G.R. No.

101538 June 23, 1992

2. the court of its principal place of business;

AUGUSTO BENEDICTO SANTOS III, represented by his father and legal

guardian, Augusto Benedicto Santos, petitioner,
vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.

3. the court where it has a place of business through which the

contract had been made;
4. the court of the place of destination.
The private respondent contended that the Philippines was not its domicile nor was
this its principal place of business. Neither was the petitioner's ticket issued in this
country nor was his destination Manila but San Francisco in the United States.

CRUZ, J.:
This case involves the Proper interpretation of Article 28(1) of the Warsaw
Convention, reading as follows:
Art. 28. (1) An action for damage must be brought at the option of
the plaintiff, in the territory of one of the High Contracting Parties,
either before the court of the domicile of the carrier or of his
principal place of business, or where he has a place of business
through which the contract has been made, or before the court at
the place of destination.
The petitioner is a minor and a resident of the Philippines. Private respondent
Northwest Orient Airlines (NOA) is a foreign corporation with principal office in
Minnesota, U.S.A. and licensed to do business and maintain a branch office in the
Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San
Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The
scheduled departure date from Tokyo was December 20, 1986. No date was specified
for his return to San Francisco. 1
On December 19, 1986, the petitioner checked in at the NOA counter in the San
Francisco airport for his scheduled departure to Manila. Despite a previous
confirmation and re-confirmation, he was informed that he had no reservation for his
flight from Tokyo to Manila. He therefore had to be wait-listed.
On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court
of Makati. On April 13, 1987, NOA moved to dismiss the complaint on the ground of
lack of jurisdiction. Citing the above-quoted article, it contended that the complaint
could be instituted only in the territory of one of the High Contracting Parties, before:
1. the court of the domicile of the carrier;

On February 1, 1988, the lower court granted the motion and dismissed the
case. 2 The petitioner appealed to the Court of Appeals, which affirmed the decision of
the lower court. 3 On June 26, 1991, the petitioner filed a motion for reconsideration,
but the same was denied. 4 The petitioner then came to this Court, raising
substantially the same issues it submitted in the Court of Appeals.
The assignment of errors may be grouped into two major issues, viz:
(1) the constitutionality of Article 28(1) of the Warsaw Convention; and
(2) the jurisdiction of Philippine courts over the case.
The petitioner also invokes Article 24 of the Civil Code on the protection of minors.
I
THE ISSUE OF CONSTITUTIONALITY
A. The petitioner claims that the lower court erred in not ruling that
Article 28(1) of the Warsaw Convention violates the constitutional
guarantees of due process and equal protection.

The Republic of the Philippines is a party to the Convention for the Unification of
Certain Rules Relating to International Transportation by Air, otherwise known as the
Warsaw Convention. It took effect on February 13, 1933. The Convention was
concurred in by the Senate, through its Resolution No. 19, on May 16, 1950. The
Philippine instrument of accession was signed by President Elpidio Quirino on
October 13, 1950, and was deposited with the Polish government on November 9,
1950. The Convention became applicable to the Philippines on February 9, 1951. On
September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201,
declaring our formal adherence thereto. "to the end that the same and every article
and clause thereof may be observed and fulfilled in good faith by the Republic of the
Philippines and the citizens thereof." 5
The Convention is thus a treaty commitment voluntarily assumed by the Philippine
government and, as such, has the force and effect of law in this country.
The petitioner contends that Article 28(1) cannot be applied in the present case
because it is unconstitutional. He argues that there is no substantial distinction
between a person who purchases a ticket in Manila and a person who purchases his
ticket in San Francisco. The classification of the places in which actions for damages
may be brought is arbitrary and irrational and thus violates the due process and equal
protection clauses.
It is well-settled that courts will assume jurisdiction over a constitutional question only
if it is shown that the essential requisites of a judicial inquiry into such a question are
first satisfied. Thus, there must be an actual case or controversy involving a conflict of
legal rights susceptible of judicial determination; the constitutional question must have
been opportunely raised by the proper party; and the resolution of the question is
unavoidably necessary to the decision of the case itself. 6
Courts generally avoid having to decide a constitutional question. This attitude is
based on the doctrine of separation of powers, which enjoins upon the departments of
the government a becoming respect for each other's acts.
The treaty which is the subject matter of this petition was a joint legislative-executive
act. The presumption is that it was first carefully studied and determined to be
constitutional before it was adopted and given the force of law in this country.
The petitioner's allegations are not convincing enough to overcome this presumption.
Apparently, the Convention considered the four places designated in Article 28 the
most convenient forums for the litigation of any claim that may arise between the
airline and its passenger, as distinguished from all other places. At any rate, we agree
with the respondent court that this case can be decided on other grounds without the
necessity of resolving the constitutional issue.

B. The petitioner claims that the lower court erred in not ruling that
Art. 28(1) of the Warsaw Convention is inapplicable because of a
fundamental change in the circumstances that served as its basis.
The petitioner goes at great lengths to show that the provisions in the Convention
were intended to protect airline companies under "the conditions prevailing then and
which have long ceased to exist." He argues that in view of the significant
developments in the airline industry through the years, the treaty has become
irrelevant. Hence, to the extent that it has lost its basis for approval, it has become
unconstitutional.
The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup,
"this doctrine constitutes an attempt to formulate a legal principle which would justify
non-performance of a treaty obligation if the conditions with relation to which the
parties contracted have changed so materially and so unexpectedly as to create a
situation in which the exaction of performance would be unreasonable." 7 The key
element of this doctrine is the vital change in the condition of the contracting parties
that they could not have foreseen at the time the treaty was concluded.
The Court notes in this connection the following observation made in Day v. Trans
World Airlines, Inc.: 8
The Warsaw drafters wished to create a system of liability rules that
would cover all the hazards of air travel . . . The Warsaw delegates
knew that, in the years to come, civil aviation would change in ways
that they could not foresee. They wished to design a system of air
law that would be both durable and flexible enough to keep pace
with these changes . . . The ever-changing needs of the system of
civil aviation can be served within the framework they created.
It is true that at the time the Warsaw Convention was drafted, the airline industry was
still in its infancy. However, that circumstance alone is not sufficient justification for the
rejection of the treaty at this time. The changes recited by the petitioner were,
realistically, not entirely unforeseen although they were expected in a general sense
only. In fact, the Convention itself, anticipating such developments, contains the
following significant provision:
Article 41. Any High Contracting Party shall be entitled not earlier
than two years after the coming into force of this convention to call
for the assembling of a new international conference in order to
consider any improvements which may be made in this convention.
To this end, it will communicate with the Government of the French
Republic which will take the necessary measures to make
preparations for such conference.

But the more important consideration is that the treaty has not been rejected by the
Philippine government. The doctrine of rebus sic stantibus does not operate
automatically to render the treaty inoperative. There is a necessity for a formal act of
rejection, usually made by the head of State, with a statement of the reasons why
compliance with the treaty is no longer required.
In lieu thereof, the treaty may be denounced even without an expressed justification
for this action. Such denunciation is authorized under its Article 39, viz:
Article 39. (1) Any one of the High Contracting Parties may
denounce this convention by a notification addressed to the
Government of the Republic of Poland, which shall at once inform
the Government of each of the High Contracting Parties.
(2) Denunciation shall take effect six months after the notification of
denunciation, and shall operate only as regards the party which
shall have proceeded to denunciation.
Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or
pursuant to Article 39, is not a function of the courts but of the other branches of
government. This is a political act. The conclusion and renunciation of treaties is the
prerogative of the political departments and may not be usurped by the judiciary. The
courts are concerned only with the interpretation and application of laws and treaties
in force and not with their wisdom or efficacy.
C. The petitioner claims that the lower court erred in ruling that the
plaintiff must sue in the United States, because this would deny
him the right to access to our courts.
The petitioner alleges that the expenses and difficulties he will incur in filing a suit in
the United States would constitute a constructive denial of his right to access to our
courts for the protection of his rights. He would consequently be deprived of this vital
guaranty as embodied in the Bill of Rights.
Obviously, the constitutional guaranty of access to courts refers only to courts with
appropriate jurisdiction as defined by law. It does not mean that a person can go
to any court for redress of his grievances regardless of the nature or value of his
claim. If the petitioner is barred from filing his complaint before our courts, it is
because they are not vested with the appropriate jurisdiction under the Warsaw
Convention, which is part of the law of our land.
II

THE ISSUE OF JURISDICTION.

A. The petitioner claims that the lower court erred in not ruling that
Article 28(1) of the Warsaw Convention is a rule merely of venue
and was waived by defendant when it did not move to dismiss on
the ground of improper venue.
By its own terms, the Convention applies to all international transportation of persons
performed by aircraft for hire.
International transportation is defined in paragraph (2) of Article 1 as follows:
(2) For the purposes of this convention, the expression
"international transportation" shall mean any transportation in
which, according to the contract made by the parties, the place of
departure and the place of destination, whether or not there be a
break in the transportation or a transshipment, are situated [either]
within the territories of two High Contracting Parties . . .
Whether the transportation is "international" is determined by the contract of the
parties, which in the case of passengers is the ticket. When the contract of carriage
provides for the transportation of the passenger between certain designated terminals
"within the territories of two High Contracting Parties," the provisions of the
Convention automatically apply and exclusively govern the rights and liabilities of the
airline and its passenger.
Since the flight involved in the case at bar is international, the same being from the
United States to the Philippines and back to the United States, it is subject to the
provisions of the Warsaw Convention, including Article 28(1), which enumerates the
four places where an action for damages may be brought.
Whether Article 28(1) refers to jurisdiction or only to venue is a question over which
authorities are sharply divided. While the petitioner cites several cases holding that
Article 28(1) refers to venue rather than jurisdiction, 9 there are later cases cited by
the private respondent supporting the conclusion that the provision is jurisdictional. 10
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred
by consent or waiver upon d court which otherwise would have no jurisdiction over
the subject-matter of an action; but the venue of an action as fixed by statute may be
changed by the consent of the parties and an objection that the plaintiff brought his
suit in the wrong county may be waived by the failure of the defendant to make a
timely objection. In either case, the court may render a valid judgment. Rules as to
jurisdiction can never be left to the consent or agreement of the parties, whether or
not a prohibition exists against their alteration. 11

A number of reasons tends to support the characterization of Article 28(1) as a

jurisdiction and not a venue provision. First, the wording of Article 32, which indicates
the places where the action for damages "must" be brought, underscores the
mandatory nature of Article 28(1). Second, this characterization is consistent with one
of the objectives of the Convention, which is to "regulate in a uniform manner the
conditions of international transportation by air." Third, the Convention does not
contain any provision prescribing rules of jurisdiction other than Article 28(1), which
means that the phrase "rules as to jurisdiction" used in Article 32 must refer only to
Article 28(1). In fact, the last sentence of Article 32 specifically deals with the
exclusive enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left
to the will of the parties regardless of the time when the damage occurred.
This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways,
Ltd., 12 where it was held:
. . . Of more, but still incomplete, assistance is the wording of Article
28(2), especially when considered in the light of Article 32. Article
28(2) provides that "questions of procedure shall be governed by
the law of the court to which the case is submitted" (Emphasis
supplied). Section (2) thus may be read to leave for domestic
decision questions regarding the suitability and location of a
particular Warsaw Convention case.
In other words, where the matter is governed by the Warsaw Convention, jurisdiction
takes on a dual concept. Jurisdiction in the international sense must be established in
accordance with Article 28(1) of the Warsaw Convention, following which the
jurisdiction of a particular court must be established pursuant to the applicable
domestic law. Only after the question of which court has jurisdiction is determined will
the issue of venue be taken up. This second question shall be governed by the law of
the court to which the case is submitted.
The petitioner submits that since Article 32 states that the parties are precluded
"before the damages occurred" from amending the rules of Article 28(1) as to the
place where the action may be brought, it would follow that the Warsaw Convention
was not intended to preclude them from doing so "after the damages occurred."
Article 32 provides:
Art. 32. Any clause contained in the contract and all special
agreements entered into before the damage occurred by which the
parties purport to infringe the rules laid down by this convention,
whether by deciding the law to be applied, or by altering the rules
as to jurisdiction, shall be null and void. Nevertheless for the
transportation of goods, arbitration clauses shall be allowed,

subject to this convention, if the arbitration is to take place within

one of the jurisdictions referred to in the first paragraph of Article
28.
His point is that since the requirements of Article 28(1) can be waived "after the
damages (shall have) occurred," the article should be regarded as possessing the
character of a "venue" and not of a "jurisdiction" provision. Hence, in moving to
dismiss on the ground of lack of jurisdiction, the private respondent has waived
improper venue as a ground to dismiss.
The foregoing examination of Article 28(1) in relation to Article 32 does not support
this conclusion. In any event, we agree that even granting arguendo that Article 28(1)
is a venue and not a jurisdictional provision, dismissal of the case was still in order.
The respondent court was correct in affirming the ruling of the trial court on this
matter, thus:
Santos' claim that NOA waived venue as a ground of its motion to
dismiss is not correct. True it is that NOA averred in its MOTION TO
DISMISS that the ground thereof is "the Court has no subject
matter jurisdiction to entertain the Complaint" which SANTOS
considers as equivalent to "lack of jurisdiction over the subject
matter . . ." However, the gist of NOA's argument in its motion is
that the Philippines is not the proper place where SANTOS could
file the action meaning that the venue of the action is improperly
laid. Even assuming then that the specified ground of the motion is
erroneous, the fact is the proper ground of the motion improper
venue has been discussed therein.
Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of nonwaiver if there are special circumstances justifying this conclusion, as in the petition at
bar. As we observed in Javier vs. Intermediate Court of Appeals: 13
Legally, of course, the lack of proper venue was deemed waived by
the petitioners when they failed to invoke it in their original motion
to dismiss. Even so, the motivation of the private respondent should
have been taken into account by both the trial judge and the
respondent court in arriving at their decisions.
The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our
Court of Appeals, where it was held that Article 28(1) is a venue provision. However,
the private respondent avers that this was in effect reversed by the case of Aranas v.
United Airlines, 15 where the same court held that Article 28(1) is a jurisdictional
provision. Neither of these cases is binding on this Court, of course, nor was either of
them appealed to us. Nevertheless, we here express our own preference for the later

case of Aranas insofar as its pronouncements on jurisdiction conform to the judgment

we now make in this petition.
B. The petitioner claims that the lower court erred in not ruling that
under Article 28(1) of the Warsaw Convention, this case was
properly filed in the Philippines, because Manila was the
destination of the plaintiff.
The Petitioner contends that the facts of this case are analogous to those
in Aanestad v. Air Canada. 16 In that case, Mrs. Silverberg purchased a round-trip
ticket from Montreal to Los Angeles and back to Montreal. The date and time of
departure were specified but not of the return flight. The plane crashed while on route
from Montreal to Los Angeles, killing Mrs. Silverberg. Her administratrix filed an action
for damages against Air Canada in the U.S. District Court of California. The defendant
moved to dismiss for lack of jurisdiction but the motion was denied thus:
. . . It is evident that the contract entered into between Air Canada
and Mrs. Silverberg as evidenced by the ticket booklets and the
Flight Coupon No. 1, was a contract for Air Canada to carry Mrs.
Silverberg to Los Angeles on a certain flight, a certain time and a
certain class, but that the time for her to return remained completely
in her power. Coupon No. 2 was only a continuing offer by Air
Canada to give her a ticket to return to Montreal between certain
dates. . . .
The only conclusion that can be reached then, is that "the place of
destination" as used in the Warsaw Convention is considered by
both the Canadian C.T.C. and the United States C.A.B. to describe
at least two "places of destination," viz., the "place of destination" of
a particular flight either an "outward destination" from the "point of
origin" or from the "outward point of destination" to any place in
Canada.
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw
Convention of the flight on which Mrs. Silverberg was killed, was
Los Angeles according to the ticket, which was the contract
between the parties and the suit is properly filed in this Court which
has jurisdiction.
The Petitioner avers that the present case falls squarely under the above ruling
because the date and time of his return flight to San Francisco were, as in the
Aanestad case, also left open. Consequently, Manila and not San Francisco should
be considered the petitioner's destination.

The private respondent for its part invokes the ruling in Butz v. British
Airways, 17 where the United States District Court (Eastern District of Pennsylvania)
said:
. . . Although the authorities which addressed this precise issue are
not extensive, both the cases and the commentators are almost
unanimous in concluding that the "place of destination" referred to
in the Warsaw Convention "in a trip consisting of several parts . . .
is the ultimate destination that is accorded treaty jurisdiction." . . .
But apart from that distinguishing feature, I cannot agree with the
Court's analysis in Aanestad; whether the return portion of the ticket
is characterized as an option or a contract, the carrier was legally
bound to transport the passenger back to the place of origin within
the prescribed time and. the passenger for her part agreed to pay
the fare and, in fact, did pay the fare. Thus there was mutuality of
obligation and a binding contract of carriage, The fact that the
passenger could forego her rights under the contract does not
make it any less a binding contract. Certainly, if the parties did not
contemplate the return leg of the journey, the passenger would not
have paid for it and the carrier would not have issued a round trip
ticket.
We agree with the latter case. The place of destination, within the meaning of the
Warsaw Convention, is determined by the terms of the contract of carriage or,
specifically in this case, the ticket between the passenger and the carrier.
Examination of the petitioner's ticket shows that his ultimate destination is San
Francisco. Although the date of the return flight was left open, the contract of carriage
between the parties indicates that NOA was bound to transport the petitioner to San
Francisco from Manila. Manila should therefore be considered merely an agreed
stopping place and not the destination.
The petitioner submits that the Butz case could not have overruled the Aanestad case
because these decisions are from different jurisdictions. But that is neither here nor
there. In fact, neither of these cases is controlling on this Court. If we have preferred
the Butz case, it is because, exercising our own freedom of choice, we have decided
that it represents the better, and correct, interpretation of Article 28(1).
Article 1(2) also draws a distinction between a "destination" and an "agreed stopping
place." It is the "destination" and not an "agreed stopping place" that controls for
purposes of ascertaining jurisdiction under the Convention.
The contract is a single undivided operation, beginning with the place of departure
and ending with the ultimate destination. The use of the singular in this expression

indicates the understanding of the parties to the Convention that every contract of
carriage has one place of departure and one place of destination. An intermediate
place where the carriage may be broken is not regarded as a "place of destination."

is in effect a request to create a new jurisdictional standard for the

Convention.
Furthermore, it was argued in another case 20 that:

C. The petitioner claims that the lower court erred in not ruling that
under Art. 28(1) of the Warsaw Convention, this case was properly
filed in the Philippines because the defendant has its domicile in
the Philippines.
The petitioner argues that the Warsaw Convention was originally written in French
and that in interpreting its provisions, American courts have taken the broad view that
the French legal meaning must govern. 18 In French, he says, the "domicile" of the
carrier means every place where it has a branch office.
The private respondent notes, however, that in Compagnie Nationale Air France vs.
Giliberto, 19 it was held:
The plaintiffs' first contention is that Air France is domiciled in the
United States. They say that the domicile of a corporation includes
any country where the airline carries on its business on "a regular
and substantial basis," and that the United States qualifies under
such definition. The meaning of domicile cannot, however, be so
extended. The domicile of a corporation is customarily regarded as
the place where it is incorporated, and the courts have given the
meaning to the term as it is used in article 28(1) of the Convention.
(See Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452
F2d 798, 802; Nudo v. Societe Anonyme Belge d' Exploitation de la
Navigation Aerienne Sabena Belgian World Airlines (E.D. pa.
1962). 207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air
France (S.D.N.Y. 1977), 427 F. Suppl. 971, 974). Moreover, the
structure of article 28(1), viewed as a whole, is also incompatible
with the plaintiffs' claim. The article, in stating that places of
business are among the bases of the jurisdiction, sets out two
places where an action for damages may be brought; the country
where the carrier's principal place of business is located, and the
country in which it has a place of business through which the
particular contract in question was made, that is, where the ticket
was bought, Adopting the plaintiffs' theory would at a minimum blur
these carefully drawn distinctions by creating a third intermediate
category. It would obviously introduce uncertainty into litigation
under the article because of the necessity of having to determine,
and without standards or criteria, whether the amount of business
done by a carrier in a particular country was "regular" and
"substantial." The plaintiff's request to adopt this basis of jurisdiction

. . . In arriving at an interpretation of a treaty whose sole official

language is French, are we bound to apply French law? . . . We
think this question and the underlying choice of law issue warrant
some discussion
. . . We do not think this statement can be regarded as a conclusion
that internal French law is to be "applied" in the choice of law
sense, to determine the meaning and scope of the Convention's
terms. Of course, French legal usage must be considered in
arriving at an accurate English translation of the French. But when
an accurate English translation is made and agreed upon, as here,
the inquiry into meaning does not then revert to a quest for a past
or present French law to be "applied" for revelation of the proper
scope of the terms. It does not follow from the fact that the treaty is
written in French that in interpreting it, we are forever chained to
French law, either as it existed when the treaty was written or in its
present state of development. There is no suggestion in the treaty
that French law was intended to govern the meaning of Warsaw's
terms, nor have we found any indication to this effect in its
legislative history or from our study of its application and
interpretation by other courts. Indeed, analysis of the cases
indicates that the courts, in interpreting and applying the Warsaw
Convention, have, not considered themselves bound to apply
French law simply because the Convention is written in French. . . .
We agree with these rulings.
Notably, the domicile of the carrier is only one of the places where the complaint is
allowed to be filed under Article 28(1). By specifying the three other places, to wit, the
principal place of business of the carrier, its place of business where the contract was
made, and the place of destination, the article clearly meant that these three other
places were not comprehended in the term "domicile."
D. The petitioner claims that the lower court erred in not ruling that
Art. 28(1) of the Warsaw Convention does not apply to actions
based on tort.
The petitioner alleges that the gravamen of the complaint is that private respondent
acted arbitrarily and in bad faith, discriminated against the petitioner, and committed a
willful misconduct because it canceled his confirmed reservation and gave his

reserved seat to someone who had no better right to it. In short. the private
respondent committed a tort.
Such allegation, he submits, removes the present case from the coverage of the
Warsaw Convention. He argues that in at least two American cases, 21 it was held that
Article 28(1) of the Warsaw Convention does not apply if the action is based on tort.
This position is negated by Husserl v. Swiss Air Transport Company, 22 where the
article in question was interpreted thus:

jurisdiction. Article 28(1) is the provision in the Convention which defines that
jurisdiction. Article 22 23 merely fixes the monetary ceiling for the liability of the carrier
in cases covered by the Convention. If the carrier is indeed guilty of willful
misconduct, it can avail itself of the limitations set forth in this article. But this can be
done only if the action has first been commenced properly under the rules on
jurisdiction set forth in Article 28(1).
III
THE ISSUE OF PROTECTION TO MINORS

. . . Assuming for the present that plaintiff's claim is "covered" by

Article 17, Article 24 clearly excludes any relief not provided for in
the Convention as modified by the Montreal Agreement. It does not,
however, limit the kind of cause of action on which the relief may be
founded; rather it provides that any action based on the injuries
specified in Article 17 "however founded," i.e., regardless of the
type of action on which relief is founded, can only be brought
subject to the conditions and limitations established by the Warsaw
System. Presumably, the reason for the use of the phrase "however
founded," in two-fold: to accommodate all of the multifarious bases
on which a claim might be founded in different countries, whether
under code law or common law, whether under contract or tort, etc.;
and to include all bases on which a claim seeking relief for an injury
might be founded in any one country. In other words, if the injury
occurs as described in Article 17, any relief available is subject to
the conditions and limitations established by the Warsaw System,
regardless of the particular cause of action which forms the basis
on which a plaintiff could seek
relief . . .
The private respondent correctly contends that the allegation of willful misconduct
resulting in a tort is insufficient to exclude the case from the comprehension of the
Warsaw Convention. The petitioner has apparently misconstrued the import of Article
25(l) of the Convention, which reads as follows:
Art. 25 (1). The carrier shall not be entitled to avail himself of the
provisions of this Convention which exclude or limit his liability. if
the damage is caused by his willful misconduct or by such default
on his part as, in accordance with the law of the court to which the
case is submitted, is considered to be equivalent to willful
misconduct.
It is understood under this article that the court called upon to determine the
applicability of the limitation provision must first be vested with the appropriate

The petitioner calls our attention to Article 24 of the Civil Code, which states:
Art. 24. In all contractual property or other relations, when one of
the parties is at a disadvantage on account of his moral
dependence, ignorance, indigence, mental weakness, tender age
or other handicap, the courts must be vigilant for his protection.
Application of this article to the present case is misplaced. The above provision
assumes that the court is vested with jurisdiction to rule in favor of the disadvantaged
minor, As already explained, such jurisdiction is absent in the case at bar.
CONCLUSION
A number of countries have signified their concern over the problem of citizens being
denied access to their own courts because of the restrictive provision of Article 28(1)
of the Warsaw Convention. Among these is the United States, which has proposed an
amendment that would enable the passenger to sue in his own domicile if the carrier
does business in that jurisdiction. The reason for this proposal is explained thus:
In the event a US citizen temporarily residing abroad purchases a
Rome to New York to Rome ticket on a foreign air carrier which is
generally subject to the jurisdiction of the US, Article 28 would
prevent that person from suing the carrier in the US in a "Warsaw
Case" even though such a suit could be brought in the absence of
the Convention.
The proposal was incorporated in the Guatemala Protocol amending the Warsaw
Convention, which was adopted at Guatemala City on March 8,
1971. 24 But it is still ineffective because it has not yet been ratified by the required
minimum number of contracting parties. Pending such ratification, the petitioner will
still have to file his complaint only in any of the four places designated by Article 28(1)
of the Warsaw Convention.

The proposed amendment bolsters the ruling of this Court that a citizen does not
necessarily have the right to sue in his own courts simply because the defendant
airline has a place of business in his country.
The Court can only sympathize with the petitioner, who must prosecute his claims in
the United States rather than in his own country at least inconvenience. But we are
unable to grant him the relief he seeks because we are limited by the provisions of
the Warsaw Convention which continues to bind us. It may not be amiss to observe at
this point that the mere fact that he will have to litigate in the American courts does
not necessarily mean he will litigate in vain. The judicial system of that country in
known for its sense of fairness and, generally, its strict adherence to the rule of law.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so
ordered.
Narvasa, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Grio-Aquino,
Medialdea, Regalado, Davide, Jr., Romero, Nocon and Bellosillo, JJ., concur.

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-TRADE, INC.,

(formerly ASPAC-ITEC PHILIPPINES, INC.) and FRANCISCO
S. AGUIRRE, petitioners, vs. THE COURT OF APPEALS, ITEC
INTERNATIONAL, INC., and ITEC, INC., respondents.
DECISION
TORRES, JR., J.:
Business Corporations, according to Lord Coke, have no souls. They do
business peddling goods, wares or even services across national boundaries in
soulless forms in quest for profits albeit at times, unwelcomed in these strange lands
venturing into uncertain markets and, the risk of dealing with wily competitors.
This is one of the issues in the case at bar.

name.Thus, ASPAC Multi-Trade, Inc. became legally and publicly known as ASPACITEC (Philippines).
By virtue of said contracts, ASPAC sold electronic products, exported by ITEC,
to their sole customer, the Philippine Long Distance Telephone Company, (PLDT, for
brevity).
To facilitate their transactions, ASPAC, dealing under its new appellation, and
PLDT executed a document entitled PLDT-ASPAC/ITEC PROTOCOL[4] which defined
the project details for the supply of ITECs Interface Equipment in connection with the
Fifth Expansion Program of PLDT.
One year into the second term of the parties Representative Agreement, ITEC
decided to terminate the same, because petitioner ASPAC allegedly violated its
contractual commitment as stipulated in their agreements.[5]

Contested in this petition for review on Certiorari is the Decision of the Court of
Appeals on June 7, 1991, sustaining the RTC Order dated February 22, 1991,
denying the petitioners Motion to Dismiss, and directing the issuance of a writ of
preliminary injunction, and its companion Resolution of October 9, 1991, denying the
petitioners Motion for Reconsideration.

ITEC charges the petitioners and another Philippine Corporation, DIGITAL

BASE COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of which is
likewise petitioner Aguirre, of using knowledge and information of ITECs products
specifications to develop their own line of equipment and product support, which are
similar, if not identical to ITECs own, and offering them to ITECs former customer.

Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI, for

brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both domestic
corporations, while petitioner Francisco S. Aguirre is their President and majority
stockholder. Private Respondents ITEC, INC. and/or ITEC, INTERNATIONAL, INC.
(ITEC, for brevity) are corporations duly organized and existing under the laws of the
State of Alabama, United States of America. There is no dispute that ITEC is a foreign
corporation not licensed to do business in the Philippines.

On January 31, 1991, the complaint[6] in Civil Case No. 91-294, was filed with
the Regional Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff sought to
enjoin, first, preliminarily and then, after trial, permanently; (1) defendants DIGITAL,
CMDI, and Francisco Aguirre and their agents and business associates, to cease and
desist from selling or attempting to sell to PLDT and to any other party, products
which have been copied or manufactured in like manner, similar or identical to the
products, wares and equipment of plaintiff, and (2) defendant ASPAC, to cease and
desist from using in its corporate name, letter heads, envelopes, sign boards and
business dealings, plaintiffs trademark, internationally known as ITEC; and the
recovery from defendants in solidum, damages of at least P500,000.00, attorneys
fees and litigation expenses.

On August 14, 1987, ITEC entered into a contract with petitioner ASPAC
referred to as Representative Agreement.[1] Pursuant to the contract, ITEC engaged
ASPAC as its exclusive representative in the Philippines for the sale of ITECs
products, in consideration of which, ASPAC was paid a stipulated commission. The
agreement was signed by G.A. Clark and Francisco S. Aguirre, presidents of ITEC
and ASPAC respectively, for and in behalf of their companies. [2] The said agreement
was initially for a term of twenty-four months. After the lapse of the agreed period, the
agreement was renewed for another twenty-four months.
Through a License Agreement[3] entered into by the same parties on November
10, 1988, ASPAC was able to incorporate and use the name ITEC in its own

In due time, defendants filed a motion to dismiss[7] the complaint on the following
grounds: (1) That plaintiff has no legal capacity to sue as it is a foreign corporation
doing business in the Philippines without the required BOI authority and SEC license,
and (2) that plaintiff is simply engaged in forum shopping which justifies the
application against it of the principle of forum non conveniens.
On February 8, 1991, the complaint was amended by virtue of which ITEC
INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC, INC.[8]

In their Supplemental Motion to Dismiss,[9] defendants took note of the

amendment of the complaint and asked the court to consider in toto their motion to
dismiss and their supplemental motion as their answer to the amended complaint.
After conducting hearings on the prayer for preliminary injunction, the court a
quo on February 22, 1991, issued its Order:[10] (1) denying the motion to dismiss for
being devoid of legal merit with a rejection of both grounds relied upon by the
defendants in their motion to dismiss, and (2) directing the issuance of a writ of
preliminary injunction on the same day.
From the foregoing order, petitioners elevated the case to the respondent Court
of Appeals on a Petition for Certiorari and Prohibition[11] under Rule 65 of the Revised
Rules of Court, assailing and seeking the nullification and the setting aside of the
Order and the Writ of Preliminary Injunction issued by the Regional Trial Court.
The respondent appellate court stated, thus:
We find no reason whether in law or from the facts of record, to disagree with the
(lower courts) ruling. We therefore are unable to find in respondent Judges issuance
of said writ the grave abuse of discretion ascribed thereto by the petitioners.
In fine, We find that the petition prima facie does not show that Certiorari lies in the
present case and therefore, the petition does not deserve to be given due course.
WHEREFORE, the present petition should be, as it is hereby, denied due course and
accordingly, is hereby dismissed. Costs against the petitioners.
SO ORDERED."[12]
Petitioners filed a motion for reconsideration[13] on June 7, 1991, which was
likewise denied by the respondent court.
WHEREFORE, the present motion for reconsideration should be, as it is hereby,
denied for lack of merit. For the same reason, the motion to have the motion for
reconsideration set for oral argument likewise should be and is hereby denied.

from the Board of Investments and the Securities and Exchange Commission, and
thus, disqualified from instituting the present action in our courts. It is their contention
that the provisions of the Representative Agreement, petitioner ASPAC executed with
private respondent ITEC, are similarly highly restrictive in nature as those found in the
agreements which confronted the Court in the case of Top-Weld Manufacturing,
Inc. vs. ECED S.A. et al.,[16] as to reduce petitioner ASPAC to a mere conduit or
extension of private respondents in the Philippines.
In that case, we ruled that respondent foreign corporations are doing business in
the Philippines because when the respondents entered into the disputed contracts
with the petitioner, they were carrying out the purposes for which they were created,
i.e., to manufacture and market welding products and equipment. The terms and
conditions of the contracts as well as the respondents conduct indicate that they
established within our country a continuous business, and not merely one of a
temporary character. The respondents could be exempted from the requirements of
Republic Act 5455 if the petitioner is an independent entity which buys and distributes
products not only of the petitioner, but also of other manufacturers or transacts
business in its name and for its account and not in the name or for the account of the
foreign principal. A reading of the agreements between the petitioner and the
respondents shows that they are highly restrictive in nature, thus making the
petitioner a mere conduit or extension of the respondents.
It is alleged that certain provisions of the Representative Agreement executed
by the parties are similar to those found in the License Agreement of the parties in the
Top-Weld case which were considered as highly restrictive by this Court. The
provisions in point are:
2.0 Terms and Conditions of Sales.
2.1 Sale of ITEC products shall be at the purchase price set by ITEC from time to
time. Unless otherwise expressly agreed to in writing by ITEC the purchase price is
net to ITEC and does not include any transportation charges, import charges or taxes
into or within the Territory. All orders from customers are subject to formal acceptance
by ITEC at its Huntsville, Alabama U.S.A. facility.
xxx xxx xxx

SO ORDERED."[14]

3.0 Duties of Representative

Petitioners are now before us via Petition for Review on Certiorari[15] under Rule
45 of the Revised Rules of Court.

3.1. REPRESENTATIVE SHALL:

It is the petitioners submission that private respondents are foreign corporations

actually doing business in the Philippines without the requisite authority and license

3.1.1. Not represent or offer for sale within the Territory any product which competes
with an existing ITEC product or any product which ITEC has under active
development.

3.1.2. Actively solicit all potential customers within the Territory in a systematic and
businesslike manner.
3.1.3. Inform ITEC of all request for proposals, requests for bids, invitations to bid and
the like within the Territory.
3.1.4. Attain the Annual Sales Goal for the Territory established by ITEC. The Sales
Goals for the first 24 months is set forth on Attachment two (2) hereto. The Sales
Goal for additional twelve month periods, if any, shall be sent to the Sales Agent by
ITEC at the beginning of each period. These Sales Goals shall be incorporated into
this Agreement and made a part hereof.
xxx xxx xxx
6.0. Representative as Independent Contractor
xxx xxx xxx
6.2. When acting under this Agreement REPRESENTATIVE is authorized to solicit
sales within the Territory on ITECs behalf but is authorized to bind ITEC only in its
capacity as Representative and no other, and then only to specific customers and on
terms and conditions expressly authorized by ITEC in writing.[17]
Aside from the abovestated provisions, petitioners point out the following
matters of record, which allegedly witness to the respondents' activities within the
Philippines in pursuit of their business dealings:
a. While petitioner ASPAC was the authorized exclusive representative for three (3)
years, it solicited from and closed several sales for and on behalf of private
respondents as to their products only and no other, to PLDT, worth no less than US
$15 Million (p. 20, tsn, Feb. 18, 1991);
b. Contract No. 1 (Exhibit for Petitioners) which covered these sales and identified by
private respondents sole witness, Mr. Clarence Long, is not in the name of petitioner
ASPAC as such representative, but in the name of private respondent ITEC, INC. (p.
20, tsn, Feb. 18, 1991);
c. The document denominated as PLDT-ASPAC/ITEC PROTOCOL (Annex C of the
original and amended complaints) which defined the responsibilities of the parties
thereto as to the supply, installation and maintenance of the ITEC equipment sold
under said Contract No. 1 is, as its very title indicates, in the names jointly of the
petitioner ASPAC and private respondents;

d. To evidence receipt of the purchase price of US $15 Million, private respondent

ITEC, Inc. issued in its letter head, a Confirmation of payment dated November 13,
1989 and its Invoice dated November 22, 1989 (Annexes 1 and 2 of the Motion to
Dismiss and marked as Exhibits 2 and 3 for the petitioners), both of which were
identified by private respondents sole witness, Mr. Clarence Long (pp. 25-27, tsn,
Feb. 18, 1991).[18]
Petitioners contend that the above acts or activities belie the supposed
independence of petitioner ASPAC from private respondents. The unrebutted
evidence on record below for the petitioners likewise reveal the continuous character
of doing business in the Philippines by private respondents based on the standards
laid down by this Court in Wang Laboratories, Inc. vs. Hon. Rafael T. Mendoza, et al.
[19]
and again in TOP-WELD. (supra) It thus appears that as the respondent Court of
Appeals and the trial courts failure to give credence on the grounds relied upon in
support of their Motion to Dismiss that petitioners ascribe grave abuse of discretion
amounting to an excess of jurisdiction of said courts.
Petitioners likewise argue that since private respondents have no capacity to
bring suit here, the Philippines is not the most convenient forum because the trial
court is devoid of any power to enforce its orders issued or decisions rendered in a
case that could not have been commenced to begin with, such that in insisting to
assume and exercise jurisdiction over the case below, the trial court had gravely
abused its discretion and even actually exceeded its jurisdiction.
As against petitioners insistence that private respondent is doing business in the
Philippines, the latter maintains that it is not.
We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the Rules and
Regulations Implementing the Omnibus Investments Code of 1987, the following:
(1) A foreign firm is deemed not engaged in business in the Philippines if it transacts
business through middlemen, acting in their own names, such as indebtors,
commercial bookers or commercial merchants.
(2) A foreign corporation is deemed not doing business if its representative domiciled
in the Philippines has an independent status in that it transacts business in its name
and for its account.[20]
Private respondent argues that a scrutiny of its Representative Agreement with
the Petitioners will show that although ASPAC was named as representative of ITEC.,
ASPAC actually acted in its own name and for its own account. The following
provisions are particularly mentioned:

3.1.7.1. In the event that REPRESENTATIVE imports directly from ITEC,

REPRESENTATIVE will pay for its own account; all customs duties and import fees
imposed on any ITEC products; all import expediting or handling charges and
expenses imposed on ITEC products; and any stamp tax fees imposed on ITEC.
xxx xxx xxx
4.1. As complete consideration and payment for acting as representative under this
Agreement, REPRESENTATIVE shall receive a sales commission equivalent to a
percentum of the FOB value of all ITEC equipment sold to customers within the
territory as a direct result of REPRESENTATIVEs sales efforts.[21]
More importantly, private respondents charge ASPAC of admitting its
independence from ITEC by entering and ascribing to provision No. 6 of the
Representative Agreement.
6.0. Representative as Independent Contractor
6.1. When performing any of its duties under this Agreement, REPRESENTATIVE
shall act as an independent contractor and not as an employee, worker, laborer,
partner, joint venturer of ITEC as these terms are defined by the laws, regulations,
decrees or the like of any jurisdiction, including the jurisdiction of the United States,
the state of Alabama and the Territory.[22]
Although it admits that the Representative Agreement contains provisions which
both support and belie the independence of ASPAC, private respondents echoes the
respondent courts finding that the lower court did not commit grave abuse of
discretion nor acted in excess of jurisdiction when it found that the ground relied upon
by the petitioners in their motion to dismiss does not appear to be indubitable.[23]
The issues before us now are whether or not private respondent ITEC is an
unlicensed corporation doing business in the Philippines, and if it is, whether or not
this fact bars it from invoking the injunctive authority of our courts.
Considering the above, it is necessary to state what is meant by doing business
in the Philippines. Section 133 of the Corporation Code, provides that No foreign
corporation, transacting business in the Philippines without a license, or its
successors or assigns, shall be permitted to maintain or intervene in any action, suit
or proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine Courts or
administrative tribunals on any valid cause of action recognized under Philippine
laws.[24]

Generally, a foreign corporation has no legal existence within the state in which
it is foreign. This proceeds from the principle that juridical existence of a corporation is
confined within the territory of the state under whose laws it was incorporated and
organized, and it has no legal status beyond such territory. Such foreign corporation
may be excluded by any other state from doing business within its limits, or conditions
may be imposed on the exercise of such privileges. [25] Before a foreign corporation
can transact business in this country, it must first obtain a license to transact business
in the Philippines, and a certificate from the appropriate government agency. If it
transacts business in the Philippines without such a license, it shall not be permitted
to maintain or intervene in any action, suit, or proceeding in any court or
administrative agency of the Philippines, but it may be sued on any valid cause of
action recognized under Philippine laws.[26]
In a long line of decisions, this Court has not altogether prohibited a foreign
corporation not licensed to do business in the Philippines from suing or maintaining
an action in Philippine Courts. What it seeks to prevent is a foreign corporation doing
business in the Philippines without a license from gaining access to Philippine Courts.
[27]

The purpose of the law in requiring that foreign corporations doing business in
the Philippines be licensed to do so and that they appoint an agent for service of
process is to subject the foreign corporation doing business in the Philippines to the
jurisdiction of its courts. The object is not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring a domicile for the purpose of
business without taking steps necessary to render it amenable to suit in the local
courts.[28] The implication of the law is that it was never the purpose of the legislature
to exclude a foreign corporation which happens to obtain an isolated order for
business from the Philippines, and thus, in effect, to permit persons to avoid their
contracts made with such foreign corporations.[29]
There is no exact rule or governing principle as to what constitutes doing or
engaging or transacting business. Indeed, such case must be judged in the light of its
peculiar circumstances, upon its peculiar facts and upon the language of the statute
applicable. The true test, however, seems to be whether the foreign corporation is
continuing the body or substance of the business or enterprise for which it was
organized.[30]
Article 44 of the Omnibus Investments Code of 1987 defines the phrase to
include:
soliciting orders, purchases, service contracts, opening offices, whether called liaison
offices or branches; appointing representatives or distributors who are domiciled in
the Philippines or who in any calendar year stay in the Philippines for a period or
periods totaling one hundred eighty (180) days or more; participating in the

management, supervision or control of any domestic business firm, entity or

corporation in the Philippines, and any other act or acts that imply a continuity or
commercial dealings or arrangements and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization.
Thus, a foreign corporation with a settling agent in the Philippines which issued
twelve marine policies covering different shipments to the Philippines [31]and a foreign
corporation which had been collecting premiums on outstanding policies [32] were
regarded as doing business here.

With the abovestated precedents in mind, we are persuaded to conclude that

private respondent had been engaged in or doing business in the Philippines for
some time now. This is the inevitable result after a scrutiny of the different contracts
and agreements entered into by ITEC with its various business contacts in the
country, particularly ASPAC and Telephone Equipment Sales and Services, Inc.
(TESSI, for brevity). The latter is a local electronics firm engaged by ITEC to be its
local technical representative, and to create a service center for ITEC products sold
locally. Its arrangements, with these entities indicate convincingly ITECs purpose to
bring about the situation among its customers and the general public that they are
dealing directly with ITEC, and that ITEC is actively engaging in business in the
country.

The same rule was observed relating to a foreign corporation with an exclusive
distributing agent in the Philippines, and which has been selling its products here
since 1929,[33] and a foreign corporation engaged in the business of manufacturing
and selling computers worldwide, and had installed at least 26 different products in
several corporations in the Philippines, and allowed its registered logo and trademark
to be used and made it known that there exists a designated distributor in the
Philippines.[34]

In its Master Service Agreement [39] with TESSI, private respondents required its
local technical representative to provide the employees of the technical and service
center with ITEC identification cards and business cards, and to correspond only on
ITEC, Inc., letterhead. TESSI personnel are instructed to answer the telephone with
ITEC Technical Assistance Center., such telephone being listed in the telephone book
under the heading of ITEC Technical Assistance Center, and all calls being recorded
and forwarded to ITEC on a weekly basis.

In Georg Grotjahn GMBH and Co. vs. Isnani,[35] it was held that the
uninterrupted performance by a foreign corporation of acts pursuant to its primary
purposes and functions as a regional area headquarters for its home office, qualifies
such corporation as one doing business in the country.

What is more, TESSI was obliged to provide ITEC with a monthly report
detailing the failure and repair of ITEC products, and to requisition monthly the
materials and components needed to replace stock consumed in the warranty repairs
of the prior month.

These foregoing instances should be distinguished from a single or isolated

transaction or occasional, incidental, or casual transactions, which do not come within
the meaning of the law,[36] for in such case, the foreign corporation is deemed not
engaged in business in the Philippines.

A perusal of the agreements between petitioner ASPAC and the respondents

shows that there are provisions which are highly restrictive in nature, such as to
reduce petitioner ASPAC to a mere extension or instrument of the private respondent.

Where a single act or transaction, however, is not merely incidental or casual

but indicates the foreign corporations intention to do other business in the Philippines,
said single act or transaction constitutes doing or engaging in or transacting business
in the Philippines.[37]
In determining whether a corporation does business in the Philippines or not,
aside from their activities within the forum, reference may be made to the contractual
agreements entered into by it with other entities in the country. Thus, in the Top-Weld
case (supra), the foreign corporations LICENSE AND TECHNICAL AGREEMENT and
DISTRIBUTOR AGREEMENT with their local contacts were made the basis of their
being regarded by this Tribunal as corporations doing business in the country.
Likewise, in Merill Lynch Futures, Inc. vs. Court of Appeals, etc.[38] the FUTURES
CONTRACT entered into by the petitioner foreign corporation weighed heavily in the
courts ruling.

The No Competing Product provision of the Representative Agreement between

ITEC and ASPAC provides: The Representative shall not represent or offer for sale
within the Territory any product which competes with an existing ITEC product or any
product which ITEC has under active development. Likewise pertinent is the following
provision: When acting under this Agreement, REPRESENTATIVE is authorized to
solicit sales within the Territory on ITECs behalf but is authorized to bind ITEC only in
its capacity as Representative and no other, and then only to specific customers and
on terms and conditions expressly authorized by ITEC in writing.
When ITEC entered into the disputed contracts with ASPAC and TESSI, they
were carrying out the purposes for which it was created, i.e., to market electronics
and communications products. The terms and conditions of the contracts as well as
ITECs conduct indicate that they established within our country a continuous
business, and not merely one of a temporary character.[40]

Notwithstanding such finding that ITEC is doing business in the country,

petitioner is nonetheless estopped from raising this fact to bar ITEC from instituting
this injunction case against it.
A foreign corporation doing business in the Philippines may sue in Philippine
Courts although not authorized to do business here against a Philippine citizen or
entity who had contracted with and benefited by said corporation.[41] To put it in
another way, a party is estopped to challenge the personality of a corporation after
having acknowledged the same by entering into a contract with it. And the doctrine of
estoppel to deny corporate existence applies to a foreign as well as to domestic
corporations.[42] One who has dealt with a corporation of foreign origin as a corporate
entity is estopped to deny its corporate existence and capacity. The principle will be
applied to prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes chiefly in cases where such person
has received the benefits of the contract.[43]
The rule is deeply rooted in the time-honored axiom of Commodum ex injuria
sua non habere debet - no person ought to derive any advantage of his own
wrong. This is as it should be for as mandated by law, every person must in the
exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.[44]
Concededly, corporations act through agents like directors and officers.
Corporate dealings must be characterized by utmost good faith and fairness.
Corporations cannot just feign ignorance of the legal rules as in most cases, they are
manned by sophisticated officers with tried management skills and legal experts with
practiced eye on legal problems. Each party to a corporate transaction is expected to
act with utmost candor and fairness and, thereby allow a reasonable proportion
between benefits and expected burdens. This is a norm which should be observed
where one or the other is a foreign entity venturing in a global market.
As observed by this Court in TOP-WELD (supra), viz:
The parties are charged with knowledge of the existing law at the time they
enter into a contract and at the time it is to become operative. (Twiehaus v. Rosner,
245 SW 2d 107; Hall v. Bucher, 227 SW 2d 98). Moreover, a person is presumed to
be more knowledgeable about his own state law than his alien or foreign
contemporary. In this case, the record shows that, at least, petitioner had actual
knowledge of the applicability of R.A. No. 5455 at the time the contract was executed
and at all times thereafter. This conclusion is compelled by the fact that the same
statute is now being propounded by the petitioner to bolster its claim. We, therefore
sustain the appellate courts view that it was incumbent upon TOP-WELD to know
whether or not IRTI and ECED were properly authorized to engage in business in the
Philippines when they entered into the licensing and distributorship agreements. The

very purpose of the law was circumvented and evaded when the petitioner entered
into said agreements despite the prohibition of R.A. No. 5455. The parties in this case
being equally guilty of violating R.A. No. 5455, they are in pari delicto, in which case it
follows as a consequence that petitioner is not entitled to the relief prayed for in this
case.
The doctrine of lack of capacity to sue based on the failure to acquire a local
license is based on considerations of sound public policy. The license requirement
was imposed to subject the foreign corporation doing business in the Philippines to
the jurisdiction of its courts. It was never intended to favor domestic corporations who
enter into solitary transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business in this country.[45]
In Antam Consolidated Inc. vs. Court of Appeals, et al.[46] we expressed our
chagrin over this commonly used scheme of defaulting local companies which are
being sued by unlicensed foreign companies not engaged in business in the
Philippines to invoke the lack of capacity to sue of such foreign
companies. Obviously, the same ploy is resorted to by ASPAC to prevent the
injunctive action filed by ITEC to enjoin petitioner from using knowledge possibly
acquired in violation of fiduciary arrangements between the parties.
By entering into the Representative Agreement with ITEC, Petitioner is charged
with knowledge that ITEC was not licensed to engage in business activities in the
country, and is thus estopped from raising in defense such incapacity of ITEC, having
chosen to ignore or even presumptively take advantage of the same.
In Top-Weld, we ruled that a foreign corporation may be exempted from the
license requirement in order to institute an action in our courts if its representative in
the country maintained an independent status during the existence of the disputed
contract. Petitioner is deemed to have acceded to such independent character when
it entered into the Representative Agreement with ITEC, particularly, provision 6.2
(supra).
Petitioners insistence on the dismissal of this action due to the application, or
non application, of the private international law rule of forum non conveniens defies
well-settled rules of fair play. According to petitioner, the Philippine Court has no
venue to apply its discretion whether to give cognizance or not to the present action,
because it has not acquired jurisdiction over the person of the plaintiff in the case, the
latter allegedly having no personality to sue before Philippine Courts. This argument
is misplaced because the court has already acquired jurisdiction over the plaintiff in
the suit, by virtue of his filing the original complaint. And as we have already
observed, petitioner are not at liberty to question plaintiffs standing to sue, having
already acceded to the same by virtue of its entry into the Representative Agreement
referred to earlier.

Thus, having acquired jurisdiction, it is now for the Philippine Court, based on
the facts of the case, whether to give due course to the suit or dismiss it, on the
principle of forum non conveniens.[47] Hence, the Philippine Court may refuse to
assume jurisdiction in spite of its having acquired jurisdiction. Conversely, the court
may assume jurisdiction over the case if it chooses to do so; provided, that the
following requisites are met: 1) That the Philippine Court is one to which the parties
may conveniently resort to; 2) That the Philippine Court is in a position to make an
intelligent decision as to the law and the facts; and, 3) That the Philippine Court has
or is likely to have power to enforce its decision.[48]
The aforesaid requirements having been met, and in view of the courts
disposition to give due course to the questioned action, the matter of the present
forum not being the most convenient as a ground for the suits dismissal, deserves
scant consideration.
IN VIEW OF THE FOREGOING PREMISES, the instant Petition is hereby
DISMISSED. The decision of the Court of Appeals dated June 7, 1991, upholding the
RTC Order dated February 22, 1991, denying the petitioners Motion to Dismiss, and
ordering the issuance of the Writ of Preliminary Injunction is hereby affirmed in toto.
SO ORDERED.

G.R. No. 115849

January 24, 1996

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank of the

Philippines) and MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of DEMETRIO
DEMETRIA, and JOSE JANOLO,respondents.
DECISION
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by bank officers in
an exchange of letters and/or in a meeting with the buyers constitute a perfected and
enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does
the doctrine of "apparent authority" apply in this case? If so, may the Central Bankappointed conservator of Producers Bank (now First Philippine International Bank)
repudiate such "apparent authority" after said contract has been deemed perfected?
During the pendency of a suit for specific performance, does the filing of a "derivative
suit" by the majority shareholders and directors of the distressed bank to prevent the
enforcement or implementation of the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant
Petition for review on certiorariunder Rule 45 of the Rules of Court, to set aside the
Decision promulgated January 14, 1994 of the respondent Court of Appeals1 in CAG.R CV No. 35756 and the Resolution promulgated June 14, 1994 denying the
motion for reconsideration. The dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED by the
elimination of the damages awarded under paragraphs 3, 4 and 6 of its
dispositive portion and the reduction of the award in paragraph 5 thereof to
P75,000.00, to be assessed against defendant bank. In all other aspects,
said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive
portion are deemed, herein and hereafter, to legally refer to the plaintiffappellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial court's2 decision dated July 10, 1991, on the other
hand, is as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiffs and against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six
(6) parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of
101 hectares, more or less, covered by and embraced in Transfer
Certificates of Title Nos. T-106932 to T-106937, inclusive, of the Land
Records of Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half Million
(P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this
decision and receipt from the plaintiffs the amount of P5.5 Million, to execute
in favor of said plaintiffs a deed of absolute sale over the aforementioned six
(6) parcels of land, and to immediately deliver to the plaintiffs the owner's
copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for purposes of
registration of the same deed and transfer of the six (6) titles in the names of
the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A.
Janolo and Demetrio Demetria the sums of P200,000.00 each in moral
damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of
P100,000.00 as exemplary damages ;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the
amount of P400,000.00 for and by way of attorney's fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual
and moderate damages in the amount of P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to surrejoinder, the petition was given due course in a Resolution dated January 18, 1995.
Thence, the parties filed their respective memoranda and reply memoranda. The First
Division transferred this case to the Third Division per resolution dated October 23,
1995. After carefully deliberating on the aforesaid submissions, the Court assigned
the case to the undersigned ponentefor the writing of this Decision.
The Parties
Petitioner First Philippine International Bank (formerly Producers Bank of the
Philippines; petitioner Bank, for brevity) is a banking institution organized and existing
under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera
(petitioner Rivera, for brevity) is of legal age and was, at all times material to this
case, Head-Manager of the Property Management Department of the petitioner Bank.

Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is the
assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.

T-106932

113,580 sq. m.

T-106933

70,899 sq. m.

T-106934

52,246 sq. m.

T-106935

96,768 sq. m.

T-106936

187,114 sq. m.

T-106937

481,481 sq. m.

Respondent Court of Appeals is the court which issued the Decision and Resolution
sought to be set aside through this petition.
The Facts
The facts of this case are summarized in the respondent Court's Decision3 as follows:
(1) In the course of its banking operations, the defendant Producer Bank of
the Philippines acquired six parcels of land with a total area of 101 hectares
located at Don Jose, Sta. Rose, Laguna, and covered by Transfer
Certificates of Title Nos. T-106932 to T-106937. The property used to be
owned by BYME Investment and Development Corporation which had them
mortgaged with the bank as collateral for a loan. The original plaintiffs,
Demetrio Demetria and Jose O. Janolo, wanted to purchase the property
and thus initiated negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of
BYME investment's legal counsel, Jose Fajardo, met with defendant
Mercurio Rivera, Manager of the Property Management Department of the
defendant bank. The meeting was held pursuant to plaintiffs' plan to buy the
property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting, plaintiff Janolo,
following the advice of defendant Rivera, made a formal purchase offer to
the bank through a letter dated August 30, 1987 (Exh. "B"), as follows:

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND

(P3,500,000.00) PESOS, in cash.
Kindly contact me at Telephone Number 921-1344.

August 30, 1987

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a

formal reply by letter which is hereunder quoted (Exh. "C"):

The Producers Bank of the Philippines

Makati, Metro Manila

September 1, 1987

Attn. Mr. Mercurio Q. Rivera

Manager, Property Management Dept.
Gentleman:

JP M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila

I have the honor to submit my formal offer to purchase your properties

covered by titles listed hereunder located at Sta. Rosa, Laguna, with a total
area of 101 hectares, more or less.

Attention: JOSE O. JANOLO

Dear Sir:

TCT NO.

AREA

Thank you for your letter-offer to buy our six (6) parcels of acquired lots at
Sta. Rosa, Laguna (formerly owned by Byme Industrial Corp.). Please be

informed however that the bank's counter-offer is at P5.5 million for more
than 101 hectares on lot basis.
We shall be very glad to hear your position on the on the matter.

Pursuant to our discussion last 28 September 1987, we are pleased to

inform you that we are accepting your offer for us to purchase the property at
Sta. Rosa, Laguna, formerly owned by Byme Investment, for a total price of
PESOS: FIVE MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).

Best regards.

Thank you.

(4) On September 17, 1987, plaintiff Janolo, responding to Rivera's

aforequoted reply, wrote (Exh. "D"):

(6) On October 12, 1987, the conservator of the bank (which has been
placed under conservatorship by the Central Bank since 1984) was replaced
by an Acting Conservator in the person of defendant Leonida T.
Encarnacion. On November 4, 1987, defendant Rivera wrote plaintiff
Demetria the following letter (Exh. "F"):

September 17, 1987

Attention: Atty. Demetrio Demetria
Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:

Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme
investment Corp. located at Sta. Rosa, Laguna is under study yet as of this
time by the newly created committee for submission to the newly designated
Acting Conservator of the bank.
For your information.

In reply to your letter regarding my proposal to purchase your 101-hectare

lot located at Sta. Rosa, Laguna, I would like to amend my previous offer
and I now propose to buy the said lot at P4.250 million in CASH..
Hoping that this proposal meets your satisfaction.
(5) There was no reply to Janolo's foregoing letter of September 17, 1987.
What took place was a meeting on September 28, 1987 between the
plaintiffs and Luis Co, the Senior Vice-President of defendant bank. Rivera
as well as Fajardo, the BYME lawyer, attended the meeting. Two days later,
or on September 30, 1987, plaintiff Janolo sent to the bank, through Rivera,
the following letter (Exh. "E"):

(7) What thereafter transpired was a series of demands by the plaintiffs for
compliance by the bank with what plaintiff considered as a perfected
contract of sale, which demands were in one form or another refused by the
bank. As detailed by the trial court in its decision, on November 17, 1987,
plaintiffs through a letter to defendant Rivera (Exhibit "G") tendered payment
of the amount of P5.5 million "pursuant to (our) perfected sale agreement."
Defendants refused to receive both the payment and the letter. Instead, the
parcels of land involved in the transaction were advertised by the bank for
sale to any interested buyer (Exh, "H" and "H-1"). Plaintiffs demanded the
execution by the bank of the documents on what was considered as a
"perfected agreement." Thus:

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Attention: Mr. Mercurio Rivera

Dear Mr. Rivera:

Re: 101 Hectares of Land

in Sta. Rosa, Laguna
Gentlemen:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to
purchase your 101-hectare lot located in Sta. Rosa, Laguna, and which are
covered by TCT No. T-106932 to 106937.

From the documents at hand, it appears that your counter-offer dated

September 1, 1987 of this same lot in the amount of P5.5 million was
accepted by our client thru a letter dated September 30, 1987 and was
received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been
perfected. We were also informed that despite repeated follow-up to
consummate the purchase, you now refuse to honor your commitment.
Instead, you have advertised for sale the same lot to others.
In behalf of our client, therefore, we are making this formal demand upon
you to consummate and execute the necessary actions/documentation
within three (3) days from your receipt hereof. We are ready to remit the
agreed amount of P5.5 million at your advice. Otherwise, we shall be
constrained to file the necessary court action to protect the interest of our
client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the
foregoing letter and stated, in its communication of December 2, 1987 (Exh.
"I"), that said letter has been "referred . . . to the office of our Conservator for
proper disposition" However, no response came from the Acting
Conservator. On December 14, 1987, the plaintiffs made a second tender of
payment (Exh. "L" and "L-1"), this time through the Acting Conservator,
defendant Encarnacion. Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr. JOSE O.
JANOLO, MBTC Check No. 258387 in the amount of P5.5 million as our
agreed purchase price of the 101-hectare lot covered by TCT Nos. 106932,
106933, 106934, 106935, 106936 and 106937 and registered under
Producers Bank.
This is in connection with the perfected agreement consequent from your
offer of P5.5 Million as the purchase price of the said lots. Please inform us
of the date of documentation of the sale immediately.
Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then,
on May 3, 1988, plaintiff, through counsel, made a final demand for
compliance by the bank with its obligations under the considered perfected
contract of sale (Exhibit "N"). As recounted by the trial court (Original
Record, p. 656), in a reply letter dated May 12, 1988 (Annex "4" of
defendant's answer to amended complaint), the defendants through Acting
Conservator Encarnacion repudiated the authority of defendant Rivera and
claimed that his dealings with the plaintiffs, particularly his counter-offer of
P5.5 Million are unauthorized or illegal. On that basis, the defendants
justified the refusal of the tenders of payment and the non-compliance with
the obligations under what the plaintiffs considered to be a perfected
contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific performance with
damages against the bank, its Manager Rivers and Acting Conservator
Encarnacion. The basis of the suit was that the transaction had with the
bank resulted in a perfected contract of sale, The defendants took the
position that there was no such perfected sale because the defendant Rivera
is not authorized to sell the property, and that there was no meeting of the
minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel
Sycip Salazar Hernandez and Gatmaitan, filed a motion to intervene in the
trial court, alleging that as owner of 80% of the Bank's outstanding shares of
stock, he had a substantial interest in resisting the complaint. On July 8,
1991, the trial court issued an order denying the motion to intervene on the
ground that it was filed after trial had already been concluded. It also denied
a motion for reconsideration filed thereafter. From the trial court's decision,
the Bank, petitioner Rivera and conservator Encarnacion appealed to the
Court of Appeals which subsequently affirmed with modification the said
judgment. Henry Co did not appeal the denial of his motion for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was
substituted in place of Demetria and Janolo, in view of the assignment of the latters'
rights in the matter in litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals,
Henry Co and several other stockholders of the Bank, through counsel Angara Abello
Concepcion Regala and Cruz, filed an action (hereafter, the "Second Case")
purportedly a "derivative suit" with the Regional Trial Court of Makati, Branch 134,
docketed as Civil Case No. 92-1606, against Encarnacion, Demetria and Janolo "to
declare any perfected sale of the property as unenforceable and to stop Ejercito from
enforcing or implementing the sale"4 In his answer, Janolo argued that the Second
Case was barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a Motion
for Leave of Court to Dismiss the Case Without Prejudice. "Private respondent
opposed this motion on the ground, among others, that plaintiff's act of forum
shopping justifies the dismissal of both cases, with prejudice."5 Private respondent, in
his memorandum, averred that this motion is still pending in the Makati RTC.

In their Petition6 and Memorandum7, petitioners summarized their position as follows:

I.
The Court of Appeals erred in declaring that a contract of sale was perfected
between Ejercito (in substitution of Demetria and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an enforceable
contract of sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator does not have
the power to overrule or revoke acts of previous management.

The Issues
From the foregoing positions of the parties, the issues in this case may be summed
up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the statute
of frauds?
4) Did the bank conservator have the unilateral power to repudiate the
authority of the bank officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of
facts?

IV.
The First Issue: Was There Forum-Shopping?
The findings and conclusions of the Court of Appeals do not conform to the
evidence on record.
On the other hand, petitioners prayed for dismissal of the instant suit on the
ground8 that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals are supported
by the evidence on record and may no longer be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected contract
between Demetria and Janolo (substituted by; respondent Ejercito) and the
bank.
IV.
The Court of Appeals has correctly held that the conservator, apart from
being estopped from repudiating the agency and the contract, has no
authority to revoke the contract of sale.

In order to prevent the vexations of multiple petitions and actions, the Supreme Court
promulgated Revised Circular No. 28-91 requiring that a party "must certify under
oath . . . [that] (a) he has not (t)heretofore commenced any other action or proceeding
involving the same issues in the Supreme Court, the Court of Appeals, or any other
tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is
pending" in said courts or agencies. A violation of the said circular entails sanctions
that include the summary dismissal of the multiple petitions or complaints. To be sure,
petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating
"for the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial
Court of Makati, Branch 134, involving aderivative suit filed by stockholders of
petitioner Bank against the conservator and other defendants but which is the subject
of a pending Motion to Dismiss Without Prejudice.9
Private respondent Ejercito vigorously argues that in spite of this verification,
petitioners are guilty of actual forum shopping because the instant petition pending
before this Court involves "identical parties or interests represented, rights asserted
and reliefs sought (as that) currently pending before the Regional Trial Court, Makati
Branch 134 in the Second Case. In fact, the issues in the two cases are so interwined
that a judgement or resolution in either case will constitute res judicata in the other." 10
On the other hand, petitioners explain 11 that there is no forum-shopping because:
1) In the earlier or "First Case" from which this proceeding arose, the Bank
was impleaded as a defendant, whereas in the "Second Case" (assuming
the Bank is the real party in interest in a derivative suit), it wasplaintiff;

2) "The derivative suit is not properly a suit for and in behalf of the
corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the
Bank president and attached to the Petition identifies the action as a
"derivative suit," it "does not mean that it is one" and "(t)hat is a legal
question for the courts to decide";
4) Petitioners did not hide the Second Case at they mentioned it in the said
VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private international law.12,
where non-resident litigants are given the option to choose the forum or place
wherein to bring their suit for various reasons or excuses, including to secure
procedural advantages, to annoy and harass the defendant, to avoid overcrowded
dockets, or to select a more friendly venue. To combat these less than honorable
excuses, the principle of forum non convenienswas developed whereby a court, in
conflicts of law cases, may refuse impositions on its jurisdiction where it is not the
most "convenient" or available forum and the parties are not precluded from seeking
remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs when a party
attempts to have his action tried in a particular court or jurisdiction where he feels he
will receive the most favorable judgment or verdict." Hence, according to Words and
Phrases14, "a litigant is open to the charge of "forum shopping" whenever he chooses
a forum with slight connection to factual circumstances surrounding his suit, and
litigants should be encouraged to attempt to settle their differences without imposing
undue expenses and vexatious situations on the courts".
In the Philippines, forum shopping has acquired a connotation encompassing not only
a choice of venues, as it was originally understood in conflicts of laws, but also to a
choice of remedies. As to the first (choice of venues), the Rules of Court, for example,
allow a plaintiff to commence personal actions "where the defendant or any of the
defendants resides or may be found, or where the plaintiff or any of the plaintiffs
resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]). As to remedies, aggrieved
parties, for example, are given a choice of pursuing civil liabilities independently of the
criminal, arising from the same set of facts. A passenger of a public utility vehicle
involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or
culpa criminal each remedy being available independently of the others
although he cannot recover more than once.
In either of these situations (choice of venue or choice of remedy), the
litigant actually shops for a forum of his action, This was the original concept
of the term forum shopping.
Eventually, however, instead of actually making a choice of the forum of their
actions, litigants, through the encouragement of their lawyers, file their

actions in all available courts, or invoke all relevant remedies simultaneously.

This practice had not only resulted to (sic) conflicting adjudications among
different courts and consequent confusion enimical (sic) to an orderly
administration of justice. It had created extreme inconvenience to some of
the parties to the action.
Thus, "forum shopping" had acquired a different concept which is
unethical professional legal practice. And this necessitated or had given rise
to the formulation of rules and canons discouraging or altogether prohibiting
the practice. 15
What therefore originally started both in conflicts of laws and in our domestic law as a
legitimate device for solving problems has been abused and mis-used to assure
scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme Court,
as already mentioned, promulgated Circular 28-91. And even before that, the Court
had prescribed it in the Interim Rules and Guidelines issued on January 11, 1983 and
had struck down in several cases 16 the inveterate use of this insidious malpractice.
Forum shopping as "the filing of repetitious suits in different courts" has been
condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural
Resources, et al., vs. Heirs of Orval Hughes, et al., "as a reprehensible manipulation
of court processes and proceedings . . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in one
forum, a party seeks a favorable opinion (other than by appeal or certiorari)
in another. The principle applies not only with respect to suits filed in the
courts but also in connection with litigations commenced in the courts while
an administrative proceeding is pending, as in this case, in order to defeat
administrative processes and in anticipation of an unfavorable administrative
ruling and a favorable court ruling. This is specially so, as in this case, where
the court in which the second suit was brought, has no jurisdiction.18
The test for determining whether a party violated the rule against forum shopping has
been laid dawn in the 1986 case of Buan vs. Lopez 19, also by Chief Justice Narvasa,
and that is, forum shopping exists where the elements oflitis pendentia are present or
where a final judgment in one case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and RTC Case No.
86-36563 identity of parties, or at least such parties as represent the same
interests in both actions, as well as identity of rights asserted and relief
prayed for, the relief being founded on the same facts, and the identity on
the two preceding particulars is such that any judgment rendered in the other
action, will, regardless of which party is successful, amount tores
adjudicata in the action under consideration: all the requisites, in fine,
of auter action pendant.
xxx

xxx

xxx

As already observed, there is between the action at bar and RTC Case No.
86-36563, an identity as regards parties, or interests represented, rights
asserted and relief sought, as well as basis thereof, to a degree sufficient to
give rise to the ground for dismissal known as auter action pendant or lis
pendens. That same identity puts into operation the sanction of twin
dismissals just mentioned. The application of this sanction will prevent any
further delay in the settlement of the controversy which might ensue from
attempts to seek reconsideration of or to appeal from the Order of the
Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15,
1986, which dismissed the petition upon grounds which appear persuasive.
Consequently, where a litigant (or one representing the same interest or person) sues
the same party against whom another action or actions for the alleged violation of the
same right and the enforcement of the same relief is/are still pending, the defense
of litis pendencia in one case is bar to the others; and, a final judgment in one would
constituteres judicata and thus would cause the dismissal of the rest. In either case,
forum shopping could be cited by the other party as a ground to ask for summary
dismissal of the two 20 (or more) complaints or petitions, and for imposition of the
other sanctions, which are direct contempt of court, criminal prosecution, and
disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the
Second Case, it is obvious that there exist identity of parties or interests represented,
identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the
instant petition was filed by the buyer (herein private respondent and his
predecessors-in-interest) against the seller (herein petitioners) to enforce the alleged
perfected sale of real estate. On the other hand, the complaint 21 in the Second Case
seeks to declare such purported sale involving the same real property "as
unenforceable as against the Bank", which is the petitioner herein. In other words, in
the Second Case, the majority stockholders, in representation of the Bank, are
seeking to accomplish what the Bank itself failed to do in the original case in the trial
court. In brief, the objective or the relief being sought, though worded differently, is the
same, namely, to enable the petitioner Bank to escape from the obligation to sell the
property to respondent. In Danville Maritime, Inc. vs. Commission on Audit. 22, this
Court ruled that the filing by a party of two apparently different actions, but with
the same objective, constituted forum shopping:
In the attempt to make the two actions appear to be different, petitioner
impleaded different respondents therein PNOC in the case before the
lower court and the COA in the case before this Court and sought what
seems to be different reliefs. Petitioner asks this Court to set aside the
questioned letter-directive of the COA dated October 10, 1988 and to direct
said body to approve the Memorandum of Agreement entered into by and
between the PNOC and petitioner, while in the complaint before the lower
court petitioner seeks to enjoin the PNOC from conducting a rebidding and
from selling to other parties the vessel "T/T Andres Bonifacio", and for an
extension of time for it to comply with the paragraph 1 of the memorandum
of agreement and damages. One can see that although the relief prayed for

in the two (2) actions are ostensibly different, the ultimate objective in both
actions is the same, that is, approval of the sale of vessel in favor of
petitioner and to overturn the letter-directive of the COA of October 10, 1988
disapproving the sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant special civil action
for certiorari and prohibition in this Court despite the pendency of their action
in the Makati Regional Trial Court, is a species of forum-shopping. Both
actions unquestionably involve the same transactions, the same essential
facts and circumstances. The petitioners' claim of absence of identity simply
because the PCGG had not been impleaded in the RTC suit, and the suit did
not involve certain acts which transpired after its commencement, is
specious. In the RTC action, as in the action before this Court, the validity of
the contract to purchase and sell of September 1, 1986, i.e., whether or not it
had been efficaciously rescinded, and the propriety of implementing the
same (by paying the pledgee banks the amount of their loans, obtaining the
release of the pledged shares, etc.) were the basic issues. So, too, the relief
was the same: the prevention of such implementation and/or the restoration
of the status quo ante. When the acts sought to be restrained took place
anyway despite the issuance by the Trial Court of a temporary restraining
order, the RTC suit did not become functus oficio. It remained an effective
vehicle for obtention of relief; and petitioners' remedy in the premises was
plain and patent: the filing of an amended and supplemental pleading in the
RTC suit, so as to include the PCGG as defendant and seek nullification of
the acts sought to be enjoined but nonetheless done. The remedy was
certainly not the institution of another action in another forum based on
essentially the same facts, The adoption of this latter recourse renders the
petitioners amenable to disciplinary action and both their actions, in this
Court as well as in the Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests
represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not
name parties in the First Case, they represent the same interest and entity, namely,
petitioner Bank, because:
Firstly, they are not suing in their personal capacities, for they have no direct personal
interest in the matter in controversy. They are not principally or even subsidiarily
liable; much less are they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a "derivative suit". In the caption itself, petitioners claim to
have brought suit "for and in behalf of the Producers Bank of the Philippines" 24.
Indeed, this is the very essence of a derivative suit:
An individual stockholder is permitted to institute a derivative suit on behalf
of the corporation wherein he holdsstock in order to protect or vindicate
corporate rights, whenever the officials of the corporation refuse to sue, or
are the ones to be sued or hold the control of the corporation. In such

actions, the suing stockholder is regarded as a nominal party, with the

corporation as the real party in interest. (Gamboa v. Victoriano, 90 SCRA 40,
47 [1979]; emphasis supplied).
In the face of the damaging admissions taken from the complaint in the Second Case,
petitioners, quite strangely, sought to deny that the Second Case was a derivative
suit, reasoning that it was brought, not by the minority shareholders, but by Henry Co
et al., who not only own, hold or control over 80% of the outstanding capital stock, but
also constitute the majority in the Board of Directors of petitioner Bank. That being so,
then they really represent the Bank. So, whether they sued "derivatively" or directly,
there is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality Of the
Bank is separate and distinct from its shareholders. But the rulings of this Court are
consistent: "When the fiction is urged as a means of perpetrating a fraud or an illegal
act or as a vehicle for the evasion of an existing obligation, the circumvention of
statutes, the achievement or perfection of a monopoly or generally the perpetration of
knavery or crime, the veil with which the law covers and isolates the corporation from
the members or stockholders who compose it will be lifted to allow for its
consideration merely as an aggregation of individuals." 25
In addition to the many cases 26 where the corporate fiction has been disregarded, we
now add the instant case, and declare herewith that the corporate veil cannot be used
to shield an otherwise blatant violation of the prohibition against forum-shopping.
Shareholders, whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes, particularly where, as
in this case, the corporation itself has not been remiss in vigorously prosecuting or
defending corporate causes and in using and applying remedies available to it. To
rule otherwise would be to encourage corporate litigants to use their shareholders as
fronts to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs
sought, "because it (the Bank) was the defendant in the (first) case while it was the
plaintiff in the other (Second Case)",citing as authority Victronics Computers, Inc.,
vs. Regional Trial Court, Branch 63, Makati, etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for reasons known only
to him, commences a new action against the plaintiff instead of filing a
responsive pleading in the other case setting forth therein, as causes of
action, specific denials, special and affirmative defenses or even
counterclaims, Thus, Velhagen's and King's motion to dismiss Civil Case No.
91-2069 by no means negates the charge of forum-shopping as such did not
exist in the first place. (emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it
could not have chosen the forum in said case.

Respondent, on the other hand, replied that there is a difference in factual setting
between Victronics and the present suit. In the former, as underscored in the abovequoted Court ruling, the defendants did not file anyresponsive pleading in the first
case. In other words, they did not make any denial or raise any defense or counterclaim therein In the case before us however, petitioners filed a responsive pleading to
the complaint as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counterclaims in their
responsive pleadings, the petitioners became plaintiffs themselves in the original
case, giving unto themselves the very remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether forum-shopping
exists or not is the vexation caused the courts and parties-litigant by a party who asks
different courts and/or administrative agencies to rule on the same or related causes
and/or to grant the same or substantially the same reliefs, in the process creating the
possibility of conflicting decisions being rendered by the different fora upon the same
issue. In this case, this is exactly the problem: a decision recognizing the perfection
and directing the enforcement of the contract of sale will directly conflict with a
possible decision in the Second Case barring the parties front enforcing or
implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other 28.
The foregoing conclusion finding the existence of forum-shopping notwithstanding,
the only sanction possible now is the dismissal of both cases with prejudice, as the
other sanctions cannot be imposed because petitioners' present counsel entered their
appearance only during the proceedings in this Court, and the Petition's
VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency
of the Second Case to show good faith in observing Circular 28-91. The Lawyers who
filed the Second Case are not before us; thus the rudiments of due process prevent
us from motu propio imposing disciplinary measures against them in this Decision.
However, petitioners themselves (and particularly Henry Co, et al.) as litigants are
admonished to strictly follow the rules against forum-shopping and not to trifle with
court proceedings and processes They are warned that a repetition of the same will
be dealt with more severely.
Having said that, let it be emphasized that this petition should be dismissed not
merely because of forum-shopping but also because of the substantive issues raised,
as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not there was, on
the basis of the facts established, a perfected contract of sale as the ultimate issue.
Holding that a valid contract has been established, respondent Court stated:
There is no dispute that the object of the transaction is that property owned
by the defendant bank as acquired assets consisting of six (6) parcels of
land specifically identified under Transfer Certificates of Title Nos. T-106932
to T-106937. It is likewise beyond cavil that the bank intended to sell the

property. As testified to by the Bank's Deputy Conservator, Jose Entereso,

the bank was looking for buyers of the property. It is definite that the plaintiffs
wanted to purchase the property and it was precisely for this purpose that
they met with defendant Rivera, Manager of the Property Management
Department of the defendant bank, in early August 1987. The procedure in
the sale of acquired assets as well as the nature and scope of the authority
of Rivera on the matter is clearly delineated in the testimony of Rivera
himself, which testimony was relied upon by both the bank and by Rivera in
their appeal briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to
me and then I published it in the form of an inter-office
memorandum distributed to all branches that these are acquired
assets for sale. I was instructed to advertise acquired assets for
sale so on that basis, I have to entertain offer; to accept offer,
formal offer and upon having been offered, I present it to the
Committee. I provide the Committee with necessary information
about the property such as original loan of the borrower, bid price
during the foreclosure, total claim of the bank, the appraised value
at the time the property is being offered for sale and then the
information which are relative to the evaluation of the bank to buy
which the Committee considers and it is the Committee that
evaluate as against the exposure of the bank and it is also the
Committee that submit to the Conservator for final approval and
once approved, we have to execute the deed of sale and it is the
Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their
purpose of buying the property, dealt with and talked to the right person.
Necessarily, the agenda was the price of the property, and plaintiffs were
dealing with the bank official authorized to entertain offers, to accept offers
and to present the offer to the Committee before which the said official is
authorized to discuss information relative to price determination. Necessarily,
too, it being inherent in his authority, Rivera is the officer from whom official
information regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera confirmed his
authority when he talked with the plaintiff in August 1987. The testimony of
plaintiff Demetria is clear on this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr.
Mercurio Rivera, did you ask him point-blank his authority to sell
any property?
A: No, sir. Not point blank although it came from him, (W)hen I
asked him how long it would take because he was saying that the
matter of pricing will be passed upon by the committee. And when I
asked him how long it will take for the committee to decide and he
said the committee meets every week. If I am not mistaken
Wednesday and in about two week's (sic) time, in effect what he
was saying he was not the one who was to decide. But he would

refer it to the committee and he would relay the decision of the

committee to me.
Q Please answer the question.
A He did not say that he had the authority (.) But he said he
would refer the matter to the committee and he would relay the
decision to me and he did just like that.
"Parenthetically, the Committee referred to was the Past Due Committee of
which Luis Co was the Head, with Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with
the authority and the duties of Rivera and the bank's internal procedure in
the matter of the sale of bank's assets. As advised by Rivera, the plaintiffs
made a formal offer by a letter dated August 20, 1987 stating that they would
buy at the price of P3.5 Million in cash. The letter was for the attention of
Mercurio Rivera who was tasked to convey and accept such offers.
Considering an aspect of the official duty of Rivera as some sort of
intermediary between the plaintiffs-buyers with their proposed buying price
on one hand, and the bank Committee, the Conservator and ultimately the
bank itself with the set price on the other, and considering further the
discussion of price at the meeting of August resulting in a formal offer of
P3.5 Million in cash, there can be no other logical conclusion than that when,
on September 1, 1987, Rivera informed plaintiffs by letter that "the bank's
counter-offer is at P5.5 Million for more than 101 hectares on lot basis," such
counter-offer price had been determined by the Past Due Committee and
approved by the Conservator after Rivera had duly presented plaintiffs' offer
for discussion by the Committee of such matters as original loan of borrower,
bid price during foreclosure, total claim of the bank, and market value.
Tersely put, under the established facts, the price of P5.5 Million was, as
clearly worded in Rivera's letter (Exh. "E"), the official and definitive price at
which the bank was selling the property.
There were averments by defendants below, as well as before this Court,
that the P5.5 Million price was not discussed by the Committee and that
price. As correctly characterized by the trial court, this is not credible. The
testimonies of Luis Co and Jose Entereso on this point are at best equivocal
and considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not inspire belief.
Both Co ad Entereso, as members of the Past Due Committee of the bank,
claim that the offer of the plaintiff was never discussed by the Committee. In
the same vein, both Co and Entereso openly admit that they seldom attend
the meetings of the Committee. It is important to note that negotiations on
the price had started in early August and the plaintiffs had already offered an
amount as purchase price, having been made to understand by Rivera, the
official in charge of the negotiation, that the price will be submitted for
approval by the bank and that the bank's decision will be relayed to plaintiffs.
From the facts, the official bank price. At any rate, the bank placed its official,
Rivera, in a position of authority to accept offers to buy and negotiate the

sale by having the offer officially acted upon by the bank. The bank cannot
turn around and later say, as it now does, that what Rivera states as the
bank's action on the matter is not in fact so. It is a familiar doctrine, the
doctrine of ostensible authority, that if a corporation knowingly permits one of
its officers, or any other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith
dealt with the corporation through such agent, he estopped from denying his
authority (Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of
Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of Appeals, G.R.
No. 103957, June 14, 1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and perfected
contract as follows: "(1) Consent of the contracting parties; (2) Object certain which is
the subject matter of the contract; (3) Cause of the obligation which is established."
There is no dispute on requisite no. 2. The object of the questioned contract consists
of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of about
101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T106932 to T-106937. There is, however, a dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and any supposed
counter-offer which Rivera (or Co) may have made is unauthorized. Since there was
no counter-offer by the Bank, there was nothing for Ejercito (in substitution of
Demetria and Janolo) to accept." 30 They disputed the factual basis of the respondent
Court's findings that there was an offer made by Janolo for P3.5 million, to which the
Bank counter-offered P5.5 million. We have perused the evidence but cannot find
fault with the said Court's findings of fact. Verily, in a petition under Rule 45 such as
this, errors of fact if there be any - are, as a rule, not reviewable. The mere fact
that respondent Court (and the trial court as well) chose to believe the evidence
presented by respondent more than that presented by petitioners is not by itself a
reversible error. In fact, such findings merit serious consideration by this Court,
particularly where, as in this case, said courts carefully and meticulously discussed
their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of
Appeals, let us review the question of Rivera's authority to act and petitioner's
allegations that the P5.5 million counter-offer was extinguished by the P4.25 million
revised offer of Janolo. Here, there are questions of law which could be drawn from
the factual findings of the respondent Court. They also delve into the contractual
elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be actual or
apparent. The doctrine of "apparent authority", with special reference to banks, was
laid out in Prudential Bank vs. Court of Appeals31, where it was held that:
Conformably, we have declared in countless decisions that the principal is
liable for obligations contracted by the agent. The agent's apparent
representation yields to the principal's true representation and the contract is
considered as entered into between the principal and the third person

(citing National Food Authority vs. Intermediate Appellate Court, 184 SCRA
166).
A bank is liable for wrongful acts of its officers done in the interests
of the bank or in the course of dealings of the officers in their
representative capacity but not for acts outside the scape of their
authority (9 C.J.S., p. 417). A bank holding out its officers and
agents as worthy of confidence will not be permitted to profit by the
frauds they may thus be enabled to perpetrate in the apparent
scope of their employment; nor will it be permitted to shirk its
responsibility for such frauds even though no benefit may accrue to
the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the
representation is made in the course of its business by an agent
acting within the general scope of his authority even though, in the
particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other
person, for his own ultimate benefit (McIntosh v. Dakota Trust Co.,
52 ND 752, 204 NW 818, 40 ALR 1021).
Application of these principles is especially necessary because banks have
a fiduciary relationship with the public and their stability depends on the
confidence of the people in their honesty and efficiency. Such faith will be
eroded where banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera has
apparent or implied authority to act for the Bank in the matter of selling its acquired
assets. This evidence includes the following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was "at all times
material to this case, Manager of the Property Management Department of
the Bank". By his own admission, Rivera was already the person in charge
of the Bank's acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by
the Bank. And during the initial meeting between the buyers and Rivera, the
latter suggested that the buyers' offer should be no less than P3.3 million
(TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987 offering P3.5
million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering to sell the
property for P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the
buyers' proposal to buy the property for P4.25 million (TSN, July 30, 1990, p.
12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was
the final price of the Bank (TSN, January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on
September 28, 1994, during which the Bank's offer of P5.5 million was
confirmed by Rivera (TSN, April 26, 1990, pp. 34-35). At said meeting, Co, a
major shareholder and officer of the Bank, confirmed Rivera's statement as
to the finality of the Bank's counter-offer of P5.5 million (TSN, January 16,
1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred
to Rivera as the officer acting for the Bank in relation to parties interested in
buying assets owned/acquired by the Bank. In fact, Rivera was the officer
mentioned in the Bank's advertisements offering for sale the property in
question (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et. al.32,
the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent authority
as it held that the apparent authority of the officer of the Bank of P.I. in charge of
acquired assets is borne out by similar circumstances surrounding his dealings with
buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent authority through
documents and testimony which seek to establish Rivera's actual authority. These
pieces of evidence, however, are inherently weak as they consist of Rivera's selfserving testimony and various inter-office memoranda that purport to show his limited
actual authority, of which private respondent cannot be charged with knowledge. In
any event, since the issue is apparent authority, the existence of which is borne out
by the respondent Court's findings, the evidence of actual authority is immaterial
insofar as the liability of a corporation is concerned 33.
Petitioners also argued that since Demetria and Janolo were experienced lawyers
and their "law firm" had once acted for the Bank in three criminal cases, they should
be charged with actual knowledge of Rivera's limited authority. But the Court of
Appeals in its Decision (p. 12) had already made a factual finding that the buyers had
no notice of Rivera's actual authority prior to the sale. In fact, the Bank has not shown
that they acted as its counsel in respect to any acquired assets; on the other hand,
respondent has proven that Demetria and Janolo merely associated with a loose
aggrupation of lawyers (not a professional partnership), one of whose members (Atty.
Susana Parker) acted in said criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million counter-offer in the
letter dated September 17, 1987 extinguished the Bank's offer of P5.5 million 34 .They
disputed the respondent Court's finding that "there was a meeting of minds when on
30 September 1987 Demetria and Janolo through Annex "L" (letter dated September
30, 1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J" (letter
dated September 17, 1987)", citingthe late Justice Paras35, Art. 1319 of the Civil
Code 36 and related Supreme Court rulings starting with Beaumont vs. Prieto 37.

However, the above-cited authorities and precedents cannot apply in the instant case
because, as found by the respondent Court which reviewed the testimonies on this
point, what was "accepted" by Janolo in his letter dated September 30, 1987 was the
Bank's offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose
Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the
said letter of September 30, 1987 begins with"(p)ursuant to our discussion last 28
September 1987 . . .
Petitioners insist that the respondent Court should have believed the testimonies of
Rivera and Co that the September 28, 1987 meeting "was meant to have the offerors
improve on their position of P5.5. million."38 However, both the trial court and the
Court of Appeals found petitioners' testimonial evidence "not credible", and we find no
basis for changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and the CA)
common finding that private respondents' evidence is more in keeping with truth and
logic that during the meeting on September 28, 1987, Luis Co and Rivera
"confirmed that the P5.5 million price has been passed upon by the Committee and
could no longer be lowered (TSN of April 27, 1990, pp. 34-35)"39. Hence,
assuming arguendo that the counter-offer of P4.25 million extinguished the offer of
P5.5 million, Luis Co's reiteration of the said P5.5 million price during the September
28, 1987 meeting revived the said offer. And by virtue of the September 30, 1987
letter accepting this revived offer, there was a meeting of the minds, as the
acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion, of Rivera's
authority and action, particularly the latter's counter-offer of P5.5 million, as being
"unauthorized and illegal" came only on May 12, 1988 or more than seven (7) months
after Janolo' acceptance. Such delay, and the absence of any circumstance which
might have justifiably prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Bank's part to get out
of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied
admission on the part of the petitioners that the written offer made on September 1,
1987 was carried through during the meeting of September 28, 1987. This is the
conclusion consistent with human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Bank's offer of P5.5 million
was raised for the first time on appeal and should thus be disregarded.
This Court in several decisions has repeatedly adhered to the principle that
points of law, theories, issues of fact and arguments not adequately brought
to the attention of the trial court need not be, and ordinarily will not be,
considered by a reviewing court, as they cannot be raised for the first time
on appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145 SCRA
592).40

. . . It is settled jurisprudence that an issue which was neither averred in the

complaint nor raised during the trial in the court below cannot be raised for
the first time on appeal as it would be offensive to the basic rules of fair play,
justice and due process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo
vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development Corp. vs. CA,
157 SCRA 425 [1988]; Ramos vs. IAC, 175 SCRA 70 [1989]; Gevero vs.
IAC, G.R. 77029, August 30, 1990).41
Since the issue was not raised in the pleadings as an affirmative defense, private
respondent was not given an opportunity in the trial court to controvert the same
through opposing evidence. Indeed, this is a matter of due process. But we passed
upon the issue anyway, if only to avoid deciding the case on purely procedural
grounds, and we repeat that, on the basis of the evidence already in the record and
as appreciated by the lower courts, the inevitable conclusion is simply that there was
a perfected contract of sale.

waived any defects of the contract under the statute of frauds, pursuant to Article
1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of
article 1403, are ratified by the failure to object to the presentation of oral
evidence to prove the same, or by the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the
reaffirmation of the counter-offer of P5.5 million is a plenty and the silence of
petitioners all throughout the presentation makes the evidence binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again present
because Atty. Demetria told me to accompany him we were able to meet
Luis Co at the Bank.
xxx

The Third Issue: Is the Contract Enforceable?

The petition alleged42:
Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5
million during the meeting of 28 September 1987, and it was this verbal offer
that Demetria and Janolo accepted with their letter of 30 September 1987,
the contract produced thereby would be unenforceable by action there
being no note, memorandum or writing subscribed by the Bank to evidence
such contract. (Please see article 1403[2], Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the official price
and the plaintiffs' acceptance of the price on September 30, 1987, are not, in
themselves, formal contracts of sale. They are however clear embodiments
of the fact that a contract of sale was perfected between the parties, such
contract being binding in whatever form it may have been entered into (case
citations omitted). Stated simply, the banks' letter of September 1, 1987,
taken together with plaintiffs' letter dated September 30, 1987, constitute in
law a sufficient memorandum of a perfected contract of sale.
The respondent Court could have added that the written communications commenced
not only from September 1, 1987 but from Janolo's August 20, 1987 letter. We agree
that, taken together, these letters constitute sufficient memoranda since they
include the names of the parties, the terms and conditions of the contract, the price
and a description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting on
September 28, 1987 did constitute a "new" offer which was accepted by Janolo on
September 30, 1987. Still, the statute of frauds will not apply by reason of the failure
of petitioners to object to oral testimony proving petitioner Bank's counter-offer of P5.5
million. Hence, petitioners by such utter failure to object are deemed to have

xxx

xxx

Q Now, what transpired during this meeting with Luis Co of the Producers
Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr.
Mercurio Rivera is the final price and that is the price they intends (sic) to
have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's statement (sic)
that the defendant Rivera's counter-offer of 5.5 million was the defendant's
bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]
Q What transpired during that meeting between you and Mr. Luis Co of the
defendant Bank?

A We went straight to the point because he being a busy person, I told him if
the amount of P5.5 million could still be reduced and he said that was
already passed upon by the committee. What the bank expects which was
contrary to what Mr. Rivera stated. And he told me that is the final offer of the
bank P5.5 million and we should indicate our position as soon as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days and he said
that was it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the
time at his office.
Q For the record, your Honor please, will you tell this Court who was with Mr.
Co in his Office in Producers Bank Building during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner accede on
(sic) the counter offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our acceptance to the bank
which offer we accepted, the offer of the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Atty. Demetrio Demetria, the amount of P5.5 million was
reached by the Committee and it is not within his power to reduce this
amount. What can you say to that statement that the amount of P5.5 million
was reached by the Committee?

board of directors of a bank, under Section 28-A of Republic Act No. 265 (otherwise
known as the Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the appropriate supervising
or examining department, the Monetary Board finds that a bank or a nonbank financial intermediary performing quasi-banking functions is in a state
of continuing inability or unwillingness to maintain a state of liquidity deemed
adequate to protect the interest of depositors and creditors, the Monetary
Board may appoint a conservator to take charge of the assets, liabilities, and
the management of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the assets of the
institution, reorganize the management thereof, and restore its viability. He
shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank financial
intermediary performing quasi-banking functions, any provision of law to the
contrary notwithstanding, and such other powers as the Monetary Board
shall deem necessary.
In the first place, this issue of the Conservator's alleged authority to revoke or
repudiate the perfected contract of sale was raised for the first time in this Petition
as this was not litigated in the trial court or Court of Appeals. As already stated earlier,
issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals,
"cannot be raised for the first time on appeal as it would be offensive to the basic
rules of fair play, justice and due process."43
In the second place, there is absolutely no evidence that the Conservator, at the time
the contract was perfected, actually repudiated or overruled said contract of sale. The
Bank's acting conservator at the time, Rodolfo Romey, never objected to the sale of
the property to Demetria and Janolo. What petitioners are really referring to is the
letter of Conservator Encarnacion, who took over from Romey after the sale was
perfected on September 30, 1987 (Annex V, petition) which unilaterally repudiated
not the contract but the authority of Rivera to make a binding offer and which
unarguably came months after the perfection of the contract. Said letter dated May
12, 1988 is reproduced hereunder:

A It was not discussed by the Committee but it was discussed initially by Luis
Co and the group of Atty. Demetrio Demetria and Atty. Pajardo (sic) in that
September 28, 1987 meeting, sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator placed by the
Central Bank of the Philippines during the time that the negotiation and perfection of
the contract of sale took place. Petitioners energetically contended that the
conservator has the power to revoke or overrule actions of the management or the

May 12, 1988

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and
Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of
your clients nor perfected a "contract to sell and buy" with any of them for
the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986 addressed to and
approved by former Acting Conservator Mr. Andres I. Rustia, Producers
Bank Senior Manager Perfecto M. Pascua detailed the functions of Property
Management Department (PMD) staff and officers (Annex A.), you will
immediately read that Manager Mr. Mercurio Rivera or any of his
subordinates has no authority, power or right to make any alleged counteroffer. In short, your lawyer-clients did not deal with the authorized officers of
the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of the Philippines
(Bates Pambansa Blg. 68.) and Sec. 28-A of the Central Bank Act (Rep. Act
No. 265, as amended), only the Board of Directors/Conservator may
authorize the sale of any property of the corportion/bank..
Our records do not show that Mr. Rivera was authorized by the old board or
by any of the bank conservators (starting January, 1984) to sell the aforesaid
property to any of your clients. Apparently, what took place were just
preliminary discussions/consultations between him and your clients, which
everyone knows cannot bind the Bank's Board or Conservator.

can it delegate such non-existent powers to the conservator under Section 28-A of
said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke
contracts that are, under existing law, deemed to be defective i.e., void, voidable,
unenforceable or rescissible. Hence, the conservator merely takes the place of a
bank's board of directors. What the said board cannot do such as repudiating a
contract validly entered into under the doctrine of implied authority the conservator
cannot do either. Ineluctably, his power is not unilateral and he cannot simply
repudiate valid obligations of the Bank. His authority would be only to bring court
actions to assail such contracts as he has already done so in the instant case. A
contrary understanding of the law would simply not be permitted by the Constitution.
Neither by common sense. To rule otherwise would be to enable a failing bank to
become solvent, at the expense of third parties, by simply getting the conservator to
unilaterally revoke all previous dealings which had one way or another or come to be
considered unfavorable to the Bank, yielding nothing to perfected contractual rights
nor vested interests of the third parties who had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court,
findings of fact by the Court of Appeals are not reviewable by the Supreme Court.
In Andres vs. Manufacturers Hanover & Trust Corporation, 45, we held:

We are, therefore, constrained to refuse any tender of payment by your

clients, as the same is patently violative of corporate and banking laws. We
believe that this is more than sufficient legal justification for refusing said
alleged tender.

. . . The rule regarding questions of fact being raised with this Court in a
petition for certiorari under Rule 45 of the Revised Rules of Court has been
stated in Remalante vs. Tibe, G.R. No. 59514, February 25, 1988, 158
SCRA 138, thus:

Rest assured that we have nothing personal against your clients. All our acts
are official, legal and in accordance with law. We also have no personal
interest in any of the properties of the Bank.

The rule in this jurisdiction is that only questions of law may be raised in a
petition for certiorari under Rule 45 of the Revised Rules of Court. "The
jurisdiction of the Supreme Court in cases brought to it from the Court of
Appeals is limited to reviewing and revising the errors of law imputed to it, its
findings of the fact being conclusive " [Chan vs. Court of Appeals, G.R. No.
L-27488, June 30, 1970, 33 SCRA 737, reiterating a long line of decisions].
This Court has emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law that might have been
committed by the lower court" (Tiongco v. De la Merced, G. R. No. L-24426,
July 25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482,
April 28, 1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R. No. L47531, February 20, 1984, 127 SCRA 596). "Barring, therefore, a showing
that the findings complained of are totally devoid of support in the record, or
that they are so glaringly erroneous as to constitute serious abuse of
discretion, such findings must stand, for this Court is not expected or
required to examine or contrast the oral and documentary evidence
submitted by the parties" [Santa Ana, Jr. vs. Hernandez, G. R. No. L-16394,
December 17, 1966, 18 SCRA 973] [at pp. 144-145.]

Please be advised accordingly.

Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching
powers to the conservator of a bank, it must be pointed out that such powers must be
related to the "(preservation of) the assets of the bank, (the reorganization of) the
management thereof and (the restoration of) its viability." Such powers, enormous
and extensive as they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment clause of the
Constitution 44. If the legislature itself cannot revoke an existing valid contract, how

Likewise, in Bernardo vs. Court of Appeals 46, we held:

The resolution of this petition invites us to closely scrutinize the facts of the
case, relating to the sufficiency of evidence and the credibility of witnesses
presented. This Court so held that it is not the function of the Supreme Court
to analyze or weigh such evidence all over again. The Supreme Court's
jurisdiction is limited to reviewing errors of law that may have been
committed by the lower court. The Supreme Court is not a trier of facts. . . .

Conservator after Rivera had duly presented plaintiffs' offer for discussion by
the Committee . . . Tersely put, under the established fact, the price of P5.5
Million was, as clearly worded in Rivera's letter (Exh. "E"), the official and
definitive price at which the bank was selling the property. (p. 11, CA
Decision)
xxx

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock
Construction and Development Corp. 47:
The Court has consistently held that the factual findings of the trial court, as
well as the Court of Appeals, are final and conclusive and may not be
reviewed on appeal. Among the exceptional circumstances where a
reassessment of facts found by the lower courts is allowed are when the
conclusion is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd, mistaken or
impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts; when
the findings went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee. After a careful study of the
case at bench, we find none of the above grounds present to justify the reevaluation of the findings of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and
Insurance Company Inc. vs.Hon. Court of Appeals, et al. 48 is equally applicable to the
present case:
We see no valid reason to discard the factual conclusions of the appellate
court, . . . (I)t is not the function of this Court to assess and evaluate all over
again the evidence, testimonial and documentary, adduced by the parties,
particularly where, such as here, the findings of both the trial court and the
appellate court on the matter coincide. (emphasis supplied)
Petitioners, however, assailed the respondent Court's Decision as "fraught with
findings and conclusions which were not only contrary to the evidence on record but
have no bases at all," specifically the findings that (1) the "Bank's counter-offer price
of P5.5 million had been determined by the past due committee and approved by
conservator Romey, after Rivera presented the same for discussion" and (2) "the
meeting with Co was not to scale down the price and start negotiations anew, but a
meeting on the already determined price of P5.5 million" Hence, citingPhilippine
National Bank vs. Court of Appeals 49, petitioners are asking us to review and reverse
such factual findings.
The first point was clearly passed upon by the Court of Appeals 50, thus:
There can be no other logical conclusion than that when, on September 1,
1987, Rivera informed plaintiffs by letter that "the bank's counter-offer is at
P5.5 Million for more than 101 hectares on lot basis, "such counter-offer
price had been determined by the Past Due Committee and approved by the

xxx

xxx

. . . The argument deserves scant consideration. As pointed out by plaintiff,

during the meeting of September 28, 1987 between the plaintiffs, Rivera and
Luis Co, the senior vice-president of the bank, where the topic was the
possible lowering of the price, the bank official refused it and confirmed that
the P5.5 Million price had been passed upon by the Committee and could no
longer be lowered (TSN of April 27, 1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point,
characterizing it as "not credible" and "at best equivocal and considering the
gratuitous and self-serving character of these declarations, the bank's submissions on
this point do not inspire belief."
To become credible and unequivocal, petitioners should have presented then
Conservator Rodolfo Romey to testify on their behalf, as he would have been in the
best position to establish their thesis. Under the rules on evidence 51, such
suppression gives rise to the presumption that his testimony would have been
adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners'
evidence was deemed insufficient by both the trial court and the respondent Court,
and instead, it was respondent's submissions that were believed and became bases
of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of fact
by the lower courts are valid and correct. But the petitioners are now asking this Court
to disturb these findings to fit the conclusion they are espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may disregard
findings of fact by the Court of Appeals 52. We have studied both the records and the
CA Decision and we find no such exceptions in this case. On the contrary, the
findings of the said Court are supported by a preponderance of competent and
credible evidence. The inferences and conclusions are seasonably based on
evidence duly identified in the Decision. Indeed, the appellate court patiently
traversed and dissected the issues presented before it, lending credibility and
dependability to its findings. The best that can be said in favor of petitioners on this
point is that the factual findings of respondent Court did not correspond to petitioners'
claims, but were closer to the evidence as presented in the trial court by private
respondent. But this alone is no reason to reverse or ignore such factual findings,
particularly where, as in this case, the trial court and the appellate court were in
common agreement thereon. Indeed, conclusions of fact of a trial judge as
affirmed by the Court of Appeals are conclusive upon this Court, absent any

serious abuse or evident lack of basis or capriciousness of any kind, because the trial
court is in a better position to observe the demeanor of the witnesses and their
courtroom manner as well as to examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping and the raising
of issues for the first time on appeal [viz., the extinguishment of the Bank's offer of
P5.5 million and the conservator's powers to repudiate contracts entered into by the
Bank's officers] which per se could justify the dismissal of the present case. We did
not limit ourselves thereto, but delved as well into the substantive issues the
perfection of the contract of sale and its enforceability, which required the
determination of questions of fact. While the Supreme Court is not a trier of facts and
as a rule we are not required to look into the factual bases of respondent Court's
decisions and resolutions, we did so just the same, if only to find out whether there is
reason to disturb any of its factual findings, for we are only too aware of the depth,
magnitude and vigor by which the parties through their respective eloquent counsel,
argued their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating
abnormally under a government-appointed conservator and "there is need to
rehabilitate the Bank in order to get it back on its feet . . . as many people depend on
(it) for investments, deposits and well as employment. As of June 1987, the Bank's
overdraft with the Central Bank had already reached P1.023 billion . . . and there
were (other) offers to buy the subject properties for a substantial amount of money." 53
While we do not deny our sympathy for this distressed bank, at the same time, the
Court cannot emotionally close its eyes to overriding considerations of substantive
and procedural law, like respect for perfected contracts, non-impairment of obligations
and sanctions against forum-shopping, which must be upheld under the rule of law
and blind justice.
This Court cannot just gloss over private respondent's submission that, while the
subject properties may currently command a much higher price, it is equally true that
at the time of the transaction in 1987, the price agreed upon of P5.5 million was
reasonable, considering that the Bank acquired these properties at a foreclosure sale
for no more than P3.5 million 54. That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own advantage, to enable
it to escape its binding obligation and to reap the benefits of the increase in land
values. To rule in favor of the Bank simply because the property in question has
algebraically accelerated in price during the long period of litigation is to reward
lawlessness and delays in the fulfillment of binding contracts. Certainly, the Court
cannot stamp its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and Resolution,
the Court hereby DENIES the petition. The assailed Decision is AFFIRMED.
Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and
WARNED that a repetition of the same or similar acts will be dealt with more severely.
Costs against petitioners.

SO ORDERED.

BANK

OF AMERICA NT&SA, BANK OF AMERICA INTERNATIONAL,

LTD., petitioners, vs. COURT OF APPEALS, HON. MANUEL PADOLINA,
EDUARDO
LITONJUA,
SR.,
and
AURELIO
K.
LITONJUA,
JR., respondents.

percent (10%) of the acquisition cost of the four vessels and were left with the unpaid
balance of their loans with defendant banks. [11] The Litonjuas prayed for the
accounting of the revenues derived in the operation of the six vessels and of the
proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners;
damages for breach of trust; exemplary damages and attorneys fees.[12]

DECISION
AUSTRIA-MARTINEZ, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
assailing the November 29, 1994 decision of the Court of Appeals [1] and the April 28,
1995 resolution denying petitioners motion for reconsideration.
The factual background of the case is as follows:
On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for
brevity) filed a Complaint[2] before the Regional Trial Court of Pasig against the Bank
of America NT&SA and Bank of America International, Ltd. (defendant banks for
brevity) alleging that: they were engaged in the shipping business; they owned two
vessels: Don Aurelio and El Champion, through their wholly-owned corporations; they
deposited their revenues from said business together with other funds with the
branches of said banks in the United Kingdom and Hongkong up to 1979; with their
business doing well, the defendant banks induced them to increase the number of
their ships in operation, offering them easy loans to acquire said vessels; [3] thereafter,
the defendant banks acquired, through their (Litonjuas) corporations as the
borrowers: (a) El Carrier[4]; (b) El General[5]; (c) El Challenger[6]; and (d) El
Conqueror[7]; the vessels were registered in the names of their corporations; the
operation and the funds derived therefrom were placed under the complete and
exclusive control and disposition of the petitioners; [8] and the possession the vessels
was also placed by defendant banks in the hands of persons selected and designated
by them (defendant banks).[9]
The Litonjuas claimed that defendant banks as trustees did not fully render an
account of all the income derived from the operation of the vessels as well as of the
proceeds of the subsequent foreclosure sale;[10] because of the breach of their
fiduciary duties and/or negligence of the petitioners and/or the persons designated by
them in the operation of private respondents six vessels, the revenues derived from
the operation of all the vessels declined drastically; the loans acquired for the
purchase of the four additional vessels then matured and remained unpaid, prompting
defendant banks to have all the six vessels, including the two vessels originally
owned by the private respondents, foreclosed and sold at public auction to answer for
the obligations incurred for and in behalf of the operation of the vessels; they
(Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten

Defendant banks filed a Motion to Dismiss on grounds of forum non

conveniens and lack of cause of action against them.[13]
On December 3, 1993, the trial court issued an Order denying the Motion to
Dismiss, thus:
WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is
hereby DENIED. The defendant is therefore, given a period of ten (10) days to file its
Answer to the complaint.
SO ORDERED.[14]
Instead of filing an answer the defendant banks went to the Court of Appeals on
a Petition for Review on Certiorari[15] which was aptly treated by the appellate court as
a petition for certiorari. They assailed the above-quoted order as well as the
subsequent denial of their Motion for Reconsideration.[16] The appellate court
dismissed the petition and denied petitioners Motion for Reconsideration.[17]
Hence, herein petition anchored on the following grounds:
1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT
THE SEPARATE PERSONALITIES OF THE PRIVATE RESPONDENTS (MERE
STOCKHOLDERS) AND THE FOREIGN CORPORATIONS (THE REAL
BORROWERS) CLEARLY SUPPORT, BEYOND ANY DOUBT, THE PROPOSITION
THAT THE PRIVATE RESPONDENTS HAVE NO PERSONALITIES TO SUE.
2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE
THE PRINCIPLE OF FORUM NON CONVENIENS IS NOT MANDATORY, THERE
ARE, HOWEVER, SOME GUIDELINES TO FOLLOW IN DETERMINING WHETHER
THE CHOICE OF FORUM SHOULD BE DISTURBED. UNDER THE
CIRCUMSTANCES SURROUNDING THE INSTANT CASE, DISMISSAL OF THE
COMPLAINT ON THE GROUND OF FORUM NON-CONVENIENS IS MORE
APPROPRIATE AND PROPER.
3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN
THE PHILIPPINES. IN FACT, THE PENDENCY OF FOREIGN ACTION MAY BE THE

LEGAL BASIS FOR THE DISMISSAL OF THE COMPLAINT FILED BY THE

PRIVATE RESPONDENT. COROLLARY TO THIS, THE RESPONDENT COURT OF
APPEALS FAILED TO CONSIDER THE FACT THAT PRIVATE RESPONDENTS ARE
GUILTY OF FORUM SHOPPING. [18]
As to the first assigned error: Petitioners argue that the borrowers and the
registered owners of the vessels are the foreign corporations and not private
respondents Litonjuas who are mere stockholders; and that the revenues derived
from the operations of all the vessels are deposited in the accounts of the
corporations. Hence, petitioners maintain that these foreign corporations are the legal
entities that have the personalities to sue and not herein private respondents; that
private respondents, being mere shareholders, have no claim on the vessels as
owners since they merely have an inchoate right to whatever may remain upon the
dissolution of the said foreign corporations and after all creditors have been fully paid
and satisfied;[19] and that while private respondents may have allegedly spent
amounts equal to 10% of the acquisition costs of the vessels in question, their 10%
however represents their investments as stockholders in the foreign corporations.[20]
Anent the second assigned error, petitioners posit that while the application of
the principle of forum non conveniens is discretionary on the part of the Court, said
discretion is limited by the guidelines pertaining to the private as well as public
interest factors in determining whether plaintiffs choice of forum should be disturbed,
as elucidated in Gulf Oil Corp. vs. Gilbert[21] and Piper Aircraft Co. vs. Reyno,[22] to wit:
Private interest factors include: (a) the relative ease of access to sources of proof; (b)
the availability of compulsory process for the attendance of unwilling witnesses; (c)
the cost of obtaining attendance of willing witnesses; or (d) all other practical
problems that make trial of a case easy, expeditious and inexpensive. Public interest
factors include: (a) the administrative difficulties flowing from court congestion; (b) the
local interest in having localized controversies decided at home; (c) the avoidance of
unnecessary problems in conflict of laws or in the application of foreign law; or (d) the
unfairness of burdening citizens in an unrelated forum with jury duty.[23]
In support of their claim that the local court is not the proper forum, petitioners
allege the following:
i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are
based in Hongkong and England. As such, the evidence and the witnesses are not
readily available in the Philippines;
ii) The loan transactions were obtained, perfected, performed, consummated and
partially paid outside the Philippines;

iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged
vessels were part of an offshore fleet, not based in the Philippines;
iv) All the loans involved were granted to the Private Respondents
foreign CORPORATIONS;
v) The Restructuring Agreements were ALL governed by the laws of England;
vi) The subsequent sales of the mortgaged vessels and the application of the sales
proceeds occurred and transpired outside the Philippines, and the deliveries of the
sold mortgaged vessels were likewise made outside the Philippines;
vii) The revenues of the vessels and the proceeds of the sales of these vessels
were ALL deposited to the Accounts of the foreign CORPORATIONS abroad; and
viii) Bank of America International Ltd. is not licensed nor engaged in trade or
business in the Philippines.[24]
Petitioners argue further that the loan agreements, security documentation and
all subsequent restructuring agreements uniformly, unconditionally and expressly
provided that they will be governed by the laws of England; [25] that Philippine Courts
would then have to apply English law in resolving whatever issues may be presented
to it in the event it recognizes and accepts herein case; that it would then be imposing
a significant and unnecessary expense and burden not only upon the parties to the
transaction but also to the local court. Petitioners insist that the inconvenience and
difficulty of applying English law with respect to a wholly foreign transaction in a case
pending in the Philippines may be avoided by its dismissal on the ground of forum
non conveniens. [26]
Finally, petitioners claim that private respondents have already waived their
alleged causes of action in the case at bar for their refusal to contest the foreign civil
cases earlier filed by the petitioners against them in Hongkong and England, to wit:
1.) Civil action in England in its High Court of Justice, Queens Bench Division
Commercial Court (1992-Folio No. 2098) against (a) LIBERIAN TRANSPORT
NAVIGATION. SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL CHALLENGER
SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC NAVIGATOS CORP. SA; (f)
EDDIE NAVIGATION CORP. SA; (g) EDUARDO K. LITONJUA & (h) AURELIO K.
LITONJUA.
2.) Civil action in England in its High Court of Justice, Queens Bench Division,
Commercial Court (1992-Folio No. 2245) against (a) EL CHALLENGER S.A., (b)

ESPRIONA SHIPPING COMPANY S.A., (c) EDUARDO KATIPUNAN LITONJUA and

(d) AURELIO KATIPUNAN LITONJUA.
3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of
1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A.,
(c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA
CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA, JR.,
and (h) EDUARDO KATIPUNAN LITONJUA.
4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of
1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A.,
(c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA
CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA, RJ.,
and (h) EDUARDO KATIPUNAN LITONJUA.
and that private respondents alleged cause of action is already barred by the
pendency of another action or by litis pendentia as shown above.[27]
On the other hand, private respondents contend that certain material facts and
pleadings are omitted and/or misrepresented in the present petition for certiorari; that
the prefatory statement failed to state that part of the security of the foreign loans
were mortgages on a 39-hectare piece of real estate located in the Philippines; [28] that
while the complaint was filed only by the stockholders of the corporate borrowers, the
latter are wholly-owned by the private respondents who are Filipinos and therefore
under Philippine laws, aside from the said corporate borrowers being but their alteregos, they have interests of their own in the vessels.[29] Private respondents also
argue that the dismissal by the Court of Appeals of the petition for certiorari was
justified because there was neither allegation nor any showing whatsoever by the
petitioners that they had no appeal, nor any plain, speedy, and adequate remedy in
the ordinary course of law from the Order of the trial judge denying their Motion to
Dismiss; that the remedy available to the petitioners after their Motion to Dismiss was
denied was to file an Answer to the complaint;[30] that as upheld by the Court of
Appeals, the decision of the trial court in not applying the principle of forum non
conveniens is in the lawful exercise of its discretion.[31] Finally, private respondents
aver that the statement of petitioners that the doctrine of res judicata also applies to
foreign judgment is merely an opinion advanced by them and not based on a
categorical ruling of this Court;[32]and that herein private respondents did not actually
participate in the proceedings in the foreign courts.[33]
We deny the petition for lack of merit.

It is a well-settled rule that the order denying the motion to dismiss cannot be
the subject of petition for certiorari. Petitioners should have filed an answer to the
complaint, proceed to trial and await judgment before making an appeal. As
repeatedly held by this Court:
An order denying a motion to dismiss is interlocutory and cannot be the subject of the
extraordinary petition for certiorari or mandamus. The remedy of the aggrieved party
is to file an answer and to interpose as defenses the objections raised in his motion to
dismiss, proceed to trial, and in case of an adverse decision, to elevate the entire
case by appeal in due course. xxx Under certain situations, recourse to certiorari or
mandamus is considered appropriate, i.e., (a) when the trial court issued the order
without or in excess of jurisdiction; (b) where there is patent grave abuse of discretion
by the trial court; or (c) appeal would not prove to be a speedy and adequate remedy
as when an appeal would not promptly relieve a defendant from the injurious effects
of the patently mistaken order maintaining the plaintiffs baseless action and
compelling the defendant needlessly to go through a protracted trial and clogging the
court dockets by another futile case.[34]
Records show that the trial court acted within its jurisdiction when it issued the
assailed Order denying petitioners motion to dismiss. Does the denial of the motion to
dismiss constitute a patent grave abuse of discretion? Would appeal, under the
circumstances, not prove to be a speedy and adequate remedy? We will resolve said
questions in conjunction with the issues raised by the parties.
First issue. Did the trial court commit grave abuse of discretion in refusing to
dismiss the complaint on the ground that plaintiffs have no cause of action against
defendants since plaintiffs are merely stockholders of the corporations which are the
registered owners of the vessels and the borrowers of petitioners?
No. Petitioners argument that private respondents, being mere stockholders of
the foreign corporations, have no personalities to sue, and therefore, the complaint
should be dismissed, is untenable. A case is dismissible for lack of personality to sue
upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue
can be used as a ground for a Motion to Dismiss based on the fact that the complaint,
on the face thereof, evidently states no cause of action.[35] In San Lorenzo Village
Association, Inc. vs. Court of Appeals, [36] this Court clarified that a complaint states a
cause of action where it contains three essential elements of a cause of action,
namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in violation of said legal
right. If these elements are absent, the complaint becomes vulnerable to a motion to
dismiss on the ground of failure to state a cause of action. [37] To emphasize, it is not
the lack or absence of cause of action that is a ground for dismissal of the complaint
but rather the fact that the complaint states no cause of action. [38] Failure to state a
cause of action refers to the insufficiency of allegation in the pleading, unlike lack of

cause of action which refers to the insufficiency of factual basis for the action. Failure
to state a cause of action may be raised at the earliest stages of an action through a
motion to dismiss the complaint, while lack of cause of action may be raised any time
after the questions of fact have been resolved on the basis of stipulations, admissions
or evidence presented.[39]
In the case at bar, the complaint contains the three elements of a cause of
action. It alleges that: (1) plaintiffs, herein private respondents, have the right to
demand for an accounting from defendants (herein petitioners), as trustees by reason
of the fiduciary relationship that was created between the parties involving the vessels
in question; (2) petitioners have the obligation, as trustees, to render such an
accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private respondents
as they are mere stockholders of the corporation; that the corporate entities have
juridical personalities separate and distinct from those of the private respondents.
Private respondents maintain that the corporations are wholly owned by them and
prior to the incorporation of such entities, they were clients of petitioners which
induced them to acquire loans from said petitioners to invest on the additional ships.
We agree with private respondents. As held in the San Lorenzo case,[40]
xxx assuming that the allegation of facts constituting plaintiffs cause of action is not
as clear and categorical as would otherwise be desired, any uncertainty thereby
arising should be so resolved as to enable a full inquiry into the merits of the action.
As this Court has explained in the San Lorenzo case, such a course, would preclude
multiplicity of suits which the law abhors, and conduce to the definitive determination
and termination of the dispute. To do otherwise, that is, to abort the action on account
of the alleged fatal flaws of the complaint would obviously be indecisive and would not
end the controversy, since the institution of another action upon a revised complaint
would not be foreclosed.[41]

convenient or available forum and the parties are not precluded from seeking
remedies elsewhere.[43]
Whether a suit should be entertained or dismissed on the basis of said doctrine
depends largely upon the facts of the particular case and is addressed to the sound
discretion of the trial court.[44] In the case of Communication Materials and Design,
Inc. vs. Court of Appeals,[45] this Court held that xxx [a] Philippine Court may assume
jurisdiction over the case if it chooses to do so; provided, that the following requisites
are met: (1) that the Philippine Court is one to which the parties may conveniently
resort to; (2) that the Philippine Court is in a position to make an intelligent decision
as to the law and the facts; and, (3) that the Philippine Court has or is likely to have
power to enforce its decision. [46] Evidently, all these requisites are present in the
instant case.
Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of
Appeals,[47] that the doctrine of forum non conveniens should not be used as a ground
for a motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not
include said doctrine as a ground. This Court further ruled that while it is within the
discretion of the trial court to abstain from assuming jurisdiction on this ground, it
should do so only after vital facts are established, to determine whether special
circumstances require the courts desistance; and that the propriety of dismissing a
case based on this principle of forum non conveniens requires a factual
determination, hence it is more properly considered a matter of defense.[48]
Third issue. Are private respondents guilty of forum shopping because of the
pendency of foreign action?

Second Issue. Should the complaint be dismissed on the ground of forum nonconveniens?

No. Forum shopping exists where the elements of litis pendentia are present
and where a final judgment in one case will amount to res judicata in the other.
[49]
Parenthetically, for litis pendentia to be a ground for the dismissal of an action there
must be: (a) identity of the parties or at least such as to represent the same interest in
both actions; (b) identity of rights asserted and relief prayed for, the relief being
founded on the same acts; and (c) the identity in the two cases should be such that
the judgment which may be rendered in one would, regardless of which party is
successful, amount to res judicata in the other.[50]

No. The doctrine of forum non-conveniens, literally meaning the forum is

inconvenient, emerged in private international law to deter the practice of global forum
shopping,[42] that is to prevent non-resident litigants from choosing the forum or place
wherein to bring their suit for malicious reasons, such as to secure
proceduraladvantages, to annoy and harass the defendant, to avoid overcrowded
dockets, or to select a more friendly venue. Under this doctrine, a court, in conflicts of
law cases, may refuse impositions on its jurisdiction where it is not the most

In case at bar, not all the requirements for litis pendentia are present. While
there may be identity of parties, notwithstanding the presence of other respondents,
[51]
as well as the reversal in positions of plaintiffs and defendants[52], still the other
requirements necessary for litis pendentia were not shown by petitioner. It merely
mentioned that civil cases were filed in Hongkong and England without however
showing the identity of rights asserted and the reliefs sought for as well as the
presence of the elements of res judicata should one of the cases be adjudged.

As the Court of Appeals aptly observed:

xxx [T]he petitioners, by simply enumerating the civil actions instituted abroad
involving the parties herein xxx, failed to provide this Court with relevant and clear
specifications that would show the presence of the above-quoted elements or
requisites for res judicata. While it is true that the petitioners in their motion for
reconsideration (CA Rollo, p. 72), after enumerating the various civil actions instituted
abroad, did aver that Copies of the foreign judgments are hereto attached and made
integral parts hereof as Annexes B, C, D and E, they failed, wittingly or inadvertently,
to include a single foreign judgment in their pleadings submitted to this Court as
annexes to their petition. How then could We have been expected to rule on this
issue even if We were to hold that foreign judgments could be the basis for the
application of the aforementioned principle of res judicata?[53]
Consequently, both courts correctly denied the dismissal of herein subject
complaint.
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioners.
SO ORDERED.

G.R. No. 140047

July 13, 2004

PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE

CORPORATION, petitioner,
vs.
V.P. EUSEBIO CONSTRUCTION, INC.; 3-PLEX INTERNATIONAL, INC.; VICENTE
P. EUSEBIO; SOLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA
SANTOS; AND FIRST INTEGRATED BONDING AND INSURANCE COMPANY,
INC., respondents.

DECISION

DAVIDE, JR., C.J.:

This case is an offshoot of a service contract entered into by a Filipino construction
firm with the Iraqi Government for the construction of the Institute of Physical
Therapy-Medical Center, Phase II, in Baghdad, Iraq, at a time when the Iran-Iraq war
was ongoing.
In a complaint filed with the Regional Trial Court of Makati City, docketed as Civil
Case No. 91-1906 and assigned to Branch 58, petitioner Philippine Export and
Foreign Loan Guarantee Corporation1 (hereinafter Philguarantee) sought
reimbursement from the respondents of the sum of money it paid to Al Ahli Bank of
Kuwait pursuant to a guarantee it issued for respondent V.P. Eusebio Construction,
Inc. (VPECI).
The factual and procedural antecedents in this case are as follows:
On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing
and Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical
TherapyMedical Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the
Project) to Ajyal Trading and Contracting Company (hereinafter Ajyal), a firm duly
licensed with the Kuwait Chamber of Commerce for a total contract price of
ID5,416,089/046 (or about US$18,739,668).2
On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of
respondent 3-Plex International, Inc. (hereinafter 3-Plex), a local contractor engaged
in construction business, entered into a joint venture agreement with Ajyal wherein
the former undertook the execution of the entire Project, while the latter would be
entitled to a commission of 4% of the contract price.3 Later, or on 8 April 1981,

respondent 3-Plex, not being accredited by or registered with the Philippine Overseas
Construction Board (POCB), assigned and transferred all its rights and interests
under the joint venture agreement to VPECI, a construction and engineering firm duly
registered with the POCB.4 However, on 2 May 1981, 3-Plex and VPECI entered into
an agreement that the execution of the Project would be under their joint
management.5
The SOB required the contractors to submit (1) a performance bond of ID271,808/610
representing 5% of the total contract price and (2) an advance payment bond of
ID541,608/901 representing 10% of the advance payment to be released upon
signing of the contract.6 To comply with these requirements, respondents 3-Plex and
VPECI applied for the issuance of a guarantee with petitioner Philguarantee, a
government financial institution empowered to issue guarantees for qualified Filipino
contractors to secure the performance of approved service contracts abroad.7
Petitioner Philguarantee approved respondents' application. Subsequently, letters of
guarantee8 were issued by Philguarantee to the Rafidain Bank of Baghdad covering
100% of the performance and advance payment bonds, but they were not accepted
by SOB. What SOB required was a letter-guarantee from Rafidain Bank, the
government bank of Iraq. Rafidain Bank then issued a performance bond in favor of
SOB on the condition that another foreign bank, not Philguarantee, would issue a
counter-guarantee to cover its exposure. Al Ahli Bank of Kuwait was, therefore,
engaged to provide a counter-guarantee to Rafidain Bank, but it required a similar
counter-guarantee in its favor from the petitioner. Thus, three layers of guarantees
had to be arranged.9
Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee
issued in favor of Al Ahli Bank of Kuwait Letter of Guarantee No. 81-194F 10 (Performance Bond Guarantee) in the amount of ID271,808/610 and Letter of
Guarantee No. 81-195-F11 (Advance Payment Guarantee) in the amount of
ID541,608/901, both for a term of eighteen months from 25 May 1981. These letters
of guarantee were secured by (1) a Deed of Undertaking12executed by respondents
VPECI, Spouses Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and Spouses
Eduardo E. Santos and Iluminada Santos; and (2) a surety bond13 issued by
respondent First Integrated Bonding and Insurance Company, Inc. (FIBICI). The
Surety Bond was later amended on 23 June 1981 to increase the amount of coverage
from P6.4 million to P6.967 million and to change the bank in whose favor the
petitioner's guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait. 14
On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service
contract15 for the construction of the Institute of Physical Therapy Medical
Rehabilitation Center, Phase II, in Baghdad, Iraq, wherein the joint venture contractor
undertook to complete the Project within a period of 547 days or 18 months. Under
the Contract, the Joint Venture would supply manpower and materials, and SOB
would refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US
dollars at the exchange rate of 1 Dinar to 3.37777 US Dollars.16
The construction, which was supposed to start on 2 June 1981, commenced only on
the last week of August 1981. Because of this delay and the slow progress of the

construction work due to some setbacks and difficulties, the Project was not
completed on 15 November 1982 as scheduled. But in October 1982, upon
foreseeing the impossibility of meeting the deadline and upon the request of Al Ahli
Bank, the joint venture contractor worked for the renewal or extension of the
Performance Bond and Advance Payment Guarantee. Petitioner's Letters of
Guarantee Nos. 81-194-F (Performance Bond) and 81-195-F (Advance Payment
Bond) with expiry date of 25 November 1982 were then renewed or extended to 9
February 1983 and 9 March 1983, respectively.17 The surety bond was also extended
for another period of one year, from 12 May 1982 to 12 May 1983.18 The Performance
Bond was further extended twelve times with validity of up to 8 December
1986,19 while the Advance Payment Guarantee was extended three times more up to
24 May 1984 when the latter was cancelled after full refund or reimbursement by the
joint venture contractor.20 The surety bond was likewise extended to 8 May 1987.21

On 27 August 1987, the Central Bank authorized the remittance for its account of the
amount of US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing
full payment of the performance counter-guarantee for VPECI's project in Iraq. 28

As of March 1986, the status of the Project was 51% accomplished, meaning the
structures were already finished. The remaining 47% consisted in electro-mechanical
works and the 2%, sanitary works, which both required importation of equipment and
materials.22

On 19 June 1991, the petitioner sent to the respondents separate letters demanding
full payment of the amount ofP47,872,373.98 plus accruing interest, penalty charges,
and 10% attorney's fees pursuant to their joint and solidary obligations under the
deed of undertaking and surety bond.32 When the respondents failed to pay, the
petitioner filed on 9 July 1991 a civil case for collection of a sum of money against the
respondents before the RTC of Makati City.

On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner
demanding full payment of its performance bond counter-guarantee.
Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI
requested Iraq Trade and Economic Development Minister Mohammad Fadhi
Hussein to recall the telex call on the performance guarantee for being a drastic
action in contravention of its mutual agreement with the latter that (1) the imposition of
penalty would be held in abeyance until the completion of the project; and (2) the time
extension would be open, depending on the developments on the negotiations for a
foreign loan to finance the completion of the project.23 It also wrote SOB protesting
the call for lack of factual or legal basis, since the failure to complete the Project was
due to (1) the Iraqi government's lack of foreign exchange with which to pay its
(VPECI's) accomplishments and (2) SOB's noncompliance for the past several years
with the provision in the contract that 75% of the billings would be paid in US
dollars.24 Subsequently, or on 19 November 1986, respondent VPECI advised the
petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the
amicable settlement of the Project.25
On 14 April 1987, the petitioner received another telex message from Al Ahli Bank
stating that it had already paid to Rafidain Bank the sum of US$876,564 under its
letter of guarantee, and demanding reimbursement by the petitioner of what it paid to
the latter bank plus interest thereon and related expenses.26
Both petitioner Philguarantee and respondent VPECI sought the assistance of some
government agencies of the Philippines. On 10 August 1987, VPECI requested the
Central Bank to hold in abeyance the payment by the petitioner "to allow the
diplomatic machinery to take its course, for otherwise, the Philippine government ,
through the Philguarantee and the Central Bank, would become instruments of the
Iraqi Government in consummating a clear act of injustice and inequity committed
against a Filipino contractor."27

On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564

to Al Ahli Bank, and reiterated the joint and solidary obligation of the respondents to
reimburse the petitioner for the advances made on its counter-guarantee.29
The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21
January 1988.30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait
US$59,129.83 representing interest and penalty charges demanded by the latter
bank.31

After due trial, the trial court ruled against Philguarantee and held that the latter had
no valid cause of action against the respondents. It opined that at the time the call
was made on the guarantee which was executed for a specific period, the guarantee
had already lapsed or expired. There was no valid renewal or extension of the
guarantee for failure of the petitioner to secure respondents' express consent thereto.
The trial court also found that the joint venture contractor incurred no delay in the
execution of the Project. Considering the Project owner's violations of the contract
which rendered impossible the joint venture contractor's performance of its
undertaking, no valid call on the guarantee could be made. Furthermore, the trial
court held that no valid notice was first made by the Project owner SOB to the joint
venture contractor before the call on the guarantee. Accordingly, it dismissed the
complaint, as well as the counterclaims and cross-claim, and ordered the petitioner to
pay attorney's fees of P100,000 to respondents VPECI and Eusebio Spouses
and P100,000 to 3-Plex and the Santos Spouses, plus costs. 33
In its 14 June 1999 Decision,34 the Court of Appeals affirmed the trial court's decision,
ratiocinating as follows:
First, appellant cannot deny the fact that it was fully aware of the status of
project implementation as well as the problems besetting the contractors,
between 1982 to 1985, having sent some of its people to Baghdad during
that period. The successive renewals/extensions of the guarantees in fact,
was prompted by delays, not solely attributable to the contractors, and such
extension understandably allowed by the SOB (project owner) which had not
anyway complied with its contractual commitment to tender 75% of payment
in US Dollars, and which still retained overdue amounts collectible by
VPECI.

Second, appellant was very much aware of the violations committed by the
SOB of its contractual undertakings with VPECI, principally, the payment of
foreign currency (US$) for 75% of the total contract price, as well as of the
complications and injustice that will result from its payment of the full amount
of the performance guarantee, as evident in PHILGUARANTEE's letter
dated 13 May 1987 .

Third, appellant was fully aware that SOB was in fact still obligated to the
Joint Venture and there was still an amount collectible from and still being
retained by the project owner, which amount can be set-off with the sum
covered by the performance guarantee.

Fourth, well-apprised of the above conditions obtaining at the Project site

and cognizant of the war situation at the time in Iraq, appellant, though
earlier has made representations with the SOB regarding a possible
amicable termination of the Project as suggested by VPECI, made a
complete turn-around and insisted on acting in favor of the unjustified "call"
by the foreign banks.35
The petitioner then came to this Court via Rule 45 of the Rules of Court claiming that
the Court of Appeals erred in affirming the trial court's ruling that

The petitioner asserts that since the guarantee it issued was absolute, unconditional,
and irrevocable the nature and extent of its liability are analogous to those of
suretyship. Its liability accrued upon the failure of the respondents to finish the
construction of the Institute of Physical Therapy Buildings in Baghdad.
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so. If a person
binds himself solidarily with the principal debtor, the contract is called suretyship. 37
Strictly speaking, guaranty and surety are nearly related, and many of the principles
are common to both. In both contracts, there is a promise to answer for the debt or
default of another. However, in this jurisdiction, they may be distinguished thus:
1. A surety is usually bound with his principal by the same instrument
executed at the same time and on the same consideration. On the other
hand, the contract of guaranty is the guarantor's own separate undertaking
often supported by a consideration separate from that supporting the
contract of the principal; the original contract of his principal is not his
contract.
2. A surety assumes liability as a regular party to the undertaking; while the
liability of a guarantor is conditional depending on the failure of the primary
debtor to pay the obligation.
3. The obligation of a surety is primary, while that of a guarantor is
secondary.

I
RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF
UNDERTAKING THEY EXECUTED IN FAVOR OF PETITIONER IN
CONSIDERATION FOR THE ISSUANCE OF ITS COUNTER-GUARANTEE
AND THAT PETITIONER CANNOT PASS ON TO RESPONDENTS WHAT
IT HAD PAID UNDER THE SAID COUNTER-GUARANTEE.
II
PETITIONER CANNOT CLAIM SUBROGATION.
III
IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD
RESPONDENTS LIABLE UNDER THEIR DEED OF UNDERTAKING.36
The main issue in this case is whether the petitioner is entitled to reimbursement of
what it paid under Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of
Kuwait based on the deed of undertaking and surety bond from the respondents.

4. A surety is an original promissor and debtor from the beginning, while a

guarantor is charged on his own undertaking.
5. A surety is, ordinarily, held to know every default of his principal; whereas
a guarantor is not bound to take notice of the non-performance of his
principal.
6. Usually, a surety will not be discharged either by the mere indulgence of
the creditor to the principal or by want of notice of the default of the principal,
no matter how much he may be injured thereby. A guarantor is often
discharged by the mere indulgence of the creditor to the principal, and is
usually not liable unless notified of the default of the principal. 38
In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81194-F, which provides in part as follows:
In consideration of your issuing the above performance guarantee/counterguarantee, we hereby unconditionally and irrevocably guarantee, under our
Ref. No. LG-81-194 F to pay you on your first written or telex demand Iraq
Dinars Two Hundred Seventy One Thousand Eight Hundred Eight and fils
six hundred ten (ID271,808/610) representing 100% of the performance

bond required of V.P. EUSEBIO for the construction of the Physical Therapy
Institute, Phase II, Baghdad, Iraq, plus interest and other incidental
expenses related thereto.
In the event of default by V.P. EUSEBIO, we shall pay you 100% of the
obligation unpaid but in no case shall such amount exceed Iraq Dinars (ID)
271,808/610 plus interest and other incidental expenses. (Emphasis
supplied)39
Guided by the abovementioned distinctions between a surety and a guaranty, as well
as the factual milieu of this case, we find that the Court of Appeals and the trial court
were correct in ruling that the petitioner is a guarantor and not a surety. That the
guarantee issued by the petitioner is unconditional and irrevocable does not make the
petitioner a surety. As a guaranty, it is still characterized by its subsidiary and
conditional quality because it does not take effect until the fulfillment of the condition,
namely, that the principal obligor should fail in his obligation at the time and in the
form he bound himself.40 In other words, an unconditional guarantee is still subject to
the condition that the principal debtor should default in his obligation first before resort
to the guarantor could be had. A conditional guaranty, as opposed to an unconditional
guaranty, is one which depends upon some extraneous event, beyond the mere
default of the principal, and generally upon notice of the principal's default and
reasonable diligence in exhausting proper remedies against the principal.41
It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of
default by respondent VPECI the petitioner shall pay, the obligation assumed by the
petitioner was simply that of an unconditional guaranty, not conditional guaranty. But
as earlier ruled the fact that petitioner's guaranty is unconditional does not make it a
surety. Besides, surety is never presumed. A party should not be considered a surety
where the contract itself stipulates that he is acting only as a guarantor. It is only
when the guarantor binds himself solidarily with the principal debtor that the contract
becomes one of suretyship.42
Having determined petitioner's liability as guarantor, the next question we have to
grapple with is whether the respondent contractor has defaulted in its obligations that
would justify resort to the guaranty. This is a mixed question of fact and law that is
better addressed by the lower courts, since this Court is not a trier of facts.
It is a fundamental and settled rule that the findings of fact of the trial court and the
Court of Appeals are binding or conclusive upon this Court unless they are not
supported by the evidence or unless strong and cogent reasons dictate
otherwise.43 The factual findings of the Court of Appeals are normally not reviewable
by us under Rule 45 of the Rules of Court except when they are at variance with
those of the trial court. 44 The trial court and the Court of Appeals were in unison that
the respondent contractor cannot be considered to have defaulted in its obligations
because the cause of the delay was not primarily attributable to it.
A corollary issue is what law should be applied in determining whether the respondent
contractor has defaulted in the performance of its obligations under the service
contract. The question of whether there is a breach of an agreement, which
includes default or mora,45 pertains to the essential or intrinsic validity of a contract. 46

No conflicts rule on essential validity of contracts is expressly provided for in our laws.
The rule followed by most legal systems, however, is that the intrinsic validity of a
contract must be governed by the lex contractus or "proper law of the contract." This
is the law voluntarily agreed upon by the parties (the lex loci voluntatis) or the law
intended by them either expressly or implicitly (the lex loci intentionis). The law
selected may be implied from such factors as substantial connection with the
transaction, or the nationality or domicile of the parties.47 Philippine courts would do
well to adopt the first and most basic rule in most legal systems, namely, to allow the
parties to select the law applicable to their contract, subject to the limitation that it is
not against the law, morals, or public policy of the forum and that the chosen law
must bear a substantive relationship to the transaction. 48
It must be noted that the service contract between SOB and VPECI contains no
express choice of the law that would govern it. In the United States and Europe, the
two rules that now seem to have emerged as "kings of the hill" are (1) the parties may
choose the governing law; and (2) in the absence of such a choice, the applicable law
is that of the State that "has the most significant relationship to the transaction and
the parties."49 Another authority proposed that all matters relating to the time, place,
and manner of performance and valid excuses for non-performance are determined
by the law of the place of performance or lex loci solutionis, which is useful because it
is undoubtedly always connected to the contract in a significant way.50
In this case, the laws of Iraq bear substantial connection to the transaction, since one
of the parties is the Iraqi Government and the place of performance is in Iraq. Hence,
the issue of whether respondent VPECI defaulted in its obligations may be
determined by the laws of Iraq. However, since that foreign law was not properly
pleaded or proved, the presumption of identity or similarity, otherwise known as
the processual presumption, comes into play. Where foreign law is not pleaded or,
even if pleaded, is not proved, the presumption is that foreign law is the same as
ours.51
Our law, specifically Article 1169, last paragraph, of the Civil Code, provides: "In
reciprocal obligations, neither party incurs in delay if the other party does not comply
or is not ready to comply in a proper manner with what is incumbent upon him."
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation
by reason of a cause imputable to the former. 52 It is the non-fulfillment of an
obligation with respect to time.53
It is undisputed that only 51.7% of the total work had been accomplished. The 48.3%
unfinished portion consisted in the purchase and installation of electro-mechanical
equipment and materials, which were available from foreign suppliers, thus requiring
US Dollars for their importation. The monthly billings and payments made by
SOB54 reveal that the agreement between the parties was a periodic payment by the
Project owner to the contractor depending on the percentage of accomplishment
within the period. 55 The payments were, in turn, to be used by the contractor to
finance the subsequent phase of the work. 56 However, as explained by VPECI in its
letter to the Department of Foreign Affairs (DFA), the payment by SOB purely in
Dinars adversely affected the completion of the project; thus:

4. Despite protests from the plaintiff, SOB continued paying the

accomplishment billings of the Contractor purely in Iraqi Dinars and which
payment came only after some delays.
5. SOB is fully aware of the following:

5.2 That Plaintiff is a foreign contractor in Iraq and as such, would need
foreign currency (US$), to finance the purchase of various equipment,
materials, supplies, tools and to pay for the cost of project management,
supervision and skilled labor not available in Iraq and therefore have to be
imported and or obtained from the Philippines and other sources outside
Iraq.
5.3 That the Ministry of Labor and Employment of the Philippines requires
the remittance into the Philippines of 70% of the salaries of Filipino workers
working abroad in US Dollars;

5.5 That the Iraqi Dinar is not a freely convertible currency such that the
same cannot be used to purchase equipment, materials, supplies, etc.
outside of Iraq;
5.6 That most of the materials specified by SOB in the CONTRACT are not
available in Iraq and therefore have to be imported;
5.7 That the government of Iraq prohibits the bringing of local currency
(Iraqui Dinars) out of Iraq and hence, imported materials, equipment, etc.,
cannot be purchased or obtained using Iraqui Dinars as medium of
acquisition.

8. Following the approved construction program of the CONTRACT, upon

completion of the civil works portion of the installation of equipment for the
building, should immediately follow, however, the CONTRACT specified that
these equipment which are to be installed and to form part of the PROJECT
have to be procured outside Iraq since these are not being locally
manufactured. Copy f the relevant portion of the Technical Specification is
hereto attached as Annex "C" and made an integral part hereof;

10. Due to the lack of Foreign currency in Iraq for this purpose, and if only to
assist the Iraqi government in completing the PROJECT, the Contractor

without any obligation on its part to do so but with the knowledge and
consent of SOB and the Ministry of Housing & Construction of Iraq, offered
to arrange on behalf of SOB, a foreign currency loan, through the facilities of
Circle International S.A., the Contractor's Sub-contractor and SACE MEDIO
CREDITO which will act as the guarantor for this foreign currency loan.
Arrangements were first made with Banco di Roma. Negotiation started in
June 1985. SOB is informed of the developments of this negotiation,
attached is a copy of the draft of the loan Agreement between SOB as the
Borrower and Agent. The Several Banks, as Lender, and counterguaranteed by Istituto Centrale Per II Credito A Medio Termine
(Mediocredito) Sezione Speciale Per L'Assicurazione Del Credito
All'Exportazione (Sace). Negotiations went on and continued until it suddenly
collapsed due to the reported default by Iraq in the payment of its obligations
with Italian government, copy of the news clipping dated June 18, 1986 is
hereto attached as Annex "D" to form an integral part hereof;
15. On September 15, 1986, Contractor received information from Circle
International S.A. that because of the news report that Iraq defaulted in its
obligations with European banks, the approval by Banco di Roma of the loan
to SOB shall be deferred indefinitely, a copy of the letter of Circle
International together with the news clippings are hereto attached as
Annexes "F" and "F-1", respectively.57
As found by both the Court of Appeals and the trial court, the delay or the noncompletion of the Project was caused by factors not imputable to the respondent
contractor. It was rather due mainly to the persistent violations by SOB of the terms
and conditions of the contract, particularly its failure to pay 75% of the accomplished
work in US Dollars. Indeed, where one of the parties to a contract does not perform
in a proper manner the prestation which he is bound to perform under the contract, he
is not entitled to demand the performance of the other party. A party does not incur in
delay if the other party fails to perform the obligation incumbent upon him.
The petitioner, however, maintains that the payments by SOB of the monthly billings
in purely Iraqi Dinars did not render impossible the performance of the Project by
VPECI. Such posture is quite contrary to its previous representations. In his 26 March
1987 letter to the Office of the Middle Eastern and African Affairs (OMEAA), DFA,
Manila, petitioner's Executive Vice-President Jesus M. Taedo stated that while
VPECI had taken every possible measure to complete the Project, the war situation in
Iraq, particularly the lack of foreign exchange, was proving to be a great obstacle;
thus:
VPECI has taken every possible measure for the completion of the project
but the war situation in Iraq particularly the lack of foreign exchange is
proving to be a great obstacle. Our performance counterguarantee was
called last 26 October 1986 when the negotiations for a foreign currency
loan with the Italian government through Banco de Roma bogged down
following news report that Iraq has defaulted in its obligation with major
European banks. Unless the situation in Iraq is improved as to allay the

bank's apprehension, there is no assurance that the project will ever be

completed. 58
In order that the debtor may be in default it is necessary that the following requisites
be present: (1) that the obligation be demandable and already liquidated; (2) that the
debtor delays performance; and (3) that the creditor requires the performance
because it must appear that the tolerance or benevolence of the creditor must have
ended. 59
As stated earlier, SOB cannot yet demand complete performance from VPECI
because it has not yet itself performed its obligation in a proper manner, particularly
the payment of the 75% of the cost of the Project in US Dollars. The VPECI cannot
yet be said to have incurred in delay. Even assuming that there was delay and that
the delay was attributable to VPECI, still the effects of that delay ceased upon the
renunciation by the creditor, SOB, which could be implied when the latter granted
several extensions of time to the former. 60 Besides, no demand has yet been made
by SOB against the respondent contractor. Demand is generally necessary even if a
period has been fixed in the obligation. And default generally begins from the moment
the creditor demands judicially or extra-judicially the performance of the obligation.
Without such demand, the effects of default will not arise.61
Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it
cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI
has been exhausted and all legal remedies against the said debtor have been
resorted to by the creditor.62 It could also set up compensation as regards what the
creditor SOB may owe the principal debtor VPECI.63 In this case, however, the
petitioner has clearly waived these rights and remedies by making the payment of an
obligation that was yet to be shown to be rightfully due the creditor and demandable
of the principal debtor.
As found by the Court of Appeals, the petitioner fully knew that the joint venture
contractor had collectibles from SOB which could be set off with the amount covered
by the performance guarantee. In February 1987, the OMEAA transmitted to the
petitioner a copy of a telex dated 10 February 1987 of the Philippine Ambassador in
Baghdad, Iraq, informing it of the note verbale sent by the Iraqi Ministry of Foreign
Affairs stating that the past due obligations of the joint venture contractor from the
petitioner would "be deducted from the dues of the two contractors."64
Also, in the project situationer attached to the letter to the OMEAA dated 26 March
1987, the petitioner raised as among the arguments to be presented in support of the
cancellation of the counter-guarantee the fact that the amount of ID281,414/066
retained by SOB from the Project was more than enough to cover the counterguarantee of ID271,808/610; thus:
6.1 Present the following arguments in cancelling the counterguarantee:
The Iraqi Government does not have the foreign exchange to fulfill
its contractual obligations of paying 75% of progress billings in US
dollars.

It could also be argued that the amount of ID281,414/066 retained

by SOB from the proposed project is more than the amount of the
outstanding counterguarantee.65
In a nutshell, since the petitioner was aware of the contractor's outstanding
receivables from SOB, it should have set up compensation as was proposed in
its project situationer.
Moreover, the petitioner was very much aware of the predicament of the respondents.
In fact, in its 13 May 1987 letter to the OMEAA, DFA, Manila, it stated:
VPECI also maintains that the delay in the completion of the project was
mainly due to SOB's violation of contract terms and as such, call on the
guarantee has no basis.
While PHILGUARANTEE is prepared to honor its commitment under the
guarantee, PHILGUARANTEE does not want to be an instrument in any
case of inequity committed against a Filipino contractor. It is for this reason
that we are constrained to seek your assistance not only in ascertaining the
veracity of Al Ahli Bank's claim that it has paid Rafidain Bank but possibly
averting such an event. As any payment effected by the banks will
complicate matters, we cannot help underscore the urgency of VPECI's bid
for government intervention for the amicable termination of the contract and
release of the performance guarantee. 66
But surprisingly, though fully cognizant of SOB's violations of the service contract and
VPECI's outstanding receivables from SOB, as well as the situation obtaining in the
Project site compounded by the Iran-Iraq war, the petitioner opted to pay the second
layer guarantor not only the full amount of the performance bond counter-guarantee
but also interests and penalty charges.
This brings us to the next question: May the petitioner as a guarantor secure
reimbursement from the respondents for what it has paid under Letter of Guarantee
No. 81-194-F?
As a rule, a guarantor who pays for a debtor should be indemnified by the latter67 and
would be legally subrogated to the rights which the creditor has against the
debtor.68 However, a person who makes payment without the knowledge or against
the will of the debtor has the right to recover only insofar as the payment has been
beneficial to the debtor.69 If the obligation was subject to defenses on the part of the
debtor, the same defenses which could have been set up against the creditor can be
set up against the paying guarantor.70
From the findings of the Court of Appeals and the trial court, it is clear that the
payment made by the petitioner guarantor did not in any way benefit the principal
debtor, given the project status and the conditions obtaining at the Project site at that
time. Moreover, the respondent contractor was found to have valid defenses against

SOB, which are fully supported by evidence and which have been meritoriously set
up against the paying guarantor, the petitioner in this case. And even if the deed of
undertaking and the surety bond secured petitioner's guaranty, the petitioner is
precluded from enforcing the same by reason of the petitioner's undue payment on
the guaranty. Rights under the deed of undertaking and the surety bond do not arise
because these contracts depend on the validity of the enforcement of the guaranty.
The petitioner guarantor should have waited for the natural course of guaranty: the
debtor VPECI should have, in the first place, defaulted in its obligation and that the
creditor SOB should have first made a demand from the principal debtor. It is only
when the debtor does not or cannot pay, in whole or in part, that the guarantor should
pay.71 When the petitioner guarantor in this case paid against the will of the debtor
VPECI, the debtor VPECI may set up against it defenses available against the
creditor SOB at the time of payment. This is the hard lesson that the petitioner must
learn.
As the government arm in pursuing its objective of providing "the necessary support
and assistance in order to enable [Filipino exporters and contractors to operate
viably under the prevailing economic and business conditions,"72 the petitioner should
have exercised prudence and caution under the circumstances. As aptly put by the
Court of Appeals, it would be the height of inequity to allow the petitioner to pass on
its losses to the Filipino contractor VPECI which had sternly warned against paying
the Al Ahli Bank and constantly apprised it of the developments in the Project
implementation.
WHEREFORE, the petition for review on certiorari is hereby DENIED for lack of merit,
and the decision of the Court of appeals in CA-G.R. CV No. 39302 is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 112573 February 9, 1995

NORTHWEST ORIENT AIRLINES, INC. petitioner,
vs.
COURT OF APPEALS and C.F. SHARP & COMPANY INC., respondents.

PADILLA, JR., J.:

This petition for review on certiorari seeks to set aside the decision of the Court of
Appeals affirming the dismissal of the petitioner's complaint to enforce the judgment
of a Japanese court. The principal issue here is whether a Japanese court can
acquire jurisdiction over a Philippine corporation doing business in Japan by serving
summons through diplomatic channels on the Philippine corporation at its principal
office in Manila after prior attempts to serve summons in Japan had failed.
Petitioner Northwest Orient Airlines, Inc. (hereinafter NORTHWEST), a corporation
organized under the laws of the State of Minnesota, U.S.A., sought to enforce in Civil
Case No. 83-17637 of the Regional Trial Court (RTC), Branch 54, Manila, a judgment
rendered in its favor by a Japanese court against private respondent C.F. Sharp &
Company, Inc., (hereinafter SHARP), a corporation incorporated under Philippine
laws.
As found by the Court of Appeals in the challenged decision of 10 November
1993, 1 the following are the factual and procedural antecedents of this controversy:
On May 9, 1974, plaintiff Northwest Airlines and defendant C.F.
Sharp & Company, through its Japan branch, entered into an
International Passenger Sales Agency Agreement, whereby the
former authorized the latter to sell its air transportation tickets.
Unable to remit the proceeds of the ticket sales made by defendant
on behalf of the plaintiff under the said agreement, plaintiff on
March 25, 1980 sued defendant in Tokyo, Japan, for collection of
the unremitted proceeds of the ticket sales, with claim for damages.
On April 11, 1980, a writ of summons was issued by the 36th Civil
Department, Tokyo District Court of Japan against defendant at its
office at the Taiheiyo Building, 3rd floor, 132, Yamashita-cho, Nakaku, Yokohoma, Kanagawa Prefecture. The attempt to serve the
summons was unsuccessful because the bailiff was advised by a
person in the office that Mr. Dinozo, the person believed to be
authorized to receive court processes was in Manila and would be
back on April 24, 1980.

On April 24, 1980, bailiff returned to the defendant's office to serve

the summons. Mr. Dinozo refused to accept the same claiming that
he was no longer an employee of the defendant.
After the two attempts of service were unsuccessful, the judge of
the Tokyo District Court decided to have the complaint and the writs
of summons served at the head office of the defendant in Manila.
On July 11, 1980, the Director of the Tokyo District Court requested
the Supreme Court of Japan to serve the summons through
diplomatic channels upon the defendant's head office in Manila.
On August 28, 1980, defendant received from Deputy Sheriff
Rolando Balingit the writ of summons (p. 276, Records). Despite
receipt of the same, defendant failed to appear at the scheduled
hearing. Thus, the Tokyo Court proceeded to hear the plaintiff's
complaint and on [January 29, 1981], rendered judgment ordering
the defendant to pay the plaintiff the sum of 83,158,195 Yen and
damages for delay at the rate of 6% per annum from August 28,
1980 up to and until payment is completed (pp. 12-14, Records).
On March 24, 1981, defendant received from Deputy Sheriff
Balingit copy of the judgment. Defendant not having appealed the
judgment, the same became final and executory.
Plaintiff was unable to execute the decision in Japan, hence, on
May 20, 1983, a suit for enforcement of the judgment was filed by
plaintiff before the Regional Trial Court of Manila Branch 54. 2
On July 16, 1983, defendant filed its answer averring that the
judgment of the Japanese Court sought to be enforced is null and
void and unenforceable in this jurisdiction having been rendered
without due and proper notice to the defendant and/or with
collusion or fraud and/or upon a clear mistake of law and fact (pp.
41-45, Rec.).
Unable to settle the case amicably, the case was tried on the
merits. After the plaintiff rested its case, defendant on April 21,
1989, filed a Motion for Judgment on a Demurrer to Evidence
based on two grounds:
(1) the foreign judgment sought to be enforced is null and void for
want of jurisdiction and (2) the said judgment is contrary to
Philippine law and public policy and rendered without due process
of law. Plaintiff filed its opposition after which the court a
quo rendered the now assailed decision dated June 21, 1989

granting the demurrer motion and dismissing the complaint

(Decision, pp. 376-378, Records). In granting the demurrer motion,
the trial court held that:
The foreign judgment in the Japanese Court
sought in this action is null and void for want of
jurisdiction over the person of the defendant
considering that this is an action in personam; the
Japanese Court did not acquire jurisdiction over
the person of the defendant because
jurisprudence requires that the defendant be
served with summons in Japan in order for the
Japanese Court to acquire jurisdiction over it, the
process of the Court in Japan sent to the
Philippines which is outside Japanese jurisdiction
cannot confer jurisdiction over the defendant in
the case before the Japanese Court of the case
at bar.Boudard versus Tait 67 Phil. 170. The
plaintiff contends that the Japanese Court
acquired jurisdiction because the defendant is a
resident of Japan, having four (4) branches doing
business therein and in fact had a permit from the
Japanese government to conduct business in
Japan (citing the exhibits presented by the
plaintiff); if this is so then service of summons
should have been made upon the defendant in
Japan in any of these alleged four branches; as
admitted by the plaintiff the service of the
summons issued by the Japanese Court was
made in the Philippines thru a Philippine Sheriff.
This Court agrees that if the defendant in a
foreign court is a resident in the court of that
foreign court such court could acquire jurisdiction
over the person of the defendant but it must be
served upon the defendant in the territorial
jurisdiction of the foreign court. Such is not the
case here because the defendant was served
with summons in the Philippines and not in
Japan.
Unable to accept the said decision, plaintiff on July 11, 1989 moved
for reconsideration of the decision, filing at the same time a
conditional Notice of Appeal, asking the court to treat the said
notice of appeal "as in effect after and upon issuance of the court's
denial of the motion for reconsideration."

Defendant opposed the motion for reconsideration to which a Reply

dated August 28, 1989 was filed by the plaintiff.
On October 16, 1989, the lower court disregarded the Motion for
Reconsideration and gave due course to the plaintiff's Notice of
Appeal. 3
In its decision, the Court of Appeals sustained the trial court. It agreed with the latter
in its reliance upon Boudard vs.Tait 4 wherein it was held that "the process of the court
has no extraterritorial effect and no jurisdiction is acquired over the person of the
defendant by serving him beyond the boundaries of the state." To support its position,
the Court of Appeals further stated:
In an action strictly in personam, such as the instant case, personal
service of summons within the forum is required for the court to
acquire jurisdiction over the defendant (Magdalena Estate Inc. vs.
Nieto, 125 SCRA 230). To confer jurisdiction on the court, personal
or substituted service of summons on the defendant not
extraterritorial service is necessary (Dial Corp vs. Soriano, 161
SCRA 739).
But while plaintiff-appellant concedes that the collection suit filed is
an action in personam, it is its theory that a distinction must be
made between an action in personam against a resident defendant
and an action in personam against a non-resident defendant.
Jurisdiction is acquired over a non-resident defendant only if he is
served personally within the jurisdiction of the court and over a
resident defendant if by personal, substituted or constructive
service conformably to statutory authorization. Plaintiff-appellant
argues that since the defendant-appellee maintains branches in
Japan it is considered a resident defendant. Corollarily, personal,
substituted or constructive service of summons when made in
compliance with the procedural rules is sufficient to give the court
jurisdiction to render judgment in personam.
Such an argument does not persuade.
It is a general rule that processes of the court cannot lawfully be
served outside the territorial limits of the jurisdiction of the court
from which it issues (Carter vs. Carter; 41 S.E. 2d 532, 201) and
this isregardless of the residence or citizenship of the party thus
served (Iowa-Rahr vs. Rahr, 129 NW 494, 150 Iowa 511, 35 LRC,
NS, 292, Am. Case 1912 D680). There must be actual service
within the proper territorial limits on defendant or someone

authorized to accept service for him. Thus, a defendant, whether a

resident or not in the forum where the action is filed, must be
served with summons within that forum.

It then concluded that the service of summons effected in Manila or beyond the
territorial boundaries of Japan was null and did not confer jurisdiction upon the Tokyo
District Court over the person of SHARP; hence, its decision was void.

But even assuming a distinction between a resident defendant and

non-resident defendant were to be adopted, such distinction applies
only to natural persons and not in the corporations. This finds
support in the concept that "a corporation has no home or
residence in the sense in which those terms are applied to natural
persons" (Claude Neon Lights vs. Phil. Advertising Corp., 57 Phil.
607). Thus, as cited by the defendant-appellee in its brief:

Unable to obtain a reconsideration of the decision, NORTHWEST elevated the case

to this Court contending that the respondent court erred in holding that SHARP was
not a resident of Japan and that summons on SHARP could only be validly served
within that country.

Residence is said to be an attribute of a natural person, and can be

predicated on an artificial being only by more or less imperfect
analogy. Strictly speaking, therefore, a corporation can have no
local residence or habitation. It has been said that a corporation is a
mere ideal existence, subsisting only in contemplation of law an
invisible being which can have, in fact, no locality and can occupy
no space, and therefore cannot have a dwelling place. (18 Am. Jur.
2d, p. 693 citing Kimmerle v. Topeka, 88 370, 128 p. 367; Wood v.
Hartfold F. Ins. Co., 13 Conn 202)
Jurisprudence so holds that the foreign or domestic character of a
corporation is to be determined by the place of its origin where its
charter was granted and not by the location of its business activities
(Jennings v. Idaho Rail Light & P. Co., 26 Idaho 703, 146 p. 101), A
corporation is a "resident" and an inhabitant of the state in which it
is incorporated and no other (36 Am. Jur. 2d, p. 49).
Defendant-appellee is a Philippine Corporation duly organized
under the Philippine laws. Clearly, its residence is the Philippines,
the place of its incorporation, and not Japan. While defendantappellee maintains branches in Japan, this will not make it a
resident of Japan. A corporation does not become a resident of
another by engaging in business there even though licensed by that
state and in terms given all the rights and privileges of a domestic
corporation (Galveston H. & S.A.R. Co. vs. Gonzales, 151 US 496,
38 L ed. 248, 4 S Ct. 401).
On this premise, defendant appellee is a non-resident corporation.
As such, court processes must be served upon it at a place within
the state in which the action is brought and not elsewhere (St. Clair
vs. Cox, 106 US 350, 27 L ed. 222, 1 S. Ct. 354). 5

A foreign judgment is presumed to be valid and binding in the country from which it
comes, until the contrary is shown. It is also proper to presume the regularity of the
proceedings and the giving of due notice therein. 6
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in
personam of a tribunal of a foreign country having jurisdiction to pronounce the same
is presumptive evidence of a right as between the parties and their successors-ininterest by a subsequent title. The judgment may, however, be assailed by evidence
of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of
law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or
elsewhere, enjoys the presumption that it was acting in the lawful exercise of
jurisdiction and has regularly performed its official duty.
Consequently, the party attacking a foreign judgment has the burden of overcoming
the presumption of its validity. 7Being the party challenging the judgment rendered by
the Japanese court, SHARP had the duty to demonstrate the invalidity of such
judgment. In an attempt to discharge that burden, it contends that the extraterritorial
service of summons effected at its home office in the Philippines was not only
ineffectual but also void, and the Japanese Court did not, therefore acquire
jurisdiction over it.
It is settled that matters of remedy and procedure such as those relating to the
service of process upon a defendant are governed by the lex fori or the internal law of
the forum. 8 In this case, it is the procedural law of Japan where the judgment was
rendered that determines the validity of the extraterritorial service of process on
SHARP. As to what this law is is a question of fact, not of law. It may not be taken
judicial notice of and must be pleaded and proved like any other fact. 9Sections 24
and 25, Rule 132 of the Rules of Court provide that it may be evidenced by an official
publication or by a duly attested or authenticated copy thereof. It was then incumbent
upon SHARP to present evidence as to what that Japanese procedural law is and to
show that under it, the assailed extraterritorial service is invalid. It did not.
Accordingly, the presumption of validity and regularity of the service of summons and
the decision thereafter rendered by the Japanese court must stand.

Alternatively in the light of the absence of proof regarding Japanese

law, the presumption of identity or similarity or the so-called processual
presumption 10 may be invoked. Applying it, the Japanese law on the matter is
presumed to be similar with the Philippine law on service of summons on a private
foreign corporation doing business in the Philippines. Section 14, Rule 14 of the
Rules of Court provides that if the defendant is a foreign corporation doing business
in the Philippines, service may be made: (1) on its resident agent designated in
accordance with law for that purpose, or, (2) if there is no such resident agent, on the
government official designated by law to that effect; or (3) on any of its officers or
agents within the Philippines.
If the foreign corporation has designated an agent to receive summons, the
designation is exclusive, and service of summons is without force and gives the court
no jurisdiction unless made upon him. 11
Where the corporation has no such agent, service shall be made on the government
official designated by law, to wit: (a) the Insurance Commissioner in the case of a
foreign insurance company; (b) the Superintendent of Banks, in the case of a foreign
banking corporation; and (c) the Securities and Exchange Commission, in the case of
other foreign corporations duly licensed to do business in the Philippines. Whenever
service of process is so made, the government office or official served shall transmit
by mail a copy of the summons or other legal proccess to the corporation at its home
or principal office. The sending of such copy is a necessary part of the service. 12
SHARP contends that the laws authorizing service of process upon the Securities and
Exchange Commission, the Superintendent of Banks, and the Insurance
Commissioner, as the case may be, presuppose a situation wherein the foreign
corporation doing business in the country no longer has any branches or offices
within the Philippines. Such contention is belied by the pertinent provisions of the said
laws. Thus, Section 128 of the Corporation Code 13 and Section 190 of the Insurance
Code 14 clearly contemplate two situations: (1) if the corporation had left the
Philippines or had ceased to transact business therein, and (2) if the corporation has
no designated agent. Section 17 of the General Banking Act 15 does not even speak a
corporation which had ceased to transact business in the Philippines.
Nowhere in its pleadings did SHARP profess to having had a resident agent
authorized to receive court processes in Japan. This silence could only mean, or least
create an impression, that it had none. Hence, service on the designated government
official or on any of SHARP's officers or agents in Japan could be availed of. The
respondent, however, insists that only service of any of its officers or employees in its
branches in Japan could be resorted to. We do not agree. As found by the respondent
court, two attempts at service were made at SHARP's Yokohama branch. Both were
unsuccessful. On the first attempt, Mr. Dinozo, who was believed to be the person
authorized to accept court process, was in Manila. On the second, Mr. Dinozo was

present, but to accept the summons because, according to him, he was no longer an
employee of SHARP. While it may be true that service could have been made upon
any of the officers or agents of SHARP at its three other branches in Japan, the
availability of such a recourse would not preclude service upon the proper
government official, as stated above.
As found by the Court of Appeals, it was the Tokyo District Court which ordered that
summons for SHARP be served at its head office in the Philippine's after the two
attempts of service had failed. 16 The Tokyo District Court requested the Supreme
Court of Japan to cause the delivery of the summons and other legal documents to
the Philippines. Acting on that request, the Supreme Court of Japan sent the
summons together with the other legal documents to the Ministry of Foreign Affairs of
Japan which, in turn, forwarded the same to the Japanese Embassy in Manila .
Thereafter, the court processes were delivered to the Ministry (now Department) of
Foreign Affairs of the Philippines, then to the Executive Judge of the Court of First
Instance (now Regional Trial Court) of Manila, who forthwith ordered Deputy Sheriff
Rolando Balingit to serve the same on SHARP at its principal office in Manila. This
service is equivalent to service on the proper government official under Section 14,
Rule 14 of the Rules of Court, in relation to Section 128 of the Corporation Code.
Hence, SHARP's contention that such manner of service is not valid under Philippine
laws holds no water. 17
In deciding against the petitioner, the respondent court sustained the trial court's
reliance on Boudard vs. Tait 18where this Court held:
The fundamental rule is that jurisdiction in personam over
nonresidents, so as to sustain a money judgment, must be based
upon personal service within the state which renders the judgment.
xxx xxx xxx
The process of a court, has no extraterritorial effect, and no
jurisdiction is acquired over the person of the defendant by serving
him beyond the boundaries of the state. Nor has a judgment of a
court of a foreign country against a resident of this country having
no property in such foreign country based on process served here,
any effect here against either the defendant personally or his
property situated here.
Process issuing from the courts of one state or country cannot run
into another, and although a nonresident defendant may have been
personally served with such process in the state or country of his
domicile, it will not give such jurisdiction as to authorize a personal
judgment against him.

It further availed of the ruling in Magdalena Estate, Inc. vs. Nieto 19 and Dial
Corp. vs. Soriano, 20 as well as the principle laid down by the Iowa Supreme Court in
the 1911 case of Raher vs. Raher. 21
The first three cases are, however, inapplicable. Boudard involved the enforcement of
a judgment of the civil division of the Court of First Instance of Hanoi, French IndoChina. The trial court dismissed the case because the Hanoi court never acquired
jurisdiction over the person of the defendant considering that "[t]he, evidence
adduced at the trial conclusively proves that neither the appellee [the defendant] nor
his agent or employees were ever in Hanoi, French Indo-China; and that the
deceased Marie Theodore Jerome Boudard had never, at any time, been his
employee." In Magdalena Estate, what was declared invalid resulting in the failure of
the court to acquire jurisdiction over the person of the defendants in an action in
personam was the service of summons through publication against non-appearing
resident defendants. It was claimed that the latter concealed themselves to avoid
personal service of summons upon them. In Dial, the defendants were foreign
corporations which were not, domiciled and licensed to engage in business in the
Philippines and which did not have officers or agents, places of business, or
properties here. On the other hand, in the instant case, SHARP was doing business
in Japan and was maintaining four branches therein.
Insofar as to the Philippines is concerned, Raher is a thing of the past. In that case, a
divided Supreme Court of Iowa declared that the principle that there can be no
jurisdiction in a court of a territory to render a personal judgment against anyone upon
service made outside its limits was applicable alike to cases of residents and nonresidents. The principle was put at rest by the United States Supreme Court when it
ruled in the 1940 case ofMilliken vs. Meyer 22 that domicile in the state is alone
sufficient to bring an absent defendant within the reach of the state's jurisdiction for
purposes of a personal judgment by means of appropriate substituted service or
personal service without the state. This principle is embodied in section 18, Rule 14 of
the Rules of Court which allows service of summons on residents temporarily out of
the Philippines to be made out of the country. The rationale for this rule was explained
in Milliken as follows:
[T]he authority of a state over one of its citizens is not terminated by
the mere fact of his absence from the state. The state which
accords him privileges and affords protection to him and his
property by virtue of his domicile may also exact reciprocal duties.
"Enjoyment of the privileges of residence within the state, and the
attendant right to invoke the protection of its laws, are inseparable"
from the various incidences of state citizenship. The responsibilities
of that citizenship arise out of the relationship to the state which
domicile creates. That relationship is not dissolved by mere
absence from the state. The attendant duties, like the rights and

privileges incident to domicile, are not dependent on continuous

presence in the state. One such incident of domicile is amenability
to suit within the state even during sojourns without the state,
where the state has provided and employed a reasonable method
for apprising such an absent party of the proceedings against
him. 23
The domicile of a corporation belongs to the state where it was incorporated. 24 In a
strict technical sense, such domicile as a corporation may have is single in its
essence and a corporation can have only one domicile which is the state of its
creation. 25
Nonetheless, a corporation formed in one-state may, for certain purposes, be
regarded a resident in another state in which it has offices and transacts business.
This is the rule in our jurisdiction and apropos thereto, it may be necessery to quote
what we stated in State Investment House, Inc, vs. Citibank, N.A., 26 to wit:
The issue is whether these Philippine branches or units may be
considered "residents of the Philippine Islands" as that term is used
in Section 20 of the Insolvency Law . . . or residents of the state
under the laws of which they were respectively incorporated. The
answer cannot be found in the Insolvency Law itself, which contains
no definition of the term, resident, or any clear indication of its
meaning. There are however other statutes, albeit of subsequent
enactment and effectivity, from which enlightening notions of the
term may be derived.
The National Internal Revenue Code declares that the term
"'resident foreign corporation' applies to a foreign corporation
engaged in trade or business within the Philippines," as
distinguished from a "'non-resident foreign corporation' . . . (which is
one) not engaged in trade or bussiness within the Philippines."
[Sec. 20, pars. (h) and (i)].
The Offshore Banking Law, Presidential Decree No. 1034, states
"that branches, subsidiaries, affiliation, extension offices or any
other units of corporation or juridical person organized under the
laws of any foreign country operating in the Philippines shall be
considered residents of the Philippines. [Sec. 1(e)].
The General Banking Act, Republic Act No. 337, places "branches
and agencies in the Philippines of foreign banks . . . (which are)
called Philippine branches," in the same category as "commercial
banks, savings associations, mortgage banks, development banks,

rural banks, stock savings and loan associations" (which have been
formed and organized under Philippine laws), making no distinction
between the former and the latter in so far as the terms "banking
institutions" and "bank" are used in the Act [Sec. 2], declaring on
the contrary that in "all matters not specifically covered by special
provisions applicable only to foreign banks, or their branches and
agencies in the Philippines, said foreign banks or their branches
and agencies lawfully doing business in the Philippines "shall be
bound by all laws, rules, and regulations applicable to domestic
banking corporations of the same class, except such laws, rules
and regulations as provided for the creation, formation,
organization, or dissolution of corporations or as fix the relation,
liabilities, responsibilities, or duties of members, stockholders or
officers of corporation. [Sec. 18].
This court itself has already had occasion to hold [Claude Neon
Lights, Fed. Inc. vs. Philippine Advertising Corp., 57 Phil. 607] that
a foreign corporation licitly doing business in the Philippines, which
is a defendant in a civil suit, may not be considered a nonresident within the scope of the legal provision authorizing
attachment against a defendant not residing in the Philippine
Islands; [Sec. 424, in relation to Sec. 412 of Act No. 190, the Code
of Civil Procedure; Sec. 1(f), Rule 59 of the Rules of 1940, Sec.
1(f), Rule 57, Rules of 1964] in other words, a preliminary
attachment may not be applied for and granted solely on the
asserted fact that the defendant is a foreign corporation authorized
to do business in the Philippines and is consequently and
necessarily, "a party who resides out of the Philippines."
Parenthetically, if it may not be considered as a party not residing in
the Philippines, or as a party who resides out of the country, then,
logically, it must be considered a party who does reside in the
Philippines, who is a resident of the country. Be this as it may, this
Court pointed out that:
. . . Our laws and jurisprudence indicate a
purpose to assimilate foreign corporations, duly
licensed to do business here, to the status of
domestic corporations. (Cf. Section 73, Act No.
1459, and Marshall Wells Co. vs. Henry W. Elser
& Co., 46 Phil. 70, 76; Yu Cong Eng vs. Trinidad,
47 Phil. 385, 411) We think it would be entirely
out of line with this policy should we make a
discrimination against a foreign corporation, like
the petitioner, and subject its property to the
harsh writ of seizure by attachment when it has

complied not only with every requirement of law

made specially of foreign corporations, but in
addition with every requirement of law made of
domestic corporations. . . .
Obviously, the assimilation of foreign corporations authorized to do
business in the Philippines "to the status of domestic corporations,
subsumes their being found and operating as corporations,
hence,residing, in the country.
The same principle is recognized in American law: that the
residence of a corporation, if it can be said to have a residence, is
necessarily where it exercises corporate functions . . .;" that it is
considered as dwelling "in the place where its business is
done . . .," as being "located where its franchises are
exercised . . .," and as being "present where it is engaged in the
prosecution of the corporate enterprise;" that a "foreign corporation
licensed to do business in a state is a resident of any country where
it maintains an office or agent for transaction of its usual and
customary business for venue purposes;" and that the "necessary
element in its signification is locality of existence." [Words and
Phrases, Permanent Ed., vol. 37, pp. 394, 412, 493].
In as much as SHARP was admittedly doing business in Japan through its four duly
registered branches at the time the collection suit against it was filed, then in the light
of the processual presumption, SHARP may be deemed a resident of Japan, and, as
such, was amenable to the jurisdiction of the courts therein and may be deemed to
have assented to the said courts' lawful methods of serving process. 27
Accordingly, the extraterritorial service of summons on it by the Japanese Court was
valid not only under the processual presumption but also because of the presumption
of regularity of performance of official duty.
We find NORTHWEST's claim for attorney's fees, litigation expenses, and exemplary
damages to be without merit. We find no evidence that would justify an award for
attorney's fees and litigation expenses under Article 2208 of the Civil Code of the
Philippines. Nor is an award for exemplary damages warranted. Under Article 2234 of
the Civil Code, before the court may consider the question of whether or not
exemplary damages should be awarded, the plaintiff must show that he is entitled to
moral, temperate, or compensatory damaged. There being no such proof presented
by NORTHWEST, no exemplary damages may be adjudged in its favor.
WHEREFORE, the instant petition is partly GRANTED, and the challenged decision
is AFFIRMED insofar as it denied NORTHWEST's claims for attorneys fees, litigation

expenses, and exemplary damages but REVERSED insofar as in sustained the trial
court's dismissal of NORTHWEST's complaint in Civil Case No. 83-17637 of Branch
54 of the Regional Trial Court of Manila, and another in its stead is hereby rendered
ORDERING private respondent C.F. SHARP L COMPANY, INC. to pay to
NORTHWEST the amounts adjudged in the foreign judgment subject of said case,
with interest thereon at the legal rate from the filing of the complaint therein until the
said foreign judgment is fully satisfied.
Costs against the private respondent.
SO ORDERED.

G.R. No. 122191 October 8, 1998

SAUDI ARABIAN AIRLINES, petitioner,
vs.
COURT OF APPEALS, MILAGROS P. MORADA and HON. RODOLFO A. ORTIZ,
in his capacity as Presiding Judge of Branch 89, Regional Trial Court of Quezon
City, respondents.

QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul
and set aside the Resolution 1dated September 27, 1995 and the Decision 2 dated
April 10, 1996 of the Court of Appeals 3 in CA-G.R. SP No. 36533, 4 and the
Orders 5 dated August 29, 1994 6 and February 2, 1995 7 that were issued by the trial
court in Civil Case No. Q-93-18394. 8
The pertinent antecedent facts which gave rise to the instant petition, as stated in the
questioned Decision 9, are as follows:
On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight
Attendant for its airlines based in Jeddah, Saudi Arabia. . . .
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff
went to a disco dance with fellow crew members Thamer AlGazzawi and Allah Al-Gazzawi, both Saudi nationals. Because it
was almost morning when they returned to their hotels, they agreed
to have breakfast together at the room of Thamer. When they were
in te (sic) room, Allah left on some pretext. Shortly after he did,
Thamer attempted to rape plaintiff. Fortunately, a roomboy and
several security personnel heard her cries for help and rescued her.
Later, the Indonesian police came and arrested Thamer and Allah
Al-Gazzawi, the latter as an accomplice.
When plaintiff returned to Jeddah a few days later, several SAUDIA
officials interrogated her about the Jakarta incident. They then
requested her to go back to Jakarta to help arrange the release of
Thamer and Allah. In Jakarta, SAUDIA Legal Officer Sirah Akkad
and base manager Baharini negotiated with the police for the
immediate release of the detained crew members but did not
succeed because plaintiff refused to cooperate. She was afraid that
she might be tricked into something she did not want because of
her inability to understand the local dialect. She also declined to

sign a blank paper and a document written in the local dialect.

Eventually, SAUDIA allowed plaintiff to return to Jeddah but barred
her from the Jakarta flights.
Plaintiff learned that, through the intercession of the Saudi Arabian
government, the Indonesian authorities agreed to deport Thamer
and Allah after two weeks of detention. Eventually, they were again
put in service by defendant SAUDI (sic). In September 1990,
defendant SAUDIA transferred plaintiff to Manila.
On January 14, 1992, just when plaintiff thought that the Jakarta
incident was already behind her, her superiors requested her to see
Mr. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi
Arabia. When she saw him, he brought her to the police station
where the police took her passport and questioned her about the
Jakarta incident. Miniewy simply stood by as the police put
pressure on her to make a statement dropping the case against
Thamer and Allah. Not until she agreed to do so did the police
return her passport and allowed her to catch the afternoon flight out
of Jeddah.
One year and a half later or on lune 16, 1993, in Riyadh, Saudi
Arabia, a few minutes before the departure of her flight to Manila,
plaintiff was not allowed to board the plane and instead ordered to
take a later flight to Jeddah to see Mr. Miniewy, the Chief Legal
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA
office brought her to a Saudi court where she was asked to sign a
document written in Arabic. They told her that this was necessary to
close the case against Thamer and Allah. As it turned out, plaintiff
signed a notice to her to appear before the court on June 27, 1993.
Plaintiff then returned to Manila.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report
to Jeddah once again and see Miniewy on June 27, 1993 for further
investigation. Plaintiff did so after receiving assurance from
SAUDIA's Manila manager, Aslam Saleemi, that the investigation
was routinary and that it posed no danger to her.
In Jeddah, a SAUDIA legal officer brought plaintiff to the same
Saudi court on June 27, 1993. Nothing happened then but on June
28, 1993, a Saudi judge interrogated plaintiff through an interpreter
about the Jakarta incident. After one hour of interrogation, they let
her go. At the airport, however, just as her plane was about to take
off, a SAUDIA officer told her that the airline had forbidden her to

take flight. At the Inflight Service Office where she was told to go,
the secretary of Mr. Yahya Saddick took away her passport and told
her to remain in Jeddah, at the crew quarters, until further orders.
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to
the same court where the judge, to her astonishment and shock,
rendered a decision, translated to her in English, sentencing her to
five months imprisonment and to 286 lashes. Only then did she
realize that the Saudi court had tried her, together with Thamer and
Allah, for what happened in Jakarta. The court found plaintiff guilty
of (1) adultery; (2) going to a disco, dancing and listening to the
music in violation of Islamic laws; and (3) socializing with the male
crew, in contravention of Islamic tradition. 10
Facing conviction, private respondent sought the help of her employer, petitioner
SAUDIA. Unfortunately, she was denied any assistance. She then asked the
Philippine Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to
pay for her upkeep, she worked on the domestic flight of SAUDIA, while Thamer and
Allah continued to serve in the international
flights. 11
Because she was wrongfully convicted, the Prince of Makkah dismissed the case
against her and allowed her to leave Saudi Arabia. Shortly before her return to
Manila, 12 she was terminated from the service by SAUDIA, without her being
informed of the cause.
On November 23, 1993, Morada filed a Complaint 13 for damages against SAUDIA,
and Khaled Al-Balawi ("Al-Balawi"), its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised
the following grounds, to wit: (1) that the Complaint states no cause of action against
Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that the claim or
demand set forth in the Complaint has been waived, abandoned or otherwise
extinguished; and (4) that the trial court has no jurisdiction to try the case.

From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA filed
on September 20, 1994, its Motion for Reconsideration 21 of the Order dated August
29, 1994. It alleged that the trial court has no jurisdiction to hear and try the case on
the basis of Article 21 of the Civil Code, since the proper law applicable is the law of
the Kingdom of Saudi Arabia. On October 14, 1994, Morada filed her
Opposition 22 (To Defendant's Motion for Reconsideration).
In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that
since its Motion for Reconsideration raised lack of jurisdiction as its cause of action,
the Omnibus Motion Rule does not apply, even if that ground is raised for the first
time on appeal. Additionally, SAUDIA alleged that the Philippines does not have any
substantial interest in the prosecution of the instant case, and hence, without
jurisdiction to adjudicate the same.
Respondent Judge subsequently issued another Order 24 dated February 2, 1995,
denying SAUDIA's Motion for Reconsideration. The pertinent portion of the assailed
Order reads as follows:
Acting on the Motion for Reconsideration of defendant Saudi
Arabian Airlines filed, thru counsel, on September 20, 1994, and the
Opposition thereto of the plaintiff filed, thru counsel, on October 14,
1994, as well as the Reply therewith of defendant Saudi Arabian
Airlines filed, thru counsel, on October 24, 1994, considering that a
perusal of the plaintiffs Amended Complaint, which is one for the
recovery of actual, moral and exemplary damages plus attorney's
fees, upon the basis of the applicable Philippine law, Article 21 of
the New Civil Code of the Philippines, is, clearly, within the
jurisdiction of this Court as regards the subject matter, and there
being nothing new of substance which might cause the reversal or
modification of the order sought to be reconsidered, the motion for
reconsideration of the defendant, is DENIED.
SO ORDERED. 25

On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) . Saudia
filed a reply 16 thereto on March 3, 1994.

Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and
Prohibition with Prayer for Issuance of Writ of Preliminary Injunction and/or Temporary
Restraining Order 26 with the Court of Appeals.

On June 23, 1994, Morada filed an Amended Complaint 17 wherein Al-Balawi was
dropped as party defendant. On August 11, 1994, Saudia filed its Manifestation and
Motion to Dismiss Amended Complaint 18.

Respondent Court of Appeals promulgated a Resolution with Temporary Restraining

Order 27 dated February 23, 1995, prohibiting the respondent Judge from further
conducting any proceeding, unless otherwise directed, in the interim.

15

The trial court issued an Order 19 dated August 29, 1994 denying the Motion to
Dismiss Amended Complaint filed by Saudia.

In another Resolution 28 promulgated on September 27, 1995, now assailed, the

appellate court denied SAUDIA's Petition for the Issuance of a Writ of Preliminary
Injunction dated February 18, 1995, to wit:
The Petition for the Issuance of a Writ of Preliminary Injunction is
hereby DENIED, after considering the Answer, with Prayer to Deny
Writ of Preliminary Injunction (Rollo, p. 135) the Reply and
Rejoinder, it appearing that herein petitioner is not clearly entitled
thereto (Unciano Paramedical College, et. Al., v. Court of Appeals,
et. Al., 100335, April 7, 1993, Second Division).
SO ORDERED.
On October 20, 1995, SAUDIA filed with this Honorable Court the instant
Petition 29 for Review with Prayer for Temporary Restraining Order dated October 13,
1995.
However, during the pendency of the instant Petition, respondent Court of Appeals
rendered the Decision 30 dated April 10, 1996, now also assailed. It ruled that the
Philippines is an appropriate forum considering that the Amended Complaint's basis
for recovery of damages is Article 21 of the Civil Code, and thus, clearly within the
jurisdiction of respondent Court. It further held that certiorari is not the proper remedy
in a denial of a Motion to Dismiss, inasmuch as the petitioner should have proceeded
to trial, and in case of an adverse ruling, find recourse in an appeal.

Leave of court before filing a supplemental pleading is not a

jurisdictional requirement. Besides, the matter as to absence of
leave of court is now moot and academic when this Honorable
Court required the respondents to comment on petitioner's April 30,
1996 Supplemental Petition For Review With Prayer For A
Temporary Restraining Order Within Ten (10) Days From Notice
Thereof. Further, the Revised Rules of Court should be construed
with liberality pursuant to Section 2, Rule 1 thereof.
III
Petitioner received on April 22, 1996 the April 10, 1996 decision in
CA-G.R. SP NO. 36533 entitled "Saudi Arabian Airlines v. Hon.
Rodolfo A. Ortiz, et al." and filed its April 30, 1996 Supplemental
Petition For Review With Prayer For A Temporary Restraining Order
on May 7, 1996 at 10:29 a.m. or within the 15-day reglementary
period as provided for under Section 1, Rule 45 of the Revised
Rules of Court. Therefore, the decision in CA-G.R. SP NO. 36533
has not yet become final and executory and this Honorable Court
can take cognizance of this case. 33
From the foregoing factual and procedural antecedents, the following issues emerge
for our resolution:
I.

On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order 31dated April 30, 1996, given due course by this Court.
After both parties submitted their Memoranda, 32 the instant case is now deemed
submitted for decision.
Petitioner SAUDIA raised the following issues:
I
The trial court has no jurisdiction to hear and try Civil Case No. Q93-18394 based on Article 21 of the New Civil Code since the
proper law applicable is the law of the Kingdom of Saudi Arabia
inasmuch as this case involves what is known in private
international law as a "conflicts problem". Otherwise, the Republic
of the Philippines will sit in judgment of the acts done by another
sovereign state which is abhorred.
II

WHETHER RESPONDENT APPELLATE COURT ERRED IN

HOLDING THAT THE REGIONAL TRIAL COURT OF QUEZON
CITY HAS JURISDICTION TO HEAR AND TRY CIVIL CASE NO.
Q-93-18394 ENTITLED "MILAGROS P. MORADA V. SAUDI
ARABIAN AIRLINES".
II.
WHETHER RESPONDENT APPELLATE COURT ERRED IN
RULING THAT IN THIS CASE PHILIPPINE LAW SHOULD
GOVERN.
Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at
the outset. It maintains that private respondent's claim for alleged abuse of rights
occurred in the Kingdom of Saudi Arabia. It alleges that the existence of a foreign
element qualifies the instant case for the application of the law of the Kingdom of
Saudi Arabia, by virtue of the lex loci delicti commissi rule. 34

On the other hand, private respondent contends that since her Amended Complaint is
based on Articles 19 35 and 21 36 of the Civil Code, then the instant case is properly a
matter of domestic law. 37
Under the factual antecedents obtaining in this case, there is no dispute that the
interplay of events occurred in two states, the Philippines and Saudi Arabia.
As stated by private respondent in her Amended Complaint

38

dated June 23, 1994:

2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign

airlines corporation doing business in the Philippines. It may be
served with summons and other court processes at Travel Wide
Associated Sales (Phils.). Inc., 3rd Floor, Cougar Building, 114
Valero St., Salcedo Village, Makati, Metro Manila.
xxx xxx xxx
6. Plaintiff learned that, through the intercession of the Saudi
Arabian government, the Indonesian authorities agreed to deport
Thamer and Allah after two weeks of detention. Eventually, they
were again put in service by defendant SAUDIA. In September
1990, defendant SAUDIA transferred plaintiff to Manila.
7. On January 14, 1992, just when plaintiff thought that the Jakarta
incident was already behind her, her superiors reauested her to see
MR. Ali Meniewy, Chief Legal Officer of SAUDIA in Jeddah, Saudi
Arabia. When she saw him, he brought her to the police station
where the police took her passport and questioned her about the
Jakarta incident. Miniewy simply stood by as the police put
pressure on her to make a statement dropping the case against
Thamer and Allah. Not until she agreed to do so did the police
return her passport and allowed her to catch the afternoon flight out
of Jeddah.
8. One year and a half later or on June 16, 1993, in Riyadh, Saudi
Arabia, a few minutes before the departure of her flight to Manila,
plaintiff was not allowed to board the plane and instead ordered to
take a later flight to Jeddah to see Mr. Meniewy, the Chief Legal
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA
office brought her to a Saudi court where she was asked to sigh a
document written in Arabic. They told her that this was necessary to
close the case against Thamer and Allah. As it turned out, plaintiff
signed a notice to her to appear before the court on June 27,
1993.Plaintiff then returned to Manila.

9. Shortly afterwards, defendant SAUDIA summoned plaintiff to

report to Jeddah once again and see Miniewy on June 27, 1993 for
further investigation. Plaintiff did so after receiving assurance from
SAUDIA's Manila manger, Aslam Saleemi, that the investigation
was routinary and that it posed no danger to her.
10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same
Saudi court on June 27, 1993. Nothing happened then but on June
28, 1993, a Saudi judge interrogated plaintiff through an interpreter
about the Jakarta incident. After one hour of interrogation, they let
her go. At the airport, however, just as her plane was about to take
off, a SAUDIA officer told her that the airline had forbidden her to
take that flight. At the Inflight Service Office where she was told to
go, the secretary of Mr. Yahya Saddick took away her passport and
told her to remain in Jeddah, at the crew quarters, until further
orders.
11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff
to the same court where the judge, to her astonishment and shock,
rendered a decision, translated to her in English, sentencing her to
five months imprisonment and to 286 lashes. Only then did she
realize that the Saudi court had tried her, together with Thamer and
Allah, for what happened in Jakarta. The court found plaintiff guilty
of (1) adultery; (2) going to a disco, dancing, and listening to the
music in violation of Islamic laws; (3) socializing with the male crew,
in contravention of Islamic tradition.
12. Because SAUDIA refused to lend her a hand in the case,
plaintiff sought the help of the Philippines Embassy in Jeddah. The
latter helped her pursue an appeal from the decision of the court.
To pay for her upkeep, she worked on the domestic flights of
defendant SAUDIA while, ironically, Thamer and Allah freely served
the international flights. 39
Where the factual antecedents satisfactorily establish the existence of a foreign
element, we agree with petitioner that the problem herein could present a "conflicts"
case.
A factual situation that cuts across territorial lines and is affected by the diverse laws
of two or more states is said to contain a "foreign element". The presence of a foreign
element is inevitable since social and economic affairs of individuals and associations
are rarely confined to the geographic limits of their birth or conception. 40

The forms in which this foreign element may appear are many. 41 The foreign element
may simply consist in the fact that one of the parties to a contract is an alien or has a
foreign domicile, or that a contract between nationals of one State involves properties
situated in another State. In other cases, the foreign element may assume a complex
form. 42
In the instant case, the foreign element consisted in the fact that private respondent
Morada is a resident Philippine national, and that petitioner SAUDIA is a resident
foreign corporation. Also, by virtue of the employment of Morada with the petitioner
Saudia as a flight stewardess, events did transpire during her many occasions of
travel across national borders, particularly from Manila, Philippines to Jeddah, Saudi
Arabia, and vice versa, that caused a "conflicts" situation to arise.
We thus find private respondent's assertion that the case is purely domestic,
imprecise. A conflicts problem presents itself here, and the question of
jurisdiction 43 confronts the court a quo.

Articles 19 and 21 are actionable, with judicially enforceable remedies in the

municipal forum.
Based on the allegations 46 in the Amended Complaint, read in the light of the Rules
of Court on jurisdiction 47 we find that the Regional Trial Court (RTC) of Quezon City
possesses jurisdiction over the subject matter of the suit. 48 Its authority to try and
hear the case is provided for under Section 1 of Republic Act No. 7691, to wit:
Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known
as the "Judiciary Reorganization Act of 1980", is hereby amended
to read as follows:
Sec. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall
exercise exclusive jurisdiction:
xxx xxx xxx

After a careful study of the private respondent's Amended Complaint, 44 and the
Comment thereon, we note that she aptly predicated her cause of action on Articles
19 and 21 of the New Civil Code.

(8) In all other cases in which demand, exclusive

of interest, damages of whatever kind, attorney's
fees, litigation expenses, and cots or the value of
the property in controversy exceeds One hundred
thousand pesos (P100,000.00) or, in such other
cases in Metro Manila, where the demand,
exclusive of the above-mentioned items exceeds
Two hundred Thousand pesos (P200,000.00).
(Emphasis ours)

On one hand, Article 19 of the New Civil Code provides:

Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due
and observe honesty and good faith.
On the other hand, Article 21 of the New Civil Code provides:
Art. 21. Any person who willfully causes loss or injury to another in
a manner that is contrary to morals, good customs or public policy
shall compensate the latter for damages.
Thus, in Philippine National Bank (PNB) vs. Court of Appeals, 45 this Court held that:
The aforecited provisions on human relations were intended to
expand the concept of torts in this jurisdiction by granting adequate
legal remedy for the untold number of moral wrongs which is
impossible for human foresight to specifically provide in the
statutes.
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its
provisions. Thus, we agree with private respondent's assertion that violations of

xxx xxx xxx

And following Section 2 (b), Rule 4 of the Revised Rules of Court the venue,
Quezon City, is appropriate:
Sec. 2 Venue in Courts of First Instance. [Now Regional Trial
Court]
(a) xxx xxx xxx
(b) Personal actions. All other actions may be commenced and
tried where the defendant or any of the defendants resides or may
be found, or where the plaintiff or any of the plaintiff resides, at the
election of the plaintiff.

Pragmatic considerations, including the convenience of the parties, also weigh

heavily in favor of the RTC Quezon City assuming jurisdiction. Paramount is the
private interest of the litigant. Enforceability of a judgment if one is obtained is quite
obvious. Relative advantages and obstacles to a fair trial are equally important.
Plaintiff may not, by choice of an inconvenient forum, "vex", "harass", or "oppress" the
defendant, e.g. by inflicting upon him needless expense or disturbance. But unless
the balance is strongly in favor of the defendant, the plaintiffs choice of forum should
rarely be disturbed. 49
Weighing the relative claims of the parties, the court a quo found it best to hear the
case in the Philippines. Had it refused to take cognizance of the case, it would be
forcing plaintiff (private respondent now) to seek remedial action elsewhere, i.e. in the
Kingdom of Saudi Arabia where she no longer maintains substantial connections.
That would have caused a fundamental unfairness to her.
Moreover, by hearing the case in the Philippines no unnecessary difficulties and
inconvenience have been shown by either of the parties. The choice of forum of the
plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over the persons of the parties
herein. By filing her Complaint and Amended Complaint with the trial court, private
respondent has voluntary submitted herself to the jurisdiction of the court.
The records show that petitioner SAUDIA has filed several motions 50 praying for the
dismissal of Morada's Amended Complaint. SAUDIA also filed an Answer In Ex
Abundante Cautelam dated February 20, 1995. What is very patent and explicit from
the motions filed, is that SAUDIA prayed for other reliefs under the premises.
Undeniably, petitioner SAUDIA has effectively submitted to the trial court's jurisdiction
by praying for the dismissal of the Amended Complaint on grounds other than lack of
jurisdiction.

special appearance and voluntarily submitted itself to the

jurisdiction of the court.
Similarly, the case of De Midgely vs. Ferandos, held that;
When the appearance is by motion for the purpose of objecting to
the jurisdiction of the court over the person, it must be for the sole
and separate purpose of objecting to the jurisdiction of the court. If
his motion is for any other purpose than to object to the jurisdiction
of the court over his person, he thereby submits himself to the
jurisdiction of the court. A special appearance by motion made for
the purpose of objecting to the jurisdiction of the court over the
person will be held to be a general appearance, if the party in said
motion should, for example, ask for a dismissal of the action upon
the further ground that the court had no jurisdiction over the subject
matter. 52
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of
Quezon City. Thus, we find that the trial court has jurisdiction over the case and that
its exercise thereof, justified.
As to the choice of applicable law, we note that choice-of-law problems seek to
answer two important questions: (1) What legal system should control a given
situation where some of the significant facts occurred in two or more states; and (2) to
what extent should the chosen legal system regulate the situation. 53
Several theories have been propounded in order to identify the legal system that
should ultimately control. Although ideally, all choice-of-law theories should
intrinsically advance both notions of justice and predictability, they do not always do
so. The forum is then faced with the problem of deciding which of these two important
values should be stressed. 54

As held by this Court in Republic vs. Ker and Company, Ltd.: 51

We observe that the motion to dismiss filed on April 14, 1962, aside
from disputing the lower court's jurisdiction over defendant's
person, prayed for dismissal of the complaint on the ground that
plaintiff's cause of action has prescribed. By interposing such
second ground in its motion to dismiss, Ker and Co., Ltd. availed of
an affirmative defense on the basis of which it prayed the court to
resolve controversy in its favor. For the court to validly decide the
said plea of defendant Ker & Co., Ltd., it necessarily had to acquire
jurisdiction upon the latter's person, who, being the proponent of
the affirmative defense, should be deemed to have abandoned its

Before a choice can be made, it is necessary for us to determine under what category
a certain set of facts or rules fall. This process is known as "characterization", or the
"doctrine of qualification". It is the "process of deciding whether or not the facts relate
to the kind of question specified in a conflicts rule." 55 The purpose of
"characterization" is to enable the forum to select the proper law. 56
Our starting point of analysis here is not a legal relation, but a factual situation, event,
or operative fact. 57 An essential element of conflict rules is the indication of a "test" or
"connecting factor" or "point of contact". Choice-of-law rules invariably consist of a
factual relationship (such as property right, contract claim) and a connecting factor or
point of contact, such as the situs of the res, the place of celebration, the place of
performance, or the place of wrongdoing. 58

Note that one or more circumstances may be present to serve as the possible test for
the determination of the applicable law. 59 These "test factors" or "points of contact" or
"connecting factors" could be any of the following:
(1) The nationality of a person, his domicile, his residence, his
place of sojourn, or his origin;
(2) the seat of a legal or juridical person, such as a corporation;
(3) the situs of a thing, that is, the place where a thing is, or is
deemed to be situated. In particular, thelex situs is decisive when
real rights are involved;
(4) the place where an act has been done, the locus actus, such as
the place where a contract has been made, a marriage celebrated,
a will signed or a tort committed. The lex loci actus is particularly
important in contracts and torts;
(5) the place where an act is intended to come into effect, e.g., the
place of performance of contractual duties, or the place where a
power of attorney is to be exercised;
(6) the intention of the contracting parties as to the law that should
govern their agreement, the lex loci intentionis;
(7) the place where judicial or administrative proceedings are
instituted or done. The lex fori the law of the forum is
particularly important because, as we have seen earlier, matters of
"procedure" not going to the substance of the claim involved are
governed by it; and because the lex fori applies whenever the
content of the otherwise applicable foreign law is excluded from
application in a given case for the reason that it falls under one of
the exceptions to the applications of foreign law; and
(8) the flag of a ship, which in many cases is decisive of practically
all legal relationships of the ship and of its master or owner as
such. It also covers contractual relationships particularly contracts
of affreightment. 60 (Emphasis ours.)
After a careful study of the pleadings on record, including allegations in the Amended
Complaint deemed admitted for purposes of the motion to dismiss, we are convinced
that there is reasonable basis for private respondent's assertion that although she
was already working in Manila, petitioner brought her to Jeddah on the pretense that

she would merely testify in an investigation of the charges she made against the two
SAUDIA crew members for the attack on her person while they were in Jakarta. As it
turned out, she was the one made to face trial for very serious charges, including
adultery and violation of Islamic laws and tradition.
There is likewise logical basis on record for the claim that the "handing over" or
"turning over" of the person of private respondent to Jeddah officials, petitioner may
have acted beyond its duties as employer. Petitioner's purported act contributed to
and amplified or even proximately caused additional humiliation, misery and suffering
of private respondent. Petitioner thereby allegedly facilitated the arrest, detention and
prosecution of private respondent under the guise of petitioner's authority as
employer, taking advantage of the trust, confidence and faith she reposed upon it. As
purportedly found by the Prince of Makkah, the alleged conviction and imprisonment
of private respondent was wrongful. But these capped the injury or harm allegedly
inflicted upon her person and reputation, for which petitioner could be liable as
claimed, to provide compensation or redress for the wrongs done, once duly proven.
Considering that the complaint in the court a quo is one involving torts, the
"connecting factor" or "point of contact" could be the place or places where the
tortious conduct or lex loci actus occurred. And applying the torts principle in a
conflicts case, we find that the Philippines could be said as a situs of the tort (the
place where the alleged tortious conduct took place). This is because it is in the
Philippines where petitioner allegedly deceived private respondent, a Filipina residing
and working here. According to her, she had honestly believed that petitioner would,
in the exercise of its rights and in the performance of its duties, "act with justice, give
her due and observe honesty and good faith." Instead, petitioner failed to protect her,
she claimed. That certain acts or parts of the injury allegedly occurred in another
country is of no moment. For in our view what is important here is the place where the
over-all harm or the totality of the alleged injury to the person, reputation, social
standing and human rights of complainant, had lodged, according to the plaintiff
below (herein private respondent). All told, it is not without basis to identify the
Philippines as the situs of the alleged tort.
Moreover, with the widespread criticism of the traditional rule of lex loci delicti
commissi, modern theories and rules on tort liability 61 have been advanced to offer
fresh judicial approaches to arrive at just results. In keeping abreast with the modern
theories on tort liability, we find here an occasion to apply the "State of the most
significant relationship" rule, which in our view should be appropriate to apply now,
given the factual context of this case.
In applying said principle to determine the State which has the most significant
relationship, the following contacts are to be taken into account and evaluated
according to their relative importance with respect to the particular issue: (a) the place
where the injury occurred; (b) the place where the conduct causing the injury

occurred; (c) the domicile, residence, nationality, place of incorporation and place of
business of the parties, and (d) the place where the relationship, if any, between the
parties is centered. 62
As already discussed, there is basis for the claim that over-all injury occurred and
lodged in the Philippines. There is likewise no question that private respondent is a
resident Filipina national, working with petitioner, a resident foreign corporation
engaged here in the business of international air carriage. Thus, the "relationship"
between the parties was centered here, although it should be stressed that this suit is
not based on mere labor law violations. From the record, the claim that the
Philippines has the most significant contact with the matter in this dispute, 63 raised by
private respondent as plaintiff below against defendant (herein petitioner), in our view,
has been properly established.
Prescinding from this premise that the Philippines is the situs of the tort complained of
and the place "having the most interest in the problem", we find, by way of
recapitulation, that the Philippine law on tort liability should have paramount
application to and control in the resolution of the legal issues arising out of this case.
Further, we hold that the respondent Regional Trial Court has jurisdiction over the
parties and the subject matter of the complaint; the appropriate venue is in Quezon
City, which could properly apply Philippine law. Moreover, we find untenable
petitioner's insistence that "[s]ince private respondent instituted this suit, she has the
burden of pleading and proving the applicable Saudi law on the matter." 64 As aptly
said by private respondent, she has "no obligation to plead and prove the law of the
Kingdom of Saudi Arabia since her cause of action is based on Articles 19 and 21" of
the Civil Code of the Philippines. In her Amended Complaint and subsequent
pleadings, she never alleged that Saudi law should govern this case.65 And as
correctly held by the respondent appellate court, "considering that it was the petitioner
who was invoking the applicability of the law of Saudi Arabia, then the burden was on
it [petitioner] to plead and to establish what the law of Saudi Arabia is". 66
Lastly, no error could be imputed to the respondent appellate court in upholding the
trial court's denial of defendant's (herein petitioner's) motion to dismiss the case. Not
only was jurisdiction in order and venue properly laid, but appeal after trial was
obviously available, and expeditious trial itself indicated by the nature of the case at
hand. Indubitably, the Philippines is the state intimately concerned with the ultimate
outcome of the case below, not just for the benefit of all the litigants, but also for the
vindication of the country's system of law and justice in a transnational setting. With
these guidelines in mind, the trial court must proceed to try and adjudge the case in
the light of relevant Philippine law, with due consideration of the foreign element or
elements involved. Nothing said herein, of course, should be construed as prejudging
the results of the case in any manner whatsoever.

WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case No.
Q-93-18394 entitled "Milagros P. Morada vs. Saudi Arabia Airlines" is hereby
REMANDED to Regional Trial Court of Quezon City, Branch 89 for further
proceedings.
SO ORDERED.

G.R. No. L-104776 December 5, 1994

BIENVENIDO M. CADALIN, ROLANDO M. AMUL, DONATO B. EVANGELISTA,
and the rest of 1,767 NAMED-COMPLAINANTS, thru and by their Attorney-infact, Atty. GERARDO A. DEL MUNDO, petitioners,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION'S ADMINISTRATOR,
NATIONAL LABOR RELATIONS COMMISSION, BROWN & ROOT
INTERNATIONAL, INC. AND/OR ASIA INTERNATIONAL BUILDERS
CORPORATION, respondents.
G.R. Nos. 104911-14 December 5, 1994
BIENVENIDO M. CADALIN, ET AL., petitioners,
vs.
HON. NATIONAL LABOR RELATIONS COMMISSION, BROWN & ROOT
INTERNATIONAL, INC. and/or ASIA INTERNATIONAL BUILDERS
CORPORATION, respondents.
G.R. Nos. 105029-32 December 5, 1994
ASIA INTERNATIONAL BUILDER CORPORATION and BROWN & ROOT
INTERNATIONAL, INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, BIENVENIDO M. CADALIN,
ROLANDO M. AMUL, DONATO B. EVANGELISTA, ROMEO PATAG, RIZALINO
REYES, IGNACIO DE VERA, SOLOMON B. REYES, JOSE M. ABAN, EMIGDIO N.
ABARQUEZ, ANTONIO ACUPAN, ROMEO ACUPAN, BENJAMIN ALEJANDRE,
WILFREDO D. ALIGADO, MARTIN AMISTAD, JR., ROLANDO B. AMUL,
AMORSOLO ANADING, ANTONIO T. ANGLO, VICENTE ARLITA, HERBERT AYO,
SILVERIO BALATAZO, ALFREDO BALOBO, FALCONERO BANAAG, RAMON
BARBOSA, FELIX BARCENA, FERNANDO BAS, MARIO BATACLAN, ROBERTO
S. BATICA, ENRICO BELEN, ARISTEO BICOL, LARRY C. BICOL, PETRONILLO
BISCOCHO, FELIX M. BOBIER, DIONISIO BOBONGO, BAYANI S.
BRACAMANTE, PABLITO BUSTILLO, GUILLERMO CABEZAS, BIENVENIDO
CADALIN, RODOLFO CAGATAN, AMANTE CAILAO, IRENEO CANDOR, JOSE
CASTILLO, MANUEL CASTILLO, REMAR CASTROJERES, REYNALDO CAYAS,
ROMEO CECILIO, TEODULO CREUS, BAYANI DAYRIT, RICARDO DAYRIT,
ERNESTO T. DELA CRUZ, FRANCISCO DE GUZMAN, ONOFRE DE RAMA,
IGNACIO DE VERA, MODESTO DIZON, REYNALDO DIZON, ANTONIO S.
DOMINGUEZ, GILBERT EBRADA, RICARDO EBRADA, ANTONIO EJERCITO,
JR., EDUARTE ERIDAO, ELADIO ESCOTOTO, JOHN ESGUERRA, EDUARDO
ESPIRITU, ERNESTO ESPIRITU, RODOLFO ESPIRITU, NESTOR M. ESTEVA,
BENJAMIN ESTRADA, VALERIO EVANGELISTA, OLIGARIO FRANCISCO,

JESUS GABAWAN, ROLANDO GARCIA, ANGEL GUDA, PACITO HERNANDEZ,

ANTONIO HILARIO, HENRY L. JACOB, HONESTO JARDINIANO, ANTONIO
JOCSON, GERARDO LACSAMANA, EFREN U. LIRIO LORETO LONTOC, ISRAEL
LORENZO, ALEJANDRO LORINO, JOSE MABALAY, HERMIE MARANAN,
LEOVIGILDO MARCIAL, NOEL MARTINEZ, DANTE MATREO, LUCIANO
MELENDEZ, RENATO MELO, FRANCIS MEDIODIA, JOSE C. MILANES,
RAYMUNDO C. MILAY, CRESENCIANO MIRANDA, ILDEFONSO C. MOLINA,
ARMANDO B. MONDEJAR RESURRECCION D. NAZARENO, JUAN OLINDO,
FRANCISCO R. OLIVARES, PEDRO ORBISTA, JR., RICARDO ORDONEZ, ERNIE
PANCHO, JOSE PANCHO, GORGONIO P. PARALA, MODESTO PINPIN, JUANITO
PAREA, ROMEO I. PATAG, FRANCISCO PINPIN, LEONARDO POBLETE, JAIME
POLLOS, DOMINGO PONDALIS, EUGENIO RAMIREZ, LUCIEN M. RESPALL,
GAUDENCIO RETANAN, JR., TOMAS B. RETENER, ALVIN C. REYES, RIZALINO
REYES, SOLOMON B. REYES, VIRGILIO G. RICAZA, RODELIO RIETA, JR.,
BENITO RIVERA, JR., BERNARDO J. ROBILLOS, PABLO A. ROBLES, JOSE
ROBLEZA, QUIRINO RONQUILLO, AVELINO M. ROQUE, MENANDRO L.
SABINO, PEDRO SALGATAR, EDGARDO SALONGA, NUMERIANO SAN MATEO,
FELIZARDO DE LOS SANTOS, JR., GABRIEL SANTOS, JUANITO SANTOS,
PAQUITO SOLANTE, CONRADO A. SOLIS, JR., RODOLFO SULTAN, ISAIAS
TALACTAC, WILLIAM TARUC, MENANDRO TEMPROSA, BIENVENIDO S.
TOLENTINO, BENEDICTO TORRES, MAXIMIANO TORRES, FRANCISCO G.
TRIAS, SERGIO A. URSOLINO, ROGELIO VALDEZ, LEGORIO E. VERGARA,
DELFIN VICTORIA, GILBERT VICTORIA, HERNANE VICTORIANO, FRANCISCO
VILLAFLORES, DOMINGO VILLAHERMOSA, ROLANDO VILLALOBOS,
ANTONIO VILLAUZ, DANILO VILLANUEVA, ROGELIO VILLANUEVA, ANGEL
VILLARBA, JUANITO VILLARINO, FRANCISCO ZARA, ROGELIO AALAGOS,
NICANOR B. ABAD, ANDRES ABANES, REYNALDO ABANES, EDUARDO
ABANTE, JOSE ABARRO, JOSEFINO ABARRO, CELSO S. ABELANIO,
HERMINIO ABELLA, MIGUEL ABESTANO, RODRIGO G. ABUBO, JOSE B.
ABUSTAN, DANTE ACERES, REYNALDO S. ACOJIDO, LEOWILIN ACTA,
EUGENIO C. ACUEZA, EDUARDO ACUPAN, REYNALDO ACUPAN, SOLANO
ACUPAN, MANUEL P. ADANA, FLORENTINO R. AGNE, QUITERIO R. AGUDO,
MANUEL P. AGUINALDO, DANTE AGUIRRE, HERMINIO AGUIRRE, GONZALO
ALBERTO, JR., CONRADO ALCANTARA, LAMBERTO Q. ALCANTARA,
MARIANITO J. ALCANTARA, BENCIO ALDOVER, EULALIO V. ALEJANDRO,
BENJAMIN ALEJANDRO, EDUARDO L. ALEJANDRO, MAXIMINO ALEJANDRO,
ALBERTO ALMENAR, ARNALDO ALONZO, AMADO ALORIA, CAMILO
ALVAREZ, MANUEL C. ALVAREZ, BENJAMIN R. AMBROCIO, CARLOS
AMORES, BERNARD P. ANCHETA, TIMOTEO O. ANCHETA, JEOFREY ANI,
ELINO P. ANTILLON, ARMANDRO B. ANTIPONO, LARRY T. ANTONIO, ANTONIO
APILADO, ARTURO P. APILADO, FRANCISCO APOLINARIO, BARTOLOME M.
AQUINO, ISIDRO AQUINO, PASTOR AQUINO, ROSENDO M. AQUINO, ROBERTO
ARANGORIN, BENJAMIN O. ARATEA, ARTURO V. ARAULLO, PRUDENCIO
ARAULLO, ALEXANDER ARCAIRA, FRANCISCO ARCIAGA, JOSE AREVALO,
JUANTO AREVALO, RAMON AREVALO, RODOLFO AREVALO, EULALIO

ARGUELLES, WILFREDO P. ARICA, JOSE M. ADESILLO, ANTONIO ASUNCION,

ARTEMIO M. ASUNCION, EDGARDO ASUNCION, REXY M. ASUNCION, VICENTE
AURELIO, ANGEL AUSTRIA, RICARDO P. AVERILLA, JR., VIRGILIO AVILA,
BARTOLOME AXALAN, ALFREDO BABILONIA, FELIMON BACAL, JOSE L.
BACANI, ROMULO R. BALBIERAN, VICENTE BALBIERAN, RODOLFO BALITBIT,
TEODORO Y. BALOBO, DANILO O. BARBA, BERNARDO BARRO, JUAN A.
BASILAN, CEFERINO BATITIS, VIVENCIO C. BAUAN, GAUDENCIO S.
BAUTISTA, LEONARDO BAUTISTA, JOSE D. BAUTISTA, ROSTICO BAUTISTA,
RUPERTO B. BAUTISTA, TEODORO S. BAUTISTA, VIRGILIO BAUTISTA, JESUS
R. BAYA, WINIEFREDO BAYACAL, WINIEFREDO BEBIT, BEN G. BELIR, ERIC B.
BELTRAN, EMELIANO BENALES, JR., RAUL BENITEZ, PERFECTO BENSAN,
IRENEO BERGONIO, ISABELO BERMUDEZ, ROLANDO I. BERMUDEZ, DANILO
BERON, BENJAMIN BERSAMIN, ANGELITO BICOL, ANSELMO BICOL,
CELESTINO BICOL, JR., FRANCISCO BICOL, ROGELIO BICOL, ROMULO L.
BICOL, ROGELIO BILLIONES, TEOFILO N. BITO, FERNANDO BLANCO,
AUGUSTO BONDOC, DOMINGO BONDOC, PEPE S. BOOC, JAMES R. BORJA,
WILFREDO BRACEROS, ANGELES C. BRECINO, EURECLYDON G. BRIONES,
AMADO BRUGE, PABLITO BUDILLO, ARCHIMEDES BUENAVENTURA, BASILIO
BUENAVENTURA, GUILLERMO BUENCONSEJO, ALEXANDER BUSTAMANTE,
VIRGILIO BUTIONG, JR., HONESTO P. CABALLA, DELFIN CABALLERO,
BENEDICTO CABANIGAN, MOISES CABATAY, HERMANELI CABRERA, PEDRO
CAGATAN, JOVEN C. CAGAYAT, ROGELIO L. CALAGOS, REYNALDO V.
CALDEJON, OSCAR C. CALDERON, NESTOR D. CALLEJA, RENATO R. CALMA,
NELSON T. CAMACHO, SANTOS T. CAMACHO, ROBERTO CAMANA,
FLORANTE C. CAMANAG EDGARDO M. CANDA, SEVERINO CANTOS,
EPIFANIO A. CAPONPON, ELIAS D. CARILLO, JR., ARMANDO CARREON,
MENANDRO M. CASTAEDA, BENIGNO A. CASTILLO, CORNELIO L.
CASTILLO, JOSEPH B. CASTILLO, ANSELMO CASTILLO, JOAQUIN CASTILLO,
PABLO L. CASTILLO, ROMEO P. CASTILLO, SESINANDO CATIBOG, DANILO
CASTRO, PRUDENCIO A. CASTRO, RAMO CASTRO, JR., ROMEO A. DE
CASTRO, JAIME B. CATLI, DURANA D. CEFERINO, RODOLFO B. CELIS,
HERMINIGILDO CEREZO, VICTORIANO CELESTINO, BENJAMIN CHAN,
ANTONIO C. CHUA, VIVENCIO B. CIABAL, RODRIGO CLARETE, AUGUSTO
COLOMA, TURIANO CONCEPCION, TERESITO CONSTANTINO, ARMANDO
CORALES, RENATO C. CORCUERA, APOLINAR CORONADO, ABELARDO
CORONEL, FELIX CORONEL, JR., LEONARDO CORPUZ, JESUS M. CORRALES,
CESAR CORTEMPRATO, FRANCISCO O. CORVERA, FRANCISCO COSTALES,
SR., CELEDONIO CREDITO, ALBERTO A. CREUS, ANACLETO V. CRUZ,
DOMINGO DELA CRUZ, AMELIANO DELA CRUZ, JR., PANCHITO CRUZ,
REYNALDO B. DELA CRUZ, ROBERTO P. CRUZ, TEODORO S. CRUZ, ZOSIMO
DELA CRUZ, DIONISIO A. CUARESMA, FELIMON CUIZON, FERMIN
DAGONDON, RICHARD DAGUINSIN, CRISANTO A. DATAY, NICASIO
DANTINGUINOO, JOSE DATOON, EDUARDO DAVID, ENRICO T. DAVID, FAVIO
DAVID, VICTORIANO S. DAVID, EDGARDO N. DAYACAP, JOSELITO T. DELOSO,
CELERINO DE GUZMAN, ROMULO DE GUZMAN, LIBERATO DE GUZMAN, JOSE

DE LEON, JOSELITO L. DE LUMBAN, NAPOLEON S. DE LUNA, RICARDO DE

RAMA, GENEROSO DEL ROSARIO, ALBERTO DELA CRUZ, JOSE DELA CRUZ,
LEONARDO DELOS REYES, ERNESTO F. DIATA, EDUARDO A. DIAZ, FELIX
DIAZ, MELCHOR DIAZ, NICANOR S. DIAZ, GERARDO C. DIGA, CLEMENTE
DIMATULAC, ROLANDO DIONISIO, PHILIPP G. DISMAYA, BENJAMIN
DOCTOLERO, ALBERTO STO. DOMINGO, BENJAMIN E. DOZA, BENJAMIN
DUPA, DANILO C. DURAN, GREGORIO D. DURAN, RENATO A. EDUARTE,
GODOFREDO E. EISMA, ARDON B. ELLO, UBED B. ELLO, JOSEFINO ENANO,
REYNALDO ENCARNACION, EDGARDO ENGUANCIO, ELIAS EQUIPANO,
FELIZARDO ESCARMOSA, MIGUEL ESCARMOSA, ARMANDO ESCOBAR,
ROMEO T. ESCUYOS, ANGELITO ESPIRITU, EDUARDO S. ESPIRITU,
REYNALDO ESPIRITU, ROLANDO ESPIRITU, JULIAN ESPREGANTE, IGMIDIO
ESTANISLAO, ERNESTO M. ESTEBAN, MELANIO R. ESTRO, ERNESTO M.
ESTEVA, CONRADO ESTUAR, CLYDE ESTUYE, ELISEO FAJARDO, PORFIRIO
FALQUEZA, WILFREDO P. FAUSTINO, EMILIO E. FERNANDEZ, ARTEMIO
FERRER, MISAEL M. FIGURACION, ARMANDO F. FLORES, BENJAMIN FLORES,
EDGARDO C. FLORES, BUENAVENTURA FRANCISCO, MANUEL S.
FRANCISCO, ROLANDO FRANCISCO, VALERIANO FRANCISCO, RODOLFO
GABAWAN, ESMERALDO GAHUTAN, CESAR C. GALANG, SANTIAGO N.
GALOSO, GABRIEL GAMBOA, BERNARDO GANDAMON, JUAN GANZON,
ANDRES GARCIA, JR., ARMANDO M. GARCIA, EUGENIO GARCIA, MARCELO
L. GARCIA, PATRICIO L. GARCIA, JR., PONCIANO G. GARCIA, PONCIANO G.
GARCIA, JR., RAFAEL P. GARCIA, ROBERTO S. GARCIA, OSIAS G. GAROFIL,
RAYMUNDO C. GARON, ROLANDO G. GATELA, AVELINO GAYETA, RAYMUNDO
GERON, PLACIDO GONZALES, RUPERTO H. GONZALES, ROGELIO D.
GUANIO, MARTIN V. GUERRERO, JR., ALEXIS GUNO, RICARDO L. GUNO,
FRANCISCO GUPIT, DENNIS J. GUTIERREZ, IGNACIO B. GUTIERREZ,
ANGELITO DE GUZMAN, JR., CESAR H. HABANA, RAUL G. HERNANDEZ,
REYNALDO HERNANDEZ, JOVENIANO D. HILADO, JUSTO HILAPO, ROSTITO
HINAHON, FELICISIMO HINGADA, EDUARDO HIPOLITO, RAUL L. IGNACIO,
MANUEL L. ILAGAN, RENATO L. ILAGAN, CONRADO A. INSIONG, GRACIANO
G. ISLA, ARNEL L. JACOB, OSCAR J. JAPITENGA, CIRILO HICBAN,
MAXIMIANO HONRADES, GENEROSO IGNACIO, FELIPE ILAGAN, EXPEDITO N.
JACOB, MARIO JASMIN, BIENVENIDO JAVIER, ROMEO M. JAVIER, PRIMO DE
JESUS, REYNALDO DE JESUS, CARLOS A. JIMENEZ, DANILO E. JIMENEZ,
PEDRO C. JOAQUIN, FELIPE W. JOCSON, FELINO M. JOCSON, PEDRO N.
JOCSON, VALENTINO S. JOCSON, PEDRO B. JOLOYA, ESTEBAN P. JOSE, JR.,
RAUL JOSE, RICARDO SAN JOSE, GERTRUDO KABIGTING, EDUARDO S.
KOLIMLIM, SR., LAURO J. LABAY, EMMANUEL C. LABELLA, EDGARDO B.
LACERONA, JOSE B. LACSON, MARIO J. LADINES, RUFINO LAGAC, RODRIGO
LAGANAPAN, EFREN M. LAMADRID, GUADENCIO LATANAN, VIRGILIO
LATAYAN, EMILIANO LATOJA, WENCESLAO LAUREL, ALFREDO LAXAMANA,
DANIEL R. LAZARO, ANTONIO C. LEANO, ARTURO S. LEGASPI, BENITO DE
LEMOS, JR., PEDRO G. DE LEON, MANOLITO C. LILOC, GERARDO LIMUACO,
ERNESTO S. LISING, RENATO LISING, WILFREDO S. LISING, CRISPULO

LONTOC, PEDRO M. LOPERA, ROGELIO LOPERA, CARLITO M. LOPEZ, CLODY

LOPEZ, GARLITO LOPEZ, GEORGE F. LOPEZ, VIRGILIO M. LOPEZ,
BERNARDITO G. LOREJA, DOMINGO B. LORICO, DOMINGO LOYOLA, DANTE
LUAGE, ANTONIO M. LUALHATI, EMMANUEL LUALHATI, JR., LEONIDEZ C.
LUALHATI, SEBASTIAN LUALHATI, FRANCISCO LUBAT, ARMANDO LUCERO,
JOSELITO L. DE LUMBAN, THOMAS VICENTE O. LUNA, NOLI MACALADLAD,
ALFREDO MACALINO, RICARDO MACALINO, ARTURO V. MACARAIG,
ERNESTO V. MACARAIG, RODOLFO V. MACARAIG, BENJAMIN MACATANGAY,
HERMOGENES MACATANGAY, RODEL MACATANGAY, ROMULO MACATANGAY,
OSIAS Q. MADLANGBAYAN, NICOLAS P. MADRID, EDELBERTO G. MAGAT,
EFREN C. MAGBANUA, BENJAMIN MAGBUHAT, ALFREDO C. MAGCALENG,
ANTONIO MAGNAYE, ALFONSO MAGPANTAY, RICARDO C. MAGPANTAY,
SIMEON M. MAGPANTAY, ARMANDO M. MAGSINO, MACARIO S. MAGSINO,
ANTONIO MAGTIBAY, VICTOR V. MAGTIBAY, GERONIMO MAHILUM, MANUEL
MALONZO, RICARDO MAMADIS, RODOLFO MANA, BERNARDO A. MANALILI,
MANUEL MANALILI, ANGELO MANALO, AGUILES L. MANALO, LEOPOLDO
MANGAHAS, BAYANI MANIGBAS, ROLANDO C. MANIMTIM, DANIEL
MANONSON, ERNESTO F. MANUEL, EDUARDO MANZANO, RICARDO N. MAPA,
RAMON MAPILE, ROBERTO C. MARANA, NEMESIO MARASIGAN,
WENCESLAO MARASIGAN, LEONARDO MARCELO, HENRY F. MARIANO, JOEL
MARIDABLE, SANTOS E. MARINO, NARCISO A. MARQUEZ, RICARDO
MARTINEZ, DIEGO MASICAMPO, AURELIO MATABERDE, RENATO MATILLA,
VICTORIANO MATILLA, VIRGILIO MEDEL, LOLITO M. MELECIO, BENIGNO
MELENDEZ, RENER J. MEMIJE, REYNALDO F. MEMIJE, RODEL MEMIJE,
AVELINO MENDOZA, JR., CLARO MENDOZA, TIMOTEO MENDOZA, GREGORIO
MERCADO, ERNANI DELA MERCED, RICARDO MERCENA, NEMESIO
METRELLO, RODEL MEMIJE, GASPAR MINIMO, BENJAMIN MIRANDA,
FELIXBERTO D. MISA, CLAUDIO A. MODESTO, JR., OSCAR MONDEDO,
GENEROSO MONTON, RENATO MORADA, RICARDO MORADA, RODOLFO
MORADA, ROLANDO M. MORALES, FEDERICO M. MORENO, VICTORINO A.
MORTEL, JR., ESPIRITU A. MUNOZ, IGNACIO MUNOZ, ILDEFONSO MUNOZ,
ROGELIO MUNOZ, ERNESTO NAPALAN, MARCELO A. NARCIZO, REYNALDO
NATALIA, FERNANDO C. NAVARETTE, PACIFICO D. NAVARRO, FLORANTE
NAZARENO, RIZAL B. NAZARIO, JOSUE NEGRITE, ALFREDO NEPUMUCENO,
HERBERT G. NG, FLORENCIO NICOLAS, ERNESTO C. NINON, AVELINO NUQUI,
NEMESIO D. OBA, DANILO OCAMPO, EDGARDO OCAMPO, RODRIGO E.
OCAMPO, ANTONIO B. OCCIANO, REYNALDO P. OCSON, BENJAMIN ODESA,
ANGEL OLASO, FRANCISCO OLIGARIO, ZOSIMO OLIMBO, BENJAMIN V.
ORALLO, ROMEO S. ORIGINES, DANILO R. ORTANEZ, WILFREDO OSIAS,
VIRGILIO PA-A, DAVID PAALAN, JESUS N. PACHECO, ALFONSO L. PADILLA,
DANILO PAGSANJAN, NUMERIANO PAGSISIHAN, RICARDO T. PAGUIO, EMILIO
PAKINGAN, LEANDRO PALABRICA, QUINCIANO PALO, JOSE PAMATIAN,
GONZALO PAN, PORFIRIO PAN, BIENVENIDO PANGAN, ERNESTO PANGAN,
FRANCISCO V. PASIA, EDILBERTO PASIMIO, JR., JOSE V. PASION, ANGELITO
M. PENA, DIONISIO PENDRAS, HERMINIO PERALTA, REYNALDO M. PERALTA,

ANTONIO PEREZ, ANTOLIANO E. PEREZ, JUAN PEREZ, LEON PEREZ, ROMEO

E. PEREZ, ROMULO PEREZ, WILLIAM PEREZ, FERNANDO G. PERINO,
FLORENTINO DEL PILAR, DELMAR F. PINEDA, SALVADOR PINEDA, ELIZALDE
PINPIN, WILFREDO PINPIN, ARTURO POBLETE, DOMINADOR R. PRIELA,
BUENAVENTURA PRUDENTE, CARMELITO PRUDENTE, DANTE PUEYO,
REYNALDO Q. PUEYO, RODOLFO O. PULIDO, ALEJANDRO PUNIO, FEDERICO
QUIMAN, ALFREDO L. QUINTO, ROMEO QUINTOS, EDUARDO W. RACABO,
RICARDO C. DE RAMA, RICARDO L. DE RAMA, ROLANDO DE RAMA,
FERNANDO A. RAMIREZ, LITO S. RAMIREZ, RICARDO G. RAMIREZ, RODOLFO
V. RAMIREZ, ALBERTO RAMOS, ANSELMO C. RAMOS, TOBIAS RAMOS,
WILLARFREDO RAYMUNDO, REYNALDO RAQUEDAN, MANUEL F. RAVELAS,
WILFREDO D. RAYMUNDO, ERNESTO E. RECOLASO, ALBERTO REDAZA,
ARTHUR REJUSO, TORIBIO M. RELLAMA, JAIME RELLOSA, EUGENIO A.
REMOQUILLO, GERARDO RENTOZA, REDENTOR C. REY, ALFREDO S. REYES,
AMABLE S. REYES, BENEDICTO R. REYES, GREGORIO B. REYES, JOSE A.
REYES, JOSE C. REYES, ROMULO M. REYES, SERGIO REYES, ERNESTO F.
RICO, FERNANDO M. RICO, EMMANUEL RIETA, RICARDO RIETA, LEO B.
ROBLES, RUBEN ROBLES, RODOLFO ROBLEZA, RODRIGO ROBLEZA,
EDUARDO ROCABO, ANTONIO R. RODRIGUEZ, BERNARDO RODRIGUEZ,
ELIGIO RODRIGUEZ, ALMONTE ROMEO, ELIAS RONQUILLO, ELISE
RONQUILLO, LUIS VAL B. RONQUILLO, REYNOSO P. RONQUILLO, RODOLFO
RONQUILLO, ANGEL ROSALES, RAMON ROSALES, ALBERTO DEL ROSARIO,
GENEROSO DEL ROSARIO, TEODORICO DEL ROSARIO, VIRGILIO L.
ROSARIO, CARLITO SALVADOR, JOSE SAMPARADA, ERNESTO SAN PEDRO,
ADRIANO V. SANCHA, GERONIMO M. SANCHA, ARTEMIO B. SANCHEZ,
NICASIO SANCHEZ, APOLONIO P. SANTIAGO, JOSELITO S. SANTIAGO,
SERGIO SANTIAGO, EDILBERTO C. SANTOS, EFREN S. SANTOS, RENATO D.
SANTOS, MIGUEL SAPUYOT, ALEX S. SERQUINA, DOMINADOR P. SERRA,
ROMEO SIDRO, AMADO M. SILANG, FAUSTINO D. SILANG, RODOLFO B. DE
SILOS, ANICETO G. SILVA, EDGARDO M. SILVA, ROLANDO C. SILVERTO,
ARTHUR B. SIMBAHON, DOMINGO SOLANO, JOSELITO C. SOLANTE,
CARLITO SOLIS, CONRADO SOLIS, III, EDGARDO SOLIS, ERNESTO SOLIS,
ISAGANI M. SOLIS, EDUARDO L. SOTTO, ERNESTO G. STA. MARIA, VICENTE
G. STELLA, FELIMON SUPANG, PETER TANGUINOO, MAXIMINO TALIBSAO,
FELICISMO P. TALUSIK, FERMIN TARUC, JR., LEVY S. TEMPLO, RODOLFO S.
TIAMSON, LEONILO TIPOSO, ARNEL TOLENTINO, MARIO M. TOLENTINO,
FELIPE TORRALBA, JOVITO V. TORRES, LEONARDO DE TORRES, GAVINO U.
TUAZON, AUGUSTO B. TUNGUIA, FRANCISCO UMALI, SIMPLICIO UNIDA,
WILFREDO V. UNTALAN, ANTONIO VALDERAMA, RAMON VALDERAMA, NILO
VALENCIANO, EDGARDO C. VASQUEZ, ELPIDIO VELASQUEZ, NESTOR DE
VERA, WILFREDO D. VERA, BIENVENIDO VERGARA, ALFREDO VERGARA,
RAMON R. VERZOSA, FELICITO P. VICMUNDO, ALFREDO VICTORIANO,
TEOFILO P. VIDALLO, SABINO N. VIERNEZ, JESUS J. VILLA, JOVEN
VILLABLANCO, EDGARDO G. VILLAFLORES, CEFERINO VILLAGERA, ALEX
VILLAHERMOZA, DANILO A. VILLANUEVA, ELITO VILLANUEVA, LEONARDO M.

VILLANUEVA, MANUEL R. VILLANUEVA, NEPTHALI VILLAR, JOSE V.

VILLAREAL, FELICISIMO VILLARINO, RAFAEL VILLAROMAN, CARLOS
VILLENA, FERDINAND VIVO, ROBERTO YABUT, VICENTE YNGENTE, AND ORO
C. ZUNIGA,respondents.
Gerardo A. Del Mundo and Associates for petitioners.

(ii) denied the

"three-hour daily average" formula in the computation of petitioners'
overtime pay; and
(2) to reverse the Resolution dated March 24, 1992 of NLRC,
denying the motion for reconsideration of its Resolution dated
September 2, 1991 (Rollo, pp. 8-25; 26-220).

Romulo, Mabanta, Sayoc, Buenaventura, De los Angeles Law Offices for BRII/AIBC.
Florante M. De Castro for private respondents in 105029-32.

The petition in G.R. Nos. 105029-32, entitled "Asia International Builders Corporation,
et. al., v. National Labor Relations Commission, et. al." was filed under Rule 65 of the
Revised Rules of Court:
(1) to reverse the Resolution dated September 2, 1991 of NLRC in
POEA Cases Nos. L-84-06-555, L-85-10-777, L-85-10-779 and
L-86-05-460, insofar as it granted the claims of 149 claimants; and

QUIASON, J.:
The petition in G.R. No. 104776, entitled "Bienvenido M. Cadalin, et. al. v. Philippine
Overseas Employment Administration's Administrator, et. al.," was filed under Rule 65
of the Revised Rules of Court:
(1) to modify the Resolution dated September 2, 1991 of the
National Labor Relations Commission (NLRC) in POEA Cases Nos.
L-84-06-555, L-85-10-777, L-85-10-779 and L-86-05-460; (2) to
render a new decision: (i) declaring private respondents as in
default; (ii) declaring the said labor cases as a class suit; (iii)
ordering Asia International Builders Corporation (AIBC) and Brown
and Root International Inc. (BRII) to pay the claims of the 1,767
claimants in said labor cases; (iv) declaring Atty. Florante M. de
Castro guilty of forum-shopping; and (v) dismissing POEA Case No.
L-86-05-460; and
(3) to reverse the Resolution dated March 24, 1992 of NLRC,
denying the motion for reconsideration of its Resolution dated
September 2, 1991 (Rollo, pp. 8-288).
The petition in G.R. Nos. 104911-14, entitled "Bienvenido M. Cadalin, et. al., v. Hon.
National Labor Relations Commission, et. al.," was filed under Rule 65 of the Revised
Rules of Court:
(1) to reverse the Resolution dated September 2, 1991 of NLRC in
POEA Cases Nos. L-84-06-555, L-85-10-777, L-85-10-799 and
L-86-05-460 insofar as it: (i) applied the three-year prescriptive
period under the Labor Code of the Philippines instead of the tenyear prescriptive period under the Civil Code of the Philippines; and

(2) to reverse the Resolution dated March 21, 1992 of NLRC

insofar as it denied the motions for reconsideration of AIBC and
BRII (Rollo, pp. 2-59; 61-230).
The Resolution dated September 2, 1991 of NLRC, which modified the decision of
POEA in four labor cases: (1) awarded monetary benefits only to 149 claimants and
(2) directed Labor Arbiter Fatima J. Franco to conduct hearings and to receive
evidence on the claims dismissed by the POEA for lack of substantial evidence or
proof of employment.
Consolidation of Cases
G.R. Nos. 104776 and 105029-32 were originally raffled to the Third Division while
G.R. Nos. 104911-14 were raffled to the Second Division. In the Resolution dated July
26, 1993, the Second Division referred G.R. Nos. 104911-14 to the Third Division
(G.R. Nos. 104911-14, Rollo, p. 895).
In the Resolution dated September 29, 1993, the Third Division granted the motion
filed in G.R. Nos. 104911-14 for the consolidation of said cases with G.R. Nos.
104776 and 105029-32, which were assigned to the First Division (G.R. Nos. 10491114, Rollo, pp. 986-1,107; G.R. Nos. 105029-30, Rollo, pp. 369-377, 426-432). In the
Resolution dated October 27, 1993, the First Division granted the motion to
consolidate G.R. Nos. 104911-14 with G.R. No. 104776 (G.R. Nos. 104911-14, Rollo,
p. 1109; G.R. Nos. 105029-32, Rollo, p. 1562).
I

On June 6, 1984, Bienvenido M.. Cadalin, Rolando M. Amul and Donato B.

Evangelista, in their own behalf and on behalf of 728 other overseas contract workers
(OCWs) instituted a class suit by filing an "Amended Complaint" with the Philippine
Overseas Employment Administration (POEA) for money claims arising from their
recruitment by AIBC and employment by BRII (POEA Case No. L-84-06-555). The
claimants were represented by Atty. Gerardo del Mundo.
BRII is a foreign corporation with headquarters in Houston, Texas, and is engaged in
construction; while AIBC is a domestic corporation licensed as a service contractor to
recruit, mobilize and deploy Filipino workers for overseas employment on behalf of its
foreign principals.
The amended complaint principally sought the payment of the unexpired portion of
the employment contracts, which was terminated prematurely, and secondarily, the
payment of the interest of the earnings of the Travel and Reserved Fund, interest on
all the unpaid benefits; area wage and salary differential pay; fringe benefits; refund of
SSS and premium not remitted to the SSS; refund of withholding tax not remitted to
the BIR; penalties for committing prohibited practices; as well as the suspension of
the license of AIBC and the accreditation of BRII (G.R. No. 104776, Rollo, pp. 13-14).
At the hearing on June 25, 1984, AIBC was furnished a copy of the complaint and
was given, together with BRII, up to July 5, 1984 to file its answer.
On July 3, 1984, POEA Administrator, upon motion of AIBC and BRII, ordered the
claimants to file a bill of particulars within ten days from receipt of the order and the
movants to file their answers within ten days from receipt of the bill of particulars. The
POEA Administrator also scheduled a pre-trial conference on July 25, 1984.

Florante de Castro filed another complaint for the same money claims and benefits in
behalf of several claimants, some of whom were also claimants in POEA Case No. L84-06-555 (POEA Case No. 85-10-779).
On October 19, 1984, claimants filed their "Compliance" with the Order dated October
2, 1984 and an "Urgent Manifestation," praying that the POEA direct the parties to
submit simultaneously their position papers after which the case would be deemed
submitted for decision. On the same day, AIBC asked for time to file its comment on
the "Compliance" and "Urgent Manifestation" of claimants. On November 6, 1984, it
filed a second motion for extension of time to file the comment.
On November 8, 1984, the POEA Administrator informed AIBC that its motion for
extension of time was granted.
On November 14, 1984, claimants filed an opposition to the motions for extension of
time and asked that AIBC and BRII be declared in default for failure to file their
answers.
On November 20, 1984, AIBC and BRII filed a "Comment" praying, among other
reliefs, that claimants should be ordered to amend their complaint.
On December 27, 1984, the POEA Administrator issued an order directing AIBC and
BRII to file their answers within ten days from receipt of the order.
On February 27, 1985, AIBC and BRII appealed to NLRC seeking the reversal of the
said order of the POEA Administrator. Claimants opposed the appeal, claiming that it
was dilatory and praying that AIBC and BRII be declared in default.

On July 13, 1984, the claimants submitted their "Compliance and Manifestation." On
July 23, 1984, AIBC filed a "Motion to Strike Out of the Records", the "Complaint" and
the "Compliance and Manifestation." On July 25, 1984, the claimants filed their
"Rejoinder and Comments," averring, among other matters, the failure of AIBC and
BRII to file their answers and to attend the pre-trial conference on July 25, 1984. The
claimants alleged that AIBC and BRII had waived their right to present evidence and
had defaulted by failing to file their answers and to attend the pre-trial conference.

On April 2, 1985, the original claimants filed an "Amended Complaint and/or Position
Paper" dated March 24, 1985, adding new demands: namely, the payment of
overtime pay, extra night work pay, annual leave differential pay, leave indemnity pay,
retirement and savings benefits and their share of forfeitures (G.R. No. 104776, Rollo,
pp. 14-16). On April 15, 1985, the POEA Administrator directed AIBC to file its answer
to the amended complaint (G.R. No. 104776, Rollo, p. 20).

On October 2, 1984, the POEA Administrator denied the "Motion to Strike Out of the
Records" filed by AIBC but required the claimants to correct the deficiencies in the
complaint pointed out in the order.

On May 28, 1985, claimants filed an "Urgent Motion for Summary Judgment." On the
same day, the POEA issued an order directing AIBC and BRII to file their answers to
the "Amended Complaint," otherwise, they would be deemed to have waived their
right to present evidence and the case would be resolved on the basis of
complainant's evidence.

On October 10, 1984, claimants asked for time within which to comply with the Order
of October 2, 1984 and filed an "Urgent Manifestation," praying that the POEA
Administrator direct the parties to submit simultaneously their position papers, after
which the case should be deemed submitted for decision. On the same day, Atty.

On June 5, 1985, AIBC countered with a "Motion to Dismiss as Improper Class Suit
and Motion for Bill of Particulars Re: Amended Complaint dated March 24, 1985."
Claimants opposed the motions.
On September 4, 1985, the POEA Administrator reiterated his directive to AIBC and
BRII to file their answers in POEA Case No. L-84-06-555.
On September 18, 1985, AIBC filed its second appeal to the NLRC, together with a
petition for the issuance of a writ of injunction. On September 19, 1985, NLRC
enjoined the POEA Administrator from hearing the labor cases and suspended the
period for the filing of the answers of AIBC and BRII.
On September 19, 1985, claimants asked the POEA Administrator to include
additional claimants in the case and to investigate alleged wrongdoings of BRII, AIBC
and their respective lawyers.
On October 10, 1985, Romeo Patag and two co-claimants filed a complaint (POEA
Case No. L-85-10-777) against AIBC and BRII with the POEA, demanding monetary
claims similar to those subject of POEA Case No. L-84-06-555. In the same month,
Solomon Reyes also filed his own complaint (POEA Case No. L-85-10-779) against
AIBC and BRII.
On October 17, 1985, the law firm of Florante M. de Castro & Associates asked for
the substitution of the original counsel of record and the cancellation of the special
powers of attorney given the original counsel.
On December 12, 1985, Atty. Del Mundo filed in NLRC a notice of the claim to
enforce attorney's lien.
On May 29, 1986, Atty. De Castro filed a complaint for money claims (POEA Case
No. 86-05-460) in behalf of 11 claimants including Bienvenido Cadalin, a claimant in
POEA Case No. 84-06-555.
On December 12, 1986, the NLRC dismissed the two appeals filed on February 27,
1985 and September 18, 1985 by AIBC and BRII.
In narrating the proceedings of the labor cases before the POEA Administrator, it is
not amiss to mention that two cases were filed in the Supreme Court by the
claimants, namely G.R. No. 72132 on September 26, 1985 and Administrative
Case No. 2858 on March 18, 1986. On May 13, 1987, the Supreme Court issued a
resolution in Administrative Case No. 2858 directing the POEA Administrator to
resolve the issues raised in the motions and oppositions filed in POEA Cases Nos. L84-06-555 and L-86-05-460 and to decide the labor cases with deliberate dispatch.

AIBC also filed a petition in the Supreme Court (G.R. No. 78489), questioning the
Order dated September 4, 1985 of the POEA Administrator. Said order required BRII
and AIBC to answer the amended complaint in POEA Case No. L-84-06-555. In a
resolution dated November 9, 1987, we dismissed the petition by informing AIBC that
all its technical objections may properly be resolved in the hearings before the POEA.
Complaints were also filed before the Ombudsman. The first was filed on September
22, 1988 by claimant Hermie Arguelles and 18 co-claimants against the POEA
Administrator and several NLRC Commissioners. The Ombudsman merely referred
the complaint to the Secretary of Labor and Employment with a request for the early
disposition of POEA Case No. L-84-06-555. The second was filed on April 28, 1989
by claimants Emigdio P. Bautista and Rolando R. Lobeta charging AIBC and BRII for
violation of labor and social legislations. The third was filed by Jose R. Santos,
Maximino N. Talibsao and Amado B. Bruce denouncing AIBC and BRII of violations of
labor laws.
On January 13, 1987, AIBC filed a motion for reconsideration of the NLRC Resolution
dated December 12, 1986.
On January 14, 1987, AIBC reiterated before the POEA Administrator its motion for
suspension of the period for filing an answer or motion for extension of time to file the
same until the resolution of its motion for reconsideration of the order of the NLRC
dismissing the two appeals. On April 28, 1987, NLRC en banc denied the motion for
reconsideration.
At the hearing on June 19, 1987, AIBC submitted its answer to the complaint. At the
same hearing, the parties were given a period of 15 days from said date within which
to submit their respective position papers. On June 24, 1987 claimants filed their
"Urgent Motion to Strike Out Answer," alleging that the answer was filed out of time.
On June 29, 1987, claimants filed their "Supplement to Urgent Manifestational
Motion" to comply with the POEA Order of June 19, 1987. On February 24, 1988,
AIBC and BRII submitted their position paper. On March 4, 1988, claimants filed their
"Ex-Parte Motion to Expunge from the Records" the position paper of AIBC and BRII,
claiming that it was filed out of time.
On September 1, 1988, the claimants represented by Atty. De Castro filed their
memorandum in POEA Case No. L-86-05-460. On September 6, 1988, AIBC and
BRII submitted their Supplemental Memorandum. On September 12, 1988, BRII filed
its "Reply to Complainant's Memorandum." On October 26, 1988, claimants submitted
their "Ex-Parte Manifestational Motion and Counter-Supplemental Motion," together
with 446 individual contracts of employments and service records. On October 27,
1988, AIBC and BRII filed a "Consolidated Reply."

On January 30, 1989, the POEA Administrator rendered his decision in POEA Case
No. L-84-06-555 and the other consolidated cases, which awarded the amount of
$824,652.44 in favor of only 324 complainants.
On February 10, 1989, claimants submitted their "Appeal Memorandum For Partial
Appeal" from the decision of the POEA. On the same day, AIBC also filed its motion
for reconsideration and/or appeal in addition to the "Notice of Appeal" filed earlier on
February 6, 1989 by another counsel for AIBC.
On February 17, 1989, claimants filed their "Answer to Appeal," praying for the
dismissal of the appeal of AIBC and BRII.
On March 15, 1989, claimants filed their "Supplement to Complainants' Appeal
Memorandum," together with their "newly discovered evidence" consisting of payroll
records.
On April 5, 1989, AIBC and BRII submitted to NLRC their "Manifestation," stating
among other matters that there were only 728 named claimants. On April 20, 1989,
the claimants filed their "Counter-Manifestation," alleging that there were 1,767 of
them.
On July 27, 1989, claimants filed their "Urgent Motion for Execution" of the Decision
dated January 30, 1989 on the grounds that BRII had failed to appeal on time and
AIBC had not posted the supersedeas bond in the amount of $824,652.44.
On December 23, 1989, claimants filed another motion to resolve the labor cases.
On August 21, 1990, claimants filed their "Manifestational Motion," praying that all the
1,767 claimants be awarded their monetary claims for failure of private respondents
to file their answers within the reglamentary period required by law.
On September 2, 1991, NLRC promulgated its Resolution, disposing as follows:
WHEREFORE, premises considered, the Decision of the POEA in
these consolidated cases is modified to the extent and in
accordance with the following dispositions:
1. The claims of the 94 complainants identified
and listed in Annex "A" hereof are dismissed for
having prescribed;
2. Respondents AIBC and Brown & Root are
hereby ordered, jointly and severally, to pay the

149 complainants, identified and listed in Annex

"B" hereof, the peso equivalent, at the time of
payment, of the total amount in US dollars
indicated opposite their respective names;
3. The awards given by the POEA to the 19
complainants classified and listed in Annex "C"
hereof, who appear to have worked elsewhere
than in Bahrain are hereby set aside.
4. All claims other than those indicated in Annex
"B", including those for overtime work and
favorably granted by the POEA, are hereby
dismissed for lack of substantial evidence in
support thereof or are beyond the competence of
this Commission to pass upon.
In addition, this Commission, in the exercise of its powers and
authority under Article 218(c) of the Labor Code, as amended by
R.A. 6715, hereby directs Labor Arbiter Fatima J. Franco of this
Commission to summon parties, conduct hearings and receive
evidence, as expeditiously as possible, and thereafter submit a
written report to this Commission (First Division) of the proceedings
taken, regarding the claims of the following:
(a) complainants identified and listed in Annex
"D" attached and made an integral part of this
Resolution, whose claims were dismissed by the
POEA for lack of proof of employment in Bahrain
(these complainants numbering 683, are listed in
pages 13 to 23 of the decision of POEA, subject
of the appeals) and,
(b) complainants identified and listed in Annex
"E" attached and made an integral part of this
Resolution, whose awards decreed by the POEA,
to Our mind, are not supported by substantial
evidence" (G.R. No. 104776; Rollo, pp. 113-115;
G.R. Nos. 104911-14, pp. 85-87; G.R. Nos.
105029-31, pp. 120-122).
On November 27, 1991, claimant Amado S. Tolentino and 12
co-claimants, who were former clients of Atty. Del Mundo, filed a petition

for certiorari with the Supreme Court (G.R. Nos. 120741-44). The petition was
dismissed in a resolution dated January 27, 1992.
Three motions for reconsideration of the September 2, 1991 Resolution of the NLRC
were filed. The first, by the claimants represented by Atty. Del Mundo; the second, by
the claimants represented by Atty. De Castro; and the third, by AIBC and BRII.
In its Resolution dated March 24, 1992, NLRC denied all the motions for
reconsideration.
Hence, these petitions filed by the claimants represented by Atty. Del Mundo (G.R.
No. 104776), the claimants represented by Atty. De Castro (G.R. Nos. 104911-14)
and by AIBC and BRII (G.R. Nos. 105029-32).
II
Compromise Agreements
Before this Court, the claimants represented by Atty. De Castro and AIBC and BRII
have submitted, from time to time, compromise agreements for our approval and
jointly moved for the dismissal of their respective petitions insofar as the claimantsparties to the compromise agreements were concerned (See Annex A for list of
claimants who signed quitclaims).
Thus the following manifestations that the parties had arrived at a compromise
agreement and the corresponding motions for the approval of the agreements were
filed by the parties and approved by the Court:

4) Joint Manifestation and Motion involving claimant Antonio T.

Anglo and 17 co-claimants dated October 14, 1992 (G.R. Nos.
105029-32, Rollo, pp. 778-843; G.R. No. 104776, Rollo, pp. 650713; G.R. Nos. 104911-14, Rollo, pp. 530-590);
5) Joint Manifestation and Motion involving claimant Dionisio
Bobongo and 6 co-claimants dated January 15, 1993 (G.R. No.
104776, Rollo, pp. 813-836; G.R. Nos. 104911-14, Rollo, pp. 629652);
6) Joint Manifestation and Motion involving claimant Valerio A.
Evangelista and 4 co-claimants dated March 10, 1993 (G.R. Nos.
104911-14, Rollo, pp. 731-746; G.R. No. 104776, Rollo, pp. 18151829);
7) Joint Manifestation and Motion involving claimants Palconeri
Banaag and 5 co-claimants dated March 17, 1993 (G.R. No.
104776, Rollo, pp. 1657-1703; G.R. Nos. 104911-14, Rollo, pp.
655-675);
8) Joint Manifestation and Motion involving claimant Benjamin
Ambrosio and 15 other co-claimants dated May 4, 1993 (G.R. Nos.
105029-32, Rollo, pp. 906-956; G.R. Nos. 104911-14, Rollo, pp.
679-729; G.R. No. 104776, Rollo, pp. 1773-1814);
9) Joint Manifestation and Motion involving Valerio Evangelista and
3 co-claimants dated May 10, 1993 (G.R. No. 104776, Rollo, pp.
1815-1829);

1) Joint Manifestation and Motion involving claimant Emigdio

Abarquez and 47 co-claimants dated September 2, 1992 (G.R.
Nos. 104911-14, Rollo, pp. 263-406; G.R. Nos. 105029-32, Rollo,
pp.
470-615);

10) Joint Manifestation and Motion involving petitioner Quiterio R.

Agudo and 36 co-claimants dated June 14, 1993 (G.R. Nos.
105029-32, Rollo, pp. 974-1190; G.R. Nos. 104911-14, Rollo, pp.
748-864; G.R. No. 104776, Rollo, pp. 1066-1183);

2) Joint Manifestation and Motion involving petitioner Bienvenido

Cadalin and 82 co-petitioners dated September 3, 1992 (G.R. No.
104776, Rollo, pp. 364-507);

11) Joint Manifestation and Motion involving claimant Arnaldo J.

Alonzo and 19 co-claimants dated July 22, 1993 (G.R. No.
104776, Rollo, pp. 1173-1235; G.R. Nos. 105029-32, Rollo, pp.
1193-1256; G.R. Nos. 104911-14, Rollo, pp. 896-959);

3) Joint Manifestation and Motion involving claimant Jose

M. Aban and 36 co-claimants dated September 17, 1992 (G.R.
Nos. 105029-32, Rollo, pp. 613-722; G.R. No. 104776, Rollo, pp.
518-626; G.R. Nos. 104911-14, Rollo, pp. 407-516);

12) Joint Manifestation and Motion involving claimant Ricardo C.

Dayrit and 2 co-claimants dated September 7, 1993 (G.R. Nos.
105029-32, Rollo, pp. 1266-1278; G.R. No. 104776, Rollo, pp.
1243-1254; G.R. Nos. 104911-14, Rollo, pp. 972-984);

13) Joint Manifestation and Motion involving claimant Dante C.

Aceres and 37 co-claimants dated September 8, 1993 (G.R. No.
104776, Rollo, pp. 1257-1375; G.R. Nos. 104911-14, Rollo, pp.
987-1105; G.R. Nos. 105029-32, Rollo, pp. 1280-1397);
14) Joint Manifestation and Motion involving Vivencio V. Abella and
27 co-claimants dated January 10, 1994 (G.R. Nos. 10502932, Rollo, Vol. II);
15) Joint Manifestation and Motion involving Domingo B. Solano
and six co-claimants dated August 25, 1994 (G.R. Nos. 105029-32;
G.R. No. 104776; G.R. Nos. 104911-14).
III

(4) Basic Working Hours Per Week :

(5) Basic Working Hours Per Month :
(6) Basic Hourly Rate :
(7) Overtime Rate Per Hour :
(8) Projected Period of Service
(Subject to C(1) of this [sic]) :
Months and/or
Job Completion
xxx xxx xxx
3. HOURS OF WORK AND COMPENSATION
a) The Employee is employed at the hourly rate and overtime rate
as set out in Part B of this Document.

The facts as found by the NLRC are as follows:

We have taken painstaking efforts to sift over the more than fifty
volumes now comprising the records of these cases. From the
records, it appears that the complainants-appellants allege that
they were recruited by respondent-appellant AIBC for its accredited
foreign principal, Brown & Root, on various dates from 1975 to
1983. They were all deployed at various projects undertaken by
Brown & Root in several countries in the Middle East, such as
Saudi Arabia, Libya, United Arab Emirates and Bahrain, as well as
in Southeast Asia, in Indonesia and Malaysia.
Having been officially processed as overseas contract workers by
the Philippine Government, all the individual complainants signed
standard overseas employment contracts (Records, Vols. 25-32.
Hereafter, reference to the records would be sparingly made,
considering their chaotic arrangement) with AIBC before their
departure from the Philippines. These overseas employment
contracts invariably contained the following relevant terms and
conditions.

b) The hours of work shall be those set forth by the Employer, and
Employer may, at his sole option, change or adjust such hours as
maybe deemed necessary from time to time.
4. TERMINATION
a) Notwithstanding any other terms and conditions of this
agreement, the Employer may, at his sole discretion, terminate
employee's service with cause, under this agreement at any time. If
the Employer terminates the services of the Employee under this
Agreement because of the completion or termination, or
suspension of the work on which the Employee's services were
being utilized, or because of a reduction in force due to a decrease
in scope of such work, or by change in the type of construction of
such work. The Employer will be responsible for his return
transportation to his country of origin. Normally on the most
expeditious air route, economy class accommodation.
xxx xxx xxx

PART B

10. VACATION/SICK LEAVE BENEFITS

(1) Employment Position Classification :

(Code) :

a) After one (1) year of continuous service and/or satisfactory

completion of contract, employee shall be entitled to 12-days
vacation leave with pay. This shall be computed at the basic wage
rate. Fractions of a year's service will be computed on a prorata basis.

(2) Company Employment Status :

(3) Date of Employment to Commence on :

b) Sick leave of 15-days shall be granted to the employee for every

year of service for non-work connected injuries or illness. If the
employee failed to avail of such leave benefits, the same shall be
forfeited at the end of the year in which said sick leave is granted.

. . . an employer may require a worker, with his

consent, to work on his weekly day of restif
circumstances so require and in respect of which
an additional sum equivalent to 150% of his
normal wage shall be paid to him. . . .

11. BONUS
A bonus of 20% (for offshore work) of gross income will be accrued
and payable only upon satisfactory completion of this contract.
12. OFFDAY PAY
The seventh day of the week shall be observed as a day of rest
with 8 hours regular pay. If work is performed on this day, all hours
work shall be paid at the premium rate. However, this offday pay
provision is applicable only when the laws of the Host Country
require payments for rest day.
In the State of Bahrain, where some of the individual complainants
were deployed, His Majesty Isa Bin Salman Al Kaifa, Amir of
Bahrain, issued his Amiri Decree No. 23 on June 16, 1976,
otherwise known as the Labour Law for the Private Sector
(Records, Vol. 18). This decree took effect on August 16, 1976.
Some of the provisions of Amiri Decree No. 23 that are relevant to
the claims of the complainants-appellants are as follows (italics
supplied only for emphasis):
Art. 79: . . . A worker shall receive payment for
each extra hour equivalent to his wage
entitlement increased by a minimum of twentyfive per centum thereof for hours worked during
the day; and by a minimum of fifty per centum
thereof for hours worked during the night which
shall be deemed to being from seven o'clock in
the evening until seven o'clock in the
morning. . . .
Art. 80: Friday shall be deemed to be a weekly
day of rest on full pay.

Art. 81: . . . When conditions of work require the

worker to work on any official holiday, he shall be
paid an additional sum equivalent to 150% of his
normal wage.
Art. 84: Every worker who has completed one
year's continuous service with his employer shall
be entitled to leave on full pay for a period of not
less than 21 days for each year increased to a
period not less than 28 days after five continuous
years of service.
A worker shall be entitled to such leave upon
a quantum meruit in respect of the proportion of
his service in that year.
Art. 107: A contract of employment made for a
period of indefinite duration may be terminated by
either party thereto after giving the other party
thirty days' prior notice before such
termination, in writing, in respect of monthly paid
workers and fifteen days' notice in respect of
other workers. The party terminating a contract
without giving the required notice shall pay to the
other party compensation equivalent to the
amount of wages payable to the worker for the
period of such notice or the unexpired portion
thereof.
Art. 111: . . . the employer concerned shall pay to
such worker, upon termination of employment,
a leaving indemnity for the period of his
employment calculated on the basis of fifteen
days' wages for each year of the first three years
of service and of one month's wages for each
year of service thereafter. Such worker shall be
entitled to payment of leaving indemnity upon

a quantum meruit in proportion to the period of

his service completed within a year.

(d) Whether or not the judgment awards are

supported by substantial evidence;

All the individual complainants-appellants have

already been repatriated to the Philippines at the
time of the filing of these cases (R.R. No.
104776, Rollo, pp. 59-65).

(e) Whether or not the awards based on the

averages and formula presented by the
complainants-appellants are supported by
substantial evidence;

IV
The issues raised before and resolved by the NLRC were:
First: Whether or not complainants are entitled to the benefits
provided by Amiri Decree No. 23 of Bahrain;
(a) Whether or not the complainants who have
worked in Bahrain are entitled to the abovementioned benefits.
(b) Whether or not Art. 44 of the same Decree
(allegedly prescribing a more favorable treatment
of alien employees) bars complainants from
enjoying its benefits.
Second: Assuming that Amiri Decree No. 23 of Bahrain is
applicable in these cases, whether or not complainants' claim for
the benefits provided therein have prescribed.
Third: Whether or not the instant cases qualify as a class suit.
Fourth: Whether or not the proceedings conducted by the POEA,
as well as the decision that is the subject of these appeals,
conformed with the requirements of due process;
(a) Whether or not the respondent-appellant was
denied its right to due process;

(f) Whether or not the POEA awarded sums

beyond what the complainants-appellants prayed
for; and, if so, whether or not these awards are
valid.
Fifth: Whether or not the POEA erred in holding respondents
AIBC and Brown & Root jointly are severally liable for the judgment
awards despite the alleged finding that the former was the
employer of the complainants;
(a) Whether or not the POEA has acquired
jurisdiction over Brown & Root;
(b) Whether or not the undisputed fact that AIBC
was a licensed construction contractor precludes
a finding that Brown & Root is liable for
complainants claims.
Sixth: Whether or not the POEA Administrator's failure to hold
respondents in default constitutes a reversible error.
Seventh: Whether or not the POEA Administrator erred in
dismissing the following claims:
a. Unexpired portion of contract;
b. Interest earnings of Travel and Reserve Fund;
c. Retirement and Savings Plan benefits;

(b) Whether or not the admission of evidence by

the POEA after these cases were submitted for
decision was valid;
(c) Whether or not the POEA acquired jurisdiction
over Brown & Root International, Inc.;

d. War Zone bonus or premium pay of at least

100% of basic pay;
e. Area Differential Pay;

f. Accrued interests on all the unpaid benefits;

g. Salary differential pay;
h. Wage differential pay;
i. Refund of SSS premiums not remitted to SSS;
j. Refund of withholding tax not remitted to BIR;
k. Fringe benefits under B & R's "A Summary of
Employee Benefits" (Annex "Q" of Amended
Complaint);
l. Moral and exemplary damages;
m. Attorney's fees of at least ten percent of the
judgment award;
n. Other reliefs, like suspending and/or cancelling
the license to recruit of AIBC and the
accreditation of B & R issued by POEA;
o. Penalty for violations of Article 34 (prohibited
practices), not excluding reportorial requirements
thereof.
Eighth: Whether or not the POEA Administrator erred in not
dismissing POEA Case No. (L) 86-65-460 on the ground of
multiplicity of suits (G.R. Nos. 104911-14, Rollo, pp. 25-29, 51-55).
Anent the first issue, NLRC set aside Section 1, Rule 129 of the 1989 Revised Rules
on Evidence governing the pleading and proof of a foreign law and admitted in
evidence a simple copy of the Bahrain's Amiri Decree No. 23 of 1976 (Labour Law for
the Private Sector). NLRC invoked Article 221 of the Labor Code of the Philippines,
vesting on the Commission ample discretion to use every and all reasonable means
to ascertain the facts in each case without regard to the technicalities of law or
procedure. NLRC agreed with the POEA Administrator that the Amiri Decree No. 23,
being more favorable and beneficial to the workers, should form part of the overseas
employment contract of the complainants.

NLRC, however, held that the Amiri Decree No. 23 applied only to the claimants, who
worked in Bahrain, and set aside awards of the POEA Administrator in favor of the
claimants, who worked elsewhere.
On the second issue, NLRC ruled that the prescriptive period for the filing of the
claims of the complainants was three years, as provided in Article 291 of the Labor
Code of the Philippines, and not ten years as provided in Article 1144 of the Civil
Code of the Philippines nor one year as provided in the Amiri Decree No. 23 of 1976.
On the third issue, NLRC agreed with the POEA Administrator that the labor cases
cannot be treated as a class suit for the simple reason that not all the complainants
worked in Bahrain and therefore, the subject matter of the action, the claims arising
from the Bahrain law, is not of common or general interest to all the complainants.
On the fourth issue, NLRC found at least three infractions of the cardinal rules of
administrative due process: namely, (1) the failure of the POEA Administrator to
consider the evidence presented by AIBC and BRII; (2) some findings of fact were not
supported by substantial evidence; and (3) some of the evidence upon which the
decision was based were not disclosed to AIBC and BRII during the hearing.
On the fifth issue, NLRC sustained the ruling of the POEA Administrator that BRII and
AIBC are solidarily liable for the claims of the complainants and held that BRII was
the actual employer of the complainants, or at the very least, the indirect employer,
with AIBC as the labor contractor.
NLRC also held that jurisdiction over BRII was acquired by the POEA Administrator
through the summons served on AIBC, its local agent.
On the sixth issue, NLRC held that the POEA Administrator was correct in denying
the Motion to Declare AIBC in default.
On the seventh issue, which involved other money claims not based on the Amiri
Decree No. 23, NLRC ruled:
(1) that the POEA Administrator has no jurisdiction over the claims
for refund of the SSS premiums and refund of withholding taxes
and the claimants should file their claims for said refund with the
appropriate government agencies;
(2) the claimants failed to establish that they are entitled to the
claims which are not based on the overseas employment contracts
nor the Amiri Decree No. 23 of 1976;

(3) that the POEA Administrator has no jurisdiction over claims for
moral and exemplary damages and nonetheless, the basis for
granting said damages was not established;

(3) the NLRC and POEA Administrator erred in not holding that the
labor cases filed by AIBC and BRII cannot be considered a class
suit;

(4) that the claims for salaries corresponding to the unexpired

portion of their contract may be allowed if filed within the three-year
prescriptive period;

(4) that the prescriptive period for the filing of the claims is ten
years; and

(5) that the allegation that complainants were prematurely

repatriated prior to the expiration of their overseas contract was not
established; and

(5) that NLRC and the POEA Administrator should have dismissed
POEA Case No. L-86-05-460, the case filed by Atty. Florante de
Castro (Rollo, pp. 31-40).
AIBC and BRII, commenting on the petition in G.R. No. 104776, argued:

(6) that the POEA Administrator has no jurisdiction over the

complaint for the suspension or cancellation of the AIBC's
recruitment license and the cancellation of the accreditation of BRII.
NLRC passed sub silencio the last issue, the claim that POEA Case No. (L) 86-65460 should have been dismissed on the ground that the claimants in said case were
also claimants in POEA Case No. (L) 84-06-555. Instead of dismissing POEA Case
No. (L) 86-65-460, the POEA just resolved the corresponding claims in POEA Case
No. (L) 84-06-555. In other words, the POEA did not pass upon the same claims
twice.
V
G.R. No. 104776
Claimants in G.R. No. 104776 based their petition for certiorari on the following
grounds:
(1) that they were deprived by NLRC and the POEA of their right to
a speedy disposition of their cases as guaranteed by Section 16,
Article III of the 1987 Constitution. The POEA Administrator allowed
private respondents to file their answers in two years (on June 19,
1987) after the filing of the original complaint (on April 2, 1985) and
NLRC, in total disregard of its own rules, affirmed the action of the
POEA Administrator;
(2) that NLRC and the POEA Administrator should have declared
AIBC and BRII in default and should have rendered summary
judgment on the basis of the pleadings and evidence submitted by
claimants;

(1) that they were not responsible for the delay in the disposition of
the labor cases, considering the great difficulty of getting all the
records of the more than 1,500 claimants, the piece-meal filing of
the complaints and the addition of hundreds of new claimants by
petitioners;
(2) that considering the number of complaints and claimants, it was
impossible to prepare the answers within the ten-day period
provided in the NLRC Rules, that when the motion to declare AIBC
in default was filed on July 19, 1987, said party had already filed its
answer, and that considering the staggering amount of the claims
(more than US$50,000,000.00) and the complicated issues raised
by the parties, the ten-day rule to answer was not fair and
reasonable;
(3) that the claimants failed to refute NLRC's finding that
there was no common or general interest in the subject matter of
the controversy which was the applicability of the Amiri Decree
No. 23. Likewise, the nature of the claims varied, some being
based on salaries pertaining to the unexpired portion of the
contracts while others being for pure money claims. Each claimant
demanded separate claims peculiar only to himself and depending
upon the particular circumstances obtaining in his case;
(4) that the prescriptive period for filing the claims is that prescribed
by Article 291 of the Labor Code of the Philippines (three years)
and not the one prescribed by Article 1144 of the Civil Code of the
Philippines (ten years); and

(5) that they are not concerned with the issue of whether POEA
Case No. L-86-05-460 should be dismissed, this being a private
quarrel between the two labor lawyers (Rollo, pp. 292-305).
Attorney's Lien
On November 12, 1992, Atty. Gerardo A. del Mundo moved to strike out the joint
manifestations and motions of AIBC and BRII dated September 2 and 11, 1992,
claiming that all the claimants who entered into the compromise agreements subject
of said manifestations and motions were his clients and that Atty. Florante M. de
Castro had no right to represent them in said agreements. He also claimed that the
claimants were paid less than the award given them by NLRC; that Atty. De Castro
collected additional attorney's fees on top of the 25% which he was entitled to
receive; and that the consent of the claimants to the compromise agreements and
quitclaims were procured by fraud (G.R. No. 104776, Rollo, pp. 838-810). In the
Resolution dated November 23, 1992, the Court denied the motion to strike out the
Joint Manifestations and Motions dated September 2 and 11, 1992 (G.R. Nos.
104911-14, Rollo, pp. 608-609).
On December 14, 1992, Atty. Del Mundo filed a "Notice and Claim to Enforce
Attorney's Lien," alleging that the claimants who entered into compromise
agreements with AIBC and BRII with the assistance of Atty. De Castro, had all signed
a retainer agreement with his law firm (G.R. No. 104776, Rollo, pp. 623-624; 8381535).

The claimants in G.R. Nos. 104911-14 based their petition for certiorari on the
grounds that NLRC gravely abused its discretion when it: (1) applied the three-year
prescriptive period under the Labor Code of the Philippines; and (2) it denied the
claimant's formula based on an average overtime pay of three hours a day (Rollo, pp.
18-22).
The claimants argue that said method was proposed by BRII itself during the
negotiation for an amicable settlement of their money claims in Bahrain as shown in
the Memorandum dated April 16, 1983 of the Ministry of Labor of Bahrain (Rollo, pp.
21-22).
BRII and AIBC, in their Comment, reiterated their contention in G.R. No. 104776 that
the prescriptive period in the Labor Code of the Philippines, a special law, prevails
over that provided in the Civil Code of the Philippines, a general law.
As to the memorandum of the Ministry of Labor of Bahrain on the method of
computing the overtime pay, BRII and AIBC claimed that they were not bound by what
appeared therein, because such memorandum was proposed by a subordinate
Bahrain official and there was no showing that it was approved by the Bahrain
Minister of Labor. Likewise, they claimed that the averaging method was discussed in
the course of the negotiation for the amicable settlement of the dispute and any offer
made by a party therein could not be used as an admission by him (Rollo, pp. 228236).
G.R. Nos. 105029-32

Contempt of Court
On February 18, 1993, an omnibus motion was filed by Atty. Del Mundo to cite Atty.
De Castro and Atty. Katz Tierra for contempt of court and for violation of Canons 1, 15
and 16 of the Code of Professional Responsibility. The said lawyers allegedly misled
this Court, by making it appear that the claimants who entered into the compromise
agreements were represented by Atty. De Castro, when in fact they were represented
by Atty. Del Mundo (G.R. No. 104776, Rollo, pp. 1560-1614).
On September 23, 1994, Atty. Del Mundo reiterated his charges against Atty. De
Castro for unethical practices and moved for the voiding of the quitclaims submitted
by some of the claimants.

In G.R. Nos. 105029-32, BRII and AIBC claim that NLRC gravely abused its
discretion when it: (1) enforced the provisions of the Amiri Decree No. 23 of 1976 and
not the terms of the employment contracts; (2) granted claims for holiday, overtime
and leave indemnity pay and other benefits, on evidence admitted in contravention of
petitioner's constitutional right to due process; and (3) ordered the POEA
Administrator to hold new hearings for the 683 claimants whose claims had been
dismissed for lack of proof by the POEA Administrator or NLRC itself. Lastly, they
allege that assuming that the Amiri Decree No. 23 of 1976 was applicable, NLRC
erred when it did not apply the one-year prescription provided in said law (Rollo, pp.
29-30).
VI

G.R. Nos. 104911-14

G.R. No. 104776; G.R. Nos. 104911-14; G.R. Nos. 105029-32
All the petitions raise the common issue of prescription although they disagreed as to
the time that should be embraced within the prescriptive period.

To the POEA Administrator, the prescriptive period was ten years, applying Article
1144 of the Civil Code of the Philippines. NLRC believed otherwise, fixing the
prescriptive period at three years as provided in Article 291 of the Labor Code of the
Philippines.
The claimants in G.R. No. 104776 and G.R. Nos. 104911-14, invoking different
grounds, insisted that NLRC erred in ruling that the prescriptive period applicable to
the claims was three years, instead of ten years, as found by the POEA Administrator.
The Solicitor General expressed his personal view that the prescriptive period was
one year as prescribed by the Amiri Decree No. 23 of 1976 but he deferred to the
ruling of NLRC that Article 291 of the Labor Code of the Philippines was the operative
law.
The POEA Administrator held the view that:
These money claims (under Article 291 of the Labor Code) refer to
those arising from the employer's violation of the employee's right
as provided by the Labor Code.
In the instant case, what the respondents violated are not the rights
of the workers as provided by the Labor Code, but the provisions of
the Amiri Decree No. 23 issued in Bahrain, which ipso
factoamended the worker's contracts of employment. Respondents
consciously failed to conform to these provisions which specifically
provide for the increase of the worker's rate. It was only after June
30, 1983, four months after the brown builders brought a suit
against B & R in Bahrain for this same claim, when respondent
AIBC's contracts have undergone amendments in Bahrain for the
new hires/renewals (Respondent's Exhibit 7).
Hence, premises considered, the applicable law of prescription to
this instant case is Article 1144 of the Civil Code of the Philippines,
which provides:
Art. 1144. The following actions may be brought
within ten years from the time the cause of action
accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;

Thus, herein money claims of the complainants against the

respondents shall prescribe in ten years from August 16, 1976.
Inasmuch as all claims were filed within the ten-year prescriptive
period, no claim suffered the infirmity of being prescribed (G.R. No.
104776, Rollo, 89-90).
In overruling the POEA Administrator, and holding that the prescriptive period is three
years as provided in Article 291 of the Labor Code of the Philippines, the NLRC
argued as follows:
The Labor Code provides that "all money claims arising from
employer-employee relations . . . shall be filed within three years
from the time the cause of action accrued; otherwise they shall be
forever barred" (Art. 291, Labor Code, as amended). This threeyear prescriptive period shall be the one applied here and which
should be reckoned from the date of repatriation of each individual
complainant, considering the fact that the case is having (sic) filed
in this country. We do not agree with the POEA Administrator that
this three-year prescriptive period applies only to money claims
specifically recoverable under the Philippine Labor Code. Article
291 gives no such indication. Likewise, We can not consider
complainants' cause/s of action to have accrued from a violation of
their employment contracts. There was no violation; the claims
arise from the benefits of the law of the country where they worked.
(G.R. No. 104776, Rollo, pp.
90-91).
Anent the applicability of the one-year prescriptive period as provided by the Amiri
Decree No. 23 of 1976, NLRC opined that the applicability of said law was one of
characterization, i.e., whether to characterize the foreign law on prescription or statute
of limitation as "substantive" or "procedural." NLRC cited the decision in Bournias v.
Atlantic Maritime Company (220 F. 2d. 152, 2d Cir. [1955], where the issue was the
applicability of the Panama Labor Code in a case filed in the State of New York for
claims arising from said Code. In said case, the claims would have prescribed under
the Panamanian Law but not under the Statute of Limitations of New York. The U.S.
Circuit Court of Appeals held that the Panamanian Law was procedural as it was not
"specifically intended to be substantive," hence, the prescriptive period provided in
the law of the forum should apply. The Court observed:
. . . And where, as here, we are dealing with a statute of limitations
of a foreign country, and it is not clear on the face of the statute that
its purpose was to limit the enforceability, outside as well as within
the foreign country concerned, of the substantive rights to which the
statute pertains, we think that as a yardstick for determining

whether that was the purpose this test is the most satisfactory one.
It does not lead American courts into the necessity of examining
into the unfamiliar peculiarities and refinements of different foreign
legal systems. . .

AIBC and BRII, insisting that the actions on the claims have prescribed under the
Amiri Decree No. 23 of 1976, argue that there is in force in the Philippines a
"borrowing law," which is Section 48 of the Code of Civil Procedure and that where
such kind of law exists, it takes precedence over the common-law conflicts rule (G.R.
No. 104776,Rollo, pp. 45-46).

The court further noted:

xxx xxx xxx
Applying that test here it appears to us that the libelant is entitled to
succeed, for the respondents have failed to satisfy us that the
Panamanian period of limitation in question was specifically aimed
against the particular rights which the libelant seeks to enforce. The
Panama Labor Code is a statute having broad objectives, viz: "The
present Code regulates the relations between capital and labor,
placing them on a basis of social justice, so that, without injuring
any of the parties, there may be guaranteed for labor the necessary
conditions for a normal life and to capital an equitable return to its
investment." In pursuance of these objectives the Code gives
laborers various rights against their employers. Article 623
establishes the period of limitation for all such rights, except certain
ones which are enumerated in Article 621. And there is nothing in
the record to indicate that the Panamanian legislature gave special
consideration to the impact of Article 623 upon the particular rights
sought to be enforced here, as distinguished from the other rights
to which that Article is also applicable. Were we confronted with the
question of whether the limitation period of Article 621 (which
carves out particular rights to be governed by a shorter limitation
period) is to be regarded as "substantive" or "procedural" under the
rule of "specifity" we might have a different case; but here on the
surface of things we appear to be dealing with a "broad," and not a
"specific," statute of limitations (G.R. No. 104776, Rollo, pp.
92-94).
Claimants in G.R. Nos. 104911-14 are of the view that Article 291 of the Labor Code
of the Philippines, which was applied by NLRC, refers only to claims "arising from the
employer's violation of the employee's right as provided by the Labor Code." They
assert that their claims are based on the violation of their employment contracts, as
amended by the Amiri Decree No. 23 of 1976 and therefore the claims may be
brought within ten years as provided by Article 1144 of the Civil Code of the
Philippines (Rollo, G.R. Nos. 104911-14, pp.
18-21). To bolster their contention, they cite PALEA v. Philippine Airlines, Inc., 70
SCRA 244 (1976).

First to be determined is whether it is the Bahrain law on prescription of action based

on the Amiri Decree No. 23 of 1976 or a Philippine law on prescription that shall be
the governing law.
Article 156 of the Amiri Decree No. 23 of 1976 provides:
A claim arising out of a contract of employment shall not be
actionable after the lapse of one year from the date of the expiry of
the contract. (G.R. Nos. 105029-31, Rollo, p. 226).
As a general rule, a foreign procedural law will not be applied in the forum. Procedural
matters, such as service of process, joinder of actions, period and requisites for
appeal, and so forth, are governed by the laws of the forum. This is true even if the
action is based upon a foreign substantive law (Restatement of the Conflict of Laws,
Sec. 685; Salonga, Private International Law, 131 [1979]).
A law on prescription of actions is sui generis in Conflict of Laws in the sense that it
may be viewed either as procedural or substantive, depending on the characterization
given such a law.
Thus in Bournias v. Atlantic Maritime Company, supra, the American court applied the
statute of limitations of New York, instead of the Panamanian law, after finding that
there was no showing that the Panamanian law on prescription was intended to be
substantive. Being considered merely a procedural law even in Panama, it has to give
way to the law of the forum on prescription of actions.
However, the characterization of a statute into a procedural or substantive law
becomes irrelevant when the country of the forum has a "borrowing statute." Said
statute has the practical effect of treating the foreign statute of limitation as one of
substance (Goodrich, Conflict of Laws 152-153 [1938]). A "borrowing statute" directs
the state of the forum to apply the foreign statute of limitations to the pending claims
based on a foreign law (Siegel, Conflicts, 183 [1975]). While there are several kinds
of "borrowing statutes," one form provides that an action barred by the laws of the
place where it accrued, will not be enforced in the forum even though the local statute
has not run against it (Goodrich and Scoles, Conflict of Laws, 152-153 [1938]).
Section 48 of our Code of Civil Procedure is of this kind. Said Section provides:

If by the laws of the state or country where the cause of action

arose, the action is barred, it is also barred in the Philippines
Islands.

The following actions must be brought within ten years from the
time the right of action accrues:
(1) Upon a written contract;

Section 48 has not been repealed or amended by the Civil Code of the Philippines.
Article 2270 of said Code repealed only those provisions of the Code of Civil
Procedures as to which were inconsistent with it. There is no provision in the Civil
Code of the Philippines, which is inconsistent with or contradictory to Section 48 of
the Code of Civil Procedure (Paras, Philippine Conflict of Laws 104 [7th ed.]).
In the light of the 1987 Constitution, however, Section 48 cannot be enforced ex
proprio vigore insofar as it ordains the application in this jurisdiction of Section 156 of
the Amiri Decree No. 23 of 1976.
The courts of the forum will not enforce any foreign claim obnoxious to the forum's
public policy (Canadian Northern Railway Co. v. Eggen, 252 U.S. 553, 40 S. Ct. 402,
64 L. ed. 713 [1920]). To enforce the one-year prescriptive period of the Amiri Decree
No. 23 of 1976 as regards the claims in question would contravene the public policy
on the protection to labor.
In the Declaration of Principles and State Policies, the 1987 Constitution emphasized
that:
The state shall promote social justice in all phases of national
development. (Sec. 10).
The state affirms labor as a primary social economic force. It shall
protect the rights of workers and promote their welfare (Sec. 18).
In article XIII on Social Justice and Human Rights, the 1987 Constitution provides:
Sec. 3. The State shall afford full protection to labor, local and
overseas, organized and unorganized, and promote full
employment and equality of employment opportunities for all.
Having determined that the applicable law on prescription is the Philippine law, the
next question is whether the prescriptive period governing the filing of the claims is
three years, as provided by the Labor Code or ten years, as provided by the Civil
Code of the Philippines.
The claimants are of the view that the applicable provision is Article 1144 of the Civil
Code of the Philippines, which provides:

(2) Upon an obligation created by law;

(3) Upon a judgment.
NLRC, on the other hand, believes that the applicable provision is Article 291 of the
Labor Code of the Philippines, which in pertinent part provides:
Money claims-all money claims arising from employer-employee
relations accruing during the effectivity of this Code shall be filed
within three (3) years from the time the cause of action accrued,
otherwise they shall be forever barred.
xxx xxx xxx
The case of Philippine Air Lines Employees Association v. Philippine Air Lines, Inc.,
70 SCRA 244 (1976) invoked by the claimants in G.R. Nos. 104911-14 is inapplicable
to the cases at bench (Rollo, p. 21). The said case involved the correct computation
of overtime pay as provided in the collective bargaining agreements and not the
Eight-Hour Labor Law.
As noted by the Court: "That is precisely why petitioners did not make any reference
as to the computation for overtime work under the Eight-Hour Labor Law (Secs. 3 and
4, CA No. 494) and instead insisted that work computation provided in the collective
bargaining agreements between the parties be observed. Since the claim for pay
differentials is primarily anchored on the written contracts between the litigants, the
ten-year prescriptive period provided by Art. 1144(1) of the New Civil Code should
govern."
Section 7-a of the Eight-Hour Labor Law (CA No. 444 as amended by R.A. No.
19933) provides:
Any action to enforce any cause of action under this Act shall be
commenced within three years after the cause of action accrued
otherwise such action shall be forever barred, . . . .
The court further explained:

The three-year prescriptive period fixed in the Eight-Hour Labor

Law (CA No. 444 as amended) will apply, if the claim for
differentials for overtime work is solely based on said law, and not
on a collective bargaining agreement or any other contract. In the
instant case, the claim for overtime compensation is not so much
because of Commonwealth Act No. 444, as amended but because
the claim is demandable right of the employees, by reason of the
above-mentioned collective bargaining agreement.
Section 7-a of the Eight-Hour Labor Law provides the prescriptive period for filing
"actions to enforce any cause of action under said law." On the other hand, Article
291 of the Labor Code of the Philippines provides the prescriptive period for filing
"money claims arising from employer-employee relations." The claims in the cases at
bench all arose from the employer-employee relations, which is broader in scope than
claims arising from a specific law or from the collective bargaining agreement.
The contention of the POEA Administrator, that the three-year prescriptive period
under Article 291 of the Labor Code of the Philippines applies only to money claims
specifically recoverable under said Code, does not find support in the plain language
of the provision. Neither is the contention of the claimants in G.R. Nos. 104911-14
that said Article refers only to claims "arising from the employer's violation of the
employee's right," as provided by the Labor Code supported by the facial reading of
the provision.
VII
G.R. No. 104776
A. As to the first two grounds for the petition in G.R. No. 104776, claimants aver: (1)
that while their complaints were filed on June 6, 1984 with POEA, the case was
decided only on January 30, 1989, a clear denial of their right to a speedy disposition
of the case; and (2) that NLRC and the POEA Administrator should have declared
AIBC and BRII in default (Rollo, pp.
31-35).
Claimants invoke a new provision incorporated in the 1987 Constitution, which
provides:
Sec. 16. All persons shall have the right to a speedy disposition of
their cases before all judicial, quasi-judicial, or administrative
bodies.
It is true that the constitutional right to "a speedy disposition of cases" is not limited to
the accused in criminal proceedings but extends to all parties in all cases, including

civil and administrative cases, and in all proceedings, including judicial and quasijudicial hearings. Hence, under the Constitution, any party to a case may demand
expeditious action on all officials who are tasked with the administration of justice.
However, as held in Caballero v. Alfonso, Jr., 153 SCRA 153 (1987), "speedy
disposition of cases" is a relative term. Just like the constitutional guarantee of
"speedy trial" accorded to the accused in all criminal proceedings, "speedy disposition
of cases" is a flexible concept. It is consistent with delays and depends upon the
circumstances of each case. What the Constitution prohibits are unreasonable,
arbitrary and oppressive delays which render rights nugatory.
Caballero laid down the factors that may be taken into consideration in determining
whether or not the right to a "speedy disposition of cases" has been violated, thus:
In the determination of whether or not the right to a "speedy trial"
has been violated, certain factors may be considered and balanced
against each other. These are length of delay, reason for the delay,
assertion of the right or failure to assert it, and prejudice caused by
the delay. The same factors may also be considered in answering
judicial inquiry whether or not a person officially charged with the
administration of justice has violated the speedy disposition of
cases.
Likewise, in Gonzales v. Sandiganbayan, 199 SCRA 298, (1991), we held:
It must be here emphasized that the right to a speedy disposition of
a case, like the right to speedy trial, is deemed violated only when
the proceeding is attended by vexatious, capricious, and
oppressive delays; or when unjustified postponements of the trial
are asked for and secured, or when without cause or justified
motive a long period of time is allowed to elapse without the party
having his case tried.
Since July 25, 1984 or a month after AIBC and BRII were served with a copy of the
amended complaint, claimants had been asking that AIBC and BRII be declared in
default for failure to file their answers within the ten-day period provided in Section 1,
Rule III of Book VI of the Rules and Regulations of the POEA. At that time, there was
a pending motion of AIBC and BRII to strike out of the records the amended
complaint and the "Compliance" of claimants to the order of the POEA, requiring them
to submit a bill of particulars.
The cases at bench are not of the run-of-the-mill variety, such that their final
disposition in the administrative level after seven years from their inception, cannot be

said to be attended by unreasonable, arbitrary and oppressive delays as to violate the

constitutional rights to a speedy disposition of the cases of complainants.
The amended complaint filed on June 6, 1984 involved a total of 1,767 claimants.
Said complaint had undergone several amendments, the first being on April 3, 1985.
The claimants were hired on various dates from 1975 to 1983. They were deployed in
different areas, one group in and the other groups outside of, Bahrain. The monetary
claims totalling more than US$65 million according to Atty. Del Mundo, included:
1. Unexpired portion of contract;
2. Interest earnings of Travel and Fund;
3. Retirement and Savings Plan benefit;
4. War Zone bonus or premium pay of at least 100% of basic pay;
5. Area Differential pay;
6. Accrued Interest of all the unpaid benefits;
7. Salary differential pay;
8. Wage Differential pay;
9. Refund of SSS premiums not remitted to Social Security System;
10. Refund of Withholding Tax not remitted to Bureau of Internal
Revenue (B.I.R.);
11. Fringe Benefits under Brown & Root's "A Summary of
Employees Benefits consisting of 43 pages (Annex "Q" of Amended
Complaint);
12. Moral and Exemplary Damages;
13. Attorney's fees of at least ten percent of amounts;
14. Other reliefs, like suspending and/or cancelling the license to
recruit of AIBC and issued by the POEA; and

15. Penalty for violation of Article 34 (Prohibited practices) not

excluding reportorial requirements thereof (NLRC Resolution,
September 2, 1991, pp. 18-19; G.R. No. 104776, Rollo, pp. 73-74).
Inasmuch as the complaint did not allege with sufficient definiteness and clarity of
some facts, the claimants were ordered to comply with the motion of AIBC for a bill of
particulars. When claimants filed their "Compliance and Manifestation," AIBC moved
to strike out the complaint from the records for failure of claimants to submit a proper
bill of particulars. While the POEA Administrator denied the motion to strike out the
complaint, he ordered the claimants "to correct the deficiencies" pointed out by AIBC.
Before an intelligent answer could be filed in response to the complaint, the records of
employment of the more than 1,700 claimants had to be retrieved from various
countries in the Middle East. Some of the records dated as far back as 1975.
The hearings on the merits of the claims before the POEA Administrator were
interrupted several times by the various appeals, first to NLRC and then to the
Supreme Court.
Aside from the inclusion of additional claimants, two new cases were filed against
AIBC and BRII on October 10, 1985 (POEA Cases Nos.
L-85-10-777 and L-85-10-779). Another complaint was filed on May 29, 1986 (POEA
Case No. L-86-05-460). NLRC, in exasperation, noted that the exact number of
claimants had never been completely established (Resolution, Sept. 2, 1991, G.R.
No. 104776, Rollo, p. 57). All the three new cases were consolidated with POEA Case
No. L-84-06-555.
NLRC blamed the parties and their lawyers for the delay in terminating the
proceedings, thus:
These cases could have been spared the long and arduous route
towards resolution had the parties and their counsel been more
interested in pursuing the truth and the merits of the claims rather
than exhibiting a fanatical reliance on technicalities. Parties and
counsel have made these cases a litigation of emotion. The
intransigence of parties and counsel is remarkable. As late as last
month, this Commission made a last and final attempt to bring the
counsel of all the parties (this Commission issued a special order
directing respondent Brown & Root's resident agent/s to appear) to
come to a more conciliatory stance. Even this failed (Rollo,
p. 58).
The squabble between the lawyers of claimants added to the delay in the disposition
of the cases, to the lament of NLRC, which complained:

It is very evident from the records that the protagonists in these

consolidated cases appear to be not only the individual
complainants, on the one hand, and AIBC and Brown & Root, on
the other hand. The two lawyers for the complainants, Atty. Gerardo
Del Mundo and Atty. Florante De Castro, have yet to settle the right
of representation, each one persistently claiming to appear in
behalf of most of the complainants. As a result, there are two
appeals by the complainants. Attempts by this Commission to
resolve counsels' conflicting claims of their respective authority to
represent the complainants prove futile. The bickerings by these
two counsels are reflected in their pleadings. In the charges and
countercharges of falsification of documents and signatures, and in
the disbarment proceedings by one against the other. All these
have, to a large extent, abetted in confounding the issues raised in
these cases, jumble the presentation of evidence, and even
derailed the prospects of an amicable settlement. It would not be
far-fetched to imagine that both counsel, unwittingly, perhaps,
painted a rainbow for the complainants, with the proverbial pot of
gold at its end containing more than US$100 million, the aggregate
of the claims in these cases. It is, likewise, not improbable that their
misplaced zeal and exuberance caused them to throw all caution to
the wind in the matter of elementary rules of procedure and
evidence (Rollo, pp. 58-59).

NLRC and the POEA Administrator are correct in their stance that inasmuch as the
first requirement of a class suit is not present (common or general interest based on
the Amiri Decree of the State of Bahrain), it is only logical that only those who worked
in Bahrain shall be entitled to file their claims in a class suit.

Adding to the confusion in the proceedings before NLRC, is the listing of some of the
complainants in both petitions filed by the two lawyers. As noted by NLRC, "the
problem created by this situation is that if one of the two petitions is dismissed, then
the parties and the public respondents would not know which claim of which petitioner
was dismissed and which was not."

The Court is extra-cautious in allowing class suits because they are the exceptions to
the condition sine qua non, requiring the joinder of all indispensable parties.

B. Claimants insist that all their claims could properly be consolidated in a "class suit"
because "all the named complainants have similar money claims and similar rights
sought irrespective of whether they worked in Bahrain, United Arab Emirates or in
Abu Dhabi, Libya or in any part of the Middle East" (Rollo, pp. 35-38).
A class suit is proper where the subject matter of the controversy is one of common or
general interest to many and the parties are so numerous that it is impracticable to
bring them all before the court (Revised Rules of Court, Rule 3, Sec. 12).
While all the claims are for benefits granted under the Bahrain Law, many of the
claimants worked outside Bahrain. Some of the claimants were deployed in Indonesia
and Malaysia under different terms and conditions of employment.

While there are common defendants (AIBC and BRII) and the nature of the claims is
the same (for employee's benefits), there is no common question of law or fact. While
some claims are based on the Amiri Law of Bahrain, many of the claimants never
worked in that country, but were deployed elsewhere. Thus, each claimant is
interested only in his own demand and not in the claims of the other employees of
defendants. The named claimants have a special or particular interest in specific
benefits completely different from the benefits in which the other named claimants
and those included as members of a "class" are claiming (Berses v. Villanueva, 25
Phil. 473 [1913]). It appears that each claimant is only interested in collecting his own
claims. A claimants has no concern in protecting the interests of the other claimants
as shown by the fact, that hundreds of them have abandoned their co-claimants and
have entered into separate compromise settlements of their respective claims. A
principle basic to the concept of "class suit" is that plaintiffs brought on the record
must fairly represent and protect the interests of the others (Dimayuga v. Court of
Industrial Relations, 101 Phil. 590 [1957]). For this matter, the claimants who worked
in Bahrain can not be allowed to sue in a class suit in a judicial proceeding. The most
that can be accorded to them under the Rules of Court is to be allowed to join as
plaintiffs in one complaint (Revised Rules of Court, Rule 3, Sec. 6).

In an improperly instituted class suit, there would be no problem if the decision

secured is favorable to the plaintiffs. The problem arises when the decision is adverse
to them, in which case the others who were impleaded by their self-appointed
representatives, would surely claim denial of due process.
C. The claimants in G.R. No. 104776 also urged that the POEA Administrator and
NLRC should have declared Atty. Florante De Castro guilty of "forum shopping,
ambulance chasing activities, falsification, duplicity and other unprofessional
activities" and his appearances as counsel for some of the claimants as illegal (Rollo,
pp. 38-40).
The Anti-Forum Shopping Rule (Revised Circular No. 28-91) is intended to put a stop
to the practice of some parties of filing multiple petitions and complaints involving the
same issues, with the result that the courts or agencies have to resolve the same
issues. Said Rule, however, applies only to petitions filed with the Supreme Court and
the Court of Appeals. It is entitled "Additional Requirements For Petitions Filed with
the Supreme Court and the Court of Appeals To Prevent Forum Shopping or Multiple

Filing of Petitioners and Complainants." The first sentence of the circular expressly
states that said circular applies to an governs the filing of petitions in the Supreme
Court and the Court of Appeals.
While Administrative Circular No. 04-94 extended the application of the anti-forum
shopping rule to the lower courts and administrative agencies, said circular took effect
only on April 1, 1994.
POEA and NLRC could not have entertained the complaint for unethical conduct
against Atty. De Castro because NLRC and POEA have no jurisdiction to investigate
charges of unethical conduct of lawyers.
Attorney's Lien
The "Notice and Claim to Enforce Attorney's Lien" dated December 14, 1992 was filed
by Atty. Gerardo A. Del Mundo to protect his claim for attorney's fees for legal
services rendered in favor of the claimants (G.R. No. 104776,Rollo, pp. 841-844).
A statement of a claim for a charging lien shall be filed with the court or administrative
agency which renders and executes the money judgment secured by the lawyer for
his clients. The lawyer shall cause written notice thereof to be delivered to his clients
and to the adverse party (Revised Rules of Court, Rule 138, Sec. 37). The statement
of the claim for the charging lien of Atty. Del Mundo should have been filed with the
administrative agency that rendered and executed the judgment.
Contempt of Court
The complaint of Atty. Gerardo A. Del Mundo to cite Atty. Florante De Castro and Atty.
Katz Tierra for violation of the Code of Professional Responsibility should be filed in a
separate and appropriate proceeding.
G.R. No. 104911-14
Claimants charge NLRC with grave abuse of discretion in not accepting their formula
of "Three Hours Average Daily Overtime" in computing the overtime payments. They
claim that it was BRII itself which proposed the formula during the negotiations for the
settlement of their claims in Bahrain and therefore it is in estoppel to disclaim said
offer (Rollo, pp. 21-22).
Claimants presented a Memorandum of the Ministry of Labor of Bahrain dated April
16, 1983, which in pertinent part states:

After the perusal of the memorandum of the Vice President and the
Area Manager, Middle East, of Brown & Root Co. and the Summary
of the compensation offered by the Company to the employees in
respect of the difference of pay of the wages of the overtime and
the difference of vacation leave and the perusal of the documents
attached thereto i.e., minutes of the meetings between the
Representative of the employees and the management of the
Company, the complaint filed by the employees on 14/2/83 where
they have claimed as hereinabove stated, sample of the Service
Contract executed between one of the employees and the company
through its agent in (sic) Philippines, Asia International Builders
Corporation where it has been provided for 48 hours of work per
week and an annual leave of 12 days and an overtime wage of 1 &
1/4 of the normal hourly wage.
xxx xxx xxx
The Company in its computation reached the following averages:
A. 1. The average duration of the actual service of the employee is
35 months for the Philippino (sic) employees . . . .
2. The average wage per hour for the Philippino (sic) employee is
US$2.69 . . . .
3. The average hours for the overtime is 3 hours plus in all public
holidays and weekends.
4. Payment of US$8.72 per months (sic) of service as
compensation for the difference of the wages of the overtime done
for each Philippino (sic) employee . . . (Rollo, p.22).
BRII and AIBC countered: (1) that the Memorandum was not prepared by them but by
a subordinate official in the Bahrain Department of Labor; (2) that there was no
showing that the Bahrain Minister of Labor had approved said memorandum; and (3)
that the offer was made in the course of the negotiation for an amicable settlement of
the claims and therefore it was not admissible in evidence to prove that anything is
due to the claimants.
While said document was presented to the POEA without observing the rule on
presenting official documents of a foreign government as provided in Section 24, Rule
132 of the 1989 Revised Rules on Evidence, it can be admitted in evidence in
proceedings before an administrative body. The opposing parties have a copy of the
said memorandum, and they could easily verify its authenticity and accuracy.

The admissibility of the offer of compromise made by BRII as contained in the

memorandum is another matter. Under Section 27, Rule 130 of the 1989 Revised
Rules on Evidence, an offer to settle a claim is not an admission that anything is due.
Said Rule provides:
Offer of compromise not admissible. In civil cases, an offer of
compromise is not an admission of any liability, and is not
admissible in evidence against the offeror.
This Rule is not only a rule of procedure to avoid the cluttering of the record with
unwanted evidence but a statement of public policy. There is great public interest in
having the protagonists settle their differences amicable before these ripen into
litigation. Every effort must be taken to encourage them to arrive at a settlement. The
submission of offers and counter-offers in the negotiation table is a step in the right
direction. But to bind a party to his offers, as what claimants would make this Court
do, would defeat the salutary purpose of the Rule.
G.R. Nos. 105029-32
A. NLRC applied the Amiri Decree No. 23 of 1976, which provides for greater benefits
than those stipulated in the overseas-employment contracts of the claimants. It was of
the belief that "where the laws of the host country are more favorable and beneficial
to the workers, then the laws of the host country shall form part of the overseas
employment contract." It quoted with approval the observation of the POEA
Administrator that ". . . in labor proceedings, all doubts in the implementation of the
provisions of the Labor Code and its implementing regulations shall be resolved in
favor of labor" (Rollo, pp. 90-94).
AIBC and BRII claim that NLRC acted capriciously and whimsically when it refused to
enforce the overseas-employment contracts, which became the law of the parties.
They contend that the principle that a law is deemed to be a part of a contract applies
only to provisions of Philippine law in relation to contracts executed in the Philippines.
The overseas-employment contracts, which were prepared by AIBC and BRII
themselves, provided that the laws of the host country became applicable to said
contracts if they offer terms and conditions more favorable that those stipulated
therein. It was stipulated in said contracts that:
The Employee agrees that while in the employ of the Employer, he
will not engage in any other business or occupation, nor seek
employment with anyone other than the Employer; that he shall
devote his entire time and attention and his best energies, and
abilities to the performance of such duties as may be assigned to

him by the Employer; that he shall at all times be subject to the

direction and control of the Employer; and that the benefits
provided to Employee hereunder are substituted for and in lieu of
all other benefits provided by any applicable law, provided of
course, that total remuneration and benefits do not fall below that of
the host country regulation or custom, it being understood that
should applicable laws establish that fringe benefits, or other such
benefits additional to the compensation herein agreed cannot be
waived, Employee agrees that such compensation will be adjusted
downward so that the total compensation hereunder, plus the nonwaivable benefits shall be equivalent to the compensation herein
agreed (Rollo, pp. 352-353).
The overseas-employment contracts could have been drafted more felicitously. While
a part thereof provides that the compensation to the employee may be "adjusted
downward so that the total computation (thereunder) plus the non-waivable benefits
shall be equivalent to the compensation" therein agreed, another part of the same
provision categorically states "that total remuneration and benefits do not fall below
that of the host country regulation and custom."
Any ambiguity in the overseas-employment contracts should be interpreted against
AIBC and BRII, the parties that drafted it (Eastern Shipping Lines, Inc. v. MargarineVerkaufs-Union, 93 SCRA 257 [1979]).
Article 1377 of the Civil Code of the Philippines provides:
The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.
Said rule of interpretation is applicable to contracts of adhesion where there is already
a prepared form containing the stipulations of the employment contract and the
employees merely "take it or leave it." The presumption is that there was an
imposition by one party against the other and that the employees signed the contracts
out of necessity that reduced their bargaining power (Fieldmen's Insurance Co., Inc.
v. Songco, 25 SCRA 70 [1968]).
Applying the said legal precepts, we read the overseas-employment contracts in
question as adopting the provisions of the Amiri Decree No. 23 of 1976 as part and
parcel thereof.
The parties to a contract may select the law by which it is to be governed (Cheshire,
Private International Law, 187 [7th ed.]). In such a case, the foreign law is adopted as
a "system" to regulate the relations of the parties, including questions of their capacity
to enter into the contract, the formalities to be observed by them, matters of

performance, and so forth (16 Am Jur 2d,

150-161).
Instead of adopting the entire mass of the foreign law, the parties may just agree that
specific provisions of a foreign statute shall be deemed incorporated into their
contract "as a set of terms." By such reference to the provisions of the foreign law, the
contract does not become a foreign contract to be governed by the foreign law. The
said law does not operate as a statute but as a set of contractual terms deemed
written in the contract (Anton, Private International Law, 197 [1967]; Dicey and Morris,
The Conflict of Laws, 702-703, [8th ed.]).
A basic policy of contract is to protect the expectation of the parties (Reese, Choice of
Law in Torts and Contracts, 16 Columbia Journal of Transnational Law 1, 21 [1977]).
Such party expectation is protected by giving effect to the parties' own choice of the
applicable law (Fricke v. Isbrandtsen Co., Inc., 151 F. Supp. 465, 467 [1957]). The
choice of law must, however, bear some relationship to the parties or their transaction
(Scoles and Hayes, Conflict of Law 644-647 [1982]). There is no question that the
contracts sought to be enforced by claimants have a direct connection with the
Bahrain law because the services were rendered in that country.
In Norse Management Co. (PTE) v. National Seamen Board, 117 SCRA 486 (1982),
the "Employment Agreement," between Norse Management Co. and the late husband
of the private respondent, expressly provided that in the event of illness or injury to
the employee arising out of and in the course of his employment and not due to his
own misconduct, "compensation shall be paid to employee in accordance with and
subject to the limitation of the Workmen's Compensation Act of the Republic of the
Philippines or the Worker's Insurance Act of registry of the vessel, whichever is
greater." Since the laws of Singapore, the place of registry of the vessel in which the
late husband of private respondent served at the time of his death, granted a better
compensation package, we applied said foreign law in preference to the terms of the
contract.
The case of Bagong Filipinas Overseas Corporation v. National Labor Relations
Commission, 135 SCRA 278 (1985), relied upon by AIBC and BRII is inapposite to
the facts of the cases at bench. The issue in that case was whether the amount of the
death compensation of a Filipino seaman should be determined under the shipboard
employment contract executed in the Philippines or the Hongkong law. Holding that
the shipboard employment contract was controlling, the court differentiated said case
from Norse Management Co. in that in the latter case there was an express
stipulation in the employment contract that the foreign law would be applicable if it
afforded greater compensation.
B. AIBC and BRII claim that they were denied by NLRC of their right to due process
when said administrative agency granted Friday-pay differential, holiday-pay

differential, annual-leave differential and leave indemnity pay to the claimants listed in
Annex B of the Resolution. At first, NLRC reversed the resolution of the POEA
Administrator granting these benefits on a finding that the POEA Administrator failed
to consider the evidence presented by AIBC and BRII, that some findings of fact of
the POEA Administrator were not supported by the evidence, and that some of the
evidence were not disclosed to AIBC and BRII (Rollo, pp. 35-36; 106-107). But
instead of remanding the case to the POEA Administrator for a new hearing, which
means further delay in the termination of the case, NLRC decided to pass upon the
validity of the claims itself. It is this procedure that AIBC and BRII complain of as
being irregular and a "reversible error."
They pointed out that NLRC took into consideration evidence submitted on appeal,
the same evidence which NLRC found to have been "unilaterally submitted by the
claimants and not disclosed to the adverse parties" (Rollo, pp. 37-39).
NLRC noted that so many pieces of evidentiary matters were submitted to the POEA
administrator by the claimants after the cases were deemed submitted for resolution
and which were taken cognizance of by the POEA Administrator in resolving the
cases. While AIBC and BRII had no opportunity to refute said evidence of the
claimants before the POEA Administrator, they had all the opportunity to rebut said
evidence and to present their
counter-evidence before NLRC. As a matter of fact, AIBC and BRII themselves were
able to present before NLRC additional evidence which they failed to present before
the POEA Administrator.
Under Article 221 of the Labor Code of the Philippines, NLRC is enjoined to "use
every and all reasonable means to ascertain the facts in each case speedily and
objectively and without regard to technicalities of law or procedure, all in the interest
of due process."
In deciding to resolve the validity of certain claims on the basis of the evidence of
both parties submitted before the POEA Administrator and NLRC, the latter
considered that it was not expedient to remand the cases to the POEA Administrator
for that would only prolong the already protracted legal controversies.
Even the Supreme Court has decided appealed cases on the merits instead of
remanding them to the trial court for the reception of evidence, where the same can
be readily determined from the uncontroverted facts on record (Development Bank of
the Philippines v. Intermediate Appellate Court, 190 SCRA 653 [1990]; Pagdonsalan
v. National Labor Relations Commission, 127 SCRA 463 [1984]).
C. AIBC and BRII charge NLRC with grave abuse of discretion when it ordered the
POEA Administrator to hold new hearings for 683 claimants listed in Annex D of the
Resolution dated September 2, 1991 whose claims had been denied by the POEA

Administrator "for lack of proof" and for 69 claimants listed in Annex E of the same
Resolution, whose claims had been found by NLRC itself as not "supported by
evidence" (Rollo, pp. 41-45).
NLRC based its ruling on Article 218(c) of the Labor Code of the Philippines, which
empowers it "[to] conduct investigation for the determination of a question, matter or
controversy, within its jurisdiction, . . . ."
It is the posture of AIBC and BRII that NLRC has no authority under Article 218(c) to
remand a case involving claims which had already been dismissed because such
provision contemplates only situations where there is still a question or controversy to
be resolved (Rollo, pp. 41-42).
A principle well embedded in Administrative Law is that the technical rules of
procedure and evidence do not apply to the proceedings conducted by administrative
agencies (First Asian Transport & Shipping Agency, Inc. v. Ople, 142 SCRA 542
[1986]; Asiaworld Publishing House, Inc. v. Ople, 152 SCRA 219 [1987]). This
principle is enshrined in Article 221 of the Labor Code of the Philippines and is now
the bedrock of proceedings before NLRC.
Notwithstanding the non-applicability of technical rules of procedure and evidence in
administrative proceedings, there are cardinal rules which must be observed by the
hearing officers in order to comply with the due process requirements of the
Constitution. These cardinal rules are collated in Ang Tibay v. Court of Industrial
Relations, 69 Phil. 635 (1940).
VIII
The three petitions were filed under Rule 65 of the Revised Rules of Court on the
grounds that NLRC had committed grave abuse of discretion amounting to lack of
jurisdiction in issuing the questioned orders. We find no such abuse of discretion.
WHEREFORE, all the three petitions are DISMISSED.
SO ORDERED.
Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

Bongabon-Baler Road Improvement (BBRI) Project.[7] Respondent was named as the

project manager in the contract's Appendix 3.1.[8]

THIRD DIVISION
KAZUHIRO HASEGAWA and NIPPON ENGINEERING
CONSULTANTS CO., LTD.,
Petitioners,

G.R. No. 149177

Present:
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

- versus -

MINORU KITAMURA,

Promulgated:
Respondent.
November 23, 2007

x------------------------------------------------------------------------------------x
DECISION
NACHURA, J.:

On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's general manager for
its International Division, informed respondent that the company had no more
intention of automatically renewing his ICA. His services would be engaged by the
company only up to the substantial completion of the STAR Project onMarch 31,
2000, just in time for the ICA's expiry.[9]
Threatened with impending unemployment, respondent, through his lawyer,
requested a negotiation conference and demanded that he be assigned to the BBRI
project. Nippon insisted that respondents contract was for a fixed term that had
already expired, and refused to negotiate for the renewal of the ICA.[10]
As he was not able to generate a positive response from the petitioners, respondent
consequently initiated on June 1, 2000 Civil Case No. 00-0264 for specific
performance and damages with the Regional Trial Court of Lipa City.[11]
For their part, petitioners, contending that the ICA had been perfected in Japan and
executed by and between Japanese nationals, moved to dismiss the complaint for
lack of jurisdiction. They asserted that the claim for improper pre-termination of
respondent's ICA could only be heard and ventilated in the proper courts
ofJapan following the principles of lex loci celebrationis and lex contractus.[12]

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the April 18, 2001 Decision[1] of the Court of Appeals (CA) in CA-G.R.
SP No. 60827, and the July 25, 2001 Resolution [2] denying the motion for
reconsideration thereof.

In the meantime, on June 20, 2000, the DPWH approved Nippon's request for the
replacement of Kitamura by a certain Y. Kotake as project manager of the BBRI
Project.[13]

On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd. (Nippon), a
Japanese consultancy firm providing technical and management support in the
infrastructure projects of foreign governments, [3] entered into an Independent
Contractor Agreement (ICA) with respondent Minoru Kitamura, a Japanese national
permanently residing in the Philippines.[4] The agreement provides that respondent
was to extend professional services to Nippon for a year starting onApril 1, 1999.
[5]
Nippon then assigned respondent to work as the project manager of the Southern
Tagalog Access Road (STAR) Project in the Philippines, following the company's
consultancy contract with the Philippine Government.[6]

On June 29, 2000, the RTC, invoking our ruling in Insular Government v. Frank[14] that
matters connected with the performance of contracts are regulated by the law
prevailing at the place of performance,[15] denied the motion to dismiss. [16] The trial
court subsequently denied petitioners' motion for reconsideration, [17] prompting them
to file with the appellate court, on August 14, 2000, their first Petition
for Certiorari under Rule 65 [docketed as CA-G.R. SP No. 60205]. [18] On August 23,
2000, the CA resolved to dismiss the petition on procedural groundsfor lack of
statement of material dates and for insufficient verification and certification against
forum shopping.[19] An Entry of Judgment was later issued by the appellate court
on September 20, 2000.[20]

When the STAR Project was near completion, the Department of Public Works and
Highways (DPWH) engaged the consultancy services of Nippon, on January 28,
2000, this time for the detailed engineering and construction supervision of the

Aggrieved by this development, petitioners filed with the CA, on September 19, 2000,
still within the reglementary period, a second Petition for Certiorari under Rule 65
already stating therein the material dates and attaching thereto the proper verification

and certification. This second petition, which substantially raised the same issues as
those in the first, was docketed as CA-G.R. SP No. 60827.[21]

No. 60827 (fundamentally raising the same issues as those in the first one) and the
instant petition for review thereof.

Ruling on the merits of the second petition, the appellate court rendered the
assailed April 18, 2001 Decision[22] finding no grave abuse of discretion in the trial
court's denial of the motion to dismiss. The CA ruled, among others, that the principle
of lex loci celebrationis was not applicable to the case, because nowhere in the
pleadings was the validity of the written agreement put in issue. The CA thus declared
that the trial court was correct in applying instead the principle of lex loci solutionis.[23]

We do not agree. When the CA dismissed CA-G.R. SP No. 60205 on account of the
petition's defective certification of non-forum shopping, it was a dismissal without
prejudice.[27] The same holds true in the CA's dismissal of the said case due to
defects in the formal requirement of verification[28] and in the other requirement in
Rule 46 of the Rules of Court on the statement of the material dates. [29] The dismissal
being without prejudice, petitioners can re-file the petition, or file a second petition
attaching thereto the appropriate verification and certificationas they, in fact didand
stating therein the material dates, within the prescribed period [30] in Section 4, Rule 65
of the said Rules.[31]

Petitioners' motion for reconsideration was subsequently denied by the CA in the

assailed July 25, 2001 Resolution.[24]
Remaining steadfast in their stance despite the series of denials, petitioners instituted
the instant Petition for Review on Certiorari[25] imputing the following errors to the
appellate court:
A. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
FINDING THAT THE TRIAL COURT VALIDLY EXERCISED
JURISDICTION OVER THE INSTANT CONTROVERSY, DESPITE
THE FACT THAT THE CONTRACT SUBJECT MATTER OF THE
PROCEEDINGS A QUO WAS ENTERED INTO BY AND
BETWEEN TWO JAPANESE NATIONALS, WRITTEN WHOLLY IN
THE JAPANESE LANGUAGE AND EXECUTED IN TOKYO,
JAPAN.
B. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN
OVERLOOKING THE NEED TO REVIEW OUR ADHERENCE TO
THE PRINCIPLE OF LEX LOCI SOLUTIONIS IN THE LIGHT OF
RECENT DEVELOPMENT[S] IN PRIVATE INTERNATIONAL
LAWS.[26]

The dismissal of a case without prejudice signifies the absence of a decision on the
merits and leaves the parties free to litigate the matter in a subsequent action as
though the dismissed action had not been commenced. In other words, the
termination of a case not on the merits does not bar another action involving the
same parties, on the same subject matter and theory.[32]
Necessarily, because the said dismissal is without prejudice and has no res
judicata effect, and even if petitioners still indicated in the verification and certification
of the second certiorari petition that the first had already been dismissed on
procedural grounds,[33] petitioners are no longer required by the Rules to indicate in
their certification of non-forum shopping in the instant petition for review of the
second certiorari petition, the status of the aforesaid first petition before the CA. In
any case, an omission in the certificate of non-forum shopping about any event that
will not constitute res judicata and litis pendentia, as in the present case, is not a fatal
defect. It will not warrant the dismissal and nullification of the entire proceedings,

The pivotal question that this Court is called upon to resolve is whether the subject
matter jurisdiction of Philippine courts in civil cases for specific performance and
damages involving contracts executed outside the country by foreign nationals may
be assailed on the principles of lex loci celebrationis, lex contractus, the state of the
most significant relationship rule, or forum non conveniens.
However, before ruling on this issue, we must first dispose of the procedural matters
raised by the respondent.
Kitamura contends that the finality of the appellate court's decision in CA-G.R. SP No.
60205 has already barred the filing of the second petition docketed as CA-G.R. SP

considering that the evils sought to be prevented by the said certificate are no longer
present.[34]
The Court also finds no merit in respondent's contention that petitioner Hasegawa is
only authorized to verify and certify, on behalf of Nippon, the certioraripetition filed
with the CA and not the instant petition. True, the Authorization[35] dated September 4,
2000, which is attached to the second certiorari petition and which is also attached to
the instant petition for review, is limited in scopeits wordings indicate that Hasegawa
is given the authority to sign for and act on behalf of the company only in the petition
filed with the appellate court, and that authority cannot extend to the instant petition
for review.[36] In a plethora of cases, however, this Court has liberally applied the

Rules or even suspended its application whenever a satisfactory explanation and a

language. Thus, petitioners posit that local courts have no substantial relationship to

subsequent fulfillment of the requirements have been made. [37] Given that petitioners

the parties[46] following the [state of the] most significant relationship rule in Private

herein sufficiently explained their misgivings on this point and appended to their

International Law.[47]

Reply[38] an updated Authorization[39] for Hasegawa to act on behalf of the company in

the instant petition, the Court finds the same as sufficient compliance with the Rules.

The Court notes that petitioners adopted an additional but different theory when they
elevated the case to the appellate court. In the Motion to Dismiss[48] filed with the trial

However, the Court cannot extend the same liberal treatment to the defect in the

court, petitioners never contended that the RTC is an inconvenient forum. They

verification and certification. As respondent pointed out, and to which we agree,

merely argued that the applicable law which will determine the validity or invalidity of

Hasegawa is truly not authorized to act on behalf of Nippon in this case. The

respondent's

claim

is

that

of Japan,
[49]

following

the

principles

of lex

loci

aforesaid September 4, 2000 Authorization and even the subsequent August 17, 2001

celebrationis and lex contractus.

Authorization were issued only by Nippon's president and chief executive officer, not

before the appellate court, petitioners on certiorari significantly invoked the defense

While not abandoning this stance in their petition

by the company's board of directors. In not a few cases, we have ruled that corporate

of forum non conveniens.[50] On petition for review before this Court, petitioners

powers are exercised by the board of directors; thus, no person, not even its officers,

dropped their other arguments, maintained the forum non conveniens defense, and

can bind the corporation, in the absence of authority from the board.[40] Considering

introduced their new argument that the applicable principle is the [state of the] most

that Hasegawa verified and certified the petition only on his behalf and not on behalf

significant relationship rule.[51]

of the other petitioner, the petition has to be denied pursuant to Loquias v. Office of
the Ombudsman.[41] Substantial compliance will not suffice in a matter that demands

Be that as it may, this Court is not inclined to deny this petition merely on the basis of

strict observance of the Rules.[42] While technical rules of procedure are designed not

the change in theory, as explained in Philippine Ports Authority v. City of Iloilo.[52] We

to frustrate the ends of justice, nonetheless, they are intended to effect the proper and

only pointed out petitioners' inconstancy in their arguments to emphasize their

orderly disposition of cases and effectively prevent the clogging of court dockets.

[43]

incorrect assertion of conflict of laws principles.

Further, the Court has observed that petitioners incorrectly filed a Rule 65 petition to

To elucidate, in the judicial resolution of conflicts problems, three consecutive phases

question the trial court's denial of their motion to dismiss. It is a well-established rule

are involved: jurisdiction, choice of law, and recognition and enforcement of

that

judgments. Corresponding to these phases are the following questions: (1) Where

an

order

denying

a motion to dismiss

is

interlocutory,

and cannot be the subject of the extraordinary petition for certiorari or mandamus.

can or should litigation be initiated? (2) Which law will the court apply? and (3) Where

The appropriate recourse is to file an answer and to interpose as defenses the

can the resulting judgment be enforced?[53]

objections raised in the motion, to proceed to trial, and, in case of an adverse

decision, to elevate the entire case by appeal in due course.[44] While there are

Analytically, jurisdiction and choice of law are two distinct concepts. [54] Jurisdiction

recognized exceptions to this rule,[45] petitioners' case does not fall among them.

considers whether it is fair to cause a defendant to travel to this state; choice of law
asks the further question whether the application of a substantive law which will

This brings us to the discussion of the substantive issue of the case.

determine the merits of the case is fair to both parties. The power to exercise
jurisdiction does not automatically give a state constitutional authority to apply forum

Asserting that the RTC of Lipa City is an inconvenient forum, petitioners question its

law. While jurisdiction and the choice of the lex fori will often coincide, the minimum

jurisdiction to hear and resolve the civil case for specific performance and damages

contacts for one do not always provide the necessary significant contacts for the

filed by the respondent. The ICA subject of the litigation was entered into and

other.[55] The question of whether the law of a state can be applied to a transaction is

perfected in Tokyo, Japan, by Japanese nationals, and written wholly in the Japanese

different from the question of whether the courts of that state have jurisdiction to enter

determine which state has the most substantial connection to the occurrence and the

a judgment.[56]

parties. In a case involving a contract, the court should consider where the contract
was made, was negotiated, was to be performed, and the domicile, place of business,

In this case, only the first phase is at issuejurisdiction. Jurisdiction, however, has

or place of incorporation of the parties.[68] This rule takes into account several contacts

various aspects. For a court to validly exercise its power to adjudicate a controversy,

and evaluates them according to their relative importance with respect to the

it must have jurisdiction over the plaintiff or the petitioner, over the defendant or the

particular issue to be resolved.[69]

respondent, over the subject matter, over the issues of the case and, in cases
involving property, over the res or the thing which is the subject of the litigation. [57] In

Since these three principles in conflict of laws make reference to the law applicable to

assailing the trial court's jurisdiction herein, petitioners are actually referring to subject

a dispute, they are rules proper for the second phase, the choice of law.[70]They

matter jurisdiction.

determine which state's law is to be applied in resolving the substantive issues of a

conflicts problem.[71] Necessarily, as the only issue in this case is that of jurisdiction,

Jurisdiction over the subject matter in a judicial proceeding is conferred by the

choice-of-law rules are not only inapplicable but also not yet called for.

sovereign authority which establishes and organizes the court. It is given only by law
and in the manner prescribed by law.[58] It is further determined by the allegations of

Further, petitioners' premature invocation of choice-of-law rules is exposed by the fact

the complaint irrespective of whether the plaintiff is entitled to all or some of the

that they have not yet pointed out any conflict between the laws of Japanand ours.

claims asserted therein.

[59]

To succeed in its motion for the dismissal of an action for

Before determining which law should apply, first there should exist a conflict of laws

[60]

the movant must show that

situation requiring the application of the conflict of laws rules. [72] Also, when the law of

the court or tribunal cannot act on the matter submitted to it because no law grants it

a foreign country is invoked to provide the proper rules for the solution of a case, the

lack of jurisdiction over the subject matter of the claim,

the power to adjudicate the claims.

[61]

existence of such law must be pleaded and proved.[73]

In the instant case, petitioners, in their motion to dismiss, do not claim that the trial

It should be noted that when a conflicts case, one involving a foreign element, is

court is not properly vested by law with jurisdiction to hear the subject controversy for,

brought before a court or administrative agency, there are three alternatives open to

indeed, Civil Case No. 00-0264 for specific performance and damages is one not

the latter in disposing of it: (1) dismiss the case, either because of lack of jurisdiction

capable of pecuniary estimation and is properly cognizable by the RTC of Lipa City.

or refusal to assume jurisdiction over the case; (2) assume jurisdiction over the case

[62]

What they rather raise as grounds to question subject matter jurisdiction are the

and apply the internal law of the forum; or (3) assume jurisdiction over the case and

principles of lex loci celebrationis and lex contractus,and the state of the most

take into account or apply the law of some other State or States. [74] The courts power

significant relationship rule.

to hear cases and controversies is derived from the Constitution and the laws. While it
may choose to recognize laws of foreign nations, the court is not limited by foreign

The Court finds the invocation of these grounds unsound.

sovereign law short of treaties or other formal agreements, even in matters regarding

Lex loci celebrationis relates to the law of the place of the ceremony [63] or the law of

rights provided by foreign sovereigns.[75]

the place where a contract is made.[64] The doctrine of lex contractus orlex loci
contractus means the law of the place where a contract is executed or to be
performed.[65] It controls the nature, construction, and validity of the contract [66] and it
may pertain to the law voluntarily agreed upon by the parties or the law intended by
them either expressly or implicitly.[67] Under the state of the most significant
relationship rule, to ascertain what state law to apply to a dispute, the court should

Neither can the other ground raised, forum non conveniens,[76] be used to
deprive the trial court of its jurisdiction herein. First, it is not a proper basis for a
motion to dismiss because Section 1, Rule 16 of the Rules of Court does not include
it as a ground.[77] Second, whether a suit should be entertained or dismissed on the

basis of the said doctrine depends largely upon the facts of the particular case and is
addressed to the sound discretion of the trial court.[78] In this case, the RTC decided to
assume jurisdiction. Third, the propriety of dismissing a case based on this principle
requires a factual determination; hence, this conflicts principle is more properly
considered a matter of defense.[79]
Accordingly, since the RTC is vested by law with the power to entertain and hear the
civil case filed by respondent and the grounds raised by petitioners to assail that
jurisdiction are inappropriate, the trial and appellate courts correctly denied the
petitioners motion to dismiss.
WHEREFORE, premises
on certiorari is DENIED.

SO ORDERED.

considered,

the

petition

for

review