Yu vs. Court of Appeals

A third party or a stranger to an exclusive distributorship contract can be enjoined from interfering with that contract; the right to perform such an agreement and reap the profits therefrom is a proprietary right, and its violation through deceptive means that results in continuous and repeated injury to a party's business and goodwill constitutes irreparable harm warranting the issuance of a writ of preliminary injunction.

Petitioner Philip S. Yu held an exclusive sales agency agreement with the House of Mayfair in England to be the sole distributor of its wallcovering products in the Philippines since 1987. Private respondent Unisia Merchandising Co., Inc., which was previously a dealer for the petitioner, began importing and selling the same Mayfair products in the Philippine market. Unisia sourced the products not directly from House of Mayfair, but through FNF Trading, a firm in West Germany, which allegedly misled House of Mayfair into believing the products were intended for Nigeria. This created direct competition and led the petitioner to seek legal action to protect his exclusive rights.

• Petitioner Philip S. Yu holds an exclusive sales agency agreement with House of Mayfair of England, making him the sole distributor of its wallcovering products in the Philippines since 1987.
• Private respondent Unisia Merchandising Co., Inc., a former dealer of the petitioner, began importing and selling the same Mayfair products in the domestic market.
• Unisia sourced the goods through FNF Trading in West Germany, which purchased them from House of Mayfair.
• Petitioner alleged that Unisia and FNF Trading acted in concert to mislead House of Mayfair into believing the ordered goods were for shipment to Nigeria, when in fact they were shipped to and sold in the Philippines.
• Petitioner filed a suit for injunction in the RTC of Manila to stop Unisia from selling and distributing the products.
• The RTC and later the Court of Appeals denied the petitioner's application for a writ of preliminary injunction.
• The Supreme Court issued a temporary restraining order against Unisia, but Unisia continued its sales, leading to a contempt charge against its manager, Frank Sia, who was fined P500.00.

• Private respondent's actions constitute unfair competition under Article 28 of the New Civil Code.
• Private respondent, in concert with FNF Trading, deceptively bypassed petitioner's exclusive rights by misleading the manufacturer about the goods' final destination.
• The right to perform an exclusive distributorship agreement is a proprietary right that deserves legal protection from wrongful interference by third parties.
• The injury caused by the respondent's continuous sales is irreparable, as it damages goodwill and business reputation, and cannot be adequately compensated by monetary damages, thus justifying a preliminary injunction.

• Respondent professed ignorance of the exclusive contract between petitioner and House of Mayfair.
• The exclusive distributorship agreement is binding only between the petitioner and House of Mayfair (the privies to the contract) and cannot bind a third party like the respondent.
• Since there is no privity of contract between petitioner and respondent, there is no legal basis to restrain the respondent from selling goods it has acquired.

• Procedural Issues:
  • Whether a writ of preliminary injunction is the proper remedy to restrain a third party, who is a stranger to an exclusive distributorship agreement, from selling the products covered by said agreement.
• Substantive Issues:
  • Whether the act of a third party in selling products in violation of an exclusive distributorship agreement constitutes a wrongful interference with contractual rights that is actionable.

• Procedural:
  • Yes, the Supreme Court ruled that the lower courts erred in denying the writ of preliminary injunction. Injunction is the appropriate remedy to prevent wrongful interference with contracts by strangers where the legal remedy is insufficient and the resulting injury is irreparable. The Court found that the injury to petitioner's goodwill and business reputation is continuous and repeated, for which no fair and reasonable redress can be had, thus making an injunction proper to avoid a multiplicity of suits.
• Substantive:
  • Yes, the Court held that the right to perform an exclusive distributorship agreement is a proprietary right that may be protected. A third party's act of utilizing a deceptive scheme to obtain goods from a supplier to defeat the purpose of an exclusive distributorship constitutes wrongful interference. This act is akin to inducing a party to violate a contract under Article 1314 of the Civil Code and is an independent act generative of civil liability. The respondent's accountability does not emanate from the contract itself but from its tortious conduct.

• Tortious Interference with Contractual Relations — This doctrine holds that a person who is not a party to a contract can be held liable for damages if they intentionally and unjustifiably induce one of the parties to breach the contract. The Court applied this principle by analogy, stating that respondent's accountability is an "independent act generative of civil liability" for interfering with petitioner's exclusive contract, similar to the scenario described in Article 1314 of the Civil Code.
• Proprietary Nature of Contractual Rights — The Court ruled that the right to perform an exclusive distributorship agreement and to reap the profits from it are proprietary rights. By characterizing these rights as a form of property, the Court justified the use of an injunction as a remedy to protect them from infringement by third parties.
• Irreparable Injury — The Court defined irreparable injury as an injury that is continuous and repeated, making it impossible to obtain fair and reasonable redress through ordinary legal actions. In this case, the constant damage to petitioner's goodwill and business reputation as the sole distributor, coupled with the need to file a complaint for every sale made by the respondent, constituted irreparable injury justifying the issuance of an injunction.

• "Verily, injunction is the appropriate remedy to prevent a wrongful interference with contracts by strangers to such contracts where the legal remedy is insufficient and the resulting injury is irreparable."
• "To Our mind, the right to perform an exclusive distributorship agreement and to reap the profits resulting from such performance are proprietary rights which a party may protect... which may otherwise not be diminished, nay, rendered illusory by the expedient act of utilizing or interposing a person or firm to obtain goods from the supplier to defeat the very purpose for which the exclusive distributorship was conceptualized..."

• Gilchrist vs. Cuddy — Cited as the controlling precedent establishing that an injunction is the appropriate remedy to prevent wrongful interference with contracts by strangers where the legal remedy is insufficient and the resulting injury is irreparable.
• Daywalt vs. Corporacion de PP. Agustinos Recoletos — Referenced to support the principle that a third party's liability for interfering with a contract is an "independent act generative of civil liability," separate from the obligations of the contracting parties themselves.

• Article 28, New Civil Code — This article on unfair competition was the initial basis for the petitioner's complaint in the lower court.
• Article 1314, New Civil Code — The Court invoked this article by analogy, which holds a third person liable for inducing another to violate a contract. The respondent's scheme of acquiring goods was deemed "akin" to such inducement, thereby creating an actionable wrong.