.

Procedural History

Licup filed a complaint for specific performance with damages, with a prayer for a temporary restraining order and preliminary injunction, before the Regional Trial Court of Makati City, Branch 61. In a decision dated 11 December 2000, the trial court ruled in favor of Licup, ordering Shell to pay actual damages of 50,000 pesos per month from March 1993 up to the finality of the decision, moral damages of 500,000 pesos, exemplary damages of 500,000 pesos, attorney's fees consisting of a 10,000 peso acceptance fee, a 100,000 peso professional fee and 1,500 pesos per court appearance, plus the cost of suit. The trial court also declared the SLDA and the Lease Agreement terminated effective upon finality, and enjoined the parties to observe each other's rights at termination.

Shell appealed to the Court of Appeals, which dismissed the appeal on 18 November 2004 and denied Shell's motion for reconsideration on 11 July 2005. Shell then filed a petition for review on certiorari before the Supreme Court. While the petition was pending, both parties filed a joint motion to render judgment based on a compromise agreement, and the Court approved that agreement and rendered judgment in accordance therewith.

Facts

Licup operated a gasoline station under a Sublease and Dealership Agreement with Shell, together with a Lease Agreement over the premises. In 1993, Shell notified Licup of its intention to terminate the SLDA. The notification did not state the cause for the termination.

Taking the position that the termination was violative of the express terms of the agreement, Licup filed his complaint for specific performance and damages in April 1993, with a prayer for a temporary restraining order and preliminary injunction. The trial court found his claim duly proven by evidence and rendered judgment in his favor, awarding actual damages in the form of loss of earnings from March 1993 up to finality, moral and exemplary damages, attorney's fees, and costs, and declaring the SLDA and the Lease Agreement terminated effective upon finality.

Shell appealed, but the Court of Appeals affirmed the trial court in full, holding that notifying Licup of its intention to terminate the SLDA without stating the cause therefor violated the express terms of the agreement. Shell elevated the matter to the Supreme Court. While the petition was pending, the parties entered into a Compromise Agreement dated 15 August 2006, under which Shell paid Licup the gross sum of 7,500,000 pesos as full, complete, absolute and final amicable settlement of all his claims, and both parties waived and released all their respective claims against each other.

Issues

• Whether or not Shell's act of notifying Licup of its intention to terminate the Sublease and Dealership Agreement without stating the cause therefor violated the express terms of the agreement.
• Whether or not the Compromise Agreement entered into by the parties is contrary to law, morals, good customs, public order and public policy, and should therefore be approved and made the basis of judgment.

Applicable Provisions

The decision does not quote any statutory provision; it rests on the express terms of the Sublease and Dealership Agreement and on the parties' Compromise Agreement. The governing text is the agreement itself, which the Court of Appeals construed as requiring that the cause for termination be stated. The Compromise Agreement provides, in its dispositive undertaking:

The parties also agree that this settlement includes the satisfaction of all awards contained in the dispositive portion of the 11 December 2000 decision of the RTC in Civil Case No. 95-413, as affirmed by the Court of Appeals in CA-G.R. CV No. 69954.

This clause is what bears on the case: it converts the money judgment below into a settled obligation and extinguishes the awards through the compromise amount.

Ruling

On the first issue, the Court of Appeals held, and the Supreme Court did not disturb, that Shell's act of notifying Licup of its intention to terminate the SLDA without stating the cause therefor was violative of the express terms of the agreement. The agreement itself fixed the manner of termination, and a party cannot terminate in a manner contrary to what the parties stipulated. Hence the awards of actual, moral and exemplary damages and attorney's fees in Licup's favor stood affirmed.

On the second issue, the Court examined the Compromise Agreement and found it valid. The Court held:

All given, we find the Compromise Agreement not to be contrary to law, morals, good customs, public order and public policy, and, therefore, the same is accepted.

Because the parties voluntarily and knowingly executed the agreement with full understanding of its terms and consequences, and because the settlement included satisfaction of all the awards in the trial court's decision as affirmed by the Court of Appeals, the Court approved the agreement and rendered judgment in accordance therewith, without costs.

Doctrine

First, a contract of dealership and sublease may fix the manner and cause of termination, and a party who terminates without stating the cause required by the express terms of the agreement acts in violation of those terms and is liable for the damages awarded below. Second, a compromise agreement is a contract, and it is valid and binding when it is not contrary to law, morals, good customs, public order and public policy, and when the parties executed it voluntarily and knowingly with full understanding of its terms and legal consequences. Third, once judicially approved, the compromise agreement becomes the judgment itself, and it may satisfy and extinguish all the awards contained in the decision below, including those affirmed on appeal.

Disposition

The Supreme Court approved the Compromise Agreement, rendered judgment in accordance therewith, and ordered no costs, with Shell paying Licup 7,500,000 pesos as full and final settlement of all claims.

Remember This

The one line to memorize: a compromise agreement that is not contrary to law, morals, good customs, public order and public policy is accepted and rendered as judgment, and it extinguishes the awards it covers. Examiners use this case to test the requisites and effects of a compromise agreement, and to illustrate that terminating a dealership contract without stating the stipulated cause is a breach of the agreement's express terms.