FIRST DIVISION

[G.R. No. 139983. March 26, 2008.]

MANUEL P. SAMSON , petitioner, vs . COURT OF APPEALS and WILFRO

LUMINLUN , respondents.

DECISION

CARPIO , J : p

The Case
This is a petition for review of the Decision 1 dated 6 September 1999 of the
Court of Appeals in CA-G.R. CV No. 31904 reversing the Decision 2 dated 15 May 1990
and the Order dated 7 December 1990 of the Regional Trial Court, Branch 160, Pasig
City in Civil Case No. 58052.
The Antecedent Facts
On 26 February 1982, petitioner Manuel P. Samson (Samson) applied for the
registration of the "OTTO" trademark with the Philippine Patent O ce on belts, bags, t-
shirts, blouses, briefs, pants, jackets, jeans, and bra. On 21 January 1983, respondent
Wilfro Luminlun (Luminlun) likewise led for the registration of the "OTTO" trademark
on jeans, sportswear, skirts, and socks. DacTEH

On 29 December 1983, Samson executed the following document 3 granting

Luminlun the authority to use the "OTTO" trademark for jeans only:
AUTHORITY TO USE TRADEMARK
KNOW ALL MEN BY THESE PRESENTS:

I, MANUEL P. SAMSON, Filipino, of legal age and a resident of Doña Betang

Subdivision, Santolan, Metro Manila, am the registered owner of the trademark
OTTO for bags, shoes, sandals and slippers under Registration Certi cate No.
29840 issued on September 29, 1981, and the applicant in Application hearing
Serial No. 47626 for the same trademark OTTO led on February 26, 1982 for
belts, bags, t-shirts, blouses, briefs, pants, jackets, jeans and bras, which
application was duly approved for publication in the O cial Gazette last
November 18, 1982;

That for valuable consideration, I hereby grant unto WILFRO P. LUMINLUN,

Filipino, of legal age and with business address at No. 959 Soler Street, Binondo,
Manila, a non-transferable, non-assignable, non-exclusive right and license to use
said trademark OTTO for jeans only. This authority shall remain valid and
existing for as long as I remain the owner of the trademark OTTO unless said
WILFRO P. LUMINLUN should do or cause to be done any act which in any way
prejudice or discredit the trademark OTTO not only in connection with its use for
jeans but as well as for other products enumerated in my registration
certificates/application documents. cIACaT

IN WITNESS WHEREOF, I have hereunto a xed my signature this 29th day of

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 December, 1983.

SGD. MANUEL P. SAMSON

On 19 March 1984, the Philippine Patent O ce issued to Samson a Certi cate of

Registration for the mark "OTTO" in the principal register for use on belts, bags, t-shirts,
blouses, briefs, pants, jackets, jeans, and bra.
In a letter 4 dated 29 March 1989, Samson, through counsel, informed Luminlun
that he was revoking the latter's authority to use the trademark "OTTO." Samson
advised Luminlun to "cease and desist from further manufacturing and distributing
OTTO jeans" otherwise he would con scate jeans using the unauthorized "OTTO"
trademark. Samson likewise demanded the payment of royalties, thus:
Dear Mr. Luminlun:

On behalf of my client, Mr. Manuel P. Samson, this is to demand that you CEASE
and DESIST from further manufacturing and distributing OTTO jeans effective as
of receipt of this notice considering that my aforesaid client had already revoked
the authority granted to you for the use of the trademark 'OTTO' in jeans. A copy
of the Revocation of Authority To Use Trademark filed in the Patent Office on
March 21, 1989 is attached.

Further, you have to account for the sale of OTTO jeans beginning January 1984
up to March 1989 as we will get a percentage thereof for the royalty due to my
client of not less than P5,000,000.00 for your use of said trademark for more than
five (5) years.

Kindly give us the name and address of your sales outlet in order that they maybe
properly appraised (sic) of this development.

Should you fail to heed this advice, we will be constrained to file an action for
damages and we will pray for issuance of injunction against you and for the
confiscation and removal of jeans with the use of an unauthorized trademark
'OTTO'.

I trust for your compliance within five (5) days from receipt hereof to obviate
being embroiled in a costly and cumbersome litigation.

Very truly yours,

SGD. NELSON Y. NG

Samson also led with the Philippine Patent O ce a Revocation of Authority to

Use Trademark. 5
As a result, Luminlun led a complaint before the Regional Trial Court, Pasig City
questioning the validity of Samson's revocation of his authority to use the "OTTO"
trademark. Luminlun likewise prayed that he be compensated for the loss of sales he
suffered since the sales outlets refused to accept his deliveries for fear that the goods
would be confiscated and removed from their stores.
On 10 April 1989, the trial court issued an Order restraining Samson from
"proceeding and carrying out the con scation and the removal of jeans with trademark
'OTTO' pending hearing on the petition for preliminary injunction." On 19 April 1989,
Samson led an "Opposition to Motion for Issuance of preliminary injunction and/or
Motion to Lift Restraining Order."
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 After presentation of evidence and submission of memoranda by both parties,
on 28 April 1989, the trial court issued an Order granting Luminlun's prayer for
preliminary injunction.
On 9 May 1989, Samson led his Answer. Samson raised, among others, the
defenses that: (1) Luminlun failed to pay royalties for the use of the trademark; and (2)
Luminlun violated the terms and conditions of the Authority to Use Trademark when he
used the "OTTO" trademark for other products. cSEaTH

The Ruling of the Trial Court

In its Decision dated 15 May 1990, the trial court dismissed Luminlun's
complaint. The dispositive portion of the decision reads:
WHEREFORE, foregoing considered, the complaint is ordered DISMISSED. With
costs against plaintiff.
The writ of preliminary injunction earlier issued by the Court is set aside and
recalled.

On the counterclaim, plaintiff is ordered to pay defendant attorney's fees of

P25,000.00.

SO ORDERED. 6

The trial court ruled that Samson was justi ed in revoking the authority of
Luminlun to use the trademark. The trial court found that Luminlun's acts of
manufacturing and selling products bearing the trademark "OTTO LTD." like skirts,
shorts, pants, jeans, as as well as products with the trademark "OTTO" like belts,
buttons, and bags, clearly violated the authority granted by Samson to use the "OTTO"
trademark for jeans only. The trial court, however, ruled that Samson failed to prove that
he was entitled to royalties.
Upon motion for reconsideration of both parties, the trial court in an Order dated
7 December 1990 7 a rmed its decision with the modi cation of an award of moral
damages of P20,000 in favor of Samson.
The Ruling of the Court of Appeals
On appeal, the Court of Appeals reversed the ruling of the trial court. The
appellate court found that Samson revoked the authority on the sole ground that
Luminlun failed to pay royalties. According to the appellate court, Samson could not
validly revoke the authority based on this ground since he failed to prove that royalties
were due him. The appellate court further ruled that Luminlun suffered losses as a
result of the revocation and thus awarded damages. The dispositive portion of the
Court of Appeals' decision reads:
WHEREFORE, judgment is hereby rendered setting aside the decision appealed
from and a new one issue making the injunction permanent and ordering appellee
to pay appellant the following sums of money:

a) actual and compensatory damages in the amount of P2,257,872.20.

b) attorney's fees in the amount of P50,000.00.

Costs against appellee.

SO ORDERED. 8
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 The Issues
Thus, in this petition, Samson raises the following assignment of errors: 9
(a) The Court of Appeals erred in concluding that the revocation of the
Authority to Use Trademark made by Samson was unjustified;
(b) The Court of Appeals erred in awarding actual or compensatory
damages of P2,257,872.20 in spite of the total absence of evidence
to show that Luminlun sustained such damages as a consequence of
the revocation of the Authority to Use Trademark;
(c) The Court of Appeals erred in awarding attorney's fees of P50,000 in
spite of the absence of any legal ground for such award; and
d) The Court of Appeals erred in not sustaining the trial court's award of
moral damages and attorney's fees in favor of Samson.
The Court's Ruling
The resolution of this case hinges on whether Samson was justi ed in revoking
Luminlun's authority to use the "OTTO" trademark.
We rule in the affirmative.
In finding for respondent Luminlun, the appellate court rationalized:
. . . In appellee's Opposition to Motion for Issuance of Preliminary
Injunction and/or Motion to Lift Restraining Order dated April 18, 1989
(p. 37, Records), it is clearly stated that he revoked the Authority to Use
Trademark on the sole ground that appellant failed to pay royalty tax ,
thus:
". . . . When plaintiff unjustly and illegally failed, refused and neglected and
still fails, refuse, and neglects to pay royalty tax, defendant revoked the
grant of authority and the same was filed with the Patent Office on March
21, 1989, a copy of which was served on plaintiff and received by him
contained in a letter dated March 29, 1989. (at page 3 of Opposition)

xxx xxx xxx

"It is defendant who is entitled to the issuance of injunction to restrain
plantiff from further manufacturing and distributing OTTO jeans after
plaintiff's authority had been revoked for failure to comply with
his obligation to pay royalty tax due to defendant ."

As correctly pointed out by appellant, the issue that appellee had been allegedly
affected and his products allegedly discredited by appellant's use of the
trademark OTTO and OTTO Ltd. was but a belated attempt on the part of the
appellee to justify his illegal act of revoking the Authority to Use Trademark
issued to the appellant. It was only after realizing the weakness of his sole ground
for revoking the authority that he raised said issue. ECaTDc

It is evident that when appellee executed the Revocation of Authority to

Use Trademark on March 28, 1989 he was not concerned with
appellant's use of the trademark OTTO Ltd. on appellant's product and
the trademark OTTO on belts and buttons because there was no
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 prejudice on his part . Otherwise, he could have mentioned the same in the
Revocation and in the demand letter dated March 29, 1989 of his counsel, Atty
Nelson Y. Ng. 1 0 (Emphasis supplied)

We disagree with the appellate court's ruling.

The authority granted to Luminlun to use the "OTTO" trademark was limited for
use on jeans only. Under the agreement, Samson could revoke the authority if Luminlun
"should do or cause to be done any act which would in any way prejudice or discredit
the trademark OTTO not only in connection with its use for jeans but as well as
for other products " enumerated in Samson's registration certificates.
As correctly found by the trial court, Luminlun manufactured "OTTO" belts,
buttons, and bags as well as "OTTO LTD." clothing in violation of the terms and
conditions of the authority which affected Samson and discredited his products, thus:
EcaDCI

On the second issue, the Court finds that defendant has been affected
and his products discredited by plaintiff's use of trademark "OTTO" and
OTTO LTD." on other products, aside from jeans. Plaintiff admitted
manufacturing and selling products bearing the trademark "OTTO LTD."
like skirts, shorts, pants, jeans; also plaintiff manufactures and sells
products with the trademark "OTTO", like belts, buttons and bags. (Exh.
"3"; also pp. 67, 68, 69, 91, rec.) The authority given to plaintiff was a non-
transferable, non-assignable, non-exclusive right and license to use said
trademark "OTTO" for jeans only . . . ." (Underlining supplied) Clearly, plaintiff
failed to comply with the terms and conditions enumerated in the agreement.
Plaintiff had the option to use the trademark "OTTO" but he had done acts
constituting bad faith, necessarily discrediting the interest of defendant on his
products which were duly registered with the Philippine Patent Office, such as:
Exh. "6", photograph of over all with trademark "OTTO"; Exh. "7", issue of
Panorama Magazine; Exh. "7-A", trousers with "OTTO LTD.", Exh. "8", t-shirt with
brand "OTTO [LTD.]"; Exh. "14", pants bearing "OTTO [LTD.]", Exh. "14-A" & Exh.
"14-B"; belt and pant with "OTTO LTD." & "OTTO"; Exh. "15" Cash invoice, pants
"OTTO"; Exh. "17"-.", jeans classic with trademark "OTTO".
Defendant therefore was justified when he served notice of revocation of the
authority of plaintiff to use the trademark. 1 1 (Emphasis supplied)

Under the circumstances and in accordance with the terms and conditions of the
Authority to Use Trademark, we nd that Samson was justi ed in revoking Luminlun's
authority to use the "OTTO" trademark.
However, the appellate court chose to ignore Luminlun's glaring violation of the
terms and conditions of the Authority. The appellate court instead resorted to hair-
splitting and ruled that Samson could not justify the revocation since he did not raise
this ground in his "Opposition to Motion for Issuance of Preliminary Injunction and/or
Motion to Lift Restraining Order."
We find such reasoning flawed.
The records reveal that Samson, in his Answer, raised, among others, the
a rmative defense that he had the right to revoke the Authority to Use Trademark
because Luminlun manufactured other "OTTO" products aside from jeans:
Defendant had every right and prerogative to revoke the authority granted to
plaintiff on the use of the trademark for "OTTO" for jeans only when plaintiff
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 failed to pay a single centavo of royalty and had likewise violated the grant
of authority by illegally manufacturing and distributing aside from
jeans, other products like jackets, skirts, shirts, blouses and shorts
which are not covered by the grant of authority granted to him. 1 2
(Emphasis supplied)

We find that Samson seasonably raised this defense and we do not see any basis
for the appellate court's ruling that Samson could not invoke this ground.
The appellate court further makes issue of the fact that Samson did not mention
in both the Revocation of Authority to Use Trademark and his demand letter dated 29
March 1989 that Luminlun's manufacture of other "OTTO" products such as belts and
buttons was prejudicial to him and was the cause for the revocation.
We note that the Revocation of Authority simply mentioned that "it was
Luminlun's failure to comply with his undertaking when the authority was executed as
the reason for the revocation." The fact that Samson did not indicate the speci c
reason for the revocation is of no moment and should not be taken against him. Thus,
we nd no basis for the appellate court's conclusion that when Samson executed the
Revocation of Authority he was not concerned with Luminlun's use of the "OTTO"
trademark on other products because there was no prejudice on his part. Samson was
affected and his products discredited by Luminlun's unauthorized manufacture of other
"OTTO" products. Thus, in its Order resolving the Motions for Reconsideration led by
the parties, the trial court stated: TADCSE

. . . it is not denied defendant was given the authority by the Patent Office and has
been the registered owner of the trademark "OTTO" under principal register no.
33064 and 29840 and supplemental register 7390 and 4166. The license was
issued to the defendant for the protection of his rights as a registered owner of
the trademark in order to identify the lawful user. It was intended to protect the
public to be deceived of the use of the products.
On the issue of the violation of the conditions involving the claim of royalty, the
Court said that defendant has been affected and his products discredited by the
plaintiff's use of trademark "OTTO" and "OTTO LTD." on other products. Plaintiff
had admitted manufacturing and selling products with the same
trademark on skirts, shorts, pants and jeans. Bad faith was evident
from the acts of plaintiff. The authority of plaintiff to use the
trademark "OTTO" for jeans was revoked for violation of the terms of
the agreement . 1 3 (Emphasis supplied)

Considering that Samson was justi ed in revoking the authority of Luminlun to

use the "OTTO" trademark, it necessarily follows that the damages awarded by the
appellate court in favor of Luminlun have no basis.
WHEREFORE, we GRANT the Petition. We SET ASIDE the assailed Decision and
Resolution of the Court of Appeals and REINSTATE the 15 May 1990 Decision and the 7
December 1990 Order of the Regional Trial Court, Branch 160, Pasig City.
SO ORDERED.
Puno, C.J., Corona, Azcuna and Leonardo-de Castro, JJ., concur.
Footnotes

1. Penned by Associate Justice Demetrio G. Demetria, concurred in by Associate Justices

Ramon A. Barcelona and Mercedes Gozo-Dadole.
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 2. Penned by Justice Mariano M. Umali.

3. Records, p. 60.
4. Id. at 62.
5. Id. at 63.
6. Rollo, p. 62.
7. Amending its Order dated 15 October 1990.

8. Rollo, p. 47.
9. Id. at 19.
10. Id. at 44-45.
11. Id. at 61-62.
12. Records, pp. 93-94.
13. Rollo, pp. 63-64.

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