[ G.R. Nos. 90306-07, July 30, 1990 ] upon request of NSS, Crestamonte's general agent in Japan, K.K.
39;s general agent in Japan, K.K. Shell provided and supplied
K.K. SHELL SEKIYU OSAKA HATSUBAISHO AND FU HING OIL CO., LTD.,
PETITIONERS, VS. THE HONORABLE COURT OF APPEALS, ATLANTIC VENUS
CO., S.A., AND THE VESSEL M/V "ESTELLA", RESPONDENTS.
DECISION
CORTES, J.:
Ordinarily, the Court will not disturb the factual findings of the Court of Appeals, these being
considered final and conclusive. However, when its factual conclusions are manifestly
mistaken, the Court will step in to correct the misapprehension [De la Cruz v. Sosing, 94 Phil.
26 (1953); Castillo v. Court of Appeals, G.R. No. L-48290, September 29, 1983, 124 SCRA
808.] This case is one such instance calling for the Court's review of the facts.
On January 7, 1987, Kumagai Kaiun Kaisha, Ltd. (hereinafter referred to as "Kumagai"), a
corporation formed and existing under the laws of Japan, filed a complaint for the collection of
a sum of money with preliminary attachment against Atlantic Venus Co., S.A. (hereinafter
referred to as "Atlantic"), a corporation registered in Panama, the vessel MV Estella
and Crestamonte Shipping Corporation (hereinafter referred to as "Crestamonte"), a Philippine
corporation. Atlantic is the owner of the MV Estella. The complaint, docketed as Civil Case
No. 87-38930 of the Regional Trial Court, Branch XIV, Manila, alleged that Crestamonte, as
bareboat charterer and operator of the MV Estella, appointed N.S. Shipping Corporation
(hereinafter referred to as "NSS"), a Japanese corporation, as its general agent in Japan. The
appointment was formalized in an Agency Agreement. NSS in turn appointed Kumagaias its
local agent in Osaka, Japan. Kumagai supplied the MV Estella with supplies and services but
despite repeated demands Crestamonte failed to pay the amounts due.
NSS and Keihin Narasaki Corporation (hereinafter referred to a "Keihin") filed complaints-in-
intervention.
On May 19, 1987, petitioner Fu Hing Oil Co., Ltd (hereinafter referred to as "Fu Hing"), a
corporation organized in Hong Kong and not doing business in the Philippines, filed a motion
for leave to intervene with an attached complaint-in-intervention, alleging that Fu Hing supplied
marine diesel oil/fuel to the MV Estella and incurred barge expenses for the total sum of One
Hundred Fifty-Two Thousand Four Hundred Twelve Dollars and Fifty-Six Cents
(US$152,412.56) but such has remained unpaid despite demand and that the claim constitutes a
maritime lien. The issuance of a writ of attachment was also prayed for.
On July 16, 1987, petitioner K.K. Shell Sekiyu Osaka Hatsubaisho (hereinafter referred to as
"K.K. Shell"), a corporation organized in Japan and not doing business in the Philippines,
likewise filed a motion to intervene with an attached complaint-in-intervention, alleging that
marine diesel oil/fuel to the MV Estella at the ports of Tokyo and Mutsure in Japan and that
despite previous demands Crestamonte has failed to pay the amounts of Sixteen Thousand Nine
Hundred Ninety-Six Dollars and Ninety-Six Cents (US$16,996.96) and One Million Yen
(Y1,000,000.00) and that K.K. Shell’s claim constitutes a maritime lien on the MV Estella. The
complaint-in-intervention sought the issuance of a writ of preliminary attachment.
The trial court allowed the intervention of Fu Hing and K.K. Shell on June 19, 1987 and August
11, 1987, respectively. Writs of preliminary attachment were issued on August 25, 1987 upon
posting of the appropriate bonds. Upon the posting of counterbonds, the writs of attachment
were discharged on September 3, 1987.
Atlantic and the MV Estella moved to dismiss the complaints-in-intervention filed by
Fu Hing and K.K. Shell.
In the meantime, Atlantic and the MV Estella filed a petition in the Court of Appeals against the
trial court judge,Kumagai, NSS and Keihin, docketed as CA-G.R. SP No. 12999, which sought
the annulment of the orders of the trial court dated April 30, 1987 and August 11, 1987. Among
others, the omnibus order dated August 11, 1987 denied the motion to reconsider the order
allowing Fu Hing’s intervention and granted K.K. Shell's motion to intervene. Again
Fu Hing and K.K. Shell intervened. CA-G.R. SP No. 12999 was consolidated with another case
(CA-G.R. SP No. 12341). Fu Hing and K.K. Shell intervened in CA-G.R. SP No. 12999.
In a decision dated June 14, 1989, the Court of Appeals annulled the orders of the trial court and
directed it to cease and desist from proceeding with the case.
According to the Court of Appeals, Fu Hing and K.K. Shell were not suppliers but sub-agents of
NSS, hence they were bound by the Agency Agreement between Crestamonte and NSS,
particularly, the choice of forum clause, which provides:
12.0 - That this Agreement shall be governed by the Laws of Japan. Any matters, disputes,
and/or differences arising between the parties hereto concerned regarding this Agreement shall
be subject exclusively to the jurisdiction of the District Courts of Japan.
Thus, concluded the Court of Appeals, the trial court should have disallowed their motions to
intervene.
A motion for reconsideration was filed by Fu Hing and K.K. Shell but this was denied by the
Court of Appeals. Hence this petition.
In this case, we shall review the decision of the Court of Appeals only insofar as it relates to the
intervention of K.K. Shell. Fu Hing Oil Co., Ltd. filed a motion to withdraw as co-petitioner
on March 7, 1990, alleging that an amicable settlement had been reached with private
respondents. The Court granted the motion on March 19, 1990.
After considering the pleadings filed by the parties and the arguments raised therein, the Court
finds reversible error on the part of the Court of Appeals insofar as it disallowed petitioners’
intervention in the case before the trial court and ordered the latter to cease and desist from
proceeding with the case.
1. A reading of the Agency Agreement fails to support the conclusion that K.K. Shell is a sub-
agent of NSS and is, therefore, bound by the agreement.
The body of the Agency Agreement entered into by and between Crestamonte (referred to in the
agreement as "Owner") and NSS (“Agent”) provides:
WITNESSETH
That the OWNER has appointed and by these presents hereby appoints the AGENT as its
General Agents for all Japan in connection with the Owner’s vessels and/or providing suitable
vessels for Japan Ports under the following terms and conditions:
1.0 - In general, the Agent will abide by the Owner’s decisions regarding the mode of
operations of the vessels in Japan and that all cargo bookings, vessel’s fixtures/charters, etc. by
the Agent, shall always be subject to the prior approval and consent of the Owners.
2.0 - That the Agent shall provide for the necessary services required for the husbanding of the
Owner's vessels in all Japan Ports and issue Bill(s) of Lading to Shippers in the form prescribed
by the Owners.
3.0 - That the Agent shall be responsible for fixing south-bound cargoes with revenues
sufficient to cover ordinary liner operation expenses such as bunkers, additives, lubricating oil,
water, running repairs, drydocking expenses, usual port disbursement accounts, cargo handling
charges including stevedorage, provisions and ship’s stores and cash advance to crew
(excluding crew provisions).
The Agent expressly agrees that the Owner's cash flow in Japan shall be essentially the Agent's
responsibility, and should the revenue for south-bound cargoes as above-mentioned be
insufficient to cover the aforesaid expenses, the Agent shall provide credit to the extent of the
vessels’ requirements, provided however that said obligation shall be secured by the Owner
committing at least forty-eight (48) sailings of Japan/Philippines liner service per year.
The Agent shall settle, in behalf of the Owner, all outstanding payments for the operation costs
on Owner's liner service carried forward from the present Owner’s agent, subject to approval of
Owner's Representative in Japan in regard to amount and nature thereof.
4.0 - That the agent shall furnish office space of approximately thirty (30) square meters for the
exclusive use of the Owner and its representatives, within the premises of the Agent's office,
free of charge.
5.0 - That the responsibilities of the Agent in regard to the cargo shall begin, in the case of
imports into the territory of Japan, from the time such cargo has left the ship's tackles, and shall
cease, in case of export, upon completion of loading.
6.0 - That the remuneration of the Agent from the Owner shall be as follows:
* * *
7.0 - That the Agent shall exert best efforts to recommend to Owners stevedoring and other
expenses incurred in connection with work on board the Owner's vessels, as well as customs
house charges, pilotage, harbour dues, cables, etc. which are for Owner's account, on the
cheapest possible terms. Owners shall decide and may appoint through the Agent the
services described herein.
8.0 - That the Agent shall be responsible for the due collection of and due payment to the Owner
of all outward freight prepaid for cargo without delay upon the sailing of each vessel from the
port. The Agent shall be also responsible for the due collection of all inward freight payable at
the port against delivery unless otherwise instructed by the Owner to the contrary.
9.0 - The account statements supported by vouchers in two copies itemized for each service
and/or supply for each vessel, shall be forwarded by the Agent to the Owner promptly after the
departure of each vessel but in no case later than 60 days thereafter.
10.0 - That the freightage to be collected by the Agent in Japan shall be paid to the Owner after
deducting the total amount of disbursements incurred in Japan.
11.0 - That this Agreement takes effect as of April 15, 1983 and shall remain in force unless
terminated by either party upon 60 days notice.
12.0 - That this Agreement shall be governed by the Laws of Japan. Any matters, disputes,
and/or differences arising between the parties hereto concerned regarding this Agreement shall
be subject exclusively to the jurisdiction of the District Courts of Japan. [Annex "G" of the
Petition, Rollo, pp. 100-104.]
No express reference to the contracting of sub?agents or the applicability of the terms of the
agreement, particularly the choice-of-forum clause, to sub-agents is made in the text of the
agreement. What the contract clearly states are NSS’ principal duties, i.e., that it shall provide
for the necessary services required for the husbanding of Crestamonte’s vessels in Japanese
ports (section 2.0) and shall be responsible for fixing south-bound cargoes with revenues
sufficient to cover ordinary expenses (section 3.0).
Moreover, the complaint-in-intervention filed by K.K. Shell merely alleges that it provided and
supplied the MV Estella with marine diesel oil/fuel, upon request of NSS who was acting for
and as duly appointed agent of Crestamonte(Rollo, pp. 116-117.] There is thus no basis for the
Court of Appeal’s finding, as regards K.K. Shell in relation to its intervention in Civil Case No.
87-38930, that "the sub-agents admitted in their pleadings that they were appointed as local
agent/sub-agent or representatives by NSS by virtue of said Agency Agreement" [Decision, p.
7; Rollo, p. 33.] What the Court of Appeals could have been referring to was K.K. Shell’s
Urgent Motion for Leave to Intervene dated February 24, 1987 in another case (Civil Case No.
86-38704) in another court and involving other vessels (MV Ofelia and MV Christina C), where
it was alleged that K.K. Shell is "one of the representatives of N.S. Shipping Corporation for the
supply of bunker oil, fuel oil, provisions and other necessaries to vessels of which N.S. Shipping
Corporation was the general agent." [Comment, p. 17; Rollo, p. 274.] However, this allegation
does not conclusively establish a sub-agency between NSS and K.K. Shell. It is therefore
surprising how the Court of Appeals could have come to the conclusion, just on the basis of the
Agency Agreement and the pleadings filed in the trial court, that "Crestamonte is the principal,
NSS is the agent and . . . Fu Hing and K.K. Shell are the sub-agents." [Decision, p. 6; Rollo, p.
32.]
In view of the inconclusiveness of the Agency Agreement and the pleadings filed in the trial
court, additional evidence, if there be any, would still have to be presented to establish the
allegation that K.K. Shell is a sub-agent of NSS.
In the same vein, as the choice-of-forum clause in the agreement (paragraph 12.0) has not been
conclusively shown to be binding upon K.K. Shell, additional evidence would also still have to
be presented to establish this defense. K.K. Shell cannot therefore, as of yet, be barred from
instituting an action in the Philippines.
2. Private respondents have anticipated the possibility that the courts will not find that K.K.
Shell is expressly bound by the Agency Agreement, and thus they fall back on the argument that
even if this were so, the doctrine of forumnon conveniens would be a valid ground to cause the
dismissal of K.K. Shell's complaint-in?intervention.
best position, after some vital facts are established, to determine whether special circumstances
require that his court desist from assuming jurisdiction over the suit.
It was clearly reversible error on the part of the Court of Appeals to annul the trial court's
orders, insofar as K.K. Shell is concerned, and order the trial court to cease and desist from
proceeding with Civil Case No. 87-38930. There are still numerous material facts to be
established in order to arrive at a conclusion as to the true nature of the relationship
between Crestamonte and K.K. Shell and between NSS and K.K. Shell. The best recourse
would have been to allow the trial court to proceed with Civil Case No. 87-38930 and consider
whatever defenses may be raised by private respondents after they have filed their answer and
evidence to support their conflicting claims has been presented. The Court of Appeals,
however, substituted its judgment for that of the trial court and decided the merits of the case,
even in the absence of evidence, on the pretext of reviewing an interlocutory order.
WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals is
REVERSED in CA-G.R. SP No. 12999, insofar as it annulled the order of the August 11,
1987 and directed the trial court to cease and desist from proceeding with Civil Case No. 87-
38930.

K.K. Shell counters this argument by invoking its right as maritime lienholder. It cites
Presidential Decree No. 1521, the Ship Mortgage Decree of 1978, which provides:

SEC. 21. Maritime Lien for Necessaries: person entitled to such lien. - Any person furnishing
repairs, supplies, towage, use of dry dock or marine railway, or other necessaries, to any vessel,
whether foreign or domestic, upon the order of the owner of such vessel, or of a person
authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by
suit in rem, and it shall be necessary to allege or prove that credit was given to the vessel.

Private respondents on the other hand argue that even if P.D. No. 1521 is applicable, K.K. Shell
cannot rely on the maritime lien because the fuel was provided not exclusively for the benefit of
the MV Estella, but for the benefit of Crestamonte in general. Under the law it must be
established that the credit was extended to the vessel itself. Now, this is a defense that calls
precisely for a factual determination by the trial court of who benefited from the delivery of the
fuel. Hence, again, the necessity for the reception of evidence before the trial court.

In other words, considering the dearth of evidence due to the fact that the private respondents
have yet to file their answer in the proceedings below and trial on the merits is still to be
conducted, whether or not petitioners are indeed maritime lienholders and as such may enforce
the lien against the MV Estella are matters that still have to be established.

Neither are we ready to rule on the private respondents’ invocation of the doctrine
of forum non conveniens, as the exact nature of the relationship of the parties is still to be
established. We leave this matter to the sound discretion of the trial court judge who is in the
 [ G.R. No. 61594, September 28, 1990 ]
PAKISTAN INTERNATIONAL AIRLINES CORPORATION, PETITIONER, VS. HON.
BLAS F. OPLE, IN HIS CAPACITY AS MINISTER OF LABOR; HON. VICENTE
LEOGRADO, JR., IN HIS CAPACITY AS DEPUTY MINISTER; ETHELYNNE B.
FARRALES AND MARIA MOONYEEN MAMASIG, RESPONDENTS.
On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the
contracts of employment, PIA through Mr. Oscar Benares, counsel for and official of the local
branch of PIA, sent separate letters both dated 1 August 1980 to private
respondents Farrales and Mamasig advising both that their services as flight stewardesses would
be terminated "effective 1 September 1980, conformably to clause 6 (b) of the employment
agreement [they had] executed with [PIA]".[2]

DECISION
FELICIANO, J.:
On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign
corporation licensed to do business in the Philippines, executed in Manila two (2) separate
contracts of employment, one with private respondent Ethelynne B. Farrales and the other with
private respondent Ma. M.C. Mamasig.[1] The contracts, which became effective on 9 January
1979, provided in pertinent portion as follows:
On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint,
docketed as NCR-STF-9-5151-80, for illegal dismissal and non-payment of company benefits
and bonuses, against PIA with the then Ministry of Labor and Employment (“MOLE”). After
several unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose
M. Pascual ordered the parties to submit their position papers and evidence supporting their
respective positions. The PIA submitted its position paper,[3] but no evidence, and there claimed
that both private respondents were habitual absentees; that both were in the habit of bringing in
from abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila
International Airport had been discreetly warned by customs officials to advise private
respondents to discontinue that practice. PIA further claimed that the services of both private
respondents were terminated pursuant to the provisions of the employment contract.

In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the
"5. DURATION OF EMPLOYMENT AND PENALTY
reinstatement of private respondents with full backwages or, in the alternative, the payment to
This agreement is for a period of three (3) years, but can be extended by the mutual consent of them of the amounts equivalent to their salaries for the remainder of the fixed three-year period
the parties. of their employment contracts; the payment to private respondent Mamasig of on amount
equivalent to the value of a round trip ticket Manila-USA-Manila; and payment of a bonus to
xxx xxx xxx each of the private respondents equivalent to their one-month salary.[4] The Order stated that
private respondents had attained the status of regular employees after they had rendered more
6. TERMINATION than a year of continued service; that the stipulation limiting the period of the employment
contract to three (3) years was null and void as violative of the provisions of the Labor Code and
xxx xxx xxx its implementing rules and regulations on regular and casual employment; and that the
dismissal, having been carried out without the requisite clearance from the MOLE, was illegal
Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this and entitled private respondents to reinstatement with full backwages.
agreement at any time by giving the EMPLOYEE notice in writing in advance one month
before the intended termination or in lieu thereof, by paying the EMPLOYEE wages equivalent On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister,
to one month's salary. MOLE, adopted the findings of fact and conclusions of the Regional Director and affirmed the
latter's award save for the portion thereof giving PIA the option, in lieu of reinstatement, “to pay
xxx xxx xxx each of the complainants [private respondents] their salaries corresponding to the unexpired
portion of the contract[s] [of employment] x x x”.[5]
10. APPLICABLE LAW:

This agreement shall be construed and governed under and by the laws of Pakistan, and only the
Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or
under this agreement."
Respondents then commenced training in Pakistan. After their training period, they began
discharging their job functions as flight attendants, with base station in Manila and flying
assignments to different parts of the Middle Eastand Europe.
In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director
and the Order of the Deputy Minister as having been rendered without jurisdiction; for having
been rendered without support in the evidence of record since, allegedly, no hearing was
conducted by the hearing officer, Atty. Jose M. Pascual; and for having been issued in disregard
and in violation of petitioner's rights under the employment contracts with private respondents.
1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction over the
subject matter of the complaint initiated by private respondents for illegal dismissal, jurisdiction
over the same being lodged in the Arbitration Branch of the National Labor Relations
Commission ("NLRC”). It appears to us beyond dispute, however, that both at the time the
complaint was initiated in September 1980 and at the time the Orders assailed were rendered on
January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by Deputy
Minister Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases.
Article 278 of the Labor Code, as it then existed, forbade the termination of the services of
employees with at least one (1) year of service without prior clearance from the Department of
Labor and Employment:
"Art. 278. Miscellaneous Provisions -- x x x
(b) With or without a collective agreement, no employer may shut down his establishment or
dismiss or terminate the employment of employees with at least one year of service during the
last two (2) years, whether such service is continuous or broken, without prior written authority
issued in accordance with such rules and regulations as the Secretary may promulgate x x x"
(Underscoring supplied)
Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made clear
that in case of a termination without the necessary clearance, the Regional Director was
authorized to order the reinstatement of the employee concerned and the payment of backwages;
necessarily, therefore, the Regional Director must have been given jurisdiction over such
termination cases:
"Section 2. Shutdown or dismissal without clearance. -- Any shutdown or dismissal without
prior clearance shall be conclusively presumed to be termination of employment without a just
cause. The Regional Director shall, in such case, order the immediate reinstatement of the
employee and the payment of his wages from the time of the shutdown or dismissal until the
time of reinstatement." (Underscoring supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly
very explicit about the jurisdiction of the Regional Director over termination of employment
cases:
"Under PD 850, termination case -- with or without CBA -- are now placed under the original
jurisdiction of the Regional Director. Preventive suspension cases, now made cognizable for
the first time, are also placed under the Regional Director. Before PD 850, termination cases
where there was a CBA were under the jurisdiction of the grievance machinery and voluntary
arbitration, while termination cases where there was no CBA were under the jurisdiction of the
Conciliation Section.
In more details, the major innovations introduced by PD 850 and its implementing rules and
regulations with respect to termination and preventive suspension cases are:
1. The Regional Director is now required to rule on every application for clearance, whether
there is opposition or not, within ten days from receipt thereof.
xxx xxx x x x"
(Underscoring supplied)
2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction,
still his order was null and void because it had been issued in violation of petitioner's right to
procedural due process.[6] This claim, however, cannot be given serious
consideration. Petitioner was ordered by the Regional Director to submit not only its position
paper but also such evidence in its favor as it might have. Petitioner opted to rely solely upon
its position paper; we must assume it had no evidence to sustain its assertions. Thus, even if no
formal or oral hearing was conducted, petitioner had ample opportunity to explain its
side. Moreover, petitioner PIA was able to appeal his case to the Ministry of Labor and
Employment.[7]
There is another reason why petitioner's claim of denial of due process must be rejected. At the
time the complaint was filed by private respondents on 21 September 1980 and at the time the
Regional Director issued his questioned order on 22 January 1981, applicable regulation, as
noted above, specified that a "dismissal without prior clearance shall be conclusively
presumed to be termination of employment without a just cause", and the Regional Director was
required in such case to "order the immediate reinstatement of the employee and the payment of
his wages from the time of the shutdown or dismissal until x x x reinstatement". In other words,
under the then applicable rule, the Regional Director did not even have to require submission of
position papers by the parties in view of the conclusive (juris et de jure) character of the
presumption created by such applicable law and regulation. In Cebu Institute of Technology v.
Minister of Labor and Employment, [8] the Court pointed out that "under Rule 14, Section 2, of
the Implementing Rules and Regulations, the termination of [an employee] which was without
previous clearance from the Ministry of Labor is conclusively presumed to be without [just]
cause x x x [a presumption which] cannot be overturned by any contrary proof however strong”.
3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of
employment with private respondents Farrales and Mamasig, arguing that its relationship with
them was governed by the provisions of its contract rather than by the general provisions of the
Labor Code.[9]
Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by
agreement between the parties; while paragraph 6 provided that, notwithstanding any other
provision in the contract, PIA had the right to terminate the employment agreement at any time
by giving one-month's notice to the employee or, in lieu of such notice, one-month’s salary.
A contract freely entered into should, of course, be respected, as PIA argues, since a contract is
the law between the parties.[10] The principle of party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties
may establish such stipulations as they may deem convenient "provided they are not contrary to
law, morals, good customs, public order or public policy". Thus, counter-balancing the
principle of autonomy of contracting parties is the equally general rule that provisions of
applicable law, especially provisions relating to matters affected with public policy, are deemed
written into the contract.[11] Put a little differently, the governing principle is that parties may not
contract away applicable provisions of law especially peremptory provisions dealing with
matters heavily impressed with public interest. The law relating to labor and employment is
clearly such an area and parties are not at liberty to insulate themselves and their relationships
from the impact of labor laws and regulations by simply contracting with each other. It is thus
necessary to appraise the contractual provisions invoked by petitioner PIA in terms of their
consistency with applicable Philippine law and regulations.
As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that
paragraph 5 of that employment contract was inconsistent with Articles 280 and 281 of the
Labor Code as they existed at the time the contract of employment was entered into, and hence
refused to give effect to said paragraph 5. These Articles read as follows:
"Art. 280. Security of Tenure. -- In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this
Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement
without loss of seniority rights and to his backwages computed from the time his compensation
was withheld from him up to the time his reinstatement.
Article 281. Regular and Casual Employment. --The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreements of the parties, an employment
shall be deemed to be regular where the employee has been engaged to perform activities which
are usually necessary or desirable in the usual business or trade of the employer, except where
the employment has been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the engagement of the employee of
where the work or services to be performed is seasonal in nature and the employment is for the
duration of the season.
An employment shall be deemed to be casual if it is not covered by the proceeding
paragraph: provided, that, any employee who has rendered at least one year of service, whether
such service is continuous or broken, shall be considered as regular employee with respect to the
activity in which he is employed and his employment shall continue which such actually exists."
(Underscoring supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al.,[12] the Court had occasion to
examine in detail the question of whether employment for a fixed term has been outlawed under
the above quoted provisions of the Labor Code. After an extensive examination of the history
and development of Articles 280 and 281, the Court reached the conclusion that a contract
providing for employment with a fixed period was not necessarily unlawful:
"There can of course be no quarrel with the proposition that where from the circumstances it is
apparent that periods have been imposed to preclude acquisition of tenurial security by the
employee, they should be struck down or disregarded as contrary to public policy, morals,
etc. But where no such intent to circumvent the law is shown, or stated otherwise, where the
reason for the law does not exist, e.g., where it is indeed the employee himself who insists upon
a period or where the nature of the engagement is such that, without being seasonal or for a
specific project, a definite date of termination is a sine quanon, would an agreement fixing a
period be essentially evil or illicit, therefore anathema? Would such an agreement come within
the scope of Article 280 which admittedly was enacted ‘to prevent the circumvention of the
right of the employee to be secured in * * (his) employment?
As it is evident from even only the three examples already given that Article 280 of the Labor
Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of
employment contracts to which the lack of a fixed period would be an anomaly, but would also
appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate
with his employer the duration of his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be given reasonable interpretation,
to preclude absurdity in its application. Outlawing the whole concept of term employment and
subverting to boot the principle of freedom of contract to remedy the evil of employers' using it
as a means to prevent their employees from obtaining security of tenure is like cutting off the
nose to spite the face or, more relevantly, curing a headache by lopping off the head.
xxx xxx xxx
Accordingly, and since the entire purpose behind the development of legislation culminating in
the present Article 280 of the Labor Code clearly appears to have been, as already observed, to
prevent circumvention of the employee's right to be secure in his tenure, the clause in said
article indiscriminately and completely ruling out all written or oral agreements confIicting with
the concept of regular employment as defined therein should be construed to refer to the
substantive evil that the Code itself has singled out: agreements entered into precisely to
circumvent security of tenure. It should have no application to instances where a fixed period of
employment was agreed upon knowingly and voluntarily by the parties, without any force,
duress or improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent, or where it satisfactorily appears that the employer and
employee dealt with each other on more or less equal terms with no moral dominance whatever
being exercised by the former over the latter. Unless thus limited in its purview, the law would
be made to apply to purposes other than those explicitly stated by its framers; it thus becomes
pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended
consequences.” (Underscoring supplied)
It is apparent from Brent School that the critical consideration is the presence or absence of a
substantial indication that the period specified in an employment agreement was designed to
circumvent the security of tenure of regular employees which is provided for in Articles 280 and
281 of the Labor Code. This indication must ordinarily rest upon some aspect of the agreement
other than the mere specification of a fixed term of the employment agreement, or upon
evidence aliunde of the intent to evade.
Examining the provisions of paragraphs 5 and 6 of the employment agreement between
petitioner PIA and private respondents, we consider that those provisions must be read together
and when so read, the fixed period of three (3) years specified in paragraph 5 will be seen to
have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph
6 in effect took back from the employee the fixed three (3)-year period ostensibly granted by
paragraph 5 by rendering such period in effect a facultative one at the option of the employer
PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and for any
cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a
month's salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is equivalent positions not be feasible, then petitioner shall, in lieu thereof, pay to private
to render the employment of private respondents Farrales and Mamasig basically employment at respondents separation pay amounting to one (1) - month's salary for every year of service
the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to actually rendered by them and for the three (3) years putative service by private
prevent any security of tenure from accruing in favor of private respondents even during the respondents. The Temporary Restraining Order issued on 13 September 1982 is hereby
limited period of three (3) years,[13] and thus to escape completely the thrust of Articles 280 and LIFTED. Costs against petitioner.
281 of the Labor Code.
SO ORDERED.
Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies,
firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue
for settlement of any dispute arising out of or in connection with the agreement "only [in] courts
of Karachi, Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the
application of Philippine labor laws and regulations to the subject matter of this case, i.e., the
employer-employee relationship between petitioner PIA and Private respondents. We have
already pointed out that that relationship is much affected with public interest and that the
otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties
agreeing upon some other law to govern their relationship. Neither may petitioner invoke the
second clause of paragraph 10, specifying the Karachi courts as the sole venue for the settlement
of disputes between the contracting parties. Even a cursory scrutiny of the relevant
circumstances of this case will show the multiple and substantive contacts between Philippine
law and Philippine courts, on the one hand, and the relationship between the parties, upon the
other: the contract was not only executed in the Philippines, it was also performed here, at least
partially; private respondents are Philippine citizens and residents, while petitioner, although a
foreign corporation, is licensed to do business (and actually doing business) and hence resident
in the Philippines; lastly, private respondents were based in the Philippines in between their
assigned flights to the Middle East and Europe. All the above contacts point to the Philippine
courts and administrative agencies as a proper forum for the resolution of contractual disputes
between the parties. Under these circumstances, paragraph 10 of the employment agreement
cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction vested
upon them by Philippine law. Finally, and in any event, the petitioner PIA did not undertake to
plead and prove the contents of Pakistan law on the matter; it must therefore be presumed that
the applicable provisions of the law of Pakistan are the same as the applicable provisions of
Philippine law.[14]

We conclude that private respondents Farrales and Mamasig were illegally dismissed and that
public respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion
nor any act without or in excess of jurisdiction in ordering their reinstatement
with backwages. Private respondents are entitled to three (3) years backwages without
qualification or deduction. Should their reinstatement to their former or other substantially
equivalent positions not be feasible in view of the length of time which has gone by
since their services were unlawfully terminated, petitioner should be required to pay separation
pay to private respondents amounting to one (1) month's salary for every year of service
rendered by them, including the three (3) years service putatively rendered.

ACCORDINGLY, the Petition for Certiorari is hereby DISMISSED for lack of merit, and the
Order dated 12 August 1982 of public respondent is hereby AFFIRMED, except that (1) private
respondents are entitled to three (3) years backwages, without deduction or qualification; and
(2) should reinstatement of private respondents to their former positions or to substantially
 [ G. R. No. L-20099, July 07, 1966 ]
PARMANAND SHEWARAM, PLAINTIFF-APPELLEE, VS. PHILIPPINE AIR LINES,
INC., DEFENDANT-APPELLANT.
DECISION
ZALDIVAR. J.:
Before the ounicipal court of Znboanga City, plaintiff-appellee Pamanand Shewaram instituted
an action to recover damages suffered by his due to the alleged failure of defendant-appellant
Philippine Air Lines, Inc. to observe extraordinary diligence in the vigilance and carriage of his
luggage. After trial the municipal court of Zamboanga City rendered judgment ordering the
appellant to pay appellee P373.00 as actual danages, P100.00 as exemplary damages, P150.00
as attorney's fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After
hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior
court by ordering the appellant to pay the appellee only the sun of P373.00 as actual damages,
with legal interest from May 6, 1960, and the sum of P150.00 as attorney's fees, eliminating the
award of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this
Court on a question of law, assigning two errors allegedly committed by the lower court a quo,
to wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by the
provisions of the tariff regulations filed by defendant-appellant with the civil
aeronautics board and the conditions of carriage printed at the back of the plane ticket
stub.
2. The lower court erred in net dismissing this cage or Halting the liability of the
defendant-appellant to P100. 00.
The facts of this case, as found by the trial court, quoted from the decision appealed from, are as
follows:
"That Parmanand Shewaran, the plaintiff herein, was on November 23, 1959, a paying
passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga
City bound for Manila; that defendant is a common carrier engaged in airline transportation in
the Philippines, offering its services to the public to carry and transport passengers and cargoes
from and to different points in the Philippines; that on the above-mentioned date of November
23, 1959, he checked in (3) pieces of baggages --- a suitcase and two (2) other pieces; that the
suitcase was alstagged by defendant's personnel in Zamboanga City, as I.G.N. (for Iligan) with
claim cheek No. B-3883, instead of JML (for Manila). When plaintiff Parmanand Shewaram
arrived in Manila on the date of November 23, 1959, his suitcase did not arrive with his flight
because it was sent to Iligan. So, he made a claim with defendant's personnel in Manila airport
and another suitcase similar to his own which was the only baggage left for that flight, the rest
having been claimed and released to the other passengers of said flight, was given to the
plaintiff for him to take delivery but he did not and refused to take delivery of the same on the
ground that it was not his, alleging that all his clothes were white and the National transistor 7
and a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol
which he did not have ner placed inside his suitcase; that after inquiries Bade by defendant's
personnel in Manila from different airports where the suitcase is question must have been sent,
it was found to have reached Iligan and the station agent of the PAL in Iligan caused the same to
be sent to Manila for delivery to Mr. Shewaram and which suitcase belonging to the plaintiff
herein arrived in Manila airport on November 24, 1959; that it was also found out that the
suitcase shown to and given to the plaintiff for delivery which he refused to take delivery
belonged to a certain Del Rosario who was bound for Iligan in the same flight with Mr.
Shewaram; that when the plaintiff's suitcase arrived in Manila as stated above on November 24,
1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent of the Manila airport
of the arrival of his suitcase but of course minus his Transistor Radio 7 and the Rollflex
Camera; that Shewaram made demand for these two (2) items or for the value thereof but the
same was not complied with by defendant.
xxxxxxx.
"It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN.
The tampering of the suitcase is more apparent when on November 24, 1959, when the suitcase
arrived in Manila, defendant's personnel could open the same in spite of the fact that plaintiff
had it under key when he delivered the suitcase to defendant's personnel in Zamboanga City.
Moreover, it was established during the hearing that there was space in the suitcase where the
two items in question could have been placed. It was also shown that as early as November 24,
1959, when plaintiff was notified by phone of the arrival of the suitcase, plaintiff asked that a
check of the things inside his suitcase be made and defendant admitted that the two items could
not be found inside the suitcase. There was no evidence on record sufficient to show that
plaintiff's suitcase was never opened during the time it was placed in defendant's possession and
prior to its recovery by the plaintiff. However, defendant had presented evidence that it had
authority to open passengers' baggage to verify and find its ownership or identity. Exhibit "1" of
the defendant would show that the baggage that was offered to plaintiff as his own was opened
and the plaintiff denied ownership of the contents of the baggage. This proven fact that baggage
nay and could be opened without the necessary authorization and presence of its owner, applied
too, to the suitcase of plaintiff which was missent to Iligan City because of mistagging. The
possibility of what happened in the baggage of Mr. del Bosario at the Manila Airport in his
absence could have also happened to plaintiff's suitcase at Iligan City in the absence of plaintiff.
Hence, the Court believes that these two items were really in plaintiff's suitcase and defendant
should lie held liable for the same by virtue of its contract of carriage.
"It is clear from the above-quoted portions of the decision of the trial court that said court had
found that the suitcase of the appellee was tampered, and the transistor radio and the camera
contained therein were lost, and that the loss of those articles was due to the negligence of the
employees of the appellant. The evidence shows that the transistor radio cost P197.00 and the
camera cost P176.00, so the total value of the two lost articles was P373.00.
There is no question that the appellant is a common carrier. [1] As such common carrier the
appellant, from the nature of its business and for reasons of public policy, is bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by it according to the circumstances of each case.[2] It having been shown that the
loss of the transistor radio and the camera of the appellee, costing P373.00, was due to the
negligence of the employees of the appellant, it is clear that the appellant should be held liable
for the payment of said loss.[1]
It is, however, contended by the appellant that its liability should be limited to the amount atated
in the conditions of carriage printed at the back of the plane ticket stub which was issued to the
appellee, which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed
with the Civil Aeronautics Board. One of those conditions, which is pertinent to the issue raised
by the appellant in this case, provides as follows:
"The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof
is limited to its value and, unless the passenger declares in advance a higher valuation and pay
an additional charge therefor, the value shall be conclusively deemed not to exceed PI00.00 for
each ticket."
The appellant maintains that in view of the failure of the appellee to declare a higher value for
his luggage, and pay the freight on the basis of said declared value when he checked such
luggage at the Zamboanga City airport, pursuant to the abovequoted condition, appellee can not
demand payment from the appellant of an amount in excess of P100. 00. The law that may be
invoked, in this connection, is Article 1750 of the Mew Civil Code which provides as follows:
"A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon."
In accordance with the above-quoted provision of Article 1750 of the Sew Civil Code, the
pecuniary liability of a common carrier may, by contract, be limited to a fixed amount. It is
required, however, that the contract must be "reasonable and just under the circumstances and
has been fairly and freely agreed upon.
"The requirements provided in Article 1750 of the New Civil Code must be complied with
before a common carrier can claim a limitation of its pecuniary liability in case of loss,
destruction or deterioration of the goods it has undertaken to transport. In the case before us We
believe that the requirements of said article have not been met. It can not be said that the
appellee had actually entered into a contract with the appellant, embodying the conditions as
printed at the back of the ticket stub that was issued by the appellant to the appellee. The fact
that those conditions are printed at the back of the ticket stub in letter so small that they are hard
to read would not warrant the presumption that the appellee was aware of those conditions such
that he had "fairly and freely agreed" to those conditions. The trial court has categorically stated
in its decision that the "Defendant admits that passengers do not sign the ticket, much less did
plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold,
therefore, that the appellee is not, and can not be, bound by the conditions of carriage found at
the bade of the ticket stub issued to him when he made the flight on appellant's plane on
November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of
Articles 1734 and 1735 of the New Civil Code, which We quote as follows:
"Art. 1734. Conmon carriers are responsible for the loss, destruction, or deterioration of the
goods, unless the sane is due to any of the following causes only:
(1) Flood, storm, earthquake, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or mission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority."
"Art. 1735. Ib all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to hare acted negligently, unless they prove that they observed extraordinary
diligence as required in article 1733."
It having been clearly found by the trial court that the transistor radio and the camera of the
appellee were lost as a result of the negligence of the appellant as a common carrier, the liability
of the appellant is clear - it must pay the appellee the value of those two articles.
In the case of Tsmael and Co. vs. Barretto, 51 Phil. 90, cited by the trial court in support of its
decision, this Court had laid down the rule that the carrier can not limit its liability for injury to
or loss of goods shipped where such injury or loss was caused by its own negligence.
"Corpus Juris, volume 10, p. 154, says:
'Par. 194. Reasonableness of Limitations.- The validity of stipulations limiting the carrier's
liability is to be determined by their reasonableness and their conformity to the sound public
policy, in accordance with which the obligations of the carrier to the public are settled. It cannot
lawfully stipulate for exemption from liability, unless such exemption is just and reasonable,
and unless the contract is freely and fairly made. No contractual limitation is reasonable which
is subversive of public policy.
'Par. 195. 7. What, Limitations of Liability Permissible.- a. Negligence - (1) Rule in America-
(a) In absence of Organic or Staturiry Provisions Regulating Subject- aa. Majority Rule - In the
absence of statute, it is settled by the weight of authority in the United States, that whatever
limitations against its common-law liability are permissible to a carrier, it cannot limit its
liability for injury to or loss of goods shipped, where such injury or loss is caused by its own
negligence. This is the common law doctrine and it Bakes no difference that there is no statutory
prohibition against contracts of this character.

'Par. 196. bb. Considerations on which Rule Based.-The rule, it is said, rests on considerations
of public policy. The undertaking is to carry the goods, and to relieve the shipper from all
liability for loss or damage arising from negligence in performing its contract is to ignore the
contract itself. The natural effect of a limitation of liability against negligence is to induce want
of care on the part of the carrier in the performance of its duty. The shipper and the common
carrier are not on equal terms; the shipper must send his freight by the common carrier, or not at
all; he is therefore entirely at the mercy of the carrier unless protected by the higher power of
the law against being forced into contracts limiting the carrier's liability. Such contracts are
wanting in the element of voluntary assent.

'Par. 197. cc . Application and Extent of Ruler.- (aa) Negligence of Servants.- The rale
prohibiting limitation or liability for negligence is often stated as a prohibition of any contract
relieving the carrier from loss or damage caused by its own negligence or misfeasance, or that
of its servants; and it has been specifically decided in many cases that no contract limitation will
relieve the carrier from responsibility for the negligence, unskillfulness, or carelessness of its
employees.'"

(Cited in Ysmael and Co. vs. Barretto, 51 Phil. 90, 98, 99).

IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against
the appellant.
 [ G.R. No. L-40597, June 29, 1979 ]
AGUSTINO B. ONG YIU, PETITIONER, VS. HONORABLE COURT OF APPEALS
AND PHILIPPINE AIR LINES, INC., RESPONDENTS.
DECISION
MELENCIO-HERRERA, J.:
In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks
a reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his
claim for damages for breach of contract of transportation.
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines,
Inc. (PAL), on board Flight No. 463-R, from Mactan, Cebu, bound for Butuan City. He was
scheduled to attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of
First Instance, Branch II, thereat, set for hearing on August 28-31, 1967. As a passenger, he
checked in one piece of luggage, a blue "maleta" for which he was issued Claim Check No.
2106-R (Exh. "A"). The plane left Mactan Airport, Cebu, at about 1:00 o'clock P.M., and
arrived at Bancasi airport, Butuan City, at past 2:00 o'clock P.M., of the same day. Upon
arrival, petitioner claimed his luggage but it could not be found. According to petitioner, it was
only after reacting indignantly to the loss that the matter was attended to by the porter clerk,
Maximo Gomez, which, however, the latter denies. At about 3:00 o'clock P.M., PAL, Butuan,
sent a message to PAL, Cebu, inquiring about the missing luggage, which message was, in turn,
relayed in full to the Mactan Airport teletype operator at 3:45 P.M. (Exh. "2") that same
afternoon. It must have been transmitted to Manila immediately, for at 3:59 that same
afternoon, PAL Manila wired PAL Cebu advising that the luggage had been overcarried to
Manila aboard Flight No. 156 and that it would be forwarded to Cebu on Flight No. 345 of the
same day. Instructions were also given that the luggage be immediately forwarded to Butuan
City on the first available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent
a message to PAL Butuan that the luggage would be forwarded on Flight No. 963 the following
day, August 27, 1967. However, this message was not received by PAL Butuan as all the
personnel had already left since there were no more incoming flights that afternoon.
In the meantime, petitioner was worried about the missing luggage because it contained vital
documents needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL
Cebu demanding the delivery of his baggage before noon the next day, otherwise, he would
hold PAL liable for damages, and stating that PAL's gross negligence had caused him undue
inconvenience, worry, anxiety and extreme embarrassment (Exh. "B"). This telegram was
received by the Cebu PAL supervisor but the latter felt no need to wire petitioner that his
luggage had already been forwarded on the assumption that by the time the message reached
Butuan City, the luggage would have arrived.
Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to
inquire about his luggage. He did not wait, however, for the morning flight which arrived at
10:00 o'clock that morning. This flight carried the missing luggage. The porter clerk, Maximo
Gomez, paged petitioner, but the latter had already left. A certain Emilio Dagorro, a driver of a
"colorum" car, who also used to drive for petitioner, volunteered to take the luggage to
petitioner. As Maximo Gomez knew Dagorro to be the same driver used by petitioner whenever
the latter was in Butuan City, Gomez took the luggage and placed it on the counter. Dagorro
examined the lock, pressed it, and it opened. After calling the attention of Maximo Gomez, the
"maleta" was opened, Gomez took a look at its contents, but did not touch them. Dagorro then
delivered the "maleta" to petitioner, with the information that the lock was open. Upon
inspection, petitioner found that a folder containing certain exhibits, transcripts and private
documents in Civil Case No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift
items for his parents-in-law. Petitioner refused to accept the luggage. Dagorro returned it to the
porter clerk, Maximo Gomez, who sealed it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss
of his documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to
Cebu City on August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu,
petitioner called attention to his telegram (Exh. "D"), demanded that his luggage be produced
intact, and that he be compensated in the sum of P250,000.00 for actual and moral damages
within five days from receipt of the letter, otherwise, he would be left with no alternative but to
file suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to
petitioner's office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel
Maranga, the contents were listed and receipted for by petitioner (Exh. "E").
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of
the investigation which Messrs. de Leon, Navarsi and Agustin had promised to conduct to
pinpoint responsibility for the unauthorized opening of the "maleta" (Exh. "F").
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
"Dear Atty. Ong Yiu:
"This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting
Manager, Southern Philippines.
"First of all, may we apologize for the delay in informing you of the result of our investigation
since we visited you in your office last August 31, 1967. Since there are stations other than
Cebu which are involved in your case, we have to communicate and await replies from
them. We regret to inform you that to date we have not found the supposedly lost folder of
papers nor have we been able to pinpoint the personnel who allegedly pilferred your baggage.
"You must realize that no inventory was taken of the cargo upon loading them on any
plane. Consequently, we have no way of knowing the real contents of your baggage when same
was loaded.
"We realized the inconvenience you encountered of this incident but we trust that you will give i
us another opportunity to be of better service to you. b
i
V t
e s
r )
y "
[
t 1
r ]
u
l
y
y On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of
o contract of transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil
u Case No. R-10188, which PAL traversed. After due trial, the lower Court found PAL to have
r acted in bad faith and with malice and declared petitioner entitled to moral damages in the sum
s of P80,000.00, exemplary damages of P30,000.00, attorney's fees of P5,000.00, and costs.
,
Both parties appealed to the Court of Appeals - petitioner in so far as he was awarded only the
sumPof P80,000.00 as moral damages; and defendant because of the unfavorable judgment
HILIPPINE AIR LINES, INC. rendered against it.

On August 22, (1974, the Court of Appeals,* finding that PAL was guilty only of simple
Sgd) JEREMIAS S. AGUSTIN negligence, reversed the judgment of the trial Court granting petitioner moral and exemplary
damages, but ordered
B PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by
ranch Supervisor Cebu" it under the condition of carriage printed at the back of the ticket.
(
E Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the
x following Assignments of Error:
h
i
"I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL
b
GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF
i
ITS CONTRACT OF TRANSPORTATION WITH PETITIONER.
t
G "II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND
, THE LAW WHEN IT REVERSED THE DECISION OF THE LOWER COURT AWARDING
F TO PETITIONER MORAL DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY
o DAMAGES OF P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY'S FEES, AND
l ORDERED RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM OF
d P100.00 ONLY, CONTRARY TO THE EXPLICIT PROVISIONS OF ARTICLES 2220, 2229,
e 2232 AND 2234 OF THE CIVIL CODE OF THE PHILIPPINES.
r
o
f On July 16, 1975, this Court gave due course to the Petition.
E
x There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The
h question is the correctness of respondent Court's conclusion that there was no gross negligence
on the part of PAL and that it had not acted fraudulently or in bad faith as to entitle petitioner to
an award of moral and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad
faith. Bad faith means a breach of a known duty through some motive of interest or ill will.[2] It
was the duty of PAL to look for petitioner's luggage which had been miscarried. PAL exerted
due diligence in complying with such duty.
As aptly stated by the appellate Court:
"We do not find any evidence of bad faith in this. On the contrary, We find that the defendant
had exerted diligent effort to locate plaintiff's baggage. The trial court saw evidence of bad faith
because PAL sent the telegraphic message to Mactan only at 3:00 o'clock that same afternoon,
despite plaintiff's indignation for the non-arrival of his baggage. The message was sent within
less than one hour after plaintiff's luggage could not be located. Efforts had to be exerted to
locate plaintiff's maleta. Then the Bancasi airport had to attend to other incoming passengers
and to the outgoing passengers. Certainly, no evidence of bad faith can be inferred from these
facts. Cebu office immediately wired Manila inquiring about the missing baggage of the
plaintiff. At 3:59 P.M., Manila station agent at the domestic airport wired Cebu that the
baggage was over carried to Manila. And this message was received in Cebu one minute
thereafter, or at 4:00 P.M. The baggage was in fact sent back to Cebu City that same
afternoon. His Honor stated that the fact that the message was sent at 3:59 P.M. from Manila
and completely relayed to Mactan at 4:00 P.M., or within one minute, made the message appear
spurious. This is a forced reasoning. A radio message of about 50 words can be completely
transmitted in even less than one minute, depending upon atmospheric conditions. Even if the
message was sent from Manila or other distant places, the message can be received within a
minute. That is a scientific fact which cannot be questioned."[3]
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad
faith. The telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26,
1967. The PAL supervisor at Mactan Airport was notified of it only in the morning of the
following day. At that time the luggage was already to be forwarded to Butuan City. There was
no bad faith, therefore, in the assumption made by said supervisor that the plane carrying the
bag would arrive at Butuan earlier than a reply telegram. Had petitioner waited or caused
someone to wait at the Bancasi airport for the arrival of the morning flight, he would have been
able to retrieve his luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to
moral damages.
"Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar
injury. Though incapable of pecuniary computation, moral damages may be recovered if they
are the proximate result of the defendant's wrongful act of omission."
"Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith."
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232
of the Civil Code, exemplary damages can be granted if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner, which has not been proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In this
connection, respondent Court opined:
"As a general proposition, the plaintiff's maleta having been pilfered while in the custody of the
defendant, it is presumed that the defendant had been negligent. The liability, however, of PAL
for the loss, in accordance with the stipulation written on the back of the ticket, Exhibit 12, is
limited to P100.00 per baggage plaintiff not having declared a great value, and not having called
the attention of the defendant on its true value and paid the tariff therefor. The validity of this
stipulation is not questioned by the plaintiff. They are printed in reasonably and fairly big
letters, and are easily readable. Moreover, plaintiff had been a frequent passenger of PAL from
Cebu to Butuan City and back, and he, being a lawyer and businessman, must be fully aware of
these conditions."[4]
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of
the plane ticket reads:
"8. BAGGAGE LIABILITY.... The total liability of the Carrier for lost or damaged baggage of
the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in excess, however, of a total valuation of P1,000.00 and
additional charges are paid pursuant to Carrier's tariffs."
There is no dispute that petitioner did not declare any higher value for his luggage, much less
did he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered
into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its
passengers, and that Article 1750* of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is neverthe-
less bound by the provisions thereof. "Such provisions have been held to be a part of the
contract of carriage, and valid and binding upon the passenger regardless of the latter's lack of
knowledge or assent to the regulation".[5] It is what is known as a contract of "adhesion", in
regards which it has been said that contracts of adhesion wherein one party imposes a ready
made form of contract on the other, as the plane ticket in the case at bar, are contracts not
entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely; if
he adheres, he gives his consent.[6] And as held in Randolph v. American Airlines, 103 Ohio
App. 172, 144 N.E. 2d 878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, "a
contract limiting liability upon an agreed valuation does not offend against the policy of the law
forbidding one from contracting against his own negligence."

Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he
cannot be permitted a recovery in excess of P100.00. Besides, passengers are advised not to
place valuable items inside their baggage but "to avail of our V-cargo service" (Exh. "1"). It is
likewise to be noted that there is nothing in the evidence to show the actual value of the goods
allegedly lost by petitioner.

There is another matter involved, raised as an error by PAL - the fact that on October 24, 1974
or two months after the promulgation of the Decision of the appellate Court, petitioner's widow
filed a Motion for Substitution claiming that petitioner died on January 6, 1974 and that she
only came to know of the adverse Decision on October 23, 1974 when petitioner's law partner
informed her that he received copy of the Decision on August 28, 1974. Attached to her Motion
was an Affidavit of petitioner's law partner reciting facts constitutive of excusable
negligence. The appellate Court noting that all pleadings had been signed by petitioner himself
allowed the widow "to take such steps as she or counsel may deem necessary." She then filed a
Motion for Reconsideration over the opposition of PAL which alleged that the Court of Appeals
Decision, promulgated on August 22, 1974, had already become final and executory since no
appeal had been interposed therefrom within the reglementary period.

Under the circumstances, considering the demise of petitioner himself, who acted as his own
counsel, it is best that technicality yields to the interests of substantial justice. Besides, in the
last analysis, no serious prejudice has been caused respondent PAL.

In fine, we hold that the conclusions drawn by respondent Court from the evidence on record
are not erroneous.

WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment
sought to be reviewed hereby affirmed in toto.

No costs.

SO ORDERED.
 [ G.R. No. 70462, August 11, 1988 ]
PAN AMERICAN WORLD AIRWAYS, INC., PETITIONER, VS. INTERMEDIATE
APPELLATE COURT, RENE V. PANGAN, SOTANG BASTOS PRODUCTIONS AND
ARCHER PRODUCTIONS, RESPONDENTS.
DECISION
CORTES, J.:
Before the Court is a petition filed by an international air carrier seeking to limit its liability for
lost baggage, containing promotional and advertising materials for films to be exhibited in
Guam and the U.S.A., clutch bags, barong tagalogs and personal belongings, to the amount
specified in the airline ticket absent a declaration of a higher valuation and the payment of
additional charges.
The undisputed facts of the case, as found by the trial court and adopted by the appellate court,
are as follows:
On April 25, 1978, plaintiff Rene V. Pangan, president and general manager of the plaintiffs
Sotang Bastos and Archer Productions, while in San Francisco, California and Primo Quesada
of Prime Films, San Francisco, California, entered into an agreement (Exh. A) whereby the
former, for and in consideration of the amount of US $2,500.00 per picture, bound himself to
supply the latter with three films, 'Ang Mabait, Masungit at ang Pangit', 'Big Happening with
Chikiting and Iking', and 'Kambal Dragon' for exhibition in the United States. It was also their
agreement that plaintiffs would provide the necessary promotional and advertising materials for
said films on or before May 30, 1978.
On his way home to the Philippines, plaintiff Pangan visited Guam where he contacted Leo
Slutchnick of the Hafa Adai Organization. Plaintiff Pangan likewise entered into a verbal
agreement with Slutchnick for the exhibition of two of the films above-mentioned at the Hafa
Adai Theater in Guam on May 30, 1978 for the consideration of P7,000.00 per picture (p. 11,
tsn, June 20, 1979). Plaintiff Pangan undertook to provide the necessary promotional and
advertising materials for said films on or before the exhibition date on May 30, 1978.
By virtue of the above agreements, plaintiff Pangan caused the preparation of the requisite
promotional handbills and still pictures for which he paid the total sum of P12,900.00 (Exhs. B,
B-1, C and C-1). Likewise in preparation for his trip abroad to comply with his contracts,
plaintiff Pangan purchased fourteen clutch bags, four capiz lamps and four barong tagalog, with
a total value of P4,400.00 (Exhs. D, D-1, E, and F).
On May 18, 1978, plaintiff Pangan obtained from defendant Pan Am's Manila Office through
the Your Travel Guide, an economy class airplane ticket with No. 0269207406324 (Exh. G) for
passage from Manila to Guam on defendant's Flight No. 842 of May 27, 1978, upon payment by
said plaintiff of the regular fare. The Your Travel Guide is a tour and travel office owned and
managed by plaintiff's witness Mila de la Rama.
On May 27, 1978, two hours before departure time, plaintiff Pangan was at the defendant's
ticket counter at the Manila International Airport and presented his ticket and checked in his two
luggages, for which he was given baggage claim tickets Nos. 963633 and 963649 (Exhs. H and
H-1). The two luggages contained the promotional and advertising materials, the clutch
bags, barong tagalog and his personal belongings. Subsequently, Pangan was informed that his
name was not in the manifest and so he could not take Flight No. 842 in the economy class.
Since there was no space in the economy class, plaintiff Pangan took the first class because he
wanted to be on time in Guam to comply with his commitment, paying an additional sum of
$112.00.
When plaintiff Pangan arrived in Guam on the date of May 27, 1978, his two luggages did not
arrive with his flight, as a consequence of which his agreements with Slutchnick and Quesada
for the exhibition of the films in Guam and in the United States were cancelled (Exh. L).
Thereafter, he filed a written claim (Exh. J) for his missing luggages.
Upon arrival in the Philippines, Pangan contacted his lawyer, who made the necessary
representations to protest as to the treatment which he received from the employees of the
defendant and the loss of his two luggages (Exh. M, O, Q, S, and T). Defendant Pan Am assured
plaintiff Pangan that his grievances would be investigated and given its immediate consideration
(Exhs. N, P and R). Due to the defendant's failure to communicate with Pangan about the action
taken on his protests, the present complaint was filed by the plaintiff. (Pages 4-7, Record on
Appeal). [Rollo,pp. 27-29.]
On the basis of these facts, the Court of First Instance found petitioner liable and rendered
judgment as follows:
(1) Ordering defendant Pan American World Airways, Inc. to pay all the plaintiffs the sum of
P83,000.00, for actual damages, with interest thereon at the rate of 14% per annum from
December 6, 1978, when the complaint was filed, until the same is fully paid, plus the
further sum of P10,000.00 as attorney's fees;
(2) Ordering defendant Pan American World Airways, Inc. to pay plaintiff Rene V. Pangan the
sum of P8,123.34, for additional actual damages, with interest thereon at the rate of 14%
per annum from December 6, 1978, until the same is fully paid;
(3) Dismissing the counterclaim interposed by defendant Pan American World Airways, Inc.;
and
(4) Ordering defendant Pan American World Airways, Inc. to pay the costs of suit. [Rollo, pp.
106-107.]
On appeal, the then Intermediate Appellate Court affirmed the trial court's decision.
Hence, the instant recourse to this Court by petitioner.
The petition was given due course and the parties, as required, submitted their respective
memoranda. In due time the case was submitted for decision.
In assailing the decision of the Intermediate Appellate Court petitioner assigned the following
errors:
1. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages beyond the limitation of liability set forth in the Warsaw Convention
and the contract of carriage.
2. The respondent court erred as a matter of law in affirming the trial court's award of
actual damages consisting of alleged lost profits in the face of this Court's ruling
concerning special or consequential damages as set forth in Mendoza v. Philippine
Airlines [90 Phil. 836 (1952).]
The assigned errors shall be discussed seriatim.
1. The airline ticket (Exh. "G") contains the following conditions:
NOTICE
If the passenger's journey involves an ultimate destination or stop in a country other than the
country of departure the Warsaw Convention may be applicable and the Convention governs
and in most cases limits the liability of carriers for death or personal injury and in respect of loss
of or damage to baggage. See also notice headed "Advice to International Passengers on
Limitation of Liability."
CONDITIONS OF CONTRACT
1. As used in this contract "ticket" means this passenger ticket and baggage check, of
which these conditions and the notices form part, "carriage" is equivalent to
"transportation", "carrier" means all air carriers that carry or undertake to carry the
passenger or his baggage hereunder or perform any other service incidental to such air
carriage. "WARSAW CONVENTION" means the Convention for the Unification of
Certain Rules Relating to International Carriage by Air signed at Warsaw, 12th
October 1929, or that Convention as amended at The Hague, 28th September 1955,
whichever may be applicable.
2. Carriage hereunder is subject to the rules and limitations relating to liability
established by the Warsaw Convention unless such carriage is not "international
carriage" as defined by that Convention.
3. To the extent not in conflict with the foregoing carriage and other services performed
by each carrier are subject to: (i) provisions contained in this ticket, (ii) applicable
tariffs, (iii) carrier's conditions of carriage and related regulations which are made part
hereof (and are available on application at the offices of carrier), except in
transportation between a place in the United States or Canada and any place outside
thereof to which tariffs in force in those countries apply.
***
NOTICE OF BAGGAGE LIABILITY LIMITATIONS
Liability for loss, delay, or damage to baggage is limited as follows unless a higher value is
declared in advance and additional charges are paid: (1) for most international travel
(including domestic portions of international journeys) to approximately $9.07 per pound
($20.00 per kilo) for checked baggage and $400 per passenger for unchecked baggage; (2) for
travel wholly between U.S. points, to $750 per passenger on most carriers (a few have lower
limits). Excess valuation may not be declared on certain types of valuable articles. Carriers
assume no liability for fragile or perishable articles. Further information may be obtained from
the carrier. [Emphasis supplied.)
On the basis of the foregoing stipulations printed at the back of the ticket, petitioner contends
that its liability for the lost baggage of private respondent Pangan is limited to $600.00 ($20.00
x 30 kilos) as the latter did not declare a higher value for his baggage and pay the corresponding
additional charges.
To support this contention, petitioner cites the case of Ong Yiu v. Court of Appeals [G.R. No. L-
40597, June 29, 1979, 91 SCRA 223], where the Court sustained the validity of a printed
stipulation at the back of an airline ticket limiting the liability of the carrier for lost baggage to a
specified amount and ruled that the carrier's liability was limited to said amount since the
passenger did not declare a higher value, much less pay additional charges.
We find the ruling in Ong Yiu squarely applicable to the instant case. In said case, the Court,
through Justice Melencio-Herrera, stated:
Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket. . . .
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of
the plane ticket reads:
8. BAGGAGE LIABILITY…The total liability of the Carrier for lost or damaged baggage of the
passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in excess, however, of a total valuation of P1,000.00 and
additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less
did he pay any additional transportation charge.

But petitioner argues that there is nothing in the evidence to show that he had actually entered
into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its
passengers, and that Article 1750* of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is
nevertheless bound by the provisions thereof. "Such provisions have been held to be a part of
the contract of carriage, and valid and binding upon the passenger regardless of the latter's
lack of knowledge or assent to the regulation." [Tannebaum v. National Airline, Inc., 13 Misc.
2d 450, 176 N.Y.S. 2d 400; Lichten v. Eastern Airlines, 87 Fed. Supp. 691; Migoski v. Eastern
Air Lines, Inc., Fla., 63 So. 2d 634.] It is what is known as a contract of "adhesion", in regards
which it has been said that contracts of adhesion wherein one party imposes a ready made form
of contract on the other, as the plane ticket in the case at bar, are contracts not entirely
prohibited. The one who adheres to the contract is in reality free to reject it entirely; if he
adheres, he gives his consent [Tolentino, Civil Code, Vol IV, 1962 ed., p. 462, citing Mr. Justice
J.B.L. Reyes, Lawyer's Journal, Jan. 31, 1951, p. 49]. And as held in Randolph v. American
Airlines, 103 Ohio App. 172, 144 N.E. 2d 878; Rosenchein v. Trans World Airlines, Inc., 349
S.W. 2d 483, "a contract limiting liability upon an agreed valuation does not offend against the
policy of the law forbidding one from contracting against his own negligence."
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he
cannot be permitted a recovery in excess of P100.00. . . .
On the other hand, the ruling in Shewaram v. Philippine Air Lines, Inc. [G.R. No. L-20099, July
2, 1966, 17 SCRA 606], where the Court held that the stipulation limiting the carrier's liability
to a specified amount was invalid, finds no application in the instant case, as the ruling in said
case was premised on the finding that the conditions printed at the back of the ticket were so
small and hard to read that they would not warrant the presumption that the passenger was
aware of the conditions and that he had freely and fairly agreed thereto. In the instant case,
similar facts that would make the case fall under the exception have not been alleged, much less
shown to exist.
In view thereof, petitioner's liability for the lost baggage is limited to $20.00 per kilo or
$600.00, as stipulated at the back of the ticket.
At this juncture, in order to rectify certain misconceptions the Court finds it necessary to state
that the Court of Appeal's reliance on a quotation from Northwest Airlines, Inc. v. Cuenca [G.R.
No. L-22425, August 31, 1965, 14 SCRA 1063] to sustain the view that "to apply the Warsaw
Convention which limits a carrier's liability to US$9.07 per pound or US$20.00 per kilo in cases
of contractual breach of carriage** is against public policy" is utterly misplaced, to say the least.
In said case, while the Court, as quoted in the Intermediate Appellate Court's decision, said:
Petitioner argues that pursuant to those provisions, an air "carrier is liable only" in the event of
death of a passenger or injury suffered by him, or of destruction or loss of, or damage to any
checked baggage or any goods, or of delay in the transportation by air of passengers, baggage or
goods. This pretense is not borne out by the language of said Articles. The same merely declare
the carrier liable for damages in enumerated cases, if the conditions therein specified are
present. Neither said provisions nor others in the aforementioned Convention regulate or
exclude liability for other breaches of contract by the carrier. Under petitioner's theory, an air
carrier would be exempt from any liability for damages in the event of its absolute refusal, in
bad faith, to comply with a contract of carriage, which is absurd.
it prefaced this statement by explaining that:
. . . The case is now before us on petition for review by certiorari, upon the ground that the
lower court has erred: (1) in holding that the Warsaw Convention of October 12, 1929, relative
to transportation by air is not in force in the Philippines; (2) in not holding that respondent has
no cause of action; and (3) in awarding P20,000 as nominal damages.
We deem it unnecessary to pass upon the first assignment of error because the same is the basis
of the second assignment of error, and the latter is devoid of merit, even if we assumed the
former to be well-taken. (Emphasis supplied.)
Thus, it is quite clear that the Court never intended to, and in fact never did, rule against the
validity of provisions of the Warsaw Convention. Consequently, by no stretch of the
imagination may said quotation from Northwest be considered as supportive of the appellate
court's statement that the provisions of the Warsaw Convention limiting a carrier's liability are
against public policy.
2. The Court finds itself unable to agree with the decision of the trial court, and affirmed
by the Court of Appeals, awarding private respondents damages as and for lost profits
when their contracts to show the films in Guam and San Francisco, California were
cancelled.
The rule laid down in Mendoza v. Philippine Air Lines, Inc. [90 Phil. 836 (1952)] cannot be any
clearer:
. . . Under Art. 1107 of the Civil Code, a debtor in good faith like the defendant herein, may be
held liable only for damages that were foreseen or might have been foreseen at the time the
contract of transportation was entered into. The trial court correctly found that the defendant
company could not have foreseen the damages that would be suffered by Mendoza upon failure
to deliver the can of film on the 17th of September, 1948 for the reason that the plans of
Mendoza to exhibit that film during the town fiesta and his preparations, specially the
announcement of said exhibition by posters and advertisement in the newspaper, were not
called to the defendant's attention.
In our research for authorities we have found a case very similar to the one under consideration.
In the case of Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York,
delivered motion picture films to the defendant Fargo, an express company, consigned and to be
delivered to him in Utica. At the time of shipment the attention of the express company was
called to the fact that the shipment involved motion picture films to be exhibited in Utica, and
that they should be sent to their destination, rush. There was delay in their delivery and it was
found that the plaintiff because of his failure to exhibit the film in Utica due to the delay
suffered damages or loss of profits. But the highest court in the State of New York refused to
award him special damages. Said appellate court observed:
But before defendant could be held to special damages, such as the present alleged loss of
profits on account of delay or failure of delivery, it must have appeared that he had notice at the
time of delivery to him of the particular circumstances attending the shipment, and which
probably would lead to such special loss if he defaulted. Or, as the rule has been stated in
another form, in order to impose on the defaulting party further liability than for damages
naturally and directly, i.e., in the ordinary course of things, arising from a breach of contract,
such unusual or extraordinary damages must have been brought within the contemplation of the
parties as the probable result of breach at the time of or prior to contracting. Generally, notice
then of any special circumstances which will show that the damages to be anticipated from a
breach would be enhanced has been held sufficient for this effect.

As may be seen, that New York case is a stronger one than the present case for the reason that
the attention of the common carrier in said case was called to the nature of the articles shipped,
the purpose of shipment, and the desire to rush the shipment, circumstances and facts absent in
the present case. [Emphasis supplied.]

Thus, applying the foregoing ruling to the facts of the instant case, in the absence of a showing
that petitioner's attention was called to the special circumstances requiring prompt delivery of
private respondent Pangan's luggages, petitioner cannot be held liable for the cancellation of
private respondents' contracts as it could not have foreseen such an eventuality when it accepted
the luggages for transit.

The Court is unable to uphold the Intermediate Appellate Court's disregard of the rule laid down
in Mendoza and affirmance of the trial court's conclusion that petitioner is liable for damages
based on the finding that "[t]he undisputed fact is that the contracts of the plaintiffs for the
exhibition of the films in Guam and California were cancelled because of the loss of the two
luggages in question." [Rollo, p. 36] The evidence reveals that the proximate cause of the
cancellation of the contracts was private respondent Pangan's failure to deliver the promotional
and advertising materials on the dates agreed upon. For this petitioner cannot be held liable.
Private respondent Pangan had not declared the value of the two luggages he had checked in and
paid additional charges. Neither was petitioner privy to respondents' contracts nor was its
attention called to the condition therein requiring delivery of the promotional and advertising
materials on or before a certain date.

3. With the Court's holding that petitioner's liability is limited to the amount stated in the
ticket, the award of attorney's fees, which is grounded on the alleged unjustified
refusal of petitioner to satisfy private respondent's just and valid claim, loses support
and must be set aside.

WHEREFORE, the Petition is hereby GRANTED and the Decision of the Intermediate
Appellate Court is SET ASIDE and a new judgment is rendered ordering petitioner to pay
private respondents damages in the amount of US$600.00 or its equivalent in Philippine
currency at the time of actual payment. 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., 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
Corporation[1] (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 Therapy–
Medical 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
guarantee[8] 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. 81-194-F [10] (Performance Bond Guarantee)
in the amount of ID271,808/610 and Letter of Guarantee No. 81-195-F[11] (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 Undertaking[12] executed 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 bond[13] 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
contract[15] 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]
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 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 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]
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]
On 19 June 1991, the petitioner sent to the respondents separate letters demanding full payment
of the amount of P47,872,373.98 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.
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
…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.
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.
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. 81-194-F,
which provides in part as follows:
In consideration of your issuing the above performance guarantee/counter-guarantee, 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 SOB [54]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.
… The petitioner, however, maintains that the payments by SOB of the monthly billings in purely
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;
… following news report that Iraq has defaulted in its obligation with major European
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
counter-guaranteed 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 non-completion 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.
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. Tañedo 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
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 counter-guarantee 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.
… the guaranty. Rights under the deed of undertaking and the surety bond do not arise because
 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 latter[67] 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
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. 101538, June 23, 1992 ]
AUGUSTO BENEDICTO SANTOS III, REPRESENTED BY HIS FATHER AND
LEGAL GUARDIAN, AUGUSTO BENEDICTO SANTOS, PETITIONER, VS.
NORTHWEST ORIENT AIRLINES AND COURT OF APPEALS, RESPONDENTS.
D E C I S I O NAUGUSTO BENEDICTO SANTOS III, REPRESENTED BY HIS
FATHER AND LEGAL GUARDIAN, AUGUSTO BENEDICTO SANTOS,
PETITIONER, VS. NORTHWEST ORIENT AIRLINES AND COURT OF APPEALS,
RESPONDENTS.
DECISION
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;
2. the court of its principal place of business;
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.
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 x x x 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. xxx 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 right. 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 x x x.
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 a 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:
x x x 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:
Article 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 non-waiver 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 en 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:
x x x 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.
xxx
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:
x x x 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." x x x
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."
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 is in
effect a request to create a new jurisdictional standard for the Convention.
Furthermore, it was argued in another case[20] that:
xxx In arriving at an interpretation of a treaty whose sole official language is French, are we
bound to apply French law? xxx We think this question and the underlying choice of law issue
warrant some discussion. xxx 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. xxx
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:
x x x 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," is 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. xxx
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(1) of the Convention, which
reads as follows:
Article 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 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
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 less 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 is 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.
 [ G.R. No. 22595, November 01, 1924 ]
TESTATE ESTATE OF JOSEPH G. BRIMO. JUAN MICIANO, ADMINISTRATOR,
PETITIONER AND APPELLEE, VS. ANDRE BRIMO, OPPONENT AND
APPELLANT.
DECISION
ROMUALDEZ, J.:
The partition of the estate left by the deceased Joseph G. Brimo is in question in this case.
The judicial administrator of this estate filed a scheme of partition. Andre Brimo, one of the
brothers of the deceased, opposed it. The court, however, approved it.
The errors which the oppositor-appellant assigns are: (1) The approval of said scheme of
partition; (2) the denial of his participation in the inheritance; (3) the denial of the motion for
reconsideration of the order approving the partition; (4) the approval of the purchase made by
Pietro Lanza of the deceased's business and the deed of transfer of said business; and (5) the
declaration that the Turkish laws are impertinent to this cause, and the failure not to postpone
the approval of the scheme of partition and the delivery of the deceased's business to Pietro
Lanza until the receipt of the depositions requested in reference to the Turkish laws.
The appellant's opposition is based on the fact that the partition in question puts into effect
the provisions of Joseph G. Brimo's will which are not in accordance with the laws of his
Turkish nationality, for which reason they are void as being in violation of article 10 of the
Civil Code which, among other things, provides the following:
"Nevertheless, legal and testamentary successions, in respect to the order of succession as
well as to the amount of the successional rights and the intrinsic validity of their provisions,
shall be regulated by the national law of the person whose succession is in question,
whatever may be the nature of the property or the country in which it may be situated."
But the fact is that the oppositor did not prove that said testamentary dispositions are not in
accordance with the Turkish laws, inasmuch as he did not present any evidence showing what
the Turkish laws are on the matter, and in the absence of evidence on such
laws, they are presumed to be the same as those of the Philippines. (Lim and
Urn vs. Collector of Customs, 36 Phil., 472.)
It has not been proved in these proceedings what the Turkish laws are. He, himself,
acknowledges it when he desires to be given an opportunity to present evidence on this point;
so much so that he assigns as an error of the court in not having deferred the approval of the
scheme of partition until the receipt of certain testimony requested regarding the Turkish laws
on the matter. The refusal to give the oppositor another opportunity to prove such laws does
not constitute an error. It is discretionary with the trial court, and, taking into consideration that
the oppositor was granted ample opportunity to introduce competent evidence, we find no
abuse of discretion on the part of the court in this particular.
There is, therefore, no evidence in the record that the national law of the testator Joseph G.
Brimo was violated in the testamentary dispositions in question which, not being contrary to
our laws in force, must be complied with and executed.
Therefore, the approval of the scheme of partition in this respect was not erroneous.
In regard to the first assignment of error which deals with the exclusion of the
herein appellant as a legatee, inasmuch as he is one of the persons designated as such in the
will, it must be taken into consideration that such exclusion is based on the last part of the
second clause of the will, which says:
"Second. I likewise desire to state that although, by law, I am a Turkish citizen, this
citizenship having been conferred upon me by conquest and not by free choice, nor by
nationality and, on the other hand, having resided for a considerable length of time in.
the Philippine Islands where I succeeded in acquiring all of the property that I now possess, it
is my wish that the distribution of my property and everything in connection with this, my
will, be made and disposed of in accordance with the laws in force in the Philippine Islands,
requesting all of my relatives to respect this wish, otherwise, I annul and cancel beforehand
whatever disposition found in this will favorable to the person or persons who fail to comply
with this request."
The institution of legatees in this will is conditional, and the condition is that the instituted
legatees must respect the testator's will to distribute his property, not in accordance with the
laws of his nationality, but in accordance with the laws of the Philippines.
If this condition as it is expressed were legal and valid, any legatee who fails to comply
with it, as the herein oppositor who, by his attitude in these proceedings has not respected
the will of the testator, as expressed, is prevented from receiving his legacy.
The fact is, however, that the said condition is void, being contrary to law, for article 792 of
the Civil Code provides the following:
"Impossible conditions and those contrary to law or good morals shall be considered as not
imposed and shall not prejudice the heir or legatee in any manner whatsoever, even should the
testator otherwise provide."
And said condition is contrary to law because it expressly ignores the testator's national law
when, according to article 10 of the Civil Code above quoted, such national law of the
testator is the one to govern his testamentary dispositions.
Said condition then, in the light of the legal provisions above cited, is considered unwritten, and
the institution of legatees in said will is unconditional and consequently valid and effective even
as to the herein oppositor.
It results from all this that the second clause of the will regarding the law which shall govern it,
and to the condition imposed upon the legatees, is null and void, being contrary to law.
All of the remaining clauses of said will with all their dispositions and requests are perfectly
valid and effective it not appearing that said clauses are contrary to the testator's national laws.

Therefore, the orders appealed from are modified and it is directed that the distribution of this
estate be made in such a manner as to include the herein appellant Andre Brimo as one of the
legatees, and the scheme of partition submitted by the judicial administrator is approved in all
other respects, without any pronouncement as to costs. So ordered.
SUCCESSION
[ G.R. No. L-23678, June 06, 1967 ]
TESTATE ESTATE OF AMOS G. BELLIS, DECEASED PEOPLE'S BANK & TRUST
COMPANY, EXECUTOR MARIA CRISTINA BELLIS AND MIRIAM PALMA
BELLIS, OPPOSITORS-APPELLANTS, VS. EDWARD A. BELLIS, ET AL., HEIRS-
APPELLEES.
DECISION
BENGZON, J.P., J.:
This is a direct appeal to Us, upon a question purely of law, from an order of the Court of First
Instance of Manila dated April 30, 1964, approving the project of partition filed by the executor
in Civil Case No. 37089 therein.
The facts of the case are as follows:
Amos G. Bellis, born in Texas, was "a citizen of the State of Texas and of the United States."
By his first wife, Mary E. Mallen, whom he divorced, he had five legitimate children: Edward
A. Bellis, George Bellis (who predeceased him in infancy), Henry A. Bellis, Alexander Bel-
lis and Anna Bellis Allsman; by his second wife, Violet Kennedy, who survived him, he had
three legitimate children: Edwin G. Bellis, Walter S. Bellis and Dorothy Bellis; and finally, he
had three illegitimate children: Amos Bellis, Jr., Maria Cristina Bellis and Miriam
Palma Bellis.
On August 5, 1952, Amos G. Bellis executed a will in the Philippines, in which he directed that
after all taxes, obligations, and expenses of administration are paid for, his distributable estate
should be divided, in trust, in the following order and manner: (a) $240,000.00 to his first wife,
Mary E. Mallen; (b) P120,000.00 to his three illegitimate children, Amos Bellis, Jr., Maria
Cristina Bellis, and Miriam Palma Bellis, or P40,000.00 each and (c) after the foregoing; two
items have been satisfied, the remainder shall go to his seven surviving children by his first and
second wives, namely: Edward A. Bellis, Henry A. Bellis, Alexander Bellis, and
Anna Bellis Allsman, Edwin G. Bellis, Walter S. Bellis, and Dorothy E. Bellis, in equal shares.
Subsequently, or on July 8, 1958, Amos G. Bellis died, a resident of San
Antonio, Texas, U.S.A. His will was admitted to probate in the Court of First Instance of
Manila on September 15, 1958.
The People's Bank and Trust Company, as executor of the will, paid all the bequests therein
including the amount of $240,000.00 in the form of shares of stock to Mary E. Mallen and to the
three (3) illegitimate children, Amos Bellis, Jr., Maria Cristina Bellis and Miriam Palma Bellis,
various amounts totalling P40,000.00 each in satisfaction of their respective legacies, or a total
of P120,000.00, which it released from time to time according as the lower court approved and
allowed the various motions or petitions filed by the latter three requesting partial advances on
account of their respective legacies.
On January 8, 1964, preparatory to closing its administration, the executor submitted and filed
its "Executor's Final Account, Report of Administration and Project of Partition" wherein it
reported, inter alia, the satisfaction of the legacy of Mary E. Mallen by the delivery to her of
shares of stock amounting to $240,000.00, and the legacies of Amos Bellis, Jr., Maria
Cristina Bellis and Miriam Palma Bellis in the amount of P40,000.00 each or a total of
P120,000.00. In the project of partition, the executor - pursuant to the "Twelfth" clause of the
testator's Last Will and Testament - divided the residuary estate into seven equal portions for the
benefit of the testator's seven legitimate children by his first and second marriages.
On January 17, 1964, Maria Cristina Bellis and Miriam Palma Bellis filed their respective
oppositions to the project of partition on the ground that they were deprived of their legitimes as
illegitimate children and, therefore, compulsory heirs of the deceased.
Amos Bellis, Jr. interposed no opposition despite notice to him, proof of service of which is
evidenced by the registry receipt submitted on April 27, 1964 by the executor[1]
After the parties filed their respective memoranda and other pertinent pleadings, the lower court,
on April 30, 1964, issued an order overruling the oppositions and approving the executor's final
account, report and administration and project of partition. Relying upon Art. 16 of the Civil
Code, it applied the national law of the decedent, which in this case is Texas law, which did not
provide for legitimes.
Their respective motions for reconsideration having been denied by the lower court on June 11,
1964, oppositors-appellants appealed to this Court to raise the issue of which law must apply
- Texas law or Philippine law.
In this regard, the parties do not submit the case on, nor even discuss, the doctrine of renvoi,
applied by this Court in Aznar v. Christensen Garcia, L-16749, January 31, 1963. Said doctrine
is usually pertinent where the decedent is a national of one country, and a domicile of
another. In the present case, it is not disputed that the decedent was both a national
of Texas and a domicile thereof at the time of his death.[2] So that even assuming Texas has a
conflict of law rule providing that the domiciliary system (law of the domicile) should govern,
the same would not result in a reference back (renvoi) to Philippine law, but would still refer
to Texas law. Nonetheless, if Texas has a conflicts rule adopting the situs theory (lex rei sitae)
calling for the application of the law of the place where the properties are situated, renvoi would
arise, since the properties here involved are found in the Philippines. In the absence, however,
of proof as to the conflict of law rule of Texas, it should not be presumed different from
ours.[3] Appellants' position is therefore not rested on the doctrine of renvoi. As stated, they
never invoked nor even mentioned it in their arguments. Rather, they argue that their case falls
under the circumstances mentioned in the third paragraph of Article 17 in relation to Article 16
of the Civil Code.
Article 16, par. 2, and Art. 1039 of the Civil Code, render applicable the national law of the The parties admit that the decedent, Amos G. Bellis, was a citizen of the State of Texas, U.S.A.,
decedent, in intestate or testamentary successions, with regard to four items: (a) the order of and that under the laws of Texas, there are no forced heirs or legitimes. Accordingly, since the
succession; (b) the amount of successionalrights; (c) the intrinsic validity of the provisions of intrinsic validity of the provision of the will and the amount of successional rights are to be
the will; and (d) the capacity to succeed. They provide that - determined under Texas law, the Philippine law on legitimescannot be applied to the testacy of
Amos G. Bellis.
"Art. 16. Real property as well as personal property is subject to the law of the country where it
is situated. WHEREFORE, the order of the probate court is hereby affirmed in toto, with costs against
appellants.
"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,
SO ORDERED.
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."
"Art. 1039. Capacity to succeed is governed by the law of the nation of the decedent."

Appellants would however counter that Art. 17, paragraph three, of the Civil Code, stating that ?

"Prohibitive laws concerning persons, their acts or property, and those which have for their
object public order, public policy and good customs shall not be rendered ineffective by laws or
judgments promulgated, or by determinations or conventions agreed upon in a foreign country."

prevails as the exception to Art. 16, par. 2 of the Civil Code afore-quoted. This is not
correct. Precisely, Congress deleted the phrase, “notwithstanding the provisions of this and the
next preceding article' when they incorporated Art. 11 of the old Civil Code as Art. 17 of the
new Civil Code, while reproducing without substantial change the second paragraph of Art. 10
of the old Civil Code as Art. 16 in the new. It must have been their purpose to make the second
paragraph of Art. 16 a specific provision in itself which must be applied in testate and intestate
successions. As further indication of this legislative intent, Congress added a new provision,
under Art. 1039, which decrees that capacity to succeed is to be governed by the national law of
the decedent.

It is therefore evident that whatever public policy or good customs may be involved in our
system of legitimes, Congress has not intended to extend the same to the succession of foreign
nationals. For it has specifically chosen to leave, inter alia, the amount of successional rights, to
the decedent's national law. Specific provisions must prevail over general ones.

Appellants would also point out that the decedent executed two wills - one to govern his Texas
estate and the other his Philippine estate - arguing from this that he intended Philippine law to
govern his Philippine estate. Assuming that such was the decedent's intention in executing a
separate Philippine will, it would not alter the law, for as this Court ruled in
the Miciano v. Brimo, 50 Phil. 867, 870, a provision in a foreigner's will to the effect that his
properties shall be distributed in accordance with Philippine law and not with his national law,
is illegal and void, for his national law cannot be ignored in regard to those matters that Article
10 - now Article 16 - of the Civil Code states said national law should govern.
 [ G. R. No. L-16749, January 31, 1963 ]
IN THE MATTER OF THE TESTATE ESTATE OF EDWARD E. CHRISTENSEN,
DECEASED. ADOLFO C. AZNAR, EXECUTOR AND LUCY CHRISTENSEN, HEIR
OF THE DECEASED, EXECUTOR AND HEIR-APPELLEES, VS. HELEN
CHRISTENSEN GARCIA, OPPOSITOR AND APPELLANT.
DECISION
LABRADOR, J.:
This is an appeal from a decision of the Court of First Instance of Davao, Hon. Vicente N. Cusi,
Jr., presiding, in Special Proceeding No. 622 of said court, dated September 14, 1949, approving
among other things the final accounts of the executor, directing the executor to reimburse Maria
Lucy Christensen the amount of P3,600 paid by her to Helen Christensen Garcia as her legacy,
and declaring Maria Lucy Christensen entitled to the residue of the property to be enjoyed
during her lifetime, and in case of death without issue, one-half of said residue to be payable to
Mrs. Carrie Louise C. Borton, etc., in accordance with the provisions of the will of the testator
Edward E. Christensen. The Will was executed in Manila on March 5, 1951 and contains the
following provisions:
"3. I declare * * * that I have but one (1) child, named Maria Lucy Christensen (now Mrs.
Bernard Daney), who was born in the Philippines about twenty-eight years ago, and who is now
residing at No. 665 Rodger Young Village, Los Angeles, California, U.S.A.
"4. I further declare that I now have no living ascendants, and no descendants except my above
named daughter, Maria Lucy Christensen Daney.
* * * * * * * absolute dominion over his property is sacred and inviolable (In re McDaniel's Estate, 77 Cal.
"7. I give, devise and bequeath unto Maria Helen Christensen, now married to Eduardo Garcia,
about eighteen years of age and who, notwithstanding the fact that she was baptized
Christensen, is not in any way related to me, nor has she "been at any time adopted by me, and
who, from all information I have now resides in Egpit, Digos, Davao, Philippines, the sum of
Three Thousand Six Hundred Pesos (P3,600.00), Philippine Currency, the same to be deposited
in trust for the said Maria Helen Christensen with the Davao Branch of the Philippine National
Bank, and paid to her at the rate of One Hundred Pesos (P100.00), Philippine Currency per
month until the principal thereof as well as any interest which may have accrued thereon, is
exhausted.
* * * * * * *
"'12. I hereby give, devise and bequeath, unto my well-beloved daughter, the said Maria Lucy
Christensen Daney (Mrs. Bernard Daney), now residing as aforesaid at No. 665 Rodger Young
Village, Los Angeles, California, U.S.A., all the Income from the rest, remainder, and residue of
my property and estate, real, personal and/ or mixed, of whatsoever kind or character, and
wheresoever situated, of which I may he possessed at my death and which may have come to
me from any source whatsoever, during her lifetime: * * *"
It is in accordance with the above-quoted provisions that the executor in his final account and
project partition ratified the payment of only P3,600 to Helen Christensen Garcia and proposed
that the residue of the estate be transferred to his daughter, Maria Lucy Christensen.
Opposition to the approval of the project of partition was filed by Helen Christensen Garcia,
insofar as it deprives her (Helen) of her legitime as an acknowledged natural child, she having
been declared by Us in G.R. Nos. L-11483-84 an acknowledged natural child of the deceased
Edward E. Christensen. The legal grounds of opposition are (a) that the distribution should be
governed by the laws of the Philippines , and (b) that said order of distribution is contrary
thereto insofar as it denies to Helen Christensen, one of two acknowledged natural children,
one-half of the estate in full ownership. In amplification of the above grounds it was alleged that
the law that should govern the estate of the deceased Christensen should not be the internal law
of California alone, but the entire law thereof because several foreign elements are involved,
that the forum is the Philippines and even if the case were decided in California, Section 946 of
the California Civil Code, which requires that the domicile of the decedent apply, should be
applicable. It was also alleged that Maria Helen Christensen having been declared an
acknowledged natural child of the decedent, she is deemed for all purposes legitimate from the
time of her birth.
The court below ruled that as Edward E. Christensen was a citizen of the United States and of
the State of California at the time of his death, the successional rights and intrinsic validity of
the provisions in his will are to be governed by the law of California, in accordance with which
a testator has the right to dispose of his property in the way he desires, because the right of
Appl. 2d 877, 176 P. 2d 952, and In re Kaufman, 117 Cal. 286, 49 Pac. 192, cited in page 179,
Record on Appeal). Oppositor Maria Helen Christensen, through counsel, filed various motions
for reconsideration, but these were denied. Hence this appeal.
The most important assignments of error are as follows:
I
The lower court erred in ignoring the decision of the Honorable Supreme Court that Helen is the
acknowledged natural child of Edward E. Christensen and, consequently, in depriving her of her
just share in the inheritance.
II
The lower Court erred in entirely ignoring and/or failing to recognize the existence of several
factors, elements and circumstances calling for the application of international law.
III
The lower court erred in failing to recognize that under international law, particularly under the
Renvoi Doctrine, the intrinsic validity of the testamentary disposition or the distribution of the
estate o£ the deceased Edward E. Christensen should be governed by the laws of the
Philippines.
IV
"The lower court erred in not declaring that the schedule of distribution submitted by the
executor is contrary to the Philippine laws.
V
The lower Court erred in not declaring that under the Philippine Laws Helen Christensen
Garcia. U entitled to one-half (1/2) of the estate in full ownership. There is no question that
Edward E. Christensen was a citizen of the United States and of the State of California at the
time of his death. But there is also no question that at the time of his death he was domiciled in
the Philippines , as witness the following facts admitted by the executor himself in appellee's
brief:
"In the proceedings for admission of the will to probate, the facts of record show that the
deceased Edward E. Christensen was born on November 29, 1875 , in Now York City , N. Y.,
U.S.A. ; his first arrival in the Philippines , as an appointed school teacher, was on July 1, 1901 ,
on board the U.S. Army Transport 'Sheridan' with Port of Embarkation as the City of San .
Francisco, in the State of California , U.S.A. Ho stayed in the, Philippines until 1904.
"In December, 1904, Mr. Christensen returned to the United States and stayed there for the
following nine years until 1913, during which time he resided in, and was teaching school in
Sacramento , California .
"Mr. Christensen's next arrival in the Philippines was in July of the year 1913. However, in
1928, he again departed the Philippines for the United States and came back here the following
year, 1929. Some nine years later, in 1938, he again returned to his own country, and came back
to the Philippines the following year, 1939.
"Being an American citizen, Mr. Christensen was interned by the Japanese Military Forces in
the Philippines during "World War II. Upon liberation, in April 1945, he left for the United
States but returned to the Philippines in December, 1945. Appellees' Collective Exhibits '6’, CFI
Davao , Sp. Proc. 622, as Exhibits 'AA', 'BB’ and 'CC-Paney'; Exhs. 'MM', ‘MM-1', 'MM-2-
Daney', and p. 473, t.s.n., July 21, 1953 .
"In April, 1901, Edward E. Christensen returned once more to California shortly after the
making of his last will and testament (now in question herein) which he executed at his lawyers'
offices in Manila on March 5, 1951 . He died at the St. Luke's Hospital in the City of Manila on
April 30, 1953 ." (Pp. 2-3)
In arriving at the conclusion that the domicile of the deceased is the Philippines, we are
persuaded by the fact that he was born in Now York, migrated to California and resided there
for nine years, and since he came to the Philippines in 1913 he returned to California very rarely
and only for short visits (perhaps to relatives), and considering that he appears never to have
owned or acquired a home or properties in that state, which would indicate that he would
ultimately abandon the Philippines and make home in the State of California.
"Sec. 16. Residence is a term used with many shades of meaning from mere temporary presence
to the most permanent abode. Generally, however, it is used to denote something more than
mere physical presence." (Goodrich on Conflict of Laws, p. 29)
As to his citizenship, however, we find that the citizenship that he acquired in California when
he resided in Sacramento, California from 1904 to 1913, was never lost by his stay in the
Philippines, for the latter was a territory of the United States (not a state) until 1946 and the
deceased appears to have considered himself as a citizen of California by the fact that when he
executed his will in 1951 he declared that he was a citizen of that Estate; so that he appears
never to have intended to abandon his California citizenship by acquiring another. This
conclusion is in accordance with the following principle expounded by Goodrich in his Conflict
of Laws.
"The terms 'residence' and 'domicile' might well be taken to mean the same thing, a place of
permanent abode. But domicile, as has been shown, has acquired a technical meaning. Thus one
may be domiciled in a place where he has never been. And he may reside in a place where he
has no domicile. The man with two homes, between which he divides his time, certainly resides
in each one, while living in it. But if he went on business which would require his presence for
several weeks or months, he might properly be said to have sufficient connection with the place
to be called a resident. It is clear, however, that, if he treated his settlement as continuing: only
for the particular business in hand, not giving up his former "home," he could not "he a
domiciled New Yorker. Acquisition of a domicile of choice requires the exercise of intention as
well as physical presence. 'Residence simply requires bodily presence as an inhabitant in a given
places while domicile requires bodily presence in that place and also an intention to make it
one's domicile.' Residence, however, is a term used with many shades of meaning, from the
merest temporary presence to the most permanent abode, and it is not safe to insist that any one
use is the only proper one." (Goodrich, p. 29)
The law that governs the Validity of his testamentary dispositions is defined in Article 16 of the
Civil Code of the Philippines , which is as follows:
"Art. 16. Real property as well as personal property is subject to the law of the country where it
is situated.
"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 he the nature of the property and regardless of the country wherein said property
may be found."
The application of this article in the case at bar requires the determination of the meaning of the
term "national law" as used therein.
There is no single American law governing the validity of testamentary provisions in the United
States, each State of the Union having its own private law applicable to its citizens only and in
force only within the state, The "national law" indicated in Article 16 of the Civil Code above
quoted can not, therefore, possibly mean or apply to any general American law. So it can refer
to no other than the private law of the state of which the decedent is a citizen, in the case at bar,
the private law of the State of California .
The next question is: "What is the law in California governing the disposition of personal
property? The decision of the court below, sustains the contention of the executor-appellee that
under the California Probate Code, a testator may dispose of his property by will in the form and
manner he desires, citing the case of Estate of Mc Daniel, 77 Cal. Appl. 2d 877, 176 P. 2d 952.
But appellant invokes the provisions of Article 946 of the Civil Code of California, which is as
follows:
"If there is no law to the contrary, in the place where personal property is situated, it is deemed
to follow the person of its owner, and is governed by the law of his domicile."
The existence of this' provision is alleged in appellant's opposition and is not denied. We have
checked it in the California Civil Code and it is there. Appellee, on the other hand, relies on the
case cited in the decision and testified to by a witness. (Only the case Kaufman is correctly
cited.) It is argued on executor's behalf that as the deceased Christensen was a citizen of the
State of California, the internal law thereof, which is that given in the above-cited case, should
govern the determination of the validity of the testamentary provisions of Christensen's will,
such law being in force in the State of California of which Christensen was a citizen. Appellant,
on the other hand, insists that Article 946 should be applicable, and in accordance therewith and
following the doctrine of renvoi, the question of the validity of the testamentary provision in
question should be referred back to the law of the decedent's domicile, which is the Philippines .
The theory or doctrine of renvoi has been defined by various authors, thus:
"The problem has been stated in this way: 'When the Conflict of Laws rule of the forum refers a
jural matter to a foreign law for decision, is the reference to the corresponding rule of the
Conflict of Law of that foreign law, or is the reference to the purely internal rules of law of the
foreign system; i.e., to the totality of the foreign law, minus its Conflict of Laws rules?’
"On logic, the solution, is' not an easy one. The Michigan court chose, to accept the renvoi, that
is, applied the Conflict of Laws rule of Illinois which referred the matter back to Michigan law.
But once having: determined that the Conflict of Laws principle is the rule looked to, it is
difficult to see why the reference back should not have been to Michigan Conflict of Laws. This
would have resuited in the 'endless chain of references' which has so often been criticized by
legal writers. The opponents of the renvoi would have looked merely to the internal law of
Illinois , thus rejecting the renvoi or the reference back. Yet there seems no compelling logical
reason why the original reference should be to the internal law rather than to the Conflict of
Laws rule. It is true that such a solution avoids going on a merry-go-round, but those who have
accepted the renvoi theory avoid this inextricabilis circulus by getting off at the second
reference and at that point applying internal law. Perhaps the opponents of the renvoi are a bit
more consistent for they look always to internal law as the rule of reference.
"Strangely enough, both the advocates for and the objectors to the renvoi plead that greater
uniformity will result from adoption of their respective views. And still more strange is the fact
that the only way to achieve uniformity in this choice-of-law problem is if in the dispute the two
states whose laws form the legal basis of the litigation disagree as to whether the renvoi should
be accepted. It both reject, or both accept the doctrine, the result of the litigation will vary with
the choice of the forum. In the case stated above, had the Michigan court rejected the renvoi,
judgment would have been against the woman; if the suit had been brought in the Illinois courts,
and they too rejected the renvoi, judgment would be for the woman. The game result "would
happen, though the courts would switch with respect to which would hold liability, if both
courts accepted the renvoi.
"The Restatement accepts the renvoi theory in two instances: where the title to land is in
question, and where the validity of a decree of divorce is challenged. In these cases, the Conflict
of Laws rule of the situs of the land, or the domicile of the parties in the divorce case, is applied
by the forum, but any further reference goes only to the internal law. Thus, a person's title to
land, recognized by the situs, will be recognized by every court; and every divorce, valid by the
domicile of the parties, will be valid everywhere." (Goodrich, Conflict of Laws, Sec. 7, pp. 18-
14.)
"X, a citizen of Massachusetts , dies intestate, domiciled in France , leaving movable property in
Massachusetts , England , and France . The question arises as to how this property is to be
distributed among X's nest of kin.
"Assume (1) that this question arises in a Massachusetts court. There the rule of the conflict of
laws as to intestate succession to movables calls for an application of the law of the deceased's
last domicile. Since by hypothesis X's last domicile was France, the natural thing for the
Massachusetts court to do would be to turn to French statute of distributions, or whatever
corresponds thereto in French law, and decree a distribution accordingly. An examination of
French law, however, would show that if a French court were called upon to determine how this
property should be distributed, it would refer the distribution to, the national law of the
deceased, thus applying the Massachusetts state of distributions. So on the surface of things the
Massachusetts court has open to it alternative course of action: (a) either to apply the French
laws as to intestate succession, or (b) to resolve itself into a French court and apply the
Massachusetts statute of distributions, on the assumption that this is what, a French court would
do. If it accepts the so-called renvoi doctrine, it will follow the latter course, thus applying its
own law.
"This is one type of renvoi. A jural matter is presented which the conflict-of-laws rule of the
forum refers to a foreign law; the conflict-of-laws rule of which, in turn refers the matter back
again to the law of the forum. This is renvoi in the norrower sense. The German term for this
judicial process is 'Ruckverweisung.'" (Harvard Law Review, Vol. 31, pp. 523-571.)
"After a decision has been arrived at that a foreign law is to be resorted to as governing a
particular case, the further question may arise: Are the rules as to the conflict of laws contained
in such foreign law also to be resorted to? This is a question which, while it has been considered
by the courts in but a few instances, has been the subject of frequent discussion by textwriters
and essayists; and the doctrine involved has been descriptively designated by them as the
'Renvoyer' to send back, or the Ruchverswisung', or the 'Weiterverweisung', since an affirmative
answer to the question postulated and the operation of the adoption of the foreign law in toto
would in many cases result in returning the main controversy to be decided according to the law
of the forum' * * *" (15 C.J.S. 872.)
"Another theory, known as the 'doctrine of renvoi', has been advanced. The theory of the
doctrine of renvoi is that the court of the forum, in determining the question before it, must take
into account the whole law of the other jurisdiction, but also its rules as to conflict of laws, and
then apply the law to the actual question which the rules of the other jurisdiction prescribe. This
may be the law of the forum. The doctrine of the renvoi has generally been repudiated by the
American authorities." (2 Am. Jur. 296.)
The scope of the theory of renvoi has also been defined and the reasons for its application in a
country explained by Prof. Lorenzen in an article in the Yale Law Journal, Vol. 27, 1917-1918,
pp. 509-531. The pertinent parts of the article are quoted herein below:
"The recognition of the renvoi theory implies that the rules of the conflict of laws are to be
understood as incorporating not only the ordinary or internal law of the foreign state or country,
but its rules of the conflict of laws as well. According to this theory the law of a country’ means
the whole of its law.
* * * * * * * borders of the domiciliary state. The rules of the domicile are recognized as controlling by the
"Von Bar presented his views at the meeting of the institute of International Law , at Neuchatel,
in 1900, in the form of the following theses:
"(1) Every court shall observe the law of its country as regards the application of foreign laws.
"(2) Provided that no express provision to the contrary exists, the court shall respect:
"(a) The provisions of a foreign law which disclaims the right to bind its nationals abroad as
regards their personal statute, and desires that said personal statute shall be determined by law
of the domicile, or even by the law of the place where the act in question occurred.
"(b) The decision of two or more foreign systems of law, provided it be certain that one of them
is necessarily competent, which agree in attributing the determination of a question to the same
system of law.
* * * * * * *
"If, for example, the English Law directs its judge to distribute the personal estate of an
Englishman who has died domiciled in Belgium in accordance with the law of his domicile, he
must first inquire whether the law of Belgium would, distribute personal property upon death in
accordance with the law of domicile, and if he finds that the Belgian law would make the
distribution in accordance with the law of nationality—that is the English law,—he must accept
this reference back to his own law."
We note that Article 946 of the California Civil Code as its conflict of laws rule while the rule
applied in In re Kaufman, supra, its internal law. If the law on succession and the conflict of,
law rules of California are to be enforced jointly, each in its own intended and appropriate
sphere, the principle cited In re Kaufman should apply to citizens living in the State, but Article
946 should apply to such of its citizens as are not domiciled in California but in other
jurisdictions. The rule laid down of resorting to the law of the domicile in the determination of
matters with foreign element involved is in accord with the general principle of American law
that the domiciliary law should govern in most matters or rights which follow the person of the
owner.
"When a man dies leaving personal property in one or more states, and leaves a will directing
the manner of distribution of the property, the law of the state where he was domiciled at the
time of his death win be looked to in deciding legal questions about the will, almost as
completely as the law of the situs is consulted in questions about the devise of land. It is logical
that, since the domiciliary rules control devolution of the personal estate in ease of intestate
succession, the same rules should determine the validity of an attempted testamentary
disposition of the property. Here, also, it is not that the domiciliary has effect beyond the
Conflict of Laws rules at the situs of the property, and the reason for the recognition as in the
case of intestate succession, is the general convenience of the doctrine. The New York court has
said on the point; 'The general principle that a disposition of personal property, valid at the
domicile of the owner, is valid everywhere, is one of universal application. It had its origin in
that international comity which was one of the first fruits of civilization, and in this age, when
business intercourse and the process of accumulating1 property take but little notice of
boundary lines, the practical wisdom and justice of the rule is more apparent than ever.'"
(Goodrich, Conflict of Laws, Sec. 164, pp. 442-443.)
Appellees argue that what Article 16 of the Civil Code of the Philippines pointed out as
the national law is the internal law of California . But as above explained, the laws of California
have prescribed two sets of laws for its citizens, one for residents therein and. another for those
domiciled in other jurisdictions. Reason demands that We should enforce the California ,
internal law prescribed for its citizens residing therein, and enforce the conflict of law rules law
for the citizens domiciled abroad. If we must enforce the law of California as in comity we are
bound to do, as so declared in Article 16 of our Civil Code, then we must enforce the law of
California in accordance with the express mandate thereof and as above explained, i.e., apply
the internal law for residents therein, and its conflict of laws rule for those domiciled abroad.

It is argued on appellees behalf that the clause "if there is no law to the contrary in the place
where the property is situated" in. Sec. 946 of the California Civil Coda refers to Article 16 of
the Civil Code of the Philippines and that the law to the contrary in the Philippines is the
provision in said Article 16 that the national of the deceased should govern. This contention can
not be sustained. As explained in the various authorities cited above the national law mentioned
in Article 16 of our Civil Code is the law on conflict of laws in the California Civil Code, i.e.,
Article 946, which authorizes the reference or return of the question to the law of the testator's
domicile. The conflict of law rule in California, Article 946, Civil Code, precisely refers back
the case, when a decedent is not domiciled in California, to the law of his domicile, the
Philippines in the case at bar. The court of the domicile can not and should not refer the case
back to California; such action would leave the issue incapable of determination because the
case will then be like a football, tossed back and forth between the two states, between the
country of which the decedent was a citizen and the country of his domicile. The Philippine
court must apply its own law as directed in the conflict of law rule of the state of the decedent, if
the question has to be decided, especially as the application of the internal law of California
provides no legitime for children while the Philippine law, Arts. 887 (4) and 894, Civil Code of
the Philippines , makes natural children legally acknowledged forced heirs of the parent
recognizing them.

The Philippine cases (In Re Estate of Johnson, 39 Phil., 156; Riera vs. Palmaroli, 40 Phil., 105;
Miciano vs. Brimo, 50 Phil., 867; Babcock Templeton vs. Rider Babcock, 52 Phil., 130; and
Gibbs vs. Government, 59 Phil., 293.) cited by appellees to support the decision can not
possibly apply in the case at bar, for two important reasons, i.e., the subject in each case does
not appear to be a citizen of a state in the United States but with domicile in the Philippines, and
it does not appear in each case that there exists in the state of which the subject is a citizen, a
law similar to or identical with Art. 946 of the California Civil Code.

We therefore find that as the domicile of the deceased Christensen, a citizen of California , is
the Philippines , the validity of the provisions of his will depriving his acknowledged natural
child, the appellant, should be governed by the Philippine law, the domicile, pursuant to Art.
946 of the Civil Code of California, not by the internal law of California .

Wherefore, the decision appealed from is hereby reversed and the case returned to the lower
court with instructions that the partition be made as the Philippine law on succession provides.
Judgment reversed, with costs against appellees.
 [ G.R. No. L-7188, August 09, 1954 ]
IN RE: WILL AND TESTAMENT OF THE DECEASED REVEREND SANCHO
ABADIA. SEVERINA A. VDA. DE ENRIQUEZ, ET AL., PETITIONERS AND
APPELLEES, VS. MIGUEL ABADIA, ET AL., OPPOSITORS AND APPELLANTS.
DECISION
MONTEMAYOR, J.:
On September 6, 1923, Father Sancho Abadia, parish priest of Talisay, Cebu, executed a
document purporting to be his Last Will and Testament now marked Exhibit "A". Resident of
the City of Cebu, he died on January 14, 1943, in the municipality of Aloguinsan, Cebu, where
he was an evacue. He left properties estimated at P8,000 in value. On October 2, 1946, one
Andres Enriquez, one of the legatees in Exhibit "A", filed a petition for its probate in the Court
of First Instance of Cebu. Some cousins and nephews who would inherit the estate of the
deceased if he left no will, filed opposition.
During the hearing one of the attesting witnesses, the other two being dead, testified without
contradiction that in his presence and in the presence of his co-witnesses, Father Sancho wrote
out in longhand Exhibit "A" in Spanish which the testator spoke and understood; that he
(testator) signed on he left hand margin of the front page of each of the three folios or sheets of
which the document is composed, and numbered the same with Arabic numerals, and finally
signed his name at the end of his writing at the last page, all this, in the presence of the three
attesting witnesses after telling that it was his last will and that the said three witnesses signed
their names on the last page after the attestation clause in his presence and in the presence of
each other. The oppositors did not submit any evidence.
The learned trial court found and declared Exhibit "A" to be a holographic will; that it was in
the handwriting of the testator and that although at the time it was executed and at the time of
the testator's death, holographic wills were not permitted by law still, because at the time of the
hearing and when the case was to be decided the new Civil Code was already in force, which
Code permitted the execution of holographic wills, under a liberal view, and to carry out the
intention of the testator which according to the trial court is the controlling factor and may
override any defect in form, said trial court by order dated January 24, 1952, admitted to probate
Exhibit "A", as the Last Will and Testament of Father Sancho Abadia. The oppositors are
appealing from that decision; and because only questions of law are involved in the appeal, the
case was certified to us by the Court of Appeals.
The new Civil Code (Republic Act No. 386) under article 810 thereof provides that a person
may execute a holographic will which must be entirely written, dated and signed by the testator
himself and need not be witnessed. It is a fact, however, that, at the time that Exhibit "A" was
executed in 1923 and at the time that Father Abadia died in 1943, holographic wills were not
permitted, and the law at the time imposed certain requirements for the execution of wills, such
as numbering correlatively each page (not folio or sheet) in letters and signing on the left hand
margin by the testator and by the three attesting witnesses, requirements which were not
complied with in Exhibit "A" because the back pages of the first two folios of the will were not
signed by any one, not even by the testator and were not numbered, and as to the three front
pages, they were signed only by the testator.
Interpreting and applying this requirement this Court in the case of In re Estate of Saguinsin, 41
Phil., 875, 879, referring to the failure of the testator and his witnesses to sign on the left hand
margin of every page, said:
"* * *. This defect is radical and totally vitiates the testament. It is not enough that the
signatures guaranteeing authenticity should appear upon two folios or leaves; three pages having
been written on, the authenticity of all three of them should be guaranteed by the signature of
the alleged testatrix and her witnesses."
And in the case of Aspe vs. Prieto, 46 Phil., 700, referring to the same requirement, this Court
declared:
"From an examination of the document in question, it appears that the left margins of the six
pages of the document are signed only by Ventura Prieto. The noncompliance with section 2 of
Act No. 2645 by the attesting witnesses who omitted to sign with the testator at the left margin
of each of the five pages of the document alleged to be the will of Ventura Prieto, is a fatal
defect that constitutes an obstacle to its probate."
What is the law to apply to the probate of Exh. "A"? May we apply the provisions of the new
Civil Code which now allows holographic wills, like Exhibit "A" which provisions were
invoked by the appellee-petitioner and applied by the lower court? But article 795 of this same
new Civil Code expressly provides: "The validity of a will as to its form depends upon the
observance of the law in force at the time it is made." The above provision is but an expression
or statement of the weight of authority to the effect that the validity of a will is to be judged not
by the law enforce at the time of the testator's death or at the time the supposed will is presented
in court for probate or when the petition is decided by the court but at the time the instrument
was executed. One reason in support of the rule is that although the will operates upon and after
the death of the testator, the wishes of the testator about the disposition of his estate among his
heirs and among the legatees is given solemn expression at the time the will is executed, and in
reality, the legacy or bequest then becomes a completed act. This ruling has been laid down by
this court in the case of In re Will of Riosa, 39 Phil., 23. It is a wholesome doctrine and should
be followed.
Of course, there is the view that the intention of the testator should be the ruling and controlling
factor and that all adequate remedies and interpretations should be resorted to in order to carry
out said intention, and that when statutes passed after the execution of the will and after the
death of the testator lessen the formalities required by law for the execution of wills, said
subsequent statutes should be applied so as to validate wills defectively executed according to
the law in force at the time of execution. However, we should not forget that from the day of the
death of the testator, if he leaves a will, the title of the legatees and devisees under it becomes a
vested right, protected under the due process clause of the constitution against a subsequent
change in the statute adding new legal requirements of execution of wills which would
invalidate such a will. By parity of reasoning, when one executes a will which is invalid for
failure to observe and follow the legal requirements at the time of its execution then upon his
death he should be regarded and declared as having died intestate, and his heirs will then inherit
by intestate succession, and no subsequent law with more liberal requirements or which
dispenses with such requirements as to execution should be allowed to validate a defective will
and thereby divest the heirs of their vested rights in the estate by intestate succession. The
general rule is that the Legislature can not validate void wills (57 Am. Jur., Wills, Sec. 231, pp.
192-193).

In view of the foregoing, the order appealed from is reversed, and Exhibit "A" is denied probate.
With costs.
PROPERTY
[ G.R. No. 92013, July 25, 1990 ]
SALVADOR H. LAUREL, PETITIONER, VS. RAMON GARCIA, AS HEAD OF THE
ASSET PRIVATIZATION TRUST, RAUL MANGLAPUS, AS SECRETARY OF
FOREIGN AFFAIRS, AND CATALINO MACARAIG, AS EXECUTIVE SECRETARY,
RESPONDENTS.
[G. R. NO. 92047. JULY 25, 1990]
DIONISIO S. OJEDA, PETITIONER, VS. EXECUTIVE SECRETARY MACARAIG,
JR., ASSETS PRIVATIZATION TRUST CHAIRMAN RAMON T. GARCIA,
AMBASSADOR RAMON DEL ROSARIO, ET AL., AS MEMBERS OF THE
PRINCIPAL AND BIDDING COMMITTEES ON THE UTILIZATION/DISPOSITION
OF PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN, RESPONDENTS.
DECISION
GUTIERREZ, JR., J.:
These are two petitions for prohibition seeking to enjoin respondents, their representatives
and agents from proceeding with the bidding for the sale of the 3,179 square meters of land at
306 Roppongi, 5-Chome Minato-ku, Tokyo,Japan scheduled on February 21, 1990. We granted
the prayer for a temporary restraining order effective February 20, 1990. One of the petitioners
(in G. R. No. 92047) likewise prays for a writ of mandamus to compel the respondents to fully
disclose to the public the basis of their decision to push through with the sale of
the Roppongi property inspite of strong public opposition and to explain the proceedings which
effectively prevent the participation of Filipino citizens and entities in the bidding process.
The oral arguments in G. R. No. 92013, Laurel v. Garcia, et al. were heard by the Court
on March 13, 1990. After G. R. No. 92047, Ojeda v. Secretary Macaraig, et al. was filed, the
respondents were required to file a comment by the Court’s resolution dated February 22,
1990. The two petitions were consolidated on March 27, 1990 when the memoranda of the parties
in the Laurel case were deliberated upon.
The Court could not act on these cases immediately because the respondents filed a motion
for an extension of thirty (30) days to file comment in G. R. No. 92047, followed by a second
motion for an extension of another thirty (30) days which we granted on May 8, 1990, a third
motion for extension of time granted on May 24, 1990 and a fourth motion for extension of time
which we granted on June 5, 1990 but calling the attention of the respondents to the length of time
the petitions have been pending. After the comment was filed, the petitioner in G. R. No. 92047
asked for thirty (30) days to file a reply. We noted his motion and resolved to decide the two (2)
cases.
I pending approval and ratification between the parties. Instead, on August 11, 1986,
The subject property in this case is one of the four (4) properties in Japan acquired by the
Philippine government under the Reparations Agreement entered into with Japan on May 9, 1956,
the other lots being:
(1) The Nampeidai Property at 11-24 Nampeidai?machi, Shibuya-ku, Tokyo which has an
area of approximately 2,489.96 square meters, and is at present the site of the Philippine Embassy
Chancery;
(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an an area of around
764.72 square meters and categorized as a commercial lot now being used as a warehouse and
parking lot for the consulate staff; and
(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nada-ku, Kobe,
a residential lot which is now vacant.
The properties and the capital goods and services procured from the Japanese government
for national development projects are part of the indemnification to the Filipino people for their
losses in life and property and their suffering during World War II.
The Reparations Agreement provides that reparations valued at $550 million would be
payable in twenty (20) years in accordance with annual schedules of procurements to be fixed by
the Philippine and Japanese governments (Article 2, Reparations Agreement). Rep. Act No. 1789,
the Reparations Law, prescribes the national policy on procurement and utilization of reparations
and development loans. The procurements are divided into those for use by
the governmentsector and those for private parties in projects as the then National Economic
Council shall determine. Those intended for the private sector shall be made available by sale to
Filipino citizens or to one hundred (100%) percent Filipino-owned entities in national
development projects.
The Roppongi property was acquired from the Japanese government under the Second Year
Schedule and listed under the heading “Government Sector”, through Reparations Contract No.
300 dated June 27, 1958. The Roppongiproperty consists of the land and building “for the
Chancery of the Philippine Embassy” (Annex M-D to Memorandum for Petitioner, p. 503). As
intended, it became the site of the Philippine Embassy until the latter was transferred
to Nampeidai on July 22, 1976 when the Roppongi building needed major repairs. Due to the
failure of our government to provide necessary funds, the Roppongi property has remained
undeveloped since that time.
A proposal was presented to President Corazon C. Aquino by former Philippine
Ambassador to Japan, Carlos J. Valdez, to make the property the subject of a lease agreement
with a Japanese firm - Kajima Corporation - which shall construct two (2) buildings
in Roppongi and one (1) building in Nampeidai and renovate the present Philippine Chancery
in Nampeidai. The consideration of the construction would be the lease to the foreign corporation
of one (1) of the buildings to be constructed in Roppongi and the two (2) buildings
in Nampeidai. The other building in Roppongi shall then be used as the Philippine Embassy
Chancery. At the end of the lease period, all the three leased buildings shall be occupied and used
by the Philippine government. No change of ownership or title shall occur. (See Annex “B” to
Reply to Comment) The Philippine government retains the title all throughout the lease period
and thereafter. However, the government has not acted favorably on this proposal which is
President Aquino created a committee to study the disposition/utilization of Philippine
government properties in Tokyo and Kobe, Japan through Administrative Order No. 3, followed
by Administrative Orders Numbered 3-A, B, C and D.
On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino
citizens or entities to avail of reparations’ capital goods and services in the event of sale, lease or
disposition. The four properties in Japan including the Roppongi were specifically mentioned in
the first “Whereas” clause.
Amidst opposition by various sectors, the Executive branch of the government has been
pushing, with great vigor, its decision to sell the reparations properties starting with
the Roppongi lot. The property has twice been set for bidding at a minimum floor price of $225
million. The first bidding was a failure since only one bidder qualified. The second one, after
postponements, has not yet materialized. The last scheduled bidding on February 21, 1990 was
restrained by this Court. Later, the rules on bidding were changed such that the $225 million floor
price became merely a suggested floor price.
The Court finds that each of the herein petitions raises distinct issues. The petitioner in G.
R. No. 92013 objects to the alienation of the Roppongi property to anyone while the petitioner in
G. R. No. 92047 adds as a principal objection the alleged unjustified bias of the Philippine
government in favor of selling the property to non-Filipino citizens and entities. These petitions
have been consolidated and are resolved at the same time for the objective is the same -- to stop
the sale of the Roppongi property.
The petitioner in G. R. No. 92013 raises the following issues:
(1) Can the Roppongi property and others of its kind be alienated by the Philippine
Government?; and
(2) Does the Chief Executive, her officers and agents, have the authority and jurisdiction,
to sell the Roppongiproperty?
Petitioner Dionisio Ojeda in G. R. No. 92047, apart from questioning the authority of the
government to alienate the Roppongi property assails the constitutionality of Executive Order No.
296 in making the property available for sale to non-Filipino citizens and entities. He also
questions the bidding procedures of the Committee on the Utilization or Disposition of Philippine
Government Properties in Japan for being discriminatory against Filipino citizens and Filipino-
owned entities by denying them the right to be informed about the bidding requirements.
II
In G. R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related lots
were acquired as part of the reparations from the Japanese government for diplomatic and
consular use by the Philippine government. Vice-President Laurel states that
the Roppongi property is classified as one of public dominion, and not of private ownership under
Article 420 of the Civil Code (See infra).
The petitioner submits that the Roppongi property comes under “property intended for
public service” in paragraph 2 of the above provision. He states that being one of public
dominion, no ownership by any one can attach to it, not even by the State. The Roppongi and
related properties were acquired for “sites for chancery, diplomatic, and consular quarters,
buildings and other improvements” (Second Year Reparations Schedule). The petitioner states
that they continue to be intended for a necessary service. They are held by the State in anticipation
of an opportune use. (Citing 3 Manresa 65-66). Hence, it cannot be appropriated, is outside the
commerce of man, or to put it in more simple terms, it cannot be alienated nor be the subject
matter of contracts (Citing Municipality of Cavite v. Rojas, 30 Phil. 20 [1915]). Noting the non-
use of the Roppongi property at the moment, the petitioner avers that the same remains property
of public dominion so long as the government has not used it for other purposes nor adopted any
measure constituting a removal of its original purpose or use.
The respondents, for their part, refute the petitioner’s contention by saying that the subject
property is not governed by our Civil Code but by the laws of Japan where the property is
located. They rely upon the rule of lex situs which is used in determining the applicable law
regarding the acquisition, transfer and devolution of the title to a property. They also invoke
Opinion No. 21, Series of 1988, dated January 27, 1988 of the Secretary of Justice which used
the lex situs in explaining the inapplicability of Philippine law regarding a property situated
in Japan.
The respondents add that even assuming for the sake of argument that the Civil Code is
applicable, the Roppongiproperty has ceased to become property of public dominion. It has
become patrimonial property because it has not been used for public service or for diplomatic
purposes for over thirteen (13) years now (Citing Article 422, Civil Code) and because
the intention by the Executive Department and the Congress to convert it to private use has been
manifested by overt acts, such as, among others: (1) the transfer of the Philippine Embassy
to Nampeidai; (2) the issuance of administrative orders for the possibility of alienating the four
government properties in Japan; (3) the issuance of Executive Order No. 296; (4) the enactment
by the Congress of Rep. Act No. 6657 [the Comprehensive Agrarian Reform Law] on June 10,
1988 which contains a provision stating that funds may be taken from the sale of Philippine
properties in foreign countries; (5) the holding of the public bidding of the Roppongi property but
which failed; (6) the deferment by the Senate in Resolution No. 55 of the bidding to a future date;
thus an acknowledgment by the Senate of the government’s intention to remove
the Roppongi property from the public service purpose; and (7) the resolution of this Court
dismissing the petition in Ojeda v. Bidding Committee, et al., G. R. No. 87478 which sought to
enjoin the second bidding of the Roppongi property scheduled on March 30, 1989.
III
In G. R. No. 92047, petitioner Ojeda once more asks this Court to rule on the
constitutionality of Executive Order No. 296. He had earlier filed a petition in G. R. No. 87478
which the Court dismissed on August 1, 1989. He now avers that the executive order contravenes
the constitutional mandate to conserve and develop the national patrimony stated in the Preamble
of the 1987 Constitution. It also allegedly violates:
(1) The reservation of the ownership and acquisition of alienable lands of the public domain
to Filipino citizens. (Sections 2 and 3, Article XII, Constitution; Sections 22 and 23 of
Commonwealth Act 141).
 (2) The preference for Filipino citizens in the grant of rights, privileges and concessions
covering the national economy and patrimony (Section 10, Article VI, Constitution);
(3) The protection given to Filipino enterprises against unfair competition and trade
practices;
(4) The guarantee of the right of the people to information on all matters of public concern
(Section 7, Article III, Constitution);
(5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned by
Filipino citizens of capital goods received by the Philippines under the Reparations Act (Sections
2 and 12 of Rep. Act No. 1789); and
(6) The declaration of the state policy of full public disclosure of all transactions involving
public interest (Section 28, Article II, Constitution).
Petitioner Ojeda warns that the use of public funds in the execution of an unconstitutional
executive order is a misapplication of public funds. He states that since the details of the bidding
for the Roppongi property were neverpublicly disclosed until February 15, 1990 (or a few days
before the scheduled bidding), the bidding guidelines are available only in Tokyo, and the
accomplishment of requirements and the selection of qualified bidders should be done in Tokyo,
interested Filipino citizens or entities owned by them did not have the chance to comply with
Purchase Offer Requirements on the Roppongi. Worse, the Roppongi shall be sold for a minimum
price of $225 million from which price capital gains tax under Japanese law of about 50 to 70%
of the floor price would still be deducted.
IV
The petitioners and respondents in both cases do not dispute the fact that the Roppongi site
and the three related properties were acquired through reparations agreements, that these were
assigned to the government sector and that the Roppongi property itself was specifically
designated under the Reparations Agreement to house the Philippine Embassy.
The nature of the Roppongi lot as property for public service is expressly spelled out. It
is dictated by the terms of the Reparations Agreement and the corresponding contract of
procurement which bind both the Philippine government and the Japanese government.
There can be no doubt that it is of public dominion unless it is convincingly shown that the
property has become patrimonial. This, the respondents have failed to do.
As property of public dominion, the Roppongi lot is outside the commerce of man. It cannot
be alienated. Its ownership is a special collective ownership for general use and enjoyment, an
application to the satisfaction of collective needs, and resides in the social group. The purpose is
not to serve the State as a juridical person, but the citizens; it is intended for the common and
public welfare and cannot be the object of appropriation. (Taken from 3 Manresa, 66-69; cited
in Tolentino, Commentaries on the Civil Code of the Philippines, 1963 Edition, Vol. II, p. 26).
The applicable provisions of the Civil Code are:
“ART. 419. Property is either of public dominion or of private ownership.
“ART. 420. The following things are property of public dominion:
“(1) Those intended for public use, such as roads, canals, rivers, torrents, ports and bridges
constructed by the State, banks, shores, roadsteads, and others of similar character;
“(2) Those which belong to the State, without being for public use, and are intended
for some public service or for the development of the national wealth.
“ART. 421. All other property of the State, which is not of the character stated in the
preceding article, is patrimonial property.”
The Roppongi property is correctly classified under paragraph 2 of Article 420 of the Civil
Code as property belonging to the State and intended for some public service.
Has the intention of the government regarding the use of the property been changed because
the lot has been idle for some years? Has it become patrimonial?
The fact that the Roppongi site has not been used for a long time for actual Embassy service
does not automatically convert it to patrimonial property. Any such conversion happens only if
the property is withdrawn from public use (CebuOxygen and Acetylene Co. v. Bercilles, 66 SCRA
481 [1975]). A property continues to be part of the public domain, not available for private
appropriation or ownership “until there is a formal declaration on the part of the government to
withdraw it from being such (Ignacio v. Director of Lands, 108 Phil. 335 [1960]).
The respondents enumerate various pronouncements by concerned public officials
insinuating a change of intention. We emphasize, however, that an abandonment of the intention
to use the Roppongi property for public service and to make it patrimonial property under Article
422 of the Civil Code must be definite. Abandonment cannot be inferred from the non-use alone
specially if the non-use was attributable not to the government’s own deliberate and indubitable
will but to a lack of financial support to repair and improve the property (See Heirs
of Felino Santiago v. Lazaro, 166 SCRA 368 [1988]). Abandonment must be a certain and
positive act based on correct legal premises.
A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of
the Roppongi property’s original purpose. Even the failure by the government to repair the
building in Roppongi is not abandonment since as earlier stated, there simply was a shortage of
government funds. The recent Administrative Orders authorizing a study of the status and
conditions of government properties in Japan were merely directives for investigation but did not
in any way signify a clear intention to dispose of the properties.
Executive Order No. 296, though its title declares an “authority to sell”, does not have a
provision in its text expressly authorizing the sale of the four properties procured from Japan for
the government sector. The executive order does not declare that the properties lost their public
character. It merely intends to make the properties available to foreigners and not to Filipinos
alone in case of a sale, lease or other disposition. It merely eliminates the restriction under Rep.
Act No. 1789 that reparations goods may be sold only to Filipino citizens and one hundred (100%)
percent Filipino-owned entities. The text of Executive Order No. 296 provides:
“Section 1. The provisions of Republic Act No. 1789, as amended, and of other laws to the
contrary notwithstanding, the abovementioned properties can be made available for sale, lease
or any other manner of disposition to non-Filipino citizens or to entities owned by non-Filipino
citizens.”
Executive Order No. 296 is based on the wrong premise or assumption that
the Roppongi and the three other properties were earlier converted into alienable real
properties. As earlier stated, Rep. Act No. 1789 differentiates the procurements for the
government sector and the private sector (Sections 2 and 12, Rep. Act No. 1789). Only the private
sector properties can be sold to end-users who must be Filipinos or entities owned by Filipinos. It
is this nationality provision which was amended by Executive Order No. 296.
Section 63 (c) of Rep. Act. No. 6657 (the CARP Law) which provides as one of the sources
of funds for its implementation, the proceeds of the disposition of the properties of the
Government in foreign countries, did not withdraw the Roppongi property from being classified
as one of public dominion when it mentions Philippine properties abroad. Section 63 (c) refers
to properties which are alienable and not to those reserved for public use or service. Rep. Act No.
6657, therefore, does not authorize the Executive Department to sell the Roppongi property. It
merely enumerates possible sources of future funding to augment (as and when needed) the
Agrarian Reform Fund created under Executive Order No. 299. Obviously any property outside
of the commerce of man cannot be tapped as a source of funds.
The respondents try to get around the public dominion character of the Roppongi property
by insisting that Japanese law and not our Civil Code should apply.
It is exceedingly strange why our top government officials, of all people, should be the ones
to insist that in the sale of extremely valuable government property, Japanese law and not
Philippine law should prevail. The Japanese law -- its coverage and effects, when enacted, and
exceptions to its provisions -- is not presented to the Court. It is simply asserted that
the lex loci rei sitae or Japanese law should apply without stating what that law provides. It is
assumed on faith that Japanese law would allow the sale.
We see no reason why a conflict of law rule should apply when no conflict of law situation
exists. A conflict of law situation arises only when: (1) There is a dispute over
the title or ownership of an immovable, such that the capacity to take and transfer immovables,
the formalities of conveyance, the essential validity and effect of the transfer, or the interpretation
and effect of a conveyance, are to be determined (See Salonga, Private International Law, 1981
ed., pp. 377-383); and (2) A foreign law on land ownership and its conveyance is asserted to
conflict with a domestic law on the same matters. Hence, the need to determine which law should
apply.
In the instant case, none of the above elements exists.
The issues are not concerned with validity of ownership or title. There is no question that
the property belongs to the Philippines. The issue is the authority of the respondent officials to
validly dispose of property belonging to the State. And the validity of the procedures adopted
to effect its sale. This is governed by Philippine law. The rule of lex situs does not apply.
The assertion that the opinion of the Secretary of Justice sheds light on the relevance of
the lex situs rule is misplaced. The opinion does not tackle the alienability of the real properties
procured through reparations nor the existence in what body of the authority to sell them. In
discussing who are capable of acquiring the lots, the Secretary merely explains that it is the foreign
law which should determine who can acquire the properties so that the constitutional limitation
on acquisition of lands of the public domain to Filipino citizens and entities wholly owned by
Filipinos is inapplicable. We see no point in belaboring whether or not this opinion is
correct. Why should we discuss who can acquire the Roppongi lot when there is no showing that
it can be sold?
The subsequent approval on October 4, 1988 by President Aquino of the recommendation
by the investigating committee to sell the Roppongi property was premature or, at the very least,
conditioned on a valid change in the public character of the Roppongi property. Moreover, the
approval does not have the force and effect of law since the President already lost her legislative
powers. The Congress had already convened for more than a year.
Assuming for the sake of argument, however, that the Roppongi property is no longer of
public dominion, there is another obstacle to its sale by the respondents.
There is no law authorizing its conveyance.
Section 79 (f) of the Revised Administrative Code of 1917 provides:
“Section 79 (f). Conveyances and contracts to which the Government is a party. In cases in
which the Government of the Republic of the Philippines is a party to any deed or other
instrument conveying the title to real estate or to any other property the value of which in excess
of one hundred thousand pesos, the respective Department Secretary shall prepare the necessary
papers which, together with the proper
recommendations, shall be submitted to the Congress of the Philippines for approval by the sam
e. Such deed, instrument, or contract shall be executed and signed by the President of
the Philippines on behalf of the Government of the Philippines unless the
authority therefor be expressly vested by law in another officer.” (Underlining supplied)
The requirement has been retained in Section 48, Book I of the Administrative Code of 1987
(Executive Order No. 292).
“SEC. 48. Official Authorized to Convey Real Property. - Whenever real property of the
Government isauthorized by law to be conveyed, the deed of conveyance shall be executed in
behalf of the government by the following:
“(1) For property belonging to and titled in the name of the Republic of the Philippines, by the
President, unless the authority therefor is expressly vested by law in another officer.
“(2) For property belonging to the Republic of the Philippines but titled in the name of any
political subdivision or of any corporate agency or instrumentality, by the executive head of the
agency or instrumentality.” (Underlining supplied)
It is not for the President to convey valuable real property of the government on his or her
own sole will. Any such conveyance must be authorized and approved by a law enacted by the
Congress. It requires executive and legislative concurrence.
Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale of
the Roppongi property does not withdraw the property from public domain much less authorize
its sale. It is a mere resolution; it is not a formal declaration abandoning the public character of
the Roppongi property. In fact, the Senate Committee on Foreign Relations is conducting
hearings on Senate Resolution No. 734 which raises serious policy considerations and calls for a “Roppongi is no ordinary property. It is one ceded by the Japanese government in atonement
fact-finding investigation of the circumstances behind the decision to sell the Philippine for its past belligerence, for the valiant sacrifice of life and limb and for deaths, physical
government properties in Japan. dislocation and economic devastation the whole Filipino people endured in World War II.
The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass upon “It is for what it stands for, and for what it could never bring back to life, that its significance
the constitutionality of Executive Order No. 296. Contrary to respondents’ assertion, we did not today remains undimmed, inspite of the lapse of 45 years since the war ended, inspite of the
uphold the authority of the President to sell the Roppongi property. The Court stated that the passage of 32 years since the property passed on to the Philippine government.
constitutionality of the executive order was not the real issue and that resolving the constitutional
question was “neither necessary nor finally determinative of the case.” The Court noted that “Roppongi is a reminder that cannot -- should not -- be dissipated. x x x.” (Rollo - 92047, p. 9)
“[W]hat petitioner ultimately questions is the use of the proceeds of the disposition of
It is indeed true that the Roppongi property is valuable not so much because of the inflated
the Roppongi property.” In emphasizing that “the decision of the Executive to dispose of
prices fetched by real property in Tokyo but more so because of its symbolic value to all Filipinos
the Roppongi property to finance the CARP x x x cannot be questioned” in view of Section 63
- veterans and civilians alike. Whether or not the Roppongi and related properties will eventually
(c) of Rep. Act No. 6657, the Court did not acknowledge the fact that the property became
be sold is a policy determination where both the President and
alienable nor did it indicate that the President was authorized to dispose of
Congress must concur. Considering the properties’ importance and value, the laws on conversion
the Roppongi property. The resolution should be read to mean that in case the Roppongi property
and disposition of property of public dominion must be faithfully followed.
is re-classified to be patrimonial and alienable by authority of law, the proceeds of a sale may be
used for national economic development projects including the CARP. WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ
of prohibition is issued enjoining the respondents from proceeding with the sale of
Moreover, the sale in 1989 did not materialize. The petitions before us question the
the Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary Restraining Order is
proposed 1990 sale of the Roppongi property. We are resolving the issues raised in these
made PERMANENT.
petitions, not the issues raised in 1989.
SO ORDERED.
Having declared a need for a law or formal declaration to withdraw the Roppongi property
from public domain to make it alienable and a need for legislative authority to allow the sale of
the property, we see no compelling reason to tackle the constitutional issues raised by
petitioner Ojeda.
The Court does not ordinarily pass upon constitutional questions unless these questions
are properly raised in appropriate cases and their resolution is necessary for the determination of
the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass upon a constitutional
question although properly presented by the record if the case can be disposed of on some other
ground such as the application of a statute or general law (Siler v. Louisville and Nashville R.
Co., 213 U. S. 175, [1909], Railroad Commission v. Pullman Co., 312 U. S. 496 [1941]).
The petitioner in G. R. No. 92013 states why the Roppongi property should not be sold:
The Roppongi property is not just like any piece of property. It was given to the Filipino people
in reparation for the lives and blood of Filipinos who died and suffered during the Japanese
military occupation, for the suffering of widows and orphans who lost their loved ones and
kindred, for the homes and other properties lost by countless Filipinos during the
war. The Tokyo properties are a monument to the bravery and sacrifice of the Filipino people in
the face of an invader; like the monuments of Rizal,Quezon, and other Filipino heroes, we do
not expect economic or financial benefits from them. But who would think of selling these
monuments? Filipino honor and national dignity dictate that we keep our properties in Japan as
memorials to the countless Filipinos who died and suffered. Even if we should become paupers
we should not think of selling them. For it would be as if we sold the lives and blood and tears
of our countrymen. (Rollo G. R. No. 92013, p. 147)

The petitioner in G. R. No. 92047 also states:

Bellis v Bellis supra
[ G.R. No. 46720, June 28, 1940 ]
WELLS FARGO' BANK & UNION TRUST COMPANY, PETITIONER AND
APPELLANT, VS. THE COLLECTOR OF INTERNAL REVENUE, RESPONDENT
AND APPELLEE.
DECISION
MORAN, J.:
An appeal from a declaratory judgment rendered by the Court of First Instance of Manila.
Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles,
California, the place of her alleged last residence and domicile. Among the properties she left
was her one-half conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining
Company, an anonymous partnership (socie4ad annima), organized and existing under the laws
of the Philippines, with its principal office in the City of Manila. She left a will which was duly
admitted to probate in California where her estate was administered and settled. Petitioner
appellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the trust
created by the said will. The Federal and State of California's inheritance taxes due on said
shares have been duly paid. Respondent Collector of Internal Revenue sought to subject anew
the aforesaid shares of stock to the Philippine inheritance tax, to which petitioner-appellant
objected. Wherefore a petition for a declaratory judgment was filed in ttye lower court, with the
statement that, "if it should be held by a final declaratory judgment that the transfer of the
aforesaid shares of stock is legally subject to the Philippine inheritance tax, the petitioner will
pay such tax, interest and penalties (saving error in computation) without' protest and will not
file an action to recover the same; and the petitioner believes and therefore alleges that if it
should be held that such transfer is not subject to said tax, the respondent will not proceed to
assess and collect the s^me." The Court of First Instance of Manila rendered judg roept, holding
that the transmission by will of the said 35,5oO shares of stock is subject to Philippine
inheritance tax. Hence, this appeal by the petitioner.
Petitioner concedes (1) that the Philippine inheritance tax is not a tax on property, but upon
transmission by inheritance (Lorenzo vs. Posadas, 35 Of. Gaz., 2393, 2395), and (2) that as to
real and tangible personal property of a non-resident decedent, located in the Philippines, the
Philippine inheritance tax may be imposed upon their transmission by death, for the self-evident
reason that, being a property situated in this country, its transfer is, in some way, dependent, for
its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles, like the
shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore,
their transmission by death necessarily takes place under his domiciliary laws.
Section 1536 of the Administrative Code, as amended, provides that every transmission by
virtue of inheritance of any share issued by any corporation or sociedad andnima organized or
constituted in the Philippines, is subject to the tax therein provided. This provision has already
been applied to shares of stock in a domestic corporation which were owned by a British subject
residing and domiciled i» Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See also Gibbs
vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule laid down by
the United States Supreme Court in four cases (Farmers Loan fy Trust Company vs. Minnesota,
280 U. S. 204; 74 Law. ed., 371; Baldwin vs. Missouri, 281 U. S., 586; 74 Law. ed., 1056,
Beidler vs. South Carolina Tax Commission, 282 U. S., 1; 75 Law. ed., 131; First National
Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A. L. R., 1401),
to the effect that an inheritince tax can be imposed with respect to intangibles only by the State
where the decedent was domiciled at the time )f his death, and that, under the due-process
clause, the State in which a corporation has been incorporated has no sower to impose such tax
if the shares' of stock in such :orporation are owned by a non-resident decedent. It is o be
observed, however, that in a later case (Burnet vs. Brooks, 288 U. S., 378; 77 Law. ed., 844),
the United States Supreme Court upheld the authority of the Federal jovernment to impose an
inheritance tax on the transmision, by death of a non-resident, of stocks in. a domestic
(American) corporation, irrespective of the situs of the corresponding certificates of stock. But it
is contended that the doctrine in the foregoing case is not applicable, because the due-process
clause is directed at the State and not at the Federal Government, and that the federal or national
power of the United States is to be determined in relation to other countries and their subjects by
applying the principles of jurisdiction recognized in international relations. Be that as it may, the
truth is that the due-process clause is "directed at the protection of the individual and he is
entitled to its immunity as much against the state as against the national government." (Curry vs.
McCanless, 307 U. S., 357, 370; 83 Law. ed., 1339, 1349.) Indeed, the rule laid down in the
four cases relied upon by the appellant was predicated on a proper regard for the relation of the
states of the American Union, which requires that property should be taxed in only one state and
that jurisdiction to tax is restricted accordingly. In other words, the application to the states of
the due-process rule springs from a proper distribution of their powers and spheres of activity as
ordained by the United States Constitution, and such distribution is enforced and protected by
not allowing one state toreach out and tax property in another. And these considerations do not
apply to the Philippines. Our status rests upon a wholly distinct basis and no analogy, however
remote, can be suggested in the relation of one state of the Union with another or with the
United States. The status of the Philippines has been aptly defined as one which, though a part
of the United States in the international sense, is, nevertheless, foreign thereto in a domestic
sense. (Downea vs. Bidwell, 182 U. S., 244, 341.)
At any rate, we see nothing of consequence in drawing any distinction between the operation
and effect of the due-process clause as it applies to the individual states and to the national
government of the United States. The question here involved is essentially not one of due-
process, but of the power of the Philippine Government to tax. If that power be conceded, the
guaranty of due process cannot certainly be invoked to frustrate it, unless the law involved is
challenged, which is not, on considerations repugnant to such guaranty of due process or that of
the equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or
discriminatory.
Originally, the settled law in the United States.is that intangibles have only one situs for the
purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of
his death. But this rule has, of late, been relaxed. The maxim mobttia sequuntur pcrsonam, upon
which the rule rests, has been decried as a mere "fiction of law having its origin in
considerations of general convenience and public policy, and cannot be applied to limit or
control the right of the state to tax property within its jurisdiction" (State Board of Assessors vs.
Comptoir National D'Escompte, 191 U. S., 388, 403, 404), and must "yield to established fact of
legal ownership, actual presence and control elsewhere, and cannot be applied if to do so would
result in inescapable and patent injustice." (Safe Deposit & Trust Co. vs. Virginia, 280 LJ. S.,
83, 91-92.) There is thus a marked shift from artificial postulates of law, formulated for reasons
of con/enience, to the actualities of each case.
An examination of the adjudged cases will disclose that ;he relaxation of the original rule rests
on either of two !undamental considerations: (1) upon the recognition of ;he inherent power of
each government to tax persons, )roperties and rights within its jurisdiction and enjoying, hus,
the protection of its laws; and (2) upon the principle hat as to intangibles, a single location in
space is hardly )ossible, considering , the multiple, distinct relationships vhich may be entered
into with respect thereto. It is on he basis of the first consideration that the case of Burnet is.
Brooks, supra, was decided by the Federal Supreme ^ourt, sustaining the power of the
Government to impose in inheritance tax upon transmission, by death of a nonesident, of shares
of stock in a domestic (American) cor>oration, regardless of the situs of their corresponding
certificates; and on the basis of the second consideration, the case of Cury vs.
McCanless, supra.
In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal
estate tax is precluded by the due-process clause of the Fifth Amendment, held:
"The point, being solely one of jurisdiction to tax, involves none of the other considerations
raised by confiscatory or arbitrary legislation inconsistent with the fundamental conceptions of
justice which are embodied in the due-process clause for the protection of life, liberty, and
property of all persons—citizens and friendly aliens alike. Russian Volunteer Fleet vs. United
States, 282 U. S., 481, 489? 75,Law ed., 473, 476; 41 S. Ct, 229; Nichols vs. Coolidge, 274 U.
S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct, 710; 52 A. L. R., 1081; Heiner vs. Donnon, 285
U. S., 312, 326; 76 Law. ed., 772, 779; 52 S. Ct., 358. in the instant case the Federal
Government had jurisdiction to impose the tati, there is manifestly no ground for assailing it.
Knowlton vs. Moore, 178 U. S., 41,109; 44 Law. ed., 969, 996; 20 S. Ct, 747; McGray vs.
United States, 195 U. S., 27, 61; 49 Law. ed., 78, 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs.
Stone Tracy Co., 220 U. S., 107, 153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct, 342; Ann. Cas.,
1912B, 1312; Brushaber vs. Union P. R. Co., 240 U. S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct,
236; L. R. A., 1917 D; 414, Ann. Cas., 1917B, 713; United States vs. Doremus, 249 U. S., 86,
93; 63 Law. ed., 493, 496; 39 S. Ct., 214." Italics ours.)
And, in sustaining the power of the Federal Government to tax properties within its borders,
wherever its owner may have been domiciled at the time of his death, the court ruled:
"* * * There does not appear, a priori, to be anything contrary to the principles of international
law, or hurtful to the polity of nations, in a State's taxing property physically situated within its
borders, wherever its owner may have been domiciled at the time of his death." * * *
"As jurisdiction may exist in more than one government, that is, jurisdiction based on distinct
grounds—the citizenship of the owner, his domicile, the source of income, the situs of the
property—efforts have been made to preclude multiple taxation through the negotiation of
appropriate international conventions. These endeavors, however, have proceeded upon express
or implied recognition, and not in denial, of the soverign taxing power as exerted by
governments in the exercise of jurisdiction upon any one of these grounds." * * * (See pages
396-397; 399.)
In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of
Alabama and Tennessee may each constitutionally impose death taxes upon the transfer of an
interest in intangibles held in trust by an Alabama trustee but passing under the will of a
beneficiary decedent domiciles in Tennessee, sustained the power of each State to impose the
tax. In arriving at this conclusion, the court made the following observations:
"In cases where the owner of intangibles confines his activity to the place of his domicile it has
been found convenient to substitute a rule for a reason, cf. New York ex rel, Cohn vs. Graves,
300 U. S., 308, 313; 81 Law. ed., 666, 670; 57 S. Ct, 466; 108 A. L. R., 721; First Bank Stock
Corp. vs. Minnesota, 301 U. S., 234, 241; 81 Law. ed., 1061, 1065; 57 S. Ct., 677; 113 A. L. R.,
228, by saying that his intangibles are taxed at their situs and not elsewhere, or, perhaps less
artificially, by invoking the maxim mobilia sequuntur personam, Blodgett vs. Silberman, 277 U.
S., 1; 72 Law. ed., 749; 48 S. Ct., 410, supra; Baldwin vs. Missouri, 281 U. S., 586; 74 Law. ed.,
1056; 50 S. Ct., 436; 12 A. L. R., 1303, supra, which means only that it is the dentity or
association of intangibles with the person of heir owner at his domicile which gives jurisdiction
to tax. iut when the taxpayer extends his activities with respect o his intangibles, so as to avail
himself of the protection md benefit of the laws of another state, in such a way as o bring his
person or property within the reach of the tax :atherer there, the reason for a single place of
taxation no longer obtains, and the rule is not even workable substitute for the reasons which
may exist in any particular case to support the constitutional power of each state concerned to
tax. Whether we regard the right of a state to tax as founded on power over the object taxed, as
declared by Chief Justice Marshall in McCulloch vs. Maryland, 4 Wheat, 316; 4 Law. ed., 579,
supra, through dominion over tangibles or over persons whose relationships are the source of
intangible rights, or on the benefit and protection conferred by the taxing sovereignty, or both, it
is undeniable that the state of domicile is not deprived, by the taxpayer's activities elsewhere, of
its constitutional jurisdiction to tax, and consequently that there are many circumstances in
which more than one state may have jurisdiction to impose a tax and measure it by some or all
of the taxpayer's intangibles. Shares of corporate stock may be taxed at the domicile of the
shareholder and also at that of the corporation which the taxing state has created and controls;
and income may be taxed both by the state where it is earned and by the state of the recipient's
domicile. Protection, benefit, and power over the subject matter are not confined to either state."
* * * (Pp. 1347-1349.)
"* * * we find it impossible to say that taxation of intangibles can be reduced in every case to
the mere mechanical operation of locating at a single place, and there taxing, every legal interest
growing out of all the complex legal relationships whyh may be entered into between persons.
This is the case because in point of actuality those interests may be too diverse in their
relationships to various taxing jurisdictions to admit of unitary treatment without discarding
modes of taxation long accepted and applied before the Fourteenth Amendment was adopted,
and still recognized by this Court as valid." (P. 1351.)
We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the issue
here involved is controlled by those doctrines. In the instant case, the actual situs of the shares
of stock is in the Philippines, the corporation being domiciled therein. And besides, the
certificates of stock have remained in this country up to the time when the deceased died in
California, and they were in possession of one Syrena McKee, secretary of the Benguet
Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This
indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the
stockholders, to collect dividends thereon, and dispose of the shares in the manner she may
deem fit, without projudice to her liability to the owner for violation of instructions. For all
practical purposes, then, Syrena McKee had the legal title to the certificates of stock held in
trust for the true owner thereof. In other words, the owner residing in California has extended
here her activities with respect to her intangibles so as to avail herself of the protection and
benefit of the Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax
must be upheld.

Judgment is affirmed, with costs against petitioner appellant.

 [ G.R. No. L-49407, August 19, 1988 ]
NATIONAL DEVELOPMENT COMPANY, PETITIONER-APPELLANT, VS. THE
COURT OF APPEALS AND DEVELOPMENT INSURANCE & SURETY
CORPORATION, RESPONDENTS-APPELLEES.
[G.R. NO. L-49469. AUGUST 19, 1988]
MARITIME COMPANY OF THE PHILIPPINES, PETITIONER-APPELLANT, VS.
THE COURT OF APPEALS AND DEVELOPMENT INSURANCE & SURETY
CORPORATION, RESPONDENTS-APPELLEES.
DECISION
PARAS, J.:
These are appeals by certiorari from the decision* of the Court of Appeals in CA G.R. No. L-
46513-R entitled "Development Insurance and Surety Corporation plaintiff-appellee vs.
Maritime Company of the Philippines and National Development Company defendant-
appellants", affirming in toto the decision** in Civil Case No. 60641 of the then Court of First
Instance of Manila, Sixth Judicial District, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered ordering the defendants National Development
Company and Maritime Company of the Philippines, to pay jointly and severally, to the plaintiff
Development Insurance and Surety Corp., the sum of THREE HUNDRED SIXTY FOUR
THOUSAND AND NINE HUNDRED FIFTEEN PESOS AND EIGHTY SIX CENTAVOS
(P364,915.86) with the legal interest thereon from the filing of plaintiff's complaint on April 22,
1965 until fully paid, plus TEN THOUSAND PESOS (P10,000.00) by way of damages as and
for attorney's fee.
"On defendant Maritime Company of the Philippines' cross-claim against the defendant
National Development Company, judgment is hereby rendered, ordering the National
Development Company to pay the cross-claimant Maritime Company of the Philippines the
total amount that the Maritime Company of the Philippines may voluntarily or by compliance to
a writ of execution pay to the plaintiff pursuant to the judgment rendered in this case.
"With costs against the defendant Maritime Company of the Philippines."
(pp. 34-35, Rollo, GR No. L-49469)
The facts of these cases as found by the Court of Appeals, are as follows:
"The evidence before us shows that in accordance with a memorandum agreement entered into
between defendants NDC and MCP on September 13, 1962, defendant NDC as the first
preferred mortgagee of three ocean going vessels including one with the name 'Dona Nati'
appointed defendant MCP as its agent to manage and operate said vessel for and in its behalf
and account (Exh. A). Thus, on February 28, 1964 the E. Philipp Corporation of New York
loaded on board the vessel 'Dona Nati' at San Francisco, California, a total of 1,200 bales of
American raw cotton consigned to the order of Manila Banking Corporation, Manila and the
People's Bank and Trust Company acting for and in behalf of the Pan Asiatic Commercial
Company, Inc., who represents Riverside Mills Corporation (Exhs. K-2 to K-7-A & L-2 to L-7-
A). Also loaded on the same vessel at Tokyo, Japan, were the cargo of Kyokuto Boekui, Kaisa,
Ltd., consigned to the order of Manila Banking Corporation consisting of 200 cartons of sodium
lauryl sulfate and 10 cases of aluminium foil (Exhs. M & M-1). En route to Manila the vessel
Dona Nati figured in a collision at 6:04 a.m. on April 15, 1964 at Ise Bay, Japan with a Japanese
vessel 'SS Yasushima Maru' as a result of which 550 bales of aforesaid cargo of American raw
cotton were lost and/or destroyed, of which 535 bales as damaged were landed and sold on the
authority of the General Average Surveyor for Yen 6,045,500 and 15 bales were not landed and
deemed lost (Exh. G). The damaged and lost cargoes was worth P344,977.86 which amount, the
plaintiff as insurer, paid to the Riverside Mills Corporation as holder of the negotiable bills of
lading duly endorsed (Exhs. L-7-A, K-8-A, K-2-A, K-3-A, K-4-A, K-5-A, A-2, N-3 and R-3).
Also considered totally lost were the aforesaid shipment of Kyokuto, Boekui, Kaisa Ltd.,
consigned to the order of Manila Banking Corporation, Manila, acting for Guilcon, Manila. The
total loss was P19, 938.00 which the plaintiff as insurer paid to Guilcon as holder of the duly
endorsed bill of lading (Exhibits M-1 and S-3). Thus, the plaintiff had paid as insurer the total
amount of P364,915.86 to the consignees or their successors-in-interest, for the said lost or
damaged cargoes. Hence, plaintiff filed this complaint to recover said amount from the
defendants-NDC and MCP as owner and ship agent respectively, of the said 'Dona Nati' vessel."
(Rollo, L-49469, p. 38)
On April 22, 1965, the Development Insurance and Surety Corporation filed before the then
Court of First Instance of Manila an action for the recovery of the sum of P364,915.86 plus
attorney's fees of P10,000.00 against NDC and MCP (Record on Appeal, pp. 1-6).
Interposing the defense that the complaint states no cause of action and even if it does, the
action has prescribed, MCP filed on May 12, 1965 a motion to dismiss (Record on Appeal, pp.
7-14). DISC filed an Opposition on May 21, 1965 to which MCP filed a reply on May 27, 1965
(Record on Appeal, pp. 14-24). On June 29, 1965, the trial court deferred the resolution of the
motion to dismiss till after the trial on the merits (Record on Appeal, p. 32). On June 8, 1965,
MCP filed its answer with counterclaim and cross-claim against NDC.
NDC, for its part, filed its answer to DISC's complaint on May 27, 1965 (Record on Appeal, pp.
22-24). It also filed an answer to MCP's cross-claim on July 16, 1965 (Record on Appeal, pp.
39-40). However, on October 16, 1965, NDC's answer to DISC's complaint was stricken off
from the record for its failure to answer DISC's written interrogatories and to comply with the
trial court's order dated August 14, 1965 allowing the inspection or photographing of the
memorandum of agreement it executed with MCP. Said order of October 16, 1965 likewise dec-
lared NDC in default (Record on Appeal, p. 44). On August 31, 1966, NDC filed a motion to set
aside the order of October 16, 1965, but the trial court denied it in its order dated September 21,
1966.
On November 12, 1969, after DISC and MCP presented their respective evidence, the trial court
rendered a decision ordering the defendants MCP and NDC to pay jointly and solidarily to
DISC the sum of P364,915.86 plus the legal rate of interest to be computed from the filing of
the complaint of April 22, 1965, until fully paid and attorney's fees of P10,000.00. Likewise, in
said decision, the trial court granted MCP's cross-claim against NDC.
MCP interposed its appeal on December 20, 1969, while NDC filed its appeal on February 17,
1970 after its motion to set aside the decision was denied by the trial court in its order dated
February 13, 1970.
On November 17, 1978, the Court of Appeals promulgated its decision affirming in toto the
decision of the trial court.
Hence these appeals by certiorari.
NDC's appeal was docketed as G.R. No. 49407, while that of MCP was docketed as G.R. No.
49469. On July 25, 1979, this Court ordered the consolidation of the above cases (Rollo, p.
103). On August 27, 1979, these consolidated cases were given due course (Rollo, p. 108) and
submitted for decision on February 29, 1980 (Rollo, p. 136).
In its brief, NDC cited the following assignments of error:
I PETITIONER-APPELLANT IS SOLIDARILY LIABLE WITH SAID CO-PETITIONER FOR
THE COURT OF APPEALS ERRED IN APPLYING ARTICLE 827 OF THE CODE OF
COMMERCE AND NOT SECTION 4(2a) OF COMMONWEALTH ACT NO. 65, OTHER-
WISE KNOWN AS THE CARRIAGE OF GOODS BY SEA ACT IN DETERMINING THE
LIABILITY FOR LOSS OF CARGOES RESULTING FROM THE COLLISION OF ITS
VESSEL "DONA NATI" WITH THE "YASUSHIMA MARU" OCCURRED AT ISE BAY,
JAPAN OR OUTSIDE THE TERRITORIAL JURISDICTION OF THE PHILIPPINES.
II
THE COURT OF APPEALS ERRED IN NOT DISMISSING THE COMPLAINT FOR
REIMBURSEMENT FILED BY THE INSURER, HEREIN PRIVATE RESPONDENT-
APPELLEE, AGAINST THE CARRIER, HEREIN PETITIONER-APPELLANT. (pp. 1-2,
Brief for Petitioner-Appellant National Development Company; p. 96, Rollo)
On its part, MCP assigned the following alleged errors:
I PHILIPPINES TO PAY JOINTLY AND SEVERALLY TO HEREIN RESPONDENT
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT
RESPONDENT DEVELOPMENT INSURANCE AND SURETY CORPORATION HAS NO
CAUSE OF ACTION AS AGAINST PETITIONER MARITIME COMPANY OF THE
PHILIPPINES AND IN NOT DISMISSING THE COMPLAINT.
II
THE RESPONDENT COURT OF APPEALS ERRED IN NOT HOLDING THAT THE
CAUSE OF ACTION OF RESPONDENT DEVELOPMENT INSURANCE AND SURETY
CORPORATION IF ANY EXISTS AS AGAINST HEREIN PETITIONER MARITIME
COMPANY OF THE PHILIPPINES IS BARRED BY THE STATUTE OF LIMITATION
AND HAS ALREADY PRESCRIBED.
III
THE RESPONDENT COURT OF APPEALS ERRED IN ADMITTING IN EVIDENCE
PRIVATE RESPONDENT'S EXHIBIT "H" AND IN FINDING ON THE BASIS THEREOF
THAT THE COLLISION OF THE SS DONA NATI AND THE YASUSHIMA MARU WAS
DUE TO THE FAULT OF BOTH VESSELS INSTEAD OF FINDING THAT THE
COLLISION WAS CAUSED BY THE FAULT, NEGLIGENCE AND LACK OF SKILL OF
THE COMPLEMENTS OF THE YASUSHIMA MARU WITHOUT THE FAULT OR
NEGLIGENCE OF THE COMPLEMENT OF THE SS DONA NATI.
IV
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT UNDER THE
CODE OF COMMERCE PETITIONER APPELLANT MARITIME COMPANY OF THE
PHILIPPINES IS A SHIP AGENT OR NAVIERO OF SS DONA NATI OWNED BY CO-
PETITIONER APPELLANT NATIONAL DEVELOPMENT COMPANY AND THAT SAID
LOSS OF OR DAMAGES TO CARGO RESULTING IN COLLISION OF SAID VESSEL,
WITH THE JAPANESE YASUSHIMA MARU.
V
THE RESPONDENT COURT OF APPEALS ERRED IN FINDING THAT THE LOSS OF OR
DAMAGES TO THE CARGO OF 550 BALES OF AMERICAN RAW COTTON, DAMAGES
WERE CAUSED IN THE AMOUNT OF P344,977.86 INSTEAD OF ONLY P110,000 AT
P200.00 PER BALE AS ESTABLISHED IN THE BILLS OF LADING AND ALSO IN
HOLDING THAT PARAGRAPH 10 OF THE BILLS OF LADING HAS NO APPLICATION
IN THE INSTANT CASE THERE BEING NO GENERAL AVERAGE TO SPEAK OF.
VI
THE RESPONDENT COURT OF APPEALS ERRED IN HOLDING THE PETITIONERS
NATIONAL DEVELOPMENT COMPANY AND MARITIME COMPANY OF THE
DEVELOPMENT INSURANCE AND SURETY CORPORATION THE SUM OF
P364,915.86 WITH LEGAL INTEREST FROM THE FILING OF THE COMPLAINT UNTIL
FULLY PAID PLUS P10,000.00 AS AND FOR ATTORNEY'S FEES INSTEAD OF
SENTENCING SAID PRIVATE RESPONDENT TO PAY HEREIN PETITIONERS ITS
COUNTERCLAIM IN THE AMOUNT OF P10,000.00 BY WAY OF ATTORNEY'S FEES
AND THE COSTS.
(pp. 1-4, Brief for the Maritime Company of the Philippines; p. 121, Rollo)
The pivotal issue in these consolidated cases is the determination of which laws govern loss or
destruction of goods due to collision of vessels outside Philippine waters, and the extent of
liability as well as the rules of prescription provided thereunder.
The main thrust of NDC's argument is to the effect that the Carriage of Goods by Sea Act
should apply to the case at bar and not the Civil Code or the Code of Commerce. Under Section
4 (2) of said Act, the carrier is not responsible for the loss or damage resulting from the "act,
neglect or default of the master, mariner, pilot or the servants of the carrier in the navigation or
in the management of the ship." Thus, NDC insists that based on the findings of the trial court
which were adopted by the Court of Appeals, both pilots of the colliding vessels were at fault
and negligent, NDC would have been relieved of liability under the Carriage of Goods by Sea
Act. Instead, Article 827 of the Code of Commerce was applied and both NDC and MCP were
ordered to reimburse the insurance company for the amount the latter paid to the consignee as
earlier stated.
This issue has already been laid to rest by this Court in Eastern Shipping Lines Inc. v. IAC (150
SCRA 469-470 [1987]) where it was held under similar circumstances that "the law of the
country to which the goods are to be transported governs the liability of the common carrier in
case of their loss, destruction or deterioration" (Article 1753, Civil Code). Thus, the rule was
specifically laid down that for cargoes transported from Japan to the Philippines, the liability of
the carrier is governed primarily by the Civil Code and in all matters not regulated by said Code,
the rights and obligations of common carrier shall be governed by the Code of Commerce and
by special laws (Article 1766, Civil Code). Hence, the Carriage of Goods by Sea Act, a special
law, is merely suppletory to the provisions of the Civil Code.
In the case at bar, it has been established that the goods in question are transported from San
Francisco, California and Tokyo, Japan to the Philippines and that they were lost or damaged
due to a collision which was found to have been caused by the negligence or fault of both
captains of the colliding vessels. Under the above ruling, it is evident that the laws of the
Philippines will apply, and it is immaterial that the collision actually occurred in foreign waters,
such as Ise Bay, Japan.
Under Article 1733 of the Civil Code, common carriers from the nature of their business and for
reasons of public policy are bound to observe extraordinary diligence in the vigilance over the
goods and for the safety of the passengers transported by them according to all circumstances of
each case. Accordingly, under Article 1735 of the same Code, in all cases other than those
mentioned in Article 1734 thereof, the common carrier shall be presumed to have been at fault
or to have acted negligently, unless it proves that it has observed the extraordinary diligence
required by law.
It appears, however, that collision falls among matters not specifically regulated by the Civil
Code, so that no reversible error can be found in respondent court's application to the case at bar
of Articles 826 to 839, Book Three of the Code of Commerce, which deal exclusively with
collision of vessels.
More specifically, Article 826 of the Code of Commerce provides that where collision is
imputable to the personnel of a vessel, the owner of the vessel at fault, shall indemnify the
losses and damages incurred after an expert appraisal. But more in point to the instant case is
Article 827 of the same Code, which provides that if the collision is imputable to both vessels,
each one shall suffer its own damages and both shall be solidarily responsible for the losses and
damages suffered by their cargoes.
Significantly, under the provisions of the Code of Commerce, particularly Articles 826 to 839,
the shipowner or carrier, is not exempt from liability for damages arising from collision due to
the fault or negligence of the captain. Primary liability is imposed on the shipowner or carrier in
recognition of the universally accepted doctrine that the shipmaster or captain is merely the
representative of the owner who has the actual or constructive control over the conduct of the
voyage (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., 12 Phil. 751 [1909]).
There is, therefore, no room for NDC's interpretation that the Code of Commerce should apply
only to domestic trade and not to foreign trade. Aside from the fact that the Carriage of Goods
by Sea Act (Com. Act No. 65) does not specifically provide for the subject of collision, said Act
in no uncertain terms, restricts its application "to all contracts for the carriage of goods by sea to
and from Philippine ports in foreign trade." Under Section 1 thereof, it is explicitly provided
that "nothing in this Act shall be construed as repealing any existing provision of the Code of
Commerce which is now in force, or as limiting its application." By such incorporation, it is
obvious that said law not only recognizes the existence of the Code of Commerce, but more
importantly does not repeal nor limit its application.
On the other hand, Maritime Company of the Philippines claims that Development Insurance
and Surety Corporation, has no cause of action against it because the latter did not prove that its
alleged subrogers have either the ownership or special property right or beneficial interest in the
cargo in question; neither was it proved that the bills of lading were transferred or assigned to
the alleged subrogers; thus, they could not possibly have transferred any right of action to said
plaintiff-appellee in this case. (Brief for the Maritime Company of the Philippines, p. 16).
The records show that the Riverside Mills Corporation and Guilcon, Manila are the holders of
the duly endorsed bills of lading covering the shipments in question and an examination of the
invoices in particular, shows that the actual consignees of the said goods are the aforementioned
companies. Moreover, no less than MCP itself issued a certification attesting to this fact.
Accordingly, as it is undisputed that the insurer, plaintiff-appellee paid the total amount of
P364,915.86 to said consignees for the loss or damage of the insured cargo, it is evident that
said plaintiff-appellee has a cause of action to recover (what it has paid) from defendant-
appellant MCP (Decision, CA-G.R. No. 46513-R, p. 10; Rollo, p. 43).
MCP next contends that it can not be liable solidarily with NDC because it is merely the
manager and operator of the vessel Dona Nati, not a ship agent. As the general managing agent,
according to MCP, it can only be liable if it acted in excess of its authority.
As found by the trial court and by the Court of Appeals, the Memorandum Agreement of
September 13, 1962 (Exhibit 6, Maritime) shows that NDC appointed MCP as Agent, a term
broad enough to include the concept of Ship-agent in Maritime Law. In fact, MCP was even
conferred all the powers of the owner of the vessel, including the power to contract in the name
of the NDC (Decision, CA G.R. No. 46513, p. 12; Rollo, p. 40). Consequently, under the
circumstances, MCP cannot escape liability.
 lost or damaged cargo "should have been delivered" in the light of Section 3, sub-paragraph (6)
It is well settled that both the owner and agent of the offending vessel are liable for the damage of the Carriage of Goods by Sea Act.
done where both are impleaded (Philippine Shipping Co. v. Garcia Vergara, 96 Phil. 281
[1906]); that in case of collision, both the owner and the agent are civilly responsible for the acts PREMISES CONSIDERED, the subject petitions are DENIED for lack of merit and the
of the captain (Yueng Sheng Exchange and Trading Co. v. Urrutia & Co., supra citing Article assailed decision of the respondent Appellate Court is AFFIRMED.
586 of the Code of Commerce; Standard Oil Co. of New YOrk v. Lopez Castelo, 42 Phil. 256,
262 [1921]); that while it is true that the liability of the naviero in the sense of charterer or SO ORDERED.
agent, is not expressly provided in Article 826 of the Code of Commerce, it is clearly deducible
from the general doctrine of jurisprudence under the Civil Code but more specially as regards
contractual obligations in Article 586 of the Code of Commerce. Moreover, the Court held that
both the owner and agent (Naviero) should be declared jointly and severally liable, since the
obligation which is the subject of the action had its origin in a tortious act and did not arise from
contract (Verzosa and Ruiz, Rementeria y Cia v. Lim, 45 Phil. 423 [1923]). Consequently, the
agent, even though he may not be the owner of the vessel, is liable to the shippers and owners of
the cargo transported by it, for losses and damages occasioned to such cargo, without prejudice,
however, to his rights against the owner of the ship, to the extent of the value of the vessel, its
equipment, and the freight (Behn, Meyer Y Co. v. McMicking et al. 11 Phil. 276 [1908]).

As to the extent of their liability, MCP insists that their liability should be limited to P200.00
per package or per bale of raw cotton as stated in paragraph 17 of the bills of lading. Also the
MCP argues that the law on averages should be applied in determining their liability.

MCP's contention is devoid of merit. The declared value of the goods was stated in the bills of
lading and corroborated no less by invoices offered as evidence during the trial. Besides,
common carriers, in the language of the court in Juan Ysmael & Co., Inc. v. Barretto et al., (51
Phil. 90 [1927]) "cannot limit its liability for injury to a loss of goods where such injury or loss
was caused by its own negligence." Negligence of the captains of the colliding vessel being the
cause of the collision, and the cargoes not being jettisoned to save some of the cargoes and the
vessel, the trial court and the Court of Appeals acted correctly in not applying the law on
averages (Articles 806 to 818, Code of Commerce).

MCP's claim that the fault or negligence can only be attributed to the pilot of the vessel SS
Yasushima Maru and not to the Japanese Coast pilot navigating the vessel Dona Nati, need not
be discussed lengthily as said claim is not only at variance with NDC's posture, but also
contrary to the factual findings of the trial court affirmed no less by the Court of Appeals, that
both pilots were at fault for not changing their excessive speed despite the thick fog obstructing
their visibility.

Finally on the issue of prescription, the trial court correctly found that the bills of lading issued
allow trans-shipment of the cargo, which simply means that the date of arrival of the ship Dona
Nati on April 18, 1964 was merely tentative to give allowances for such contingencies that said
vessel might not arrive on schedule at Manila and therefore, would necessitate the trans-ship-
ment of cargo, resulting in consequent delay of their arrival. In fact, because of the collision, the
cargo which was supposed to arrive in Manila on April 18, 1964 arrived only on June 12, 13,
18, 20 and July 10, 13 and 15, 1964. Hence, had the cargoes in question been saved, they could
have arrived in Manila on the above-mentioned dates. Accordingly, the complaint in the instant
case was filed on April 22, 1965, that is, long before the lapse of one (1) year from the date the
 [ G.R. No. 101949, December 01, 1994 ]
THE HOLY SEE, PETITIONER, VS. THE HON. ERIBERTO U. ROSARIO, JR., AS
PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF MAKATI, BRANCH 61
AND STARBRIGHT SALES ENTERPRISES, INC., RESPONDENTS.
DECISION
QUIASON, J.:
This is a petition for certiorari under Rule 65 of the Revised Rules of Court to reverse and set
aside the Orders dated June 20, 1991 and September 19, 1991 of the Regional Trial Court,
Branch 61, Makati, Metro Manila in Civil Case No. 90-183.
The Order dated June 20, 1991 denied the motion of petitioner to dismiss the complaint in Civil
Case No. 90-183, while the Order dated September 19, 1991 denied the motion for
reconsideration of the June 20, 1991 Order.
Petitioner is the Holy See who exercises sovereignty over the Vatican City in Rome, Italy, and
is represented in the Philippines by the Papal Nuncio.
Private respondent, Starbright Sales Enterprises, Inc., is a domestic corporation engaged in the
real estate business.
This petition arose from a controversy over a parcel of land consisting of 6,000 square meters
(Lot 5-A, Transfer Certificate of Title No. 390440) located in the Municipality of Paranaque,
Metro Manila and registered in the name of petitioner.
Said Lot 5-A is contiguous to Lots 5-B and 5-D which are covered by Transfer Certificates of
Title Nos. 271108 and 265388 respectively and registered in the name of the Philippine Realty
Corporation (PRC).
The three lots were sold to Ramon Licup, through Msgr. Domingo A. Cirilos, Jr., acting as
agent of the sellers. Later, Licup assigned his rights to the sale to private respondent.
In view of the refusal of the squatters to vacate the lots sold to private respondent, a dispute
arose as to who of the parties has the responsibility of evicting and clearing the land of
squatters. Complicating the relations of the parties was the sale by petitioner of Lot 5-A to
Tropicana Properties and Development Corporation (Tropicana).
I On July 12, 1991, petitioner moved for reconsideration of the order. On August 30, 1991,
On January 23, 1990, private respondent filed a complaint with the Regional Trial Court,
Branch 61, Makati, Metro Manila for annulment of the sale of the three parcels of land, and
specific performance and damages against petitioner, represented by the Papal Nuncio, and
three other defendants: namely, Msgr. Domingo A. Cirilos, Jr., the PRC and Tropicana (Civil
Case No. 90-183).
The complaint alleged that: (1) on April 17, 1988, Msgr. Cirilos, Jr., on behalf of petitioner and
the PRC, agreed to sell to Ramon Licup Lots 5-A, 5-B and 5-D at the price of P1,240.00 per
square meter; (2) the agreement to sell was made on the condition that earnest money of
P100,000.00 be paid by Licup to the sellers, and that the sellers clear the said lots of squatters
who were then occupying the same; (3) Licup paid the earnest money to Msgr. Cirilos; (4) in the
same month, Licup assigned his rights over the property to private respondent and informed the
sellers of the said assignment; (5) thereafter, private respondent demanded from Msgr. Cirilos
that the sellers fulfill their undertaking and clear the property of squatters; however, Msgr.
Cirilos informed private respondent of the squatters' refusal to vacate the lots, proposing instead
either that private respondent undertake the eviction or that the earnest money be returned to the
latter; (6) private respondent counterproposed that if it would undertake the eviction of the
squatters, the purchase price of the lots should be reduced from P1,240.00 to P1,150.00 per
square meter; (7) Msgr. Cirilos returned the earnest money of P100,000.00 and wrote private
respondent giving it seven days from receipt of the letter to pay the original purchase price in
cash; (8) private respondent sent the earnest money back to the sellers, but later discovered that
on March 30, 1989, petitioner and the PRC, without notice to private respondent, sold the lots to
Tropicana, as evidenced by two separate Deeds of Sale, one over Lot 5-A, and another over
Lots 5-B and 5-D; and that the sellers' transfer certificate of title over the lots were cancelled,
transferred and registered in the name of Tropicana; (9) Tropicana induced petitioner and the
PRC to sell the lots to it and thus enriched itself at the expense of private respondent; (10)
private respondent demanded the rescission of the sale to Tropicana and the reconveyance of the
lots, to no avail; and (11) private respondent is willing and able to comply with the terms of the
contract to sell and has actually made plans to develop the lots into a townhouse project, but in
view of the sellers' breach, it lost profits of not less than P30,000,000.00.
Private respondent thus prayed for: (1) the annulment of the Deeds of Sale between petitioner
and the PRC on the one hand, and Tropicana on the other; (2) the reconveyance of the lots in
question; (3) specific performance of the agreement to sell between it and the owners of the lots;
and (4) damages.
On June 8, 1990, petitioner and Msgr. Cirilos separately moved to dismiss the complaint -
petitioner for lack of jurisdiction based on sovereign immunity from suit, and Msgr. Cirilos for
being an improper party. An opposition to the motion was filed by private respondent.
On June 20, 1991, the trial court issued an order denying, among others, petitioner's motion to
dismiss after finding that petitioner "shed off [its] sovereign immunity by entering into the
business contract in question" (Rollo, pp. 20-21).
petitioner filed a "Motion for a Hearing for the Sole Purpose of Establishing Factual Allegation
for Claim of Immunity as a Jurisdictional Defense." So as to facilitate the determination of its
defense of sovereign immunity, petitioner prayed that a hearing be conducted to allow it to
establish certain facts upon which the said defense is based. Private respondent opposed this
motion as well as the motion for reconsideration.
On October 1, 1991, the trial court issued an order deferring the resolution on the motion for
reconsideration until after trial on the merits and directing petitioner to file its answer (Rollo, p.
22).
Petitioner forthwith elevated the matter to us. In its petition, petitioner invokes the privilege of
sovereign immunity only on its own behalf and on behalf of its official representative, the Papal
Nuncio.
On December 9, 1991, a Motion for Intervention was filed before us by the Department of
Foreign Affairs, claiming that it has a legal interest in the outcome of the case as regards the
diplomatic immunity of petitioner, and that it "adopts by reference, the allegations
contained in the petition of the Holy See insofar as they refer to arguments relative to its claim
of sovereign immunity from suit" (Rollo, p. 87).
Private respondent opposed the intervention of the Department of Foreign Affairs. In
compliance with the resolution of this Court, both parties and the Department of Foreign
Affairs submitted their respective memoranda.
II
A preliminary matter to be threshed out is the procedural issue of whether the petition
for certiorari under Rule 65 of the Revised Rules of Court can be availed of to question the
order denying petitioner's motion to dismiss. The general rule is that an order denying a motion
to dismiss is not reviewable by the appellate courts, the remedy of the movant being to file his
answer and to proceed with the hearing before the trial court. But the general rule admits of
exceptions, and one of these is when it is very clear in the records that the trial court has no
alternative but to dismiss the complaint (Philippine National Bank v. Florendo, 206 SCRA 582
[1992]; Zagada v. Civil Service Commission, 216 SCRA 114 [1992]). In such a case, it would
be a sheer waste of time and energy to require the parties to undergo the rigors of a trial.
The other procedural question raised by private respondent is the personality or legal interest of
the Department of Foreign Affairs to intervene in the case in behalf of the Holy See (Rollo, pp.
186-190).
In Public International Law, when a state or international agency wishes to plead sovereign or
diplomatic immunity in a foreign court, it requests the Foreign Office of the state where it is
sued to convey to the court that said defendant is entitled to immunity.
In the United States, the procedure followed is the process of "suggestion," where the foreign
state or the international organization sued in an American court requests the Secretary of State
to make a determination as to whether it is entitled to immunity. If the Secretary of State finds
that the defendant is immune from suit, he, in turn, asks the Attorney General to submit to the
court a "suggestion" that the defendant is entitled to immunity. In England, a similar procedure
is followed, only the Foreign Office issues a certification to that effect instead of submitting a
"suggestion" (O'Connell, I International Law 130 [1965]; Note: Immunity from Suit of Foreign
Sovereign Instrumentalities and Obligations, 50 Yale Law Journal 1088 [1941]).
In the Philippines, the practice is for the foreign government or the international organization to
first secure an executive endorsement of its claim of sovereign or diplomatic immunity. But
how the Philippine Foreign Office conveys its endorsement to the courts varies.
In International Catholic Migration Commission v. Calleja, 190 SCRA 130 (1990), the
Secretary of Foreign Affairs just sent a letter directly to the Secretary of Labor and
Employment, informing the latter that the respondent-employer could not be sued because it
enjoyed diplomatic immunity. In World Health Organization v. Aquino, 48 SCRA 242 (1972),
the Secretary of Foreign Affairs sent the trial court a telegram to that effect. In Baer v. Tizon, 57
SCRA 1 (1974), the U.S. Embassy asked the Secretary of Foreign Affairs to request the
Solicitor General to make, in behalf of the Commander of the United States Naval Base at
Olongapo City, Zambales, a "suggestion" to respondent Judge. The Solicitor General embodied
the "suggestion" in a Manifestation and Memorandum as amicus curiae.
In the case at bench, the Department of Foreign Affairs, through the Office of Legal Affairs
moved with this Court to be allowed to intervene on the side of petitioner. The Court allowed
the said Department to file its memorandum in support of petitioner's claim of sovereign
immunity.
In some cases, the defense of sovereign immunity was submitted directly to the local courts by
the respondents through their private counsels (Raquiza v. Bradford, 75 Phil. 50 [1945];
Miquiabas v. Philippine-Ryukyus Command, 80 Phil. 262 [1948]; United States of America v.
Guinto, 182 SCRA 644 [1990] and companion cases). In cases where the foreign states bypass
the Foreign Office, the courts can inquire into the facts and make their own determination as to
the nature of the acts and transactions involved.
III
The burden of the petition is that respondent trial court has no jurisdiction over petitioner, being
a foreign state enjoying sovereign immunity. On the other hand, private respondent insists that
the doctrine of non-suability is not anymore absolute and that petitioner has divested itself of
such a cloak when, of its own free will, it entered into a commercial transaction for the sale of a
parcel of land located in the Philippines.
A. The Holy See
Before we determine the issue of petitioner's non-suability, a brief look into its status as a
sovereign state is in order.
Before the annexation of the Papal States by Italy in 1870, the Pope was the monarch and he, as
the Holy See, was considered a subject of International Law. With the loss of the Papal States
and the limitation of the territory under the Holy See to an area of 108.7 acres, the position of
the Holy See in International Law became controversial (Salonga and Yap, Public International
Law 36-37 [1992]).
In 1929, Italy and the Holy See entered into the Lateran Treaty, where Italy recognized the
exclusive dominion and sovereign jurisdiction of the Holy See over the Vatican City. It also
recognized the right of the Holy See to receive foreign diplomats, to send its own diplomats to
foreign countries, and to enter into treaties according to International Law. (Garcia, Questions
and Problems In International Law, Public and Private 81 [1948]).
The Lateran Treaty established the statehood of the Vatican City "for the purpose of assuring to
the Holy See absolute and visible independence and of guaranteeing to it indisputable
sovereignty also in the field of international relations" (O'Connell, I International Law 311
[1965]).
In view of the wordings of the Lateran Treaty, it is difficult to determine whether the statehood
is vested in the Holy See or in the Vatican City. Some writers even suggested that the treaty
created two international persons - the Holy See and Vatican City (Salonga and Yap, supra.,
37).
The Vatican City fits into none of the established categories of states, and the attribution to it of
"sovereignty" must be made in a sense different from that in which it is applied to other states
(Fenwick, International Law 124-125 [1948]; Cruz, International Law 37 [1991]). In a
community of national states, the Vatican City represents an entity organized not for political
but for ecclesiastical purposes and international objects. Despite its size and object, the Vatican
City has an independent government of its own, with the Pope, who is also head of the Roman
Catholic Church, as the Holy See or Head of State, in conformity with its traditions, and the
demands of its mission in the world. Indeed, the world-wide interests and activities of the
Vatican City are such as to make it in a sense an "international state" (Fenwick, supra., 125;
Kelsen, Principles of International Law 160 [1956]).
One authority wrote that the recognition of the Vatican City as a state has significant
implication - that it is possible for any entity pursuing objects essentially different from those
pursued by states to be invested with international personality
(Kunz, The Status of the Holy See in International Law, 46 The American Journal of
International Law 308 [1952]).
Inasmuch as the Pope prefers to conduct foreign relations and enter into transactions as the Holy
See and not in the name of the Vatican City, one can conclude that in the Pope's own view, it is
the Holy See that is the international person.
The Republic of the Philippines has accorded the Holy See the status of a foreign sovereign.
The Holy See, through its Ambassador, the Papal Nuncio, has had diplomatic representations
with the Philippine government since 1957 (Rollo, p. 87). This appears to be the universal
practice in international relations.
B. Sovereign Immunity
As expressed in Section 2 of Article II of the 1987 Constitution, we have adopted the generally
accepted principles of International Law. Even without this affirmation, such principles of
International Law are deemed incorporated as part of the law of the land as a condition and
consequence of our admission in the society of nations (United States of America v. Guinto, 182
SCRA 644 [1990]).
There are two conflicting concepts of sovereign immunity, each widely held and firmly
established. According to the classical or absolute theory, a sovereign cannot, without its
consent, be made a respondent in the courts of another sovereign. According to the newer or
restrictive theory, the immunity of the sovereign is recognized only with regard to public acts or
acts jure imperii of a state, but not with regard to private acts or acts jure gestionis (United
States of America v. Ruiz, 136 SCRA 487 [1987]; Coquia and Defensor-Santiago, Public
International Law 194 [1984]).
Some states passed legislation to serve as guidelines for the executive or judicial determination
when an act may be considered as jure gestionis. The United States passed the Foreign
Sovereign Immunities Act of 1976, which defines a commercial activity as "either a regular
course of commercial conduct or a particular commercial transaction or act." Furthermore, the
law declared that the "commercial character of the activity shall be determined by reference to
the nature of the course of conduct or particular transaction or act, rather than by reference to its
purpose." The Canadian Parliament enacted in 1982 an Act to Provide For State Immunity In
Canadian Courts. The Act defines a "commercial activity" as any particular transaction, act or
conduct or any regular course of conduct that by reason of its nature, is of a "commercial
character."
The restrictive theory, which is intended to be a solution to the host of problems involving the
issue of sovereign immunity, has created problems of its own. Legal treatises and the decisions
in countries which follow the restrictive theory have difficulty in characterizing whether a
contract of a sovereign state with a private party is an act juregestionis or an act jure imperii.
The restrictive theory came about because of the entry of sovereign states into purely
commercial activities remotely connected with the discharge of governmental functions. This is
particularly true with respect to the Communist states which took control of nationalized
business activities and international trading.
This Court has considered the following transactions by a foreign state with private parties as
acts jure imperii: (1) the lease by a foreign government of apartment buildings for use of its
military officers (Syquia v. Lopez, 84 Phil. 312 [1949]); (2) the conduct of public bidding for
the repair of a wharf at a United States Naval Station (United States of America v. Ruiz, supra.);
and (3) the change of employment status of base employees (Sanders v. Veridiano, 162 SCRA
88 [1988]).
On the other hand, this Court has considered the following transactions by a foreign state with
private parties as acts jure gestionis: (1) the hiring of a cook in the recreation center, consisting
of three restaurants, a cafeteria, a bakery, a store, and a coffee and pastry shop at the John Hay
Air Station in Baguio City, to cater to American servicemen and the general public (United
States of America v. Rodrigo, 182 SCRA 644 [1990]); and (2) the bidding for the operation of
barber shops in Clark Air Base in Angeles City (United States of America v. Guinto, 182 SCRA
644 [1990]). The operation of the restaurants and other facilities open to the general public is
undoubtedly for profit as a commercial and not a governmental activity. By entering into the
employment contract with the cook in the discharge of its proprietary function, the United States
government impliedly divested itself of its sovereign immunity from suit.
In the absence of legislation defining what activities and transactions shall be considered
"commercial" and as constituting acts jure gestionis, we have to come out with our own
guidelines, tentative they may be.
Certainly, the mere entering into a contract by a foreign state with a private party cannot be the
ultimate test. Such an act can only be the start of the inquiry. The logical question is whether the
foreign state is engaged in the activity in the regular course of business. If the foreign state is
not engaged regularly in a business or trade, the particular act or transaction must then be tested
by its nature. If the act is in pursuit of a sovereign activity, or an incident thereof, then it is an
act jure imperii, especially when it is not undertaken for gain or profit.
As held in United States of America v. Guinto, (supra):
"There is no question that the United States of America, like any other state, will be deemed to
have impliedly waived its non-suability if it has entered into a contract in its proprietary or
private capacity. It is only when the contract involves its sovereign or governmental capacity
that no such waiver may be implied."
In the case at bench, if petitioner has bought and sold lands in the ordinary course of a real
estate business, surely the said transaction can be categorized as an act jure gestionis. However,
petitioner has denied that the acquisition and subsequent disposal of Lot 5-A were made for
profit but claimed that it acquired said property for the site of its mission or the Apostolic
Nunciature in the Philippines. Private respondent failed to dispute said claim.
Lot 5-A was acquired by petitioner as a donation from the Archdiocese of Manila. The donation
was made not for commercial purpose, but for the use of petitioner to construct thereon
the official place of residence of the Papal Nuncio. The right of a foreign sovereign to acquire
property, real or personal, in a receiving state, necessary for the creation and maintenance of its
diplomatic mission, is recognized in the 1961 Vienna Convention on Diplomatic Relations
(Arts. 20-22). This treaty was concurred in by the Philippine Senate and entered into force in the
Philippines on November 15, 1965.
In Article 31(a) of the Convention, a diplomatic envoy is granted immunity from the civil and
administrative jurisdiction of the receiving state over any real action relating to private
immovable property situated in the territory of the receiving state which the envoy holds on
behalf of the sending state for the purposes of the mission. If this immunity is provided for a
diplomatic envoy, with all the more reason should immunity be recognized as regards the
sovereign itself, which in this case is the Holy See.
The decision to transfer the property and the subsequent disposal thereof are likewise clothed
with a governmental character. Petitioner did not sell Lot 5-A for profit or gain. It merely
wanted to dispose off the same because the squatters living thereon made it almost impossible
for petitioner to use it for the purpose of the donation. The fact that squatters have occupied and
are still occupying the lot, and that they stubbornly refuse to leave the premises, has been
admitted by private respondent in its complaint (Rollo, pp. 26, 27).
The issue of petitioner's non-suability can be determined by the trial court without going to trial
in the light of the pleadings, particularly the admission of private respondent. Besides, the
privilege of sovereign immunity in this case was sufficiently established by the Memorandum
and Certification of the Department of Foreign Affairs. As the department tasked with the
conduct of the Philippines' foreign relations (Administrative Code of 1987, Book IV, Title I,
Sec. 3), the Department of Foreign Affairs has formally intervened in this case and officially
certified that the Embassy of the Holy See is a duly accredited diplomatic mission to the
Republic of the Philippines exempt from local jurisdiction and entitled to all the rights,
privileges and immunities of a diplomatic mission or embassy in this country (Rollo, pp. 156-
157). The determination of the executive arm of government that a state or instrumentality is
entitled to sovereign or diplomatic immunity is a political question that is conclusive upon the
courts (International Catholic Migration Commission v. Calleja, 190 SCRA 130 [1990]). Where
the plea of immunity is recognized and affirmed by the executive branch, it is the duty of the
courts to accept this claim so as not to embarrass the executive arm of the government in
conducting the country's foreign relations (World Health Organization v. Aquino, 48 SCRA 242
[1972]). As in International Catholic Migration Commission and in World Health Organization,
we abide by the certification of the Department of Foreign Affairs.
Ordinarily, the procedure would be to remand the case and order the trial court to conduct a
hearing to establish the facts alleged by petitioner in its motion. In view of said certification,
such procedure would however be pointless and unduly circuitous (Ortigas & Co. Ltd.
Partnership v. Judge Tirso Velasco, G.R. No. 109645, July 25, 1994).
IV
Private respondent is not left without any legal remedy for the redress of its grievances. Under
both Public International Law and Transnational Law, a person who feels aggrieved by the acts
of a foreign sovereign can ask his own government to espouse his cause through diplomatic
channels.
Private respondent can ask the Philippine government, through the Foreign Office, to espouse
its claims against the Holy See. Its first task is to persuade the Philippine government to take up
with the Holy See the validity of its claims. Of course, the Foreign Office shall first make a
determination of the impact of its espousal on the relations between the Philippine government
and the Holy See (Young, Remedies of Private Claimants Against Foreign States, Selected
Readings on Protection by Law of Private Foreign Investments 905, 919 [1964]). Once the
Philippine government decides to espouse the claim, the latter ceases to be a private cause.

According to the Permanent Court of International Justice, the forerunner of the International
Court of Justice:

"By taking up the case of one of its subjects and by resorting to diplomatic action or
international judicial proceedings on his behalf, a State is in reality asserting its own rights - its
right to ensure, in the person of its subjects, respect for the rules of international law" (The
Mavrommatis Palestine Concessions, 1 Hudson, World Court Reports 293, 302 [1924]).

WHEREFORE, the petition for certiorari is GRANTED and the complaint in Civil Case No.
90-183 against petitioner is DISMISSED.
 [ G.R. No. 94723, August 21, 1997 ]
KAREN E. SALVACION, MINOR, THRU FEDERICO N. SALVACION, JR., FATHER
AND NATURAL GUARDIAN, AND SPOUSES FEDERICO N. SALVACION, JR., AND
EVELINA E. SALVACION, PETITIONERS, VS. CENTRAL BANK OF THE
PHILIPPINES, CHINA BANKING CORPORATION AND GREG BARTELLI Y
NORTHCOTT, RESPONDENTS.
DECISION
TORRES, JR., J.:
In our predisposition to discover the “original intent” of a statute, courts become the unfeeling
pillars of the status quo. Little do we realize that statutes or even constitutions are bundles of
compromises thrown our way by their framers. Unless we exercise vigilance, the statute may
already be out of tune and irrelevant to our day.
The petition is for declaratory relief. It prays for the following reliefs:
a.) Immediately upon the filing of this petition, an Order be issued restraining the respondents
from applying and enforcing Section 113 of Central Bank Circular No. 960;
b.) After hearing, judgment be rendered:
1.) Declaring the respective rights and duties of petitioners and respondents;
2.) Adjudging Section 113 of Central Bank Circular No. 960 as contrary to the provision of the
Constitution, hence void; because its provision that “Foreign currency deposits shall be exempt
from attachment, garnishment, or any other order to process of any court, legislative body,
government agency or any administrative body whatsoever”
i.) has taken away the right of petitioners to have the bank deposit of defendant Greg Bartelli y
Northcott garnished to satisfy the judgment rendered in petitioners’ favor in violation of
substantive due process guaranteed by the Constitution;
ii.) has given foreign currency depositors an undue favor or a class privilege in violation of the
equal protection clause of the Constitution;
iii.) has provided a safe haven for criminals like the herein respondent Greg Bartelli y Northcott
since criminals could escape civil liability for their wrongful acts by merely converting their
money to a foreign currency and depositing it in a foreign currency deposit account with an
authorized bank.
The antecedents facts:
On February 4, 1989, Greg Bartelli y Northcott, an American tourist, coaxed and lured
petitioner Karen Salvacion, then 12 years old to go with him to his apartment. Therein, Greg
Bartelli detained Karen Salvacion for four days, or up to February 7, 1989 and was able to rape
the child once on February 4, and three times each day on February 5, 6, and 7, 1989. On
February 7, 1989, after policemen and people living nearby, rescued Karen, Greg Bartelli was
arrested and detained at the Makati Municipal Jail. The policemen recovered from Bartelli the
following items: 1.) Dollar Check No. 368, Control No. 021000678-1166111303, US 3,903.20;
2.) COCOBANK Bank Book No. 104-108758-8 (Peso Acct.); 3.) Dollar Account – China
Banking Corp., US $/A#54105028-2; 4.) ID-122-30-8877; 5.) Philippine Money (P234.00)
cash; 6.) Door Keys 6 pieces; 7.) Stuffed Doll (Teddy Bear) used in seducing the complainant.
On February 16, 1989, Makati Investigating Fiscal Edwin G. Condaya filed against Greg
Bartelli, Criminal Case No. 801 for Serious Illegal Detention and Criminal Cases Nos. 802, 803,
804, and 805 for four (4) counts of Rape. On the same day, petitioners filed with the Regional
Trial Court of Makati Civil Case No. 89-3214 for damages with preliminary attachment against
Greg Bartelli. On February 24, 1989, the day there was a scheduled hearing for Bartelli’s
petition for bail the latter escaped from jail.
On February 28, 1989, the court granted the fiscal’s Urgent Ex-Parte Motion for the Issuance of
Warrant of Arrest and Hold Departure Order. Pending the arrest of the accused Greg Bartelli y
Northcott, the criminal cases were archived in an Order dated February 28, 1989.
Meanwhile, in Civil Case No. 89-3214, the Judge issued an Order dated February 22, 1989
granting the application of herein petitioners, for the issuance of the writ of preliminary
attachment. After petitioners gave Bond No. JCL (4) 1981 by FGU Insurance Corporation in the
amount P100,000.00, a Writ of Preliminary Attachment was issued by the trial court on
February 28, 1989.
On March 1, 1989, the Deputy Sheriff of Makati served a Notice of Garnishment on China
Banking Corporation. In a letter dated March 13, 1989 to the Deputy Sheriff of Makati, China
Banking Corporation invoked Republic Act No. 1405 as its answer to the notice of garnishment
served on it. On March 15, 1989, Deputy Sheriff of Makati Armando de Guzman sent his reply
to China Banking Corporation saying that the garnishment did not violate the secrecy of bank
deposits since the disclosure is merely incidental to a garnishment properly and legally made by
virtue of a court order which has placed the subject deposits in custodia legis. In answer to this
letter of the Deputy Sheriff of Makati, China Banking Corporation, in a letter dated March 20,
1989, invoked Section 113 of Central Bank Circular No. 960 to the effect that the dollar
deposits of defendant Greg Bartelli are exempt from attachment, garnishment, or any other
order or process of any court, legislative body, government agency or any administrative body,
whatsoever.
This prompted the counsel for petitioners to make an inquiry with the Central Bank in a letter
dated April 25, 1989 on whether Section 113 of CB Circular No. 960 has any exception or
whether said section has been repealed or amended since said section has rendered nugatory the
substantive right of the plaintiff to have the claim sought to be enforced by the civil action
secured by way of the writ of preliminary attachment as granted to the plaintiff under Rule 57 of
the Revised Rules of Court. The Central Bank responded as follows:
“May 26, 1989
“Ms. Erlinda S. Carolino
12 Pres. Osmeña Avenue
South Admiral Village
Paranaque, Metro Manila
“Dear Ms. Carolino:
“This is in reply to your letter dated April 25, 1989 regarding your inquiry on Section 113, CB
Circular No. 960 (1983).
“The cited provision is absolute in application. It does not admit of any exception, nor has the
same been repealed nor amended.
“The purpose of the law is to encourage dollar accounts within the country’s banking system
which would help in the development of the economy. There is no intention to render futile the
basic rights of a person as was suggested in your subject letter. The law may be harsh as some
perceive it, but it is still the law. Compliance is, therefore, enjoined.
“Very truly yours,
(SGD) AGAPITO S. FAJARDO
Director”[1]
Meanwhile, on April 10, 1989, the trial court granted petitioners’ motion for leave to serve
summons by publication in the Civil Case No. 89-3214 entitled “Karen Salvacion. et al. vs.
Greg Bartelli y Northcott.” Summons with the complaint was published in the Manila Times
once a week for three consecutive weeks. Greg Bartelli failed to file his answer to the complaint
and was declared in default on August 7, 1989. After hearing the case ex-parte, the court
rendered judgment in favor of petitioners on March 29, 1990, the dispositive portion of which
reads:
“WHEREFORE, judgment is hereby rendered in favor of plaintiffs and against defendant,
ordering the latter:
“1. To pay plaintiff Karen E. Salvacion the amount of P500,000.00 as moral damages;
“2. To pay her parents, plaintiffs spouses Federico N. Salvacion, Jr., and Evelina E. Salvacion
the amount of P150,000.00 each or a total of P300,000.00 for both of them;
“3. To pay plaintiffs exemplary damages of P100,000.00; and
“4. To pay attorney’s fees in an amount equivalent to 25% of the total amount of damages
herein awarded;
“5. To pay litigation expenses of P10,000.00; plus
“6. Costs of the suit.
“SO ORDERED.”
The heinous acts of respondents Greg Bartelli which gave rise to the award were related in
graphic detail by the trial court in its decision as follows:
“The defendant in this case was originally detained in the municipal jail of Makati but was able
to escape therefrom on February 24, 1989 as per report of the Jail Warden of Makati to the
Presiding Judge, Honorable Manuel M. Cosico of the Regional Trial Court of Makati, Branch
136, where he was charged with four counts of Rape and Serious Illegal Detention (Crim. Cases
Nos. 802 to 805). Accordingly, upon motion of plaintiffs, through counsel, summons was
served upon defendant by publication in the Manila Times, a newspaper of general circulation
as attested by the Advertising Manager of the Metro Media Times, Inc., the publisher of the said
newspaper. Defendant, however, failed to file his answer to the complaint despite the lapse of
the period of sixty (60) days from the last publication; hence, upon motion of the plaintiffs
through counsel, defendant was declared in default and plaintiffs were authorized to present
their evidence ex parte.
“In support of the complaint, plaintiffs presented as witness the minor Karen E. Salvacion, her
father, Federico N. Salacion, Jr., a certain Joseph Aguilar and a certain Liberato Mandulio, who
gave the following testimony:
“Karen took her first year high school in St. Mary’s Academy in Pasay City but has recently
transferred to Arellano University for her second year.
“In the afternoon of February 4, 1989, Karen was at the Plaza Fair Makati Cinema Square, with
her friend Edna Tangile whiling away her free time. At about 3:30 p.m. while she was finishing
her snack on a concrete bench in front of Plaza Fair, an American approached her. She was then
alone because Edna Tangile had already left, and she was about to go home. (TSN, Aug. 15,
1989, pp. 2 to 5)
“The American asked her name and introduced himself as Greg Bartelli. He sat beside her when
he talked to her. He said he was a Math teacher and told her that he has a sister who is a nurse in
New York. His sister allegedly has a daughter who is about Karen’s age and who was with him
in his house along Kalayaan Avenue. (TSN, Aug. 15, 1989, pp. 4-5).
“The American asked Karen what was her favorite subject and she told him it’s Pilipino. He
then invited her to go with him to his house where she could teach Pilipino to his niece. He even
gave her a stuffed toy to persuade her to teach his niece. (Id., pp.5-6)
“They walked from Plaza Fair along Pasong Tamo, turning right to reach the defendant’s house
along Kalayaan Avenue. (Id., p.6)
“When they reached the apartment house, Karen notices that defendant’s alleged niece was not
outside the house but defendant told her maybe his niece was inside. When Karen did not see
the alleged niece inside the house, defendant told her maybe his niece was upstairs, and invited
Karen to go upstairs. (Id., p. 7)
“Upon entering the bedroom defendant suddenly locked the door. Karen became nervous
because his niece was not there. Defendant got a piece of cotton cord and tied Karen’s hands
with it, and then he undressed her. Karen cried for help but defendant strangled her. He took a
packing tape and he covered her mouth with it and he circled it around her head. (Id., p. 7)
“Then, defendant suddenly pushed Karen towards the bed which was just near the door. He tied
her feet and hands spread apart to the bed posts. He knelt in front of her and inserted his finger
in her sex organ. She felt severe pain. She tried to shout but no sound could come out because
there were tapes on her mouth. When defendant withdrew his finger it was full of blood and
Karen felt more pain after the withdrawal of the finger. (Id., p.8)
“He then got a Johnsons Baby Oil and he applied it to his sex organ as well as to her sex organ.
After that he forced his sex organ into her but he was not able to do so. While he was doing it,
Karen found it difficult to breathe and she perspired a lot while feeling severe pain. She merely
presumed that he was able to insert his sex organ a little, because she could not see. Karen could
not recall how long the defendant was in that position. (Id., pp. 8-9)
“After that, he stood up and went to the bathroom to wash. He also told Karen to take a shower
and he untied her hands. Karen could only hear the sound of the water while the defendant, she
presumed, was in the bathroom washing his sex organ. When she took a shower more blood
came out from her. In the meantime, defendant changed the mattress because it was full of
blood. After the shower, Karen was allowed by defendant to sleep. She fell asleep because she
got tired crying. The incident happened at about 4:00 p.m. Karen had no way of determining the
exact time because defendant removed her watch. Defendant did not care to give her food
before she went to sleep. Karen woke up at about 8:00 o’clock the following morning. (Id., pp.
9-10)
“The following day, February 5, 1989, a Sunday, after breakfast of biscuit and coke at about
8:30 to 9:00 a.m. defendant raped Karen while she was still bleeding. For lunch, they also took
biscuit and coke. She was raped for the second time at about 12:00 to 2:00 p.m. In the evening,
they had rice for dinner which defendant had stored downstairs; it was he who cooked the rice
that is why it looks like “lugaw”. For the third time, Karen was raped again during the night.
During those three times defendant succeeded in inserting his sex organ but she could not say
whether the organ was inserted wholly.
“Karen did not see any firearm or any bladed weapon. The defendant did not tie her hands and
feet nor put a tape on her mouth anymore but she did not cry for help for fear that she might be
killed; besides, all those windows and doors were closed. And even if she shouted for help,
nobody would hear her. She was so afraid that if somebody would hear her and would be able to
call a police, it was still possible that as she was still inside the house, defendant might kill her.
Besides, the defendant did not leave that Sunday, ruling out her chance to call for help. At
nighttime he slept with her again. (TSN, Aug. 15, 1989, pp. 12-14)
“On February 6, 1989, Monday, Karen was raped three times, once in the morning for thirty
minutes after breakfast of biscuits; again in the afternoon; and again in the evening. At first,
Karen did not know that there was a window because everything was covered by a carpet, until
defendant opened the window for around fifteen minutes or less to let some air in, and she found
that the window was covered by styrofoam and plywood. After that, he again closed the window
with a hammer and he put the styrofoam, plywood, and carpet back. (Id., pp. 14-15)
“That Monday evening, Karen had a chance to call for help, although defendant left but kept the
door closed. She went to the bathroom and saw a small window covered by styrofoam and she
also spotted a small hole. She stepped on the bowl and she cried for help through the hole. She
cried: ‘Maawa na po kayo sa akin. Tulungan n’yo akong makalabas dito. Kinidnap ako!’
Somebody heard her. It was a woman, probably a neighbor, but she got angry and said she was
‘istorbo.’ Karen pleaded for help and the woman told her to sleep and she will call the police.
She finally fell asleep but no policeman came. (TSN, Aug. 15, 1989, pp. 15-16)
“She woke up at 6:00 o’clock the following morning, and she saw defendant in bed, this time
sleeping. She waited for him to wake up. When he woke up, he again got some food but he
always kept the door locked. As usual, she was merely fed with biscuit and coke. On that day,
February 7, 1989, she was again raped three times. The first at about 6:30 to 7:00 a.m., the
second at about 8:30 – 9:00, and the third was after lunch at 12:00 noon. After he had raped her
for the second time he left but only for a short while. Upon his return, he caught her shouting for
help but he did not understand what she was shouting about. After she was raped the third time,
he left the house. (TSN, Aug. 15, 1989, pp. 16-17) She again went to the bathroom and shouted
for help. After shouting for about five minutes, she heard many voices. The voices were asking
for her name and she gave her name as Karen Salvacion. After a while, she heard a voice of a
woman saying they will just call the police. They were also telling her to change her clothes.
She went from the bathroom to the room but she did not change her clothes being afraid that
should the neighbors call the police and the defendant see her in different clothes, he might kill
her. At that time she was wearing a T-shirt of the American bacause the latter washed her dress.
(Id., p. 16)
“Afterwards, defendant arrived and opened the door. He asked her if she had asked for help
because there were many policemen outside and she denied it. He told her to change her clothes,
and she did change to the one she was wearing on Saturday. He instructed her to tell the police
that she left home and willingly; then he went downstairs but he locked the door. She could hear
people conversing but she could not understand what they were saying. (Id., p. 19)
“When she heard the voices of many people who were conversing downstairs, she knocked
repeatedly at the door as hard as she could. She heard somebody going upstairs and when the
door was opened, she saw a policeman. The policeman asked her name and the reason why she
was there. She told him she was kidnapped. Downstairs, he saw about five policemen in
uniform and the defendant was talking to them. ‘Nakikipag-areglo po sa mga pulis,’ Karen
added. “The policeman told him to just explain at the precinct. (Id., p. 20)
“They went out of the house and she saw some of her neighbors in front of the house. They rode
the car of a certain person she called Kuya Boy together with defendant, the policeman, and two
of her neighbors whom she called Kuya Bong Lacson and one Ate Nita. They were brought to
Sub-Station I and there she was investigated by a policeman. At about 2:00 a.m., her father
arrived, followed by her mother together with some of their neighbors. Then they were brought
to the second floor of the police headquarters. (Id., p. 21)
“At the headquarters, she was asked several questions by the investigator. The written statement
she gave to the police was marked Exhibit A. Then they proceeded to the National Bureau of
Investigation together with the investigator and her parents. At the NBI, a doctor, a medico-
legal officer, examined her private parts. It was already 3:00 in early morning, of the following
day when they reached the NBI, (TSN, Aug. 15, 1989, p. 22) The findings of the medico-legal
officer has been marked as Exhibit B.
“She was studying at the St. Mary’s Academy in Pasay City at the time of the Incident but she
subsequently transferred to Apolinario Mabini, Arellano University, situated along Taft Avenue,
because she was ashamed to be the subject of conversation in the school. She first applied for
transfer to Jose Abad Santos, Arellano University along Taft Avenue near the Light Rail Transit
Station but she was denied admission after she told the school the true reason for her transfer.
The reason for their denial was that they might be implicated in the case. (TSN, Aug. 15, 1989,
p. 46)
xxx xxx xxx
“After the incident, Karen has changed a lot. She does not play with her brother and sister
anymore, and she is always in a state of shock; she has been absent-minded and is ashamed even
to go out of the house. (TSN, Sept. 12, 1989, p. 10) She appears to be restless or sad. (Id., p. 11)
The father prays for P500,000.00 moral damages for Karen for this shocking experience which
probably, she would always recall until she reaches old age, and he is not sure if she could ever
recover from this experience.” (TSN, Sept. 24, 1989, pp. 10-11)
Pursuant to an Order granting leave to publish notice of decision, said notice was published in
the Manila Bulletin once a week for three consecutive weeks. After the lapse of fifteen (15)
days from the date of the last publication of the notice of judgment and the decision of the trial
court had become final, petitioners tried to execute on Bartelli’s dollar deposit with China
Banking Corporation. Likewise, the bank invoked Section 113 of Central Bank Circular No.
960.
Thus, petitioners decided to seek relief from this Court.
The issues raised and the arguments articulated by the parties boil down to two:
May this Court entertain the instant petition despite the fact that original jurisdiction in petitions
for declaratory relief rests with the lower court? She Section 113 of Central Bank Circular No.
960 and Section 8 of R.A. 6426, as amended by P.D. 1246, otherwise known as the Foreign
Currency Deposit Act be made applicable to a foreign transient?
Petitioners aver as heretofore stated that Section 113 of Central Bank Circular No. 960
providing that “Foreign currency deposits shall be exempt from attachment, garnishment, or any
other order or process of any court, legislative body, government agency or any administrative
body whatsoever.” should be adjudged as unconstitutional on the grounds that: 1.) it has taken
away the right of petitioners to have the bank deposit of defendant Greg Bartelli y Northcott
garnished to satisfy the judgment rendered in petitioners’ favor in violation of substantive due
process guaranteed by the Constitution; 2.) it has given foreign currency depositors an undue
favor or a class privilege n violation of the equal protection clause of the Constitution; 3.) it has
provided a safe haven for criminals like the herein respondent Greg Bartelli y Northcott since
criminal could escape civil liability for their wrongful acts by merely converting their money to
a foreign currency and depositing it in a foreign currency deposit account with an authorized
bank; and 4.) The Monetary Board, in issuing Section 113 of Central Bank Circular No. 960 has
exceeded its delegated quasi- legislative power when it took away: a.) the plaintiff’s substantive
right to have the claim sought to be enforced by the civil action secured by way of the writ of
preliminary attachment as granted by Rule 57 of the Revised Rules of Court; b.) the plaintiff’s
substantive right to have the judgment credit satisfied by way of the writ of execution out of the
bank deposit of the judgment debtor as granted to the judgment creditor by Rule 39 of the
Revised Rules of Court, which is beyond its power to do so.
On the other hand, respondent Central Bank, in its Comment alleges that the Monetary Board in
issuing Section 113 of CB Circular No. 960 did not exceed its power or authority because the
subject Section is copied verbatim from a portion of R.A. No. 6426 as amended by P.D. 1246.
Hence, it was not the Monetary Board that grants exemption from attachment or garnishment to
foreign currency deposits, but the law (R.A. 6426 as amended) itself; that it does not violate the
substantive due process guaranteed by the Constitution because a.) it was based on a law; b.) the
law seems to be reasonable; c.) it is enforced according to regular methods of procedure; and d.)
it applies to all members of a class.
Expanding, the Central Bank said; that one reason for exempting the foreign currency deposits
from attachment, garnishment or any other order process of any court, is to assure the
development and speedy growth of the Foreign Currency Deposit System and the Offshore
Banking System in the Philippines; that another reason is to encourage the inflow of foreign
currency deposits into the banking institutions thereby placing such institutions more in a
position to properly channel the same to loans and investments in the Philippines, thus directly
contributing to the economic development of the country; that the subject section is being
enforced according to the regular methods of procedure; and that it applies to all currency
deposits made by any person and therefore does not violate the equal protection clause of the
Constitution.
Respondent Central Bank further avers that the questioned provision is needed to promote the
public interest and the general welfare; that the State cannot just stand idly by while a
considerable segment of the society suffers from economic distress; that the State had to take
some measures to encourage economic development; and that in so doing persons and property
may be subjected to some kinds of restraints or burdens to secure the general welfare or public
interest. Respondent Central Bank also alleges that Rule 39 and Rule 57 of the Revised Rules of
Court provide that some properties are exempted from execution/attachment especially provided
by law and R.A. No. 6426 as amended is such a law, in that it specifically provides, among
others, that foreign currency deposits shall be exempted from attachment, garnishment, or any
other order or process of any court, legislative body, government agency or any administrative
body whatsoever.
For its part, respondent China Banking Corporation, aside from giving reasons similar to that of
respondent Central Bank, also stated that respondent China Bank is not unmindful of the
inhuman sufferings experienced by the minor Karen E. Salvacion from the beastly hands of
Greg Bartelli; that it is not only too willing to release the dollar deposit of Bartelli which may
perhaps partly mitigate the sufferings petitioner has undergone; but it is restrained from doing so
in view of R.A. No. 6426 and Section 113 of Central Bank Circular No. 960; and that despite
the harsh effect to these laws on petitioners, CBC has no other alternative but to follow the
same.
This court finds the petition to be partly meritorious.
Petitioner deserves to receive the damages awarded to her by the court. But this petition for
declaratory relief can only be entertained and treated as a petition for mandamus to require
respondents to honor and comply with the writ of execution in Civil Case No. 89-3214.
The Court has no original and exclusive jurisdiction over a petition for declatory
relief.[2] However, exceptions to this rule have been recognized. Thus, where the petition has
far-reaching implications and raises questions that should be resolved, it may be treated as one
for mandamus.[3]
Here is a child, a 12-year old girl, who in her belief that all Americans are good and in her
gesture of kindness by teaching his alleged niece the Filipino language as requested by the
American, trustingly went with said stranger to his apartment, and there she was raped by said
American tourist Greg Bartelli. Not once, but ten times. She was detained therein for four (4)
days. This American tourist was able to escape from the jail and avoid punishment. On the other
hand, the child, having received a favorable judgment in the Civil Case for damages in the
amount of more than P1,000,000.00, which amount could alleviate the humiliation, anxiety, and
besmirched reputation she had suffered and may continue to suffer for a long, long time; and
knowing that this person who had wronged her has the money, could not, however get the award
of damages because of this unreasonable law. This questioned law, therefore makes futile the
favorable judgment and award of damages that she and her parents fully deserve. As stated by
the trial court in its decision,
“Indeed, after hearing the testimony of Karen, the Court believes that it was indoubtedly a
shocking and traumatic experience she had undergone which could haunt her mind for a long,
long time, the mere recall of which could make her feel so humiliated, as in fact she had been
actually humiliated once when she was refused admission at the Abad Santos High School,
Arellano University, where she sought to transfer from another school, simply because the
school authorities of the said High School learned about what happened to her and allegedly
feared that they might be implicated in the case.
xxx
The reason for imposing exemplary or corrective damages is due to the wanton and bestial
manner defendant had committed the acts of rape during a period of serious illegal detention of
his hapless victim, the minor Karen Salvacion whose only fault was in her being so naive and
credulous to believe easily that defendant, an American national, could not have such a bestial
desire on her nor capable of committing such heinous crime. Being only 12 years old when that
unfortunate incident happened, she has never heard of an old Filipino adage that in every forest
there is a snake, xxx.”[4]
If Karen’s sad fate had happened to anybody’s own kin, it would be difficult for him to fathom
how the incentive for foreign currency deposit could be more important than his child’s right to
said award of damages; in this case, the victim’s claim for damages from this alien who had the
gall to wrong a child of tender years of a country where he is mere visitor. This further
illustrates the flaw in the questioned provisions.
It is worth mentioning that R.A. No. 6426 was enacted in 1983 or at a time when the country’s
economy was in a shambles; when foreign investments were minimal and presumably, this was
the reason why said statute was enacted. But the realities of the present times show that the
country has recovered economically; and even if not, the questioned law still denies those
entitled to due process of law for being unreasonable and oppressive. The intention of the
questioned law may be good when enacted. The law failed to anticipate the inquitous effects
producing outright injustice and inequality such as as the case before us.
It has thus been said that-
“But I also know,[5] that laws and institutions must go hand in hand with the progress of the
human mind. As that becomes more developed, more enlightened, as new discoveries are made,
new truths are disclosed and manners and opinions change with the change of circumstances,
institutions must advance also, and keep pace with the times… We might as well require a man
to wear still the coat which fitted him when a boy, as civilized society to remain ever under the
regimen of their barbarous ancestors.”
In his comment, the Solicitor General correctly opined, thus:
"The present petition has far-reaching implications on the right of a national to obtain redress
for a wrong committed by an alien who takes refuge under a law and regulation promulgated for
a purpose which does not contemplate the application thereof envisaged by the allien. More
specifically, the petition raises the question whether the protection against attachment,
garnishment or other court process accorded to foreign currency deposits PD No. 1246 and CB
Circular No. 960 applies when the deposit does not come from a lender or investor but from a
mere transient who is not expected to maintain the deposit in the bank for long.
“The resolution of this question is important for the protection of nationals who are victimized
in the forum by foreigners who are merely passing through.
xxx
“xxx Respondents China Banking Corporation and Central Bank of the Philippines refused to
honor the writ of execution issued in Civil Case No. 89-3214 on the strength of the following
provision of Central Bank Circular No. 960:
‘Sec. 113 Exemption from attachment. – Foreign currency deposits shall be exempt from
attachment, garnishment, or any other order or process of any court, legislative body,
government agency or any administrative body whatsoever.’
“Central Bank Circular No. 960 was issued pursuant to Section 7 of Republic Act No. 6426:
‘Sec. 7. Rules and Regulations. The Monetary Board of the Central Bank shall promulgate such
rules and regulations as may be necessary to carry out the provisions of this Act which shall
take effect after the publication of such rules and regulations in the Official Gazette and in a
newspaper of national circulation for at least once a week for three consecutive weeks. In case
the Central Bank promulgates new rules and regulations decreasing the rights of depositors, the
rules and regulations at the time the deposit was made shall govern.”
“The aforecited Section 113 was copied from Section 8 of Republic Act No. 6426. As amended
by P.D. 1246, thus:
‘Sec. 8. Secrecy of Foreign Currency Deposits. -- All foreign currency deposits authorized
under this Act, as amended by Presidential Decree No. 1035, as well as foreign currency
deposits authorized under Presidential Decree No. 1034, are hereby declared as and considered
of an absolutely confidential nature and, except upon the written permission of the depositor, in
no instance shall such foreign currency deposits be examined, inquired or looked into by any
person, government official, bureau or office whether judicial or administrative or legislative or
any other entity whether public or private: Provided, however, that said foreign currency
deposits shall be exempt from attachment, garnishment, or any other order or process of any
court, legislative body, government agency or any administrative body whatsoever.’
“The purpose of PD 1246 in according protection against attachment, garnishment and other
court process to foreign currency deposits is stated in its whereases, viz.:
‘WHEREAS, under Republic Act No. 6426, as amended by Presidential Decree No. 1035,
certain Philippine banking institutions and branches of foreign banks are authorized to accept
deposits in foreign currency;
‘WHEREAS, under provisions of Presidential Decree No. 1034 authorizing the establishment of
an offshore banking system in the Philippines, offshore banking units are also authorized to
receive foreign currency deposits in certain cases;
‘WHEREAS, in order to assure the development and speedy growth of the Foreign Currency
Deposit System and the Offshore Banking System in the Philippines, certain incentives were
provided for under the two Systems such as confidentiality subject to certain exceptions and tax
exemptions on the interest income of depositors who are nonresidents and are not engaged in
trade or business in the Philippines;
‘WHEREAS, making absolute the protective cloak of confidentiality over such foreign currency
deposits, exempting such deposits from tax, and guaranteeing the vested right of depositors
would better encourage the inflow of foreign currency deposits into the banking institutions
authorized to accept such deposits in the Philippines thereby placing such institutions more in a
position to properly channel the same to loans and investments in the Philippines, thus directly
contributing to the economic development of the country;’
“Thus, one of the principal purposes of the protection accorded to foreign currency deposits is to
assure the development and speedy growth of the Foreign Currency Deposit system and the
Offshore Banking in the Philippines’ (3rd Whereas).
“The Offshore Banking System was established by PD No. 1034. In turn, the purposes of PD
No. 1034 are as follows:
‘WHEREAS, conditions conducive to the establishment of an offshore banking system, such as
political stability, a growing economy and adequate communication facilities, among others,
exist in the Philippines;
‘WHEREAS, it is in the interest of developing countries to have as wide access as possible to
the sources of capital funds for economic development;
‘WHEREAS, an offshore banking system based in the Philippines will be advantageous and
beneficial to the country by increasing our links with foreign lenders, facilitating the flow of
desired investments into the Philippines, creating employment opportunities and expertise in
international finance, and contributing to the national development effort.
‘WHEREAS, the geographical location, physical and human resources, and other positive
factors provide the Philippines with the clear potential to develop as another financial center in
Asia;’
“On the other hand, the Foreign Currency Deposit system was created by PD No. 1035. Its
purpose are as follows:
‘WHEREAS, the establishment of an offshore banking system in the Philippines has been
authorized under a separate decree;
‘WHEREAS, a number of local commercial banks, as depository bank under the Foreign
Currency Deposit Act (RA No. 6426), have the resources and managerial competence to more
actively engage in foreign exchange transactions and participate in the grant of foreign currency
loans to resident corporations and firms;
‘WHEREAS, it is timely to expand the foreign currency lending authority of the said depository
banks under RA 6426 and apply to their transactions the same taxes as would be applicable to
transaction of the proposed offshore banking units;’
“It is evident from the above [Whereas clauses] that the Offshore Banking System and the
Foreign Currency Deposit System were designed to draw deposits from foreign lenders and
investors (Vide second Whereas of PD No. 1034; third Whereas of PD No. 1035). It is these
depositors that are induced by the two laws and given protection and incentives by them.
“Obviously, the foreign currency deposit made by a transient or a tourist is not the kind of
deposit encourage by PD Nos. 1034 and 1035 and given incentives and protection by said laws
because such depositor stays only for a few days in the country and, therefore, will maintain his
deposit in the bank only for a short time.

“Respondent Greg Bartelli, as stated, is just a tourist or a transient. He deposited his dollars with
respondent China Banking Corporation only for safekeeping during his temporary stay in the
Philippines.

“For the reasons stated above, the Solicitor General thus submits that the dollar deposit of
respondent Greg Bartelli is not entitled to the protection of Section 113 of Central Bank Circular
No. 960 and PD No. 1246 against attachment, garnishment or other court processes.” [6]
In fine, the application of the law depends on the extent of its justice. Eventually, if we rule that
the questioned Section 113 of Central Bank Circular No. 960 which exempts from attachment,
garnishment, or any other order or process of any court. Legislative body, government agency
or any administrative body whatsoever, is applicable to a foreign transient, injustice would
result especially to a citizen aggrieved by a foreign guest like accused Greg Bartelli. This would
negate Article 10 of the New Civil Code which provides that “in case of doubt in the
interpretation or application of laws, it is presumed that the lawmaking body intended right and
justice to prevail. “Ninguno non deue enriquecerse tortizerzmente con damo de otro.” Simply
stated, when the statute is silent or ambiguous, this is one of those fundamental solutions that
would respond to the vehement urge of conscience. (Padilla vs. Padilla, 74 Phil. 377)

It would be unthinkable, that the questioned Section 113 of Central Bank No. 960 would be
used as a device by accused Greg Bartelli for wrongdoing, and in so doing, acquitting the guilty
at the expense of the innocent.

Call it what it may – but is there no conflict of legal policy here? Dollar against Peso?
Upholding the final and executory judgment of the lower court against the Central Bank
Circular protecting the foreign depositor? Shielding or protecting the dollar deposit of a
transient alien depositor against injustice to a national and victim of a crime? This situation calls
for fairness legal tyranny.

We definitely cannot have both ways and rest in the belief that we have served the ends of
justice.

IN VIEW WHEREOF, the provisions of Section 113 of CB Circular No. 960 and PD No.
1246, insofar as it amends Section 8 of R.A. 6426 are hereby held to be INAPPLICABLE to
this case because of its peculiar circumstances. Respondents are hereby REQUIRED
to COMPLY with the writ of execution issued in Civil Case No. 89-3214, “Karen Salvacion, et
al. vs. Greg Bartelli y Northcott, by Branch CXLIV, RTC Makati and to RELEASE to
petitioners the dollar deposit of respondent Greg Bartelli y Northcott in such amount as would
satisfy the judgment.
SO ORDERED.
TORTS AND DAMAGES As a result of the blockage, the Malandrinon, a vessel owned by herein petitioner Wildvalley
Shipping Company, Ltd., was unable to sail out of Puerto Ordaz on that day.
[ G.R. No. 119602, October 06, 2000 ]
Subsequently, Wildvalley Shipping Company, Ltd. filed a suit with the Regional Trial Court of
WILDVALLEY SHIPPING CO., LTD. PETITIONER, VS. COURT OF APPEALS AND Manila, Branch III against Philippine President Lines, Inc. and Pioneer Insurance Company (the
PHILIPPINE PRESIDENT LINES INC., RESPONDENTS. underwriter/insurer of Philippine Roxas) for damages in the form of unearned profits, and
interest thereon amounting to US $400,000.00 plus attorney's fees, costs, and expenses of
DECISION litigation. The complaint against Pioneer Insurance Company was dismissed in an Order dated
November 7, 1988.[17]

BUENA, J.: At the pre-trial conference, the parties agreed on the following facts:

"1. The jurisdictional facts, as specified in their respective pleadings;

This is a petition for review on certiorari seeking to set aside the decision of the Court of
Appeals which reversed the decision of the lower court in CA-G.R. CV No. 36821, entitled
"Wildvalley Shipping Co., Ltd., plaintiff-appellant, versus Philippine President Lines, Inc., "2. That defendant PPL was the owner of the vessel Philippine Roxas at the time of the
defendant-appellant." incident;

The antecedent facts of the case are as follows:

Sometime in February 1988, the Philippine Roxas, a vessel owned by Philippine President
Lines, Inc., private respondent herein, arrived in Puerto Ordaz, Venezuela, to load iron ore.
Upon the completion of the loading and when the vessel was ready to leave port, Mr. Ezzar del
Valle Solarzano Vasquez, an official pilot of Venezuela, was designated by the harbour
authorities in Puerto Ordaz to navigate the Philippine Roxas through the Orinoco River. [1]He
was asked to pilot the said vessel on February 11, 1988[2] boarding it that night at 11:00 p.m.[3]
"3. That defendant Pioneer Insurance was the insurance underwriter for defendant PPL;
"4. That plaintiff Wildvalley Shipping Co., Inc. is the owner of the vessel Malandrinon, whose
passage was obstructed by the vessel Philippine Roxas at Puerto Ordaz, Venezuela, as
specified in par. 4, page 2 of the complaint;

The master (captain) of the Philippine Roxas, Captain Nicandro Colon, was at the bridge
together with the pilot (Vasquez), the vessel's third mate (then the officer on watch), and a
"5. That on February 12, 1988, while the Philippine Roxas was navigating the channel at
helmsman when the vessel left the port[4] at 1:40 a.m. on February 12, 1988.[5] Captain Colon
Puerto Ordaz, the said vessel grounded and as a result, obstructed navigation at the
left the bridge when the vessel was under way.[6]
channel;
The Philippine Roxas experienced some vibrations when it entered the San Roque Channel at
mile 172.[7] The vessel proceeded on its way, with the pilot assuring the watch officer that the
vibration was a result of the shallowness of the channel. [8] "6. That the Orinoco River in Puerto Ordaz is a compulsory pilotage channel;

Between mile 158 and 157, the vessel again experienced some vibrations. [9] These occurred at
4:12 a.m.[10] It was then that the watch officer called the master to the bridge.[11]
"7. That at the time of the incident, the vessel, Philippine Roxas, was under the command of
[12] the pilot Ezzar Solarzano, assigned by the government thereat, but plaintiff claims that it is
The master (captain) checked the position of the vessel and verified that it was in the centre
under the command of the master;
of the channel.[13]He then went to confirm, or set down, the position of the vessel on the
chart.[14] He ordered Simplicio A. Monis, Chief Officer of the President Roxas, to check all the
double bottom tanks.[15]
"8. The plaintiff filed a case in Middleburg, Holland which is related to the present case;
At around 4:35 a.m., the Philippine Roxas ran aground in the Orinoco River, [16] thus obstructing
the ingress and egress of vessels.
"9. The plaintiff caused the arrest of the Philippine Collier, a vessel owned by the defendant
PPL;
"10. The Orinoco River is 150 miles long and it takes approximately 12 hours to navigate out of
the said river;
"11. That no security for the plaintiff's claim was given until after the Philippine Collier was
arrested; and
"12. That a letter of guarantee, dated 12-May-88 was issued by the Steamship Mutual
Underwriters Ltd."[18]
The trial court rendered its decision on October 16, 1991 in favor of the petitioner, Wildvalley
Shipping Co., Ltd. The dispositive portion thereof reads as follows:
"WHEREFORE, judgment is rendered for the plaintiff, ordering defendant Philippine President
Lines, Inc. to pay to the plaintiff the sum of U.S. $259,243.43, as actual and compensatory
damages, and U.S. $162,031.53, as expenses incurred abroad for its foreign lawyers, plus
additional sum of U.S. $22,000.00, as and for attorney's fees of plaintiff's local lawyer, and to
pay the cost of this suit.
"Defendant's counterclaim is dismissed for lack of merit.
"SO ORDERED."[19]
Both parties appealed: the petitioner appealing the non-award of interest with the private
respondent questioning the decision on the merits of the case.
After the requisite pleadings had been filed, the Court of Appeals came out with its questioned
decision dated June 14, 1994,[20] the dispositive portion of which reads as follows:
"WHEREFORE, finding defendant-appellant's appeal to be meritorious, judgment is hereby
rendered reversing the Decision of the lower court. Plaintiff-appellant's Complaint is dismissed
and it is ordered to pay defendant-appellant the amount of Three Hundred Twenty-three
Thousand, Forty-two Pesos and Fifty-three Centavos (P323,042.53) as and for attorney's fees
plus cost of suit. Plaintiff-appellant's appeal is DISMISSED.
"SO ORDERED."[21]
Petitioner filed a motion for reconsideration[22] but the same was denied for lack of merit in the
resolution dated March 29, 1995.[23]
Hence, this petition.
The petitioner assigns the following errors to the court a quo:
1. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT
UNDER PHILIPPINE LAW NO FAULT OR NEGLIGENCE CAN BE
ATTRIBUTED TO THE MASTER NOR THE OWNER OF THE "PHILIPPINE
ROXAS" FOR THE GROUNDING OF SAID VESSEL RESULTING IN THE
BLOCKAGE OF THE RIO ORINOCO;
2. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN REVERSING
THE FINDINGS OF FACTS OF THE TRIAL COURT CONTRARY TO
EVIDENCE;
3. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN FINDING THAT
THE "PHILIPPINE ROXAS" IS SEAWORTHY;
4. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN DISREGARDING
VENEZUELAN LAW DESPITE THE FACT THAT THE SAME HAS BEEN
SUBSTANTIALLY PROVED IN THE TRIAL COURT WITHOUT ANY
OBJECTION FROM PRIVATE RESPONDENT, AND WHOSE OBJECTION WAS
INTERPOSED BELATEDLY ON APPEAL;
5. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN AWARDING
ATTORNEY'S FEES AND COSTS TO PRIVATE RESPONDENT WITHOUT ANY
FAIR OR REASONABLE BASIS WHATSOEVER;
6. RESPONDENT COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING
THAT PETITIONER'S CAUSE IS MERITORIOUS HENCE, PETITIONER
SHOULD BE ENTITLED TO ATTORNEY'S FEES, COSTS AND INTEREST.
The petition is without merit.
The primary issue to be determined is whether or not Venezuelan law is applicable to the case at
bar.
It is well-settled that foreign laws do not prove themselves in our jurisdiction and our courts are
not authorized to take judicial notice of them. Like any other fact, they must be alleged and
proved.[24]
A distinction is to be made as to the manner of proving a written and an unwritten law. The
former falls under Section 24, Rule 132 of the Rules of Court, as amended, the entire provision
of which is quoted hereunder. Where the foreign law sought to be proved is "unwritten," the oral
testimony of expert witnesses is admissible, as are printed and published books of reports of
decisions of the courts of the country concerned if proved to be commonly admitted in such
courts.[25]

Section 24 of Rule 132 of the Rules of Court, as amended, provides:
"Sec. 24. Proof of official record. -- The record of public documents referred to in paragraph (a)
of Section 19, when admissible for any purpose, may be evidenced by an official publication
thereof or by a copy attested by the officer having the legal custody of the record, or by his
deputy, and accompanied, if the record is not kept in the Philippines, with a certificate that
such officer has the custody. If the office in which the record is kept is in a foreign country,
the certificate may be made by a secretary of the embassy or legation, consul general, consul,
vice consul, or consular agent or by any officer in the foreign service of the Philippines
stationed in the foreign country in which the record is kept, and authenticated by the seal of his
office." (Underscoring supplied)
The court has interpreted Section 25 (now Section 24) to include competent evidence like the
testimony of a witness to prove the existence of a written foreign law. [26]
In the noted case of Willamette Iron & Steel Works vs. Muzzal,[27] it was held that:
"... Mr. Arthur W. Bolton, an attorney-at-law of San Francisco, California, since the year 1918
under oath, quoted verbatim section 322 of the California Civil Code and stated that said section
was in force at the time the obligations of defendant to the plaintiff were incurred, i.e. on
November 5, 1928 and December 22, 1928. This evidence sufficiently established the fact that
the section in question was the law of the State of California on the above dates. A reading of
sections 300 and 301 of our Code of Civil Procedure will convince one that these sections do
not exclude the presentation of other competent evidence to prove the existence of a foreign
law.
"`The foreign law is a matter of fact ...You ask the witness what the law is; he may, from his
recollection, or on producing and referring to books, say what it is.' (Lord Campbell concurring
in an opinion of Lord Chief Justice Denman in a well-known English case where a witness was
called upon to prove the Roman laws of marriage and was permitted to testify, though he
referred to a book containing the decrees of the Council of Trent as controlling, Jones on
Evidence, Second Edition, Volume 4, pages 3148-3152.) x x x."
We do not dispute the competency of Capt. Oscar Leon Monzon, the Assistant Harbor Master
and Chief of Pilots at Puerto Ordaz, Venezuela,[28] to testify on the existence of the Reglamento
General de la Ley de Pilotaje (pilotage law of Venezuela)[29] and the Reglamento Para la Zona
de Pilotaje No 1 del Orinoco (rules governing the navigation of the Orinoco River). Captain
Monzon has held the aforementioned posts for eight years. [30] As such he is in charge of
designating the pilots for maneuvering and navigating the Orinoco River. He is also in charge of
the documents that come into the office of the harbour masters.[31]
Nevertheless, we take note that these written laws were not proven in the manner provided by
Section 24 of Rule 132 of the Rules of Court.
The Reglamento General de la Ley de Pilotaje was published in the Gaceta Oficial[32] of the
Republic of Venezuela. A photocopy of the Gaceta Oficial was presented in evidence as an
official publication of the Republic of Venezuela.
The Reglamento Para la Zona de Pilotaje No 1 del Orinoco is published in a book issued by
the Ministerio de Comunicaciones of Venezuela.[33] Only a photocopy of the said rules was
likewise presented as evidence.
Both of these documents are considered in Philippine jurisprudence to be public documents for
they are the written official acts, or records of the official acts of the sovereign authority, official
bodies and tribunals, and public officers of Venezuela. [34]
For a copy of a foreign public document to be admissible, the following requisites are
mandatory: (1) It must be attested by the officer having legal custody of the records or by his
deputy; and (2) It must be accompanied by a certificate by a secretary of the embassy or
legation, consul general, consul, vice consular or consular agent or foreign service officer, and
with the seal of his office.[35] The latter requirement is not a mere technicality but is intended to
justify the giving of full faith and credit to the genuineness of a document in a foreign
country.[36]
It is not enough that the Gaceta Oficial, or a book published by the Ministerio de
Comunicaciones of Venezuela, was presented as evidence with Captain Monzon attesting it. It
is also required by Section 24 of Rule 132 of the Rules of Court that a certificate that Captain
Monzon, who attested the documents, is the officer who had legal custody of those records
made by a secretary of the embassy or legation, consul general, consul, vice consul or consular
agent or by any officer in the foreign service of the Philippines stationed in Venezuela, and
authenticated by the seal of his office accompanying the copy of the public document. No such
certificate could be found in the records of the case.
With respect to proof of written laws, parol proof is objectionable, for the written law itself is
the best evidence. According to the weight of authority, when a foreign statute is involved, the
best evidence rule requires that it be proved by a duly authenticated copy of the statute. [37]
At this juncture, we have to point out that the Venezuelan law was not pleaded before the lower
court.
A foreign law is considered to be pleaded if there is an allegation in the pleading about the
existence of the foreign law, its import and legal consequence on the event or transaction in
issue.[38]
A review of the Complaint[39] revealed that it was never alleged or invoked despite the fact that
the grounding of the M/V Philippine Roxas occurred within the territorial jurisdiction of
Venezuela.
We reiterate that under the rules of private international law, a foreign law must be properly
pleaded and proved as a fact. In the absence of pleading and proof, the laws of a foreign
country, or state, will be presumed to be the same as our own local or domestic law and this is
known as processual presumption.[40]
Having cleared this point, we now proceed to a thorough study of the errors assigned by the
petitioner.

Petitioner alleges that there was negligence on the part of the private respondent that would
warrant the award of damages.
There being no contractual obligation, the private respondent is obliged to give only the
diligence required of a good father of a family in accordance with the provisions of Article 1173
of the New Civil Code, thus:
"Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence
which is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When negligence shows bad faith, the provisions of
articles 1171 and 2201, paragraph 2, shall apply.
"If the law or contract does not state the diligence which is to be observed in the performance,
that which is expected of a good father of a family shall be required."
The diligence of a good father of a family requires only that diligence which an ordinary
prudent man would exercise with regard to his own property. This we have found private
respondent to have exercised when the vessel sailed only after the "main engine, machineries,
and other auxiliaries" were checked and found to be in good running condition; [41] when the
master left a competent officer, the officer on watch on the bridge with a pilot who is
experienced in navigating the Orinoco River; when the master ordered the inspection of the
vessel's double bottom tanks when the vibrations occurred anew. [42]
The Philippine rules on pilotage, embodied in Philippine Ports Authority Administrative Order
No. 03-85, otherwise known as the Rules and Regulations Governing Pilotage Services, the
Conduct of Pilots and Pilotage Fees in Philippine Ports enunciate the duties and responsibilities
of a master of a vessel and its pilot, among other things.
The pertinent provisions of the said administrative order governing these persons are quoted
hereunder:
"Sec. 11. Control of Vessels and Liability for Damage. -- On compulsory pilotage grounds, the
Harbor Pilot providing the service to a vessel shall be responsible for the damage caused to a
vessel or to life and property at ports due to his negligence or fault. He can be absolved from
liability if the accident is caused by force majeure or natural calamities provided he has
exercised prudence and extra diligence to prevent or minimize the damage.
"The Master shall retain overall command of the vessel even on pilotage grounds whereby he
can countermand or overrule the order or command of the Harbor Pilot on board. In such event,
any damage caused to a vessel or to life and property at ports by reason of the fault or
negligence of the Master shall be the responsibility and liability of the registered owner of the
vessel concerned without prejudice to recourse against said Master.
"Such liability of the owner or Master of the vessel or its pilots shall be determined by
competent authority in appropriate proceedings in the light of the facts and circumstances of
each particular case.
"x x x
"Sec. 32. Duties and Responsibilities of the Pilots or Pilots' Association. -- The duties and
responsibilities of the Harbor Pilot shall be as follows:
"x x x
"f) A pilot shall be held responsible for the direction of a vessel from the time he assumes his
work as a pilot thereof until he leaves it anchored or berthed safely; Provided, however, that his
responsibility shall cease at the moment the Master neglects or refuses to carry out his order."
The Code of Commerce likewise provides for the obligations expected of a captain of a vessel,
to wit:
"Art. 612. The following obligations shall be inherent in the office of captain:
"x x x
"7. To be on deck on reaching land and to take command on entering and leaving ports, canals,
roadsteads, and rivers, unless there is a pilot on board discharging his duties. x x x."
The law is very explicit. The master remains the overall commander of the vessel even when
there is a pilot on board. He remains in control of the ship as he can still perform the duties
conferred upon him by law[43] despite the presence of a pilot who is temporarily in charge of the
vessel. It is not required of him to be on the bridge while the vessel is being navigated by a
pilot.
However, Section 8 of PPA Administrative Order No. 03-85, provides:
"Sec. 8. Compulsory Pilotage Service - For entering a harbor and anchoring thereat, or passing
through rivers or straits within a pilotage district, as well as docking and undocking at any
pier/wharf, or shifting from one berth or another, every vessel engaged in coastwise and foreign
trade shall be under compulsory pilotage.
"xxx."
The Orinoco River being a compulsory pilotage channel necessitated the engaging of a pilot
who was presumed to be knowledgeable of every shoal, bank, deep and shallow ends of the
river. In his deposition, pilot Ezzar Solarzano Vasquez testified that he is an official pilot in the
Harbour at Port Ordaz, Venezuela,[44] and that he had been a pilot for twelve (12) years.[45] He
also had experience in navigating the waters of the Orinoco River.[46]
The law does provide that the master can countermand or overrule the order or command of the
harbor pilot on board. The master of the Philippine Roxas deemed it best not to order him (the
pilot) to stop the vessel,[47] mayhap, because the latter had assured him that they were navigating
normally before the grounding of the vessel.[48]Moreover, the pilot had admitted that on account
of his experience he was very familiar with the configuration of the river as well as the course
headings, and that he does not even refer to river charts when navigating the Orinoco River. [49]
Based on these declarations, it comes as no surprise to us that the master chose not to regain
control of the ship. Admitting his limited knowledge of the Orinoco River, Captain Colon relied
on the knowledge and experience of pilot Vasquez to guide the vessel safely.
"Licensed pilots, enjoying the emoluments of compulsory pilotage, are in a different class from
ordinary employees, for they assume to have a skill and a knowledge of navigation in the
particular waters over which their licenses extend superior to that of the master; pilots are bound
to use due diligence and reasonable care and skill. A pilot's ordinary skill is in proportion to the
pilot's responsibilities, and implies a knowledge and observance of the usual rules of navigation,
acquaintance with the waters piloted in their ordinary condition, and nautical skill in avoiding
all known obstructions. The character of the skill and knowledge required of a pilot in charge of
a vessel on the rivers of a country is very different from that which enables a navigator to carry
a vessel safely in the ocean. On the ocean, a knowledge of the rules of navigation, with charts
that disclose the places of hidden rocks, dangerous shores, or other dangers of the way, are the
main elements of a pilot's knowledge and skill. But the pilot of a river vessel, like the harbor
pilot, is selected for the individual's personal knowledge of the topography through which the
vessel is steered."[50]
We find that the grounding of the vessel is attributable to the pilot. When the vibrations were
first felt the watch officer asked him what was going on, and pilot Vasquez replied that "(they)
were in the middle of the channel and that the vibration was as (sic) a result of the shallowness
of the channel."[51]
Pilot Ezzar Solarzano Vasquez was assigned to pilot the vessel Philippine Roxas as well as
other vessels on the Orinoco River due to his knowledge of the same. In his experience as a
pilot, he should have been aware of the portions which are shallow and which are not. His
failure to determine the depth of the said river and his decision to plod on his set course, in all
probability, caused damage to the vessel. Thus, we hold him as negligent and liable for its
grounding.
In the case of Homer Ramsdell Transportation Company vs. La Compagnie Generale
Transatlantique, 182 U.S. 406, it was held that:
"x x x The master of a ship, and the owner also, is liable for any injury done by the negligence
of the crew employed in the ship. The same doctrine will apply to the case of a pilot employed
by the master or owner, by whose negligence any injury happens to a third person or his
property: as, for example, by a collision with another ship, occasioned by his negligence. And it
will make no difference in the case that the pilot, if any is employed, is required to be a licensed
pilot; provided the master is at liberty to take a pilot, or not, at his pleasure, for in such a case
the master acts voluntarily, although he is necessarily required to select from a particular class.
On the other hand, if it is compulsive upon the master to take a pilot, and, a fortiori, if he is
bound to do so under penalty, then, and in such case, neither he nor the owner will be
liable for injuries occasioned by the negligence of the pilot; for in such a case the pilot cannot
be deemed properly the servant of the master or the owner, but is forced upon them, and the
maxim Qui facit per alium facit per se does not apply." (Underscoring supplied)
Ezzar Solarzano Vasquez, to wit: contacting the radio marina via VHF for information
regarding the channel, river traffic,[53] soundings of the river, depth of the river, bulletin on the
buoys.[54] The officer on watch also monitored the voyage.[55]
We, therefore, do not find the absence of a river passage plan to be the cause for the grounding
of the vessel.
The doctrine of res ipsa loquitur does not apply to the case at bar because the circumstances
surrounding the injury do not clearly indicate negligence on the part of the private respondent.
For the said doctrine to apply, the following conditions must be met: (1) the accident was of
such character as to warrant an inference that it would not have happened except for defendant's
negligence; (2) the accident must have been caused by an agency or instrumentality within the
exclusive management or control of the person charged with the negligence complained of; and
(3) the accident must not have been due to any voluntary action or contribution on the part of
the person injured.[56]
As has already been held above, there was a temporary shift of control over the ship from the
master of the vessel to the pilot on a compulsory pilotage channel. Thus, two of the requisites
necessary for the doctrine to apply, i.e., negligence and control, to render the respondent liable,
are absent.
As to the claim that the ship was unseaworthy, we hold that it is not.
The Lloyd's Register of Shipping confirmed the vessel's seaworthiness in a Confirmation of
Class issued on February 16, 1988 by finding that "the above named ship (Philippine Roxas)
maintained the class "+100A1 Strengthened for Ore Cargoes, Nos. 2 and 8 Holds may be empty
(CC) and +LMC" from 31/12/87 up until the time of casualty on or about 12/2/88." [57] The same
would not have been issued had not the vessel been built according to the standards set by
Lloyd's.
Samuel Lim, a marine surveyor, at Lloyd's Register of Shipping testified thus:
"Q Now, in your opinion, as a surveyor, did top side tank have any bearing at all to the
seaworthiness of the vessel?
"A Well, judging on this particular vessel, and also basing on the class record of the vessel,
wherein recommendations were made on the top side tank, and it was given sufficient time
to be repaired, it means that the vessel is fit to travel even with those defects on the ship.
"COURT
What do you mean by that? You explain. The vessel is fit to travel even with defects? Is
that what you mean? Explain.

Anent the river passage plan, we find that, while there was none,[52] the voyage has been
sufficiently planned and monitored as shown by the following actions undertaken by the pilot, "WITNESS
"A Yes, your Honor. Because the class society which register (sic) is the third party looking "Q. Was the vessel able to respond to all your commands and orders?
into the condition of the vessel and as far as their record states, the vessel was class or
maintained, and she is fit to travel during that voyage."
"A. The vessel was navigating normally."[60]

"x x x Eduardo P. Mata, Second Engineer of the Philippine Roxas submitted an accident report
wherein he stated that on February 11, 1988, he checked and prepared the main engine,
machineries and all other auxiliaries and found them all to be in good running condition and
ready for maneuvering. That same day the main engine, bridge and engine telegraph and
"ATTY. MISA steering gear motor were also tested.[61] Engineer Mata also prepared the fuel for consumption
for maneuvering and checked the engine generators.[62]
Before we proceed to other matter, will you kindly tell us what is (sic) the 'class +100A1
Strengthened for Ore Cargoes', mean?
Finally, we find the award of attorney's fee justified.

Article 2208 of the New Civil Code provides that:

"WITNESS
"Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than
"A Plus 100A1 means that the vessel was built according to Lloyd's rules and she is capable of judicial costs, cannot be recovered, except:
carrying ore bulk cargoes, but she is particularly capable of carrying Ore Cargoes with No.
2 and No. 8 holds empty. "x x x

"(11) In any other case where the court deems it just and equitable that attorney's fees and
"x x x expenses of litigation should be recovered.

"x x x"
Due to the unfounded filing of this case, the private respondent was unjustifiably forced to
"COURT litigate, thus the award of attorney's fees was proper.
The vessel is classed, meaning?
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is DENIED and the decision
of the Court of Appeals in CA G.R. CV No. 36821 is AFFIRMED.

"A Meaning she is fit to travel, your Honor, or seaworthy." [58] SO ORDERED.
It is not required that the vessel must be perfect. To be seaworthy, a ship must be reasonably fit
to perform the services, and to encounter the ordinary perils of the voyage, contemplated by the
parties to the policy.[59]

As further evidence that the vessel was seaworthy, we quote the deposition of pilot Vasquez:
"Q Was there any instance when your orders or directions were not complied with because of
the inability of the vessel to do so?

"A No.
 [ G.R. No. L-18924, June 30, 1964 ] P 50,000.00 to P 100,000.00 ..... P 100.00

P 100,000.00 to P 500,000.00 ..... P 1,000.00

MARINDUQUE LION MINES AGENTS, INC., PETITIONER AND APPELLEE, VS.
THE MUNICIPAL COUNCIL OF THE MUNICIPALITY OF HINABANGAN, to P
PROVINCE OF SAMAR, ET AL., RESPONDENTS AND APPELLANTS. P 500,001.00 ..... P 7,500.00
1,500,000.00

DECISION to P 3,
P 1,500,001.00 ..... P26,250.00
500,000.00

to P
REYES, J.B.L., J.: P 3,500,001.00 ..... P75,000.00
7,500,000.00

P7,500,001.00 to P 13,500.00 ..... P168,750.00

Appeal from a declaratory decision of the Court of First Instance of Manila declaring Municipal
Ordinance No. 7, Series of 1960, of the Municipality of Hinabangan, Samar, null and void. to P
P 13,500,001.00 ..... P352,500.00
23,500,000.00
On June 27, 1960, the Municipality of Hinabangan, through its duly constituted Municipal
to P
Council, enacted Ordinance No. 7, Series of 1960, which in full reads as follows: P 23,500,001.00 ..... P875,000.00
50,000,000.00

"An Ordinance Imposing a Municipal License Tax On the Gross Outputs of the Mines and
Other Business; Its Imposition and Penalties Thereof Within the Jurisdiction of this
Municipality.
Be it ordained by the Municipal Council of Hinabangan, Samar, That:
Section 1.—For the purpose of this Ordinance, the following terms are defined:
"Corporation" refers to any person or persons, firm or association engaged in the business for
which this Ordinance is enacted.
"Gross Outputs" shall be interpreted as the total actual market value of minerals or mineral
products from each mine or mineral land operated as separate entity without any deduction on
expenses incurred in the operation of the business.
"Municipal Treasurer" herein referred to, is the duly appointed Municipal Treasurer including
his authorized representatives and /or deputies in his office.
Section 2.—Republic Act 2264 empowers the Municipal Council of Hinabangan,
Samar, to impose a graduated Municipal License Fees on any occupation or business in
the municipality to any Corporation, based on the gross outputs or sales in accordance
with following schedule:
MINES AND OTHER BUSINESS
Yearly Gross Output or Sales ..... Amount of Tax to be levied
P 50,000,001.00 to P up ..... P1,000,000.00
Section 3.—Any corporation subject to payment of the Municipal License herein imposed shall
imme diately at the end of each calendar year, but in no case shall it exceed beyond the first
FIFTEEN (15) DAYS of the succeeding year subject to Municipal Treasurer certified true
copies of receipts and/or invoices as the case maybe on the total output per shipment of that
mining produce for the year or the total yearly sales which will serve as the basis for the
collection of the Municipal License Tax Provided that upon subsequent verification by the
Municipal Treasurer no erroneous or fraudulent entries are made. On the contrary when upon
proper investigation and examination of the Books or Records of the Corporation, there shall bo
found discrepancies in the declarations of the total output per shipment or sales, such
discrepancy shall be revised within TEN (10) DAYS from the date of verification within which
to settle the taxes due without penalties as provided by law.
Section 4.—To enforce this Ordinance, the Municipal Treasurer shall have authority to
examine the Books and Records of the Corporation subject to the payment of tax herein
levied, PROVIDED that such examination of Records or Books us the case maybe, be
made during office hours unless a written consent from the President, or Manager as the
case maybe of the Corporation is secured.
Section 5.—Any violation of a provision of this Ordinance is punishable by a fine of not
less than ONE HUNDRED (P100.00) Pesos nor more than Two Hundred (P200.00)
Pesos or by an imprisonment of not less than One (1) Month nor more than Six (6)
Months or both fine and imprisonment in the discretion of the Court. Any violation of
Section 2 of this Ordinance shall subject the Corporation to pay the tax imposed plus
penalties and tha subsequent fine and imprisonment promulgated by the Court. Criminal
 responsibility rests on the President, Manager or any person charged with the
management of the Corporation.
Section 6.—All Ordinances or parts thereof in conflict with the Present Ordinance are
hereby repealed.
Section 7.—This Ordinance shall take effect Fifteen (15) Days from its approval."
On December 14, 1960, the petitioner, a corporation duly organized and existing under the laws
of the Philippines and operating the only mine within the jurisdiction of the municipality of
Hinabangan, filed this case of declaratory relief in the Court of First Instance of Manila
questioning the validity of the ordinance as enacted without authority and in violation of law.
Respondents answered averring the ordinance's validity with a counter-claim for damages; and
petitioner having filed an amended petition and answer to the counterclaim, which amended
petition was accordingly answered by respondents; the case was tried by the Court a quo on
March 15, 1961, the parties filed respective memoranda, and on April 4, 1961 the Court a quo
rendered its decision declaring the ordinance in question illegal, from which judgment
respondents in due time perfected their appeal to this Court.
Neither petitioner-appellee nor respondents-appellants adduced any evidence before the Court a
quo, the facts heretofore stated having been based on the allegations of the amended petition and
the admissions thereof in the appellants' amended answer thereto, and the case was submitted
for decision on the pleadings.
Respondents-appellants maintain in this appeal that the Court a quo erred in finding that
Ordinance No. 7 does not impose a tax, that Ordinance No. 7 was intended to impose a tax on
sales; that Ordinance No. 7 is illegal because it is an imposition of a double taxation; and that
Ordinance No. 7 is null and void.
On the petitioner-appellee's side, they maintain that Section 2 of Municipal Ordinance No. 7
does not impose a tax or levy, and there is no clear and express imposition of a charge in the
other provisions of the ordinance; that the declaration of authority to impose a tax is false and
erroneous because no such power is conferred in Section 2 of Republic Act No. 2264, upon
which such authority is based; that, moreover, there is no finding by the Court a quo that a tax
was imposed, much less, that the same is based on the gross outputs or sales, because the Court
a quo merely assumed that the tax is imposed and declared it illegal as not within the Municipal
Council's authority to impose because it falls within the exceptions to the taxing powera of
municipal governments, as prescribed in Section 2, last paragraph, of the Local Autonomy Act
(RA No. 2264).
We find no error in the decision appealed from in so far as it holds that the ordinance in
question fails to levy any tax. Appellants admit in their brief that the main section (section 2) of
the ordinance "seems merely declaratory of authority", albeit they aver that a reading of it as a
whole leads to the conclusion that a tax was intended. It is, however, a well established rule
that—
"A statute will not be construed as imposing a tax unless it does so clearly, expressly and
unambiguously." (82 C.J.S., 956) (Italics supplied)
and that—
It is an ancient principle that a tax can not be imposed without clear and express words
for that purpose. Accordingly, the general rule of requiring adherence to the letter in
construing statutes applies with peculiar strictness to tax laws and the provisions of a
taxing act are not to be extended by implication." (30 Am. Jur. 153; also McQuillin on
Municipal Corp., Vol. 16, p. 267; italics ours)
A mere reading of the ordinance discloses that not only are there no words therein imposing a
tax but that the peruser is left in doubt as to whether the intention is to levy a tax for revenue or
charge a fee for permitting the business to be carried on; for section 2 declares that the law
"empowers the Municipal Council of Hinabangan, Samar, to impose graduated Municipal
License Fees". Since the validity of taxes and license fees are governed by different principles,
the taxpayer is left in doubt as to the true nature of the charge, and whether he must bear it or
not. The rule is that taxes may not be imposed by implications, [1] and "a tax statute is to be
construed strictly and aoainat the subjection to a tax liability where the question is whether a
matter, property or person is subject to the tax" (82 C.J.S., p. 957). Considering the
unavoidability of taxes by the citizen, it seems that the Marinduque Iron Mines Agents, Inc. vs.
Municipal Council of Hinabangan, Samar, et al. least he is entitled to is to be expressly required
to pay a tax, which the words of the questioned ordinance do not state. This is particularly true
where the ordinance, as in this case, carries penal provisions.
We further agree with the judgment appealed from that Ordinance No. 7, Ser. 1960, of
Hinabangan, Samar, is invalid because the same infringes upon the express restrictions placed
by tha legislature upon the taxing power delegated to city and municipal councils. Section 2,
paragraph 1, of Republic Act No. 2264, after conferring power to cities, municipalities, and
municipal districts to impose license taxes and service fees or charges on business and
occupations, expressly limited said powers by the following proviso:
"Provided that municipalities and municipal districts shall, in no case, impose any percentage
tax on sales or other taxes in any form based thereon; x x x "
Even granting that it does impose a tax, the ordinance in question, while not providing for a
percentage tax, but a graduated tax (the progressive tax therein imposed not being calculated on
a percentage of the sales made by the taxpayer), nevertheless, it prescribes a tax based on sales,
contrary to the statute (R.A. 2264). It is true that the ordinance purports to base the tax on either
"gross output or sales"; but the only standard provided for measuring the gross output is its peso
value, as determined from "true copies of receipts and/or invoices" (which are precisely the
evidence of sales) that the taxpayer is required to submit to the municipal treasurer (section 3),
without deduction being provided for freight, insurance, or incidental costs. Directly or
indirectly, the amount of payable tax under this ordinance is determined by the gross sales of the
taxpayer, and violates the explicit prohibition that the municipality must not levy, or impose,
"taxes in any form based on sales".
The plea that the members of the Municipal Council are not attorneys and of low scholastic
ability" affords no excuse for not observing well-established legal principles. The tax imposing
authority is held to know and understand that the levying of taxes ia a subject of grave
responsibility, and of serious consequences to the taxpayer. Taxation is not merely a matter of
wishing before an unused well, or of stroking some wornout lamp.

In view of the foregoing, the judgment appealed from is affirmed, with costs against appellants.
 [ G.R. No. 122191, October 08, 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.
DECISION
QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and set aside
the Resolution[1]dated 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. x x x
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went to a disco dance
with fellow crew members Thamer Al-Gazzawi 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 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. 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.
On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) [15] Saudia filed a
reply[16] thereto on March 3, 1994.
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].
The trial court issued an Order[19] dated August 29, 1994 denying the Motion to Dismiss
Amended Complaint filed by Saudia.
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).
[23]
In the Reply 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 plaintiff’s 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]
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.
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.
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.
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order[31]dated 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. Q-93-18394 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.

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.
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 THE
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 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.
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 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.
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 manager, 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
Philippine 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.
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.
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 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:
"Section 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
(8) In all other cases in which demand, exclusive of interest, damages of whatever
kind, attorney’s fees, litigation expenses, and costs 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)
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) x x x 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 plaintiff’s 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.
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
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]
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, the lex 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] (Underscoring ours.)
After a careful study of the pleadings on record, including allegations in the Amended
Complaint deemed submitted 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 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
fatality 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 complaint 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, thus 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 the
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.