G.R. No. 13699 - G. Martini vs. Glaisermans

Case Summary (G.R. No. 13699)

Factual Background

In September 1915, the parties entered into an employment contract whereby the defendant undertook to serve the plaintiff for three years. The agreement did not specify the exact character of services. It required the defendant to serve “exclusively” for the contract duration and to carry out the employer’s instructions to the best of his ability, including going wherever the employer’s interests might require.

The defendant performed his duties and remained employed until July 1, 1917, when he left. Shortly thereafter, he joined Dyogi & Co. The defendant testified that he refused to continue working because he could not endure the insulting treatment he received from the plaintiff’s managing director.

The contract also addressed the possibility that the employment relationship might become difficult. Its sixth clause provided that if the first party or its representatives made the relationship difficult or disagreeable, the second party could tender his resignation, effective six months after filing, or earlier if the first party desired. It further stated that in such event, the conditions of section two would bind.

Defendant’s Departure and the Effect of the Sixth Clause

The Court found, on the evidence including the testimony of the plaintiff’s managing director, that the defendant had been fully justified in refusing to submit to the insulting treatment and in leaving the plaintiff’s employ. The Court acknowledged the ordinary rule that when an employee leaves under such employer-attributable conditions, the employee is relieved of the consequences of the employment contract’s breach, because the breach is imputable to the employer rather than to the employee.

Nevertheless, the Court examined the contract’s sixth clause and concluded that the probability of that contingency had been foreseen and provided for. The Court treated the sixth clause as an option that the defendant elected to use, because the defendant’s resignation occurred under circumstances consistent with the clause’s premise. Thus, the defendant’s resignation, standing alone, did not automatically relieve him from complying with the post-employment restrictions, provided the second clause was valid.

The Contract’s Post-Employment Restraint

The second clause imposed restraints after the three-year term. When the three years were over, if the defendant did not find it convenient to renew the connection with the first party for another term, he agreed that he would not engage, for at least one year, either for himself or others, in any business similar to the business carried on by his employer or in which the employer might be engaged at that time. The clause also required prior written consent for such engagement. It further stipulated that if the defendant breached the condition, he would pay the plaintiff 400 (four hundred pounds sterling) as liquidated damages, recoverable in any court having jurisdiction, and that he waived defenses in law or equity to suits for recovery and for proceedings to restrain him, or both.

The Court emphasized that, by its express terms, the prohibition was not confined to any particular branch of the employer’s commercial activity. It was not even limited to the specific branch in which the defendant had worked during his employment.

The Parties’ Arguments and the Legal Issue

The central issue was whether the restraint on the defendant’s future employment and business activities—after he ceased to be an employee—was reasonably necessary to protect the plaintiff’s interests, or whether it constituted an unreasonable restraint of trade and was therefore void.

The plaintiff argued that, although the prohibition was phrased broadly, it should effectively operate to prevent the defendant only from engaging in the hemp-related activities that were the particular context of the defendant’s employment. The plaintiff maintained that this narrower functional aim meant the general wording did not defeat enforcement.

The Court rejected that approach as inconsistent with contract interpretation. It held that the contract must be construed as it stands, not as it might have been rewritten to reflect a more limited restraint.

Reasonableness of the Restraint and the Applicable Doctrine

To determine validity, the Court relied on its earlier ruling in Ollendorff vs . Abrahamson (38 Phil. Rep., 585) and adopted what it described as a modern rule. It explained that fixed formulas from English and American cases had evolved. Instead of rigidly invalidating restraints based solely on whether time or space was unlimited, the Court followed the principle that validity depends on the intrinsic reasonableness of the restriction in light of the circumstances. It approved restraints only when they are not contrary to the public welfare and not greater than necessary to afford a fair and reasonable protection to the party in whose favor the restraint is imposed.

Evidence Concerning the Plaintiff’s Business and the Defendant’s Training

The Court considered the nature of the plaintiff’s operations and the scope of the protection the plaintiff claimed to need. It found that the plaintiff was engaged in many branches of business, including the purchase and exportation of abaca. When the defendant entered the plaintiff’s employ, he had no previous experience in the abaca business. While working for the plaintiff, he was employed in the hemp department, but the plaintiff’s managing director testified that the defendant never acquired any appreciable proficiency and was not allowed to close deals for the purchase of abaca without express approval from another officer or employee. The plaintiff was also aware that the defendant had no prior experience in the hemp business.

After leaving, the defendant joined Dyogi & Co., where he was employed in connection with the purchase by that firm of abaca for export.

The Court also noted the plaintiff’s multifarious commercial activity: it was engaged in “importing a great many different lines” and exporting Philippine products in general. Against this background, the Court examined the scope of the prohibition contained in the second clause.

Why the Restraint Was Unreasonable

The Court concluded that the restriction in the second clause went beyond what was reasonably necessary to protect the plaintiff’s interests. It observed that the prohibition was broad in at least two respects: it applied to “any business” similar to the employer’s business, and it extended to any business in which the employer “may be engaged at that time.” The restriction thus was not limited to the branch in which the defendant had actually worked or to the specific skills the defendant allegedly acquired.

The Court found it particularly significant that, although the defendant’s work experience in the plaintiff’s enterprise had been limited and he had not been permitted to close deals without approval, the contract nonetheless empowered the plaintiff to prevent him for one year from engaging in any business similar to

Case Syllabus (G.R. No. 13699)

Parties and Procedural Posture

G. Martini (Ltd.) filed an action as plaintiff and appellant against J. M. Glaiderman as defendant and appellee.
The dispute arose from an employment contract and its restrictive covenant after the term of employment.
The case reached the Supreme Court on appeal from a lower court decision adverse to G. Martini (Ltd.).
No appearance was made on behalf of appellee, and the Supreme Court awarded no costs on appeal.

Key Factual Allegations

In September, 1915, G. Martini (Ltd.) and J. M. Glaiderman entered into a contract requiring Glaiderman to serve for a term of three years.
The contract lacked a specific designation of the exact services to be rendered.
The employment agreement stated that Glaiderman would serve the employer and “carry out his employer’s instructions to the best of his ability” and “go wherever his employer’s interests should require him to go.”
The contract included a post-employment restraint: after the three-year term, Glaiderman could not engage, for one year at least, in any business similar to the employer’s business, nor in business in which the employer “may be engaged at that time,” unless he first obtained written consent.
The contract imposed liquidated damages of 400 (four hundred pounds sterling) upon breach of the restrictive covenant, and it included an alleged waiver of defenses in any suit to recover that amount and/or to restrain compliance.
Glaiderman performed his duties until July 1, 1917, when he left and soon after joined Dyogi & Co.
Glaiderman testified that he refused to continue because he could not endure insulting treatment by the plaintiff’s managing director.
The Court found that Glaiderman was fully justified in leaving due to the abusive treatment.
Despite the justification for his departure, the Court treated the resignation as an event contemplated by the contract, affecting whether the restrictive covenant still bound Glaiderman if the covenant was valid.

Contract Provisions Involved

The Court treated as central the contract’s clause six, which granted Glaiderman an option to resign if the employer rendered the relationship difficult or disagreeable.
Under clause six, resignation would become effective six months after filing or earlier if the employer so desired.
Clause six further provided that “conditions of section two (2) of this agreement will bind good” in such case.
The Court treated clause two (the second clause referenced in the decision) as the operative restraint on trade and employment.
The restraint prohibited Glaiderman, for one year, from engaging for himself or others in any business similar to the employer’s business or in which the employer might be engaged at that time, absent written consent.
The Court treated the restrictive covenant as a single unitary undertaking whose enforceability depended on its overall validity, rather than isolated severable parts.

Issues for Resolution

The Court had to determine whether the post-employment prohibition in paragraph two of the contract was valid or void as an unreasonable restraint of trade.
The Court also had to determine whether Glaiderman’s justification for leaving the employer eliminated the restraint, considering that clause six contemplated resignation due to employer conduct.
The Court addressed whether the breadth of the restriction—covering any business in which the employer might be engaged—was reasonably necessary to protect the employer’s legitimate interests.

Contentions of the Parties

G. Martini (Ltd.) argued that the restrictive covenant should be enforced despite the circumstances of Glaiderman’s resignation.
G. Martini (Ltd.) contended that, in practice, it was only seeking to enjoin Glaiderman from engaging in the hemp business, the department in which he had worked.
G. Martini (Ltd.) maintained that the generality of the prohibition should not prevent enforcement because the restraint was effectively directed at the work line actually performed by Glaiderman.
J. M. Glaiderman invoked the insulting treatment by the employer as justification for leaving the employment.
J. M. Glaiderman