Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 162894

February 26, 2008

RAYTHEON INTERNATIONAL, INC., petitioner,

vs.
STOCKTON W. ROUZIE, JR., respondent.
DECISION
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 Decision 1 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. 1192-BG, 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. 10Petitioner
sought the dismissal of the complaint on grounds of failure to state a cause of action
and forum non conveniens and prayed for damages by way of compulsory
counterclaim.11
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 Reconsideration 16 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 Decision 21 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 Resolution 25 dated 20
November 2006, the Court resolved to dispense with the filing of a comment.
The instant petition lacks merit.
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 law30 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.33The 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-of-laws 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
court of its jurisdiction over Civil Case No. No. 1192-BG and the parties involved.
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
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.
SO ORDERED.
DANTE O. TINGA
Associate Justice
xxx
RAYTHEON V. ROUZIE (2008)
[ G.R. No. 162894, February 26, 2008 ]
FACTS:
Sometime in 1990, Brand Marine Services, Inc., 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.
On 16 July 1994, respondent filed before the Arbitration Branch of the National
Labor Relations Commission, a suit against BMSI and Rust International, Inc., Rodney
C. Gilbert and Walter G. Browning for alleged nonpayment of commissions, illegal
termination and breach of employment contract.
On 8 January 1999, respondent, then a resident of La Union, instituted an action
for damages before the Regional Trial Court of Bauang, La Union. The Complaint
named as defendants herein petitioner Raytheon International, Inc. as well as BMSI and
RUST, the two corporations impleaded in the earlier labor case.
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 lawsof the State of Connecticut. Petitioner sought the dismissal of the complaint
on grounds of failure to state a cause of action and forum non conveniens and prayed
for damages by way of compulsory counterclaim.
Petitioner 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.
ISSUE:
WHETHER OR NOT THE COMPLAINT BE DISMISSED ON THE GROUND
OF FORUM NON CONVENIENS?
RULING:
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 theres, it may or can proceed to try the case even if the rules of conflictof-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.
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.
That the subject contract included a stipulation that the same shall be governed
by thelaws 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.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-of-laws 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.
Petitioners averments of the foreign elements in the instant case are not sufficient to
oust the trial court of its jurisdiction over Civil Case No. No. 1192-BG and the parties
involved.
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.

xxx
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
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.
Quiason, Makalintal, Barot & Torres for petitioner.
Alejandro, Aranzaso & Associates for private respondents.

MEDIALDEA, J.:
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. 58-62, 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 virtue of
the provision in the Guarantee (the actionable document) which reads
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. 39-48, 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 theSingapore Branch
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.
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 of forum 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.
SO ORDERED.
Narvasa, Cruz, Gancayco and Gri;o-Aquino, JJ., concur.
xxx
HSBC VS. SHERMAN
MARCH 28, 2013 ~ VBDIAZ

HONGKONG AND SHANGHAI BANKING CORPORATION (HSBC) vs. SHERMAN et

al
G.R. No. 72494
August 11, 1989
FACTS: It appears that sometime in 1981, Eastern Book Supply Service PTE, Ltd.
(COMPANY), a company incorporated in Singapore applied with and was granted by
HSBC Singapore branch an overdraft facility in the maximum amount of Singapore
dollars 200,000 with interest at 3% over HSBC prime rate, payable monthly, on amounts
due under said overdraft facility.
As a security for the repayment by the COMPANY of sums advanced by HSBC to it
through the aforesaid overdraft facility, in 1982, both private respondents and a certain
Lowe, all of whom were directors of the COMPANY at such time, executed a Joint and
Several Guarantee in favor of HSBC 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.
The COMPANY failed to pay its obligation. Thus, HSBC demanded payment and
inasmuch as the private respondents still failed to pay, HSBC filed A complaint for
collection of a sum of money against private respondents Sherman and Reloj before
RTC of Quezon City.
Private respondents filed an MTD on the ground of lack of jurisdiction over the subject
matter. The trial court denied the motion. They then filed before the respondent IAC a
petition for prohibition with preliminary injunction and/or prayer for a restraining order.
The IAC rendered a decision enjoining the RTC Quezon City 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. MR denied, hence this petition.
ISSUE: Do Philippine courts have jurisdiction over the suit, vis-a-vis the Guarantee
stipulation regarding jurisdiction?
HELD: YES
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
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 Neville Y. Lamis Ents., et al. v. Lagamon, etc., 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, ROC, 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 latters 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
NOTES:
The respondent IAC likewise ruled that:
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 of forum non conveniens.
However, whether a suit should be entertained or dismissed on the basis of the principle
of forum non conveniens depends largely upon the facts of the particular case and is
addressed to the sound discretion of the trial court. Thus, the IAC should not have relied
on such principle.
xxx
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27033

October 31, 1969

POLYTRADE CORPORATION, plaintiff-appellee,

vs.
VICTORIANO BLANCO, defendant-appellant.
Paredes, Poblador, Cruz and Nazareno for plaintiff-appellee.
Isidro T. Almeda and Mario T. Banzuela for 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:

First Cause of
Action

P60,845.67, with interest thereon at 1% a month from May 9, 1965

until the full amount is paid.

Second Cause of
Action

P51,952.55, with interest thereon at 1% a month from March 30,

1965 until the full amount is paid.

Third Cause of
Action

P53,973.07, with interest thereon at 1% a month from July 3, 1965

until the full amount is paid.

Fourth Cause of
Action

P41,075.22, with interest thereon at 1% a month 2 until the full

amount is paid.

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.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Castro, Fernando,
Teehankee and Barredo, JJ.,concur.
xxx
30 SCRA 187 Legal Ethics Two Concepts of Attorneys Fees
Blanco was sued by Polytrade for damages as he failed to pay a delivery of rawhide (to
be converted to leather and leather products). For failing to answer the suit, he was
declared in default and among those awarded in favor of Polytrade Corporation is
attorneys fee of P51,961.63 which is equivalent to 25% of the principal indebtedness of
Blanco to Polytrade. Blanco now claims that said judgment against him is exorbitant and
unconscionable.
ISSUE: Whether or not Blanco is correct.
HELD: No. This case would have never reached the courts had Blanco been current
with his obligation to Polytrade. He never raised any defense as he did not file an
answer. Bottom line is, the case could have been easily avoided without Polytrade
having to go to trial.
The attorneys fees awarded in favor of Polytrade and not his counsel. Such an
arrangement is not illegal. It is the litigant, not counsel, who is the judgment creditor
entitled to enforce the judgment by execution. Further, Polytrade may have spent much
for its counsel considering its counsels high standing.

xxx
Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 122191 October 8, 1998

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

QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and
set aside the Resolution 1dated September 27, 1995 and the Decision 2 dated April 10,
1996 of the Court of Appeals 3 in CA-G.R. SP No. 36533, 4and the Orders 5 dated August
29, 1994 6 and February 2, 1995 7 that were issued by the trial court in Civil Case No. Q93-18394. 8
The pertinent antecedent facts which gave rise to the instant petition, as stated in the
questioned Decision 9, are as follows:
On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight
Attendant for its airlines based in Jeddah, Saudi Arabia. . . .
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went
to a disco dance with fellow crew members Thamer Al-Gazzawi and Allah
Al-Gazzawi, both Saudi nationals. Because it was almost morning when
they returned to their hotels, they agreed to have breakfast together at the
room of Thamer. When they were in te (sic) room, Allah left on some
pretext. Shortly after he did, Thamer attempted to rape plaintiff.
Fortunately, a roomboy and several security personnel heard her cries for
help and rescued her. Later, the Indonesian police came and arrested
Thamer and Allah Al-Gazzawi, the latter as an accomplice.
When plaintiff returned to Jeddah a few days later, several SAUDIA
officials interrogated her about the Jakarta incident. They then requested
her to go back to Jakarta to help arrange the release of Thamer and Allah.
In Jakarta, SAUDIA Legal Officer Sirah Akkad and base manager Baharini

negotiated with the police for the immediate release of the detained crew
members but did not succeed because plaintiff refused to cooperate. She
was afraid that she might be tricked into something she did not want
because of her inability to understand the local dialect. She also declined
to sign a blank paper and a document written in the local dialect.
Eventually, SAUDIA allowed plaintiff to return to Jeddah but barred her
from the Jakarta flights.
Plaintiff learned that, through the intercession of the Saudi Arabian
government, the Indonesian authorities agreed to deport Thamer and
Allah after two weeks of detention. Eventually, they were again put in
service by defendant SAUDI (sic). In September 1990, defendant SAUDIA
transferred plaintiff to Manila.
On January 14, 1992, just when plaintiff thought that the Jakarta incident
was already behind her, her superiors requested her to see Mr. Ali
Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi Arabia. When
she saw him, he brought her to the police station where the police took her
passport and questioned her about the Jakarta incident. Miniewy simply
stood by as the police put pressure on her to make a statement dropping
the case against Thamer and Allah. Not until she agreed to do so did the
police return her passport and allowed her to catch the afternoon flight out
of Jeddah.
One year and a half later or on lune 16, 1993, in Riyadh, Saudi Arabia, a
few minutes before the departure of her flight to Manila, plaintiff was not
allowed to board the plane and instead ordered to take a later flight to
Jeddah to see Mr. Miniewy, the Chief Legal Officer of SAUDIA. When she
did, a certain Khalid of the SAUDIA office brought her to a Saudi court
where she was asked to sign a document written in Arabic. They told her
that this was necessary to close the case against Thamer and Allah. As it
turned out, plaintiff signed a notice to her to appear before the court on
June 27, 1993. Plaintiff then returned to Manila.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report to
Jeddah once again and see Miniewy on June 27, 1993 for further
investigation. Plaintiff did so after receiving assurance from SAUDIA's
Manila manager, Aslam Saleemi, that the investigation was routinary and
that it posed no danger to her.

In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court
on June 27, 1993. Nothing happened then but on June 28, 1993, a Saudi
judge interrogated plaintiff through an interpreter about the Jakarta
incident. After one hour of interrogation, they let her go. At the airport,
however, just as her plane was about to take off, a SAUDIA officer told her
that the airline had forbidden her to take flight. At the Inflight Service Office
where she was told to go, the secretary of Mr. Yahya Saddick took away
her passport and told her to remain in Jeddah, at the crew quarters, until
further orders.
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same
court where the judge, to her astonishment and shock, rendered a
decision, translated to her in English, sentencing her to five months
imprisonment and to 286 lashes. Only then did she realize that the Saudi
court had tried her, together with Thamer and Allah, for what happened in
Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco,
dancing and listening to the music in violation of Islamic laws; and (3)
socializing with the male crew, in contravention of Islamic tradition. 10
Facing conviction, private respondent sought the help of her employer, petitioner
SAUDIA. Unfortunately, she was denied any assistance. She then asked the Philippine
Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to pay for her
upkeep, she worked on the domestic flight of SAUDIA, while Thamer and Allah
continued to serve in the international
flights. 11
Because she was wrongfully convicted, the Prince of Makkah dismissed the case
against her and allowed her to leave Saudi Arabia. Shortly before her return to
Manila, 12 she was terminated from the service by SAUDIA, without her being informed
of the cause.
On November 23, 1993, Morada filed a Complaint 13 for damages against SAUDIA, and
Khaled Al-Balawi ("Al-Balawi"), its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised the
following grounds, to wit: (1) that the Complaint states no cause of action against
Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that the claim or
demand set forth in the Complaint has been waived, abandoned or otherwise
extinguished; and (4) that the trial court has no jurisdiction to try the case.

On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) 15. Saudia
filed a reply 16 thereto on March 3, 1994.
On June 23, 1994, Morada filed an Amended Complaint 17 wherein Al-Balawi was
dropped as party defendant. On August 11, 1994, Saudia filed its Manifestation and
Motion to Dismiss Amended Complaint 18.
The trial court issued an Order 19 dated August 29, 1994 denying the Motion to Dismiss
Amended Complaint filed by Saudia.
From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA filed on
September 20, 1994, its Motion for Reconsideration 21 of the Order dated August 29,
1994. It alleged that the trial court has no jurisdiction to hear and try the case on the
basis of Article 21 of the Civil Code, since the proper law applicable is the law of the
Kingdom of Saudi Arabia. On October 14, 1994, Morada filed her Opposition 22 (To
Defendant's Motion for Reconsideration).
In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that since
its Motion for Reconsideration raised lack of jurisdiction as its cause of action, the
Omnibus Motion Rule does not apply, even if that ground is raised for the first time on
appeal. Additionally, SAUDIA alleged that the Philippines does not have any substantial
interest in the prosecution of the instant case, and hence, without jurisdiction to
adjudicate the same.
Respondent Judge subsequently issued another Order 24 dated February 2, 1995,
denying SAUDIA's Motion for Reconsideration. The pertinent portion of the assailed
Order reads as follows:
Acting on the Motion for Reconsideration of defendant Saudi Arabian
Airlines filed, thru counsel, on September 20, 1994, and the Opposition
thereto of the plaintiff filed, thru counsel, on October 14, 1994, as well as
the Reply therewith of defendant Saudi Arabian Airlines filed, thru counsel,
on October 24, 1994, considering that a perusal of the plaintiffs Amended
Complaint, which is one for the recovery of actual, moral and exemplary
damages plus attorney's fees, upon the basis of the applicable Philippine
law, Article 21 of the New Civil Code of the Philippines, is, clearly, within
the jurisdiction of this Court as regards the subject matter, and there being
nothing new of substance which might cause the reversal or modification
of the order sought to be reconsidered, the motion for reconsideration of
the defendant, is DENIED.

SO ORDERED. 25
Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and
Prohibition with Prayer for Issuance of Writ of Preliminary Injunction and/or Temporary
Restraining Order 26 with the Court of Appeals.
Respondent Court of Appeals promulgated a Resolution with Temporary Restraining
Order 27 dated February 23, 1995, prohibiting the respondent Judge from further
conducting any proceeding, unless otherwise directed, in the interim.
In another Resolution 28 promulgated on September 27, 1995, now assailed, the
appellate court denied SAUDIA's Petition for the Issuance of a Writ of Preliminary
Injunction dated February 18, 1995, to wit:
The Petition for the Issuance of a Writ of Preliminary Injunction is hereby
DENIED, after considering the Answer, with Prayer to Deny Writ of
Preliminary Injunction (Rollo, p. 135) the Reply and Rejoinder, it appearing
that herein petitioner is not clearly entitled thereto (Unciano Paramedical
College, et. Al., v. Court of Appeals, et. Al., 100335, April 7, 1993, Second
Division).
SO ORDERED.
On October 20, 1995, SAUDIA filed with this Honorable Court the instant Petition
Review with Prayer for Temporary Restraining Order dated October 13, 1995.

29

for

However, during the pendency of the instant Petition, respondent Court of Appeals
rendered the Decision 30 dated April 10, 1996, now also assailed. It ruled that the
Philippines is an appropriate forum considering that the Amended Complaint's basis for
recovery of damages is Article 21 of the Civil Code, and thus, clearly within the
jurisdiction of respondent Court. It further held that certiorari is not the proper remedy in
a denial of a Motion to Dismiss, inasmuch as the petitioner should have proceeded to
trial, and in case of an adverse ruling, find recourse in an appeal.
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order31 dated April 30, 1996, given due course by this Court.
After both parties submitted their Memoranda, 32 the instant case is now deemed
submitted for decision.
Petitioner SAUDIA raised the following issues:
I

The trial court has no jurisdiction to hear and try Civil Case No. Q-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 petitioner's April 30, 1996 Supplemental Petition For
Review With Prayer For A Temporary Restraining Order Within Ten (10)
Days From Notice Thereof. Further, the Revised Rules of Court should be
construed with liberality pursuant to Section 2, Rule 1 thereof.
III
Petitioner received on April 22, 1996 the April 10, 1996 decision in 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 THIS CASE PHILIPPINE LAW SHOULD GOVERN.

Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at the
outset. It maintains that private respondent's claim for alleged abuse of rights occurred
in the Kingdom of Saudi Arabia. It alleges that the existence of a foreign element
qualifies the instant case for the application of the law of the Kingdom of Saudi Arabia,
by virtue of the lex loci delicti commissi rule. 34
On the other hand, private respondent contends that since her Amended Complaint is
based on Articles 19 35 and 21 36 of the Civil Code, then the instant case is properly a
matter of domestic law. 37
Under the factual antecedents obtaining in this case, there is no dispute that the
interplay of events occurred in two states, the Philippines and Saudi Arabia.
As stated by private respondent in her Amended Complaint

38

dated June 23, 1994:

2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines

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

allowed to board the plane and instead ordered to take a later flight to
Jeddah to see Mr. Meniewy, the Chief Legal Officer of SAUDIA. When she
did, a certain Khalid of the SAUDIA office brought her to a Saudi court
where she was asked to sigh a document written in Arabic. They told her
that this was necessary to close the case against Thamer and Allah. As it
turned out, plaintiff signed a notice to her to appear before the court on
June 27, 1993. Plaintiff then returned to Manila.
9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to
Jeddah once again and see Miniewy on June 27, 1993 for further
investigation. Plaintiff did so after receiving assurance from SAUDIA's
Manila manger, Aslam Saleemi, that the investigation was routinary and
that it posed no danger to her.
10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi
court on June 27, 1993. Nothing happened then but on June 28, 1993, a
Saudi judge interrogated plaintiff through an interpreter about the Jakarta
incident. After one hour of interrogation, they let her go. At the airport,
however, just as her plane was about to take off, a SAUDIA officer told her
that the airline had forbidden her to take that flight. At the Inflight Service
Office where she was told to go, the secretary of Mr. Yahya Saddick took
away her passport and told her to remain in Jeddah, at the crew quarters,
until further orders.
11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the
same court where the judge, to her astonishment and shock, rendered a
decision, translated to her in English, sentencing her to five months
imprisonment and to 286 lashes. Only then did she realize that the Saudi
court had tried her, together with Thamer and Allah, for what happened in
Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco,
dancing, and listening to the music in violation of Islamic laws; (3)
socializing with the male crew, in contravention of Islamic tradition.
12. Because SAUDIA refused to lend her a hand in the case, plaintiff
sought the help of the Philippines Embassy in Jeddah. The latter helped
her pursue an appeal from the decision of the court. To pay for her
upkeep, she worked on the domestic flights of defendant SAUDIA while,
ironically, Thamer and Allah freely served the international flights. 39

Where the factual antecedents satisfactorily establish the existence of a foreign

element, we agree with petitioner that the problem herein could present a "conflicts"
case.
A factual situation that cuts across territorial lines and is affected by the diverse laws of
two or more states is said to contain a "foreign element". The presence of a foreign
element is inevitable since social and economic affairs of individuals and associations
are rarely confined to the geographic limits of their birth or conception. 40
The forms in which this foreign element may appear are many. 41 The foreign element
may simply consist in the fact that one of the parties to a contract is an alien or has a
foreign domicile, or that a contract between nationals of one State involves properties
situated in another State. In other cases, the foreign element may assume a complex
form. 42
In the instant case, the foreign element consisted in the fact that private respondent
Morada is a resident Philippine national, and that petitioner SAUDIA is a resident foreign
corporation. Also, by virtue of the employment of Morada with the petitioner Saudia as a
flight stewardess, events did transpire during her many occasions of travel across
national borders, particularly from Manila, Philippines to Jeddah, Saudi Arabia, and vice
versa, that caused a "conflicts" situation to arise.
We thus find private respondent's assertion that the case is purely domestic, imprecise.
A conflicts problem presents itself here, and the question of jurisdiction 43 confronts the
court a quo.
After a careful study of the private respondent's Amended Complaint, 44 and the
Comment thereon, we note that she aptly predicated her cause of action on Articles 19
and 21 of the New Civil Code.
On one hand, Article 19 of the New Civil Code provides:
Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due and
observe honesty and good faith.
On the other hand, Article 21 of the New Civil Code provides:
Art. 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall
compensate the latter for damages.

Thus, in Philippine National Bank (PNB) vs. Court of Appeals, 45 this Court held that:
The aforecited provisions on human relations were intended to expand the
concept of torts in this jurisdiction by granting adequate legal remedy for
the untold number of moral wrongs which is impossible for human
foresight to specifically provide in the statutes.
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its
provisions. Thus, we agree with private respondent's assertion that violations of Articles
19 and 21 are actionable, with judicially enforceable remedies in the municipal forum.
Based on the allegations 46 in the Amended Complaint, read in the light of the Rules of
Court on jurisdiction 47 we find that the Regional Trial Court (RTC) of Quezon City
possesses jurisdiction over the subject matter of the suit. 48 Its authority to try and hear
the case is provided for under Section 1 of Republic Act No. 7691, to wit:
Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the
"Judiciary Reorganization Act of 1980", is hereby amended to read as
follows:
Sec. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise
exclusive jurisdiction:
xxx xxx xxx
(8) In all other cases in which demand, exclusive of interest,
damages of whatever kind, attorney's fees, litigation
expenses, and cots or the value of the property in
controversy exceeds One hundred thousand pesos
(P100,000.00) or, in such other cases in Metro Manila,
where the demand, exclusive of the above-mentioned items
exceeds Two hundred Thousand pesos (P200,000.00).
(Emphasis ours)
xxx xxx xxx
And following Section 2 (b), Rule 4 of the Revised Rules of Court the venue, Quezon
City, is appropriate:
Sec. 2 Venue in Courts of First Instance. [Now Regional Trial Court]
(a) xxx xxx xxx

(b) Personal actions. All other actions may be commenced and tried
where the defendant or any of the defendants resides or may be found, or
where the plaintiff or any of the plaintiff resides, at the election of the
plaintiff.
Pragmatic considerations, including the convenience of the parties, also weigh heavily
in favor of the RTC Quezon City assuming jurisdiction. Paramount is the private interest
of the litigant. Enforceability of a judgment if one is obtained is quite obvious. Relative
advantages and obstacles to a fair trial are equally important. Plaintiff may not, by
choice of an inconvenient forum, "vex", "harass", or "oppress" the defendant, e.g. by
inflicting upon him needless expense or disturbance. But unless the balance is strongly
in favor of the defendant, the plaintiffs choice of forum should rarely be disturbed. 49
Weighing the relative claims of the parties, the court a quo found it best to hear the case
in the Philippines. Had it refused to take cognizance of the case, it would be forcing
plaintiff (private respondent now) to seek remedial action elsewhere, i.e. in the Kingdom
of Saudi Arabia where she no longer maintains substantial connections. That would
have caused a fundamental unfairness to her.
Moreover, by hearing the case in the Philippines no unnecessary difficulties and
inconvenience have been shown by either of the parties. The choice of forum of the
plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over the persons of the parties
herein. By filing her Complaint and Amended Complaint with the trial court, private
respondent has voluntary submitted herself to the jurisdiction of the court.
The records show that petitioner SAUDIA has filed several motions 50 praying for the
dismissal of Morada's Amended Complaint. SAUDIA also filed an Answer In Ex
Abundante Cautelam dated February 20, 1995. What is very patent and explicit from the
motions filed, is that SAUDIA prayed for other reliefs under the premises. Undeniably,
petitioner SAUDIA has effectively submitted to the trial court's jurisdiction by praying for
the dismissal of the Amended Complaint on grounds other than lack of jurisdiction.
As held by this Court in Republic vs. Ker and Company, Ltd.: 51
We observe that the motion to dismiss filed on April 14, 1962, aside from
disputing the lower court's jurisdiction over defendant's person, prayed for
dismissal of the complaint on the ground that plaintiff's cause of action has
prescribed. By interposing such second ground in its motion to dismiss,
Ker and Co., Ltd. availed of an affirmative defense on the basis of which it

prayed the court to resolve controversy in its favor. For the court to validly
decide the said plea of defendant Ker & Co., Ltd., it necessarily had to
acquire jurisdiction upon the latter's person, who, being the proponent of
the affirmative defense, should be deemed to have abandoned its special
appearance and voluntarily submitted itself to the jurisdiction of the court.
Similarly, the case of De Midgely vs. Ferandos, held that;
When the appearance is by motion for the purpose of objecting to the
jurisdiction of the court over the person, it must be for the sole and
separate purpose of objecting to the jurisdiction of the court. If his motion
is for any other purpose than to object to the jurisdiction of the court over
his person, he thereby submits himself to the jurisdiction of the court. A
special appearance by motion made for the purpose of objecting to the
jurisdiction of the court over the person will be held to be a general
appearance, if the party in said motion should, for example, ask for a
dismissal of the action upon the further ground that the court had no
jurisdiction over the subject matter. 52
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of Quezon
City. Thus, we find that the trial court has jurisdiction over the case and that its exercise
thereof, justified.
As to the choice of applicable law, we note that choice-of-law problems seek to answer
two important questions: (1) What legal system should control a given situation where
some of the significant facts occurred in two or more states; and (2) to what extent
should the chosen legal system regulate the situation. 53
Several theories have been propounded in order to identify the legal system that should
ultimately control. Although ideally, all choice-of-law theories should intrinsically
advance both notions of justice and predictability, they do not always do so. The forum
is then faced with the problem of deciding which of these two important values should
be stressed. 54
Before a choice can be made, it is necessary for us to determine under what category a
certain set of facts or rules fall. This process is known as "characterization", or the
"doctrine of qualification". It is the "process of deciding whether or not the facts relate to
the kind of question specified in a conflicts rule." 55 The purpose of "characterization" is
to enable the forum to select the proper law. 56

Our starting point of analysis here is not a legal relation, but a factual situation, event, or
operative fact. 57 An essential element of conflict rules is the indication of a "test" or
"connecting factor" or "point of contact". Choice-of-law rules invariably consist of a
factual relationship (such as property right, contract claim) and a connecting factor or
point of contact, such as the situs of the res, the place of celebration, the place of
performance, or the place of wrongdoing. 58
Note that one or more circumstances may be present to serve as the possible test for
the determination of the applicable law. 59 These "test factors" or "points of contact" or
"connecting factors" could be any of the following:
(1) The nationality of a person, his domicile, his residence, his place of
sojourn, or his origin;
(2) the seat of a legal or juridical person, such as a corporation;
(3) the situs of a thing, that is, the place where a thing is, or is deemed to
be situated. In particular, the lex situs is decisive when real rights are
involved;
(4) the place where an act has been done, the locus actus, such as the
place where a contract has been made, a marriage celebrated, a will
signed or a tort committed. The lex loci actus is particularly important in
contracts and torts;
(5) the place where an act is intended to come into effect, e.g., the place
of performance of contractual duties, or the place where a power of
attorney is to be exercised;
(6) the intention of the contracting parties as to the law that should govern
their agreement, the lex loci intentionis;
(7) the place where judicial or administrative proceedings are instituted or
done. The lex fori the law of the forum is particularly important
because, as we have seen earlier, matters of "procedure" not going to the
substance of the claim involved are governed by it; and because the lex
fori applies whenever the content of the otherwise applicable foreign law is
excluded from application in a given case for the reason that it falls under
one of the exceptions to the applications of foreign law; and
(8) the flag of a ship, which in many cases is decisive of practically all
legal relationships of the ship and of its master or owner as such. It also

covers contractual relationships particularly contracts of

affreightment. 60 (Emphasis ours.)
After a careful study of the pleadings on record, including allegations in the Amended
Complaint deemed admitted for purposes of the motion to dismiss, we are convinced
that there is reasonable basis for private respondent's assertion that although she was
already working in Manila, petitioner brought her to Jeddah on the pretense that she
would merely testify in an investigation of the charges she made against the two
SAUDIA crew members for the attack on her person while they were in Jakarta. As it
turned out, she was the one made to face trial for very serious charges, including
adultery and violation of Islamic laws and tradition.
There is likewise logical basis on record for the claim that the "handing over" or "turning
over" of the person of private respondent to Jeddah officials, petitioner may have acted
beyond its duties as employer. Petitioner's purported act contributed to and amplified or
even proximately caused additional humiliation, misery and suffering of private
respondent. Petitioner thereby allegedly facilitated the arrest, detention and prosecution
of private respondent under the guise of petitioner's authority as employer, taking
advantage of the trust, confidence and faith she reposed upon it. As purportedly found
by the Prince of Makkah, the alleged conviction and imprisonment of private respondent
was wrongful. But these capped the injury or harm allegedly inflicted upon her person
and reputation, for which petitioner could be liable as claimed, to provide compensation
or redress for the wrongs done, once duly proven.
Considering that the complaint in the court a quo is one involving torts, the "connecting
factor" or "point of contact" could be the place or places where the tortious conduct
or lex loci actus occurred. And applying the torts principle in a conflicts case, we find
that the Philippines could be said as a situs of the tort (the place where the alleged
tortious conduct took place). This is because it is in the Philippines where petitioner
allegedly deceived private respondent, a Filipina residing and working here. According
to her, she had honestly believed that petitioner would, in the exercise of its rights and in
the performance of its duties, "act with justice, give her due and observe honesty and
good faith." Instead, petitioner failed to protect her, she claimed. That certain acts or
parts of the injury allegedly occurred in another country is of no moment. For in our view
what is important here is the place where the over-all harm or the totality of the alleged
injury to the person, reputation, social standing and human rights of complainant, had
lodged, according to the plaintiff below (herein private respondent). All told, it is not
without basis to identify the Philippines as the situs of the alleged tort.
Moreover, with the widespread criticism of the traditional rule of lex loci delicti commissi,
modern theories and rules on tort liability 61 have been advanced to offer fresh judicial

approaches to arrive at just results. In keeping abreast with the modern theories on tort
liability, we find here an occasion to apply the "State of the most significant relationship"
rule, which in our view should be appropriate to apply now, given the factual context of
this case.
In applying said principle to determine the State which has the most significant
relationship, the following contacts are to be taken into account and evaluated
according to their relative importance with respect to the particular issue: (a) the place
where the injury occurred; (b) the place where the conduct causing the injury occurred;
(c) the domicile, residence, nationality, place of incorporation and place of business of
the parties, and (d) the place where the relationship, if any, between the parties is
centered. 62
As already discussed, there is basis for the claim that over-all injury occurred and
lodged in the Philippines. There is likewise no question that private respondent is a
resident Filipina national, working with petitioner, a resident foreign corporation engaged
here in the business of international air carriage. Thus, the "relationship" between the
parties was centered here, although it should be stressed that this suit is not based on
mere labor law violations. From the record, the claim that the Philippines has the most
significant contact with the matter in this dispute, 63 raised by private respondent as
plaintiff below against defendant (herein petitioner), in our view, has been properly
established.
Prescinding from this premise that the Philippines is the situs of the tort complained of
and the place "having the most interest in the problem", we find, by way of
recapitulation, that the Philippine law on tort liability should have paramount application
to and control in the resolution of the legal issues arising out of this case. Further, we
hold that the respondent Regional Trial Court has jurisdiction over the parties and the
subject matter of the complaint; the appropriate venue is in Quezon City, which could
properly apply Philippine law. Moreover, we find untenable petitioner's insistence that
"[s]ince private respondent instituted this suit, she has the burden of pleading and
proving the applicable Saudi law on the matter." 64 As aptly said by private respondent,
she has "no obligation to plead and prove the law of the Kingdom of Saudi Arabia since
her cause of action is based on Articles 19 and 21" of the Civil Code of the Philippines.
In her Amended Complaint and subsequent pleadings, she never alleged that Saudi law
should govern this case. 65 And as correctly held by the respondent appellate court,
"considering that it was the petitioner who was invoking the applicability of the law of
Saudi Arabia, then the burden was on it [petitioner] to plead and to establish what the
law of Saudi Arabia is". 66

Lastly, no error could be imputed to the respondent appellate court in upholding the trial
court's denial of defendant's (herein petitioner's) motion to dismiss the case. Not only
was jurisdiction in order and venue properly laid, but appeal after trial was obviously
available, and expeditious trial itself indicated by the nature of the case at hand.
Indubitably, the Philippines is the state intimately concerned with the ultimate outcome
of the case below, not just for the benefit of all the litigants, but also for the vindication of
the country's system of law and justice in a transnational setting. With these guidelines
in mind, the trial court must proceed to try and adjudge the case in the light of relevant
Philippine law, with due consideration of the foreign element or elements involved.
Nothing said herein, of course, should be construed as prejudging the results of the
case in any manner whatsoever.
WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case No.
Q-93-18394 entitled "Milagros P. Morada vs. Saudi Arabia Airlines" is hereby
REMANDED to Regional Trial Court of Quezon City, Branch 89 for further proceedings.
SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Panganiban, JJ., concur.
xxx
SAUDIA VS. CA
MARCH 28, 2013 ~ LEAVE A COMMENT
SAUDI ARABIAN AIRLINES (SAUDIA) vs. COURT OF APPEALS, MILAGROS P.
MORADA and HON. RODOLFO A. ORTIZ, in his capacity as Presiding Judge of
Branch 89, RTC of Quezon City
G.R. No. 122191 October 8, 1998
FACTS: Petitioner SAUDIA hired private respondent MORADA as a flight attendant in
1988, based in Jeddah. On 1990, while on a lay-over in Jakarta, Indonesia, she went to
party with 2 male attendants, and on the following morning in their hotel, one of the
male attendants attempted to rape her. She was rescued by hotel attendants who heard
her cry for help. The Indonesian police arrested the 2.

MORADA returned to Jeddah, but was asked by the company to go back to Jakarta and
help arrange the release of the 2 male attendants. MORADA did not cooperate when
she got to Jakarta.
What followed was a series of interrogations from the Saudi Courts which she did not
understand as this was in their language. In 1993, she was surprised, upon being
ordered by SAUDIA to go to the Saudi court, that she was being convicted 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,
sentencing her to five months imprisonment and to 286 lashes. Only then did she
realize that the Saudi court had tried her, together with the 2, for what happened in
Jakarta.
SAUDIA denied her the assistance she requested, But because she was wrongfully
convicted, Prince of Makkah dismissed the case against her and allowed her to leave
Saudi Arabia. Shortly before her return to Manila, she was terminated from the service
by SAUDIA, without her being informed of the cause.
On November 23, 1993, Morada filed a Complaint for damages against SAUDIA, and
Khaled Al-Balawi (Al-Balawi), its country manager.
SAUDIA ALLEGES: 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.
MORADA ALLEGES: Since her Amended Complaint is based on Articles 19 and 21 of
the Civil Code, then the instant case is properly a matter of domestic law.
ISSUE: WON the Philippine courts have jurisdiction to try the case
HELD: YES.

On the presence of a Foreign Element in the 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. 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.
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.
COURT disagrees with MORADA that his is purely a domestic case. However, the court
finds that the RTC of Quezon City possesses jurisdiction over the subject matter of the
suit. Its authority to try and hear the case is provided for under Section 1 of Republic Act
No. 7691, to wit:
BP129 Sec. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise
exclusive jurisdiction:
xxx xxx xxx
(8) In all other cases in which demand, exclusive of interest, damages of whatever kind,
attorney`ys fees, litigation expenses, and cots or the value of the property in
controversy exceeds One hundred thousand pesos (P100,000.00) or, in such other
cases in Metro Manila, where the demand, exclusive of the above-mentioned items
exceeds Two hundred Thousand pesos (P200,000.00). (Emphasis ours)
xxx xxx xxx
Section 2 (b), Rule 4 of the Revised Rules of Court the venue, Quezon City, is

appropriate:
Sec. 2 Venue in Courts of First Instance. [Now Regional Trial Court]
(a) xxx xxx xxx
(b) Personal actions. All other actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the plaintiff or
any of the plaintiff resides, at the election of the plaintiff.
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.
The trial court also acquired jurisdiction over the parties. MORADA through her act of
filing, and SAUDIA by praying for the dismissal of the Amended Complaint on grounds
other than lack of jurisdiction.
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.
Considering that the complaint in the court a quo is one involving torts, the connecting
factor or point of contact could be the place or places where the tortious conduct or
lex loci actus occurred. And applying the torts principle in a conflicts case, we find that
the Philippines could be said as a situs of the tort (the place where the alleged tortious
conduct took place). This is because it is in the Philippines where petitioner allegedly
deceived private respondent, a Filipina residing and working here. According to her, she
had honestly believed that petitioner would, in the exercise of its rights and in the

performance of its duties, act with justice, give her due and observe honesty and good
faith. Instead, petitioner failed to protect her, she claimed. That certain acts or parts of
the injury allegedly occurred in another country is of no moment. For in our view what is
important here is the place where the over-all harm or the totality of the alleged injury to
the person, reputation, social standing and human rights of complainant, had lodged,
according to the plaintiff below (herein private respondent). All told, it is not without
basis to identify the Philippines as the situs of the alleged tort.
In applying State of the most significant relationship rule, 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.
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, raised by private respondent as
plaintiff below against defendant (herein petitioner), in our view, has been properly
established.
NOTE:
These test factors or points of contact or connecting factors could be any of the
following:
(1) The nationality of a person, his domicile, his residence, his place of sojourn, or his
origin;

(2) the seat of a legal or juridical person, such as a corporation;

(3) the situs of a thing, that is, the place where a thing is, or is deemed to be situated. In
particular, the lex situs is decisive when real rights are involved;
(4) the place where an act has been done, the locus actus, such as the place where a
contract has been made, a marriage celebrated, a will signed or a tort committed. The
lex loci actus is particularly important in contracts and torts;
(5) the place where an act is intended to come into effect, e.g., the place of performance
of contractual duties, or the place where a power of attorney is to be exercised;
(6) the intention of the contracting parties as to the law that should govern their
agreement, the lex loci intentionis;
(7) the place where judicial or administrative proceedings are instituted or done. The lex
fori the law of the forum is particularly important because, as we have seen earlier,
matters of procedure not going to the substance of the claim involved are governed by
it; and because the lex fori applies whenever the content of the otherwise applicable
foreign law is excluded from application in a given case for the reason that it falls under
one of the exceptions to the applications of foreign law; and
(8) the flag of a ship, which in many cases is decisive of practically all legal relationships
of the ship and of its master or owner as such. It also covers contractual relationships
particularly contracts of affreightment.
FROM ATTY. RENES^^
xxx
THIRD DIVISION

KAZUHIRO HASEGAWA and NIPPON

ENGINEERING CONSULTANTS CO., LTD.,
Petitioners,

G.R. No. 149177

Present:

YNARES-SANTIAGO, J.,

Chairperson,
- versus -

AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

MINORU KITAMURA,

Promulgated:

Respondent.
November 23, 2007

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

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

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

When the STAR Project was near completion, the Department of Public Works and
Highways (DPWH) engaged the consultancy services of Nippon, on January 28, 2000,
this time for the detailed engineering and construction supervision of the BongabonBaler Road Improvement (BBRI) Project. [7] Respondent was named as the project
manager in the contract's Appendix 3.1. [8]

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

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

negotiation conference and demanded that he be assigned to the BBRI
project. Nipponinsisted that respondents contract was for a fixed term that had already
expired, and refused to negotiate for the renewal of the ICA.[10]

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

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

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

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

Aggrieved by this development, petitioners filed with the CA, on September 19, 2000,
still within the reglementary period, a second Petition for Certiorari under Rule 65
already stating therein the material dates and attaching thereto the proper verification
and certification. This second petition, which substantially raised the same issues as
those in the first, was docketed as CA-G.R. SP No. 60827.[21]

Ruling on the merits of the second petition, the appellate court rendered the
assailed April 18, 2001 Decision[22] finding no grave abuse of discretion in the trial
court's denial of the motion to dismiss. The CA ruled, among others, that the principle
of lex loci celebrationis was not applicable to the case, because nowhere in the

pleadings was the validity of the written agreement put in issue. The CA thus declared
that the trial court was correct in applying instead the principle of lex loci solutionis.[23]

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

assailed July 25, 2001 Resolution.[24]

Remaining steadfast in their stance despite the series of denials, petitioners instituted
the instant Petition for Review on Certiorari[25] imputing the following errors to the
appellate court:

A. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

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

B. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

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

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

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

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

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

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

Necessarily, because the said dismissal is without prejudice and has no res judicata effect, and
even

if

petitioners

still

indicated

in

the

verification

and

certification

of

the

secondcertiorari petition that the first had already been dismissed on procedural grounds,
[33]

petitioners are no longer required by the Rules to indicate in their certification of non-forum

shopping in the instant petition for review of the second certiorari petition, the status of the
aforesaid first petition before the CA. In any case, an omission in the certificate of non-forum
shopping about any event that will not constitute res judicata and litis pendentia, as in the

present case, is not a fatal defect. It will not warrant thedismissal and nullification of the entire
proceedings, considering that the evils sought to be prevented by the said certificate are no
longer present.[34]

The Court also finds no merit in respondent's contention that petitioner Hasegawa is only
authorized to verify and certify, on behalf of Nippon, the certiorari petition filed with the CA and
not the instant petition. True, the Authorization[35] dated September 4, 2000, which is attached to
the second certiorari petition and which is also attached to the instant petition for review, is
limited in scopeits wordings indicate that Hasegawa is given the authority to sign for and act on
behalf of the company only in the petition filed with the appellate court, and that authority cannot
extend to the instant petition for review.[36] In a plethora of cases, however, this Court has
liberally applied the Rules or even suspended its application whenever a satisfactory
explanation and a subsequent fulfillment of the requirements have been made.[37] Given that
petitioners herein sufficiently explained their misgivings on this point and appended to their
Reply[38] an updated Authorization[39] for Hasegawa to act on behalf of the company in the instant
petition, the Court finds the same as sufficient compliance with the Rules.

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

ends of justice, nonetheless, they are intended to effect the proper and orderly disposition of
cases and effectively prevent the clogging of court dockets.[43]

Further, the Court has observed that petitioners incorrectly filed a Rule 65 petition to question
the trial court's denial of their motion to dismiss. It is a well-established rule that an order
denying

a motion to dismiss

is

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

interlocutory,
The

appropriate recourse is to file an answer and to interpose as defenses the objections raised in
the motion, to proceed to trial, and, in case of an adverse decision, to elevate the entire case by
appeal in due course.[44] While there are recognized exceptions to this rule, [45] petitioners' case
does not fall among them.

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

Asserting that the RTC of Lipa City is an inconvenient forum, petitioners question its jurisdiction
to hear and resolve the civil case for specific performance and damages filed by the respondent.
The ICA subject of the litigation was entered into and perfected in Tokyo, Japan, by Japanese
nationals, and written wholly in the Japanese language. Thus, petitioners posit that local courts
have no substantial relationship to the parties[46] following the [state of the] most significant
relationship rule in Private International Law.[47]

The Court notes that petitioners adopted an additional but different theory when they elevated
the case to the appellate court. In the Motion to Dismiss[48] filed with the trial court, petitioners
never contended that the RTC is an inconvenient forum. They merely argued that the applicable
law which will determine the validity or invalidity of respondent's claim is that of Japan, following

the principles of lex loci celebrationis and lex contractus.[49] While not abandoning this stance in
their petition before the appellate court, petitioners on certiorari significantly invoked the defense
of forum non conveniens.[50] On petition for review before this Court, petitioners dropped their
other arguments, maintained the forum non conveniens defense, and introduced their new
argument that the applicable principle is the [state of the] most significant relationship rule.[51]

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

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

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

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

Jurisdiction over the subject matter in a judicial proceeding is conferred by the sovereign
authority which establishes and organizes the court. It is given only by law and in the manner
prescribed by law.[58] It is further determined by the allegations of the complaint irrespective of
whether the plaintiff is entitled to all or some of the claims asserted therein. [59] To succeed in its
motion for the dismissal of an action for lack of jurisdiction over the subject matter of the claim,
[60]

the movant must show that the court or tribunal cannot act on the matter submitted to it

because no law grants it the power to adjudicate the claims.[61]

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

The Court finds the invocation of these grounds unsound.

Lex loci celebrationis relates to the law of the place of the ceremony [63] or the law of the place
where a contract is made.[64] The doctrine of lex contractus or lex loci contractus means the law
of the place where a contract is executed or to be performed. [65] It controls the nature,
construction, and validity of the contract [66] and it may pertain to the law voluntarily agreed upon
by the parties or the law intended by them either expressly or implicitly.[67] Under the state of the
most significant relationship rule, to ascertain what state law to apply to a dispute, the court
should determine which state has the most substantial connection to the occurrence and the
parties. In a case involving a contract, the court should consider where the contract was made,
was negotiated, was to be performed, and the domicile, place of business, or place of
incorporation of the parties.[68] This rule takes into account several contacts and evaluates them
according to their relative importance with respect to the particular issue to be resolved.[69]

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

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

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

Neither can the other ground raised, forum non conveniens,[76] be used to deprive the
trial court of its jurisdiction herein. First, it is not a proper basis for a motion to dismiss because
Section 1, Rule 16 of the Rules of Court does not include it as a ground. [77] Second, whether a
suit should be entertained or dismissed on the basis of the said doctrine depends largely upon
the facts of the particular case and is addressed to the sound discretion of the trial court. [78] In
this case, the RTC decided to assume jurisdiction. Third, the propriety of dismissing a case
based on this principle requires a factual determination; hence, this conflicts principle is more
properly considered a matter of defense.[79]

Accordingly, since the RTC is vested by law with the power to entertain and hear the civil case
filed by respondent and the grounds raised by petitioners to assail that jurisdiction are
inappropriate, the trial and appellate courts correctly denied the petitioners motion to dismiss.

WHEREFORE, premises
on certiorari is DENIED.

considered,

the

petition

for

review

SO ORDERED.

xxx
Hasegawa and Nippon Eng. Consultants v. Kitamura Digest
Hasegawa and Nippon Eng. v. Kitamura
G.R. No. 149177 November 23, 2007
Ponente: Justice Nachura
Facts:
1. The petitioner Nippon Engineering Consultants Co. is a Japanese consultancy firm
which provides technical and management support in the infrastructure project of
foreign governments. It entered into a Independent Contractor Agreement (ICA) with
respondent Kitamura, a Japanese national permanently residing in the
Philippines. Under the ICA, the respondent will extend professional services to the
petitioner for a year.
2. Subsequently Kitamura was assigned as project manager of STAR project in 1999. In
2000, he was informed by the petitioner that it will no longer renew the ICA and that he
will be retained until its expiration. Kitamura filed a civil casefor specific performance
before the RTC of Lipa and damages.
3. The lower court ruled that it has jurisdiction over the dispute and denied the
petitioner's motion to dismiss since accordingly, it is vested by law with the power to
entertain and hear the civil case filed by Kitamura. The Court of Appeals upheld the
lower court's decision.
Issue: Whether or not the RTC has jurisdiction over the case
HELD: YES
1. The only issue is the jurisdiction, hence, choice-of-law rules as raised by the
petitioner is inapplicable and not yet called for (reference to lex loci, lex contractus, or
state of most significant rule). The petitioner prematurelyinvoked the said rules before
pointing out any conflict between the laws of Japan and the Philippines.
2. The doctrine on forum non conveniens cannot be invoked to deprive the RTC of its
jurisdiction. Dismissing the case on this ground requires a factual determination hence
the principle is considered to be more a matter of defense.
xxx
Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION
KOREA TECHNOLOGIES CO., G.R. No. 143581
LTD.,
Petitioner,
Present:
- versus - QUISUMBING, J., Chairperson,
CARPIO,
CARPIO MORALES,
HON. ALBERTO A. LERMA, in TINGA, and
his capacity as Presiding Judge of VELASCO, JR., JJ.
Branch 256 of Regional Trial
Court of Muntinlupa City, and
PACIFIC GENERAL STEEL Promulgated:
MANUFACTURING
CORPORATION,
Respondents. January 7, 2008
x-----------------------------------------------------------------------------------------x
DECISION

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 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 4,032square 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 Certificate [4] 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 letter [6] 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]
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.
On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed
as Civil Case No. 98-117[8] 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.
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.
On July 17, 1998, PGSMC filed its Answer with Compulsory
Counterclaim[9] 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.
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 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
[11]

question valid.
After KOGIES filed a Supplemental Memorandum with Motion to
Dismiss[13] answering PGSMCs memorandum of July 22, 1998 and seeking dismissal of
PGSMCs counterclaims, KOGIES, on August 4, 1998, filed its Motion for
Reconsideration[14] 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]
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 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 Reconsideration [17] 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 2040[33] 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
ofEastboard 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 the UNCITRAL Model law
to which we are a signatory

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 Arbitration [41] of the United Nations Commission on
International Trade Law (UNCITRAL) in the New York Convention on June 21, 1985,
the Philippinescommitted 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:
CHAPTER 4 - INTERNATIONAL COMMERCIAL ARBITRATION
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.
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.

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. Well-settled 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:
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.
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.
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.

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
xxxx
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 quasi-judicial 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.
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.
The applicant shall establish that the country in which foreign
arbitration award was made is party to the New York Convention.
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.
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 Angeles [47] 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.
PGSMC to preserve the subject equipment and machineries
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
is REVERSED and SET ASIDE;

Decision

in

CA-G.R.

SP

No.

49249

(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.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

REYNATO S. PUNO
Chief Justice
xxx
Korea Technologies Co., Ltd. Vs. Hon. Albert A. Lerma, et al.
Korea Technologies Co., Ltd. Vs. Hon. Albert A. Lerma, et al. , G.R. No. 143581.
January 7, 2008
FACTS: Petitioner KOGIES and respondent PGSMC executed a Contract whereby
KOGIES would set up an LPG Cylinder Manufacturing Plant for respondent.
Respondent unilaterally cancelled the contract on the ground that petitioner had altered
the quantity and lowered the quality of the machineries and equipment it delivered.
Petitioner opposed informing the latter that PGSMC could not unilaterally rescind their
contract nor dismantle and transfer the machineries and equipment on mere imagined
violations by petitioner. Petitioner then filed a Complaint for Specific Performance
against respondent before the RTC. Respondent filed its Answer with Compulsory

Counterclaim 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. KOGIES
filed a motion to dismiss respondents counterclaims arguing 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. The RTC dismissed the
petitioners motion to dismiss respondents counterclaims as these counterclaims fell
within the requisites of compulsory counterclaims.
ISSUE: WON payment of docket fees and certificate of non-forum shopping were
required in the respondents Answer with counterclaim?
HELD: NO. The counterclaims of PGSMC were incorporated in its Answer with
Compulsory Counterclaim 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 cross-claim states, A compulsory
counterclaim or a cross-claim that a defending party has at the time he files his answer
shall be contained therein. 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. 524 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. 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.
xxx
FIRST DIVISION
[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.
DECISION

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

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 board, 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 remarkedDont 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:
WHEREFORE, in view of the foregoing, judgment appealed herefrom is hereby
REVERSED and SET ASIDE, and a new judgment is entered ordering defendantappellee to pay plaintiff-appellant 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]
Petitioner United Airlines now comes to this Court raising the following assignment
of errors:
I

RESPONDENT COURT OF APPEALS GRAVELY 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
petitioner's 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
exists a blatant admission on the part of the defendant-appellee that the plaintiffsappellants 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]
We disagree with the above conclusion reached by respondent Court of
Appeals. Paragraph 7 of private respondents' complaint states:

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]
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]
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 and giving such answer the
effect of a denial, does not apply where the fact as to which want of knowledge is
asserted is so plainly and necessarily within the defendant's knowledge that his
averment of ignorance must be palpably untrue. [22] Whether or not private respondents
checked in at petitioner's designated counter at the airport at 9:45 a.m. on May 5, 1989
must necessarily be within petitioner's knowledge.
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 checkin requirement, it even allowed petitioner to present rebuttal 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.
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 a 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]
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:
Plaintiffs fail to realize that their failure to check in, as expressly required in their
boarding passes, is the 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, check-in, 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 Zalamea 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 Boarding 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 havepresented themselves at the proper place and time
and fully complied with the carriers check-in and reconfirmation procedures and
who are acceptable for carriage under the Carriers tariffs but who have been denied
boarding for lack of space, a compensation at the rate of: xx
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:

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 Zalamea 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 v. 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 expect 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
haddeliberately 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 attorney's 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.
SO ORDERED.
Davide, Jr., C.J. (Chairman), Puno, and Ynares-Santiago, JJ., concur.
Pardo, J., on sick leave.
xxx
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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.
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.
The facts of the case are as follows:
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 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 Judgment9against 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:
"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.
"SO ORDERED."
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." 10Thereafter, 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 ThirdParty 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 co-equal 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.
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.
H. THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE
ERROR IN HOLDING PETITIONER GUILTY OF FORUM SHOPPING, IT BEING
CLEAR THAT NEITHER LITIS PENDENTIANOR 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.
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 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.
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.
The petition is impressed with merit.

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?
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
corporationdoes 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."23In 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 alphaof 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 parent-corporation, 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 thirdparty 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 case 48 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 ofP1,000,000.00, 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.
SO ORDERED.
Melo, Vitug, Panganiban, and Carpio, JJ., concur.
xxx
MR Holdings, Ltd. vs Sheriff Carlos Bajar

Marcopper Mining Corporation was unable to pay its loans from the Asian Development
Bank (ADB). Later, ADB transferred all its rights to collect from Marcopper to MR
Holdings, Ltd. In order to pay MR Holdings, Marcopper assigned all its assets to MR
Holdings and executed therefor a Deed of Assignment in MR Holdings favor.
Meanwhile, another creditor of Marcopper, Solidbank Corporation, won a case against
Marcopper. The court then issued a writ of execution directing Sheriff Carlos Bajar to
levy Marcoppers assets.
MR Holdings then filed an opposition asserting that it is now the owner of Marcoppers
assets hence, Bajar cannot levy them. The lower court denied MR Holdings on the

ground that the Deed of Assignment was made in bad faith and that MR Holdings was a
foreign corporation doing business without a license in the Philippines (by virtue of the
Deed of Assignment) and as such cannot sue in the Philippines.
ISSUE: Whether or not MR Holdings may sue on this particular transaction.
HELD: Yes. The Supreme Court emphasized the following rules when it comes to
foreign corporations doing business here in the Philippines:
1.

if a foreign corporation does business in the Philippines without a

license, it cannot sue before the Philippine courts;

2.

if a foreign corporation is not doing business in the Philippines, it needs

no license to sue before Philippine courts on an isolated transaction or on a cause of
action entirely independent of any business transaction;

3.

if a foreign corporation does business in the Philippines with the required

license, it can sue before Philippine courts on any transaction.
Being a mere assignee does not constitute doing business in the Philippines. MR
Holdings, a foreign corporation, cannot be said to be doing business simply because it
became an assignee of Marcopper. MR Holdings was not doing anything else other
than being a mere assignee. The only time that MR Holdings is considered to be doing
business here is that if it continues the business of Marcopper which it did not.
Therefore, since it is not doing business here, pursuant to the rules above, it can sue
without any license before Philippine courts on an isolated transaction or on a cause of
action entirely independent of any business transaction.
Anent the issue of bad faith, the same was not proven. It appears that the deed of
assignment was an earlier agreement incidental to the loan agreement between ADB
and Marcopper which precedes the action brought by Solidbank against Marcopper.
xxx
THIRD DIVISION
[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.
DECISION
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 CA-GR 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 Order[4] 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 pre-termination clauses, which provide:
Section 22. Default
(a) The following acts and omissions shall constitute default by Tenant (each an Event
of Default):
xxxxxxxxx
(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;
xxxxxxxxx
(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 pre-terminate
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 7227 [9] 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.
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
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
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
Products[18] and
reiterated
in Georg
Grotjahn
GMBH
v.
[19]
[20]
Isnani and Communication Materials and Design v. CA. 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 Interest of
SBGCCI and UIGDC
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:
Issuance of the Writ of Injunction
(a) Present Writ of Injunction Not Barred by RA 7227
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 act [27] 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.
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. IAC[36] reiterated that the
stipulation was in the nature of a resolutory condition, for upon the exercise by the sublessor of his right to take possession of the leased property, the contract is deemed
terminated.
UP v. De los Angeles[37] 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
accumulateduring 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 officer[43] 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. 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.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
xxx
SECOND DIVISION
[G.R. No. 127768. November 19, 1999]
UNITED AIRLINES, petitioner, vs. WILLIE J. UY, respondent.
DECISION
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 CA-G.R. CV No. 39761 which
reversed the 7 August 1992 order issued by the trial court in Civil Case No. Q-9212410[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 airlines 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, petitioners 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.
Respondents 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 respondents 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
ofP1,000,000.00. 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 respondents
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 forums 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
courts 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 respondents 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 respondents 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. Respondents 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 respondents 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]
Section 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 x x x x" 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. 0-79-1013008-3. 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.
SO ORDERED.
Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concur.
xxx
UNITED AIRLINES vs. UY G.R. No. 127768, November 19,1999
Thursday, January 29, 2009 Posted by Coffeeholic Writes
Labels: Case Digests, Commercial Law
Facts: On October 13, 1989, respondent, a passenger of United Airlines, 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 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 repair his things and transfer some of them to the light ones. Respondent
acceded but his luggage was still overweight. Petitioner billed him overweight charges
but its employee reused to honor the miscellaneous charges under MCD which he
offered to pay with. Not wanting to leave without his luggage, he paid with his credit
card. Uponarrival in manila, he discovered that one of his bags had been slashed and
its contents stolen. In a letter dated October 16, 1989, he notified petitioner of his loss
and requested reimbursement. Petitioner paid for his loss based on the maximum
liability per pound. Respondent considered the amount grossly inadequate. He sent two
more letters to petition but to no avail. On June 9, 1992, respondent filed a complaint for
damages against petitioner Airline. Petitioner moved to dismiss the complaint invoking
the provisions of Article 29 of the Warsaw Convention. Respondent countered that
according to par. 2 of Article 29, the method of calculating the period of limitation shall
be

determined

by

the

law

of the

court to

which

the

case

is

submitted.

Issues:
1) Does the Warsaw Convention preclude the operation of the Civil Code and other
pertinent
2)

Has

laws?
the

respondents

cause

of

action

prescribed?

Held: 1) No. Within our jurisdiction we have held that the Warsaw Convention can be
applied, or ignored, depending on the peculiar facts presented by each case.
Convention provisions do not regulate or exclude liabilities for other breaches of
contract by the carrier or misconduct of its officers and employees, or for some
particular or exceptional type of damage. Neither may the Convention be invoked to
justify the disregard of some extraordinary type of damage. Neither may the Convention
be invoked to justify the disregard of some extraordinary sort of damage resulting to
a passenger and preclude recovery therefore3 beyond the limits et by said convention.

Likewise, we have held that the Convention does not preclude the operation of the Civil
Code and other pertinent laws. 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 carriers employees is found or
established.
2) No. While his 2nd 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
1st cause of action (an action for damages arising from the misconduct of the airline
employees and the violation of respondents rights as passengers) clearly is not.
The 2-yr limitation incorporated in Art. 29 of the Warsaw Convention as an absolute bar
to suit and not to be made subject to the various tolling provisions of the laws of the
forum, forecloses the application of our own rules on interruption of prescriptive periods.
(Art. 29, par. 2 was indented only to let local laws determine whether an action shall be
deemed commenced upon the filing of a complaint.) Since, it is indisputable that
respondent filed the present action beyond the 2-yr time frame his 2nd cause of action
must

be

barred.

However, it is obvious that respondent was forestalled from immediately filing an action
because petitioner 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 petitioner denied his claims 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
expressmandate of Article 29 of the Warsaw Convention that an action for damages
should be filed within 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
airlines itself. Thus, respondents 2nd cause of action cannot be considered as time
barred.
xxx
SECOND DIVISION
[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 Decision1 [Penned by Associate
Justice Jainal D. Rasul and concurred in by Associate Justices Segundino G. Chua and
Consuelo Ynares-Santiago, now Associate Justice of the Supreme Court, in CA-G.R.
S.P. Nos. 24669, 28387 & 29317, Rollo, pp. 33-47.] and the Resolution2 [Id., pp. 4953.] of the Court of Appeals3 [Former Special Eighth Division.] dated July 19, 1993 and
August 15, 1995, respectively, which reinstated the entire Decision4 [Penned by Judge
Arsenio M. Gonong, Civil Case No. 89-51451, Records, Vol. 2, pp. 517-528.] 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 [The Appellate Court erroneously declared in its
decision that the amount of P300,000.00 was awarded by the trial court, Rollo, p. 36.]
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 [G.R. Nos. 12166264, July 6, 1999, Third Division, penned by Associate Justice Artemio V. Panganiban
and concurred in by Associate Justices Jose C. Vitug, Fidel P. Purisima, and Minerva P.
Gonzaga-Reyes.], 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 Vlason7 [Decision in G.R. Nos. 12166264, pp. 3-13.] 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 [Records, Vol. 1, pp. 2731.] 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 [Records, Vol. 1, p. 32.] 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 [Records, Vol. 1, pp. 36-39.]
Finding that no fraud was committed, the District Collector of Customs,
Aurelio M. Quiray, lifted the warrant of seizure on July 1989.11 [Decision
dated July 17, 1989, in SFLU Seizure Identification No. 3-89; Records,
Vol. 1, pp. 54-68.] 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 [2nd Indorsement dated November 1989; Records, Vol. 1, pp.
70-71.] 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 [Decision dated November 17, 1989, Records, Vol. 1, pp.
74-86.]
To enforce its preferred salvors lien, herein Private Respondent Duraproof
Services filed with the Regional Trial Court of Manila a Petition
for Certiorari, Prohibition and Mandamus14 [Docketed as Civil Case No.
89-51451 and raffled to Branch 8; Records, Vol. 1, pp. 1-26.] 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 Petition15 [Ibid.,
pp. 122-145.] 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.; ThaiNan Enterprises Ltd., and Thai-United Trading Co., Ltd.16 [Amended
Petition, id., pp. 122 & 128-129.] 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 [Sheriffs
Return, id., pp. 160-164 & 171.] 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 [Id., pp. 153-156.]
On January 29, 1990, private respondent moved to declare respondents in
default, but the trial court denied the motion in its February 23, 1990
Order19 [Id., pp. 214-215.], 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 [Eventually, both
separately filed their motions to dismiss.] 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 [Records, Vol. 1, pp. 325-326.] In another Order, the trial
court dismissed the action against Med Line Philippines on the ground of
litis pendentia.22[Order dated September 10, 1990; Records, Vol. 2, p.
359.]
On two other occasions, private respondent again moved to declare the
following in default: [Vlason], Quiray, Sy and Mison on March 26,
1990;23 [Records, Vol. 1, pp. 237-238.] 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 [Ibid., pp. 351-352.] 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 [Records, Vol. 2, pp. 370-371.] 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
Petition26 [Motion for Leave to Admit Second Amended Petition and
Supplemental Petition, ibid., p. 370; Second Amended Petition with
Supplemental Petition, ibid., pp. 372-398.] 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 [Order dated September 28, 1990, Records, Vol. 2, p.
407.] Instead, private respondent filed the "Second Amended Petition with
Supplemental Petition" against Singkong Trading Company; and Omega
and M/V Star Ace,28 [Records, Vol. 2, pp. 414-415.]to which Cadacio and
Rada filed a Joint Answer.29 [Ibid., pp. 425-288.]
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 [Id., p. 506.] Private respondent filed, and the
trial court granted, an ex parte Motion to present evidence against the
defaulting respondents.31 [Order dated December 10, 1990, id., p.
492.] 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 [Order dated January 23,
1991, Records, Vol. 2, p. 506. The records (pp. 493-495), however, show
that only Duraproof Service, Singkong Trading and M/V Star Ace were
served summons.]Cesar Urbino, general manager of private respondent,
testified and adduced evidence against the other respondents, x x
x.33 [RTC Decision, p. 7; Rollo, p. 92; penned by Judge Arsenio M.
Gonong.]
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 [Memorandum of Agreement, id., pp. 511-512.]
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 [Italics supplied.] 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
Agreement36 [Records, Vol. 2, pp. 535-538.] among the movants,
reducing by 20 percent the amounts adjudged. For their part,
respondents-movants agreed not to appeal the Decision.37 [Order dated
March 6, 1991, ibid., pp. 539-541. Private respondent entered into two
separate compromise agreements with Singkong Trading Co. (id., pp.
535-536) and another with Omega (id., pp. 537-538). Both agreements
were dated March 4, 1991.] 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 Case38 [Rollo, pp. 67-73.] 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 petition39 [Rollo, pp. 74-80.] 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 Order40 [Rollo, pp. 81-82.] 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 reconsideration41 [Records, Vol. 3, pp. 103-105.] of the
Order dated May 20, 1991. However, the trial court in an Order42 [Rollo, p. 83.]dated
June 21, 1991 denied said motion.
Meanwhile, a certiorari petition43 [Docketed as CA-G.R. SP No. 24669.] 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 petition44 [Docketed as CA-G.R. SP No. 28387.] sought to nullify the
Order45 [Penned by Judge Bernardo P. Pardo, then Executive Judge, and now
Associate Justice of the Supreme Court.] 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 petition46 [Docketed as CA-G.R. SP No. 29317.] 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 Decision47 [See Note 1, supra.] 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 andexecutory, if not yet
wholly executed."48 [Rollo, p. 46.]
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 [Rollo, pp. 107.] Nonetheless, the appellate court denied the motions for
reconsideration in its Resolution50 [See Note 2, supra.] 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 [Rollo, pp. 19-21.] 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 [Rollo, p. 22-23.]
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 1753 [Section 17.
Extraterritorial service When the defendant does not reside and is not found in the
Philippines and the action affects the personal status of the plaintiff or relates to, or the
subject of which, is property within the Philippines, in which the defendant has or claims
a lien or interest, actual or contingent, or in which relief demanded consists, wholly or in
part, in excluding the defendant from any interest therein, or the property of the
defendant has been attached in the Philippines, service may, by leave of court, be
effected out of the Philippines by personal service as under section 7; or by publication
in a newspaper of general circulation in such places and for such time as the court may
order, in which case a copy of the summons and order of the court shall be sent by
registered mail to the last known address of the defendant, or in any other manner the
court may deem sufficient. Any order granting such leave shall specify a reasonable
time, which shall not be less than sixty (60) days after notice, within which the defendant
must answer.] 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 [Ibid., now Sec. 15 of the 1997 Rules of Civil Procedure.] 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 [Ibid..]
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 [Asiavest Limited v. Court of Appeals,
296 SCRA 539, 552-554 [1998]; Valmonte v. Court of Appeals, 252 SCRA 92, 99-102
[1996].]
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 [The Dial Corporation v. Soriano, 161 SCRA 737, 743 [1988] citing

Boudard v. Tait, 67 Phil 170, 174 [1939].] 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 [Asiavest Limited v. Court of Appeals, supra. at 554.]
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 [Records, Vol. 1, pp.
128-129.] 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 [Records, Vol. 2, p. 567.] 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 [Villareal v. Court of Appeals, 295 SCRA 511, 525 [1998].] 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
property62 [The Dial Corporation v. Soriano, supra. at 742 citing Hernandez v.
Development Bank of the Phil., 71 SCRA 290, 292-293 [1976].] 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 [Decision in G.R. Nos. 12166264, p. 27.] 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 [Ibid.]
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 [Rollo, pp. 67-80.] 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.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

xxx
Banco Do Brasil vs Court of Appeals
333 SCRA 545 Conflict of Laws Private International Law Service of Summons in
In Personam Cases
In 1989, Cesar Urbino, Sr. sued Poro Point Shipping Services for damages the former
incurred when one of the latters ship ran aground causing losses to Urbino. Urbino
impleaded Banco Do Brasil (BDB), a foreign corporation not engaged in business in the
Philippines nor does it have any office here or any agent. BDB was impleaded simply
because it has a claim over the sunken ship. BDB however failed to appear multiple
times. Eventually, a judgment was rendered and BDB was adjudged to pay $300,000.00
in damages in favor of Urbino for BDB being a nuisance defendant.
BDB assailed the said decision as it argued that there was no valid service of summons
because the summons was issued to the ambassador of Brazil. Further, the other
summons which were made through publication is not applicable to BDB as it alleged
that the action against them is in personam.
ISSUE: Whether or not the court acquired jurisdiction over Banco Do Brasil.
HELD: No. Banco Do Brasil is correct. Although the suit is originally in rem as it was
BDBs claim on the sunken ship which was used as the basis for it being impleaded, the

action nevertheless became an in personam one when Urbino asked for damages in the
said amount. As such, only a personal service of summons would have vested the court
jurisdiction over BDB. 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 nonresident, personal service of summons within the state is essential to the acquisition of
jurisdiction over the person. 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.
xxx

Republic of the Philippines

Supreme Court
Manila

THIRD DIVISION

GERBERT R. CORPUZ,

G.R. No. 186571

Petitioner,
Present:

CARPIO MORALES, J., Chairperson,

BRION,
-

versus -

BERSAMIN,
*

ABAD, and

VILLARAMA, JR., JJ.

Promulgated:
DAISYLYN TIROL STO. TOMAS
and The SOLICITOR GENERAL,

August 11, 2010

Respondents. -- x--------------------------------------------------------------------------------------------------------------x

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 certiorari[2]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 onDecember 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 void [15] and
voidable[16] 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. [34] We 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.

xxxx

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
decreesregistration. 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 1982 [37] 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.

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. [40] As 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 proceeding [41] 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.
xxx
Nature of the Case: Direct Appeal from RTC decision, a petition for review on certiorari
Facts:
Petitioner was a former Filipino citizen who acquired Canadian
citizenship through naturalization. He was married to the respondent but was shocked
of the infidelity on the part of his wife. He went back to Canada and filed a petition for
divorce and was granted. Desirous to marry another woman he now loved, he
registered the divorce decree in the Civil Registry Office and was informed that the
foreign decree must first be judicially recognized by a competent Philippine court.
Petitioner filed for judicial recognition of foreign divorce and declaration of marriage as
dissolved with the RTC where respondent failed to submit any response. The RTC
denied the petition on the basis that the petitioner lacked locus standi. Thus, this case
was filed before the Court.
Issues: WON the second paragraph of Art 26 of the FC extends to aliens the right to
petition a court of this jurisdiction fro the recognition of a foreign divorce decree.
Decision:
The alien spouse cannot claim under the second paragraph of Art 26 of
the Family Code because the substantive right it establishes is in favour of the Filipino
spouse. Only the Filipino spouse can invoke the second par of Art 26 of the Family
Code.
The unavailability of the second paragraph of Art 26 of the Family Code to aliens does
not necessarily strip the petitioner of legal interest to petition the RTC for the recognition
of his foreign divorce decree. The petitioner, being a naturalized Canadian citizen now,
is clothed by the presumptive evidence of the authenticity of foreign divorce decree with
conformity to aliens national law.

The Pasig City Civil Registry acted out of line when it registered the foreign decree of
divorce on the petitioner and respondents marriage certificate without judicial order
recognizing the said decree. The registration of the foreign divorce decree without the
requisite judicial recognition is void.
The petition for review on certiorari is granted, the RTC decision is reversed and Court
ordered t6he remand of the case to the trial court for further proceedings in light of the
ruling.