G.R. No.

153674 December 20, 2006

AVON COSMETICS, INCORPORATED and JOSE MARIE FRANCO, petitioners,

vs.
LETICIA H. LUNA, respondent.

DECISION

CHICO-NAZARIO, J.:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking to reverse and set aside the
Decision1 dated 20 May 2002 of the Court of Appeals in CA-G.R. CV No. 52550, which affirmed in toto the Decision2 dated
26 January 1996 of the Regional Trial Court (RTC) of Makati City, Branch 138, in Civil Case No. 88-2595, in favor of herein
respondent Leticia H. Luna (Luna), rendered by the Honorable Ed Vicente S. Albano, designated as the "assisting judge"
pursuant to Supreme Court Administrative Order No. 70-94, dated 16 June 1994.

The Facts

The facts of the case are not in dispute. As culled from the records, they are as follows:

The present petition stemmed from a complaint3 dated 1 December 1988, filed by herein respondent Luna alleging, inter
alia¸ that she began working for Beautifont, Inc. in 1972, first as a franchise dealer and then a year later, as a Supervisor.

Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over the management and
operations of Beautifont, Inc. Nonetheless, respondent Luna continued working for said successor company.

Aside from her work as a supervisor, respondent Luna also acted as a make-up artist of petitioner Avon’s Theatrical
Promotion’s Group, for which she received a per diem for each theatrical performance.

On 5 November 1985, petitioner Avon and respondent Luna entered into an agreement, entitled Supervisor’s Agreement,
whereby said parties contracted in the manner quoted below:

The Company agrees:

xxxx

1) To allow the Supervisor to purchase at wholesale the products of the Company.

xxxx

The Supervisor agrees:

1) To purchase products from the Company exclusively for resale and to be responsible for obtaining all permits and
licenses required to sell the products on retail.

xxxx

The Company and the Supervisor mutually agree:

xxxx

2) That this agreement in no way makes the Supervisor an employee or agent of the Company, therefore, the Supervisor
has no authority to bind the Company in any contracts with other parties.

1
3) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned, and shall have the sole
discretion to determine where and how products purchased from the Company will be sold. However, the Supervisor
shall not sell such products to stores, supermarkets or to any entity or person who sells things at a fixed place of business.

4) That this agreement supersedes any agreement/s between the Company and the Supervisor.

5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company.

6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other.

x x x x.4

By virtue of the execution of the aforequoted Supervisor’s Agreement, respondent Luna became part of the independent
sales force of petitioner Avon.

Sometime in the latter part of 1988, respondent Luna was invited by a former Avon employee who was then currently a
Sales Manager of Sandré Philippines, Inc., a domestic corporation engaged in direct selling of vitamins and other food
supplements, to sell said products. Respondent Luna apparently accepted the invitation as she then became a Group
Franchise Director of Sandré Philippines, Inc. concurrently with being a Group Supervisor of petitioner Avon. As Group
Franchise Director, respondent Luna began selling and/or promoting Sandré products to other Avon employees and
friends. On 23 September 1988, she requested a law firm to render a legal opinion as to the legal consequence of the
Supervisor’s Agreement she executed with petitioner Avon. In response to her query, a lawyer of the firm opined that
the Supervisor’s Agreement was "contrary to law and public policy."

Wanting to share the legal opinion she obtained from her legal counsel, respondent Luna wrote a letter to her colleagues
and attached mimeographed copies of the opinion and then circulated them. The full text of her letter reads:

We all love our work as independent dealers and we all love to continue in this livelihood. Because my livelihood is
important to me, I have asked the legal opinion of a leading Makati law office regarding my status as an independent
dealer, I am sharing this opinion with you.

I have asked their advice on three specific things:

1) May the company legally change the conditions of the existing "Supervisor’s Agreement" without the Supervisor’s
consent? If I should refuse to sign the new Agreement, may the company terminate my dealership?

On the first issue, my lawyers said that the company cannot change the existing "Agreement" without my consent, and
that it would be illegal if the company will compel me to sign the new agreement.

2) Is Section 5 of the "Supervisor’s Agreement" which says that a dealer may only sell products sold by the company, legal?

My lawyers said that Section 5 of the Supervisors Agreement is NOT valid because it is contrary to public policy, being
an unreasonable restraint of trade.

3) Is Section 6 of the "Supervisor’s Agreement" which authorizes the company to terminate the contract at any time, with
or without cause, legal?

My lawyer said Section 6 is NOT valid because it is contrary to law and public policy. The company cannot terminate the
"Supervisor’s Agreement" without a valid cause.

Therefore, I can conclude that I don’t violate Section 5 if I sell any product which is not in direct competition with the
company’s products, and there is no valid reason for the company to terminate my dealership contract if I sell a non-
competitive product.

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Dear co-supervisor[s], let us all support the reasonable and legal policies of the company. However, we must all be
conscious of our legal rights and be ready to protect ourselves if they are trampled upon.

I hope we will all stay together selling Avon products for a long time and at the same time increase our earning opportunity
by engaging in other businesses without being afraid to do so.

In a letter5 dated 11 October 1988, petitioner Avon, through its President and General Manager, Jose Mari Franco,
notified respondent Luna of the termination or cancellation of her Supervisor’s Agreement with petitioner Avon. Said
letter reads in part:

In September, (sic) 1988, you brought to our attention that you signed up as Group Franchise Director of another company,
Sandré Philippines, Inc. (SPI).

Not only that. You have also sold and promoted products of SPI (please refer for example to SPI Invoice No. 1695 dated
Sept. 30, 1988). Worse, you promoted/sold SPI products even to several employees of our company including Mary
Arlene Nolasco, Regina Porter, Emelisa Aguilar, Hermie Esteller and Emma Ticsay.

To compound your violation of the above-quoted provision, you have written letters to other members of the Avon
salesforce inducing them to violate their own contracts with our company. x x x.

For violating paragraph 5 x x x, the Company, pursuant to paragraph 6 of the same Agreement, is terminating and canceling
its Supervisor’s Agreement with you effective upon your receipt of this notice. We regret having to do this, but your
repeated disregard of the Agreement, despite warnings, leaves (sic) the Company no other choice.

xxxx

Aggrieved, respondent Luna filed a complaint for damages before the RTC of Makati City, Branch 138. The complaint
was docketed as Civil Case No. 88-2595.

On 26 January 1996, after trial on the merits, the RTC rendered judgment in favor of respondent Luna stating that:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered in favor of the plaintiff, and against
defendant, Avon, ordering the latter:

1) to pay moral damages to the plaintiff in the amount of P100,000.00 with interest from the date of this judgment up to
the time of complete payment;

2) to pay attorney’s fees in the amount of P20,000.00;

3) to pay the costs.6

On 8 February 1996, petitioner Avon filed a Notice of Appeal dated the same day. In an Order7 dated 15 February 1996,
the RTC gave due course to the appeal and directed its Branch Clerk of Court to transmit the entire records of the case to
the Court of Appeals, which docketed the appeal as CA G.R. CV No. 52550.

On 20 May 2002, the Court of Appeals promulgated the assailed Decision, the dispositive part of which states thus:

WHEREFORE, the foregoing premises considered, the decision appealed from is hereby AFFIRMED in toto.8

The Issues

In predictable displeasure with the conclusions reached by the appellate court, petitioner Avon now implores this Court
to review, via a petition for review on certiorari under Rule 45 of the Revised Rules of Court, the former’s decision and to
resolve the following assigned errors:9

I.
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THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DECLARING THAT THE SUPERVISOR’S AGREEMENT EXECUTED
BETWEEN AVON AND RESPONDENT LUNA AS NULL AND VOID FOR BEING AGAINST PUBLIC POLICY;

II.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT AVON HAD NO RIGHT TO TERMINATE OR CANCEL
THE SUPERVIOSR’S AGREEMENT;

III.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN UPHOLDING THE AWARD OF MORAL DAMAGES AND
ATTORNEY’S FEES IN FAVOR OF RESPONDENT LUNA; and

IV.

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT AWARDING ATTORNEY’S FEES AND LITIGATION EXPENSES
IN FAVOR OF PETITIONER.

The Court’s Ruling

A priori, respondent Luna objects to the presentation, and eventual resolution, of the issues raised herein as they allegedly
involve questions of facts.

To be sure, questions of law are those that involve doubts or controversies on what the law is on certain state of facts;
and questions of fact, on the other hand, are those in which there is doubt or difference as to the truth or falsehood of
the alleged facts. One test, it has been held, is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence, in which case it is a question of law, otherwise it will be a question of fact.10

In the present case, the threshold issues are a) whether or not paragraph 5 of the Supervisor’s Agreement is void for being
violative of law and public policy; and b) whether or not paragraph 6 of the Supervisor’s Agreement which authorizes
petitioner Avon to terminate or cancel the agreement at will is void for being contrary to law and public policy. Certainly,
it is quite obvious that the foregoing issues are questions of law.

In affirming the decision of the RTC declaring the subject contract null and void for being against public policy, the Court
of Appeals ruled that the exclusivity clause, which states that:

The Company and the Supervisor mutually agree:

xxxx

5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company.
[Emphasis supplied.]

should be interpreted to apply solely to those products directly in competition with those of petitioner Avon’s, i.e.,
cosmetics and/or beauty supplies and lingerie products. Its declaration is anchored on the fact that Avon products, at
that time, were not in any way similar to the products sold by Sandré Philippines, Inc. At that time, the latter was merely
selling vitamin products. Put simply, the products of the two companies do not compete with each other. The appellate
court ratiocinated that:

x x x If the agreement were interpreted otherwise, so as to include products that do not directly compete with the products
of defendant-appellant Avon, such would result in absurdity. x x x [A]greements which prohibit a person from engaging in
any enterprise whether similar or not to the enterprise of the employer constitute an unreasonable restraint of trade,
thus, it is void as against public policy.11

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Petitioner Avon disputes the abovestated conclusion reached by the Court of Appeals. It argues that the latter went
beyond the literal and obvious intent of the parties to the subject contract when it interpreted the abovequoted clause to
apply only to those products that do not compete with that of petitioner Avon’s; and that the words "only and exclusively"
need no other interpretation other than the literal meaning – that "THE SUPERVISORS CANNOT SELL THE PRODUCTS OF
OTHER COMPANIES WHETHER OR NOT THEY ARE COMPETING PRODUCTS."12

Moreover, petitioner Avon reasons that:

The exclusivity clause was directed against the supervisors selling other products utilizing their training and experience,
and capitalizing on Avon’s existing network for the promotion and sale of the said products. The exclusivity clause was
meant to protect Avon from other companies, whether competitors or not, who would exploit the sales and promotions
network already established by Avon at great expense and effort.

xxxx

Obviously, Sandre Phils., Inc. did not have the (sic) its own trained personnel and network to sell and promote its products.
It was precisely why Sandre simply invited, and then and there hired Luna and other Avon supervisors and dealers to sell
and promote its products. They had the training and experience, they also had a ready market for the other products –
the customers to whom they had been selling the Avon products. It was easy to entice the supervisors to sign up. The
supervisors could continue to sell Avon products, and at the same time earn additional income by selling other products.

This is most unfair to Avon. The other companies cannot ride on and exploit the training and experience of the Avon
sales force to sell and promote their own products. [Emphasis supplied.]

On the other hand, in her Memorandum, respondent Luna counters that "there is no allegation nor any finding by the trial
court or the Court of Appeals of an ‘existing nationwide sales and promotions network established by Avon’ or ‘Avon’s
existing sales promotions network’ or ‘Avon’s tried and tested sales and promotions network’ nor the alleged damage
caused to such system caused by other companies." Further, well worth noting is the opinion of respondent Luna’s counsel
which started the set off the series of events which culminated to the termination or cancellation of the Supervisor’s
Agreement. In response to the query-letter13 of respondent Luna, the latter’s legal counsel opined that, as allegedly
held in the case of Ferrazzini v. Gsell,14 paragraph 5 of the subject Supervisor’s Agreement "not only prohibits the
supervisor from selling products which compete with the company’s product but restricts likewise the supervisor from
engaging in any industry which involves sales in general."15 Said counsel thereafter concluded that the subject provision
in the Supervisor’s Agreement constitutes an unreasonable restraint of trade and, therefore, void for being contrary to
public policy.

At the crux of the first issue is the validity of paragraph 5 of the Supervisor’s Agreement, viz:

The Company and the Supervisor mutually agree:

xxxx

5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively products sold by the Company.
[Emphasis supplied.]

In business parlance, this is commonly termed as the "exclusivity clause." This is defined as agreements which prohibit
the obligor from engaging in "business" in competition with the obligee.

This exclusivity clause is more often the subject of critical scrutiny when it is perceived to collide with the Constitutional
proscription against "reasonable restraint of trade or occupation." The pertinent provision of the Constitution is quoted
hereunder. Section 19 of Article XII of the 1987 Constitution on the National Economy and Patrimony states that:

5
SEC. 19. The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed.

First off, restraint of trade or occupation embraces acts, contracts, agreements or combinations which restrict
competition or obstruct due course of trade.16

Now to the basics. From the wordings of the Constitution, truly then, what is brought about to lay the test on whether a
given agreement constitutes an unlawful machination or combination in restraint of trade is whether under the particular
circumstances of the case and the nature of the particular contract involved, such contract is, or is not, against public
interest.17

Thus, restrictions upon trade may be upheld when not contrary to public welfare and not greater than is necessary to
afford a fair and reasonable protection to the party in whose favor it is imposed.18 Even contracts which prohibit an
employee from engaging in business in competition with the employer are not necessarily void for being in restraint of
trade.

In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed vis-à-vis all the circumstances
surrounding such agreement in deciding whether a restrictive practice should be prohibited as imposing an
unreasonable restraint on competition.

The question that now crops up is this, when is a restraint in trade unreasonable? Authorities are one in declaring that a
restraint in trade is unreasonable when it is contrary to public policy or public welfare. As far back as 1916, in the case
of Ferrazzini v. Gsell,19 this Court has had the occasion to declare that:

There is no difference in principle between the public policy (orden público) in the in the two jurisdictions (United States
and the Philippine Islands) as determined by the Constitution, laws, and judicial decisions.

In the United States it is well settled that contracts in undue or unreasonable restraint of trade are unenforcible because
they are repugnant to the established public policy in that country. Such contracts are illegal in the sense that the law
will not enforce them. The Supreme Court in the United States, in Oregon Steam Navigation Co. vs. Winsor )20 Will., 64),
quoted with approval in Gibbs v. Consolidated gas Co. of Baltimore (130 U.S., 396), said:

‘Cases must be judged according to their circumstances, and can only be rightly judged when reason and grounds of the
rule are carefully considered. There are two principle grounds on which the doctrine is founded that a contract in restraint
of trade is void as against public policy. One is, the injury to the public by being deprived of the restricted party’s industry;
and the other is, the injury to the party himself by being precluded from pursuing his occupation, and thus being
prevented from supporting himself and his family.’

And what is public policy? In the words of the eminent Spanish jurist, Don Jose Maria Manresa, in his commentaries of the
Codigo Civil, public policy (orden público):

Represents in the law of persons the public, social and legal interest, that which is permanent and essential of the
institutions, that which, even if favoring an individual in whom the right lies, cannot be left to his own will. It is an idea
which, in cases of the waiver of any right, is manifested with clearness and force. 20

As applied to agreements, Quintus Mucius Scaevola, another distinguished civilist gives the term "public policy" a more
defined meaning:

Agreements in violation of orden público must be considered as those which conflict with law, whether properly, strictly
and wholly a public law (derecho) or whether a law of the person, but law which in certain respects affects the interest of
society. 21

6
Plainly put, public policy is that principle of the law which holds that no subject or citizen can lawfully do that which
has a tendency to be injurious to the public or against the public good.22 As applied to contracts, in the absence of express
legislation or constitutional prohibition, a court, in order to declare a contract void as against public policy, must find that
the contract as to the consideration or thing to be done, has a tendency to injure the public, is against the public good,
or contravenes some established interests of society, or is inconsistent with sound policy and good morals, or tends
clearly to undermine the security of individual rights, whether of personal liability or of private property. 23

From another perspective, the main objection to exclusive dealing is its tendency to foreclose existing competitors or new
entrants from competition in the covered portion of the relevant market during the term of the agreement. 24Only those
arrangements whose probable effect is to foreclose competition in a substantial share of the line of commerce affected
can be considered as void for being against public policy. The foreclosure effect, if any, depends on the market share
involved. The relevant market for this purpose includes the full range of selling opportunities reasonably open to rivals,
namely, all the product and geographic sales they may readily compete for, using easily convertible plants and marketing
organizations.25

Applying the preceding principles to the case at bar, there is nothing invalid or contrary to public policy either in the
objectives sought to be attained by paragraph 5, i.e., the exclusivity clause, in prohibiting respondent Luna, and all other
Avon supervisors, from selling products other than those manufactured by petitioner Avon. We quote with approval the
determination of the U.S. Supreme Court in the case of Board of Trade of Chicago v. U.S.26 that "the question to be
determined is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition,
or whether it is such as may suppress or even destroy competition."

Such prohibition is neither directed to eliminate the competition like Sandré Phils., Inc. nor foreclose new entrants to
the market. In its Memorandum, it admits that the reason for such exclusion is to safeguard the network that it has
cultivated through the years. Admittedly, both companies employ the direct selling method in order to peddle their
products. By direct selling, petitioner Avon and Sandre, the manufacturer, forego the use of a middleman in selling their
products, thus, controlling the price by which they are to be sold. The limitation does not affect the public at all. It is
only a means by which petitioner Avon is able to protect its investment.

It was not by chance that Sandré Philippines, Inc. made respondent Luna one of its Group Franchise Directors. It doesn’t
take a genius to realize that by making her an important part of its distribution arm, Sandré Philippines, Inc., a newly
formed direct-selling business, would be saving time, effort and money as it will no longer have to recruit, train and
motivate supervisors and dealers. Respondent Luna, who learned the tricks of the trade from petitioner Avon, will do it
for them. This is tantamount to unjust enrichment. Worse, the goodwill established by petitioner Avon among its loyal
customers will be taken advantaged of by Sandre Philippines, Inc. It is not so hard to imagine the scenario wherein the
sale of Sandré products by Avon dealers will engender a belief in the minds of loyal Avon customers that the product
that they are buying had been manufactured by Avon. In other words, they will be misled into thinking that the Sandré
products are in fact Avon products. From the foregoing, it cannot be said that the purpose of the subject exclusivity
clause is to foreclose the competition, that is, the entrance of Sandré products in to the market. Therefore, it cannot be
considered void for being against public policy. How can the protection of one’s property be violative of public policy?
Sandré Philippines, Inc. is still very much free to distribute its products in the market but it must do so at its own expense.
The exclusivity clause does not in any way limit its selling opportunities, just the undue use of the resources of petitioner
Avon.

It has been argued that the Supervisor’s Agreement is in the nature of a contract of adhesion; but just because it is does
not necessarily mean that it is void. A contract of adhesion is so-called because its terms are prepared by only one party
while the other party merely affixes his signature signifying his adhesion thereto.27 Such contract is just as binding as
ordinary contracts. "It is true that we have, on occasion, struck down such contracts as void when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it,
completely deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not
7
invalid per se and they are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely,
if he adheres, he gives his consent."28 In the case at bar, there was no indication that respondent Luna was forced to sign
the subject agreement. Being of age, financially stable and with vast business experience, she is presumed to have acted
with due care and to have signed the assailed contract with full knowledge of its import. Under the premises, it would
be difficult to assume that she was morally abused. She was free to reject the agreement if she wanted to.

Accordingly, a contract duly executed is the law between the parties, and they are obliged to comply fully and not
selectively with its terms. A contract of adhesion is no exception.29

The foregoing premises noted, the Court of Appeals, therefore, committed reversible error in interpreting the
subject exclusivity clause to apply merely to those products in direct competition to those manufactured and sold by
petitioner Avon. When the terms of the agreement are clear and explicit, that they do not justify an attempt to read into
any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the
contract.30 Thus, in order to judge the intention of the contracting parties, "the circumstances under which it was made,
including the situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed in
the position of those whose language he is to interpret."31 It has been held that once this intention of the parties has been
ascertained, it becomes an integral part of the contract as though it has been originally expressed therein in unequivocal
terms.32

Having held that the "exclusivity clause" as embodied in paragraph 5 of the Supervisor’s Agreement is valid and not
against public policy, we now pass to a consideration of respondent Luna’s objections to the validity of her termination
as provided for under paragraph 6 of the Supervisor’s Agreement giving petitioner Avon the right to terminate or cancel
such contract. The paragraph 6 or the "termination clause" therein expressly provides that:

The Company and the Supervisor mutually agree:

xxxx

6) Either party may terminate this agreement at will, with or without cause, at any time upon notice to the other.
[Emphasis supplied.]

In the case of Petrophil Corporation v. Court of Appeals,33 this Court already had the opportunity to opine that termination
or cancellation clauses such as that subject of the case at bar are legitimate if exercised in good faith. The facts of said
case likewise involved a termination or cancellation clause that clearly provided for two ways of terminating the contract,
i.e., with or without cause. The utilization of one mode will not preclude the use of the other. Therein, we stated that the
finding that the termination of the contract was "for cause," is immaterial. When petitioner terminated the contract
"without cause," it was required only to give x x x a 30-day prior written notice, which it did.

In the case at bar, the termination clause of the Supervisor’s Agreement clearly provides for two ways of terminating
and/or canceling the contract. One mode does not exclude the other. The contract provided that it can be terminated or
cancelled for cause, it also stated that it can be terminated without cause, both at any time and after written notice.
Thus, whether or not the termination or cancellation of the Supervisor’s Agreement was "for cause," is immaterial. The
only requirement is that of notice to the other party. When petitioner Avon chose to terminate the contract, for cause,
respondent Luna was duly notified thereof.

Worth stressing is that the right to unilaterally terminate or cancel the Supervisor’s Agreement with or without cause
is equally available to respondent Luna, subject to the same notice requirement. Obviously, no advantage is taken
against each other by the contracting parties.

WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision dated 20 May 2002 rendered by the
Court of Appeals in CA-G.R. CV No. 52550, affirming the judgment of the RTC of Makati City, Branch 138, in Civil Case No.

8
88-2595, are hereby REVERSED and SET ASIDE. Accordingly, let a new one be entered dismissing the complaint for
damages. Costs against respondent Leticia Luna.

SO ORDERED.

Ynares-Santiago, (Working Chairman) and Austria-Martinez,, JJ., concur.

Panganiban, CJ, retired as of 7 December 2006.
Callejo, Sr., J., no part.

Republic of the Philippines

SUPREME COURT
Baguio City

FIRST DIVISION

G.R. No. 113079 April 20, 2001

ENERGY REGULATORY BOARD, petitioner,

vs.
COURT OF APPEALS and PETROLEUM DISTRIBUTORS AND SERVICES CORPORATION, respondents.

----------------------------------------

G.R. No. 114923 April 20, 2001

PILIPINAS SHELL PETROLEUM CORPORATION, petitioner,

vs.
COURT OF APPEALS and PETROLEUM DISTRIBUTORS AND SERVICES CORPORATION, respondents.

YNARES-SANTIAGO, J.:

The propriety of building a state-of-the-art gasoline service station along Benigno Aquino, Jr. Avenue in Parañaque, Metro
Manila is the bone of contention in these consolidated petitions for certiorari under Rule 45 of the Rules of Court.
Petitioners assert that the construction of such a modern edifice is a necessity dictated by the "emerging economic
landscapes." Respondents say otherwise.

The factual antecedents of the case are matters of record or are otherwise uncontroverted.

Petitioner Pilipinas Shell Petroleum Corporation (Shell) is engaged in the business of importing crude oil, refining the
same and selling various petroleum products through a network of service stations throughout the country.

Private respondent Petroleum Distributors and Service Corporation (PDSC) owns and operates a Caltex service station at
the corner of the MIA and Domestic Roads in Pasay City.

9
On June 30,1983, Shell filed with the quondam Bureau of Energy Utilization (BEU) an application for authority to relocate
its Shell Service Station at Tambo, Parañaque, Metro Manila, to Imelda Marcos Avenue of the same municipality. The
application, which was docketed as BEU Case No. 83-09-1319, was initially rejected by the BEU because Shell's old site
had been closed for five (5) years such that the relocation of the same to a new site would amount to a new construction
of a gasoline outlet, which construction was then the subject of a moratorium. Subsequently, however, BEU relaxed its
position and gave due course to the application.

PDSC filed an opposition to the application on the grounds that: 1.] there are adequate service stations attending to the
motorists' requirements in the trading area covered by the application; 2.] ruinous competition will result from the
establishment of the proposed new service station; and 3.] there is a decline not an increase in the volume of sales in the
area. Two other companies, namely Petrophil and Caltex, also opposed the application on the ground that Shell failed to
comply with the jurisdictional requirements.

In a Resolution dated March 6, 1984, the BEU dismissed the application on jurisdictional grounds and for lack of "full title"
of the lessor over the proposed site. However, on May 7, 1984, the BEU reinstated the same application and thereafter
conducted a hearing thereon.

On June 3, 1986, the BEU rendered a decision denying Shell's application on a finding that there was "no necessity for
an additional petroleum products retail outlet in Imelda Marcos Avenue, Parañaque." Dissatisfied, Shell appealed to
the Office of Energy Affairs (OEA).

Meanwhile, on May 8, 1987, Executive Order No. 172 was issued creating the Energy Regulatory Board (ERB) and
transferring to it the regulatory and adjudicatory functions of the BEU.

On May 9, 1988, the OEA rendered a decision denying the appeal of Shell and affirming the BEU decision. Shell moved
for reconsideration and prayed for a new hearing or the remand of the case for further proceedings. In a supplement to
said motion, Shell submitted a new feasibility study to justify its application.

The OEA issued an order on July 11, 1988, remanding the case to the ERB for further evaluation and consideration, noting
therein that the "updated survey conducted by Shell" cited new developments such as the accessibility of Imelda Marcos
Avenue, now Benigno Aquino, Jr. Avenue, to Parañaque residents along Sucat Road and the population growth in the
trading area.

After the records of BEU Case No. 83-09-1319 was remanded to the ERB, Shell filed on March 3, 1989 an amended
application, intended for the same purpose as its original application, which was docketed as ERB Case No. 89-57. This
amended application was likewise opposed by PDSC.

On September 17, 1991, the ERB rendered a Decision allowing Shell to establish the service station in Benigno Aquino,
Jr. Avenue. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, the application for authority to relocate a Shell service station from Tambo to Benigno
Aquino Avenue, Parañaque, Metro Manila is hereby approved.

Applicant is hereby directed to:

1. Start the construction and operation of the retail outlet at the actual approved site appearing in the vicinity map
previously submitted to the Board within one (1) year, from the finality of this Decision and thereafter submit a sworn
document of compliance therewith;

2. Submit photographs showing the left side, right side and front view of the retail outlet within fifteen (15) days from
completion of the construction work;

10
3. Submit to the Board a report on the total volume of petroleum products sold each month during the first six (6) months
of the operation of the station. The report shall be submitted in the form of an affidavit within ten (10) days after the end
of the six-month period;

4. Inform the Board in writing and the general public through a notice posted conspicuously within the premises of the
station of the (a) intention of applicant or its dealer to stop operation of the retail outlet for a period longer than ninety
(90) days; or (b) notice of shutdown of operation of the retail outlet that will likely extend beyond thirty (30) days. Such
notice must be given fifteen (15) days before the actual cessation of operations in the case of (a) and in the case of (b)
within the first five (5) days of an unplanned stoppage of operations.

SO ORDERED.

PDSC filed a motion for reconsideration of the foregoing Decision. The motion was, however, denied by ERB in an Order
dated February 14, 1992.

Aggrieved, PDSC elevated its cause on April 1, 1992 to the Court of Appeals, where the same was docketed as CA-G.R. SP
No. 27661.

Thereafter, in a Decision dated November 8, 1993,1 the appellate court's Tenth Division reversed the ERB judgment thus:

WHEREFORE, the challenged Decision dated September 17, 1991, as well as the Order dated February 14, 1992, both of
the respondent Energy Regulatory Board in ERB Case No. 89-57, are hereby REVERSED and SET ASIDE. Correspondingly,
the application of respondent Pilipinas Shell Petroleum Corporation to construct and operate the petroleum retail outlet
in question is DENIED.

SO ORDERED.

A motion for reconsideration was denied by the Court of Appeals in a Resolution dated 6 April 1994.2 Dissatisfied, both
Shell and ERB elevated the matter to this Court by way of these petitions, which were ordered consolidated by the Court
in a Resolution dated July 25,1994.3

It appears, however, from the record that even as the proceedings in CA-G.R. SP No. 27661 were pending in the appellate
court, Caltex filed on January 24, 1992 a similar application for the construction of a service station in the same area
with the ERB, docketed as ERB Case No. 87-393. This application was likewise opposed by respondent PDSC, citing the
same grounds it raised in opposing Shell's application in ERB Case No. 89-57.

In the aforesaid case, petitioner ERB thereafter rendered a Decision dated June 19, 1992 approving the application of
Caltex. This ERB Decision was challenged by PDSC, again on the same grounds it raised in CA-G.R. SP No. 27661, in a
petition for review filed with the Court of Appeals, where the same was docketed as CA-G.R. SP No. 29099.

Subsequently, the appellate court's Sixteenth Division dismissed PDSC's petition in a Decision dated May 14, 1993.4

As grounds for the petition in the instant case, ERB asserts that –

(1) THE EVIDENCE UPON WHICH THE ERB BASED ITS DECISION IS NEITHER STALE NOR IRRELEVANT AND THE SAME
JUSTIFIES THE ESTABLISHMENT OF THE PROPOSED PETROLEUM OUTLET.

(2) THE EVIDENCE PRESENTED BY APPLICANT SHELL REGARDING VEHICLE VOLUME AND FUEL DEMAND SUPPORTS THE
CONSTRUCTION OF THE PROPOSED OUTLET.

(3) THE ESTABLISHMENT OF THE SERVICE STATION WILL NOT LEAD TO RUINOUS COMPETITION.

For its part, Shell avers that –

I.
11
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN MAKING FINDINGS OF FACTS CONTRARY TO THOSE OF THE
ENERGY REGULATORY BOARD WHOSE FINDINGS WERE BASED ON SUBSTANTIAL EVIDENCE.

II.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE FEASIBILITY STUDY SUPPORTING
PETITIONER'S APPLICATION TO CONSTRUCT A SERVICE STATION BEFORE THE ENERGY REGULATORY BOARD HAS BECOME
"IRRELEVANT" FOR HAVING BEEN PRESENTED IN EVIDENCE ABOUT TWO (2) YEARS AFTER IT WAS PREPARED.

III.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN PASSING JUDGMENT AND MAKING PRONOUNCEMENTS ON
PURELY ECONOMIC AND POLICY ISSUES ON PETROLEUM BUSINESS WHICH ARE WITHIN THE REALM OF THE ENERGY
REGULATORY BOARD WHICH HAS A RECOGNIZED EXPERTISE IN OIL ECONOMICS.

IV.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE PROPOSED SERVICE STATION OF PETITIONER
WOULD POSE RUINOUS COMPETITION TO PRIVATE RESPONDENT'S SERVICE STATION BASED MAINLY ON EVIDENCE
SUBMITTED FOR THE FIRST TIME WITH THE SAID COURT AND WITHOUT CONDUCTING A HEARING THEREON.

V.

ASSUMING THE HONORABLE COURT OF APPEALS HAS THE POWER TO CONSIDER NEW EVIDENCE PRESENTED FOR THE
FIRST TIME BEFORE SAID COURT, IT SHOULD HAVE REFERRED SUCH MATTER TO THE ENERGY REGULATORY BOARD UNDER
THE DOCTRINE OF PRIOR RESORT OR PRIMARY JURISDICTION.

The issues raised by the parties in these consolidated cases bring to the fore the necessity of rationalizing or reconciling
two apparently conflicting decisions of the appellate court on the propriety of building gasoline service stations along
Benigno Aquino, Jr. Avenue in Parañaque, Metro Manila. Considering that the questions raised concern within the oil
industry, whose impact on the nation's economy is pervasive and far-reaching, the Court is constrained to look into the
policy and purposes of its governing statutes to resolve this dilemma.

The policy of the government in this regard has been to allow a free interplay of market forces with minimal government
supervision. The purpose of governing legislation is to liberalize the downstream oil industry in order to ensure a truly
competitive market under a regime of fair prices, adequate and continuous supply, environmentally clean and high-quality
petroleum products.5 Indeed, exclusivity of any franchise has not been favored by the Court,6which is keen on promoting
free competition and the development of a free market consistent with the legislative policy of deregulation as an answer
to the problems of the oil industry. 7

The Court finds the petitions impressed with merit.

The interpretation of an administrative government agency like the ERB, which is tasked to implement a statute, is
accorded great respect and ordinarily controls the construction of the courts.8 A long line of cases establish the basic rule
that the courts will not interfere in matters which are addressed to the sound discretion of government agencies entrusted
with the regulation of activities coming under the special technical knowledge and training of such agencies. 9 More
explicitly –

Generally, the interpretation of an administrative government agency, which is tasked to implement a statute, is accorded
great respect and ordinarily controls the construction of the courts.10 The reason behind this rule was explained in Nestle
Philippines, Inc. vs. Court of Appeals,11 in this wise:

'The rationale for this rule relates not only to the emergence of the multifarious needs of a modern or modernizing
society and the establishment of diverse administrative agencies for addressing and satisfying those needs; it also
12
relates to the accumulation of experience and growth of specialized capabilities by the administrative agency charged
with implementing a particular statute. In Asturias Sugar Central, Inc. v. Commissioner of Customs, 12 the Court stressed
that executive officials are presumed to have familiarized themselves with all the considerations pertinent to the meaning
and purpose of the law, and to have formed an independent, conscientious and competent expert opinion thereon. The
courts give much weight to the government agency or officials charged with the implementation of the law, their
competence, expertness, experience and informed judgment, and the fact that they frequently are drafters of the law
they interpret."

As a general rule, contemporaneous construction is resorted to for certainty and predictability in the laws,13especially
those involving specific terms having technical meanings.

However, courts will not hesitate to set aside such executive interpretation when it is clearly erroneous, or when there is
no ambiguity in the rule,14 or when the language or words used are clear and plain or readily understandable to any
ordinary reader.15

Stated differently, when an administrative agency renders an opinion or issues a statement of policy, it merely interprets
a pre-existing law and the administrative interpretation is at best advisory for it is the courts that finally determine what
the law means.16 Thus, an action by an administrative agency may be set aside by the judicial department if there is an
error of law, abuse of power, lack of jurisdiction or grave abuse of discretion clearly conflicting with the letter and spirit
of the law.17

However, there is no cogent reason to depart from the general rule because the findings of the ERB conform to, rather
than conflict with, the governing statutes and controlling case law on the matter.

Prior to Republic Act No. 8479, the downstream oil industry was regulated by the ERB and from 1993 onwards, the Energy
Industry Regulation Board. These regulatory bodies were empowered, among others, to entertain and act on applications
for the establishment of gasoline stations in the Philippines. The ERB, which used to be the Board of Energy (BOE), is tasked
with the following powers and functions by Executive Order No. 172, which took effect immediately after its issuance on
May 8, 1987:

SEC. 3. Jurisdiction, Powers and Functions of the Board. – When warranted and only when public necessity requires, the
Board may regulate the business of importing, exporting, re-exporting, shipping, transporting, processing, refining,
marketing and distributing energy resources. xxx

The Board shall, upon prior notice and hearing, exercise the following, among other powers and functions:

(a) Fix and regulate the prices of petroleum products;

(b) Fix and regulate the rate schedule or prices of piped gas to be charged by duly franchised gas companies which
distribute gas by means of underground pipe systems;

(c) Fix and regulate the rates of pipeline concessionaires under the provisions of Republic Act No. 387, as amended,
otherwise know as the 'Petroleum Act of 1949,' as amended by Presidential Decree No. 1700;

(d) Regulate the capacities of new refineries or additional capacities of existing refineries and license refineries that may
be organized after the issuance of this Executive Order, under such terms and conditions as are consistent with the
national interest;

(e) Whenever the Board has determined that there is a shortage of any petroleum product, or when public interest so
requires, it may take such steps as it may consider necessary, including the temporary adjustment of the levels of prices
of petroleum products and the payment to the Oil Price Stabilization Fund created under Presidential Decree No. 1956 by
persons or entities engaged in the petroleum industry of such amounts as may be determined by the Board, which will
enable the importer to recover its costs of importation.18
13
A distinct worldwide trend towards economic deregulation has been evident in the past decade. Both developed and
developing countries have seriously considered and extensively adopted various measures for this purpose. The country
has been no exception. Indeed, the buzzwords of the third millenium are "deregulation", "globalization" and
"liberalization."19 It need not be overemphasized that this trend is reflected in our policy considerations, statutes and
jurisprudence. Thus, in Garcia v. Corona,20 the Court said:

R.A. 8479, the present deregulation law, was enacted to implement Article XII, Section 19 of the Constitution which
provides:

The State shall regulate or prohibit monopolies when the public interest so requires. No combinations in restraint of trade
or unfair competition shall be allowed.

This is so because the Government believes that deregulation will eventually prevent monopoly. The simplest form of
monopoly exists when there is only one seller or producer of a product or service for which there are no substitutes. In
its more complex form, monopoly is defined as the joint acquisition or maintenance by members of a conspiracy, formed
for that purpose, of the power to control and dominate trade and commerce in a commodity to such an extent that they
are able, as a group, to exclude actual or potential competitors from the field, accompanied with the intention and purpose
to exercise such power.21

xxx xxx xxx xxx

It bears reiterating at the outset that deregulation of the oil industry is policy determination of the highest order. It is
unquestionably a priority program of Government. The Department of Energy Act of 199222expressly mandates that the
development and updating of the existing Philippine energy program "shall include a policy direction towards deregulation
of the power and energy industry."

xxx xxx xxx xxx

Our ruling in Tatad23 is categorical that the Constitution's Article XII, Section 19, is anti-trust in history and spirit. It
espouses competition. We have stated that only competition which is fair can release the creative forces of the market.
We ruled that the principle which underlies the constitutional provision is competition. Thus:

Section 19, Article XII of our Constitution is anti-trust in history and spirit. It espouses competition. The desirability of
competition is the reason for the prohibition against restraint of trade, the reason for the interdiction of unfair competition,
and the reason for regulation of unmitigated monopolies. Competition is thus the underlying principle of Section 19, Article
XII of our Constitution which cannot be violated by R.A. No. 8180. We subscribe to the observation of Prof. Gellhorn that
the objective of anti-trust law is "to assure a competitive economy based upon the belief that through competition
producers will strive to satisfy consumer wants at the lowest price with the sacrifice of the fewest resources. Competition
among producers allows consumers to bid for goods and services and, thus matches their desires with society's opportunity
costs." He adds with appropriateness that there is a reliance upon "the operation of the 'market' system (free enterprise)
to decide what shall be produced, how resources shall be allocated in the production process, and to whom various
products will be distributed. The market system relies on the consumer to decide what and how much shall be produced,
and on competition, among producers who will manufacture it."24

Tested against the foregoing legal yardsticks, it becomes readily apparent that the reasons relied upon by the appellate
court in rejecting petitioner's application to set up a gasoline service station becomes tenuous. This is especially clear in
the face of such recent developments in the oil industry, in relation to controlling case law on the matter recently
promulgated to address the legal issues spawned by these events. In other words, recent developments in the oil industry
as well as legislative enactments and jurisprudential pronouncements have overtaken and rendered stale the view
espoused by the appellate court in denying Shell's application to put up the gasoline station.

14
In reversing the ERB, the Court of Appeals first avers in sum that there is no substantial evidence to support ERB's finding
of public necessity to warrant approval of Shell's application.

The Court disagrees.1âwphi1.nêt

On the contrary, the record discloses that the ERB Decision approving Shell's application in ERB Case No. 89-57 was based
on hard economic data on developmental projects, residential subdivision listings, population count, public conveyances,
commercial establishments, traffic count, fuel demand, growth of private cars, public utility vehicles and commercial
vehicles, etc.,25 rather than empirical evidence to support its conclusions. In approving Shell's application, the ERB made
the following factual findings and, on the basis thereof, justified its ruling thus:

In evaluating the merits of the application, the first question that comes to mind is whether there is indeed an increase in
market potential from the time this very same application was disapproved by the then Bureau of Energy Utilization up to
the present time that would warrant a reversal of the former decision. The history of this case serves to justify applicant
Shell's position on the matter. After a little over a year from vigorously opposing the original application, Caltex and Petron
filed their respective applications to construct their own service station within the same vicinity.

The figures in the applicant's feasibility study projects a scenario of growth well up to the year 1994. Where the applicant
listed only thirty-five commercial establishments, oppositor is servicing sixty-five. The development of subdivisions along
the area provides for a buffer of market potential that could readily be tapped by the applicant service.

Although the applicant's witness could have done better in accentuating this fact, the oppositor did not do well either in
downplaying the potentials of the area. The main gist of PDSC's contention is premised on the rising overhead cost of
(increase in salaries and rent) in relation to the establishment of new competition. The proposed station expects to target
a total volume of 460,151 liters per month with a projected increase of 2.6% per annum and presumably expects to make
a corresponding profit thereof. Oppositor PDSC, on the other hand, with its lone Caltex Service Station, expects to suffer
income loss even with a projected volume of 600,000 to 800,000 liters per month (Exhibit 5).

Considering this premise, it should be noted that the Board is tasked to protect existing petroleum stations from ruinous
competition and not to protect existing establishments from its own ghost. The Board does not exist for the benefit of any
individual station but for the interest of the public and the industry as a whole.

In its first application, the applicant's projection was to realize only 255,000 liters per month or some 20 percent of the
total potential demand. With its amended application, the 460,151 liters it hopes to realize is almost twice the former
volume representing a smaller percentage of the present overall potential demand.

With further growth and development of the businesses in the area, the fuel potential will tremendously increase and the
presence of strategically located service stations will greatly benefit the local community as well as the transient motoring
public.

The Board believes that the construction and operation of the Shell Station will not lead to ruinous competition since [the]
additional retail outlet is necessary.

Time and again this Court has ruled that in reviewing administrative decisions, the findings of fact made therein must be
respected as long as they are supported by substantial evidence, even if not overwhelming or preponderant; that it is not
for the reviewing court to weigh the conflicting evidence, determine the credibility of the witnesses or otherwise
substitute its own judgment for that of the administrative agency on the sufficiency of evidence; that the administrative
decision in matters within the executive jurisdiction can only be set aside on proof of grave abuse of discretion, fraud or
error of law.26 Petitioner ERB is in a better position to resolve petitioner Shell's application, being primarily the agency
possessing the necessary expertise on the matter. The power to determine whether the building of a gasoline retail outlet
in a trading area would benefit public interest and the oil industry lies with the ERB not the appellate courts.

15
In the hierarchy of evidentiary values, proof beyond reasonable doubt is at the highest level, followed by clear and
convincing evidence, preponderance of evidence and substantial evidence, in that order.27 A litany of cases has
consistently held that substantial evidence is all that is needed to support an administrative finding of fact.28 It means such
relevant evidence as a reasonable mind might accept to support a conclusion.29

Suffice it to state in this regard that the factual landscape, measured within the context of such an evidentiary matrix, is
strewn with well-nigh overwhelming proof of the necessity to build such a gasoline retail outlet in the vicinity subject of
the application.

In denying Shell's application, the Court of Appeals next pointed to the alleged 'staleness' of Shell's feasibility study
because it was submitted in evidence about two (2) years after it was prepared in early 1988.30

Again, this Court is not persuaded.

The record shows that the feasibility study31 is accompanied by the following data, namely: 1.] Annual Projection of
Estimated Fuel Demand, Base Area; 2.] Projected Volume of the Proposed Shell Station; 3.] Projected Fuel Volume Derived
From Base Area; 4.] Estimated Fuel Demand Base Projection – 1993; 5.] Estimated Fuel Demand Base Projection – 1994;
6.] Annual Projection of Population; 7.] Annual Projection Growth of Private Cars in the Area; 8.] Annual Projection Growth
of Public Utilities in the Area; and 9] Annual Projected Growth of Commercial Vehicles in the Area32 – projects a market
scenario from 1989 to 1994.

While the Court of Appeals was initially unconvinced that Shell's feasibility study was up-to-date and proceeded to render
the assailed judgment, its attention was subsequently called, in Shell's motion for reconsideration, to the ERB's Decision
dated June 19, 199233 approving a similar application by Caltex to build a gasoline retail outlet in the same vicinity. Said
decision was appealed by PDSC to the Court of Appeals (CA-G.R. SP No. 29099), and was affirmed by the latter in a Decision
dated May 14, 1993.34 The Decision in Caltex's application, where PDSC was the lone oppositor, was challenged before the
appellate court on the very same grounds it proffered in opposing Shell's application.35 In rejecting PDSC's contentions in
CA-G.R. SP No. 29099, the Court of Appeals' Sixteenth Division ruled:

As to the first ground –

xxx xxx xxx xxx

The petitioner had assumed that the entire Sucat Road (starting from as far away as its intersection with the South
Expressway going towards Alabang and further South), Quirino Avenue, Domestic Road (which passes in front of the
Domestic Terminal), MIA Road, and Ninoy Aquino Avenue, constitute what it refers to as the "trading area." Thus, the
herein petitioner invites attention to the fact that in Sucat Road there are five existing gasoline stations; two along Quirino
Avenue (from Sucat Road); four along Domestic Road; and two along MIA Road, one of which is the Caltex-Nayong Pilipino
station at the corner of MIA Road and Benigno Aquino Avenue. Except for the gas station at one end of Benigno Aquino
Avenue (located in front of the Nayong Filipino), the petitioner admits that there has been as yet no gasoline station
existing along the entire stretch of the said Benigno Aquino Avenue, although the ERB had recently approved Shell's
application to put up one therein.

This court is of the view that the aforementioned assumption adopted by petitioner is fallacious or incorrect considering
the conclusion of ERB's Manuel Alvarez in his "Ocular Inspection Report and In-Depth Analysis of Feasibility Study" that
no outlet presently exists along the whole stretch of the Ninoy Aquino Avenue (Rollo, p. 126) and that the outlets along
Sucat Road are "far from the proposed site, a distant several kilometers away along Dr. A. Santos Avenue in Sucat which
can already be considered a different trading area" (ibid., - underscoring supplied)

Assuming in gratia argumenti that the entirety of the above-specified road/avenues may be considered as a single trading
area, the petitioner had failed to show why Caltex's 9.7% share of the total market potential, as found in Alvarez's
Market Study, is not attainable or that it would result in ruinous competition. As pointed by the respondents (citing MD
16
Transit & Taxi Co., Inc. v. Pepito, 6 SCRA 140 and Raymundo Trans. Co. v. Cervo, 91 Phil. 313), even if a new station would
bring about a decline in the sales of the existing outlets, it need not necessarily result in ruinous competition, absent
adequate proof to that effect.

As to the second and third grounds –

Concerning the averment that the evidence of Caltex is stale, this Court notes that the said evidence refers principally to
a revalidation study conducted by ERB's Alvarez who undertook an ocular inspection of the proposed site on November
23 to 27, 1987. The hearings of the instant case continued up to early 1992 (ERB Decision, p. 4). The Decision was rendered
on June 19, 1992 (Rollo, p. 36). It may be conceded that substantial time had elapsed since the time of the aforementioned
revalidation study. However, it is this court's view that unless the petitioner is able to prove by competent evidence
that significant changes have occurred sufficient to invalidate the afore-stated study, the presumption is that the said
study remains valid, as found by the ERB in its decision. Bare and self-serving manifestations cannot be accepted by Us
as proof; especially if We take into account that hearings (as in the case at bar) would take time and it would be quite
absurd if what was once applicable and acceptable evidence would be ipso facto rendered stale through mere lapse of
time absent any controverting evidence. Sound procedural policy requires that the burden of proof relative to the
present invalidity of the Alvarez report rests not with Caltex but on the herein petitioner.

The petitioner had attempted to make comparisons between the figures specified in the 1987 study and those of the
Bureau of Energy Utilization or BEU (which were given earlier in 1986). Thus, the petitioner points out that while the BEU's
decision indicated that 9,034 cars on the average passed by going in both directions along Ninoy Aquino Avenue, the
Alvarez revalidation study gave an average car traffic of only 8,395 resulting in a decline of 639 cars. The petitioner,
however, conveniently ignored or failed to note that the 9,034 figure was that given by applicant Shell and not be the
government agency itself. The BEU refers to the said figure as the applicant's estimated potential demand. It is natural to
expect that an applicant would try to give up as high an estimated potential demand as possible to support its application.

The contention of the petitioner that the Alvarez study/report is hearsay on the ground inter alia that Alvarez was not
presented as a witness deserves scant consideration by this Court. In the first place, the ERB is not bound by technical
rules of procedure as contained in the Rules of Court, the latter being made applicable to ERB only "in a suppletory
character" (Rule 16 of the Rules of Practice and Procedure Governing Hearings Before the ERB). More importantly, Section
2, paragraph 2 and Section 7, paragraph 2 of the above-mentioned ERB Rules provides as follows:

The Board may, in the disposition of cases, before it, take judicial notice of any data or information existing in its judicial
records, that may be relevant, pertinent or material to the issues involved, x x x x

The Board may also, on its own initiative or upon a motion of a party, conduct such investigation or studies on any matter
pertinent, related or material to the issues involved in a case the results of which may be sued by the Board as bases for
the proper evaluation of the said issues. (Rollo, pp. 205-207 – underscoring supplied)

The petitioner asserts that the island divider along Benigno Aquino Avenue in front of the proposed site was not taken
into consideration in the 1987 survey. It could not be denied that the construction of such divider could have an effect on
the matter of potential demand. Neither can it be denied however that the gas station that would be affected would be
Caltex itself. It is not alleged that there exists a divider along the whole of Sucat Road for example. Hence, the existing
outlets have no reason to complain about the divider.

The contention that when construction is completed (connecting Sucat Road to the coastal road), a good number of
vehicles would pass through the coastal road instead of along Benigno Aquino [Avenue] appears to Us as speculative.
There is no need for the petitioner, which it failed to do, to show qualitatively and convincingly that the effect would be
such as to make the sales level go down to such an extent that the viability of the existing outlets would be seriously
endangered or threatened.

17
The foregoing pronouncement of the Court of Appeals' Sixteenth Division is more in keeping with the policy of the State
and the rationale of the statutes enacted to govern the industry.

In denying Shell's application, the Court of Appeals finally states that the proposed service station would cause ruinous
competition to respondent PDSC's outlet in the subject vicinity.

We remain unconvinced.

It must be pointed out that in determining the allowance or disallowance of an application for the construction of a service
station, the appellate court confined the factors thereof within the rigid standards governing public utilility regulation,
where exclusivity, upon the satisfaction of certain requirements, is allowed. However, exclusivity is more the exception
rather than the rule in the gasoline service station business. Thus, Rule V, Section 1, of the Rules and Regulations Governing
the Establishment, Construction, Operation, Remodelling and/or Refurbishing of Petroleum Products Retail Outlets issued
by the Oil Industry Commission,36 and adopted by the ERB, enumerates the following factors determining the allowance
or disallowance of an application for outlet construction, to wit:

(a). The operation of the proposed petroleum products retail outlet will promote public interest in a proper and suitable
manner considering the need and convenience of the end-users.

(b) Reasonable expectation of a commercially viable operation.

(c) The establishment and operation thereof will not result in a monopoly, combination in restraint of trade and ruinous
competition.

(d) The requirements of public safety and sanitation are properly observed.

(e) Generally, the establishment and operation thereof will help promote and achieve the purposes of Republic Act No.
6173. 37

While it is probable that the operation of the proposed Shell outlet may, to a certain extent, affect PDSC's business, private
respondent nevertheless failed to show that its business would not have sufficient profit to have a fair return of its
investment. The mere possibility of reduction in the earnings of a business is not sufficient to prove ruinous
competition.38 Indeed –

In order that the opposition based on ruinous competition may prosper, it must be shown that the opponent would be
deprived of fair profits on the capital invested in its business. The mere possibility of reduction in the earnings of a
business is not sufficient to prove ruinous competition. It must be shown that the business would not have sufficient
gains to pay a fair rate of interest on its capital investment. 39Mere allegations by the oppositor that its business would
be ruined by the establishment of the ice plants proposed by the applicants are not sufficient to warrant this Court to
revoke the order of the Public Service Commission. 40

It would not be remiss to point out that Caltex, PDSC's principal, whose products are being retailed by private respondent
in the service outlet it operates along the MIA/Domestic Road in Pasay City, never filed any opposition to Shell's
application. All told, a climate of fear and pessimism generated by unsubstantiated claims of ruinous competition already
rejected in the past should not be made to retard free competition, consistently with legislative policy of deregulating and
liberalizing the oil industry to ensure a truly competitive market under a regime of fair prices, adequate and continuous
supply, environmentally clean and high-quality petroleum products.

WHEREFORE, in view of all the foregoing, the challenged Decision of the Court of Appeals dated November 8, 1993, as
well as the subsequent Resolution dated April 6, 1994, in CA-G.R. SP No. 27661, is REVERSED and SET ASIDE, and another
one rendered REINSTATING the Order dated September 17, 1991 of the Energy Regulatory Board in ERB Case No. 89-57,
granting the amended application of Pilipinas Shell Petroleum Corporation to relocate its service station to Benigno Aquino
Jr., Avenue, Paranaque, Metro Manila.
18
SO ORDERED.

Davide, Jr., C.J. Puno, Kapunan, Pardo, JJ., concur.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 195549 September 3, 2014

WILLAWARE PRODUCTS CORPORATION, Petitioner,

vs.
JESICHRIS MANUFACTURING CORPORATION, Respondent.

DECISION

PERALTA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the
Decision1 dated November 24, 2010 and Resolution2 dated February 10, 2011 of the Court of Appeals (CA) in CA-G.R. CV
No. 86744.

The facts, as found by the Regional Trial Court (RTC), are as follows:

[Respondent] Jesichris Manufacturing Company ([respondent] for short) filed this present complaint for damages for
unfair competition with prayer for permanent injunction to enjoin [petitioner] Willaware Products Corporation
([petitioner] for short) from manufacturing and distributing plastic-made automotive parts similar to those of
[respondent].

[Respondent] alleged that it is a duly registeredpartnership engaged in the manufacture and distribution of plastic and
metal products, with principal office at No. 100 Mithi Street, Sampalukan, Caloocan City. Since its registration in 1992,
[respondent] has been manufacturing in its Caloocan plant and distributing throughout the Philippines plastic-made
automotive parts. [Petitioner], on the other hand, which is engaged in the manufacture and distribution of kitchenware
items made of plastic and metal has its office near that of [respondent]. [Respondent] further alleged that in view of the
physical proximity of [petitioner’s] office to [respondent’s] office, and in view of the fact that some of the [respondent’s]
employeeshad transferred to [petitioner], [petitioner] had developed familiarity with [respondent’s] products, especially
its plastic-made automotive parts.

That sometime in November 2000, [respondent] discovered that [petitioner] had been manufacturing and distributing the
same automotive parts with exactly similar design, same material and colors but was selling these products at a lower
price as [respondent’s] plastic-made automotive parts and to the same customers.

[Respondent] alleged that it had originated the use of plastic in place of rubber in the manufacture ofautomotive
underchassis parts such as spring eye bushing, stabilizer bushing, shock absorberbushing, center bearing cushions, among
others. [Petitioner’s] manufacture of the same automotive parts with plastic materialwas taken from [respondent’s] idea
of using plastic for automotive parts. Also, [petitioner] deliberately copied [respondent’s] products all of which acts
constitute unfair competition, is and are contrary to law, morals, good customs and public policy and have caused
[respondent] damages in terms oflost and unrealizedprofits in the amount of TWO MILLION PESOS as of the date of
[respondent’s] complaint.

19
Furthermore, [petitioner’s] tortuous conduct compelled [respondent] to institute this action and thereby to incur
expenses in the way of attorney’s fees and other litigation expenses in the amount of FIVE HUNDRED THOUSAND PESOS
(₱500,000.00).

In its Answer, [petitioner] denies all the allegations of the [respondent] except for the following facts: that it is engaged in
the manufacture and distribution of kitchenware items made of plastic and metal and that there’s physical proximity of
[petitioner’s] office to [respondent]’s office, and that someof [respondent’s] employees had transferred to [petitioner]
and that over the years [petitioner] had developed familiarity with [respondent’s] products, especially its plastic made
automotive parts.

As its Affirmative Defenses, [petitioner] claims that there can be no unfair competition as the plastic-made automotive
parts are mere reproductions of original parts and their construction and composition merely conforms to the
specificationsof the original parts of motor vehicles they intend to replace. Thus, [respondent] cannot claim that it
"originated" the use of plastic for these automotive parts. Even assuming for the sake of argument that [respondent]
indeed originated the use of these plastic automotive parts, it still has no exclusive right to use, manufacture and sell these
as it has no patent over these products. Furthermore, [respondent] is not the only exclusive manufacturer of these plastic-
made automotive parts as there are other establishments which were already openly selling them to the public.3

After trial on the merits, the RTC ruled in favor of respondent. It ruled that petitioner clearly invaded the rights or interest
of respondent by deliberately copying and performing acts amounting to unfair competition. The RTC further opined that
under the circumstances, in order for respondent’s property rights to be preserved, petitioner’s acts of manufacturing
similar plastic-made automotive parts such as those of respondent’s and the selling of the sameproducts to respondent’s
customers, which it cultivated over the years, will have to be enjoined. The dispositive portion of the decision reads:

WHEREFORE, premises considered, the court finds the defendant liable to plaintiff Two Million (₱2,000,000.00) Pesos, as
actual damages, One Hundred Thousand (₱100,000.00) Pesos as attorney’s fees and One Hundred Thousand
(₱100,000.00) Pesos for exemplary damages. The court hereby permanently [enjoins] defendant from manufacturing the
plastic-made automotive parts as those manufactured by plaintiffs.

SO ORDERED.4

Thus, petitioner appealed to the CA.

On appeal, petitioner asserts that ifthere is no intellectual property protecting a good belonging to another,the copying
thereof for production and selling does not add up to unfair competition as competition is promoted by law to benefit
consumers. Petitioner further contends that it did not lure away respondent’s employees to get trade secrets. It points
out that the plastic spare parts sold by respondent are traded in the market and the copying of these can be done by
simplybuying a sample for a mold to be made.

Conversely, respondent averred that copyright and patent registrations are immaterial for an unfair competition case to
prosper under Article 28 of the Civil Code. It stresses that the characteristics of unfair competition are present in the
instant case as the parties are trade rivals and petitioner’s acts are contrary to good conscience for deliberately copying
its products and employing its former employees.

In a Decision dated November 24,2010, the CA affirmed with modification the ruling of the RTC. Relevant portions of said
decision read:

Despite the evidence showing thatWillaware took dishonest steps in advancing its business interest against Jesichris,
however, the Court finds no basis for the award by the RTC of actual damages. One is entitled to actual damages as one
has duly proven. The testimony of Quejada, who was engaged by Jesichris in 2001 to audit its business, only revealed that
there was a discrepancy between the sales of Jesichris from 2001 to 2002. No amount was mentioned. As for Exhibit "Q,"
which is a copy of the comparative income statement of Jesichris for 1999-2002, it shows the decline of the sales in 2002
20
in comparison with those made in 2001 but it does not disclose if this pertains to the subject automotive parts or to the
other products of Jesichris like plates.

In any event, it was clearly shown that there was unfair competition on the part of Willaware that prejudiced Jesichris. It
is only proper that nominal damages be awarded in the amount of Two Hundred Thousand Pesos (₱200,000.00) in order
to recognize and vindicate Jesichris’ rights. The RTC’s award of attorney’s fees and exemplary damages is also maintained.

xxxx

WHEREFORE, premises considered, the Decision dated April 15, 2003 of the Regional Trial Court of Caloocan City, Branch
131, in Civil Case No. C-19771 is hereby MODIFIED. The award of Two Million Pesos (₱2,000,000.00) actual damages is
deleted and in its place, Two Hundred Thousand Pesos nominal damages is awarded.

SO ORDERED.5

Dissatisfied, petitioner moved for reconsideration. However, the same was denied for lack of merit by the CA in a
Resolution dated February 10, 2011.

Hence, the present Petition for Review wherein petitioner raises the following issues for our resolution:

(1) Whether or not there is unfair competition under human relations when the parties are not competitors and there is
actually no damage on the part of Jesichris?

(2) Consequently, if there is no unfair competition, should there be moral damages and attorney’s fees?

(3) Whether or not the addition of nominal damages is proper although no rights have been established?

(4) If ever the right of Jesichris refersto its copyright on automotive parts, should it be considered in the light of the said
copyrights were considered to be void by no less than this Honorable Court in SC GR No. 161295?

(5) If the right involved is "goodwill" then the issue is: whether or not Jesichris has established "goodwill?"6

In essence, the issue for our resolution is: whether or not petitioner committed acts amounting to unfair competition
under Article 28 of the Civil Code.

Prefatorily, we would like to stress that the instant case falls under Article 28 of the Civil Code on humanrelations, and not
unfair competition under Republic Act No. 8293,7 as the present suit is a damage suit and the products are not covered
by patent registration. A fortiori, the existence of patent registration is immaterial in the present case.

The concept of "unfair competition"under Article 28 is very much broader than that covered by intellectual property laws.
Under the present article, which follows the extended concept of "unfair competition" in American jurisdictions, the term
coverseven cases of discovery of trade secrets of a competitor, bribery of his employees, misrepresentation of all kinds,
interference with the fulfillment of a competitor’s contracts, or any malicious interference with the latter’s business.8

With that settled, we now come to the issue of whether or not petitioner committed acts amounting tounfair competition
under Article 28 of the Civil Code.

We find the petition bereft of merit.

Article 28 of the Civil Code provides that "unfair competition in agricultural, commercial or industrial enterprises or in
labor through the use of force, intimidation, deceit, machination or any other unjust, oppressive or high-handed method
shall give rise to a right of action by the person who thereby suffers damage."

21
From the foregoing, it is clear thatwhat is being sought to be prevented is not competitionper sebut the use of unjust,
oppressive or high- handed methods which may deprive others of a fair chance to engage in business or to earn a living.
Plainly,what the law prohibits is unfair competition and not competition where the means usedare fair and legitimate.

In order to qualify the competition as "unfair," it must have two characteristics: (1) it must involve an injury to a competitor
or trade rival, and (2) it must involve acts which are characterized as "contrary to good conscience," or "shocking to judicial
sensibilities," or otherwise unlawful; in the language of our law, these include force, intimidation, deceit, machination or
any other unjust, oppressive or high-handed method. The public injury or interest is a minor factor; the essence of the
matter appears to be a private wrong perpetrated by unconscionable means.9

Here, both characteristics are present.

First, both parties are competitors or trade rivals, both being engaged in the manufacture of plastic-made automotive
parts. Second, the acts of the petitioner were clearly "contrary to good conscience" as petitioner admitted having
employed respondent’s formeremployees, deliberately copied respondent’s products and even went to the extent of
selling these products to respondent’s customers.10

To bolster this point, the CA correctly pointed out that petitioner’s hiring of the former employees of respondent and
petitioner’s act of copying the subject plastic parts of respondent were tantamount to unfair competition, viz.:

The testimonies of the witnesses indicate that [petitioner] was in bad faith in competing with the business of
[respondent].1âwphi1 [Petitioner’s] acts can be characterized as executed with mischievous subtle calculation. To
illustrate, in addition to the findings of the RTC, the Court observes that [petitioner] is engaged in the production of plastic
kitchenware previous to its manufacturing of plasticautomotive spare parts, it engaged the services of the then mold
setter and maintenance operator of [respondent], De Guzman, while he was employed by the latter. De Guzman was hired
by [petitioner] in order to adjust its machinery since quality plastic automotive spare parts were not being made. It baffles
the Court why [petitioner] cannot rely onits own mold setter and maintenance operator to remedy its problem.
[Petitioner’s] engagement of De Guzman indicates that it is banking on his experience gained from working for
[respondent].

Another point we observe is that Yabut, who used to be a warehouse and delivery man of [respondent], was fired because
he was blamed of spying in favor of [petitioner]. Despite this accusation, he did not get angry. Later on, he applied for and
was hired by [petitioner] for the same position he occupied with [respondent]. These sequence of events relating to his
employment by [petitioner] is suspect too like the situation with De Guzman.11

Thus, it is evident that petitioner isengaged in unfair competition as shown by his act of suddenly shifting his business
from manufacturing kitchenware to plastic-made automotive parts; his luring the employees of the respondent to transfer
to his employ and trying to discover the trade secrets of the respondent.12

Moreover, when a person starts an opposing place of business, not for the sake of profit to himself, but regardless of loss
and for the sole purpose of driving his competitor out of business so that later on he can take advantage of the effects of
his malevolent purpose, he is guilty of wanton wrong.13 As aptly observed by the courta quo, the testimony of petitioner’s
witnesses indicate that it acted in bad faith in competing with the business of respondent, to wit: [Petitioner], thru its
General Manager, William Salinas, Jr., admitted that it was never engaged in the business of plastic-made automotive
parts until recently, year 2000:

Atty. Bautista: The business name of Willaware Product Corporation is kitchenware, it is (sic) not? Manufacturer of
kitchenware and distributor ofkitchenware, is it not? Mr. Salinas: Yes, sir. Atty. Bautista: And you said you have known the
[respondent] Jesichris Manufacturing Co., you have known it to be manufacturing plastic automotive products, is it not?
Mr. Salinas: Yes, sir. Atty. Bautista: In fact, you have been (sic) physically become familiar with these products, plastic
automotive products of Jesichris? Mr. Salinas: Yes, sir.

22
How [petitioner] was able to manufacture the same products, in terms of color, size, shape and composition as those sold
by Jesichris was due largely to the sudden transfer ofJesichris’ employees to Willaware.

Atty. Bautista: Since when have you been familiar with Jesichris Manufacturing Company?

Mr. Salinas: Since they transferred there (sic) our place.

Atty. Bautista: And that was in what year? Mr. Salinas: Maybe four (4) years. I don’t know the exact date.

Atty. Bautista: And some of the employees of Jesichris Manufacturing Co. have transferred to your company, is it not?

Mr. Salinas: Yes, sir.

Atty. Bautista: How many, more or less?

Mr. Salinas: More or less, three (3).

Atty. Bautista: And when, in what year or month did they transfer to you?

Mr. Salinas: First, November 1.

Atty. Bautista: Year 2000?

Mr. Salinas: Yes sir. And then the other maybe February, this year. And the other one, just one month ago.

That [petitioner] was clearly outto take [respondent] out of business was buttressed by the testimony of [petitioner’s]
witness, Joel Torres:

Q: Are you familiar with the [petitioner], Willaware Product Corporation?

A: Yes, sir.

Q: Will you kindly inform this court where is the office of this Willaware Product Corporation (sic)?

A: At Mithi Street, Caloocan City, sir.

Q: And Mr. Witness, sometime second Saturday of January 2001, will you kindly inform this court what unusual even (sic)
transpired between you and Mr. Salinas on said date?

A: There was, sir.

Q: What is that?

A: Sir, I was walking at that time together with my wife going to the market and then I passed by the place where they
were having a drinking spree, sir.

Q: You mentioned they, who were they who were drinking at that time?

A: I know one Jun Molina, sir.

Q: And who else was there?

A: William Salinas, sir.

Q: And will you kindly inform us what happened when you spotted upon them drinking?

A: Jun Molina called me, sir.

Q: And what happened after that?

23
A: At that time, he offered mea glass of wine and before I was able to drink the wine, Mr. Salinas uttered something, sir.

Q: And what were those words uttered by Mr. Salinas to you?

A: "O, ano naapektuhan na kayo sa ginaya (sic) ko sa inyo?"

Q: And what did you do after that, after hearing those words?

A: And he added these words, sir. "sabihin mo sa amo mo, dalawang taon na lang pababagsakin ko na siya."

Q: Alright, hearing those words, will you kindly tell this court whom did you gather to be referred to as your "amo"?

A: Mr. Jessie Ching, sir.14

In sum, petitioner is guilty of unfair competition under Article 28 of the Civil Code.

However, since the award of Two Million Pesos (₱2,000,000.00) in actual damages had been deleted and in its place Two
Hundred Thousand Pesos (₱200,000.00) in nominal damages is awarded, the attorney's fees should concomitantly be
modified and lowered to Fifty Thousand Pesos (₱50,000.00).

WHEREFORE, the instant petition is DENIED. The Decision dated November 24, 2010 and Resolution dated February 10,
2011 of the Court of Appeals in CA-G.R. CV No. 86744 are hereby AFFIRMED with MODIFICATION that the award of
attorney's fees be lowered to Fifty Thousand Pesos (₱50,000.00).

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 154491 November 14, 2008

COCA-COLA BOTTLERS, PHILS., INC. (CCBPI), Naga Plant, petitioner,

vs.
QUINTIN J. GOMEZ, a.k.a. "KIT" GOMEZ and DANILO E. GALICIA, a.k.a. "DANNY GALICIA", respondents.

DECISION

BRION, J.:

Is the hoarding of a competitor's product containers punishable as unfair competition under the Intellectual Property Code
(IP Code, Republic Act No. 8293) that would entitle the aggrieved party to a search warrant against the hoarder? This is
the issue we grapple with in this petition for review on certiorari involving two rival multinational softdrink giants;
petitioner Coca-Cola Bottlers, Phils., Inc. (Coca-Cola) accuses Pepsi Cola Products Phils., Inc. (Pepsi), represented by the
respondents, of hoarding empty Coke bottles in bad faith to discredit its business and to sabotage its operation in
Bicolandia.

BACKGROUND
24
The facts, as culled from the records, are summarized below.

On July 2, 2001, Coca-Cola applied for a search warrant against Pepsi for hoarding Coke empty bottles in Pepsi's yard in
Concepcion Grande, Naga City, an act allegedly penalized as unfair competition under the IP Code. Coca-Cola claimed that
the bottles must be confiscated to preclude their illegal use, destruction or concealment by the respondents.1 In support
of the application, Coca-Cola submitted the sworn statements of three witnesses: Naga plant representative Arnel John
Ponce said he was informed that one of their plant security guards had gained access into the Pepsi compound and had
seen empty Coke bottles; acting plant security officer Ylano A. Regaspi said he investigated reports that Pepsi was
hoarding large quantities of Coke bottles by requesting their security guard to enter the Pepsi plant and he was informed
by the security guard that Pepsi hoarded several Coke bottles; security guard Edwin Lirio stated that he entered Pepsi's
yard on July 2, 2001 at 4 p.m. and saw empty Coke bottles inside Pepsi shells or cases.2

Municipal Trial Court (MTC) Executive Judge Julian C. Ocampo of Naga City, after taking the joint deposition of the
witnesses, issued Search Warrant No. 2001-013 to seize 2,500 Litro and 3,000 eight and 12 ounces empty Coke bottles at
Pepsi's Naga yard for violation of Section 168.3 (c) of the IP Code.4 The local police seized and brought to the MTC's custody
2,464 Litro and 4,036 eight and 12 ounces empty Coke bottles, 205 Pepsi shells for Litro, and 168 Pepsi shells for smaller
(eight and 12 ounces) empty Coke bottles, and later filed with the Office of the City Prosecutor of Naga a complaint against
two Pepsi officers for violation of Section 168.3 (c) in relation to Section 170 of the IP Code.5 The named respondents, also
the respondents in this petition, were Pepsi regional sales manager Danilo E. Galicia (Galicia) and its Naga general
manager Quintin J. Gomez, Jr. (Gomez).

In their counter-affidavits, Galicia and Gomez claimed that the bottles came from various Pepsi retailers and wholesalers
who included them in their return to make up for shortages of empty Pepsi bottles; they had no way of ascertaining
beforehand the return of empty Coke bottles as they simply received what had been delivered; the presence of the bottles
in their yard was not intentional nor deliberate; Ponce and Regaspi's statements are hearsay as they had no personal
knowledge of the alleged crime; there is no mention in the IP Code of the crime of possession of empty bottles; and that
the ambiguity of the law, which has a penal nature, must be construed strictly against the State and liberally in their favor.
Pepsi security guards Eduardo E. Miral and Rene Acebuche executed a joint affidavit stating that per their logbook, Lirio
did not visit or enter the plant premises in the afternoon of July 2, 2001.

The respondents also filed motions for the return of their shells and to quash the search warrant. They contended that no
probable cause existed to justify the issuance of the search warrant; the facts charged do not constitute an offense; and
their Naga plant was in urgent need of the shells.

Coca-Cola opposed the motions as the shells were part of the evidence of the crime, arguing that Pepsi used the shells in
hoarding the bottles. It insisted that the issuance of warrant was based on probable cause for unfair competition under
the IP Code, and that the respondents violated R.A. 623, the law regulating the use of stamped or marked bottles, boxes,
and other similar containers.

THE MTC RULINGS

On September 19, 2001, the MTC issued the first assailed order6 denying the twin motions. It explained there was an
exhaustive examination of the applicant and its witnesses through searching questions and that the Pepsi shells are prima
facie evidence that the bottles were placed there by the respondents.

In their motion for reconsideration, the respondents argued for the quashal of the warrant as the MTC did not conduct a
probing and exhaustive examination; the applicant and its witnesses had no personal knowledge of facts surrounding the
hoarding; the court failed to order the return of the "borrowed" shells; there was no crime involved; the warrant was
issued based on hearsay evidence; and the seizure of the shells was illegal because they were not included in the warrant.

25
On November 14, 2001, the MTC denied the motion for reconsideration in the second assailed order,7 explaining that the
issue of whether there was unfair competition can only be resolved during trial.

The respondents responded by filing a petition for certiorari under Rule 65 of the Revised Rules of Court before the
Regional Trial Court (RTC) of Naga City on the ground that the subject search warrant was issued without probable cause
and that the empty shells were neither mentioned in the warrant nor the objects of the perceived crime.

THE RTC RULINGS

On May 8, 2002, the RTC voided the warrant for lack of probable cause and the non-commission of the crime of unfair
competition, even as it implied that other laws may have been violated by the respondents. The RTC, though, found no
grave abuse of discretion on the part of the issuing MTC judge.8 Thus,

Accordingly, as prayed for, Search Warrant No. 2001-02 issued by the Honorable Judge Julian C. Ocampo III on July 2, 2001
is ANNULLED and SET ASIDE. The Orders issued by the Pairing Judge of Br. 1, MTCC of Naga City dated September 19, 2001
and November 14, 2001 are also declared VOID and SET ASIDE. The City Prosecutor of Naga City and SPO1 Ernesto Paredes
are directed to return to the Petitioner the properties seized by virtue of Search Warrant No. 2001-02. No costs.

SO ORDERED.9

In a motion for reconsideration, which the RTC denied on July 12, 2002, the petitioner stressed that the decision of the
RTC was contradictory because it absolved Judge Ocampo of grave abuse of discretion in issuing the search warrant, but
at the same time nullified the issued warrant. The MTC should have dismissed the petition when it found out that Judge
Ocampo did not commit any grave abuse of discretion.

Bypassing the Court of Appeals, the petitioner asks us through this petition for review on certiorari under Rule 45 of the
Rules of Court to reverse the decision of the RTC. Essentially, the petition raises questions against the RTC's nullification
of the warrant when it found no grave abuse of discretion committed by the issuing judge.

THE PETITION and

THE PARTIES' POSITIONS

In its petition, the petitioner insists the RTC should have dismissed the respondents' petition for certiorari because it found
no grave abuse of discretion by the MTC in issuing the search warrant. The petitioner further argues that the IP Code was
enacted into law to remedy various forms of unfair competition accompanying globalization as well as to replace the
inutile provision of unfair competition under Article 189 of the Revised Penal Code. Section 168.3(c) of the IP Code does
not limit the scope of protection on the particular acts enumerated as it expands the meaning of unfair competition to
include "other acts contrary to good faith of a nature calculated to discredit the goods, business or services of another."
The inherent element of unfair competition is fraud or deceit, and that hoarding of large quantities of a competitor's
empty bottles is necessarily characterized by bad faith. It claims that its Bicol bottling operation was prejudiced by the
respondents' hoarding and destruction of its empty bottles.

The petitioner also argues that the quashal of the search warrant was improper because it complied with all the essential
requisites of a valid warrant. The empty bottles were concealed in Pepsi shells to prevent discovery while they were
systematically being destroyed to hamper the petitioner's bottling operation and to undermine the capability of its
bottling operations in Bicol.

The respondents counter-argue that although Judge Ocampo conducted his own examination, he gravely erred and
abused his discretion when he ignored the rule on the need of sufficient evidence to establish probable cause; satisfactory
and convincing evidence is essential to hold them guilty of unfair competition; the hoarding of empty Coke bottles did not
cause actual or probable deception and confusion on the part of the general public; the alleged criminal acts do not show

26
conduct aimed at deceiving the public; there was no attempt to use the empty bottles or pass them off as the respondents'
goods.

The respondents also argue that the IP Code does not criminalize bottle hoarding, as the acts penalized must always
involve fraud and deceit. The hoarding does not make them liable for unfair competition as there was no deception or
fraud on the end-users.

THE ISSUE

Based on the parties' positions, the basic issue submitted to us for resolution is whether the Naga MTC was correct in
issuing Search Warrant No. 2001-01 for the seizure of the empty Coke bottles from Pepsi's yard for probable violation of
Section 168.3 (c) of the IP Code. This basic issue involves two sub-issues, namely, the substantive issue of whether the
application for search warrant effectively charged an offense, i.e., a violation of Section 168.3 (c) of the IP Code; and the
procedural issue of whether the MTC observed the procedures required by the Rules of Court in the issuance of search
warrants.

OUR RULING

We resolve to deny the petition for lack of merit.

We clarify at the outset that while we agree with the RTC decision, our agreement is more in the result than in the reasons
that supported it. The decision is correct in nullifying the search warrant because it was issued on an invalid substantive
basis - the acts imputed on the respondents do not violate Section 168.3 (c) of the IP Code. For this reason, we deny the
present petition.

The issuance of a search warrant10 against a personal property11 is governed by Rule 126 of the Revised Rules of Court
whose relevant sections state:

Section 4. Requisites for issuing search warrant. - A search warrant shall not issue except upon probable cause in
connection with one specific offense to be determined personally by the judge after examination under oath or
affirmation of the complainant and the witnesses he may produce, and particularly describing the place to be searched
and the things to be seized which may be anywhere in the Philippines.

Section 5. Examination of complainant; record. - The judge must, before issuing the warrant, personally examine in the
form of searching questions and answers, in writing and under oath, the complainant and the witnesseshe may produce
on facts personally known to them and attach to the record their sworn statements together with the affidavits submitted.

Section 6. Issuance and form of search warrant. - If the judge is satisfied of the existence of facts upon which the
application is based or that there is probable cause to believe that they exist, he shall issue the warrant, which must be
substantially in the form prescribed by these Rules. [Emphasis supplied]

To paraphrase this rule, a search warrant may be issued only if there is probable cause in connection with a specific offense
alleged in an application based on the personal knowledge of the applicant and his or her witnesses. This is the substantive
requirement in the issuance of a search warrant. Procedurally, the determination of probable cause is a personal task of
the judge before whom the application for search warrant is filed, as he has to examine under oath or affirmation the
applicant and his or her witnesses in the form of "searching questions and answers" in writing and under oath. The
warrant, if issued, must particularly describe the place to be searched and the things to be seized.

We paraphrase these requirements to stress that they have substantive and procedural aspects. Apparently, the RTC
recognized this dual nature of the requirements and, hence, treated them separately; it approved of the way the MTC
handled the procedural aspects of the issuance of the search warrant but found its action on the substantive aspect
wanting. It therefore resolved to nullify the warrant, without however expressly declaring that the MTC gravely abused its
discretion when it issued the warrant applied for. The RTC's error, however, is in the form rather than the substance of
27
the decision as the nullification of the issued warrant for the reason the RTC gave was equivalent to the declaration that
grave abuse of discretion was committed. In fact, we so rule as the discussions below will show.

Jurisprudence teaches us that probable cause, as a condition for the issuance of a search warrant, is such reasons
supported by facts and circumstances as will warrant a cautious man in the belief that his action and the means taken in
prosecuting it are legally just and proper. Probable cause requires facts and circumstances that would lead a reasonably
prudent man to believe that an offense has been committed and the objects sought in connection with that offense are
in the place to be searched.12 Implicit in this statement is the recognition that an underlying offense must, in the first
place, exist. In other words, the acts alleged, taken together, must constitute an offense and that these acts are imputable
to an offender in relation with whom a search warrant is applied for.

In the context of the present case, the question is whether the act charged - alleged to be hoarding of empty Coke bottles
- constitutes an offense under Section 168.3 (c) of the IP Code. Section 168 in its entirety states:

SECTION 168. Unfair Competition, Rights, Regulation and Remedies. -

168.1. A person who has identified in the mind of the public the goods he manufactures or deals in, his business or services
from those of others, whether or not a registered mark is employed, has a property right in the goodwill of the said goods,
business or services so identified, which will be protected in the same manner as other property rights.

168.2. Any person who shall employ deception or any other means contrary to good faith by which he shall pass off the
goods manufactured by him or in which he deals, or his business, or services for those of the one having established such
goodwill, or who shall commit any acts calculated to produce said result, shall be guilty of unfair competition, and shall be
subject to an action therefor.

168.3. In particular, and without in any way limiting the scope of protection against unfair competition, the following shall
be deemed guilty of unfair competition:

(a) Any person, who is selling his goods and gives them the general appearance of goods of another manufacturer or
dealer, either as to the goods themselves or in the wrapping of the packages in which they are contained, or the devices
or words thereon, or in any other feature of their appearance, which would be likely to influence purchasers to believe
that the goods offered are those of a manufacturer or dealer, other than the actual manufacturer or dealer, or who
otherwise clothes the goods with such appearance as shall deceive the public and defraud another of his legitimate trade,
or any subsequent vendor of such goods or any agent of any vendor engaged in selling such goods with a like purpose;

(b) Any person who by any artifice, or device, or who employs any other means calculated to induce the false belief that
such person is offering the services of another who has identified such services in the mind of the public; or

(c) Any person who shall make any false statement in the course of trade or who shall commit any other act contrary to
good faith of a nature calculated to discredit the goods, business or services of another.

168.4. The remedies provided by Sections 156, 157 and 161 shall apply mutatis mutandis. (Sec. 29,R.A. No. 166a)

The petitioner theorizes that the above section does not limit the scope of protection on the particular acts enumerated
as it expands the meaning of unfair competition to include "other acts contrary to good faith of a nature calculated to
discredit the goods, business or services of another." Allegedly, the respondents' hoarding of Coca Cola empty bottles is
one such act.

We do not agree with the petitioner's expansive interpretation of Section 168.3 (c).

"Unfair competition," previously defined in Philippine jurisprudence in relation with R.A. No. 166 and Articles 188 and 189
of the Revised Penal Code, is now covered by Section 168 of the IP Code as this Code has expressly repealed R.A. No. 165
and R.A. No. 166, and Articles 188 and 189 of the Revised Penal Code.

28
Articles 168.1 and 168.2, as quoted above, provide the concept and general rule on the definition of unfair competition.
The law does not thereby cover every unfair act committed in the course of business; it covers only acts characterized by
"deception or any other means contrary to good faith" in the passing off of goods and services as those of another who
has established goodwill in relation with these goods or services, or any other act calculated to produce the same result.

What unfair competition is, is further particularized under Section 168.3 when it provides specifics of what unfair
competition is "without in any way limiting the scope of protection against unfair competition." Part of these particulars
is provided under Section 168.3(c) which provides the general "catch-all" phrase that the petitioner cites. Under this
phrase, a person shall be guilty of unfair competition "who shall commit any other act contrary to good faith of a nature
calculated to discredit the goods, business or services of another."

From jurisprudence, unfair competition has been defined as the passing off (or palming off) or attempting to pass off upon
the public the goods or business of one person as the goods or business of another with the end and probable effect of
deceiving the public. It formulated the "true test" of unfair competition: whether the acts of defendant are such as are
calculated to deceive the ordinary buyer making his purchases under the ordinary conditions which prevail in the particular
trade to which the controversy relates.13 One of the essential requisites in an action to restrain unfair competition is proof
of fraud; the intent to deceive must be shown before the right to recover can exist.14 The advent of the IP Code has not
significantly changed these rulings as they are fully in accord with what Section 168 of the Code in its entirety
provides. Deception, passing off and fraud upon the public are still the key elements that must be present for unfair
competition to exist.

The act alleged to violate the petitioner's rights under Section 168.3 (c) is hoarding which we gather to be the collection
of the petitioner's empty bottles so that they can be withdrawn from circulation and thus impede the circulation of the
petitioner's bottled products. This, according to the petitioner, is an act contrary to good faith - a conclusion that, if true,
is indeed an unfair act on the part of the respondents. The critical question, however, is not the intrinsic unfairness of the
act of hoarding; what is critical for purposes of Section 168.3 (c) is to determine if the hoarding, as charged, "is of a nature
calculated to discredit the goods, business or services" of the petitioner.

We hold that it is not. Hoarding as defined by the petitioner is not even an act within the contemplation of the IP Code.

The petitioner's cited basis is a provision of the IP Code, a set of rules that refer to a very specific subject - intellectual
property. Aside from the IP Code's actual substantive contents (which relate specifically to patents, licensing, trademarks,
trade names, service marks, copyrights, and the protection and infringement of the intellectual properties that these
protective measures embody), the coverage and intent of the Code is expressly reflected in its "Declaration of State Policy"
which states:

Section 2. Declaration of State Policy. - The State recognizes that an effective intellectual and industrial property system is
vital to the development of domestic and creative activity, facilitates transfer of technology, attracts foreign investments,
and ensures market access for our products. It shall protect and secure the exclusive rights of scientists, inventors, artists
and other gifted citizens to their intellectual property and creations, particularly when beneficial to the people, for such
periods as provided in this Act.

The use of intellectual property bears a social function. To this end, the State shall promote the diffusion of knowledge
and information for the promotion of national development and progress and the common good.

It is also the policy of the State to streamline administrative procedures of registering patents, trademarks and copyright,
to liberalize the registration on the transfer of technology, and to enhance the enforcement of intellectual property rights
in the Philippines. (n)

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"Intellectual property rights" have furthermore been defined under Section 4 of the Code to consist of: a) Copyright and
Related Rights; b) Trademarks and Service Marks; c) Geographic Indications; d) IndustrialDesigns; e) Patents; f) Layout-
Designs (Topographies) of Integrated Circuits; and g)Protection of Undisclosed Information.

Given the IP Code's specific focus, a first test that should be made when a question arises on whether a matter is covered
by the Code is to ask if it refers to an intellectual property as defined in the Code. If it does not, then coverage by the Code
may be negated.

A second test, if a disputed matter does not expressly refer to an intellectual property right as defined above, is whether
it falls under the general "unfair competition" concept and definition under Sections 168.1 and 168.2 of the Code. The
question then is whether there is "deception" or any other similar act in "passing off" of goods or services to be those of
another who enjoys established goodwill.

Separately from these tests is the application of the principles of statutory construction giving particular attention, not so
much to the focus of the IP Code generally, but to the terms of Section 168 in particular. Under the principle of "noscitur
a sociis," when a particular word or phrase is ambiguous in itself or is equally susceptible of various meanings, its correct
construction may be made clear and specific by considering the company of words in which it is found or with which it is
associated.15

As basis for this interpretative analysis, we note that Section 168.1 speaks of a person who has earned goodwill with
respect to his goods and services and who is entitled to protection under the Code, with or without a registered
mark. Section 168.2, as previously discussed, refers to the general definition of unfair competition. Section 168.3, on the
other hand, refers to the specific instances of unfair competition, with Section 168.1 referring to the sale of goods given
the appearance of the goods of another; Section 168.2, to the inducement of belief that his or her goods or services are
that of another who has earned goodwill; while the disputed Section 168.3 being a "catch all" clause whose coverage the
parties now dispute.

Under all the above approaches, we conclude that the "hoarding" - as defined and charged by the petitioner - does not
fall within the coverage of the IP Code and of Section 168 in particular. It does not relate to any patent, trademark, trade
name or service mark that the respondents have invaded, intruded into or used without proper authority from the
petitioner. Nor are the respondents alleged to be fraudulently "passing off" their products or services as those of the
petitioner. The respondents are not also alleged to be undertaking any representation or misrepresentation that would
confuse or tend to confuse the goods of the petitioner with those of the respondents, or vice versa. What in fact the
petitioner alleges is an act foreign to the Code, to the concepts it embodies and to the acts it regulates; as alleged, hoarding
inflicts unfairness by seeking to limit the opposition's sales by depriving it of the bottles it can use for these sales.

In this light, hoarding for purposes of destruction is closer to what another law - R.A. No. 623 - covers, to wit:

SECTION 1. Persons engaged or licensed to engage in the manufacture, bottling or selling of soda water, mineral or aerated
waters, cider, milk, cream, or other lawful beverages in bottles, boxes, casks, kegs, or barrels, and other similar containers,
with their names or the names of their principals or products, or other marks of ownership stamped or marked thereon,
may register with the Philippine Patent Office a description of the names or are used by them, under the same conditions,
rules, and regulations, made applicable by law or regulation to the issuance of trademarks.

SECTION 2. It shall be unlawful for any person, without the written consent of the manufacturer, bottler or seller who has
successfully registered the marks of ownership in accordance with the provisions of the next preceding section, to fill such
bottles, boxes, kegs, barrels, or other similar containers so marked or stamped, for the purpose of sale, or to sell, dispose
of, buy, or traffic in, or wantonly destroy the same, whether filled or not, or to use the same for drinking vessels or
glasses or for any other purpose than that registered by the manufacturer, bottler or seller. Any violation of this section
shall be punished by a fine or not more than one hundred pesos or imprisonment of not more than thirty days or both.

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As its coverage is defined under Section 1, the Act appears to be a measure that may overlap or be affected by the
provisions of Part II of the IP Code on "The Law on Trademarks, Service Marks and Trade Names." What is certain is that
the IP Code has not expressly repealed this Act. The Act appears, too, to have specific reference to a special type of
registrants - the manufacturers, bottlers or sellers of soda water, mineral or aerated waters, cider, milk, cream, or other
lawful beverages in bottles, boxes, casks, kegs, or barrels, and other similar containers - who are given special protection
with respect to the containers they use. In this sense, it is in fact a law of specific coverage and application, compared with
the general terms and application of the IP Code. Thus, under its Section 2, it speaks specifically of unlawful use of
containers and even of the unlawfulness of their wanton destruction - a matter that escapes the IP Code's generalities
unless linked with the concepts of "deception" and "passing off" as discussed above.

Unfortunately, the Act is not the law in issue in the present case and one that the parties did not consider at all in the
search warrant application. The petitioner in fact could not have cited it in its search warrant application since the "one
specific offense" that the law allows and which the petitioner used was Section 168.3 (c). If it serves any purpose at all in
our discussions, it is to show that the underlying factual situation of the present case is in fact covered by another law,
not by the IP Code that the petitioner cites. Viewed in this light, the lack of probable cause to support the disputed search
warrant at once becomes apparent.

Where, as in this case, the imputed acts do not violate the cited offense, the ruling of this Court penned by Mr. Justice
Bellosillo is particularly instructive:

In the issuance of search warrants, the Rules of Court requires a finding of probable cause in connection with one specific
offense to be determined personally by the judge after examination of the complainant and the witnesses he may produce,
and particularly describing the place to be searched and the things to be seized. Hence, since there is no crime to speak
of, the search warrant does not even begin to fulfill these stringent requirements and is therefore defective on its face.
The nullity of the warrant renders moot and academic the other issues raised in petitioners' Motion to Quash and Motion
for Reconsideration. Since the assailed search warrant is null and void, all property seized by virtue thereof should be
returned to petitioners in accordance with established jurisprudence.16

Based on the foregoing, we conclude that the RTC correctly ruled that the petitioner's search warrant should properly be
quashed for the petitioner's failure to show that the acts imputed to the respondents do not violate the cited offense.
There could not have been any probable cause to support the issuance of a search warrant because no crime in the first
place was effectively charged. This conclusion renders unnecessary any further discussion on whether the search warrant
application properly alleged that the imputed act of holding Coke empties was in fact a "hoarding" in bad faith aimed to
prejudice the petitioner's operations, or whether the MTC duly complied with the procedural requirements for the
issuance of a search warrant under Rule 126 of the Rules of Court.

WHEREFORE, we hereby DENY the petition for lack of merit. Accordingly, we confirm that Search Warrant No. 2001-01,
issued by the Municipal Trial Court, Branch 1, Naga City, is NULL and VOID. Costs against the petitioner.

SO ORDERED.

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