WILLIAM OLLENDORFF, PLAINTIFF AND APPELLEE, VS. IRA ABRAHAMSON, DEFENDANT AND APPELLANT.

This is an appeal by defendant from a judgment of the Court of First Instance
of Manila by which he was enjoined for a term of five years, from September 10,
1915, from engaging in the Philippine Islands in any business similar to or
competitive with that of plaintiff.

The record discloses that plaintiff is and for a long time past has been
engaged in the city of Manila and elsewhere in the Philippine Islands in the
business of manufacturing ladies’ embroidered underwear for export. Plaintiff
imports the material from which this underwear is made and adopts decorative
designs which are embroidered upon it by Filipino needle workers from patterns
selected and supplied by him. Most of the embroidery work is done in the homes
of the workers. The embroidered material is then returned to plaintiff’s factory
in Manila where it is made into finished garments and prepared for export. The
embroiderers employed by plaintiff are under contract to work for plaintiff
exclusively. Some fifteen thousand home workers and eight hundred factory
workers are engaged in this work for plaintiff, and some two and a half million
pesos are invested in his business.

On September 10, 1915, plaintiff and defendant entered into a contract in the
following terms:

“Contract of agreement made and entered into this date by and between William
Ollendorff, of Manila, Philippine Islands, party of the first part, and Ira
Abrahamson, of Manila, Philippine Islands, party of the second part:

“The party of the first part hereby agrees to employ the party of the second
part, and the party of the second part hereby obligates and binds himself to
work for the party of the first part for a term of two years from date
commencing from the sixth day of September, one thousand nine hundred and
fifteen and ending on the fifth day of September, one thousand nine hundred
seventeen, at a salary of fifty pesos (P50) per week payable at the end of each
week.

“The party of the second part hereby obligates and binds himself to devote
his entire time, attention, energies and industry to the promotion and the
furtherance of the business and interests of the party of the first part and to
perform during the term of this contract such duties as may be assigned to him
by the party of the first part, and failure by said party of the second part to
comply with these conditions to the satisfaction of the party of the first part
shall entitle the party of the first part to forthwith terminate this contract
without notice and to discharge and dismiss the said party of the second part
from the employ of the party of the first part.

“It is mutually understood and agreed by the parties hereto that this
contract, upon its termination, may be extended for a like, a longer or a
shorter period by the mutual consent of both contracting parties.

“The said party of the second part hereby further binds and obligates
himself, his heirs, successors and assigns, that he will not enter into or
engage himself directly or indirectly, nor permit any other person under his
control to enter in or engage in a similar or competitive business to that of
the said party of the first part anywhere within the Philippine Islands for a
period of five years from this date.”

Under the terms of this, agreement defendant entered the employ of plaintiff
and worked for him until April, 1916, when defendant, on account of ill health,
left plaintiff’s employ and went to the United States. While in plaintiffs
employ defendant had access to all parts of plaintiff’s establishment, and had
full opportunity to acquaint himself with plaintiff’s business methods and
business connections. The duties performed by him were such as to make it
necessary that he should have this knowledge of plaintiff’s business. Defendant
had a general knowledge of the Philippine embroidery business before his
employment by plaintiff, having been engaged in similar work for several
years.

Some months after his departure for the United States, defendant returned to
Manila as the manager of the Philippine Underwear Company, a corporation. This
corporation does not maintain a factory in the Philippine Islands, but sends
material and embroidery designs from New York to its local representative here
who employs Filipino needle workers to embroider the designs and make up the
garments in their homes. The only difference between plaintiff’s business and
that of the firm by which the defendant is employed, is the method of doing the
finishing work— the manufacture of the embroidered material into finished
garments. Defendant admits that both firms turn out the same class of goods and
that they are exported to the same market. It also clearly appears from the
evidence that defendant has employed to work for his firm some of the same
workers employed by the plaintiff.

Shortly after defendant’s return to Manila and the commencement by him of the
discharge of the duties of his position as local manager of the Philippine
Embroidery Company, plaintiff commenced this action, the principal purpose of
which is to prevent, by injunction, any further breach of that part of
defendant’s contract of employment by plaintiff, by which he agreed that he
would not “enter into or engage himself directly or indirectly * * * in a
similar or competitive business to that of (plaintiff) anywhere within the
Philippine Islands for a period of five years * * *” from the date of the
agreement. The lower court granted a preliminary injunction, and upon trial the
injunction was made perpetual.

Defendant, as appellant, argues that plaintiff failed to substantiate the
averments of his complaint to the effect that the business in which the
defendant is employed is competitive with that of plaintiff. The court below
found from the evidence that the business was “very similar.” We have examined
the evidence and are of the opinion that the business in which defendant is
engaged is not only “very similar” to that of plaintiff, but that it is
conducted in open competition with that business within the meaning of the
contract in question. Defendant himself expressly admitted, on
cross-examination, that the firm by which he is now employed “puts out the same
class of goods” as that which plaintiff is engaged in producing. When two
concerns operate in the same field, produce the same class of goods and dispose
of them in the same market, their businesses are of necessity competitive.
Defendant having engaged in the Philippine Islands in a business directly
competitive with that of plaintiff, within five years from the date of his
contract of employment by plaintiff, under the terms of which he expressly
agreed that he would refrain from doing that very thing, his conduct constitutes
a breach of that agreement.

Defendant argues that even assuming that there has been a breach of the
agreement, the judgment of the court below is nevertheless erroneous, contending
that (1) the contract is void for lack of mutuality; (2) that the contract is
void as constituting an unreasonable restraint of trade; (3) that plaintiff has
failed to show that he has suffered any estimable pecuniary damage; and (4) that
even assuming that such damage has been caused, the injury is not of such a
character as to warrant the court in restraining by injunction its
continuance.

The contention that the contract is void for lack of mutuality is based upon
that part of the agreement which authorizes plaintiff to discharge the defendant
before the expiration of the stipulated term, should defendant fail to comply
with its conditions to plaintiff’s satisfaction. It is argued that by this
contract it was sought to impose upon defendant the absolute obligation of
rendering service, while reserving to plaintiff the right to rescind it at will.
We are of the opinion that this question is largely academic. It is admitted
that defendant left plaintiff’s employ at his own request before the expiration
of the stipulated term of the contract. Had plaintiff sought to discharge
defendant without just cause, before the expiration of the term of the
employment, it might have been a serious question whether he could lawfully do
so, notwithstanding the terms in which the contract was drawn. (Civil Code, art.
1256.) But even assuming this particular clause of the contract to be invalid,
this would not necessarily affect the rest of the agreement. The inclusion in an
agreement of one or more pacts which are invalid does not of necessity
invalidate the whole contract.

We are of the opinion that the contract was not void as constituting an
unreasonable restraint of trade. We have been cited to no statutory expression
of the legislative will to which such an agreement is directly obnoxious. The
rule in this jurisdiction is that the obligations created by contracts have the
force of law between the contracting parties and must be enforced in
accordance with their tenor. (Civil Code, art. 1091.) The only limitation upon
the freedom of contractual agreement is that the pacts established shall not be
contrary to “law, morals or public order.” (Civil Code, art. 1255.) The industry
of counsel has failed to discover any direct expression of the legislative will
which prohibits such a contract as that before us. It certainly is not contrary
to any recognized moral precept, and it therefore only remains to consider
whether it is contrary to “public order.” This term, as correctly stated by
Manresa (Commentaries, vol. 8, p. 606) “does not mean, as here used, the actual
keeping of the public peace, but signifies the public weal * * * that which is
permanent and essential in institutions * * *.” It is the equivalent, as here
used and as defined by Manresa, of the term “public policy” as used in the law
of the United States. Public policy has been defined as being that principle
under which freedom of contract or private dealing is restricted for the good of
the community. (People’s Bank vs. Dalton, 2 Okla., 476.) It is upon
this theory that contracts between private individuals which result in an
unreasonable restraint of trade have frequently been declared void by the
American courts. The same principle being recognized by article 1255 of our
Civil Code, the courts of these Islands are vested with like authority.

In the nature of things, it is imposible to frame a general rule by which to
determine in advance the precise point at which the right of freedom of contract
must yield to the superior interest of the community in keeping trade and
commerce free from unreasonable restrictions. Originally the English courts
adopted the view that any agreement which imposed restrictions upon a man’s
right to exercise his trade or calling was void as against public policy. (Cyc.
vol. 9, p. 525.) In the course of time this opinion was abandoned and the
American and English courts adopted the doctrine that where the restraint was
unlimited as to both time and space it was void, but that agreements limited as
to time but unlimited as to space, or limited as to space but unlimited as to
time were valid. In recent years there has been a tendency on the part of the
courts of England and America to discard these fixed rules and to decide each
case according to its peculiar circumstances, and make the validity of the
restraint depend upon its reasonableness. If the restraint is no greater than is
reasonably necessary for the protection of the party in whose favor it is
imposed it is upheld, but if it goes beyond this it is declared void. This is
the principle followed in such cases by the Supreme Court of the United States.
In the case of Gibbs vs. Consolidated Gas Co. of Baltimore (130 U. S.,
396) the court said:

“The decision in Mitchel vs. Reynolds (1 P. Wms., 181 [Smith’s
Leading Cases, Vol. 1, Pt. II, 508]), is the foundation of the rule in relation
to the invalidity of contracts in restraint of trade; but as it was made under a
condition of things, and a state of society, different from those which now
prevail, the rule laid down is not regarded as inflexible, and has been
considerably modified. 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. (Rousillon
vs. Rousillon, L. R. 14 Ch. Div., 351; Leather Cloth Co. vs.
Lorsont, L. R. 9 Eq., 345.)”

Following this opinion, we adopt the modern rule that the validity of
restraints upon trade or employment is to be determined by the intrinsic
reasonableness of the restriction in each case, rather than by any fixed rule,
and that such restrictions may be upheld when not contrary to the public welfare
and not greater than is necessary to afford a fair and reasonable protection to
the party in whose favor it is imposed.

Examining the contract here in question from this standpoint, it does not
seem to us to be obnoxious to the rule of reasonableness. While such a
restraint, if imposed as a condition of the employment of a day laborer, would
at once be rejected as merely arbitrary and wholly unnecessary to the protection
of the employer, it does not seem so with respect to an employee whose duties
are such as of necessity to give him an insight into the general scope and
details of his employer’s business. A business enterprise may and often does
depend for its success upon the owner’s relations with other dealers, his skill
in establishing favorable connections, his methods of buying and selling— a
multitude of details, none vital if considered alone, but which in the aggregate
constitute the sum total of the advantages which are the result of the
experience or individual aptitude and ability of the man or men by whom the
business has been built up. Failure or success may depend upon the possession of
these intangible but all-important assets, and it is natural that their
possessor should seek to keep them from falling into the hands of his
competitors. It is with this object in view that such restrictions as that now
under consideration are written into contracts of employment. Their purpose is
the protection of the employer, and if they do not go beyond what is reasonably
necessary to effectuate this purpose they should be upheld. We are of the
opinion, and so hold, that in the light of the established facts the restraint
imposed upon defendant by his contract is not unreasonable. As was well said in
the case of Underwood vs. Barker (68 Law J. Ch., 201). “If there is one
thing more than another which is essential to the trade and commerce of this
country, it is the inviolability of contracts deliberately entered into; and to
allow a person of mature age, and not imposed upon, to enter into a contract, to
obtain the benefit of.it, and then to repudiate it and the obligation which he
has undertaken, is prima facie, at all events, contrary to the interests of any
and every country * * *. The public policy which allows a person to obtain
employment on certain terms understood by and agreed to by him, and to repudiate
his contract, conflicts with, and must, to avail the defendant, for some
sufficient reason, prevail over, the manifest public policy, which, as a rule
holds him to his bond * * *.”

Having held that the contract is valid, we pass to a consideration of
defendant’s objections to its enforcement by injunction.

It is contended that plaintiff has not proved that he has suffered any
estimable pecuniary damage by reason of defendant’s breach of the contract, and
that for that reason his action must fail. It is further contended that in no
event is it proper to enforce such a contract as this by injunction, because it
has not been alleged and proved that the continuance of the acts complained of
will cause plaintiff “irreparable damage.” These objections can conveniently be
considerated together.

The obligation imposed upon defendant by the particular clause of his
contract now under consideration is negative in character. Unless defendant
voluntarily complies with his undertaking there is no way by which the contract
can be enforced except by the injunctive power of judicial process. Such
negative obligations have long been enforced by the courts in this manner. As
stated by High in his well known work on Injunctions (vol. 2, pp. 877-878):

“The remedy by injunction to prevent the violation of negative agreements, or
contracts not to do a particular thing, is closely akin to the remedy by way of
specific performance of agreements of an affirmative nature. In both cases the
object sought is substantially one and the same, and by enjoining the violation
of a negative agreement the court of equity in effect decrees its specific
performance. (Lumley vs. Wagner, 1 DeGex, M. & G., 604.)”

Where by the terms of a contract imposing a positive obligation the obligor
is entitled to a specific performance, it will not avail the defendant to show
that plaintiff will suffer nor pecuniary damage if the contract is not
performed. Upon like reason, when the undertaking is negative in character and
defendant is violating the obligation imposed upon him the court may interfere
without requiring proof of actual damage. (High on Injunctions, par. 1135,
citing Dickenson vs. Grand Junction Canal Co., 15 Beav., 270.)

The admitted fact that plaintiff has failed to establish proof of pecuniary
damage by reason of the breach of the contract by defendant by the acts
committed prior to the issuance of the preliminary injunction is, of course, a
bar to any money judgment for damages for the breach of the contract, but will
not justify us in permitting defendant to continue to break his
contract over plaintiff’s objection. The injury is a continuous one. The fact
that the court may not be able to give damages for that part of the breach of
the contract which had already taken place when its aid was invoked is no reason
why it should countenance a continuance of such disregard of plaintiff’s
rights.

With respect to the contention that an injunction may only be granted to
prevent irreparable injury, the answer is that any continuing breach of a valid
negative covenant is irreparable by the ordinary process of courts of law. As
stated by High, (vol. 2, p. 906) injunctive relief is granted in cases like this
“upon the ground that the parties cannot be placed in statu quo, and
that damages at law can afford no adequate compensation, the injury being a
continuous one irreparable by the ordinary process of courts of
law.”

In the case of Gilchrist vs. Cuddy (29 Phil. Rep., 542), at page
552, this court said, citing with approval the case of Wahle vs.
Reinbach (76 111., 322) :

“By ‘irreparable injury’ is not meant such injury as is beyond the
possibility of repair, or beyond possible compensation in damages, nor
necessarily great injury or great damage, but that species of injury, whether
great or small, that ought not to be submitted to on the one hand or inflicted
on the other; and, because it is so large on the one hand, or so small on the
other, is of such constant and frequent recurrence that no fair or
reasonable redress can be had therefor in a court of law.”

This definition was quoted with approval by the Supreme Court of the United
States in the case of Donovan vs. Pennsylvania Co., (199 U. S., 279),
in which the injury complained of was continuous in its nature.

It is true, as held in the case of Liongson vs. Martinez (36 Phil. Rep., 948)
that “an injunction should never issue when an action for damages would
adequately compensate the injuries caused” but it frequently happens that the
acts of the defendant, while constituting a very substantial invasion of
plaintiff’s rights are of such a character that the damages which result
therefrom “cannot be measured by any certain pecuniary standard.” (Eau Claire
Water Co. vs. City of Eau Claire, 127 Wis., 154.) The Civil Code (art.
1908) casts upon real estate owners liability in damages for the emission, upon
their premises, of “excessive smoke, which may be noxious to person or
property.” The injury eaused by such a nuisance might bring about a depreciation
in the value of adjoining properties, but there is no “certain pecuniary
standard” by which such damages can be measured, and in that sense the
threatened injury is “irreparable” and may appropriately be restrained by
injunction.

“* * * If the nuisance js a continuing one, invading substantial rights of
the complainant in such a manner that he would thereby lose such rights entirely
but for the assistance of a court of equity he will be entitled to an injunction
upon a proper showing, notwithstanding the fact that he might recover some
damages in an action at law.” (Tise vs. Whitaker-Harvey Co., 144 N. C,
507.)

The injury done the business of a merchant by illegal or unfair competition
is exceedingly difficult to measure. A diminution of the volume of a business
may be due to so many different causes that it is often impossible to
demonstrate that it has in fact been caused by the illegal competition of the
defendant. This is frequently the case in suit for the infringement of trademark
rights, in which the courts may enjoin the continued use of the infringing mark,
although unable to assess damages for the past injury.

The judgment of the trial court is affirmed with costs. So ordered.

Arellano, C. J., Torres, Johnson, Street, and Avanceña,
JJ., concur.

Malcolm, J., concurs in the result.