The Supreme Court of the Philippines has affirmed the principle that third parties who induce a breach of contract can be held liable for damages. This ruling protects exclusive distributorship agreements, ensuring that businesses operating under such agreements can seek recourse when their contractual rights are violated due to the interference of others. The Court underscored that such interference, especially when driven by bad faith or malicious intent, warrants the imposition of damages to compensate the aggrieved party.

Betrayal and Catamarans: When Business Deals Sink Distributorship Dreams

The case of Allan C. Go v. Mortimer F. Cordero revolves around a dispute over an exclusive distributorship agreement for high-speed catamaran vessels. Cordero, the exclusive distributor for Aluminium Fast Ferries Australia (AFFA), brokered a deal between AFFA and Allan Go’s ACG Express Liner for the purchase of two vessels. However, Go later bypassed Cordero and dealt directly with AFFA to purchase a second vessel, leading to Cordero’s distributorship being terminated and his commissions unpaid. The central legal question is whether Go’s actions constituted tortious interference, making him liable for damages to Cordero.

The facts revealed that Cordero was instrumental in establishing the initial deal, even accompanying Go and his representatives to Australia to oversee the construction of the first vessel. Despite this, Go, along with his lawyers, Landicho and Tecson, secretly negotiated with AFFA for the second vessel. These actions not only deprived Cordero of his commission but also led to the termination of his exclusive distributorship. This situation prompted Cordero to file a lawsuit, alleging that Go and the others conspired to violate his contractual rights.

The legal framework for this case rests on **Article 1314 of the Civil Code**, which explicitly addresses tortious interference. This provision states:

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

The Supreme Court, in analyzing this provision, highlighted three essential elements for establishing tortious interference: the existence of a valid contract, the third person’s knowledge of the contract, and the third person’s unjustified interference. In Cordero’s case, the existence of a valid exclusive distributorship agreement and Go’s awareness of it were not in dispute. The critical issue was whether Go’s interference was justified.

The Court referred to its previous ruling in So Ping Bun v. Court of Appeals, which clarified that interference may be justified if the defendant’s motive is to benefit themselves, but not if their sole motive is to cause harm. However, the Court emphasized that even when acting in self-interest, parties must not act with malice or deliberate intent to harm the other contracting party. The element of malice becomes critical in determining liability.

In Go’s defense, it was argued that he was merely seeking a better price for the second vessel and that there was no conclusive evidence of a second purchase. The Supreme Court, however, found that Go’s actions, particularly his secret negotiations and the cessation of communication with Cordero, demonstrated bad faith. Moreover, the Court noted that Go’s representatives continued to accept commissions from Cordero even as they were undermining his position, further supporting the finding of malice.

The Court emphasized that the right to perform an exclusive distributorship agreement is a proprietary right, and any interference with that right is actionable. It cited Yu v. Court of Appeals, reinforcing that exclusive distributorship agreements must be protected against wrongful interference by third parties.

Furthermore, the Court addressed the issue of solidary liability. It noted that under Article 2194 of the Civil Code, obligations arising from tort are solidary. This means that each tortfeasor is individually liable for the entire damage caused. The Court also cited Lafarge Cement Philippines, Inc. v. Continental Cement Corporation, which affirmed that obligations arising from tort are, by their nature, always solidary. This ensures that the injured party can recover damages from any or all of the parties involved in the tortious act.

In this case, the Court found that Go, Landicho, and Tecson acted in concert to undermine Cordero’s distributorship, making them solidarily liable for the damages suffered by Cordero. The Court rejected the argument that they could not be held liable for more than AFFA/Robinson could be held liable, reiterating that the nature of tortious interference allows for such liability.

The Supreme Court also addressed the issue of damages. It affirmed the award of actual damages for the unpaid commission on the first vessel and upheld the award of moral and exemplary damages, albeit reducing the amounts. The Court found that Go’s actions were contrary to **Article 19 of the Civil Code**, which requires everyone to act with justice, give everyone his due, and observe honesty and good faith. This article, along with Articles 20 and 21, provides a basis for awarding damages when a right is exercised in bad faith or with intent to injure another.

Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith.

The Supreme Court underscored that Cordero was practically excluded from the transaction. While there was no explicit prohibition on negotiating for a lower price in the second purchase, Go, Robinson, Tecson and Landicho, clearly connived not only in ensuring that Cordero would have no participation in the contract for sale of the second SEACAT 25, but also that Cordero would not be paid the balance of his commission from the sale of the first SEACAT 25, despite their knowledge that it was commission already earned by and due to Cordero.

FAQs

What was the key issue in this case?	The key issue was whether Allan Go tortiously interfered with Mortimer Cordero’s exclusive distributorship agreement, making him liable for damages. This involved assessing if Go’s actions were justified or driven by malice.
What is tortious interference?	Tortious interference occurs when a third party induces another party to breach a contract, causing damages to the other contracting party. It requires a valid contract, knowledge of the contract by the third party, and unjustified interference.
What is Article 1314 of the Civil Code?	Article 1314 of the Civil Code states that any third person who induces another to violate their contract shall be liable for damages to the other contracting party. This provision is the basis for claims of tortious interference in the Philippines.
What are the elements of tortious interference?	The elements are: (1) existence of a valid contract; (2) knowledge on the part of the third person of the existence of a contract; and (3) interference of the third person is without legal justification. These elements must be proven to establish liability.
What is the significance of malice in tortious interference?	Malice is a crucial factor. Interference may be justified if the defendant’s primary motive is to benefit themselves, but not if their sole motive is to cause harm. Acts done with malice or bad faith are generally not justified.
What does solidary liability mean in this context?	Solidary liability means that each tortfeasor is individually liable for the entire amount of damages. The injured party can recover the full amount from any or all of the parties involved.
How does Article 19 of the Civil Code apply?	Article 19 requires everyone to act with justice, honesty, and good faith. Violations of this article, especially when done with intent to injure, can lead to an award of damages under Articles 20 and 21.
What types of damages can be awarded in tortious interference cases?	Damages can include actual damages (like unpaid commissions), moral damages (for mental anguish and suffering), exemplary damages (to deter similar conduct), and attorney’s fees. The specific amounts depend on the circumstances of the case.

In conclusion, this case reinforces the protection afforded to exclusive distributorship agreements under Philippine law. It clarifies that third parties who interfere with these agreements in bad faith can be held liable for damages, ensuring that businesses can operate with confidence and protect their contractual rights.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Allan C. Go v. Mortimer F. Cordero, G.R. No. 164747, May 4, 2010