34 Phil. 697. August 10, 1916

MAIN TOPIC – Contracts – Freedom to Contract 


Gsell, owner of industrial enterprises in the city of Manila employed Ferrazzini for his skilled  service. They entered into a contract wherein as part of their duties and obligations; the master, shall furnish safe place to work, pay his services and not to discharge him until the expiration of  six months after notice. On the part of the servant shall observe loyalty, faithfulness, and  obedience to all reasonable orders. It further stipulates that for the period of 5 years after the  termination of the employment, the plaintiff shall not enter into the employ of any enterprises  in the Philippine Islands, except after obtaining special written permission. It further stipulated  that the defendant shall pay P10,000 as liquidated damages for each and every breach. 

The defendant, 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. He also sought relief for a further alleged  breach of the contract by the plaintiff after his discharge. 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. 

Trial court decided in favor of the plaintiff – finding that the plaintiff’s discharge was not  justified and in declining to consider the counterclaim and enter judgment in accordance  therewith.


(1) Whether or not Gsell was justified in terminating the contract of employment.

(2) Whether or not the provision of the contract are valid and binding 


(1) YES. It has been shown that the plaintiff’s conduct was inconsistent with the relation of master  and servant or incompatible with the due and faithful performance of his duties, his discharge  was justified. He sought to create a feeling of unrest among the employees by inducing them to  believe that the defendant had no confidence in them and that at least one employee was not  receiving sufficient salary. The defendant, through his manager, expressly directed the plaintiff  to cease leaving the factory f or that purpose, but the plaintiff violated this order numerous times. 

(2) NO. That the contract was clearly one in undue and unreasonable restraint of trade and  therefore void as 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. 

“ART. 1091, Obligations arising from contracts have legal force between the contracting parties,  and must be fulfilled in accordance with their stipulations.” 

“ART. 1255. The contracting parties may make 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.” 


Judgment modified.


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.