CHAPTER 15 BUSINESS TORTS Business Torts known as Interference with contractual relations, interference with prospective advantage, unfair

competition and securities related fraud. The interference may be in form negligent or intentional acts or omission. It may arise from different sources of obligation like delict, quasi-delict or breach of contract. I. Non !ossessory Invasion Business torts are sometime in the nature of Non!ossessory invasion of the interest of another "ne becomes liable in an action for #amages in Nontrespasser invasion of another$s interest in the private use and en%oyment of asset& The other has property rights and privileges with respect to the use or en%oyment interfered with. The invasion is substantial. The defendants conduct is a legal cause of the invasion. The invasion is either intentional and unreasonable or unintentional and actionable under general negligence rule.

- right derived from a contract is a property right that entitles each party to protection against the entire world and any damage to said property should be compensated. -n agreement that prohibits interference :with e4isting contracts; is a contract that is not contrary to public policy.

,I.T"(0 ") T,' (/2' The development of this rule started in 'ngland in the case of Lumley v. Gye: Held: the plaintiff is entitled for damages. The right , which was here recognized, had its origin in rule , long familiar in to the courts of the common law , to the effect that any person who entices a servant from his employment is liable for damages to the master. The masters interest in the service rendered by his employee is here considered as a distinct subject of juridical right.

'2'<'NT. The elements of tort interference with contractual relation are& '4istence of a valid contract =nowledge on the part of the third person of the e4istence of the contract Interference of the third person without the legal %ustification or e4cuse.

II.

INT'()'('N*' +IT, *"NT(-*T .T-T/T"(0 !("1I.I"N -N# (-TI"N-2' 3(& only the parties to a contract are bound by the terms of the contract and only a party can file an action for breach of contract or for rescission or annulment thereof. The N** e4pressly provides that contracts take effect only between the parties , their assigns and heir '5!& contracts containing a stipulation in favour of a third person and contracts intended to defraud creditors. Third person can$t be sued for breach of contract because only parties can breach contractual. *ontracting parties may sue third person not for breach but for inducing another to commit such breach /nder -rt 6768& 9Any person who induces another to io!ate his contract sha!! "e !ia"!e #or da$a%es to the other contractin% party&' Art& 1(1) is known as contractual relation interference with

CONTRACT The e4istence of contract is necessary and the breach must occur because of the alleged act of interference No tort is committed if the party had already broken the contract and offers the contract to defendant There will be no liability if the plaintiff voluntary release the other No action can be maintained if the contract is void Thereis no action for inducing to breach illegal contract if it is contrary to public policy. '5!& action for interference can be maintained even if the contract is unenforceable when it does not comply with the statute of frauds.

.uch interference is considered tortious because it violates the rights of the contracting parties to fulfil the contract and to have it fulfilled, to reap the profits resulting therefrom and to compel the performance by the other party.

*A+ICE

<alice means the intentional doing of a harmful act without legal or social %ustification or e4cuse. It is enough that the wrongdoer, having knowledge of the e4istence of the contract relation, in bad faith sets about to break it up. If the persuasion is used for the indirect purpose of in%uring the plaintiff or benefitting the defendant the defendant at the e4pense of the plaintiff, it is a malicious act which in law and in fact a wrongful act. Philip Yu v. CA: the ! ruled that the ploy of this character is a"in to the scenario of a third person who induces a party to renege on or violate his underta"ing under a contract, thereby entitling the other contracting party to relief under #$T. %&%' of (!!.

!ompletion in business li"ewise affords a privilege to interfere Two elements: a- the defendants purpose is a justifiable one and b- the actor employs no means of fraud or deception which are regarded as unfair.

E,TENT O- +IABI+T. &a'walt v. La Corporacion de lo( Padre( Agu(tino()ecoleto( The court e4plain that a person or entity that is not a party to a contract of sale may be held liable for damages for advising the seller not to perform the contract .

PROCURE*ENT If performance is prevented by force, intimidation, coercion, or threats or by false or defamatory statement or by nuisance or riot, that person using such unlawful means us under all the authorities, liable for damages. - person who detains a professional singer to prevent him from pursuing his contractual commitment to perform, is not only criminally liable but also civilly liable as well under -rt. III. 6768. In the case of Lagon v. CA: the word )induce* refers to the situation where a person causes another to choose one course of conduct by persuasion or intimidation.

The rule is that the defendant found guilty of interference with contractual relation can$t be held liable for more than the amount for which the party who has induced to break the contract can be held liable. The rule is consistent with -(T. >>?> of N** if the contracting party who was induced to break the contract was in bad faith. But if there is good faith, the party who breached the contract is liable for consequences that can be foreseen.

*-.'. /O & COR0ERO HE+0& +hile it is true that a third person cannot possibly be sued for breach of contract because only parties can breach contractual provisions, a contracting party may sue a third person not for breach but for inducing another to commit such breach. -rticle 6768 of the *ivil *ode provides&-rt. 6768. -ny third person who induces another to violate his contract shall be liable for damages to the other contracting party. The elements of tort interference are& :6; e4istence of a valid contract@ :>; knowledge on the part of the third person of the e4istence of a contract@ and :7; interference of the third person is without legal %ustification. The rule is that the defendant found guilty of interference with contractual relations cannot be held liable for more than the amount for which the party who was inducted to break the contract can be held liable. (espondents 3o, 2andicho and Tecson were therefore correctly held liable for the balance of petitioner *ordero$s commission from the sale of the first .'-*-T >A, in the amount of /.B76,A>>.?C or its peso equivalent, which -))-D(obinson did not pay in violation of the

LEGAL JU !"#"CA!"$% .ocial policy permits a privilege or %ustification to intentionally invade the legally protected interest of others only if the defendants acts to promote interest of others or himself and if the interest invaded in social importance &a'walt v. La Corporacion de lo( Padre( Agu(tino()ecoleto( if a party enters into a contract to go for another upon a journey to a remote and unhealthful climate and a third person, with a bona fide purpose of benefiting the one which is under contract to go, dissuades him from the step, no action will lie. +ut if the advice is not disinterested and the persuasion is used for the indirect purpose of benefitting the defendant at the e,pense of the plaintiff, the intermeddler is liable if his advice is ta"en and the contract is bro"en.

e4clusive distributorship agreement, with interest at the rate of EF per annum from Gune >8, 6CCH until the same is fully paid. (espondents having acted in bad faith, moral damages may be recovered under -rticle >>6C of the *ivil *ode. /I+CHRIST & CU00. INT'()'('N*' +IT, *"NT(-*T/-2 ('2-TI"N. -ACTS1 *uddy was the owner of the film 9IilgamarJ and that on -pril >8 he rented it to 3ilchrist for a week in the sum of ! 6>A. It was supposed to be delivered on <ay >E, but a week prior to delivery, *uddy returned the money and said that he had made other arrangements with the film. The arrangement *uddy mentioned was with 'spe%o in the amount of ! 7A? for a week. 3ilchrist filed an in%unction to prevent the showing of the film in 'spe%o$stheater. In the trial for permanent in%unction it seems that 'spe%o was advised by his agents not to acquire the film since he would need to wait E weeks before he could acquire it. But 'spe%o went to *uddy to offer him personally the amount of ! 7A? for the film. *uddy was found guilty of breach of contract, but 'spe%o in his defense contended that he was free to compete with 3ilchrist for the film since there was no contract between *uddy and 3ilchrist.

:'nterprising;, allowed .o !ing Bun, the grandson of the managing partner of Trading, to use the premises to store his own te4tiles. 2ater, <anuel Tiong, one of the members of 'nterprising, asked .o !ing Bun via a letter to vacate the premises within 68 days since he needed it for his te4tile business. .o !ing Bun refused to vacate. Instead, .o !ing Bun entered into lease contracts with #**.I over the same premises. 'nterprising and <anuel Tiong filed an action to nullify the contracts between .o !ing Bun and #**.I and also claimed damages against .o !ing Bun for unlawful interference in the lease contracts between #**.I and 'nterprising. Issue2s1 #id .o !ing Bun commit unlawful interferenceK :0'.; Is .o !ing Bun liable for damagesK :N"; He!d1 The elements of tort interference are& a; e4istence of a valid contract@ b; knowledge on the part of the third person of the e4istence of the contract@ and c; interference of the third person is without legal %ustification or e4cuse In this case, Trendsetter <arketing :.o !ing BunMs company; asked #**.I to e4ecute lease contracts in its favor, and as a result, it was able to deprive 'nterprising of its property rights. The three elements of tort interference are present since .o !ing Bun prevailed upon #**.I to lease the warehouse to his enterprise at the e4pense of 'nterprising. ,owever, .o !ing Bun still cannot be held liable for damages. Though he took interest in the property of 'nterprising and benefited from it, nothing on record imputes deliberate wrongful motives or malice on him. The business desire is there to make some gain to the detriment of the contracting parties. 2ack of malice, however, precludes damages. But it does not relieve .o !ing Bun of the legal liability for entering into contracts and causing breach of e4isting ones. Thus, the appellate court correctly confirmed the permanent in%unction and nullification of the contracts between #**.I and Trendsetter, without awarding damages.

ISSUE2S1 6. +hether In%unction was a proper actionK >. +hether 'spe%o is guilty of Tortious InterferenceK

HE+01 .ES to "oth& 6. The feature film is depended upon to secure a larger attendance than if the place were filled by other films of mediocre quality. ,ence 3ilchrist was face with the immediate prospect of diminished profits by reason of the fact that if 'spe%o would be allowed to e4hibit the film in Iloilo then it would be useless for him to show it again, as the desire of the public to witness the production would have been satisfied. >. In the case at bar the only motive for interference with the 3ilchrist-*uddy contract was the desire of 'spe%o to make a profit from e4hibiting the film in their theater. There was no malice beyond this desire, but this fact does not relieve them of legal liability for interference with that contract causing its breach. SO PIN/ BUN CA :Irah; -acts1 Tek,ua Trading :Trading; entered into agreements with #ee *. *hua L .ons Inc. :#**.I; for the lease of several premises which Trading used to store its te4tiles. The successor of Trading, Tek,ua 'nterprising

III. INT'()'('N*' +IT, !(".!'*TI1' -#1-NT-3' If there is no contract yet and the defendant is only being sued for inducing another not to enter into a contract with the plaintiff, the tort committed is appropriately called interference with prospective advantage.

TUTT+E & BUC3 #efendant in said case was a wealthy banker and a man of considerable influence in the community. ,e maliciously established a barber shop and employed his influence to attract the customers of the plaintiff$s barber shop. The defendant$s sole purpose in establishing his shop was to ruin the plaintiff. ,aving

successfully ruined the plaintiff, the defendant sued the former. The *ourt sustained the plaintiff stating that& 9+hen a man starts an opposition place of business, not for the sake of profit himself, but regardless of loss to himself, and for the sole purpose of driving his competitor out of business, and with the intention of himself retiring upon the accomplishment of his malevolent purpose, he is guilty of a wanton wrong and an actionable tort. In such a case he would not be e4ercising his legal right, or doing an act which can be %udged separately from the motive which actuated him. To call such conduct competition is a perversion of terms. It is simply the application of force without legal %ustification, which in its moral quality may be no better than highway robbery.J

engaged in the manufacture, production, processing, assembling or importation of such merchandise or ob%ect of commerce or with any other persons not so similarly engaged for the purpose of making transactions pre%udicial to lawful commerce, or of increasing the market price in any part of the !hilippines, of any such merchandise or ob%ect of commerce manufactured, produced, processed, assembled in or imported into the !hilippines, or of any article in the manufacture of which such manufactured, produced, or imported merchandise or ob%ect of commerce is used.

I1.

/N)-I( *"<!'TITI"N

!-..IN3 ")) -N# #I.!-(-3'<'NT ") !("#/*T.

-rticle >N of the *ivil *ode provides that unfair competition in agricultural, commercial or industrial enterprises, or in labor through the use of force, intimidation, deceit, machination or any un%ust, oppressive or highhanded method shall give rise to a right of action by the person who thereby suffers damage. .ection > of -rticle 5I1 of the *onstitution provides& 9The .tate shall regulate or prohibit private monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition shall be allowed.J Artic!e 145& .onopolies and combinations in restraint of trade. - The penalty of prision correccional in its minimum period or a fine ranging from >?? to E,??? pesos, or both, shall be imposed upon& 6. -ny person who shall enter into any contract or agreement or shall take part in any conspiracy or combination in the form of a trust or otherwise, in restraint of trade or commerce or to prevent by artificial means free competition in the market@ >. -ny person who shall monopoliOe any merchandise or ob%ect of trade or commerce, or shall combine with any other person or persons to monopoliOe and merchandise or ob%ect in order to alter the price thereof by spreading false rumors or making use of any other article to restrain free competition in the market@ 7. -ny person who, being a manufacturer, producer, or processor of any merchandise or ob%ect of commerce or an importer of any merchandise or ob%ect of commerce from any foreign country, either as principal or agent, wholesaler or retailer, shall combine, conspire or agree in any manner with any person likewise

The Intellectual !roperty *ode or (epublic -ct No. H>C7 gives a definition of the term unfair competition. Section 154& /nfair !ompetition, $ights, $egulation and $emedies. - 6EH.6. - person who has identified in the mind of the public the goods he manufactures or deals in, his business or services from those of others, whether or not a registered mark is employed, has a property right in the goodwill of the said goods, business or services so identified, which will be protected in the same manner as other property rights. 6EH.>. -ny person who shall employ deception or any other means contrary to good faith by which he shall pass off the goods manufactured by him or in which he deals, or his business, or services for those of the one having established such goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be sub%ect to an action therefor. 6EH.7. In particular, and without in any way limiting the scope of protection against unfair competition, the following shall be deemed guilty of unfair competition& :a; -ny person, who is selling his goods and gives them the general appearance of goods of another manufacturer or dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices or words thereon, or in any other feature of their appearance, which would be likely to influence purchasers to believe that the goods offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or who otherwise clothes the goods with such appearance as shall deceive the public and defraud another of his legitimate trade, or any subsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose@ :b; -ny person who by any artifice, or device, or who employs any other means calculated to induce the false belief that such person is offering the services of

another who has identified such services in the mind of the public@ or :c; -ny person who shall make any false statement in the course of trade or who shall commit any other act contrary to good faith of a nature calculated to discredit the goods, business or services of another.

12.1

5btain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to ma"e the statements made, in the light of the circumstances under which they were made, not misleading4 or 3ngage in any act, transaction, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

INT'()'('N*' /nfair competition includes cases involving the tort of interference with contractual relations and interference with prospective advantage.

12.&

"BG'*TI1' The essential ob%ective of securities legislation is to protect those who do not know market conditions from overreaching of those who do.

<I.-!!("!(I-TI"N "nternational %ew( ervice v(. A((ociated Pre(( The defendant IN. was held to have been guilty of unfair competition when it appropriated news taken from bulletins issued by complainant -ssociated !ress. The parties were competitors in the gathering and distributions of news and its publication for profit in newspapers in the /... The *ourt e4plained that news of current events are not copyrightable and may be regarded as common property. ,owever, competitors are 9under a duty to conduct its own business so as not unnecessarily or unfairly in%ure that of the other.J <"N"!"2I'. -N# !('#-T"(0 !(I*IN3 Go*ongwei v(. !he ecuritie( and E+change Co,,i((ion 9There are other legislation in this %urisdiction, which prohibit monopolies and combinations in restraint of trade. Basically, these anti-trust laws or laws against monopolies or combinations in restraint of trade are aimed at raising levels of competition by improving the consumers$ effectiveness as the final arbiter in free markets. These laws are designed to preserve free and unfettered competition as the rule of trade. The law against monopolies and combinations that, by reason of the inherent nature of the contemplated acts, pre%udice the public interest by unduly restraining competition or unduly obstructing the course of trade.J )(-/# # false representation of a matter of fact0whether by words or by conduct, by false or misleading allegations, or by concealment of what should have been disclosed0that deceives and is intended to deceive another so that the individual will act upon it to her or his legal injury. )raud is commonly understood as dishonesty calculated for advantage. - person who is dishonest may be called a fraud. In the legal system, fraud is a specific offense with certain features.

<I.T-T'<'NT. 6. >. )alse (egistration .tatement !rospectus and the like

-a!se Re%istration State$ent P+AINTI--1 Su" 6section 55&1 o# Securities Re%u!ation Code .ub-section AE.6 of the .ecurities (egulation *ode gives right&

-ny person acquiring a security, the registration statement of which or any part thereof contains on its effectivity an untrue statement of a material fact required to be stated therein or necessary to make such statements not misleading, and who suffers damage, to sue for damages. ,e is not entitled to damages if at the time of such acquisition he knew of such untrue statement or omission. Li,itation( with re(pect to ,atter( (tated in an inco,e (tate,ent: 62.1 of ecurities $egulation !ode If the person who acquired the security did so after the issuer has made generally available to its security holders an income statement covering a period of at least twelve :6>; months beginning from the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such income statement, but such reliance may be established without proof of the reading of the registration statement by such person. 0E-EN0ANTS1 Section 55 Securities Re%u!ation Code :a; The issuer and every person who signed the registration statement@ :b; :b; director or partner or any person with similar functions at the time of the filing of the registration statement or any part, supplement or amendment thereof with respect to which his liability is asserted@

Anti-fraud Provi(ion( of the ecuritie( )egulation Code: .ec >E. )raudulent transactions- :a; it shall be unlawful for any person, directly, or indirectly, in connection with the purchase or sale of any securities12.% 3mploy any device, scheme, or artifice to defraud4

:c; :c; 'very person who is named in the registration statement as being or about to become a director of, or a person performing similar functions, or a partner in, the issuer and whose written consent thereto is filed with the registration statement@ :d; :e; 'very person who, with his written consent, which shall be filed with the registration statement, has been named as having prepared or certified any part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statement, with respect to the statement, report, or valuation, which purports to have been prepared or certified by him. :e; :f; 'very selling shareholder who contributed to and certified as to the accuracy of a portion of the registration statement, with respect to that portion of the registration statement which purports to have been contributed by him. :f; :g; 'very underwriter with respect to such security. 0E-ENSES1 The defendants are free from liability if they can prove that at the time of acquisition, the plaintiff knew of the untrue statement or omission. The plaintiff cannot be said to have relied on the untrue statement if he was aware of the falsity thereof. It is an assumption of risk because the plaintiff made the investment knowing the danger thereof on account of the false statements

Civil lia.ilitie( for the fal(e (tate,ent( in the pro(pectu(/ co,,unication( and report( are defined in: .'*. AN. *ivil 2iabilities -rising in *onnection +ith !rospectus, *ommunications and (eports. - AN.6. -ny person who& :a; "ffers to sell or sells a security in violation of *hapter III@ or "ffers to sell or sells a security, whether or not e4empted by the provisions of this *ode, by the use of any means or instruments of transportation or communication, by means of a prospectus or other written or oral communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in the light of the circumstances under which they were made, not misleading :the purchaser not knowing of such untruth or omission;, and who shall fail in the burden of proof that he did not know, and in the e4ercise of reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such security from him, who may sue to recover the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the security. -ny person who shall make or cause to be made any statement in any report or document filed pursuant to this *ode or any rule or regulation thereunder, which statement was at the time and in the light of the circumstances under which it was made false or misleading with respect to any material fact, shall be liable to any person who, not knowing that such statement was false or misleading, and relying upon such statements, shall have purchased or sold a security at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall prove that he acted in good faith and had no knowledge that such statement was false or misleading.

:b;

:c;

0A*A/ES1 .uits may be filed before the (egional Trial *ourt@ (T* may award damages in the amount not e4ceeding T(I!2' the amount of the transactions plus actual damages.

+IABI+IT. > or more persons& ."2I#-(0 ,owever, any person who becomes liable for the payment of such damages may recover contribution from any other person who, if sued separately, would have been liable to make the same payment unless the former wars guilty of fraudulent representation and the latter was not. -ll persons held liable shall contribute equally to the total liability ad%udged therein.

!('.*(I!TI1' !'(I"# No action shall be maintained to enforce any liability unless brought within > years after the discovery of the facts constituting cause of action and within A years after such cause of action accrued.

Submitted by: *ue, =aren !earl Noveno, Guno !aolo Quilang, <aan

!(".!'*T/. and the like - formal legal document, which is required by and filed with the .ecurities and '4change *ommission, that provides details about an investment offering for sale to the public. - prospectus should contain the facts that an investor needs to make an informed investment decision. -lso known as an Poffer document.P