G.R. No. 118192 October 23, 1997
PRO LINE SPORTS CENTER, INC., and QUESTOR CORPORATION, petitioners, vs. COURT OF APPEALS, UNIVERSAL ATHLETICS INDUSTRIAL PRODUCTS, INC., and MONICO SEHWANI, respondents.

FACTS

Petitioner Questor Corporation, a US-based corporation, became the owner of the trademark “Spalding” after merging with A.G. Spalding Bros., Inc. Co-petitioner Pro Line Sports Center, Inc. is the exclusive distributor of “Spalding” products in the Philippines. Respondent Universal Athletics and Industrial Products, Inc. is a domestic corporation engaged in the sale and manufacture of sporting goods, with respondent Monico Sehwani as its president.
On February 11, 1981, Pro Line’s General Manager sent a letter-complaint to the NBI regarding Universal’s alleged manufacture of fake “Spalding” balls. A search warrant was issued, leading to the seizure of 1,200 basketballs and volleyballs marked “Spalding” from Universal’s premises. The court also ordered the sealing and padlocking of Universal’s machineries. Pro Line and Questor filed a criminal complaint for unfair competition against Sehwani and others before the Provincial Fiscal of Rizal. The complaint was initially dismissed but was reinstated by the Minister of Justice, leading to the filing of an Information (Crim. Case No. 45284). Sehwani pleaded not guilty, admitting manufacture but only for trademark registration purposes. The trial court granted Sehwani’s demurrer to evidence and dismissed the case, a dismissal which the Supreme Court later held amounted to an acquittal.
Subsequently, Universal and Sehwani filed a civil case for damages against Pro Line and Questor, alleging the malicious and baseless filing of the criminal case and related judicial actions (procuring the search warrant, sealing orders, and restraining orders). The trial court ruled in favor of Universal and Sehwani, awarding damages. The Court of Appeals affirmed but reduced the amounts.

ISSUE

1. Whether private respondents Sehwani and Universal are entitled to recover damages for the alleged wrongful recourse to court proceedings by petitioners Pro Line and Questor.
2. Whether petitioners’ counterclaim should be sustained.

RULING

1. No, private respondents are not entitled to recover damages. The Supreme Court held that Pro Line and Questor cannot be held liable for malicious prosecution. The essential elements of malicious prosecution—absence of probable cause and legal malice—were not proven. Probable cause existed, as evidenced by the Minister of Justice’s resolution finding sufficient grounds to prosecute Sehwani for unfair competition, noting the intent to deceive and the prior registration of the “Spalding” trademark. Furthermore, the acts of petitioners in seeking judicial relief (search warrant, etc.) were done in the exercise of their legal rights and were not tainted with malice. The law allows a person to institute criminal proceedings even if the accused is later acquitted, provided there is no malice.
2. No, the petitioners’ counterclaim should not be sustained. The dismissal of the counterclaim by the lower courts was affirmed. The Supreme Court noted that the issue of whether Universal infringed on the “Spalding” trademark was not squarely resolved in the criminal case, which was dismissed on demurrer based on the prosecution’s failure to prove an element of the crime (sale of the goods). Since the factual issue of trademark infringement was not fully litigated, it could not be made the basis for a ruling on the counterclaim. The Court emphasized that a counterclaim for damages based on the same act alleged in the criminal case (unfair competition) cannot prosper independently of the criminal case, as civil liability arising from a crime is deemed instituted with the criminal action.
The petition was partly GRANTED. The decision of the Court of Appeals was MODIFIED by deleting the award of actual, moral, and exemplary damages as well as attorney’s fees in favor of private respondents. The dismissal of petitioners’ counterclaim was AFFIRMED.