1.Carlos Gsell v.
Pedro Koch Gsell entered into a contract with Koch
Contract is VALID!
Doctrine- A stipulation contained in a
c. executed by and employer and an
employee, by which the latter agrees
that for a period of years he will not in
any way engage in any business or
enterprise similar to that conducted by
said employer, and that in the even tof
his so doing he will pay to such
employer a certain sum of money as
damages, IS VALID AND may be
enforced by appropriate action.
This is a contract for hire for life!...
HE SHOULD NOT SEEK
ELSEWHERE OTHERWISE he will
seek 10k to the previous employ.
Precisely the court said does not
prevent him from working, he can
work and he just have to pay and if he
seeks to work the contract does not
prohibit him from working and now he
has an obligation to pay the agreed
sum. Court recognized that the
employer spent valuable money for his
business and it is not a hire for life
thing.
2. Ferrazzini v. Gsell
Doctrine: Contracts in restraint of
w/ the ff. stipulations: (impt) – Koch
binds himself to pay in cash to Gsell
10k if after leaving the firm of Gsell if
Koch engages directly or indirectly in
carrying on any business in which Gsell
is at present engaged, or within 2 and ½
years fixed for the duration of the
present contract in these Islands, either
as an employee or member of a firm or
company, on or his own account; and he
furthermore binds himself to pay in cash
to Gsell an equal sum of 10k for each
violation of any secret business
entrusted to him.
Business of Gsell – manufacture of
umbrellas, matches, and hats
Koch – was an apprentice in an impt.
Hat factory in Switzerland and
afterwards worked for Gsell.
Koch was engaged in making hats for
Gsell. Gsell uses various recipes,
formulas and procedure, the acquisition
and knowledge of which have cost more
then 20k. Koch became familiar with
the procedures and recipes, formulas of
Gsell.
After working for Gsell, Koch engaged
in the manufacture of straw hats in the
City of Manila against the will of Gsell
and the C.
Issue: W/N the Stipulatio contained in
the 3rd clause of the contract is valid in
law? YES IT IS VALID. Gsell is
entitled to protect himself by means of
an indemnity in advance against the
effects of the competition which Koch
might make(knowledge of procedure
and formulas worth 20k)
Koch has a choiceto pay 10k worth to
Gsell so he can WORK. Cause the
contract doesn’t contain any prohibition
to work.
F. was an employee of Gsell in the
manufacturing plant of Umbrellas. One
supper F. was heard to be criticizing
Gsell as he stated that Gsell doesn’t
Trade are void as it is against public
policy
What is being protected here? The
know-how. Confidential kasi ung
underwear exports stuff
Term is only limited to 5 years!
WHAT IF it was applied perpetually?
THEN IT WOULD BE prohibited and
it is an invalid contract.
Reasonable If u limit it as to time?
Yes.
Limitation in Olendorff – lets look at
this at the point of view if it affords a
reasonable stipulation.
COURTS will always look at public
policy! The thinking is an exclusivity
clause will be allowed if it is NOT
CONTRARY to public policy and if it
is consistent with public policy it must
be reasonably necessary.
If it is consistent with public policy!
That is the way they look at it.
What is reasonably necessary? Subject
to a lot of discussions. In this cae,
distribution and suppliers and
operation matters
trust his employees (NO
CONFIDENCE IN EMPLOYEES)
because he measures the length of
umbrellas and that the wage here is not
ok. He discouraged the NEW employee.
However, Gsell stated that he fired F.
due to the fact that he always drinks and
even if he was already told that it was
not ok F. still does it. F. usually late or
absent cause he loves to drink.
Manager always tries to stop him from
drinking (35 TIMES) but to no avail F.
doesn’t follow at all so he was
terminated.
Gsell argues that F. violated the contract
because he was working in the
Philippines as aforeman on some
construction work for a cement factory.
The work was entirely different and
disaasociated from his previous work
with Gsell.
Stipulation in Contract: Ferrazzini
agreed to pay 10k to Gsell for each and
every breach of the clause which
provided that F. should not enter into
any enterprise whatever in the Phil.
EXCEPT by special written permission
of Gsell, during the period of
employment and for a term of 5 yrs
from and after the termination of the
employment without regard to the cause
of such Termination.
Issue: W/N the contract is valid? NO,
UNDUE AND UNREASONABLE
RESTRAINT and therefore void as
against public policy. CAUSE F. was
prohibited from engaging in any
business or occupation whatever in the
Phil. For a period of 5 years after the
termination of his contract with Gsell. It
is limited as to time and space but not as
to trade. It is not necessary for the
protection of Gsell as it would force F.
to leave the Phil. In order to obtain a

3. Ollendorff v. Abrahamson (SKIP)
Doctrine: A c. by which an employee
agrees to refrain for a given length 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 no greater
than that which is NECESSARY to
afford a reasonable protection to the
employer.
Purpose- the protection of the
employer, and if they do not go
beyond what is reasonably necessary
to effectuate this purpose they should
be upheld.
4. Martini(ER) v. Glaiserman (EE)
Doctrine: A stipulation that the
Employee, for a yr after the
termination of his contract, will not
engage, for himself or others, in any
business similar to that in which the
livelihood in case Gsell declined to give
him the written permission to work
elsewhere in this country.
Contract: Abrahansom was enjoined for
a term of 5 years from engaging in any
business similar or competitive with that
of Ollendorf.
Ollendorf’s business is manufacturing
ladies’ embroidered underwear for
export.
Abrahansom left O’s employ because of
his ill health, and went to the US. He
had access to all parts of O’S
ESTABLISHMENT AND HAD FULL
OPPORTUNITY TO acquaint himself
with the business methods and
connections.
A returned to Manila and became a
manager of Phil. Underwear company
who sneds material from NY to the Phil.
The only difference of new comp. from
old was the method of doing the
finishing work. So it was in open
competition with old comp. (same class
of goods). W/n THE STIPULATION IS
VALID? YES. Obligations created by
contracts have the force of law between
the contracting parties and must be
enforced in accordance with their tenor.
Modern rule – validity of restraints
upon trade or employment is to be
determined by the intrinsic
reasonableness of the restriction in each
case, rather than by any fixed rule, and
that such restrictions may be upheld
when not contrary to the public welfare
and not greater than is necessary to
afford a fair and reasonable protection
to the party in whose favor it is
imposed.
C. – EE will not engage in any business
either for himself or others similar to the
business carried on by his ER, or in
which his ER may be engaged at that
time for 1 yr at least and in case of
breach of this condition he agrees to ay
ER may be engaged, is VOID as
constituting unreasonable restriction
where it appears that the ER is
engaged in a great variety of business
enterprises, while the work of the
Employee was limited to a minor
branch of 1 of them.
Dati time and place lang ngayon
business and scope na.
It is only limited to the kind of
business.
Contrary to public policy if it is in
restraint of trade.
EXAMPLE: San Miguel restraining
trade di pweds un!
The proviso here is contrary to public
policy.
5. Alfonso Del Castillo v. Shannon
Richmond
Doctrine: A C. in restraint of trade is
valid providing there is a limitation
upon either time or space. The public
welfare of course must always be
considered, and if it be not involved
and the restraint upon 1 party is not
greater than the protection to the other,
such c. would be sustained.
TEST – Whether the restraint is
reasonably necessary for the protection
of the contracting parties. If the
restraint is reasonably necessary to
protect the interest of the parties, it
will be upheld.
What is being protected in this
proviso? Suppliers and customers.
Medicines there were not mass
produced halo lang nila mismo.
Is there limitation? Legal and
reasonable to public policy and when
is a proviso not contrary to public
to the first party the sum of 400
POUNDS STERLING.
EE left ER cause of the insulting
treatment of the managing director so
EE went to work for NEW COMP.
dyogi & Co.
Issue: W/N the contract is valid? NO.
ER is engaged in many branches of
business, one of which is purchase and
exporation of abaca(hemp). EE was not
engaged in an impt. Position and never
acquired any appreciable proficiency
and not allowed to close any deals. The
agreement contained in par. 2 of the
contract of employment is void as
constituting an unreasonable restraint of
trade, and that the decision of the lower
court should be and is hereby affirmed.
Pharmacy Case
Alfonso is a pharmacist of Botica
Americana. C. stated that he agrees not
to open nor own 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 4 miles from the district of Legaspi,
Albay, while the heirs of Shannon may
own or have open a drugstore or have
an interest in any other one within the
limits of the district of albay.
ISSUE: W/N IT IS VALID? Yes it is
valid. The only estriction is that he will
not open a drugstore situated within as a
radius of 4 miles from the district of
Legaspi. IT IS STRICTLY LIMITED –
limited district, 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.
Limitation is legal and reasonable and
not contrary to public policy.
policy? When it is reasonably
necessary sa business.
Sir – for it to be valid (1.) it should not
be contrary to public policy (2.)
limited as to time, place, and business
Exclusivity agreement should not be
allowed if it is contrary to public
policy.
WHAT IS PUBLIC POLICY? Is
public good (simple definition) for the
proviso in question is harmful for the
public good. Example of a proviso that
is contrary to public good? Eliminate
competition
CONTROLLING FACTOR IS NOT
CONTRARY TO PUBLIC POLICY!
– is the offending provision contrary to
public policy this is the yardstick
always!
The limited to time, place , and
business (reasonable)= these are only
indicators, and the court has already
made up its mind that it is not
cocntrary to public policy.
6. Villa Rey Transit Inc. v. Eusebio
ferrer (SKIP)
Jose Villarama under villa rey transit
operated 32 bus units by virtue of 2
certificates of public convenience
granted to him by the public service
commission. He sold 2 CPCs to
PANTRANCO and this is a conditional
sale with a stipulated condition that the
seller (VILLARAMA) shall not for a
period of 10 yrs from the date of this
sale, apply for any TPU service
identical or competing with the buyer
(same line/path).
Barely 3 months thereafter, VILLA
REY TRANSICT INC WAS
ORGANIZED by Natividad Villarama
(Wife of Jose) and was 1 of the
incorporators.
In less than a month he bought 5 CPCS
from Valentin Fernando. 2 of the 5
CERTS sold by Fernando was levied by
the sheriff cause it was under litigation
in a pending case.
So 2 CPCS were sold to the highest
bidder FERRER. And Ferrer sold it to
PANTRANCO and Pantranco used it.
So Villarama complained as the cases
were still pending. Then CFI of manila
declared the sale of 2CPCS NULL
AND VOID and declared villarama as
lawful owener.
Pantranco used the defense of the 10 yr
prescriptive period of competition based
on the very first sale and ASAILED the
personality of Villa Rey transit.
Issue:
Whether the stipulation, "SHALL NOT
FOR A PERIOD OF 10 YEARS FROM
THE DATE OF THIS SALE, APPLY
FOR ANY TPU SERVICE
IDENTICAL OR COMPETING WITH
THE BUYER" in the contract between
Villarama and Pantranco, binds the
Corporation (the Villa Rey Transit,
Inc.).
Held:
The court answered YES. And therefore
PIERCED THE VEIL OF
CORPORATE FICTION.
1. Villarama supplied the organization
expenses and the assets of the
Corporation, where he himself made use
of the money of the Corporation and
deposited them to his private accounts.
The Corporation furthermore paid his
personal accounts.
Villarama himself admitted that HE
MINGLED THE CORPORATE
FUNDS WITH HIS OWN MONEY.
These circumstances are strong
persuasive evidence showing that
Villarama has been too much involved
in the affairs of the Corporation to
altogether negative the claim that he
was only a part-time general manager.
2. They show beyond doubt that the
Corporation is his alter ego. The
interference of Villarama in the
complex affairs of the corporation, and
particularly its finances, are much too
inconsistent with the ends and purposes
of the Corporation law, which,
precisely, seeks to separate personal
responsibilities from corporate
undertakings.
3. It is the very essence of
incorporation that the acts and conduct
of the corporation be carried out in its
own corporate name because it has its
own personality. The doctrine that a
corporation is a legal entity distinct and
separate from the members and
stockholders who compose it is
recognized and respected in all cases
which are within reason and the law.
4. When the fiction is urged as a means
of perpetrating a fraud or an illegal act
or as a vehicle for the evasion of an
existing obligation, the circumvention
of statutes, the achievement or
perfection of a monopoly or generally
the perpetration of knavery or crime, the
veil with which the law covers and
isolates the corporation from the
members or stockholders who compose
it will be lifted to allow for its
consideration merely as an aggregation
of individuals.
5. Hence, the Villa Rey Transit, Inc. is
an alter ego of Jose Villarama, and that
the restrictive clause in the contract
entered into by the latter and Pantranco
7. Avon Cosmetics v. Leticia Luna
Both are direct selling AVON wants to
protect practices and network.
Sandre pirates former employees of
AVON!
Public would be mistaken that same
ung nagbebenta ung Avon na ung
Sandre subsidiary ng Avon. Pinamuka
na iisa lang.
Luna is not an employee
Luna will exclusively sell AVON.
Contract – either party may terminate
this agreement. With or without cause
either of avon or luna can terminate
contract!
Exclusivity clause is valid – necessary
to protect the goodwill of Avon. Luna
exploited the relationship that she had
with customers.
The customers of AVON might be
misled that the products of Sandre was
in fact coming from AVON. Both were
engaged in direct-selling in selling
there products. MISLEADING THE
CUSTOMER. The know-how
developed by AVON is something that
SANDRE CAN USE without investing
itself.
Stipulation is valid BUT it is not
limited as to time, place and business.
Earlier cases all involved post-term
contracts. The exclusivity clause was
being used to penalized.
In this case LUNA VIOLATED THE
EXCLUSIVITY CLAUSE.
SC didn’t talk about being limited to
time,place and business.
8. Daisy B. Tiu v. Platinum Plans Phil.
Inc.
is also enforceable and binding against
the said Corporation.
Exclusivity clause is valid to protect
Avon’s property “goodwill”. Sandre
Corp. took advantage of Avon’s
Credibility and Employees training plus
network. Valid termination clause with
or without clause as Employer and
employee can both use it.
Luna is a supervisor of Avon.
What is the harm to the public good and
publicy that will be caused sa proviso?
AT THE END OF THE DAY it is the
determination on whether it is not
contrary to public policy that will
control.
REASONING OF THE COURT:
Exclusively sell AVON products.
(check this proviso) What would
constitute as harm to public good?
Deter/limit competition, promote
monopoly
Is it reasonable to public policy?
If we are to limit luna from selling avon
products will that limit competition?
Will it ease out Sandre from the
business? NO to both instances. Court’s
conclusion that it is not contrary to
public policy. The proviso requiring
exclusivity is the law to both parties.
This is something reasonable for the
protection of AVON. AVON trained
Luna unfair if Sandre gets Avon’s sales
force.
Business = Pre – need industry?
Contract is valid cause EE was the VP
of Sales and knows confidential
information. This would be detrimental
to the previous ER if she gives it to
other rival Business.