Tortuitous interference, A1314 Civil Code

1. Concept

Article 1314. Any third person who induces another to violate his contract shall be liable for damages to the other contracting party. (n)

1) Tortious interference refers “to a situation where a third person induces a party to renege on or violate [their] undertaking under a contract.” “Induce” here means “a person causes another to choose one course of conduct by persuasion or intimidation.” In forbidding tortious interference, the law aims to respect the property rights of contracting parties by providing a cause of action ex delicto based on an “unlawful interference by one person of the enjoyment by the other of [their] private property.” (GMA Network, Inc. v. Cruz-Valdes, G.R. No. 205498, May 10, 2021, Per Leonen, J.)

2) Under Article 1314 of the New Civil Code, however, any third person who induces another to violate his contract shall be liable for damages to the other contracting party. The tort recognized in that provision is known as interference with contractual relations. The interference is penalized because it violates the property right of a party in a contract to reap the benefits that should result therefrom. (Ferro Chemicals, Inc. v. Garcia, G.R. Nos. 168134, 168183, 168196, October 5, 2016, Per Perez, J.)

a. Elements

1) Elements of tortious interference:

(1) existence of a valid contract;

(2) knowledge on the part of the third person of the existence of contract; and

(3) interference of the third person is without legal justification or excuse. (So Ping Bun v. CA, G.R. No. 120554, September 21, 1999, Per Quisumbing, J.)

1) Existence of a valid contract

GMA Network, Inc. v. Cruz-Valdes, G.R. No. 205498, May 10, 2021, Per Leonen, J.:

• The first element is lacking here. When the supposed interference took place, petitioner had already asked respondent Cruz-Valdes to go on terminal leave, required her to surrender company properties, cut off her access to her company email, and replaced her with other talents on her shows. By doing so, it prevented her from complying with her obligations under the Talent Agreement; it unilaterally terminated the contract.

• The second element is present. Respondent Cruz-Valdes admits having met and informed respondent ABS-CBN’s President Garcia of the Talent Agreement before she resigned from petitioner.

• On the last element, So Ping Bun requires that the third person’s interference is without any legal justification or excuse. “It is sufficient [justification] if the impetus of [their] conduct lies in a proper business interest rather than in wrongful motives.” As long as a proper economic or financial interest exists, the third person cannot be held liable for tortious interference. Respondent ABS-CBN has shown this.

• For one, it had been in need of a news executive who could train employees and supervise its news department. Respondent Cruz-Valdes, a media veteran but was only employed as a production unit manager by petitioner, had been a good candidate. Says respondent ABS-CBN, engaging Cruz-Valdes as its Vice President for News was necessary to improve its level of competence.

• Moreover, respondent ABS-CBN hired respondent Cruz-Valdes as a news executive, and not as a talent. It needed Cruz-Valdes for a completely different position performing different tasks. Thus, the Talent Agreement between her and petitioner was of no consequence to ABS-CBN’s decision to hire her as the Vice President for News. This would not have affected her work as petitioner’s talent.

• As the lower courts found, respondent ABS-CBN’s reasons cannot be considered illegal or malicious. There is no proof that its sole motive when it hired respondent Cruz-Valdes was to cause petitioner harm.

2) Knowledge on the part of the third person of the existence of contract

1) A duty which the law of torts is concerned with is respect for the property of others, and a cause of action ex delicto may be predicated upon an unlawful interference by one person of the enjoyment by the other of his private property.This may pertain to a situation where a third person induces a party to renege on or violate his undertaking under a contract. (So Ping Bun v. CA, G.R. No. 120554, September 21, 1999, Per Quisumbing, J.)

Ferro Chemicals, Inc. v. Garcia, G.R. Nos. 168134, 168183, 168196, October 5, 2016, Per Perez, J.:

• A perusal of the. allegations proffered against Rolando Navarro would show that none of his conduct prior or even subsequent to the execution of the subject deed, which was primarily done in furtherance of his duties as corporate secretary, constitutes tortious interference. To imply that by preparing a draft of a contract, signing as instrumental witness of the deed and recording of transfer of shares on the corporate books, Rolando Navarro can now be held liable for tortious interference, is incredulous. Nothing from his acts as found by the trial court, which were clearly carried out within the bounds of his office devoid of malice and bad faith, would suggest involvement in the sinister design to deprive Ferro Chemicals of its property right over the disputed shares. As the Corporate Secretary of Chemical Industries, Rolando Navarro is under obligation to record in the stock and transfer book any and all alienation involving the shares of stocks of the corporation as mandated by Section 74 of the Corporation Code.

• Clearly, the transfer of the certificates of stocks covering the subject shares in favor of Ferro Chemicals effected on the strength of a valid deed of sale cannot be taken as an actionable tortious conduct, whether such action is viewed in isolation or in connection with conduct of his co-defendants.

Excellent Essentials International Corporation v. Extra Excel International Philippines, Inc., G.R. No. 192797, April 18, 2018, Per Martires, J.:

• Prior to the revocation of its exclusive distributorship, Excel International had an existing contract with Bright Vision wherein they agreed to set up a corporation to exclusively distribute E. Excel products within the Philippines. This corporation, eventually, turned out to be Excel Philippines who was given the irrevocable and exclusive right to distribute, market, and/or sell. Under its agreement with Bright Vision, Excel Philippines’ exclusive distributorship right was irrevocable and may only be modified, transferred, or terminated upon the mutual consent of both parties. This agreement was effective from 22 May 1995 until 21 May 2005.

• The relationship between Excel International and Excel Philippines took an unexpected turn when Stewart, acting as Excel International’s president, unilaterally revoked Excel Philippines’ right and conferred it to Excellent Essentials. Although Stewart’s actions were later considered unlawful by the Utah Court, whose opinion was adopted by both the RTC, Branch 138 and the CA, Excellent Essentials was able to set up shop and disrupt Excel Philippines’ distribution of E. Excel products in the Philippines.

• At this point, Excel International had already breached its contractual obligations by unilaterally revoking Excel Philippines’ exclusive distributorship even if it was prohibited from doing so under the 22 May 1995 agreement. Stewart could not have done what she did during her temporary control over Excel International because, under clause 8.5 of the agreement, any change in the management of Excel International shall not affect the validity and continuity of the rights and obligations of both parties. In other words, Stewart, as Excel International’s interim president, was bound by the company’s grant of exclusive distributorship to Excel Philippines and the conditions that came with it.

• Having established the first element of tortuous interference, we now have to determine if Excellent Essentials had knowledge of Excel Philippines’ exclusive right. On this score, we note that the exclusive distributorship right was granted to Excellent Essentials before it existed.³⁵ This circumstance suggests that even before Excellent Essentials was organized, its incorporators had the preconceived plan to maneuver around Excel Philippines. Worse, after going over the records, there is evidence showing that Excellent Essentials’ incorporators were officers of and/ or affiliated with Excel Philippines. In fact, these incorporators remained at work with Excel Philippines during this time and started to pirate its supervisors, employees, and agents to join Excellent Essentials’ multi-level marketing system.

• Under these circumstances, we can conclude that those behind Excellent_ Essentials not only had knowledge that Excel International had the obligation to honor Excel Philippines’ exclusive right, but also conspired with Stewart to undermine Excel Philippines. 

• On the last element, therefore, we cannot ascribe to Excellent Essentials’ claim that it was not guilty of malice or bad faith.

• In Yu v. CA, we ruled that the right to perform an exclusive distributorship agreement and to reap the profits resulting from such performance are proprietary rights which a party may protect. In that case, the former dealer of the same goods purchased the merchandise from the manufacturer in England though a trading firm in West Germany and sold these in the Philippines. We held that the rights granted to the petitioner under the exclusive distributorship agreement may not be diminished nor rendered illusory by the expedient act of utilising or interposing a person or firm to obtain goods for which the exclusive distributorship was conceptualized, at the expense of the sole authorized distributor.

• In the case before us, we observe the same unjust conduct exhibited by Excellent Essentials tantamount to tortuous interference.

• To sustain a case for tortuous interference, the defendant must have acted with malice or must have been driven by purely impure reasons to injure plaintiff; otherwise stated, his act of interference cannot be justified. We further explained that ·the word induce refers to situations where a person causes another to choose one course of conduct by persuasion or intimidation.

3) Interference of the third person is without legal justification or excuse

1) [A] third person cannot commit tortious interference with a contract when a legitimate reason exists behind their conduct. (GMA Network, Inc. v. Cruz-Valdes, G.R. No. 205498, May 10, 2021, Per Leonen, J.)

2) Authorities debate on whether interference may be justified where the defendant acts for the sole purpose of furthering his own financial or economic interest. One view is that, as a general rule, justification for interfering with the business relations of another exists where the actor’s motive is to benefit himself. Such justification does not exist where his sole motive is to cause harm to the other. Added to this, some authorities believe that it is not necessary that the interferer’s interest outweigh that of the party whose rights are invaded, and that an individual acts under an economic interest that is substantial, not merely de minimis, such that wrongful and malicious motives are negatived, for he acts in self-protection. Moreover justification for protecting one’s financial position should not be made to depend on a comparison of his economic interest in the subject matter with that of others. It is sufficient if the impetus of his conduct lies in a proper business interest rather than in wrongful motives. (So Ping Bun v. CA, G.R. No. 120554, September 21, 1999, Per Quisumbing, J.)

So Ping Bun v. CA, G.R. No. 120554, September 21, 1999, Per Quisumbing, J.:

• In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok, entered into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI). Subjects of four (4) lease contracts were premises located at Nos. 930, 930-Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas to store its textiles. the contracts each had a one-year term. They provided that should the lessee continue to occupy the premises after the term, the lease shall be on a month-to-month basis.

• When the contracts expired, the parties did not renew the contracts, but Tek Hua continued to occupy the premises. in 1976, Tek Hua Trading Co. was dissolved. Later, the original members of Tek Hua Trading Co. including Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent corporation.

• So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek Giok’s grandson, petitioner So Ping Bun, occupied the warehouse for his own textile business, Trendsetter Marketing.

• On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Enterprises, informing the latter of the 25% increase in rent effective September 1, 1989. the rent increase was later on reduced to 20% effective January 1, 1990, upon other lessees’ demand. Again on December 1, 1990, the lessor implemented a 30% rent increase. Enclosed in these letters were new lease contracts for signing. DCCSI warned that failure of the lessee to accomplish the contracts shall be deemed as lack of interest on the lessee’s part, and agreement to the termination of the lease. Private respondents did not answer any of these letters. Still, the lease contracts were not rescinded.

• On March 1, 1991, private respondent Tiong sent a letter [to vacate].

• Petitioner refused to vacate. on March 4, 1992, petitioner requested formal contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun claimed that after the death of his grandfather, So Pek Giok, he had been occupying the premises for his textile business and religiously paid rent. DCCSI acceded to petitioner’s request. the lease contracts in favor of Trendsetter were executed.

• In the case before us, petitioner’s Trendsetter Marketing asked DCCSI to execute lease contracts in its favor, and as a result petitioner deprived respondent corporation of the latter’s property right. Clearly, and as correctly viewed by the appellate court, the three elements of tort interference above-mentioned are present in the instant case.

• As early as Gilchrist vs. Cuddy, we held that where there was no malice in the interference of a contract, and the impulse behind one’s conduct lies in a proper business interest rather than in wrongful motives, a party cannot be a malicious interferer. Where the alleged interferer is financially interested, and such interest motivates his conduct, it cannot be said that he is an officious or malicious intermeddler.

• In the instant case, it is clear that petitioner So Ping Bun prevailed upon DCCSI to lease the warehouse to his enterprise at the expense of respondent corporation. Though petitioner took interest in the property of respondent corporation and benefited from it, nothing on record imputes deliberate wrongful motives or malice on him.

• Sec. 1314 of the Civil Code categorically provides also that, “Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.” Petitioner argues that damage is an essential element of tort interference, and since the trial court and the appellate court ruled that private respondents were not entitled to actual, moral or exemplary damages, it follows that he ought to be absolved of any liability, including attorney’s fees.

• While we do not encourage tort interferers seeking their economic interest to intrude into existing contracts at the expense of others, however, we find that the conduct herein complained of did not transcend the limits forbidding an obligatory award for damages in the absence of any malice. the business desire is there to make some gain to the detriment of the contracting parties. Lack of malice, however, precludes damages. But it does not relieve petitioner of the legal liability for entering into contracts and causing breach of existing ones. the respondent appellate court correctly confirmed the permanent injunction and nullification of the lease contracts between DCCSI and Trendsetter Marketing, without awarding damages. the injunction saved the respondents from further damage or injury caused by petitioner’s interference.