Chevron Philippines, Inc. vs. Mendoza

A company's exercise of its discretionary prerogative to select dealers or business partners does not constitute abuse of right under Article 19 of the Civil Code absent proof of bad faith or a conscious and intentional design to prejudice another, and mere allegations of impropriety — unsubstantiated by clear and convincing evidence — are insufficient to establish liability.

Mendoza applied for a Caltex (now Chevron) dealership under the company's competitive selection procedure, which required applicants to pass a psychographic exam, undergo on-the-job evaluation and training (OJET), and successfully defend a business proposal before the dealer selection board. Successful applicants are placed in a dealers pool but are not guaranteed a dealership award; the company retains discretion to pinpoint the most preferable site and appoint the dealer it deems most suitable. Mendoza was included in the dealers pool but was twice bypassed for dealership awards — first for the Virac station and later for a San Andres station — prompting him to file a complaint for torts and damages against Chevron.

Sometime in 1997, Mendoza applied with Caltex for dealership of a company-owned service station in Sta. Cruz, Virac, Catanduanes. He passed the psychographic exam, underwent the required on-the-job evaluation and training, and successfully defended his business proposal. The dealer selection board, however, awarded the Virac dealership to the Spouses Carmen and Jose Romeo Francisco. Jose happened to be the grandson of the owner and lessor of the lot occupied by the Virac service station. In a letter dated February 28, 1997, Caltex informed Mendoza that he had met the minimum dealer requirements and was included in the dealers pool, making him eligible to apply at any future retail station site, provided he submit and defend a new business plan.

Dissatisfied, Mendoza wrote the President of Caltex a letter of protest dated March 11, 1997, alleging that his co-applicant — the lot owner — had been given priority not based on disclosed criteria and qualifications, and that an internal arrangement existed between Caltex and the lot owner. He speculated that the co-applicant's resignation from a prestigious pharmaceutical company before the awarding of the station indicated a promise or guarantee from Caltex.

On July 9, 1998, Mendoza re-applied for a dealership of a dealer-owned service station either in Virac or San Andres, since one of the two Caltex service stations in Catanduanes had closed. He offered four service station sites to Caltex, three of which he owned. In a letter-reply dated August 3, 1998, Caltex's Luzon South Retail District Manager apprised Mendoza that the dealership had been awarded to the site offering a more strategic location accessible to the target market. The San Andres dealership was awarded to Mendoza's brother-in-law, Joseph Cua, whom Mendoza claimed had not even passed the initial screening.

Firmly believing he had been bypassed again, Mendoza wrote Caltex's Country Manager on January 21, 1999, asserting that his membership in the dealers pool established a "partnership inchoate" between him and Caltex, and demanding priority and proper evaluation of his proposed site. Through counsel, he sent a letter of demand dated February 24, 1999, reiterating that the award to Cua deprived him of his rightful dealership and caused irreparable damages, and threatening legal action if Caltex did not settle within fifteen days. Caltex replied on February 25, 1999, explaining that for a dealer-owned outlet, the lot-owner is typically appointed dealer, and that Cua's site — located on the national highway — was manifestly preferable to Mendoza's interior, one-way-street location. Caltex further clarified that dealers pool membership did not guarantee a dealership or create a "partnership inchoate."

On March 29, 1999, Mendoza filed a complaint for torts and damages with preliminary mandatory injunction before the RTC of Virac, Catanduanes, Branch 43, docketed as Civil Case No. 1886. After due hearing, his application for a temporary restraining order was denied on May 18, 1999. Caltex filed its answer with counterclaims on October 13, 2000, asserting lack of cause of action and seeking moral and exemplary damages, attorney's fees, and litigation expenses for the alleged tarnishing of its reputation. The RTC dismissed Mendoza's complaint on March 30, 2009, finding no abuse of right, and awarded Chevron moral damages of ₱1,000,000.00, exemplary damages of ₱500,000.00, and attorney's fees of ₱291,838.85. The CA affirmed with modification, deleting the moral and exemplary damages for lack of evidentiary basis but sustaining the attorney's fees and costs of suit. Both parties sought partial reconsideration, which the CA denied, leading to the consolidated petitions before the Supreme Court.

• Abuse of Right (Mendoza): Mendoza maintained that Chevron's actions in awarding dealerships to the Franciscos and to Cua — and not to him — bordered on abuse of its prerogative of choice, notwithstanding his inclusion in the dealers pool and his compliance with the minimum dealer requirements.
• Attorney's Fees (Mendoza): Mendoza argued that the CA erred in sustaining the award of attorney's fees and costs of suit in favor of Chevron, alleging that such award finds no basis.
• Moral Damages (Chevron): Chevron insisted that the CA erred in deleting the award of moral damages, contending that Mendoza's acts showed the intention to destroy Chevron's reputation and credibility, particularly by copy-furnishing third persons with his correspondence with Chevron.
• Exemplary Damages (Chevron): Chevron argued that the CA erred in deleting the award of exemplary damages previously granted by the RTC.

• No Abuse of Right (Chevron, as respondent to Mendoza Petition): Chevron countered that its dealership selection was a highly competitive process, that dealers pool membership did not guarantee a dealership, and that its choices were based on legitimate commercial considerations — the Franciscos ranked first among the finalists, and Cua's site was on the national highway and manifestly more strategic than Mendoza's interior location.
• No Entitlement to Damages (Mendoza, as respondent to Chevron Petition): Mendoza argued that Chevron presented no evidence establishing the factual basis for moral or exemplary damages, and that the mere act of copy-furnishing third persons with correspondence could not have affected the reputation of one of the largest oil companies in the country.

• Abuse of Right: Whether Chevron committed abuse of right under Article 19 of the Civil Code in awarding dealerships to the Franciscos and Cua instead of Mendoza.
• Moral Damages: Whether the CA erred in deleting the award of moral damages in favor of Chevron.
• Exemplary Damages: Whether the CA erred in deleting the award of exemplary damages in favor of Chevron.
• Attorney's Fees: Whether the CA erred in sustaining the award of attorney's fees and costs of suit in favor of Chevron.

• Abuse of Right: No. Chevron did not commit abuse of right; there was no evidence of bad faith or malicious intent, and its dealership selections were based on legitimate commercial criteria.
• Moral Damages: No. Chevron, as a corporation, presented no evidence that its reputation was actually debased or that it suffered social humiliation as a result of Mendoza's acts.
• Exemplary Damages: No. Exemplary damages are merely ancillary to moral, temperate, or compensatory damages, and since Chevron was not entitled to moral damages, it could not be awarded exemplary damages under Article 2234 of the Civil Code.
• Attorney's Fees: No error. The award was proper under Article 2208 of the Civil Code, Mendoza's complaint being a clearly unfounded civil action.

• Abuse of Right: The principle of abuse of rights under Article 19 of the Civil Code sets standards requiring every person to act with justice, give everyone his due, and observe honesty and good faith in the exercise of rights and performance of duties. The elements of abuse of right are: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Malice or bad faith — implying a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity — is at the core and must be substantiated by evidence. Mendoza utterly failed to prove any indication of bad faith. The unchallenged factual finding of the CA established that the Franciscos were awarded the Virac dealership because they ranked first among the three finalists while Mendoza ranked second, and Jose — Mendoza's own witness — testified that the award was based on qualifications, not on the Franciscos' relationship with the lessor. As to the San Andres dealership, the parties stipulated during pre-trial that Cua's site was a two-way street along the national highway, manifestly preferable to Mendoza's interior one-way-street location. Chevron's denial of Mendoza's attempts to obtain a dealership to which he had no right was not an actionable wrong.

• Moral Damages: A corporation is not, as a rule, entitled to moral damages because it cannot experience physical suffering or sentiments such as wounded feelings, serious anxiety, or moral shock. The exception is where the corporation has a good reputation that is debased, resulting in social humiliation. Even under this exception, claims for moral damages must have sufficient factual basis either in the evidence presented or in the factual findings of the lower courts. The CA found that Chevron presented no evidence establishing the factual basis of its claim. Chevron's sole basis was that Mendoza copy-furnished third persons with his correspondence, but there was no evidence showing that Chevron's reputation was even remotely scathed. It is implausible that letters from a single unknown trader could affect the reputation of one of the largest oil companies in the country. The CA's assessment was binding, the Court not being a trier of facts in a Rule 45 petition.

• Exemplary Damages: Under Article 2234 of the Civil Code, the plaintiff must show entitlement to moral, temperate, or compensatory damages before the court may consider whether exemplary damages should be awarded. Exemplary damages are merely ancillary to moral, temperate, or compensatory damages, and no exemplary damages can be awarded unless the claimant first establishes a clear right to moral damages. Since Chevron was not entitled to moral damages, the CA correctly deleted the award of exemplary damages.

• Attorney's Fees: Article 2208 of the Civil Code authorizes the award of attorney's fees and litigation expenses in the case of a clearly unfounded civil action or where the court deems it just and equitable. The CA and RTC both found Mendoza's complaint unfounded — instigated by a "sore loser" who refused to accept Chevron's reasonable explanations. Given the serious lack of merit and the palpable failure to substantiate the claim of abuse of right, the Court found no reason to overturn the lower courts' exercise of discretion in awarding attorney's fees and costs of suit against Mendoza.

• Principle of Abuse of Rights (Article 19, Civil Code) — 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. The elements are: (1) the existence of a legal right or duty, (2) which is exercised in bad faith, and (3) for the sole intent of prejudicing or injuring another. Malice or bad faith — a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity — is at the core and must be substantiated by evidence. In this case, Chevron's discretionary selection of dealers, exercised in good faith and based on legitimate commercial criteria, did not constitute abuse of right.

• Moral Damages for Corporations — A corporation is not, as a rule, entitled to moral damages because it cannot experience physical suffering or sentiments such as wounded feelings, serious anxiety, mental anguish, and moral shock. The exception is where the corporation has a good reputation that is debased, resulting in social humiliation. Even under this exception, there must be proof of the existence of the factual basis of the damage and its causal relation to the defendant's acts. Chevron failed to present any such evidence.

• Exemplary Damages as Ancillary (Article 2234, Civil Code) — Exemplary damages are merely ancillary to moral, temperate, or compensatory damages. No exemplary damages can be awarded unless the claimant first establishes a clear right to moral, temperate, or compensatory damages. Because Chevron was not entitled to moral damages, it could not recover exemplary damages.

• Attorney's Fees in Clearly Unfounded Actions (Article 2208, Civil Code) — Attorney's fees and expenses of litigation may be awarded in the case of a clearly unfounded civil action or proceeding, or where the court deems it just and equitable. Mendoza's complaint, being a palpably unfounded suit by a disappointed applicant who refused to accept reasonable explanations, justified the award.

• "Malice or bad faith is at the core of an abuse of right. Malice or bad faith implies a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity. Such must be substantiated by evidence." — This passage articulates the essential element of bad faith in an abuse-of-right claim and the evidentiary burden required, constituting the ratio decidendi for the dismissal of Mendoza's complaint.

• "Although you are indeed a member of our dealer pool in the area, this does not by any means guarantee that you will be chosen dealer, nor does it create a 'Partnership Inchoate' between us, as you so creatively allege." — This quotation from Caltex's February 25, 1999 letter-reply, reproduced in the decision, defines the nature of dealers pool membership and refutes Mendoza's claimed entitlement, central to the finding of no abuse of right.

• "no exemplary damages can be awarded unless the claimant first establishes his clear right to moral damages." — This formulation states the ancillary nature of exemplary damages under Article 2234, explaining why the deletion of the exemplary damages award was proper.

• "Chevron had been more than patient and accommodating to Mendoza who could not simply accept his defeat." — The Court adopted the CA's assessment verbatim, characterizing Mendoza's conduct and supporting the conclusion that his complaint was a clearly unfounded action warranting the award of attorney's fees.

• Albenson Enterprises Corp. vs. Court of Appeals, 291 Phil. 17 (1993) — Cited for the proposition that Article 19 sets standards — to act with justice, give everyone his due, and observe honesty and good faith — in the exercise of rights and performance of duties. Followed.
• ABS-CBN Broadcasting Corp. vs. CA, 361 Phil. 499 (1999) — Cited for the elements of abuse of right under Article 19: existence of a legal right or duty, exercised in bad faith, for the sole intent of prejudicing or injuring another. Followed.
• Simex International (Manila), Inc. vs. Court of Appeals, 262 Phil. 387 (1990) — Cited for the rule that a corporation is not as a rule entitled to moral damages, the exception being where a good reputation is debased resulting in social humiliation. Followed.
• Crystal vs. Bank of the Philippine Islands, 593 Phil. 344 (2008) — Cited for the requirement that moral damages must have proof of the factual basis of the damage and its causal relation to the defendant's acts. Followed.
• Noell Whessoe, Inc. vs. Independent Testing Consultants, Inc., G.R. No. 199851, November 7, 2018 — Cited as recent authority that claims for moral damages must have sufficient factual basis in the evidence or in the factual findings of the lower courts. Followed.
• Mahinay vs. Atty. Velasquez, Jr., 464 Phil. 146 (2004) — Cited for the rule that exemplary damages are allowed only in addition to moral damages and cannot be awarded absent a clear right to moral damages. Followed.
• Cebu Country Club et al. vs. Elizagaque — Cited by the RTC as the standard for finding fraud and evident bad faith in disapproving applications; the RTC distinguished this case, finding the four circumstances therein unavailing. Distinguished.

• Article 19, Civil Code — "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." Applied as the foundational provision for the principle of abuse of rights; the Court found that Chevron's exercise of its discretionary prerogative to select dealers satisfied these standards, there being no evidence of bad faith.
• Article 2208, Civil Code — Authorizes the award of attorney's fees and expenses of litigation in the case of a clearly unfounded civil action or proceeding, or where the court deems it just and equitable. Applied to sustain the award of attorney's fees against Mendoza, whose complaint was found to be clearly unfounded.
• Article 2234, Civil Code — Requires that the plaintiff show entitlement to moral, temperate, or compensatory damages before the court may consider awarding exemplary damages. Applied to affirm the deletion of exemplary damages, Chevron having failed to establish entitlement to moral damages.
• Section 12, Rule 132, Rules of Court — Governs the impeachment of one's own witness; invoked to explain why Mendoza was bound by the testimony of his own witness, Jose Francisco, who testified that the Franciscos were awarded the dealership based on qualifications.

Carpio (Chairperson), Perlas-Bernabe, J. Reyes, Jr., and Lazaro-Javier, JJ., concurred.