Hasegawa v.

Kitamura

G.R. No. 149177, November 23, 2007

Facts:

Petitioner Nippon Engineering Consultants Co., Ltd. (Nippon) entered into an Independent Contractor Agreement ("ICA") with respondent Minoru
Kitamura, a Japanese national permanently residing in the Philippines. The agreement provided that respondent shall extend professional services
to Nippon for 11 year starting on April 1, 1999. Nippon then assigned respondent to work as the project manager in various projects in the
Philippines.

On February 28, 2000, petitioner's general manager, Kazuhiro Hasegawa, informed respondent that the company would no longer be renewing his
ICA' and that his services would be utilized only until March 31, 2000. Nippon insisted that respondent's contract was for a fixed term that had
already expired.

Respondent subsequently sued petitioners for specific performance and damages with the Regional Trial Court of Lipa City. Petitioners moved to
dismiss the complaint for lack of jurisdiction, asserting that the claim for improper pre-termination of respondent's ICA could only be heard and
ventilated in the proper courts of Japan following the principles of lex loci celebrationis and lex contractus. The lower court denied the motion to
dismiss, a decision which was affirmed by the Court of Appeals ("CA"). The CA held 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 uphold the lower court's application of
the principle of lex loci solutionis.

Issue: Whether the subject matter jurisdiction of Philippine courts in civil cases may be assailed on the principles of loci celebrationis, lex
contractus, the state of the most significant relationship rule, or forum non conveniens?

Held: No. They are improper grounds for questioning the jurisdiction of Philippine courts.

1. To elucidate, in the judicial resolution of conflicts problems, three consecutive phases are involved: jurisdiction, choice of law, and recognition
and enforcement of judgments. Corresponding to these phases are the following questions: (1) Where can or should litigation be initiated? (2)
Which law will the court apply? (3) Where can the resulting judgment be enforced?

2. Analytically, jurisdiction and choice of law are two distinct concepts. Jurisdiction 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 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 law. While jurisdiction
and the choice of the lex fori will often coincide, the minimum contacts for one do not always provide the necessary significant contacts for the
other. The question of whether the law of a state can be applied to a transaction is different from the question of whether the courts of that state
have jurisdiction to enter a judgment.

3. In this case, only the first phase is at issue: jurisdiction. Jurisdiction, however, has various aspects. For a court to validly exercise its power to
adjudicate a controversy, it must have jurisdiction over the plaintiff or the petitioner, over the defendant or the 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. In assailing the
trial court's jurisdiction herein, petitioners are actually referring to subject matter jurisdiction.

4. Jurisdiction over the subject matter in a judicial proceeding is conferred by the sovereign authority which establishes and organizes the court. To
succeed in its motion for the dismissal of an action for lack of jurisdiction over the subject matter of the claim, the movant must show that the
court or tribunal cannot act on the matter submitted to it because no law grants it the power to adjudicate the claims.

5. In the instant case, petitioners, in their motion to dismiss, do not claim that the trial court is not properly vested by law with jurisdiction to hear
the subject controversy for, indeed, Civil Case No 00.0264 for specific performance and damages is one not capable of pecuniary estimation and is
properly cognizable by the RTC of Lipa City. What they raise as grounds to question subject matter jurisdiction are the principles of lex loci
celebrationis and lex contractum, and the state of the most significant relationship rule.

6. The Court finds the invocation of these grounds unsound.

Lex loci celebrationis relates to the law of the place of the ceremony or the Iaw of the place where contract is made. The doctrine of lex contractus
or lex loci contractum means the law of the place where a contract is executed or to be performed. It controls the nature, construction, and validity
of the contract and it may pertain to the law voluntarily agreed upon by the parties or the law intended by them either expressly or implicitly.
Under the state of the most significant relationship rule, to ascertain what state law to apply to a dispute, the court should determine which state
has the most substantial connection to the occurrence and the parties. In a case involving a contract, the court should consider where the contract
was made, was negotiated, was to be performed, find the domicile, place of business, or place of incorporation of the parties. This rule taken into
account several contacts and evaluates them according to their relative importance with respect to the particular issue to be resolved.

7. Since these three principles in conflict of laws make reference to the Iaws applicable to a dispute, they are rules proper for the second phase, the
choice of law. They determine which state’s law is to be applied in resolving the substantive issues of a conflicts problem. Necessarily, as the only
issue in this case in that of jurisdiction, choice-of-Iaw rules are not only inapplicable but also not yet called for.
8. Further, petitioners' premature invocation of choice-of-Iaw rules is exposed by the fact that the not yet pointed out any conflict between the
laws of Japan and ours. Before determining which law should apply, first, there should exist a conflict of laws situation requiring the application of
the conflict of laws rules. Also when the law of a foreign country is invoked to provide the proper rules for the solution of a case, the existence of
such law must be pleaded and proved.

9. It should be noted that when a conflicts case, one involving a foreign element, is brought before a court or administrative agency, there are three
alternatives open to the latter in disposing of it: (1) dismiss the case, either because of lack of jurisdiction or refusal to assume jurisdiction over the
case; (2) assume jurisdiction over the case and apply the internal law of the forum; or (3) assume jurisdiction over the case and take into account or
apply the law of some other State or States. The courts power 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 sovereign law short of treaties or other formal agreements,
even in matters regarding rights provided by foreign sovereigns.

10. Neither can the other ground raised, forum non conveniens, 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. 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. 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 consider a matter of defense.

11. 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 assail that jurisdiction are inappropriate, the trial and appellate courts correctly denied the petitioners motion to dismiss.

Steps in Determining Applicable Law

Characterization. This involves identification of the issue in the problem. It is a process of spotting the legal issues as presented by the facts of the
case. It is comparable to a lawyer studying a case for the first time and who is trying to develop a theory of the case. An important step in this
process is pinpointing the branch of law implicated by the problem. Is it contract, torts, citizenship, succession, etc.? After identifying the branch of
law, the next step will be determining whether there is a conflicts of law problem by the presence of a foreign element. If one is involved, he then
employs applicable conflicts of law doctrines in determining the applicable law. If none, he just applies the rule, law, or jurisprudence prevailing in
the forum.

Connecting factors. Here, an analysis is made with respect to which jurisdiction or fora has the most connection to the case. The nationality of
the parties, the location of the act or event, the terms of the agreement or contract, and other matters are looked into to determine what legal
system between two or more legal systems is applicable. The preparation of a checklist embodying these factors may be very helpful in
identifying the applicable legal system. Once the legal system is identified, the applicable branch of law in that legal system will then be applied
in resolving the dispute.

Choice of Applicable Law

Parties to a contract are free to stipulate the applicable law that will govern their contractual relations. This proceeds from Article 1306 of the Civil
Code which provides that "[t]he contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public policy." Once chosen, the chosen law shall be applied to
govern the duties and responsibilities of the parties to each other. It is not necessary that the chosen law be local law, so long as the choice of law
does not violate the public policy or the laws of the forum.

Extraterritorlality

Laws are generally territorial in application. The reason for this is that the mind of the lawmaker is limited to the territorial boundaries of his
country when he enacts laws. It is unnatural that he will draft a law and provide therein that it will apply within the borders of another
independent state.

Laws, however, can be extraterritorial when so provided by the legislature. The question of whether a law is territorial or extraterritorial depends
on legislative intent. It is within the right of the legislature of a country to provide that its laws apply outside the territorial boundaries of the state
on matters within the competence of the legislature to legislate upon. This is recognized under international law, except when this intrudes with
the territorial integrity and sovereignty of another country.

The determination of whether a law is extraterritorial involves an examination of the legislative intent. Usually, legislative intent can be determined
by looking at the words and phrases used in a statute. More often than not, this expression can be explicit, but it may also be implicit in which case,
rules of interpretation can be resorted to. Thus, congressional records and debates may be examined to determine whether a law has territorial
application or none.

An example of a law providing extraterritorial application in an explicit manner are the following:

Art. 15. Laws relating to family rights and duties, or to the status, condition and legal capacity of persons are binding upon citizens of the
Philippines, even though living abroad.
Art. 16. Real property as well as personal property is subject to the law of the country where it is stipulated.

However, intestate and testamentary successions, both with respect to the order of succession and to the amount of successional rights and to
the intrinsic validity of testamentary provisions, shall be regulated by the national law of the person whose succession is under consideration,
whatever may be the nature of the property and regardless of the country wherein said property may be found.

These two provisions of the Civil Code are explicit in providing for extraterritorial application. This is shown by the use of the phrase "even though
living abroad" in Article 15 and "regulated by the national Iaw of the person whose succession is under consideration, whatever may be the nature
of the property and regardless of the country wherein said property may be found" in Article 16. These two provisions, though with extraterritorial
application, were enacted within the competence of the legislature to legislate upon. Surely, Congress has power over its subjects (citizens) to
provide for the application of local laws over their person wherever they are. This does not conflict with the territorial integrity or sovereignty of
another country. This is also practiced practically by all states.