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G.R. No. 100098 December 29, 1995

EMERALD GARMENT MANUFACTURING CORPORATION, petitioner,vs.HON. COURT OF APPEALS, BUREAU OF PATENTS, TRADEMARKS AND TECHNOLOGY TRANSFER and H.D. LEE COMPANY,INC., respondents.

KAPUNAN, J. :

In this petition for review on certiorari under Rule 45 of the Revised Rules of Court, Emerald Garment Manufacturing Corporation seeksto annul the decision of the Court of Appeals dated 29 November 1990 in CA-G.R. SP No. 15266 declaring petitioner's trademark to beconfusingly similar to that of private respondent and the resolution dated 17 May 1991 denying petitioner's motion for reconsideration.

The record reveals the following antecedent facts:

On 18 September 1981, private respondent H.D. Lee Co., Inc., a foreign corporation organized under the laws of Delaware, U.S.A., filedwith the Bureau of Patents, Trademarks & Technology Transfer (BPTTT) a Petition for Cancellation of Registration No. SR 5054(Supplemental Register) for the trademark "STYLISTIC MR. LEE" used on skirts, jeans, blouses, socks, briefs, jackets, jogging suits,dresses, shorts, shirts and lingerie under Class 25, issued on 27 October 1980 in the name of petitioner Emerald GarmentManufacturing Corporation, a domestic corporation organized and existing under Philippine laws. The petition was docketed as Inter

Partes Case No. 1558.1

Private respondent, invoking Sec. 37 of R.A. No. 166 (Trademark Law) and Art. VIII of the ParisConvention for the Protection of Industrial Property, averred that petitioner's trademark "so closelyresembled its own trademark, 'LEE' as previously registered and used in the Philippines, and notabandoned, as to be likely, when applied to or used in connection with petitioner's goods, to causeconfusion, mistake and deception on the part of the purchasing public as to the origin of the goods." 2

In its answer dated 23 March 1982, petitioner contended that its trademark was entirely andunmistakably different from that of private respondent and that its certificate of registration was legallyand validly granted.3

On 20 February 1984, petitioner caused the publication of its application for registration of thetrademark "STYLISTIC MR. LEE" in the Principal Register." 4

On 27 July 1984, private respondent filed a notice of opposition to petitioner's application forregistration also on grounds that petitioner's trademark was confusingly similar to its "LEE" trademark. 5The case was docketed as Inter Partes Case No. 1860.

On 21 June 1985, the Director of Patents, on motion filed by private respondent dated 15 May 1985,issued an order consolidating Inter Partes Cases Nos. 1558 and 1860 on grounds that a commonquestion of law was involved.6

On 19 July 1988, the Director of Patents rendered a decision granting private respondent's petition for

cancellation and opposition to registration.

The Director of Patents found private respondent to be the prior registrant of the trademark "LEE" inthe Philippines and that it had been using said mark in the Philippines.7

Moreover, the Director of Patents, using the test of dominancy, declared that petitioner's trademarkwas confusingly similar to private respondent's mark because "it is the word 'Lee' which draws theattention of the buyer and leads him to conclude that the goods originated from the samemanufacturer. It is undeniably the dominant feature of the mark." 8

On 3 August 1988, petitioner appealed to the Court of Appeals and on 8 August 1988, it filed with theBPTTT a Motion to Stay Execution of the 19 July 1988 decision of the Director of Patents on groundsthat the same would cause it great and irreparable damage and injury. Private respondent submittedits opposition on 22 August 1988.9

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On 23 September 1988, the BPTTT issued Resolution No. 88-33 granting petitioner's motion to stayexecution subject to the following terms and conditions:

1. That under this resolution, Respondent-Registrant is authorized only to dispose ofits current stock using the mark "STYLISTIC MR. LEE";

2. That Respondent-Registrant is strictly prohibited from further production,regardless of mode and source, of the mark in question (STYLISTIC MR. LEE) inaddition to its current stock;

3. That this relief Order shall automatically cease upon resolution of the Appeal by theCourt of Appeals and, if the Respondent's appeal loses, all goods bearing the mark"STYLISTIC MR. LEE" shall be removed from the market, otherwise such goods shallbe seized in accordance with the law.

SO ORDERED.10

On 29 November 1990, the Court of Appeals promulgated its decision affirming the decision of the

Director of Patents dated 19 July 1988 in all respects.11

In said decision the Court of Appeals expounded, thus:

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Whether or not a trademark causes confusion and is likely to deceive the public is aquestion of fact which is to be resolved by applying the "test of dominancy", meaning,if the competing trademark contains the main or essential or dominant features ofanother by reason of which confusion and deception are likely to result, theninfringement takes place; that duplication or imitation is not necessary, a similarity inthe dominant features of the trademark would be sufficient.

The word "LEE" is the most prominent and distinctive feature of the appellant'strademark and all of the appellee's "LEE" trademarks. It is the mark which draws theattention of the buyer and leads him to conclude that the goods originated from thesame manufacturer. While it is true that there are other words such as "STYLISTIC",printed in the appellant's label, such word is printed in such small letters over theword "LEE" that it is not conspicuous enough to draw the attention of ordinary buyerswhereas the word "LEE" is printed across the label in big, bold letters and of thesame color, style, type and size of lettering as that of the trademark of the appellee.The alleged difference is too insubstantial to be noticeable. Even granting arguendothat the word "STYLISTIC" is conspicuous enough to draw attention, the goods mayeasily be mistaken for just another variation or line of garments under the ap appelle's"LEE" trademarks in view of the fact that the appellee has registered trademarks

which use other words in addition to the principal mark "LEE" such as "LEE RIDERS","LEESURES" and "LEE LEENS". The likelihood of confusion is further made moreprobable by the fact that both parties are engaged in the same line of business. It iswell to reiterate that the determinative factor in ascertaining whether or not the marksare confusingly similar to each other is not whether the challenged mark wouldactually cause confusion or deception of the purchasers but whether the use of suchmark would likely cause confusion or mistake on the part of the buying public.

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The appellee has sufficiently established its right to prior use and registration of thetrademark "LEE" in the Philippines and is thus entitled to protection from any

infringement upon the same. It is thus axiomatic that one who has identified apeculiar symbol or mark with his goods thereby acquires a property right in such

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symbol or mark, and if another infringes the trademark, he thereby invokes thisproperty right.

The merchandise or goods being sold by the parties are not that expensive asalleged to be by the appellant and are quite ordinary commodities purchased by theaverage person and at times, by the ignorant and the unlettered. Ordinary purchasers

will not as a rule examine the small letterings printed on the label but will simply beguided by the presence of the striking mark "LEE". Whatever difference there may bewill pale in insignificance in the face of an evident similarity in the dominant featuresand overall appearance of the labels of the parties.12

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On 19 December 1990, petitioner filed a motion for reconsideration of the above-mentioned decisionof the Court of Appeals.

Private respondent opposed said motion on 8 January 1991 on grounds that it involved animpermissible change of theory on appeal. Petitioner allegedly raised entirely new and unrelated

arguments and defenses not previously raised in the proceedings below such as laches and a claimthat private respondent appropriated the style and appearance of petitioner's trademark when itregistered its "LEE" mark under Registration No. 44220.13

On 17 May 1991, the Court of Appeals issued a resolution rejecting petitioner's motion forreconsideration and ruled thus:

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A defense not raised in the trial court cannot be raised on appeal for the first time. Anissue raised for the first time on appeal and not raised timely in the proceedings in thelower court is barred by estoppel.

The object of requiring the parties to present all questions and issues to the lowercourt before they can be presented to this Court is to have the lower court rule uponthem, so that this Court on appeal may determine whether or not such ruling waserroneous. The purpose is also in furtherance of justice to require the party to firstpresent the question he contends for in the lower court so that the other party maynot be taken by surprise and may present evidence to properly meet the issuesraised.

Moreover, for a question to be raised on appeal, the same must also be within theissues raised by the parties in their pleadings. Consequently, when a partydeliberately adopts a certain theory, and the case is tried and decided based uponsuch theory presented in the court below, he will not be permitted to change his

theory on appeal. To permit him to do so would be unfair to the adverse party. Aquestion raised for the first time on appeal, there having opportunity to raise them inthe court of origin constitutes a change of theory which is not permissible on appeal.

In the instant case, appellant's main defense pleaded in its answer dated March 23,1982 was that there was "no confusing similarity between the competing trademarkinvolved. On appeal, the appellant raised a single issue, to wit:

The only issue involved in this case is whether or not respondent-registrant's trademark "STYLISTIC MR. LEE" is confusingly similarwith the petitioner's trademarks "LEE or LEERIDERS, LEE-LEENSand LEE-SURES."

Appellant's main argument in this motion for reconsideration on the other hand is thatthe appellee is estopped by laches from asserting its right to its trademark. Appellant

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claims although belatedly that appellee went to court with "unclean hands" bychanging the appearance of its trademark to make it identical to the appellant'strademark.

Neither defenses were raised by the appellant in the proceedings before the Bureauof Patents. Appellant cannot raise them now for the first time on appeal, let alone on

a mere motion for reconsideration of the decision of this Court dismissing theappellant's appeal.

While there may be instances and situations justifying relaxation of this rule, thecircumstance of the instant case, equity would be better served by applying thesettled rule it appearing that appellant has not given any reason at all as to why thedefenses raised in its motion for reconsideration was not invoked earlier.14

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Twice rebuffed, petitioner presents its case before this Court on the following assignment of errors:

I. THE COURT OF APPEALS ERRED IN NOT FINDING THAT PRIVATERESPONDENT CAUSED THE ISSUANCE OF A FOURTH "LEE" TRADEMARKIMITATING THAT OF THE PETITIONER'S ON MAY 5, 1989 OR MORE THANEIGHT MONTHS AFTER THE BUREAU OF PATENT'S DECISION DATED JULY 19,1988.

II. THE COURT OF APPEALS ERRED IN RULING THAT THE DEFENSE OFESTOPPEL BY LACHES MUST BE RAISED IN THE PROCEEDINGS BEFORE THEBUREAU OF PATENTS, TRADEMARKS AND TECHNOLOGY TRANSFER.

III. THE COURT OF APPEALS ERRED WHEN IT CONSIDERED PRIVATERESPONDENT'S PRIOR REGISTRATION OF ITS TRADEMARK ANDDISREGARDED THE FACT THAT PRIVATE RESPONDENT HAD FAILED TOPROVE COMMERCIALUSE THEREOF BEFORE FILING OF APPLICATION FOR REGISTRATION.15

In addition, petitioner reiterates the issues it raised in the Court of Appeals:

I. THE ISSUE INVOLVED IN THIS CASE IS WHETHER OR NOT PETITIONER'STRADEMARK SYTLISTIC MR. LEE, IS CONFUSINGLY SIMILAR WITH THEPRIVATE RESPONDENT'S TRADEMARK LEE OR LEE-RIDER, LEE-LEENS ANDLEE-SURES.

II. PETITIONER'S EVIDENCES ARE CLEAR AND SUFFICIENT TO SHOW THAT ITIS THE PRIOR USER AND ITS TRADEMARK IS DIFFERENT FROM THAT OF THE

PRIVATE RESPONDENT.

III. PETITIONER'S TRADEMARK IS ENTIRELY DIFFERENT FROM THE PRIVATERESPONDENT'S AND THE REGISTRATION OF ITS TRADEMARK IS PRIMAFACIEEVIDENCE OF GOOD FAITH.

IV. PETITIONER'S "STYLISTIC MR. LEE" TRADEMARK CANNOT BE CONFUSEDWITH PRIVATE RESPONDENT'S LEE TRADEMARK.16

Petitioner contends that private respondent is estopped from instituting an action for infringementbefore the BPTTT under the equitable principle of laches pursuant to Sec. 9-A of R.A. No. 166,otherwise known as the Law on Trade-marks, Trade-names and Unfair Competition:

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Sec. 9-A. Equitable principles to govern proceedings. In opposition proceedingsand in all other inter partes proceedings in the patent office under this act, equitableprinciples of laches, estoppel, and acquiescence, where applicable, may beconsidered and applied.

Petitioner alleges that it has been using its trademark "STYLISTIC MR. LEE" since 1 May 1975, yet, it

was only on 18 September 1981 that private respondent filed a petition for cancellation of petitioner'scertificate of registration for the said trademark. Similarly, private respondent's notice of opposition topetitioner's application for registration in the principal register was belatedly filed on 27 July 1984. 17

Private respondent counters by maintaining that petitioner was barred from raising new issues onappeal, the only contention in the proceedings below being the presence or absence of confusingsimilarity between the two trademarks in question.18

We reject petitioner's contention.

Petitioner's trademark is registered in the supplemental register. The Trademark Law (R.A. No. 166)provides that "marks and tradenames for the supplemental register shall not be published for or be

subject to opposition, but shall be published on registration in the Official Gazette."19

The reckoningpoint, therefore, should not be 1 May 1975, the date of alleged use by petitioner of its assailedtrademark but 27 October 1980,20the date the certificate of registration SR No. 5054 was publishedin the Official Gazette and issued to petitioner.

It was only on the date of publication and issuance of the registration certificate that privaterespondent may be considered "officially" put on notice that petitioner has appropriated or is usingsaid mark, which, after all, is the function and purpose of registration in the supplemental register. 21The record is bereft of evidence that private respondent was aware of petitioner's trademark beforethe date of said publication and issuance. Hence, when private respondent instituted cancellationproceedings on 18 September 1981, less than a year had passed.

Corollarily, private respondent could hardly be accused of inexcusable delay in filing its notice ofopposition to petitioner's application for registration in the principal register since said application waspublished only on 20 February 1984.22From the time of publication to the time of filing the oppositionon 27 July 1984 barely five (5) months had elapsed. To be barred from bringing suit on grounds ofestoppel and laches, the delay must belengthy.23

More crucial is the issue of confusing similarity between the two trademarks. Petitioner vehementlycontends that its trademark "STYLISTIC MR. LEE" is entirely different from and not confusingly similarto private respondent's "LEE" trademark.

Private respondent maintains otherwise. It asserts that petitioner's trademark tends to mislead andconfuse the public and thus constitutes an infringement of its own mark, since the dominant feature

therein is the word "LEE."

The pertinent provision of R.A. No. 166 (Trademark Law) states thus:

Sec. 22. Infringement,what constitutes. Any person who shall use, without theconsent of the registrant, any reproduction, counterfeit, copy or colorable imitation ofany registered mark or trade-name in connection with the sale, offering for sale, oradvertising of any goods, business or services on or in connection with which suchuse is likely to cause confusion or mistake or to deceive purchasers or others as tothe source or origin of such goods or services, or identity of such business; orreproduce, counterfeit, copy or colorably imitable any such mark or trade-name andapply such reproduction, counterfeit, copy, or colorable imitation to labels, signs,prints, packages, wrappers, receptacles or advertisements intended to be used uponor in connection with such goods, business or services; shall be liable to a civil actionby the registrant for any or all of the remedies herein provided.

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Practical application, however, of the aforesaid provision is easier said than done. In the history oftrademark cases in the Philippines, particularly in ascertaining whether one trademark is confusinglysimilar to or is a colorable imitation of another, no set rules can be deduced. Each case must bedecided on its own merits.

In Esso Standard Eastern, Inc.v.Court of Appeals,24we held:

. . . But likelihood of confusion is a relative concept; to be determined only accordingto the particular, and sometimes peculiar, circumstances of each case. It isunquestionably true that, as stated in Coburn vs. Puritan Mills, Inc.: "In trademarkcases, even more than in other litigation, precedent must be studied in the light of thefacts of the particular case."

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Likewise, it has been observed that:

In determining whether a particular name or mark is a "colorable imitation" of another,

no all-embracing rule seems possible in view of the great number of factors whichmust necessarily be considered in resolving this question of fact, such as the class ofproduct or business to which the article belongs; the product's quality, quantity, orsize, including its wrapper or container; the dominant color, style, size, form, meaningof letters, words, designs and emblems used; the nature of the package, wrapper orcontainer; the character of the product's purchasers; location of the business; thelikelihood of deception or the mark or name's tendency to confuse;etc.25

Proceeding to the task at hand, the essential element of infringement is colorable imitation. This termhas been defined as "such a close or ingenious imitation as to be calculated to deceive ordinarypurchasers, or such resemblance of the infringing mark to the original as to deceive an ordinarypurchaser giving such attention as a purchaser usually gives, and to cause him to purchase the onesupposing it to be the other."26

Colorable imitation does not mean such similitude as amounts to identity. Nor does itrequire that all the details be literally copied. Colorable imitation refers to suchsimilarity in form, content, words, sound, meaning, special arrangement, or generalappearance of the trademark or tradename with that of the other mark or tradenamein their over-all presentation or in their essential, substantive and distinctive parts aswould likely mislead or confuse persons in the ordinary course of purchasing thegenuine article.27

In determining whether colorable imitation exists, jurisprudence has developed two kinds of tests the Dominancy Test applied inAsia Brewery, Inc. v. Court of Appeals28and other cases 29and the

Holistic Test developed in Del Monte Corporation v. Court of Appeals30and its proponent cases.31

As its title implies, the test of dominancy focuses on the similarity of the prevalent features of thecompeting trademarks which might cause confusion or deception and thus constitutes infringement.

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. . . If the competing trademark contains the main or essential or dominant features ofanother, and confusion and deception is likely to result, infringement takes place.Duplication or imitation is not necessary; nor it is necessary that the infringing labelshould suggest an effort to imitate. [C. Neilman Brewing Co. v. Independent BrewingCo., 191 F., 489, 495, citing Eagle White Lead Co., vs. Pflugh (CC) 180 Fed. 579].

The question at issue in cases of infringement of trademarks is whether the use of themarks involved would be likely to cause confusion or mistakes in the mind of the

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public or deceive purchasers. (Auburn Rubber Corporation vs. Honover Rubber Co.,107 F. 2d 588; . . .)32

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On the other side of the spectrum, the holistic test mandates that the entirety of the marks in question

must be considered in determining confusing similarity.

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In determining whether the trademarks are confusingly similar, a comparison of thewords is not the only determinant factor. The trademarks in their entirety as theyappear in their respective labels or hang tags must also be considered in relation tothe goods to which they are attached. The discerning eye of the observer must focusnot only on the predominant words but also on the other features appearing in bothlabels in order that he may draw his conclusion whether one is confusingly similar tothe other.33

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Applying the foregoing tenets to the present controversy and taking into account the factualcircumstances of this case, we considered the trademarks involved as a whole and rule thatpetitioner's "STYLISTIC MR. LEE" is not confusingly similar to private respondent's "LEE" trademark.

Petitioner's trademark is the whole "STYLISTIC MR. LEE." Although on its label the word "LEE" isprominent, the trademark should be considered as a whole and not piecemeal. The dissimilaritiesbetween the two marks become conspicuous, noticeable and substantial enough to matter especiallyin the light of the following variables that must be factored in.

First, the products involved in the case at bar are, in the main, various kinds of jeans. These are not

your ordinary household items like catsup, soysauce or soap which are of minimal cost. Maong pantsor jeans are not inexpensive. Accordingly, the casual buyer is predisposed to be more cautious anddiscriminating in and would prefer to mull over his purchase. Confusion and deception, then, is lesslikely. In Del Monte Corporation v. Court of Appeals, 34we noted that:

. . . Among these, what essentially determines the attitudes of the purchaser,specifically his inclination to be cautious, is the cost of the goods. To be sure, aperson who buys a box of candies will not exercise as much care as one who buys anexpensive watch. As a general rule, an ordinary buyer does not exercise as muchprudence in buying an article for which he pays a few centavos as he does inpurchasing a more valuable thing. Expensive and valuable items are normally boughtonly after deliberate, comparative and analytical investigation. But mass products, lowpriced articles in wide use, and matters of everyday purchase requiring frequent

replacement are bought by the casual consumer without greatcare. . . .

Second, like his beer, the average Filipino consumer generally buys his jeans by brand. He does notask the sales clerk for generic jeans but for, say, a Levis, Guess, Wrangler or even an Armani. He is,therefore, more or less knowledgeable and familiar with his preference and will not easily bedistracted.

Finally, in line with the foregoing discussions, more credit should be given to the "ordinary purchaser."Cast in this particular controversy, the ordinary purchaser is not the "completely unwary consumer"but is the "ordinarily intelligent buyer" considering the type of product involved.

The definition laid down in Dy Buncio v. Tan Tiao Bok35

is better suited to the present case. There,the "ordinary purchaser" was defined as one "accustomed to buy, and therefore to some extentfamiliar with, the goods in question. The test of fraudulent simulation is to be found in the likelihood of

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the deception of some persons in some measure acquainted with an established design and desirousof purchasing the commodity with which that design has been associated. The test is not found in thedeception, or the possibility of deception, of the person who knows nothing about the design whichhas been counterfeited, and who must be indifferent between that and the other. The simulation, inorder to be objectionable, must be such as appears likely to mislead the ordinary intelligent buyer whohas a need to supply and is familiar with the article that he seeks to purchase."

There is no cause for the Court of Appeal's apprehension that petitioner's products might be mistakenas "another variation or line of garments under private respondent's 'LEE' trademark". 36As one wouldreadily observe, private respondent's variation follows a standard format "LEERIDERS," "LEESURES"and "LEELEENS." It is, therefore, improbable that the public would immediately and naturallyconclude that petitioner's "STYLISTIC MR. LEE" is but another variation under private respondent's"LEE" mark.

As we have previously intimated the issue of confusing similarity between trademarks is resolved byconsidering the distinct characteristics of each case. In the present controversy, taking into accountthese unique factors, we conclude that the similarities in the trademarks in question are not sufficientas to likely cause deception and confusion tantamount to infringement.

Another way of resolving the conflict is to consider the marks involved from the point of view of whatmarks are registrable pursuant to Sec. 4 of R.A. No. 166, particularly paragraph 4 (e):

CHAPTER II-A.The Principal Register(Inserted by Sec. 2, Rep. Act No. 638.)

Sec. 4. Registration of trade-marks, trade-names and service-marks on the principalregister. There is hereby established a register of trade-marks, trade-names andservice-marks which shall be known as the principal register. The owner of a trade-mark, trade-name or service-mark used to distinguish his goods, business or servicesfrom the goods, business or services of others shall have the right to register thesame on the principal register, unless it:

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(e) Consists of a mark or trade-name which, when applied to or used in connectionwith the goods, business or services of the applicant is merely descriptive ordeceptively misdescriptive of them, or when applied to or used in connection with thegoods, business or services of the applicant is primarily geographically descriptive ordeceptively misdescriptive of them,or is primarily merely a surname ; (Emphasisours.)

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"LEE" is primarily a surname. Private respondent cannot, therefore, acquire exclusive ownership overand singular use of said term.

. . . It has been held that a personal name or surname may not be monopolized as atrademark or tradename as against others of the same name or surname. For in theabsence of contract, fraud, or estoppel, any man may use his name or surname in alllegitimate ways. Thus, "Wellington" is a surname, and its first user has no cause ofaction against the junior user of "Wellington" as it is incapable of exclusiveappropriation.37

In addition to the foregoing, we are constrained to agree with petitioner's contention that privaterespondent failed to prove prior actual commercial use of its "LEE" trademark in the Philippines before

filing its application for registration with the BPTTT and hence, has not acquired ownership over saidmark.

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Actual use in commerce in the Philippines is an essential prerequisite for the acquisition of ownershipover a trademark pursuant to Sec. 2 and 2-A of the Philippine Trademark Law (R.A. No. 166) whichexplicitly provides that:

CHAPTER II. Registration of Marks and Trade-names.

Sec. 2. What are registrable. Trade-marks, trade-names, and service marksowned by persons, corporations, partnerships or associations domiciled in thePhilippines and by persons, corporations, partnerships, or associations domiciled inany foreign country may be registered in accordance with the provisions of this act:Provided, That said trade-marks,trade-names,or service marks are actually in use incommerce and services not less than two months in the Philippines before the timethe applications for registration are filed:And Provided, further, That the country ofwhich the applicant for registration is a citizen grants by law substantially similarprivileges to citizens of the Philippines, and such fact is officially certified, with acertified true copy of the foreign law translated into the English language, by thegovernment of the foreign country to the Government of the Republic of thePhilippines. (As amended.) (Emphasis ours.)

Sec. 2-A. Ownership of trade-marks, trade-names and service-marks;how acquired.Anyone who lawfully produces or deals in merchandise of any kind or whoengages in lawful business, or who renders any lawful service in commerce, by actualuse hereof in manufacture or trade, in business, and in the service rendered; mayappropriate to his exclusive use a trade-mark, a trade-name, or a service-mark not soappropriated by another, to distinguish his merchandise, business or services fromothers. The ownership or possession of trade-mark, trade-name, service-mark,heretofore or hereafter appropriated, as in this section provided, shall be recognizedand protected in the same manner and to the same extent as are other propertyrights to the law. (As amended.) (Emphasis ours.)

The provisions of the 1965 Paris Convention for the Protection of Industrial Property 38relied upon by

private respondent and Sec. 21-A of the Trademark Law (R.A. No. 166)39

were sufficiently expoundedupon and qualified in the recent case of Philip Morris, Inc.v. Court of Appeals:40

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Following universal acquiescence and comity, our municipal law on trademarksregarding the requirement of actual use in the Philippines must subordinate aninternational agreement inasmuch as the apparent clash is being decided by amunicipal tribunal (Mortisen vs. Peters, Great Britain, High Court of Judiciary ofScotland, 1906, 8 Sessions, 93; Paras, International Law and World Organization,1971 Ed., p. 20). Withal, the fact that international law has been made part of the lawof the land does not by any means imply the primacy of international law overnational law in the municipal sphere. Under the doctrine of incorporation as applied inmost countries, rules of international law are given a standing equal, not superior, tonational legislative enactments.

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In other words, (a foreign corporation) may have the capacity to sue for infringementirrespective of lack of business activity in the Philippines on account of Section 21-Aof the Trademark Law but the question of whether they have an exclusive right overtheir symbol as to justify issuance of the controversial writ will depend on actual useof their trademarks in the Philippines in line with Sections 2 and 2-A of the same law.It is thus incongruous for petitioners to claim that when a foreign corporation notlicensed to do business in the Philippines files a complaint for infringement, the entity

need not be actually using its trademark in commerce in the Philippines. Such aforeign corporation may have the personality to file a suit for infringement but it may

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not necessarily be entitled to protection due to absence of actual use of the emblemin the local market.

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Undisputably, private respondent is the senior registrant, having obtained several registration

certificates for its various trademarks "LEE," "LEERIDERS," and "LEESURES" in both thesupplemental and principal registers, as early as 1969 to 1973.41However, registration alone will notsuffice. In Sterling Products International, Inc. v.Farbenfabriken Bayer Aktiengesellschaft,42wedeclared:

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A rule widely accepted and firmly entrenched because it has come down through theyears is that actual use in commerce or business is a prerequisite in the acquisition ofthe right of ownership over a trademark.

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It would seem quite clear that adoption alone of a trademark would not give exclusiveright thereto. Such right "grows out of their actual use." Adoption is not use. One maymake advertisements, issue circulars, give out price lists on certain goods; but thesealone would not give exclusive right of use. For trademark is a creation of use. Theunderlying reason for all these is that purchasers have come to understand the markas indicating the origin of the wares. Flowing from this is the trader's right toprotection in the trade he has built up and the goodwill he has accumulated from useof the trademark. Registration of a trademark, of course, has value: it is anadministrative act declaratory of a pre-existing right.Registration does not, however,perfect a trademark right. (Emphasis ours.)

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To augment its arguments that it was, not only the prior registrant, but also the prior user, privaterespondent invokes Sec. 20 of the Trademark Law, thus:

Sec. 20. Certificate of registrationprima facie evidence of validity. A certificate ofregistration of a mark or tradename shall be aprima facieevidence of the validity ofthe registration, the registrant's ownership of the mark or trade-name, and of theregistrant's exclusive right to use the same in connection with the goods, business orservices specified in the certificate, subject to any conditions and limitations statedtherein.

The credibility placed on a certificate of registration of one's trademark, or its weight as evidence of

validity, ownership and exclusive use, is qualified. A registration certificate serves merely asprimafacie evidence. It is not conclusive but can and may be rebutted by controverting evidence.

Moreover, the aforequoted provision applies only to registrations in the principal register. 43Registrations in the supplemental register do not enjoy a similar privilege. A supplemental registerwas created precisely for the registration of marks which are not registrable on the principal registerdue to some defects.44

The determination as to who is the prior user of the trademark is a question of fact and it is thisCourt's working principle not to disturb the findings of the Director of Patents on this issue in theabsence of any showing of grave abuse of discretion. The findings of facts of the Director of Patentsare conclusive upon the Supreme Courtprovided they are supported by substantial evidence.45

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In the case at bench, however, we reverse the findings of the Director of Patents and the Court ofAppeals. After a meticulous study of the records, we observe that the Director of Patents and theCourt of Appeals relied mainly on the registration certificates as proof of use by private respondent ofthe trademark "LEE" which, as we have previously discussed are not sufficient. We cannot givecredence to private respondent's claim that its "LEE" mark first reached the Philippines in the 1960'sthrough local sales by the Post Exchanges of the U.S. Military Bases in the Philippines46based as it

was solely on the self-serving statements of Mr. Edward Poste, General Manager of Lee (Phils.), Inc.,a wholly owned subsidiary of the H.D. Lee, Co., Inc., U.S.A., herein private respondent. 47Similarly,we give little weight to the numerousvouchers representing various advertising expenses in the Philippines for "LEE" products. 48It is wellto note that these expenses were incurred only in 1981 and 1982 by LEE (Phils.), Inc. after it enteredinto a licensing agreement with private respondent on 11 May 1981.49

On the other hand, petitioner has sufficiently shown that it has been in the business of selling jeansand other garments adopting its "STYLISTIC MR. LEE" trademark since 1975 as evidenced byappropriate sales invoices to various stores and retailers.50

Our rulings in Pagasa Industrial Corp.v. Court of Appeals51and Converse Rubber Corp. v. Universal RubberProducts, Inc.,

52respectively, are instructive:

The Trademark Law is very clear. It requires actual commercial use of the mark priorto its registration. There is no dispute that respondent corporation was the firstregistrant, yet it failed to fully substantiate its claim that it used in trade or business inthe Philippines the subject mark; it did not present proof to invest it with exclusive,continuous adoption of the trademark which should consist among others, ofconsiderable sales since its first use. The invoices submitted by respondent whichwere dated way back in 1957 show that the zippers sent to the Philippines were to beused as "samples" and "of no commercial value." The evidence for respondent mustbe clear, definite and free from inconsistencies. "Samples" are not for sale andtherefore, the fact of exporting them to the Philippines cannot be considered to beequivalent to the "use" contemplated by law. Respondent did not expect income from

such "samples." There were no receipts to establish sale, and no proof werepresented to show that they were subsequently sold in the Philippines.

xxx xxx xxx

The sales invoices provide the best proof that there were actual sales of petitioner'sproduct in the country and that there was actual use for a protracted period ofpetitioner's trademark or part thereof through these sales.

For lack of adequate proof of actual use of its trademark in the Philippines prior to petitioner's use ofits own mark and for failure to establish confusing similarity between said trademarks, privaterespondent's action for infringement must necessarily fail.

WHEREFORE, premises considered, the questioned decision and resolution are hereby REVERSEDand SET ASIDE.

SO ORDERED.

EMERALD GARMENT MANUFACTURING CORPORATION vs. HON. COURT OFAPPEALS, BUREAU OF PATENTS, TRADEMARKS AND TECHNOLOGY

TRANSFER and H.D. LEE COMPANY, INC.G.R. No. 100098, December 29, 1995

FACTS:On 18 September 1981, private respondent H.D. Lee Co., Inc. filed with the

Bureau of Patents, Trademarks & Technology Transfer (BPTTT) a Petition for

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Cancellation of Registration No. SR 5054 for the trademark "STYLISTIC MR. LEE"used on skirts, jeans, blouses, socks, briefs, jackets, jogging suits, dresses, shorts,shirts and lingerie under Class 25, issued on 27 October 1980 in the name ofpetitioner Emerald Garment Manufacturing Corporation.

Private respondent averred that petitioner's trademark "so closely resembledits own trademark, 'LEE' as previously registered and used in the Philippines causeconfusion, mistake and deception on the part of the purchasing public as to the originof the goods.

On 19 July 1988, the Director of Patents rendered a decision granting privaterespondent's petition for cancellation and opposition to registration. The Director ofPatents, using the test of dominancy, declared that petitioner's trademark wasconfusingly similar to private respondent's mark because "it is the word 'Lee' whichdraws the attention of the buyer and leads him to conclude that the goods originatedfrom the same manufacturer. It is undeniably the dominant feature of the mark.

ISSUE:Whether or not a trademark causes confusion and is likely to deceive the

public is a question of fact which is to be resolved by applying the "test ofdominancy", meaning, if the competing trademark contains the main or essential ordominant features of another by reason of which confusion and deception are likelyto result.

HELD:The word "LEE" is the most prominent and distinctive feature of the appellant's

trademark and all of the appellee's "LEE" trademarks. It is the mark which draws theattention of the buyer and leads him to conclude that the goods originated from thesame manufacturer. The alleged difference is too insubstantial to be noticeable. Thelikelihood of confusion is further made more probable by the fact that both parties areengaged in the same line of business.

Although the Court decided in favor of the respondent, the appellee hassufficiently established its right to prior use and registration of the trademark "LEE" inthe Philippines and is thus entitled to protection from any infringement upon thesame. The dissenting opinion of Justice Padilla is more acceptable.

GR 100098

Facts:

HD Lee Co., a foreing corpo, seeks the cancellation of a patent in favor of EmeraldGarment Manufacturing (domiciled in the Phil) for the trademark Stylistic Mr. Lee,which according to HD Lee Co. closely resembled its own trademark Lee and thuswould cause confusion, mistake and deception to the purchasing public. The Director

of Patents granted the cancellation on the ground that petitioners trademark wasconfusingly similar to private respondents mark because it is the word Lee which

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draws the attention of the buyer and leads him to conclude that the goodsoriginated from the same manufacturer. It is undeniably the dominant feature of themark. The CA affirmed.

Issue: WON the trademark Stylistic Mr. Lee tends to mislead or confuse the publicand constitutes an infringement of the trademark Lee.

Held: Negative for lack of adequate proof of actual use of its trademark in thePhilippines prior to Emeralds use of its own mark and for failure to establishconfusing similarity between said trademarks, HD Lee Cos action for infringementmust necessarily fail.

Ratio:

Emeralds Stylistic Mr. Lee is not confusingly similar to private respondents LEEtrademark. Colorable imitation DOES NOT APPLY because:

1. Petitioners trademark is the whole STYLISTIC MR. LEE. Although on its labelthe word LEE is prominent, the trademark should be considered as a whole andnot piecemeal. The dissimilarities between the two marks become conspicuous,noticeable and substantial enough to matter especially in the light of the followingvariables that must be factored in, among others:

a. Expensive and valuable items are normally bought only after deliberate,comparative and analytical investigation; and

b. The average Filipino consumer generally buys his jeans by brand.

2. LEE is primarily a surname. Private respondent cannot, therefore, acquireexclusive ownership over and singular use of said term.

3. After a meticulous study of the records, the SC observes that the Director ofPatents and the Court of Appeals relied mainly on the registration certificates asproof of use by HD Lee Co of the trademark LEE which are not sufficient.

***********************

Colorable imitation defined: "such a close or ingenious imitation as to be calculated

to deceive ordinary purchasers, or such resemblance of the infringing mark to the

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original as to deceive an ordinary purchaser giving such attention as a purchaserusually gives, and to cause him to purchase the one supposing it to be the other.

[G.R. No. 116044-45. March 9, 2000]

AMERICAN AIRLINES, peti t ioner, vs. COURT OF APPEALS, HON.BERNARDO LL. SALAS and DEMOCRITO MENDOZA, respondents. Oldmis o

D E C I S I O N

GONZAGA_REYES, J.:

Before us is a petition for review of the decision dated December 24, 1993 renderedby the Court of Appeals in the consolidated cases docketed as CA-G.R. SP nos.30946 and 31452 entitled American Airlines vs. The Presiding Judge Branch 8 of theRegional Trial Court of Cebu and Democrito Mendoza, petitions for certiorariandprohibition. In SP no. 30946, the petitioner assails the trial courts order denying thepetitioners motion to dismiss the action for damages filed by the private respondentfor lack of jurisdiction under section 28 (1) of the Warsaw Convention; and in SP No.31452 the petitioner challenges the validity of the trial courts order striking off therecord the deposition of the petitioners security officer taken in Geneva, Switzerlandfor failure of the said security officer to answer the cross interrogatories propoundedby the private respondent.Ncm

The sole issue raised in SP No. 30946 is the questioned jurisdiction of the RegionalTrial Court of Cebu to take cognizance of the action for damages filed by the privaterespondent against herein petitioner in view of Art 28 (1) of the WarsawConvention.1[1]It is undisputed that the private respondent purchased fromSingapore Airlines in Manila conjunction tickets for Manila - Singapore - Athens -Larnaca - Rome - Turin - Zurich - Geneva - Copenhagen - New York. The petitionerwas not a participating airline in any of the segments in the itinerary under the saidconjunction tickets. In Geneva the petitioner decided to forego his trip toCopenhagen and to go straight to New York and in the absence of a direct flightunder his conjunction tickets from Geneva to New York, the private respondent on

June 7, 1989 exchanged the unused portion of the conjunction ticket for a one-wayticket from Geneva to New York from the petitioner airline. Petitioner issued its ownticket to the private respondent in Geneva and claimed the value of the unusedportion of the conjunction ticket from the IATA2[2]clearing house in Geneva.Ncmmis

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In September 1989, private respondent filed an action for damages before theregional trial court of Cebu for the alleged embarassment and mental anguish hesuffered at the Geneva Airport when the petitioners security officers prevented himfrom boarding the plane, detained him for about an hour and allowed him to boardthe plane only after all the other passengers have boarded. The petitioner filed a

motion to dismiss for lack of jurisdiction of Philippine courts to entertain the saidproceedings under Art. 28 (1) of the Warsaw Convention. The trial court denied themotion. The order of denial was elevated to the Court of Appeals which affirmed theruling of the trial court. Both the trial and that appellate courts held that the suit maybe brought in the Philippines under the pool partnership agreement among the IATAmembers, which include Singapore Airlines and American Airlines, wherein themembers act as agents of each other in the issuance of tickets to those who mayneed their services. The contract of carriage perfected in Manila between the privaterespondent and Singapore Airlines binds the petitioner as an agent of SingaporeAirlines and considering that the petitioner has a place of business in Manila, thethird option of the plaintiff under the Warsaw Convention i.e.the action may be

brought in the place where the contract was perfected and where the airline has aplace of business, is applicable. Hence this petition assailing the order upholding thejurisdiction of Philippine courts over the instant action.Scnc m

Both parties filed simultaneous memoranda pursuant to the resolution of this Courtgiving due course to the petition.

The petitioners theory is as follows: Under Art 28 (1) of the Warsaw convention anaction for damages must be brought at the option of the plaintiff either before thecourt of the 1) domicile of the carrier; 2) the carriers principal place of business; 3)the place where the carrier has a place of business through which the contract wasmade; 4) the place of destination. The petitioner asserts that the Philippines isneither the domicile nor the principal place of business of the defendant airline; nor isit the place of destination. As regards the third option of the plaintiff, the petitionercontends that since the Philippines is not the place where the contract of carriagewas made between the parties herein, Philippine courts do not have jurisdiction overthis action for damages. The issuance of petitioners own ticket in Geneva inexchange for the conjunction ticket issued by Singapore Airlines for the final leg ofthe private respondents trip gave rise to a separate and distinct contract of carriagefrom that entered into by the private respondent with Singapore Airlines in Manila.Petitioner lays stress on the fact that the plane ticket for a direct flight from Geneva

to New York was purchased by the private respondent from the petitioner by"exchange and cash" which signifies that the contract of carriage with SingaporeAirlines was terminated and a second contract was perfected. Moreover, the secondcontract of carriage cannot be deemed to have been an extension of the first as thepetitioner airline is not a participating airline in any of the destinations under the firstcontract. The petitioner claims that the private respondents argument that thepetitioner is bound under the IATA Rules as agent of the principal airline is irrelevantand the alleged bad faith of the airline does not remove the case from theapplicability of the Warsaw Convention. Further, the IATA Rule cited by the privaterespondent which is admittedly printed on the ticket issued by the petitioner to himwhich states, "An air carrier issuing a ticket for carriage over the lines of another

carrier does so only as its agent" does not apply herein, as neither SingaporeAirlines nor the petitioner issued a ticket to the private respondent covering the route

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of the other. Since the conjunction tickets issued by Singapore Airlines do notinclude the route covered by the ticket issued by the petitioner, the petitioner airlinesubmits that it did not act as an agent of Singapore Airlines.Sdaa miso

Private respondent controverts the applicability of the Warsaw Convention in this

case. He posits that under Article 17 of the Warsaw Convention3[3]a carrier may beheld liable for damages if the "accident" occurred on board the airline or in thecourse of "embarking or disembarking" from the carrier and that under Article 25(1)4[4]thereof the provisions of the convention will not apply if the damage is causedby the "willful misconduct" of the carrier. He argues that his cause of action is basedon the incident at the pre-departure area of the Geneva airport and not during theprocess of embarking nor disembarking from the carrier and that security officers ofthe petitioner airline acted in bad faith. Accordingly, this case is released from theterms of the Convention. Private respondent argues that assuming that theconvention applies, his trip to nine cities in different countries performed by differentcarriers under the conjunction tickets issued in Manila by Singapore Airlines is

regarded as a single transaction; as such the final leg of his trip from Geneva to NewYork with the petitioner airline is part and parcel of the original contract of carriageperfected in Manila. Thus, the third option of the plaintiff under Art. 28 (1) e.g., wherethe carrier has a place of business through which the contract of carriage was made,applies herein and the case was properly filed in the Philippines. The privaterespondent seeks affirmance of the ruling of the lower courts that the petitioner actedas an agent of Singapore Airlines under the IATA Rules and as an agent of theprincipal carrier the petitioner may be held liable under the contract of carriageperfected in Manila, citing the judicial admission made by the petitioner that itclaimed the value of the unused portion of the private respondents conjunctiontickets from the IATA Clearing House in Geneva where the accounts of both airlinesare respectively credited and debited. Accordingly, the petitioner cannot now denythe contract of agency with Singapore Airlines after it honored the conjunction ticketsissued by the latter.Sdaad

The petition is without merit.

The Warsaw Convention to which the Republic of the Philippines is a party andwhich has the force and effect of law in this country applies to all internationaltransportation of persons, baggage or goods performed by an aircraft gratuitously orfor hire.5[5]As enumerated in the Preamble of the Convention, one of the objectives

is "to regulate in a uniform manner the conditions of international transportation by

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air".6[6]The contract of carriage entered into by the private respondent withSingapore Airlines, and subsequently with the petitioner, to transport him to ninecities in different countries with New York as the final destination is a contract ofinternational transportation and the provisions of the Convention automatically applyand exclusively govern the rights and liabilities of the airline and its passengers.7[7]

This includes section 28 (1) which enumerates the four places where an action fordamages may be brought.Scs daad

The threshold issue of jurisdiction of Philippine courts under Art 28 (1) must first beresolved before any pronouncements may be made on the liability of the carrierthereunder.8[8]The objections raised by the private respondent that this case isreleased from the terms of the Convention because the incident on which this actionis predicated did not occur in the process of embarking and disembarking from thecarrier under Art 179[9]and that the employees of the petitioner airline acted withmalice and bad faith under Art 25 (1)10[10]pertain to the merits of the case which maybe examined only if the action has first been properly commenced under the rules on

jurisdiction set forth in Art. 28 (1).

Art (28) (1) of the Warsaw Convention states:Sup rema

Art 28 (1) An action for damages must be brought at the option of theplaintiff, in the territory of one of the High Contracting Parties, eitherbefore the court of the domicile of the carrier or of his principal place ofbusiness or where he has a place of business through which thecontract has been made, or before the court at the place of destination.

There is no dispute that petitioner issued the ticket in Geneva which was neither thedomicile nor the principal place of business of petitioner nor the respondents placeof destination.

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The question is whether the contract of transportation between the petitioner and theprivate respondent would be considered as a single operation and part of thecontract of transportation entered into by the latter with Singapore Airlines in Manila.

Petitioner disputes the ruling of the lower court that it is. Petitioners main argument

is that the issuance of a new ticket in Geneva created a contract of carriage separateand distinct from that entered by the private respondent in Manila.

We find the petitioners argument without merit.Juris

Art 1(3) of the Warsaw Convention which states:

"Transportation to be performed by several successive carriers shall bedeemed, for the purposes of this convention, to be one undividedtransportation, if it has been regarded by the parties as a singleoperation, whether it has been agreed upon under the form of a single

contract or a series of contracts, and it shall not lose its internationalcharacter merely because one contract or series of contracts is to beperformed entirely within the territory subject of the sovereignty,suzerainty, mandate or authority of the same High contracting Party."Sc juris

The contract of carriage between the private respondent and Singapore Airlinesalthough performed by different carriers under a series of airline tickets, includingthat issued by petitioner, constitutes a single operation. Members of the IATA areunder a general pool partnership agreement wherein they act as agent of each otherin the issuance of tickets11[11]to contracted passengers to boost ticket sales

worldwide and at the same time provide passengers easy access to airlines whichare otherwise inaccessible in some parts of the world. Booking and reservationamong airline members are allowed even by telephone and it has become anaccepted practice among them.12[12]A member airline which enters into a contract ofcarriage consisting of a series of trips to be performed by different carriers isauthorized to receive the fare for the whole trip and through the required process ofinterline settlement of accounts by way of the IATA clearing house an airline is dulycompensated for the segment of the trip serviced.13[13]Thus, when the petitioneraccepted the unused portion of the conjunction tickets, entered it in the IATA clearinghouse and undertook to transport the private respondent over the route covered bythe unused portion of the conjunction tickets,i.e.,Geneva to New York, the petitioner

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tacitly recognized its commitment under the IATA pool arrangement to act as agentof the principal contracting airline, Singapore Airlines, as to the segment of the tripthe petitioner agreed to undertake. As such, the petitioner thereby assumed theobligation to take the place of the carrier originally designated in the originalconjunction ticket. The petitioners argument that it is not a designated carrier in the

original conjunction tickets and that it issued its own ticket is not decisive of itsliability. The new ticket was simply a replacement for the unused portion of theconjunction ticket, both tickets being for the same amount of US$ 2,760 and havingthe same points of departure and destination.14[14]By constituting itself as an agentof the principal carrier the petitioners undertaking should be taken as part of asingleoperation under the contract of carriage executed by the private respondent andSingapore Airlines in Manila.

The quoted provisions of the Warsaw Convention Art. 1(3) clearly states that acontract of air transportation is taken as a single operation whether it is founded on asingle contract or a series of contracts. The number of tickets issued does not

detract from the oneness of the contract of carriage as long as the parties regard thecontract as a single operation. The evident purpose underlying this Article is topromote international air travel by facilitating the procurement of a series of contractsfor air transportation through a single principal and obligating different airlines to bebound by one contract of transportation. Petitionersacquiescence to take the placeof the original designated carrier binds it under the contract of carriage entered intoby the private respondent and Singapore Airlines in Manila.Juris sc

The third option of the plaintiff under Art 28 (1) of the Warsaw Convention e.g.,tosue in the place of business of the carrier wherein the contract was made, istherefore, Manila, and Philippine courts are clothed with jurisdiction over this case.We note that while this case was filed in Cebu and not in Manila the issue of venueis no longer an issue as the petitioner is deemed to have waived it when it presentedevidence before the trial court.

The issue raised in SP No. 31452 which is whether or not the trial court committedgrave abuse of discretion in ordering the deposition of the petitioners security officertaken in Geneva to be stricken off the record for failure of the said security officer toappear before the Philippine consul in Geneva to answer the cross-interrogatoriesfiled by the private respondent does not have to be resolved. The subsequentappearance of the said security officer before the Philippine consul in Geneva on

September 19, 1994 and the answer to the cross-interrogatories propounded by theprivate respondent was transmitted to the trial court by the Philippine consul inGeneva on September 23, 199415[15]should be deemed as full compliance with therequisites of the right of the private respondent to cross-examine the petitioners

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witness. The deposition filed by the petitioner should be reinstated as part of theevidence and considered together with the answer to the cross-interrogatories.

WHEREFORE, the judgment of the appellate court in CA-G.R. SP No. 30946 isaffirmed. The case is ordered remanded to the court of origin for further proceedings.

The decision of the appellate court in CA-G.R. SP. No. 31452 is set aside. Thedeposition of the petitioners security officer is reinstated as part of the evidence.Misjuris

SO ORDERED.

ERIKS PTE. LTD., petitioner, vs. COURT OF APPEALS and DELFIN F. ENRIQUEZ, JR.,respondents.

D E C I S I O N

PANGANIBAN, J.:

Is a foreign corporation which sold its products sixteen times over a five-monthperiod to the same Filipino buyer without first obtaining a license to do business inthe Philippines, prohibited from maintaining an action to collect payment therefor inPhilippine courts? In other words, is such foreign corporation doing business inthe Philippines without the required license and thus barred access to our courtsystem?

This is the main issue presented for resolution in the instant petition for review,

which seeks the reversal of the Decision i[1]of the Court of Appeals, Seventh Division,promulgated on January 25, 1995, in CA-G.R. CV No. 41275 which affirmed, forwant of capacity to sue, the trial courts dismissal of the collection suit instituted bypetitioner.

The Facts

Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in themanufacture and sale of elements used in sealing pumps, valves and pipes forindustrial purposes, valves and control equipment used for industrial fluid controland PVC pipes and fittings for industrial uses. In its complaint, it alleged that:ii[2]

(I)t is a corporation duly organized and existing under the laws of the Republic ofSingapore with address at 18 Pasir Panjang Road #09-01, PSA Multi-StoreyComplex, Singapore 0511. It is not licensed to do business in the Philippines andi(s) not so engaged and is suing on an isolated transaction for which it has capacityto sue x x x. (par. 1, Complaint; p. 1, Record)

On various dates covering the period January 17 -- August 16, 1989, privaterespondent Delfin Enriquez, Jr., doing business under the name and style of DelreneEB Controls Center and/or EB Karmine Commercial, ordered and received from

petitioner various elements used in sealing pumps, valves, pipes and control

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equipment, PVC pipes and fittings. The ordered materials were delivered viaairfreight under the following invoices:iii[3]

Date17 Jan 89

24 Feb 8902 Mar 89

03 Mar 8903 Mar 8910 Mar 89

21 Mar 8914 Apr 8919 Apr 89

16 Aug 89

21 Mar 8904 Apr 8914 Apr 8925 Apr 8902 May 8905 May 8915 May 89

31 May 89

Invoice No.27065

2773827855

278762787728046

282582890129001

31669

28257286012890029127292322933229497

29844

AWB No.618-7496-2941

618-7553-6672(freight & hand-ling charges perInv. 27738)

618-7553-7501618-7553-7501618-7578-3256/618-7578-3481618-7578-4634618-7741-7631

Self-collect(handcarried by buyer)

618-7578-4634618-7741-7605618-7741-7631618-7741-9720(By seafreight)618-7796-3255(Freight & hand-

ling charges perInv. 29127)

618-7796-5646

Total

AmountS$ 5,010.59

14,402.131,164.18

1,394.321,641.577,854.60

27.722,756.53

458.80

1,862.00--------------------

S$36,392.44415.50884.09

1,269.50883.80120.00

1,198.40111.94

--------------------S$ 4,989.29545.70

--------------------S$ 545.70--------------------S$ 41,927.43===========

The transfers of goods were perfected in Singapore, for private respondentsaccount, F.O.B. Singapore, with a 90-day credit term. Subsequently, demands weremade by petitioner upon private respondent to settle his account, but the latterfailed/refused to do so.

On August 28, 1991, petitioner corporation filed with the Regional Trial Court ofMakati, Branch 138,iv[4]Civil Case No. 91-2373 entitled Eriks Pte. Ltd. vs. DelfinEnriquez, Jr.for the recovery of S$41,939.63 or its equivalent in Philippinecurrency, plus interest thereon and damages. Private respondent responded with aMotion to Dismiss, contending that petitioner corporation had no legal capacity tosue. In an Order dated March 8, 1993,v[5]the trial court dismissed the action on theground that petitioner is a foreign corporation doing business in the Philippines

without a license. The dispositive portion of said order reads:vi[6]

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WHEREFORE, in view of the foregoing, the motion to dismiss is hereby GRANTEDand accordingly, the above-entitled case is hereby DISMISSED.

SO ORDERED.

On appeal, respondent Court affirmed said order as it deemed the series oftransactions between petitioner corporation and private respondent not to be an

isolated or casual transaction. Thus, respondent Court likewise found petitioner tobe without legal capacity to sue, and disposed of the appeal as follows:vii[7]

WHEREFORE, the appealed Order should be, as it is hereby AFFIRMED. Thecomplaint is dismissed. No costs.

SO ORDERED.

Hence, this petition.

The Issue

The main issue in this petition is whether petitioner-corporation may maintain anaction in Philippine courts considering that it has no license to do business in thecountry. The resolution of this issue depends on whether petitioners business withprivate respondent may be treated as isolated transactions.

Petitioner insists that the series of sales made to private respondent would stillconstitute isolated transactions despite the number of invoices covering severalseparate and distinct items sold and shipped over a span of four to five months, andthat an affirmation of respondent Courts ruling would result in injustice and unjustenrichment.

Private respondent counters that to declare petitioner as possessing capacity to suewill render nugatory the provisions of the Corporation Code and constitute a grossviolation of our laws. Thus, he argues, petitioner is undeserving of legal protection.

The Courts Ruling

The petition has no merit.

The Concept of Doing Business

The Corporation Code provides:

Sec. 133. Doing business without a license. - No foreign corporation transactingbusiness in the Philippines without a license, or its successors or assigns, shall bepermitted to maintain or intervene in any action, suit or proceeding in any court oradministrative agency of the Philippines; but such corporation may be sued or

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proceeded against before Philippine courts or administrative tribunals on any validcause of action recognized under Philippine laws.

The aforementioned provision prohibits, not merely absence of the prescribedlicense, but it also bars a foreign corporation doing business in the Philippines

without such license access to our courts.viii[8]A foreign corporation without suchlicense is not ipso factoincapacitated from bringing an action. A license is necessaryonly if it is transacting or doing businessin the country.

However, there is no definitive rule on what constitutes doing, engaging in, ortransacting business. The Corporation Code itself does not define such terms. Tofill the gap, the evolution of its statutory definition has produced a rather all-encompassing concept in Republic Act No. 7042 ix[9]in this wise:

SEC. 3. Definitions. - As used in this Act:

xxx xxx xxx

(d) the phrase doing business shall include soliciting orders, service contracts,opening offices, whether called liaison offices or branches; appointingrepresentatives or distributors domiciled in the Philippines or who in any calendaryear stay in the country for a period or periods totalling one hundred eight(y) (180)days or more; participating in the management, supervision or control of anydomestic business, firm, entity or corporation in the Philippines; and any other act oracts that imply a continuity of commercial dealings or arrangements, and

contemplate to that extent the performance of acts or works, or the exercise ofsome of the functions normally incident to, and in progressive prosecution of,commercial gain or of the purpose and object of the business organization: Provided,however, That the phrase doing business shall not be deemed to include mereinvestment as a shareholder by a foreign entity in domestic corporations dulyregistered to do business, and/or the exercise of rights as such investor; nor havinga nominee director or officer to represent its interests in such corporation; norappointing a representative or distributor domiciled in the Philippines which transactsbusiness in its own name and for its own account. (underscoring supplied)

In the durable case of The Mentholatum Co. vs. Mangaliman,this Court discoursed

on the test to determine whether a foreign company is doing business in thePhilippines, thus:x[10]

x x xThe true test, however, seems to be whether the foreign corporation iscontinuing the body or substance of the business or enterprise for which it wasorganized or whether it has substantially retired from it and turned it over toanother. (Traction Cos. v. Collectors of Int. Revenue [C.C.A., Ohio], 223 F. 984,987.] The term implies a continuity of commercial dealings and arrangements, andcontemplates, to that extent, the performance of acts or works or the exercise ofsome of the functions normally incident to, and in progressive prosecution of, the

purpose and object of its organization.] (sic) (Griffin v. Implement Dealers Mut. FireIns. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P.

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851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard MetalProducts Corp., 158 N.E. 698, 703, 327 III. 367.)

The accepted rule in jurisprudence is that each case must be judged in the light ofits own environmental circumstances.xi[11]It should be kept in mind that the purpose

of the law is to subject the foreign corporation doing business in the Philippines tothe jurisdiction of our courts. It is not to prevent the foreign corporation fromperforming single or isolated acts, but to bar it from acquiring a domicile for thepurpose of business without first taking the steps necessary to render it amenable tosuits in the local courts.

The trial court held that petitioner-corporation was doing business without a license,finding that:xii[12]

The invoices and delivery receipts covering the period of (sic) from January 17,

1989 to August 16, 1989 cannot be treated to mean a singular and isolated businesstransaction that is temporary in character. Granting that there is no distributorshipagreement between herein parties, yet by the mere fact that plaintiff, each time thatthe defendant posts an order delivers the items as evidenced by the several invoicesand receipts of various dates only indicates that plaintiff has the intention and desireto repeat the (sic) said transaction in the future in pursuit of its ordinary business.Furthermore, and if the corporation is doing that for which it was created, theamount or volume of the business done is immaterial and a single act of thatcharacter may constitute doing business. (See p. 603, Corp. Code, De Leon - 1986Ed.).

Respondent Court affirmed this finding in its assailed Decision with thisexplanation:xiii[13]

x x x Considering the factual background as laid out above, the transaction cannotbe considered as an isolated one. Note that there were 17 orders and deliveries(only sixteen per our count) over a four-month period. The appellee (privaterespondent) made separate orders at various dates. The transactions did not consistof separate deliveries for one single order. In the case at bar, the transactionsentered into by the appellant with the appellee are a series of commercial dealingswhich would signify an intent on the part of the appellant (petitioner) to do business

in the Philippines and could not by any stretch of the imagination be considered anisolated one, thus would fall under the category of doing business.

Even if We were to view, as contended by the appellant, that the transactions whichoccurred between January to August 1989, constitute a single act or isolatedbusiness transaction, this being the ordinary business of appellant corporation, it canbe said to be illegally doing or transacting business without a license. x x x Here itcan be clearly gleaned from the four-month period of transactions between appellantand appellee that it was a continuing business relationship, which would, withoutdoubt, constitute doing business without a license. For all intents and purposes,

appellant corporation is doing or transacting business in the Philippines without a

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license and that, therefore, in accordance with the specific mandate of Section 144of the Corporation Code, it has no capacity to sue. (addition ours)

We find no reason to disagree with both lower courts. More than the sheer numberof transactions entered into, a clear and unmistakable intention on the part of

petitioner to continue the body of its business in the Philippines is more thanapparent. As alleged in its complaint, it is engaged in the manufacture and sale ofelements used in sealing pumps, valves, and pipes for industrial purposes, valvesand control equipment used for industrial fluid control and PVC pipes and fittings forindustrial use. Thus, the sale by petitioner of the items covered by the receipts,which are part and parcel of its main product line, was actually carried out in theprogressive prosecution of commercial gain and the pursuit of the purpose andobject of its business, pure and simple. Further, its grant and extension of 90-daycredit terms to private respondent for every purchase made, unarguably shows anintention to continue transacting with private respondent, since in the usual course

of commercial transactions, credit is extended only to customers in good standing orto those on whom there is an intention to maintain long-term relationship. Thisbeing so, the existence of a distributorship agreement between the parties, asalleged but not proven by private respondent, would, if duly established bycompetent evidence, be merely corroborative, and failure to sufficiently prove saidallegation will not significantly affect the finding of the courts below. Nor our ownruling. It is precisely upon the set of facts above-detailed that we concur withrespondent Court that petitioner corporation was doing business in the country.

Equally important is the absence of any fact or circumstance which might tend even

remotely to negate such intention to continue the progressive prosecution ofpetitioners business activities in this country. Had private respondent not turnedout to be a bad risk, in all likelihood petitioner would have indefinitely continued itscommercial transactions with him, and not surprisingly, in ever increasing volumes.

Thus, we hold that the series of transactions in questioncould not have beenisolated or casual transactions. What is determinative of doing business is notreally the number or the quantity of the transactions, but more importantly, theintention of an entity to continue the body of its business in the country. Thenumber and quantity are merely evidence of such intention. The phrase isolatedtransaction has a definite and fixed meaning, i.e.a transaction or series oftransactions set apart from the common business of a foreign enterprise in thesense that there is no intention to engage in a progressive pursuit of the purposeand object of the business organization. Whether a foreign corporation is doingbusiness does not necessarily depend upon the frequency of its transactions, butmore upon the nature and character of the transactions.xiv[14]

Given the facts of this case, we cannot see how petitioners business dealings will fitthe category of isolated transactions considering that its intention to continue andpursue the corpus of its business in the country had been clearly established. It hasnot presented any convincing argument with equally convincing evidence for us to

rule otherwise.

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Incapacitated to Maintain Suit

Accordingly and ineluctably, petitioner must be held to be incapacitated to maintainthe action a quoagainst private respondent.

It was never the intent of the legislature to bar court access to a foreign corporationor entity which happens to obtain an isolated order for business in the Philippines.Neither, did it intend to shield debtors from their legitimate liabilities orobligations.xv[15]But it cannot allow foreign corporations or entities which conductregular business any access to courts without the fulfillment by such corporations ofthe necessary requisites to be subjected to our governments regulation andauthority. By securing a license, the foreign entity would be giving assurance that itwill abide by the decisions of our courts, even if adverse to it.

Other Remedy Still Available

By this judgment, we are not foreclosing petitioners right to collect payment. Resjudicatadoes not set in a case dismissed for lack of capacity to sue, because therehas been no determination on the merits.xvi[16]Moreover, this Court has ruled thatsubsequent acquisition of the license will cure the lack of capacity at the time of theexecution of the contract.xvii[17]

The requirement of a license is not meant to put foreign corporations at adisadvantage. Rather, the doctrine of lack of capacity to sue is based onconsiderations of sound public policy.xviii[18]Thus, it has been ruled in Home

Insurancethat:xix[19]

x x x The primary purpose of our statute is to compel a foreign corporationdesiring to do business within the state to submit itself to the jurisdiction of thecourts of this state. The statute was not intended to exclude foreign corporationsfrom the state. x x x x The better reason, the wiser and fairer policy, and thegreater weight lie with those decisions which hold that where, as here, there is aprohibition with a penalty, with no express or implied declarations respecting thevalidity of enforceability of contracts made by qualified foreign corporations, thecontracts x x x are enforceable x x x upon compliance with the law.(Peter &Burghard Stone Co. v. Carper, 172 N.E. 319 [1930].)

While we agree with petitioner that the country needs to develop trade relations andfoster friendly commercial relations with other states, we also need to enforce ourlaws that regulate the conduct of foreigners who desire to do business here. Suchstrangers must follow our laws and must subject themselves to reasonableregulation by our government.

WHEREFORE, premises considered, the instant petition is hereby DENIEDand theassailed Decision isAFFIRMED.

SO ORDERED.

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COMMUNICATION MATERIALS VS. CA Leave acomment

COMMUNICATION MATERIALS AND DESIGN, INC et al vs.CA et al.

G.R. No. 102223August 22, 1996

FACTS: Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI) andASPAC MULTI-TRADE INC., (ASPAC) are both domestic corporations.. PrivateRespondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC) arecorporations duly organized and existing under the laws of the State of Alabama,USA. There is no dispute that ITEC is a foreign corporation not licensed to dobusiness in the Philippines.

ITEC entered into a contract with ASPAC referred to as Representative Agreement.Pursuant to the contract, ITEC engaged ASPAC as its exclusive representative inthe Philippines for the sale of ITECs products, in consideration of which, ASPAC waspaid a stipulated commission. Through a License Agreement entered into by thesame parties later on, ASPAC was able to incorporate and use the name ITEC in itsown name. Thus , ASPAC Multi-Trade, Inc. became legally and publicly known asASPAC-ITEC (Philippines).One year into the second term of the parties Representative Agreement, ITECdecided to terminate the same, because petitioner ASPAC allegedly violated itscontractual commitment as stipulated in their agreements. ITEC charges the

petitioners and another Philippine Corporation, DIGITAL BASE COMMUNICATIONS,INC. (DIGITAL), the President of which is likewise petitioner Aguirre, of usingknowledge and information of ITECs products specifications to develop their ownline of equipment and product support, which are similar, if not identical to ITECsown, and offering them to ITECs former customer.

The complaint was filed with the RTC-Makati by ITEC, INC. Defendants filed a MTDthe complaint on the following grounds: (1) That plaintiff has no legal capacity tosue as it is a foreign corporation doing business in the Philippines without therequired BOI authority and SEC license, and (2) that plaintiff is simply engaged inforum shopping which justifies the application against it of the principle of forum

non conveniens. The MTD was denied.

Petitioners elevated the case to the respondent CA on a Petition for Certiorari andProhibition under Rule 65 of the Revised ROC. It was dismissed as well. MR denied,hence this Petition for Review on Certiorari under Rule 45.

ISSUE:1. Did the Philippine court acquire jurisdiction over the person of the petitioner corp,despite allegations of lack of capacity to sue because of non-registration?2. Can the Philippine court give due course to the suit or dismiss it, on the principle

of forum non convenience?

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HELD: petition dismissed.

1. YES; We are persuaded to conclude that ITEC had been engaged in or doingbusiness in the Philippines for some time now. This is the inevitable result after ascrutiny of the different contracts and agreements entered into by ITEC with its

various business contacts in the country. Its arrangements, with these entitiesindicate convincingly that ITEC is actively engaging in business in the country.

A foreign corporation doing business in the Philippines may sue in Philippine Courtsalthough not authorized to do business here against a Philippine citizen or entity whohad contracted with and benefited by said corporation. To put it in another way, aparty is estopped to challenge the personality of a corporation after havingacknowledged the same by entering into a contract with it. And the doctrine ofestoppel to deny corporate existence applies to a foreign as well as to domesticcorporations. One who has dealt with a corporation of foreign origin as a corporate

entity is estopped to deny its corporate existence and capacity.

In Antam Consolidated Inc. vs. CA et al. we expressed our chagrin over thiscommonly used scheme of defaulting local companies which are being sued byunlicensed foreign companies not engaged in business in the Philippines to invokethe lack of capacity to sue of such foreign companies. Obviously, the same ploy isresorted to by ASPAC to prevent the injunctive action filed by ITEC to enjoinpetitioner from using knowledge possibly acquired in violation of fiduciaryarrangements between the parties.

2. YES; Petitioners insistence on the dismissal of this action due to the application,or non application, of the private international law rule of forum non conveniensdefies well-settled rules of fair play. According to petitioner, the Philippine Court hasno venue to apply its discretion whether to give cognizance or not to the presentaction, because it has not acquired jurisdiction over the person of the plaintiff in thecase, the latter allegedly having no personality to sue before Philippine Courts. Thisargument is misplaced because the court has already acquired jurisdiction over theplaintiff in the suit, by virtue of his filing the original complaint. And as we havealready observed, petitioner is not at liberty to question plaintiffs standing to sue,having already acceded to the same by virtue of its entry into the RepresentativeAgreement referred to earlier.

Thus, having acquired jurisdiction, it is now for the Philippine Court, based on thefacts of the case, whether to give due course to the suit or dismiss it, on theprinciple of forum non convenience. Hence, the Philippine Court may refuse toassume jurisdiction in spite of its having acquired jurisdiction. Conversely, the courtmay assume jurisdiction over the case if it chooses to do so; provided, that thefollowing requisites are met:

1) That the Philippine Court is one to which the parties may conveniently resort to;2) That the Philippine Court is in a position to make an intelligent decision as to the

law and the facts; and,3) That the Philippine Court has or is likely to have power to enforce its decision.

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The aforesaid requirements having been met, and in view of the courts dispositionto give due course to the questioned action, the matter of the present forum notbeing the most convenient as a ground for the suits dismissal, deserves scantconsideration.

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-TRADE, INC.,(formerly ASPAC-ITEC PHILIPPINES, INC.) and FRANCISCO S. AGUIRRE,petitioners, vs. THE COURT OF APPEALS, ITEC INTERNATIONAL, INC., and ITEC,INC., respondents.

D E C I S I O N

TORRES, JR.,J.:

Business Corporations, according to Lord Coke, have no souls. They do business

peddling goods, wares or even services across national boundaries in soullessforms in quest for profits albeit at times, unwelcomed in these strange landsventuring into uncertain markets and, the risk of dealing with wily competitors.

This is one of the issues in the case at bar.

Contested in this petition for review on Certiorariis the Decision of the Court ofAppeals on June 7, 1991, sustaining the RTC Order dated February 22, 1991,denying the petitioners Motion to Dismiss, and directing the issuance of a writ ofpreliminary injunction, and its companion Resolution of October 9, 1991, denying thepetitioners Motion for Reconsideration.

Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for brevity)and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both domestic corporations,while petitioner Francisco S. Aguirre is their President and majority stockholder.Private Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC, forbrevity) are corporations duly organized and existing under the laws of the State ofAlabama, United States of America. There is no dispute that ITEC is a foreigncorporation not licensed to do business in the Philippines.

On August 14, 1987, ITEC entered into a contract with petitioner ASPAC referred to

as Representative Agreement.xx[1]Pursuant to the contract, ITEC engaged ASPACas its exclusive representative in the Philippines for the sale of ITECs products, inconsideration of which, ASPAC was paid a stipulated commission. The agreementwas signed by G.A. Clark and Francisco S. Aguirre, presidents of ITEC and ASPACrespectively, for and in behalf of their companies.xxi[2]The said agreement wasinitially for a term of twenty-four months. After the lapse of the agreed period, theagreement was renewed for another twenty-four months.

Through a License Agreementxxii[3]entered into by the same parties on November10, 1988, ASPAC was able to incorporate and use the name ITEC in its own name.

Thus, ASPAC Multi-Trade, Inc. became legally and publicly known as ASPAC-ITEC(Philippines).

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By virtue of said contracts, ASPAC sold electronic products, exported by ITEC, totheir sole customer, the Philippine Long Distance Telephone Company, (PLDT, forbrevity).

To facilitate their transactions, ASPAC, dealing under its new appellation, and PLDT

executed a document entitled PLDT-ASPAC/ITEC PROTOCOLxxiii[4]which definedthe project details for the supply of ITECs Interface Equipment in connection withthe Fifth Expansion Program of PLDT.

One year into the second term