Republic of the Philippines

SUPREME COURT

FIRST DIVISION

G.R. No. 120077 October 13, 2000

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA
AND MARCELO G. SANTOS, respondents.

PARDO, J.:

The case before the Court is a petition for certiorari1 to annul the following orders of the
National Labor Relations Commission (hereinafter referred to as "NLRC") for having been
issued without or with excess jurisdiction and with grave abuse of discretion:2

(1) Order of May 31, 1993.3 Reversing and setting aside its earlier resolution of August
28, 1992.4 The questioned order declared that the NLRC, not the Philippine Overseas
Employment Administration (hereinafter referred to as "POEA"), had jurisdiction over
private respondent's complaint;

(2) Decision of December 15, 1994.5 Directing petitioners to jointly and severally pay
private respondent twelve thousand and six hundred dollars (US$ 12,600.00) representing
salaries for the unexpired portion of his contract; three thousand six hundred dollars
(US$3,600.00) as extra four months salary for the two (2) year period of his contract,
three thousand six hundred dollars (US$3,600.00) as "14th month pay" or a total of
nineteen thousand and eight hundred dollars (US$19,800.00) or its peso equivalent and
attorney's fees amounting to ten percent (10%) of the total award; and

(3) Order of March 30, 1995.6 Denying the motion for reconsideration of the petitioners.

In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos") was an
overseas worker employed as a printer at the Mazoon Printing Press, Sultanate of Oman.
Subsequently, in June 1988, he was directly hired by the Palace Hotel, Beijing, People's
Republic of China and later terminated due to retrenchment.

Petitioners are the Manila Hotel Corporation (hereinafter referred to as "MHC") and the Manila
Hotel International Company, Limited (hereinafter referred to as "MHICL").

When the case was filed in 1990, MHC was still a government-owned and controlled corporation
duly organized and existing under the laws of the Philippines.

MHICL is a corporation duly organized and existing under the laws of Hong Kong.7 MHC is an
"incorporator" of MHICL, owning 50% of its capital stock.8
By virtue of a "management agreement"9 with the Palace Hotel (Wang Fu Company Limited),
MHICL10 trained the personnel and staff of the Palace Hotel at Beijing, China.

Now the facts.

During his employment with the Mazoon Printing Press in the Sultanate of Oman, respondent
Santos received a letter dated May 2, 1988 from Mr. Gerhard R. Shmidt, General Manager,
Palace Hotel, Beijing, China. Mr. Schmidt informed respondent Santos that he was
recommended by one Nestor Buenio, a friend of his.

Mr. Shmidt offered respondent Santos the same position as printer, but with a higher monthly
salary and increased benefits. The position was slated to open on October 1, 1988.11

On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the
offer.

On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed a ready to sign
employment contract to respondent Santos. Mr. Henk advised respondent Santos that if the
contract was acceptable, to return the same to Mr. Henk in Manila, together with his passport and
two additional pictures for his visa to China.

On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective June
30, 1988, under the pretext that he was needed at home to help with the family's piggery and
poultry business.

On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henk's letter.
Respondent Santos enclosed four (4) signed copies of the employment contract (dated June 4,
1988) and notified them that he was going to arrive in Manila during the first week of July 1988.

The employment contract of June 4, 1988 stated that his employment would commence
September 1, 1988 for a period of two years.12 It provided for a monthly salary of nine hundred
dollars (US$900.00) net of taxes, payable fourteen (14) times a year.13

On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing Press.

On July 1, 1988, respondent Santos arrived in Manila.

On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the
Palace Hotel.14

Subsequently, respondent Santos signed an amended "employment agreement" with the Palace
Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace Hotel.
The Vice President (Operations and Development) of petitioner MHICL Miguel D. Cergueda
signed the employment agreement under the word "noted".
From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He
returned to China and reassumed his post on July 17, 1989.

On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a handwritten
note that respondent Santos be given one (1) month notice of his release from employment.

On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr.
Shmidt that his employment at the Palace Hotel print shop would be terminated due to business
reverses brought about by the political upheaval in China.15 We quote the letter:16

"After the unfortunate happenings in China and especially Beijing (referring to

Tiannamen Square incidents), our business has been severely affected. To reduce
expenses, we will not open/operate printshop for the time being.

"We sincerely regret that a decision like this has to be made, but rest assured this does in
no way reflect your past performance which we found up to our expectations."

"Should a turnaround in the business happen, we will contact you directly and give you
priority on future assignment."

On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos and
paid all benefits due him, including his plane fare back to the Philippines.

On October 3, 1989, respondent Santos was repatriated to the Philippines.

On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr. Shmidt,
demanding full compensation pursuant to the employment agreement.

On November 11, 1989, Mr. Shmidt replied, to wit:17

His service with the Palace Hotel, Beijing was not abruptly terminated but we followed
the one-month notice clause and Mr. Santos received all benefits due him.

"For your information the Print Shop at the Palace Hotel is still not operational and with a
low business outlook, retrenchment in various departments of the hotel is going on which
is a normal management practice to control costs.

"When going through the latest performance ratings, please also be advised that his
performance was below average and a Chinese National who is doing his job now shows
a better approach.

"In closing, when Mr. Santos received the letter of notice, he hardly showed up for work
but still enjoyed free accommodation/laundry/meals up to the day of his departure."

On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the
Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC). He
prayed for an award of nineteen thousand nine hundred and twenty three dollars (US$19,923.00)
as actual damages, forty thousand pesos (P40,000.00) as exemplary damages and attorney's fees
equivalent to 20% of the damages prayed for. The complaint named MHC, MHICL, the Palace
Hotel and Mr. Shmidt as respondents.

The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in the
proceedings before the Labor Arbiter.18

On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners,
thus:19

"WHEREFORE, judgment is hereby rendered:

"1. directing all the respondents to pay complainant jointly and severally;

"a) $20,820 US dollars or its equivalent in Philippine currency as unearned

salaries;

"b) P50,000.00 as moral damages;

"c) P40,000.00 as exemplary damages; and

"d) Ten (10) percent of the total award as attorney's fees.

"SO ORDERED."

On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC had
jurisdiction over the case.

On August 28, 1992, the NLRC promulgated a resolution, stating:20

"WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for
want of jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.

"SO ORDERED."

On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted
resolution. He argued that the case was not cognizable by the POEA as he was not an "overseas
contract worker."21

On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed Labor
Arbiter Emerson Tumanon to hear the case on the question of whether private respondent was
retrenched or dismissed.22

On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the
testimonial and documentary evidence presented to and heard by him.23
Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National Capital
Region, Arbitration Branch, and the case was transferred to Labor Arbiter Jose G. de Vera.24

On November 25, 1994, Labor Arbiter de Vera submitted his report.25 He found that respondent
Santos was illegally dismissed from employment and recommended that he be paid actual
damages equivalent to his salaries for the unexpired portion of his contract.26

On December 15, 1994, the NLRC ruled in favor of private respondent, to wit:27

"WHEREFORE, finding that the report and recommendations of Arbiter de Vera are
supported by substantial evidence, judgment is hereby rendered, directing the respondents
to jointly and severally pay complainant the following computed contractual benefits: (1)
US$12,600.00 as salaries for the unexpired portion of the parties' contract; (2)
US$3,600.00 as extra four (4) months salary for the two (2) years period (sic) of the
parties' contract; (3) US$3,600.00 as "14th month pay" for the aforesaid two (2) years
contract stipulated by the parties or a total of US$19,800.00 or its peso equivalent, plus
(4) attorney's fees of 10% of complainant's total award.

"SO ORDERED."

On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor Arbiter de
Vera's recommendation had no basis in law and in fact.28

On March 30, 1995, the NLRC denied the motion for reconsideration.29

Hence, this petition.30

On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a
temporary restraining order and/or writ of preliminary injunction and a motion for the annulment
of the entry of judgment of the NLRC dated July 31, 1995.31

On November 20, 1995, the Court denied petitioner's urgent motion. The Court required
respondents to file their respective comments, without giving due course to the petition.32

On March 8, 1996, the Solicitor General filed a manifestation stating that after going over the
petition and its annexes, they can not defend and sustain the position taken by the NLRC in its
assailed decision and orders. The Solicitor General prayed that he be excused from filing a
comment on behalf of the NLRC33

On April 30,1996, private respondent Santos filed his comment.34

On June 26, 1996, the Court granted the manifestation of the Solicitor General and required the
NLRC to file its own comment to the petition.35

On January 7, 1997, the NLRC filed its comment.

The petition is meritorious.

I. Forum Non-Conveniens

The NLRC was a seriously inconvenient forum.

We note that the main aspects of the case transpired in two foreign jurisdictions and the case
involves purely foreign elements. The only link that the Philippines has with the case is that
respondent Santos is a Filipino citizen. The Palace Hotel and MHICL are foreign corporations.
Not all cases involving our citizens can be tried here.

The employment contract. — Respondent Santos was hired directly by the Palace Hotel, a
foreign employer, through correspondence sent to the Sultanate of Oman, where respondent
Santos was then employed. He was hired without the intervention of the POEA or any authorized
recruitment agency of the government.36

Under the rule of forum non conveniens, a Philippine court or agency may assume jurisdiction
over the case if it chooses to do so provided: (1) that the Philippine court is one to which the
parties may conveniently resort to; (2) that the Philippine court is in a position to make an
intelligent decision as to the law and the facts; and (3) that the Philippine court has or is likely to
have power to enforce its decision.37 The conditions are unavailing in the case at bar.

Not Convenient. — We fail to see how the NLRC is a convenient forum given that all the
incidents of the case — from the time of recruitment, to employment to dismissal occurred
outside the Philippines. The inconvenience is compounded by the fact that the proper defendants,
the Palace Hotel and MHICL are not nationals of the Philippines. Neither .are they "doing
business in the Philippines." Likewise, the main witnesses, Mr. Shmidt and Mr. Henk are non-
residents of the Philippines.

No power to determine applicable law. — Neither can an intelligent decision be made as to the
law governing the employment contract as such was perfected in foreign soil. This calls to fore
the application of the principle of lex loci contractus (the law of the place where the contract was
made).38

The employment contract was not perfected in the Philippines. Respondent Santos signified his
acceptance by writing a letter while he was in the Republic of Oman. This letter was sent to the
Palace Hotel in the People's Republic of China.

No power to determine the facts. — Neither can the NLRC determine the facts surrounding the
alleged illegal dismissal as all acts complained of took place in Beijing, People's Republic of
China. The NLRC was not in a position to determine whether the Tiannamen Square incident
truly adversely affected operations of the Palace Hotel as to justify respondent Santos'
retrenchment.

Principle of effectiveness, no power to execute decision. — Even assuming that a proper decision
could be reached by the NLRC, such would not have any binding effect against the employer, the
Palace Hotel. The Palace Hotel is a corporation incorporated under the laws of China and was
not even served with summons. Jurisdiction over its person was not acquired.

This is not to say that Philippine courts and agencies have no power to solve controversies
involving foreign employers. Neither are we saying that we do not have power over an
employment contract executed in a foreign country. If Santos were an "overseas contract
worker", a Philippine forum, specifically the POEA, not the NLRC, would protect him.39 He is
not an "overseas contract worker" a fact which he admits with conviction.40

Even assuming that the NLRC was the proper forum, even on the merits, the NLRC's decision
cannot be sustained.

II. MHC Not Liable

Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that
MHICL was liable for Santos' retrenchment, still MHC, as a separate and distinct juridical entity
cannot be held liable.

True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock.
However, this is not enough to pierce the veil of corporate fiction between MHICL and MHC.

Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate
fiction is used to defeat public convenience, justify wrong, protect fraud or defend a crime. 41 It
is done only when a corporation is a mere alter ego or business conduit of a person or another
corporation.

In Traders Royal Bank v. Court of Appeals,42 we held that "the mere ownership by a single
stockholder or by another corporation of all or nearly all of the capital stock of a corporation is
not of itself a sufficient reason for disregarding the fiction of separate corporate personalities."

The tests in determining whether the corporate veil may be pierced are: First, the defendant must
have control or complete domination of the other corporation's finances, policy and business
practices with regard to the transaction attacked. There must be proof that the other corporation
had no separate mind, will or existence with respect the act complained of. Second, control must
be used by the defendant to commit fraud or wrong. Third, the aforesaid control or breach of
duty must be the proximate cause of the injury or loss complained of. The absence of any of the
elements prevents the piercing of the corporate veil.43

It is basic that a corporation has a personality separate and distinct from those composing it as
well as from that of any other legal entity to which it may be related.44 Clear and convincing
evidence is needed to pierce the veil of corporate fiction.45 In this case, we find no evidence to
show that MHICL and MHC are one and the same entity.

III. MHICL not Liable

Respondent Santos predicates MHICL's liability on the fact that MHICL "signed" his
employment contract with the Palace Hotel. This fact fails to persuade us.

First, we note that the Vice President (Operations and Development) of MHICL, Miguel D.
Cergueda signed the employment contract as a mere witness. He merely signed under the word
"noted".

When one "notes" a contract, one is not expressing his agreement or approval, as a party
would.46 In Sichangco v. Board of Commissioners of Immigration,47 the Court recognized that
the term "noted" means that the person so noting has merely taken cognizance of the existence of
an act or declaration, without exercising a judicious deliberation or rendering a decision on the
matter.

Mr. Cergueda merely signed the "witnessing part" of the document. The "witnessing part" of the
document is that which, "in a deed or other formal instrument is that part which comes after the
recitals, or where there are no recitals, after the parties (emphasis ours)."48 As opposed to a
party to a contract, a witness is simply one who, "being present, personally sees or perceives a
thing; a beholder, a spectator, or eyewitness."49 One who "notes" something just makes a "brief
written statement"50 a memorandum or observation.

Second, and more importantly, there was no existing employer-employee relationship between
Santos and MHICL. In determining the existence of an employer-employee relationship, the
following elements are considered:51

"(1) the selection and engagement of the employee;

"(2) the payment of wages;

"(3) the power to dismiss; and

"(4) the power to control employee's conduct."

MHICL did not have and did not exercise any of the aforementioned powers. It did not select
respondent Santos as an employee for the Palace Hotel. He was referred to the Palace Hotel by
his friend, Nestor Buenio. MHICL did not engage respondent Santos to work. The terms of
employment were negotiated and finalized through correspondence between respondent Santos,
Mr. Schmidt and Mr. Henk, who were officers and representatives of the Palace Hotel and not
MHICL. Neither did respondent Santos adduce any proof that MHICL had the power to control
his conduct. Finally, it was the Palace Hotel, through Mr. Schmidt and not MHICL that
terminated respondent Santos' services.

Neither is there evidence to suggest that MHICL was a "labor-only contractor."52 There is no
proof that MHICL "supplied" respondent Santos or even referred him for employment to the
Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the same
entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not enough to
pierce the corporate veil between MHICL and the Palace Hotel.

IV. Grave Abuse of Discretion

Considering that the NLRC was forum non-conveniens and considering further that no employer-
employee relationship existed between MHICL, MHC and respondent Santos, Labor Arbiter
Ceferina J. Diosana clearly had no jurisdiction over respondent's claim in NLRC NCR Case No.
00-02-01058-90.

Labor Arbiters have exclusive and original jurisdiction only over the following:53

"1. Unfair labor practice cases;

"2. Termination disputes;

"3. If accompanied with a claim for reinstatement, those cases that workers may file
involving wages, rates of pay, hours of work and other terms and conditions of
employment;

"4. Claims for actual, moral, exemplary and other forms of damages arising from
employer-employee relations;

"5. Cases arising from any violation of Article 264 of this Code, including questions
involving legality of strikes and lockouts; and

"6. Except claims for Employees Compensation, Social Security, Medicare and maternity
benefits, all other claims, arising from employer-employee relations, including those of
persons in domestic or household service, involving an amount exceeding five thousand
pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement."

In all these cases, an employer-employee relationship is an indispensable jurisdictional

requirement.

The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to
disputes arising from an employer-employee relationship which can be resolved by reference to
the Labor Code, or other labor statutes, or their collective bargaining agreements.54

"To determine which body has jurisdiction over the present controversy, we rely on the sound
judicial principle that jurisdiction over the subject matter is conferred by law and is determined
by the allegations of the complaint irrespective of whether the plaintiff is entitled to all or some
of the claims asserted therein."55

The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the complaint.
His failure to dismiss the case amounts to grave abuse of discretion.56
 V. The Fallo

WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the orders
and resolutions of the National Labor Relations Commission dated May 31, 1993, December 15,
1994 and March 30, 1995 in NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-
01058-90).

No costs.

SO ORDERED.

Davide, Jr., C .J ., Puno, Kapunan, Pardo and Ynares-Santiago, JJ ., concur.

 G.R. No. 122191 October 8, 1998

SAUDI ARABIAN AIRLINES, Petitioner, vs. COURT OF APPEALS, MILAGROS P.

MORADA and HON. RODOLFO A. ORTIZ, in his capacity as Presiding Judge of Branch
89, Regional Trial Court of Quezon City, Respondents.

QUISUMBING, J.:

This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and set aside
the Resolution 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. . . .

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 lune 16, 1993, in Riyadh, Saudi Arabia, a few minutes before the
departure of her flight to Manila, plaintiff was not allowed to board the plane and instead ordered
to take a later flight to Jeddah to see Mr. Miniewy, the Chief Legal Officer of SAUDIA. When
she did, a certain Khalid of the SAUDIA office brought her to a Saudi court where she was asked
to sign a document written in Arabic. They told her that this was necessary to close the case
against Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before the
court on June 27, 1993. Plaintiff then returned to Manila.

Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once again and
see Miniewy on June 27, 1993 for further investigation. Plaintiff did so after receiving assurance
from SAUDIA's Manila manager, Aslam Saleemi, that the investigation was routinary and that it
posed no danger to her.

In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27, 1993.
Nothing happened then but on June 28, 1993, a Saudi judge interrogated plaintiff through an
interpreter about the Jakarta incident. After one hour of interrogation, they let her go. At the
airport, however, just as her plane was about to take off, a SAUDIA officer told her that the
airline had forbidden her to take flight. At the Inflight Service Office where she was told to go,
the secretary of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah, at
the crew quarters, until further orders.

On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where the
judge, to her astonishment and shock, rendered a decision, translated to her in English,
sentencing her to five months imprisonment and to 286 lashes. Only then did she realize that the
Saudi court had tried her, together with Thamer and Allah, for what happened in Jakarta. The
court found plaintiff guilty of (1) adultery; (2) going to a disco, dancing and listening to the
music in violation of Islamic laws; and (3) socializing with the male crew, in contravention of
Islamic tradition. 10

Facing conviction, private respondent sought the help of her employer, petitioner SAUDIA.
Unfortunately, she was denied any assistance. She then asked the Philippine Embassy in Jeddah
to help her while her case is on appeal. Meanwhile, to pay for her upkeep, she worked on the
domestic flight of SAUDIA, while Thamer and Allah continued to serve in the international
flights. 11

Because she was wrongfully convicted, the Prince of Makkah dismissed the case against her and
allowed her to leave Saudi Arabia. Shortly before her return to Manila, 12 she was terminated
from the service by SAUDIA, without her being informed of the cause.

On November 23, 1993, Morada filed a Complaint 13 for damages against SAUDIA, and Khaled
Al-Balawi ("Al-Balawi"), its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised the
following grounds, to wit: (1) that the Complaint states no cause of action against Saudia; (2)
that defendant Al-Balawi is not a real party in interest; (3) that the claim or demand set forth in
the Complaint has been waived, abandoned or otherwise extinguished; and (4) that the trial court
has no jurisdiction to try the case.

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).

In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that since its
Motion for Reconsideration raised lack of jurisdiction as its cause of action, the Omnibus Motion
Rule does not apply, even if that ground is raised for the first time on appeal. Additionally,
SAUDIA alleged that the Philippines does not have any substantial interest in the prosecution of
the instant case, and hence, without jurisdiction to adjudicate the same.

Respondent Judge subsequently issued another Order 24 dated February 2, 1995, denying
SAUDIA's Motion for Reconsideration. The pertinent portion of the assailed Order reads as
follows:

Acting on the Motion for Reconsideration of defendant Saudi Arabian Airlines filed, thru
counsel, on September 20, 1994, and the Opposition thereto of the plaintiff filed, thru counsel, on
October 14, 1994, as well as the Reply therewith of defendant Saudi Arabian Airlines filed, thru
counsel, on October 24, 1994, considering that a perusal of the plaintiffs Amended Complaint,
which is one for the recovery of actual, moral and exemplary damages plus attorney's fees, upon
the basis of the applicable Philippine law, Article 21 of the New Civil Code of the Philippines, is,
clearly, within the jurisdiction of this Court as regards the subject matter, and there being nothing
new of substance which might cause the reversal or modification of the order sought to be
reconsidered, the motion for reconsideration of the defendant, is DENIED.

SO ORDERED. 25
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:

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 THIS

CASE PHILIPPINE LAW SHOULD GOVERN.

Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at the outset. It
maintains that private respondent's claim for alleged abuse of rights occurred in the Kingdom of
Saudi Arabia. It alleges that the existence of a foreign element qualifies the instant case for the
application of the law of the Kingdom of Saudi Arabia, by virtue of the lex loci delicti commissi
rule. 34

On the other hand, private respondent contends that since her Amended Complaint is based on
Articles 19 35 and 21 36 of the Civil Code, then the instant case is properly a matter of domestic
law. 37

Under the factual antecedents obtaining in this case, there is no dispute that the interplay of
events occurred in two states, the Philippines and Saudi Arabia.

As stated by private respondent in her Amended Complaint 38 dated June 23, 1994:
2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines corporation doing
business in the Philippines. It may be served with summons and other court processes at Travel
Wide Associated Sales (Phils.). Inc., 3rd Floor, Cougar Building, 114 Valero St., Salcedo
Village, Makati, Metro Manila.

xxx xxx xxx

6. Plaintiff learned that, through the intercession of the Saudi Arabian government, the
Indonesian authorities agreed to deport Thamer and Allah after two weeks of detention.
Eventually, they were again put in service by defendant SAUDIA. In September 1990, defendant
SAUDIA transferred plaintiff to Manila.

7. On January 14, 1992, just when plaintiff thought that the Jakarta incident was already behind
her, her superiors reauested her to see MR. Ali Meniewy, Chief Legal Officer of SAUDIA in
Jeddah, Saudi Arabia. When she saw him, he brought her to the police station where the police
took her passport and questioned her about the Jakarta incident. Miniewy simply stood by as the
police put pressure on her to make a statement dropping the case against Thamer and Allah. Not
until she agreed to do so did the police return her passport and allowed her to catch the afternoon
flight out of Jeddah.

8. One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few minutes before
the departure of her flight to Manila, plaintiff was not allowed to board the plane and instead
ordered to take a later flight to Jeddah to see Mr. Meniewy, the Chief Legal Officer of SAUDIA.
When she did, a certain Khalid of the SAUDIA office brought her to a Saudi court where she
was asked to sigh a document written in Arabic. They told her that this was necessary to close
the case against Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear
before the court on June 27, 1993. Plaintiff then returned to Manila.

9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once again and
see Miniewy on June 27, 1993 for further investigation. Plaintiff did so after receiving assurance
from SAUDIA's Manila manger, Aslam Saleemi, that the investigation was routinary and that it
posed no danger to her.

10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27,
1993. Nothing happened then but on June 28, 1993, a Saudi judge interrogated plaintiff through
an interpreter about the Jakarta incident. After one hour of interrogation, they let her go. At the
airport, however, just as her plane was about to take off, a SAUDIA officer told her that the
airline had forbidden her to take that flight. At the Inflight Service Office where she was told to
go, the secretary of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah,
at the crew quarters, until further orders.

11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where the
judge, to her astonishment and shock, rendered a decision, translated to her in English,
sentencing her to five months imprisonment and to 286 lashes. Only then did she realize that the
Saudi court had tried her, together with Thamer and Allah, for what happened in Jakarta. The
court found plaintiff guilty of (1) adultery; (2) going to a disco, dancing, and listening to the
music in violation of Islamic laws; (3) socializing with the male crew, in contravention of
Islamic tradition.

12. Because SAUDIA refused to lend her a hand in the case, plaintiff sought the help of the
Philippines Embassy in Jeddah. The latter helped her pursue an appeal from the decision of the
court. To pay for her upkeep, she worked on the domestic flights of defendant SAUDIA while,
ironically, Thamer and Allah freely served the international flights. 39

Where the factual antecedents satisfactorily establish the existence of a foreign element, we
agree with petitioner that the problem herein could present a "conflicts" case.

A factual situation that cuts across territorial lines and is affected by the diverse laws of two or
more states is said to contain a "foreign element". The presence of a foreign element is inevitable
since social and economic affairs of individuals and associations are rarely confined to the
geographic limits of their birth or conception. 40

The forms in which this foreign element may appear are many. 41 The foreign element may
simply consist in the fact that one of the parties to a contract is an alien or has a foreign domicile,
or that a contract between nationals of one State involves properties situated in another State. In
other cases, the foreign element may assume a complex form. 42

In the instant case, the foreign element consisted in the fact that private respondent Morada is a
resident Philippine national, and that petitioner SAUDIA is a resident foreign corporation. Also,
by virtue of the employment of Morada with the petitioner Saudia as a flight stewardess, events
did transpire during her many occasions of travel across national borders, particularly from
Manila, Philippines to Jeddah, Saudi Arabia, and vice versa, that caused a "conflicts" situation to
arise.

We thus find private respondent's assertion that the case is purely domestic, imprecise. A
conflicts problem presents itself here, and the question of jurisdiction 43 confronts the court a
quo.

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:

Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary
Reorganization Act of 1980", is hereby amended to read as follows:

Sec. 19. Jurisdiction in Civil Cases. - Regional Trial Courts shall exercise exclusive jurisdiction:

xxx xxx xxx

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

xxx xxx xxx

And following Section 2 (b), Rule 4 of the Revised Rules of Court - the venue, Quezon City, is
appropriate:

Sec. 2 Venue in Courts of First Instance. - [Now Regional Trial Court]

(a) xxx xxx xxx

(b) Personal actions. - All other actions may be commenced and tried where the defendant or any
of the defendants resides or may be found, or where the plaintiff or any of the plaintiff resides, at
the election of the plaintiff.

Pragmatic considerations, including the convenience of the parties, also weigh heavily in favor
of the RTC Quezon City assuming jurisdiction. Paramount is the private interest of the litigant.
Enforceability of a judgment if one is obtained is quite obvious. Relative advantages and
obstacles to a fair trial are equally important. Plaintiff may not, by choice of an inconvenient
forum, "vex", "harass", or "oppress" the defendant, e.g. by inflicting upon him needless expense
or disturbance. But unless the balance is strongly in favor of the defendant, the plaintiffs choice
of forum should rarely be disturbed. 49

Weighing the relative claims of the parties, the court a quo found it best to hear the case in the
Philippines. Had it refused to take cognizance of the case, it would be forcing plaintiff (private
respondent now) to seek remedial action elsewhere, i.e. in the Kingdom of Saudi Arabia where
she no longer maintains substantial connections. That would have caused a fundamental
unfairness to her.

Moreover, by hearing the case in the Philippines no unnecessary difficulties and inconvenience
have been shown by either of the parties. The choice of forum of the plaintiff (now private
respondent) should be upheld.

Similarly, the trial court also possesses jurisdiction over the persons of the parties herein. By
filing her Complaint and Amended Complaint with the trial court, private respondent has
voluntary submitted herself to the jurisdiction of the court.

The records show that petitioner SAUDIA has filed several motions 50 praying for the dismissal
of Morada's Amended Complaint. SAUDIA also filed an Answer In Ex Abundante Cautelam
dated February 20, 1995. What is very patent and explicit from the motions filed, is that
SAUDIA prayed for other reliefs under the premises. Undeniably, petitioner SAUDIA has
effectively submitted to the trial court's jurisdiction by praying for the dismissal of the Amended
Complaint on grounds other than lack of jurisdiction.

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 (Emphasis ours.)

After a careful study of the pleadings on record, including allegations in the Amended Complaint
deemed admitted for purposes of the motion to dismiss, we are convinced that there is reasonable
basis for private respondent's assertion that although she was already working in Manila,
petitioner brought her to Jeddah on the pretense that she would merely testify in an investigation
of the charges she made against the two SAUDIA crew members for the attack on her person
while they were in Jakarta. As it turned out, she was the one made to face trial for very serious
charges, including adultery and violation of Islamic laws and tradition.

There is likewise logical basis on record for the claim that the "handing over" or "turning over"
of the person of private respondent to Jeddah officials, petitioner may have acted beyond its
duties as employer. Petitioner's purported act contributed to and amplified or even proximately
caused additional humiliation, misery and suffering of private respondent. Petitioner thereby
allegedly facilitated the arrest, detention and prosecution of private respondent under the guise of
petitioner's authority as employer, taking advantage of the trust, confidence and faith she reposed
upon it. As purportedly found by the Prince of Makkah, the alleged conviction and imprisonment
of private respondent was wrongful. But these capped the injury or harm allegedly inflicted upon
her person and reputation, for which petitioner could be liable as claimed, to provide
compensation or redress for the wrongs done, once duly proven.

Considering that the complaint in the court a quo is one involving torts, the "connecting factor"
or "point of contact" could be the place or places where the tortious conduct or lex loci actus
occurred. And applying the torts principle in a conflicts case, we find that the Philippines could
be said as a situs of the tort (the place where the alleged tortious conduct took place). This is
because it is in the Philippines where petitioner allegedly deceived private respondent, a Filipina
residing and working here. According to her, she had honestly believed that petitioner would, in
the exercise of its rights and in the performance of its duties, "act with justice, give her due and
observe honesty and good faith." Instead, petitioner failed to protect her, she claimed. That
certain acts or parts of the injury allegedly occurred in another country is of no moment. For in
our view what is important here is the place where the over-all harm or the totality of the alleged
injury to the person, reputation, social standing and human rights of complainant, had lodged,
according to the plaintiff below (herein private respondent). All told, it is not without basis to
identify the Philippines as the situs of the alleged tort.

Moreover, with the widespread criticism of the traditional rule of lex loci delicti commissi,
modern theories and rules on tort liability 61 have been advanced to offer fresh judicial
approaches to arrive at just results. In keeping abreast with the modern theories on tort liability,
we find here an occasion to apply the "State of the most significant relationship" rule, which in
our view should be appropriate to apply now, given the factual context of this case.

In applying said principle to determine the State which has the most significant relationship, the
following contacts are to be taken into account and evaluated according to their relative
importance with respect to the particular issue: (a) the place where the injury occurred; (b) the
place where the conduct causing the injury occurred; (c) the domicile, residence, nationality,
place of incorporation and place of business of the parties, and (d) the place where the
relationship, if any, between the parties is centered. 62

As already discussed, there is basis for the claim that over-all injury occurred and lodged in the
Philippines. There is likewise no question that private respondent is a resident Filipina national,
working with petitioner, a resident foreign corporation engaged here in the business of
international air carriage. Thus, the "relationship" between the parties was centered here,
although it should be stressed that this suit is not based on mere labor law violations. From the
record, the claim that the Philippines has the most significant contact with the matter in this
dispute, 63 raised by private respondent as plaintiff below against defendant (herein petitioner), in
our view, has been properly established.

Prescinding from this premise that the Philippines is the situs of the tort complained of and the
place "having the most interest in the problem", we find, by way of recapitulation, that the
Philippine law on tort liability should have paramount application to and control in the resolution
of the legal issues arising out of this case. Further, we hold that the respondent Regional Trial
Court has jurisdiction over the parties and the subject matter of the complaint; the appropriate
venue is in Quezon City, which could properly apply Philippine law. Moreover, we find
untenable petitioner's insistence that "[s]ince private respondent instituted this suit, she has the
burden of pleading and proving the applicable Saudi law on the matter." 64 As aptly said by
private respondent, she has "no obligation to plead and prove the law of the Kingdom of Saudi
Arabia since her cause of action is based on Articles 19 and 21" of the Civil Code of the
Philippines. In her Amended Complaint and subsequent pleadings, she never alleged that Saudi
law should govern this case. 65 And as correctly held by the respondent appellate court,
"considering that it was the petitioner who was invoking the applicability of the law of Saudi
Arabia, then the burden was on it [petitioner] to plead and to establish what the law of Saudi
Arabia is". 66

Lastly, no error could be imputed to the respondent appellate court in upholding the trial court's
denial of defendant's (herein petitioner's) motion to dismiss the case. Not only was jurisdiction in
order and venue properly laid, but appeal after trial was obviously available, and expeditious trial
itself indicated by the nature of the case at hand. Indubitably, the Philippines is the state
intimately concerned with the ultimate outcome of the case below, not just for the benefit of all
the litigants, but also for the vindication of the country's system of law and justice in a
transnational setting. With these guidelines in mind, the trial court must proceed to try and
adjudge the case in the light of relevant Philippine law, with due consideration of the foreign
element or elements involved. Nothing said herein, of course, should be construed as prejudging
the results of the case in any manner whatsoever.
WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case No. Q-93-
18394 entitled "Milagros P. Morada vs. Saudi Arabia Airlines" is hereby REMANDED to
Regional Trial Court of Quezon City, Branch 89 for further proceedings.

SO ORDERED.

Davide, Jr., Bellosillo, Vitug and Panganiban, JJ., concur.

 THIRD DIVISION

[G.R. NO. 149177 : November 23, 2007]

KAZUHIRO HASEGAWA and NIPPON ENGINEERING CONSULTANTS CO., LTD.,

Petitioners, v. MINORU KITAMURA, Respondent.

DECISION

NACHURA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the April 18, 2001 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 60827,
and the July 25, 2001 Resolution2 denying the motion for reconsideration thereof.

On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd. (Nippon), a Japanese
consultancy firm providing technical and management support in the infrastructure projects of
foreign governments,3 entered into an Independent Contractor Agreement (ICA) with respondent
Minoru Kitamura, a Japanese national permanently residing in the Philippines.4 The agreement
provides that respondent was to extend professional services to Nippon for a year starting on
April 1, 1999.5 Nippon then assigned respondent to work as the project manager of the Southern
Tagalog Access Road (STAR) Project in the Philippines, following the company's consultancy
contract with the Philippine Government.6

When the STAR Project was near completion, the Department of Public Works and Highways
(DPWH) engaged the consultancy services of Nippon, on January 28, 2000, this time for the
detailed engineering and construction supervision of the Bongabon-Baler Road Improvement
(BBRI) Project.7 Respondent was named as the project manager in the contract's Appendix 3.1.8

On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's general manager for its
International Division, informed respondent that the company had no more intention of
automatically renewing his ICA. His services would be engaged by the company only up to the
substantial completion of the STAR Project on March 31, 2000, just in time for the ICA's
expiry.9

Threatened with impending unemployment, respondent, through his lawyer, requested a

negotiation conference and demanded that he be assigned to the BBRI project. Nippon insisted
that respondent's contract was for a fixed term that had already expired, and refused to negotiate
for the renewal of the ICA.10

As he was not able to generate a positive response from the petitioners, respondent consequently
initiated on June 1, 2000 Civil Case No. 00-0264 for specific performance and damages with the
Regional Trial Court of Lipa City.11

For their part, petitioners, contending that the ICA had been perfected in Japan and executed by
and between Japanese nationals, moved to dismiss the complaint for lack of jurisdiction. They
asserted that the claim for improper pre-termination of respondent's ICA could only be heard and
ventilated in the proper courts of Japan following the principles of lex loci celebrationis and lex
contractus.12

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

On June 29, 2000, the RTC, invoking our ruling in Insular Government v. Frank14 that matters
connected with the performance of contracts are regulated by the law prevailing at the place of
performance,15 denied the motion to dismiss.16 The trial court subsequently denied petitioners'
motion for reconsideration,17 prompting them to file with the appellate court, on August 14,
2000, their first Petition for Certiorari under Rule 65 [docketed as CA-G.R. SP No. 60205].18
On August 23, 2000, the CA resolved to dismiss the petition on procedural grounds'for lack of
statement of material dates and for insufficient verification and certification against forum
shopping.19 An Entry of Judgment was later issued by the appellate court on September 20,
2000.20

Aggrieved by this development, petitioners filed with the CA, on September 19, 2000, still
within the reglementary period, a second Petition for Certiorari under Rule 65 already stating
therein the material dates and attaching thereto the proper verification and certification. This
second petition, which substantially raised the same issues as those in the first, was docketed as
CA-G.R. SP No. 60827.21

Ruling on the merits of the second petition, the appellate court rendered the assailed April 18,
2001 Decision22 finding no grave abuse of discretion in the trial court's denial of the motion to
dismiss. The CA ruled, among others, that the principle of lex loci celebrationis was not
applicable to the case, because nowhere in the pleadings was the validity of the written
agreement put in issue. The CA thus declared that the trial court was correct in applying instead
the principle of lex loci solutionis.23

Petitioners' motion for reconsideration was subsequently denied by the CA in the assailed July
25, 2001 Resolution.24

Remaining steadfast in their stance despite the series of denials, petitioners instituted the instant
Petition for Review on Certiorari25 imputing the following errors to the appellate court:

A. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

TRIAL COURT VALIDLY EXERCISED JURISDICTION OVER THE INSTANT
CONTROVERSY, DESPITE THE FACT THAT THE CONTRACT SUBJECT MATTER OF
THE PROCEEDINGS A QUO WAS ENTERED INTO BY AND BETWEEN TWO
JAPANESE NATIONALS, WRITTEN WHOLLY IN THE JAPANESE LANGUAGE AND
EXECUTED IN TOKYO, JAPAN.

B. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN OVERLOOKING THE

NEED TO REVIEW OUR ADHERENCE TO THE PRINCIPLE OF LEX LOCI SOLUTIONIS
IN THE LIGHT OF RECENT DEVELOPMENT[S] IN PRIVATE INTERNATIONAL
LAWS.26

The pivotal question that this Court is called upon to resolve is whether the subject matter
jurisdiction of Philippine courts in civil cases for specific performance and damages involving
contracts executed outside the country by foreign nationals may be assailed on the principles of
lex loci celebrationis, lex contractus, the "state of the most significant relationship rule," or
forum non conveniens.

However, before ruling on this issue, we must first dispose of the procedural matters raised by
the respondent.

Kitamura contends that the finality of the appellate court's decision in CA-G.R. SP No. 60205
has already barred the filing of the second petition docketed as CA-G.R. SP No. 60827
(fundamentally raising the same issues as those in the first one) and the instant Petition for
Review thereof.

We do not agree. When the CA dismissed CA-G.R. SP No. 60205 on account of the petition's
defective certification of non-forum shopping, it was a dismissal without prejudice.27 The same
holds true in the CA's dismissal of the said case due to defects in the formal requirement of
verification28 and in the other requirement in Rule 46 of the Rules of Court on the statement of
the material dates.29 The dismissal being without prejudice, petitioners can re-file the petition, or
file a second petition attaching thereto the appropriate verification and certification as they, in
fact did and stating therein the material dates, within the prescribed period30 in Section 4, Rule
65 of the said Rules.31

The dismissal of a case without prejudice signifies the absence of a decision on the merits and
leaves the parties free to litigate the matter in a subsequent action as though the dismissed action
had not been commenced. In other words, the termination of a case not on the merits does not bar
another action involving the same parties, on the same subject matter and theory.32

Necessarily, because the said dismissal is without prejudice and has no res judicataeffect, and
even if petitioners still indicated in the verification and certification of the second certiorari
petition that the first had already been dismissed on procedural grounds,33 petitioners are no
longer required by the Rules to indicate in their certification of non-forum shopping in the
instant Petition for Review of the second certiorari petition, the status of the aforesaid first
petition before the CA. In any case, an omission in the certificate of non-forum shopping about
any event that will not constitute res judicata and litis pendentia, as in the present case, is not a
fatal defect. It will not warrant the dismissal and nullification of the entire proceedings,
considering that the evils sought to be prevented by the said certificate are no longer present.34

The Court also finds no merit in respondent's contention that petitioner Hasegawa is only
authorized to verify and certify, on behalf of Nippon, the certiorari petition filed with the CA
and not the instant petition. True, the Authorization35 dated September 4, 2000, which is attached
to the second certiorari petition and which is also attached to the instant Petition for Review, is
limited in scope its wordings indicate that Hasegawa is given the authority to sign for and act on
behalf of the company only in the petition filed with the appellate court, and that authority
cannot extend to the instant Petition for Review .36 In a plethora of cases, however, this Court has
liberally applied the Rules or even suspended its application whenever a satisfactory explanation
and a subsequent fulfillment of the requirements have been made.37 Given that petitioners herein
sufficiently explained their misgivings on this point and appended to their Reply38 an updated
Authorization39 for Hasegawa to act on behalf of the company in the instant petition, the Court
finds the same as sufficient compliance with the Rules.

However, the Court cannot extend the same liberal treatment to the defect in the verification and
certification. As respondent pointed out, and to which we agree, Hasegawa is truly not
authorized to act on behalf of Nippon in this case. The aforesaid September 4, 2000
Authorization and even the subsequent August 17, 2001 Authorization were issued only by
Nippon's president and chief executive officer, not by the company's board of directors. In not a
few cases, we have ruled that corporate powers are exercised by the board of directors; thus, no
person, not even its officers, can bind the corporation, in the absence of authority from the
board.40 Considering that Hasegawa verified and certified the petition only on his behalf and not
on behalf of the other petitioner, the petition has to be denied pursuant to Loquias v. Office of the
Ombudsman.41 Substantial compliance will not suffice in a matter that demands strict observance
of the Rules.42 While technical rules of procedure are designed not to frustrate the ends of justice,
nonetheless, they are intended to effect the proper and orderly disposition of cases and
effectively prevent the clogging of court dockets.43

Further, the Court has observed that petitioners incorrectly filed a Rule 65 petition to question
the trial court's denial of their motion to dismiss. It is a well-established rule that an order
denying a motion to dismiss is interlocutory, and cannot be the subject of the extraordinary
Petition for Certiorari or mandamus. The appropriate recourse is to file an answer and to
interpose as defenses the objections raised in the motion, to proceed to trial, and, in case of an
adverse decision, to elevate the entire case by appeal in due course.44 While there are recognized
exceptions to this rule,45 petitioners' case does not fall among them.

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

Asserting that the RTC of Lipa City is an inconvenient forum, petitioners question its jurisdiction
to hear and resolve the civil case for specific performance and damages filed by the respondent.
The ICA subject of the litigation was entered into and perfected in Tokyo, Japan, by Japanese
nationals, and written wholly in the Japanese language. Thus, petitioners posit that local courts
have no substantial relationship to the parties46 following the [state of the] most significant
relationship rule in Private International Law.47

The Court notes that petitioners adopted an additional but different theory when they elevated the
case to the appellate court. In the Motion to Dismiss48 filed with the trial court, petitioners never
contended that the RTC is an inconvenient forum. They merely argued that the applicable law
which will determine the validity or invalidity of respondent's claim is that of Japan, following
the principles of lex loci celebrationis and lex contractus.49 While not abandoning this stance in
their petition before the appellate court, petitioners on certiorari significantly invoked the
defense of forum non conveniens.50 On Petition for Review before this Court, petitioners dropped
their other arguments, maintained the forum non conveniens defense, and introduced their new
argument that the applicable principle is the [state of the] most significant relationship rule.51

Be that as it may, this Court is not inclined to deny this petition merely on the basis of the change
in theory, as explained in Philippine Ports Authority v. City of Iloilo.52 We only pointed out
petitioners' inconstancy in their arguments to emphasize their incorrect assertion of conflict of
laws principles.

To elucidate, in the judicial resolution of conflicts problems, three consecutive phases are
involved: jurisdiction, choice of law, and recognition and enforcement of judgments.
Corresponding to these phases are the following questions: (1) Where can or should litigation be
initiated? (2) Which law will the court apply? and (3) Where can the resulting judgment be
enforced?53

Analytically, jurisdiction and choice of law are two distinct concepts.54 Jurisdiction considers
whether it is fair to cause a defendant to travel to this state; choice of law asks the further
question whether the application of a substantive law which will determine the merits of the case
is fair to both parties. The power to exercise jurisdiction does not automatically give a state
constitutional authority to apply forum law. While jurisdiction and the choice of the lex fori will
often coincide, the "minimum contacts" for one do not always provide the necessary "significant
contacts" for the other.55 The question of whether the law of a state can be applied to a
transaction is different from the question of whether the courts of that state have jurisdiction to
enter a judgment.56

In this case, only the first phase is at issue jurisdiction. ςηαñrοblεš νιr†υ αl lαω lιbrαrÿ

Jurisdiction, however, has various aspects. For a court to validly exercise its power to adjudicate
a controversy, it must have jurisdiction over the plaintiff or the petitioner, over the defendant or
the respondent, over the subject matter, over the issues of the case and, in cases involving
property, over the res or the thing which is the subject of the litigation.57 In assailing the trial
court's jurisdiction herein, petitioners are actually referring to subject matter jurisdiction.

Jurisdiction over the subject matter in a judicial proceeding is conferred by the sovereign
authority which establishes and organizes the court. It is given only by law and in the manner
prescribed by law.58 It is further determined by the allegations of the complaint irrespective of
whether the plaintiff is entitled to all or some of the claims asserted therein.59 To succeed in its
motion for the dismissal of an action for lack of jurisdiction over the subject matter of the
claim,60 the movant must show that the court or tribunal cannot act on the matter submitted to it
because no law grants it the power to adjudicate the claims.61

In the instant case, petitioners, in their motion to dismiss, do not claim that the trial court is not
properly vested by law with jurisdiction to hear the subject controversy for, indeed, Civil Case
No. 00-0264 for specific performance and damages is one not capable of pecuniary estimation
and is properly cognizable by the RTC of Lipa City.62 What they rather raise as grounds to
question subject matter jurisdiction are the principles of lex loci celebrationis and lex contractus,
and the "state of the most significant relationship rule."
The Court finds the invocation of these grounds unsound.

Lex loci celebrationis relates to the "law of the place of the ceremony"63 or the law of the place
where a contract is made.64 The doctrine of lex contractus or lex loci contractus means the "law
of the place where a contract is executed or to be performed."65 It controls the nature,
construction, and validity of the contract66 and it may pertain to the law voluntarily agreed upon
by the parties or the law intended by them either expressly or implicitly.67 Under the "state of the
most significant relationship rule," to ascertain what state law to apply to a dispute, the court
should determine which state has the most substantial connection to the occurrence and the
parties. In a case involving a contract, the court should consider where the contract was made,
was negotiated, was to be performed, and the domicile, place of business, or place of
incorporation of the parties.68 This rule takes into account several contacts and evaluates them
according to their relative importance with respect to the particular issue to be resolved.69

Since these three principles in conflict of laws make reference to the law applicable to a dispute,
they are rules proper for the second phase, the choice of law.70 They determine which state's law
is to be applied in resolving the substantive issues of a conflicts problem.71 Necessarily, as the
only issue in this case is that of jurisdiction, choice-of-law rules are not only inapplicable but
also not yet called for.

Further, petitioners' premature invocation of choice-of-law rules is exposed by the fact that they
have not yet pointed out any conflict between the laws of Japan and ours. Before determining
which law should apply, first there should exist a conflict of laws situation requiring the
application of the conflict of laws rules.72 Also, when the law of a foreign country is invoked to
provide the proper rules for the solution of a case, the existence of such law must be pleaded and
proved.73

It should be noted that when a conflicts case, one involving a foreign element, is brought before
a court or administrative agency, there are three alternatives open to the latter in disposing of it:
(1) dismiss the case, either because of lack of jurisdiction or refusal to assume jurisdiction over
the case; (2) assume jurisdiction over the case and apply the internal law of the forum; or (3)
assume jurisdiction over the case and take into account or apply the law of some other State or
States.74 The court's power to hear cases and controversies is derived from the Constitution and
the laws. While it may choose to recognize laws of foreign nations, the court is not limited by
foreign sovereign law short of treaties or other formal agreements, even in matters regarding
rights provided by foreign sovereigns.75

Neither can the other ground raised, forum non conveniens,76 be used to deprive the trial court of
its jurisdiction herein. First, it is not a proper basis for a motion to dismiss because Section 1,
Rule 16 of the Rules of Court does not include it as a ground.77 Second, whether a suit should be
entertained or dismissed on the basis of the said doctrine depends largely upon the facts of the
particular case and is addressed to the sound discretion of the trial court.78 In this case, the RTC
decided to assume jurisdiction. Third, the propriety of dismissing a case based on this principle
requires a factual determination; hence, this conflicts principle is more properly considered a
matter of defense.79
Accordingly, since the RTC is vested by law with the power to entertain and hear the civil case
filed by respondent and the grounds raised by petitioners to assail that jurisdiction are
inappropriate, the trial and appellate courts correctly denied the petitioners' motion to dismiss.

WHEREFORE, premises considered, the Petition for Review on Certiorari is DENIED.

SO ORDERED.