Tocoms Philippines, Inc. v. Philips Electronics and Lighting, Inc.

  Tocoms Philippines, Inc. v. Philips Electronics and Lighting, Inc., 

G.R. No. 214046, 

February 5, 2020

DOCTRINE: The legal concept of bad faith denotes a dishonest purpose, moral deviation,

and a conscious commission of a wrong. It includes "a breach of known duty through

some motive or interest or ill will that partakes of the nature of fraud. It is, therefore, a

question of intention, which can be inferred from one's conduct and/or contemporaneous

x x x statements. " Bad faith under the law cannot be presumed; it must be established

by clear and convincing evidence. As such, the case must be reinstated so that PELI may

once and for all prove its bona fides in its dealings with Tocoms, in connection with the

expiration of their Distribution Agreement.

FACTS: 

Tocoms was appointed as Philippines distributor of Philips Domestic Appliance

by respondent PELI and its principal Philips Singapore, which was renewed on a yearly

basis from 2001 and 2008. In its complaint to which the distributorship agreement

(agreement) was attached, Tocoms claimed that it had consistently delivered and even

surpassed its targets before the end of 2012. Further, Tocoms stated that it has made

disclosures of its plans for 2012 in preparation for the renewal of the agreement.

However, on January 2 2013, PELI called for a meeting and terminated the agreement,

to the surprise of Tocoms. As a result of this sudden termination, Tocoms said that its

strongest client Western Marketing was set to return its inventory worth PHP 5 million

($103 million), and that it was going to lose PHP 2 million from other dealers. Tocoms

also alleged that PELI offered unreasonable terms to buy back its inventories where it

stood to lose about PHP12 million and was pressuring Tocoms to accept the terms by

recalling the Import Commodity Clearance (ICC) needed to sell said products in the

Philippines. Moreover, Tocoms also alleged that the new distributor Fabriano had been

selling the licensed products at a much lower price even before the termination of the

agreement, and had prodded Western Marketing to return the products it purchased from

Tocoms, to the injury of the latter.

ISSUE: 

Was PELI in bad faith?

HELD: 

The Supreme Court, reversed the CA's decision and ruled that if the allegations

made by Tocoms were hypothetically admitted, the acts constitute bad faith on the part

of PELI and the court may validly award damages in favour of Tocoms. The SC further

observed that PELI, not having filed its answer, has not yet been able to prove that its

acts were done without malice and bad faith. The SC ruled that the concept of bad faith

denotes a dishonest purpose, moral deviation, and a conscious commission of a wrong

and that bad faith under the law cannot be presumed – it must be established by clear

and convincing evidence. As such the case must be reinstated so that PELI may prove

good faith in its dealings with Tocoms in the context of the expiration of its distributorship

agreement.

The legal concept of bad faith denotes a dishonest purpose, moral deviation, and a

conscious commission of a wrong. It includes "a breach of known duty through some

motive or interest or ill will that partakes of the nature of fraud. It is, therefore, a question

of intention, which can be inferred from one's conduct and/or contemporaneous x x x

statements. " Bad faith under the law cannot be presumed; it must be established by clear

and convincing evidence. As such, the case must be reinstated so that PELI may once

and for all prove its bona fides in its dealings with Tocoms, in connection with the

expiration of their Distribution Agreement.