Pacmac, Inc. v. Intermediate Appellate Court
REITERATIONFacts
The Antecedents: PACMAC, Inc. (PACMAC) alleged it had an exclusive distributorship contract with VULCAN Manufacturing Company, Inc. (VULCAN) since 1953, wherein VULCAN was obliged to deliver products to PACMAC for resale. On August 3, 1965, VULCAN unilaterally terminated this arrangement, causing damages to PACMAC. VULCAN denied the exclusive distributorship contract and counterclaimed for PACMAC's unpaid purchase price of P320,220.25. Procedural History: The trial court found for PACMAC, ordering PACMAC to pay VULCAN P114,946.74 after offsetting damages awarded to PACMAC (P189,908.76) against PACMAC's admitted debt to VULCAN (P304,855.50). Both parties appealed. The Intermediate Appellate Court (IAC) set aside the trial court's decision, ordering PACMAC to pay VULCAN the full P304,855.50 based on a written contract of exclusive distributorship dated December 6, 1962, which it found to have expired after two years, thus negating any bad faith in its termination. The Petition: PACMAC filed a petition for review on certiorari, arguing that the IAC erred in applying the parol evidence rule and in failing to consider evidence of an oral agreement and subsequent acts that modified the written contract, indicating the distributorship arrangement continued beyond the written contract's expiration.
Issue(s)
Whether the Intermediate Appellate Court erred in applying the parol evidence rule to exclude evidence of an oral agreement and subsequent acts modifying the written contract of exclusive distributorship. Whether the exclusive distributorship agreement between PACMAC and VULCAN was still in existence on August 3, 1965, when VULCAN stopped deliveries. Whether VULCAN is liable for damages for unilaterally terminating the distributorship agreement without legal justification.
Ruling
The petition is GRANTED. The questioned decision of the Intermediate Appellate Court is REVERSED and SET ASIDE. The trial court's decision is REINSTATED.
Ratio Decidendi
On the application of the parol evidence rule: The Supreme Court held that the Intermediate Appellate Court erred in strictly applying the parol evidence rule. The Court reiterated the principle that the parol evidence rule does not preclude the admission of extrinsic evidence to prove subsequent agreements between parties to a written contract, even if these agreements modify, change, or altogether abrogate the original contract. The Court found that PACMAC presented evidence of an oral agreement and subsequent acts that implemented this agreement, which altered the terms of the distributorship arrangement beyond the written contract. Therefore, the written contract was not an adequate measure of the entire agreement, and evidence of subsequent modifications should have been considered. On the existence of the distributorship agreement: The Court found that the parties' contract of exclusive distributorship arrangement was still in existence on August 3, 1965. The trial court gave credence to PACMAC's evidence that it secured verbal assurances from VULCAN's president for at least a year's notice before cutting off the distributorship. This finding was bolstered by the unrebutted evidence that over 60% of PACMAC's gross sales consisted of VULCAN's products before termination, and that VULCAN continued to supply the same amounts and under the same terms. The Court concluded that the parties agreed on another term regarding the duration of their distributorship arrangement, which would remain in full force until one year from notice of termination. On VULCAN's liability for damages: The Court ruled that VULCAN's unilateral act of terminating the contract without legal justification made it liable for damages suffered by PACMAC, pursuant to Article 1170 of the New Civil Code. This article states that those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the tenor thereof, are liable for damages. The Court reinstated the trial court's award of damages, which included actual and compensatory damages based on the diminution in PACMAC's net income and exemplary damages and attorney's fees for VULCAN's gross and evident bad faith in breaching the distributorship arrangement.
Main Doctrine
The parol evidence rule does not preclude the admission of extrinsic evidence to prove subsequent agreements between parties to a written contract, even if such agreements modify or abrogate the original contract. Evidence of acts implementing an oral agreement subsequent to a written contract can be admitted to show changes or additions to the original terms.