So Ping Bun vs. Court of Appeals

A third person who, without legal justification, induces a party to breach an existing contract is liable for tortious interference; however, where the interference is motivated solely by the interferer’s own proper business interest and malice is absent, no damages are recoverable, although the resultant contract may be nullified and injunctive relief granted. The three elements of tortious interference are: (1) existence of a valid contract, (2) knowledge on the part of the third person of the existence of that contract, and (3) interference without legal justification or excuse.

In 1963, Tek Hua Trading Co., through its managing partner So Pek Giok, entered into four one-year lease contracts with Dee C. Chuan & Sons Inc. (DCCSI) over warehouse premises in Binondo, Manila. After the contracts expired, the lease continued on a month-to-month basis. Tek Hua Trading Co. was dissolved in 1976, and its former members, including Manuel C. Tiong, subsequently incorporated Tek Hua Enterprising Corp., which continued occupying the premises. So Pek Giok died in 1986. His grandson, petitioner So Ping Bun, thereafter used the warehouse for his own textile business, Trendsetter Marketing. Respondent Tiong, as president of Tek Hua Enterprising Corp., would later assert that petitioner’s occupation was merely tolerated. In August 1989, DCCSI sent letters to Tek Hua Enterprising Corp. proposing increased rent and enclosing new lease contracts; the corporation did not respond, but the leases were not rescinded. On March 1, 1991, respondent Tiong demanded that petitioner vacate, stating that the tolerated use was terminated and that the corporation needed the warehouse for its own stocks. Petitioner refused to leave and instead requested DCCSI to execute formal lease contracts in favor of Trendsetter Marketing. DCCSI acceded, executing four lease contracts on March 11, 1991. Private respondents then filed suit for nullification of the new leases and for damages.

• Original Lease Arrangements: In 1963, Tek Hua Trading Co., managed by So Pek Giok, entered into four one-year lease contracts with DCCSI over premises at Nos. 930, 930-Int., 924-B, and 924-C Soler Street, Binondo, Manila. The contracts provided that should the lessee continue to occupy after the term, the lease would be on a month-to-month basis. After expiration, the parties did not renew but Tek Hua continued in possession.
• Successor Corporation’s Right: In 1976, Tek Hua Trading Co. was dissolved. Former members, including Manuel C. Tiong, formed Tek Hua Enterprising Corp., which continued occupying the premises under the same month-to-month lease arrangement.
• Petitioner’s Entry: So Pek Giok died in 1986. His grandson, petitioner So Ping Bun, thereafter occupied the warehouse to conduct his own textile business under the name Trendsetter Marketing. Respondent Tiong, as president of Tek Hua Enterprising Corp., claimed petitioner’s use was purely by tolerance owing to his late grandfather’s long association with the corporation.
• Lessor’s Attempts to Formalize Lease: In 1989, DCCSI sent letters to Tek Hua Enterprising Corp. proposing increased rent and enclosing new lease contracts. The corporation did not respond, but the lessor did not rescind the existing month-to-month lease. Further rent increases were later implemented.
• Demand to Vacate and Petitioner’s Countermove: On March 1, 1991, respondent Tiong wrote to petitioner demanding that he vacate within 14 days, stating that the corporation required the warehouse for its own textile business. Petitioner refused. Instead, on March 4, 1992, petitioner requested and obtained formal lease contracts directly from DCCSI in favor of Trendsetter Marketing. DCCSI executed four lease contracts with petitioner dated March 11, 1991.
• Litigation: Private respondents filed the suit to nullify the new contracts and sought damages. The trial court found that petitioner had interfered with respondent corporation’s month-to-month lease and annulled the contracts, issued a permanent injunction, and awarded attorney’s fees. No award was made for actual, moral, or exemplary damages because the extent of damage was not quantifiable.

• Absence of Tortious Interference Due to Lack of Damages: Petitioner argued that damage is an essential element of tortious interference, and because the trial court and the Court of Appeals did not award actual, moral, or exemplary damages to private respondents, he ought to be absolved of all liability, including attorney’s fees.
• Unwarranted Attorney’s Fees: Petitioner maintained that the award of attorney’s fees was improper in the absence of a finding of malice or bad faith, and was in any event excessive given the nature of the lease.

• Established Tortious Interference: Respondents countered that all elements of tortious interference were satisfied: a valid month-to-month lease existed between respondent corporation and DCCSI; petitioner knew of that lease; and petitioner’s act of securing lease contracts directly from DCCSI for his own enterprise constituted unjustified interference that deprived the corporation of its possessory contractual right.
• Proper Award of Attorney’s Fees: Respondents pressed for affirmance of the reduced attorney’s fees as compensation for being compelled to litigate to protect their interest, pursuant to Article 2208(2) of the Civil Code.

• Tortious Interference with Contract: Whether the Court of Appeals erred in finding petitioner guilty of tortious interference with contract despite the absence of an award of actual, moral, or exemplary damages.
• Attorney’s Fees: Whether the award of attorney’s fees in the amount of P200,000 was proper or excessive.

• Tortious Interference with Contract: The three essential elements of tortious interference were established. A valid contract existed: respondent corporation had a continuing month-to-month lease with DCCSI. Petitioner knew of that lease as he had occupied the premises in that context. He interfered without legal justification by prevailing upon DCCSI to execute lease contracts in his favor, thereby impairing respondent corporation’s right to possess the premises. Although petitioner’s motivation appeared to be furtherance of his own business interest and no proof of malice was shown, the interference was nonetheless tortious. The absence of malice precluded an award of actual, moral, or exemplary damages—consistent with the rule in Gilchrist v. Cuddy—but it did not relieve petitioner of liability for the invasion of respondent’s property right. The nullification of the wrongfully obtained lease contracts and the permanent injunction were therefore properly affirmed to prevent further injury.
• Attorney’s Fees: Attorney’s fees were recoverable under Article 2208(2) of the Civil Code because petitioner’s act compelled respondent corporation to litigate to protect its interest. However, settled jurisprudence requires that the award be commensurate to the benefit derived from the litigation and must not serve as a penalty on the right to litigate. Considering that the underlying lease was on a month-to-month basis and that counsels’ fees should not be swelled to undue proportions, the reduced amount of P200,000 remained excessive. The award was further reduced to P100,000 as reasonable.

• Elements of Tortious Interference — A cause of action for tortious interference with contract requires: (1) the existence of a valid contract; (2) knowledge on the part of the third person of the existence of that contract; and (3) interference by the third person without legal justification or excuse. In the present case, all three elements were present because respondent had a month-to-month lease, petitioner knew of it, and he unjustifiably caused DCCSI to contract with him instead.
• Justification by Proper Business Interest — Where a third person’s interference with an existing contract is motivated solely by the furtherance of his own proper business or economic interest, and malice is absent, the interference may be justified for the purpose of precluding an award of damages. However, the justification does not legalize the intrusion; the resultant contract may still be nullified and injunctive relief granted to protect the injured party’s right.
• Reasonableness of Attorney’s Fees — Attorney’s fees awarded under Article 2208 of the Civil Code must be reasonable and commensurate with the benefits derived from the litigation. The principle that “it is not sound policy to place a penalty on the right to litigate” applies, and an award that is far too excessive will be reduced on review.

• “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.” — This passage encapsulates the distinction between the non-recoverability of damages and the continuing liability for interference that warrants nullification and injunction.
• “It is not sound policy to place a penalty on the right to litigate. To compel the defeated party to pay the fees of counsel for his successful opponent would throw wide open the door of temptation to the opposing party and his counsel to swell the fees to undue proportions.” — This oft-cited doctrine was used to justify the further reduction of attorney’s fees.

• Gilchrist vs. Cuddy, 29 Phil. 542 — Applied as controlling precedent: where there is no malice in the interference with a contract and the impulse behind the conduct lies in a proper business interest, the party cannot be a malicious interferer, and no damages need be awarded.
• Custodio vs. Court of Appeals, 253 SCRA 483 — Cited for the definition of “damage” as the loss, hurt, or harm resulting from injury, and “damages” as the recompense awarded.
• Sampaguita Pictures Inc. vs. Varquez, Court of Appeals, 68 O.G. 7666 — Cited as authority for the three elements of tortious interference.
• Philippine National Bank vs. Court of Appeals, 159 SCRA 433 — Applied for the policy against penalizing the right to litigate and the principle that attorney’s fees must not be excessive.

• Article 1314, Civil Code — “Any third person who induces another to violate his contract shall be liable for damages to the other contracting party.” The provision established petitioner’s potential liability, but the absence of malice negated the recovery of damages while leaving intact the remedies of nullification and injunction.
• Article 2208(2), Civil Code — Attorney’s fees may be recovered where the defendant’s act or omission compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest. This provision supported the award of attorney’s fees, but the amount was reduced for reasonableness.

Bellosillo, Mendoza, and Buena, JJ.