G.R. No.
L-21127 February 9, charge of the prescription
1924
ALFONSO DEL CASTILLO, plaintiff-
appellant,
vs.
SHANNON RICHMOND, defendant-
appellee.
F.R. Feria for appellant.
Manly, Goddard and Lockwood for
appellee.
JOHNSON, J.:
This action was commenced in the Court
of First Instance of the Province of Albay
on the 18th day of October, 1922. Its
purpose was to have declared null and of
no effect the following contract executed
and delivered on the 20th day of July,
1915:
CONTRACT FOR RENDERING
SERVICES
Know all men by these
presents:
That Shannon Richmond,
of lawful age and a resident
of the district of Legaspi,
and Alfonso del Castillo,
also of lawful age and a
resident of the district of
Daraga of the municipality
and Province of Albay,
Philippine Islands, have
covenanted and agreed
one with the other as
follows:
1. That Alfonso del Castillo,
in consideration of a
monthly remuneration of
P125 to be paid to him by
Shannon Richmond,
agrees to enter the employ
of said Shannon Richmond
beginning this date, as
pharmacist, and to take
department of the
drugstore known as
the Botica
Americana situated in the
district of Legaspi of the
municipality and Province
of Albay, Philippine Islands,
and to perform all the
duties and obligations as
such pharmacist together
with such other duties in
connection with the same
that by custom correspond
to the pharmacist in a
drugstore of this kind.
2. That in consideration of
the performance of the
duties and obligations
above indicated by the said
Alfonso del Castillo,
Shannon Richmond hereby
agrees to pay the said
Alfonso del Castillo the
salary of P125 each month.
3. That in consideration of
the fact that the said
Alfonso del Castillo has just
graduated as a pharmacist
and up to the present time
has not been employed in
the capacity of a
pharmacist and in
consideration of this
employment and the
monthly salary mentioned
in this contract, the said
Alfonso del Castillo also
agrees not to open, nor
own nor have any interest
directly or indirectly in any
other drugstore either in his
own name or in the name
of another; nor have any
connection with or be
employed by any other
drugstore situated within a
radius of our miles from the
district of Legaspi,
municipality and Province
of Albay, while the said
Shannon Richmond or his
 heirs may own or have
open a drugstore, or have
an interest in any other one
within the limits of the
districts of Legaspi, Albay,
and Daraga of the
municipality of Albay,
Province of Albay.
4. That either of the parties
to this contract may
terminate his relations as
employer and employee
with or without reason, and
upon thirty days' notice;
remaining, nevertheless, in
full force and effect all the
other conditions and
agreements stipulated in
this contract.
5. That the said Alfonso del
Castillo furthermore agrees
not to divulge or make use
of any of the business
secrets or private formulas
of the said Shannon
Richmond.
In these terms, we execute
this contract for the
rendering of services on
this 20th day of July, 1915,
in the district of Legaspi,
municipality and Province
of Albay Philippine Islands.
(Sgd.) "SHANNON
RICHMOND
"ALFONSO DEL
CASTILLO
Signed in the presence of:
(Sgd.) "M. GOYENA
"L. AZANA"
The said contract was acknowledge
before a notary on the same day of its
execution.
The plaintiff alleges that the provisions
and conditions contained in the third
paragraph of said contract constitute an
illegal and unreasonable restriction upon
his liberty to contract, are contrary to
public policy, and are unnecessary in
order to constitute a just and reasonable
protection to the defendant; and asked
that the same be declared null and void
and of no effect. The defendant interposed
a general and special defense. In his
special defense he alleges "that during the
time the plaintiff was in the defendant's
employ he obtained knowledge of his
trade and professional secrets and came
to know and became acquainted and
established friendly relations with his
customers so that to now annul the
contract and permit plaintiff to establish a
competing drugstore in the town of
Legaspi, as plaintiff has announced his
intention to do, would be extremely
prejudicial to defendant's interest." The
defendant further, in an amended answer,
alleges "that this action not having been
brought within four years from the time the
contract referred to in the complaint was
executed, the same has prescribed."
During the trial of the cause an effort was
made to sustain the allegations of the
complaint that paragraph 3 of the said
contract constituted an illegal and
unreasonable restriction upon the right of
the plaintiff to contract and was contrary to
public policy. The lower court found that it
was unnecessary to pass upon the
question of prescription presented by the
defendant.
Upon a consideration of the merits, the
court a quo concluded "that the contract
the annulment of which is sought by the
plaintiff is neither oppressive to him, nor
unreasonably necessary to protect the
defendant's business, nor prejudicial to
the public interest." From that judgment
the plaintiff appealed to this court. In this
court the appellant still insists that said
contract is illegal, unreasonable, and
contrary to public policy.
From a reading of paragraph 3 of the
contract above quoted, it will be seen that
the only restriction placed upon the right of
the plaintiff is, that he shall "not open, nor
own, nor have any interest directly or
indirectly in any other drugstore either in
his own name or in the name of another;
nor have any connection with or be
employed by any other drugstore as
pharmacist or in any capacity in any
drugstore situated within a radius of four
miles from the district of Legaspi,
municipality and Province of Albay, while
the said Shannon Richmond or his heirs
may own or have open a drugstore, or to
have an interest in any other one within
the limits of the districts of Legaspi, Albay,
and Daraga of the municipality of Albay,
Province of Albay." It will be noted that the
restrictions placed upon the plaintiff are
strictly limited (a) to a limited district or
districts, and (b) during the time while the
defendant or his heirs may own or have
open a drugstore, or have an interest in
any other one within said limited district.
The law concerning contracts which tend
to restrain business or trade has gone
through a long series of changes from
time to time with the changing conditions
of trade and commerce. With trifling
exceptions, said changes have been a
continuous development of a general rule.
The early cases show plainly a disposition
to avoid and annul all contract which
prohibited or restrained any one from
using a lawful trade "at any time or at any
place," as being against the benefit of the
state. Later, however, the rule became
well established that if the restriant was
limited to "a certain time" and within "a
certain place," such contracts were valid
and not "against the benefit of the state."
Later cases, and we think the rule is now
well established, have held that a contract
in restraint of trade is valid providing there
is a limitation upon either time or place. A
contract, however, which restrains a man
from entering into a business or trade
without either a limitation as to time or
place, will be held invalid. (Anchor Electric
Co. vs. Hawkes, 171 Mass., 101;
Alger vs. Thacher, 19 Pickering [Mass.]
51; Taylor vs. Blanchard, 13 Allen [Mass.],
370; Lufkin Rule Co. vs. Fringeli, 57 Ohio
State, 596; Fowle vs. Park, 131 U.S., 88,
97; Diamond Match Co. vs. Roeber, 106
N.Y., 473; National Benefit Co. vs. Union
Hospital Co., 45 Minn., 272; Swigert and
Howard vs. Tilden, 121 Iowa, 650.)
The public welfare of course must always
be considered, and if it be not involved
and the restraint upon one party is not
greater than protection to the other
requires, contracts like the one we are
discussing will be sustained. The general
tendency, we believe, of modern authority,
is to make the test whether the restraint is
reasonably necessary for the protection of
the contracting parties. If the contract is
reasonably necessary to protect the
interest of the parties, it will be upheld.
(Ollendorff vs. Abrahamson, 38 Phil.,
585.)
In that case we held that a contract by
which an employee agrees to refrain for a
given lenght of time, after the expiration of
the term of his employment, from
engaging in a business, competitive with
that of his employer, is not void as being
in restraint of trade if the restraint imposed
is not greater than that which is necessary
to afford a reasonable protection. In all
cases like the present, the question is
whether, under the particular
circumstances of the case and the nature
of the particular contract involved in it, the
contract is, or is not, unreasonable. Of
course in establishing whether the
contract is a reasonable or unreasonable
one, the nature of the business must also
be considered. What would be a
reasonable restriction as to time and place
upon the manufacture of railway
locomotive engines might be a very
unreasonable restriction when imposed
upon the employment of a day laborer.
Considering the nature of the business in
which the defendant is engaged, in
relation with the limitation placed upon the
plaintiff both as to time and place, we are
of the opinion, and so decide, that such
limitation is legal and reasonable and not
contrary to public policy. Therefore the
judgment appealed from should be and is
hereby affirmed, with costs. So ordered.
Taylor vs Uy Tieng piao
G.R. No. L-16109
October 2, 1922
 FACTS
Ø Taylor contracted his services to Tan
Liuan & Co as superintendent of an oil
factory which the latter contemplated
establishing
Ø The contract extended over 2 years and
the salary was P600/month during the first
year and P700/month during the second
with electric, light and water for domestic
consumption or in lieu thereof, P60/month
Ø At this time, the machinery for
contemplated factory had not been
acquired, though ten expellers had been
ordered from the US
Ø It was understood that should the
machinery to be installed fail, for any
reason, to arrive in Manila within the
period of 6 months, the contract may be
cancelled by the party of the second part
at its option, such cancellation not to occur
before the expiration of such 6 months
Ø The machinery did not arrive
in Manila within the 6 months; the reason
does not appear, but a preponderance of
evidence show that the defendants seeing
that oil business no longer promised large
returns, either cancelled the order for
machinery from choice or were unable to
supply the capital necessary to finance the
project.
Ø Defendants communicated
to Taylor that they had decided to rescind
the contract.
Ø Taylor instituted this action to recover
damages in the amount of P13k, covering
salary and perks due and to become due
ISSUE
WON in a contract for the prestation of
service, it is lawful for the parties to insert
a provision giving the employer the power
to cancel the contract in contingency
which may be dominated by himself
HELD
Ø YES. One of the consequences of the
stipulation was that the employers were
left in a position where they could
dominate the contingency, and the result
was about the same as if they had been
given an unqualified option to dispense
with the services of Taylor at the end of 6
months. But this circumstance does not
make the stipulation illegal.
Ø A condition at once facultative and
resolutory may be valid even though the
condition is made to depend upon the will
of the obligor.
Ø If it were apparent, or could be
demonstrated that the defendants were
under positive obligation to cause the
machinery to arrive in Manila, they would
of course be liable, in the absence of
affirmative proof showing that the non-
arrival of the machinery was due to some
cause not having its origin in their own act
or will.
Ø The contract, however, expresses no
such positive obligation, and its existence
cannot be implied in the face of the
stipulation, defining the conditions under
which the defendants can cancel the
contract.
Ø CFI no error in rejecting Taylor’s claim
in so far as damages are sought for the
period subsequent to the expiration of 6
months, but in assessing the damages
due for the six-month period, the trial
judge overlooked the item of P60
(commutation of house rent) This amount
Taylor is entitled to recover in addition to
P300 awarded by CFI.
Constantino v. Espiritu
G.R. No. L-22404, 31 May 1971
FACTS:
The deed of absolute sale as the binding
contract between appellant and appellee
conveyed the two storey house in favor of
the appellee. The appellee is entrusted of
the properties of the appellant’s illegitimate
son. The appellee mortgaged the said
property to Republic Savings Bank for the
payment of the appellee’s loan and
thereafter the appellee offered them for
sale. The appellant then prayed for the
issuance of a writ of execution restraining
the appellee and her agents to further
alienate or disposed of the said property.
The appellant wanted to execute a deed of
absolute sale in favor of his son who is the
beneficiary.
ISSUE:
Whether or not the contract between
appellant and appellee was a contract pour
autrui.
RULING:
Yes. It appears then that, upon the facts
alleged by appellant, the contract between
him and appellee was a contract pour
autrui, although couched in the form of a
deed of absolute sale, and that appellant’s
action was, in effect, one for specific
performance. That one of the parties to a
contract is entitled to bring an action for its
enforcement or to prevent its breach is too
clear to need any extensive discussion.
Upon the other hand, that the contract
involved contained a stipulation pour autrui
amplifies this settled rule only in the sense
that the third person for whose benefit the
contract was entered into may also
demand its fulfillment provided he had
communicated his acceptance thereof to
the obligor before the stipulation in his favor
is revoked.
It appears that the amended complaint
submitted by appellant to the lower court
impleaded the beneficiary under the
contract as a party co-plaintiff, it seems
clear that the three parties concerned
therewith would, as a result, be before the
court and the latter’s adjudication would be
complete and binding upon them.
Florentino v. Encarnacion
G.R. No. L-27696, 30 September 1977
FACTS:
On May 22, 1964, the petitioners-
appellants and the petitioner-appellee filed
with CFI an application for the registration
under Act 496 of a parcel of agricultural
land located at Cabugao, Ilocos Sur. The
application alleged among other things that
the applicants are the common and pro-
indiviso owners in fee simple of the said
land with the improvements existing
thereon; that to the best of the knowledge
and belief; there is no mortgage, hen or
encumbrance of any kind whatsoever
affecting said land, nor any other person
having any estate or interest thereon, legal
or equitable, remainder, reservation at in
expectancy; that said applicants had
acquired the aforesaid land thru and by
inheritance from their predecessors in
interest, their aunt, Doña Encarnacion
Florentino, and Angel Encarnacion acquire
their respective shares of the land thru
purchase from the original heirs, Jesus,
Caridad, Lourdes and Dolores, all
surnamed Singson, on one hand and from
Asuncion Florentino on the other. After due
notice and publication, the Court set the
application for hearing. Only the Director of
Lands filed an opposition but was later
withdrawn so an order of general default
was issued. Upon application of the
applicants, the Clerk of Court was
commissioned and authorized to receive
the evidence of the applicants and ordered
to submit the same for the Court’s proper
resolution.
Exhibit O-1 embodied in the deed of
extrajudicial partition (Exhibit O), which
states that with respect to the land situated
in Barrio Lubong, Dacquel, Cabugao,
Ilocos Sur, the fruits thereof shall serve to
defray the religious expenses, was the
source of contention in this case (Spanish
text). Florentino wanted to include
ExhibitO-1 on the title but the Encarnacion
supposed and subsequently withdrawn
their application on their shares, which was
opposed by the former.
The Court after hearing the motion for
withdrawal and the opposition issued an
order and for the purpose of ascertaining
and implifying that the products of the land
made subject matter of this land
registration case had been used in
answering for the payment of expenses for
the religious functions specified in the Deed
of Extrajudicial Partition which was no
registered in the office of the Register of
Deeds from time immemorial; and that the
applicants knew of thisarrangement and
the Deed of Extrajudicial Partition of August
24,1947, was not signed by Angel
Encarnacion or Salvador Encarnacion, Jr.-
CFI: The self-imposed arrangement in
favor of the Church is a simple donation,
but is void since the done has not accepted
the donation and Salvador Encarnacion, Jr.
and Angel Encarnacion had not made any
oral or written grant at all so the court
allowed the religious expenses to be made
and entered on the undivided shares,
interests and participations of all the
applicants in this case, except that of
Salvador Encarnacion, Sr., Salvador
Encarnacion, Jr. and Angel Encarnacion.”-
the
petitioners-appellants filed their Reply to
the Opposition reiterating their previous
arguments, and also attacking the
jurisdiction of the registration court to pass
upon the validity or invalidity of the
agreement Exhibit O-1, alleging that such
is litigable only in an ordinary action and not
proper in a land registration proceeding.
The stipulation (Exhibit O-1) is part of an
extrajudicial partition (Exh. O) duly agreed
and signed by the parties, hence the same
must bind the contracting parties thereto
and its validity or compliance cannot be left
to the will of one of them. The said
stipulation is a Stipulation pour autrui. A
stipulation pour autrui is a stipulation in
favor of a third person conferring a clear
and deliberate favor upon him, and which
stipulation is merely a part of a contract
entered into by the parties, neither of whom
acted as agent of the third person, and
such third person may demand its
fulfillment provided that he communicates
his acceptance to the obligor before it is
revoked.

The Motion for Reconsideration and of New

Trial was denied for lack of merit, but the
court modified in highlighting that the
donee Church has not showed its clear
acceptance of the donation, and is the real
party of this case, not the petitioners-
appellants.

ISSUE:

Whether or Not the court erred in

concluding that the stipulation is just an
arrangement stipulation.

RULING:

YES, the court erred in concluding that the

stipulation is just an arrangement
stipulation. It cannot be revoked
unilaterally.

The contract must bind both parties, based

on the principles (1) that obligation wising
from contracts has the force of law between
the contracting parties; and (2) that they
must be mutuality between the parties
band on their essential equality, to which is
repugnant to have one party bound by the
contract leaving the other free therefrom.