FACTS
Fresh Link, Inc., owned by spouses Ramon and Ma. Nelia Fabie, entered into a Complementary Distributorship Agreement with San Miguel Foods, Inc. (SMFI) in 1992. Fresh Link was appointed as the exclusive distributor of SMFI products in specified areas of Makati City and the Guadalupe Wet Market. The agreement was renewed several times, including a renewal in April 1999 extending the distributorship until March 31, 2000. Fresh Link's purchases on credit were secured by a standby letter of credit in favor of SMFI.
The standby letter of credit expired on May 31, 1999. On June 4, 1999, SMFI stopped allowing Fresh Link to purchase products on credit and required cash payment. Fresh Link claimed that SMFI had unilaterally terminated the distributorship agreement and had violated its exclusivity obligations by allowing other distributors to sell SMFI products within Fresh Link's territory. Fresh Link also alleged underpricing and undersupply of products.
Fresh Link filed a complaint for breach of contract and damages. The RTC ruled in its favor and awarded actual, moral, and exemplary damages and attorney's fees. The Court of Appeals affirmed the finding of liability but reduced the actual damages to ₱1,000,000.00 in temperate damages, while retaining the awards of moral and exemplary damages and attorney's fees.
SMFI appealed to the Supreme Court. Among its arguments, SMFI maintained that it had not terminated the agreement but had merely changed the payment arrangement from credit to cash because the standby letter of credit had expired. SMFI also claimed unpaid accounts from Fresh Link, but supported its counterclaim with photocopies of schedules of purchases, invoices, and checks.
ISSUE
The first issue was whether Fresh Link sufficiently proved by preponderance of evidence that SMFI unilaterally terminated the Complementary Distributorship Agreement.
The second issue was whether the photocopies submitted by SMFI were admissible to prove Fresh Link's alleged unpaid accounts and support SMFI's counterclaim for actual damages.
The third issue was whether the evidence sufficiently established Fresh Link's other allegations of breach, including underpricing, undersupplying, and allowing other distributors within its territory.
HELD
The Supreme Court GRANTED the petition, REVERSED and SET ASIDE the Court of Appeals' decision and resolution, and DISMISSED Fresh Link's complaint for breach of contract and damages.
On preponderance of evidence, the Court held that Fresh Link failed to prove that SMFI had unilaterally terminated the distributorship agreement. The lower courts' findings rested heavily on the testimony of Nelia Fabie and the complaints submitted by Fresh Link. The Court found that her assertions were not sufficiently corroborated by other evidence. The Court emphasized that the party making allegations bears the burden of proving them by preponderance of evidence and must rely on the strength of its own evidence.
The Court found that the evidence instead showed that SMFI merely stopped credit purchases and required cash payment. SMFI's officer testified that Fresh Link could still purchase products, but only on a cash basis because the standby letter of credit securing its credit line had expired. Nelia Fabie herself testified that Fresh Link could pay in cash. Thus, the evidence did not establish that SMFI had terminated the distributorship agreement.
The Court also applied the Best Evidence Rule to SMFI's counterclaim. SMFI relied on photocopies of Fresh Link's purchase schedule, charge sales invoices, and checks allegedly issued for payment. Because the contents of these documents were the subject of inquiry, the original documents were required unless an exception to the Best Evidence Rule was established. SMFI failed to show that any exception applied. Consequently, the photocopies were inadmissible and could not support its claim for actual damages.
The Court likewise rejected Fresh Link's reliance on a photocopy of the renewed Credit Line Agreement. The photocopy was inadmissible under the Best Evidence Rule. More importantly, Fresh Link itself admitted in its memorandum before the RTC that it did not renew the standby letter of credit when it expired on May 31, 1999. Fresh Link also failed to inform SMFI of any alleged extension or replacement. Thus, SMFI was justified in requiring cash payment before delivering products.
The Court further held that Fresh Link's allegations of underpricing, undersupplying, and allowing other distributors within its territory were likewise insufficiently proven. These allegations rested principally on Nelia Fabie's unsubstantiated testimony and complaint letters, without adequate corroborating evidence such as testimony from other persons with firsthand knowledge or concrete documentary evidence.
Accordingly, because Fresh Link failed to establish the alleged breaches by preponderance of evidence, it was not entitled to actual, temperate, moral, or exemplary damages. The award of attorney's fees was likewise deleted.
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