Filipinas Pawnshop, Inc. vs. Pilipinas Loan Co.

[SEC-AC CASE NO. 337. August 13, 1991.] IN THE MATTER OF PILIPINAS LOAN COMPANY, INC. FILIPINAS PAWNSHOP, INC. , petitioner , vs . PILIPINAS LOAN COMPANY, INC. , respondent . D E C I S I O N This is an appeal by respondent from the order dated 8 April 1991 of this Commission's Prosecution and Enforcement Department in the PED Case No. 90-0737 . LexLib Records of the case show that on September 11, 1990 Filipinas Pawnshop, Incorporated ("Filipinas Pawnshop" for brevity) instituted a complaint against Pilipinas Loan Company, Incorporated ("Pilipinas Loan" for brevity) alleging inter alia that respondent: a) operates and does business as a pawnbroker or pawnshop in the same district and neighborhood where complainant has been in operation for more than thirty (30) years; b) is not registered and licensed as a pawnshop; and c) uses the name "Pilipinas" which bears similarity to its name "Filipinas" in spelling (except the "P") and phonetics thereby causing constant confusion in the minds of the public and to its customers and friends; and thus praying that an order be issued: a) Requiring respondent to change its name "Pilipinas" and to prohibit and enjoin its use to and unfair competition with petitioner's name Filipinas Pawnshop, Incorporated; b) Ordering respondent to cease and desist from engaging in business as a "pawnshop" or "pawnbroker" or "sanglaan" as defined in Presidential Decree No. 114, otherwise known as the Pawnshop Regulation Act; c) Imposing upon respondent, its directors, employees or persons responsible, such penalties as fines and/or imprisonment as may be provided by P.D. No. 114, the Corporation Code and other rules and regulations in connection therewith without prejudice to civil liabilities arising from the criminal offenses; d) Granting petitioner such other remedies just and equitable. Respondent, in its Answer, made a general and specific denial of each and all the allegations of the petitioner and, as a defense, alleged inter alia: a) That the Commission has no jurisdiction over the case, as P.D. 114 is not a law administered by this Commission and prosecution for its violation properly vests with the Central Bank and/or the regular courts; b) The determination as to whether a corporate name is confusingly similar to another vests with the regular courts; and llcd c) That respondent is a lending investor duly included in the Central Bank directory of lending investors. As defined in its primary purpose (SEC registration), it is engaged in the practice of lending money or extending loans on the security of real or personal, tangible or intangible properties whether as pledge, real or chattel mortgage; hence, there is no legal impediment for the respondent to lend money on the security of personal property, as said security may be delivered by way of pledge, or a chattel mortgage and these are credit transactions recognized by the Civil Code. After a careful consideration of the records brought to this Commission, of the evidence adduced by the parties, and of the law applicable to the facts of the case at bar, the hearing officer arrived at decision, the dispositive portion of which reads: "WHEREFORE, premises considered, the Commission hereby ORDERS: 1. Respondent Pilipinas Loan Company, Inc. to amend its articles of incorporation by deleting the word "Pilipinas" as part of its corporate name and substituting another word in lieu thereof, within fifteen(15) days from receipt hereof; and 2. Respondent Pilipinas Loan Company, Inc., its directors, officers, agents or other persons in its behalf, to forthwith CEASE AND DESIST from further engaging in business as a "pawnshop" or "pawnbroker" or "sanglaan" as defined in Presidential Decree No. 114, otherwise known as the Pawnshop Regulation Act until further orders from this Commission. prLL Let copies of this Order be furnished the Central Bank for its appropriate action, specially on matters involving violation of P.D. No. 114. SO ORDERED." Hence, this instant appeal with the following issues raised: 1. Whether or not "Pilipinas Loan Company, Inc." is confusingly similar to "Filipinas Pawnshop, Inc." 2. Whether or not the Hearing Officer erred in holding that "Pilipinas Loan" is engaged in pawnshop business. 3. Whether or not the Hearing Officer or this Commission has jurisdiction to determine that "Pilipinas Loan" is engaged in pawnbroking or the determination of which is within the province of the Central Bank. We find no merit in this appeal. Relative to the first issue, respondent-appellant contends that the corporate name "Pilipinas Loan Company, Inc." is not confusingly similar to "Filipinas Pawnshop, Inc." and that it is highly improbable that the public be confused as to contending corporations' identities considering that "Pilipinas Loan" is a lending investor while "Filipinas Pawnshop" is a pawnshop and that the nearest breach of respondent-appellant is about 300 meters away from that of complainant-appellee. Section 18 of the Corporation Code of the Philippines provides: No corporate name may be allowed by the Securities and Exchange Commission if the proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name already protected by law or is patently deceptive, confusing or contrary to existing laws . When a change in the corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended name . LibLex The foregoing provision establishes the general rule that no two identical or confusingly similar corporate names shall be allowed. Consequently, the corporation which was later incorporated must amend its articles of incorporation in order to effectuate a change in the corporate name. The said provision seeks to avoid a situation wherein any corporation could adopt at pleasure the name of another corporation resulting in confusion and unfair competition thereby opening the door to frauds and difficulties of administration and supervision. (Red Line Transportation vs. Rural Transit, G.R. No. 41570, September 6, 1934, 60 Phil. 549) An apparent exception to the above-cited provision is the rule on generic words. Certain words, terms or names are regarded in law as incapable of exclusive appropriation. Of this class are generic terms such that corporations cannot acquire rights in such names, words or terms as to have their use by others enjoined since the preemption of such designations as generic terms or corporate names, if permitted, would unduly interfere with the necessary or proper use by others in the same locality or business. (Vol. 6, Fletcher Cyclopedia Corporations, p. 62) The above exception is subject to a further exception in what is known as the Doctrine of Secondary Meaning. Although the said doctrine is within the ambit of the Trademark Law, the same may likewise apply to corporate names since the exclusive right of a corporation to use its name is based upon a principle similar to that upon which persons are protected in the use of trademarks and trade names. (Vol. 14, Corpus Juris Secundum, pp. 3265-3271) The doctrine states that when words, though primarily belonging to the public, have been associated with one's business in such a way and for such length of time, they are generally understood by the public as referring to that one's business. (Vol. 6, Fletcher Cyclopedia Corporations, pp. 63-64) In other words, names and words of generic character may by prior combination and association with a particular enterprise, acquire such a secondary meaning as to render their subsequent use by others misleading and confusing, and the courts will in such case prevent their use at the instance of the corporation first appropriating them in its name. (Ibid.) "Filipinas Pawnshop" has been duly organized and existing since February 9, 1959 with principal place of business at No. 1135 Pedro Gil (formerly Herran) Street, Paco, Manila whereas "Pilipinas Loan" has been incorporated sometime in 1989 with principal office listed as Makati, Metro Manila but with branches at No. 2439 Pedro Gil (formerly Herran), Sta. Ana Manila and at No. 1702 A. Francisco Street, San Andres Bukid which according to complainant-appellee are both walking distances from its one and only pawnshop. (Position Paper by Complainant, p. 10) dctai Considering that contending corporations have closely related main objectives and that appellant operates branches not only within the same district but also at a walking distance from appellee's pawnshop, herein respondent-appellant can therefore be enjoined at the instance of complainant-appellee from the use of the word "Pilipinas" which is similar with "Filipinas" in phonetics and spelling except for the first letter to avoid, not only confusion, but also unfair competition. Anent the second issue, respondent-appellant contends that the hearing officer erred in holding that "Pilipinas Loan" is engaged in pawnbroking. In support thereof, appellant cites an opinion of the Central Bank that: . . . lending investors are in fact persons, authorized to extend, grant or lend money with interest. It appears that there is no legal impediment for the lending investor to lend money on the security of personal property, as said security may be delivered by way of a chattel mortgage or pledge. These are credit transactions recognized under the Civil Code. Therefore, the mere fact that the LIs accept personal property as security for loans extended does not necessarily mean that said LIs are engaged in pawnbroking. (Memorandum from the Office of the General Counsel, Central Bank of the Philippines, for the SES Department IV dated 12 December 1989) However, the then Intermediate Appellate Court (now Court of Appeals) ruled in the Aguirre Loan Company vs. Central Bank of the Philippines that: Where under the controlling statutory definition, to constitute one a pawnbroker he must be engaged in the business of receiving property in pledge or as security for money or other things advanced, one who lends money, and takes as security by mortgage on real or personal property , stocks, bonds, notes, and other like things, is not a pawnbroker . (Decision, p. 8 citing 54 Am. Jur., 2d p. 595; emphasis supplied) The foregoing clearly distinguishes the contract that should be entered into by pawnshops juxtaposed non-banking financial intermediaries (NBFI) like finance companies, investment houses, lending investors etc. In short, pledge is to pawnshops as mortgage is to other NBFIs. Pawnshop has been defined as a person or entity engaged in the business of lending money on personal property delivered as security for loans. It is synonymous, and may be used interchangeably, with pawnbroker or pawnbrokerage. (Sec. 3, P.D. No. 114 also cited in the Philippine Law Dictionary of Moreno, p. 448) LibLex If personal property is delivered as security, then pawnbroking partakes the nature of pledge. That the thing pledged be in possession of the creditor or a third person by common agreement is the most essential and is characteristic of pledge without which the contract cannot be regarded as entered into because precisely in this delivery lies the security of pledge. (Edgardo L. Paras, Civil Code of the Philippines, Vol. 5, p. 874 citing Manresa) Respondent-appellant also argues that the mere lending of money on personal property delivered as security, whether such lending is done regularly or not and irrespective of volume of such lendings in proportion to the total lendings of the lending investor is not a conclusive factor in resolving whether such is pawnbroking or not. (citing same Memo of the Central Bank, p. 3) We do not subscribe to this line of reasoning, for the second half of the paragraph cited by the Court of Appeals in its ruling in the Aguirre case states: . . . one who publicly carries on the business of lending money upon the security of pledges of jewelry and diamonds is a pawnbroker even though he also is engaged in making loans upon real estate and other securities in connection with which he requires the execution of a promissory or chattel mortgage. (54 Am. Jur. 2d p. 595) To further bolster its stand that it is not engaged in pawnbroking, appellant alleges that for documentation of its transactions, it issues a promissory note with a deed of pledge and not a pawn ticket. A close scrutiny of the promissory notes (Exhs. L and M) issued by herein appellant undoubtedly reveals that these notes are not what they purport to be but rather pawn tickets in reality. An ordinary promissory note has the maker and payee as parties but which are nowhere to be found in the notes issued by "Pilipinas Loan". Instead, we have the pledgor and pledgee as parties. A document or a contract is not what the parties call it; the terms, conditions and provisions contained therein determines what it actually is. Appellant also argues that its purpose clause duly approved by this Commission shows that its activities consist of different segments of lending. Surely, appellant is making references to the word "pledge" contained in its primary purpose. cdll While the word "Pledge" appears in the primary purpose of the Articles of Incorporation of Respondent Corporation, the restriction not to engage in pawnbroking is, nonetheless, stated therein. Hence, if respondent-appellant would like to operate as pawnshop, then it must first secure a license to act as such with the Central Bank. Likewise, appellant finds nothing wrong with the use of the word "sanglaan" in its signboards. The reason being the word "sanglaan" is legally and judicially defined and accepted as a Tagalog word for mortgage or pledge. (Lim vs. Calaguas, G.R. No. L-2031, May 30, 1949, 83 Phil. 801; Penamora vs. Vargas, 49559-R, October 16, 1979, both cases cited in Moreno, Philippine Law Dictionary, p. 860 Third ed.) We agree with appellee that the cases of Lim vs. Calaguas and Penamora vs. Vargas relied upon by appellant are not applicable to the case at bar. In the Lim case, the question before the Supreme Court is whether the subject agreement is a pacto de retro sale or a mortgagee taking into consideration the circumstances surrounding the transaction; and it was mentioned in passing that the word "sanglaan" used in a letter of the defendant "equally applied to conditional sales". In his dissenting opinion, Justice Perfecto stated that "sanglaan" is the Tagalog word that is used to mean either mortgage or pledge" and never as sale or pacto de retro . In the Penamora case, there is no "pawnshop" involved and the Court of Appeals merely referred to the testimony of the defendant therein who called the questioned document as "sanglaan" a Tagalog word that connotes "mortgage" when the Court interpreted a sale with right to repurchase as an equitable mortgage. "Sanglaan" has been commonly understood as pawnshop. In fact, in her English-Tagalog and Tagalog-English Dictionary, Maria Odulio de Guzman translates pawnshop as sanglaan. It is also our observation that the word "sanglaan" is employed only by pawnshops. The use by appellant of the words "sanglaan" in its signboard, "sangla" and "tubos" in its counters and the issuance of promissory notes with the "deed of pledge" therein emphasized, complemented by the above discussions establishes beyond question of doubt that respondent-appellant has exceeded the powers for which it was incorporated. We would also like to mention in passing that respondent-appellant has not been denied administrative due process in the PED for the Supreme Court has held: Where a party was given the opportunity to be heard, either through oral arguments or pleading, there can be no denial of procedural due process. Due Process is not semper-etubique judicial process. (Yap Say vs. Intermediate Appellate Court, G.R. No. L-73451, March 28, 1988) With regard to the third issue, appellant avers that the jurisdiction of the Central Bank to determine whether a corporation is engaged in pawnbroking or not is established under Section 17 of PD 114. SECTION 17. Grant of authority to the Central Bank . The Central Bank is hereby authorized (a) to issue rules and regulations to implement the provisions contained herein; (b) to require from pawnshop reports of condition and such other reports necessary to determine compliance with the provisions of this decree; (c) to exercise visitorial powers whenever deemed necessary; and (d) to impose such administrative sanctions including the impositions of fines for violation of this Decree and regulations issued by the Central Bank in pursuance thereto. The foregoing provision defines the regulatory, supervisory and administrative powers of the Central Bank in relation to pawnshops. Contrary to appellant's claim, none was there mentioned that only the Central Bank can determine whether or not a corporation is engaged in pawnbroking. Hence, where evidence on hand is sufficient to hold that a corporation is engaged in pawnbroking activities in violation of the restriction imposed in the purpose clause of its articles of incorporation, this Commission need not wait for a declaration from the Central Bank that a law it is tasked to implement has been violated. This Commission is competent to admonish, if not penalize, an erring corporation and if circumstances warrant, to refer such corporation to the agency for administrative sanctions for having violated laws, rules and regulations it is tasked to implement. LLphil Premises considered, the assailed ORDER is hereby AFFIRMED with modifications to read as follows: WHEREFORE, premises considered, the Commission hereby ORDERS 1. Respondent Pilipinas Loan Company, Inc. to amend its articles of incorporation by deleting the word "pledge" in its primary purpose and the word "Pilipinas" as part of its corporate name and substituting another word in lieu thereof, within fifteen (15) days from receipt hereof. 2. Respondent Pilipinas Loan Company, Inc., its directors, officers, agents or other persons in its behalf, to forthwith CEASE AND DESIST from further engaging in business as a "pawnshop" or "pawnbroker" or "sanglaan" as defined in Presidential Decree No. 114, otherwise known as the Pawnshop Regulation Act until the proper license shall have been secured from the Central Bank of the Philippines . Let copies of this Order be furnished the Central Bank for its perusal and the Corporate and Legal Department of this Commission for appropriate action . SO ORDERED. (SGD.) ROSARIO N. LOPEZ Chairman (SGD.) RODOLFO L. SAMARISTA (SGD) ARMANDO Z. GONZALES Associate Commissioner Associate Commissioner (SGD.) MERLE O. MANUEL (SGD.) FE ELOISA C. GLORIA Associate Commissioner Associate Commissioner