GRANGER ASSOCIATES, petitioner, vs. MICROWAVE SYSTEMS, INC. CRUZ, J.: The Court is once again asked to interpret the phrase "doing business in the Philippines" as applied to an unlicensed foreign corporation that has filed a complaint against a domestic corporation. The foreign corporation is Granger Associates, the herein petitioner, which was organized in the United States and has no license to do business in this country. The domestic corporation is Microwave Systems, Inc., one of the herein private respondents, which has been sued for recovery of a sum equivalent to US$900,633.30 allegedly due from it to the petitioner. The claim arose from a series of agreements concluded between the two parties, principally the contract dated March 28, 1977, under which Granger licensed MSI to manufacture and sell its products in the Philippines and extended to the latter certain loans, equipment and parts; the contract dated May 17, 1979, for the sale by Granger of its Model 7100/7200 Multiplex Equipment to MSI and the Supplemental and Amendatory Agreement concluded in December 1979. Payment of these contracts not having been made as agreed upon, Granger filed a complaint against MSI and the other private respondents on June 29, 1984, in the Regional Trial Court of Pasay City. This was docketed as Civil Case No. 1982-P. In its answer, MSI alleged the affirmative defense that the plaintiff had no capacity to sue, being an unlicensed foreign corporation, and moved to dismiss. The law invoked by the defendants was Section 133 of the Corporation Code reading as follows: 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; ... The trial court, after considering the evidence of the parties in light of their respective memoranda, sustained the defendants and granted the motion to dismiss. 1 On appeal, the order of dismissal was affirmed by the respondent court 2 prompting the present petition under Rule 45 of the Rules of Court. In this petition, Granger seeks the reversal of the respondent court on the ground that MSI has failed to prove its affirmative allegation that Granger
Transcript
GRANGER ASSOCIATES, petitioner, vs. MICROWAVE SYSTEMS, INC.
CRUZ, J.:
The Court is once again asked to interpret the phrase "doing business in the Philippines" as applied to an unlicensed foreign corporation that has filed a complaint against a domestic corporation.
The foreign corporation is Granger Associates, the herein petitioner, which was organized in the United States and has no license to do business in this country. The domestic corporation is Microwave Systems, Inc., one of the herein private respondents, which has been sued for recovery of a sum equivalent to US$900,633.30 allegedly due from it to the petitioner.
The claim arose from a series of agreements concluded between the two parties, principally the contract dated March 28, 1977, under which Granger licensed MSI to manufacture and sell its products in the Philippines and extended to the latter certain loans, equipment and parts; the contract dated May 17, 1979, for the sale by Granger of its Model 7100/7200 Multiplex Equipment to MSI and the Supplemental and Amendatory Agreement concluded in December 1979.
Payment of these contracts not having been made as agreed upon, Granger filed a complaint against MSI and the other private respondents on June 29, 1984, in the Regional Trial Court of Pasay City. This was docketed as Civil Case No. 1982-P. In its answer, MSI alleged the affirmative defense that the plaintiff had no capacity to sue, being an unlicensed foreign corporation, and moved to dismiss.
The law invoked by the defendants was Section 133 of the Corporation Code reading as follows:
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; ...
The trial court, after considering the evidence of the parties in light of their respective memoranda, sustained the defendants and granted the motion to dismiss. 1 On appeal, the order of dismissal was affirmed by the respondent court2 prompting the present petition under Rule 45 of the Rules of Court.
In this petition, Granger seeks the reversal of the respondent court on the ground that MSI has failed to prove its affirmative allegation that Granger was transacting business in the Philippines. It insists that it has dealt only with MSI and not the general public and contends that dealing with the public itself is an indispensable ingredient of transacting business. It also argues that its agreements with MSI covered only one isolated transaction for which it did not have to secure a license to be able to file its complaint.
According to Section 1 of Rep. Act No. 5455 —
...the phrase "doing business" shall include soliciting orders, purchases, 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 Philippines for a period or periods totalling one hundred eighty days or more; participating in the management, supervision or control of any domestic business firm, entity or corporation in the Philippines; any other act or acts that imply a continuity of commercial dealings or arrangements and contemplates to that extent the performance of acts or works, or the exercise of some of these functions normally incident to, and in progressive prosecution of, commercial gain or of the purpose and object of the business organization.
This Court interpreted the same phrase in the old case of Mentholatum v. Mangaliman 3 as follows:
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. (Griffin v. Implement Dealers' Mut. Fire Ins. Co., 241 N.W. 75, 77, Pauline Oil & Gas Go. 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, I11. 367.)
We have amplified one that discussion in subsequent cases, among them Top-Weld Manufacturing, Inc. v. ECED, S.A., 4 where we said:
There is no general rule or governing principle laid down as to what constitutes "doing" or "engaging in" or ""transacting" business in the Philippines. Each case must be judged in the light of its peculiar circumstance Thus, a foreign corporation with a settling agent in the Philippines which issued twelve marine policies covering different shipments to the Philippines and a foreign corporation which had been collecting premiums on outstanding policies were regarded as doing business here. The acts of these corporations should be distinguished from a single or isolated business transaction or occasional, incidental and casual transactions which do not come within the meaning of the law. Where a single act or transaction, however, is not merely incidental or casual but indicates the foreign corporation's intention to do other business in the Philippines, said single act or transaction constitutes "doing" or "engaging in" or "transacting" business in the Philippines.
The petitioner contends that its various transactions with the private respondent were mere facets of the basic agreement licensing MSI to manufacture and sell Granger's products in the Philippines. All subsequent agreements were merely auxiliary to that first contract and should not be considered separate transactions coming 'within the concept of "doing business in the Philippines."
The Supplemental and Amendatory Agreement concluded by Granger and MSI in December 1979 enumerates the various agreements between them thus:
1. Agreement dated March 28, 1977,under which MSI acquired from GRANGER the right to manufacture, assemble, test, rent and sell, or otherwise deal in certain electronic communications equipment designed and manufactured by GRANGER;
2. Agreement to Purchase Shares dated March 28, 1977 under which GRANGER was granted the option to purchase thirty (30%) percent equity of MSI;
3. Amendatory Agreement dated May l2, 1978, adopting certain amendments to the Agreement dated March 28, 1977 for the purpose of complying with the requirements imposed by the Board of Investments and the Central Bank of the Philippines;
4. Exclusive Distributorship and Marketing Agreement dated May 16,1978, appointing MSI to handle sale, distribution and promotion of products of GRANGER outside of the Republic of the Philippines;
5. Sales Agency Agreement, dated May 16, 1978, under which MSI was appointed by GRANGER as the latter's exclusive sales representative outside the Philippines to market GRANGER products;
6. Agreement for Purchase of Shares dated May 17,1978, manifesting the intention of GRANGER to exercise its option to purchase thirty (30%) percent of the issued and outstanding shares of stock of MSI equivalent to a total of 9,000 issued shares of MSI;
7. Model 7l00/7200 Multiplex Agreement dated May l7, 1979, prescribing the terms and conditions for the sale by GRANGER of Model 7100/7200 Multiplex Equipment to MSI;
8. Technology Transfer Agreement dated May 17, 1979, transferring to and/or providing MSI by virtue of the Model 7100/7200 Multiplex Agreement, the necessary technical services, assistance, manuals, catalogues, sales, literature, etc. for the operation of the Model 7100/7200 Multiplex Equipment;
9. Deed of Assignment of Receivables dated October 20, 1979, under which MSI assigned to GRANGER a certain percentage of its receivables from the Philippine Electronics, Inc. in favor of GRANGER to secure payment and performance of MSI's obligations to GRANGER under previous agreements.
In the Model 7100/7200 Multiplex Equipment Agreement entered into on May 17, 1979, the following stipulations appear:
4. GRANGER shall assign in favor of MSI all orders for the Model 7100/7200 Multiplex Equipment, which have not been filled by GRANGER at the date of the ratification of this Agreement as per paragraph 9 hereof, as described in a list hereto attached and made a part hereof as Annex "C". All proceeds under said orders shall be assigned to and received by MSI and MSI shall take over and assume all obligations which GRANGER may have pursuant to the orders of equipment within a reasonable time following receipt of the shipment of the Products by MSI but not to exceed one hundred eighty (180) days from date of said receipt. Any orders GRANGER may receive following the date on which this Agreement becomes effective as provided herein will be forwarded to MSI by GRANGER.
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6. As an additional consideration for the purchase of the products, MSI binds itself to render all equipment support service and maintain reasonable amount of spares inventory for the equipment in the field previously having been sold by GRANGER or by RCA Corporation to their customers for a period of ten (10) years from the date the last sale of GRANGER is recorded. Any amount earned in providing such equipment support shall be billed and received by MSI. Additionally, MSI binds itself to assume the warranty obligations and advance the necessary funds to perform such obligations associated with Model 7l00/7200 Multiplex Equipment already sold by GRANGER. However, GRANGER shall reimburse MSI the out-of-pocket cost for the services rendered by MSI in connection with the warranty for the equipment assumed from GRANGER but only to the extent authorized in advance by GRANGER.
A study of the enumeration does support the contention that many of the agreements concluded by the petitioner and the private respondent were intended merely to supplement the basic contract dated March 28, 1977. However, this is not true of the Multiplex agreement dated May 17, 1979, which dealt with a different subject matter and had a different consideration to be paid under a different method from that specified in the first agreement of the parties in 1977. It is also noted that in the supplemental and Amendatory Agreement, Granger sold to MSI certain materials/parts for 80 radios and granted it the right to exploit the designs of Model 6015, Series of radio equipment (1.5 Ghz.) and the Plug-In Order Wire, and the 6002 Series and Power Amplifiers. The subject matter of this transaction is also different from those covered by the previous agreements.
Even if it be assumed for the sake of argument that the subject matter of the first contract is of the same kind as that of the subsequent agreements, that fact alone would not necessarily signify that all such agreements are merely auxiliary to the first. As long as it can be shown that the parties entered into a series of agreements, as in successive sales of the foreign company's regular products, that company shall be deemed as doing business in the Philippines.
The quoted stipulations show that Granger had extended its personality in the Philippines and would receive orders for its products and discharge its warranty obligations through the agency of MSI It would even appear that Granger intended to transact business in the Philippines through the instrumentality of MSI not only for the sale and warranty of its products in this country. The 'agent, was expected to extend also in mainland China and other ASEAN countries, where MSI was to act as its representative in the development of possible markets for Granger products. Thus it was provided in the Agreement:
6. OFF-SHORE MANUFACTURING.
GRANGER undertakes to utilize MSI's manufacturing facilities in the Philippines in preference to any other manufacturer for offshore manufacture, assembly, fabrication and testing of equipment, sub-assemblies, printed circuit boards and related or allied activities, subject to MSI's demonstrated technical capability and its capacity to comply with normal quality and delivery requirement for such components and as long as such off-shore manufacturing would be to GRANGER's economic advantage.
7. MAINLAND CHINA AND ASEAN
Toward maximizing exploitation of export opportunities for the sale of MSI manufactured equipment under license from GRANGER, MSI undertakes to do or perform the following:
a) MSI, independently or in concert with GRANGER shall develop a marketing strategy towards Mainland China market at its cost or on the basis of shared expense arrangement with GRANGER, agreed between both parties in advance, and shall pursue sales opportunities in that market as it deems warranted. This includes establishing local sales office to manage and monitor direct sales effort as well as appointments of non-exclusive manufacturer's Sales Representatives or non-exclusive Distributors as the case may be;
b) MSI, always in close cooperation with GRANGER, shall develop and pursue direct sales opportunities in the ASEAN market for its own account, always reaching agreement with GRANGER in advance on a case-to-case basis as to the extent of reimbursing GRANGER for its direct or indirect expenses that it might be incurring while acting as an Exclusive Distributor or a Manufacturer's Representative for the licensed equipment in the ASEAN market.
We also note that in the Supplemented and Amendatory Agreement of December 1979, Granger saw to it that it was assured of at least one seat in the board of directors of MSI; without prejudice to the right of Granger to request additional seats as its interest may require". Granger actually purchased 9,000 shares of MSI, representing 30% of the latter's issued and outstanding shares of stock. 5 The fact that it was directly involved in the business of MSI was also manifestation stipulation where Granger "acknowledged and confirmed" the transfer of a block of stocks from one shareholder to another group of investors. Such approval is not normally given except by a stockholder enjoying substantial participation in the management of the business of the company. The said stipulations read as follows.
4. BOARD OF DIRECTORS.
GRANGER shall be entitled to one (1) seat in the Board of Directors, with the option to fill said seat at its discretion and instance. GRANGER further interposes no objection to MSI's increasing the number of its Board of Directors without a corresponding entitlement to an additional seat, without prejudice however to the right of GRANGER to request additional seat as its interest may require.
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8. CONFIRMATION OF SALE OF SHARES OF STOCK.
The parties hereto take cognizance of the sale of shares of stock in MSI owned by Vicente C. Sayaon, in his personal capacity and as controlling stockholder of authorized representative of Cosmopolitan Realty Corporation and Visayas Realty and Investment Corporation, in favor of a new group of Filipino entrepreneurs represented in the transaction by Mrs. Remedios Porcuna. The Deed of Sale covering this transaction is incorporated hereto by reference and made an integral part of this Agreement.
Pursuant to the provision embodied in the said Deed of Sale, GRANGER hereby acknowledges and confirms this transaction.
The petitioner cites the regulations of the Board of Investments stating that mere investment in a local company by a foreign corporation should not be construed as doing business in the Philippines. 6 It cannot be denied, however, that the investment of Granger in MSI is quite substantial, enabling it to participate in the actual management and control of MSI In fact, it appointed a representative in the board of directors to protect its interests, and this director was so influential that, at his request, the regular board meeting was converted into an annual stockholder's meeting to take advantage of his presence. 7
At any rate, the administrative regulation, which is intended only to supplement the law, cannot prevail against the law itself as the Court has interpreted it. It is axiomatic that the delegate, in exercising the power to promulgate implementing regulations, cannot contradict the law from which the regulations derive their very existence. The courts, for their part, interpret the administrative regulations in harmony with the law that authorized them in the first place and avoid as much as possible any construction that would annul them as an invalid exercise of legislative power.
On the question of whether the foreign corporation must be shown to have dealt with the public in general to be considered as transacting business in the Philippines, the following observations are instructive:
On the other hand, if a corporation performs acts for which it was created or exercises some of the functions for which it was organized, the amount or volume of the business is immaterial and a single act of that character may constitute doing business. Thus, an engineering consulting firm that had entered into a single contract with a Philippine government agency for the purpose of rendering services for a period of three years as a technical consultant in engineering will be required to obtain a license to do business. Similarly, a foreign company invited to bid for IBRD and ADB international projects in the Philippines will be considered as doing business in the Philippines for which a license is required. In this regard, it is the performance by a foreign corporation of the acts for which it was created, regardless of volume of business, that determines whether a foreign corporation needs a license or not. (Emphasis supplied.) 8
Finally, this case must be distinguished from Antam Consolidated, Inc. v. Court of Appeals, 9 where this Court declared:
In the case at bar, the transactions entered into by the respondent with the petitioners are not a series of commercial dealings which signify an intent on the part of the respondent to do business in the Philippines but constitute an isolated one which does not fall under the category of "doing business". The records show that the only reason why the respondent entered into the second and third transactions with the petitioners was because it wanted to recover the loss it sustained from the failure of the petitioners to deliver the crude coconut oil under the first transaction and in order to give the latter a chance to make good on their obligation. Instead of making an outright demand on the petitioners, the respondent opted to try to push through with the transactions to recover the amount of US$103,600.00 it lost. This explains why in the second transaction, the petitioners were supposed to buy back the crude coconut oil they should have delivered to the respondent in an amount which will earn the latter a profit of US$103,600.00. When this failed the third transaction was entered into by the parties whereby the petitioners were supposed to sell crude coconut oil to the respondent at a
discounted rate, the total amount of such discount being US$103,600.00. Unfortunately, the petitioners failed to deliver again, prompting the respondent to file the suit below.
From these facts alone, it can be deduced that in reality, there was only one agreement between the petitioners and the respondent and that was the delivery by the former of 500 long tons of crude coconut oil to the latter, who in turn, must pay the corresponding price for the same. The three seemingly different transactions were entered into by the parties only in an effort to fulfill the basic agreement and in no way indicate an intent on the part of the respondent to engage in a continuity of transactions with petitioners which will categorize it as a foreign corporation doing business in the Philippines.
We are convinced from an examination of the terms and conditions of the contracts and agreements entered into between petitioner and private respondents indicate that they established within our country a continuous business, and not merely one of a temporary character. Such agreements did not constitute only one isolated transaction, as the petitioner contends, but a succession of acts signifying the intent of Granger to extend its operations in the Philippines.
In any event, it is now settled that even one single transaction may be construed as transacting business in the Philippines under certain circumstances, as we observed in Far East International Import and Export Corporation v. Nankai Kogyo Co., Ltd., 10 thus:
The rule stated in the preceding section that the doing of a single act does not constitute business within the meaning of statutes prescribing the conditions to be complied with by foreign corporations must be qualified to this extent, that a single act may bring the corporation within the purview of the statute where it is an act of the ordinary business of the corporation. In such a case, the single act or transaction is not merely incidental or casual, but is of such character as distinctly to indicate a purpose on the part of the foreign corporation to do other business in the state, and to make the state a base of operations for the conduct of a part of the corporations' ordinary business. (17 Fletchers Cyc. of Corporations, sec. 8470, pp. 572, 573, and authorities cited therein.)
The petitioner stresses that whoever makes affirmative averments has the obligation to prove such averments and points out that the private respondent has not established its allegation that the petitioner is doing business in the Philippines. On the other hand, it is also the rule that the factual findings of the lower court are binding on this Court in the absence of any of those exceptional circumstances we have enumerated in many cases that warrant a different conclusion. Having assailed the finding of the respondent court that the petitioner is doing business in the Philippines, the petitioner had the burden of showing that such finding fell under the exception rather than the rule and so should be reviewed and reversed. The petitioner has not done this.
The purpose of the rule requiring foreign corporations to secure a license to do business in the Philippines is to enable us to exercise jurisdiction over them for the regulation of their activities in this country, If a foreign corporation operates in the Philippines without submitting to our laws, it is only just that it not be allowed to invoke them in our courts when it should need them later for its own protection. While foreign investors are always welcome in this land to collaborate with us for our mutual benefit, they must be prepared as an indispensable condition to respect and be bound by Philippine law in proper cases, as in the one at bar.
WHEREFORE the petition is DENIED, with costs against the petitioner. It is ordered.
Narvasa ( Chairman), Gancayco, Griño-Aquino and Medialdea, JJ., concur.
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 Decision[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 court’s 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:[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:[3]
The transfers of goods were perfected in Singapore, for private respondent’s 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,[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,[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:[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:[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 petitioner’s 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 Court’s 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 Court’s 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.[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. 7042[9] in this wise:
“SEC. 3. Definitions. - As used in this Act:
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(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:[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 Dealer’s 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.[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:[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:[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 petitioner’s 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.[14]
Given the facts of this case, we cannot see how petitioner’s 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.[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 government’s 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 petitioner’s 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.[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.[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.[18] Thus, it has been ruled in Home Insurance that:[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.
Narvasa, C.J., (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.
NIVERSAL RUBBER PRODUCTS, INC., vs. CAR E S O L U T I O N
GUERRERO, J.:
This Petition for Review concerns a "subpoena duces tecum" which was issued by the trial court against the Treasurer of the herein petitioner, the propriety of which was upheld by the defunct Court of Appeals [now Intermediate Appellate Court].
The facts of this case as stated in the decision of the then Court of Appeals are as follows:
Records disclose that the two respondent corporations herein sued the present petitioner before the Court of First Instance of Rizal for unfair competition with damages and attorney's fees. In due time, herein petitioner, who was the defendant in that court suit, answered the complaint and joined issues with the plaintiffs therein, forthwith respondent Judge, to whom that lawsuit was assigned, proceeded with the trial thereof. After they have presented about nine witnesses and various pieces of documentary evidence, herein private respondents
made a request to the respondent Judge to issue a subpoena duces tecum against the treasurer of herein petitioner. Acting favorably on that request, said respondent Judge issued a subpoena duces tecum on February 13, 1968, directing the treasurer of the present petitioner to bring with him to the lower court on February 26, 1968 and March 8, 1968 at 2:30 p.m. ", all sales invoices, sales books and ledgers wherein are recorded the sales of Plymouth Star Player rubber shoes from the time the corporation started manufacturing and selling said shoes up to the present.cralaw
On March 4, 1968, petitioner filed a motion in the court below praying that thesubpoena duces tecum dated February 13, 1968 be quashed on the grounds that: [1] the said subpoena is both unreasonable and oppressive as the books and documents called for are numerous and voluminous; [2] there is no good cause shown for the issuance thereof; and [3] the books and documents are not relevant to the case pending below. The private respondents herein opposed that motion of the petitioner. Acting on the said motion and on the opposition thereto, respondent Judge issued the first controverted order on May 6, 1968, denying the motion to quash the subpoena duces tecum.
On May 15, 1968, herein petitioner filed in the court a quo a motion for reconsideration seeking the said court to reconsider its order denying the motion to quash the subpoena duces tecum. This, too, was opposed by the private respondents. Acting on this motion, as well as on the opposition thereto, respondent Judge issued the second controverted order on June 28, 1968, denying the motion for reconsideration. Consequently, on August 6, 1968, petitioner Universal Rubber Products, Inc. filed its present petition for certiorari with preliminary injunction, alleging that in so denying its motion to quash the subpoena duces tecum and its subsequent motion for reconsideration, respondent Judge acted with grave abuse of discretion amounting to an excess of jurisdiction. [1]
Pending the resolution of the appealed case, the Court of Appeals issued on September 25, 1968 a temporary restraining order directing the respondent Judge of the trial court to refrain from implementing his order dated May 6, 1968 in Civil Case No. 9686. [2]
On November 12, 1968, the respondent Court rendered its Decision denying the petition for certiorari filed by petitioner for lack of merit. The dispositive portion of the said Decision reads: [3]
WHEREFORE, for lack of merit, the present petition for certiorari with preliminary injunction is hereby denied and the temporary restraining order issued by this Court on September 25, 1968 is now lifted, with costs against the petitioner.
Petitioner argues three errors to support his petition, to wit: 4
I
The respondent court erred when it found the fact of the petition and its annexes as not demonstrating clear abuse of discretion by respondent Judge.
II
The respondent court erred when it refused to sustain the contention of petitioner that the issuance by the respondent judge of the subpoena duces tecum was an arbitrary exercise of judicial power.
III
The respondent court erred when it did not consider the subpoena duces tecum issued by the respondent judge as a fishing bill when it refused to order its quashal.
The issues summarized, We are called upon to answer whether the issuance of the "subpoena duces tecum" is proper in a suit for unfair competition.
Respondent’s contention:
Private respondent claims the affirmative because (1) the subpoena duces tecum in question specifically designates the books and documents that should be produced in court and they are 4 sales invoices, sales books and ledgers where are recorded the sales of Plymouth Star Player Rubber Shoes from the time the corporation started manufacturing and selling shoes (that is from April 1, 1963) up to the present; and (2) the relevancy of the books subject to the controverted subpoena duces tecum cannot be seriously denied, because if and when herein respondent corporations are ultimately adjudged to be entitled to recover compensatory damages from the petitioner, there would be no factual basis for the amount of such damages unless those books and documents are laid open for the court's scrutiny.
Petitioner’s conteintion
On the other hand, petitioner submits a contrary opinion and insists that the question of liability of petitioner should be determined first before discovery by means of a subpoena duces tecum is allowed: that respondent Converse is a foreign corporation not licensed to do business in the Philippines and that Edwardson is merely its licensee that respondent Converse has no goodwill to speak of and that it has no registrable right over its own names; that the questioned subpoena duces tecum issued by respondent judge was merely a "Fishing Bill."
In the meantime, while this present petition remains pending before this Court, petitioner manifested on April 2, 1977 5 that their establishment was totally burned together with all the records which is sought to be produced in court by the questioned "subpoena duces tecum" on May 3, 1970. In effect, it renders the present petition moot and academic. However, the legal principles arising from the issues deserve Our discussion and resolution.
As a general rule, on obtaining an injunction for infringement of a trademark, complainant is entitled to an accounting and recovery of defendant's profits on the goods sold under that mark, as incident to, and a part of, his property right, and this rule applies in cases of unfair competition. In such case, the infringer or unfair trader is required in equity to account for and yield up his gains on a principle analogous to that which charges as trustee with the profits acquired by the wrongful use of the property of the cestuique trust, and defendant's profits are regarded as an equitable measure of the compensation plaintiff should receive for the past harm suffered by him.6
Well-settled is Our jurisprudence that, in order to entitle a party to the issuance of a "subpoena duces tecum ", it must appear, by clear and unequivocal proof, that the book or document sought to be produced contains evidence relevant and material to the issue before the court, and that the precise book, paper or document containing such evidence has been so designated or described that it may be identified. 7 A "subpoena duces tecum once issued by the court may be quashed upon motion if the issuance thereof is unreasonable and oppressive or the relevancy of the books, documents or things does not appear, or if the persons in whose behalf the subpoena is issued fails to advance the reasonable cost of production thereof. 8
In the instant case, in determining whether the books subject to the subpoena duces tecum are relevant and reasonable in relation to the complaint of private respondent for unfair competition, We have to examine Republic Act No. 166,' which provides:
CHAPTER V.—Rights and Remedies
xxx xxx xxx
Sec. 23. Actions, and damages and injunction for infringement. — Any person entitled to the exclusive use of a registered mark or trade name may recover damages in a civil action from any person who infringes his rights and the measure of the damages suffered shag be either the reasonable profit which the complaining party would have made, had the defendant not infringed his said rights, or the profit which the defendant actually made out of the infringment management, or in the event such measure of damages cannot be readily ascertained with reasonable certainty, their the court may award as damages a reasonable percentage based upon the amount of gross sales of the defendant of the value of the services in connection with which the mark or trade name was used in the infringement of the rights of the complaining party. In cases where actual intent to mislead the public or to defraud the complaining party shall be shown in the discretion of the court, the damages may be doubled.
The complaining party, upon proper showing may also be granted injunction.
In recovering the loss suffered by the aggrieved party due to unfair competition," Sec. 23 of R.A. 166 grants the complainant three options within which to ascertain the amount of damages recoverable, either (1) the reasonable profit which the complaining party would have made, had the defendant not infringed his said rights; or (2) the profit which the defendant actually made out of the infringement; or (3) the court may award as damages a reasonable percentage based upon the amount of gross sales of the defendant of the value of the services in connection with which the mark or tradename was issued in the infringement of the rights of the complaining party.
In giving life to this remedial statute, We must uphold the order of the court a quo denying the motion. of the petitioner to quash the "subpoena duces tecum" previously issued against the petitioner. In a suit for unfair competition, it is only through the issuance of the questioned "subpoena duces tecum " that the complaining party is afforded his full rights of redress.
The argument that the petitioner should first be found guilty unfair competition before an accounting for purposes of ascertaining the amount of damages recoverable can proceed, stands without merit.. The complaint for unfair competition is basically a suit for "injunction and damages". 10 Injunction, for the purpose of enjoining the unlawful competitor from proceeding further with the unlawful competition, and damages, in order to allow the aggrieved party to recover the damage he has suffered by virtue of the said unlawful competition. Hence, the election of the complainant (private respondent herein) for the accounting of petitioner's (defendant below) gross sales as damages per R.A. 166, appears most relevant. For Us, to determine the amount of damages allowable after the final determination of the unfair labor case would not only render nugatory the rights of complainant under Sec. 23 of R.A. 166, but would be a repetitious process causing only unnecessary delay.
The sufficiency in the description of the books sought to be produced in court by the questioned "subpoena duces tecum is not disputed in this case, hence, We hold that the same has passed the test of sufficient description.
Petitioner also assails that private respondent is a foreign corporation not licensed to do business in the Philippines and that respondent Edwardson is merely its licensee; that respondent Converse has no goodwill to speak of and that it has no registrable right over its own name. We have already answered this issue squarely in Our decision of the case of Converse Rubber Corporation vs. Jacinto Rubber & Plastic Co., Inc., 11 where We explained:
The disability of a foreign corporation from suing in the Philippines is limited to suits to enforce any legal of contract rights arising from, or growing out, of any business which it has transacted in the Philippine Islands ... On the other hand, where the purpose of the suit is "to protect its reputation, its corporate name, its goodwill, whenever that reputation, corporate name or goodwill have, through the natural development of its trade, established themselves", an unlicensed foreign corporation may sue in the Philippines. So interpreted by the Supreme Court, it is clear that Section 29 of the Corporation Law does not disqualify plaintiff-appellee Converse Rubber, which does not have a branch office in any part of the Philippines and is not "doing business" in the Philippines, from filing and prosecuting this action for unfair competition.
As We said earlier, the establishment of the petitioner burned down together with all the records sought to be produced by the questioned "subpoena duces tecum," hence this case has become moot and academic. We have no recourse but to dismiss the same.
WHEREFORE, the instant petition is DISMISSED for becoming moot and academic. No costs.
SO ORDERED.
STATE INVESTMENT HOUSE, INC. vs. CA
NARVASA, J.:p
The chief question in the appeal at bar is whether or not foreign banks licensed to do business in the Philippines, may be considered "residents of the Philippine Islands" within the meaning of Section 20 of the Insolvency Law (Act No. 1956, as amended, eff. May 20, 1909) reading in part as follows: 1
An adjudication of insolvency may be made on the petition of three or more creditors, residents of the Philippine Islands, whose credits or demands accrued in the Philippine Islands, and the amount of which credits or demands are in the aggregate not less than one thousand pesos: Provided, that none of said creditors has become a creditor by assignment, however made, within thirty days prior to the filing of said petition. Such petition must be filed in the Court of First Instance of the province or city in which the debtor resides or has his principal place of business, and must be verified by at least three (3) of the petitioners. . . .
The foreign banks involved in the controversy are Bank of America NT and SA, Citibank N.A. and Hongkong and Shanghai Banking Corporation. On December 11, 1981, they jointly filed with the Court of First Instance of Rizal a petition for involuntary insolvency of Consolidated Mines, Inc. (CMI), which they amended four days later. 2 The case was docketed as Sp. Proc. No. 9263 and assigned to Branch 28 of the Court.
The petition for involuntary insolvency alleged:
1) that CMI had obtained loans from the three petitioning banks, and that as of November/December, 1981, its outstanding obligations were as follows:
a) In favor of Bank of America (BA) P15,297,367.67
(as of December 10, 1981) US$ 4,175,831.88
(b) In favor of Citibank US$ 4,920,548.85
(as of December 10, 1981)
c) In favor of Hongkong & Shanghai Bank US$ 5,389,434.12
(as of November 30, 1981); P6,233,969.24
2) that in November, 1981, State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI) had separately instituted actions for collection of sums of money and damages in the Court of First Instance of Rizal against CMI, docketed respectively as Civil Cases Numbered 43588 and 43677; and that on application of said plaintiffs, writs of preliminary attachment had been issued which were executed on "the royalty/profit sharing payments due CMI from Benguet Consolidated Mining, Inc;" and
3) that CMI had "committed specific acts of insolvency as provided in Section 20 of the Insolvency Law, to wit:
xxx xxx xxx
5. that he (CMI) has suffered his (CMI's) property to remain under attachment or legal process for three days for the purpose of hindering or delaying or defrauding his (CMI's) creditors;
xxx xxx xxx
11. that being a merchant or tradesman he (CMI) has generally defaulted in the payment of his (CMI's) current obligations for a period of thirty days; . . .
The petition was opposed by State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI). 3 It claimed that:
1) the three petitioner banks had come to court with unclean hands in that they filed the petition for insolvency — alleging the CMI was defrauding its creditors, and they wished all creditors to share in its assets — although a few days earlier, they had "received for the account of CMI substantial payments aggregating P10,800,000.00;"
2) the Court had no jurisdiction because the alleged acts of insolvency were false: the writs of attachment against CMI had remained in force because there were "just, valid and lawful grounds for the(ir) issuance," and CMI was not a "merchant or tradesman" nor had it "generally defaulted in the payment of (its) obligations for a period of thirty days . . . ;"
3) the Court had no jurisdiction to take cognizance of the petition for insolvency because petitioners are notresident creditors of CMI in contemplation of the Insolvency Law; and
4) the Court has no power to set aside the attachment issued in favor of intervenors-oppositors SIHI and SFCI.
CMI filed its Answer to the petition for insolvency, asserting in the main that it was not insolvent, 4 and later filed a "Motion to Dismiss Based on Affirmative Defense of Petitioner's Lack of Capacity to Sue," echoing the theory of SIHI and SFCI that the petitioner banks are not "Philippine residents." 5 Resolution on the motion was "deferred until after hearing of the case on the merits" it appearing to the Court that the grounds therefor did not appear to be indubitable. 6
SIHI and SFCI filed their own Answer-in-Intervention, 7 and served on the three petitioner banks requests for admission of certain facts in accordance with Rule 26 of the Rules of Court, 8 receiving a response only from Hongkong & Shanghai Bank. 9
SIHI and SFCI then filed a Motion for Summary Judgment dated May 23, 1983 "on the ground that, based on the pleadings and admissions on record, the trial court had no jurisdiction to adjudicate CMI insolvent since the petitioners (respondent foreign banks) are not "resident creditors" of CMI as required under the Insolvency Law."10 Oppositions to the motion were filed, 11 to which a reply was submitted. 12
The Regional Trial Court 13 found merit in the motion for summary judgment. By Order dated October 10, 1983, it rendered "summary judgment dismissing the . . . petition for lack of jurisdiction over the subject matter, with costs against petitioners." 14 It ruled that on the basis of the "facts on record, as shown in the pleadings, motions and admissions of the parties, an insolvency court could "not acquire jurisdiction to adjudicate the debtor as insolvent if the creditors petitioning for adjudication of insolvency are not "residents" of the Philippines" — citing a decision of the California Supreme Court which it declared "squarely applicable especially considering that one of the sources of our Insolvency Law is the Insolvency Act of California of 1895 . . . " And it declared that since petitioners had been merely licensed to do business in the Philippines, they could not be deemed residents thereof.
The three foreign banks sought to take an appeal from the Order of October 10, 1983. They filed a notice of appeal and a record on appeal. 15 SIHI and SFCI moved to dismiss their appeal claiming it was attempted out of time. The Trial Court denied the motion.
SIHI and SFCI filed with this Court a petition for certiorari and prohibition (G.R. NO. 66449), impugning that denial. The Court dismissed the petition and instead required the three banks to file a petition for review in accordance with Rule 45 of the Rules of Court. 16 This the banks did (their petition was docketed as G.R. No. 66804). However, by Resolution dated May 16, 1984, the court referred the petition for review to the Intermediate Appellate Court, where it was docketed as AC SP-03674. 17
In the meantime, the Trial Court approved on May 3, 1985 the banks' record on appeal and transmitted it to this Court, where it was recorded as UDK-6866. As might have been expected, this Court required the banks to file a petition for review under Rule 45, but they asked to be excused from doing so since they had already filed such a petition, which had been referred to the Intermediate Appellate Court and was there pending as AC-G.R. No. SP 03674, supra. This Court then also referred UDK-6866 to the Intermediate Appellate Court where it was docketed as AC-G.R. No. CV 07830.
Both referred cases, AC-G.R. No. SP 03674 and AC-G.R. No. CV 07830, were consolidated by Resolution of the Court of Appeals dated April 9, 1986, and Decision thereon was promulgated on July 14, 1987 by the Fifteenth Division of said Court. 18
The Appellate Court reversed the Trial Court's Order of October 10, 1983 and remanded the case to it for further proceedings. It ruled:
1) that the purpose of the Insolvency Law was "to convert the assets of the bankrupt in cash for distribution among creditors, and then to relieve the honest debtor from the weight of oppressive indebtedness and permit him to start life anew, free from the obligations and responsibilities consequent upon business misfortunes;" 19 and that it was "crystal clear" that the law was "designed not only for the benefit of the creditors but more importantly for the benefit of the debtor himself," the object being "to provide not only for the suspension of payments and the protection of creditors but also the discharge of insolvent honest debtors to enable them to have a fresh start;"
2) that the Trial Court had placed "a very strained and restrictive interpretation of the term "resident," as to exclude foreign banks which have been operating in this country since the early part of the century," and "the better approach . . . would have been to harmonize the provisions . . . (of the Insolvency Law) with similar provisions of other succeeding laws, like the Corporation Code of the Philippines, the General Banking Act, the Offshore Banking Law and the National Internal Revenue Code in connection with or related to their doing business in the Philippines;"
3) that in light of said statutes, the three banks "are in truth and in fact considered as "residents" of the Philippines for purposes of doing business in the Philippines and even for taxation matters;"
4) that the banks had "complied with all the laws, rules and regulations (for doing business in the country) and have been doing business in the Philippines for many years now;" that the authority granted to them by the Securities and Exchange Commission upon orders of the Monetary Board "covers not only transacting banking business . . . but likewise maintaining suits "for recovery of any debt, claims or demand whatsoever," and that their petition for involuntary insolvency was "nothing more than a suit aimed at recovering a debt granted by them to Consolidated Mines, Inc., or at least a portion thereof;"
4) that to deprive the foreign banks of their right to proceed against their debtors through insolvency proceedings would "contravene the basic standards of equity and fair play, . . . would discourage their operations in economic development projects that create not only jobs for our people but also opportunities for advancement as a nation;" and
5) that the terms "residence" and "domicile" do not mean the same thing, and that as regards a corporation, it is generally deemed an "inhabitant" of the state under whose law it is incorporated, and has a "residence" wherever it conducts its ordinary business, and may have its legal "domicile" in one place and "residence" in another.
SIHI and SFCI moved for reconsideration and then, when rebuffed, took an appeal to this Court. Here, they argue that the Appellate Court's judgment should be reversed because it failed to declare that —
1) the failure of the three foreign banks to allege under oath in their petition for involuntary insolvency that they are Philippine residents, wishing only to "be considered Philippine residents," is fatal to their cause;
2) also fatal to their cause is their failure to prove, much less allege, that under the domiciliary laws of the foreign banks, a Philippine corporation is allowed the reciprocal right to petition for a debtor's involuntary insolvency;
3) in fact and in law, the three banks are not Philippine residents because:
a) corporations have domicile and residence only in the state of their incorporation or in the place designated by law, although for limited and exclusive purposes, other states may consider them as residents;
b) juridical persons may not have residence separate from their domicile;
4) actually, the non-resident status of the banks within the context of the Insolvency Law is confirmed by other laws;
5) the license granted to the banks to do business in the Philippines does not make them residents;
6) no substantive law explicitly grants foreign banks the power to petition for the adjudication of the Philippine corporation as a bankrupt;
7) the Monetary Board can not appoint a conservator or receiver for a foreign bank or orders its liquidation having only the power to revoke its license, subject to such proceedings as the Solicitor General may thereafter deem proper to protect its creditors;
8) the foreign banks are not denied the right to collect their credits against Philippine debtors, only the right to "petition for the harsh remedy of involuntary insolvency" not being conceded to them;
9) said banks have come to court with unclean hands, their filing of the petition for involuntary insolvency being an attempt to defeat validly acquired rights of domestic corporations.
The concept of a foreign corporation under Section 123 of the Corporation Code is of "one formed, organized or existing under laws other than those of the Philippines and . . . (which) laws allow Filipino citizens and corporations to do business . . . ." There is no question that the three banks are foreign corporations in this sence, with principal offices situated outside of the Philippines. There is no question either that said banks have been licensed to do business in this country and have in fact been doing business here for many years, through branch offices or agencies, including "foreign currency deposit units;" in fact, one of them, Hongkong & Shanghai Bank has been doing business in the Philippines since as early as 1875.
The issue is whether these Philippine branches or units may be considered "residents of the Philippine Islands" as that term is used in Section 20 of the Insolvency Law, supra, 20 or residents of the state under the laws of which they were respectively incorporated. The answer cannot be found in the Insolvency Law itself, which contains no definition of the term, resident, or any clear indication of its meaning. There are however other statutes, albeit of subsequent enactment and effectivity, from which enlightening notions of the term may be derived.
The National Internal Revenue Code declares that the term "'resident foreign corporation' applies to a foreign corporation engaged in trade or business within the Philippines," as distinguished from a " "non-resident foreign corporation" . . . (which is one) not engaged in trade or business within the Philippines." 21
The Offshore Banking Law, Presidential Decree No. 1034, states "that branches, subsidiaries, affiliation, extension offices or any other units of corporation or juridical person organized under the laws of any foreign country operating in the Philippines shall be considered residents of the Philippines." 22
The General Banking Act, Republic Act No. 337, places "branches and agencies in the Philippines of foreign banks . . . (which are) called Philippine branches," in the same category as "commercial banks, savings associations, mortgage banks, development banks, rural banks, stock savings and loan associations" (which have been formed and organized under Philippine laws), making no distinction between the former and the later in so far, as the terms "banking institutions" and "bank" are used in the Act, 23 declaring on the contrary that in "all matters not specifically covered by special provisions applicable only to foreign banks, or their branches and agencies in the Philippines, said foreign banks or their branches and agencies lawfully doing business in the Philippines "shall be bound by all laws, rules, and regulations applicable to domestic banking corporations of the same class, except such laws, rules and regulations as provided for the creation, formation, organization, or dissolution of corporations or as fix the relation, liabilities, responsibilities, or duties of members, stockholders or officers or corporations." 24
This Court itself has already had occasion to hold 25 that a foreign corporation licitly doing business in the Philippines, which is a defendant in a civil suit, may not be considered a non-resident within the scope of the legal provision authorizing attachment against a defendant not residing in the Philippine Islands;" 26 in other words, a preliminary attachment may not be applied for and granted solely on the asserted fact that the defendant is a foreign corporation authorized to do business in the Philippines — and is consequently and necessarily, "a party who resides out of the Philippines." Parenthetically, if it may not be considered as a party not residing in the Philippines, or as a party who resides out of the country, then, logically, it must be considered a party who does reside in the Philippines, who is a resident of the country. Be this as it may, this Court pointed out that:
. . . Our laws and jurisprudence indicate a purpose to assimilate foreign corporations, duly licensed to do business here, to the status of domestic corporations. (Cf. Section 73, Act No. 1459, and Marshall Wells Co. vs.
Henry W. Elser & Co., 46 Phil. 70, 76; Yu; Cong Eng vs. Trinidad, 47 Phil. 385, 411) We think it would be entirely out of line with this policy should we make a discrimination against a foreign corporation, like the petitioner, and subject its property to the harsh writ of seizure by attachment when it has complied not only with every requirement of law made specially of foreign corporations, but in addition with every requirement of law made of domestic corporations. . . . .
Obviously, the assimilation of foreign corporations authorized to do business in the Philippines "to the status ofdomestic corporations," subsumes their being found and operating as corporations, hence, residing, in the country.
The same principle is recognized in American law: that the "residence of a corporation, if it can be said to have a residence, is necessarily where it exercises corporate functions . . . ;" that it is .considered as dwelling "in the place where its business is done . . . ," as being "located where its franchises are exercised . . . ," and as being "present where it is engaged in the prosecution of the corporate enterprise;" that a "foreign corporation licensed to do business in a state is a resident of any country where it maintains an office or agent for transaction of its usual and customary business for venue purposes;" and that the "necessary element in its signification is locality of existence." 27 Courts have held that "a domestic corporation is regarded as having a residence within the state at any place where it is engaged in the particulars of the corporate enterprise, and not only at its chief place or home office;" 28 that "a corporation may be domiciled in one state and resident in another; its legal domicil in the state of its creation presents no impediment to its residence in a real and practical sense in the state of its business activities." 29
The foregoing propositions are in accord with the dictionary concept of residence as applied to juridical persons, a term which appears to comprehend permanent as well as temporary residence.
The Court cannot thus accept the petitioners' theory that corporations may not have a residence (i.e., the place where they operate and transact business) separate from their domicile (i.e., the state of their formation or organization), and that they may be considered by other states as residents only for limited and exclusive purposes. Of course, as petitioners correctly aver, it is not really the grant of a license to a foreign corporation to do business in this country that makes it a resident; the license merely gives legitimacy to its doing business here. What effectively makes such a foreign corporation a resident corporation in the Philippines is its actually being in the Philippines and licitly doing business here, "locality of existence" being, to repeat, the "necessary element in . . . (the) signification" of the term, resident corporation.
Neither can the Court accept the theory that the omission by the banks in their petition for involuntary insolvency of an explicit and categorical statement that they are "residents of the Philippine Islands," is fatal to their cause. In truth, in light of the concept of resident foreign corporations just expounded, when they alleged in that petition that they are foreign banking corporations, licensed to do business in the Philippines, and actually doing business in this Country through branch offices or agencies, they were in effect stating that they are resident foreign corporations in the Philippines.
There is, of course, as petitioners argue, no substantive law explicitly granting foreign banks the power to petition for the adjudication of a Philippine corporation as a bankrupt. This is inconsequential, for neither is there any legal provision expressly giving domestic banks the same power, although their capacity to petition for insolvency can scarcely be disputed and is not in truth disputed by petitioners. The law plainly grants to a juridical person, whether it be a bank or not or it be a foreign or domestic corporation, as to natural persons as well, such a power to petition for the adjudication of bankruptcy of any person, natural or juridical, provided that it is a resident corporation and joins at least two other residents in presenting the petition to the Bankruptcy Court.
The petitioners next argue that "Philippine law is emphatic that only foreign corporations whose own laws give Philippine nationals reciprocal rights may do business in the Philippines." As basis for the argument they invoke Section 123 of the Corporation Code which, however, does not formulate the proposition in the same way. Section 123 does not say, as petitioners assert, that it is required that the laws under which foreign corporations are formed "give Philippine nationals, reciprocal rights." What it does say is that the laws of the country or state under which a foreign corporation is "formed, organized or existing . . . allow Filipino citizens and corporations to do business in its own country or state," which is not quite the same thing. Now, it seems to the Court that there can be no serious debate about the fact that the laws of the countries under which the three (3) respondent banks were formed or organized (Hongkong and the United States) do "allow Filipino citizens and corporations to do business" in their own territory and jurisdiction. It also seems to the Court quite apparent that the Insolvency Law contains no requirement that the laws of the state under which a foreign corporation has been formed or organized should grant reciprocal rights to Philippine citizens to apply for involuntary insolvency of a resident or citizen thereof. The petitioners' point is thus not well taken and need not be belabored.
That the Monetary Board can not appoint a conservator or receiver for a foreign bank or order its liquidation having only the power to revoke its license, subject to such proceedings as the Solicitor General may thereafter deem proper to protect its creditors, which is another point that petitioners seek to make, is of no moment. It has no logical connection to the matter of whether or not the foreign bank may properly ask for a judicial declaration of the involuntary insolvency of a domestic corporation, which is the issue at hand. The fact is, in any event, that the law is not lacking in sanctions against foreign banks or powerless to protect the latter's creditors.
The petitioners contend, too, that the respondent banks have come to court with unclean hands, their filing of the petition for involuntary insolvency being an attempt to defeat validly acquired rights of domestic corporations. The Court wishes to simply point out that the effects of the institution of bankruptcy proceedings on all the creditors of the alleged bankrupt are clearly spelled out by the law, and will be observed by the Insolvency Court regardless of whatever motives — apart from the desire to share in the assets of the insolvent in satisfying its credits — that the party instituting the proceedings might have.
Still another argument put forth by the petitioners is that the three banks' failure to incorporate their branches in the Philippines into new banks in accordance with said Section 68 of the General Banking Act connotes an intention on their part to continue as residents of their respective states of incorporation and not to be regarded as residents of the Philippines. The argument is based on an incomplete and inaccurate quotation of the cited Section. What Section 68 required of a "foreign bank presently having branches and agencies in the Philippines, . . . within one year from the effectivity" of the General Banking Act, was to comply with any of three (3) options, not merely with one sole requirement. These three (3) options are the following:
1) (that singled out and quoted by the petitioners, i.e.:) "incorporate its branch or branches into a new bank in accordance with Philippine laws . . . ; or
2) "assign capital permanently to the local branch with the concurrent maintenance of a 'net due to' head office account which shall include all net amounts due to other branches outside the Philippines in an amount which when added to the assigned capital shall at all times be not less than the minimum amount of capital accounts required for domestic commercial banks under section twenty-two of this Act;" or
3) "maintain a "net due to" head office account which shall include all net amounts due to other branches outside the Philippines, in an amount which shall not be less than the minimum amount of capital accounts required for domestic commercial banks under section twenty-two of this Act."
The less said about this argument then, the better.
The petitioners allege that three days before respondent banks filed their petition for involuntary insolvency against CMI, they received from the latter substantial payments on account in the aggregate amount of P6,010,800.00, with the result that they were "preferred in the distribution of CMI's assets thereby defrauding other creditors of CMI." Non sequitur. It is in any case a circumstance that the Bankruptcy Court may well take into consideration in determining the manner and proportion by which the assets of the insolvent company shall be distributed among its creditors; but it should not be considered a ground for giving the petition for insolvency short shrift. Moreover, the payment adverted to does not appear to be all that large. The total liabilities of CMI to the three respondent banks as of December, 1981 was P21,531,336.91, and US$14,485,814.85. Converted into Philippine currency at the rate of P7.899 to the dollar, the average rate of exchange during December, 1981, 30 the dollar account would be P114,423,451.50. Thus, the aggregate liabilities of CMI to the banks, expressed in Philippine currency, was P135,954,788.41 as of December, 1981, and therefore the payment to them of P6,010,800.00 constituted only some 4.42% of the total indebtedness.
WHEREFORE, the petition is DENIED and the challenged Decision of the Court of Appeals is AFFIRMED in toto, with costs against the petitioners.
MARUBENI NEDERLAND B.V., petitioner, vs. TENSUAN
FERNAN, C.J.:
On October 23, 1976, in Tokyo, Japan, petitioner Marubeni Nederland B.V. and D.B. Teodoro Development Corporation (DBT for short) entered into a contract whereby petitioner agreed to supply all the necessary equipment, machinery, materials, technical know-how and the general design of the construction of DBT's lime plant at the Guimaras Islands in Iloilo for a total contract price of US$5,400,000.00 on a deferred payment basis. Simultaneously with the supply contract, the parties entered into two financing contracts, namely a construction loan agreement in the amount of US$1,600,000.00 and a cash loan agreement for US$1,500,000.00. The obligation of DBT to pay the loan amortizations on their due dates under the three (3) contracts were absolutely and unconditionally guaranteed by the National Investment and Development Corporation (NIDC).
Pursuant to the terms of the financing contracts, the loan amortizations of DBT fell due on January 7, 1980, July 7, 1980 and January 7, 1981. But before the first installment became due, DBT wrote a letter to the NIDC interposing certain claims against the petitioner and at the same time requesting NIDC for a revision of the repayment schedule and of the amounts due under the contracts on account of petitioner's delay in the performance of its contractual commitments. 1 In due time, the problems regarding the lime plant were ironed out and the parties signed a "Settlement Agreement" on July 2, 1981. 2
However, on May 14, 1982, DBT through counsel, informed petitioner that it was rejecting the lime plant on the ground that it has not been constructed in accordance with their agreement. DBT made a formal demand for indemnification in the total amount of P95,150,000. 3 In its letter dated June 1, 1982, petitioner refused to accept DBT's unilateral rejection of the plant and reasoned that the alleged operation and technical problems were "totally unrelated to the guaranteed capacity and specifications of the plant and definitely are not attributable to any fault or omission on the part of Marubeni." 4
Before the first installment under the "Settlement Agreement" could be paid, private respondent Artemio Gatchalian, a stockholder of DBT sued petitioner Marubeni for contractual breach before the then Court of First Instance of Rizal, Branch 4, Quezon City. 5 In his complaint filed on June 22, 1982, Gatchalian impleaded DBT as an "unwilling plaintiff . . . for whose primary benefit th(e) action (wa)s being prosecuted" together with NIDC which, as pledgee of the voting shares in DBT has controlling interest in that corporation. 6 Gatchalian sought indemnification in the amount of P95,150,000.00 and further prayed for a writ of preliminary injunction to
enjoin DBT and NIDC from making directly or indirectly any payment to Marubeni in connection with the contracts they had entered into. On June 25, 1982, respondent judge issued a temporary restraining order directed against DBT and NIDC and set the injunction for hearing. 7
On July 5, 1982, petitioner Marubeni entered a limited and special appearance and sought the dismissal of the complaint on the ground that the court a quo had no jurisdiction over the person of petitioner since it is a foreign corporation neither doing nor licensed to do business in the Philippines. Private respondent opposed that motion. On September 22, 1982, the lower court denied petitioner's motion to dismiss for lack of merit and gave it ten (10) days within which to file an answer. Petitioner opted to elevate the jurisdictional issue directly to the High Court. 8Hence, this petition for certiorari and prohibition with prayer for a temporary restraining order. On October 6, 1982, we issued the restraining order and subsequently required the parties to file simultaneous memoranda.
The pivotal issue in this case is whether or not petitioner Marubeni Nederland B.V. can be considered as "doing business" in the Philippines and therefore subject to the jurisdiction of our courts.
Petitioner claims that it is a foreign corporation not doing business in the country and as an entity with its own capitalization, it is separate and distinct from Marubeni Corporation, Japan which is doing business in the Philippines through its Manila branch; that the three (3) contracts entered into with DBT were perfected and consummated in Tokyo, Japan; that the sale and purchase of the machineries and equipment for the Guimaras lime plant were isolated contracts and in no way indicated a purpose to engage in business; and that the services performed by petitioner in the Philippines were merely auxillary to the aforesaid isolated transactions entered into and perfected outside the Philippines.
On the other hand, private respondent Gatchalian contends that petitioner can be sued in Philippine courts on liabilities arising from even a single transaction because in reality, it is already engaging in business in the country through Marubeni Corporation, Manila branch and that they, together with Nihon Cement Company, Ltd. of Japan are but "alter egos, adjuncts, conduits instruments or branch affiliates of Marubeni Corporation of Japan", the parent company. 9
In resolving the issue at hand, we reiterate that there is no general rule or principle that can be laid down to determine what constitutes doing or engaging in business. Each case must be judged in the light of its peculiar factual milieu and upon the language of the statute applicable. 10
Contrary to petitioner's allegations, we hold that petitioner can be sued in the regular courts because it is doing business in the Philippines. The applicable law is Republic Act No. 5455 as implemented by the following rules and regulations of the Board of Investments which took effect on February 3, 1969. Thus:
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(f) the performance within the Philippines of any act or combination of acts enumerated in Section 1 (1) of the Act shall constitute "doing business" therein. In particular, "doing business" includes:
1) Soliciting orders, purchases (sales) or service contracts. Concrete and specific solicitations by a foreign firm amounting to negotiation or fixing of the terms and conditions of sales or service contracts, regardless of whether the contracts are actually reduced to writing, shall constitute doing business even if the enterprise has no office or fixed place of business in the Philippines. . . .
2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its own account, and not in the name or for the account of the principal.
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4) Opening offices whether called "liaison" offices, agencies or branches, unless proved otherwise.
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10) 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, or in the progressive prosecution of, commercial gain or of the purpose and objective of the business organization. 11
It cannot be denied that petitioner had solicited the lime plant business from DBT through the Marubeni Manila branch. Records show that the "turn-key proposal for the . . . 300 T/D Lime Plant" was initiated by the Manila office through its Mr. T. Hojo. In a follow-up letter dated August 3, 1976, Hojo committed the firm to a price reduction of $200,000.00 and submitted the proposed contract forms. As reflected in the letterhead used, it was Marubeni Corporation, Tokyo, Japan which assumed an active role in the initial stages of the negotiation. Petitioner Marubeni Nederland B.V. had no visible participation until the actual signing of the October 28, 1976 agreement in Tokyo and even there, in the space reserved for petitioner, it was the signature. of "S. Adachi as General Manager of Marubeni Corporation, Tokyo on behalf of Marubeni Nederland B.V." which appeared. 12
Even assuming for the sake of argument that Marubeni Nederland B.V. is a different and separate business entity from Marubeni Japan and its Manila branch, in this particular transaction, at least, Marubeni Nederland B.V. through the foregoing acts, had effectively solicited "orders, purchases (sales) or service contracts" as well as constituted Marubeni Corporation, Tokyo, Japan and its Manila Branch as its representative in the Philippines to transact business for its account as principal. These circumstances, taken singly or in combination, constitute "doing business in the Philippines" within the contemplation of the law.
At this juncture it must be emphasized that a foreign corporation doing business in the Philippines with or without license is subject to process and jurisdiction of the local courts. If such corporation is properly licensed, well and good. But it shall not be allowed, under any circumstances, to invoke its lack of license to impugn the jurisdiction of our courts. 13
Finally, petitioner contends that it was denied due process when respondent Judge Tensuan peremptorily denied its motion to dismiss without giving petitioner any opportunity to present evidence at a hearing set for this purpose. 14
The alleged denial of due process is more apparent than real. Under Section 13, Rule 16 of the Revised Rules of Court, the court, when confronted with a motion to dismiss, is given two courses of action, to wit: (1) to deny or grant the motion or allow amendment of the pleading or (2) to defer the hearing and determination of the motion until the trial on the merits, if the ground alleged therein does not appear to be indubitable.
In the case at bar, assuming there was no formal hearing on the motion to dismiss prior to its rejection, such did not unduly prejudice the rights of petitioner. Respondent court still had to conduct trial on the merits during which time it could grant the motion after sufficient evidence has been presented showing without any question the want of jurisdiction over the person of the movant. It would have been different had respondent court sustained petitioner's motion to dismiss without the required hearing in which case, the corrective writ of certiorari would have issued against said court. In the absence of a hearing, the appellate court, in an appeal from an order of dismissal, would have had no means of determining or resolving the legality of the proceedings and the sufficiency of the proofs on which the order was based.
WHEREFORE, the petition is DISMISSED for lack of merit. Respondent Court is hereby directed to proceed with the hearing of Civil Case No. Q-35534 with dispatch. This decision is immediately executory. Costs against the petitioner.
G.R. No. 73765 August 26, 1991
HANG LUNG BANK, LTD. vs. Saulog FERNAN, C.J.:p
Challenged in this petition for certiorari which is anchored on grave abuse of discretion, are two orders of the Regional Trial Court, Branch CXLII of Makati, Metro Manila dismissing the complaint for collection of a sum of money and denying the motion for reconsideration of the dismissal order on the ground that petitioner, a Hongkong-based bank, is barred by the General Banking Act from maintaining a suit in this jurisdiction.
The records show that on July 18, 1979, petitioner Hang Lung Bank, Ltd., which was not doing business in the Philippines, entered into two (2) continuing guarantee agreements with Cordova Chin San in Hongkong whereby the latter agreed to pay on demand all sums of money which may be due the bank from Worlder Enterprises to the extent of the total amount of two hundred fifty thousand Hongkong dollars (HK $250,000). 1
Worlder Enterprises having defaulted in its payment, petitioner filed in the Supreme Court of Hongkong a collection suit against Worlder Enterprises and Chin San. Summonses were allegedly served upon Worlder Enterprises and Chin San at their addresses in Hongkong but they failed to respond thereto. Consequently, the Supreme Court of Hongkong issued the following:
J U D G M E N T
THE 14th DAY OF JUNE, 1984
No notice of intention to defend having been given by the 1st and 2nd Defendants herein, IT IS THIS DAY ADJUDGED that: —
(1) the 1st Defendant (Ko Ching Chong Trading otherwise known as the Worlder Enterprises) do pay the Plaintiff the sum of HK$1,117,968.36 together with interest on the respective principal sums of HK$196,591.38, HK$200,216.29, HK$526,557.63, HK$49,350.00 and HK$3,965.50 at the rates of 1.7% per month (or HK$111.40 per day), 18.5% per annum (or HK$101.48 per day), 1.85% per month (or HK$324.71 per day), 1.55% per month (or HK$25.50 per day) and 1.7% per month (or HK$2.25 per day) respectively from 4th May 1984 up to the date of payment; and
(2) the 2nd Defendant (Cordova Chin San) do pay the Plaintiff the sum of HK$279,325.00 together with interest on the principal sum of HK$250,000.00 at the rate of 1.7% per month (or HK$141.67 per day) from 4th May 1984 up to the date of payment.
AND IT IS ADJUDGED that the 1st and 2nd Defendants do pay the Plaintiff the sum of HK$970.00 fixed costs.
N.J. BARNETT Registrar
Thereafter, petitioner through counsel sent a demand letter to Chin San at his Philippine address but again, no response was made thereto. Hence, on October 18, 1984, petitioner instituted in the court below an action seeking "the enforcement of its just and valid claims against private respondent, who is a local resident, for a sum of money based on a transaction which was perfected, executed and consummated abroad." 2
In his answer to the complaint, Chin San raised as affirmative defenses: lack of cause of action, incapacity to sue and improper venue. 3
Pre-trial of the case was set for June 17, 1985 but it was postponed to July 12, 1985. However, a day before the latter pre-trial date, Chin San filed a motion to dismiss the case and to set the same for hearing the next day. The motion to dismiss was based on the grounds that petitioner had no legal capacity to sue and that venue was improperly laid.
Acting on said motion to dismiss, on December 20, 1985, the lower court 4 issued the following order:
On defendant Chin San Cordova's motion to dismiss, dated July 10, 1985; plaintiff's opposition, dated July 12, 1985; defendant's reply, dated July 22, 1985; plaintiff's supplemental opposition, dated September 13, 1985, and defendant's rejoinder filed on September 23, 1985, said motion to dismiss is granted.
Section 14, General Banking Act provides:
"No foreign bank or banking corporation formed, organized or existing under any laws other than those of the Republic of the Philippines, shall be permitted to transact business in the Philippines, or maintain by itself any suit for the recovery of any debt, claims or demands whatsoever until after it shall have obtained, upon order of the Monetary Board, a license for that purpose."
Plaintiff Hang Lung Bank, Ltd. with business and postal address at the 3rd Floor, United Centre, 95 Queensway, Hongkong, does not do business in the Philippines. The continuing guarantee, Annexes "A" and "B" appeared to have been transacted in Hongkong. Plaintiff's Annex "C" shows that it had already obtained judgment from the Supreme Court of Hongkong against defendant involving the same claim on June 14, 1984.
The cases of Mentholatum Company, Inc. versus Mangaliman, 72 Phil. 524 and Eastern Seaboard Navigation, Ltd. versus Juan Ysmael & Company, Inc., 102 Phil. 1-8, relied upon by plaintiff, deal with isolated transaction in the Philippines of foreign corporation. Such transaction though isolated is the one that conferred jurisdiction to Philippine courts, but in the instant case, the transaction occurred in Hongkong.
Case dismissed. The instant complaint not the proper action.
SO ORDERED. 5
Petitioner filed a motion for the reconsideration of said order but it was denied for lack of merit. 6 Hence, the instant petition for certiorari seeking the reversal of said orders "so as to allow petitioner to enforce through the court below its claims against private respondent as recognized by the Supreme Court of Hongkong." 7
Petitioner asserts that the lower court gravely abused its discretion in: (a) holding that the complaint was not the proper action for purposes of collecting the amount guaranteed by Chin San "as recognized and adjudged by the Supreme Court of Hongkong;" (b) interpreting Section 14 of the General Banking Act as precluding petitioner from maintaining a suit before Philippine courts because it is a foreign corporation not licensed to do business in the Philippines despite the fact that it does not do business here; and (c) impliedly sustaining private respondent's allegation of improper venue.
We need not detain ourselves on the issue of improper venue. Suffice it to state that private respondent waived his right to invoke it when he forthwith filed his answer to the complaint thereby necessarily implying submission to the jurisdiction of the court. 8
The resolution of this petition hinges on a determination of whether petitioner foreign banking corporation has the capacity to file the action below.
Private respondent correctly contends that since petitioner is a bank, its capacity to file an action in this jurisdiction is governed by the General Banking Act (Republic Act No. 337), particularly Section 14 thereof which provides:
SEC. 14. No foreign bank or banking corporation formed, organized or existing under any laws other than those of the Republic of the Philippines shall be permitted to transact business in the Philippines, or maintain by itself or assignee any suit for the recovery of any debt, claims, or demand whatsoever, until after it shall have obtained, upon order of the Monetary Board, a license for that purpose from the Securities and Exchange Commissioner. Any officer, director or agent of any such corporation who transacts business in the Philippines without the said license shall be punished by imprisonment for not less than one year nor more than ten years and by a fine of not less than one thousand pesos nor more than ten thousand pesos. (45 O.G. No. 4, 1647, 1649-1650)
In construing this provision, we adhere to the interpretation given by this Court to the almost identical Section 69 of the old Corporation Law (Act No. 1459) which reads:
SEC. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than those of the Philippines shall be permitted to transact business in the Philippines or maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it shall have the license prescribed in the section immediately preceding. Any officer, director or agent of the corporation or any person transacting business for any foreign corporation not having the license prescribed shall be punished by imprisonment for not less than six months nor more than two years or by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such imprisonment and fine, in the discretion of the Court.
In a long line of cases, this Court has interpreted this last quoted provision as not altogether prohibiting a foreign corporation not licensed to do business in the Philippines from suing or maintaining an action in Philippine courts.9 What it seeks to prevent is a foreign corporation doing business in the Philippines without a license from gaining access to Philippine courts. As elucidated in Marshall-Wells Co. vs. Elser & Co., 46 Phil. 70:
The object of the statute was to subject the foreign corporation doing business in the Philippines to the jurisdiction of its courts. The object of the statute was not to prevent it from performing single acts but to prevent it from acquiring a domicile for the purpose of business without taking the steps necessary to render it amenable to suit in the local courts. 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 from securing redress from Philippine courts, and thus, in effect, to permit persons to avoid their contract made with such foreign corporation. The effect of the statute preventing foreign corporations from doing business and from bringing actions in the local courts, except on compliance with elaborate requirements, must not be unduly extended or improperly applied. It should not be construed to extend beyond the plain meaning of its terms, considered in connection with its object, and in connection with the spirit of the entire law.
The fairly recent case of Universal Shipping Lines vs. Intermediate Appellate Court, 10 although dealing with the amended version of Section 69 of the old Corporation Law, Section 133 of the Corporation Code (Batas Pambansa Blg. 68), but which is nonetheless apropos, states the rule succinctly: "it is not the lack of the prescribed license (to do business in the Philippines) but doing business without license, which bars a foreign corporation from access to our courts."
Thus, we have ruled that a foreign corporation not licensed to do business in the Philippines may file a suit in this country due to the collision of two vessels at the harbor of Manila 11 and for the loss of goods bound for Hongkong but erroneously discharged in Manila. 12
Indeed, the phraseologies of Section 14 of the General Banking Act and its almost identical counterpart Section 69 of the old Corporation Law are misleading in that they seem to require a foreign corporation, including a foreign bank or banking corporation, not licensed to do business and not doing business in the Philippines to secure a license from the Securities and Exchange Commission before it can bring or maintain an action in Philippine courts. To avert such misimpression, Section 133 of the Corporation Code is now more plainly worded thus:
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.
Under this provision, we have ruled that a foreign corporation may sue in this jurisdiction for infringement of trademark and unfair competition although it is not doing business in the Philippines 13 because the Philippines was a party to the Convention of the Union of Paris for the Protection of IndustrialProperty. 14
We even went further to say that a foreign corporation not licensed to do business in the Philippines may not be denied the right to file an action in our courts for an isolated transaction in this country. 15
Since petitioner foreign banking corporation was not doing business in the Philippines, it may not be denied the privilege of pursuing its claims against private respondent for a contract which was entered into and consummated outside the Philippines. Otherwise we will be hampering the growth and development of business relations between Filipino citizens and foreign nationals. Worse, we will be allowing the law to serve as a protective shield for unscrupulous Filipino citizens who have business relationships abroad.
In its pleadings before the court, petitioner appears to be in a quandary as to whether the suit below is one for enforcement or recognition of the Hongkong judgment. Its complaint states:
COMES NOW Plaintiff, by undersigned counsel, and to this Honorable Court, most respectfully alleges that:
1. Plaintiff is a corporation duly organized and existing under and by virtue of the laws of Hongkong with business and postal address at the 3rd Floor, United Centre, 95 Queensway, Hongkong, not doing business in the Philippines, but is suing for this isolated transaction, but for purposes of this complaint may be served with summons and legal processes of this Honorable Court, at the 6th Floor, Cibeles Building, 6780 Ayala Avenue, Makati, Metro Manila, while defendant Cordova Chin San, may be served with summons and other legal processes of this Honorable Court at the Municipality of Moncada, Province of Tarlac, Philippines;
2. On July 18, 1979 and July 25, 1980, the defendant executed Continuing Guarantees, in consideration of plaintiff's from time to time making advances, or coming to liability or discounting bills or otherwise giving credit or granting banking facilities from time to time to, or on account of the Wolder Enterprises (sic), photocopies of the Contract of Continuing Guarantees are hereto attached as Annexes "A" and "B", respectively, and made parts hereof;
3. In June 1984, a complaint was filed by plaintiff against the Wolder Enterprises (sic) and defendant Cordova Chin San, in The Supreme Court of Hongkong, under Case No. 3176, and pursuant to which complaint, a judgment dated 14th day of July, 1984 was rendered by The Supreme Court of Hongkong ordering to (sic) defendant Cordova Chin San to pay the plaintiff the sum of HK$279,325.00 together with interest on the principal sum of HK$250,000.00 at the rate of HK$1.7% per month or (HK$141.67) per day from 4th May, 1984 up to the date the said amount is paid in full, and to pay the sum of HK$970.00 as fixed cost, a photocopy of the Judgment rendered by The Supreme Court of Hongkong is hereto attached as Annex "C" and made an integral part hereof.
4. Plaintiff has made demands upon the defendant in this case to pay the aforesaid amount the last of which is by letter dated July 16, 1984 sent by undersigned counsel, a photocopy of the letter of demand is hereto attached as Annex "D" and the Registry Return Card hereto attached as Annex "E", respectively, and made parts hereof. However, this notwithstanding, defendant failed and refused and still continue to fail and refuse to make any payment to plaintiff on the aforesaid amount of HK$279,325.00 plus interest on the principal sum of HK$250,000.00 at the rate of (HK$141.67) per day from May 4, 1984 up to the date of payment;
5. In order to protect and safeguard the rights and interests of herein plaintiff, it has engaged the services of undersigned counsel, to file the suit at bar, and for whose services it has agreed to pay an amount equivalent to 25% of the total amount due and owing, as of and by way of attorney's fees plus costs of suit.
WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court that judgment be rendered ordering the defendant:
a) To pay plaintiff the sum of HK$279,325.00 together with interest on the principal sum of HK$260,000.00 at the rate of HK$1.7% (sic) per month (or HK$141.67 per day) from May 4, 1984 until the aforesaid amount is paid in full;
b) To pay an amount equivalent to 25% of the total amount due and demandable as of and by way of attorney's fees; and
c) To pay costs of suit, and
Plaintiff prays for such other and further reliefs, to which it may by law and equity, be entitled. 16
The complaint therefore appears to be one of the enforcement of the Hongkong judgment because it prays for the grant of the affirmative relief given by said foreign judgment. 17 Although petitioner asserts that it is merely seeking the recognition of its claims based on the contract sued upon and not the enforcement of the Hongkong judgment18 it should be noted that in the prayer of the complaint, petitioner simply copied the Hongkong judgment with respect to private respondent's liability.
However, a foreign judgment may not be enforced if it is not recognized in the jurisdiction where affirmative relief is being sought. Hence, in the interest of justice, the complaint should be considered as a petition for the recognition of the Hongkong judgment under Section 50 (b), Rule 39 of the Rules of Court in order that the defendant, private respondent herein, may present evidence of lack of jurisdiction, notice, collusion, fraud or clear mistake of fact and law, if applicable.
WHEREFORE, the questioned orders of the lower court are hereby set aside. Civil Case No. 8762 is reinstated and the lower court is directed to proceed with dispatch in the disposition of said case. This decision is immediately executory. No costs.
LA CHEMISE LACOSTE, S. A., vs. Fernandez
GUTIERREZ, JR., J.:
It is among this Court's concerns that the Philippines should not acquire an unbecoming reputation among the manufacturing and trading centers of the world as a haven for intellectual pirates imitating and illegally profiting from trademarks and tradenames which have established themselves in international or foreign trade.
Before this Court is a petition for certiorari with preliminary injunction filed by La Chemise Lacoste, S.A., a well known European manufacturer of clothings and sporting apparels sold in the international market and bearing the trademarks "LACOSTE" "CHEMISE LACOSTE", "CROCODILE DEVICE" and a composite mark consisting of the word "LACOSTE" and a representation of a crocodile/alligator. The petitioner asks us to set aside as null and void, the order of judge Oscar C. Fernandez, of Branch XLIX, Regional Trial Court, National Capital Judicial Region, granting the motion to quash the search warrants previously issued by him and ordering the return of the seized items.
The facts are not seriously disputed. The petitioner is a foreign corporation, organized and existing under the laws of France and not doing business in the Philippines, It is undeniable from the records that it is the actual owner of the abovementioned trademarks used on clothings and other goods specifically sporting apparels sold in many parts of the world and which have been marketed in the Philippines since 1964, The main basis of the private respondent's case is its claim of alleged prior registration.
In 1975, Hemandas & Co., a duly licensed domestic firm applied for and was issued Reg. No. SR-2225 (SR stands for Supplemental Register) for the trademark "CHEMISE LACOSTE & CROCODILE DEVICE" by the Philippine Patent Office for use on T-shirts, sportswear and other garment products of the company. Two years later, it applied for the registration of the same trademark under the Principal Register. The Patent Office eventually issued an order dated March 3, 1977 which states that:
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... Considering that the mark was already registered in the Supplemental Register in favor of herein applicant, the Office has no other recourse but to allow the application, however, Reg. No. SR-2225 is now being contested in a Petition for Cancellation docketed as IPC No. 1046, still registrant is presumed to be the owner of the mark until after the registration is declared cancelled.
Thereafter, Hemandas & Co. assigned to respondent Gobindram Hemandas all rights, title, and interest in the trademark "CHEMISE LACOSTE & DEVICE".
On November 21, 1980, the petitioner filed its application for registration of the trademark "Crocodile Device" (Application Serial No. 43242) and "Lacoste" (Application Serial No. 43241).The former was approved for publication while the latter was opposed by Games and Garments in Inter Partes Case No. 1658. In 1982, the petitioner filed a Petition for the Cancellation of Reg. No. SR-2225 docketed as Inter Partes Case No. 1689. Both cases have now been considered by this Court in Hemandas v. Hon. Roberto Ongpin (G.R. No. 65659).
On March 21, 1983, the petitioner filed with the National Bureau of Investigation (NBI) a letter-complaint alleging therein the acts of unfair competition being committed by Hemandas and requesting their assistance in his apprehension and prosecution. The NBI conducted an investigation and subsequently filed with the respondent court two applications for the issuance of search warrants which would authorize the search of the premises used and occupied by the Lacoste Sports Center and Games and Garments both owned and operated by Hemandas.
The respondent court issued Search Warrant Nos. 83-128 and 83-129 for violation of Article 189 of the Revised Penal Code, "it appearing to the satisfaction of the judge after examining under oath applicant and his witnesses that there are good and sufficient reasons to believe that Gobindram Hemandas ... has in his control and possession in his premises the ... properties subject of the offense," (Rollo, pp. 67 and 69) The NBI agents executed the two search warrants and as a result of the search found and seized various goods and articles described in the warrants.
Hemandas filed a motion to quash the search warrants alleging that the trademark used by him was different from petitioner's trademark and that pending the resolution of IPC No. 1658 before the Patent Office, any criminal or civil action on the same subject matter and between the same parties would be premature.
The petitioner filed its opposition to the motion arguing that the motion to quash was fatally defective as it cited no valid ground for the quashal of the search warrants and that the grounds alleged in the motion were absolutely without merit. The State Prosecutor likewise filed his opposition on the grounds that the goods seized were instrument of a crime and necessary for the resolution of the case on preliminary investigation and that the release of the said goods would be fatal to the case of the People should prosecution follow in court.
The respondent court was, however, convinced that there was no probable cause to justify the issuance of the search warrants. Thus, in its order dated March 22, 1983, the search warrants were recalled and set aside and the NBI agents or officers in custody of the seized items were ordered to return the same to Hemandas. (Rollo, p. 25)
The petitioner anchors the present petition on the following issues:
Did respondent judge act with grave abuse of discretion amounting to lack of jurisdiction,
(i) in reversing the finding of probable cause which he himself had made in issuing the search warrants, upon allegations which are matters of defense and as such can be raised and resolved only upon trial on the merits; and
(ii) in finding that the issuance of the search warrants is premature in the face of the fact that (a) Lacoste's registration of the subject trademarks is still pending with the Patent Office with opposition from Hemandas; and (b) the subject trademarks had been earlier registered by Hemandas in his name in the Supplemental Register of the Philippine Patent Office?
Respondent, on the other hand, centers his arguments on the following issues:
I
THE PETITIONER HAS NO CAPACITY TO SUE BEFORE PHILIPPINE COURTS.
II
THE RESPONDENT JUDGE DID NOT COMMIT A GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OF JURISDICTION IN ISSUING THE ORDER DATED APRIL 22, 1983.
Hemandas argues in his comment on the petition for certiorari that the petitioner being a foreign corporation failed to allege essential facts bearing upon its capacity to sue before Philippine courts. He states that not only is the petitioner not doing business in the Philippines but it also is not licensed to do business in the Philippines. He also cites the case of Leviton Industries v. Salvador (114 SCRA 420) to support his contention The Leviton case, however, involved a complaint for unfair competition under Section 21-A of Republic Act No. 166 which provides:
Sec. 21 — A. Any foreign corporation or juristic person to which a mark or tradename has been registered or assigned under this Act may bring an action hereunder for infringement, for unfair competition, or false designation of origin and false description, whether or not it has been licensed to do business in the Philippines under Act numbered Fourteen Hundred and Fifty-Nine, as amended, otherwise known as the Corporation Law, at the time it brings the complaint; Provided, That the country of which the said foreign corporation or juristic
person is a citizen, or in which it is domiciled, by treaty, convention or law, grants a similar privilege to corporate or juristic persons of the Philippines.
We held that it was not enough for Leviton, a foreign corporation organized and existing under the laws of the State of New York, United States of America, to merely allege that it is a foreign corporation. It averred in Paragraph 2 of its complaint that its action was being filed under the provisions of Section 21-A of Republic Act No. 166, as amended. Compliance with the requirements imposed by the abovecited provision was necessary because Section 21-A of Republic Act No. 166 having explicitly laid down certain conditions in a specific proviso, the same must be expressly averred before a successful prosecution may ensue. It is therefore, necessary for the foreign corporation to comply with these requirements or aver why it should be exempted from them, if such was the case. The foreign corporation may have the right to sue before Philippine courts, but our rules on pleadings require that the qualifying circumstances necessary for the assertion of such right should first be affirmatively pleaded.
In contradistinction, the present case involves a complaint for violation of Article 189 of the Revised Penal Code. The Leviton case is not applicable.
Asserting a distinctly different position from the Leviton argument, Hemandas argued in his brief that the petitioner was doing business in the Philippines but was not licensed to do so. To support this argument, he states that the applicable ruling is the case of Mentholatum Co., Inc. v. Mangaliman: (72 Phil. 524) where Mentholatum Co. Inc., a foreign corporation and Philippine-American Drug Co., the former's exclusive distributing agent in the Philippines filed a complaint for infringement of trademark and unfair competition against the Mangalimans.
The argument has no merit. The Mentholatum case is distinct from and inapplicable to the case at bar. Philippine American Drug Co., Inc., was admittedly selling products of its principal Mentholatum Co., Inc., in the latter's name or for the latter's account. Thus, this Court held that "whatever transactions the Philippine-American Drug Co., Inc. had executed in view of the law, the Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc., being a foreign doing business in the Philippines without the license required by Section 68 of the Corporation Law, it may not prosecute this action for violation of trademark and unfair competition."
In the present case, however, the petitioner is a foreign corporation not doing business in the Philippines. The marketing of its products in the Philippines is done through an exclusive distributor, Rustan Commercial Corporation The latter is an independent entity which buys and then markets not only products of the petitioner but also many other products bearing equally well-known and established trademarks and tradenames. in other words, Rustan is not a mere agent or conduit of the petitioner.
The rules and regulations promulgated by the Board of Investments pursuant to its rule-making power under Presidential Decree No. 1789, otherwise known as the Omnibus Investment Code, support a finding that the petitioner is not doing business in the Philippines. Rule I, Sec. 1 (g) of said rules and regulations defines "doing business" as one" which includes, inter alia:
(1) ... A foreign firm which does business through middlemen acting on their own names, such as indentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.
(2) Appointing a representative or distributor who is domiciled in the Philippines, unless said representative or distributor has an independent status, i.e., it transacts business in its name and for its account, and not in the
name or for the account of a principal Thus, where a foreign firm is represented by a person or local company which does not act in its name but in the name of the foreign firm the latter is doing business in the Philippines.
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Applying the above provisions to the facts of this case, we find and conclude that the petitioner is not doing business in the Philippines. Rustan is actually a middleman acting and transacting business in its own name and or its own account and not in the name or for the account of the petitioner.
But even assuming the truth of the private respondent's allegation that the petitioner failed to allege material facts in its petition relative to capacity to sue, the petitioner may still maintain the present suit against respondent Hemandas. As early as 1927, this Court was, and it still is, of the view that a foreign corporation not doing business in the Philippines needs no license to sue before Philippine courts for infringement of trademark and unfair competition. Thus, in Western Equipment and Supply Co. v. Reyes (51 Phil. 115), this Court held that a foreign corporation which has never done any business in the Philippines and which is unlicensed and unregistered to do business here, but is widely and favorably known in the Philippines through the use therein of its products bearing its corporate and tradename, has a legal right to maintain an action in the Philippines to restrain the residents and inhabitants thereof from organizing a corporation therein bearing the same name as the foreign corporation, when it appears that they have personal knowledge of the existence of such a foreign corporation, and it is apparent that the purpose of the proposed domestic corporation is to deal and trade in the same goods as those of the foreign corporation.
We further held:
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... That company is not here seeking to enforce any legal or control rights arising from, or growing out of, any business which it has transacted in the Philippine Islands. The sole purpose of the action:
Is to protect its reputation, its corporate name, its goodwill, whenever that reputation, corporate name or goodwill have, through the natural development of its trade, established themselves.' And it contends that its rights to the use of its corporate and trade name:
Is a property right, a right in rem, which it may assert and protect against all the world, in any of the courts of the world-even in jurisdictions where it does not transact business-just the same as it may protect its tangible property, real or personal, against trespass, or conversion. Citing sec. 10, Nims on Unfair Competition and TradeMarks and cases cited; secs. 21-22, Hopkins on TradeMarks, Trade Names and Unfair Competition and cases cited.' That point is sustained by the authorities, and is well stated in Hanover Star Mining Co. v. Allen and Wheeler Co. (208 Fed., 513). in which the syllabus says:
Since it is the trade and not the mark that is to be protected, a trade-mark acknowledges no territorial boundaries of municipalities or states or nations, but extends to every market where the trader's goods have become known and Identified by the use of the mark.
Our recognizing the capacity of the petitioner to sue is not by any means novel or precedent setting. Our jurisprudence is replete with cases illustrating instances when foreign corporations not doing business in the Philippines may nonetheless sue in our courts. In East Board Navigation Ltd, v. Ysmael and Co., Inc. (102 Phil. 1), we recognized a right of foreign corporation to sue on isolated transactions. In General Garments Corp. v. Director of Patents (41 SCRA 50), we sustained the right of Puritan Sportswear Corp., a foreign corporation not licensed to do and not doing business in the Philippines, to file a petition for cancellation of a trademark before the Patent Office.
More important is the nature of the case which led to this petition. What preceded this petition for certiorari was a letter complaint filed before the NBI charging Hemandas with a criminal offense, i.e., violation of Article 189 of the Revised Penal Code. If prosecution follows after the completion of the preliminary investigation being conducted by the Special Prosecutor the information shall be in the name of the People of the Philippines and no longer the petitioner which is only an aggrieved party since a criminal offense is essentially an act against the State. It is the latter which is principally the injured party although there is a private right violated. Petitioner's capacity to sue would become, therefore, of not much significance in the main case. We cannot snow a possible violator of our criminal statutes to escape prosecution upon a far-fetched contention that the aggrieved party or victim of a crime has no standing to sue.
In upholding the right of the petitioner to maintain the present suit before our courts for unfair competition or infringement of trademarks of a foreign corporation, we are moreover recognizing our duties and the rights of foreign states under the Paris Convention for the Protection of Industrial Property to which the Philippines and France are parties. We are simply interpreting and enforcing a solemn international commitment of the Philippines embodied in a multilateral treaty to which we are a party and which we entered into because it is in our national interest to do so.
The Paris Convention provides in part that:
ARTICLE 1
(1) The countries to which the present Convention applies constitute themselves into a Union for the protection of industrial property.
(2) The protection of industrial property is concerned with patents, utility models, industrial designs, trademarks service marks, trade names, and indications of source or appellations of origin, and the repression of unfair competition.
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ARTICLE 2
(2) Nationals of each of the countries of the Union shall as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to nationals, without prejudice to the rights specially provided by the present Convention. Consequently, they shall have the same protection as the latter, and the same legal remedy against any infringement of their rights, provided they observe the conditions and formalities imposed upon nationals.
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ARTICLE 6
(1) The countries of the Union undertake, either administratively if their legislation so permits, or at the request of an interested party, to refuse or to cancel the registration and to prohibit the use of a trademark which constitutes a reproduction, imitation or translation, liable to create confusion, of a mark considered by the competent authority of the country of registration or use to be well-known in that country as being already the mark of a person entitled to the benefits of the present Convention and used for Identical or similar goods. These provisions shall also apply when the essential part of the mark constitutes a reproduction of any such well-known mark or an imitation liable to create confusion therewith.
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ARTICLE 8
A trade name shall be protected in all the countries of the Union without the obligation of filing or registration, whether or not it forms part of a trademark.
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ARTICLE 10bis
(1) The countries of the Union are bound to assure to persons entitled to the benefits of the Union effective protection against unfair competition.
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ARTICLE 10ter
(1) The countries of the Union undertake to assure to nationals of the other countries of the Union appropriate legal remedies to repress effectively all the acts referred to in Articles 9, 10 and l0bis.
(2) They undertake, further, to provide measures to permit syndicates and associations which represent the industrialists, producers or traders concerned and the existence of which is not contrary to the laws of their countries, to take action in the Courts or before the administrative authorities, with a view to the repression of the acts referred to in Articles 9, 10 and 10bis, in so far as the law of the country in which protection is claimed allows such action by the syndicates and associations of that country.
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ARTICLE 17
Every country party to this Convention undertakes to adopt, in accordance with its constitution, the measures necessary to ensure the application of this Convention.
It is understood that at the time an instrument of ratification or accession is deposited on behalf of a country; such country will be in a position under its domestic law to give effect to the provisions of this Convention. (61 O.G. 8010)
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In Vanity Fair Mills, Inc. v. T Eaton Co. (234 F. 2d 633) the United States Circuit Court of Appeals had occasion to comment on the extraterritorial application of the Paris Convention It said that:
[11] The International Convention is essentially a compact between the various member countries to accord in their own countries to citizens of the other contracting parties trademark and other rights comparable to those accorded their own citizens by their domestic law. The underlying principle is that foreign nationals should be given the same treatment in each of the member countries as that country makes available to its own citizens. In addition, the Convention sought to create uniformity in certain respects by obligating each member nation 'to assure to nationals of countries of the Union an effective protection against unfair competition.'
[12] The Convention is not premised upon the Idea that the trade-mark and related laws of each member nation shall be given extra-territorial application, but on exactly the converse principle that each nation's law shall have only territorial application. Thus a foreign national of a member nation using his trademark in commerce in the United States is accorded extensive protection here against infringement and other types of unfair competition
by virtue of United States membership in the Convention. But that protection has its source in, and is subject to the limitations of, American law, not the law of the foreign national's own country. ...
By the same token, the petitioner should be given the same treatment in the Philippines as we make available to our own citizens. We are obligated to assure to nationals of "countries of the Union" an effective protection against unfair competition in the same way that they are obligated to similarly protect Filipino citizens and firms.
Pursuant to this obligation, the Ministry of Trade on November 20, 1980 issued a memorandum addressed to the Director of the Patents Office directing the latter:
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... to reject all pending applications for Philippine registration of signature and other world famous trademarks by applicants other than its original owners or users.
The conflicting claims over internationally known trademarks involve such name brands as Lacoste, Jordache, Gloria Vanderbilt, Sasson, Fila, Pierre Cardin, Gucci, Christian Dior, Oscar de la Renta, Calvin Klein, Givenchy, Ralph Lauren, Geoffrey Beene, Lanvin and Ted Lapidus.
It is further directed that, in cases where warranted, Philippine registrants of such trademarks should be asked to surrender their certificates of registration, if any, to avoid suits for damages and other legal action by the trademarks' foreign or local owners or original users.
The memorandum is a clear manifestation of our avowed adherence to a policy of cooperation and amity with all nations. It is not, as wrongly alleged by the private respondent, a personal policy of Minister Luis Villafuerte which expires once he leaves the Ministry of Trade. For a treaty or convention is not a mere moral obligation to be enforced or not at the whims of an incumbent head of a Ministry. It creates a legally binding obligation on the parties founded on the generally accepted principle of international law of pacta sunt servanda which has been adopted as part of the law of our land. (Constitution, Art. II, Sec. 3). The memorandum reminds the Director of Patents of his legal duty to obey both law and treaty. It must also be obeyed.
Hemandas further contends that the respondent court did not commit grave abuse of discretion in issuing the questioned order of April 22, 1983.
A review of the grounds invoked by Hemandas in his motion to quash the search warrants reveals the fact that they are not appropriate for quashing a warrant. They are matters of defense which should be ventilated during the trial on the merits of the case. For instance, on the basis of the facts before the Judge, we fail to understand how he could treat a bare allegation that the respondent's trademark is different from the petitioner's trademark as a sufficient basis to grant the motion to quash. We will treat the issue of prejudicial question later. Granting that respondent Hemandas was only trying to show the absence of probable cause, we, nonetheless, hold the arguments to be untenable.
As a mandatory requirement for the issuance of a valid search warrant, the Constitution requires in no uncertain terms the determination of probable cause by the judge after examination under oath or affirmation of the complainant and the witnesses he may produce (Constitution, Art. IV, Sec. 3). Probable cause has traditionally meant such facts and circumstances antecedent to the issuance of the warrant that are in themselves sufficient to induce a cautious man to rely upon them and act in pursuance thereof (People v. Sy Juco, 64 Phil. 667).
This concept of probable cause was amplified and modified by our ruling in Stonehill v. Diokno, (20 SCRA 383) that probable cause "presupposes the introduction of competent proof that the party against whom it is sought has performed particular acts, or committed specific omissions, violating a given provision of our criminal laws."
The question of whether or not probable cause exists is one which must be decided in the light of the conditions obtaining in given situations (Central Bank v. Morfe, 20 SCRA 507). We agree that there is no general formula or fixed rule for the determination of the existence of probable cause since, as we have recognized in Luna v. Plaza(26 SCRA 310), the existence depends to a large degree upon the finding or opinion of the judge conducting the examination. However, the findings of the judge should not disregard the facts before him nor run counter to the clear dictates of reason. More so it is plain that our country's ability to abide by international commitments is at stake.
The records show that the NBI agents at the hearing of the application for the warrants before respondent court presented three witnesses under oath, sworn statements, and various exhibits in the form of clothing apparels manufactured by Hemandas but carrying the trademark Lacoste. The respondent court personally interrogated Ramon Esguerra, Samuel Fiji, and Mamerto Espatero by means of searching questions. After hearing the testimonies and examining the documentary evidence, the respondent court was convinced that there were good and sufficient reasons for the issuance of the warrant. And it then issued the warrant.
The respondent court, therefore, complied with the constitutional and statutory requirements for the issuance of a valid search warrant. At that point in time, it was fully convinced that there existed probable cause. But after hearing the motion to quash and the oppositions thereto, the respondent court executed a complete turnabout and declared that there was no probable cause to justify its earlier issuance of the warrants.
True, the lower court should be given the opportunity to correct its errors, if there be any, but the rectification must, as earlier stated be based on sound and valid grounds. In this case, there was no compelling justification for the about face. The allegation that vital facts were deliberately suppressed or concealed by the petitioner should have been assessed more carefully because the object of the quashal was the return of items already seized and easily examined by the court. The items were alleged to be fake and quite obviously would be needed as evidence in the criminal prosecution. Moreover, an application for a search warrant is heard ex parte. It is neither a trial nor a part of the trial. Action on these applications must be expedited for time is of the essence. Great reliance has to be accorded by the judge to the testimonies under oath of the complainant and the witnesses. The allegation of Hemandas that the applicant withheld information from the respondent court was clearly no basis to order the return of the seized items.
Hemandas relied heavily below and before us on the argument that it is the holder of a certificate of registration of the trademark "CHEMISE LACOSTE & CROCODILE DEVICE". Significantly, such registration is only in the Supplemental Register.
A certificate of registration in the Supplemental Register is not prima facie evidence of the validity of registration, of the registrant's exclusive right to use the same in connection with the goods, business, or services specified in the certificate. Such a certificate of registration cannot be filed, with effect, with the Bureau of Customs in order to exclude from the Philippines, foreign goods bearing infringement marks or trade names (Rule 124, Revised Rules of Practice Before the Phil. Pat. Off. in Trademark Cases; Martin, Philippine Commercial Laws, 1981, Vol. 2, pp.513-515).
Section 19-A of Republic Act 166 as amended not only provides for the keeping of the supplemental register in addition to the principal register but specifically directs that:
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The certificates of registration for marks and trade names registered on the supplemental register shall be conspicuously different from certificates issued for marks and trade names on the principal register.
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The reason is explained by a leading commentator on Philippine Commercial Laws:
The registration of a mark upon the supplemental register is not, as in the case of the principal register, prima facie evidence of (1) the validity of registration; (2) registrant's ownership of the mark; and (3) registrant's exclusive right to use the mark. It is not subject to opposition, although it may be cancelled after its issuance. Neither may it be the subject of interference proceedings. Registration on the supplemental register is not constructive notice of registrant's claim of ownership. A supplemental register is provided for the registration of marks which are not registrable on the principal register because of some defects (conversely, defects which make a mark unregistrable on the principal register, yet do not bar them from the supplemental register.) (Agbayani, II Commercial Laws of the Philippines, 1978, p. 514, citing Uy Hong Mo v. Titay & Co., et al., Dec. No. 254 of Director of Patents, Apr. 30, 1963);
Registration in the Supplemental Register, therefore, serves as notice that the registrant is using or has appropriated the trademark. By the very fact that the trademark cannot as yet be entered in the Principal Register, all who deal with it should be on guard that there are certain defects, some obstacles which the user must Still overcome before he can claim legal ownership of the mark or ask the courts to vindicate his claims of an exclusive right to the use of the same. It would be deceptive for a party with nothing more than a registration in the Supplemental Register to posture before courts of justice as if the registration is in the Principal Register.
The reliance of the private respondent on the last sentence of the Patent office action on application Serial No. 30954 that "registrant is presumed to be the owner of the mark until after the registration is declared cancelled" is, therefore, misplaced and grounded on shaky foundation, The supposed presumption not only runs counter to the precept embodied in Rule 124 of the Revised Rules of Practice before the Philippine Patent Office in Trademark Cases but considering all the facts ventilated before us in the four interrelated petitions involving the petitioner and the respondent, it is devoid of factual basis. And even in cases where presumption and precept may factually be reconciled, we have held that the presumption is rebuttable, not conclusive, (People v. Lim Hoa, G.R. No. L10612, May 30, 1958, Unreported). One may be declared an unfair competitor even if his competing trademark is registered (Parke, Davis & Co. v. Kiu Foo & Co., et al., 60 Phil. 928; La Yebana Co. v. Chua Seco & Co., 14 Phil. 534).
By the same token, the argument that the application was premature in view of the pending case before the Patent Office is likewise without legal basis.
The proceedings pending before the Patent Office involving IPC Co. 1658 do not partake of the nature of a prejudicial question which must first be definitely resolved.
Section 5 of Rule 111 of the Rules of Court provides that:
A petition for the suspension of the criminal action based upon the pendency of a pre-judicial question in a civil case, may only be presented by any party before or during the trial of the criminal action.
The case which suspends the criminal prosecution must be a civil case which is determinative of the innocence or, subject to the availability of other defenses, the guilt of the accused. The pending case before the Patent Office is an administrative proceeding and not a civil case. The decision of the Patent Office cannot be finally determinative of the private respondent's innocence of the charges against him.
In Flordelis v. Castillo (58 SCRA 301), we held that:
As clearly delineated in the aforecited provisions of the new Civil Code and the Rules of Court, and as uniformly applied in numerous decisions of this Court, (Berbari v. Concepcion, 40 Phil. 837 (1920); Aleria v. Mendoza, 83 Phil. 427 (1949); People v. Aragon, 94 Phil. 357 (1954); Brito-Sy v. Malate Taxicab & Garage, Inc., 102 Phil 482 (1957); Mendiola v. Macadael, 1 SCRA 593; Benitez v. Concepcion, 2 SCRA 178; Zapante v. Montesa, 4 SCRA 510; Jimenez v. Averia, 22 SCRA 1380.) In Buenaventura v. Ocampo (55 SCRA 271) the doctrine of prejudicial question was held inapplicable because no criminal case but merely an administrative case and a civil suit were involved. The Court, however, held that, in view of the peculiar circumstances of that case, the respondents' suit for damages in the lower court was premature as it was filed during the pendency of an administrative case against the respondents before the POLCOM. 'The possibility cannot be overlooked,' said the Court, 'that the POLCOM may hand down a decision adverse to the respondents, in which case the damage suit will become unfounded and baseless for wanting in cause of action.') the doctrine of pre-judicial question comes into play generally in a situation where a civil action and a criminal action both penned and there exists in the former an issue which must be preemptively resolved before the criminal action may proceed, because howsoever the issue raised in the civil action is resolved would be determinative juris et de jure of the guilt or innocence of the accused in the criminal case.
In the present case, no civil action pends nor has any been instituted. What was pending was an administrative case before the Patent Office.
Even assuming that there could be an administrative proceeding with exceptional or special circumstances which render a criminal prosecution premature pending the promulgation of the administrative decision, no such peculiar circumstances are present in this case.
Moreover, we take note of the action taken by the Patents Office and the Minister of Trade and affirmed by the Intermediate Appellate Court in the case of La Chemise Lacoste S. A. v. Ram Sadhwani (AC-G.R. No. SP-13356, June 17, 1983).
The same November 20, 1980 memorandum of the Minister of Trade discussed in this decision was involved in the appellate court's decision. The Minister as the "implementing authority" under Article 6bis of the Paris Convention for the protection of Industrial Property instructed the Director of Patents to reject applications for Philippine registration of signature and other world famous trademarks by applicants other than its original owners or users. The brand "Lacoste" was specifically cited together with Jordache, Gloria Vanderbilt, Sasson, Fila, Pierre Cardin, Gucci, Christian Dior, Oscar dela Renta, Calvin Klein, Givenchy, Ralph Laurence, Geoffrey Beene, Lanvin, and Ted Lapidus. The Director of Patents was likewise ordered to require Philippine registrants of such trademarks to surrender their certificates of registration. Compliance by the Director of Patents was challenged.
The Intermediate Appellate Court, in the La Chemise Lacoste S.A. v. Sadhwani decision which we cite with approval sustained the power of the Minister of Trade to issue the implementing memorandum and, after going over the evidence in the records, affirmed the decision of the Director of Patents declaring La Chemise Lacoste &A. the owner of the disputed trademark and crocodile or alligator device. The Intermediate Appellate Court speaking through Mr. Justice Vicente V. Mendoza stated:
In the case at bar, the Minister of Trade, as 'the competent authority of the country of registration,' has found that among other well-known trademarks 'Lacoste' is the subject of conflicting claims. For this reason, applications for its registration must be rejected or refused, pursuant to the treaty obligation of the Philippines.
Apart from this finding, the annexes to the opposition, which La Chemise Lacoste S.A. filed in the Patent Office, show that it is the owner of the trademark 'Lacoste' and the device consisting of a representation of a crocodile or alligator by the prior adoption and use of such mark and device on clothing, sports apparel and the like. La Chemise Lacoste S.A, obtained registration of these mark and device and was in fact issued renewal certificates by the French National Industry Property Office.
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Indeed, due process is a rule of reason. In the case at bar the order of the Patent Office is based not only on the undisputed fact of ownership of the trademark by the appellee but on a prior determination by the Minister of Trade, as the competent authority under the Paris Convention, that the trademark and device sought to be registered by the appellant are well-known marks which the Philippines, as party to the Convention, is bound to protect in favor of its owners. it would be to exalt form over substance to say that under the circumstances, due process requires that a hearing should be held before the application is acted upon.
The appellant cites section 9 of Republic Act No. 166, which requires notice and hearing whenever an opposition to the registration of a trademark is made. This provision does not apply, however, to situations covered by the Paris Convention, where the appropriate authorities have determined that a well-known trademark is already that of another person. In such cases, the countries signatories to the Convention are obliged to refuse or to cancel the registration of the mark by any other person or authority. In this case, it is not disputed that the trademark Lacoste is such a well-known mark that a hearing, such as that provided in Republic Act No. 166, would be superfluous.
The issue of due process was raised and fully discussed in the appellate court's decision. The court ruled that due process was not violated.
In the light of the foregoing it is quite plain that the prejudicial question argument is without merit.
We have carefully gone over the records of all the cases filed in this Court and find more than enough evidence to sustain a finding that the petitioner is the owner of the trademarks "LACOSTE", "CHEMISE LACOSTE", the crocodile or alligator device, and the composite mark of LACOSTE and the representation of the crocodile or alligator. Any pretensions of the private respondent that he is the owner are absolutely without basis. Any further ventilation of the issue of ownership before the Patent Office will be a superfluity and a dilatory tactic.
The issue of whether or not the trademark used by the private respondent is different from the petitioner's trade mark is a matter of defense and will be better resolved in the criminal proceedings before a court of justice instead of raising it as a preliminary matter in an administrative proceeding.
The purpose of the law protecting a trademark cannot be overemphasized. They are to point out distinctly the origin or ownership of the article to which it is affixed, to secure to him, who has been instrumental in bringing into market a superior article of merchandise, the fruit of his industry and skill, and to prevent fraud and imposition (Etepha v. Director of Patents, 16 SCRA 495).
The legislature has enacted laws to regulate the use of trademarks and provide for the protection thereof. Modern trade and commerce demands that depredations on legitimate trade marks of non-nationals including those who have not shown prior registration thereof should not be countenanced. The law against such depredations is not only for the protection of the owner of the trademark but also, and more importantly, for the protection of purchasers from confusion, mistake, or deception as to the goods they are buying. (Asari Yoko Co., Ltd. v. Kee Boc, 1 SCRA 1; General Garments Corporation v. Director of Patents, 41 SCRA 50).
The law on trademarks and tradenames is based on the principle of business integrity and common justice' This law, both in letter and spirit, is laid upon the premise that, while it encourages fair trade in every way and aims to foster, and not to hamper, competition, no one, especially a trader, is justified in damaging or jeopardizing another's business by fraud, deceipt, trickery or unfair methods of any sort. This necessarily precludes the trading by one dealer upon the good name and reputation built up by another (Baltimore v. Moses, 182 Md 229, 34 A (2d) 338).
The records show that the goodwill and reputation of the petitioner's products bearing the trademark LACOSTE date back even before 1964 when LACOSTE clothing apparels were first marketed in the Philippines. To allow Hemandas to continue using the trademark Lacoste for the simple reason that he was the first registrant in the Supplemental Register of a trademark used in international commerce and not belonging to him is to render nugatory the very essence of the law on trademarks and tradenames.
We now proceed to the consideration of the petition in Gobindram Hemandas Suianani u. Hon. Roberto V Ongpin,et al. (G.R. No. 65659).
Actually, three other petitions involving the same trademark and device have been filed with this Court.
In Hemandas & Co. v. Intermediate Appellate Court, et al. (G.R. No. 63504) the petitioner asked for the following relief:
IN VIEW OF ALL THE FOREGOING, it is respectfully prayed (a) that the Resolutions of the respondent Court of January 3, 1983 and February 24, 1983 be nullified; and that the Decision of the same respondent Court of June 30, 1983 be declared to be the law on the matter; (b) that the Director of Patents be directed to issue the corresponding registration certificate in the Principal Register; and (c) granting upon the petitioner such other legal and equitable remedies as are justified by the premises.
On December 5, 1983, we issued the following resolution:
Considering the allegations contained, issues raised and the arguments adduced in the petition for review, the respondent's comment thereon, and petitioner's reply to said comment, the Court Resolved to DENY the petition for lack of merit.
The Court further Resolved to CALL the attention of the Philippine Patent Office to the pendency in this Court of G.R. No. 563796-97 entitled 'La Chemise Lacoste, S.A. v. Hon. Oscar C. Fernandez and Gobindram Hemandas' which was given due course on June 14, 1983 and to the fact that G.R. No. 63928-29 entitled 'Gobindram Hemandas v. La Chemise Lacoste, S.A., et al.' filed on May 9, 1983 was dismissed for lack of merit on September 12, 1983. Both petitions involve the same dispute over the use of the trademark 'Chemise Lacoste'.
The second case of Gobindram Hemandas vs. La Chemise Lacoste, S.A., et al. (G.R. No. 63928-29) prayed for the following:
I. On the petition for issuance of writ of preliminary injunction, an order be issued after due hearing:
l. Enjoining and restraining respondents Company, attorneys-in-fact, and Estanislao Granados from further proceedings in the unfair competition charges pending with the Ministry of Justice filed against petitioner;
2. Enjoining and restraining respondents Company and its attorneys-in-fact from causing undue publication in newspapers of general circulation on their unwarranted claim that petitioner's products are FAKE pending proceedings hereof; and
3. Enjoining and restraining respondents Company and its attorneys-in-fact from sending further threatening letters to petitioner's customers unjustly stating that petitioner's products they are dealing in are FAKE and threatening them with confiscation and seizure thereof.
II. On the main petition, judgment be rendered:
l. Awarding and granting the issuance of the Writ of Prohibition, prohibiting, stopping, and restraining respondents from further committing the acts complained of;
2. Awarding and granting the issuance of the Writ of Mandamus, ordering and compelling respondents National Bureau of Investigation, its aforenamed agents, and State Prosecutor Estanislao Granados to immediately comply with the Order of the Regional Trial Court, National Capital Judicial Region, Branch XLIX, Manila, dated April 22, 1983, which directs the immediate return of the seized items under Search Warrants Nos. 83-128 and 83-129;
3. Making permanent any writ of injunction that may have been previously issued by this Honorable Court in the petition at bar: and
4. Awarding such other and further relief as may be just and equitable in the premises.
As earlier stated, this petition was dismissed for lack of merit on September 12, 1983. Acting on a motion for reconsideration, the Court on November 23, 1983 resolved to deny the motion for lack of merit and declared the denial to be final.
Hemandas v. Hon. Roberto Ongpin (G.R. No. 65659) is the third petition.
In this last petition, the petitioner prays for the setting aside as null and void and for the prohibiting of the enforcement of the following memorandum of respondent Minister Roberto Ongpin:
MEMORANDUM:
FOR: THE DIRECTOR OF PATENTS
Philippine Patent Office
xxx xxx xxx
Pursuant to Executive Order No. 913 dated 7 October 1983 which strengthens the rule-making and adjudicatory powers of the Minister of Trade and Industry and provides inter alia, that 'such rule-making and adjudicatory powers should be revitalized in order that the Minister of Trade and Industry can ...apply more swift and effective solutions and remedies to old and new problems ... such as the infringement of internationally-known tradenames and trademarks ...'and in view of the decision of the Intermediate Appellate Court in the case of LA CHEMISE LACOSTE, S.A., versus RAM SADWHANI [AC-G.R. Sp. No. 13359 (17) June 1983] which affirms the validity of the MEMORANDUM of then Minister Luis R. Villafuerte dated 20 November 1980 confirming our obligations under the PARIS CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY to which the Republic of the Philippines is a signatory, you are hereby directed to implement measures necessary to effect compliance with our obligations under said convention in general, and, more specifically, to honor our commitment under Section 6 bis thereof, as follows:
1. Whether the trademark under consideration is well-known in the Philippines or is a mark already belonging to a person entitled to the benefits of the CONVENTION, this should be established, pursuant to Philippine Patent
Office procedures in inter partes and ex parte cases, according to any of the following criteria or any combination thereof:
(a) a declaration by the Minister of Trade and Industry that' the trademark being considered is already well-known in the Philippines such that permission for its use by other than its original owner will constitute a reproduction, imitation, translation or other infringement;
(b) that the trademark is used in commerce internationally, supported by proof that goods bearing the trademark are sold on an international scale, advertisements, the establishment of factories, sales offices, distributorships, and the like, in different countries, including volume or other measure of international trade and commerce;
(c) that the trademark is duly registered in the industrial property office(s) of another country or countries, taking into consideration the dates of such registration;
(d) that the trademark has been long established and obtained goodwill and general international consumer recognition as belonging to one owner or source;
(e) that the trademark actually belongs to a party claiming ownership and has the right to registration under the provisions of the aforestated PARIS CONVENTION.
2. The word trademark, as used in this MEMORANDUM, shall include tradenames, service marks, logos, signs, emblems, insignia or other similar devices used for Identification and recognition by consumers.
3. The Philippine Patent Office shall refuse all applications for, or cancel the registration of, trademarks which constitute a reproduction, translation or imitation of a trademark owned by a person, natural or corporate, who is a citizen of a country signatory to the PARIS CONVENTION FOR THE PROTECTION OF INDUSTRIAL PROPERTY.
4. The Philippine Patent Office shall give due course to the Opposition in cases already or hereafter filed against the registration of trademarks entitled to protection of Section 6 bis of said PARIS CONVENTION as outlined above, by remanding applications filed by one not entitled to such protection for final disallowance by the Examination Division.
5. All pending applications for Philippine registration of signature and other world famous trademarks filed by applicants other than their original owners or users shall be rejected forthwith. Where such applicants have already obtained registration contrary to the abovementioned PARIS CONVENTION and/or Philippine Law, they shall be directed to surrender their Certificates of Registration to the Philippine Patent Office for immediate cancellation proceedings.
6. Consistent with the foregoing, you are hereby directed to expedite the hearing and to decide without delay the following cases pending before your Office:
1. INTER PARTES CASE NO. 1689-Petition filed by La Chemise Lacoste, S.A. for the cancellation of Certificate of Registration No. SR-2225 issued to Gobindram Hemandas, assignee of Hemandas and Company;
2. INTER PARTES CASE NO. 1658-Opposition filed by Games and Garments Co. against the registration of the trademark Lacoste sought by La Chemise Lacoste, S.A.;
3. INTER PARTES CASE NO. 1786-Opposition filed by La Chemise Lacoste, S.A. against the registration of trademark Crocodile Device and Skiva sought by one Wilson Chua.
Considering our discussions in G.R. Nos. 63796-97, we find the petition in G.R. No. 65659 to be patently without merit and accordingly deny it due course.
In complying with the order to decide without delay the cases specified in the memorandum, the Director of Patents shall limit himself to the ascertainment of facts in issues not resolved by this decision and apply the law as expounded by this Court to those facts.
One final point. It is essential that we stress our concern at the seeming inability of law enforcement officials to stem the tide of fake and counterfeit consumer items flooding the Philippine market or exported abroad from our country. The greater victim is not so much the manufacturer whose product is being faked but the Filipino consuming public and in the case of exportations, our image abroad. No less than the President, in issuing Executive Order No. 913 dated October 7, 1983 to strengthen the powers of the Minister of Trade and Industry for the protection of consumers, stated that, among other acts, the dumping of substandard, imitated, hazardous, and cheap goods, the infringement of internationally known tradenames and trademarks, and the unfair trade practices of business firms has reached such proportions as to constitute economic sabotage. We buy a kitchen appliance, a household tool, perfume, face powder, other toilet articles, watches, brandy or whisky, and items of clothing like jeans, T-shirts, neck, ties, etc. — the list is quite length — and pay good money relying on the brand name as guarantee of its quality and genuine nature only to explode in bitter frustration and genuine nature on helpless anger because the purchased item turns out to be a shoddy imitation, albeit a clever looking counterfeit, of the quality product. Judges all over the country are well advised to remember that court processes should not be used as instruments to, unwittingly or otherwise, aid counterfeiters and intellectual pirates, tie the hands of the law as it seeks to protect the Filipino consuming public and frustrate executive and administrative implementation of solemn commitments pursuant to international conventions and treaties.
WHEREFORE, the petition in G.R. NOS. 63797-97 is hereby GRANTED. The order dated April 22, 1983 of the respondent regional trial court is REVERSED and SET ASIDE. Our Temporary Restraining Order dated April 29, 1983 is ma(i.e. PERMANENT. The petition in G.R. NO. 65659 is DENIED due course for lack of merit. Our Temporary Restraining Order dated December 5, 1983 is LIFTED and SET ASIDE, effective immediately.
