Professional Academic Plans, Inc. vs. Crisostomo

A franchise commission granted for initiating and successfully procuring a client contract, subject only to the conditions that the grantee remain connected with the company and that the commission is non-transferable, is not extinguished by a subsequent amendment of the underlying contract where the amendment does not rescind the original agreement and the grantee’s continued employment is maintained. The entitlement stems from the initial procurement, not from participation in later renegotiations, and the company is estopped from denying the commission after paying it continuously under the original arrangement.

Respondent Dinnah L. Crisostomo served as PAPI District Manager for Metro Manila, later promoted to Regional Manager, without salary but entitled to a 10% franchise commission on payments from clients whose contracts she negotiated. In 1988, a sales consultant, Noel Rueda, initiated negotiations with the Armed Forces of the Philippines Savings and Loan Association, Inc. (AFPSLAI) for pre-need educational plans. Before an agreement was reached, Rueda’s services were terminated. Crisostomo, as his immediate supervisor, continued the negotiation with Guillermo Macariola, Assistant Vice-President for Sales, and a MOA was executed on November 9, 1988. Because Rueda was no longer connected with PAPI and Macariola waived his right, PAPI’s Executive Committee awarded the 10% franchise commission to Crisostomo. The commission was reduced several times, ultimately to 2% by a February 7, 1991 memorandum signed by PAPI officers, which stated that the commission “shall remain at 2% … for as long as you are connected with the company at whatever capacity” and that the franchise was “not transferable.” Crisostomo received this 2% commission until October 1991. The AFPSLAI then decided to review the 1988 MOA, suspended acceptance of applications, and in April 1992 entered into a new MOA that modified the original. After the new MOA, PAPI stopped paying Crisostomo’s commission and eventually terminated her employment.

• The AFPSLAI Account and Initial MOA: In May 1988, PAPI offered an Academic Assistance Program to the AFPSLAI. Sales consultant Noel Rueda initiated negotiations. After Rueda’s termination, respondent Crisostomo, his immediate supervisor and PAPI District Manager for Metro Manila, continued the negotiations with Guillermo Macariola, Assistant Vice-President for Sales. A Memorandum of Agreement (MOA) was executed on November 9, 1988 between PAPI and the AFPSLAI, providing for scholarship funding agreements for AFPSLAI members. Rueda was no longer with PAPI and disqualified to receive the franchise commission; Macariola declined and waived the commission in Crisostomo’s favor. PAPI’s Executive Committee awarded the 10% franchise commission to Crisostomo.

• Reduction of Commission and the February 7, 1991 Memorandum: Crisostomo initially received a 10% franchise commission from December 1988 to April 1989. The commission was successively reduced: to 5%, then 4%, then 3.75%, and finally to 2%. Crisostomo agreed to the final reduction to 2% on condition it be reduced to writing. On February 7, 1991, PAPI officers Benjamin Dino (Assistant Vice-President for Marketing) and Angelito B. Cruz (Vice-President for Finance and Administration) signed a memorandum confirming Crisostomo’s company franchise on all AFPSLAI business under two terms: (1) the franchise commission shall remain at 2% excluding entrance and service fees of the first-year premium “for as long as you are connected with the company at whatever capacity”; and (2) “This franchise is not transferable.” Crisostomo received the 2% commission until October 1991.

• Review of the MOA and Suspension of Remittances: Colonel Victor M. Punzalan succeeded Col. Noe S. Andaya as AFPSLAI President. By letter dated December 16, 1991, Col. Punzalan informed PAPI of the AFPSLAI’s decision to review the 1988 MOA. The letter stated that the AFPSLAI was “reviewing the terms and conditions” and looked forward to “a new agreement mutually beneficial to both parties.” Remittances were suspended during the review.

• The 1992 MOA and Termination of Crisostomo’s Commission: After renegotiations between PAPI and the AFPSLAI, a new MOA was executed in April 1992. It provided that prior inconsistent agreements were deemed rescinded, modified, or superseded. The AFPSLAI resumed remittances in June 1992. PAPI did not pay Crisostomo any commission on these remittances. By Inter-Office Memorandum dated June 1, 1992, PAPI terminated Crisostomo’s franchise commission, citing (1) cancellation of the old MOA due to anomalies and misrepresentation, (2) the new MOA was due to management effort, and (3) her failure to meet a franchise guideline requiring 100 new paid plans monthly from November 1991 to May 1992.

• Demand, Suspension, and Termination: Crisostomo insisted on her 2% commission. She approached her superiors and finally President Colayco, who advised her to make a formal proposal. In a letter dated August 13, 1992, Crisostomo proposed either a ₱5 million settlement and resignation, or retention of the 2% franchise fee as a royalty even after separation from PAPI for as long as AFPSLAI continued doing business with PAPI. PAPI, through Colayco, rejected the proposal on August 17, 1992, placed her under preventive suspension, and directed her not to return after suspension, effectively terminating her employment.

• Complaint: Crisostomo filed a complaint for sum of money and damages, alleging that as of October 1992, AFPSLAI sales amounted to ₱9,193,367.20, entitling her to ₱183,867.34. She sought moral and exemplary damages and attorney’s fees. Petitioners defended on the ground that Crisostomo did not participate in the execution of the 1988 MOA, she failed to meet the monthly 100-plan requirement, the old MOA was cancelled, and she had no role in the new MOA.

• Non-entitlement under the Old MOA: Petitioners maintained that respondent did not initiate, conceptualize, or negotiate the first MOA; she was merely present at its signing. The franchise commission should have belonged to Noel Rueda, who conceptualized the account, but was disqualified because he was no longer connected with PAPI. The commission was awarded to respondent only because those truly entitled were disqualified.

• Cancellation of the Old MOA: Petitioners argued that the first MOA was expressly cancelled by the AFPSLAI through the December 16, 1991 letter of Col. Punzalan. The letter’s reference to entering into “a new agreement mutually beneficial” signified an intention to abrogate, not merely suspend, the old MOA. Any right to commission under the old MOA was therefore extinguished.

• Non-participation in the New MOA: Petitioners contended that respondent had no participation whatsoever in the negotiation or execution of the 1992 MOA. Because the old MOA had been cancelled and a new MOA was independently negotiated, respondent had no right to a franchise commission on the AFPSLAI account under the new MOA.

• No Basis for Damages: Petitioners asserted that they did not act in bad faith in denying respondent’s claim; the award of moral and exemplary damages and attorney’s fees was therefore without legal basis.

• Estoppel: Respondent countered that petitioners were estopped from questioning the grant of her commission because it was awarded through PAPI’s own authority and reduced to writing in the February 7, 1991 memorandum.

• Continuing Right: Respondent argued that her right to commissions on all AFPSLAI transactions subsisted as long as she remained connected with PAPI, regardless of the execution of a new MOA and her non-participation in its negotiation. The commission was tied to the initiation of the AFPSLAI business, not to each subsequent amendment of the underlying agreement.

• Cancellation of the 1988 MOA: Whether the first Memorandum of Agreement between PAPI and the AFPSLAI was cancelled or rescinded by the AFPSLAI’s letter of December 16, 1991.

• Entitlement to Commission under the 1992 MOA: Whether respondent is entitled to the 2% franchise commission on remittances under the new MOA executed in April 1992, given that she did not participate in its negotiation or execution.

• Award of Damages and Attorney’s Fees: Whether petitioners are liable for moral and exemplary damages and attorney’s fees for denying respondent’s claim.

• Cancellation of the 1988 MOA: The first MOA was not cancelled but merely modified by the second MOA. The December 16, 1991 letter of Col. Punzalan signified only a suspension of acceptance of new applications pending a thorough review and did not amount to a unilateral cancellation or rescission. The principle of mutuality of contracts under Article 1308 of the Civil Code prohibits one party from renouncing a contract without the consent of the other; abandonment requires mutual assent. Petitioners failed to present any evidence that the AFPSLAI agreed to a rescission. The second MOA itself declared that only prior provisions inconsistent with it were deemed rescinded, modified, or superseded, and the parties continued with the implementation of the program, maintaining rights and obligations with modifications.

• Entitlement to Commission under the 1992 MOA: Respondent remained entitled to the 2% franchise commission. The commission was awarded as an incentive for having initiated the AFPSLAI account. The February 7, 1991 memorandum explicitly conditioned the commission on only two requirements: that respondent remain connected with PAPI in whatever capacity, and that the franchise be non-transferable. At the time the new MOA was executed, respondent was still connected with PAPI. Her lack of participation in the renegotiation was immaterial because her entitlement did not derive from the second MOA but from the original procurement of the account. Furthermore, petitioners were estopped from questioning her entitlement, having paid her the commission continuously from December 1988 until October 1991.

• Award of Damages and Attorney’s Fees: The awards for moral damages, exemplary damages, and attorney’s fees were deleted. Moral damages in breach of contract are recoverable only upon a specific finding that the breach was wanton, reckless, malicious, in bad faith, oppressive, or abusive. The trial court made no such finding or pronouncement. Because moral damages were vacated, the award of exemplary damages was also deleted, as exemplary damages require prior entitlement to moral, temperate, or compensatory damages. Attorney’s fees were vacated because the trial court did not identify any of the circumstances enumerated in Article 2208 of the Civil Code as a basis for the award.

• Mutuality of Contracts (Article 1308, Civil Code) — A contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. No party may unilaterally renounce a contract; mutual assent is required to effectuate abandonment. The Court applied this principle to hold that the AFPSLAI’s letter could not, by itself, cancel the MOA absent evidence of mutual agreement to rescind, and that the second MOA only superseded inconsistent provisions.

• Survival of Contractual Commission upon Modification of Underlying Agreement — A franchise commission granted for initiating a client relationship, subject only to continued employment and non-transferability, is not extinguished by a subsequent modification of the underlying service agreement where the modification does not rescind the original contract and the grantee remains employed. The entitlement flows from the initial procurement, not from participation in later renegotiations.

• Estoppel to Deny Commission after Prolonged Payment — A company that awards a commission, reduces it to writing, and pays it over an extended period under the original arrangement is estopped from later denying the grantee’s entitlement when the underlying agreement is amended but not rescinded.

• Moral Damages in Breach of Contract — Moral damages are recoverable only where the breach is wanton, reckless, malicious, in bad faith, oppressive, or abusive, and a specific finding to that effect must be made by the trial court. Absent such a finding, the award is improper.

• Exemplary Damages — Exemplary damages may be awarded only if the plaintiff first establishes entitlement to moral, temperate, or compensatory damages. The absence of such prior entitlement precludes an award of exemplary damages.

• Attorney’s Fees under Article 2208 — Attorney’s fees cannot be recovered simply because a party prevails; the trial court must make a finding that one of the circumstances enumerated in Article 2208 of the Civil Code exists. Without such a finding, the award must be vacated.

• “Once a contract is entered into, no party can renounce it unilaterally or without the consent of the other. This is the essence of the principle of mutuality of contracts entombed in Article 1308 of the Civil Code. To effectuate abandonment of a contract, mutual assent is always required.”

• “[T]he franchise commission was awarded as an incentive to the one who initiated and successfully negotiated the AFPSLAI account within a certain period. … The franchise commission was granted subject to two conditions only: (1) that the respondent must remain connected with the company, and (2) that it is not transferable. At the time the new MOA was executed, the respondent was still connected with the petitioner corporation; hence, she was still entitled to her commission.”

• “Moral damages are recoverable for breach of contract where the breach was wanton, reckless, malicious or in bad faith, oppressive or abusive. However, moral damages are improperly awarded, absent a specific finding and pronouncement from the trial court that petitioners acted in such manner.”

• Bordalba v. Court of Appeals, 374 SCRA 555 (2002) — Cited for the rule that factual findings of the Court of Appeals upholding those of the trial court are binding on the Supreme Court. Applied to affirm that the first MOA was not cancelled.

• Herbosa v. Court of Appeals, 374 SCRA 578 (2002) — Cited for the requirement that moral damages in breach of contract require a showing of wanton, reckless, malicious, or bad faith conduct. Applied to delete the award of moral damages for lack of specific findings.

• Sarming v. Dy, 383 SCRA 131 (2002) — Cited for the principle that moral damages are improperly awarded absent a specific pronouncement on bad faith. Used to justify deletion.

• Philippine Telegraph & Telephone Corporation v. Court of Appeals, 388 SCRA 270 (2002) — Cited for the rule that exemplary damages require prior entitlement to moral, temperate, or compensatory damages. Applied to vacate exemplary damages.

• Mcbee v. Gustaaf Vandecnocke Revocable Trust, 986 S.W.2d 170 (1999) — Cited for the doctrine that abandonment of contract rights requires proof of actual intent to abandon. Applied to reject the claim of cancellation.

• County of Morris v. Fauver, 153 N.J. 80, 707 A.2d 958 (1998) — Cited for the requirement of mutual assent to effectuate abandonment of a contract. Applied to underscore bilateral consent needed for cancellation.

• Fernandez v. Manila Electric Railroad, etc., Co., 14 Phil. 274 (1909) — Cited for the principle that a poor bargain is not a ground for setting aside an agreement. Mentioned in the context of mutuality.

• Article 1308, Civil Code — “The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them.” Applied to hold that the AFPSLAI could not unilaterally cancel the MOA; mutual assent was necessary, and the second MOA merely modified the first.

• Article 2208, Civil Code — Enumerates the instances when attorney’s fees may be awarded. Invoked to vacate the award of attorney’s fees because the trial court made no finding that any of the enumerated circumstances existed.

Puno (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.