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CONFLICT OF LAWS

1.)G.R. No. 162894

February 26, 2008

RAYTHEON INTERNATIONAL, INC., petitioner, vs.STOCKTON W.


ROUZIE, JR., respondent.
TINGA, J.:Before this Court is a petition for review on certiorari under
Rule 45 of the 1997 Rules of Civil Procedure which seeks the reversal
of the Decision1 and Resolution2 of the Court of Appeals in CA-G.R. SP
No. 67001 and the dismissal of the civil case filed by respondent
against petitioner with the trial court.
As culled from the records of the case, the following antecedents
appear:
Sometime in 1990, Brand Marine Services, Inc. (BMSI), a corporation
duly organized and existing under the laws of the State of Connecticut,
United States of America, and respondent Stockton W. Rouzie, Jr., an
American citizen, entered into a contract whereby BMSI hired
respondent as its representative to negotiate the sale of services in
several government projects in the Philippines for an agreed
remuneration of 10% of the gross receipts. On 11 March 1992,
respondent secured a service contract with the Republic of the
Philippines on behalf of BMSI for the dredging of rivers affected by the
Mt. Pinatubo eruption and mudflows.3
On 16 July 1994, respondent filed before the Arbitration Branch of the
National Labor Relations Commission (NLRC) a suit against BMSI and
Rust International, Inc. (RUST), Rodney C. Gilbert and Walter G.
Browning for alleged nonpayment of commissions, illegal termination
and breach of employment contract.4 On 28 September 1995, Labor
Arbiter Pablo C. Espiritu, Jr. rendered judgment ordering BMSI and
RUST to pay respondents money claims.5 Upon appeal by BMSI, the
NLRC reversed the decision of the Labor Arbiter and dismissed
respondents
complaint
on
the
ground
of
lack
of
jurisdiction.6 Respondent elevated the case to this Court but was
dismissed in a Resolution dated 26 November 1997. The Resolution
became final and executory on 09 November 1998.
On 8 January 1999, respondent, then a resident of La Union, instituted
an action for damages before the Regional Trial Court (RTC) of
Bauang, La Union. The Complaint,7 docketed as Civil Case No. 1192BG, named as defendants herein petitioner Raytheon International,
Inc. as well as BMSI and RUST, the two corporations impleaded in the
earlier labor case. The complaint essentially reiterated the allegations
in the labor case that BMSI verbally employed respondent to negotiate
the sale of services in government projects and that respondent was
not paid the commissions due him from the Pinatubo dredging project
which he secured on behalf of BMSI. The complaint also averred that
BMSI and RUST as well as petitioner itself had combined and
functioned as one company.
In its Answer,8 petitioner alleged that contrary to respondents claim, it
was a foreign corporation duly licensed to do business in the
Philippines and denied entering into any arrangement with respondent
or paying the latter any sum of money. Petitioner also denied
combining with BMSI and RUST for the purpose of assuming the
alleged obligation of the said companies.9 Petitioner also referred to
the NLRC decision which disclosed that per the written agreement
between respondent and BMSI and RUST, denominated as "Special
Sales Representative Agreement," the rights and obligations of the
parties shall be governed by the laws of the State of
Connecticut.10 Petitioner sought the dismissal of the complaint on
grounds of failure to state a cause of action and forum non

conveniens and
counterclaim.11

prayed

for

damages

by

way

of

compulsory

On 18 May 1999, petitioner filed an Omnibus Motion for Preliminary


Hearing Based on Affirmative Defenses and for Summary
Judgment12 seeking the dismissal of the complaint on grounds of forum
non conveniens and failure to state a cause of action. Respondent
opposed the same. Pending the resolution of the omnibus motion, the
deposition of Walter Browning was taken before the Philippine
Consulate General in Chicago.13
In an Order14 dated 13 September 2000, the RTC denied petitioners
omnibus motion. The trial court held that the factual allegations in the
complaint, assuming the same to be admitted, were sufficient for the
trial court to render a valid judgment thereon. It also ruled that the
principle of forum non conveniens was inapplicable because the trial
court could enforce judgment on petitioner, it being a foreign
corporation licensed to do business in the Philippines.15
Petitioner filed a Motion for Reconsideration16 of the order, which
motion was opposed by respondent.17 In an Order dated 31 July
2001,18 the trial court denied petitioners motion. Thus, it filed a Rule 65
Petition19 with the Court of Appeals praying for the issuance of a writ of
certiorari and a writ of injunction to set aside the twin orders of the trial
court dated 13 September 2000 and 31 July 2001 and to enjoin the
trial court from conducting further proceedings.20
On 28 August 2003, the Court of Appeals rendered the assailed
Decision21 denying the petition for certiorari for lack of merit. It also
denied petitioners motion for reconsideration in the assailed
Resolution issued on 10 March 2004.22
The appellate court held that although the trial court should not have
confined itself to the allegations in the complaint and should have also
considered evidence aliunde in resolving petitioners omnibus motion,
it found the evidence presented by petitioner, that is, the deposition of
Walter Browning, insufficient for purposes of determining whether the
complaint failed to state a cause of action. The appellate court also
stated that it could not rule one way or the other on the issue of
whether the corporations, including petitioner, named as defendants in
the case had indeed merged together based solely on the evidence
presented by respondent. Thus, it held that the issue should be
threshed out during trial.23 Moreover, the appellate court deferred to the
discretion of the trial court when the latter decided not to desist from
assuming jurisdiction on the ground of the inapplicability of the
principle of forum non conveniens.
Hence, this petition raising the following issues:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
REFUSING TO DISMISS THE COMPLAINT FOR FAILURE
TO STATE A CAUSE OF ACTION AGAINST RAYTHEON
INTERNATIONAL, INC.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
REFUSING TO DISMISS THE COMPLAINT ON THE
GROUND OF FORUM NON CONVENIENS.24
Incidentally, respondent failed to file a comment despite repeated
notices. The Ceferino Padua Law Office, counsel on record for
respondent, manifested that the lawyer handling the case, Atty. Rogelio
Karagdag, had severed relations with the law firm even before the filing
of the instant petition and that it could no longer find the whereabouts
of Atty. Karagdag or of respondent despite diligent efforts. In a

Resolution25 dated 20 November 2006, the Court resolved to dispense


with the filing of a comment.

court of its jurisdiction over Civil Case No. No. 1192-BG and the parties
involved.

The instant petition lacks merit.

Moreover, the propriety of dismissing a case based on the principle


of forum non conveniens requires a factual determination; hence, it is
more properly considered as a matter of defense. While it is within the
discretion of the trial court to abstain from assuming jurisdiction on this
ground, it should do so only after vital facts are established, to
determine whether special circumstances require the courts
desistance.35

Petitioner mainly asserts that the written contract between respondent


and BMSI included a valid choice of law clause, that is, that the
contract shall be governed by the laws of the State of Connecticut. It
also mentions the presence of foreign elements in the dispute
namely, the parties and witnesses involved are American corporations
and citizens and the evidence to be presented is located outside the
Philippines that renders our local courts inconvenient forums.
Petitioner theorizes that the foreign elements of the dispute necessitate
the immediate application of the doctrine of forum non conveniens.
Recently in Hasegawa v. Kitamura,26 the Court outlined three
consecutive phases involved in judicial resolution of conflicts-of-laws
problems, namely: jurisdiction, choice of law, and recognition and
enforcement of judgments. Thus, in the instances 27 where the Court
held that the local judicial machinery was adequate to resolve
controversies with a foreign element, the following requisites had to be
proved: (1) that the Philippine Court is one to which the parties may
conveniently resort; (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 the power to enforce its
decision.28
On the matter of jurisdiction over a conflicts-of-laws problem where the
case is filed in a Philippine court and where the court has jurisdiction
over the subject matter, the parties and the res, it may or can proceed
to try the case even if the rules of conflict-of-laws or the convenience of
the parties point to a foreign forum. This is an exercise of sovereign
prerogative of the country where the case is filed.29
Jurisdiction over the nature and subject matter of an action is conferred
by the Constitution and the law 30 and by the material allegations in the
complaint, irrespective of whether or not the plaintiff is entitled to
recover all or some of the claims or reliefs sought therein. 31 Civil Case
No. 1192-BG is an action for damages arising from an alleged breach
of contract. Undoubtedly, the nature of the action and the amount of
damages prayed are within the jurisdiction of the RTC.
As regards jurisdiction over the parties, the trial court acquired
jurisdiction over herein respondent (as party plaintiff) upon the filing of
the complaint. On the other hand, jurisdiction over the person of
petitioner (as party defendant) was acquired by its voluntary
appearance in court.32
That the subject contract included a stipulation that the same shall be
governed by the laws of the State of Connecticut does not suggest that
the Philippine courts, or any other foreign tribunal for that matter, are
precluded from hearing the civil action. Jurisdiction and choice of law
are two distinct concepts. Jurisdiction considers whether it is fair to
cause a defendant to travel to this state; choice of law asks the further
question whether the application of a substantive law which will
determine the merits of the case is fair to both parties. 33 The choice of
law stipulation will become relevant only when the substantive issues
of the instant case develop, that is, after hearing on the merits
proceeds before the trial court.
Under the doctrine of forum non conveniens, a court, in conflicts-oflaws cases, may refuse impositions on its jurisdiction where it is not the
most "convenient" or available forum and the parties are not precluded
from seeking remedies elsewhere.34 Petitioners averments of the
foreign elements in the instant case are not sufficient to oust the trial

Finding no grave abuse of discretion on the trial court, the Court of


Appeals respected its conclusion that it can assume jurisdiction over
the dispute notwithstanding its foreign elements. In the same manner,
the Court defers to the sound discretion of the lower courts because
their findings are binding on this Court.
Petitioner also contends that the complaint in Civil Case No. 1192-BG
failed to state a cause of action against petitioner. Failure to state a
cause of action refers to the insufficiency of allegation in the
pleading.36 As a general rule, the elementary test for failure to state a
cause of action is whether the complaint alleges facts which if true
would justify the relief demanded.37
The complaint alleged that petitioner had combined with BMSI and
RUST to function as one company. Petitioner contends that the
deposition of Walter Browning rebutted this allegation. On this score,
the resolution of the Court of Appeals is instructive, thus:
x x x Our examination of the deposition of Mr. Walter
Browning as well as other documents produced in the
hearing shows that these evidence aliunde are not quite
sufficient for us to mete a ruling that the complaint fails to
state a cause of action.
Annexes "A" to "E" by themselves are not substantial,
convincing and conclusive proofs that Raytheon Engineers
and Constructors, Inc. (REC) assumed the warranty
obligations of defendant Rust International in the Makar Port
Project in General Santos City, after Rust International
ceased to exist after being absorbed by REC. Other
documents already submitted in evidence are likewise
meager to preponderantly conclude that Raytheon
International, Inc., Rust International[,] Inc. and Brand
Marine Service, Inc. have combined into one company, so
much so that Raytheon International, Inc., the surviving
company (if at all) may be held liable for the obligation of
BMSI to respondent Rouzie for unpaid commissions. Neither
these documents clearly speak otherwise.38
As correctly pointed out by the Court of Appeals, the question of
whether petitioner, BMSI and RUST merged together requires the
presentation of further evidence, which only a full-blown trial on the
merits can afford.
WHEREFORE, the instant petition for review on certiorari
is DENIED. The Decision and Resolution of the Court of Appeals in
CA-G.R. SP No. 67001 are hereby AFFIRMED. Costs against
petitioner.
2.) G.R. No. 72494 August 11, 1989
HONGKONG
AND
SHANGHAI
BANKING
CORPORATION, petitioner, vs.JACK ROBERT SHERMAN, DEODATO
RELOJ and THE INTERMEDIATE APPELLATE COURT, respondents.

MEDIALDEA, J.:

virtue of the provision in the Guarantee (the actionable document)


which reads

This is a petition for review on certiorari of the decision of the


Intermediate Appellate Court (now Court of Appeals) dated August 2,
1985, which reversed the order of the Regional Trial Court dated
February 28,1985 denying the Motion to Dismiss filed by private
respondents Jack Robert Sherman and Deodato Reloj.
A complaint for collection of a sum of money (pp. 49-52, Rollo) was
filed by petitioner Hongkong and Shanghai Banking Corporation
(hereinafter referred to as petitioner BANK) against private
respondents Jack Robert Sherman and Deodato Reloj, docketed as
Civil Case No. Q-42850 before the Regional Trial Court of Quezon City,
Branch 84.
It appears that sometime in 1981, Eastern Book Supply Service PTE,
Ltd. (hereinafter referred to as COMPANY), a company incorporated in
Singapore applied with, and was granted by, the Singapore branch of
petitioner BANK an overdraft facility in the maximum amount of
Singapore dollars 200,000.00 (which amount was subsequently
increased to Singapore dollars 375,000.00) with interest at 3% over
petitioner BANK prime rate, payable monthly, on amounts due under
said overdraft facility; as a security for the repayment by the
COMPANY of sums advanced by petitioner BANK to it through the
aforesaid overdraft facility, on October 7, 1982, both private
respondents and a certain Robin de Clive Lowe, all of whom were
directors of the COMPANY at such time, executed a Joint and Several
Guarantee (p. 53, Rollo) in favor of petitioner BANK whereby private
respondents and Lowe agreed to pay, jointly and severally, on demand
all sums owed by the COMPANY to petitioner BANK under the
aforestated overdraft facility.
The Joint and Several Guarantee provides, inter alia, that:
This guarantee and all rights, obligations and
liabilities arising hereunder shall be construed and
determined under and may be enforced in
accordance with the laws of the Republic of
Singapore. We hereby agree that the Courts of
Singapore shall have jurisdiction over all disputes
arising under this guarantee. ... (p. 33-A,Rollo).
The COMPANY failed to pay its obligation. Thus, petitioner BANK
demanded payment of the obligation from private respondents,
conformably with the provisions of the Joint and Several Guarantee.
Inasmuch as the private respondents still failed to pay, petitioner BANK
filed the above-mentioned complaint.
On December 14,1984, private respondents filed a motion to dismiss
(pp 54-56, Rollo) which was opposed by petitioner BANK (pp. 5862, Rollo). Acting on the motion, the trial court issued an order dated
February 28, 1985 (pp, 64-65, Rollo), which read as follows:
In a Motion to Dismiss filed on December 14, 1984, the defendants
seek the dismissal of the complaint on two grounds, namely:
1. That the court has no jurisdiction over the subject matter of the
complaint; and
2. That the court has no jurisdiction over the persons of the
defendants.
In the light of the Opposition thereto filed by plaintiff, the Court finds no
merit in the motion. "On the first ground, defendants claim that by

This guarantee and all rights, obligations and liabilities arising


hereunder shall be construed and determined under and may be
enforced in accordance with the laws of the Republic of Singapore. We
hereby agree that the courts in Singapore shall have jurisdiction over
all disputes arising under this guarantee,
the Court has no jurisdiction over the subject matter of the case. The
Court finds and concludes otherwise. There is nothing in the
Guarantee which says that the courts of Singapore shall have
jurisdiction to the exclusion of the courts of other countries or nations.
Also, it has long been established in law and jurisprudence that
jurisdiction of courts is fixed by law; it cannot be conferred by the will,
submission or consent of the parties.
On the second ground, it is asserted that defendant Robert' , Sherman
is not a citizen nor a resident of the Philippines. This argument holds
no water. Jurisdiction over the persons of defendants is acquired by
service of summons and copy of the complaint on them. There has
been a valid service of summons on both defendants and in fact the
same is admitted when said defendants filed a 'Motion for Extension of
Time to File Responsive Pleading on December 5, 1984.
WHEREFORE, the Motion to Dismiss is hereby DENIED.SO
ORDERED.
A motion for reconsideration of the said order was filed by private
respondents which was, however, denied (p. 66, Rollo).
Private respondents then filed before the respondent Intermediate
Appellate Court (now Court of Appeals) a petition for prohibition with
preliminary injunction and/or prayer for a restraining order (pp. 3948, Rollo). On August 2, 1985, the respondent Court rendered a
decision (p. 37, Rollo), the dispositive portion of which reads:
WHEREFORE, the petition for prohibition with preliminary injuction is
hereby GRANTED. The respondent Court is enjoined from taking
further cognizance of the case and to dismiss the same for filing with
the proper court of Singapore which is the proper forum. No costs.
SO ORDERED.
The motion for reconsideration was denied (p. 38, Rollo), hence, the
present petition.
The main issue is whether or not Philippine courts have jurisdiction
over the suit.
The controversy stems from the interpretation of a provision in the
Joint and Several Guarantee, to wit:
(14) This guarantee and all rights, obligations and liabilites arising
hereunder shall be construed and determined under and may be
enforced in accordance with the laws of the Republic of Singapore. We
hereby agree that the Courts in Singapore shall have jurisdiction over
all disputes arising under this guarantee. ... (p. 53-A, Rollo)
In rendering the decision in favor of private respondents, the Court of
Appeals made, the following observations (pp. 35-36,Rollo):

There are significant aspects of the case to which our attention is


invited. The loan was obtained by Eastern Book Service PTE, Ltd., a
company incorporated in Singapore. The loan was granted by
the SingaporeBranch of Hongkong and Shanghai Banking Corporation.
The Joint and Several Guarantee was also concluded in Singapore.
The loan was in Singaporean dollars and the repayment thereof also in
the same currency. The transaction, to say the least, took place in
Singporean setting in which the law of that country is the measure by
which that relationship of the parties will be governed.
xxx xxx xxx
Contrary to the position taken by respondents, the guarantee
agreement compliance that any litigation will be before the courts of
Singapore and that the rights and obligations of the parties shall be
construed and determined in accordance with the laws of the Republic
of Singapore. A closer examination of paragraph 14 of the Guarantee
Agreement upon which the motion to dismiss is based, employs in
clear and unmistakeable (sic) terms the word 'shall' which under
statutory construction is mandatory.
Thus it was ruled that:
... the word 'shall' is imperative, operating to
impose a duty which may be enforced (Dizon vs.
Encarnacion, 9 SCRA 714).lwph1.t
There is nothing more imperative and restrictive
than what the agreement categorically commands
that 'all rights, obligations, and liabilities arising
hereunder shall be construed and determined
under and may be enforced in accordance with
the laws of the Republic of Singapore.'
While it is true that "the transaction took place in Singaporean setting"
and that the Joint and Several Guarantee contains a choice-of-forum
clause, the very essence of due process dictates that the stipulation
that "[t]his guarantee and all rights, obligations and liabilities arising
hereunder shall be construed and determined under and may be
enforced in accordance with the laws of the Republic of Singapore. We
hereby agree that the Courts in Singapore shall have jurisdiction over
all disputes arising under this guarantee" be liberally construed. One
basic principle underlies all rules of jurisdiction in International Law: a
State does not have jurisdiction in the absence of some reasonable
basis for exercising it, whether the proceedings are in rem quasi in
rem or in personam. To be reasonable, the jurisdiction must be based
on some minimum contacts that will not offend traditional notions of fair
play and substantial justice (J. Salonga, Private International Law,
1981, p. 46). Indeed, as pointed-out by petitioner BANK at the outset,
the instant case presents a very odd situation. In the ordinary habits of
life, anyone would be disinclined to litigate before a foreign tribunal,
with more reason as a defendant. However, in this case, private
respondents are Philippine residents (a fact which was not disputed by
them) who would rather face a complaint against them before a foreign
court and in the process incur considerable expenses, not to mention
inconvenience, than to have a Philippine court try and resolve the
case. Private respondents' stance is hardly comprehensible, unless
their ultimate intent is to evade, or at least delay, the payment of a just
obligation.
The defense of private respondents that the complaint should have
been filed in Singapore is based merely on technicality. They did not
even claim, much less prove, that the filing of the action here will cause
them any unnecessary trouble, damage, or expense. On the other
hand, there is no showing that petitioner BANK filed the action here
just to harass private respondents.

In the case of Polytrade Corporation vs. Blanco, G.R. No. L-27033,


October 31, 1969, 30 SCRA 187, it was ruled:
... An accurate reading, however, of the stipulation,
'The parties agree to sue and be sued in the
Courts of Manila,' does not preclude the filing of
suits in the residence of plaintiff or defendant. The
plain meaning is that the parties merely consented
to be sued in Manila. Qualifying or restrictive
words which would indicate that Manila and Manila
alone is the venue are totally absent therefrom.
We cannot read into that clause that plaintiff and
defendant bound themselves to file suits with
respect to the last two transactions in question
only or exclusively in Manila. For, that agreement
did not change or transfer venue. It simply is
permissive. The parties solely agreed to add the
courts of Manila as tribunals to which they may
resort. They did not waive their right to pursue
remedy in the courts specifically mentioned in
Section 2(b) of Rule 4. Renuntiatio non
praesumitur.
This ruling was reiterated in the case of Neville Y. Lamis Ents., et al. v.
Lagamon, etc., et al., G.R. No. 57250, October 30, 1981, 108 SCRA
740, where the stipulation was "[i]n case of litigation, jurisdiction shall
be vested in the Court of Davao City." We held:
Anent the claim that Davao City had been
stipulated as the venue, suffice it to say that a
stipulation as to venue does not preclude the filing
of suits in the residence of plaintiff or defendant
under Section 2 (b), Rule 4, Rules of Court, in the
absence of qualifying or restrictive words in the
agreement which would indicate that the place
named is the only venue agreed upon by the
parties.
Applying the foregoing to the case at bar, the parties did not thereby
stipulate that only the courts of Singapore, to the exclusion of all the
rest, has jurisdiction. Neither did the clause in question operate to
divest Philippine courts of jurisdiction. In International Law, jurisdiction
is often defined as the light of a State to exercise authority over
persons and things within its boundaries subject to certain exceptions.
Thus, a State does not assume jurisdiction over travelling sovereigns,
ambassadors and diplomatic representatives of other States, and
foreign military units stationed in or marching through State territory
with the permission of the latter's authorities. This authority, which finds
its source in the concept of sovereignty, is exclusive within and
throughout the domain of the State. A State is competent to take hold
of any judicial matter it sees fit by making its courts and agencies
assume jurisdiction over all kinds of cases brought before them (J.
Salonga, Private International Law, 1981, pp. 37-38).lwph1.t
As regards the issue on improper venue, petitioner BANK avers that
the objection to improper venue has been waived. However, We agree
with the ruling of the respondent Court that:
While in the main, the motion to dismiss fails to
categorically use with exactitude the words
'improper venue' it can be perceived from the
general thrust and context of the motion that what
is meant is improper venue, The use of the word
'jurisdiction' was merely an attempt to copy-cat the
same word employed in the guarantee agreement
but conveys the concept of venue. Brushing aside

all technicalities, it would appear that jurisdiction


was used loosely as to be synonymous with
venue. It is in this spirit that this Court must view
the motion to dismiss. ... (p. 35, Rollo).
At any rate, this issue is now of no moment because We hold that
venue here was properly laid for the same reasons discussed above.

First Cause of Action

P60,845.67, with interest thereon a

Second Cause of Action

P51,952.55, with interest thereon a

Third Cause of Action

P53,973.07, with interest thereon a

Fourth Cause of Action

P41,075.22, with interest thereon a

The respondent Court likewise ruled that (pp. 36-37, Rollo):


... In a conflict problem, a court will simply refuse
to entertain the case if it is not authorized by law to
exercise jurisdiction. And even if it is so
authorized, it may still refuse to entertain the case
by applying the principle offorum
non
conveniens. ...
However, whether a suit should be entertained or dismissed on the
basis of the principle of forum non conveniensdepends largely upon
the facts of the particular case and is addressed to the sound
discretion of the trial court (J. Salonga, Private International Law, 1981,
p. 49).lwph1.t Thus, the respondent Court should not have relied
on such principle.
Although the Joint and Several Guarantee prepared by petitioner
BANK is a contract of adhesion and that consequently, it cannot be
permitted to take a stand contrary to the stipulations of the contract,
substantial bases exist for petitioner Bank's choice of forum, as
discussed earlier.
Lastly, private respondents allege that neither the petitioner based at
Hongkong nor its Philippine branch is involved in the transaction sued
upon. This is a vain attempt on their part to further thwart the
proceedings below inasmuch as well-known is the rule that a
defendant cannot plead any defense that has not been interposed in
the court below.
ACCORDINGLY, the decision of the respondent Court is hereby
REVERSED and the decision of the Regional Trial Court is
REINSTATED, with costs against private respondents. This decision is
immediately executory.
3. G.R. No. L-27033

October 31, 1969

POLYTRADE
CORPORATION, plaintiff-appellee, vs.VICTORIANO
BLANCO, defendant-appellant.
SANCHEZ, J.:
Suit before the Court of First Instance of Bulacan on four causes of
action to recover the purchase price of rawhide delivered by plaintiff to
defendant.1 Plaintiff corporation has its principal office and place of
business in Makati, Rizal. Defendant is a resident of Meycauayan,
Bulacan. Defendant moved to dismiss upon the ground of improper
venue. He claims that by contract suit may only be lodged in the courts
of Manila. The Bulacan court overruled him. He did not answer the
complaint. In consequence, a default judgment was rendered against
him on September 21, 1966, thus:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and
against defendant ordering defendant to pay plaintiff the following
amounts:

In addition, defendant shall pay plaintiff attorney's fees


amounting to 25% of the principal amount due in each cause
of action, and the costs of the suit. The amount of P400.00
shall be deducted from the total amount due plaintiff in
accordance with this judgment.
Defendant appealed.
1. The forefront question is whether or not venue was properly laid in
the province of Bulacan where defendant is a resident.
Section 2 (b), Rule 4 of the Rules of Court on venue of personal
actions triable by courts of first instance and this is one provides
that such "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 plaintiffs resides, at the election of the plaintiff." Qualifying
this provision in Section 3 of the same Rule which states that venue
may be stipulated by written agreement "By written agreement of
the parties the venue of an action may be changed or transferred from
one province to another."
Defendant places his case upon Section 3 of Rule 4 just quoted.
According to defendant, plaintiff and defendant, by written contracts
covering the four causes of action, stipulated that: "The parties agree
to sue and be sued in the Courts of Manila." This agreement is
valid.3 Defendant says that because of such covenant he can only be
sued in the courts of Manila. We are thus called upon to shake
meaning from the terms of the agreement just quoted.
But first to the facts. No such stipulation appears in the contracts
covering the first two causes of action. The general rule set forth in
Section 2 (b), Rule 4, governs, and as to said two causes of action,
venue was properly laid in Bulacan, the province of defendant's
residence.
The stipulation adverted to is only found in the agreements covering
the third and fourth causes of action. An accurate reading, however, of
the stipulation, "The parties agree to sue and be sued in the Courts of
Manila," does not preclude the filing of suits in the residence of plaintiff
or defendant. The plain meaning is that the parties merely consented
to be sued in Manila. Qualifying or restrictive words which would
indicate that Manila and Manila alone is the venue are totally absent
therefrom. We cannot read into that clause that plaintiff and defendant
bound themselves to file suits with respect to the last two transactions
in question only or exclusively in Manila. For, that agreement did not
change or transfer venue. It simply is permissive. The parties solely
agreed to add the courts of Manila as tribunals to which they may
resort. They did not waive their right to pursue remedy in the courts
specifically mentioned in Section 2(b) of Rule 4. Renuntiatio non
praesumitur.

Illuminating on this point is Engel vs. Shubert Theatrical Co., 151


N.Y.S. 593, 594. And this, became there the stipulation as to venue is
along lines similar to the present. Said stipulation reads: "In case of
dispute, both contracting parties agree to submit to the jurisdiction of
the Vienna courts." And the ruling is: "By the clause in question the
parties do not agree to submit their disputes to the jurisdiction of the
Viennese court, and to those courts only. There is nothing exclusive in
the language used. They do agree to submit to the Viennese
jurisdiction, but they say not a word in restriction of the jurisdiction of
courts elsewhere; and whatever may be said on the subject of the
legality of contracts to submit controversies to courts of certain
jurisdictions exclusively, it is entirely plain that such agreements should
be strictly construed, and should not be extended by implication."
Venue here was properly laid.
2. Defendant next challenges the lower court's grant to plaintiff of
interest at the rate of one per centum per month. Defendant says that
no such stipulation as to right of interest appears in the sales
confirmation orders which provided: "TERMS 60 days after delivery
with interest accruing on postdated cheques beyond 30 days." The
flaw in this argument lies in that the interest and the rate thereof are
expressly covenanted in the covering trust receipts executed by
defendant in favor of plaintiff, as follows: "All obligations of the
undersigned under this agreement of trust shall bear interest at the
rate of one per centum (1%) per month from the date due until paid."
On this score, we find no error.
3. Defendant protests the award of attorneys' fees which totals
P51,961.63, i.e., 25% of the total principal indebtedness of
P207,846.51 (exclusive of interest). Defendant's thesis is that the
foregoing sum is "exorbitant and unconscionable."
To be borne in mind is that the attorneys' fees here provided is not,
strictly speaking, the attorneys' fees recoverable as between attorney
and client spoken of and regulated by the Rules of Court. Rather, the
attorneys' fees here are in the nature of liquidated damages and the
stipulation therefor is aptly called a penal clause. 4 It has been said that
so long as such stipulation does not contravene law, morals, or public
order, it is strictly binding upon defendant. 5 The attorneys' fees so
provided are awarded in favor of the litigant, not his counsel. It is the
litigant, not counsel, who is the judgment creditor entitled to enforce
the judgment by execution.6
The governing law then is Article 2227 of the Civil Code, viz.:
"Liquidated damages, whether intended as an indemnity or a penalty,
shall be equitably reduced if they are iniquitous or unconscionable."
For this reason, we do not really have to strictly view the
reasonableness of the attorneys' fees in the light of such factors as the
amount and character of the services rendered, the nature and
importance of the litigation, and the professional character and the
social standing of the attorney. We do concede, however, that these
factors may be an aid in the determination of the iniquity or
unconscionableness of attorneys' fees as liquidated damages.
May the attorneys' fees (P51,961.63) here granted be tagged as
iniquitous or unconscionable? Upon the circumstances, our answer is
in the negative. Plaintiff's lawyers concededly are of high standing.
More important is that this case should not have gone to court. It could
have been easily avoided had defendant been faithful in complying
with his obligations. It is not denied that the rawhide was converted into
leather and sold by defendant. He raises no defense. In fact, he did not
even answer the complaint in the lower court, and was thus declared in
default. Nor does he deny the principal liability. Add to all these the fact
that the writ of attachment issued below upon defendant's properties
yielded no more than P400 and the picture is complete. The continued
maintenance by defendant of the suit is plainly intended for delay. The
attorneys' fees awarded cannot be called iniquitous or unconscionable.
In the very recent case of Universal Motors Corporation vs. Dy Hian
Tat (1969), 28 SCRA 161, 170, we allowed attorneys' fees in the form
of liquidated damages at the rate of 25% of the total amount of the
indebtedness. Here, the trial court has already reduced the attorneys'

fees from the stipulated 25% "of the total amount involved, principal
and interest, then unpaid" to only 25% of the principal amount due.
There is no reason why such judgment should be disturbed.
FOR THE REASON GIVEN, the appealed judgment is hereby affirmed,
except that interest granted, in reference to the fourth cause of action,
should start from March 24, 1965.
Costs against defendant-appellant. So ordered.
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. 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.

On November 23, 1993, Morada filed a Complaint [13] for


damages against SAUDIA, and Khaled Al-Balawi (Al- Balawi), its
country manager.

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.

On February 10, 1994, Morada filed her Opposition (To Motion to


Dismiss)[15] Saudia filed a reply[16] thereto on March 3, 1994.

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 SAUDIAs Manila manager,
Aslam Saleemi, that the investigation was routinary and
that it posed no danger to her.

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 Defendants Motion for Reconsideration).

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]

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
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.

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 SAUDIAs 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
attorneys 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]

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.

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 SAUDIAs 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 Complaints 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:

Petitioner received on April 22, 1996 the April 10, 1996 decision in CAG.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 respondents
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.

I
The trial court has no jurisdiction to hear and try Civil Case No. Q-9318394 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 petitioners 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.

As stated by private respondent


Complaint[38] dated June 23, 1994:

in

her

Amended

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.
xxxxxxxxx
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 SAUDIAs 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.
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]
[41]

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 respondents 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 respondents 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.

[45]

Thus, in Philippine National Bank (PNB) vs. Court of Appeals,


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 respondents
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:
xxxxxxxxx
(8) In all other cases in which demand, exclusive of interest, damages
of whatever kind, attorneys 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)
xxxxxxxxx
And following Section 2 (b), Rule 4 of the Revised Rules of
Courtthe venue, Quezon City, is appropriate:

the premises. Undeniably, petitioner SAUDIA has effectively submitted


to the trial courts 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 courts jurisdiction
over defendants person, prayed for dismissal of the
complaint on the ground that plaintiffs 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 latters
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:

SEC. 2 Venue in Courts of First Instance. [Now Regional Trial


Court]
(a) x x x x x x x x x
(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.

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 choiceof-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]

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.

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]

The records show that petitioner SAUDIA has filed several


motions[50] praying for the dismissal of Moradas 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

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 forithe law of the forumis
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 respondents 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. Petitioners 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
petitioners 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 petitioners 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 courts denial of defendants (herein
petitioners) 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 countrys
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.
5-8
G.R. No. 143581

January 7, 2008

KOREA TECHNOLOGIES CO., LTD., petitioner, vs.HON. ALBERTO A.


LERMA, in his capacity as Presiding Judge of Branch 256 of Regional
Trial Court of Muntinlupa City, and PACIFIC GENERAL STEEL
MANUFACTURING CORPORATION, respondents.

ship the machinery and facilities necessary for manufacturing LPG


cylinders for which PGSMC would pay USD 1,224,000. KOGIES would
install and initiate the operation of the plant for which PGSMC bound
itself to pay USD 306,000 upon the plants production of the 11-kg.
LPG cylinder samples. Thus, the total contract price amounted to USD
1,530,000.
On October 14, 1997, PGSMC entered into a Contract of Lease 3 with
Worth Properties, Inc. (Worth) for use of Worths 5,079-square meter
property with a 4,032-square meter warehouse building to house the
LPG manufacturing plant. The monthly rental was PhP 322,560
commencing on January 1, 1998 with a 10% annual increment clause.
Subsequently, the machineries, equipment, and facilities for the
manufacture of LPG cylinders were shipped, delivered, and installed in
the Carmona plant. PGSMC paid KOGIES USD 1,224,000.
However, gleaned from the Certificate4 executed by the parties on
January 22, 1998, after the installation of the plant, the initial operation
could not be conducted as PGSMC encountered financial difficulties
affecting the supply of materials, thus forcing the parties to agree that
KOGIES would be deemed to have completely complied with the terms
and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for the installation and initial
operation of the plant, PGSMC issued two postdated checks: (1) BPI
Check No. 0316412 dated January 30, 1998 for PhP 4,500,000; and
(2) BPI Check No. 0316413 dated March 30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored for the
reason "PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a
demand letter6 to PGSMC threatening criminal action for violation of
Batas Pambansa Blg. 22 in case of nonpayment. On the same date,
the wife of PGSMCs President faxed a letter dated May 7, 1998 to
KOGIES President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different brand of
hydraulic press from that agreed upon but it had not delivered several
equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two checks it issued
KOGIES were fully funded but the payments were stopped for reasons
previously made known to KOGIES.7

VELASCO, JR., J.:


In our jurisdiction, the policy is to favor alternative methods of resolving
disputes, particularly in civil and commercial disputes. Arbitration along
with mediation, conciliation, and negotiation, being inexpensive,
speedy and less hostile methods have long been favored by this Court.
The petition before us puts at issue an arbitration clause in a contract
mutually agreed upon by the parties stipulating that they would submit
themselves to arbitration in a foreign country. Regrettably, instead of
hastening the resolution of their dispute, the parties wittingly or
unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean
corporation which is engaged in the supply and installation of Liquefied
Petroleum Gas (LPG) Cylinder manufacturing plants, while private
respondent Pacific General Steel Manufacturing Corp. (PGSMC) is a
domestic corporation.
On March 5, 1997, PGSMC and KOGIES executed a Contract 1
whereby KOGIES would set up an LPG Cylinder Manufacturing Plant
in Carmona, Cavite. The contract was executed in the Philippines. On
April 7, 1997, the parties executed, in Korea, an Amendment for
Contract No. KLP-970301 dated March 5, 1997 2 amending the terms of
payment. The contract and its amendment stipulated that KOGIES will

On June 1, 1998, PGSMC informed KOGIES that PGSMC was


canceling their Contract dated March 5, 1997 on the ground that
KOGIES had altered the quantity and lowered the quality of the
machineries and equipment it delivered to PGSMC, and that PGSMC
would dismantle and transfer the machineries, equipment, and facilities
installed in the Carmona plant. Five days later, PGSMC filed before the
Office of the Public Prosecutor an Affidavit-Complaint for Estafa
docketed as I.S. No. 98-03813 against Mr. Dae Hyun Kang, President
of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that
PGSMC could not unilaterally rescind their contract nor dismantle and
transfer the machineries and equipment on mere imagined violations
by KOGIES. It also insisted that their disputes should be settled by
arbitration as agreed upon in Article 15, the arbitration clause of their
contract.
On June 23, 1998, PGSMC again wrote KOGIES reiterating the
contents of its June 1, 1998 letter threatening that the machineries,
equipment, and facilities installed in the plant would be dismantled and
transferred on July 4, 1998. Thus, on July 1, 1998, KOGIES instituted
an Application for Arbitration before the Korean Commercial Arbitration

Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as


amended.

failed to procure raw materials due to lack of funds. KOGIES, relying


on Chung Fu Industries (Phils.), Inc. v. Court of Appeals,12 insisted that
the arbitration clause was without question valid.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance,


docketed as Civil Case No. 98-1178 against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). The RTC granted a
temporary restraining order (TRO) on July 4, 1998, which was
subsequently extended until July 22, 1998. In its complaint, KOGIES
alleged that PGSMC had initially admitted that the checks that were
stopped were not funded but later on claimed that it stopped payment
of the checks for the reason that "their value was not received" as the
former allegedly breached their contract by "altering the quantity and
lowering the quality of the machinery and equipment" installed in the
plant and failed to make the plant operational although it earlier
certified to the contrary as shown in a January 22, 1998 Certificate.
Likewise, KOGIES averred that PGSMC violated Art. 15 of their
Contract, as amended, by unilaterally rescinding the contract without
resorting to arbitration. KOGIES also asked that PGSMC be restrained
from dismantling and transferring the machinery and equipment
installed in the plant which the latter threatened to do on July 4, 1998.

After KOGIES filed a Supplemental Memorandum with Motion to


Dismiss13 answering PGSMCs memorandum of July 22, 1998 and
seeking dismissal of PGSMCs counterclaims, KOGIES, on August 4,
1998, filed its Motion for Reconsideration14 of the July 23, 1998 Order
denying its application for an injunctive writ claiming that the contract
was not merely for machinery and facilities worth USD 1,224,000 but
was for the sale of an "LPG manufacturing plant" consisting of "supply
of all the machinery and facilities" and "transfer of technology" for a
total contract price of USD 1,530,000 such that the dismantling and
transfer of the machinery and facilities would result in the dismantling
and transfer of the very plant itself to the great prejudice of KOGIES as
the still unpaid owner/seller of the plant. Moreover, KOGIES points out
that the arbitration clause under Art. 15 of the Contract as amended
was a valid arbitration stipulation under Art. 2044 of the Civil Code and
as held by this Court in Chung Fu Industries (Phils.), Inc.15

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that


KOGIES was not entitled to the TRO since Art. 15, the arbitration
clause, was null and void for being against public policy as it ousts the
local courts of jurisdiction over the instant controversy.

In the meantime, PGSMC filed a Motion for Inspection of Things 16 to


determine whether there was indeed alteration of the quantity and
lowering of quality of the machineries and equipment, and whether
these were properly installed. KOGIES opposed the motion positing
that the queries and issues raised in the motion for inspection fell
under the coverage of the arbitration clause in their contract.

On July 17, 1998, PGSMC filed its Answer with Compulsory


Counterclaim9 asserting that it had the full right to dismantle and
transfer the machineries and equipment because it had paid for them
in full as stipulated in the contract; that KOGIES was not entitled to the
PhP 9,000,000 covered by the checks for failing to completely install
and make the plant operational; and that KOGIES was liable for
damages amounting to PhP 4,500,000 for altering the quantity and
lowering the quality of the machineries and equipment. Moreover,
PGSMC averred that it has already paid PhP 2,257,920 in rent
(covering January to July 1998) to Worth and it was not willing to
further shoulder the cost of renting the premises of the plant
considering that the LPG cylinder manufacturing plant never became
operational.
After the parties submitted their Memoranda, on July 23, 1998, the
RTC issued an Order denying the application for a writ of preliminary
injunction, reasoning that PGSMC had paid KOGIES USD 1,224,000,
the value of the machineries and equipment as shown in the contract
such that KOGIES no longer had proprietary rights over them. And
finally, the RTC held that Art. 15 of the Contract as amended was
invalid as it tended to oust the trial court or any other court jurisdiction
over any dispute that may arise between the parties. KOGIES prayer
for an injunctive writ was denied. 10 The dispositive portion of the Order
stated:
WHEREFORE, in view of the foregoing consideration, this
Court believes and so holds that no cogent reason exists for
this Court to grant the writ of preliminary injunction to restrain
and refrain defendant from dismantling the machineries and
facilities at the lot and building of Worth Properties,
Incorporated at Carmona, Cavite and transfer the same to
another site: and therefore denies plaintiffs application for a
writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to Answer and Answer to
Counterclaim.11 KOGIES denied it had altered the quantity and lowered
the quality of the machinery, equipment, and facilities it delivered to the
plant. It claimed that it had performed all the undertakings under the
contract and had already produced certified samples of LPG cylinders.
It averred that whatever was unfinished was PGSMCs fault since it

On September 21, 1998, the trial court issued an Order (1) granting
PGSMCs motion for inspection; (2) denying KOGIES motion for
reconsideration of the July 23, 1998 RTC Order; and (3) denying
KOGIES motion to dismiss PGSMCs compulsory counterclaims as
these counterclaims fell within the requisites of compulsory
counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration17 of the September 21, 1998 RTC Order granting
inspection of the plant and denying dismissal of PGSMCs compulsory
counterclaims.
Ten days after, on October 12, 1998, without waiting for the resolution
of its October 2, 1998 urgent motion for reconsideration, KOGIES filed
before the Court of Appeals (CA) a petition for certiorari 18 docketed as
CA-G.R. SP No. 49249, seeking annulment of the July 23, 1998 and
September 21, 1998 RTC Orders and praying for the issuance of writs
of prohibition, mandamus, and preliminary injunction to enjoin the RTC
and PGSMC from inspecting, dismantling, and transferring the
machineries and equipment in the Carmona plant, and to direct the
RTC to enforce the specific agreement on arbitration to resolve the
dispute.
In the meantime, on October 19, 1998, the RTC denied KOGIES
urgent motion for reconsideration and directed the Branch Sheriff to
proceed with the inspection of the machineries and equipment in the
plant on October 28, 1998.19
Thereafter, KOGIES filed a Supplement to the Petition 20 in CA-G.R. SP
No. 49249 informing the CA about the October 19, 1998 RTC Order. It
also reiterated its prayer for the issuance of the writs of prohibition,
mandamus and preliminary injunction which was not acted upon by the
CA. KOGIES asserted that the Branch Sheriff did not have the
technical expertise to ascertain whether or not the machineries and
equipment conformed to the specifications in the contract and were
properly installed.

On November 11, 1998, the Branch Sheriff filed his Sheriffs Report 21
finding that the enumerated machineries and equipment were not fully
and properly installed.
The Court of Appeals affirmed the trial court and declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed Decision 22 affirming
the RTC Orders and dismissing the petition for certiorari filed by
KOGIES. The CA found that the RTC did not gravely abuse its
discretion in issuing the assailed July 23, 1998 and September 21,
1998 Orders. Moreover, the CA reasoned that KOGIES contention that
the total contract price for USD 1,530,000 was for the whole plant and
had not been fully paid was contrary to the finding of the RTC that
PGSMC fully paid the price of USD 1,224,000, which was for all the
machineries and equipment. According to the CA, this determination by
the RTC was a factual finding beyond the ambit of a petition for
certiorari.
On the issue of the validity of the arbitration clause, the CA agreed with
the lower court that an arbitration clause which provided for a final
determination of the legal rights of the parties to the contract by
arbitration was against public policy.
On the issue of nonpayment of docket fees and non-attachment of a
certificate of non-forum shopping by PGSMC, the CA held that the
counterclaims of PGSMC were compulsory ones and payment of
docket fees was not required since the Answer with counterclaim was
not an initiatory pleading. For the same reason, the CA said a
certificate of non-forum shopping was also not required.
Furthermore, the CA held that the petition for certiorari had been filed
prematurely since KOGIES did not wait for the resolution of its urgent
motion for reconsideration of the September 21, 1998 RTC Order
which was the plain, speedy, and adequate remedy available.
According to the CA, the RTC must be given the opportunity to correct
any alleged error it has committed, and that since the assailed orders
were interlocutory, these cannot be the subject of a petition for
certiorari.
Hence, we have this Petition for Review on Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court committed the following errors:
a. PRONOUNCING THE QUESTION OF OWNERSHIP
OVER THE MACHINERY AND FACILITIES AS "A
QUESTION OF FACT" "BEYOND THE AMBIT OF A
PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OF (SIC) EXCESS OF JURISDICTION, AND CONCLUDING
THAT THE TRIAL COURTS FINDING ON THE SAME
QUESTION WAS IMPROPERLY RAISED IN THE PETITION
BELOW;
b. DECLARING AS NULL AND VOID THE ARBITRATION
CLAUSE IN ARTICLE 15 OF THE CONTRACT BETWEEN
THE PARTIES FOR BEING "CONTRARY TO PUBLIC
POLICY" AND FOR OUSTING THE COURTS OF
JURISDICTION;

c.
DECREEING
PRIVATE
RESPONDENTS
COUNTERCLAIMS TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF DOCKET FEES AND
CERTIFICATION OF NON-FORUM SHOPPING;
d. RULING THAT THE PETITION WAS FILED
PREMATURELY
WITHOUT
WAITING
FOR
THE
RESOLUTION
OF
THE
MOTION
FOR
RECONSIDERATION
OF
THE
ORDER
DATED
SEPTEMBER 21, 1998 OR WITHOUT GIVING THE TRIAL
COURT AN OPPORTUNITY TO CORRECT ITSELF;
e. PROCLAIMING THE TWO ORDERS DATED JULY 23
AND SEPTEMBER 21, 1998 NOT TO BE PROPER
SUBJECTS OF CERTIORARI AND PROHIBITION FOR
BEING "INTERLOCUTORY IN NATURE;"
f. NOT GRANTING THE RELIEFS AND REMEDIES
PRAYED FOR IN HE (SIC) PETITION AND, INSTEAD,
DISMISSING THE SAME FOR ALLEGEDLY "WITHOUT
MERIT."23
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we shall first tackle the
procedural issues.
The rules on the payment of docket fees for counterclaims
and cross claims were amended effective August 16, 2004
KOGIES strongly argues that when PGSMC filed the counterclaims, it
should have paid docket fees and filed a certificate of non-forum
shopping, and that its failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of PGSMC were
incorporated in its Answer with Compulsory Counterclaim dated July
17, 1998 in accordance with Section 8 of Rule 11, 1997 Revised Rules
of Civil Procedure, the rule that was effective at the time the Answer
with Counterclaim was filed. Sec. 8 on existing counterclaim or crossclaim states, "A compulsory counterclaim or a cross-claim that a
defending party has at the time he files his answer shall be contained
therein."
On July 17, 1998, at the time PGSMC filed its Answer incorporating its
counterclaims against KOGIES, it was not liable to pay filing fees for
said counterclaims being compulsory in nature. We stress, however,
that effective August 16, 2004 under Sec. 7, Rule 141, as amended by
A.M. No. 04-2-04-SC, docket fees are now required to be paid in
compulsory counterclaim or cross-claims.
As to the failure to submit a certificate of forum shopping, PGSMCs
Answer is not an initiatory pleading which requires a certification
against forum shopping under Sec. 5 24 of Rule 7, 1997 Revised Rules
of Civil Procedure. It is a responsive pleading, hence, the courts a quo
did not commit reversible error in denying KOGIES motion to dismiss
PGSMCs compulsory counterclaims.
Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz,25 the CA also pronounced that "certiorari and


Prohibition are neither the remedies to question the propriety of an
interlocutory order of the trial court." 26 The CA erred on its reliance on
Gamboa. Gamboa involved the denial of a motion to acquit in a
criminal case which was not assailable in an action for certiorari since
the denial of a motion to quash required the accused to plead and to
continue with the trial, and whatever objections the accused had in his
motion to quash can then be used as part of his defense and
subsequently can be raised as errors on his appeal if the judgment of
the trial court is adverse to him. The general rule is that interlocutory
orders cannot be challenged by an appeal.27 Thus, in Yamaoka v.
Pescarich Manufacturing Corporation, we held:
The proper remedy in such cases is an ordinary appeal from
an adverse judgment on the merits, incorporating in said
appeal the grounds for assailing the interlocutory orders.
Allowing appeals from interlocutory orders would result in the
sorry spectacle of a case being subject of a
counterproductive ping-pong to and from the appellate court
as often as a trial court is perceived to have made an error in
any of its interlocutory rulings. However, where the assailed
interlocutory order was issued with grave abuse of discretion
or patently erroneous and the remedy of appeal would not
afford adequate and expeditious relief, the Court allows
certiorari as a mode of redress.28
Also, appeals from interlocutory orders would open the floodgates to
endless occasions for dilatory motions. Thus, where the interlocutory
order was issued without or in excess of jurisdiction or with grave
abuse of discretion, the remedy is certiorari.29
The alleged grave abuse of discretion of the respondent court
equivalent to lack of jurisdiction in the issuance of the two assailed
orders coupled with the fact that there is no plain, speedy, and
adequate remedy in the ordinary course of law amply provides the
basis for allowing the resort to a petition for certiorari under Rule 65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of forum shopping in filing
the petition for certiorari. Note that KOGIES motion for reconsideration
of the July 23, 1998 RTC Order which denied the issuance of the
injunctive writ had already been denied. Thus, KOGIES only remedy
was to assail the RTCs interlocutory order via a petition for certiorari
under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the
September 21, 1998 RTC Order relating to the inspection of things,
and the allowance of the compulsory counterclaims has not yet been
resolved, the circumstances in this case would allow an exception to
the rule that before certiorari may be availed of, the petitioner must
have filed a motion for reconsideration and said motion should have
been first resolved by the court a quo. The reason behind the rule is "to
enable the lower court, in the first instance, to pass upon and correct
its mistakes without the intervention of the higher court."30
The September 21, 1998 RTC Order directing the branch sheriff to
inspect the plant, equipment, and facilities when he is not competent
and knowledgeable on said matters is evidently flawed and devoid of
any legal support. Moreover, there is an urgent necessity to resolve the
issue on the dismantling of the facilities and any further delay would
prejudice the interests of KOGIES. Indeed, there is real and imminent
threat of irreparable destruction or substantial damage to KOGIES
equipment and machineries. We find the resort to certiorari based on
the gravely abusive orders of the trial court sans the ruling on the
October 2, 1998 motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract


We now go to the core issue of the validity of Art. 15 of the Contract,
the arbitration clause. It provides:
Article 15. Arbitration.All disputes, controversies, or
differences which may arise between the parties, out of or in
relation to or in connection with this Contract or for the
breach thereof, shall finally be settled by arbitration in Seoul,
Korea in accordance with the Commercial Arbitration Rules
of the Korean Commercial Arbitration Board. The award
rendered by the arbitration(s) shall be final and binding upon
both parties concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA erred in ruling that the arbitration
clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the law of the place
where the contract is made governs. Lex loci contractus. The contract
in this case was perfected here in the Philippines. Therefore, our laws
ought to govern. Nonetheless, Art. 2044 of the Civil Code sanctions the
validity of mutually agreed arbitral clause or the finality and binding
effect of an arbitral award. Art. 2044 provides, "Any stipulation that the
arbitrators award or decision shall be final, is valid, without prejudice to
Articles 2038, 2039 and 2040." (Emphasis supplied.)
Arts. 2038,31 2039,32 and 204033 abovecited refer to instances where a
compromise or an arbitral award, as applied to Art. 2044 pursuant to
Art. 2043,34 may be voided, rescinded, or annulled, but these would not
denigrate the finality of the arbitral award.
The arbitration clause was mutually and voluntarily agreed upon by the
parties. It has not been shown to be contrary to any law, or against
morals, good customs, public order, or public policy. There has been
no showing that the parties have not dealt with each other on equal
footing. We find no reason why the arbitration clause should not be
respected and complied with by both parties. In Gonzales v. Climax
Mining Ltd.,35 we held that submission to arbitration is a contract and
that a clause in a contract providing that all matters in dispute between
the parties shall be referred to arbitration is a contract.36 Again in Del
Monte Corporation-USA v. Court of Appeals, we likewise ruled that
"[t]he provision to submit to arbitration any dispute arising therefrom
and the relationship of the parties is part of that contract and is itself a
contract."37
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the arbitration must be
done in Seoul, Korea in accordance with the Commercial Arbitration
Rules of the KCAB, and that the arbitral award is final and binding, is
not contrary to public policy. This Court has sanctioned the validity of
arbitration clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc.,38 this Court had occasion
to rule that an arbitration clause to resolve differences and breaches of
mutually agreed contractual terms is valid. In BF Corporation v. Court
of Appeals, we held that "[i]n this jurisdiction, arbitration has been held
valid and constitutional. Even before the approval on June 19, 1953 of
Republic Act No. 876, this Court has countenanced the settlement of
disputes through arbitration. Republic Act No. 876 was adopted to
supplement the New Civil Codes provisions on arbitration." 39 And in
LM Power Engineering Corporation v. Capitol Industrial Construction
Groups, Inc., we declared that:

Being an inexpensive, speedy and amicable method of


settling disputes, arbitrationalong with mediation,
conciliation and negotiationis encouraged by the Supreme
Court. Aside from unclogging judicial dockets, arbitration
also hastens the resolution of disputes, especially of the
commercial kind. It is thus regarded as the "wave of the
future" in international civil and commercial disputes.
Brushing aside a contractual agreement calling for arbitration
between the parties would be a step backward.
Consistent with the above-mentioned policy of encouraging
alternative dispute resolution methods, courts should
liberally construe arbitration clauses. Provided such clause is
susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. Any doubt
should be resolved in favor of arbitration.40
Having said that the instant arbitration clause is not against public
policy, we come to the question on what governs an arbitration clause
specifying that in case of any dispute arising from the contract, an
arbitral panel will be constituted in a foreign country and the arbitration
rules of the foreign country would govern and its award shall be final
and binding.
RA
9285
incorporated
to which we are a signatory

the

UNCITRAL

Model

law

For domestic arbitration proceedings, we have particular agencies to


arbitrate disputes arising from contractual relations. In case a foreign
arbitral body is chosen by the parties, the arbitration rules of our
domestic arbitration bodies would not be applied. As signatory to the
Arbitration Rules of the UNCITRAL Model Law on International
Commercial Arbitration41 of the United Nations Commission on
International Trade Law (UNCITRAL) in the New York Convention on
June 21, 1985, the Philippines committed itself to be bound by the
Model Law. We have even incorporated the Model Law in Republic Act
No. (RA) 9285, otherwise known as the Alternative Dispute Resolution
Act of 2004 entitled An Act to Institutionalize the Use of an Alternative
Dispute Resolution System in the Philippines and to Establish the
Office for Alternative Dispute Resolution, and for Other Purposes,
promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of the
Model Law are the pertinent provisions:

While RA 9285 was passed only in 2004, it nonetheless applies in the


instant case since it is a procedural law which has a retroactive effect.
Likewise, KOGIES filed its application for arbitration before the KCAB
on July 1, 1998 and it is still pending because no arbitral award has yet
been rendered. Thus, RA 9285 is applicable to the instant case. Wellsettled is the rule that procedural laws are construed to be applicable
to actions pending and undetermined at the time of their passage, and
are deemed retroactive in that sense and to that extent. As a general
rule, the retroactive application of procedural laws does not violate any
personal rights because no vested right has yet attached nor arisen
from them.42
Among the pertinent features of RA 9285 applying and incorporating
the UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have jurisdiction over disputes that
are properly the subject of arbitration pursuant to an arbitration clause,
and mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to Arbitration.A court before which an
action is brought in a matter which is the subject matter of an
arbitration agreement shall, if at least one party so requests
not later than the pre-trial conference, or upon the request of
both parties thereafter, refer the parties to arbitration unless
it finds that the arbitration agreement is null and void,
inoperative or incapable of being performed.
(2) Foreign arbitral awards must be confirmed by the RTC
Foreign arbitral awards while mutually stipulated by the parties in the
arbitration clause to be final and binding are not immediately
enforceable or cannot be implemented immediately. Sec. 35 43 of the
UNCITRAL Model Law stipulates the requirement for the arbitral award
to be recognized by a competent court for enforcement, which court
under Sec. 36 of the UNCITRAL Model Law may refuse recognition or
enforcement on the grounds provided for. RA 9285 incorporated these
provisos to Secs. 42, 43, and 44 relative to Secs. 47 and 48, thus:

COMMERCIAL

SEC. 42. Application of the New York Convention.The


New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.

SEC. 19. Adoption of the Model Law on International


Commercial
Arbitration.International
commercial
arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law")
adopted by the United Nations Commission on International
Trade Law on June 21, 1985 (United Nations Document
A/40/17) and recommended for enactment by the General
Assembly in Resolution No. 40/72 approved on December
11, 1985, copy of which is hereto attached as Appendix "A".

The recognition and enforcement of such arbitral awards


shall be filed with the Regional Trial Court in accordance with
the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party
relying on the award or applying for its enforcement shall file
with the court the original or authenticated copy of the award
and the arbitration agreement. If the award or agreement is
not made in any of the official languages, the party shall
supply a duly certified translation thereof into any of such
languages.

CHAPTER
4
ARBITRATION

INTERNATIONAL

SEC. 20. Interpretation of Model Law.In interpreting the


Model Law, regard shall be had to its international origin and
to the need for uniformity in its interpretation and resort may
be made to the travaux preparatories and the report of the
Secretary General of the United Nations Commission on
International Trade Law dated March 25, 1985 entitled,
"International
Commercial
Arbitration:
Analytical
Commentary on Draft Trade identified by reference number
A/CN. 9/264."

The applicant shall establish that the country in which foreign


arbitration award was made in party to the New York
Convention.
xxxx
SEC. 43. Recognition and Enforcement of Foreign Arbitral
Awards Not Covered by the New York Convention.The
recognition and enforcement of foreign arbitral awards not

covered by the New York Convention shall be done in


accordance with procedural rules to be promulgated by the
Supreme Court. The Court may, on grounds of comity and
reciprocity, recognize and enforce a non-convention award
as a convention award.
SEC. 44. Foreign Arbitral Award Not Foreign Judgment.A
foreign arbitral award when confirmed by a court of a foreign
country, shall be recognized and enforced as a foreign
arbitral award and not as a judgment of a foreign court.

The recognition and enforcement of such arbitral awards


shall be filed with the Regional Trial Court in accordance with
the rules of procedure to be promulgated by the Supreme
Court. Said procedural rules shall provide that the party
relying on the award or applying for its enforcement shall file
with the court the original or authenticated copy of the award
and the arbitration agreement. If the award or agreement is
not made in any of the official languages, the party shall
supply a duly certified translation thereof into any of such
languages.

A foreign arbitral award, when confirmed by the Regional


Trial Court, shall be enforced in the same manner as final
and executory decisions of courts of law of the Philippines

The applicant shall establish that the country in which foreign


arbitration award was made is party to the New York
Convention.

xxxx

If the application for rejection or suspension of enforcement


of an award has been made, the Regional Trial Court may, if
it considers it proper, vacate its decision and may also, on
the application of the party claiming recognition or
enforcement of the award, order the party to provide
appropriate security.

SEC. 47. Venue and Jurisdiction.Proceedings for


recognition and enforcement of an arbitration agreement or
for vacations, setting aside, correction or modification of an
arbitral award, and any application with a court for arbitration
assistance and supervision shall be deemed as special
proceedings and shall be filed with the Regional Trial Court
(i) where arbitration proceedings are conducted; (ii) where
the asset to be attached or levied upon, or the act to be
enjoined is located; (iii) where any of the parties to the
dispute resides or has his place of business; or (iv) in the
National Judicial Capital Region, at the option of the
applicant.
SEC. 48. Notice of Proceeding to Parties.In a special
proceeding for recognition and enforcement of an arbitral
award, the Court shall send notice to the parties at their
address of record in the arbitration, or if any part cannot be
served notice at such address, at such partys last known
address. The notice shall be sent al least fifteen (15) days
before the date set for the initial hearing of the application.
It is now clear that foreign arbitral awards when confirmed by the RTC
are deemed not as a judgment of a foreign court but as a foreign
arbitral award, and when confirmed, are enforced as final and
executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral
award is similar to judgments or awards given by some of our quasijudicial bodies, like the National Labor Relations Commission and
Mines Adjudication Board, whose final judgments are stipulated to be
final and binding, but not immediately executory in the sense that they
may still be judicially reviewed, upon the instance of any party.
Therefore, the final foreign arbitral awards are similarly situated in that
they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the
RTC with specific authority and jurisdiction to set aside, reject, or
vacate a foreign arbitral award on grounds provided under Art. 34(2) of
the UNCITRAL Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of the New York Convention.The
New York Convention shall govern the recognition and
enforcement of arbitral awards covered by said Convention.

xxxx
SEC. 45. Rejection of a Foreign Arbitral Award.A party to a
foreign arbitration proceeding may oppose an application for
recognition and enforcement of the arbitral award in
accordance with the procedures and rules to be promulgated
by the Supreme Court only on those grounds enumerated
under Article V of the New York Convention. Any other
ground raised shall be disregarded by the Regional Trial
Court.
Thus, while the RTC does not have jurisdiction over disputes governed
by arbitration mutually agreed upon by the parties, still the foreign
arbitral award is subject to judicial review by the RTC which can set
aside, reject, or vacate it. In this sense, what this Court held in Chung
Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar
as the foreign arbitral awards, while final and binding, do not oust
courts of jurisdiction since these arbitral awards are not absolute and
without exceptions as they are still judicially reviewable. Chapter 7 of
RA 9285 has made it clear that all arbitral awards, whether domestic or
foreign, are subject to judicial review on specific grounds provided for.
(4) Grounds for judicial review different in domestic and foreign arbitral
awards
The differences between a final arbitral award from an international or
foreign arbitral tribunal and an award given by a local arbitral tribunal
are the specific grounds or conditions that vest jurisdiction over our
courts to review the awards.
For foreign or international arbitral awards which must first be
confirmed by the RTC, the grounds for setting aside, rejecting or
vacating the award by the RTC are provided under Art. 34(2) of the
UNCITRAL Model Law.
For final domestic arbitral awards, which also need confirmation by the
RTC pursuant to Sec. 23 of RA 876 44 and shall be recognized as final
and executory decisions of the RTC,45 they may only be assailed
before the RTC and vacated on the grounds provided under Sec. 25 of
RA 876.46
(5) RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the


remedy of an aggrieved party in cases where the RTC sets aside,
rejects, vacates, modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court Decision or Arbitral Awards.A
decision of the Regional Trial Court confirming, vacating,
setting aside, modifying or correcting an arbitral award may
be appealed to the Court of Appeals in accordance with the
rules and procedure to be promulgated by the Supreme
Court.
The losing party who appeals from the judgment of the court
confirming an arbitral award shall be required by the
appellate court to post a counterbond executed in favor of
the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the
Supreme Court.
Thereafter, the CA decision may further be appealed or reviewed
before this Court through a petition for review under Rule 45 of the
Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA 9285, PGSMC must
submit to the foreign arbitration as it bound itself through the subject
contract. While it may have misgivings on the foreign arbitration done
in Korea by the KCAB, it has available remedies under RA 9285. Its
interests are duly protected by the law which requires that the arbitral
award that may be rendered by KCAB must be confirmed here by the
RTC before it can be enforced.
With our disquisition above, petitioner is correct in its contention that
an arbitration clause, stipulating that the arbitral award is final and
binding, does not oust our courts of jurisdiction as the international
arbitral award, the award of which is not absolute and without
exceptions, is still judicially reviewable under certain conditions
provided for by the UNCITRAL Model Law on ICA as applied and
incorporated in RA 9285.
Finally, it must be noted that there is nothing in the subject Contract
which provides that the parties may dispense with the arbitration
clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the subject contract is valid
and binding on the parties, and not contrary to public policy;
consequently, being bound to the contract of arbitration, a party may
not unilaterally rescind or terminate the contract for whatever cause
without first resorting to arbitration.
What this Court held in University of the Philippines v. De Los
Angeles47 and reiterated in succeeding cases,48 that the act of treating
a contract as rescinded on account of infractions by the other
contracting party is valid albeit provisional as it can be judicially
assailed, is not applicable to the instant case on account of a valid
stipulation on arbitration. Where an arbitration clause in a contract is
availing, neither of the parties can unilaterally treat the contract as
rescinded since whatever infractions or breaches by a party or
differences arising from the contract must be brought first and resolved
by arbitration, and not through an extrajudicial rescission or judicial
action.

The issues arising from the contract between PGSMC and KOGIES on
whether the equipment and machineries delivered and installed were
properly installed and operational in the plant in Carmona, Cavite; the
ownership of equipment and payment of the contract price; and
whether there was substantial compliance by KOGIES in the
production of the samples, given the alleged fact that PGSMC could
not supply the raw materials required to produce the sample LPG
cylinders, are matters proper for arbitration. Indeed, we note that on
July 1, 1998, KOGIES instituted an Application for Arbitration before
the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as
amended. Thus, it is incumbent upon PGSMC to abide by its
commitment to arbitrate.
Corollarily, the trial court gravely abused its discretion in granting
PGSMCs Motion for Inspection of Things on September 21, 1998, as
the subject matter of the motion is under the primary jurisdiction of the
mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions made by the RTC
Branch Sheriff from the inspection made on October 28, 1998, as
ordered by the trial court on October 19, 1998, is of no worth as said
Sheriff is not technically competent to ascertain the actual status of the
equipment and machineries as installed in the plant.
For these reasons, the September 21, 1998 and October 19, 1998
RTC Orders pertaining to the grant of the inspection of the equipment
and machineries have to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner raised on
whether the total contract price of USD 1,530,000 was for the whole
plant and its installation is beyond the ambit of a Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an original action
for certiorari.49 Whether or not there was full payment for the
machineries and equipment and installation is indeed a factual issue
prohibited by Rule 65.
However, what appears to constitute a grave abuse of discretion is the
order of the RTC in resolving the issue on the ownership of the plant
when it is the arbitral body (KCAB) and not the RTC which has
jurisdiction and authority over the said issue. The RTCs determination
of such factual issue constitutes grave abuse of discretion and must be
reversed and set aside.
RTC has interim jurisdiction to protect the rights of the parties
Anent the July 23, 1998 Order denying the issuance of the injunctive
writ paving the way for PGSMC to dismantle and transfer the
equipment and machineries, we find it to be in order considering the
factual milieu of the instant case.
Firstly, while the issue of the proper installation of the equipment and
machineries might well be under the primary jurisdiction of the arbitral
body to decide, yet the RTC under Sec. 28 of RA 9285 has jurisdiction
to hear and grant interim measures to protect vested rights of the
parties. Sec. 28 pertinently provides:
SEC. 28. Grant of interim Measure of Protection.(a) It is
not incompatible with an arbitration agreement for a party to
request, before constitution of the tribunal, from a Court to

grant such measure. After constitution of the arbitral tribunal


and during arbitral proceedings, a request for an interim
measure of protection, or modification thereof, may be made
with the arbitral or to the extent that the arbitral tribunal has
no power to act or is unable to act effectivity, the request
may be made with the Court. The arbitral tribunal is deemed
constituted when the sole arbitrator or the third arbitrator,
who has been nominated, has accepted the nomination and
written communication of said nomination and acceptance
has been received by the party making the request.
(b) The following rules on interim or provisional relief shall be
observed:
Any party may request that provisional relief be granted
against the adverse party.
Such relief may be granted:
(i) to prevent irreparable loss or injury;(ii) to provide security for the
performance of any obligation;(iii) to produce or preserve any
evidence; or(iv) to compel any other appropriate act or omission.
(c) The order granting provisional relief may be conditioned
upon the provision of security or any act or omission
specified in the order.
(d) Interim or provisional relief is requested by written
application transmitted by reasonable means to the Court or
arbitral tribunal as the case may be and the party against
whom the relief is sought, describing in appropriate detail the
precise relief, the party against whom the relief is requested,
the grounds for the relief, and the evidence supporting the
request.
(e) The order shall be binding upon the parties.
(f) Either party may apply with the Court for assistance in
implementing or enforcing an interim measure ordered by an
arbitral tribunal.
(g) A party who does not comply with the order shall be liable
for all damages resulting from noncompliance, including all
expenses, and reasonable attorney's fees, paid in obtaining
the orders judicial enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law on ICA defines an "interim
measure" of protection as:
Article 17. Power of arbitral tribunal to order interim
measures
xxx xxx xxx
(2) An interim measure is any temporary measure, whether
in the form of an award or in another form, by which, at any
time prior to the issuance of the award by which the dispute
is finally decided, the arbitral tribunal orders a party to:
(a) Maintain or restore the status quo pending determination of the
dispute;(b) Take action that would prevent, or refrain from taking action
that is likely to cause, current or imminent harm or prejudice to the
arbitral process itself;(c) Provide a means of preserving assets out of

which a subsequent award may be satisfied; or(d) Preserve evidence


that may be relevant and material to the resolution of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also grants courts power
and jurisdiction to issue interim measures:
Article 17 J. Court-ordered interim measures
A court shall have the same power of issuing an interim
measure in relation to arbitration proceedings, irrespective of
whether their place is in the territory of this State, as it has in
relation to proceedings in courts. The court shall exercise
such power in accordance with its own procedures in
consideration of the specific features of international
arbitration.
In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro
Corporation, we were explicit that even "the pendency of an arbitral
proceeding does not foreclose resort to the courts for provisional
reliefs." We explicated this way:
As a fundamental point, the pendency of arbitral proceedings
does not foreclose resort to the courts for provisional reliefs.
The Rules of the ICC, which governs the parties arbitral
dispute, allows the application of a party to a judicial
authority for interim or conservatory measures. Likewise,
Section 14 of Republic Act (R.A.) No. 876 (The Arbitration
Law) recognizes the rights of any party to petition the court
to take measures to safeguard and/or conserve any matter
which is the subject of the dispute in arbitration. In addition,
R.A. 9285, otherwise known as the "Alternative Dispute
Resolution Act of 2004," allows the filing of provisional or
interim measures with the regular courts whenever the
arbitral tribunal has no power to act or to act effectively.50
It is thus beyond cavil that the RTC has authority and jurisdiction to
grant interim measures of protection.
Secondly, considering that the equipment and machineries are in the
possession of PGSMC, it has the right to protect and preserve the
equipment and machineries in the best way it can. Considering that the
LPG plant was non-operational, PGSMC has the right to dismantle and
transfer the equipment and machineries either for their protection and
preservation or for the better way to make good use of them which is
ineluctably within the management discretion of PGSMC.
Thirdly, and of greater import is the reason that maintaining the
equipment and machineries in Worths property is not to the best
interest of PGSMC due to the prohibitive rent while the LPG plant as
set-up is not operational. PGSMC was losing PhP322,560 as monthly
rentals or PhP3.87M for 1998 alone without considering the 10%
annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can rule on motions or
petitions relating to the preservation or transfer of the equipment and
machineries as an interim measure, yet on hindsight, the July 23, 1998
Order of the RTC allowing the transfer of the equipment and
machineries given the non-recognition by the lower courts of the
arbitral clause, has accorded an interim measure of protection to
PGSMC which would otherwise been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it has already been paid a
substantial amount based on the contract. Moreover, KOGIES is amply
protected by the arbitral action it has instituted before the KCAB, the
award of which can be enforced in our jurisdiction through the RTC.

Besides, by our decision, PGSMC is compelled to submit to arbitration


pursuant to the valid arbitration clause of its contract with KOGIES.

tickets, punched something into her computer and then told them that
boarding would be in fifteen minutes.4

PGSMC to preserve the subject equipment and machineries

When the flight was called, the Fontanillas proceeded to the plane. To
their surprise, the stewardess at the gate did not allow them to board
the plane, as they had no assigned seat numbers. They were then
directed to go back to the "check-in" counter where Linda subsequently
informed them that the flight had been overbooked and asked them to
wait.5

Finally, while PGSMC may have been granted the right to dismantle
and transfer the subject equipment and machineries, it does not have
the right to convey or dispose of the same considering the pending
arbitral proceedings to settle the differences of the parties. PGSMC
therefore must preserve and maintain the subject equipment and
machineries with the diligence of a good father of a family 51 until final
resolution of the arbitral proceedings and enforcement of the award, if
any.
WHEREFORE, this petition is PARTLY GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is
REVERSED and SET ASIDE; (2) The September 21, 1998 and
October 19, 1998 RTC Orders in Civil Case No. 98-117 are
REVERSED and SET ASIDE; (3) The parties are hereby ORDERED
to submit themselves to the arbitration of their dispute and differences
arising from the subject Contract before the KCAB; and (4) PGSMC is
hereby ALLOWED to dismantle and transfer the equipment and
machineries, if it had not done so, and ORDERED to preserve and
maintain them until the finality of whatever arbitral award is given in the
arbitration proceedings.No pronouncement as to costs.
G.R. No. 124110

April 20, 2001

UNITED AIRLINES, INC., Petitioner vs.COURT OF APPEALS,


ANICETO FONTANILLA, in his personal capacity and in behalf of his
minor son MYCHAL ANDREW FONTANILLA, Respondents.
KAPUNAN, J.:
On March 1, 1989, private respondent Aniceto Fontanilla purchased
from petitioner United Airlines, through the Philippine Travel Bureau in
Manila three (3) "Visit the U.S.A." tickets for himself, his wife and his
minor son Mychal for the following routes:
a. San Francisco to Washinton (15 April 1989);b. Washington to
Chicago (25 April 1989);c. Chicago to Los Angeles (29 April 1989);d.
Los Angeles to San Francisco (01 may 1989 for petitioners wife and
05 May 1989 for petitioner and his son). 1
All flights had been confirmed previously by United Airlines. 2
The Fontanillas proceeded to the United States as planned, where
they used the first coupon from San Francisco to Washington. On April
24, 1989, Aniceto Fontanilla bought two (2) additional coupons each
for himself, his wife and his son from petitioner at its office in
Washington Dulles Airport. After paying the penalty for rewriting their
tickets, the Fontanillas were issued tickets with corresponding boarding
passes with the words "CHECK-IN REQUIRED," for United Airlines
Flight No. 1108, set to leave from Los Angeles to San Francisco at
10:30 a.m. on May 5, 1989.3
The cause of the non-boarding of the Fontanillas on United Airlines
Flight No. 1108 makes up the bone of contention of this
controversy.1wphi1.nt
Private respondents version is as follows:
Aniceto Fontanilla and his son Mychal claim that on May 5, 1989, upon
their arrival at the los Angeles Airport for their flight, they proceeded to
united Airlines counter where they were attended by an employee
wearing a nameplate bearing the name "LINDA." Linda examined their

The Fontanillas tried to explain to Linda the special circumstances of


their visit. However, Linda told them in arrogant manner, "So what, I
can not do anything about it."6
Subsequently, three other passengers with Caucasian features were
graciously allowed to baord, after the Fontanillas were told that the
flight had been overbooked.7
The plane then took off with the Fontanillas baggage in tow, leaving
them behind.8
The Fontanillas then complained to Linda, who in turn gave them an
ugly stare and rudely uttered, "its not my fault. Its the fault of the
company. Just sit down and wait."9 When Mr. Fontanilla reminded
Linda of the inconvenience being caused to them, she bluntly retorted,
"Who do you think you are? You lousy Flips are good for nothing
beggars. You always ask for American aid." After which she remarked
"Dont worry about your baggage. Anyway there is nothing in there.
What are you doing here anyway? I will report you to immigration. You
Filipinos should go home."10 Such rude statements were made in front
of other people in the airport causing the Fontanillas to suffer shame,
humiliation and embarrassment. The chastening situation even caused
the younger Fontanilla to break into tears.11
After some time, Linda, without any explanation, offered the Fontanillas
$50.00 each. She simply said "Take it or leave it." This, the Fontanillas
declined.12
The Fontanillas then proceeded to the United Airlines customer service
counter to plead their case. The male employee at the counter reacted
by shouting that he was ready for it and left without saying anything.13
The Fontanillas were not booked on the next flight, which departed for
San Francisco at 11:00 a.m. It was only at 12:00 noon that they were
able to leave Los Angeles on United Airlines Flight No. 803.
Petitioner United Airlines has a different version of what occurred at the
Los Angeles Airport on May 5, 1989.
According to United Airlines, the Fontanillas did not initially go to the
check-in counter to get their seat assignments for UA Flight 1108. They
instead proceeded to join the queue boarding the aircraft without first
securing their seat assignments as required in their ticket and boarding
passes. Having no seat assignments, the stewardess at the door of the
plane instructed them to go to the check-in counter. When the
Fontanillas proceeded to the check-in counter, Linda Allen, the United
Airlines Customer Representative at the counter informed them that
the flight was overbooked. She booked them on the next available
flight and offered them denied boarding compensation. Allen
vehemently denies uttering the derogatory and racist words attributed
to her by the Fontanillas.14
The incident prompted the Fontanillas to file Civil Case No. 89-4268 for
damages before the Regional Trial Court of Makati. After trial on the
merits, the trial court rendered a decision, the dispositive portion of
which reads as follows:
WHEREFORE, judgment is rendered dismissing
the complaint. The counterclaim is likewise
dismissed as it appears that plaintiffs were not
actuated by legal malice when they filed the
instant complaint.15

On appeal, the Court of Appeals ruled in favor of the Fontanillas. The


appellate court found that there was an admission on the part of United
Airlines that the Fontanillas did in fact observe the check-in
requirement. It ruled further that even assuming there was a failure to
observe the check-in requirement, United Airlines failed to comply with
the procedure laid down in cases where a passenger is denied
boarding. The appellate court likewise gave credence to the claim of
Aniceto Fontanilla that the employees of United Airlines were
discourteous and arbitrary and, worse, discriminatory. In light of such
treatment, the Fontanillas were entitled to moral damages. The
dispositive portion of the decision of the respondent Court of Appeals
dated 29 September 1995, states as follows:

7. On May 5, 1989 at 9:45 a.m., plaintiff and his son checked in at


defendants designated counter at the airport in Los Angeles for their
scheduled flight to San Francisco on defendants Flight No. 1108.20

WHEREFORE, in view of the foregoing, judgment


appealed herefrom is hereby REVERSED and
SET ASIDE, and a new judgment is entered
ordering defendant-appellee to pay plaintiffappellant the following: A.)P200,000.00 as moral
damages;
B.)P200,000.00
as
exemplary
damages; C.)P50,000.00 as attorneys fees;No
pronouncement as to costs.SO ORDERED.16

The rule authorizing an answer that the defendant has no knowledge


or information sufficient to form a belief as to the truth of an averment
giving such answer is asserted is so plainly and necessarily within the
defendants knowledge that his averment of ignorance must be
palpably untrue.22 Whether or not private respondents checked in at
petitioners designated counter at the airport at 9:45 a.m. on May 5,
1989 must necessarily be within petitioners knowledge.

Petitioner United Airlines now comes to this Court raising the following
assignments of errors;
I.RESPONDENT COURT OF APPEALS GRVAELY ERRED IN
RULING THAT THE TRIAL COURT WAS WRONG IN FAILING TO
CONSIDER THE ALLEGED ADMISSION THAT PRIVATE
RESPONDENT OBSERVED THE CHECK-IN REQUIREMENT.
II.RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
RULING THAT PRIVATE RESPONDENTS FAILURE TO CHECK-IN
WILL NOT DEFEAT HIS CLAIMS BECAUSE THE DENIED
BOARDING RULES WERE NOT COMPLIED WITH.
III.RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
RULING THAT PRIVATE RESPONDENT IS ENTITLED TO MORAL
DAMAGES OF P200,000.
IV.RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
RULING THAT PRIVATE RESPONDENT IS ENTITLED TO
EXEMPLARY DAMAGES OF P200,000.
V.RESPONDENT COURT OF APPEALS GRAVELY ERRED IN
RULING THAT PRIVATE RESPONDENT IS ENTITLED TO
ATTORNEYS FEES OF P50,000.17

On the first issue raised by the petitioner, the respondent Court of


Appeals ruled that when Rule 9, Section 1 of the Rules of Court, 18
there was an implied admission in petitioners answer in the allegations
in the complaint that private respondent and his son observed the
"check-in requirement at the Los Angeles Airport." Thus:
A perusal of the above pleadings filed before the
trial court disclosed that there exist a blatant
admission on the part of the defendant-appellee
that the plaintiffs-appellants indeed observed the
"check-in" requirement at the Los Angeles Airport
on May 5, 1989. In view of defendant-appellees
admission
of
plaintiffs-appellants
material
averment in the complaint. We find no reason why
the trial court should rule against such
admission.19

Responding to the above allegations, petitioner averred in paragraph 4


of its answer, thus:
4. Admits the allegation set forth in paragraph 7 of the complaint
except to deny that plaintiff and his son checked in at 9:45 a.m., for
lack of knowledge or information at this point in time as to the truth
thereof.21

While there was no specific denial as to the fact of compliance with the
"check-in" requirement by private respondents, petitioner presented
evidence to support its contention that there indeed was no
compliance.
Private respondents then are said to have waived the rule on
admission. It not only presented evidence to support its contention that
there was compliance with the check-in requirement, it even allowed
petitioner to present rebutal evidence. In the case of Yu Chuck vs.
"Kong Li Po," we ruled that:
The object of the rule is to relieve a party of the
trouble and expense in proving in the first instance
an alleged fact, the existence or non-existence of
which is necessarily within the knowledge of the
adverse party, and of the necessity (to his
opponents case) of establishing which such
adverse party is notified by his opponents
pleadings.
The plaintiff may, of course, waive the rule and
that is what must be considered to have done (sic)
by introducing evidence as to the execution of the
document and failing to object to the defendants
evidence in refutation; all this evidence is now
competent and the case must be decided
thereupon.23
The determination of the other issues raised is dependent on whether
or not there was a breach of contract in bad faith on the part of the
petitioner in not allowing the Fontanillas to board United Airlines Flight
1108.
It must be remembered that the general rule in civil cases is that the
party having the burden of proof of an essential fact must produce a
preponderance of evidence thereon.24 Although the evidence adduced
by the plaintiff is stronger than that presented by the defendant, a
judgment cannot be entered in favor of the former, if his evidence is not
sufficient to sustain his cause of action. The plaintiff must rely on the
strength of his own evidence and not upon the weakness of the
defendants.25 Proceeding from this, and considering the contradictory
findings of facts by the Regional Trial Court and the Court of Appeals,
the question before this Court is whether or not private respondents
were able to prove with adequate evidence his allegations of breach of
contract in bad faith.
We rule in the negative.

We disagree with the above conclusion reached by respondent Court


of Appeals. Paragraph 7 of private respondents complaint states:

Time and again, the Court has pronounced that appellate courts should
not, unless for strong and cogent reasons, reverse the findings of facts
of trial courts. This is so because trial judges are in better position to
examine real evidence and at a vantage point to observe the actuation

and the demeanor of the witnesses. 26 While not the sole indicator of
the credibility of a witness, it is of such weight that it has been said to
be the touchstone of credibility.27

acceptable for carriage under the Carriers tariff


but who have been denied boarding for lack of
space, a compensation at the rate of: xxx

Aniceto Fontanillas assertion that upon arrival at the airport at 9:45


a.m., he immediately proceeded to the check-in counter, and that Linda
Allen punched in something into the computer is specious and not
supported by the evidence on record. In support of their allegations,
private respondents submitted a copy of the boarding pass. Explicitly
printed on the boarding pass are the words "Check-In Required."
Curiously, the said pass did not indicate any seat number. If indeed the
Fontanillas checked in at the designated time as they claimed, why
then were they not assigned seat numbers? Absent any showing that
Linda was so motivated, we do not buy into private respondents claim
that Linda intentionally deceived him, and made him the laughing stock
among the passengers.28 Hence, as correctly observed by the trial
court:

Private respondents narration that they were subjected to harsh and


derogatory remarks seems incredulous. However, this Court will not
attempt to surmise what really happened, suffice to say, private
respondent was not able to prove his cause of action, for as the trial
court correctly observed:

Plaintiffs fail to realize that their failure to check in,


as expressly required in their boarding passes, is
they very reason why they were not given their
respective seat numbers, which resulted in their
being denied boarding.29
Neither do we agree with the conclusion reached by the appellate court
that private respondents failure to comply with the check-in
requirement will not defeat his claim as the denied boarding rules were
not complied with. Notably, the appellate court relied on the Code of
Federal Regulation Part on Oversales which states:
250.6 Exceptions to eligibility for denied boarding compensation.
A passenger denied board involuntarily from an
oversold flight shall not be eligible for denied
board compensation if:
A.)The passenger does not comply with the carriers contract of
carriage or tariff provisions regarding ticketing, reconfirmation, checkin, and acceptability for transformation.
The appellate court, however, erred in applying the laws of the United
States as, in the case at bar, Philippine law is the applicable law.
Although, the contract of carriage was to be performed in the United
States, the tickets were purchased through petitioners agent in Manila.
It is true that the tickets were "rewritten" in Washington, D.C. however,
such fact did not change the nature of the original contract of carriage
entered into by the parties in Manila.
In the case of Zalanea vs. Court of Appeals, 30 this Court applied the
doctrine of lex loci contractus. According to the doctrine, as a general
rule, the law of the place where a contract is made or entered into
governs with respect to its nature and validity, obligation and
interpretation. This has been said to be the rule even though the place
where the contract was made is different from the place where it is to
be performed, and particularly so, if the place of the making and the
place of performance are the same. Hence, the court should apply the
law of the place where the airline ticket was issued, when the
passengers are residents and nationals of the forum and the ticket is
issued in such State by the defendant airline.
The law of the forum on the subject matter is Economic Regulations
No. 7 as amended by Boarding Priority and Denied Board
Compensation of the Civil Aeronautics Board which provides that the
check-in requirement be complied with before a passenger may claim
against a carrier for being denied boarding:
Sec. 5. Amount of Denied Boarding Compensation
Subject to the exceptions provided hereinafter
under Section 6, carriers shall pay to passengers
holding confirmed reserved space and who have
presented themselves at the proper place and
time and fully complied with the carriers check-in
and reconfirmation procedures and who are

xxx plaintiffs claim to have been discriminated


against and insulted in the presence of several
people. Unfortunately, plaintiffs limited their
evidence to the testimony of Aniceto Fontanilla,
without any corroboration by the people who saw
or heard the discriminatory remarks and insults;
while such limited testimony could possibly be
true, it does not enable the Court to reach the
conclusion that plaintiffs have, by a preponderance
of evidence, proven that they are entitled to
P1,650,000.00 damages from defendant.31
As to the award of moral and exemplary damages, we find error in the
award of such by the Court of Appeals. For the plaintiff to be entitled to
an award of moral damages arising from a breach of contract of
carriage, the carrier must have acted with fraud or bad faith. The
appellate court predicated its award on our pronouncement in the case
of Zalanea vs. Court of Appeals, supra, where we stated:
Existing jurisprudence explicitly states that
overbooking amounts to bad faith, entitling
passengers concerned to an award of moral
damages. In Alitalia Airways vs. Court of Appeals,
where passengers with confirmed booking were
refused carriage on the last minute, this Court held
that when an airline issues a ticket to a passenger
confirmed on a particular flight, on a certain date,
a contract of carriage arises, and the passenger
has every right to except that he would fly on that
flight and on that date. If he does not, then the
carrier opens itself to a suit for breach of contract
of carriage. Where an airline had deliberately
overbooked, it took the risk of having to deprive
some passengers of their seats in case all of them
would show up for check in. For the indignity and
inconvenience of being refused a confirmed seat
on the last minute, said passenger is entitled to
moral damages. (Emphasis supplied).
However, the Courts ruling in said case should be read in consonance
with existing laws, particularly, Economic Regulations No. 7, as
amended, of the Civil Aeronautics Board:
Sec. 3. Scope. This regulation shall apply to
every Philippine and foreign air carrier with respect
to its operation of flights or portions of flights
originating from or terminating at, or serving a
point within the territory of the Republic of the
Philippines insofar as it denies boarding to a
passenger on a flight, or portion of a flight inside or
outside the Philippines, for which he holds
confirmed reserved space. Furthermore, this
Regulation is designed to cover only honest
mistakes on the part of the carriers and excludes
deliberate and willful acts of non-accommodation.
Provided, however, that overbooking not
exceeding 10% of the seating capacity of the
aircraft shall not be considered as a deliberate and
willful act of non-accommodation.
What this Court considers as bad faith is the willful and deliberate
overbooking on the part of the airline carrier. The above-mentioned law
clearly states that when the overbooking does not exceed ten percent
(10%), it is not considered as deliberate and therefore does not

amount to bad faith. While there may have been overbooking in this
case, private respondents were not able to prove that the overbooking
on United Airlines Flight 1108 exceeded ten percent.
As earlier stated, the Court is of the opinion that the private
respondents were not able to prove that they were subjected to coarse
and harsh treatment by the ground crew of united Airlines. Neither
were they able to show that there was bad faith on part of the carrier
airline. Hence, the award of moral and exemplary damages by the
Court of Appeals is improper. Corollarily, the award of attorneys fees
is, likewise, denied for lack of any legal and factual basis.
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals in CA-G.R. CV No. 37044 is hereby REVERSED and SET
ASIDE. The decision of the Regional Trial Court of Makati City in Civil
Case No. 89-4268 dated April 8, 1991 is hereby REINSTATED.
G.R. No. 138104

April 11, 2002

MR HOLDINGS, LTD., petitioner, vs.SHERIFF CARLOS P. BAJAR,


SHERIFF FERDINAND M. JANDUSAY, SOLIDBANK CORPORATION,
AND MARCOPPER MINING CORPORATION, respondents.

petitioner. Under its provisions, Marcopper assigns, transfers, cedes


and conveys to petitioner, its assigns and/or successors-in-interest all
of its (Marcoppers) properties, mining equipment and facilities, to wit:
Land and Mining Rights
Building and Other Structures
Other Land Improvements
Machineries & Equipment, and Warehouse Inventory
Mine/Mobile Equipment; Transportation Equipment and Furniture &
Fixtures
Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation
(Solidbank) obtained a Partial Judgment 9against Marcopper from the
RTC, Branch 26, Manila, in Civil Case No. 96-80083 entitled
"Solidbank Corporation vs. Marcopper Mining Corporation, John E.
Loney, Jose E. Reyes and Teodulo C. Gabor, Jr.," the decretal portion
of which reads:

SANDOVAL-GUTIERREZ, J.:
In the present Petition for Review on Certiorari, petitioner MR Holdings,
Ltd. assails the a) Decision1 dated January 8, 1999 of the Court of
Appeals in CA-G.R. SP No. 49226 finding no grave abuse of discretion
on the part of Judge Leonardo P. Ansaldo of the Regional Trial Court
(RTC), Branch 94, Boac, Marinduque, in denying petitioners
application for a writ of preliminary injunction;2 and b) Resolution3 dated
March 29, 1999 denying petitioners motion for reconsideration.
Under a "Principal Loan Agreement"4 and "Complementary Loan
Agreement,"5 both dated November 4, 1992, Asian Development Bank
(ADB), a multilateral development finance institution, agreed to extend
to Marcopper Mining Corporation (Marcopper) a loan in the aggregate
amount of US$40,000,000.00 to finance the latters mining project at
Sta. Cruz, Marinduque. The principal loan of US$ 15,000,000.00 was
sourced from ADBs ordinary capital resources, while the
complementary loan of US$ 25,000,000.00 was funded by the Bank of
Nova Scotia, a participating finance institution.
On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign
corporation which owns 40% of Marcopper, executed a "Support and
Standby Credit Agreement" whereby the latter agreed to provide
Marcopper with cash flow support for the payment of its obligations to
ADB.
To secure the loan, Marcopper executed in favor of ADB a "Deed of
Real Estate and Chattel Mortgage"6 dated November 11, 1992,
covering substantially all of its (Marcoppers) properties and assets in
Marinduque. It was registered with the Register of Deeds on November
12, 1992.
When Marcopper defaulted in the payment of its loan obligation, Placer
Dome, in fulfillment of its undertaking under the "Support and Standby
Credit Agreement," and presumably to preserve its international credit
standing, agreed to have its subsidiary corporation, petitioner MR
Holding, Ltd., assumed Marcoppers obligation to ADB in the amount of
US$ 18,453,450.02. Consequently, in an "Assignment Agreement"7
dated March 20, 1997, ADB assigned to petitioner all its rights,
interests and obligations under the principal and complementary loan
agreements, ("Deed of Real Estate and Chattel Mortgage," and
"Support and Standby Credit Agreement"). On December 8, 1997,
Marcopper likewise executed a "Deed of Assignment" 8 in favor of

"WHEREFORE,
PREMISES
CONSIDERED,
partial
judgment is hereby rendered ordering defendant Marcopper
Mining Corporation, as follows:
1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine Hundred
Seventy Thousand Pesos Seven Hundred Fifty Six and 89/100 only
(PHP 52,970,756.89), plus interest and charges until fully paid; 2. To
pay an amount equivalent to Ten Percent (10%) of above-stated
amount as attorneys fees; and 3. To pay the costs of suit.
Upon Solidbanks motion, the RTC of Manila issued a writ of execution
pending appeal directing Carlos P. Bajar, respondent sheriff, to require
Marcopper "to pay the sums of money to satisfy the Partial
Judgment."10 Thereafter, respondent Bajar issued two notices of levy
on Marcoppers personal and real properties, and over all its stocks of
scrap iron and unserviceable mining equipment. 11 Together with sheriff
Ferdinand M. Jandusay (also a respondent) of the RTC, Branch 94,
Boac, Marinduque, respondent Bajar issued two notices setting the
public auction sale of the levied properties on August 27, 1998 at the
Marcopper mine site.12
Having learned of the scheduled auction sale, petitioner served an
"Affidavit of Third-Party Claim"13 upon respondent sheriffs on August
26, 1998, asserting its ownership over all Marcoppers mining
properties, equipment and facilities by virtue of the "Deed of
Assignment."
Upon the denial of its "Affidavit of ThirdParty Claim" by the RTC of
Manila,14 petitioner commenced with the RTC of Boac, Marinduque,
presided by Judge Leonardo P. Ansaldo, a complaint for reivindication
of properties, etc., with prayer for preliminary injunction and temporary
restraining order against respondents Solidbank, Marcopper, and
sheriffs Bajar and Jandusay.15 The case was docketed as Civil Case
No. 98-13.
In an Order16 dated October 6, 1998, Judge Ansaldo denied petitioners
application for a writ of preliminary injunction on the ground that a)
petitioner has no legal capacity to sue, it being a foreign corporation
doing business in the Philippines without license; b) an injunction will
amount "to staying the execution of a final judgment by a court of coequal and concurrent jurisdiction;" and c) the validity of the

"Assignment Agreement" and the "Deed of Assignment" has been "put


into serious question by the timing of their execution and registration."
Unsatisfied, petitioner elevated the matter to the Court of Appeals on a
Petition for Certiorari, Prohibition and Mandamus, docketed therein as
CA-G.R. SP No. 49226. On January 8, 1999, the Court of Appeals
rendered a Decision holding that Judge Ansaldo did not commit grave
abuse of discretion in denying petitioners prayer for a writ of
preliminary injunction, ratiocinating as follows:
"Petitioner contends that it has the legal capacity to sue and
seek redress from Philippine courts as it is a non-resident
foreign corporation not doing business in the Philippines and
suing on isolated transactions.
xxx

xxx

"We agree with the finding of the respondent court that


petitioner is not suing on an isolated transaction as it claims
to be, as it is very obvious from the deed of assignment and
its relationships with Marcopper and Placer Dome, Inc. that
its unmistakable intention is to continue the operations of
Marcopper and shield its properties/assets from the reach of
legitimate creditors, even those holding valid and executory
court judgments against it. There is no other way for
petitioner to recover its huge financial investments which it
poured into Marcoppers rehabilitation and the local situs
where the Deeds of Assignment were executed, without
petitioner continuing to do business in the country.
xxx

xxx
"While petitioner may just be an assignee to the
Deeds of Assignment, it may still fall within the
meaning of "doing business" in light of the
Supreme Court ruling in the case of Far East
International Import and Export Corporation vs.
Nankai Kogyo Co., 6 SCRA 725, that:

Where a single act or transaction however is not merely


incidental or casual but indicates the foreign corporations
intention to do other business in the Philippines, said single
act or transaction constitutes doing or engaging in or
transacting business in the Philippines.
"Furthermore, the court went further by declaring that even a
single act may constitute doing business if it is intended to
be the beginning of a series of transactions. (Far East
International Import and Export Corporation vs. Nankai
Kogyo Co. supra).
"On the issue of whether petitioner is the bona fide owner of
all the mining facilities and equipment of Marcopper,
petitioner relies heavily on the Assignment Agreement
allegedly executed on March 20, 1997 wherein all the rights
and interest of Asian Development Bank (ADB) in a
purported Loan Agreement were ceded and transferred in
favor of the petitioner as assignee, in addition to a
subsequent Deed of Assignment dated December 28, 1997
conveying absolutely all the properties, mining equipment
and facilities of Marcopper in favor of petitioner.
"The Deeds of Assignment executed in favor of petitioner
cannot be binding on the judgment creditor, private
respondent Solidbank, under the general legal principle that

contracts can only bind the parties who had entered into it,
and it cannot favor or prejudice a third person (Quano vs.
Court of Appeals, 211 SCRA 40). Moreover, by express
stipulation, the said deeds shall be governed, interpreted
and construed in accordance with laws of New
York.1wphi1.nt
"The Deeds of Assignment executed by Marcopper, through
its President, Atty. Teodulo C. Gabor, Jr., were clearly made
in bad faith and in fraud of creditors, particularly private
respondent Solidbank. The first Assignment Agreement
purportedly executed on March 20, 1997 was entered into
after Solidbank had filed on September 19, 1996 a case
against Marcopper for collection of sum of money before
Branch 26 of the Regional Trial Court docketed as Civil Case
No. 96-80083. The second Deed of Assignment purportedly
executed on December 28, 1997 was entered into by
President Gabor after Solidbank had filed its Motion for
Partial Summary Judgment, after the rendition by Branch 26
of the Regional Trial Court of Manila of a Partial Summary
Judgment and after the said trial court had issued a writ of
execution, and which judgment was later affirmed by the
Court of Appeals. While the assignments (which were not
registered with the Registry of Property as required by Article
1625 of the new Civil Code) may be valid between the
parties thereof, it produces no effect as against third parties.
The purported execution of the Deeds of Assignment in favor
of petitioner was in violation of Article 1387 of the New Civil
Code x x x." (Emphasis Supplied)
Hence, the present Petition for Review on Certiorari by MR Holdings,
Ltd. moored on the following grounds:
"A. THE HONORABLE COURT OF APPEALS COMMITS A
REVERSIBLE ERROR IN COMPLETELY DISREGARDING
AS A MATERIAL FACT OF THE CASE THE EXISTENCE OF
THE PRIOR, REGISTERED 1992 DEED OF REAL ESTATE
AND CHATTEL MORTGAGE CREATING A LIEN OVER
THE LEVIED PROPERTIES, SUBJECT OF THE
ASSIGNMENT AGREEMENT DATED MARCH 20, 1997,
THUS, MATERIALLY CONTRIBUTING TO THE SAID
COURTS MISPERCEPTION AND MISAPPRECIATION OF
THE MERITS OF PETITIONERS CASE.
B. THE HONORABLE COURT OF APPEALS COMMITS A
REVERSIBLE ERROR IN MAKING A FACTUAL FINDING
THAT THE SAID ASSIGNMENT AGREEMENT IS NOT
REGISTERED, THE SAME BEING CONTRARY TO THE
FACTS
ON
RECORD,
THUS,
MATERIALLY
CONTRIBUTING
TO
THE
SAID
COURTS
MISPERCEPTION AND MISAPPRECIATION OF THE
MERITS OF PETITIONERS CASE.
C. THE HONORABLE COURT OF APPEALS COMMITS A
REVERSIBLE ERROR IN MAKING A FACTUAL FINDING
ON THE EXISTENCE OF AN ATTACHMENT ON THE
PROPERTIES SUBJECT OF INSTANT CASE, THE SAME
BEING CONTRARY TO THE FACTS ON RECORD, THUS,
MATERIALLY CONTRIBUTING TO THE SAID COURTS
MISPERCEPTION AND MISAPPRECIATION OF THE
MERITS OF PETITIONERS CASE.
D. THE HONORABLE COURT OF APPEALS COMMITS A
REVERSIBLE ERROR IN HOLDING THAT THE SAID
ASSIGNMENT AGREEMENT AND THE DEED OF
ASSIGNMENT ARE NOT BINDING ON RESPONDENT

SOLIDBANK WHO IS NOT A PARTY THERETO, THE


SAME BEING CONTRARY TO LAW AND ESTABLISHED
JURISPRUDENCE ON PRIOR REGISTERED MORTGAGE
LIENS AND ON PREFERENCE OF CREDITS.
E. THE HONORABLE COURT OF APPEALS COMMITS A
REVERSIBLE
ERROR
IN
FINDING THAT THE
AFOREMENTIONED ASSIGNMENT AGREEMENT AND
DEED OF ASSIGNMENT ARE SHAM, SIMULATED, OF
DUBIOUS CHARACTER, AND WERE MADE IN BAD FAITH
AND IN FRAUD OF CREDITORS, PARTICULARLY
RESPONDENT SOLIDBANK, THE SAME BEING IN
COMPLETE DISREGARD OF, VIZ: (1) THE LAW AND
ESTABLISHED
JURISPRUDENCE
ON
PRIOR,
REGISTERED MORTGAGE LIENS AND ON PREFERENCE
OF CREDITS, BY REASON OF WHICH THERE EXISTS
NO CAUSAL CONNECTION BETWEEN THE SAID
CONTRACTS AND THE PROCEEDINGS IN CIVIL CASE
NO. 96-80083; (2) THAT THE ASIAN DEVELOPMENT
BANK WILL NOT OR COULD NOT HAVE AGREED TO A
SHAM; SIMULATED, DUBIOUS AND FRAUDULENT
TRANSACTION;
AND
(3)
THAT
RESPONDENT
SOLIDBANKS BIGGEST STOCKHOLDER, THE BANK OF
NOVA SCOTIA, WAS A MAJOR BENEFICIARY OF THE
ASSIGNMENT AGREEMENT IN QUESTION.
F. THE HONORABLE COURT OF APPEALS COMMITS A
REVERSIBLE ERROR IN HOLDING THAT PETITIONER IS
WITHOUT LEGAL CAPACITY TO SUE AND SEEK
REDRESS FROM PHILIPPINE COURTS, IT BEING THE
CASE THAT SECTION 133 OF THE CORPORATION CODE
IS WITHOUT APPLICATION TO PETITIONER, AND IT
BEING THE CASE THAT THE SAID COURT MERELY
RELIED ON SURMISES AND CONJECTURES IN OPINING
THAT PETITIONER INTENDS TO DO BUSINESS IN THE
PHILIPPINES.

PRELIMINARY INJUNCTION, THE SAME BEING IN TOTAL


DISREGARD OF PETITIONERS RIGHT AS ASSIGNEE OF
A PRIOR, REGISTERED MORTGAGE LIEN, AND IN
DISREGARD OF THE LAW AND JURISPRUDENCE ON
PREFERENCE OF CREDIT."
In its petition, petitioner alleges that it is not "doing business" in the
Philippines and characterizes its participation in the assignment
contracts (whereby Marcoppers assets where transferred to it) as
mere isolated acts that cannot foreclose its right to sue in local courts.
Petitioner likewise maintains that the two assignment contracts,
although executed during the pendency of Civil Case No. 96-80083 in
the RTC of Manila, are not fraudulent conveyances as they were
supported by valuable considerations. Moreover, they were executed
in connection with prior transactions that took place as early as 1992
which involved ADB, a reputable financial institution. Petitioner further
claims that when it paid Marcoppers obligation to ADB, it stepped into
the latters shoes and acquired its (ADBS) rights, titles, and interests
under the "Deed of Real Estate and Chattel Mortgage." Lastly,
petitioner asserts its existence as a corporation, separate and distinct
from Placer Dome and Marcopper.
In its comment, Solidbank avers that: a) petitioner is "doing business"
in the Philippines and this is evidenced by the "huge investment" it
poured into the assignment contracts; b) granting that petitioner is not
doing business in the Philippines, the nature of its transaction reveals
an "intention to do business" or "to begin a series of transaction" in the
country; c) petitioner, Marcopper and Placer Dome are one and the
same entity, petitioner being then a wholly-owned subsidiary of Placer
Dome, which, in turn, owns 40% of Marcopper; d) the timing under
which the assignments contracts were executed shows that petitioners
purpose was to defeat any judgment favorable to it (Solidbank); and e)
petitioner violated the rule on forum shopping since the object of Civil
Case No. 98-13 (at RTC, Boac, Marinduque) is similar to the other
cases filed by Marcopper in order to forestall the sale of the levied
properties.

G. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN HOLDING THAT RESPONDENT
MARCOPPER, PLACER DOME, INC., AND PETITIONER
ARE ONE AND THE SAME ENTITY, THE SAME BEING
WITHOUT FACTUAL OR LEGAL BASIS.

Marcopper, in a separate comment, states that it is merely a nominal


party to the present case and that its principal concerns are being
ventilated in another case.

H. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN HOLDING PETITIONER GUILTY
OF FORUM SHOPPING, IT BEING CLEAR THAT NEITHER
LITIS PENDENTIA NOR RES JUDICATA MAY BAR THE
INSTANT REIVINDICATORY ACTION, AND IT BEING
CLEAR THAT AS THIRD-PARTY CLAIMANT, THE LAW
AFFORDS PETITIONER THE RIGHT TO FILE SUCH
REIVINDICATORY ACTION.

Crucial to the outcome of this case is our resolution of the following


issues: 1) Does petitioner have the legal capacity to sue? 2) Was the
Deed of Assignment between Marcopper and petitioner executed in
fraud of creditors? 3) Are petitioner MR Holdings, Ltd., Placer Dome,
and Marcopper one and the same entity? and 4) Is petitioner guilty of
forum shopping?

I. THE HONORABLE COURT OF APPEALS COMMITS A


REVERSIBLE ERROR IN RENDERING A DECISION
WHICH IN EFFECT SERVES AS JUDGMENT ON THE
MERITS OF THE CASE.
J. THE SHERIFFS LEVY AND SALE, THE SHERIFFS
CERTIFICATE OF SALE DATED OCTOBER 12, 1998, THE
RTC-MANILA ORDER DATED FEBRUARY 12, 1999, AND
THE RTC-BOAC ORDER DATED NOVEMBER 25, 1998
ARE NULL AND VOID.
K. THE HONORABLE COURT OF APPEALS COMMITS A
REVERSIBLE ERROR IN AFFIRMING THE DENIAL BY
THE RTC-BOAC OF PETITIONERS APPLICATION FOR

The petition is impressed with merit.

We shall resolve the issues in seriatim.


I
The Court of Appeals ruled that petitioner has no legal capacity to sue
in the Philippine courts because it is a foreign corporation doing
business here without license. A review of this ruling does not pose
much complexity as the principles governing a foreign corporations
right to sue in local courts have long been settled by our Corporation
Law.17 These principles may be condensed in three statements, to wit:
a) if a foreign corporation does business in the Philippines without a
license, it cannot sue before the Philippine courts; 18 b) if a foreign
corporation is not doing business in the Philippines, it needs no license
to sue before Philippine courts on an isolated transaction19 or on a
cause of action entirely independent of any business transaction; 20 and

c) if a foreign corporation does business in the Philippines with the


required license, it can sue before Philippine courts on any transaction.
Apparently, it is not the absence of the prescribed license but the
"doing (of) business" in the Philippines without such license which
debars the foreign corporation from access to our courts.21
The task at hand requires us to weigh the facts vis--vis the
established principles. The question whether or not a foreign
corporation is doing business is dependent principally upon the facts
and circumstances of each particular case, considered in the light of
the purposes and language of the pertinent statute or statutes involved
and of the general principles governing the jurisdictional authority of
the state over such corporations.22
Batas Pambansa Blg. 68, otherwise known as "The Corporation Code
of the Philippines," is silent as to what constitutes doing" or
"transacting" business in the Philippines. Fortunately, jurisprudence
has supplied the deficiency and has held that the term "implies a
continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in
progressive prosecution of, the purpose and object for which the
corporation was organized."23 In Mentholatum Co. Inc., vs.
Mangaliman,24 this Court laid down the test to determine whether a
foreign company is "doing business," thus:
" x x x The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of
the business or enterprise for which it was organized or
whether it has substantially retired from it and turned it over
to another. (Traction Cos. vs. Collectors of Int. Revenue
[C.C.A., Ohio], 223 F. 984,987.) x x x."
The traditional case law definition has metamorphosed into a statutory
definition, having been adopted with some qualifications in various
pieces of legislation in our jurisdiction. For instance, Republic Act No.
7042, otherwise known as the "Foreign Investment Act of 1991,"
defines "doing business" as follows:
"d) The phrase doing business shall include soliciting
orders, service contracts, opening offices, whether called
liaison offices or branches; appointing representatives or
distributors domiciled in the Philippines or who in any
calendar year stay in the country for a period or periods
totalling one hundred eight(y) (180) days or more;
participating in the management, supervision or control of
any domestic business, firm, entity, or corporation in the
Philippines; and any other act or acts that imply a continuity
of commercial dealings or arrangements, and contemplate to
that extent the performance of acts or works; or the exercise
of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the
purpose and object of the business organization; Provided,
however, That the phrase doing business shall not be
deemed to include mere investment as a shareholder by a
foreign entity in domestic corporations duly registered to do
business, and/or the exercise of rights as such investor, nor
having a nominee director or officer to represent its interests
in such corporation, nor appointing a representative or
distributor domiciled in the Philippines which transacts
business in its own name and for its own account."
(Emphasis supplied)25
Likewise, Section 1 of Republic Act No. 5455,26 provides that:

"SECTION. 1. Definition and scope of this Act. - (1) x x x the


phrase doing business shall include soliciting orders,
purchases, service contracts, opening offices, whether called
liaison offices or branches; appointing representatives or
distributors who are domiciled in the Philippines or who in
any calendar year stay in the Philippines for a period or
periods totaling one hundred eighty days or more;
participating in the management, supervision or control of
any domestic business firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity
of commercial dealings or arrangements, and contemplate to
that extent the performance of acts or works, or the exercise
of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the
purpose and object of the business organization."
There are other statutes27 defining the term "doing business" in the
same tenor as those above-quoted, and as may be observed, one
common denominator among them all is the concept of "continuity."
In the case at bar, the Court of Appeals categorized as "doing
business" petitioners participation under the "Assignment Agreement"
and the "Deed of Assignment." This is simply untenable. The
expression "doing business" should not be given such a strict and
literal construction as to make it apply to any corporate dealing
whatever.28 At this early stage and with petitioners acts or transactions
limited to the assignment contracts, it cannot be said that it had
performed acts intended to continue the business for which it was
organized. It may not be amiss to point out that the purpose or
business for which petitioner was organized is not discernible in the
records. No effort was exerted by the Court of Appeals to establish the
nexus between petitioners business and the acts supposed to
constitute "doing business." Thus, whether the assignment contracts
were incidental to petitioners business or were continuation thereof is
beyond determination. We cannot apply the case cited by the Court of
Appeals, Far East Intl Import and Export Corp. vs. Nankai Kogyo Co.,
Ltd.,29 which held that a single act may still constitute "doing business"
if "it is not merely incidental or casual, but is of such character as
distinctly to indicate a purpose on the part of the foreign corporation to
do other business in the state." In said case, there was an express
admission from an official of the foreign corporation that he was sent to
the Philippines to look into the operation of mines, thereby revealing
the foreign corporations desire to continue engaging in business here.
But in the case at bar, there is no evidence of similar desire or intent.
Unarguably, petitioner may, as the Court of Appeals suggested, decide
to operate Marcoppers mining business, but, of course, at this stage,
that is a mere speculation. Or it may decide to sell the credit secured
by the mining properties to an offshore investor, in which case the acts
will still be isolated transactions. To see through the present facts an
intention on the part of petitioner to start a series of business
transaction is to rest on assumptions or probabilities falling short of
actual proof. Courts should never base its judgments on a state of
facts so inadequately developed that it cannot be determined where
inference ends and conjecture begins.
Indeed, the Court of Appeals holding that petitioner was determined to
be "doing business" in the Philippines is based mainly on conjectures
and speculation. In concluding that the "unmistakable intention" of
petitioner is to continue Marcoppers business, the Court of Appeals
hangs on the wobbly premise that "there is no other way for petitioner
to recover its huge financial investments which it poured into
Marcoppers rehabilitation without it (petitioner) continuing Marcoppers
business in the country."30 This is a mere presumption. Absent overt
acts of petitioner from which we may directly infer its intention to
continue Marcoppers business, we cannot give our concurrence.
Significantly, a view subscribed upon by many authorities is that the
mere ownership by a foreign corporation of a property in a certain

state, unaccompanied by its active use in furtherance of the business


for which it was formed, is insufficient in itself to constitute doing
business.31 In Chittim vs. Belle Fourche Bentonite Products Co., 32 it
was held that even if a foreign corporation purchased and took
conveyances of a mining claim, did some assessment work thereon,
and endeavored to sell it, its acts will not constitute the doing of
business so as to subject the corporation to the statutory requirements
for the transacting of business. On the same vein, petitioner, a foreign
corporation, which becomes the assignee of mining properties,
facilities and equipment cannot be automatically considered as doing
business, nor presumed to have the intention of engaging in mining
business.
One important point. Long before petitioner assumed Marcoppers debt
to ADB and became their assignee under the two assignment
contracts, there already existed a "Support and Standby Credit
Agreement" between ADB and Placer Dome whereby the latter bound
itself to provide cash flow support for Marcoppers payment of its
obligations to ADB. Plainly, petitioners payment of US$ 18,453,450.12
to ADB was more of a fulfillment of an obligation under the "Support
and Standby Credit Agreement" rather than an investment. That
petitioner had to step into the shoes of ADB as Marcoppers creditor
was just a necessary legal consequence of the transactions that
transpired. Also, we must hasten to add that the "Support and Standby
Credit Agreement" was executed four (4) years prior to Marcoppers
insovency, hence, the alleged "intention of petitioner to continue
Marcoppers business" could have no basis for at that time,
Marcoppers fate cannot yet be determined.
In the final analysis, we are convinced that petitioner was engaged
only in isolated acts or transactions. Single or isolated acts, contracts,
or transactions of foreign corporations are not regarded as a doing or
carrying on of business. Typical examples of these are the making of a
single contract, sale, sale with the taking of a note and mortgage in the
state to secure payment therefor, purchase, or note, or the mere
commission of a tort.33 In these instances, there is no purpose to do
any other business within the country.
II
Solidbank contends that from the chronology and timing of events, it is
evident that there existed a pre-set pattern of response on the part of
Marcopper to defeat whatever court ruling that may be rendered in
favor of Solidbank.
We are not convinced.
While it may appear, at initial glance, that the assignment contracts are
in the nature of fraudulent conveyances, however, a closer look at the
events that transpired prior to the execution of those contracts gives
rise to a different conclusion. The obvious flaw in the Court of Appeals
Decision lies in its constricted view of the facts obtaining in the case. In
its factual narration, the Court of Appeals definitely left out some
events. We shall see later the significance of those events.
Article 1387 of the Civil Code of the Philippines provides:
"Art. 1387. All contracts by virtue of which the debtor
alienates property by gratuitous title are presumed to have
been entered into in fraud of creditors, when the donor did
not reserve sufficient property to pay all debts contracted
before the donation.
Alienations by onerous title are also presumed fraudulent
when made by persons against whom some judgment has

been rendered in any instance or some writ of attachment


has been issued. The decision or attachment need not refer
to the property alienated, and need not have been obtained
by the party seeking rescission.
In addition to these presumptions, the design to defraud
creditors may be proved in any other manner recognized by
law and of evidence.
This article presumes the existence of fraud made by a debtor. Thus, in
the absence of satisfactory evidence to the contrary, an alienation of a
property will be held fraudulent if it is made after a judgment has been
rendered against the debtor making the alienation. 34 This presumption
of fraud is not conclusive and may be rebutted by satisfactory and
convincing evidence. All that is necessary is to establish affirmatively
that the conveyance is made in good faith and for a sufficient and
valuable consideration.35
The "Assignment Agreement" and the "Deed of Assignment" were
executed for valuable considerations. Patent from the "Assignment
Agreement" is the fact that petitioner assumed the payment of US$
18,453,450.12 to ADB in satisfaction of Marcoppers remaining debt as
of March 20, 1997.36 Solidbank cannot deny this fact considering that a
substantial portion of the said payment, in the sum of US$
13,886,791.06, was remitted in favor of the Bank of Nova Scotia, its
major stockholder.37
The facts of the case so far show that the assignment contracts were
executed in good faith. The execution of the "Assignment Agreement"
on March 20, 1997 and the "Deed of Assignment" on December
8,1997 is not the alpha of this case. While the execution of these
assignment contracts almost coincided with the rendition on May 7,
1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila
RTC, however, there was no intention on the part of petitioner to defeat
Solidbanks claim. It bears reiterating that as early as November 4,
1992, Placer Dome had already bound itself under a "Support and
Standby Credit Agreement" to provide Marcopper with cash flow
support for the payment to ADB of its obligations. When Marcopper
ceased operations on account of disastrous mine tailings spill into the
Boac River and ADB pressed for payment of the loan, Placer Dome
agreed to have its subsidiary, herein petitioner, paid ADB the amount of
US $18,453,450.12. Thereupon, ADB and Marcopper executed,
respectively, in favor of petitioner an "Assignment Agreement" and a
"Deed of Assignment." Obviously, the assignment contracts were
connected with transactions that happened long before the rendition in
1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila
RTC. Those contracts cannot be viewed in isolation. If we may add, it
is highly inconceivable that ADB, a reputable international financial
organization, will connive with Marcopper to feign or simulate a
contract in 1992 just to defraud Solidbank for its claim four years
thereafter. And it is equally incredible for petitioner to be paying the
huge sum of US $ 18,453,450.12 to ADB only for the purpose of
defrauding Solidbank of the sum of P52,970,756.89.
It is said that the test as to whether or not a conveyance is fraudulent is
-- does it prejudice the rights of creditors? 38 We cannot see how
Solidbanks right was prejudiced by the assignment contracts
considering that substantially all of Marcoppers properties were
already covered by the registered "Deed of Real Estate and Chattel
Mortgage" executed by Marcopper in favor of ADB as early as
November 11, 1992. As such, Solidbank cannot assert a better right
than ADB, the latter being a preferred creditor. It is basic that
mortgaged properties answer primarily for the mortgaged credit, not for
the judgment credit of the mortgagors unsecured creditor. Considering
that petitioner assumed Marcoppers debt to ADB, it follows that

Solidbanks right as judgment creditor over the subject properties must


give way to that of the former.1wphi1.nt
III
The record is lacking in circumstances that would suggest that
petitioner corporation, Placer Dome and Marcopper are one and the
same entity. While admittedly, petitioner is a wholly-owned subsidiary
of Placer Dome, which in turn, which, in turn, was then a minority
stockholder of Marcopper, however, the mere fact that a corporation
owns all of the stocks of another corporation, taken alone is not
sufficient to justify their being treated as one entity. If used to perform
legitimate functions, a subsidiarys separate existence shall be
respected, and the liability of the parent corporation as well as the
subsidiary will be confined to those arising in their respective
business.39
The recent case of Philippine National Bank vs. Ritratto Group Inc., 40
outlines the circumstances which are useful in the determination of
whether a subsidiary is but a mere instrumentality of the parentcorporation, to wit:
(a) The parent corporation owns all or most of the capital
stock of the subsidiary.
(b) The parent and subsidiary corporations have common
directors or officers.
(c) The parent corporation finances the subsidiary.
(d) The parent corporation subscribes to all the capital stock
of the subsidiary or otherwise causes its incorporation.
(e) The subsidiary has grossly inadequate capital.
(f) The parent corporation pays the salaries and other
expenses or losses of the subsidiary.
(g) The subsidiary has substantially no business except with
the parent corporation or no assets except those conveyed
to or by the parent corporation.
(h) In the papers of the parent corporation or in the
statements of its officers, the subsidiary is described as a
department or division of the parent corporation, or its
business or financial responsibility is referred to as the
parent corporations own.
(i) The parent corporation uses the property of the subsidiary
as its own.
(j) The directors or executives of the subsidiary do not act
independently in the interest of the subsidiary, but take their
orders from the parent corporation.
(k) The formal legal requirements of the subsidiary are not
observed.
In this catena of circumstances, what is only extant in the records is
the matter of stock ownership. There are no other factors indicative
that petitioner is a mere instrumentality of Marcopper or Placer Dome.
The mere fact that Placer Dome agreed, under the terms of the
"Support and Standby Credit Agreement" to provide Marcopper with

cash flow support in paying its obligations to ADB, does not mean that
its personality has merged with that of Marcopper. This singular
undertaking, performed by Placer Dome with its own stockholders in
Canada and elsewhere, is not a sufficient ground to merge its
corporate personality with Marcopper which has its own set of
shareholders, dominated mostly by Filipino citizens. The same view
applies to petitioners payment of Marcoppers remaining debt to ADB.
With the foregoing considerations and the absence of fraud in the
transaction of the three foreign corporations, we find it improper to
pierce the veil of corporate fiction that equitable doctrine developed
to address situations where the corporate personality of a corporation
is abused or used for wrongful purposes.
IV
On the issue of forum shopping, there could have been a violation of
the rules thereon if petitioner and Marcopper were indeed one and the
same entity. But since petitioner has a separate personality, it has the
right to pursue its third-party claim by filing the independent
reivindicatory action with the RTC of Boac, Marinduque, pursuant to
Rule 39, Section 16 of the 1997 Rules of Civil Procedures. This
remedy has been recognized in a long line of cases decided by this
Court.41 In Rodriguez vs. Court of Appeals,42 we held:
". . . It has long been settled in this jurisdiction that the claim
of ownership of a third party over properties levied for
execution of a judgment presents no issue for determination
by the court issuing the writ of execution.
. . .Thus, when a property levied upon by the sheriff pursuant
to a writ of execution is claimed by third person in a sworn
statement of ownership thereof, as prescribed by the rules,
an entirely different matter calling for a new adjudication
arises. And dealing as it does with the all important question
of title, it is reasonable to require the filing of proper
pleadings and the holding of a trial on the matter in view of
the requirements of due process.
. . . In other words, construing Section 17 of Rule 39 of the
Revised Rules of Court (now Section 16 of the 1997 Rules of
Civil Procedure), the rights of third-party claimants over
certain properties levied upon by the sheriff to satisfy the
judgment may not be taken up in the case where such
claims are presented but in a separate and independent
action instituted by the claimants." (Emphasis supplied)
This "reivindicatory action" has for its object the recovery of ownership
or possession of the property seized by the sheriff, despite the third
party claim, as well as damages resulting therefrom, and it may be
brought against the sheriff and such other parties as may be alleged to
have connived with him in the supposedly wrongful execution
proceedings, such as the judgment creditor himself. Such action is an
entirely separate and distinct action from that in which execution has
been issued. Thus, there being no identity of parties and cause of
action between Civil Case No. 98-13 (RTC, Boac) and those cases
filed by Marcopper, including Civil Case No. 96-80083 (RTC, Manila)
as to give rise to res judicata or litis pendentia, Solidbanks allegation
of forum-shopping cannot prosper.43
All considered, we find petitioner to be entitled to the issuance of a writ
of preliminary injunction. Section 3, Rule 58 of the 1997 Rules of Civil
Procedure provides:

"SEC. 3 Grounds for issuance of preliminary injunction. A


preliminary injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and
the whole or part of such relief consists in restraining the
commission or continuance of the act or acts complained of,
or in requiring the performance of an act or acts, either for a
limited period or perpetually;
(b) That the commission, continuance or non-performance of
the acts or acts complained of during the litigation would
probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing,
threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of
the rights of the applicant respecting the subject of the action
or proceeding, and tending to render the judgment
ineffectual."
Petitioners right to stop the further execution of the properties covered
by the assignment contracts is clear under the facts so far established.
An execution can be issued only against a party and not against one
who did not have his day in court. 44 The duty of the sheriff is to levy the
property of the judgment debtor not that of a third person. For, as the
saying goes, one mans goods shall not be sold for another man's
debts.45 To allow the execution of petitioners properties would surely
work injustice to it and render the judgment on the reivindicatory
action, should it be favorable, ineffectual. In Arabay, Inc., vs.
Salvador,46 this Court held that an injunction is a proper remedy to
prevent a sheriff from selling the property of one person for the
purpose of paying the debts of another; and that while the general rule
is that no court has authority to interfere by injunction with the
judgments or decrees of another court of equal or concurrent or
coordinate jurisdiction, however, it is not so when a third-party claimant
is involved. We quote the instructive words of Justice Querube C.
Makalintal in Abiera vs. Court of Appeals,47 thus:
"The rationale of the decision in the Herald Publishing
Company case48 is peculiarly applicable to the one before
Us, and removes it from the general doctrine enunciated in
the decisions cited by the respondents and quoted earlier
herein.
1. Under Section 17 of Rule 39 a third person who claims
property levied upon on execution may vindicate such claim
by action. Obviously a judgment rendered in his favor, that
is, declaring him to be the owner of the property, would not
constitute interference with the powers or processes of the
court which rendered the judgment to enforce which the
execution was levied. If that be so and it is so because the
property, being that of a stranger, is not subject to levy
then an interlocutory order such as injunction, upon a claim
and prima facie showing of ownership by the claimant,
cannot be considered as such interference either."
WHEREFORE, the petition is GRANTED. The assailed Decision dated
January 8, 1999 and the Resolution dated March 29, 1999 of the Court
of Appeals in CA G.R. No. 49226 are set aside. Upon filing of a bond of
P1,000,000.00, respondent sheriffs are restrained from further
implementing the writ of execution issued in Civil Case No. 96-80083
by the RTC, Branch 26, Manila, until further orders from this Court. The
RTC, Branch 94, Boac, Marinduque, is directed to dispose of Civil
Case No. 98-13 with dispatch.

G.R. No. 131680

September 14, 2000

SUBIC BAY METROPOLITAN AUTHORITY, RICHARD J. GORDON,


FERDINAND M. ARISTORENAS, MANUEL W. QUIJANO and
RAYMOND
P.
VENTURA,
petitioners,
vs.UNIVERSAL
INTERNATIONAL GROUP OF TAIWAN, UIG INTERNATIONAL
DEVELOPMENT CORPORATION and SUBIC BAY GOLF AND
COUNTRY CLUB, Inc., respondents.
PANGANIBAN, J.:
A stipulation authorizing a party to extrajudicially rescind a contract and
to recover possession of the property in case of contractual breach is
lawful. But when a valid objection is raised, a judicial determination of
the issue is still necessary before a takeover may be allowed. In the
present case, however, respondents do not deny that there was such a
breach of the Agreement; they merely argue that the stipulation
allowing a rescission and a recovery of possession is void. Hence, the
other party may validly enforce such stipulation.
The Case
Before us is a Petition 1 under Rule 45 of the Rules of Court assailing
the December 3, 1997 Decision 2 of the Court of Appeals (CA) in CAGR SP No. 45501. The decretal portion of the CA Decision reads as
follows:
"WHEREFORE, premises considered, the Petition is, as it is hereby,
DISMISSED for lack of merit, and certiorari DENIED. The Orders of the
respondent court both dated 03 October 1997 hereby STAND."3
The first Order4 of the Regional Trial Court (RTC) of Olongapo City
(Branch 73),5 which was affirmed by the appellate court, granted herein
respondents application for a writ of preliminary mandatory and
prohibitory injunction in this wise:6
"WHEREFORE, premises considered, the defendants, their agents,
officers and employees, and all persons acting in their behalf are
directed to restore peacefully to the plaintiffs all possession of the golf
course, clubhouse, offices and other appurtenances subject of the
Lease and Development Agreement between UIG Taiwan and the
SBMA; and the said defendants, and their agents, officers [and]
employees to refrain [from] obstructing or meddling in the operation
and management thereof or x x x otherwise committing acts inimical to
the interest of plaintiffs in the management or operation of the same,
until the parties may be heard on the merits of the case.
"The Injunction bond is fixed at One Million Pesos (P1,000,000.00) in
cash or surety bond provided by a surety company of reputable
solvency."
The second RTC Order, also dated October 3, 1997, disposed of
petitioners Motion to Dismiss as follows:7
"WHEREFORE, and the foregoing p[re]mises considered, Defendants
Amended and Consolidated Motion To Dismiss is hereby DENIED for
lack of merit.
"The Motion to Dismiss filed by Richard J. Gordon is [g]ranted insofar
as the suit against him is concerned in his private or personal capacity.
He shall, however, remain as defendant in his official capacity."
The Facts

The undisputed facts are summarized by the Court of Appeals as


follows:8
"On 25 May 1995, a Lease and Development Agreement was
executed by respondent UIG and petitioner SBMA under which
respondent UIG shall lease from petitioner SBMA the Binictican Golf
Course and appurtenant facilities thereto to be transformed into a
world class 18-hole golf course, golf club/resort, commercial tourism
and residential center. The contract in pertinent part contains pretermination clauses, which provide:
Section 22. Default
(a) The following acts and omissions shall constitute default by Tenant
(each an Event of Default):
xxx

xxx

xxx

(ii) Tenant or any of its Subsidiaries shall commit a material breach or


violation of any of the conditions, covenants or agreements herein
made by Tenant or such Subsidiary (other than those described in
Sections 22.2 [a] [l] and such violation or failure shall continue for thirty
(30) days after notice from the Landlord, or, at Landlords sole
discretion, sixty (60) days if such violations or failure is reasonably
susceptible of cure during such 60 day period and Tenant or such
Subsidiary begins and diligently pursues to completion such cure
within thirty (30) days of the initial notice from Landlord;
xxx

xxx

xxx

(b) If an event of default shall have occurred and be continuing,


Landlord may, in its sole discretion;
(i) Terminate this Lease thirty (30) days after the expiration of any
period granted hereunder to cure any Event of Default and retain all
rent and other amounts previously paid by tenant and its Subsidiaries.
Thereafter, Landlord may immediately reenter, renovate or relet all or
part of the Property to others, and cancel all rights and privileges
granted to Tenant and its Subsidiaries without any restriction on
recovery by Landlord for rents, fees and damages owned by Tenant
and its Subsidiaries.
"On 4 February 1997, Petitioner SBMA sent a letter to private
respondent UIG calling its attention to its alleged several contractual
violations in view of private respondent UIGs failure to deliver its
various contractual obligations, primarily its failure to complete the
rehabilitation of the Golf Course in time for the APEC Leaders Summit,
and to pay accumulated lease rentals and utilities, and to post the
required performance bond. Respondent UIG, in its letter of 7 February
1997, interposed as an excuse the alleged default of its main
contractor FF Cruz, resulting in their filing of suit against the latter, and
committed itself to comply with its obligations within a few days. Private
respondent UIG, however, failed to comply with its undertakings. On 7
March 1997, petitioner SBMA sent a letter to private respondent UIG
declaring the latter in default of its contractual obligations to SBMA
under Section 22.1 of the Lease and Development Agreement and
required it to show cause why petitioner SBMA should not preterminate the agreement. Private respondents paid the rental
arrearages but the other obligations remained unsatisfied.
"On 8 September 1997, a letter of pre-termination was served by
petitioner SBMA requiring private respondent UIG to vacate the
premises. On 12 September 1997, petitioner served the formal notice
of closure of Subic Bay Golf Course and took over possession of the
subject premises. On even date, private respondent filed a complaint

against petitioner SBMA for Injunction and Damages with prayer for a
writ of temporary restraining order and writ of preliminary injunction. On
3 October 1997, respondent court issued the two assailed orders
subject of the petition."
Ruling of the Court of Appeals
The Court of Appeals upheld the capacity to sue of Respondent
Universal International Group of Taiwan (UIG) because petitioners,
having entered into a Lease Development Agreement (LDA) with it,
were estopped from questioning its standing. It also held that
Respondents UIG International Development Corporation (UIGDC)
and Subic Bay Golf and Country Club, Inc., (SBGCCI) were real
parties in interest because they had made substantial investments in
the venture and had been in possession of the property when Subic
Bay Metropolitan Authority (SBMA) rescinded the LDA.
Likewise, it debunked petitioners submission that Section 21 of RA
72279 was "a blanket proscription against the issuance of any and all
injunctive relief[s] against SBMA." It said that "those actions which are
removed from the stated objectives of the corporate entity x x x cannot
be placed beyond the pale of prohibitory writs."10
While it conceded that the law allowed extrajudicial rescission of a
contract, it ruled that "no rationalization was possible" for the
extrajudicial taking of possession. It reasoned that "no one may take
the law into his own hands. To hold otherwise would be productive of
nothing but mischief and chaos."
It also rejected petitioners reliance on Consing v. Jamandre,11 in which
the Supreme Court allowed a contractual stipulation giving the lessor
the right to take possession of the leased property without need of
court order. It explained that Consing was a "judicial aberration, not
common but not unknown in the body of our jurisprudence, which lays
down a ruling contrary to the teaching of the greater mass of cases."12
Furthermore, it held that the issuance of the Writ of Preliminary
Injunction did not dispose of the main issue. Concluding, it observed
that "we cannot and should not send the message to foreigners who do
business here that we are a group of jingoists who cannot look beyond
our narrow interests and must look at every stranger with a wary eye
and treat them with uneven hands."
Disagreeing with the above judgment, petitioners elevated the matter
to this Court.13
The Issues
In its Memorandum, Petitioner SBMA submits the following issues for
our consideration:14
I. "Whether or not the respondent court committed a reversible error in
ruling that petitioners action of extra-judicially recovering the
possession of the subject premises is supposedly illegal [as it] runs
counter to the established law and [the] applicable decisions of the
Supreme Court on the matter.
II."Whether or not the respondent court committed a reversible error in
ruling that:
(a) The trial court ha[d] jurisdiction over the nature and subject matter
of the case despite the fact that the suit filed by private respondents is
essentially an ejectment case, and(b) The trial court ha[d] authority to

issue the questioned injunctive relief despite the express prohibition


under Section 21 of R.A. 7227
III."Whether or not respondent court committed a reversible error in
ruling that private respondents ha[d] the capacity to sue and possess
material interest to institute an action against petitioners.

The Petition is partly meritorious. The CA correctly affirmed the denial


of the Motion to Dismiss, but erred in sustaining the Writ of Preliminary
Mandatory and Prohibitory Injunction.
First Issue:
Denial of the Motion to Dismiss

IV."Whether or not the respondent court committed a reversible error


by sanctioning departure by the trial court from the accepted and usual
course of judicial proceedings by failing to make any ruling on the
essential elements of injunctive relief consisting of: (1) a clear and
unmistakable right and (2) irreparable damage on the part of the
private respondents.
V."Whether or not respondent court committed a reversible error in
departing from the accepted and usual course of judicial proceedings
by sanctioning the illegal procedure of taking possession of the subject
premises from petitioner SBMA and transferring it into the hands of the
private respondents, although the rights of the latter ha[d] not yet been
clearly established.
VI."Whether or not respondent court committed a reversible error by
departing from the accepted and usual course of judicial proceedings
by sustaining the grant of injunctive relief which effectively prejudged
the merits of the main case.
VII."Whether or not respondent court committed a reversible error by
departing from the accepted and usual course of judicial proceedings
by sustaining the grant of injunctive relief in favor of the private
respondents although the latter [we]re clearly not entitled thereto as
they came before the courts with unclean hands.
VIII."Whether or not in the event of a no reversible error judgment on
the questioned decision of the respondent court, this Honorable
Division of the Supreme Court might modify or even reverse the
doctrines and principles of law laid down by the Supreme Court in
several leading cases, in violation of Section 4, Article VIII of the 1987
Philippine Constitution.
IX."Whether or not in the event of a no reversible error judgment, this
Honorable Division of the Supreme Court might unwittingly cause great
loss or irreparable damage to the government because such a ruling
tend[ed] to send a wrong signal that Philippine Courts [would] reward
rather than punish foreign investors who miserably failed to comply
with their contractual commitments to develop vital government
assets."
Distilling the above-quoted assignment of errors, we find two main
issues before us: (a) whether the denial of petitioners Motion to
Dismiss was correct, and (b) whether the issuance of the Writ of
Preliminary Mandatory and Prohibitory Injunction was proper.
Under the first issue, the Court shall resolve (1) whether Respondent
UIG has the capacity to sue, (2) whether Respondents UIGDC and
SBGCCI are real parties in interest, and (3) whether the RTC has
jurisdiction over the suit.
Under the second issue, the Court shall determine these questions: (1)
whether the Writ of Injunction against SBMA issued by the trial court
contravenes Section 21 of RA 7227; (2) whether respondents have
established their entitlement to the Writ; and (3) whether SBMAs
rescission of the LDA and takeover of the property are allowed by law.
The Courts Ruling

In its amended Motion to Dismiss filed before the RTC, petitioners


contended that UIG had no capacity to sue, and that UIGDC and
SBGCCI had no material interest in the present case. Both the
appellate and the trial courts rejected these contentions. Reiterating
the arguments before us, petitioners add that the RTC had no
jurisdiction over the nature of the case.
(a) Respondents Capacity to Sue
Petitioners contend that UIG does not have the capacity to sue
because it is a foreign non-resident corporation not licensed by the
Securities and Exchange Commission to do business in the
Philippines. They contend that the capacity to sue is conferred by law
and not by the parties.
As a general rule, unlicensed foreign non-resident corporations cannot
file suits in the Philippines. Section 133 of the Corporation Code
specifically provides:
"Sec. 133. No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines, but such
corporation may be sued or proceeded against before Philippine courts
or administrative tribunals on any valid cause of action recognized
under Philippine laws."
A corporation has legal status only within the state or territory in which
it was organized. For this reason, a corporation organized in another
country has no personality to file suits in the Philippines. In order to
subject a foreign corporation doing business in the country to the
jurisdiction of our courts, it must acquire a license from the SEC and
appoint an agent for service of process. 15 Without such license, it
cannot institute a suit in the Philippines.
It should be stressed, however, that the licensing requirement was
"never intended to favor domestic corporations who enter into solitary
transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business in
this country."16 After contracting with a foreign corporation, a domestic
firm is estopped from denying the formers capacity to sue. Hence, in
Merril Lynch Futures v. CA,17 the Court ruled:
"The rule is that a party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering into a
contract with it. And the doctrine of estoppel to deny corporate
existence applies to foreign as well as to domestic corporations; "one
who has dealt with a corporation of foreign origin as a corporate entity
is estopped to deny its existence and capacity. The principle will be
applied to prevent a person contracting with a foreign corporation from
later taking advantage of its noncompliance with the statutes, chiefly in
cases where such person has received the benefits of the contract x x
x."
This doctrine was initiated as early as 1924 in Asia Banking
Corporation v. Standard Products18 and reiterated in Georg Grotjahn

GMBH v. Isnani19 and Communication Materials and Design v. CA. 20 In


Antam Consolidated v. CA,21 the Court also rejected a similar argument
and noted that "it is a common ploy of defaulting local companies
which are sued by unlicensed foreign companies not engaged in
business in the Philippines to invoke lack of capacity to sue."
In this case, SBMA is estopped from questioning the capacity to sue of
UIG. In entering into the LDA with UIG, SBMA effectively recognized its
personality and capacity to institute the suit before the trial court.
(b)
Material
SBGCCI and UIGDC

Interest

of

Section 2, Rule 3 of the 1997 Rules of Court, defines a real party in


interest in this manner:
"Sec. 2. Parties in Interest. - A real party in interest is the party who
stands to be benefited or injured by the judgment of the suit, or the
party entitled to the avails of the suit. Unless otherwise authorized by
law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest."22
SBMA contends that UIGDC is not a real party in interest because it
was not privy to the LDA between UIG and SBMA. It further alleges
that it did not approve the assignment to UIGDC of UIGs rights
thereunder. In like manner, SBGCCI had no interest in the LDA
because it only derived its rights from the Development Agreement it
had entered into with UIGDC.
We are not persuaded. The CA made a factual finding that UIGDC and
SBGCCI were in possession of the property when SBMA took over.
Moreover, it also found that they had already made substantial
investments in the project. We find no reason at this time to justify a
different conclusion. In view of these circumstances, we agree with the
CA that UIGDC and SBGCCI stand to be benefitted or injured by the
present suit and should be deemed real parties in interest.23
SBMAs contention -- that it had not approved UIGs assignment of
rights to UIGDC -- is not necessarily bereft of merit, however. SBMA
should raise this issue, not now but in appropriate proceedings before
the trial court.
(c) Jurisdiction Over the Subject Matter
Petitioners also argue that the RTC had no jurisdiction over the case,
which was allegedly an ejectment suit cognizable by municipal trial
courts. They add that the Complaint demanded that respondents be
restored to the possession of the subject leased premises.
We disagree. A close scrutiny of the amended Complaint reveals that it
sought to enjoin petitioners from rescinding the contract and taking
over the property. While possession was a necessary consequence of
the suit, it was merely incidental. The main issue was whether SBMA
could rescind the Agreement. Because it was a dispute that was
incapable of pecuniary estimation, it was within the jurisdiction of the
RTC.24
Second Issue:

Petitioners contend that the RTC was barred from issuing a writ of
injunction in this case, pursuant to Section 21 of RA 7227 which
provides as follows:
"Sec. 21. Injunction and Restraining Order. -- The implementation of
the projects for the conversion into alternative productive uses of the
military reservations is urgent and necessary and shall not be
restrained or enjoined except by an order issued by the Supreme Court
of the Philippines."25
We are not persuaded. We agree with the CA that the present
provision is not a blanket prohibition of the issuance of an injunctive
relief against any SBMA action. Section 21 of RA 7227 prohibits only
such court orders which restrain the "implementation of the projects for
the conversion into alternative productive uses of the military
reservations."
The Writ issued in this case did not restrain or enjoin the
implementation of any of SBMAs conversion projects. In fact, it
allowed UIG to proceed with the development of the golf course
pursuant to the LDA. It merely restrained SBMA from taking over the
golf course. Clearly, the assailed RTC Order did not seek to delay or
hamper the conversion of the former naval base into civilian uses.
Moreover, the assailed Writ of Preliminary Injunction was issued in
connection with a dispute pertaining to the correct interpretation of the
LDA. To divest the trial court of that authority is to give SBMA
unhampered discretion to disregard its contractual obligations under
the guise of implementing its projects. Indeed, Section 21 of RA 7227
should not bar judicial scrutiny of irregularities allegedly committed by
SBMA.26
(b) Right of Respondents to Injunctive Relief
A writ of mandatory injunction requires the performance of a particular
act27 and is granted only upon a showing of the following requisites:
"1. The invasion of the right is material and substantial;
2. The right of a complainant is clear and unmistakable.
3. There is an urgent and permanent necessity for the writ to prevent
serious damage."28
Because it commands the performance of an act, a mandatory
injunction does not preserve the status quo 29 and is thus more
cautiously regarded than a mere prohibitive injunction. Accordingly, the
issuance of the former is justified only in a clear case, free from doubt
and dispute. Necessarily, the applicant has the burden of showing that
it is entitled to the writ.
In this case, the first assailed RTC Order dated October 3, 1997 was
effectively a preliminary mandatory injunction because it "directed
[herein petitioners] to restore peacefully to the [herein respondents]
possession of the golf course, clubhouse, offices and other
appurtenances subject of the Lease and Development Agreement
between UIG Taiwan and the SBMA." In addition, it was also a
prohibitive injunction because it restrained petitioners from obstructing
or meddling in the operation and management of the disputed property.

Issuance of the Writ of Injunction


(a) Present Writ of Injunction Not Barred by RA 7227

The records, however, do not show that herein respondents were


indubitably entitled to a mandatory writ. Under the LDA, we find no
proof of a "clear and unmistakable right" on their part to continue the
operation and the development of the golf course. Indeed, the RTC

based its assailed Order mainly on the ground that SBMAs takeover
was "not legally justifiable." Thus, it ruled in this wise:30
"From all the foregoing, the Court is of the considered view that the
forcible take over [by] the [petitioners] of the golf course and its
appurtenances is not legally justifiable. Based on the evidence
adduced during the hearing, the [respondents] have established a
clear right to continue the operation and management of the golf
course, and x x x continued withholding of the premises by the
[petitioners] will result to irreparable damages to [respondents]."
Furthermore, the CA did not make any categorical ruling that
respondents established a "clear and unmistakable right" to the Writ.
Like the RTC, it emphasized that there was "no rationalization" for
SBMAs extrajudicial takeover of the disputed property. In other words,
both the CA and the trial court effectively ruled that respondents are
entitled to the Writ of Mandatory Injunction because SBMAs action
was not in accordance with law.
On this point, we disagree with the trial and the appellate courts. As we
will now show, there is legal basis for petitioners rescission of the
contract and takeover of the property without any court order.
(c) Legality of SBMAs Rescission of the LDA and Takeover of the
Property
Because of UIGs failure to comply with several of its contractual
undertakings, SBMA rescinded the LDA and took over the possession,
the operation and the management of the property without any judicial
imprimatur. In doing so, it relied on the provisions of the LDA, which we
quoted earlier.
The Court of Appeals held that the extrajudicial rescission of the LDA
was lawful, but that the extrajudicial takeover of the property was not. It
relied on Nera v. Vacante,31 in which the Supreme Court held:
"x x x. A stipulation entitling one party to take possession of the land
and building if the other party violates the contract does not ex proprio
vigore confer upon the former the right to take possession thereof if
objected to without judicial intervention and determination."
It also cited Zulueta v. Mariano,32 which reiterated the above-quoted
ruling. That case was purportedly applicable because it involved a
similar contractual stipulation, which reads as follows:
"12. That upon failure of the BUYER to fulfill any of the conditions
herein stipulated, BUYER automatically and irrevocably authorizes
OWNER to recover extra-judicially, physical possession of the land,
building and other improvements which are subject of this contract,
and to take possession also extra-judicially whatever personal
properties may be found within the aforesaid premises from the date of
said failure to answer for whatever unfulfilled monetary obligations
BUYER may have with OWNER; and this contract shall be considered
as without force and effect also from said date; x x x."
Because Zulueta was a subsequent Decision, it supposedly overturned
the "diametrically opposed" earlier ruling in Consing v. Jamandre,33 in
which the Supreme Court upheld a contractual stipulation authorizing
the sub-lessor to take possession of the leased premises in case of
contractual breach. As earlier noted, the CA also ruled that Consing
was a "judicial aberration."
We disagree. At the outset, it should be underscored that these cases
are not "diametrically opposed" to each other. In fact, they coexist. It

should be noted also that the CA erred in holding that Zulueta, being a
later case, overturned Consing. The CA logic is flawed, because after
the promulgation of Zulueta, Consing was reiterated in 1991 in Viray v.
IAC.34
Moreover, Zulueta and Nera recognized the validity and the effectivity
of a contractual provision authorizing the extrajudicial rescission of a
contract and the concomitant recovery of possession. Like Nera,
Zulueta merely added the qualification that the stipulation "has legal
effect x x x where the other party does not oppose it. Where it is
objected to, a judicial determination of the issues is still necessary."
Significantly, they did not categorically rule that such stipulation was
void.
In fact, the stipulation is lawful. In Consing, the Court held that "this
kind of contractual stipulation is not illegal, there being nothing in the
law proscribing such kind of agreement." 35 Affirming this ruling, the
Court in Viray v. IAC36 reiterated that the stipulation "was in the nature
of a resolutory condition, for upon the exercise by the sub-lessor of his
right to take possession of the leased property, the contract is deemed
terminated."
UP v. De los Angeles37 is instructive on this point. Pursuant to a
stipulation similar to that in the present case, the University of the
Philippines (UP) rescinded its Logging Agreement with ALUMCO and
subsequently appointed another concessionaire to take over the
logging operation. Hence, the issue was "whether [P]etitioner UP can
treat its contract with ALUMCO rescinded, and may disregard the
same before any judicial pronouncement to that effect." Ruling in favor
of UP, the Court held that a party could enforce such stipulation:
"[T]he party who deems the contract violated may consider it resolved
or rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does
not require that the contracting party who believes itself injured must
first file suit and wait for a judgment before taking extrajudicial steps to
protect its interest. Otherwise, the party injured by the others breach
will have to passively sit and watch its damages accumulate during the
pendency of the suit until the final judgment of rescission is rendered
when the law itself requires that he should exercise due diligence to
minimize its own damages." (Emphasis supplied.)
The Court also noted that the rescission was "provisional" and "subject
to scrutiny and review by the proper court." It further noted that "if the
other party denies that rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the matter to court." It
observed that the "practical effect of the stipulation [was] to transfer to
the defaulter the initiative of instituting suit, instead of the rescinder."
In the present case, it is clear that the subject stipulation is allowed by
law. Moreover, a party is free to enforce it by rescinding the contract
and recovering possession of the property even without court
intervention. Where it is objected to, however, a judicial determination
of the issue is still necessary.38 Force or bloodshed cannot be justified
in the enforcement of the stipulation. Where the lessees offer physical
resistance, the lessors may apply for a writ of preliminary mandatory
injunction, to which they have a clear and unmistakable right. Indeed,
courts are the final arbiters.
Thus, contrary to the ruling of the CA and the RTC, there is a
rationalization and a legal justification for the stipulation authorizing
SBMA to rescind the contract and to take over the property.

No Valid Objection on the Part of Respondents


As earlier observed, there were several violations 39 of the LDA, which
were duly reported by SBMA to UIG. Respondents, however, did not
deny or controvert them. Effectively, therefore, they offered no valid or
sufficient objection to SBMAs exercise of its stipulated right to
extrajudicially rescind the LDA and take over the property in case of
material breach.
First, the Amended Complaint merely argued that the takeover was
"grounded upon a void provision of the agreement." 40 It did not
controvert the grounds for SBMAs exercise of its rights under the
subject stipulation. Indeed, glaring was respondents failure to deny the
alleged violations of the LDA.
Second, Respondent UIG was given several opportunities by SBMA to
explain the alleged violations. Instead of controverting them, UIG
instead indicated its willingness to comply with all its undertakings.
Hence, in its February 4, 1997 letter,41 SBMA called its attention to
several instances showing contractual breach. In response, UIGs
counsel did not deny the violations and instead apologized for the
delay.42
Finding the response and the explanation unsatisfactory, SBMA, in a
letter dated March 7, 1997, declared UIG in default and required it to
explain why the LDA should not be terminated. UIG did not submit any
written explanation. Instead, its counsel called the SBMA chief
operating officer43 to inform him of its "commitment to undertake anew
the remedial measures regarding the matter."44
In its letter dated September 8, 1997, SBMA directed UIG to vacate the
premises and to settle its outstanding accounts. Finally, on September
12, 1997, SBMA served UIG a Notice of Closure. 45 It should be
underscored that during all these exchanges, UIG did not controvert its
alleged noncompliance with the LDA.
Third, in the hearing for the application for a writ of mandatory
injunction, respondents presented two witnesses: Orlando de la Masa,
operations manager of SBGCCI; and Danilo Alabado, comptroller of
UIGDC. De la Masa testified on the alleged forcible takeover by SBMA,
while Alabado testified that respondents had invested $12 million in the
rehabilitation of the golf course. Respondents, however, did not deny
the violations of their undertaking, which were explained by Atty.
Raymond P. Ventura.46
Most significant, neither the CA nor the RTC made any finding that
there was no breach on the part of UIG.1wphi1 Likewise, they did not
even make any observation that respondents had controverted SBMAs
claim.
Clearly, respondents stand was not a valid or sufficient objection to
SBMAs exercise of its right. Indeed, sustaining their claim would
unduly diminish the force of such lawful stipulation and allow parties to
disregard it at will without any valid reason. In this case, respondents
miserably failed to give any semblance of objection to the merits of
SBMAs allegations. Moreover, we find no adequate showing of
resistance to SBMAs implementation of the subject stipulation.
Under the circumstances, SBMA showed that it had a right not only to
rescind the contract, but also to take over the property. On the other
hand, respondents have not shown any "clear and unmistakable right"
to restrain SBMA from enforcing the contractual stipulation. Indeed,
they have offered no objection to SBMAs allegations of contractual
breach. Without prejudging their right to offer controverting evidence

during the trial on the merits, the Court holds that they failed to do so in
their application for a writ of preliminary injunction.
Epilogue
The Court of Appeals expressed its apprehension that a ruling against
UIG would send a message to foreign investors that we "are a group of
jingoists." We do not share that view. Jingoism is not an issue here.
Far from it. In partially reversing the CA, this Court is merely
performing its mandate to do justice and to apply the law to the facts of
the case. It is merely affirming the message that in this country, the rule
of law prevails; and contracts freely entered into, whether by foreign or
by local investors, must be complied with. Indeed, rule of law and
faithfulness in the performance of contracts are cherished values
everywhere.
WHEREFORE, the Petition is partially GRANTED, and the assailed
Decision of the Court of Appeals REVERSED and SET ASIDE insofar
as it affirmed the Writ of Preliminary Injunction issued by the trial court.
The said Writ is hereby LIFTED and the case REMANDED to the RTC
for trial on the merits. In the meantime, respondents shall, upon finality
of this Decision, yield the possession, the operation and the
management of the subject property to SBMA. No costs.
G.R. No. 127768 November 19, 1999
UNITED AIRLINES, petitioner, vs.WILLIE J. UY, respondent.
BELLOSILLO, J.:
UNITED AIRLINES assails in this petition for review on certiorari under
Rule 45 the 29 August 1995 Decision of the Court of Appeals in CAG.R. CV No. 39761 which reversed the 7 August 1992 order issued by
the trial court in Civil Case No. Q-92-12410 1 granting petitioner's
motion to dismiss based on prescription of cause of action. The issues
sought to be resolved are whether the notice of appeal to the appellate
court was timely filed, and whether Art. 29 of the Warsaw
Convention 2 should apply to the case at bar.
On 13 October 1989 respondent Willie J. Uy, a revenue passenger on
United Airlines Flight No. 819 for the San Francisco Manila route,
checked in together with his luggage one piece of which was found to
be overweight at the airline counter. To his utter humiliation, an
employee of petitioner rebuked him saying that he should have known
the maximum weight allowance to be 70 kgs. per bag and that he
should have packed his things accordingly. Then, in a loud voice in
front of the milling crowd, she told respondent to repack his things and
transfer some of them from the overweight luggage to the lighter ones.
Not wishing to create further scene, respondent acceded only to find
his luggage still overweight. The airline then billed him overweight
charges which he offered to pay with a miscellaneous charge order
(MCO) or an airline pre-paid credit. However, the airline's employee,
and later its airport supervisor, adamantly refused to honor the MCO
pointing out that there were conflicting figures listed on it. Despite the
explanation from respondent that the last figure written on the MCO
represented his balance, petitioner's employees did not accommodate
him. Faced with the prospect of leaving without his luggage,
respondent paid the overweight charges with his American Express
credit card.
Respondent's troubles did not end there. Upon arrival in Manila, he
discovered that one of his bags had been slashed and its contents
stolen. He particularized his losses to be around US $5,310.00. In a
letter dated 16 October 1989 respondent bewailed the insult,
embarrassment and humiliating treatment he suffered in the hands of
United Airlines employees, notified petitioner of his loss and requested
reimbursement thereof. Petitioner United Airlines, through Central
Baggage Specialist Joan Kroll, did not refute any of respondent's
allegations and mailed a check representing the payment of his loss
based on the maximum liability of US $9.70 per pound. Respondent,
thinking the amount to be grossly inadequate to compensate him for

his losses, as well as for the indignities he was subjected to, sent two
(2) more letters to petitioner airline, one dated 4 January 1990 through
a certain Atty. Pesigan, and another dated 28 October 1991 through
Atty. Ramon U. Ampil demanding an out-of-court settlement of
P1,000,000.00. Petitioner United Airlines did not accede to his
demands.
Consequently, on 9 June 1992 respondent filed a complaint for
damages against United Airlines alleging that he was a person of good
station, sitting in the board of directors of several top 500 corporations
and holding senior executive positions for such similar firms; 3 that
petitioner airline accorded him ill and shabby treatment to his extreme
embarrassment and humiliation; and, as such he should be paid moral
damages of at least P1,000,000.00, exemplary damages of at least
P500,000.00, plus attorney's fees of at least P50,000.00. Similarly, he
alleged that the damage to his luggage and its stolen contents
amounted to around $5,310.00, and requested reimbursement
therefor.
United Airlines moved to dismiss the complaint on the ground that
respondent's cause of action had prescribed, invoking Art. 29 of the
Warsaw Convention which provides
Art. 29 (1) The right to damages shall be
extinguished if an action is not brought within two
(2) years, reckoned from the date of arrival at the
destination, or from the date on which the aircraft
ought to have arrived, or from the date on which
the transportation stopped.
(2) The method of calculating the period of
limitation shall be determined by the law of the
court to which the case is submitted.
Respondent countered that par. (1) of Art. 29 of the Warsaw
Convention must be reconciled with par. (2) thereof which states that
"the method of calculating the period of limitation shall be determined
by the law of the court to which the case is submitted." Interpreting
thus, respondent noted that according to Philippine laws the
prescription of actions is interrupted "when they are filed before the
court, when there is a written extrajudicial demand by the creditors,
and when there is any written acknowledgment of the debt by the
debtor." 4 Since he made several demands upon United Airlines: first,
through his personal letter dated 16 October 1989; second, through a
letter dated 4 January 1990 from Atty. Pesigan; and, finally, through a
letter dated 28 October 1991 written for him by Atty. Ampil, the two (2)year period of limitation had not yet been exhausted.
On 2 August 1992 the trial court ordered the dismissal of the action
holding that the language of Art. 29 is clear that the action must be
brought within two (2) years from the date of arrival at the destination.
It held that although the second paragraph of Art. 29 speaks of
deference to the law of the local court in "calculating the period of
limitation," the same does not refer to the local forum's rules in
interrupting the prescriptive period but only to the rules of determining
the time in which the action may be deemed commenced, and within
our jurisdiction the action shall be deemed "brought" or commenced by
the filing of a complaint. Hence, the trial court concluded that Art. 29
excludes the application of our interruption rules.
Respondent received a copy of the dismissal order on 17 August 1992.
On 31 August 1992, or fourteen (14) days later, he moved for the
reconsideration of the trial court's order. The trial court denied the
motion and respondent received copy of the denial order on 28
September 1992. Two (2) days later, on 1 October 1992 respondent
filed his notice of appeal.
United Airlines once again moved for the dismissal of the case this
time pointing out that respondent's fifteen (15)-day period to appeal
had already elapsed. Petitioner argued that having used fourteen (14)
days of the reglementary period for appeal, respondent Uy had only
one (1) day remaining to perfect his appeal, and since he filed his
notice of appeal two (2) days later, he failed to meet the deadline.
In its questioned Decision dated 29 August 1995 5 the appellate court
gave due course to the appeal holding that respondent's delay of two
(2) days in filing his notice of appeal did not hinder it from reviewing the
appealed order of dismissal since jurisprudence dictates that an appeal

may be entertained despite procedural lapses anchored on equity and


justice.
On the applicability of the Warsaw Convention, the appellate court
ruled that the Warsaw Convention did not preclude the operation of the
Civil Code and other pertinent laws. Respondent's failure to file his
complaint within the two (2)-year limitation provided in the Warsaw
Convention did not bar his action since he could still hold petitioner
liable for breach of other provisions of the Civil Code which prescribe a
different period or procedure for instituting an action. Further, under
Philippine laws, prescription of actions is interrupted where, among
others, there is a written extrajudicial demand by the creditors, and
since respondent Uy sent several demand letters to petitioner United
Airlines, the running of the two (2)-year prescriptive period was in
effect suspended. Hence, the appellate court ruled that respondent's
cause of action had not yet prescribed and ordered the records
remanded to the Quezon City trial court for further proceedings.
Petitioner now contends that the appellate court erred in assuming
jurisdiction over respondent's appeal since it is clear that the notice of
appeal was filed out of time. It argues that the courts relax the stringent
rule on perfection of appeals only when there are extraordinary
circumstances, e.g., when the Republic stands to lose hundreds of
hectares of land already titled and used for educational purposes;
when the counsel of record was already dead; and wherein appellant
was the owner of the trademark for more than thirty (30) years, and the
circumstances of the present case do not compare to the above
exceptional cases. 6
Sec. 1 of Rule 45 of the 1997 Rules of Civil Procedure provides that "a
party may appeal by certiorari, from a judgment of the Court of
Appeals, by filing with the Supreme Court a petition for certiorari, within
fifteen (15) days from notice of judgment or of the denial of his motion
for reconsideration filed in due time . . . ." This Rule however should
not be interpreted as "to sacrifice the substantial right of the appellant
in the sophisticated altar of technicalities with impairment of the sacred
principles of justice." 7 It should be borne in mind that the real purpose
behind the limitation of the period of appeal is to forestall or avoid an
unreasonable delay in the administration of justice. Thus, we have
ruled that delay in the filing of a notice of appeal does not justify the
dismissal of the appeal where the circumstances of the case show that
there is no intent to delay the administration of justice on the part of
appellant's counsel, 8 or when there are no substantial rights
affected, 9 or when appellant's counsel committed a mistake in the
computation of the period of appeal, an error not attributable to
negligence or bad faith. 10
In the instant case, respondent filed his notice of appeal two (2) days
later than the prescribed period. Although his counsel failed to give the
reason for the delay, we are inclined to give due course to his appeal
due to the unique and peculiar facts of the case and the serious
question of law it poses. In the now almost trite but still good principle,
technicality, when it deserts its proper office as an aid to justice and
becomes its great hindrance and chief enemy, deserves scant
consideration. 11
Petitioner likewise contends that the appellate court erred in ruling that
respondent's cause of action has not prescribed since delegates to the
Warsaw Convention clearly intended the two (2)-year limitation
incorporated in Art. 29 as an absolute bar to suit and not to be made
subject to the various tolling provisions of the laws of the forum.
Petitioner argues that in construing the second paragraph of Art. 29
private respondent cannot read into it Philippine rules on interruption of
prescriptive periods and state that his extrajudicial demand has
interrupted the period of prescription. 12 American jurisprudence has
declared that "Art. 29 (2) was not intended to permit forums to consider
local limitation tolling provisions but only to let local law determine
whether an action had been commenced within the two-year period,
since the method of commencing a suit varies from country to
country." 13
Within our jurisdiction we have held that the Warsaw Convention can
be applied, or ignored, depending on the peculiar facts presented by
each case. 14 Thus, we have ruled that the Convention's provisions do
not regulate or exclude liability for other breaches of contract by the

carrier or misconduct of its officers and employees, or for some


particular or exceptional type of damage. 15 Neither may the
Convention be invoked to justify the disregard of some extraordinary
sort of damage resulting to a passenger and preclude recovery
therefor beyond the limits set by said Convention. 16 Likewise, we have
held that the Convention does not preclude the operation of the Civil
Code and other pertinent laws. 17 It does not regulate, much less
exempt, the carrier from liability for damages for violating the rights of
its passengers under the contract of carriage, especially if willful
misconduct on the part of the carrier's employees is found or
established. 18
Respondent's complaint reveals that he is suing on two (2) causes of
action: (a) the shabby and humiliating treatment he received from
petitioner's employees at the San Francisco Airport which caused him
extreme embarrassment and social humiliation; and, (b) the slashing of
his luggage and the loss of his personal effects amounting to US
$5,310.00.
While his second cause of action an action for damages arising
from theft or damage to property or goods is well within the bounds
of the Warsaw Convention, his first cause of action an action for
damages arising from the misconduct of the airline employees and the
violation of respondent's rights as passenger clearly is not.
Consequently, insofar as the first cause of action is concerned,
respondent's failure to file his complaint within the two (2)-year
limitation of the Warsaw Convention does not bar his action since
petitioner airline may still be held liable for breach of other provisions of
the Civil Code which prescribe a different period or procedure for
instituting the action, specifically, Art. 1146 thereof which prescribes
four (4) years for filing an action based on torts.
As for respondent's second cause of action, indeed the travaux
preparatories of the Warsaw Convention reveal that the delegates
thereto intended the two (2)-year limitation incorporated in Art. 29 as
an absolute bar to suit and not to be made subject to the various tolling
provisions of the laws of the forum. This therefore forecloses the
application of our own rules on interruption of prescriptive periods.
Article 29, par. (2), was intended only to let local laws determine
whether an action had been commenced within the two (2)-year
period, and within our jurisdiction an action shall be deemed
commenced upon the filing of a complaint. Since it is indisputable that
respondent filed the present action beyond the two (2)-year time frame
his second cause of action must be barred. Nonetheless, it cannot be
doubted that respondent exerted efforts to immediately convey his loss
to petitioner, even employed the services of two (2) lawyers to follow
up his claims, and that the filing of the action itself was delayed
because of petitioner's evasion.
In this regard, Philippine Airlines, Inc. v. Court of Appeals 19 is
instructive. In this case of PAL, private respondent filed an action for
damages against petitioner airline for the breakage of the front glass of
the microwave oven which she shipped under PAL Air Waybill No. 079-1013008-3. Petitioner averred that, the action having been filed
seven (7) months after her arrival at her port of destination, she failed
to comply with par. 12, subpar. (a) (1), of the Air Waybill which
expressly provided that the person entitled to delivery must make a
complaint to the carrier in writing in case of visible damage to the
goods, immediately after discovery of the damage and at the latest
within 14 days from receipt of the goods. Despite non-compliance
therewith the Court held that by private respondent's immediate
submission of a formal claim to petitioner, which however was not
immediately entertained as it was referred from one employee to
another, she was deemed to have substantially complied with the
requirement. The Court noted that with private respondent's own
zealous efforts in pursuing her claim it was clearly not her fault that the
letter of demand for damages could only be filed, after months of
exasperating follow-up of the claim, on 13 August 1990, and that if
there was any failure at all to file the formal claim within the
prescriptive period contemplated in the Air Waybill, this was largely
because of the carrier's own doing, the consequences of which could
not in all fairness be attributed to private respondent.

In the same vein must we rule upon the circumstances brought before
us. Verily, respondent filed his complaint more than two (2) years later,
beyond the period of limitation prescribed by the Warsaw Convention
for filing a claim for damages. However, it is obvious that respondent
was forestalled from immediately filing an action because petitioner
airline gave him the runaround, answering his letters but not giving in
to his demands. True, respondent should have already filed an action
at the first instance when his claims were denied by petitioner but the
same could only be due to his desire to make an out-of-court
settlement for which he cannot be faulted. Hence, despite the express
mandate of Art. 29 of the Warsaw Convention that an action for
damages should be filed within two (2) years from the arrival at the
place of destination, such rule shall not be applied in the instant case
because of the delaying tactics employed by petitioner airline itself.
Thus, private respondent's second cause of action cannot be
considered as time-barred under Art. 29 of the Warsaw Convention.
WHEREFORE, the assailed Decision of the Court of Appeals reversing
and setting aside the appealed order of the trial court granting the
motion to dismiss the complaint, as well as its Resolution denying
reconsideration, is AFFIRMED. Let the records of the case be
remanded to the court of origin for further proceedings taking its
bearings from this disquisition.
[G.R. Nos. 121576-78. June 16, 2000]
BANCO DO BRASIL, petitioner, vs. THE COURT OF APPEALS, HON.
ARSENIO M. GONONG, and CESAR S. URBINO, SR., respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision[1] and the
Resolution[2] of the Court of Appeals[3] dated July 19, 1993 and August
15, 1995, respectively, which reinstated the entire Decision [4] dated
February 18, 1991 of the Regional Trial Court of Manila, Branch 8,
holding, among others, petitioner Banco do Brasil liable to private
respondent Cesar Urbino, Sr. for damages amounting to $300,000.00.
[5]

At the outset, let us state that this case should have been consolidated
with the recently decided case of Vlason Enterprises Corporation v.
Court of Appeals and Duraproof Services, represented by its General
Manager, Cesar Urbino Sr.[6], for these two (2) cases involved the
same material antecedents, though the main issue proffered in the
present petition vary with the Vlason case.
The material antecedents, as quoted from the Vlason[7] case, are:
Poro Point Shipping Services, then acting as the
local agent of Omega Sea Transport Company of
Honduras & Panama, a Panamanian Company
(hereafter referred to as Omega), requested
permission for its vessel M/V Star Ace, which had
engine trouble, to unload its cargo and to store it
at the Philippine Ports Authority (PPA) compound
in San Fernando, La Union while awaiting
transhipment to Hongkong. The request was
approved by the Bureau of Customs.[8] Despite the
approval, the customs personnel boarded the
vessel when it docked on January 7, 1989, on
suspicion that it was the hijacked M/V Silver Med
owned by Med Line Philippines Co., and that its
cargo would be smuggled into the country.[9] The
district customs collector seized said vessel and
its cargo pursuant to Section 2301, Tariff and
Customs Code. A notice of hearing of SFLU
Seizure Identification No. 3-89 was served on its
consignee, Singkong Trading Co. of Hongkong,
and its shipper, Dusit International Co., Ltd. of
Thailand.
While seizure proceedings were ongoing, La
Union was hit by three typhoons, and the vessel
ran aground and was abandoned. On June 8,
1989, its authorized representative, Frank
Cadacio, entered into salvage agreement with

private respondent to secure and repair the vessel


at the agreed consideration of $1 million and "fifty
percent (50%) [of] the cargo after all expenses,
cost and taxes."[10]
Finding that no fraud was committed, the District
Collector of Customs, Aurelio M. Quiray, lifted the
warrant of seizure on July 1989.[11] However, in a
Second Indorsement dated November 11, 1989,
then Customs Commissioner Salvador M. Mison
declined to issue a clearance for Quirays Decision;
instead, he forfeited the vessel and its cargo in
accordance with Section 2530 of the Tariff and
Customs Code.[12] Accordingly, acting District
Collector of Customs John S. Sy issued a
Decision decreeing the forfeiture and the sale of
the cargo in favor of the government.[13]
To enforce its preferred salvors lien, herein Private
Respondent Duraproof Services filed with the
Regional Trial Court of Manila a Petition
for Certiorari,
Prohibition
andMandamus[14] assailing
the
actions
of
Commissioner Mison and District Collector Sy.
Also impleaded as respondents were PPA
Representative Silverio Mangaoang and Med Line
Philippines, Inc.
On January 10, 1989, private respondent
amended its Petition[15] to include former District
Collector Quiray; PPA Port Manager Adolfo Ll.
Amor, Jr.; x Vlason Enterprises as represented by
its president, Vicente Angliongto; Singkong
Trading Company as represented by Atty. Eddie
Tamondong; Banco Du Brasil; Dusit International
Co.; Thai-Nan Enterprises Ltd., and Thai-United
Trading Co., Ltd.[16] x x x
Summonses for the amended Petition were served
on Atty. Joseph Capuyan for Med Line Philippines:
Anglionto (through his secretary, Betty Bebero),
Atty. Tamondong and Commissioner Mison.
[17]
Upon motion of the private respondent, the trial
court allowed summons by publication to be
served upon defendants who were not residents
and had no direct representative in the country.[18]
On January 29, 1990, private respondent moved
to declare respondents in default, but the trial
court denied the motion in its February 23, 1990
Order[19], because Mangaoang and Amor had
jointly filed a Motion to Dismiss, while Mison and
Med Line had moved separately for an extension
to file a similar motion.[20] Later it rendered an
Order dated July 2, 1990, giving due course to the
motions to dismiss filed by Mangaoang and Amor
on the ground of litis pendentia, and by the
commissioner and district collector of customs on
the ground of lack of jurisdiction.[21] In another
Order, the trial court dismissed the action against
Med Line Philippines on the ground of litis
pendentia.[22]
On two other occasions, private respondent again
moved to declare the following in default: [Vlason],
Quiray, Sy and Mison on March 26, 1990; [23] and
Banco [do] Bra[s]il, Dusit International Co., Inc.,
Thai-Nan Enterprises Ltd. and Thai-United Trading
Co., Ltd. on August 24, 1990.[24] There is no
record, however, that the trial court acted upon the
motions. On September 18, 1990, [private
respondent] filed another Motion for leave to
amend the petition,[25] alleging that its counsel
failed to include "necessary and/or indispensable
parties": Omega represented by Cadacio; and M/V

Star Ace represented by Capt. Nahon Rada, relief


captain. Aside from impleading these additional
respondents, private respondent also alleged in
the
Second
(actually,
third)
Amended
Petition[26] that the owners of the vessel intended
to transfer and alienate their rights and interest
over the vessel and its cargo, to the detriment of
the private respondent.
The trial court granted leave to private respondent
to amend its Petition, but only to exclude the
customs commissioner and the district collector.
[27]
Instead, private respondent filed the "Second
Amended Petition with Supplemental Petition"
against Singkong Trading Company; and Omega
and M/V Star Ace,[28] to which Cadacio and Rada
filed a Joint Answer.[29]
Declared in default in an Order issued by the trial
court on January 23, 1991, were the following:
Singkong Trading Co., Commissioner Mison, M/V
Star Ace and Omega.[30]Private respondent filed,
and the trial court granted, an ex parte Motion to
present
evidence
against
the
defaulting
respondents.[31] Only private respondent, Atty.
Tamondong, Commissioner Mison, Omega and
M/V Star Ace appeared in the next pretrial hearing;
thus, the trial court declared the other respondents
in default and allowed private respondent to
present evidence against them.[32] Cesar Urbino,
general manager of private respondent, testified
and adduced evidence against the other
respondents, x x x.[33]
On December 29, 1990, private respondent and
Rada, representing Omega, entered into a
Memorandum of Agreement stipulating that Rada
would write and notify Omega regarding the
demand for salvage fees of private respondent;
and that if Rada did not receive any instruction
from his principal, he would assign the vessel in
favor of the salvor.[34]
On February 18, 1991, the trial court
disposed as follows:
"WHEREFORE, IN VIEW OF THE
FOREGOING, based on the allegations,
prayer and evidence adduced, both
testimonial and documentary, the Court
is
convinced,
that,
indeed,
defendants/respondents are liable to
[private respondent] in the amount as
prayed for in the petition for which it
renders judgment as follows:
1. Respondent M/V Star Ace, represented by
Capt. Nahum Rada, [r]elief [c]aptain of the vessel
and Omega Sea Transport Company, Inc.,
represented by Frank Cadacio[,] is ordered to
refrain from alienating or [transferring] the vessel
M/V Star Ace to any third parties;
2. Singkong Trading Company to pay the
following:
a. Taxes due the government;
b. Salvage fees on the vessel in the amount of
$1,000,000.00 based on xxx Lloyds Standard
Form of Salvage Agreement;
c. Preservation, securing and guarding fees on the
vessel in the amount of $225,000.00;
d. Maintenance fees in the amount of
P2,685,000.00;
e. Salaries of the crew from August 16, 1989 to
December 1989 in the amount of $43,000.00 and

unpaid salaries from January 1990 up to the


present;
f. Attorneys fees in the amount of P656,000.00;
3. [Vlason] Enterprises to pay [private respondent]
in the amount of P3,000,000.00 for damages;
4. Banco [Du] Brasil to pay [private respondent] in
the amount of $300,000.00 in damages;[35] and
finally,
5. Costs of [s]uit."
Subsequently, upon the motion of Omega,
Singkong Trading Co., and private respondent, the
trial
court
approved
a
Compromise
Agreement[36] among the movants, reducing by 20
percent the amounts adjudged. For their part,
respondents-movants agreed not to appeal the
Decision.[37] On March 8, 1991, private respondent
moved for the execution of judgment, claiming that
the trial court Decision had already become final
and executory. The Motion was granted and a Writ
of Execution was issued. To satisfy the Decision,
Sheriffs Jorge Victorino, Amado Sevilla and
Dionisio Camagon were deputized on March 13,
1991 to levy and to sell on execution the
defendants vessel and personal property.
xxx
On March 18, 1991, the Bureau of Customs also
filed an ex parte Motion to recall the execution,
and to quash the notice of levy and the sale on
execution. Despite this Motion, the auction sale
was conducted on March 21, 1991 by Sheriff
Camagon, with private respondent submitting the
winning bid. The trial court ordered the deputy
sheriffs to cease and desist from implementing the
Writ of Execution and from levying on the personal
property of the defendants. Nevertheless, Sheriff
Camagon issued the corresponding Certificate of
Sale on March 27, 1991.
On April 10, 1991, petitioner Banco do Brasil filed, by special
appearance, an Urgent Motion to Vacate Judgement and to Dismiss
Case[38] on the ground that the February 18, 1991 Decision of the trial
court is void with respect to it for having been rendered without validly
acquiring jurisdiction over the person of Banco do Brasil. Petitioner
subsequently amended its petition[39] to specifically aver that its special
appearance is solely for the purpose of questioning the Courts
exercise of personal jurisdiction.
On May 20, 1991, the trial court issued an Order [40] acting favorably on
petitioners motion and set aside as against petitioner the decision
dated February 18, 1991 for having been rendered without jurisdiction
over Banco do Brasils person. Private respondent sought
reconsideration[41] of the Order dated May 20, 1991. However, the trial
court in an Order[42] dated June 21, 1991 denied said motion.
Meanwhile, a certiorari petition[43] was filed by private respondent
before public respondent Court of Appeals seeking to nullify the cease
and desist Order dated April 5, 1991 issued by Judge Arsenio M.
Gonong. Two (2) more separate petitions for certiorari were
subsequently filed by private respondent. The second petition[44] sought
to nullify the Order[45] dated June 26, 1992 setting aside the Deputy
Sheriffs return dated April 1, 1991 as well as the certificate of sale
issued by Deputy Sheriff Camagon. The third petition [46] sought to
nullify the Order dated October 5, 1992 of the Court of Tax Appeals
directing the Commissioner of Customs to place Bureau of Customs
and PNP officers and guards to secure the M/V Star Ace and its
cargoes, make inventory of the goods stored in the premises as
indicated to belong to the private respondent. Likewise challenged was
the Order dated August 17, 1992 authorizing the sale of M/V Star Ace
and its cargoes.
These three (3) petitions were consolidated and on July 19, 1993, the
appellate court rendered its Decision[47] granting private respondents
petitions, thereby nullifying and setting aside the disputed orders and

effectively "giving way to the entire [decision dated February 18, 1991
of the x x x Regional Trial Court of Manila, Branch 8, in Civil Case No.
89-51451 which remains valid, final and executory, if not yet wholly
executed."[48]
Private respondent Urbino, Vlason Enterprises and petitioner Banco do
Brasil filed separate motions for reconsideration. For its part, petitioner
Banco do Brasil sought reconsideration, insofar as its liability for
damages, on the ground that there was no valid service of summons
as service was on the wrong party the ambassador of Brazil. Hence, it
argued, the trial court did not acquire jurisdiction over petitioner Banco
do Brasil.[49] Nonetheless, the appellate court denied the motions for
reconsideration in its Resolution[50] dated August 15, 1995.
Hence, the instant petition.
Petitioner Banco do Brasil takes exception to the appellate courts
declaration that the suit below is in rem, not in personam,[51] thus,
service of summons by publication was sufficient for the court to
acquire jurisdiction over the person of petitioner Banco do Brasil, and
thereby liable to private respondent Cesar Urbino for damages
claimed, amounting to $300,000.00. Petitioner further challenges the
finding that the February 18, 1991 decision of the trial court was
already final and thus, cannot be modified or assailed.[52]
Petitioner avers that the action filed against it is an action for damages,
as such it is an action in personam which requires personal service of
summons be made upon it for the court to acquire jurisdiction over it.
However, inasmuch as petitioner Banco do Brasil is a non-resident
foreign corporation, not engaged in business in the Philippines, unless
it has property located in the Philippines which may be attached to
convert the action into an action in rem, the court cannot acquire
jurisdiction over it in respect of an action in personam.
The petition bears merit, thus the same should be as it is hereby
granted.
First. When the defendant is a nonresident and he is not found in the
country, summons may be served extraterritorially in accordance
with Rule 14, Section 17[53] of the Rules of Court.Under this provision,
there are only four (4) instances when extraterritorial service of
summons is proper, namely: "(1) when the action affects the personal
status of the plaintiffs; (2) when the action relates to, or the subject of
which is property, within the Philippines, in which the defendant claims
a lien or interest, actual or contingent; (3) when the relief demanded in
such action consists, wholly or in part, in excluding the defendant from
any interest in property located in the Philippines; and (4) when the
defendant non-residents property has been attached within the
Philippines."[54] In these instances, service of summons may be
effected by (a) personal service out of the country, with leave of court;
(b) publication, also with leave of court; or (c) any other manner the
court may deem sufficient.[55]
Clear from the foregoing, extrajudicial service of summons apply only
where the action is in rem, an action against the thing itself instead of
against the person, or in an action quasi in rem, where an individual is
named as defendant and the purpose of the proceeding is to subject
his interest therein to the obligation or loan burdening the property.
This is so inasmuch as, in in rem and quasi in rem actions, jurisdiction
over the person of the defendant is not a prerequisite to confer
jurisdiction on the court provided that the court acquires jurisdiction
over the res.[56]
However, where the action is in personam, one brought against a
person on the basis of his personal liability, jurisdiction over the person
of the defendant is necessary for the court to validly try and decide the
case. When the defendant is a non-resident, personal service of
summons within the state is essential to the acquisition of jurisdiction
over the person.[57]This cannot be done, however, if the defendant is
not physically present in the country, and thus, the court cannot
acquire jurisdiction over his person and therefore cannot validly try and
decide the case against him.[58]
In the instant case, private respondents suit against petitioner is
premised on petitioners being one of the claimants of the subject
vessel M/V Star Ace.[59] Thus, it can be said that private respondent
initially sought only to exclude petitioner from claiming interest over the
subject vessel M/V Star Ace. However, private respondent testified

during the presentation of evidence that, for being a nuisance


defendant, petitioner caused irreparable damage to private respondent
in the amount of $300,000.00.[60] Therefore, while the action is in rem,
by claiming damages, the relief demanded went beyond the res and
sought a relief totally alien to the action.
It must be stressed that any relief granted in rem or quasi in
rem actions must be confined to the res, and the court cannot lawfully
render a personal judgment against the defendant. [61] Clearly, the
publication of summons effected by private respondent is invalid and
ineffective for the trial court to acquire jurisdiction over the person of
petitioner, since by seeking to recover damages from petitioner for the
alleged commission of an injury to his person or property[62] caused by
petitioners being a nuisance defendant, private respondents action
became in personam. Bearing in mind the in personam nature of the
action, personal or, if not possible, substituted service of summons on
petitioner, and not extraterritorial service, is necessary to confer
jurisdiction over the person of petitioner and validly hold it liable to
private respondent for damages. Thus, the trial court had no
jurisdiction to award damages amounting to $300,000.00 in favor of
private respondent and as against herein petitioner.
Second. We settled the issue of finality of the trial courts decision
dated February 18, 1991 in the Vlason case, wherein we stated that,
considering the admiralty case involved multiple defendants, "each
defendant had a different period within which to appeal, depending on
the date of receipt of decision."[63] Only upon the lapse of the
reglementary period to appeal, with no appeal perfected within such
period, does the decision become final and executory.[64]
In the case of petitioner, its Motion to Vacate Judgment and to Dismiss
Case was filed on April 10, 1991, only six (6) days after it learned of
the existence of the case upon being informed by the Embassy of the
Federative Republic of Brazil in the Philippines, on April 4, 1991, of the
February 18, 1991 decision.[65] Thus, in the absence of any evidence
on the date of receipt of decision, other than the alleged April 4, 1991
date when petitioner learned of the decision, the February 18, 1991
decision of the trial court cannot be said to have attained finality as
regards the petitioner.
WHEREFORE, the subject petition is hereby GRANTED. The Decision
and the Resolution of the Court of Appeals dated July 19, 1993 and
August 15, 1995, respectively, in CA-G.R. SP Nos. 24669, 28387 and
29317 are hereby REVERSED and SET ASIDE insofar as they affect
petitioner Banco do Brasil. The Order dated May 20, 1991 of the
Regional Trial Court of Manila, Branch 8 in Civil Case No. 89-51451 is
REINSTATED.
G.R. No. 186571
August 11, 2010
GERBERT R. CORPUZ, Petitioner, vs. DAISYLYN TIROL STO.
TOMAS and The SOLICITOR GENERAL, Respondents.
DECISION
BRION, J.:
Before the Court is a direct appeal from the decision 1 of the Regional
Trial Court (RTC) of Laoag City, Branch 11, elevated via a petition for
review on certiorari2 under Rule 45 of the Rules of Court (present
petition).
Petitioner Gerbert R. Corpuz was a former Filipino citizen who
acquired Canadian citizenship through naturalization on November 29,
2000.3 On January 18, 2005, Gerbert married respondent Daisylyn T.
Sto. Tomas, a Filipina, in Pasig City.4 Due to work and other
professional commitments, Gerbert left for Canada soon after the
wedding. He returned to the Philippines sometime in April 2005 to
surprise Daisylyn, but was shocked to discover that his wife was
having an affair with another man. Hurt and disappointed, Gerbert
returned to Canada and filed a petition for divorce. The Superior Court
of Justice, Windsor, Ontario, Canada granted Gerberts petition for
divorce on December 8, 2005. The divorce decree took effect a month
later, on January 8, 2006.5
Two years after the divorce, Gerbert has moved on and has found
another Filipina to love. Desirous of marrying his new Filipina fiance
in the Philippines, Gerbert went to the Pasig City Civil Registry Office
and registered the Canadian divorce decree on his and Daisylyns

marriage certificate. Despite the registration of the divorce decree, an


official of the National Statistics Office (NSO) informed Gerbert that the
marriage between him and Daisylyn still subsists under Philippine law;
to be enforceable, the foreign divorce decree must first be judicially
recognized by a competent Philippine court, pursuant to NSO Circular
No. 4, series of 1982.6
Accordingly, Gerbert filed a petition for judicial recognition of foreign
divorce and/or declaration of marriage as dissolved (petition) with the
RTC. Although summoned, Daisylyn did not file any responsive
pleading but submitted instead a notarized letter/manifestation to the
trial court. She offered no opposition to Gerberts petition and, in fact,
alleged her desire to file a similar case herself but was prevented by
financial and personal circumstances. She, thus, requested that she be
considered as a party-in-interest with a similar prayer to Gerberts.
In its October 30, 2008 decision,7 the RTC denied Gerberts petition.
The RTC concluded that Gerbert was not the proper party to institute
the action for judicial recognition of the foreign divorce decree as he is
a naturalized Canadian citizen. It ruled that only the Filipino spouse
can avail of the remedy, under the second paragraph of Article 26 of
the Family Code,8 in order for him or her to be able to remarry under
Philippine law.9 Article 26 of the Family Code reads:
Art. 26. All marriages solemnized outside the Philippines, in
accordance with the laws in force in the country where they were
solemnized, and valid there as such, shall also be valid in this country,
except those prohibited under Articles 35(1), (4), (5) and (6), 36, 37
and 38.
Where a marriage between a Filipino citizen and a foreigner is validly
celebrated and a divorce is thereafter validly obtained abroad by the
alien spouse capacitating him or her to remarry, the Filipino spouse
shall likewise have capacity to remarry under Philippine law.
This conclusion, the RTC stated, is consistent with the legislative intent
behind the enactment of the second paragraph of Article 26 of the
Family Code, as determined by the Court in Republic v. Orbecido
III;10 the provision was enacted to "avoid the absurd situation where the
Filipino spouse remains married to the alien spouse who, after
obtaining a divorce, is no longer married to the Filipino spouse." 11
THE PETITION
From the RTCs ruling,12 Gerbert filed the present petition.13
Gerbert asserts that his petition before the RTC is essentially for
declaratory relief, similar to that filed in Orbecido; he, thus, similarly
asks for a determination of his rights under the second paragraph of
Article 26 of the Family Code. Taking into account the rationale behind
the second paragraph of Article 26 of the Family Code, he contends
that the provision applies as well to the benefit of the alien spouse. He
claims that the RTC ruling unduly stretched the doctrine in Orbecido by
limiting the standing to file the petition only to the Filipino spouse an
interpretation he claims to be contrary to the essence of the second
paragraph of Article 26 of the Family Code. He considers himself as a
proper party, vested with sufficient legal interest, to institute the case,
as there is a possibility that he might be prosecuted for bigamy if he
marries his Filipina fiance in the Philippines since two marriage
certificates, involving him, would be on file with the Civil Registry
Office. The Office of the Solicitor General and Daisylyn, in their
respective Comments,14 both support Gerberts position.
Essentially, the petition raises the issue of whether the second
paragraph of Article 26 of the Family Code extends to aliens the right
to petition a court of this jurisdiction for the recognition of a foreign
divorce decree.
THE COURTS RULING
The alien spouse can claim no right under the second paragraph of
Article 26 of the Family Code as the substantive right it establishes is
in favor of the Filipino spouse
The resolution of the issue requires a review of the legislative history
and intent behind the second paragraph of Article 26 of the Family
Code.
The Family Code recognizes only two types of defective marriages
void15 and voidable16 marriages. In both cases, the basis for the judicial
declaration of absolute nullity or annulment of the marriage exists
before or at the time of the marriage. Divorce, on the other hand,
contemplates the dissolution of the lawful union for cause arising after

the marriage.17 Our family laws do not recognize absolute divorce


between Filipino citizens.18
Recognizing the reality that divorce is a possibility in marriages
between a Filipino and an alien, President Corazon C. Aquino, in the
exercise of her legislative powers under the Freedom
Constitution,19 enacted Executive Order No. (EO) 227, amending
Article 26 of the Family Code to its present wording, as follows:
Art. 26. All marriages solemnized outside the Philippines, in
accordance with the laws in force in the country where they were
solemnized, and valid there as such, shall also be valid in this country,
except those prohibited under Articles 35(1), (4), (5) and (6), 36, 37
and 38.
Where a marriage between a Filipino citizen and a foreigner is validly
celebrated and a divorce is thereafter validly obtained abroad by the
alien spouse capacitating him or her to remarry, the Filipino spouse
shall likewise have capacity to remarry under Philippine law.
Through the second paragraph of Article 26 of the Family Code, EO
227 effectively incorporated into the law this Courts holding in Van
Dorn v. Romillo, Jr.20 and Pilapil v. Ibay-Somera.21 In both cases, the
Court refused to acknowledge the alien spouses assertion of marital
rights after a foreign courts divorce decree between the alien and the
Filipino. The Court, thus, recognized that the foreign divorce had
already severed the marital bond between the spouses. The Court
reasoned in Van Dorn v. Romillo that:
To maintain x x x that, under our laws, [the Filipino spouse] has to be
considered still married to [the alien spouse] and still subject to a wife's
obligations x x x cannot be just. [The Filipino spouse] should not be
obliged to live together with, observe respect and fidelity, and render
support to [the alien spouse]. The latter should not continue to be one
of her heirs with possible rights to conjugal property. She should not be
discriminated against in her own country if the ends of justice are to be
served.22
As the RTC correctly stated, the provision was included in the law "to
avoid the absurd situation where the Filipino spouse remains married
to the alien spouse who, after obtaining a divorce, is no longer married
to the Filipino spouse."23 The legislative intent is for the benefit of the
Filipino spouse, by clarifying his or her marital status, settling the
doubts created by the divorce decree. Essentially, the second
paragraph of Article 26 of the Family Code provided the Filipino spouse
a substantive right to have his or her marriage to the alien spouse
considered as dissolved, capacitating him or her to remarry.24 Without
the second paragraph of Article 26 of the Family Code, the judicial
recognition of the foreign decree of divorce, whether in a proceeding
instituted precisely for that purpose or as a related issue in another
proceeding, would be of no significance to the Filipino spouse since
our laws do not recognize divorce as a mode of severing the marital
bond;25 Article 17 of the Civil Code provides that the policy against
absolute divorces cannot be subverted by judgments promulgated in a
foreign country. The inclusion of the second paragraph in Article 26 of
the Family Code provides the direct exception to this rule and serves
as basis for recognizing the dissolution of the marriage between the
Filipino spouse and his or her alien spouse.
Additionally, an action based on the second paragraph of Article 26 of
the Family Code is not limited to the recognition of the foreign divorce
decree. If the court finds that the decree capacitated the alien spouse
to remarry, the courts can declare that the Filipino spouse is likewise
capacitated to contract another marriage. No court in this jurisdiction,
however, can make a similar declaration for the alien spouse (other
than that already established by the decree), whose status and legal
capacity are generally governed by his national law.26
Given the rationale and intent behind the enactment, and the purpose
of the second paragraph of Article 26 of the Family Code, the RTC was
correct in limiting the applicability of the provision for the benefit of the
Filipino spouse. In other words, only the Filipino spouse can invoke the
second paragraph of Article 26 of the Family Code; the alien spouse
can claim no right under this provision.
The foreign divorce decree is presumptive evidence of a right that
clothes the party with legal interest to petition for its recognition in this
jurisdiction

We qualify our above conclusion i.e., that the second paragraph of


Article 26 of the Family Code bestows no rights in favor of aliens with
the complementary statement that this conclusion is not sufficient basis
to dismiss Gerberts petition before the RTC. In other words, the
unavailability of the second paragraph of Article 26 of the Family Code
to aliens does not necessarily strip Gerbert of legal interest to petition
the RTC for the recognition of his foreign divorce decree. The foreign
divorce decree itself, after its authenticity and conformity with the
aliens national law have been duly proven according to our rules of
evidence, serves as a presumptive evidence of right in favor of
Gerbert, pursuant to Section 48, Rule 39 of the Rules of Court which
provides for the effect of foreign judgments. This Section states:
SEC. 48. Effect of foreign judgments or final orders.The effect of a
judgment or final order of a tribunal of a foreign country, having
jurisdiction to render the judgment or final order is as follows:
(a) In case of a judgment or final order upon a specific thing,
the judgment or final order is conclusive upon the title of the
thing; and
(b) In case of a judgment or final order against a person, the
judgment or final order is presumptive evidence of a right as
between the parties and their successors in interest by a
subsequent title.
In either case, the judgment or final order may be repelled by evidence
of a want of jurisdiction, want of notice to the party, collusion, fraud, or
clear mistake of law or fact.
To our mind, direct involvement or being the subject of the foreign
judgment is sufficient to clothe a party with the requisite interest to
institute an action before our courts for the recognition of the foreign
judgment. In a divorce situation, we have declared, no less, that the
divorce obtained by an alien abroad may be recognized in the
Philippines, provided the divorce is valid according to his or her
national law.27
The starting point in any recognition of a foreign divorce judgment is
the acknowledgment that our courts do not take judicial notice of
foreign judgments and laws. Justice Herrera explained that, as a rule,
"no sovereign is bound to give effect within its dominion to a judgment
rendered by a tribunal of another country."28 This means that the
foreign judgment and its authenticity must be proven as facts under our
rules on evidence, together with the aliens applicable national law to
show the effect of the judgment on the alien himself or herself. 29 The
recognition may be made in an action instituted specifically for the
purpose or in another action where a party invokes the foreign decree
as an integral aspect of his claim or defense.
In Gerberts case, since both the foreign divorce decree and the
national law of the alien, recognizing his or her capacity to obtain a
divorce, purport to be official acts of a sovereign authority, Section 24,
Rule 132 of the Rules of Court comes into play. This Section requires
proof, either by (1) official publications or (2) copies attested by the
officer having legal custody of the documents. If the copies of official
records are not kept in the Philippines, these must be (a) accompanied
by a certificate issued by the proper diplomatic or consular officer in
the Philippine foreign service stationed in the foreign country in which
the record is kept and (b) authenticated by the seal of his office.
The records show that Gerbert attached to his petition a copy of the
divorce decree, as well as the required certificates proving its
authenticity,30 but failed to include a copy of the Canadian law on
divorce.31 Under this situation, we can, at this point, simply dismiss the
petition for insufficiency of supporting evidence, unless we deem it
more appropriate to remand the case to the RTC to determine whether
the divorce decree is consistent with the Canadian divorce law.
We deem it more appropriate to take this latter course of action, given
the Article 26 interests that will be served and the Filipina wifes
(Daisylyns) obvious conformity with the petition. A remand, at the
same time, will allow other interested parties to oppose the foreign
judgment and overcome a petitioners presumptive evidence of a right
by proving want of jurisdiction, want of notice to a party, collusion,
fraud, or clear mistake of law or fact. Needless to state, every
precaution must be taken to ensure conformity with our laws before a
recognition is made, as the foreign judgment, once recognized, shall

have the effect of res judicata 32 between the parties, as provided in


Section 48, Rule 39 of the Rules of Court.33
In fact, more than the principle of comity that is served by the practice
of reciprocal recognition of foreign judgments between nations, the res
judicata effect of the foreign judgments of divorce serves as the deeper
basis for extending judicial recognition and for considering the alien
spouse bound by its terms. This same effect, as discussed above, will
not obtain for the Filipino spouse were it not for the substantive rule
that the second paragraph of Article 26 of the Family Code provides.
Considerations beyond the recognition of the foreign divorce decree
As a matter of "housekeeping" concern, we note that the Pasig City
Civil Registry Office has already recorded the divorce decree on
Gerbert and Daisylyns marriage certificate based on the mere
presentation of the decree.34We consider the recording to be legally
improper; hence, the need to draw attention of the bench and the bar
to what had been done.
Article 407 of the Civil Code states that "[a]cts, events and judicial
decrees concerning the civil status of persons shall be recorded in the
civil register." The law requires the entry in the civil registry of judicial
decrees that produce legal consequences touching upon a persons
legal capacity and status, i.e., those affecting "all his personal qualities
and relations, more or less permanent in nature, not ordinarily
terminable at his own will, such as his being legitimate or illegitimate,
or his being married or not."35
A judgment of divorce is a judicial decree, although a foreign one,
affecting a persons legal capacity and status that must be recorded. In
fact, Act No. 3753 or the Law on Registry of Civil Status specifically
requires the registration of divorce decrees in the civil registry:
Sec. 1. Civil Register. A civil register is established for recording the
civil status of persons, in which shall be entered:
(a) births;
(b) deaths;
(c) marriages;
(d) annulments of marriages;
(e) divorces;
(f) legitimations;
(g) adoptions;
(h) acknowledgment of natural children;
(i) naturalization; and
(j) changes of name.
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Sec. 4. Civil Register Books. The local registrars shall keep and
preserve in their offices the following books, in which they shall,
respectively make the proper entries concerning the civil status of
persons:
(1) Birth and death register;
(2) Marriage register, in which shall be entered not only the
marriages solemnized but also divorces and dissolved
marriages.
(3) Legitimation, acknowledgment, adoption, change of
name and naturalization register.
But while the law requires the entry of the divorce decree in the civil
registry, the law and the submission of the decree by themselves do
not ipso facto authorize the decrees registration. The law should be
read in relation with the requirement of a judicial recognition of the
foreign judgment before it can be given res judicata effect. In the
context of the present case, no judicial order as yet exists recognizing
the foreign divorce decree. Thus, the Pasig City Civil Registry Office
acted totally out of turn and without authority of law when it annotated
the Canadian divorce decree on Gerbert and Daisylyns marriage
certificate, on the strength alone of the foreign decree presented by
Gerbert.

Evidently, the Pasig City Civil Registry Office was aware of the
requirement of a court recognition, as it cited NSO Circular No. 4,
series of 1982,36 and Department of Justice Opinion No. 181, series of
198237 both of which required a final order from a competent
Philippine court before a foreign judgment, dissolving a marriage, can
be registered in the civil registry, but it, nonetheless, allowed the
registration of the decree. For being contrary to law, the registration of
the foreign divorce decree without the requisite judicial recognition is
patently void and cannot produce any legal effect.1avvphi1
Another point we wish to draw attention to is that the recognition that
the RTC may extend to the Canadian divorce decree does not, by
itself, authorize the cancellation of the entry in the civil registry. A
petition for recognition of a foreign judgment is not the proper
proceeding, contemplated under the Rules of Court, for the
cancellation of entries in the civil registry.
Article 412 of the Civil Code declares that "no entry in a civil register
shall be changed or corrected, without judicial order." The Rules of
Court supplements Article 412 of the Civil Code by specifically
providing for a special remedial proceeding by which entries in the civil
registry may be judicially cancelled or corrected. Rule 108 of the Rules
of Court sets in detail the jurisdictional and procedural requirements
that must be complied with before a judgment, authorizing the
cancellation or correction, may be annotated in the civil registry. It also
requires, among others, that the verified petition must be filed with the
RTC of the province where the corresponding civil registry is
located;38 that the civil registrar and all persons who have or claim any
interest must be made parties to the proceedings; 39 and that the time
and place for hearing must be published in a newspaper of general
circulation.40As these basic jurisdictional requirements have not been
met in the present case, we cannot consider the petition Gerbert filed
with the RTC as one filed under Rule 108 of the Rules of Court.
We hasten to point out, however, that this ruling should not be
construed as requiring two separate proceedings for the registration of
a foreign divorce decree in the civil registry one for recognition of the
foreign decree and another specifically for cancellation of the entry
under Rule 108 of the Rules of Court. The recognition of the foreign
divorce decree may be made in a Rule 108 proceeding itself, as the
object of special proceedings (such as that in Rule 108 of the Rules of
Court) is precisely to establish the status or right of a party or a
particular fact. Moreover, Rule 108 of the Rules of Court can serve as
the appropriate adversarial proceeding41 by which the applicability of
the foreign judgment can be measured and tested in terms of
jurisdictional infirmities, want of notice to the party, collusion, fraud, or
clear mistake of law or fact.
WHEREFORE, we GRANT the petition for review on certiorari, and
REVERSE the October 30, 2008 decision of the Regional Trial Court of
Laoag City, Branch 11, as well as its February 17, 2009 order. We
order the REMAND of the case to the trial court for further proceedings
in accordance with our ruling above. Let a copy of this Decision be
furnished the Civil Registrar General. No costs.
SO ORDERED.

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