SHELL COMPANY OF THE PHILIPPINES, LTD., PETITIONER, VS. INSULAR PETROLEUM REFINING CO., LTD., AND COURT OF APPEALS, RESPONDENTS.

Petitioner, Shell Co. of the Phil., Ltd. (Shell for short), is a
corporation engaged in the sale of petroleum products, including
lubricating oil. The packages and containers of its goods bear its
trademark, labeled or stenciled thereon. Defendant Insular Petroleum
Refining Co. Ltd. (Insular for short), is a registered limited
partnership, whose principal business is collecting used lubricating
oil which, thru a scientific process, is refined and marketed to the
public at a price much lower than that of new lubricating oil. From the
used oil, respondent produces two types of lubricating oil: one, a
straight mineral oil classified as second grade or low-grade oil; and
another, a first-grade or high grade oil. The essential difference
between the two types lies in the fact that the high-grade oil contains
an additive element which is not found in the other type. In marketing
these two types of oil, respondent, as a practice, utilizes for the
high grade oil containers, painted black on the sides yellow on top and
on the bottom with its trade-name stenciled thereon, with a special
sealing device at its opening which cannot be removed unless the oil is
used. In selling its low grade oil, respondents uses miscellaneous
containers, which its general manager Donald Mead describes,
“generally, we used miscellaneous containers which we have on hand,
several drums, may be all drums, with marks on them, we have several
used drums may be belonging to the U.S. Army or other drums may be
belonging to the Caltex, or the Stanvac; we have some that belonged to
the Union, miscellaneous drums of other companies, but they are used
drums. And some of those miscellaneous containers are the Shell
containers, but before filing the empty drums we obliterate the
markings of the drums, whether it is army type drums or whether it is a
Union brand or whether it is a Valvoline or Caltex or Shell or Standard
Vacuum drum”. In one transaction, however, which was consummated with
Conrado Uichangco, a dealer of petitioner’s gasoline and lubricating
oil, the low-grade oil that was sold to said operator was contained in
a drum with the petitioner’s mark or brand “Shell” still stenciled
without having been erased. The circumstances leading to the
consummation of this isolated transaction, have been summed up by the
Court of Appeals as follows:

“This single
transaction between plaintiff and defendant was effected, according to
Conrado Uichangco, an operator of a Shell service station at the corner
of San Andres and Tuason. Privado Streets, Manila, and who has been
losing during the first eight and ten months of operation of his
station, although he had money to back up his losses, when a certain P.
Tecson Lozano, an agent of the defendant, repaired at his station and
tried to convince me that Insoil is a good oil As a matter of fact, he
tried to show me a chemical analysis of tnsoil which he claimed was
very close to the analysis of Shell oil; and he also told me that he
could sell this kind of oil {Insoil) to me at a much cheaper price so
that I could make a bigger margin of profit. Q. What did you reply? A.
I told Mr. F. Tecson Lozano that if his intention was to sell me Insoil
for me to pass as any of the Shell oils, I was not agreeable because I
did not want to cheat my customers. Q. You ordered a Shell drum from
Mr. Lozano on your own volition or on orders of the Shell management?
A. Well, this is the story as to how I happened to order that one drum
of Insoil oil that was inside that Shell drum. When Mr. Lozano was
insistent that I buy Insoil package in a Shell drum I called up Mr.
Crespo and I asked him in effect why we have to kill ourselves when
there is a man here who came to my station and told me that he has oil
that approximates the analysis of Shell oil which he could sell to me
at a very much cheaper price and Mr. Crespo told me ‘that is not true’,
and then he further added, ‘can you order one drum of that oil for me.
Charge it against me.’ I told him ‘Yes. I will.’ So I ordered that one
drum of Inoil from Mr. P. Tecson. Lozano. Q. Do you know whether Shell
Co. of the Philippines, Ltd. vs. Ins. Petroleum Refining Co., Ltd. and
CA that one drum of oil was ever sold by you or by the Shell company to
the public? A. It was never re-sold to the public. I resold it to the
Shell Company of the Philippines. Q. You mean you bought it in your own
name and you sold it to the Shell company at a profit? A. I sold it to
the Shell Company because it was an order of Mr. Crespo. I did not
profit anything from it, I just charged them in invoice price. My
question to you is: He never made any misrepresentation to yon that he
was selling you any oil other than Insoil Motor oil, straight mineral
SAE No. 30? A. That is what he told me. Q. And it is also a fact that
you stated in the Fiscal’s Office and in the Court of First Instance
during the trial there that there was no seal whatsoever appearing in
the opening of the drum; is that correct? A. There was no seal by the
Insoil or by the Shell Company.”

The
evidence of the above transaction was an Invoice issued by the
defendant’s agent, describing the goods sold as “Insoil Motor oil
(straight mineral) SAE 30—1 drum—P76.00— (seller’s drum).” The incident
between petitioner’s operator and respondent’s agent brought about the
presentation with the Manila CFI, a case for damages on the allegation
of unfair competition and a Criminal Case No. 42020 under the Revised
Penal Code (Art. 189) against Ronald Mead, Manager, Pedro Kayanan and
F. Tecson Lozano. In the criminal case, the accused therein were
acquitted, the Court having found that the element of deceit was absent.

In the civil case, petitioner herein invoked two causes of action: (1)
that respondent in selling its low-grade oil in Shell containers,
without erasing the marks or brands labeled or stencilled thereon,
intended to mislead the buying public to the prejudice of petitioner
and the general public; and (2) defendant had attempted to persuade
shell dealers to purchase its low-grade oil and to pass the same to the
public as Shell oil, by reason of which petitioner had suffered damages
in the form of decrease in sales, estimated at least P10,000.00. A
prayer for double the actual damages was made, pursuant to section 23
of Republic Act 166, P5,000.00 for attorney’s fees, P1.000.00 for legal
expenses and P25.000.00 for exemplary damages. A writ of preliminary
injunction was requested to enjoin respondent herein to cease and
desist from using for the sale of any of its products and more
particularly for the sale of its low-grade lubricating oil, Shell
containers with Shell markings still on them. The motion to dissolve
the injunction granted, was denied by the court a quo.

Respondent
Insular answering the complaint, after the usual admissions and
denials, alleged that it “has never attempted to pass off its products
as that of another nor to persuade anyone to do the same”, and that the
action is1 barred by the decision in the criminal case No. 42020. A
counterclaim for P81,000.00 for actual, moral and exemplary damages,
P4,000.00 for attorney’s fees and P5,000 for legal expenses was
interposed by respondent.

After trial, the CFI found for Shell
and ordered respondent to pay P20.000.00 for actual damages, P5000.00
for attorney’s fees, P1,000.00 for legal expenses and P10,000.00 by
way of exemplary damages and the costs.

In reversing the above
judgment, the Court of Appeals, disquisitioned:

“On
the question of whether or not, as a matter of fact, the defendant is
guilty of unfair competition in the conduct of its trade or business in
the marketing of its low-grade oil, particularly in the single
transaction between defendant’s agent and plaintiff’s dealer, as
hereinabove narrated, we deem it wise to preface the discussion by
citing certain passages in the decision of thu Supreme Court in the
case of Alhambra Cigar, etc. vs. Mojica, 27 Phil. Rep. 266, thus:

‘No
inflexible rule can be laid down as to what will constitute unfair
competition. Each case is, in a measure, a law unto itself. Unfair
competition is always a question of fact. The question to be determined
in every case is whether or not, as a matter of fact, the name or mark
used by the defendant has previously come to indicate and designate
plantiff’s goods, or, to state it in another way, whether defendant, as
a matter of fact, is, by his conduct, passing off defendant’s goods as
plaintiff’s goods or his business as plaintiff’s business. The
universal test question is whether the public is likely to be deceived.
Nothing less than conduct tending to pass off one man’s good or
business as that of another will constitute unfair competition. Actual
or probable deception and confusion, on the part of the customers by
reason of defendant’s practices must always appear.”

Encompassing
the facts of the case to the foregoing ruling in the Alhambra case, it
clearly appears that defendant’s practices in marketing its low-grade
oil did not cause actual or probable deception and confusion on the
part of the general public, because, as shown from the established
facts, with the exception of that single transaction regarding the one
drum of oil sold by the defendants agent to the plaintiff’s dealer, as
aforesaid, before marketing to the public its low-grade oil in
containers the brands or marks of the different companies stenciled on
the containers are totally obliterated and erased. The defendant did
not pass off or attempt to pass off upon the public its goods as the
goods of another. There is neither express nor implied representation
to that effect. The practices do not show a conduct to the end and
probable effect of which is to the public, or pass of its goods as
those of another. Proof of this may be clearly deduced from the fact
that, with the exception of the sale of one drum of low-grade oil by
defendant’s agent to Uichangco, no other companies whose drums or
containers have been used by the defendant in its business have filed
any complaint to protect against the practices of the defendant.

Now
we shall dwell on the transaction between defendant’s agent and
plaintiff’s dealer, Uichangco, to determine whether or not, as a matter
of fact, the defendant is guilty of unfair competition. There is
evidence showing that the use of the defendant of the drum or container
with the Shell brand stenciled thereon was with the knowledge and
consent of Uichnngco. There is also the categorical testimony of
Uichangco that defendant’s agent did not make any representation that
said agent was selling any oil other than Insoil motor oil. The sales
invoice states that Insoil Oil teas sold. True, that a drum with the
brand Shell remaining unerased was used by the defendant. But,
Uichangco was apprised beforehand that a Shell drum would be used, and
in fact the instruction of Crespo to Uichangco could mean—to buy Insoil
oil contained in a Shell drum. The buyer could not have been deceived
or confused that he was not buying Insoil oil. There is reason to
believe that the transaction was consummated in pursuance of a plan of
Mr. Crespo to obtain evidence for the filing of the case. The oil was
never sold to the public, because the plaintiff never intended or
contemplated in doing so.”

The other issue discussed by the
Court of Appeals, that is, whether the acquittal of the officers and
employees of the respondent in the criminal case (supra), constituted a
bar to the filing of the civil case or amounted to res judicata, is, to
our mind, not necessary to resolve in the instant appeal. However, we
agree with the appellate court that there is no res judicata.

In
the petition, Shell claims three (3) errors allegedly committed by the
Court of Appeals, all of which pose the singular issue of whether
respondent in the isolated transaction, stated elsewhere in this
opinion, committed an act of unfair competition and should be held
liable.

The complaint was predicated on section 29 of Rep. Act No. 166, defining unfair competition, to wit:

“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, * * * for those of the one having established such
goodwill, or who shall commit any act calculated to produce said
result, shall be guilty of unfair competition, and shall be subject to
an action therefor.”

From the above
definition and authorities interpretative of the same, it is seen that
to hold a defendant guilty of unfair competition, no less than
satisfactory and convincing evidence is essential, showing that the
defendant has passed off or attempted to pass off his own goods as
those of another and that the customer was deceived with respect to the
origin of the goods. In other words, the inherent element of unfair
competition is fraud or deceit. (I Nim’s The Law of Unfair Competition
and Trademarks, 4th ed. pp., 52-53, and cases citod therein; U.S. vs.
Kyburz, 28 Phil. 475, citing Paul on Trademarks, sec. 200; I Callman’s,
The Law of Unfair Competition and Trademarks 329; Roger’s New
Directions in the Law of Unfair Competition, (1940) N.Y.L. Rev. 317,
320; Alhambra Cigar, etc. vs. Mojica, 29 Phil. 266, refer to passage
quoted in the decision of CA. supra).

As no inflexible rule
can be laid down as to what will constitute unfair competition; as each
case is, in a measure, a law unto itself and as unfair competition is
always a question of fact, the determination of whether unfair
competition was committed in the case at bar, must have to depend upon
the facts as found by the Court of Appeals, to the definitiveness of
which we are bound (I Moran’s Rules of Court, 1957 Ed. p. 699 &
cases cited therein). “* * * The Supreme Court can not examine the
question of whether or not the Court of Appeals was right when that
tribunal concluded from the uncontroverted evidence that there had been
no deceit.” (De Luna, et al. vs. Linatoc, 74 Phil. 15). And the facts
of the case at bar, are, as found and exposed by the Court of Appeals
in the portion of its decision above-quoted.

Not just
because a manufacturer used a container still bearing a competitor’s
markings in the sale of one’s products, irrespective of to whom and how
the sale is made, can there be a conclusion that the buying public has
been misled or will be misled, and, therefore, unfair competition is
born. The single transaction at bar will not render defendant’s act an
unfair competition, much in the same way that the appearance of one
swallow does not make a season summer.

It was found by the
Court of Appeals that in all transactions of the low-grade Insoil,
except the present one, all the marks and brands on the containers used
were erased or obliterated. The drum in question did not reach the
buying public. It was merely a Shell dealer or an operator of a Shell
Station who purchased the drum not to be resold to the public, but to
be sold to the petitioner company, with a view of obtaining evidence
against someone who might have been committing unfair business
practices, for the dealer had found that his income was dwindling in
his gasoline station. Uichangco, the Shell dealer, testified that
Lozano (respondent’s agent) did not at all make any representation that
he (Lozano) was selling any oil other than Insoil motor oil, a fact
which finds corroboration in the receipt issued for the sale of the
drum. Uichangco was apprised beforehand that Lozano would sell Insoil
oil in a Shell drum. There was no evidence that defendants or its
agents attempted to persuade Uichangco or any Shell dealer, for that
matter, to purchase its low-grade oil and to pass the same to the
public as Shell oil. It was shown that Shell and other oil companies,
deliver oil to oil dealers or gasoline stations in drums, these dealers
transfer the contents of the drums to retailing dispensers known as
“tall boys”, from which the oil is retailed to the public by liters.

This
Court is not unaware of the decisions cited by petitioner to bolster
its contention. We find those cases, however, not applicable to the one
at bar. Those cases were predicated on facts and circumstances
different from those of the present. In one case, the trade name of
plaintiff was stamped on the goods of defendant and they were being
passed as those of the plaintiff. This circumstance does not obtain
here. From these cases, one feature common to all comes out in bold
relief and that is, the competing product involving the offending
bottles, wrappers, packages or marks reached the hands of the ultimate
consumer, so bottled, wrapped, packaged or marked. In other words, it
is the form in which the wares or products come to the ultimate
consumer that was significant; for, as has been well said, the law of
unfair competition does not protect purchasers against falsehood which
the tradesmen may tell the falsehood must be told by the article itself
in order to make the law of unfair competition applicable.

Petitioner contends that there had been a marked decrease in the
volume of sales of low-grade oil of the company, for which reason it
argues that the sale of respondent’s low-grade oil in Shell containers
was the cause. We are reluctant to share the logic of the argument. We
are more inclined to believe that several factors contributed to the
decrease of such sales. But let us assume, for purposes of argument,
that the presence of respondent’s low-grade oil in the market
contributed to such decrease. May such eventuality make respondent
liable for unfair competition? There is no prohibition for respondent
to sell its goods, even in places where the goods of petitioner had
long been sold or extensively advertised. Respondent should not be
blamed if some of petitioner’s dealers buy Insoil oil, as long as
respondent does not deceive said dealers. If petitioner’s dealers pass
off Insoil oil as Shell oil, that is their responsibility. If there was
any such effort to deceive the public, the dealers to whom the
defendant (respondent) sold its products and not the latter, were
legally responsible for such deception. The passing of said oil,
therefore, as product of Shell was not performed by the respondent or
its agent, but petitioner’s dealers, which act respondent had no
control whatsoever. And this could easily be done, for, as respondents
counsel put it—

“The point we would like to drive home is that if a
Shell dealer wants to fool the public by passing off INSOIL as SHELL
oil he could do this by the simple expedient of placing the INSOIL oil
or any other oil for that matter in the ‘tall boys’ and dispense it to
the public as SHELL oil. Whatever container INSOIL uset would be of no
moment. * * * absence of a clear showing that INSOIL and the SHELL
dealer connived or conspired, we respectfully maintain ‘that the
responsibility of INSOIL ceases from the moment its oil, if ever it has
ever been done, is transferred by a shell dealer to a SHELL ‘tall boy”

And the existence of connivance or conspiracy, between dealer Uichangco
and Agent Lozano has not in the least been insinuated.

Petitioner submits the adoption in the case at bar of the “service
station is package theory”—that the service stations of oil companies
are packages in themselves, such that all products emanating therefrom
are expected to be those of the company whose marks the station bear,
that when a motorist drives to a Shell station, he does so with the
intention of buying shell products and that he is naturally guided by
the marking of the station itself. Hence, it constitutes a deceit on
the buying public, to sell to said motorists any other kind of products
without apprising them beforehand that they are not Shell products.
(Third assignment of error). In view, however, of the findings and
conclusions reached, there seem to be no need of discussing the merits
and demerits of the theory, or whether the same is applicable or not,
to the present case.

CONFORMABLY WITH ALL THE FOREGOING, We find that the decision of
the Court of Appeals appealed from, is in accordance with the fact, the
law and jurisprudence on the matter. The same is affirmed, with costs
against petitioner, in both instances.

Bengzon, C. J., Padilla, Bautista Angelo, Labrador, Concepcion, Reyes, J. B. L., Regala and Makalintal, JJ. concur.