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 seeks
to annul the decision of the Court of Appeals dated 29 November 1990 in CA-G.R. SP No. 15266 declaring petitioner's trademark to be
confusingly 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., filed
with 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 Garment
Manufacturing 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 Paris
Convention for the Protection of Industrial Property, averred that petitioner's trademark "so closely
resembled its own trademark, 'LEE' as previously registered and used in the Philippines, and not
abandoned, as to be likely, when applied to or used in connection with petitioner's goods, to cause
confusion, 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 and
unmistakably different from that of private respondent and that its certificate of registration was legally
and validly granted.
3

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

On 27 July 1984, private respondent filed a notice of opposition to petitioner's application for
registration also on grounds that petitioner's trademark was confusingly similar to its "LEE" trademark.

5
The 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 common
question 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" in
the 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 trademark
was confusingly similar to private respondent's mark because "it is the word 'Lee' which draws the
attention of the buyer and leads him to conclude that the goods originated from the same
manufacturer. 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 the
BPTTT a Motion to Stay Execution of the 19 July 1988 decision of the Director of Patents on grounds
that the same would cause it great and irreparable damage and injury. Private respondent submitted
its opposition on 22 August 1988.
9

On 23 September 1988, the BPTTT issued Resolution No. 88-33 granting petitioner's motion to stay
execution subject to the following terms and conditions:
1. That under this resolution, Respondent-Registrant is authorized only to dispose of
its 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) in
addition to its current stock;
3. That this relief Order shall automatically cease upon resolution of the Appeal by the
Court 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 shall
be 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:
xxx xxx xxx
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 of dominancy", meaning,
if the competing trademark contains the main or essential or dominant features of
another by reason of which confusion and deception are likely to result, then
infringement takes place; that duplication or imitation is not necessary, a similarity in
the dominant features of the trademark would be sufficient.
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 the
attention of the buyer and leads him to conclude that the goods originated from the
same 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 the
word "LEE" that it is not conspicuous enough to draw the attention of ordinary buyers
whereas the word "LEE" is printed across the label in big, bold letters and of the
same 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 arguendo
that the word "STYLISTIC" is conspicuous enough to draw attention, the goods may
easily 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 more
probable by the fact that both parties are engaged in the same line of business. It is
well to reiterate that the determinative factor in ascertaining whether or not the marks
are confusingly similar to each other is not whether the challenged mark would
actually cause confusion or deception of the purchasers but whether the use of such
mark would likely cause confusion or mistake on the part of the buying public.
xxx xxx xxx
The appellee has sufficiently established its right to prior use and registration of the
trademark "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 a
peculiar symbol or mark with his goods thereby acquires a property right in such
symbol or mark, and if another infringes the trademark, he thereby invokes this
property right.
The merchandise or goods being sold by the parties are not that expensive as
alleged to be by the appellant and are quite ordinary commodities purchased by the
average 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 be
guided by the presence of the striking mark "LEE". Whatever difference there may be
will pale in insignificance in the face of an evident similarity in the dominant features
and overall appearance of the labels of the parties.
12

xxx xxx xxx
On 19 December 1990, petitioner filed a motion for reconsideration of the above-mentioned decision
of the Court of Appeals.
Private respondent opposed said motion on 8 January 1991 on grounds that it involved an
impermissible 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 claim
that private respondent appropriated the style and appearance of petitioner's trademark when it
registered its "LEE" mark under Registration No. 44220.
13

On 17 May 1991, the Court of Appeals issued a resolution rejecting petitioner's motion for
reconsideration and ruled thus:
xxx xxx xxx
A defense not raised in the trial court cannot be raised on appeal for the first time. An
issue raised for the first time on appeal and not raised timely in the proceedings in the
lower court is barred by estoppel.
The object of requiring the parties to present all questions and issues to the lower
court before they can be presented to this Court is to have the lower court rule upon
them, so that this Court on appeal may determine whether or not such ruling was
erroneous. The purpose is also in furtherance of justice to require the party to first
present the question he contends for in the lower court so that the other party may
not be taken by surprise and may present evidence to properly meet the issues
raised.
Moreover, for a question to be raised on appeal, the same must also be within the
issues raised by the parties in their pleadings. Consequently, when a party
deliberately adopts a certain theory, and the case is tried and decided based upon
such 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. A
question raised for the first time on appeal, there having opportunity to raise them in
the 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 trademark
involved. 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 similar
with the petitioner's trademarks "LEE or LEERIDERS, LEE-LEENS
and LEE-SURES."
Appellant's main argument in this motion for reconsideration on the other hand is that
the appellee is estopped by laches from asserting its right to its trademark. Appellant
claims although belatedly that appellee went to court with "unclean hands" by
changing the appearance of its trademark to make it identical to the appellant's
trademark.
Neither defenses were raised by the appellant in the proceedings before the Bureau
of 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 the
appellant's appeal.
While there may be instances and situations justifying relaxation of this rule, the
circumstance of the instant case, equity would be better served by applying the
settled rule it appearing that appellant has not given any reason at all as to why the
defenses raised in its motion for reconsideration was not invoked earlier.
14

xxx xxx xxx
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 PRIVATE
RESPONDENT CAUSED THE ISSUANCE OF A FOURTH "LEE" TRADEMARK
IMITATING THAT OF THE PETITIONER'S ON MAY 5, 1989 OR MORE THAN
EIGHT MONTHS AFTER THE BUREAU OF PATENT'S DECISION DATED JULY 19,
1988.
II. THE COURT OF APPEALS ERRED IN RULING THAT THE DEFENSE OF
ESTOPPEL BY LACHES MUST BE RAISED IN THE PROCEEDINGS BEFORE THE
BUREAU OF PATENTS, TRADEMARKS AND TECHNOLOGY TRANSFER.
III. THE COURT OF APPEALS ERRED WHEN IT CONSIDERED PRIVATE
RESPONDENT'S PRIOR REGISTRATION OF ITS TRADEMARK AND
DISREGARDED THE FACT THAT PRIVATE RESPONDENT HAD FAILED TO
PROVE COMMERCIAL
USE 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'S
TRADEMARK SYTLISTIC MR. LEE, IS CONFUSINGLY SIMILAR WITH THE
PRIVATE RESPONDENT'S TRADEMARK LEE OR LEE-RIDER, LEE-LEENS AND
LEE-SURES.
II. PETITIONER'S EVIDENCES ARE CLEAR AND SUFFICIENT TO SHOW THAT IT
IS THE PRIOR USER AND ITS TRADEMARK IS DIFFERENT FROM THAT OF THE
PRIVATE RESPONDENT.
III. PETITIONER'S TRADEMARK IS ENTIRELY DIFFERENT FROM THE PRIVATE
RESPONDENT'S AND THE REGISTRATION OF ITS TRADEMARK IS PRIMA
FACIE EVIDENCE OF GOOD FAITH.
IV. PETITIONER'S "STYLISTIC MR. LEE" TRADEMARK CANNOT BE CONFUSED
WITH PRIVATE RESPONDENT'S LEE TRADEMARK.
16

Petitioner contends that private respondent is estopped from instituting an action for infringement
before 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:
Sec. 9-A. Equitable principles to govern proceedings. In opposition proceedings
and in all other inter partes proceedings in the patent office under this act, equitable
principles of laches, estoppel, and acquiescence, where applicable, may be
considered 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's
certificate of registration for the said trademark. Similarly, private respondent's notice of opposition to
petitioner'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 on
appeal, the only contention in the proceedings below being the presence or absence of confusing
similarity 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 reckoning
point, therefore, should not be 1 May 1975, the date of alleged use by petitioner of its assailed
trademark but 27 October 1980,
20
the date the certificate of registration SR No. 5054 was published
in the Official Gazette and issued to petitioner.
It was only on the date of publication and issuance of the registration certificate that private
respondent may be considered "officially" put on notice that petitioner has appropriated or is using
said mark, which, after all, is the function and purpose of registration in the supplemental register.
21

The record is bereft of evidence that private respondent was aware of petitioner's trademark before
the date of said publication and issuance. Hence, when private respondent instituted cancellation
proceedings on 18 September 1981, less than a year had passed.
Corollarily, private respondent could hardly be accused of inexcusable delay in filing its notice of
opposition to petitioner's application for registration in the principal register since said application was
published only on 20 February 1984.
22
From the time of publication to the time of filing the opposition
on 27 July 1984 barely five (5) months had elapsed. To be barred from bringing suit on grounds of
estoppel and laches, the delay must be
lengthy.
23

More crucial is the issue of confusing similarity between the two trademarks. Petitioner vehemently
contends that its trademark "STYLISTIC MR. LEE" is entirely different from and not confusingly similar
to private respondent's "LEE" trademark.
Private respondent maintains otherwise. It asserts that petitioner's trademark tends to mislead and
confuse 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 the
consent of the registrant, any reproduction, counterfeit, copy or colorable imitation of
any registered mark or trade-name in connection with the sale, offering for sale, or
advertising of any goods, business or services on or in connection with which such
use is likely to cause confusion or mistake or to deceive purchasers or others as to
the source or origin of such goods or services, or identity of such business; or
reproduce, counterfeit, copy or colorably imitable any such mark or trade-name and
apply such reproduction, counterfeit, copy, or colorable imitation to labels, signs,
prints, packages, wrappers, receptacles or advertisements intended to be used upon
or in connection with such goods, business or services; shall be liable to a civil action
by the registrant for any or all of the remedies herein provided.
Practical application, however, of the aforesaid provision is easier said than done. In the history of
trademark cases in the Philippines, particularly in ascertaining whether one trademark is confusingly
similar to or is a colorable imitation of another, no set rules can be deduced. Each case must be
decided on its own merits.
In Esso Standard Eastern, Inc. v. Court of Appeals,
24
we held:
. . . But likelihood of confusion is a relative concept; to be determined only according
to the particular, and sometimes peculiar, circumstances of each case. It is
unquestionably true that, as stated in Coburn vs. Puritan Mills, Inc.: "In trademark
cases, even more than in other litigation, precedent must be studied in the light of the
facts of the particular case."
xxx xxx xxx
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 which
must necessarily be considered in resolving this question of fact, such as the class of
product or business to which the article belongs; the product's quality, quantity, or
size, including its wrapper or container; the dominant color, style, size, form, meaning
of letters, words, designs and emblems used; the nature of the package, wrapper or
container; the character of the product's purchasers; location of the business; the
likelihood 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 term
has been defined as "such a close or ingenious imitation as to be calculated to deceive ordinary
purchasers, or such resemblance of the infringing mark to the original as to deceive an ordinary
purchaser giving such attention as a purchaser usually gives, and to cause him to purchase the one
supposing it to be the other."
26

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

In determining whether colorable imitation exists, jurisprudence has developed two kinds of tests
the Dominancy Test applied in Asia Brewery, Inc. v. Court of Appeals
28
and other cases
29
and the
Holistic Test developed in Del Monte Corporation v. Court of Appeals 30 and its proponent cases.
31

As its title implies, the test of dominancy focuses on the similarity of the prevalent features of the
competing trademarks which might cause confusion or deception and thus constitutes infringement.
xxx xxx xxx
. . . If the competing trademark contains the main or essential or dominant features of
another, and confusion and deception is likely to result, infringement takes place.
Duplication or imitation is not necessary; nor it is necessary that the infringing label
should suggest an effort to imitate. [C. Neilman Brewing Co. v. Independent Brewing
Co., 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 the
marks involved would be likely to cause confusion or mistakes in the mind of the
public or deceive purchasers. (Auburn Rubber Corporation vs. Honover Rubber Co.,
107 F. 2d 588; . . .)
32

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

xxx xxx xxx
Applying the foregoing tenets to the present controversy and taking into account the factual
circumstances of this case, we considered the trademarks involved as a whole and rule that
petitioner'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" is
prominent, the trademark should be considered as a whole and not piecemeal. The dissimilarities
between the two marks become conspicuous, noticeable and substantial enough to matter especially
in 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 pants
or jeans are not inexpensive. Accordingly, the casual buyer is predisposed to be more cautious and
discriminating in and would prefer to mull over his purchase. Confusion and deception, then, is less
likely. In Del Monte Corporation v. Court of Appeals,
34
we 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, a
person who buys a box of candies will not exercise as much care as one who buys an
expensive watch. As a general rule, an ordinary buyer does not exercise as much
prudence in buying an article for which he pays a few centavos as he does in
purchasing a more valuable thing. Expensive and valuable items are normally bought
only after deliberate, comparative and analytical investigation. But mass products, low
priced articles in wide use, and matters of everyday purchase requiring frequent
replacement are bought by the casual consumer without great
care. . . .
Second, like his beer, the average Filipino consumer generally buys his jeans by brand. He does not
ask 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 be
distracted.
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 Bok
35
is better suited to the present case. There,
the "ordinary purchaser" was defined as one "accustomed to buy, and therefore to some extent
familiar with, the goods in question. The test of fraudulent simulation is to be found in the likelihood of
the deception of some persons in some measure acquainted with an established design and desirous
of purchasing the commodity with which that design has been associated. The test is not found in the
deception, or the possibility of deception, of the person who knows nothing about the design which
has been counterfeited, and who must be indifferent between that and the other. The simulation, in
order to be objectionable, must be such as appears likely to mislead the ordinary intelligent buyer who
has 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 mistaken
as "another variation or line of garments under private respondent's 'LEE' trademark".
36
As one would
readily observe, private respondent's variation follows a standard format "LEERIDERS," "LEESURES"
and "LEELEENS." It is, therefore, improbable that the public would immediately and naturally
conclude 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 by
considering the distinct characteristics of each case. In the present controversy, taking into account
these unique factors, we conclude that the similarities in the trademarks in question are not sufficient
as 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 what
marks 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 principal
register. There is hereby established a register of trade-marks, trade-names and
service-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 services
from the goods, business or services of others shall have the right to register the
same on the principal register, unless it:
xxx xxx xxx
(e) Consists of a mark or trade-name which, when applied to or used in connection
with the goods, business or services of the applicant is merely descriptive or
deceptively misdescriptive of them, or when applied to or used in connection with the
goods, business or services of the applicant is primarily geographically descriptive or
deceptively misdescriptive of them, or is primarily merely a surname; (Emphasis
ours.)
xxx xxx xxx
"LEE" is primarily a surname. Private respondent cannot, therefore, acquire exclusive ownership over
and singular use of said term.
. . . It has been held that a personal name or surname may not be monopolized as a
trademark or tradename as against others of the same name or surname. For in the
absence of contract, fraud, or estoppel, any man may use his name or surname in all
legitimate ways. Thus, "Wellington" is a surname, and its first user has no cause of
action against the junior user of "Wellington" as it is incapable of exclusive
appropriation.
37

In addition to the foregoing, we are constrained to agree with petitioner's contention that private
respondent 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 said
mark.
Actual use in commerce in the Philippines is an essential prerequisite for the acquisition of ownership
over a trademark pursuant to Sec. 2 and 2-A of the Philippine Trademark Law (R.A. No. 166) which
explicitly provides that:
CHAPTER II. Registration of Marks and Trade-names.
Sec. 2. What are registrable. Trade-marks, trade-names, and service marks
owned by persons, corporations, partnerships or associations domiciled in the
Philippines and by persons, corporations, partnerships, or associations domiciled in
any 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 in
commerce and services not less than two months in the Philippines before the time
the applications for registration are filed: And Provided, further, That the country of
which the applicant for registration is a citizen grants by law substantially similar
privileges to citizens of the Philippines, and such fact is officially certified, with a
certified true copy of the foreign law translated into the English language, by the
government of the foreign country to the Government of the Republic of the
Philippines. (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 who
engages in lawful business, or who renders any lawful service in commerce, by actual
use hereof in manufacture or trade, in business, and in the service rendered; may
appropriate to his exclusive use a trade-mark, a trade-name, or a service-mark not so
appropriated by another, to distinguish his merchandise, business or services from
others. The ownership or possession of trade-mark, trade-name, service-mark,
heretofore or hereafter appropriated, as in this section provided, shall be recognized
and protected in the same manner and to the same extent as are other property
rights to the law. (As amended.) (Emphasis ours.)
The provisions of the 1965 Paris Convention for the Protection of Industrial Property
38
relied upon by
private respondent and Sec. 21-A of the Trademark Law (R.A. No. 166)
39
were sufficiently expounded
upon and qualified in the recent case of Philip Morris, Inc. v. Court of Appeals:
40

xxx xxx xxx
Following universal acquiescence and comity, our municipal law on trademarks
regarding the requirement of actual use in the Philippines must subordinate an
international agreement inasmuch as the apparent clash is being decided by a
municipal tribunal (Mortisen vs. Peters, Great Britain, High Court of Judiciary of
Scotland, 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 law
of the land does not by any means imply the primacy of international law over
national law in the municipal sphere. Under the doctrine of incorporation as applied in
most countries, rules of international law are given a standing equal, not superior, to
national legislative enactments.
xxx xxx xxx
In other words, (a foreign corporation) may have the capacity to sue for infringement
irrespective of lack of business activity in the Philippines on account of Section 21-A
of the Trademark Law but the question of whether they have an exclusive right over
their symbol as to justify issuance of the controversial writ will depend on actual use
of 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 not
licensed 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 a
foreign corporation may have the personality to file a suit for infringement but it may
not necessarily be entitled to protection due to absence of actual use of the emblem
in the local market.
xxx xxx xxx
Undisputably, private respondent is the senior registrant, having obtained several registration
certificates for its various trademarks "LEE," "LEERIDERS," and "LEESURES" in both the
supplemental and principal registers, as early as 1969 to 1973.
41
However, registration alone will not
suffice. In Sterling Products International, Inc. v. Farbenfabriken Bayer Aktiengesellschaft,
42
we
declared:
xxx xxx xxx
A rule widely accepted and firmly entrenched because it has come down through the
years is that actual use in commerce or business is a prerequisite in the acquisition of
the right of ownership over a trademark.
xxx xxx xxx
It would seem quite clear that adoption alone of a trademark would not give exclusive
right thereto. Such right "grows out of their actual use." Adoption is not use. One may
make advertisements, issue circulars, give out price lists on certain goods; but these
alone would not give exclusive right of use. For trademark is a creation of use. The
underlying reason for all these is that purchasers have come to understand the mark
as indicating the origin of the wares. Flowing from this is the trader's right to
protection in the trade he has built up and the goodwill he has accumulated from use
of the trademark. Registration of a trademark, of course, has value: it is an
administrative act declaratory of a pre-existing right. Registration does not, however,
perfect a trademark right. (Emphasis ours.)
xxx xxx xxx
To augment its arguments that it was, not only the prior registrant, but also the prior user, private
respondent invokes Sec. 20 of the Trademark Law, thus:
Sec. 20. Certificate of registration prima facie evidence of validity. A certificate of
registration of a mark or tradename shall be a prima facie evidence of the validity of
the registration, the registrant's ownership of the mark or trade-name, and of the
registrant's exclusive right to use the same in connection with the goods, business or
services specified in the certificate, subject to any conditions and limitations stated
therein.
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 as prima
facie 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.
43

Registrations in the supplemental register do not enjoy a similar privilege. A supplemental register
was created precisely for the registration of marks which are not registrable on the principal register
due to some defects.
44

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

In the case at bench, however, we reverse the findings of the Director of Patents and the Court of
Appeals. After a meticulous study of the records, we observe that the Director of Patents and the
Court of Appeals relied mainly on the registration certificates as proof of use by private respondent of
the trademark "LEE" which, as we have previously discussed are not sufficient. We cannot give
credence to private respondent's claim that its "LEE" mark first reached the Philippines in the 1960's
through local sales by the Post Exchanges of the U.S. Military Bases in the Philippines
46
based 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.
47
Similarly,
we give little weight to the numerous
vouchers representing various advertising expenses in the Philippines for "LEE" products.
48
It is well
to note that these expenses were incurred only in 1981 and 1982 by LEE (Phils.), Inc. after it entered
into 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 jeans
and other garments adopting its "STYLISTIC MR. LEE" trademark since 1975 as evidenced by
appropriate sales invoices to various stores and retailers.
50

Our rulings in Pagasa Industrial Corp. v. Court of Appeals 51 and Converse Rubber Corp. v. Universal Rubber
Products, Inc.,
52
respectively, are instructive:
The Trademark Law is very clear. It requires actual commercial use of the mark prior
to its registration. There is no dispute that respondent corporation was the first
registrant, yet it failed to fully substantiate its claim that it used in trade or business in
the Philippines the subject mark; it did not present proof to invest it with exclusive,
continuous adoption of the trademark which should consist among others, of
considerable sales since its first use. The invoices submitted by respondent which
were dated way back in 1957 show that the zippers sent to the Philippines were to be
used as "samples" and "of no commercial value." The evidence for respondent must
be clear, definite and free from inconsistencies. "Samples" are not for sale and
therefore, the fact of exporting them to the Philippines cannot be considered to be
equivalent to the "use" contemplated by law. Respondent did not expect income from
such "samples." There were no receipts to establish sale, and no proof were
presented 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's
product in the country and that there was actual use for a protracted period of
petitioner'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 of
its own mark and for failure to establish confusing similarity between said trademarks, private
respondent's action for infringement must necessarily fail.
WHEREFORE, premises considered, the questioned decision and resolution are hereby REVERSED
and SET ASIDE.
SO ORDERED.
EMERALD GARMENT MANUFACTURING CORPORATION vs. HON. COURT OF
APPEALS, 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
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 of
petitioner Emerald Garment Manufacturing Corporation.

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

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, using the test of dominancy, declared that petitioner's trademark was
confusingly similar to private respondent's mark because "it is the word 'Lee' which
draws the attention of the buyer and leads him to conclude that the goods originated
from 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 of
dominancy", meaning, if the competing trademark contains the main or essential or
dominant features of another by reason of which confusion and deception are likely
to 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 the
attention of the buyer and leads him to conclude that the goods originated from the
same manufacturer. The alleged difference is too insubstantial to be noticeable. The
likelihood of confusion is further made more probable by the fact that both parties are
engaged in the same line of business.

Although the Court decided in favor of the respondent, the appellee has
sufficiently established its right to prior use and registration of the trademark "LEE" in
the Philippines and is thus entitled to protection from any infringement upon the
same. 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 Emerald
Garment Manufacturing (domiciled in the Phil) for the trademark Stylistic Mr. Lee,
which according to HD Lee Co. closely resembled its own trademark Lee and thus
would cause confusion, mistake and deception to the purchasing public. The Director
of Patents granted the cancellation on the ground that petitioners trademark was
confusingly similar to private respondents mark because it is the word Lee which
draws the attention of the buyer and leads him to conclude that the goods
originated from the same manufacturer. It is undeniably the dominant feature of the
mark. The CA affirmed.

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

Held: Negative for lack of adequate proof of actual use of its trademark in the
Philippines prior to Emeralds use of its own mark and for failure to establish
confusing similarity between said trademarks, HD Lee Cos action for infringement
must necessarily fail.
Ratio:
Emeralds Stylistic Mr. Lee is not confusingly similar to private respondents LEE
trademark. Colorable imitation DOES NOT APPLY because:
1. Petitioners trademark is the whole STYLISTIC MR. LEE. Although on its label
the word LEE is prominent, the trademark should be considered as a whole and
not piecemeal. The dissimilarities between the two marks become conspicuous,
noticeable and substantial enough to matter especially in the light of the following
variables 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, acquire
exclusive ownership over and singular use of said term.
3. After a meticulous study of the records, the SC observes that the Director of
Patents and the Court of Appeals relied mainly on the registration certificates as
proof 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
original as to deceive an ordinary purchaser giving such attention as a purchaser
usually 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, petitioner, 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 rendered
by 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 the
Regional Trial Court of Cebu and Democrito Mendoza, petitions for certiorari and
prohibition. In SP no. 30946, the petitioner assails the trial courts order denying the
petitioners motion to dismiss the action for damages filed by the private respondent
for 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 the
record the deposition of the petitioners security officer taken in Geneva, Switzerland
for failure of the said security officer to answer the cross interrogatories propounded
by the private respondent. Ncm
The sole issue raised in SP No. 30946 is the questioned jurisdiction of the Regional
Trial Court of Cebu to take cognizance of the action for damages filed by the private
respondent against herein petitioner in view of Art 28 (1) of the Warsaw
Convention.1[1] It is undisputed that the private respondent purchased from
Singapore Airlines in Manila conjunction tickets for Manila - Singapore - Athens -
Larnaca - Rome - Turin - Zurich - Geneva - Copenhagen - New York. The petitioner
was not a participating airline in any of the segments in the itinerary under the said
conjunction tickets. In Geneva the petitioner decided to forego his trip to
Copenhagen and to go straight to New York and in the absence of a direct flight
under 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-way
ticket from Geneva to New York from the petitioner airline. Petitioner issued its own
ticket to the private respondent in Geneva and claimed the value of the unused
portion of the conjunction ticket from the IATA2[2] clearing house in Geneva. Ncmmis





In September 1989, private respondent filed an action for damages before the
regional trial court of Cebu for the alleged embarassment and mental anguish he
suffered at the Geneva Airport when the petitioners security officers prevented him
from boarding the plane, detained him for about an hour and allowed him to board
the 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 said
proceedings under Art. 28 (1) of the Warsaw Convention. The trial court denied the
motion. The order of denial was elevated to the Court of Appeals which affirmed the
ruling of the trial court. Both the trial and that appellate courts held that the suit may
be brought in the Philippines under the pool partnership agreement among the IATA
members, which include Singapore Airlines and American Airlines, wherein the
members act as agents of each other in the issuance of tickets to those who may
need their services. The contract of carriage perfected in Manila between the private
respondent and Singapore Airlines binds the petitioner as an agent of Singapore
Airlines and considering that the petitioner has a place of business in Manila, the
third 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 a
place of business, is applicable. Hence this petition assailing the order upholding the
jurisdiction of Philippine courts over the instant action. Scnc m
Both parties filed simultaneous memoranda pursuant to the resolution of this Court
giving due course to the petition.
The petitioners theory is as follows: Under Art 28 (1) of the Warsaw convention an
action for damages must be brought at the option of the plaintiff either before the
court 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 was
made; 4) the place of destination. The petitioner asserts that the Philippines is
neither the domicile nor the principal place of business of the defendant airline; nor is
it the place of destination. As regards the third option of the plaintiff, the petitioner
contends that since the Philippines is not the place where the contract of carriage
was made between the parties herein, Philippine courts do not have jurisdiction over
this action for damages. The issuance of petitioners own ticket in Geneva in
exchange for the conjunction ticket issued by Singapore Airlines for the final leg of
the private respondents trip gave rise to a separate and distinct contract of carriage
from 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 Singapore
Airlines was terminated and a second contract was perfected. Moreover, the second
contract of carriage cannot be deemed to have been an extension of the first as the
petitioner airline is not a participating airline in any of the destinations under the first
contract. The petitioner claims that the private respondents argument that the
petitioner is bound under the IATA Rules as agent of the principal airline is irrelevant
and the alleged bad faith of the airline does not remove the case from the
applicability of the Warsaw Convention. Further, the IATA Rule cited by the private
respondent which is admittedly printed on the ticket issued by the petitioner to him
which 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 Singapore
Airlines nor the petitioner issued a ticket to the private respondent covering the route
of the other. Since the conjunction tickets issued by Singapore Airlines do not
include the route covered by the ticket issued by the petitioner, the petitioner airline
submits 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 be
held liable for damages if the "accident" occurred on board the airline or in the
course 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 caused
by the "willful misconduct" of the carrier. He argues that his cause of action is based
on the incident at the pre-departure area of the Geneva airport and not during the
process of embarking nor disembarking from the carrier and that security officers of
the petitioner airline acted in bad faith. Accordingly, this case is released from the
terms of the Convention. Private respondent argues that assuming that the
convention applies, his trip to nine cities in different countries performed by different
carriers 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 New
York with the petitioner airline is part and parcel of the original contract of carriage
perfected in Manila. Thus, the third option of the plaintiff under Art. 28 (1) e.g., where
the 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 private
respondent seeks affirmance of the ruling of the lower courts that the petitioner acted
as an agent of Singapore Airlines under the IATA Rules and as an agent of the
principal carrier the petitioner may be held liable under the contract of carriage
perfected in Manila, citing the judicial admission made by the petitioner that it
claimed the value of the unused portion of the private respondents conjunction
tickets from the IATA Clearing House in Geneva where the accounts of both airlines
are respectively credited and debited. Accordingly, the petitioner cannot now deny
the contract of agency with Singapore Airlines after it honored the conjunction tickets
issued by the latter. Sdaad
The petition is without merit.
The Warsaw Convention to which the Republic of the Philippines is a party and
which has the force and effect of law in this country applies to all international
transportation of persons, baggage or goods performed by an aircraft gratuitously or
for 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







air".6[6] The contract of carriage entered into by the private respondent with
Singapore Airlines, and subsequently with the petitioner, to transport him to nine
cities in different countries with New York as the final destination is a contract of
international transportation and the provisions of the Convention automatically apply
and 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 for
damages may be brought. Scs daad
The threshold issue of jurisdiction of Philippine courts under Art 28 (1) must first be
resolved before any pronouncements may be made on the liability of the carrier
thereunder.8[8] The objections raised by the private respondent that this case is
released from the terms of the Convention because the incident on which this action
is predicated did not occur in the process of embarking and disembarking from the
carrier under Art 179[9] and that the employees of the petitioner airline acted with
malice and bad faith under Art 25 (1)10[10] pertain to the merits of the case which may
be 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 the
plaintiff, in the territory of one of the High Contracting Parties, either
before the court of the domicile of the carrier or of his principal place of
business or where he has a place of business through which the
contract 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 the
domicile nor the principal place of business of petitioner nor the respondents place
of destination.











The question is whether the contract of transportation between the petitioner and the
private respondent would be considered as a single operation and part of the
contract 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 separate
and 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 be
deemed, for the purposes of this convention, to be one undivided
transportation, if it has been regarded by the parties as a single
operation, whether it has been agreed upon under the form of a single
contract or a series of contracts, and it shall not lose its international
character merely because one contract or series of contracts is to be
performed 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 Airlines
although performed by different carriers under a series of airline tickets, including
that issued by petitioner, constitutes a single operation. Members of the IATA are
under a general pool partnership agreement wherein they act as agent of each other
in the issuance of tickets11[11] to contracted passengers to boost ticket sales
worldwide and at the same time provide passengers easy access to airlines which
are otherwise inaccessible in some parts of the world. Booking and reservation
among airline members are allowed even by telephone and it has become an
accepted practice among them.12[12] A member airline which enters into a contract of
carriage consisting of a series of trips to be performed by different carriers is
authorized to receive the fare for the whole trip and through the required process of
interline settlement of accounts by way of the IATA clearing house an airline is duly
compensated for the segment of the trip serviced.13[13] Thus, when the petitioner
accepted the unused portion of the conjunction tickets, entered it in the IATA clearing
house and undertook to transport the private respondent over the route covered by
the unused portion of the conjunction tickets, i.e., Geneva to New York, the petitioner







tacitly recognized its commitment under the IATA pool arrangement to act as agent
of the principal contracting airline, Singapore Airlines, as to the segment of the trip
the petitioner agreed to undertake. As such, the petitioner thereby assumed the
obligation to take the place of the carrier originally designated in the original
conjunction 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 its
liability. The new ticket was simply a replacement for the unused portion of the
conjunction ticket, both tickets being for the same amount of US$ 2,760 and having
the same points of departure and destination.14[14] By constituting itself as an agent
of the principal carrier the petitioners undertaking should be taken as part of a single
operation under the contract of carriage executed by the private respondent and
Singapore Airlines in Manila.
The quoted provisions of the Warsaw Convention Art. 1(3) clearly states that a
contract of air transportation is taken as a single operation whether it is founded on a
single 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 the
contract as a single operation. The evident purpose underlying this Article is to
promote international air travel by facilitating the procurement of a series of contracts
for air transportation through a single principal and obligating different airlines to be
bound by one contract of transportation. Petitioners acquiescence to take the place
of the original designated carrier binds it under the contract of carriage entered into
by 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., to
sue in the place of business of the carrier wherein the contract was made, is
therefore, 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 venue
is no longer an issue as the petitioner is deemed to have waived it when it presented
evidence before the trial court.
The issue raised in SP No. 31452 which is whether or not the trial court committed
grave abuse of discretion in ordering the deposition of the petitioners security officer
taken in Geneva to be stricken off the record for failure of the said security officer to
appear before the Philippine consul in Geneva to answer the cross-interrogatories
filed by the private respondent does not have to be resolved. The subsequent
appearance of the said security officer before the Philippine consul in Geneva on
September 19, 1994 and the answer to the cross-interrogatories propounded by the
private respondent was transmitted to the trial court by the Philippine consul in
Geneva on September 23, 199415[15] should be deemed as full compliance with the
requisites of the right of the private respondent to cross-examine the petitioners





witness. The deposition filed by the petitioner should be reinstated as part of the
evidence and considered together with the answer to the cross-interrogatories.
WHEREFORE, the judgment of the appellate court in CA-G.R. SP No. 30946 is
affirmed. 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. The
deposition of the petitioners security officer is reinstated as part of the evidence. Misj
uris
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-month
period to the same Filipino buyer without first obtaining a license to do business in
the Philippines, prohibited from maintaining an action to collect payment therefor in
Philippine courts? In other words, is such foreign corporation doing business in
the Philippines without the required license and thus barred access to our court
system?
This is the main issue presented for resolution in the instant petition for review,
which seeks the reversal of the Decisioni[1] of the Court of Appeals, Seventh Division,
promulgated on January 25, 1995, in CA-G.R. CV No. 41275 which affirmed, for
want of capacity to sue, the trial courts dismissal of the collection suit instituted by
petitioner.
The Facts
Petitioner Eriks Pte. Ltd. is a non-resident foreign corporation engaged in the
manufacture and sale of elements used in sealing pumps, valves and pipes for
industrial purposes, valves and control equipment used for industrial fluid control
and 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 of
Singapore with address at 18 Pasir Panjang Road #09-01, PSA Multi-Storey
Complex, Singapore 0511. It is not licensed to do business in the Philippines and
i(s) not so engaged and is suing on an isolated transaction for which it has capacity
to sue x x x. (par. 1, Complaint; p. 1, Record)
On various dates covering the period January 17 -- August 16, 1989, private
respondent Delfin Enriquez, Jr., doing business under the name and style of Delrene
EB Controls Center and/or EB Karmine Commercial, ordered and received from
petitioner various elements used in sealing pumps, valves, pipes and control
equipment, PVC pipes and fittings. The ordered materials were delivered via
airfreight under the following invoices:iii[3]
Date
17 Jan 89
24 Feb 89
02 Mar 89

03 Mar 89
03 Mar 89
10 Mar 89

21 Mar 89
14 Apr 89
19 Apr 89
16 Aug 89


21 Mar 89
04 Apr 89
14 Apr 89
25 Apr 89
02 May 89
05 May 89
15 May 89


31 May 89
Invoice No.
27065
27738
27855

27876
27877
28046

28258
28901
29001
31669


28257
28601
28900
29127
29232
29332
29497


29844
AWB No.
618-7496-2941
618-7553-6672
(freight & hand-
ling charges per
Inv. 27738)
618-7553-7501
618-7553-7501
618-7578-3256/
618-7578-3481
618-7578-4634
618-7741-7631
Self-collect
(handcarried by buyer)

618-7578-4634
618-7741-7605
618-7741-7631
618-7741-9720
(By seafreight)
618-7796-3255
(Freight & hand-
ling charges per
Inv. 29127)

618-7796-5646


Total
Amount
S$ 5,010.59
14,402.13
1,164.18

1,394.32
1,641.57
7,854.60

27.72
2,756.53
458.80
1,862.00
--------------------
S$36,392.44
415.50
884.09
1,269.50
883.80
120.00
1,198.40
111.94
--------------------
S$ 4,989.29
545.70
--------------------
S$ 545.70
--------------------
S$ 41,927.43
===========
The transfers of goods were perfected in Singapore, for private respondents
account, F.O.B. Singapore, with a 90-day credit term. Subsequently, demands were
made by petitioner upon private respondent to settle his account, but the latter
failed/refused to do so.
On August 28, 1991, petitioner corporation filed with the Regional Trial Court of
Makati, Branch 138,iv[4] Civil Case No. 91-2373 entitled Eriks Pte. Ltd. vs. Delfin
Enriquez, Jr. for the recovery of S$41,939.63 or its equivalent in Philippine
currency, plus interest thereon and damages. Private respondent responded with a
Motion to Dismiss, contending that petitioner corporation had no legal capacity to
sue. In an Order dated March 8, 1993,v[5] the trial court dismissed the action on the
ground that petitioner is a foreign corporation doing business in the Philippines
without a license. The dispositive portion of said order reads:vi[6]
WHEREFORE, in view of the foregoing, the motion to dismiss is hereby GRANTED
and accordingly, the above-entitled case is hereby DISMISSED.
SO ORDERED.
On appeal, respondent Court affirmed said order as it deemed the series of
transactions between petitioner corporation and private respondent not to be an
isolated or casual transaction. Thus, respondent Court likewise found petitioner to
be 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. The
complaint is dismissed. No costs.
SO ORDERED.
Hence, this petition.
The Issue
The main issue in this petition is whether petitioner-corporation may maintain an
action in Philippine courts considering that it has no license to do business in the
country. The resolution of this issue depends on whether petitioners business with
private respondent may be treated as isolated transactions.
Petitioner insists that the series of sales made to private respondent would still
constitute isolated transactions despite the number of invoices covering several
separate and distinct items sold and shipped over a span of four to five months, and
that an affirmation of respondent Courts ruling would result in injustice and unjust
enrichment.
Private respondent counters that to declare petitioner as possessing capacity to sue
will render nugatory the provisions of the Corporation Code and constitute a gross
violation 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 transacting
business in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any court or
administrative agency of the Philippines; but such corporation may be sued or
proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
The aforementioned provision prohibits, not merely absence of the prescribed
license, 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 such
license is not ipso facto incapacitated from bringing an action. A license is necessary
only if it is transacting or doing business in the country.
However, there is no definitive rule on what constitutes doing, engaging in, or
transacting business. The Corporation Code itself does not define such terms. To
fill the gap, the evolution of its statutory definition has produced a rather all-
encompassing concept in Republic Act No. 7042ix[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; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year 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 any
domestic business, firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the exercise of
some 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 mere
investment as a shareholder by a foreign entity in domestic corporations duly
registered to do business, and/or the exercise of rights as such investor; nor having
a nominee director or officer to represent its interests in such corporation; nor
appointing a representative or distributor domiciled in the Philippines which transacts
business 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 the
Philippines, thus:x[10]
x x x The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was
organized or whether it has substantially retired from it and turned it over to
another. (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, and
contemplates, to that extent, the performance of acts or works or the exercise of
some of the functions normally incident to, and in progressive prosecution of, the
purpose and object of its organization.] (sic) (Griffin v. Implement Dealers Mut. Fire
Ins. Co., 241 N.W. 75, 77; Pauline Oil & Gas Co. v. Mutual Tank Line Co., 246 P.
851, 852, 118 Okl. 111; Automotive Material Co. v. American Standard Metal
Products Corp., 158 N.E. 698, 703, 327 III. 367.)
The accepted rule in jurisprudence is that each case must be judged in the light of
its 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 to
the jurisdiction of our courts. It is not to prevent the foreign corporation from
performing single or isolated acts, but to bar it from acquiring a domicile for the
purpose of business without first taking the steps necessary to render it amenable to
suits 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 business
transaction that is temporary in character. Granting that there is no distributorship
agreement between herein parties, yet by the mere fact that plaintiff, each time that
the defendant posts an order delivers the items as evidenced by the several invoices
and receipts of various dates only indicates that plaintiff has the intention and desire
to 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, the
amount or volume of the business done is immaterial and a single act of that
character may constitute doing business. (See p. 603, Corp. Code, De Leon - 1986
Ed.).
Respondent Court affirmed this finding in its assailed Decision with this
explanation:xiii[13]
x x x Considering the factual background as laid out above, the transaction cannot
be 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 (private
respondent) made separate orders at various dates. The transactions did not consist
of separate deliveries for one single order. In the case at bar, the transactions
entered into by the appellant with the appellee are a series of commercial dealings
which 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 an
isolated one, thus would fall under the category of doing business.
Even if We were to view, as contended by the appellant, that the transactions which
occurred between January to August 1989, constitute a single act or isolated
business transaction, this being the ordinary business of appellant corporation, it can
be said to be illegally doing or transacting business without a license. x x x Here it
can be clearly gleaned from the four-month period of transactions between appellant
and appellee that it was a continuing business relationship, which would, without
doubt, constitute doing business without a license. For all intents and purposes,
appellant corporation is doing or transacting business in the Philippines without a
license and that, therefore, in accordance with the specific mandate of Section 144
of 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 number
of 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 than
apparent. As alleged in its complaint, it is engaged in the manufacture and sale of
elements used in sealing pumps, valves, and pipes for industrial purposes, valves
and control equipment used for industrial fluid control and PVC pipes and fittings for
industrial 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 the
progressive prosecution of commercial gain and the pursuit of the purpose and
object of its business, pure and simple. Further, its grant and extension of 90-day
credit terms to private respondent for every purchase made, unarguably shows an
intention to continue transacting with private respondent, since in the usual course
of commercial transactions, credit is extended only to customers in good standing or
to those on whom there is an intention to maintain long-term relationship. This
being so, the existence of a distributorship agreement between the parties, as
alleged but not proven by private respondent, would, if duly established by
competent evidence, be merely corroborative, and failure to sufficiently prove said
allegation will not significantly affect the finding of the courts below. Nor our own
ruling. It is precisely upon the set of facts above-detailed that we concur with
respondent 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 of
petitioners business activities in this country. Had private respondent not turned
out to be a bad risk, in all likelihood petitioner would have indefinitely continued its
commercial transactions with him, and not surprisingly, in ever increasing volumes.
Thus, we hold that the series of transactions in question could not have been
isolated or casual transactions. What is determinative of doing business is not
really the number or the quantity of the transactions, but more importantly, the
intention of an entity to continue the body of its business in the country. The
number and quantity are merely evidence of such intention. The phrase isolated
transaction has a definite and fixed meaning, i.e. a transaction or series of
transactions set apart from the common business of a foreign enterprise in the
sense that there is no intention to engage in a progressive pursuit of the purpose
and object of the business organization. Whether a foreign corporation is doing
business does not necessarily depend upon the frequency of its transactions, but
more upon the nature and character of the transactions.xiv[14]
Given the facts of this case, we cannot see how petitioners business dealings will fit
the category of isolated transactions considering that its intention to continue and
pursue the corpus of its business in the country had been clearly established. It has
not presented any convincing argument with equally convincing evidence for us to
rule otherwise.
Incapacitated to Maintain Suit
Accordingly and ineluctably, petitioner must be held to be incapacitated to maintain
the action a quo against private respondent.
It was never the intent of the legislature to bar court access to a foreign corporation
or entity which happens to obtain an isolated order for business in the Philippines.
Neither, did it intend to shield debtors from their legitimate liabilities or
obligations.xv[15] But it cannot allow foreign corporations or entities which conduct
regular business any access to courts without the fulfillment by such corporations of
the necessary requisites to be subjected to our governments regulation and
authority. By securing a license, the foreign entity would be giving assurance that it
will 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. Res
judicata does not set in a case dismissed for lack of capacity to sue, because there
has been no determination on the merits.xvi[16] Moreover, this Court has ruled that
subsequent acquisition of the license will cure the lack of capacity at the time of the
execution of the contract.xvii[17]
The requirement of a license is not meant to put foreign corporations at a
disadvantage. Rather, the doctrine of lack of capacity to sue is based on
considerations of sound public policy.xviii[18] Thus, it has been ruled in Home
Insurance that:xix[19]
x x x The primary purpose of our statute is to compel a foreign corporation
desiring to do business within the state to submit itself to the jurisdiction of the
courts of this state. The statute was not intended to exclude foreign corporations
from the state. x x x x The better reason, the wiser and fairer policy, and the
greater weight lie with those decisions which hold that where, as here, there is a
prohibition with a penalty, with no express or implied declarations respecting the
validity of enforceability of contracts made by qualified foreign corporations, the
contracts 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 and
foster friendly commercial relations with other states, we also need to enforce our
laws that regulate the conduct of foreigners who desire to do business here. Such
strangers must follow our laws and must subject themselves to reasonable
regulation by our government.
WHEREFORE, premises considered, the instant petition is hereby DENIED and the
assailed Decision is AFFIRMED.
SO ORDERED.
COMMUNICATION MATERIALS VS. CA Leave a
comment
COMMUNICATION MATERIALS AND DESIGN, INC et al vs.CA et al.
G.R. No. 102223
August 22, 1996
FACTS: Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI) and
ASPAC MULTI-TRADE INC., (ASPAC) are both domestic corporations.. Private
Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC) are
corporations 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 do
business 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 in
the Philippines for the sale of ITECs products, in consideration of which, ASPAC was
paid a stipulated commission. Through a License Agreement entered into by the
same parties later on, 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).
One year into the second term of the parties Representative Agreement, ITEC
decided to terminate the same, because petitioner ASPAC allegedly violated its
contractual 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 using
knowledge and information of ITECs products specifications to develop their own
line of equipment and product support, which are similar, if not identical to ITECs
own, and offering them to ITECs former customer.
The complaint was filed with the RTC-Makati by ITEC, INC. Defendants filed a MTD
the complaint on the following grounds: (1) That plaintiff has no legal capacity to
sue as it is a foreign corporation doing business in the Philippines without the
required BOI authority and SEC license, and (2) that plaintiff is simply engaged in
forum 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 and
Prohibition 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?
HELD: petition dismissed.
1. YES; We are persuaded to conclude that ITEC had been engaged in or doing
business in the Philippines for some time now. This is the inevitable result after a
scrutiny of the different contracts and agreements entered into by ITEC with its
various business contacts in the country. Its arrangements, with these entities
indicate convincingly that ITEC is actively engaging in business in the country.
A foreign corporation doing business in the Philippines may sue in Philippine Courts
although not authorized to do business here against a Philippine citizen or entity who
had contracted with and benefited by said corporation. To put it in another way, a
party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the doctrine of
estoppel to deny corporate existence applies to a foreign as well as to domestic
corporations. 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 this
commonly used scheme of defaulting local companies which are being sued by
unlicensed foreign companies not engaged in business in the Philippines to invoke
the lack of capacity to sue of such foreign companies. Obviously, the same ploy is
resorted to by ASPAC to prevent the injunctive action filed by ITEC to enjoin
petitioner from using knowledge possibly acquired in violation of fiduciary
arrangements 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 conveniens
defies well-settled rules of fair play. According to petitioner, the Philippine Court has
no venue to apply its discretion whether to give cognizance or not to the present
action, because it has not acquired jurisdiction over the person of the plaintiff in the
case, the latter allegedly having no personality to sue before Philippine Courts. This
argument is misplaced because the court has already acquired jurisdiction over the
plaintiff in the suit, by virtue of his filing the original complaint. And as we have
already 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 Representative
Agreement referred to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine Court, based on the
facts of the case, whether to give due course to the suit or dismiss it, on the
principle of forum non convenience. Hence, the Philippine Court may refuse to
assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court
may assume jurisdiction over the case if it chooses to do so; provided, that the
following 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.
The aforesaid requirements having been met, and in view of the courts disposition
to give due course to the questioned action, the matter of the present forum not
being the most convenient as a ground for the suits dismissal, deserves scant
consideration.
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 soulless
forms in quest for profits albeit at times, unwelcomed in these strange lands
venturing 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 Certiorari is the Decision of the Court of
Appeals 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 of
preliminary injunction, and its companion Resolution of October 9, 1991, denying the
petitioners 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, for
brevity) are corporations duly organized and existing under the laws of the State of
Alabama, United States of America. There is no dispute that ITEC is a foreign
corporation 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 ASPAC
as its exclusive representative in the Philippines for the sale of ITECs products, in
consideration of which, ASPAC was paid a stipulated commission. The agreement
was signed by G.A. Clark and Francisco S. Aguirre, presidents of ITEC and ASPAC
respectively, for and in behalf of their companies.xxi[2] The said agreement was
initially for a term of twenty-four months. After the lapse of the agreed period, the
agreement was renewed for another twenty-four months.
Through a License Agreementxxii[3] entered into by the same parties on November
10, 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).
By virtue of said contracts, ASPAC sold electronic products, exported by ITEC, to
their sole customer, the Philippine Long Distance Telephone Company, (PLDT, for
brevity).
To facilitate their transactions, ASPAC, dealing under its new appellation, and PLDT
executed a document entitled PLDT-ASPAC/ITEC PROTOCOLxxiii[4] which defined
the project details for the supply of ITECs Interface Equipment in connection with
the Fifth Expansion Program of PLDT.
One year into the second term of the parties Representative Agreement, ITEC
decided to terminate the same, because petitioner ASPAC allegedly violated its
contractual commitment as stipulated in their agreements.xxiv[5]
ITEC charges the petitioners and another Philippine Corporation, DIGITAL BASE
COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which is likewise
petitioner Aguirre, of using knowledge and information of ITECs products
specifications to develop their own line of equipment and product support, which are
similar, if not identical to ITECs own, and offering them to ITECs former customer.
On January 31, 1991, the complaintxxv[6] in Civil Case No. 91-294, was filed with the
Regional Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff sought to enjoin,
first, preliminarily and then, after trial, permanently; (1) defendants DIGITAL, CMDI,
and Francisco Aguirre and their agents and business associates, to cease and desist
from selling or attempting to sell to PLDT and to any other party, products which
have been copied or manufactured in like manner, similar or identical to the
products, wares and equipment of plaintiff, and (2) defendant ASPAC, to cease and
desist from using in its corporate name, letter heads, envelopes, sign boards and
business dealings, plaintiffs trademark, internationally known as ITEC; and the
recovery from defendants in solidum, damages of at least P500,000.00, attorneys
fees and litigation expenses.
In due time, defendants filed a motion to dismissxxvi[7] the complaint on the following
grounds: (1) That plaintiff has no legal capacity to sue as it is a foreign corporation
doing business in the Philippines without the required BOI authority and SEC license,
and (2) that plaintiff is simply engaged in forum shopping which justifies the
application against it of the principle of forum non conveniens.
On February 8, 1991, the complaint was amended by virtue of which ITEC
INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC, INC.xxvii[8]
In their Supplemental Motion to Dismiss,xxviii[9] defendants took note of the
amendment of the complaint and asked the court to consider in toto their motion to
dismiss and their supplemental motion as their answer to the amended complaint.
After conducting hearings on the prayer for preliminary injunction, the court a quo
on February 22, 1991, issued its Order:xxix[10] (1) denying the motion to dismiss for
being devoid of legal merit with a rejection of both grounds relied upon by the
defendants in their motion to dismiss, and (2) directing the issuance of a writ of
preliminary injunction on the same day.
From the foregoing order, petitioners elevated the case to the respondent Court of
Appeals on a Petition for Certiorari and Prohibitionxxx[11] under Rule 65 of the Revised
Rules of Court, assailing and seeking the nullification and the setting aside of the
Order and the Writ of Preliminary Injunction issued by the Regional Trial Court.
The respondent appellate court stated, thus:
We find no reason whether in law or from the facts of record, to disagree with the
(lower courts) ruling. We therefore are unable to find in respondent Judges
issuance of said writ the grave abuse of discretion ascribed thereto by the
petitioners.
In fine, We find that the petition prima facie does not show that Certiorari lies in the
present case and therefore, the petition does not deserve to be given due course.
WHEREFORE, the present petition should be, as it is hereby, denied due course and
accordingly, is hereby dismissed. Costs against the petitioners.
SO ORDERED."xxxi[12]
Petitioners filed a motion for reconsiderationxxxii[13] on June 7, 1991, which was
likewise denied by the respondent court.
WHEREFORE, the present motion for reconsideration should be, as it is hereby,
denied for lack of merit. For the same reason, the motion to have the motion for
reconsideration set for oral argument likewise should be and is hereby denied.
SO ORDERED."xxxiii[14]
Petitioners are now before us via Petition for Review on Certiorarixxxiv[15] under Rule
45 of the Revised Rules of Court.
It is the petitioners submission that private respondents are foreign corporations
actually doing business in the Philippines without the requisite authority and license
from the Board of Investments and the Securities and Exchange Commission, and
thus, disqualified from instituting the present action in our courts. It is their
contention that the provisions of the Representative Agreement, petitioner ASPAC
executed with private respondent ITEC, are similarly highly restrictive in nature as
those found in the agreements which confronted the Court in the case of Top-Weld
Manufacturing, Inc. vs. ECED S.A. et al.,xxxv[16] as to reduce petitioner ASPAC to a
mere conduit or extension of private respondents in the Philippines.
In that case, we ruled that respondent foreign corporations are doing business in the
Philippines because when the respondents entered into the disputed contracts with
the petitioner, they were carrying out the purposes for which they were created, i.e.,
to manufacture and market welding products and equipment. The terms and
conditions of the contracts as well as the respondents conduct indicate that they
established within our country a continuous business, and not merely one of a
temporary character. The respondents could be exempted from the requirements of
Republic Act 5455 if the petitioner is an independent entity which buys and
distributes products not only of the petitioner, but also of other manufacturers or
transacts business in its name and for its account and not in the name or for the
account of the foreign principal. A reading of the agreements between the
petitioner and the respondents shows that they are highly restrictive in nature, thus
making the petitioner a mere conduit or extension of the respondents.
It is alleged that certain provisions of the Representative Agreement executed by
the parties are similar to those found in the License Agreement of the parties in the
Top-Weld case which were considered as highly restrictive by this Court. The
provisions in point are:
2.0 Terms and Conditions of Sales.
2.1 Sale of ITEC products shall be at the purchase price set by ITEC from time to
time. Unless otherwise expressly agreed to in writing by ITEC the purchase price is
net to ITEC and does not include any transportation charges, import charges or
taxes into or within the Territory. All orders from customers are subject to formal
acceptance by ITEC at its Huntsville, Alabama U.S.A. facility.
xxx xxx xxx
3.0 Duties of Representative
3.1. REPRESENTATIVE SHALL:
3.1.1. Not represent or offer for sale within the Territory any product which
competes with an existing ITEC product or any product which ITEC has under active
development.
3.1.2. Actively solicit all potential customers within the Territory in a systematic and
businesslike manner.
3.1.3. Inform ITEC of all request for proposals, requests for bids, invitations to bid
and the like within the Territory.
3.1.4. Attain the Annual Sales Goal for the Territory established by ITEC. The Sales
Goals for the first 24 months is set forth on Attachment two (2) hereto. The Sales
Goal for additional twelve month periods, if any, shall be sent to the Sales Agent by
ITEC at the beginning of each period. These Sales Goals shall be incorporated into
this Agreement and made a part hereof.
xxx xxx xxx
6.0. Representative as Independent Contractor
xxx xxx xxx
6.2. When acting under this Agreement REPRESENTATIVE is authorized to solicit
sales within the Territory on ITECs behalf but is authorized to bind ITEC only in its
capacity as Representative and no other, and then only to specific customers and on
terms and conditions expressly authorized by ITEC in writing.xxxvi[17]
Aside from the abovestated provisions, petitioners point out the following matters of
record, which allegedly witness to the respondents' activities within the Philippines in
pursuit of their business dealings:
a. While petitioner ASPAC was the authorized exclusive representative for three (3)
years, it solicited from and closed several sales for and on behalf of private
respondents as to their products only and no other, to PLDT, worth no less than US
$15 Million (p. 20, tsn, Feb. 18, 1991);
b. Contract No. 1 (Exhibit for Petitioners) which covered these sales and identified by
private respondents sole witness, Mr. Clarence Long, is not in the name of petitioner
ASPAC as such representative, but in the name of private respondent ITEC, INC. (p.
20, tsn, Feb. 18, 1991);
c. The document denominated as PLDT-ASPAC/ITEC PROTOCOL (Annex C of the
original and amended complaints) which defined the responsibilities of the parties
thereto as to the supply, installation and maintenance of the ITEC equipment sold
under said Contract No. 1 is, as its very title indicates, in the names jointly of the
petitioner ASPAC and private respondents;
d. To evidence receipt of the purchase price of US $15 Million, private respondent
ITEC, Inc. issued in its letter head, a Confirmation of payment dated November 13,
1989 and its Invoice dated November 22, 1989 (Annexes 1 and 2 of the Motion to
Dismiss and marked as Exhibits 2 and 3 for the petitioners), both of which were
identified by private respondents sole witness, Mr. Clarence Long (pp. 25-27, tsn,
Feb. 18, 1991).xxxvii[18]
Petitioners contend that the above acts or activities belie the supposed
independence of petitioner ASPAC from private respondents. The unrebutted
evidence on record below for the petitioners likewise reveal the continuous character
of doing business in the Philippines by private respondents based on the standards
laid down by this Court in Wang Laboratories, Inc. vs. Hon. Rafael T. Mendoza, et
al.xxxviii[19] and again in TOP-WELD. (supra) It thus appears that as the respondent
Court of Appeals and the trial courts failure to give credence on the grounds relied
upon in support of their Motion to Dismiss that petitioners ascribe grave abuse of
discretion amounting to an excess of jurisdiction of said courts.
Petitioners likewise argue that since private respondents have no capacity to bring
suit here, the Philippines is not the most convenient forum because the trial court
is devoid of any power to enforce its orders issued or decisions rendered in a case
that could not have been commenced to begin with, such that in insisting to assume
and exercise jurisdiction over the case below, the trial court had gravely abused its
discretion and even actually exceeded its jurisdiction.
As against petitioners insistence that private respondent is doing business in the
Philippines, the latter maintains that it is not.
We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the Rules and
Regulations Implementing the Omnibus Investments Code of 1987, the following:
(1) A foreign firm is deemed not engaged in business in the Philippines if it
transacts business through middlemen, acting in their own names, such as
indebtors, commercial bookers or commercial merchants.
(2) A foreign corporation is deemed not doing business if its representative
domiciled in the Philippines has an independent status in that it transacts business in
its name and for its account.xxxix[20]
Private respondent argues that a scrutiny of its Representative Agreement with the
Petitioners will show that although ASPAC was named as representative of ITEC.,
ASPAC actually acted in its own name and for its own account. The following
provisions are particularly mentioned:
3.1.7.1. In the event that REPRESENTATIVE imports directly from ITEC,
REPRESENTATIVE will pay for its own account; all customs duties and import fees
imposed on any ITEC products; all import expediting or handling charges and
expenses imposed on ITEC products; and any stamp tax fees imposed on ITEC.
xxx xxx xxx
4.1. As complete consideration and payment for acting as representative under this
Agreement, REPRESENTATIVE shall receive a sales commission equivalent to a
percentum of the FOB value of all ITEC equipment sold to customers within the
territory as a direct result of REPRESENTATIVEs sales efforts.xl[21]
More importantly, private respondents charge ASPAC of admitting its independence
from ITEC by entering and ascribing to provision No. 6 of the Representative
Agreement.
6.0. Representative as Independent Contractor
6.1. When performing any of its duties under this Agreement, REPRESENTATIVE
shall act as an independent contractor and not as an employee, worker, laborer,
partner, joint venturer of ITEC as these terms are defined by the laws, regulations,
decrees or the like of any jurisdiction, including the jurisdiction of the United States,
the state of Alabama and the Territory.xli[22]
Although it admits that the Representative Agreement contains provisions which
both support and belie the independence of ASPAC, private respondents echoes the
respondent courts finding that the lower court did not commit grave abuse of
discretion nor acted in excess of jurisdiction when it found that the ground relied
upon by the petitioners in their motion to dismiss does not appear to be
indubitable.xlii[23]
The issues before us now are whether or not private respondent ITEC is an
unlicensed corporation doing business in the Philippines, and if it is, whether or not
this fact bars it from invoking the injunctive authority of our courts.
Considering the above, it is necessary to state what is meant by doing business in
the Philippines. Section 133 of the Corporation Code, provides that No foreign
corporation, transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit
or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine Courts or
administrative tribunals on any valid cause of action recognized under Philippine
laws.xliii[24]
Generally, a foreign corporation has no legal existence within the state in which it
is foreign. This proceeds from the principle that juridical existence of a corporation
is confined within the territory of the state under whose laws it was incorporated
and organized, and it has no legal status beyond such territory. Such foreign
corporation may be excluded by any other state from doing business within its limits,
or conditions may be imposed on the exercise of such privileges.xliv[25] Before a
foreign corporation can transact business in this country, it must first obtain a
license to transact business in the Philippines, and a certificate from the appropriate
government agency. If it transacts business in the Philippines without such a
license, it shall not be permitted to maintain or intervene in any action, suit, or
proceeding in any court or administrative agency of the Philippines, but it may be
sued on any valid cause of action recognized under Philippine laws.xlv[26]
In a long line of decisions, this Court has not altogether prohibited a foreign
corporation not licensed to do business in the Philippines from suing or maintaining
an action in Philippine Courts. What it seeks to prevent is a foreign corporation
doing business in the Philippines without a license from gaining access to Philippine
Courts.xlvi[27]
The purpose of the law in requiring that foreign corporations doing business in the
Philippines be licensed to do so and that they appoint an agent for service of process
is to subject the foreign corporation doing business in the Philippines to the
jurisdiction of its courts. The object is not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring a domicile for the purpose of
business without taking steps necessary to render it amenable to suit in the local
courts.xlvii[28] The implication of the law is that it was never the purpose of the
legislature to exclude a foreign corporation which happens to obtain an isolated
order for business from the Philippines, and thus, in effect, to permit persons to
avoid their contracts made with such foreign corporations.xlviii[29]
There is no exact rule or governing principle as to what constitutes doing or
engaging or transacting business. Indeed, such case must be judged in the light
of its peculiar circumstances, upon its peculiar facts and upon the language of the
statute applicable. The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or enterprise for
which it was organized.xlix[30]
Article 44 of the Omnibus Investments Code of 1987 defines the phrase to include:
soliciting orders, purchases, service contracts, opening offices, whether called
liaison offices or branches; appointing representatives or distributors who are
domiciled in the Philippines or who in any calendar year stay in the Philippines for a
period or periods totaling one hundred eighty (180) days or more; participating in
the management, supervision or control of any domestic business firm, entity or
corporation in the Philippines, and any other act or acts that imply a continuity or
commercial dealings or arrangements and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the purpose
and object of the business organization.
Thus, a foreign corporation with a settling agent in the Philippines which issued
twelve marine policies covering different shipments to the Philippinesl[31]and a
foreign corporation which had been collecting premiums on outstanding policiesli[32]
were regarded as doing business here.
The same rule was observed relating to a foreign corporation with an exclusive
distributing agent in the Philippines, and which has been selling its products here
since 1929,lii[33] and a foreign corporation engaged in the business of manufacturing
and selling computers worldwide, and had installed at least 26 different products in
several corporations in the Philippines, and allowed its registered logo and trademark
to be used and made it known that there exists a designated distributor in the
Philippines.liii[34]
In Georg Grotjahn GMBH and Co. vs. Isnani,liv[35] it was held that the uninterrupted
performance by a foreign corporation of acts pursuant to its primary purposes and
functions as a regional area headquarters for its home office, qualifies such
corporation as one doing business in the country.
These foregoing instances should be distinguished from a single or isolated
transaction or occasional, incidental, or casual transactions, which do not come
within the meaning of the law,lv[36] for in such case, the foreign corporation is
deemed not engaged in business in the Philippines.
Where a single act or transaction, however, is not merely incidental or casual but
indicates the foreign corporations intention to do other business in the Philippines,
said single act or transaction constitutes doing or engaging in or transacting
business in the Philippines.lvi[37]
In determining whether a corporation does business in the Philippines or not, aside
from their activities within the forum, reference may be made to the contractual
agreements entered into by it with other entities in the country. Thus, in the Top-
Weld case (supra), the foreign corporations LICENSE AND TECHNICAL AGREEMENT
and DISTRIBUTOR AGREEMENT with their local contacts were made the basis of
their being regarded by this Tribunal as corporations doing business in the country.
Likewise, in Merill Lynch Futures, Inc. vs. Court of Appeals, etc.lvii[38] the FUTURES
CONTRACT entered into by the petitioner foreign corporation weighed heavily in the
courts ruling.
With the abovestated precedents in mind, we are persuaded to conclude that private
respondent had been engaged in or doing business in the Philippines for some
time now. This is the inevitable result after a scrutiny of the different contracts and
agreements entered into by ITEC with its various business contacts in the country,
particularly ASPAC and Telephone Equipment Sales and Services, Inc. (TESSI, for
brevity). The latter is a local electronics firm engaged by ITEC to be its local
technical representative, and to create a service center for ITEC products sold
locally. Its arrangements, with these entities indicate convincingly ITECs purpose to
bring about the situation among its customers and the general public that they are
dealing directly with ITEC, and that ITEC is actively engaging in business in the
country.
In its Master Service Agreementlviii[39] with TESSI, private respondents required its
local technical representative to provide the employees of the technical and service
center with ITEC identification cards and business cards, and to correspond only on
ITEC, Inc., letterhead. TESSI personnel are instructed to answer the telephone with
ITEC Technical Assistance Center., such telephone being listed in the telephone
book under the heading of ITEC Technical Assistance Center, and all calls being
recorded and forwarded to ITEC on a weekly basis.
What is more, TESSI was obliged to provide ITEC with a monthly report detailing the
failure and repair of ITEC products, and to requisition monthly the materials and
components needed to replace stock consumed in the warranty repairs of the prior
month.
A perusal of the agreements between petitioner ASPAC and the respondents shows
that there are provisions which are highly restrictive in nature, such as to reduce
petitioner ASPAC to a mere extension or instrument of the private respondent.
The No Competing Product provision of the Representative Agreement between
ITEC and ASPAC provides: The Representative shall not represent or offer for sale
within the Territory any product which competes with an existing ITEC product or
any product which ITEC has under active development. Likewise pertinent is the
following provision: When acting under this Agreement, REPRESENTATIVE is
authorized to solicit sales within the Territory on ITECs behalf but is authorized to
bind ITEC only in its capacity as Representative and no other, and then only to
specific customers and on terms and conditions expressly authorized by ITEC in
writing.
When ITEC entered into the disputed contracts with ASPAC and TESSI, they were
carrying out the purposes for which it was created, i.e., to market electronics and
communications products. The terms and conditions of the contracts as well as
ITECs conduct indicate that they established within our country a continuous
business, and not merely one of a temporary character.lix[40]
Notwithstanding such finding that ITEC is doing business in the country, petitioner is
nonetheless estopped from raising this fact to bar ITEC from instituting this
injunction case against it.
A foreign corporation doing business in the Philippines may sue in Philippine Courts
although not authorized to do business here against a Philippine citizen or entity who
had contracted with and benefited by said corporation.lx[41] To put it in another way,
a party is estopped to challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it. And the doctrine of
estoppel to deny corporate existence applies to a foreign as well as to domestic
corporations.lxi[42] One who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its corporate existence and capacity. The
principle will be applied to prevent a person contracting with a foreign corporation
from later taking advantage of its noncompliance with the statutes chiefly in cases
where such person has received the benefits of the contract.lxii[43]
The rule is deeply rooted in the time-honored axiom of Commodum ex injuria sua
non habere debet - no person ought to derive any advantage of his own wrong.
This is as it should be for as mandated by law, every person must in the exercise of
his rights and in the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith.lxiii[44]
Concededly, corporations act through agents like directors and officers. Corporate
dealings must be characterized by utmost good faith and fairness. Corporations
cannot just feign ignorance of the legal rules as in most cases, they are manned by
sophisticated officers with tried management skills and legal experts with practiced
eye on legal problems. Each party to a corporate transaction is expected to act with
utmost candor and fairness and, thereby allow a reasonable proportion between
benefits and expected burdens. This is a norm which should be observed where one
or the other is a foreign entity venturing in a global market.
As observed by this Court in TOP-WELD (supra), viz:
The parties are charged with knowledge of the existing law at the time they enter
into a contract and at the time it is to become operative. (Twiehaus v. Rosner, 245
SW 2d 107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person is presumed to be
more knowledgeable about his own state law than his alien or foreign contemporary.
In this case, the record shows that, at least, petitioner had actual knowledge of the
applicability of R.A. No. 5455 at the time the contract was executed and at all times
thereafter. This conclusion is compelled by the fact that the same statute is now
being propounded by the petitioner to bolster its claim. We, therefore sustain the
appellate courts view that it was incumbent upon TOP-WELD to know whether or
not IRTI and ECED were properly authorized to engage in business in the Philippines
when they entered into the licensing and distributorship agreements. The very
purpose of the law was circumvented and evaded when the petitioner entered into
said agreements despite the prohibition of R.A. No. 5455. The parties in this case
being equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case
it follows as a consequence that petitioner is not entitled to the relief prayed for in
this case.
The doctrine of lack of capacity to sue based on the failure to acquire a local license
is based on considerations of sound public policy. The license requirement was
imposed to subject the foreign corporation doing business in the Philippines to the
jurisdiction of its courts. It was never intended to favor domestic corporations who
enter into solitary transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business in this
country.lxiv[45]
In Antam Consolidated Inc. vs. Court of Appeals, et al.lxv[46] we expressed our
chagrin over this commonly used scheme of defaulting local companies which are
being sued by unlicensed foreign companies not engaged in business in the
Philippines to invoke the lack of capacity to sue of such foreign companies.
Obviously, the same ploy is resorted to by ASPAC to prevent the injunctive action
filed by ITEC to enjoin petitioner from using knowledge possibly acquired in violation
of fiduciary arrangements between the parties.
By entering into the Representative Agreement with ITEC, Petitioner is charged
with knowledge that ITEC was not licensed to engage in business activities in the
country, and is thus estopped from raising in defense such incapacity of ITEC,
having chosen to ignore or even presumptively take advantage of the same.
In Top-Weld, we ruled that a foreign corporation may be exempted from the license
requirement in order to institute an action in our courts if its representative in the
country maintained an independent status during the existence of the disputed
contract. Petitioner is deemed to have acceded to such independent character when
it entered into the Representative Agreement with ITEC, particularly, provision 6.2
(supra).
Petitioners insistence on the dismissal of this action due to the application, or non
application, of the private international law rule of forum non conveniens defies well-
settled rules of fair play. According to petitioner, the Philippine Court has no venue
to apply its discretion whether to give cognizance or not to the present action,
because it has not acquired jurisdiction over the person of the plaintiff in the case,
the latter allegedly having no personality to sue before Philippine Courts. This
argument is misplaced because the court has already acquired jurisdiction over the
plaintiff in the suit, by virtue of his filing the original complaint. And as we have
already observed, petitioner are not at liberty to question plaintiffs standing to sue,
having already acceded to the same by virtue of its entry into the Representative
Agreement referred to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine Court, based on the
facts of the case, whether to give due course to the suit or dismiss it, on the
principle of forum non conveniens.lxvi[47] Hence, the Philippine Court may refuse to
assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court
may assume jurisdiction over the case if it chooses to do so; provided, that the
following 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.lxvii[48]
The aforesaid requirements having been met, and in view of the courts disposition
to give due course to the questioned action, the matter of the present forum not
being the most convenient as a ground for the suits dismissal, deserves scant
consideration.
IN VIEW OF THE FOREGOING PREMISES, the instant Petition is hereby
DISMISSED. The decision of the Court of Appeals dated June 7, 1991, upholding the
RTC Order dated February 22, 1991, denying the petitioners Motion to Dismiss, and
ordering the issuance of the Writ of Preliminary Injunction is hereby affirmed in toto.
SO ORDERED.

327 scra 482
Contract of Carriage

Private respondent Amadeo Seno purchased from Singapore Airlines in Manila
conjunction tickets. In Geneva, the petitioner decided to forego his trip to
Copenhagen, and go straight to New York, private respondent exchanged the
unused portion of the conjunction ticket from International Air Transport Association
clearing house in Geneva. Private respondent filed an action for damages before the
RTC of Cebu for the alleged embarrassment and mental anguish he suffered at the
Geneva Airport when the petitioners security officers prevented him from boarding
the plane, detained him for about an hour and allowed him to board the plane only
after all the passengers have boarded.

ISSUE: Whether or not the Philippine courts have jurisdiction over the action for
damages.

HELD: The Supreme Court ruled that the case was properly filed in the Philippines.
It held that the petitioner acted as an agent of the Singapore Airlines under IATA
rules and as an agent of the principal carrier the petitioner may be held liable under
contract of carriage in Manila.