Petrophil Corporation vs. Court of Appeals

A clear contractual right to terminate a contract without cause upon the stipulated notice remains valid, but its exercise in bad faith—without hearing the other party and for the purpose of injuring it—constitutes an abuse of right under Article 19 of the Civil Code; under Article 20, damages may be recovered by persons who suffer loss as a consequence of the wrongful act even if they were not its direct target.

Petrophil Corporation and Dr. Amanda Ternida-Cruz were parties to a hauling contract under which Dr. Cruz was to haul and transport Petrophil's packages and bulk products, using at least two tank trucks reserved solely for Petrophil's requirements. The contract contained a provision allowing termination for cause, another allowing termination of the indefinite-term contract upon 30 days' prior written notice, and an annexed Penalty Clause with calibrated sanctions for infractions by Dr. Cruz or her employees. Petrophil also required a Hearing Committee to hear offenses committed by hauling contractors or their employees before any penalty was imposed. Dr. Cruz employed tank truck drivers, including Jessie de Vera, Marcial Mulig, Antonio Cuenca, and Rufino Cuenca. The governing statutory backdrop included Articles 19, 20, and 1377 of the Civil Code, on abuse of rights, indemnity for damage caused contrary to law, and interpretation of obscure contract stipulations.

On December 27, 1970, Petrophil Corporation and Dr. Amanda Ternida-Cruz entered into a hauling contract that allowed Dr. Cruz to haul and transport any and all packages and/or bulk products of Petrophil. The contract provided that Petrophil could terminate it for breach, negligence, discourtesy, improper and/or inadequate performance, or abandonment, and required Dr. Cruz to reserve at least two tank trucks solely for Petrophil's hauling requirements. Paragraph 11 stipulated that the contract was for an indefinite period, provided that Petrophil could terminate it at any time with 30 days' prior written notice. Annexed to the contract was a Penalty Clause containing calibrated penal sanctions for infractions by Dr. Cruz and/or her employees, and Petrophil also required the formation of a Hearing Committee to hear offenses committed by hauling contractors or their employees and to give an erring party an opportunity to be heard before any penalty was imposed.

On April 25, 1987, there was a strike at the Pandacan terminal. According to Petrophil's witnesses, Dr. Cruz and her husband were at the picket line and refused to load petroleum products, resulting in the disruption of delivery to service stations in Metro Manila and in the provinces, which in turn resulted in loss of sales and revenues; because of Dr. Cruz's refusal to load, the management terminated the hauling contract. At the resumption of operations at the Pandacan terminal, Dr. Cruz's contract was suspended for one week and eventually terminated. In a letter dated May 21, 1987, Petrophil, through its Operations Manager, advised Dr. Cruz that it was terminating her hauling contract in accordance with paragraph 11. Dr. Cruz appealed to Petrophil for reconsideration, but the appeal was denied on June 5, 1987.

On June 23, 1987, Dr. Cruz filed with the Regional Trial Court of Manila a complaint docketed as Civil Case No. 87-40930 against Petrophil, seeking the nullity of the termination and declaring its suspension unjustified and contrary to the contract's terms and conditions. On March 11, 1988, Jessie de Vera, Marcial Mulig, Antonio Cuenca, and Rufino Cuenca, all tank truck drivers of Dr. Cruz, filed a complaint docketed as Civil Case No. 88-43946 for damages against Petrophil Operations Manager Antonio Santos, Pandacan Terminal Manager Crispino A. de Castro, and Pandacan Terminal Superintendent Jaime Tamayo. The two cases were consolidated and jointly tried.

During the hearing, Dr. Cruz testified that she had been in the gasoline business as dealer, operator, and hauling contractor for the last 26 years. She claimed that the termination of her hauling contract was retaliation against her for allegedly sympathizing with the then striking Petrophil employees and for informing the PNOC president of anomalies perpetrated by some of its officers and employees. Driver Jessie de Vera corroborated these allegations and said that the termination of Dr. Cruz's contract was intended to silence her; he further testified that before the termination, Petrophil officials reduced their hauling trips to make life harder for them so that they would resign from Dr. Cruz's employ, which in turn would result in the closure of her business.

Petrophil denied that its officials were out to starve Dr. Cruz's drivers for their support of her. It professed that the hauling trips were reduced not because Dr. Cruz was being punished, but because the company was assigning hauling trips on the basis of compartmentation and not on a first-come, first-serve basis. Witnesses for Petrophil also testified that on April 25, 1987, there was a strike at the Pandacan terminal and Dr. Cruz and her husband were at the picket line; they refused to load petroleum products, resulting in the disruption of delivery to service stations in Metro Manila and in the provinces, which in turn resulted in loss of sales and revenues. Because of Dr. Cruz's refusal to load, the management terminated the hauling contract.

The trial and appellate courts found that Petrophil terminated the contract because of Dr. Cruz's refusal to load petroleum products during the strike, and that the termination appeared as a retaliation or punishment for her sympathizing with the striking employees. The record showed that Petrophil did not ask Dr. Cruz to explain her actions before terminating the contract.

• Contractual Termination Modes: Petitioner argued that the Court of Appeals unlawfully set aside a valid and existing contractual stipulation; the contract allowed either termination "for cause" under paragraph 7 or "without cause" under paragraph 11, and these modes were not mutually exclusive. Petitioner maintained that it chose paragraph 11, whose language was clear and required no interpretation, and that Article 1377 of the Civil Code, applicable to contracts of adhesion, did not apply.
• Tortious Liability: Petitioner argued that the Court of Appeals imposed tortious liability where the requisites prescribed by law were not established by the evidence. According to petitioner, aside from the hearsay and inadmissible testimony of Jessie de Vera, there was no other evidence that the termination was done with deliberate intent to harm or for the sole purpose of prejudicing the respondent-drivers; the termination was an exercise of a right and directed primarily at Dr. Cruz.
• Policy Guidelines and Penalty Clause: Petitioner argued that the lower court erred in applying the procedures set forth in the Policy Statement and Guidelines and the penalty clause, because the offenses in the penalty clause referred to product theft or pilferage or gross violation of company policies on credit, security, and the like, as required in tank truck deliveries.

• Contract Interpretation: Private respondents claimed that the contract did not envision a situation where it could be rescinded or terminated after the occurrence of ambivalent acts which may qualify as cause for termination; the contract's vagueness, according to private respondents, needed an interpretation.
• Abuse of Right and Damages: Private respondents contended that even granting arguendo that petitioner had the right to terminate the contract even "without cause," petitioner would still be liable for damages under Article 19 of the Civil Code for abuse of right for terminating the contract without reason but out of sheer whim and caprice.
• Policy Guidelines and Penalty Clause: Dr. Cruz claimed that there was no showing that her alleged act was covered by the offenses in the penalty clause, hence petitioner erred when it imposed the procedure in her case.

• Contract Interpretation / Termination Mode: Whether the hauling contract needed interpretation and whether Petrophil could terminate under paragraph 11 "without cause" notwithstanding the "for cause" mode under paragraph 7.
• Arbitrary Termination / Abuse of Right: Whether Petrophil was guilty of arbitrary termination of the contract, which would entitle Dr. Cruz to damages.
• Application of Policy Guidelines and Penalty Clause: Whether the lower courts erred in applying the Policy Statement and Guidelines and the penalty clause.
• Tortious Liability to Drivers: Whether Petrophil may be held liable for damages to the respondent-drivers under Article 20 despite the termination being directed primarily at Dr. Cruz.

• Contract Interpretation / Termination Mode: No. The contract did not need interpretation; it clearly provided two modes of termination, and paragraph 11 allowed termination without cause upon 30 days' prior written notice, which was given. The "for cause" finding was immaterial.
• Arbitrary Termination / Abuse of Right: Yes. Petrophil had the legal right to terminate, but it exercised that right in bad faith, without hearing Dr. Cruz, as retaliation or punishment for her sympathy with striking employees and for the purpose of injuring private respondents; all elements of abuse of right under Article 19 were present.
• Application of Policy Guidelines and Penalty Clause: No. The issue of whether the Policy Statement, Guidelines, and penalty clause applied was raised for the first time on appeal and was not considered, absent a compelling reason.
• Tortious Liability to Drivers: Yes. Under Article 20, a wrongful act need not be directed at a specific person; the drivers suffered loss of income as a consequence of Petrophil's willful act against Dr. Cruz, so damages were proper.

• Contract Interpretation / Termination Mode: The contract clearly provided two ways of terminating it, and one mode did not exclude the other. Although the contract provided causes for termination, paragraph 11 also stated that the contract was for an indefinite term subject to Petrophil's right to terminate it at any time after a written notice of 30 days. When the language of a contract is clear, it requires no interpretation, citing Leveriza vs. Intermediate Appellate Court. Thus, the finding that the termination was "for cause" was immaterial; when Petrophil terminated "without cause," it was required only to give Dr. Cruz a 30-day prior written notice, which it did.
• Arbitrary Termination / Abuse of Right: The termination was not a mere exercise of a contractual right. Before Petrophil terminated the contract on May 25, 1987, there was a strike at the Pandacan terminal; Dr. Cruz and her husband were seen at the picket line and were reported to have instructed their truck drivers not to load petroleum products. At the resumption of operations, Dr. Cruz's contract was suspended for one week and eventually terminated. The Court of Appeals, like the trial court, concluded that Petrophil terminated the contract because of Dr. Cruz's refusal to load during the strike, and that the termination appeared as retaliation or punishment for her sympathizing with the striking employees. The record showed that Petrophil never asked her to explain her actions; it simply terminated her contract. These factual findings were binding and conclusive absent any allegation that they were unsupported by evidence or that the courts misapprehended the facts, citing Valenzuela vs. CA. In terminating without hearing her side, Petrophil opened itself to a charge of bad faith. While it had the right to terminate, it could not act purposely to injure private respondents. Under BPI Express Card Corporation vs. CA, abuse of right under Article 19 requires: (1) a legal right or duty; (2) exercised in bad faith; and (3) for the sole purpose of prejudicing or injuring another. All three elements were present, so the termination called for appropriate sanctions by way of damages.
• Application of Policy Guidelines and Penalty Clause: Petitioner contended that the lower court erred in applying the Policy Statement and Guidelines and the penalty clause, arguing that the offenses therein referred to product theft or pilferage or gross violation of company policies on credit, security, and the like, as required in tank truck deliveries. Dr. Cruz claimed there was no showing that her alleged act was covered by those offenses, hence petitioner erred when it imposed the procedure. This issue was raised for the first time on appeal. Well-established is the rule that matters not brought out in the proceedings below but raised for the first time on appeal will ordinarily not be considered by a reviewing court, citing Salafranca vs. Philamlife (Pamplona) Village Homeowners Association Inc. Given no compelling reason, the Court did not deviate from this rule.
• Tortious Liability to Drivers: Petitioner contended that the Court of Appeals erred in imposing tortious liability where the requisites were not established by evidence. According to petitioner, aside from the hearsay and inadmissible testimony of Jessie de Vera, there was no other evidence that the termination was done with deliberate intent to harm or for the sole purpose of prejudicing the respondent-drivers; the termination was an exercise of a right and directed primarily at Dr. Cruz. Article 20 of the Civil Code provides that every person who, contrary to law, willfully or negligently causes damage to another shall indemnify the latter for the damage done. Petitioner might not have deliberately intended to injure the respondent-drivers, but as a consequence of its willful act directed against Dr. Cruz, the respondent-drivers lost their jobs and consequently suffered loss of income. Under Article 20, there is no requirement that the act must be directed at a specific person; it suffices that a person suffers damage as a consequence of a wrongful act of another in order that indemnity could be demanded from the wrongdoer. The appellate court did not err in awarding damages to respondent-drivers.

• Abuse of Right (Article 19, Civil Code) — Every person must, in the exercise of rights and performance of duties, act with justice, give everyone his due, and observe honesty and good faith. The Court, citing BPI Express Card Corporation vs. CA, held that abuse of right requires: (1) a legal right or duty; (2) exercised in bad faith; and (3) for the sole purpose of prejudicing or injuring another. Petrophil had the contractual right to terminate under paragraph 11, but it exercised that right in bad faith by terminating without hearing Dr. Cruz and as retaliation or punishment for her sympathy with striking employees, for the purpose of injuring private respondents; all three elements were present.
• Plain Meaning Rule in Contract Interpretation — When the language of a contract is clear, it requires no interpretation. The Court applied this to hold that the hauling contract clearly provided two modes of termination—for cause and without cause—and that one mode did not exclude the other; paragraph 11 allowed termination without cause upon 30 days' prior written notice, which Petrophil gave.
• Liability Under Article 20 for Damage Caused Contrary to Law — Every person who, contrary to law, willfully or negligently causes damage to another shall indemnify the latter for the damage done. The Court held that the wrongful act need not be directed at a specific person; it suffices that a person suffers damage as a consequence of a wrongful act of another. Thus, the respondent-drivers could recover damages for lost income even though Petrophil's willful act was directed primarily at Dr. Cruz.
• Issues Raised for the First Time on Appeal — Matters not brought out in the proceedings below but raised for the first time on appeal will ordinarily not be considered by a reviewing court. The Court applied this to petitioner's contention that the Policy Statement, Guidelines, and penalty clause did not cover Dr. Cruz's alleged act.
• Binding Nature of Factual Findings — Factual findings of the trial and appellate courts are binding and conclusive on the Supreme Court, especially absent any allegation that they are unsupported by evidence or that the courts misapprehended the facts. The Court relied on this in upholding the finding that Petrophil terminated the contract as retaliation or punishment.

• "When the language of a contract is clear, it requires no interpretation." — This states the plain meaning rule applied by the Court to hold that the hauling contract needed no interpretation and that paragraph 11 validly allowed termination without cause upon 30 days' prior written notice.
• "In terminating the hauling contract of Dr. Cruz without hearing her side on the factual context above described, petitioner opened itself to a charge of bad faith. While Petrophil had the right to terminate the contract, petitioner could not act purposely to injure private respondents." — This is the ratio for the abuse-of-right ruling: the contractual right to terminate existed, but its exercise became actionable because it was done in bad faith and to injure private respondents.
• "We find all these three elements present in the instant case. Hence, we are convinced that the termination by petitioner of the contract with Dr. Cruz calls for appropriate sanctions by way of damages." — This applies the three-element test for abuse of right under Article 19 and justifies the award of damages to Dr. Cruz.
• "Note that under Article 20, there is no requirement that the act must be directed at a specific person, but it suffices that a person suffers damage as a consequence of a wrongful act of another in order that indemnity could be demanded from the wrongdoer." — This is the ratio for holding Petrophil liable to the respondent-drivers even though the wrongful termination was directed primarily at Dr. Cruz.

• BPI Express Card Corporation vs. CA, 296 SCRA 260, 272 (1998) — Cited as the controlling precedent for the elements of abuse of right under Article 19: (1) a legal right or duty; (2) exercised in bad faith; and (3) for the sole purpose of prejudicing or injuring another. The Court found all three elements present.
• Leveriza vs. Intermediate Appellate Court, No. L-66614, 157 SCRA 282, 292 (1988) — Cited for the rule that when the language of a contract is clear, it requires no interpretation. The Court used this to reject the need to interpret the hauling contract's termination clauses.
• Valenzuela vs. CA, G.R. No. 115024, 253 SCRA 303, 313 (1996) — Cited for the rule that factual findings of the trial and appellate courts are binding and conclusive on the Supreme Court absent any allegation that they are unsupported by evidence or that the courts misapprehended the facts.
• Salafranca vs. Philamlife (Pamplona) Village Homeowners Association Inc., G.R. No. 121791, 300 SCRA 469, 480 (1998) — Cited for the rule that matters not brought out in the proceedings below but raised for the first time on appeal will ordinarily not be considered by a reviewing court.

• 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 Court applied this provision to hold that Petrophil abused its right to terminate the contract when it acted in bad faith, without hearing Dr. Cruz, and for the purpose of injuring private respondents.
• Article 20, Civil Code — Every person who, contrary to law, willfully or negligently causes damage to another shall indemnify the latter for the damage done. The Court applied this provision to hold that the respondent-drivers could recover damages for lost income as a consequence of Petrophil's wrongful act, even though the act was directed primarily at Dr. Cruz.
• Article 1377, Civil Code — The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity. Petitioner invoked this provision as inapplicable; the Court found the contract clear and requiring no interpretation, so no obscure stipulation needed to be interpreted.

Bellosillo (Chairman), Mendoza, and De Leon, Jr., JJ., concur. Buena, J., was on official leave.