G.R. No. 119243. April 17, 1997.
] Rules and Regulations on continuous, unauthorized
BREW MASTER INTERNATIONAL INC., Petitioner, v.
NATIONAL FEDERATION OF LABOR UNIONS
(NAFLU), ANTONIO D. ESTRADA and HONORABLE
NATIONAL LABOR RELATIONS COMMISSION (Third
Division), Respondents.
Victorino Lopez Arcilla Amiana Cua Kagaoan Law
Offices for Petitioner.
SYLLABUS
1. LABOR AND SOCIAL LEGISLATION; TERMINATION
OF EMPLOYMENT; JUST CAUSES; ABANDONMENT;
ELEMENTS; NOT PRESENT IN CASE AT BAR. —
Petitioner’s finding that complainant was guilty of
abandonment is misplaced. Abandonment as a just and
valid ground for dismissal requires the deliberate,
unjustified refusal of the employee to resume his
employment. Two elements must then be satisfied: (1)
the failure to report for work or absence without valid or
justifiable reason; and (2) a clear intention to sever the
employer-employee relationship. The second element is
the more determinative factor and must be evinced by
overt acts. Likewise, the burden of proof is on the
employer to show the employee’s clear and deliberate
intent to discontinue his employment without any
intention of returning, mere absence is not sufficient.
These elements are not present here. First, as held
above, complainant’s absence was justified under the
circumstances. As to the second requisite, we are not
convinced that complainant ever intended to sever the
employer-employee relationship. Complainant
immediately complied with the memo requiring him to
explain his absence, and upon knowledge of his
termination, immediately sued for illegal dismissal.
These plainly refuted any claim that he was no longer
interested in returning to work. Without doubt, the
intention is lacking.
2. ID.; WHILE THE EMPLOYER IS NOT PRECLUDED
FROM PRESCRIBING RULES AND REGULATIONS TO
GOVERN THE CONDUCT OF HIS EMPLOYEES,
THESE RULES AND THEIR IMPLEMENTATION MUST
BE FAIR, JUST AND REASONABLE; CASE AT BAR. —
Petitioner failed to discharge the burden of proof that
complainant was guilty of abandonment. No evidence
other than complainant’s letter explaining his absence
was presented. Needless to state, the letter did not
indicate, in the least, that complainant was no longer
interested in returning to work. On the contrary,
complainant sought petitioner’s understanding. In
declaring him guilty of abandonment, petitioner merely
relied on its Rules and Regulations which limited its
application to a six-day continuous absence, contrary to
the purpose of the law. While the employer is not
precluded from prescribing rules and regulations to
govern the conduct of his employees, these rules and
their implementation must be fair, just and reasonable. It
must be underscored that no less than our Constitution
looks with compassion on the workingman and protects
his rights not only under a general statement of a state
policy, but under the Article on Social Justice and
Human Rights, thus placing labor contracts on a higher
plane and with greater safeguards. Verily, relations
between capital and labor are not merely contractual.
They are impressed with public interest and labor
contracts must, perforce, yield to the common good. We
then conclude that complainant’s "prolonged" absence
without approval does not fall within the definition of
abandonment and that his dismissal was unjustified.
While we do not decide here the validity of petitioner’s
absences, what is plain is that it was wielded with undue
haste resulting in a deprivation of due process, thus not
allowing for a determination of just cause or
abandonment. In this light, petitioner’s dismissal was
illegal. This is not to say that his absence should go
unpunished, as impliedly noted by the NLRC in declining
to award back wages. In the absence of the appropriate
offense which defines complainant’s infraction in the
company’s Rules and Regulations, equity dictates that a
penalty commensurate to the infraction be imposed.
DECISION
DAVIDE, JR., J.:
This is a special civil action for certiorari seeking the
reversal of the 7 October 1994 decision 1 of the National
Labor Relations Commission (NLRC) in NLRC Case No.
00-06-04136-93 (CA No. L-007370-94), which modified
the 11 July 1994 decision 2 of the Labor Arbiter by
directing the reinstatement of private respondent Antonio
D. Estrada, the complainant, without loss of seniority
rights and benefits.chanrobles.com:cralaw:red
Private respondent National Federation of Labor Unions
(NAFLU), a co-complainant in the labor case, is a labor
union of which complainant is a member.
The factual and procedural antecedents are summarized
in the decision of the Labor Arbiter which we quote
verbatim:chanrob1es virtual 1aw library
Complainant was first employed by respondent on 16
September 1991 as route helper with the latest daily
wage of P119.00. From 19 April 1993 up to 19 May
1993, for a period of one (1) month, complainant went on
absent without permission (AWOP). On 20 May 1993,
respondent thru Mr. Rodolfo Valentin, sent a Memo to
complainant, to wit:jgc:chanrobles.com.ph
"Please explain in writing within 24 hours of your receipt
of this memo why no disciplinary action should be taken
against you for the following offense:chanrob1es virtual
1aw library
You were absent since April 19, 1993 up to May 19,
1993.
For your strict compliance."cralaw virtua1aw library
In answer to the aforesaid memo, complainant
explained:jgc:chanrobles.com.ph
"Sa dahilan po na ako ay hindi nakapagpaalam sainyo
[sic] dahil inuwi ko ang mga anak ko sa Samar dahil ang
asawa ko ay lumayas at walang mag-aalaga sa mga
anak ko. Kaya naman hindi ako naka long distance or
telegrama dahil wala akong pera at ibinili ko ng gamot ay
puro utang pa."cralaw virtua1aw library
Finding said explanation unsatisfactory, on 16 June
1993, respondent thru its Sales Manager, Mr. Henry A.
Chongco issued a Notice of Termination which
reads:jgc:chanrobles.com.ph
"We received your letter of explanation dated May 21,
1993 but we regret to inform you that we do not consider
it valid. You are aware of the company Rules and
Regulations that absence without permission for six (6)
consecutive working days is considered abandonment of
work.
In view of the foregoing, the company has decided to
terminate your employment effective June 17, 1993 for
abandonment of work."cralaw virtua1aw library
Hence, this complaint.
Complainants contend that individual complainant’s
dismissal was done without just cause; that it was not
sufficiently established that individual complainant’s
absence from April 19, 1993 to June 16, 1993 are
unjustified; that the penalty of dismissal for such violation
is too severe; that in imposing such penalty, respondent
should have taken into consideration complainant’s
length of service and as a first offender, a penalty less
punitive will suffice such as suspension for a definite
period, (Position Paper, complainants).
Upon the other hand, respondent contends that
individual complainant was dismissed for cause allowed
by the company Rules and Regulations and the Labor
Code; that the act of complainant in absenting from work
for one (1) month without official leave is deleterious to
the business of respondent; that it will result to stoppage
of production which will not only destructive to
respondent’s interests but also to the interest of its
employees in general; that the dismissal of complainant
from the service is legal, (Position Paper, respondent). 3
The Labor Arbiter dismissed the complaint for lack of
merit, citing the principle of managerial control, which
recognizes the employer’s prerogative to prescribe
reasonable rules and regulations to govern the conduct
of his employees. The principle allows the imposition of
disciplinary measures which are necessary for the
efficiency of both the employer and the employees. In
complainant’s case, he persisted in not reporting for
work until 16 June 1993 notwithstanding his receipt of
the memorandum requiring him to explain his absence
without approval. The Labor Arbiter, relying on
Shoemart, Inc. v. NLRC, 4 thus concluded:chanrob1es
virtual 1aw library
Verily, it is crystal clear that individual complainant has
indeed abandoned his work. The filing of the complaint
on 25 June 1993 or almost two (2) months from the date
complainant failed to report for work affirms the findings
of this Office and therefore, under the law and
jurisprudence which upholds the right of an employer to
discharge an employee who incurs frequent, prolonged
and unexplained absences as being grossly remiss in his
duties to the employer and is therefore, dismissed for
cause, (Shoemart, Inc. v. NLRC, 176 SCRA 385). An
employee is deemed to have abandoned his position or
to have resigned from the same, whenever he has been
absent therefrom without previous permission of the
employer for three consecutive days or more. This
justification is the obvious harm to employer’s interest
resulting from [sic] the non-availability of the worker’s
services, (Supra). (Emphasis supplied) 5 would adversely affect its business and send the wrong
and ruled that complainant’s termination from his
employment was "legal, the same with just or authorized
cause and due process." 6 Office of the Solicitor General maintained that dismissal
Complainant appealed to the NLRC, alleging that the
immediate filing of a complaint for illegal dismissal verily
indicated that he never intended to abandon his work,
then cited Policarpio v. Vicente Dy Sun, Jr., 7 where the
NLRC ruled that prolonged absence does not, by itself,
necessarily mean abandonment. Accordingly, there must
be a concurrence of intention and overt acts from which
it can be inferred that the employee is no longer
interested in working. Complainant likewise invoked
compassion in the application of sanctions, as dismissal
from employment brings untold hardship and sorrows on
the dependents of the wage earners. In his case, a
penalty less punitive than dismissal could have
sufficed.chanrobles.com:cralaw:red
In the assailed decision 8 of 7 October 1994, the NLRC
modified the Labor Arbiter’s decision and held that
complainant’s dismissal was invalid for the following
reasons:chanrob1es virtual 1aw library
Complainant-appellant’s prolonged absences, although
unauthorized, may not amount to gross neglect or
abandonment of work to warrant outright termination of
employment. Dismissal is too severe a penalty. For one,
the mere fact that complainant-appellant is a first
offender must be considered in his favor. Besides, it is
generally impossible for an employee to anticipate when
he would be ill or compelled to attend to some family
problems or emergency like in the case at bar.
Reliance on the ruling enunciated in the cited case of
Shoemart Inc. v. National Labor Relations, 176 SCRA
385, is quite misplaced because of the obvious
dissimilarities of the attendant circumstances in the said
case vis-a-vis those obtaining in the case at bar. Unlike
in the aforecited Shoemart Case, herein complainant-
appellant was not dismissed for unauthorized absences
and eventually reinstated anterior to his second
dismissal for the same offense nor was he given a
second chance which he could have ignored.
Otherwise stated, the difference between the two cases
greatly lies [in] the fact that complainant in the Shoemart
Case in the language of the Supreme Court was "an
inveterate absentee who does not deserve
reinstatement" compared to herein complainant-
appellant who is a first offender." 9
The NLRC then decreed as follows:chanrob1es virtual
1aw library
PREMISES CONSIDERED, and [sic] the Decision of the
Labor Arbiter, dated 11 July 1994 is hereby MODIFIED,
by directing the reinstatement of complainant-appellant
to his former position without loss of seniority rights and
other benefits, but without backwages. The other
findings in the appealed decision stand AFFIRMED. 10
Petitioner’s motion for the reconsideration 11 was denied
by the NLRC in its 7 December 1994 resolution. 12
Petitioner thus filed this special civil action contending
that the NLRC committed grave abuse of discretion in
ordering complainant’s reinstatement, which in effect
countenances the reinstatement of an employee who is
found guilty of "excessive" absences without prior
approval. It further argued that the NLRC failed to
consider the rationale behind petitioner’s Rules and
Regulations; that it was deprived of its prerogative to
enforce them; and that complainant’s reinstatement
signals to its employees.
In its comment 13 for public respondent NLRC, the
from employment was too severe a penalty for a first
time offender like complainant. Although he violated
petitioner’s rules and regulations, his absences were
justified: he had to bring his children to Samar, his home
province, as his wife deserted him. While that by itself
might not excuse the failure to seek permission, the
Office of the Solicitor General submitted, however, that
"it would be at [sic] the height of callousness if one,
considering his plight under the circumstance[s], would
not give due consideration to [complainant’s]
explanation. There has to be an exception." 14
Applying Itogon-Suyoc Mines, Inc. v. NLRC, 15 the
Office of the Solicitor General recommended
complainant’s reinstatement, which would be more
harmonious to the dictates of social justice and equity. It
further emphasized that the reinstatement should not be
considered a condonation of complainant’s irresponsible
behavior, rather, it must be viewed as a mitigation of the
severity of the penalty of dismissal. Accordingly, it prays
that this petition be dismissed.
In its reply, 16 petitioner disputed the application of
Itogon-Suyoc because: (1) the employee involved
therein had been in the service for twenty-three years
while complainant herein had served petitioner for only
two years; and (2) the offense in Itogon-Suyoc was
limited to a single act of high grading while complainant
herein committed a series of unexcused absences.
not indicate, in the least, that complainant was no longer
interested in returning to work. On the contrary,
complainant sought petitioner’s understanding. In
declaring him guilty of abandonment, petitioner merely
relied on its Rules and Regulations which limited its
application to a six-day continuous absence, contrary to
the purpose of the law. While the employer is not
precluded from prescribing rules and regulations to
govern the conduct of his employees, these rules and
their implementation must be fair, just and reasonable. It
must be underscored that no less than our Constitution
looks with compassion on the workingman and protects
his rights not only under a general statement of a state
policy, 21 but under the Article on Social Justice and
Human Rights, 22 thus placing labor contracts on a
higher plane and with greater safeguards. Verily,
relations between capital and labor are not merely
contractual. They are impressed with public interest and
labor contracts must, perforce, yield to the common
good. 23

We gave due course to the petition and dispensed with We then conclude that complainant’s "prolonged"
complainant’s comment. absence without approval does not fall within the
definition of abandonment and that his dismissal was
The sole issue to be resolved is whether the NLRC unjustified. While we do not decide here the validity of
committed grave abuse of discretion in modifying the petitioner’s Rules and Regulations on continuous,
decision of the Labor Arbiter. unauthorized absences, what is plain is that it was
wielded with undue haste resulting in a deprivation of
The answer must be in the negative. due process, thus not allowing for a determination of just
cause or abandonment. In this light, petitioner’s
A scrutiny of the facts discloses that complainant’s dismissal was illegal. This is not to say that his absence
absence was precipitated by a grave family problem as should go unpunished, as impliedly noted by the NLRC
his wife unexpectedly deserted him and abandoned the in declining to award back wages. In the absence of the
family. Considering that he had a full-time job, there was appropriate offense which defines complainant’s
no one to whom he could entrust the children and he infraction in the company’s Rules and Regulations,
was thus compelled to bring them to the province. It equity dictates that a penalty commensurate to the
would have been extremely difficult for him to have been infraction be imposed.
husband and wife/father and mother at the same time to
the children in the metropolis. He was then under WHEREFORE, the petition is hereby DISMISSED and
emotional, psychological, spiritual and physical stress the decision of the National Labor Relations Commission
and strain. The reason for his absence is, under these in NLRC Case No. 06-04136-93 is hereby AFFIRMED.
circumstances, justified. While his failure to inform and No pronouncement as to costs.
seek petitioner’s approval was an omission which must
be corrected and chastised, he did not merit the severest SO ORDERED.
penalty of dismissal from the service.

Petitioner’s finding that complainant was guilty of

abandonment is misplaced. Abandonment as a just and
valid ground for dismissal requires the deliberate,
unjustified refusal of the employee to resume his
employment. Two elements must then be satisfied: (1)
the failure to report for work or absence without valid or
justifiable reason; and (2) a clear intention to sever the
employer-employee relationship. The second element is
the more determinative factor and must be evinced by
overt acts. 17 Likewise, the burden of proof is on the
employer to show the employee’s clear and deliberate
intent to discontinue his employment without any
intention of returning, 18 mere absence is not sufficient.
19 These elements are not present here. First, as held
above, complainant’s absence was justified under the
circumstances. As to the second requisite, we are not
convinced that complainant ever intended to sever the
employer-employee relationship. Complainant
immediately complied with the memo requiring him to
explain his absence, and upon knowledge of his
termination, immediately sued for illegal dismissal.
These plainly refuted any claim that he was no longer
interested in returning to work. 20 Without doubt, the
intention is lacking. cdtech

Moreover, petitioner failed to discharge the burden of

proof that complainant was guilty of abandonment. No
evidence other than complainant’s letter explaining his
absence was presented. Needless to state, the letter did

G.R. No. 170351, March 30 : 2011]
LEYTE GEOTHERMAL POWER PROGRESSIVE
EMPLOYEES UNION - ALU - TUCP, PETITIONER, VS.
PHILIPPINE NATIONAL OIL COMPANY - ENERGY
DEVELOPMENT CORPORATION, RESPONDENT.
DECISION
NACHURA, J.:
Under review is the Decision[1] dated June 30, 2005 of
the Court of Appeals (CA) in CA-G.R. SP No. 65760,
which dismissed the petition for certiorari filed by
petitioner Leyte Geothermal Power Progressive
Employees Union - ALU?TUCP (petitioner Union) to
annul and set aside the decision [2] dated December 10,
1999 of the National Labor Relations Commission
(NLRC) in ÂÂÂÂÂNLRC Certified Case No. V-02-99.
The facts, fairly summarized by the CA, follow.
blockquote>[Respondent Philippine National Oil
Corporation]-Energy Development Corporation [PNOC-
EDC] is a government-owned and controlled corporation
engaged in exploration, development, utilization,
generation and distribution of energy resources like
geothermal energy.
Petitioner is a legitimate labor organization, duly
registered with the Department of Labor and
Employment (DOLE) Regional Office No. VIII, Tacloban
City.
Among [respondent's] geothermal projects is the Leyte
Geothermal Power Project located at the Greater
Tongonan Geothermal Reservation in Leyte. The said
Project is composed of the Tongonan 1 Geothermal
Project (T1GP) and the Leyte Geothermal Production
Field Project (LGPF) which provide the power and
electricity needed not only in the provinces and cities of
Central and Eastern Visayas (Region VII and VIII), but
also in the island of Luzon as well. Thus, the
[respondent] hired and employed hundreds of
employees on a contractual basis, whereby, their
employment was only good up to the completion or
termination of the project and would automatically expire
upon the completion of such project.
Majority of the employees hired by [respondent] in its
Leyte Geothermal Power Projects had become members
of petitioner. In view of that circumstance, the petitioner
demands from the [respondent] for recognition of it as
the collective bargaining agent of said employees and for
a CBA negotiation with it. However, the [respondent] did
not heed such demands of the petitioner. Sometime in
1998 when the project was about to be completed, the
[respondent] proceeded to serve Notices of Termination
of Employment upon the employees who are members
of the petitioner.
On December 28, 1998, the petitioner filed a Notice of
Strike with DOLE against the [respondent] on the ground
of purported commission by the latter of unfair labor
practice for "refusal to bargain collectively, union busting
and mass termination." On the same day, the petitioner
declared a strike and staged such strike.
To avert any work stoppage, then Secretary of Labor
Bienvenido E. Laguesma intervened and issued the
Order, dated January 4, 1999, certifying the labor
dispute to the NLRC for compulsory arbitration.
Accordingly, all the striking workers were directed to
return to work within twelve (12) hours from receipt of the
Order and for the [respondent] to accept them back
under the same terms and conditions of employment
prior to the strike. Further, the parties were directed to
cease and desist from committing any act that would
exacerbate the situation.
However, despite earnest efforts on the part of the
Secretary of Labor and Employment to settle the dispute
amicably, the petitioner remained adamant and
unreasonable in its position, causing the failure of the
negotiation towards a peaceful compromise. In effect,
the petitioner did not abide by [the] assumption order
issued by the Secretary of Labor.
Consequently, on January 15, 1999, the [respondent]
filed a Complaint for Strike Illegality, Declaration of Loss
of Employment and Damages at the NLRC-RAB VIII in
Tacloban City and at the same time, filed a Petition for
Cancellation of Petitioner's Certificate of Registration
with DOLE, Regional Office No. VIII. The two cases were
later on consolidated pursuant to the New NLRC Rules
of Procedure. The consolidated case was docketed as
NLRC Certified Case No. V-02-99 (NCMB-RAB VIII-NS-
12-0190-98; RAB Case No. VIII-1-0019-99). The said
certified case was indorsed to the NLRC 4th Division in
Cebu City on June 21, 1999 for the proper disposition
thereof.[3]
In due course, the NLRC 4 th Division rendered a decision
in favor of respondent, to wit:
WHEREFORE, based on the foregoing premises,
judgment is hereby rendered as follows:
1. Declaring the officers and members of
[petitioner] Union as project employees;
2. Declaring the termination of their
employment by reason of the completion
of the project, or a phase or portion
thereof, to which they were assigned, as
valid and legal;
3. Declaring the strike staged and
conducted by [petitioner] Union through
its officers and members on December
28, 1998 to January 6, 1999 as illegal
for failure to comply with the mandatory
requirements of the law on strike[;]
4. Declaring all the officers and members
of the board of [petitioner] Union who
instigated and spearheaded the illegal
strike to have lost their employment[;]
5. Dismissing the claim of [petitioner]
Union against PNOC-EDC for unfair
labor practice for lack of merit[;]
6. Dismissing both parties' claims against
each other for violation of the
Assumption Order dated January 4,
1999 for lack of factual basis[;]
7. Dismissing all other claims for lack of
merit.[4]
Petitioner Union filed a motion for reconsideration of the
NLRC decision, which was subsequently denied.
Posthaste, petitioner Union filed a petition
for certiorari before the CA, alleging grave abuse of
discretion in the decision of the NLRC. As previously
adverted to, the CA dismissed the petition for certiorari,
thus:
WHEREFORE, in view of the foregoing premises,
judgment is hereby rendered by us DISMISSING the
Petition. The assailed Decision dated December 10,
1999 of the NLRC 4th Division in NLRC Certified Case
No. V-02-99 (NCMB-RAB VIII-NS-12-0190-98; RAB
Case No. VIII-1-0019-99) and its Order dated March 30,
2001 are hereby AFFIRMED.
Costs against the Petitioner.[5]
Hence, this appeal by certiorari filed by petitioner Union,
positing the following questions of law:
1. MAY THE HONORABLE COURT OF APPEALS
SUSTAIN THE "PROJECT CONTRACTS" THAT ARE
DESIGNED TO DENY AND DEPRIVE THE
EMPLOYEES' THEIR RIGHT TO SECURITY OF
TENURE BY MAKING IT APPEAR THAT THEY
ARE MERE PROJECT EMPLOYEES?
2. WHEN THERE ARE NO INTERVALS IN THE
EMPLOYEES' CONTRACT, SUCH THAT THE SO-
CALLED UNDERTAKING WAS CONTINUOUS, ARE
THE EMPLOYEES PROPERLY TREATED
AS PROJECT EMPLOYEES?
3. MAY THE HONORABLE COURT OF
APPEALS IGNORE THE FIRM'S OWN ESTIMATE OF
JOB COMPLETION, PROVING THAT THERE IS STILL
56.25% CIVIL/STRUCTURAL WORK TO BE
ACCOMPLISHED, AND RULE THAT THE EMPLOYEES
WERE DISMISSED FOR COMPLETION [OF] THE
"PROJECT?"
4. MAY A FIRM HIDE UNDER THE SPURIOUS CLOAK
OF "PROJECT COMPLETION" TO DISMISS EN
MASSE  THE EMPLOYEES WHO HAVE ORGANIZED
AMONG THEMSELVES A LEGITIMATE LABOR
ORGANIZATION TO PROTECT THEIR RIGHTS?
5. WHEN THERE IS NO  STOPPAGE OF WORK, MAY
A PROTEST ACTIVITY BE CONSIDERED AS
A STRIKE CONTRARY TO ITS CONCEPTUAL
DEFINITION UNDER ARTICLE 212 (O) OF THE
LABOR CODE OF THE PHILIPPINES?
6. WHEN THE DISMISSAL IS AIMED AT RIDDING THE
COMPANY OF MEMBERS OF THE UNION, IS THIS
UNION BUSTING?[6]
Stripped of rhetoric, the issues for our resolution are:
1. Whether the officers and members of petitioner
Union are project employees of respondent; and
2. Whether the officers and members of petitioner
Union engaged in an illegal strike.
On the first issue, petitioner Union contends that its
officers and members performed activities that were
usually necessary and desirable to respondent's usual
business. In fact, petitioner Union reiterates that its
officers and members were assigned to the Construction
Department of respondent as carpenters and masons,
and to other jobs pursuant to civil works, which are
usually necessary and desirable to the department.
Petitioner Union likewise points out that there was no
interval in the employment contract of its officers and
members, who were all employees of respondent, which
lack of interval, for petitioner Union, "manifests that the
`undertaking' is usually necessary and desirable to the
usual trade or business of the employer."
We cannot subscribe to the view taken by petitioner
Union.
The distinction between a regular and a project
employment is provided in Article 280, paragraph 1, of
the Labor Code:
ART. 280. Regular and Casual Employment.-- The
provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of
the parties, an employment shall be deemed to be
regular where the employee has been engaged to
perform activities which are usually necessary or
desirable in the usual business or trade of the
employer, except where the employment has been
fixed for a specific project or undertaking the
completion or termination of which has been
determined at the time of the engagement of the
employee or where the work or service to be performed
is seasonal in nature and the employment is for the
duration of the season.
An employment shall be deemed to be casual if it is not
covered by the preceding paragraph:  Provided, That,
any employee who has rendered at least one year of
service, whether such service is continuous or broken,
shall be considered a regular employee with respect to
the activity in which he is employed and his employment
shall continue while such actually exists.[7]
The foregoing contemplates four (4) kinds of employees:
(a) regular  employees or those who have been
"engaged to perform activities which are usually
necessary or desirable in the usual business or trade of
the employer"; (b) project employees or those "whose
employment has been fixed for a specific project or
undertaking[,] the completion or termination of which has
been determined at the time of the engagement of the
employee";  (c) seasonal employees or those who work
or perform services which are seasonal in nature, and
the employment is for the duration of the season; [8] and
(d) casual employees or those who are not regular,
project, or seasonal employees. Jurisprudence has
added a fifth kind-- a fixed-term employee. [9]
Article 280 of the Labor Code, as worded, establishes
that the nature of the employment is determined by law,
regardless of any contract expressing otherwise. The
supremacy of the law over the nomenclature of the
contract and the stipulations contained therein is to bring
to life the policy enshrined in the Constitution to "afford
full protection to labor."[10] Thus, labor contracts are
placed on a higher plane than ordinary contracts; these
are imbued with public interest and therefore subject to
the police power of the State.[11]
However, notwithstanding the foregoing iterations,
project employment contracts which fix the employment
for a specific project or undertaking remain valid under
the law:
x x x By entering into such a contract, an employee is
deemed to understand that his employment is
coterminous with the project. He may not expect to be
employed continuously beyond the completion of the
project. It is of judicial notice that project employees
engaged for manual services or those for special skills
like those of carpenters or masons, are, as a rule,
unschooled. However, this fact alone is not a valid
reason for bestowing special treatment on them or for
invalidating a contract of employment. Project
employment contracts are not lopsided agreements in
favor of only one party thereto. The employer's interest is
equally important as that of the employee[s'] for theirs is
the interest that propels economic activity. While it may
be true that it is the employer who drafts project
employment contracts with its business interest as
overriding consideration, such contracts do not, of
necessity, prejudice the employee. Neither is the
employee left helpless by a prejudicial employment
contract. After all, under the law, the interest of the
worker is paramount.[12]
In the case at bar, the records reveal that the officers
and the members of petitioner Union signed employment
contracts indicating the specific project or phase of work
for which they were hired, with a fixed period of
employment. The NLRC correctly disposed of this issue:
A deeper examination also shows that [the individual
members of petitioner Union] indeed signed and
accepted the [employment contracts] freely and
voluntarily. No evidence was presented by [petitioner]
Union to prove improper pressure or undue influence
when they entered, perfected and consummated [the
employment] contracts. In fact, it was clearly established
in the course of the trial of this case, as explained by no
less than the President of [petitioner] Union, that the
contracts of employment were read, comprehended, and
voluntarily accepted by them. x x x.
x x x x
As clearly shown by [petitioner] Union's own admission,
both parties had executed the contracts freely and
voluntarily without force, duress or acts tending to vitiate
the worker[s'] consent. Thus, we see no reason not to
honor and give effect to the terms and conditions
stipulated therein. x x x.[13]
Thus, we are hard pressed to find cause to disturb the
findings of the NLRC which are supported by substantial
evidence.
It is well-settled in jurisprudence that factual findings of
administrative or quasi-judicial bodies, which are
deemed to have acquired expertise in matters within
their respective jurisdictions, are generally accorded not
only respect but even finality, and bind the Court when
supported by substantial evidence.[14] Rule 133, Section
5 defines substantial evidence as "that amount of
relevant evidence which a reasonable mind might accept
as adequate to justify a conclusion."
Consistent therewith is the doctrine that this Court is not
a trier of facts, and this is strictly adhered to in labor
cases.[15] We may take cognizance of and resolve factual
issues, only when the findings of fact and conclusions of
law of the Labor Arbiter or the NLRC are inconsistent
with those of the CA.[16]
In the case at bar, both the NLRC and the CA were one
in the conclusion that the officers and the members of
petitioner Union were project employees. Nonetheless,
petitioner Union insists that they were regular employees
since they performed work which was usually necessary
or desirable to the usual business or trade of
the Construction Department of respondent.
The landmark case of ALU-TUCP v. NLRC[17] instructs
on the two (2) categories of project employees:
It is evidently important to become clear about the
meaning and scope of the term "project" in the present
context. The "project" for the carrying out of which
"project employees" are hired would ordinarily have
some relationship to the usual business of the employer.
Exceptionally, the "project" undertaking might not have
an ordinary or normal relationship to the usual business
of the employer. In this latter case, the determination of
the scope and parameters of the "project" becomes fairly
easy. x x x. From the viewpoint, however, of the legal
characterization problem here presented to the Court,
there should be no difficulty in designating the
employees who are retained or hired for the purpose of
undertaking fish culture or the production of vegetables
as "project employees," as distinguished from ordinary or
"regular employees," so long as the duration and scope
of the project were determined or specified at the time of
engagement of the "project employees." For, as is
evident from the provisions of Article 280 of the
Labor Code, quoted earlier, the principal test for
determining whether particular employees are
properly characterized as "project employees" as
distinguished from "regular employees," is whether
or not the "project employees" were assigned to
carry out a "specific project or undertaking," the
duration (and scope) of which were specified at the
time the employees were engaged for that project.
In the realm of business and industry, we note that
"project" could refer to one or the other of at least two (2)
distinguishable types of activities. Firstly, a project could
refer to a particular job or undertaking that is within the
regular or usual business of the employer company, but
which is distinct and separate, and identifiable as such,
from the other undertakings of the company. Such job or
undertaking begins and ends at determined or
determinable times. The typical example of this first type
of project is a particular construction job or project of a
construction company. A construction company
ordinarily carries out two or more [distinct] identifiable
construction projects: e.g., a twenty-five-storey hotel in
Makati; a residential condominium building in Baguio
City; and a domestic air terminal in Iloilo City. Employees
who are hired for the carrying out of one of these
separate projects, the scope and duration of which has
been determined and made known to the employees at
the time of employment, are properly treated as "project
employees," and their services may be lawfully
terminated at completion of the project.
The term "project" could also refer to, secondly, a
particular job or undertaking that is not within the regular
business of the corporation. Such a job or undertaking
must also be identifiably separate and distinct from the
ordinary or regular business operations of the employer.
The job or undertaking also begins and ends at
determined or determinable times.[18]
Plainly, the litmus test to determine whether an individual
is a project employee lies in setting a fixed period of
employment involving a specific undertaking which
completion or termination has been determined at the
time of the particular employee's engagement.
In this case, as previously adverted to, the officers and
the members of petitioner Union were specifically hired
as project employees for respondent's Leyte Geothermal
Power Project located at the Greater Tongonan
Geothermal Reservation in Leyte. Consequently, upon
the completion of the project or substantial phase
thereof, the officers and the members of petitioner Union
could be validly terminated.
Petitioner Union is adamant, however, that the lack of
interval in the employment  contracts  of  its officer and
members negates the latter's status
as mere project employees. For petitioner Union, the
lack of interval further drives home its point that its
officers and members are regular employees who
performed work which was usually necessary or
desirable to the usual business or trade of respondent.
We are not persuaded.
Petitioner Union's members' employment for more than a
year does equate to their regular employment with
respondent. In this regard, Mercado, Sr. v.
NLRC[19] illuminates:
The first paragraph [of Article 280 of the Labor Code]
answers the question of who are regular employees. It
states that, regardless of any written or oral agreement
to the contrary, an employee is deemed regular where
he is engaged in necessary or desirable activities in the
usual business or trade of the employer, except for
project employees.
A project employee has been defined to be one whose
employment has been fixed for a specific project or
undertaking, the completion or termination of which has
been determined at the time of the engagement of the
employee, or where the work or service to be performed
is seasonal in nature and the employment is for the
duration of the season, as in the present case.
The second paragraph of Art. 280 demarcates as
"casual" employees, all other employees who do not fall
under the definition of the preceding paragraph. The
proviso, in said second paragraph, deems as regular
employees those "casual" employees who have
rendered at least one year of service regardless of the
fact that such service may be continuous or broken.
Petitioners, in effect, contend that the proviso in the
second paragraph of Art. 280 is applicable to their case
and that the Labor Arbiter should have considered them
regular by virtue of said proviso. The contention is
without merit.
The general rule is that the office of a proviso is to
qualify or modify only the phrase immediately preceding
it or restrain or limit the generality of the clause that it
immediately follows. Thus, it has been held that a
proviso is to be construed with reference to the
immediately preceding part of the provision to which it is
attached, and not to the statute itself or to other sections
thereof. The only exception to this rule is where the clear
legislative intent is to restrain or qualify not only the
phrase immediately preceding it (the proviso) but also
earlier provisions of the statute or even the statute itself
as a whole.
Policy Instruction No. 12 of the Department of Labor and
Employment discloses that the concept of regular and
casual employees was designed to put an end to casual
employment in regular jobs, which has been abused by
many employers to prevent so - called casuals from
enjoying the benefits of regular employees or to prevent
casuals from joining unions. The same instructions show
that the proviso in the second paragraph of Art. 280 was
not designed to stifle small-scale businesses nor to
oppress agricultural land owners to further the interests
of laborers, whether agricultural or industrial. What it
seeks to eliminate are abuses of employers against their
employees and not, as petitioners would have us
believe, to prevent small-scale businesses from
engaging in legitimate methods to realize profit. Hence,
the proviso is applicable only to the employees who are
deemed "casuals" but not to the "project" employees nor
the regular employees treated in paragraph one of Art.
280.
Clearly, therefore, petitioners being project employees,
or, to use the correct term, seasonal employees, their
employment legally ends upon completion of the project
or the [end of the] season. The termination of their
employment cannot and should not constitute an illegal
dismissal.
Considering our holding that the officers and the
members of petitioner Union were project employees, its
claim of union busting is likewise dismissed.
On the second issue, petitioner Union contends that
there was no stoppage of work; hence, they did not
strike. Euphemistically, petitioner Union avers that it
"only engaged in picketing,"[20] and maintains that
"without any work stoppage, [its officers and members]
only engaged in xxx protest activity."
We are not convinced.  Petitioner Union splits hairs.
To begin with, quite evident from the records is the
undisputed fact that petitioner Union filed a Notice of
Strike on December 28, 1998 with the Department of
Labor and Employment, grounded on respondent's
purported unfair labor practices, i.e.,  "refusal to bargain
collectively, union busting and mass termination." On
even date, petitioner Union declared and staged a strike.
Second, then Secretary of Labor, Bienvenido E.
Laguesma, intervened and issued a Return-to-Work
Order[21] dated January 4, 1999, certifying the labor
dispute to the NLRC for compulsory arbitration. The
Order narrates the facts leading to the labor dispute, to
wit:
On 28 December 1998, [petitioner Union] filed a Notice
of Strike against [respondent] citing unfair labor
practices, specifically: refusal to bargain collectively,
union busting and mass termination as the grounds
[therefor].  On the same day, [petitioner] Union went on
strike and took control over [respondent's] facilities of its
Leyte Geothermal Project.
Attempts by the National Conciliation and Mediation
Board -RBVIII to forge a mutually acceptable solution
proved futile.
In the meantime, the strike continues with no settlement
in sight placing in jeopardy the supply of much needed
power supply in the Luzon and Visayas grids.
x x x x
The on-going strike threatens the availability of
continuous electricity to these areas which is critical to
day-to-day life, industry, commerce and trade. Without
doubt, [respondent's] operations [are] indispensable to
the national interest and falls (sic) within the purview of
Article 263 (g) of the Labor Code, as amended, which
warrants (sic) the intervention of this Office.
Third, petitioner Union itself, in its pleadings, used the
word "strike."
Ultimately, petitioner Union's asseverations are belied by
the factual findings of the NLRC, as affirmed by the CA:
The failure to comply with the mandatory requisites for
the conduct of strike is both admitted and clearly shown
on record. Hence, it is undisputed that no strike vote was
conducted; likewise, the cooling-off period was not party, supervise the conduct of the secret balloting. In
observed and that the 7-day strike ban after the every case, the union or the employer shall furnish the
submission of the strike vote was not complied with Department the results of the voting at least seven days
since there was no strike vote taken. before the intended strike or lockout, subject to the
cooling-off period herein provided.
x x x x
In fine, petitioner Union's bare contention that it did not
The factual issue of whether a notice of strike was timely hold a strike cannot trump the factual findings of the
filed by [petitioner] Union was resolved by the evidence NLRC that petitioner Union indeed struck against
on record. The evidence revealed that [petitioner] Union respondent. In fact, and more importantly, petitioner
struck even before it could file the required notice of Union failed to comply with the requirements set by law
strike. Once again, this relied on [petitioner] Union's prior to holding a strike.
proof. [Petitioner] Union['s] witness said:
WHEREFORE, the petition is DENIED. The Decision of
Atty. Sinsuat: You stated that you struck on 28 the Court of Appeals in CA-G.R. SP No. 65760
December 1998 is that correct? is AFFIRMED. Costs against petitioner Union.
Witness : Early in the morning of December 1998. SO ORDERED.
x x x x

Atty. Sinsuat: And you went there to conduct the strike

did you not?

Witness : Our plan then was to strike at noon of

December 28 and the strikers will be positioned at their
respective areas.[22]

Article 263 of the Labor Code enumerates the requisites

for holding a strike:

Art. 263. Strikes, picketing, and lockouts. - (a) x x x.

x x x x.

(c) In cases of bargaining deadlocks, the duly certified or

recognized bargaining agent may file a notice of strike or
the employer may file a notice of lockout with the
Department at least 30 days before the intended date
thereof. In cases of unfair labor practice, the period of
notice shall be 15 days and in the absence of a duly
certified bargaining agent, the notice of strike may be
filed by any legitimate labor organization in behalf of its
members. However, in case of dismissal from
employment of union officers duly elected in accordance
with the union constitution and by-laws, which may
constitute union busting, where the existence of the
union is threatened, the 15-day cooling-off period shall
not apply and the union may take action immediately.

(d)  The notice must be in accordance with such

implementing rules and regulations as the Department of
Labor and Employment may promulgate.

(e)During the cooling-off period, it shall be the duty of the

Department to exert all efforts at mediation and
conciliation to effect a voluntary settlement. Should the
dispute remain unsettled until the lapse of the requisite
number of days from the mandatory filing of the notice,
the labor union may strike or the employer may declare a
lockout.

(f) A decision to declare a strike must be approved by a

majority of the total union membership in the bargaining
unit concerned, obtained by secret ballot in meetings or
referenda called for that purpose. A decision to declare a
lockout must be approved by a majority of the board of
directors of the corporation or association or of the
partners in a partnership, obtained by secret ballot in a
meeting called for that purpose. The decision shall be
valid for the duration of the dispute based on
substantially the same grounds considered when the
strike or lockout vote was taken. The Department may,
at its own initiative or upon the request of any affected

G.R. No. 163269             April 19, 2006
ROLANDO C. RIVERA, Petitioner,
vs.
SOLIDBANK CORPORATION, Respondent.
DECISION
CALLEJO, SR., J.:
Assailed in this Petition for Review on Certiorari is the
Decision1 of the Court of Appeals (CA) in CA-G.R. CV
No. 52235 as well as its Resolution 2 denying the Motion
for Partial Reconsideration of petitioner Rolando C.
Rivera.
Petitioner had been working for Solidbank Corporation
since July 1, 1977.3 He was initially employed as an
Audit Clerk, then as Credit Investigator, Senior Clerk,
Assistant Accountant, and Assistant Manager. Prior to
his retirement, he became the Manager of the Credit
Investigation and Appraisal Division of the Consumer’s
Banking Group. In the meantime, Rivera and his brother-
in-law put up a poultry business in Cavite.
In December 1994, Solidbank offered two retirement
programs to its employees: (a) the Ordinary Retirement
Program (ORP), under which an employee would
receive 85% of his monthly basic salary multiplied by the
number of years in service; and (b) the Special
Retirement Program (SRP), under which a retiring
employee would receive 250% of the gross monthly
salary multiplied by the number of years in
service.4 Since Rivera was only 45 years old, he was not
qualified for retirement under the ORP. Under the SRP,
he was entitled to receive P1,045,258.95 by way of
benefits.5
Deciding to devote his time and attention to his poultry
business in Cavite, Rivera applied for retirement under
the SRP. Solidbank approved the application and Rivera
was entitled to receive the net amount of P963,619.28.
This amount included his performance incentive award
(PIA), and his unearned medical, dental and optical
allowances in the amount of P1,666.67, minus his total
accountabilities to Solidbank amounting
to P106,973.00.6 Rivera received the amount and
confirmed his separation from Solidbank on February 25,
1995.7
Subsequently, Solidbank required Rivera to sign an
undated Release, Waiver and Quitclaim, which was
notarized on March 1, 1995.8 Rivera acknowledged
receipt of the net proceeds of his separation and
retirement benefits and promised that "[he] would not, at
any time, in any manner whatsoever, directly or indirectly
engage in any unlawful activity prejudicial to the interest
of Solidbank, its parent, affiliate or subsidiary companies,
their stockholders, officers, directors, agents or
employees, and their successors-in-interest and will not
disclose any information concerning the business of
Solidbank, its manner or operation, its plans, processes,
or data of any kind."9
Aside from acknowledging that he had no cause of
action against Solidbank or its affiliate companies,
Rivera agreed that the bank may bring any action to
seek an award for damages resulting from his breach of
the Release, Waiver and Quitclaim, and that such award
would include the return of whatever sums paid to him by
virtue of his retirement under the SRP. 10 Rivera was
likewise required to sign an undated Undertaking as a
supplement to the Release, Waiver and Quitclaim in
favor of Solidbank in which he declared that he received
in full his entitlement under the law (salaries, benefits,
bonuses and other emoluments), including his
separation pay in accordance with the SRP. In this
Undertaking, he promised that "[he] will not seek
employment with a competitor bank or financial
institution within one (1) year from February 28, 1995,
and that any breach of the Undertaking or the provisions
of the Release, Waiver and Quitclaim would entitle
Solidbank to a cause of action against him before the
appropriate courts of law.11 Unlike the Release, Waiver
and Quitclaim, the Undertaking was not notarized.
On May 1, 1995, the Equitable Banking Corporation
(Equitable) employed Rivera as Manager of its Credit
Investigation and Appraisal Division of its Consumers’
Banking Group.12 Upon discovering this, Solidbank First
Vice-President for Human Resources Division (HRD)
Celia J.L. Villarosa wrote a letter dated May 18, 1995,
informing Rivera that he had violated the Undertaking.
She likewise demanded the return of all the monetary
benefits he received in consideration of the SRP within
five (5) days from receipt; otherwise, appropriate legal
action would be taken against him.13
When Rivera refused to return the amount demanded
within the given period, Solidbank filed a complaint for
Sum of Money with Prayer for Writ of Preliminary
Attachment14 before the Regional Trial Court (RTC) of
Manila on June 26, 1995. Solidbank, as plaintiff, alleged
therein that in accepting employment with a competitor
bank for the same position he held in Solidbank before
his retirement, Rivera violated his Undertaking under the
SRP. Considering that Rivera accepted employment with
Equitable barely three months after executing the
Undertaking, it was clear that he had no intention of
honoring his commitment under said deed.
Solidbank prayed that Rivera be ordered to return the
net amount of P963,619.28 plus interests therein, and
attorney’s fees, thus:
WHEREFORE, it is respectfully prayed that:
1. At the commencement of this action and upon
the filing of a bond in such amount as this
Honorable Court may fix, a writ of preliminary
attachment be forthwith issued against the
properties of the defendant as satisfaction of any
judgment that plaintiff may secure;
2. After trial, judgment be rendered ordering
defendant to pay plaintiff the following sums:
NINE HUNDRED SIXTY-THREE THOUSAND
SIX HUNDRED NINETEEN AND 28/100 ONLY
(P963,619.28) PESOS, Philippine Currency, as
of 23 May 1995, plus legal interest of 12% per
annum until fully paid;
 3. Such sum equivalent to 10% of plaintiff’s
claims plus P2,000.00 for every appearance by
way of attorney’s fees; and
4. Costs of suit.
PLAINTIFF prays for other reliefs just and equitable
under the premises.15
Solidbank appended the Affidavit of HRD First Vice-
President Celia Villarosa and a copy of the Release,
Waiver and Quitclaim and Undertaking which Rivera
executed.16
In an Order dated July 6, 1995, the trial court issued a
Writ of Preliminary Attachment17 ordering Deputy Sheriff
Eduardo Centeno to attach all of Rivera’s properties not
exempt from execution. Thus, the Sheriff levied on a
parcel of land owned by Rivera.
In his Answer with Affirmative Defenses and
Counterclaim, Rivera admitted that he received the net
amount of P963,619.28 as separation pay. However, the
employment ban provision in the Undertaking was never
conveyed to him until he was made to sign it on
February 28, 1995. He emphasized that, prior to said
date, Solidbank never disclosed any condition to the
retirement scheme, nor did it impose such employment
ban on the bank officers and employees who had
previously availed of the SRP. He alleged that the
undertaking not to "seek employment with any
competitor bank or financial institution within one (1) year
from February 28, 1995" was void for being contrary to
the Constitution, the law and public policy, that it was
unreasonable, arbitrary, oppressive, discriminatory,
cruel, unjust, inhuman, and violative of his human rights.
He further claimed that the Undertaking was a contract
of adhesion because it was prepared solely by Solidbank
without his participation; considering his moral and
economic disadvantage, it must be liberally construed in
his favor and strictly against the bank.
On August 15, 1995, Solidbank filed a Verified Motion for
Summary Judgment, alleging therein that Rivera raised
no genuine issue as to any material fact in his Answer
except as to the amount of damages. It prayed that the
RTC render summary judgment against Rivera.
Solidbank alleged that whether or not the employment
ban provision contained in the Undertaking is
unreasonable, arbitrary, or oppressive is a question of
law. It insisted that Rivera signed the Undertaking
voluntarily and for valuable consideration; and under the
Release, Waiver and Quitclaim, he was obliged to return
the P963,619.28 upon accepting employment from a
competitor bank within the one-year proscribed period.
Solidbank appended to its motion the Affidavit of
Villarosa, where she declared that Rivera was employed
by Equitable on May 1, 1995 for the same position he
held before his retirement from Solidbank.
Rivera opposed the motion contending that, as gleaned
from the pleadings of the parties as well as Villarosa’s
Affidavit, there are genuine issues as to material facts
which call for the presentation of evidence. He averred
that there was a need for the parties to adduce evidence
to prove that he did not sign the Undertaking voluntarily.
He claimed that he would not have been allowed to avail
of the SRP if he had not signed it, and consequently, his
retirement benefits would not have been paid. This was
what Ed Nallas, Solidbank Assistant Vice-President for
HRD and Personnel, told him when he received his
check on February 28, 1995. Senior Vice-President
Henry Valdez, his superior in the Consumers’ Banking
Group, also did not mention that he would have to sign
such Undertaking which contained the assailed
provision. Thus, he had no choice but to sign it. He
insisted that the question of whether he violated the
Undertaking is a genuine issue of fact which called for
the presentation of evidence during the hearing on the
merits of the case. He also asserted that he could not
cause injury or prejudice to Solidbank’s interest since he
never acquired any sensitive or delicate information
which could prejudice the bank’s interest if disclosed.
Rivera averred that he had the right to adduce evidence
to prove that he had been faithful to the provisions of the
Release, Waiver and Quitclaim, and the Undertaking,
and had not committed any act or done or said anything
to cause injury to Solidbank.18
Rivera appended to his Opposition his Counter-Affidavit
in which he reiterated that he had to sign the
Undertaking containing the employment ban provision,
otherwise his availment of the SRP would not push
through. There was no truth to the bank’s allegation that,
"in exchange for receiving the larger amount
of P1,045,258.95 under the SRP, instead of the very
much smaller amount of P224,875.81 under the ORP, he
agreed that he will not seek employment in a competitor
bank or financial institution within one year from
February 28, 1995." It was the bank which conceived the
SRP to streamline its organization and all he did was
accept it. He stressed that the decision whether to allow
him to avail of the SRP belonged solely to Solidbank. He
also pointed out that the employment ban provision in
the Undertaking was not a consideration for his
availment of the SRP, and that if he did not avail of the
retirement program, he would have continued working
for Solidbank for at least 15 more years, earning more
than what he received under the SRP. He alleged that
he intended to go full time into the poultry business, but
after about two months, found out that, contrary to his
expectations, the business did not provide income
sufficient to support his family. Being the breadwinner,
he was then forced to look for a job, and considering his
training and experience as a former bank employee, the
job with Equitable was all he could find. He insisted that
he had remained faithful to Solidbank and would
continue to do so despite the case against him, the
attachment of his family home, and the resulting mental
anguish, torture and expense it has caused them. 19
In his Supplemental Opposition, Rivera stressed that,
being a former bank employee, it was the only kind of
work he knew. The ban was, in fact, practically absolute
since it applied to all financial institutions for one year
from February 28, 1995. He pointed out that he could not
work in any other company because he did not have the
qualifications, especially considering his age. Moreover,
after one year from February 28, 1995, he would no
longer have any marketable skill, because by then, it
would have been rendered obsolete by non-use and
rapid technological advances. He insisted that the ban
was not necessary to protect the interest of Solidbank,
as, in the first place, he had no access to any "secret"
information which, if revealed would be prejudicial to
Solidbank’s interest. In any case, he was not one to
reveal whatever knowledge or information he may have
acquired during his employment with said bank.20
In its Reply, Solidbank averred that the wisdom of
requiring the Undertaking from the 1995 SRP is purely a
management prerogative. It was not for Rivera to
question and decry the bank’s policy to protect itself from
unfair competition and disclosure of its trade secrets.
The substantial monetary windfall given the retiring
officers was meant to tide them over the one-year period
of hiatus, and did not prevent them from engaging in any
kind of business or bar them from being employed
except with competitor banks/financial institutions.21
On December 18, 1995, the trial court issued an Order of
Summary Judgment.22 The fallo of the decision reads:
WHEREFORE, SUMMARY JUDGMENT is hereby
rendered in favor of plaintiff and against defendant
ordering the latter to pay to plaintiff bank the amount of
NINE HUNDRED SIXTY-THREE THOUSAND SIX
HUNDRED NINETEEN AND 28/100 (P963,619.28)
PESOS, Philippine Currency, as of May 23, 1995, plus
legal interest at 12% per annum until fully paid, and the
costs of the suit.
FURTHER, NEVERTHELESS, both parties are hereby
encouraged as they are directed to meet again and sit
down to find out how they can finally end this rift and
litigation, all in the name of equity, for after all, defendant
had worked for the bank for some 18 years.23
The trial court declared that there was no genuine issue
as to a matter of fact in the case since Rivera voluntarily
executed the Release, Waiver and Quitclaim, and the
Undertaking. He had a choice not to retire, but opted to
do so under the SRP, and, in fact, received the benefits
under it.
According to the RTC, the prohibition incorporated in the
Undertaking was not unreasonable. To allow Rivera to
be excused from his undertakings in said deed and, at
the same time, benefit therefrom would be to allow him
to enrich himself at the expense of Solidbank. The RTC
ruled that Rivera had to return the P963,619.28 he
received from Solidbank, plus interest of 12% per annum
from May 23, 1998 until fully paid.
Aggrieved, Rivera appealed the ruling to the CA which
rendered judgment on June 14, 2002 partially granting
the appeal. The fallo of the decision reads:
WHEREFORE, the appeal is PARTIALLY GRANTED.
The decision appealed from is AFFIRMED with the
modification that the attachment and levy upon the family
home covered by TCT No. 51621 of the Register of
Deeds, Las Piñas, Metro Manila, is hereby SET ASIDE
and DISCHARGED.
SO ORDERED.24
The CA declared that there was no genuine issue
regarding any material fact except as to the amount of
damages. It ratiocinated that the agreement between
Rivera and Solidbank was the law between them, and
that the interpretation of the stipulations therein could not
be left upon the whims of Rivera. According to the CA,
Rivera never denied signing the Release, Waiver, and
Quitclaim, including the Undertaking regarding the
employment prohibition. He even admitted joining
Equitable as an employee within the proscribed one-year
period. The alleged defenses of Rivera, the CA declared,
could not prevail over the admissions in his
pleadings.1avvphil.net Moreover, Rivera’s justification
for taking the job with Equitable, "dire necessity," was
not an acceptable ground for annulling the Undertaking
since there were no earmarks of coercion, undue
influence, or fraud in its execution. Having executed the
said deed and thereafter receiving the benefits under the
SRP, he is deemed to have waived the right
to assail the same, hence, is estopped from insisting or
retaining the said amount of P963,619.28.
However, the CA ruled that the attachment made upon
Rivera’s family home was void, and, pursuant to the
mandate of Article 155, in relation to Article 153 of the
Family Code, must be discharged.
Hence, this recourse to the Court.
Petitioner avers that –
I.
THE COURT OF APPEALS ERRED IN UPHOLDING
THE PROPRIETY OF THE SUMMARY JUDGMENT
RENDERED BY THE TRIAL COURT CONSIDERING
THE EXISTENCE OF GENUINE ISSUES AS TO
MATERIAL FACTS WHICH CALL FOR THE
PRESENTATION OF EVIDENCE IN A TRIAL ON THE
MERITS.
II.
THE COURT OF APPEALS ERRED IN NOT
DECLARING THE ONE-YEAR EMPLOYMENT BAN
IMPOSED BY RESPONDENT SOLIDBANK UPON
HEREIN PETITIONER NULL AND VOID FOR BEING
UNREASONABLE AND OPPRESSIVE AND FOR
CONSTITUTING RESTRAINT OF TRADE WHICH
VIOLATES PUBLIC POLICY AS ENUNCIATED IN OUR
CONSTITUTION AND LAWS.
III.
THE COURT OF APPEALS ERRED IN AFFIRMING
THE TRIAL COURT’S DECISION ORDERING HEREIN
RESPONDENT TO PAY SOLIDBANK THE AMOUNT
OF P963,619.28 AS OF MAY 23, 1995, PLUS LEGAL
INTEREST OF 12% PER ANNUM UNTIL FULLY PAID.
IV.
MORE SPECIFICALLY, THE COURT OF APPEALS
ERRED IN AFFIRMING THE PORTION OF THE
SUMMARY JUDGMENT ORDERING PETITIONER TO
PAY SOLIDBANK LEGAL INTEREST OF 12% PER
ANNUM UNTIL FULLY PAID ON THE
AFOREMENTIONED SUM [OF] P963,619.28.25
The issues for resolution are: (1) whether the parties
raised a genuine issue in their pleadings, affidavits, and
documents, that is, whether the employment ban
incorporated in the Undertaking which petitioner
executed upon his retirement is unreasonable,
oppressive, hence, contrary to public policy; and (2)
whether petitioner is liable to respondent for the
restitution of P963,619.28 representing his retirement
benefits, and interest thereon at 12% per annum as of
May 23, 1995 until payment of the full amount.
On the first issue, petitioner claims that, based on the
pleadings of the parties, and the documents and
affidavits appended thereto, genuine issues as to
matters of fact were raised therein. He insists that the
resolution of the issue of whether the employment ban is
unreasonable requires the presentation of evidence on
the circumstances which led to respondent bank’s offer
of the SRP and ORP, and petitioner’s eventual
acceptance and signing of the Undertaking on March 1,
1995. There is likewise a need to adduce evidence on
whether the employment ban is necessary to protect
respondent’s interest, and whether it is an undue
restraint on petitioner’s constitutional right to earn a living
to support his family. He further insists that respondent is
burdened to prove that it sustained damage or injury by
reason of his alleged breach of the employment ban
since neither the Release, Waiver and Quitclaim, and
Undertaking he executed contain any provision that
respondent is automatically entitled to the restitution of
the P963,619.28. Petitioner points out that all the deeds
provide is that, in case of breach thereof, respondent is
entitled to protection before the appropriate courts of
law.
On the second issue, petitioner avers that the prohibition
incorporated in the Release, Waiver and Quitclaim
barring him as retiree from engaging directly or indirectly
in any unlawful activity and disclosing any information
concerning the business of respondent bank, as well as
the employment ban contained in the Undertaking he
executed, are oppressive, unreasonable, cruel and
inhuman because of its overbreath. He reiterates that it
is against public policy, an unreasonable restraint of
trade, because it prohibits him to work for one year in the
Philippines, ultimately preventing him from supporting his
family. He points out that a breadwinner in a family of
four minor daughters who are all studying, with a wife
who does not work, one would have a very difficult time
meeting the financial obligations even with a steady,
regular-paying job. He insists that the Undertaking
deprives him of the means to support his family, and
ultimately, his children’s chance for a good education
and future. He reiterates that the returns in his poultry
business fell short of his expectations, and unfortunately,
the business was totally destroyed by typhoon "Rosing"
in November 1995.
Petitioner further maintains that respondent’s
management prerogative does not give it a license to
entice its employees to retire at a very young age and
prohibit them from seeking employment in a so-called
competitor bank or financial institution, thus prevent
them from working and supporting their families
(considering that banking is the only kind of work they
know). Petitioner avers that "management’s prerogative
must be without abuse of discretion. A line must be
drawn between management prerogative regarding
business operations per se and those which affect the
rights of the employees. In treating its employees,
management should see to it that its employees are at
least properly informed of its decision or modes of
action."
On the last issue, petitioner alleges that
the P1,045,258.95 he received was his retirement
benefit which he earned after serving the bank for 18
years. It was not a mere gift or gratuity given by
respondent bank, without the latter giving up something
of value in return. On the contrary, respondent bank
received "valuable consideration," that is, petitioner quit
his job at the relatively young age of 45, thus enabling
respondent to effect its reorganization plan and forego
the salary, benefits, bonuses, and promotions he would
have received had he not retired early.
Petitioner avers that, under the Undertaking, respondent
would be entitled to a cause of action against him before
the appropriate courts of law if he had violated the
employment ban. He avers that respondent must prove
its entitlement to the P963,619.28. The Undertaking
contains no provision that he would have to return the
amount he received under the SRP; much less does it
provide that he would have to pay 12% interest per
annum on said amount. On the other hand, the Release,
Waiver and Quitclaim does not contain the provision
prohibiting him from being employed with any competitor
bank or financial institution within one year from
February 28, 1995. Petitioner insists that he acted in
good faith when he received his retirement benefits;
hence, he cannot be punished by being ordered to return
the sum of P963,619.28 which was given to him for and
in consideration of his early retirement.
Neither can petitioner be subjected to the penalty of
paying 12% interest per annum on his retirement pay
of P963,619.28 from May 23, 1995, as it is improper and
oppressive to him and his family. As of July 3, 2002, the
interest alone would amount to P822,609.67, thus
doubling the amount to be returned to respondent bank
under the decision of the RTC and the CA. The
imposition of interest has no basis because the Release,
Waiver and Quitclaim, and the Undertaking do not
provide for payment of interest. The deeds only state
that breach thereof would entitle respondent to bring an
action to seek damages, to include the return of the
amount that may have been paid to petitioner by virtue
thereof. On the other hand, any breach of the
Undertaking or the Release, Waiver and Quitclaim would
only entitle respondent to a cause of action before the
appropriate courts of law. Besides, the amount received
by petitioner was not a loan and, therefore, should not
earn interest pursuant to Article 1956 of the Civil Code.
Finally, petitioner insists that he acted in good faith in
seeking employment with another bank within one year
from February 28, 1995 because he needed to earn a
living to support his family and finance his children’s
education. Hence, the imposition of interest, which is a
penalty, is unwarranted.
By way of Comment on the petition, respondent avers
that the Undertaking is the law between it and petitioner.
As such, the latter could not assail the deed after
receiving the retirement benefit under the SRP. As
gleaned from the averments in his petition, petitioner
admitted that he executed the Undertaking after having
been informed of the nature and consequences of his
refusal to sign the same, i.e., he would not be able to
receive the retirement benefit under the SRP.
Respondent maintains that courts have no power to
relieve parties of obligations voluntarily entered into
simply because their contracts turned out to be
disastrous deeds. Citing the ruling of this Court in
Eastern Shipping Lines, Inc. v. Court of
Appeals,26 respondent avers that petitioner is obliged to
pay 12% per annum interest of the P963,619.28 from
judicial or extrajudicial demand.
In reply, petitioner asserts that respondent failed to prove
that it sustained damages, including the amount thereof,
and that neither the Release, Waiver and Quitclaim nor
the Undertaking obliged him to pay interest to
respondent.
The petition is meritorious.
Sections 1 and 3, Rule 34 of the Revised Rules of Civil
Procedure provide:
Section 1. Summary judgment for claimant. – A party
seeking to recover upon a claim, counterclaim, or cross-
claim or to obtain a declaratory relief may, at any time
after the pleading in answer thereto has been served,
move with supporting affidavits, depositions or
admissions for a summary judgment in his favor upon all
or any part thereof.
xxxx
Sec. 3. Motion and proceedings thereon. – The motion
shall be served at least ten (10) days before the time
specified for the hearing. The adverse party may serve
opposing affidavits, depositions, or admissions at least
three (3) days before the hearing. After the hearing, the
judgment sought shall be rendered forthwith if the
pleadings, supporting affidavits, depositions, and
admissions on file, show that, except as to the amount of
damages, there is no genuine issue as to any material
fact and that the moving party is entitled to a judgment
as a matter of law.
For a summary judgment to be proper, the movant must
establish two requisites: (a) there must be no genuine
issue as to any material fact, except for the amount of
damages; and (b) the party presenting the motion for
summary judgment must be entitled to a judgment as a
matter of law.27 Where, on the basis of the pleadings of a
moving party, including documents appended thereto, no
genuine issue as to a material fact exists, the burden to
produce a genuine issue shifts to the opposing party. If
the opposing party fails, the moving party is entitled to a
summary judgment.28
A genuine issue is an issue of fact which requires the
presentation of evidence as distinguished from an issue
which is a sham, fictitious, contrived or a false claim. The
trial court can determine a genuine issue on the basis of
the pleadings, admissions, documents, affidavits or
counteraffidavits submitted by the parties. When the
facts as pleaded appear uncontested or undisputed, then
there is no real or genuine issue or question as to any
fact and summary judgment called for. On the other
hand, where the facts pleaded by the parties are
disputed or contested, proceedings for a summary
judgment cannot take the place of a trial. 29 The evidence
on record must be viewed in light most favorable to the
party opposing the motion who must be given the benefit
of all favorable inferences as can reasonably be drawn
from the evidence.30
Courts must be critical of the papers presented by the
moving party and not of the papers/documents in
opposition thereto.31 Conclusory assertions are
insufficient to raise an issue of material fact. 32 A party
cannot create a genuine dispute of material fact through
mere speculations or compilation of differences. 33 He
may not create an issue of fact through bald assertions,
unsupported contentions and conclusory
statements.34 He must do more than rely upon
allegations but must come forward with specific facts in
support of a claim. Where the factual context makes his
claim implausible, he must come forward with more
persuasive evidence demonstrating a genuine issue for
trial.35
Where there are no disputed material facts, the
determination of whether a party breached a contract is
a question of law and is appropriate for summary
judgment.36 When interpreting an ambiguous contract
with extrinsic evidence, summary judgment is proper so
long as the extrinsic evidence presented to the court
supports only one of the conflicting
interpretations.37 Where reasonable men could differ as
to the contentions shown from the evidence, summary
judgment might be denied.
In United Rentals (North America), Inc. v. Keizer, 38 the
U.S. Circuit Court of Appeals resolved the issue of
whether a summary judgment is proper in a breach of
contract action involving the interpretation of such
contract, and ruled that:
[A] contract can be interpreted by the court on summary
judgment if (a) the contract’s terms are clear, or (b) the
evidence supports only one construction of the
controverted provision, notwithstanding some ambiguity.
x x x If the court finds no ambiguity, it should proceed to
interpret the contract – and it may do so at the summary
judgment stage. If, however, the court discerns an
ambiguity, the next step – involving an examination of
extrinsic evidence – becomes essential. x x x Summary
judgment may be appropriate even if ambiguity lurks as
long as the extrinsic evidence presented to the court
supports only one of the conflicting interpretations. 39
In this case, there is no dispute between the parties that,
in consideration for his availment of the SRP, petitioner
executed the Release, Waiver and Quitclaim, and the
Undertaking as supplement thereto, and that he received
retirement pay amounting to P963,619.28 from
respondent. On May 1, 1995, within the one-year ban
and without prior knowledge of respondent, petitioner
was employed by Equitable as Manager of its Credit
Investigation and Appraisal Division, Consumers’
Banking Group. Despite demands, petitioner failed to
return the P963,619.28 to respondent on the latter’s
allegation that he had breached the one-year ban by
accepting employment from Equitable, which according
to respondent was a competitor bank.
We agree with petitioner’s contention that the issue as to
whether the post-retirement competitive employment ban
incorporated in the Undertaking is against public policy is
a genuine issue of fact, requiring the parties to present
evidence to support their respective claims.
As gleaned from the records, petitioner made two
undertakings. The first is incorporated in the Release,
Waiver and Quitclaim that he signed, to wit:
4. I will not, at any time, in any manner whatsoever,
directly or indirectly engage in any unlawful activity
prejudicial to the interest of the BANK, its parent, affiliate
or subsidiary companies, their stockholders, officers,
directors, agents or employees, and their successors-in-
interest and will not disclose any information concerning
the business of the BANK, its manner or operation, its
plans, processes or data of any kind.40
The second undertaking is incorporated in the
Undertaking following petitioner’s execution of the
Release, Waiver and Quitclaim which reads:
4. That as a supplement to the Release and Quitclaim, I
executed in favor of Solidbank on FEBRUARY 28, 1995,
I hereby expressly undertake that I will not seek
employment with any competitor bank or financial
institution within one (1) year from February 28, 1995. 41
In the Release, Waiver and Quitclaim, petitioner
declared that respondent may bring "an action for
damages which may include, but not limited to the return
of whatever sums he may have received from
respondent under said deed if he breaks his undertaking
therein."42 On the other hand, petitioner declared in the
Undertaking that "any breach on his part of said
Undertaking or the terms and conditions of the Release,
Waiver and Quitclaim will entitle respondent to a cause
of action against [petitioner] for protection before the
appropriate courts of law."43
Article 1306 of the New Civil Code provides that the
contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order or public policy. The
freedom of contract is both a constitutional and statutory
right.44 A contract is the law between the parties and
courts have no choice but to enforce such contract as
long as it is not contrary to law, morals, good customs
and against public policy.
The well-entrenched doctrine is that the law does not
relieve a party from the effects of an unwise, foolish or
disastrous contract, entered into with full awareness of
what he was doing and entered into and carried out in
good faith. Such a contract will not be discarded even if
there was a mistake of law or fact. Courts have no
jurisdiction to look into the wisdom of the contract
entered into by and between the parties or to render a
decision different therefrom. They have no power to
relieve parties from obligation voluntarily assailed, simply
because their contracts turned out to be disastrous
deals.45
On the other hand, retirement plans, in light of the
constitutional mandate of affording full protection to
labor, must be liberally construed in favor of the
employee, it being the general rule that pension or
retirement plans formulated by the employer are to be
construed against it.46 Retirement benefits, after all, are
intended to help the employee enjoy the remaining years
of his life, releasing him from the burden of worrying for
his financial support, and are a form of reward for being
loyal to the employer.47
In Ferrazzini v. Gsell, 48 the Court defined public policy in
civil law countries and in the United States and the
Philippines:
By "public policy," as defined by the courts in the United
States and England, is intended that principle of the law
which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or
against the public good, which may be termed the "policy
of the law," or "public policy in relation to the
administration of the law." (Words & Phrases Judicially
Defined, vol. 6, p. 5813, and cases cited.) Public policy is
the principle under which freedom of contract or private
dealing is restricted by law for the good of the public.
(Id., Id.) In determining whether a contract is contrary to
public policy the nature of the subject matter determines
the source from which such question is to be solved.
(Hartford Fire Ins. Co. v. Chicago, M. & St. P. Ry. Co.,
62 Fed. 904, 906.)
The foregoing is sufficient to show that there is no
difference in principle between the public policy (orden
publico) in the two jurisdictions (the United States and
the Philippine Islands) as determined by the Constitution,
laws, and judicial decisions.49
The Court proceeded to define "trade" as follows:
x x x In the broader sense, it is any occupation or
business carried on for subsistence or profit. Anderson’s
Dictionary of Law gives the following definition:
"Generally equivalent to occupation, employment, or
business, whether manual or mercantile; any occupation,
employment or business carried on for profit, gain, or
livelihood, not in the liberal arts or in the learned
professions." In Abbott’s Law Dictionary, the word is
defined as "an occupation, employment or business
carried on for gain or profit." Among the definitions given
in the Encyclopaedic Dictionary is the following: "The
business which a person has learnt, and which he
carries on for subsistence or profit; occupation;
particularly employment, whether manual or mercantile,
as distinguished from the liberal arts or the learned
professions and agriculture." Bouvier limits the meaning
to commerce and traffic, and the handicraft of
mechanics. (In re Pinkney, 47 Kan., 89.) We are inclined
to adopt and apply the broader meaning given by the
lexicographers.50
In the present case, the trial court ruled that the
prohibition against petitioner accepting employment with
a competitor bank or financial institution within one year
from February 28, 1995 is not unreasonable. The
appellate court held that petitioner was estopped from
assailing the post-retirement competitive employment
ban because of his admission that he signed the
Undertaking and had already received benefits under the
SRP.
The rulings of the trial court and the appellate court are
incorrect.
There is no factual basis for the trial court’s ruling, for the
simple reason that it rendered summary judgment and
thereby foreclosed the presentation of evidence by the
parties to prove whether the restrictive covenant is
reasonable or not. Moreover, on the face of the
Undertaking, the post-retirement competitive
employment ban is unreasonable because it has no
geographical limits; respondent is barred from accepting
any kind of employment in any competitive bank within
the proscribed period. Although the period of one year
may appear reasonable, the matter of whether the
restriction is reasonable or unreasonable cannot be
ascertained with finality solely from the terms and
conditions of the Undertaking, or even in tandem with the
Release, Waiver and Quitclaim.
Undeniably, petitioner retired under the SRP and
received P963,619.28 from respondent. However,
petitioner is not proscribed, by waiver or estoppel, from
assailing the post-retirement competitive employment
ban since under Article 1409 of the New Civil Code,
those contracts whose cause, object or purpose is
contrary to law, morals, good customs, public order or
public policy are inexistent or void from the beginning.
Estoppel cannot give validity to an act that is prohibited
by law or one that is against public policy.51
Respondent, as employer, is burdened to establish that
a restrictive covenant barring an employee from
accepting a competitive employment after retirement or
resignation is not an unreasonable or oppressive, or in
undue or unreasonable restraint of trade, thus,
unenforceable for being repugnant to public policy. As
the Court stated in Ferrazzini v. Gsell, 52 cases involving
contracts in restraint of trade are to be judged according
to their circumstances, to wit:
x x x There are two principal grounds on which the
doctrine is founded that a contract in restraint of trade is
void as against public policy. One is, the injury to the
public by being deprived of the restricted party’s industry;
and the other is, the injury to the party himself by being
precluded from pursuing his occupation, and thus being
prevented from supporting himself and his family.
And in Gibbs vs. Consolidated Gas Co. of Baltimore,
supra, the court stated the rule thus:
Public welfare is first considered, and if it be not
involved, and the restraint upon one party is not greater
than protection to the other party requires, the contract
may be sustained. 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.53
In cases where an employee assails a contract
containing a provision prohibiting him or her from
accepting competitive employment as against public
policy, the employer has to adduce evidence to prove
that the restriction is reasonable and not greater than
necessary to protect the employer’s legitimate business
interests.54 The restraint may not be unduly harsh or
oppressive in curtailing the employee’s legitimate efforts
to earn a livelihood and must be reasonable in light of
sound public policy.55
Courts should carefully scrutinize all contracts limiting a
man’s natural right to follow any trade or profession
anywhere he pleases and in any lawful manner. But it is
just as important to protect the enjoyment of an
establishment in trade or profession, which its employer
has built up by his own honest application to every day
duty and the faithful performance of the tasks which
every day imposes upon the ordinary man. What one
creates by his own labor is his. Public policy does not
intend that another than the producer shall reap the fruits
of labor; rather, it gives to him who labors the right by
every legitimate means to protect the fruits of his labor
and secure the enjoyment of them to himself. 56 Freedom
to contract must not be unreasonably abridged. Neither
must the right to protect by reasonable restrictions that
which a man by industry, skill and good judgment has
built up, be denied.57
The Court reiterates that the determination of
reasonableness is made on the particular facts and
circumstances of each case.58 In Esmerson Electric Co.
v. Rogers,59 it was held that the question of
reasonableness of a restraint requires a thorough
consideration of surrounding circumstances, including
the subject matter of the contract, the purpose to be
served, the determination of the parties, the extent of the
restraint and the specialization of the business of the
employer. The court has to consider whether its
enforcement will be injurious to the public or cause
undue hardships to the employee, and whether the
restraint imposed is greater than necessary to protect
the employer. Thus, the court must have before it
evidence relating to the legitimate interests of the
employer which might be protected in terms of time,
space and the types of activity proscribed.60
Consideration must be given to the employee’s right to
earn a living and to his ability to determine with certainty
the area within which his employment ban is restituted. A
provision on territorial limitation is necessary to guide an
employee of what constitutes as violation of a restrictive
covenant and whether the geographic scope is co-
extensive with that in which the employer is doing
business. In considering a territorial restriction, the facts
and circumstances surrounding the case must be
considered.61
Thus, in determining whether the contract is reasonable
or not, the trial court should consider the following
factors: (a) whether the covenant protects a legitimate
business interest of the employer; (b) whether the
covenant creates an undue burden on the employee; (c)
whether the covenant is injurious to the public welfare;
(d) whether the time and territorial limitations contained
in the covenant are reasonable; and (e) whether the
restraint is reasonable from the standpoint of public
policy.62
Not to be ignored is the fact that the banking business is
so impressed with public interest where the trust and
interest of the public in general is of paramount
importance such that the appropriate standard of
diligence must be very high, if not the highest degree of
diligence.63
We are not impervious of the distinction between
restrictive covenants barring an employee to accept a
post-employment competitive employment or restraint on
trade in employment contracts and restraints on post-
retirement competitive employment in pension and
retirement plans either incorporated in employment
contracts or in collective bargaining agreements between
the employer and the union of employees, or separate
from said contracts or collective bargaining agreements
which provide that an employee who accepts post
retirement competitive employment will forfeit retirement
and other benefits or will be obliged to restitute the same
to the employer. The strong weight of authority is that
forfeitures for engaging in subsequent competitive
employment included in pension and retirement plans
are valid even though unrestricted in time or geography.
The raison d’etre is explained by the United States
Circuit Court of Appeals in Rochester Corporation v.
W.L. Rochester, Jr.:64
x x x The authorities, though, generally draw a clear and
obvious distinction between restraints on competitive
employment in employment contracts and in pension
plans. The strong weight of authority holds that
forfeitures for engaging in subsequent competitive
employment, included in pension retirement plans, are
valid, even though unrestricted in time or geography.
The reasoning behind this conclusion is that the
forfeiture, unlike the restraint included in the employment
contract, is not a prohibition on the employee’s engaging
in competitive work but is merely a denial of the right to
participate in the retirement plan if he does so engage. A
leading case on this point is Van Pelt v. Berefco, Inc.,
supra, 208 N.E.2d at p. 865, where, in passing on a
forfeiture provision similar to that here, the Court said:
"A restriction in the contract which does not preclude the
employee from engaging in competitive activity, but
simply provides for the loss of rights or privileges if he
does so is not in restraint of trade." (emphasis added)65
A post-retirement competitive employment restriction is
designed to protect the employer against competition by
former employees who may retire and obtain retirement
or pension benefits and, at the same time, engage in
competitive employment.66
We have reviewed the Undertaking which respondent
impelled petitioner to sign, and find that in case of failure
to comply with the promise not to accept competitive
employment within one year from February 28, 1995,
respondent will have a cause of action against petitioner
for "protection in the courts of law." The words "cause of
action for protection in the courts of law" are so broad
and comprehensive, that they may also include a cause
of action for prohibitory and mandatory injunction against
petitioner, specific performance plus damages, or a
damage suit (for actual, moral and/or exemplary
damages), all inclusive of the restitution of
the P963,619.28 which petitioner received from
respondent. The Undertaking and the Release, Waiver
and Quitclaim do not provide for the automatic forfeiture
of the benefits petitioner received under the SRP upon
his breach of said deeds. Thus, the post-retirement
competitive employment ban incorporated in the
Undertaking of respondent does not, on its face, appear
to be of the same class or genre as that contemplated in
Rochester.

It is settled that actual damages or compensatory

damages may be awarded for breach of contracts.
Actual damages are primarily intended to simply make
good or replace the loss covered by said breach. 67 They
cannot be presumed. Even if petitioner had admitted to
having breached the Undertaking, respondent must still
prove that it suffered damages and the amount
thereof.68 In determining the amount of actual damages,
the Court cannot rely on mere assertions, speculations,
conjectures or guesswork but must depend on
competent proof and on the best evidence obtainable
regarding the actual amount of losses. 69 The benefit to
be derived from a contract which one of the parties has
absolutely failed to perform is of necessity to some
extent a matter of speculation of the injured party.

On the assumption that the competitive employment ban

in the Undertaking is valid, petitioner is not automatically
entitled to return the P963,619.28 he received from
respondent. To reiterate, the terms of the Undertaking
clearly state that any breach by petitioner of his promise
would entitle respondent to a cause of action for
protection in the courts of law; as such, restitution of
the P963,619.28 will not follow as a matter of course.
Respondent is still burdened to prove its entitlement to
the aforesaid amount by producing the best evidence of
which its case is susceptible.70

IN LIGHT OF ALL THE FOREGOING, the petition is

GRANTED. The Decision of the Court of Appeals in CA-
G.R. CV No. 52235 is SET ASIDE. Let this case be
REMANDED to the Regional Trial Court of Manila for
further proceedings conformably with this decision of the
Court.

SO ORDERED.

G.R. No. 163512             February 28, 2007
DAISY B. TIU, Petitioner
vs.
PLATINUM PLANS PHIL., INC., Respondent.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision1 dated January
20, 2004 of the Court of Appeals in CA-G.R. CV No.
74972, and its Resolution2 dated May 4, 2004 denying
reconsideration. The Court of Appeals had affirmed the
decision3 dated February 28, 2002 of the Regional Trial
Court (RTC) of Pasig City, Branch 261, in an action for
damages, ordering petitioner to pay respondent
₱100,000 as liquidated damages.
The relevant facts are as follows:
Respondent Platinum Plans Philippines, Inc. is a
domestic corporation engaged in the pre-need industry.
From 1987 to 1989, petitioner Daisy B. Tiu was its
Division Marketing Director.
On January 1, 1993, respondent re-hired petitioner as
Senior Assistant Vice-President and Territorial
Operations Head in charge of its Hongkong and Asean
operations. The parties executed a contract of
employment valid for five years.4
On September 16, 1995, petitioner stopped reporting for
work. In November 1995, she became the Vice-
President for Sales of Professional Pension Plans, Inc.,
a corporation engaged also in the pre-need industry.
Consequently, respondent sued petitioner for damages
before the RTC of Pasig City, Branch 261. Respondent
alleged, among others, that petitioner’s employment with
Professional Pension Plans, Inc. violated the non-
involvement clause in her contract of employment, to wit:
8. NON INVOLVEMENT PROVISION – The EMPLOYEE
further undertakes that during his/her engagement with
EMPLOYER and in case of separation from the
Company, whether voluntary or for cause, he/she shall
not, for the next TWO (2) years thereafter, engage in or
be involved with any corporation, association or entity,
whether directly or indirectly, engaged in the same
business or belonging to the same pre-need industry as
the EMPLOYER. Any breach of the foregoing provision
shall render the EMPLOYEE liable to the EMPLOYER in
the amount of One Hundred Thousand Pesos
(P100,000.00) for and as liquidated damages.5
Respondent thus prayed for ₱100,000 as compensatory
damages; ₱200,000 as moral damages; ₱100,000 as
exemplary damages; and 25% of the total amount due
plus ₱1,000 per counsel’s court appearance, as
attorney’s fees.
Petitioner countered that the non-involvement clause
was unenforceable for being against public order or
public policy: First, the restraint imposed was much
greater than what was necessary to afford respondent a
fair and reasonable protection. Petitioner contended that
the transfer to a rival company was an accepted practice
in the pre-need industry. Since the products sold by the
companies were more or less the same, there was
nothing peculiar or unique to protect. Second,
respondent did not invest in petitioner’s training or
improvement. At the time petitioner was recruited, she
already possessed the knowledge and expertise
required in the pre-need industry and respondent
benefited tremendously from it. Third, a strict application
of the non-involvement clause would amount to a
deprivation of petitioner’s right to engage in the only
work she knew.
In upholding the validity of the non-involvement clause,
the trial court ruled that a contract in restraint of trade is
valid provided that there is a limitation upon either time
or place. In the case of the pre-need industry, the trial
court found the two-year restriction to be valid and
reasonable. The dispositive portion of the decision
reads:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff and against the defendant, ordering the latter
to pay the following:
1. the amount of One Hundred Thousand Pesos
(P100,000.00) for and as damages, for the
breach of the non-involvement provision (Item
No. 8) of the contract of employment;
2. costs of suit.
There being no sufficient evidence presented to sustain
the grant of attorney’s fees, the Court deems it proper
not to award any.
SO ORDERED.6
On appeal, the Court of Appeals affirmed the trial court’s
ruling. It reasoned that petitioner entered into the
contract on her own will and volition. Thus, she bound
herself to fulfill not only what was expressly stipulated in
the contract, but also all its consequences that were not
against good faith, usage, and law. The appellate court
also ruled that the stipulation prohibiting non-
employment for two years was valid and enforceable
considering the nature of respondent’s business.
Petitioner moved for reconsideration but was denied.
Hence, this appeal by certiorari where petitioner alleges
that the Court of Appeals erred when:
A.
… [IT SUSTAINED] THE VALIDITY OF THE NON-
INVOLVEMENT CLAUSE IN PETITIONER’S
CONTRACT CONSIDERING THAT THE PERIOD
FIXED THEREIN IS VOID FOR BEING OFFENSIVE TO
PUBLIC POLICY
B.
… [IT SUSTAINED] THE AWARD OF LIQUIDATED
DAMAGES CONSIDERING THAT IT BEING IN THE
NATURE OF A PENALTY THE SAME IS EXCESSIVE,
INIQUITOUS OR UNCONSCIONABLE7
Plainly stated, the core issue is whether the non-
involvement clause is valid.
Petitioner avers that the non-involvement clause is
offensive to public policy since the restraint imposed is
much greater than what is necessary to afford
respondent a fair and reasonable protection. She adds
that since the products sold in the pre-need industry are
more or less the same, the transfer to a rival company is
acceptable. Petitioner also points out that respondent did
not invest in her training or improvement. At the time she
joined respondent, she already had the knowledge and
expertise required in the pre-need industry. Finally,
petitioner argues that a strict application of the non-
involvement clause would deprive her of the right to
engage in the only work she knows.
Respondent counters that the validity of a non-
involvement clause has been sustained by the Supreme
Court in a long line of cases. It contends that the
inclusion of the two-year non-involvement clause in
petitioner’s contract of employment was reasonable and
needed since her job gave her access to the company’s
confidential marketing strategies. Respondent adds that
the non-involvement clause merely enjoined her from
engaging in pre-need business akin to respondent’s
within two years from petitioner’s separation from
respondent. She had not been prohibited from marketing
other service plans.
As early as 1916, we already had the occasion to
discuss the validity of a non-involvement clause. In
Ferrazzini v. Gsell,8 we said that such clause was
unreasonable restraint of trade and therefore against
public policy. In Ferrazzini, the employee was prohibited
from engaging in any business or occupation in the
Philippines for a period of five years after the termination
of his employment contract and must first get the written
permission of his employer if he were to do so. The
Court ruled that while the stipulation was indeed limited
as to time and space, it was not limited as to trade. Such
prohibition, in effect, forces an employee to leave the
Philippines to work should his employer refuse to give a
written permission.
In G. Martini, Ltd. v. Glaiserman, 9 we also declared a
similar stipulation as void for being an unreasonable
restraint of trade. There, the employee was prohibited
from engaging in any business similar to that of his
employer for a period of one year. Since the employee
was employed only in connection with the purchase and
export of abaca, among the many businesses of the
employer, the Court considered the restraint too broad
since it effectively prevented the employee from working
in any other business similar to his employer even if his
employment was limited only to one of its multifarious
business activities.
However, in Del Castillo v. Richmond, 10 we upheld a
similar stipulation as legal, reasonable, and not contrary
to public policy. In the said case, the employee was
restricted from opening, owning or having any
connection with any other drugstore within a radius of
four miles from the employer’s place of business during
the time the employer was operating his drugstore. We
said that a contract in restraint of trade is valid provided
there is a limitation upon either time or place and the
restraint upon one party is not greater than the protection
the other party requires.
Finally, in Consulta v. Court of Appeals,11 we considered
a non-involvement clause in accordance with Article
130612 of the Civil Code. While the complainant in that
case was an independent agent and not an employee,
she was prohibited for one year from engaging directly or
indirectly in activities of other companies that compete
with the business of her principal. We noted therein that
the restriction did not prohibit the agent from engaging in
any other business, or from being connected with any
other company, for as long as the business or company
did not compete with the principal’s business. Further,
the prohibition applied only for one year after the
termination of the agent’s contract and was therefore a
reasonable restriction designed to prevent acts
prejudicial to the employer.
Conformably then with the aforementioned
pronouncements, a non-involvement clause is not
necessarily void for being in restraint of trade as long as
there are reasonable limitations as to time, trade, and
place.
In this case, the non-involvement clause has a time limit:
two years from the time petitioner’s employment with
respondent ends. It is also limited as to trade, since it
only prohibits petitioner from engaging in any pre-need
business akin to respondent’s.1awphi1.net
More significantly, since petitioner was the Senior
Assistant Vice-President and Territorial Operations Head
in charge of respondent’s Hongkong and Asean
operations, she had been privy to confidential and highly
sensitive marketing strategies of respondent’s business.
To allow her to engage in a rival business soon after she
leaves would make respondent’s trade secrets
vulnerable especially in a highly competitive marketing
environment. In sum, we find the non-involvement clause
not contrary to public welfare and not greater than is
necessary to afford a fair and reasonable protection to
respondent.13
In any event, Article 1306 of the Civil Code provides that
parties to a contract may establish such stipulations,
clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy.
Article 115914 of the same Code also provides that
obligations arising from contracts have the force of law
between the contracting parties and should be complied
with in good faith. Courts cannot stipulate for the parties
nor amend their agreement where the same does not
contravene law, morals, good customs, public order or
public policy, for to do so would be to alter the real intent
of the parties, and would run contrary to the function of
the courts to give force and effect thereto. 15 Not being
contrary to public policy, the non-involvement clause,
which petitioner and respondent freely agreed upon, has
the force of law between them, and thus, should be
complied with in good faith.16
Thus, as held by the trial court and the Court of Appeals,
petitioner is bound to pay respondent ₱100,000 as
liquidated damages. While we have equitably reduced
liquidated damages in certain cases, 17 we cannot do so
in this case, since it appears that even from the start,
petitioner had not shown the least intention to fulfill the
non-involvement clause in good faith.
WHEREFORE, the petition is DENIED for lack of merit.
The Decision dated January 20, 2004, and the
Resolution dated May 4, 2004, of the Court of Appeals in
CA-G.R. CV No. 74972, are AFFIRMED. Costs against
petitioner.
SO ORDERED.
G.R. No. 10712. August 10, 1916.
ANSELMO FERRAZZINI, Plaintiff-Appellee, v.
CARLOS GSELL, Defendant-Appellant.
William A. Kincaid and Thomas L. Hartigan
for Appellant.
Ramon Sotelo for Appellee.
SYLLABUS
1. MASTER AND SERVANT; DISCHARGE OF
EMPLOYEE FOR CAUSE. — The defendant discharged
the plaintiff without giving the "written advice of six
months in advance" provided by the contract. The
plaintiff at times had charge of important departments of
a factory employing four hundred workers, and at other
times he was foreman. He often violated the express
order of the defendant not to leave the factory during
working hours to drink. He sought to create
discontentment among the employees by suggesting
that the defendant treated them suspiciously and
unfairly; Held: That the defendant was authorized to take
into consideration the plaintiff’s whole course of conduct
in determining at the time whether he should discharge
the plaintiff, and that the discharge was justified.
2. PLEADING; AMENDING ANSWER AT TRIAL;
VERBAL AMENDMENT MAY BE ACCEPTED BY THE
COURT. — Where the defendant makes a verbal
petition to amend his answer and the proffered
counterclaim was accepted by the court; where counsel
for the plaintiff noted his exception to the court’s ruling
and signified his willingness to proceed with the trial; and
where testimony in support of the counterclaim was duly
introduced, it was manifest error for the court to hold that
"the so-called amendment must be disregarded in the
consideration of this case."cralaw virtua1aw library
3. MASTER AND SERVANT; CONTRACTS IN
RESTRAINT OF TRADE; VOID AS AGAINST PUBLIC
POLICY. — A contract was entered into wherein the
plaintiff agreed to pay to the defendant P10,000 as
liquidated damages for each and every breach of a
clause of the contract which provided that the plaintiff
should not enter into any enterprise whatever in the
Philippine Islands except by special written permission of
the defendant, during the period of employment and for a
term of five years from and after the termination of the
employment without regard to the cause of such
termination; Held: That the contract was clearly one on
undue and unreasonable restraint and therefore void as
against public policy.
4. WORDS AND PHRASE; "PUBLIC POLICY," ORDEN
PUBLICO," "TRADE." — The phrase "public policy" is
the English equivalent of "orden publico" in article 1255
of the Civil Code. There is no difference in principle
between "public policy" in the United States and the
Philippine Islands as determined by the Constitution,
laws, and judicial decisions. The broader definition of
"trade" includes agreements and contracts within the
provisions of article 543 of the Penal Code.
DECISION
TRENT, J. :
This action was brought to recover damages for an
alleged wrongful discharge of the plaintiff, who had been
employed by the defendant for an indefinite time to work
]
in the latter’s industrial enterprises in the city of Manila.
The defendant admitted that he discharged the plaintiff
without giving him the "written advice of six months in
advance" as provided in the contract, but alleged that the
discharge was lawful on account of absence,
unfaithfulness, and disobedience of orders. The
defendant sought affirmative relief for a further alleged
breach of the contract by the plaintiff after his discharge.
From a judgment in favor of the plaintiff the defendant
appealed and now urges that the trial court erred (1) in
finding that the plaintiff’s discharge was not justified and
(2) in declining to consider the counterclaim and enter
judgment in accordance therewith.
1. The plaintiff engaged his "skilled service" to the
defendant for the entire existence "of this agreement" at
a fixed monthly salary and agree "to devote his entire
time and efforts to the best of his knowledge and skill
exclusively in carrying out in the most satisfactory
manner possible all of the work which may be entrusted
to him during the existence of this contract and
undertaking, furthermore, to exercise a strict discretion in
all matters pertaining to the work so entrusted to him and
the whole thereof, . . . ."cralaw virtua1aw library
The relation of master and servant, which was created
by the contract, cast certain duties and obligations upon
the parties, which they were bound to discharge and
fulfill; the foremost, on the part of the master, were those
of furnishing the servant with a reasonably safe place to
work, to pay him for his services, and not to discharge
him until the expiration of six months after notice; and
the foremost, on the part of the servant, were those of
loyalty, faithfulness, and obedience to all reasonable
orders not inconsistent with the contract. Consequently,
if the plaintiff’s discharge were without just cause, it was
in violation of the contract of service and he is entitled to
recover. Otherwise, he is not, because the breach on his
part must necessarily have occurred before his
discharge. Hence, the defendant must prove justification
for his act for the reason that it was in contravention of
the six-months clause in the contract. In order to justify
the dismissal of the plaintiff, the defendant must show
that the plaintiff was guilty of conduct which can be
construed to be a breach of some express or implied
provisions in the contract of service. If it has been show
that the plaintiff’s conduct was inconsistent with the due
and faithful performance of his duties, his discharge was
justified. In view of the fact that the determination of
these questions necessarily requires a careful review of
the evidence and in view of the further fact that we
cannot accept the trial court’s findings upon these
important points, we think it advisable to set forth briefly
the substance of all of the material testimony submitted
by both parties.
"ANSELMO FERRAZZINI: On Friday evening at supper
there was some talk about Mr. Gsell measuring the
goods for the umbrellas. Then I said that if Mr. Gsell
does this, it is my idea that he has no confidence in his
employees. I was talking to everybody in general. There
were present Mr. Specht, Mr. Alberto Ferrazzini and Mr.
Inhelder. Mr. Specht was an employee of the defendant
at the time. I do not remember telling Specht that he was
not receiving sufficient salary. The only thing I remember
distinctly is that I said ’ that Mr. Gsell does not seem to
have any confidence in us.’
"Q. Is it not a fact that shortly, or sometime before your
discharge, you had been in the habit of leaving the
factory for considerable periods in the morning to go
outside for the purpose of taking a drink? — A. As long
as I have been with the firm of Carlos Gsell I was
allowed in the morning ten or fifteen minutes during the
hot season to absent myself to have a drink of beer or
whisky and soda; and the same in the afternoon.
"Q. Is it not a fact that Mr. Bender, the manager of the
factory, had repeatedly spoken to you, or had several
times spoken to you about your habit of leaving the
factory for the purpose of taking a drink, and had
prohibited you from doing it, forbade you do it? — A. He
merely told me not to do it such an ostentatious manner.
Mr. Bender told me that Mr. Gsell did not like to see me
go out in the forenoon and afternoon; I told him that Mr.
Gsell himself had told me on one occasion that if I had to
have a drink I could go out for it and it would be all right;
this was in the presence of Mr. Landvatter.
"Q. Then, am I to understand that when you went out to
take a drink it was because you must have one? — A.
Yes, of course.
"Q. Is it not a fact that Mr. Bender had conversations
with you, at least once in the month of March, regarding
this matter? — A. I don’t remember it.
"Q. Were not you frequently spoken to about it? — A.
No, sir.
"CARLOS GSELL: The first reason that led to his
dismissal was because several months, through April
and May, he had the habit of going out in the morning
and afternoon for having a drink; not one but many
drinks, because he was out sometimes an hour and an
hour and a half; and as I have a factory with 400 working
people I have to see that certain discipline is maintained
in the factory. I gave instructions to the manager, Mr.
Bender, to see that this habit would be dropped, but he
(the plaintiff) would not do so. Now what made me
pleased to dismiss him was because on a certain night
at the mess where he ate with other employees of my
house, he provoked one of my employees, a new arrival,
and said that all the control I had in the factory was one
of mistrust; he said I was suspicious; that I measured the
cloth in my office for the umbrellas and that he would not
support such treatment from my side; at the same time
he said to this new man, got under the contracts was not
sufficient to live on and that he should not continue to
work for me. I asked the plaintiff about the conversation
which he had at the mess and he did not deny it. He said
that he did not mean it to be so bad. The factory was
prejudice on account of the plaintiff absenting himself,
because sometimes I wanted to speak to him, tell him
something, and he was not there. I had to wait for him,
and then when he came back it was noon perhaps, and
it could not be done. I gave instructions to Mr. Bender,
the manager, to stop the plaintiff’s going out without
permission. I did not exactly authorized the plaintiff to go
out to drink. I always wanted to stop this. The plaintiff
was the older of those who gone out to drink. The
plaintiff held a responsible position. In the first place it
was his duty to make repairs to the machinery in all the
departments; later he was entrusted with the various
departments — not at the same time; once he had the
bleaching department; once he had to help out in the
umbrella factory; and then he was in charge of the hat
factory. The plaintiff had other employees under him.
"CARL BENDER: I came to the Philippine Islands in the
middle of March as the defendant’s manager. I saw that
the plaintiff was frequently out of the factory. I told him
that he was not allowed to leave the factory without my
permission. He kept up the habit of going out in the
morning and afternoon for an hour or more and I told him
the second time. He told me that he had permission from
the former manager to go out and take a drink. I again
told him he must not go out without my permission.
Notwithstanding these orders, he was out one whole
Saturday afternoon and I reported him to the defendant.
The plaintiff went out without permission some thirty-five
times after I ordered him not to do so. I had the other
employees search for him, but they could not find him.
He would go out four or five times a week.
"HERMAN INHELDER: I was present at the mess in
June when that conversation took place. We were
discussing several things, including the business and the
way the umbrella factory was run. The plaintiff spoke in a
manner that indicated that Mr. Gsell did not trust Mr.
Specht. I did not want to have this kind of a conversation
going on there and I told the plaintiff he had better leave
the house.
"Q. Did the plaintiff say anything with respect to the
amount of salary, which Mr. Specht was receiving? — If
so what? — A. I won’t pretend that Mr. Ferrazzini said it
that night, about the salary, but he said it on several
occasions before, and-well- what he did say was that Mr.
Specht ought not to work so much for such a small
salary.
"ALBERTO FERRAZZINI: I was present when the
conversation took place in the mess one evening of June
last. A discussion arose about Mr. Gsell exercising
control over the merchandise or goods. Then the plaintiff
said that this seemed to show that Gsell had no
confidence in Mr. Specht. Mr. Specht was in charge of
the umbrella department. The conversation was then
carried on in German and I could not understand what
they said.
"HANS SPECHT: I am foreman of the umbrella factory of
the defendant. During the conversation at the mess the
plaintiff told me that the defendant had no confidence in
me. I protested and then the plaintiff tried to prove it by
stating that the defendant was investigating things in the
umbrella factory, verifying the goods for the umbrellas.
The plaintiff said nothing about my salary at that time,
but on a previous occasion he told me that I was foolish
at my age to work for such a small salary. I reported the
matter to the defendant."cralaw virtua1aw library
The plaintiff admits that he stated to those present at the
mess that if the defendant measured the cloth for the
umbrellas," It is my idea that he has no confidence in his
employees." Mr. Specht, the foreman of the umbrella
factory, says that "During the conversation at the mess,
the plaintiff told me that the defendant had no confidence
in me." The plaintiff testified that he did not remember
telling Specht that he (Specht) was not receiving
sufficient salary, while Inhelder testified positively that
the plaintiff stated on several occasions that Specht also
testified positively that "he (the plaintiff) told me that I
was foolish at my age to work for such a small salary."
As to the plaintiff’s absenting himself during working
hours for the purpose of drinking, we have, on the one
hand, the plaintiff’s testimony to the effect that as long as
he had been with the firm of Gsell he had been "allowed
in the morning ten or fifteen minutes during the hot
season to absent himself to have a drink of beer or
whiskey, and the same in the afternoon," and that "the
manager merely told me not to do it in such an
ostentatious manner." While, on the other hand, we have
the testimony of the defendant wherein he states that he
instructed his manager, Mr. Bender, to direct the plaintiff
to discontinue his habit of drinking during working hours,
and the testimony of the manager (Bender) to the effect
that he expressly directed the plaintiff not to go out
without permission. But the plaintiff violated his express
order some thirty-five times, keeping up habit of going
out (for the purpose of drinking) in the morning and
afternoon for an hour or more at a time. All of the
foregoing show a course of conduct on the part of the
plaintiff inconsistent with the due and faithful
performance of his duties as an employee of the
defendant. He sought to create a feeling of unrest
among the employees by including them to believe that
the defendant had no confidence in them and that at
least one employee was not receiving sufficient salary. If
it were true that the defendant was measuring the cloth
for the umbrellas, he had a right to do so and this fact
would not justify the plaintiff in saying that the defendant
had no confidence in the employees. Likewise, if it be
true that the defendant or his manager did at first
authorize the plaintiff to absent himself during working
hours for the purpose of drinking, the defendant had a
perfect right to withdraw this permission at anytime he
saw fit to do so. In fact, the defendant, through his
manager, expressly directed the plaintiff to cease leaving
the factory for that purpose, but the plaintiff violated this
order numerous times. The plaintiff, being at times
foreman and at other times in charge of important
departments of the factory wherein some four hundred
employees were at work, it cannot be questioned but
that the defendant not only had a right to prohibit
drinking during working hours, but it was his duty to do
so for his own interests and the safety of his other
employees. But it is intimated in the record that the
defendant discharged the plaintiff on account of the
conversation at the mess. If it be true that the defendant
gave this as his sole reason for so acting at the time he
discharged the plaintiff, yet he would not be prevented
from setting up at the trial the fact that the plaintiff
continued to disobey his orders with reference to
absenting himself for the purpose of drinking. The
defendant was, at the time he discharged the plaintiff,
authorized to take into consideration the latter’s whole
course of conduct in determining whether the contract of
employment should be terminated. We are, therefore,
convinced that real error was committed by the trial court
in its findings of fact and that the record fully justifies a
reversal of such findings, and a declaration to the effect
that the defendant was justified in terminating the
contract of employment.
2. At the opening of the trial in the court below and
before any testimony had been taken, counsel for the
defendant stated:jgc:chanrobles.com.ph
"I desire to amend my answer at this time by the addition
of the following paragraph:jgc:chanrobles.com.ph
"The defendant further alleges for a second and further
defense to the complaint herein, and for a counterclaim
thereto, that the plaintiff has engaged in business in the
Philippine Islands since leaving the service of the
defendant and without the defendant’s request or
consent, in violation of his contract with the defendant;
wherefore, the defendant demands judgment against the
plaintiff for the sum of ten thousand pesos.
"By the COURT: If the plaintiff does not claim any time to
answer the new pleadings, the court will grant the
amendment as asked for.
"By Mr. SOTELO: I note my exception to the admission
of a counterclaim at this time; I have no time to prepare
myself to meet it.
"By the COURT: The court has stated that if counsel for
the plaintiff requires time to answer or meet this
counterclaim he will be granted time to do so.
"By Mr. SOTELO: The attorney for the plaintiff answers
to the court that much time has been lost already since
the filing of the complaint and the trial, and he wants to
go to trial in order that the plaintiff may get what he is
justly entitled to."cralaw virtua1aw library
Testimony in support of the counterclaim was duly
introduced before the close of the trial. In the final
decision the court said:jgc:chanrobles.com.ph
"The court is of the opinion that the defendant’s so-called
amendment to his answer, dictated by counsel to the
official stenographer, and not ’upon motion filed in court,
and after notice to the adverse party and an opportunity
to be heard,’ must be disregarded in the consideration of
this case."cralaw virtua1aw library
This is manifest error. The verbal petition was expressly
granted and the proffered amendment accepted by the
court. Plaintiff’s counsel noted his exception to this ruling
and signified his willingness to proceed with the trial. All
thereafter considered the answer as thus amended. We
must, therefore, dispose of the defendant’s counterclaim
upon the merits.
That portion of the contract upon which the defendant’s
counterclaim is based reads as
follows:jgc:chanrobles.com.ph
"That during the term of this contract, and for the period
of five years after the termination of the employment of
the said party of the second part, whether this contract
continue in force for the period of one, two, three or more
years, or be sooner terminated, the said party of the
second part shall not engage or interest himself in any
business enterprises similar to or in competition with
those conducted, maintained or operated by the said
party of the first part in the Philippines, and shall not
assist, aid or encourage any such enterprise by the
furnishing of information, advice or suggestions of any
kind, and shall not enter into the employ of any
enterprises in the Philippine Islands, whatever, save and
except after obtaining special written permission therefor
from the said party of the first part. It is further stipulated
and agreed that the said party of the second part is
hereby obligated and bound to pay unto the party of the
first part the sum of ten thousand pesos, Philippine
currency, (P10,000) as liquidated damages for each and
every breach of the present clause of this contract,
whether such breach occurred during the employment of
the said party of the second part or at any time during
the period of five years from and after the termination of
said employment, and without regard to the cause of the
termination of said employment."cralaw virtua1aw library
The plaintiff admits that he entered the employment of
Mr. Whalen in the Philippine Islands as a foreman on
some construction work for a cement factory within a few
days after his discharge and without the consent, either
written or verbal, of the defendant. This work was
entirely different and disassociated from that engaged in
by the defendant Gsell, yet this act of the plaintiff was a
technical violation of the above-quoted provisions of the
contract wherein he expressly agreed and obligated
himself "not to enter into the employment of any
enterprise in the Philippine Islands, whatever, save and
except after obtaining special written permission
therefor" from the defendant. The question now arises
whether these provisions of the contract are valid and
binding upon the plaintiff.
Counsel for the defendant in their printed brief
say:jgc:chanrobles.com.ph
"There is no doubt as to the validity of the contract, Gsell
v. Koch (16 Phil. Rep., 1) has settled that question in a
similar contract and that decision has never been
criticized, but is cited as recently as 1914 with approval.
(Lambert v. Fox, 26 Phil. Rep., 588)."cralaw virtua1aw
library
An examination of these cases, as well as others in
point, is necessary in order to determine whether or not
the questions has been settled, and if we find that it is
still an open one in this jurisdiction, we must proceed
with the case. In pursuing this inquiry it is well to bear in
mind (1) that the case under consideration has been
tried in both courts exclusively upon the theory that the
local law alone is applicable to the contract and (2) that
the business in which the plaintiff became engaged was
entirely different and distinct from that conducted,
maintained or operated by the defendant.
In Gsell v. Koch, supra, a demurrer was sustained upon
the ground that the allegations in the complaint did not
constitute a cause of action, and after defendant
declined to amend, judgment was entered dismissing the
action. On appeal this order was reversed and the record
returned with instructions to direct the defendant to
answer. The paragraph in the written contract, upon
which the judgment of this court rests,
reads:jgc:chanrobles.com.ph
"Third. The said Pedro Koch binds himself to pay in cash
to Mr. Gsell the sum of ten thousand pesos if, after
leaving the firm of C. Gsell, and against the latter’s will,
he shall engage directly or indirectly in carrying on any
business in which the said Carlos Gsell is at present
engaged, or within the two and one-half years fixed for
the duration of the present contract in these Islands,
either as an employee or member of a firm or company,
or on his own account; and he furthermore binds himself
to pay in cash to Mr. Gsell an equal sum of ten thousand
pesos for each violation of any secret of the business
entrusted him."cralaw virtua1aw library
The plaintiff in that case was engaged solely and
exclusively in the manufacture of umbrellas, matches,
and hats. The secrets process for making straw hats had
costs the plaintiff some P20,000 and the defendant
Koch, after having entered having learned the secret
process employed by the plaintiff, left the plaintiff’s
service and engaged in the manufacture of straw hats in
violation of the above-quoted provisions of the contract,
using the trade secrets which he had thus learned. The
provisions in the contract against the engaging in the
manufacturing of straw hats in the Philippine Islands
were held to be reasonably necessary for the protection
of the plaintiff and not oppressive in so far as the
defendant was concerned. In the case under
consideration the contract goes far beyond that which
formed the basis of the action in the case just cited. Here
the plaintiff Ferrazzini was prohibited from engaging in
any business or occupation whatever in the Philippine
Islands for a period of five years after the termination of
this contract of employment without special written
permission from the defendant. This plaintiff became
engaged, as we have said, as a foreman in a cement
factory, while the defendant in the other case became
engaged in identically the same business which his
employer was carrying on, that is, the manufacture of
straw hats. Consequently, the reasons which support the
validity of the contract in the one case are not applicable
to the other. The same is true of the case of For now v.
Hoffmeister (6 Phil. Rep., 33), wherein the decision rests
solely upon the question whether the contracts was in
violation of the contract labor laws. No other questions
was submitted or decided in that case. Therefore,
whether the clause under consideration is valid and
enforcible is still an open question.
Articles 1091 and 1255 of the Civil Code
read:jgc:chanrobles.com.ph
"ART. 1091. Obligations arising from contracts have
legal force between the contracting parties, and must be
fulfilled in accordance with their stipulations."cralaw
virtua1aw library
"ART. 1255. The contracting parties may take the
agreement and establish the clauses and conditions
which they may deem advisable, provided they are not in
contravention of law, morals, or public order."cralaw
virtua1aw library
Hence, the policy of the law requires that the freedom of
persons to enter into contracts shall not be lightly
interfered with, but if a contract be not founded upon a
legal consideration (causa) or if it conflicts with the
morals of the times or contravenes some established
interest of society, the courts will not aid in its
enforcement.
Passing over the questions whether "consideration" of
the American law and the "causa" of the civil law are
equivalent and whether there was adequate or legal
consideration or "causa" on which the contract was
founded, we will limit our further inquiry to the
determination of the question whether that part of the
contract under consideration is against public policy
(orden publico).
Manresa, Vol. 8, p. 606, says:jgc:chanrobles.com.ph
"Public policy (orden publico) — which does not here
signify the material keeping of public order — represents
in the law of persons the public, social and legal interest,
that which is permanent and essential of the institutions,
that which, even if favoring an individual in whom the
right lies, cannot be left to his own will. It is an idea
which, in cases of the waiver of any right, is manifested
with clearness and force. Thus the jurisprudence on the
subject of mortgages contains an interesting declarations
on this point in a resolution of January 24, 1898, wherein
it was held that: ’The power of the husband to give
marital permission cannot be validly conferred upon any
attorney-in-fact, as the legislator has willed that, for
reasons of the interest of society and of family
government and discipline it should be vested only in the
husband, being personal to him in the highest sense and
therefore not capable of being transmitted."cralaw
virtua1aw library
Mucius Scaevola’s (vol. 20, p., 505) conclusion is
that:jgc:chanrobles.com.ph
"Agreements in violation of orden publico must be
considered as those which conflict with law, whether
properly, strictly and wholly a public law (derecho) or
whether a law of the person, but law which in certain
respects affects the interest of society."cralaw virtua1aw
library
Articles 1893 and 1895 of Merrick’s Revised Civil Code
of Louisiana, a civil law state,
read:jgc:chanrobles.com.ph
"ART. 1893. An obligation without a cause, or with a
false or unlawful cause, can have no effect."cralaw
virtua1aw library
ART. 1895. Illegal or immoral cause. — The cause is
unlawful, when it is forbidden by law, when it is contra
bonos mores or to public order."cralaw virtua1aw library
In Fabacher v. Bryant & Mather (46 La. Ann., 820), the
plaintiff and one Thomas Egan were engaged in the
business of hauling cotton for the presses in the city of
New Orleans. Both of these men were members of the
Draymen’s Association which had adopted a tariff of
charges and undertook to distribute among the members
the hauling of the various presses. The owners of the
presses were not consulted either as to the prices to be
paid or as to those who should do the hauling. They
could not obtain draymen outside of the union. They had
to engage those designated by the union. The
defendants employed Egan on the latter’s representation
that he had been so designated. Later the defendants
employed the plaintiff upon the same representations.
Finally, after investigation, the defendants declined to
permit the plaintiff to do the work and carried out their
contract with Egan. The plaintiff thereupon instituted this
action for damages based upon the breach of his
contract by the defendants. On the setting aside of a
verdict in favor of the plaintiff by the trial court and an
appeal having been duly entered, the Supreme Court
affirmed the judgment, directing the dismissal of the
case, holding that the plaintiff’s contract was plainly
repugnant to public policy, citing articles 1893 and 1895
supra. (India Bagging Association v. Kock, 14 La. Ann.,
168; Gravier v. Carraby, 17 La., 118, 142, and cases
collected in 2d Hennen’s Digest, p. 1007, No. 1)
In India Bagging Association v. Kock, supra, an
association of eight commercial firms in New Orleans,
holders of 7,410 bales themselves for the term of three
months not to sell any bagging, not offer to sell any,
except with the consent of the majority of them
expressed at a meeting; under the penalty of ten dollars
for every bale sold or offered for sale. This action was
brought against one of the members by the manager of
the association for the recovery of a penalty of $7,400 for
having sold 740 bales of bagging in contravention of the
articles of the association. From a judgment in favor of
the association the defendant member appealed and the
Supreme Court reversed the judgment
saying:jgc:chanrobles.com.ph
"The agreement between the parties was palpably and
unequivocably a combination in restrain of trade, and to
enhance the price in the market of an article of primary
necessity to cotton planters. Such combinations are
contrary to public order, and cannot be enforced in a
court of justice."cralaw virtua1aw library
By "public policy," as defined by the courts in the United
States and England, is intended that principle of the law
which hods that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or
against the public good, which may be termed the "policy
of the law." (Words & Phrases Judicially Defined, vol. 6,
p. 5813, and cases cited.) Public policy is the principle
under which freedom of contract or private dealing is
restricted by law for the good of the public. (Id., Id.) In
determining whether a contract is contrary to public
policy the nature of the subject matter determines the
source from which such question is to be solved.
(Hartford Fire Ins. Co. v. Chicago, M. & St. P. Ry. Co.,
62 Fed., 904, 906.)
The foregoing is sufficient to show that there is no
difference in principle between the public policy (orden
publico) in the two jurisdiction (the United States and the
Philippine Islands) as determined by the Constitution,
laws, and judicial decisions.
In the United States it is well settled that contracts in
undue or unreasonable restraint of trade are
unenforcible because they are repugnant to the
established public policy in that country. Such contracts
are illegal in the sense that the law will not enforce them.
The Supreme Court of the United States, in Oregon
Steam Navigation Co. v. Winsor (20 Wall., 64), quoted
with approval in Gibbs v. Consolidated Gas Co. of
Baltimore (130 U.S., 396), said:jgc:chanrobles.com.ph
"Cases must be judged according to their circumstances,
and can only be rightly judged when the reason and
grounds of the rule are carefully considered. There are
two principal grounds on which the doctrine is founded
that a contract in restraint of trade is void as against
public policy. One is, the injury to the public by being
deprived of the restricted party’s industry; and the other
is, the injury to the party himself by being precluded from
pursuing his occupation, and thus being prevented from
supporting himself and his family."cralaw virtua1aw
library
And in Gibbs v. Consolidated Gas Co. of Baltimore,
supra, the court stated the rule
thus:jgc:chanrobles.com.ph
"Public welfare is first considered, and if it be not
involved, and the restraint upon one party is not greater
than protection to the other party requires, the contract
may be sustained. 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."cralaw virtua1aw library
Chapter 5, title 13, book 2, of our Penal Code makes it a
crime for a person to solicit any gift or promises as a
consideration for agreeing to refrain from taking part in
any public auction, or attempting to cause bidders to stay
away from such auction by means of threats, gifts,
promises or any other artifice, with intent to affect the
price of the thing auctioned (Art, 542), or to combine for
the purpose of lowering the conditions of labor (Art. 543),
or by spreading false rumors, or by making use of any
other artifice, succeeds in altering the prices which would
naturally be obtained in free competition for
merchandise, stocks, public and private securities, or
any other thing which may be the object of trade and
commerce (Art. 544). And Act No. 98, as amended, of
the Philippine Commission likewise makes it a crime for
any person or corporation, engaged as a common
carrier, to subject any particular person, firm, company,
corporation, or locality, or any particular kind of traffic to
any undue or unreasonable prejudice or discrimination.
To this extent the Legislature has expressly covered the
subject and left to the courts to determine in each case
whether any other particular agreement or contract is
contrary to public policy.

It needs no argument to show that an agreement or

contract entered into for the purpose of accomplishing
any of the prohibited acts mentioned in the above cited
provisions of the Penal Code or in Act No. 98 would be
unenforcible as being in violation of positive law. Those
falling within the provisions of articles 542 of the Penal
Code and Act no. 98 would clearly be agreements or
contracts in undue or unreasonable restraint of trade.
The meaning given to the word "trade" would determine
the question whether those coming within the provisions
of article 543 would or would not be the same. If the
commercial meaning of the word should govern, and in
this sense it has reference to the business of selling or
exchanging some tangible substance or commodity for
money, or the business of dealing by way of sale in
commodities, it would appear that such would not be
contracts in restrain of trade. This may be the most
common significance of the word "trade," but it is not the
only one, nor the most comprehensive meaning in which
the word is properly used. In the broader sense, it is any
occupation or business carried on for subsistence or
profit. Anderson’s Dictionary of Law gives the following
definition: "Generally equivalent to occupation,
employment, or business, whether manual or mercantile;
any occupation, employment or business carried on for
profit, gain, or livelihood, not in the liberal arts in the
learned professions." In Abbott’s Law Dictionary the
word is defined as "an occupation, employment or
business given in the Encyclopaedic Dictionary is the
following: "The business which a persons has learnt, and
which he carries on for subsistence or profit; occupation;
particularly employment, whether manual or mercantile,
as distinguished from the liberal arts or the learned
professions and agriculture." Bouvier limits the meaning
to commerce and traffic and the handcraft of mechanics.
(In re Pinkney, 47 Kan., 89.) We are inclined to adopt
and apply the broader meaning given by the
lexicographers.

The contract under consideration, tested by the law,

rules and principles above the set forth, is clearly one in
undue or unreasonable restraint of trade and therefore
against public policy. It is limited as to time and space
but not as to trade. It is not necessary for the protection
of the defendant, as this is provided for in another part of
the clause. It would force the plaintiff to leave the
Philippine Islands in order to obtain a livelihood in case
the defendant declined to give him the written permission
to work elsewhere in this country.

The foregoing are our reasons upon which the short

decision and order for judgment, heretofore filed, were
based.
 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
charge of the prescription 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
G.R. No. L-21127             February 9, 1924 employed by any other drugstore
situated within a radius of our miles from
ALFONSO DEL CASTILLO, plaintiff-appellant, the district of Legaspi, municipality and
vs. Province of Albay, while the said
SHANNON RICHMOND, defendant-appellee. Shannon Richmond or his heirs may
own or have open a drugstore, or have
F.R. Feria for appellant. an interest in any other one within the
Manly, Goddard and Lockwood for appellee. 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
JOHNSON, J.: 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.