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AVON COSMETICS v. LETICIA H. LUNA

FACTS:

The case involves a dispute between petitioner Avon and respondent Luna regarding the termination of Luna's Supervisor's Agreement with Avon. Luna had been working for Avon since 1972 and continued working for them after Avon acquired Beautifont, Inc. Luna also worked as a make-up artist for Avon's Theatrical Promotion's Group. In 1985, Avon and Luna entered into a Supervisor's Agreement which stated that Luna would exclusively purchase Avon products for resale and that she was an independent retailer/dealer. The agreement could be terminated by either party at any time with notice. In late 1988, Luna started selling products of another company, Sandré Philippines, Inc. and shared her legal opinion with her colleagues that certain provisions of the Supervisor's Agreement were contrary to law and public policy.

Avon terminated Luna's agreement in 1988 due to her involvement with Sandré Philippines, Inc., alleging that she violated the exclusivity clause in the Supervisor's Agreement. Luna filed a complaint for damages before the RTC which ruled in her favor and ordered Avon to pay moral damages and attorney's fees. The Court of Appeals affirmed the RTC's decision. Avon then filed a petition for review on certiorari before the Supreme Court, raising issues related to the nullity of the Supervisor's Agreement, Avon's right to terminate the agreement, and the award of damages.

The case involves a dispute between Avon Products Manufacturing, Inc. (Avon) and respondent Luna regarding the interpretation and enforceability of an exclusivity clause in their employment contract. Luna was formerly employed by Avon as a sales supervisor. The contract contained a clause stating that Luna cannot sell products of any kind except those solely sold by Avon. Avon terminated Luna's employment when they discovered she was selling products of another company, Sandre Phils., Inc. Luna filed a complaint for illegal dismissal and monetary claims. The labor arbiter ruled in favor of Luna, finding that the exclusivity clause is invalid as it constitutes an unreasonable restraint of trade. The Court of Appeals affirmed the ruling, and Avon argues that the exclusivity clause was meant to protect them from other companies utilizing their network.

ISSUES:

  1. Whether the exclusivity clause in the Supervisor's Agreement is valid and not against public policy.

  2. Whether the termination of the Supervisor's Agreement by Avon is valid.

RULING:

  1. The exclusivity clause is valid and not against public policy. The Court held that the clause does not limit the selling opportunities of Sandré Philippines, Inc. but only prohibits the undue use of the resources of Avon. The protection of one's property cannot be considered violative of public policy.

  2. The termination of the Supervisor's Agreement by Avon is valid. The Court stated that the termination clause in the agreement allows either party to terminate the contract at any time, with or without cause, upon notice to the other party. The utilization of one mode does not preclude the use of the other. Avon's termination of the agreement, for cause, was deemed valid as long as it provided the required written notice to the other party.

PRINCIPLES:

  • Agreements which prohibit a person from engaging in any enterprise, whether similar or not to the enterprise of the employer, constitute an unreasonable restraint of trade and are void as against public policy.

  • Restraints upon trade may be upheld when not contrary to public welfare and not greater than is necessary to afford a fair and reasonable protection to the party in whose favor it is imposed.

  • Each contract must be viewed vis-à-vis all the circumstances surrounding such agreement in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.

  • A restraint in trade is unreasonable when it is contrary to public policy or public welfare.

  • Contracts in undue or unreasonable restraint of trade are unenforceable because they are against public policy.

  • Public policy represents the public, social, and legal interest, and no subject can lawfully do anything that is injurious to the public or against the public good.

  • To declare a contract void as against public policy, the court must find that the contract has a tendency to injure the public, is against the public good, contravenes established interests of society, is inconsistent with sound policy and good morals, or undermines the security of individual rights.

  • Exclusive dealing arrangements are only considered against public policy if they foreclose competition in a substantial share of the market.

  • The relevant market for analyzing the foreclosure effect includes all product and geographic sales opportunities that competitors can readily compete for using easily convertible plants and marketing organizations.

  • An exclusivity clause that protects the investment and network of a company and does not eliminate competition or foreclose new entrants to the market is not against public policy and is valid and enforceable.

  • A contract of adhesion is valid and binding, as long as the party adhering to the contract consented to its terms with full knowledge of its import.

  • Contracts duly executed are the law between the parties, and they are obligated to comply fully with its terms.

  • When the terms of a contract are clear and explicit, they should be understood literally as they appear on the face of the contract.

  • Termination or cancellation clauses in contracts are legitimate if exercised in good faith, regardless of whether the termination is for cause or without cause.