1
CONFLICT OF LAWS CASES SET B
ATTY. PRIME ANTONIO RAMOS
SUMMER 2018
NATIONALITY AND DOMICILE OF CORPORATION
OBLIGATIONS AND CONTRACTS
G.R. Nos. 90306-07. July 30, 1990.*
K.K. SHELL SEKIYU OSAKA HATSUBAISHO and FU HING OIL CO., LTD., petitioners, vs.
THE HONORABLE COURT OF APPEALS, ATLANTIC VENUS CO., S.A., and THE VESSEL
M/V "ESTELLA", respondents.
Civil Law; Civil Procedure; Carriers; Court finds reversible error on the part of the Court of
Appeals insofar as it disallowed petitioners' intervention in the case before the trial court and
ordered the latter to cease and desist from proceeding with the case.—After considering the
pleadings filed by the parties and the arguments raised therein, the Court finds reversible error
on the part of the Court of Appeals insofar as it disallowed petitioners' intervention in the case
before the trial court and ordered the latter to cease and desist from proceeding with the case.
Same; Same; Same; Same; The best recourse would have been to allow the trial court to
proceed with Civil Case No. 87-38930 and consider whatever defenses may be raised by private
respondents after they have filed their answer and evidence to support their conflicting claims
has been presented.—It was clearly reversible error on the part of the Court of Appeals to annul
the trial court's orders, insofar as K.K, Shell is concerned, and order the trial court to cease and
desist from proceeding with Civil Case No. 87-38930, There are still numerous material facts to
be established in order to arrive at a conclusion as to the true nature of the relationship between
Crestamonte and K.K. Shell and between NSS and K.K. Shell. The best recourse would have
been to allow the trial court to proceed with Civil Case No. 87-38930 and consider whatever
defenses may be raised by private respondents after they have filed their answer and evidence
to support their conflicting claims has been presented.
CORTES, J:
Ordinarily, the Court will not disturb the factual findings of the Court of Appeals, these being
considered final and conclusive. However, when its factual conclusions are manifestly mistaken,
the Court will step in to correct the misapprehension [De la Cruz v. Sosing, 94 Phil. 26 (1953);
Castillo v. Court of Appeals, G.R. No. L-48290, September 29, 1983, 124 SCRA 808.] This case
is one such instance calling for the Court's review of the facts.
On January 7,1987, Kumagai Kaiun Kaisha, Ltd. (hereinafter referred to as Kumagai), a
corporation formed and existing under the laws of Japan, filed a complaint for the collection of a
sum of money with preliminary attachment against Atlantic Venus Co., S.A. (hereinafter referred
to as "Atlantic"), a corporation registered in Panama, the vessel MV Estella and Crestamonte
Shipping Corporation (hereinafter referred to as "Crestamonte"), a Philippine corporation.
Atlantic is the owner of the MV Estella. The complaint, docketed as Civil Case No. 8738930 of
the Regional Trial Court, Branch XIV, Manila alleged that Crestamonte, as bareboat charterer
and operator of the MV Estella, appointed N.S. Shipping Corporation (hereinafter referred to as
"NSS"), a Japanese corporation, as its general agent in Japan. The appointment was formalized
in an Agency Agreement. NSS in turn appointed Kumagai as its local agent in Osaka, Japan.
Kumagai supplied the MV Estella with supplies and services but despite repeated demands
Crestamonte failed to pay the amounts due.
NSS and Keihin Narasaki Corporation (hereinafter referred to a Keihin filed complaints-in-
intervention.
On May 19,1987, petitioner Fu Hing Oil Co., Ltd. (hereinafter referred to as Fu Hing"), a
corporation organized in Hong Kong and not doing business in the Philippines, filed a motion for
leave to intervene with an attached complaint-in-intervention, alleging that Fu Hing supplied
marine diesel oil/fuel to the MV Estella and incurred barge expenses for the total sum of One
Hundred Fifty-two Thousand Four Hundred Twelve Dollars and Fifty-Six Cents (US$152,412.56)
but such has remained unpaid despite demand and that the claim constitutes a maritime lien.
The issuance of a writ of attachment was also prayed for.
On July 16, 1987, petitioner K.K. Shell Sekiyu Osaka Hatsubaisho (hereinafter referred to as
K.K. Shell"), a corporation organized in Japan and not doing business in the Philippines, likewise
filed a motion to intervene with an attached complaint-in-intervention, alleging that upon request
of NSS, Crestamonte's general agent in Japan, K.K. Shell provided and supplied marine diesel
oil/fuel to the W Estella at the ports of Tokyo and Mutsure in Japan and that despite previous
demands Crestamonte has failed to pay the amounts of Sixteen Thousand Nine Hundred
Ninety-Six Dollars and Ninety- Six Cents (US$16,996.96) and One Million Yen (Y1,000,000.00)
and that K.K. Shell's claim constitutes a maritime lien on the MV Estella. The complaint-in-
intervention sought the issuance of a writ of preliminary attachment.
The trial court allowed the intervention of Fu Hing and K.K. Shell on June 19,1987 and August
11, 1987, respectively. Writs of preliminary attachment were issued on August 25, 1987 upon
posting of the appropriate bonds. Upon the posting of counterbonds, the writs of attachment
were discharged on September 3, 1987.
Atlantic and the MV Estella moved to dismiss the complaints-in- intervention filed by Fu Hing and
K.K. Shell.
In the meantime, Atlantic and the AWU Estella filed a petition in the Court of Appeals against the
trial court judge, Kumagai, NSS and Keihin, docketed as CA-G.R. SP No. 12999, which sought
the annulment of the orders of the trial court dated April 30, 1987 and August 11, 1987. Among
others, the omnibus order dated August 11, 1987 denied the motion to reconsider the order
allowing Fu Hing's intervention and granted K.K. Shell's motion to intervene. Again Fu Hing and
K.K. Shell intervened, CA-G.R. SP No. 12999 was consolidated with another case (CA-G.R. SP
No. 12341). Fu Hing and K.K. Shell intervened in CA-G.R. SP No. 12999.
In a decision dated June 14, 1989, the Court of Appeals annulled the orders of the trial court and
directed it to cease and desist from proceeding with the case.
According to the Court of Appeals, Fu Hing and K.K. Shell were not suppliers but sub-agents of
NSS, hence they were bound by the Agency Agreement between Crestamonte and NSS,
particularly, the choice of forum clause, which provides:
12.0-That this Agreement shall be governed by the Laws of Japan. Any matters, disputes, and/or
differences arising between the parties hereto concerned regarding this Agreement shall be
subject exclusively to the jurisdiction of the District Courts of Japan.
Thus, concluded the Court of Appeals, the trial court should have disallowed their motions to
intervene.
A motion for reconsideration was filed by Fu Hing and K.K. Shell but this was denied by the
Court of Appeals. Hence this petition;
In this case, we shall review the decision of the Court of Appeals only insofar as it relate to the
intervention of K.K. Shell. Fu Hing Oil Co., Ltd. filed a motion to withdraw as co-petitioner on

March 7, 1990, alleging that an amicable settlement had been reached with private respondents.
The Court granted the motion on March 19, 1990.
After considering the pleadings filed by the parties and the arguments raised therein, the Court
finds reversible error on the part of the Court of Appeals in so far; as it disallowed petitioners'
intervention in the case before the trial court and ordered the latter to cease and desist from
proceeding with the case.
1. A reading of the Agency Agreement fails to support the conclusion that K.K. Shell is a
sub-agent of NSS and is, therefore, bound by the agreement.
The body of the Agency Agreement entered into by and between Crestamonte (referred to in the
agreement as "Owner") and NSS ("Agent") provides:
WITNESSETH
That the OWNER has appointed and by these presents hereby appoints the AGENT as its
General Agents for all Japan in connection with the Owner's vessels and/or providing suitable
vessels for Japan Ports under the following terms and conditions:
1.0 - In general, the Agent will abide by the Owner's decisions regarding the mode of operations
of the vessels in Japan and that all cargo bookings, vessel's fixtures/charters, etc. by the Agent,
shall always be subject to the prior approval and consent of the Owners.
2.0 - That the Agent shall provide for the necessary services required for the husbanding of the
Owner's vessels in all Japan Ports and issue Bill(s) of Lading to Shippers in the form prescribed
by the Owners.
3.0 - That the Agent shall be responsible for fixing south-bound cargoes with revenues sufficient
to cover ordinary liner operation expenses such as bunkers, additives, lubricating oil, water,
running repairs, drydocking expenses, usual port disbursement accounts, cargo handling
charges including stevedorage, provisions and ship's stores and cash advance to crew
(excluding crew provisions).
The Agent expressly agrees that the Owner's cash flow in Japan shall be essentially the Agent's
responsibility, and should the revenue for south-bound cargoes as above-mentioned be
insufficient to cover the aforesaid expenses, the Agent shall provide credit to the extent of the
vessels' requirements, provided however that said obligation shall be secured by the Owner
committing at least forty-eight (48) mailings of Japan/Philippines liner service per year.
The Agent shall settle, in behalf of the Owner, all outstanding payments for the operation costs
on Owner's liner service carried forward from the present Owner's agent, subject to approval of
Owner's Representative in Japan in regard to amount and nature thereof.
4.0- That the agent shall furnish office space of approximately thirty (30) square meters for the
exclusive use of the Owner and its representatives, within the premises of the Agent's office,
free of charge.
5.0 — That the responsibilities of the Agent in regard to the cargo shall begin, in the case of
imports into the territory of Japan, from the time such cargo has left the ship's tackles, and shall
cease, in case of export, upon completion of loading.
6.0 — That the remuneration of the Agent from the Owner shall be as follows:
xxx xxx xxx
2
7.0 — That the Agent shall exert best efforts to recommend to Owners stevedoring and other
expenses incurred in connection with work on board the Owner's vessels, as well as customs
house charges, pilotage, harbour dues, cables, etc. which are for Owner's account, on the
cheapest possible terms. Owners shall decide and may appoint through the Agent the services
described herein.
8.0 — That the Agent shall be responsible for the due collection of and due payment to the
Owner of all outward freight prepaid for cargo without delay upon the sailing of each vessel from
the port. The Agent shall be also responsible for the due collection of all inward freight payable
at the port against delivery unless otherwise instructed by the Owner to the contrary.
9.0 — The account statements supported by vouchers in two copies itemized for each service
and/or supply for each vessel, shall be forwarded by the Agent to the Owner promptly after the
departure of each vessel but in no case later than 60 days thereafter.
10.0 — That the freightage to be collected by the Agent in Japan shall be paid to the Owner after
deducting the total amount of disbursements incurred in Japan.
11.0 — That this Agreement takes effect as of April 15, 1983 and shall remain in force unless
terminated by either party upon 60 days notice.
12.0 — That this Agreement shall be governed by the Laws of Japan. Any matters, disputes,
and/or differences arising between the parties hereto concerned regarding this reement shall be
subject exclusively to the jurisdiction of the District Courts of Japan. [Annex "G" of the Petition,
Rollo, pp. 100-104.]
No express reference to the contracting of sub-agents or the applicability of the terms of the
agreement, particularly the choice-of-forum clause, to sub-agents is made in the text of the
agreement. What the contract clearly states are NSS' principal duties, i.e., that it shall provide for
the necessary services required for the husbanding of Crestamonte's vessels in Japanese ports
(section 2.0) and shall be responsible for fixing southbound cargoes with revenues sufficient to
cover ordinary expenses (section 3.0).i•t•c-aüsl
Moreover, the complaint-in-intervention filed by K.K. Shell merely alleges that it provided and
supplied the MV Estella with marine diesel oil/fuel, upon request of NSS who was acting for and
as duly appointed agent of Crestamonte [Rollo, pp. 116117.] There is thus no basis for the Court
of Appeal's finding, as regards K.K Shell in relation to its intervention in Civil Case No. 87-38930,
that "the sub-agents admitted in their pleadings that they were appointed as local agent/sub-
agent or representatives by NSS by virtue of said Agency Agreement" [Decision, p. 7; Rollo, p.
33.] What the Court of Appeals could have been referring to was K.K. Shell's Urgent Motion for
Leave to Intervene dated February 24, 1987 in another case (Civil Case No. 86-38704) in
another court and involving other vessels (NW Ofelia and MV Christina C), where it was alleged
that K.K. Shell is "one of the representatives of NS Shipping Corporation for the supply of bunker
oil, fuel oil, provisions and other necessaries to vessels of which NS Shipping Corporation was
the general agent." [Comment, p. 17; Rollo, p. 274.] However, this allegation does not
conclusively establish a sub-agency between NSS and K.K. Shell. It is therefore surprising how
the Court of Appeals could have come to the conclusion, just on the basis of the Agency
Agreement and the pleadings filed in the trial court, that "Crestamonte is the principal, NSS is
the agent and ... Fu Hing and K.K Shell are the sub-agents." [Decision, p. 6; Rollo, p. 32.]
In view of the inconclusiveness of the Agency Agreement and the pleadings filed in the trial
court, additional evidence, if there be any, would still have to be presented to establish the
allegation that K.K. Shell is a sub-agent of NSS.
In the same vein, as the choice-of-forum clause in the agreement (paragraph 12.0) has not been
conclusively shown to be binding upon K.K. Shell, additional evidence would also still have to be

presented to establish this defense, K.K. Shell cannot therefore, as of yet, be barred from
instituting an action in the Philippines.
2. Private respondents have anticipated the possibility that the courts will not find that
K.K. Shell is expressly bound by the Agency Agreement, and thus they fall back on the
argument that even if this were so, the doctrine of forum non conveniens would be a valid
ground to cause the dismissal of K.K. Shell's complaint-in-intervention.
K.K. Shell counters this argument by invoking its right as maritime lienholder. It cites Presidential
Decree No. 1521, the Ship Mortgage Decree of 1978, which provides:
SEC. 21. Maritime Lien for Necessaries; person entitled to such lien-Any person furnishing
repairs, supplies, to wage, use of dry dock or marine railway, or other necessaries, to any
vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a person
authorized by the owner, shall have a maritime lien on the vessel, which may be enforced by suit
in rem, and it shall be necessary to allege or prove that credit was given to the vessel.
Private respondents on the other hand argue that even if P.D. No. 1521 is applicable, K.K. Shell
cannot rely on the maritime lien because the fuel was provided not exclusively for the benefit of
the MV Estella, but for the benefit of Crestamonte in general. Under the law it must be
established that the credit was extended to the vessel itself. Now, this is a defense that calls
precisely for a factual determination by the trial court of who benefitted from the delivery of the
fuel. Hence, again, the necessity for the reception of evidence before the trial court.
In other words, considering the dearth of evidence due to the fact that the private respondents
have yet to file their answer in the proceedings below and trial on the merits is still to be
conducted, whether or not petitioners are indeed maritime lienholders and as such may enforce
the lien against the MV Estella are matters that still have to be established.
Neither are we ready to rule on the private respondents' invocation of the doctrine of forum non
conveniens, as the exact nature of the relationship of the parties is still to be established. We
leave this matter to the sound discretion of the trial court judge who is in the best position, after
some vital facts are established, to determine whether special circumstances require that his
court desist from assuming jurisdiction over the suit.
It was clearly reversible error on the. part of the Court of Appeals to annul the trial court's orders,
insofar as K.K. Shell is concerned, and order the trial court to cease and desist from proceeding
with Civil Case No. 87-38930. There are still numerous material facts to be established in order
to arrive at a conclusion as to the true nature of the relationship between Crestamonte and K.K.
Shell and between NSS and K.K. Shell. The best recourse would have been to allow the trial
court to proceed with Civil Case No. 87-38930 and consider whatever defenses may be raised
by private respondents after they have filed their answer and evidence to support their conflicting
claims has been presented. The Court of Appeals, however, substituted its judgment for that of
the trial court and decided the merits of the case, even in the absence of evidence, on the
pretext of reviewing an interlocutory order.
WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals is
REVERSED in CA-G.R. SP No. 12999, insofar as it annulled the order of the August 11, 1987
and directed the trial court to cease and desist from proceeding with Civil Case No. 87-38930.
SO ORDERED.
Fernan, C.J., Gutierrez, Jr., Feliciano and Bidin, JJ., concur.
3
G.R. No. 61594. September 28, 1990.*
PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner, vs. HON. BLAS F.
OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in his
capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN
MAMASIG, respondents.
Labor Relations; Due Process; Petitioner's right to procedural due process was not violated even
if no formal or oral hearing was conducted, considering that it had ample opportunity to explain
its side.—The second contention of petitioner PIA is that, even if the Regional Director had
jurisdiction, still his order was null and void because it had been issued in violation of petitioner's
right to procedural due process. This claim, however, cannot be given serious consideration.
Petitioner was ordered by the Regional Director to submit not only its position paper but also
such evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper;
we must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral
hearing was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner
PIA was able to appeal his case to the Ministry of Labor and Employment.
Contracts; Parties may not contract away applicable provisions of law especially peremptory
provisions dealing with matters heavily impressed with public interest. The principle of party
autonomy in contracts is not absolute.—A contract freely entered into should, of course, be
respected, as PIA argues, since a contract is the law between the parties. The principle of party
autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil
Code is that the contracting parties may establish such stipulations as they may deem
convenient, "provided they are not contrary to law, morals, good customs, public order or public
policy." Thus, counterbalancing the principle of autonomy of contracting parties is the equally
general rule that provisions of applicable law, especially provisions relating to matters affected
with public policy, are deemed written into the contract. Put a little differently, the governing
principle is that parties may not contract away applicable provisions of law especially peremptory
provisions dealing with matters heavily impressed with public interest. The law relating to labor
and employment is clearly such an area and parties are not at liberty to insulate themselves and
their relationships from the impact of labor laws and regulations by simply contracting with each
other. It is thus necessary to appraise the contractual provisions invoked by petitioner PIA in
terms of their consistency with applicable Philippine law and regulations.
Labor Law; A contract providing for employment with a fixed period was not necessarily
unlawful.—In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., the Court had occasion to
examine in detail the question of whether employment for a fixed term has been outlawed under
the above quoted provisions of the Labor Code. After an extensive examination of the history
and development of Articles 280 and 281, the Court reached the conclusion that a contract
providing for employment with a fixed period was not necessarily unlawful: "There can of course
be no quarrel with the proposition that where from the circumstances it is apparent that periods
have been imposed to preclude acquisition of tenurial security by the employee, they should be
struck down or disregarded as contrary to public policy, morals, etc. But where no such intent to
circumvent the law is shown, or stated otherwise, where the reason for the law does not exist,
e.g., where it is indeed the employee himself who insists upon a period or where the nature of
the engagement is such that, without being seasonal or for a specific project, a definite date of
termination is a sine qua non, would an agreement fixing a period be essentially evil or illicit,
therefore anathema? Would such an agreement come within the scope of Article 280 which
admittedly was enacted 'to prevent the circumvention of the right of the employee to be secured
in x x (his) employment?' As it is evident from even only the three examples already given that
Article 280 of the Labor Code, under a narrow and literal interpretation, not only fails to exhaust
the gamut of employment contracts to which the lack of a fixed period would be an anomaly, but
would also appear to restrict, without reasonable distinctions, the right of an employee to freely

stipulate with his employer the duration of his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be given reasonable interpretation,
to preclude absurdity in its application. Outlawing the whole concept of term employment and
subverting to boot the principle of freedom of contract to remedy the evil of employers' using it
as a means to prevent their employees from obtaining security of tenure is like cutting off the
nose to spite the face or, more relevantly, curing a headache by lopping off the head. xxx xxx
xxx Accordingly, and since the entire purpose behind the development of legislation culminating
in the present Article 280 of the Labor Code clearly appears to have been, as already observed,
to prevent circumvention of the employee's right to be secure in his tenure, the clause in said
article indiscriminately and completely ruling out all written or oral agreements conflicting with
the concept of regular employment as defined therein should be construed to refer to the
substantive evil that the Code itself has singled out: agreements entered into precisely to
circumvent security of tenure. It should have no application to instances where a fixed period of
employment was agreed upon knowingly and voluntarily by the parties, without any force, duress
or improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent, or where it satisfactorily appears that the employer and
employee dealt with each other on more or less equal terms with no moral dominance whatever
being exercised by the former over the latter. Unless thus limited in its purview, the law would be
made to apply to purposes other than those explicitly stated by its framers; it thus becomes
pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended
consequences." (Italics supplied)
Same; Contracts; Conflicts of Law; When the relationship between the parties is much affected
by public interest, the otherwise applicable Philippine laws and regulations cannot be rendered
illusory by the parties agreeing upon some other law to govern their relationship.—Petitioner PIA
cannot take refuge in paragraph 10 its employment agreement which specifies, firstly, the law of
Pakistan as the applicable law of the agreement and, secondly, lays the venue for settlement of
any dispute arising out of or in connection with the agreement "only [in] courts of Karachi,
Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the application of
Philippine labor laws and regulations to the subject matter of this case, i.e., the employer-
employee relationship between petitioner PIA and private respondents. We have already pointed
out that that relationship is much affected with public interest and that the otherwise applicable
Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon some
other law to govern their relationship. Neither may petitioner invoke the second clause of
paragraph 10, specifying the Karachi courts as the sole venue for the settlement of disputes
between the contracting parties. Even a cursory scrutiny of the relevant circumstances of this
case will show the multiple and substantive contacts between Philippine law and Philippine
courts, on the one hand, and the relationship between the parties, upon the other: the contract
was not only executed in the Philippines, it was also performed here, at least partially; private
respondents are Philippine citizens and residents, while petitioner, although a foreign
corporation, is licensed to do business (and actually doing business) and hence resident in the
Philippines; lastly, private respondents were based in the Philippines in between their assigned
flights to the Middle East and Europe. All the above contacts point to the Philippine courts and
administrative agencies as a proper forum for the resolution of contractual disputes between the
parties. Under these circumstances, paragraph 10 of the employment agreement cannot be
given effect so as to oust Philippine agencies and courts of the jurisdiction vested upon them by
Philippine law. Finally, and in any event, the petitioner PIA did not undertake to plead and prove
the contents of Pakistan law on the matter; it must therefore be presumed that the applicable
provisions of the law of Pakistan are the same as the applicable provisions of Philippine law.
FELICIANO, J.:
On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign
corporation licensed to do business in the Philippines, executed in Manila two (2) separate
contracts of employment, one with private respondent Ethelynne B. Farrales and the other with
private respondent Ma. M.C. Mamasig. 1 The contracts, which became effective on 9 January
1979, provided in pertinent portion as follows:
4
5. DURATION OF EMPLOYMENT AND PENALTY
This agreement is for a period of three (3) years, but can be extended by the mutual consent of
the parties.
xxx xxx xxx
6. TERMINATION
xxx xxx xxx
Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this
agreement at any time by giving the EMPLOYEE notice in writing in advance one month before
the intended termination or in lieu thereof, by paying the EMPLOYEE wages equivalent to one
month's salary.
xxx xxx xxx
10. APPLICABLE LAW:
This agreement shall be construed and governed under and by the laws of Pakistan, and only
the Courts of Karachi, Pakistan shall have the jurisdiction to consider any matter arising out of or
under this agreement.
Respondents then commenced training in Pakistan. After their training period, they began
discharging their job functions as flight attendants, with base station in Manila and flying
assignments to different parts of the Middle East and Europe.
On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the
contracts of employment, PIA through Mr. Oscar Benares, counsel for and official of the local
branch of PIA, sent separate letters both dated 1 August 1980 to private respondents Farrales
and Mamasig advising both that their services as flight stewardesses would be terminated
"effective 1 September 1980, conformably to clause 6 (b) of the employment agreement [they
had) executed with [PIA]."2
On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint,
docketed as NCR-STF-95151-80, for illegal dismissal and non-payment of company benefits
and bonuses, against PIA with the then Ministry of Labor and Employment ("MOLE"). After
several unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose M. Pascual
ordered the parties to submit their position papers and evidence supporting their respective
positions. The PIA submitted its position paper, 3 but no evidence, and there claimed that both
private respondents were habitual absentees; that both were in the habit of bringing in from
abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila
International Airport had been discreetly warned by customs officials to advise private
respondents to discontinue that practice. PIA further claimed that the services of both private
respondents were terminated pursuant to the provisions of the employment contract.
In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the
reinstatement of private respondents with full backwages or, in the alternative, the payment to
them of the amounts equivalent to their salaries for the remainder of the fixed three-year period
of their employment contracts; the payment to private respondent Mamasig of an amount
equivalent to the value of a round trip ticket Manila-USA Manila; and payment of a bonus to each
of the private respondents equivalent to their one-month salary. 4 The Order stated that private
respondents had attained the status of regular employees after they had rendered more than a
year of continued service; that the stipulation limiting the period of the employment contract to
three (3) years was null and void as violative of the provisions of the Labor Code and its

implementing rules and regulations on regular and casual employment; and that the dismissal,
having been carried out without the requisite clearance from the MOLE, was illegal and entitled
private respondents to reinstatement with full backwages.
On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister,
MOLE, adopted the findings of fact and conclusions of the Regional Director and affirmed the
latter's award save for the portion thereof giving PIA the option, in lieu of reinstatement, "to pay
each of the complainants [private respondents] their salaries corresponding to the unexpired
portion of the contract[s] [of employment] . . .". 5
In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director and
the Order of the Deputy Minister as having been rendered without jurisdiction; for having been
rendered without support in the evidence of record since, allegedly, no hearing was conducted
by the hearing officer, Atty. Jose M. Pascual; and for having been issued in disregard and in
violation of petitioner's rights under the employment contracts with private respondents.
1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction
over the subject matter of the complaint initiated by private respondents for illegal dismissal,
jurisdiction over the same being lodged in the Arbitration Branch of the National Labor Relations
Commission ("NLRC") It appears to us beyond dispute, however, that both at the time the
complaint was initiated in September 1980 and at the time the Orders assailed were rendered on
January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by Deputy Minister
Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases.
Art. 278 of the Labor Code, as it then existed, forbade the termination of the services of
employees with at least one (1) year of service without prior clearance from the Department of
Labor and Employment:
Art. 278. Miscellaneous Provisions — . . .
(b) With or without a collective agreement, no employer may shut down his establishment
or dismiss or terminate the employment of employees with at least one year of service during the
last two (2) years, whether such service is continuous or broken, without prior written authority
issued in accordance with such rules and regulations as the Secretary may promulgate . . .
(emphasis supplied)
Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made clear
that in case of a termination without the necessary clearance, the Regional Director was
authorized to order the reinstatement of the employee concerned and the payment of
backwages; necessarily, therefore, the Regional Director must have been given jurisdiction over
such termination cases:
Sec. 2. Shutdown or dismissal without clearance. — Any shutdown or dismissal without prior
clearance shall be conclusively presumed to be termination of employment without a just cause.
The Regional Director shall, in such case order the immediate reinstatement of the employee
and the payment of his wages from the time of the shutdown or dismissal until the time of
reinstatement. (emphasis supplied)
Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly
very explicit about the jurisdiction of the Regional Director over termination of employment
cases:
Under PD 850, termination cases — with or without CBA — are now placed under the original
jurisdiction of the Regional Director. Preventive suspension cases, now made cognizable for the
first time, are also placed under the Regional Director. Before PD 850, termination cases where
there was a CBA were under the jurisdiction of the grievance machinery and voluntary
5
arbitration, while termination cases where there was no CBA were under the jurisdiction of the
Conciliation Section.
In more details, the major innovations introduced by PD 850 and its implementing rules and
regulations with respect to termination and preventive suspension cases are:
1. The Regional Director is now required to rule on every application for clearance,
whether there is opposition or not, within ten days from receipt thereof.
xxx xxx xxx
(Emphasis supplied)
2. The second contention of petitioner PIA is that, even if the Regional Director had
jurisdiction, still his order was null and void because it had been issued in violation of petitioner's
right to procedural due process .6 This claim, however, cannot be given serious consideration.
Petitioner was ordered by the Regional Director to submit not only its position paper but also
such evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper;
we must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral
hearing was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner
PIA was able to appeal his case to the Ministry of Labor and Employment. 7
There is another reason why petitioner's claim of denial of due process must be rejected. At the
time the complaint was filed by private respondents on 21 September 1980 and at the time the
Regional Director issued his questioned order on 22 January 1981, applicable regulation, as
noted above, specified that a "dismissal without prior clearance shall be conclusively presumed
to be termination of employment without a cause", and the Regional Director was required in
such case to" order the immediate reinstatement of the employee and the payment of his wages
from the time of the shutdown or dismiss until . . . reinstatement." In other words, under the then
applicable rule, the Regional Director did not even have to require submission of position papers
by the parties in view of the conclusive (juris et de jure) character of the presumption created by
such applicable law and regulation. In Cebu Institute of Technology v. Minister of Labor and
Employment, 8 the Court pointed out that "under Rule 14, Section 2, of the Implementing Rules
and Regulations, the termination of [an employee] which was without previous clearance from
the Ministry of Labor is conclusively presumed to be without [just] cause . . . [a presumption
which] cannot be overturned by any contrary proof however strong."
3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of
employment with private respondents Farrales and Mamasig, arguing that its relationship with
them was governed by the provisions of its contract rather than by the general provisions of the
Labor Code. 9
Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by
agreement between the parties; while paragraph 6 provided that, notwithstanding any other
provision in the Contract, PIA had the right to terminate the employment agreement at any time
by giving one-month's notice to the employee or, in lieu of such notice, one-months salary.
A contract freely entered into should, of course, be respected, as PIA argues, since a contract is
the law between the parties. 10 The principle of party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may
establish such stipulations as they may deem convenient, "provided they are not contrary to law,
morals, good customs, public order or public policy." Thus, counter-balancing the principle of
autonomy of contracting parties is the equally general rule that provisions of applicable law,
especially provisions relating to matters affected with public policy, are deemed written into the
contract. 11 Put a little differently, the governing principle is that parties may not contract away
applicable provisions of law especially peremptory provisions dealing with matters heavily
impressed with public interest. The law relating to labor and employment is clearly such an area
and parties are not at liberty to insulate themselves and their relationships from the impact of

labor laws and regulations by simply contracting with each other. It is thus necessary to appraise
the contractual provisions invoked by petitioner PIA in terms of their consistency with applicable
Philippine law and regulations.
As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that
paragraph 5 of that employment contract was inconsistent with Articles 280 and 281 of the Labor
Code as they existed at the time the contract of employment was entered into, and hence
refused to give effect to said paragraph 5. These Articles read as follows:
Art. 280. Security of Tenure. — In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this Title
An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss
of seniority rights and to his backwages computed from the time his compensation was withheld
from him up to the time his reinstatement.
Art. 281. Regular and Casual Employment. The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreements of the parties, an employment shall be
deemed to be regular where the employee has been engaged to perform activities which are
usually necessary or desirable in the usual business or trade of the employer, except where the
employment has been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or where the work or
services to be performed is seasonal in nature and the employment is for the duration of the
season.
An employment shall be deemed to be casual if it is not covered by the preceding paragraph:
provided, that, any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered as regular employee with respect to the
activity in which he is employed and his employment shall continue while such actually exists.
(Emphasis supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the Court had occasion to
examine in detail the question of whether employment for a fixed term has been outlawed under
the above quoted provisions of the Labor Code. After an extensive examination of the history
and development of Articles 280 and 281, the Court reached the conclusion that a contract
providing for employment with a fixed period was not necessarily unlawful:
There can of course be no quarrel with the proposition that where from the circumstances it is
apparent that periods have been imposed to preclude acquisition of tenurial security by the
employee, they should be struck down or disregarded as contrary to public policy, morals, etc.
But where no such intent to circumvent the law is shown, or stated otherwise, where the reason
for the law does not exist e.g. where it is indeed the employee himself who insists upon a period
or where the nature of the engagement is such that, without being seasonal or for a specific
project, a definite date of termination is a sine qua non would an agreement fixing a period be
essentially evil or illicit, therefore anathema Would such an agreement come within the scope of
Article 280 which admittedly was enacted "to prevent the circumvention of the right of the
employee to be secured in . . . (his) employment?"
As it is evident from even only the three examples already given that Article 280 of the Labor
Code, under a narrow and literal interpretation, not only fails to exhaust the gamut of
employment contracts to which the lack of a fixed period would be an anomaly, but would also
appear to restrict, without reasonable distinctions, the right of an employee to freely stipulate
with his employer the duration of his engagement, it logically follows that such a literal
interpretation should be eschewed or avoided. The law must be given reasonable interpretation,
to preclude absurdity in its application. Outlawing the whole concept of term employment and
subverting to boot the principle of freedom of contract to remedy the evil of employers" using it
as a means to prevent their employees from obtaining security of tenure is like cutting off the
nose to spite the face or, more relevantly, curing a headache by lopping off the head.
6
xxx xxx xxx
Accordingly, and since the entire purpose behind the development of legislation culminating in
the present Article 280 of the Labor Code clearly appears to have been, as already observed, to
prevent circumvention of the employee's right to be secure in his tenure, the clause in said
article indiscriminately and completely ruling out all written or oral agreements conflicting with
the concept of regular employment as defined therein should be construed to refer to the
substantive evil that the Code itself has singled out: agreements entered into precisely to
circumvent security of tenure. It should have no application to instances where a fixed period of
employment was agreed upon knowingly and voluntarily by the parties, without any force, duress
or improper pressure being brought to bear upon the employee and absent any other
circumstances vitiating his consent, or where it satisfactorily appears that the employer and
employee dealt with each other on more or less equal terms with no moral dominance whatever
being exercised by the former over the latter. Unless thus limited in its purview, the law would be
made to apply to purposes other than those explicitly stated by its framers; it thus becomes
pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended
consequences. (emphasis supplied)
It is apparent from Brent School that the critical consideration is the presence or absence of a
substantial indication that the period specified in an employment agreement was designed to
circumvent the security of tenure of regular employees which is provided for in Articles 280 and
281 of the Labor Code. This indication must ordinarily rest upon some aspect of the agreement
other than the mere specification of a fixed term of the ernployment agreement, or upon
evidence aliunde of the intent to evade.
Examining the provisions of paragraphs 5 and 6 of the employment agreement between
petitioner PIA and private respondents, we consider that those provisions must be read together
and when so read, the fixed period of three (3) years specified in paragraph 5 will be seen to
have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph
6 in effect took back from the employee the fixed three (3)-year period ostensibly granted by
paragraph 5 by rendering such period in effect a facultative one at the option of the employer
PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and for any
cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a
month's salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is
to render the employment of private respondents Farrales and Mamasig basically employment at
the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to
prevent any security of tenure from accruing in favor of private respondents even during the
limited period of three (3) years,13 and thus to escape completely the thrust of Articles 280 and
281 of the Labor Code.
Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies,
firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue
for settlement of any dispute arising out of or in connection with the agreement "only [in] courts
of Karachi Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the
application of Philippine labor laws and regulations to the subject matter of this case, i.e., the
employer-employee relationship between petitioner PIA and private respondents. We have
already pointed out that the relationship is much affected with public interest and that the
otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties
agreeing upon some other law to govern their relationship. Neither may petitioner invoke the
second clause of paragraph 10, specifying the Karachi courts as the sole venue for the
settlement of dispute; between the contracting parties. Even a cursory scrutiny of the relevant
circumstances of this case will show the multiple and substantive contacts between Philippine
law and Philippine courts, on the one hand, and the relationship between the parties, upon the
other: the contract was not only executed in the Philippines, it was also performed here, at least
partially; private respondents are Philippine citizens and respondents, while petitioner, although
a foreign corporation, is licensed to do business (and actually doing business) and hence

resident in the Philippines; lastly, private respondents were based in the Philippines in between
their assigned flights to the Middle East and Europe. All the above contacts point to the
Philippine courts and administrative agencies as a proper forum for the resolution of contractual
disputes between the parties. Under these circumstances, paragraph 10 of the employment
agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction
vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not
undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be
presumed that the applicable provisions of the law of Pakistan are the same as the applicable
provisions of Philippine law.14
We conclude that private respondents Farrales and Mamasig were illegally dismissed and that
public respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion nor
any act without or in excess of jurisdiction in ordering their reinstatement with backwages.
Private respondents are entitled to three (3) years backwages without qualification or deduction.
Should their reinstatement to their former or other substantially equivalent positions not be
feasible in view of the length of time which has gone by since their services were unlawfully
terminated, petitioner should be required to pay separation pay to private respondents
amounting to one (1) month's salary for every year of service rendered by them, including the
three (3) years service putatively rendered.
ACCORDINGLY, the Petition for certiorari is hereby DISMISSED for lack of merit, and the Order
dated 12 August 1982 of public respondent is hereby AFFIRMED, except that (1) private
respondents are entitled to three (3) years backwages, without deduction or qualification; and (2)
should reinstatement of private respondents to their former positions or to substantially
equivalent positions not be feasible, then petitioner shall, in lieu thereof, pay to private
respondents separation pay amounting to one (1)-month's salary for every year of service
actually rendered by them and for the three (3) years putative service by private respondents.
The Temporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs
against petitioner.
SO ORDERED.
Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Cortés, JJ., concur.
7
No. L-20099. July 7, 1966.
PARMANAND SHEWARAM, plaintiff and appellee, vs. PHILIPPINE AIR LINES, INC.,
defendant and appellant.
Common carriers; When limitation of carrier’s liability clause printed at the back of the ticket stub
is not binding.—Under Article 1760 of the New Civil Code, the pecuniary liability of a common
carrier may by contract be limited to a f ixed amount provided that the contract is reasonable and
just under the circumstances and has been fairly and freely agreed upon. Where the conditions
printed at the back of a ticket stub are in letters so small that they are hard to read, this would
not warrant the presumption that the passenger was aware of those conditions such that he had
“fairly and freely agreed” to them. He is not and cannot, therefore, be bound, by the conditions of
carriage found at the back of the ticket stub.
Same; Carrier cannot limit its liability for loss due to its negligence.—Where the transistor radio
and the camera of the passenger was lost as a result of the negligence of the common carrier,
its liability is clear—it must pay the passenger the value of those two articles. The carrier cannot
limit its liability for injury to or loss of goods shipped where such injury or loss was caused by its
own negligence. (Ysmael and Co. vs. Barretto, 51 Phil. 90.) Shewaram vs. Philippine Air Lines,
Inc., 17 SCRA 606, No. L-20099 July 7, 1966
Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant.
Climaco and Associates for plaintiff and appellee.
ZALDIVAR, J.:
Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram
instituted an action to recover damages suffered by him due to the alleged failure of defendant-
appellant Philippines Air Lines, Inc. to observe extraordinary diligence in the vigilance and
carriage of his luggage. After trial the municipal court of Zamboanga City rendered judgment
ordering the appellant to pay appellee P373.00 as actual damages, P100.00 as exemplary
damages, P150.00 as attorney's fees, and the costs of the action.
Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After
hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior court
by ordering the appellant to pay the appellee only the sum of P373.00 as actual damages, with
legal interest from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating the award
of exemplary damages.
From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this
Court on a question of law, assigning two errors allegedly committed by the lower court a quo, to
wit:
1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions of the
tariff regulations filed by defendant-appellant with the civil aeronautics board and the conditions
of carriage printed at the back of the plane ticket stub.
2. The lower court erred in not dismissing this case or limiting the liability of the defendant-
appellant to P100.00.
The facts of this case, as found by the trial court, quoted from the decision appealed from, are as
follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying
passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from Zamboanga
City bound for Manila; that defendant is a common carrier engaged in air line transportation in

the Philippines, offering its services to the public to carry and transport passengers and cargoes
from and to different points in the Philippines; that on the above-mentioned date of November
23, 1959, he checked in three (3) pieces of baggages — a suitcase and two (2) other pieces;
that the suitcase was mistagged by defendant's personnel in Zamboanga City, as I.G.N. (for
Iligan) with claim check No. B-3883, instead of MNL (for Manila). When plaintiff Parmanand
Shewaram arrived in Manila on the date of November 23, 1959, his suitcase did not arrive with
his flight because it was sent to Iligan. So, he made a claim with defendant's personnel in Manila
airport and another suitcase similar to his own which was the only baggage left for that flight, the
rest having been claimed and released to the other passengers of said flight, was given to the
plaintiff for him to take delivery but he did not and refused to take delivery of the same on the
ground that it was not his, alleging that all his clothes were white and the National transistor 7
and a Rollflex camera were not found inside the suitcase, and moreover, it contained a pistol
which he did not have nor placed inside his suitcase; that after inquiries made by defendant's
personnel in Manila from different airports where the suitcase in question must have been sent,
it was found to have reached Iligan and the station agent of the PAL in Iligan caused the same
to be sent to Manila for delivery to Mr. Shewaram and which suitcase belonging to the plaintiff
herein arrived in Manila airport on November 24, 1959; that it was also found out that the
suitcase shown to and given to the plaintiff for delivery which he refused to take delivery
belonged to a certain Del Rosario who was bound for Iligan in the same flight with Mr.
Shewaram; that when the plaintiff's suitcase arrived in Manila as stated above on November 24,
1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent of the Manila airport of
the arrival of his suitcase but of course minus his Transistor Radio 7 and the Rollflex Camera;
that Shewaram made demand for these two (2) items or for the value thereof but the same was
not complied with by defendant.
xxx xxx xxx
It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as IGN. The
tampering of the suitcase is more apparent when on November 24, 1959, when the suitcase
arrived in Manila, defendant's personnel could open the same in spite of the fact that plaintiff had
it under key when he delivered the suitcase to defendant's personnel in Zamboanga City.
Moreover, it was established during the hearing that there was space in the suitcase where the
two items in question could have been placed. It was also shown that as early as November 24,
1959, when plaintiff was notified by phone of the arrival of the suitcase, plaintiff asked that check
of the things inside his suitcase be made and defendant admitted that the two items could not be
found inside the suitcase. There was no evidence on record sufficient to show that plaintiff's
suitcase was never opened during the time it was placed in defendant's possession and prior to
its recovery by the plaintiff. However, defendant had presented evidence that it had authority to
open passengers' baggage to verify and find its ownership or identity. Exhibit "1" of the
defendant would show that the baggage that was offered to plaintiff as his own was opened and
the plaintiff denied ownership of the contents of the baggage. This proven fact that baggage may
and could be opened without the necessary authorization and presence of its owner, applied
too, to the suitcase of plaintiff which was mis-sent to Iligan City because of mistagging. The
possibility of what happened in the baggage of Mr. Del Rosario at the Manila Airport in his
absence could have also happened to plaintiffs suitcase at Iligan City in the absence of plaintiff.
Hence, the Court believes that these two items were really in plaintiff's suitcase and defendant
should be held liable for the same by virtue of its contract of carriage.
It is clear from the above-quoted portions of the decision of the trial court that said court had
found that the suitcase of the appellee was tampered, and the transistor radio and the camera
contained therein were lost, and that the loss of those articles was due to the negligence of the
employees of the appellant. The evidence shows that the transistor radio cost P197.00 and the
camera cost P176.00, so the total value of the two articles was P373.00.
There is no question that the appellant is a common carrier.1 As such common carrier the
appellant, from the nature of its business and for reasons of public policy, is bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers
8
transported by it according to the circumstances of each case. 2 It having been shown that the
loss of the transistor radio and the camera of the appellee, costing P373.00, was due to the
negligence of the employees of the appellant, it is clear that the appellant should be held liable
for the payment of said loss.3
It is, however, contended by the appellant that its liability should be limited to the amount stated
in the conditions of carriage printed at the back of the plane ticket stub which was issued to the
appellee, which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed
with the Civil Aeronautics Board. One of those conditions, which is pertinent to the issue raised
by the appellant in this case provides as follows:
The liability, if any, for loss or damage to checked baggage or for delay in the delivery thereof is
limited to its value and, unless the passenger declares in advance a higher valuation and pay an
additional charge therefor, the value shall be conclusively deemed not to exceed P100.00 for
each ticket.
The appellant maintains that in view of the failure of the appellee to declare a higher value for his
luggage, and pay the freight on the basis of said declared value when he checked such luggage
at the Zamboanga City airport, pursuant to the abovequoted condition, appellee can not demand
payment from the appellant of an amount in excess of P100.00.
The law that may be invoked, in this connection is Article 1750 of the New Civil Code which
provides as follows:
A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.
In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the
pecuniary liability of a common carrier may, by contract, be limited to a fixed amount. It is
required, however, that the contract must be "reasonable and just under the circumstances and
has been fairly and freely agreed upon."
The requirements provided in Article 1750 of the New Civil Code must be complied with before a
common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or
deterioration of the goods it has undertaken to transport. In the case before us We believe that
the requirements of said article have not been met. It can not be said that the appellee had
actually entered into a contract with the appellant, embodying the conditions as printed at the
back of the ticket stub that was issued by the appellant to the appellee. The fact that those
conditions are printed at the back of the ticket stub in letters so small that they are hard to read
would not warrant the presumption that the appellee was aware of those conditions such that he
had "fairly and freely agreed" to those conditions. The trial court has categorically stated in its
decision that the "Defendant admits that passengers do not sign the ticket, much less did plaintiff
herein sign his ticket when he made the flight on November 23, 1959." We hold, therefore, that
the appellee is not, and can not be, bound by the conditions of carriage found at the back of the
ticket stub issued to him when he made the flight on appellant's plane on November 23, 1959.
The liability of the appellant in the present case should be governed by the provisions of Articles
1734 and 1735 of the New Civil Code, which We quote as follows:
ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of the
goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.1äwphï1.ñët
ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the preceding
article, if the goods are lost, destroyed or deteriorated, common carriers are presumed to have
been at fault or to have acted negligently, unless they prove that they observed extraordinary
diligence as required in Article 1733.
It having been clearly found by the trial court that the transistor radio and the camera of the
appellee were lost as a result of the negligence of the appellant as a common carrier, the liability
of the appellant is clear — it must pay the appellee the value of those two articles.
In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its
decision, this Court had laid down the rule that the carrier can not limit its liability for injury to or
loss of goods shipped where such injury or loss was caused by its own negligence.
Corpus Juris, volume 10, p. 154, says:
"Par. 194, 6. Reasonableness of Limitations. — The validity of stipulations limiting the carrier's
liability is to be determined by their reasonableness and their conformity to the sound public
policy, in accordance with which the obligations of the carrier to the public are settled. It cannot
lawfully stipulate for exemption from liability, unless such exemption is just and reasonable, and
unless the contract is freely and fairly made. No contractual limitation is reasonable which is
subversive of public policy.
"Par. 195. 7. What Limitations of Liability Permissible. — a. Negligence — (1) Rule in America —
(a) In Absence of Organic or Statutory Provisions Regulating Subject — aa. Majority Rule. — In
the absence of statute, it is settled by the weight of authority in the United States, that whatever
limitations against its common-law liability are permissible to a carrier, it cannot limit its liability
for injury to or loss of goods shipped, where such injury or loss is caused by its own negligence.
This is the common law doctrine and it makes no difference that there is no statutory prohibition
against contracts of this character.
"Par. 196. bb. Considerations on which Rule Based. — The rule, it is said, rests on
considerations of public policy. The undertaking is to carry the goods, and to relieve the shipper
from all liability for loss or damage arising from negligence in performing its contract is to ignore
the contract itself. The natural effect of a limitation of liability against negligence is to induce
want of care on the part of the carrier in the performance of its duty. The shipper and the
common carrier are not on equal terms; the shipper must send his freight by the common carrier,
or not at all; he is therefore entirely at the mercy of the carrier unless protected by the higher
power of the law against being forced into contracts limiting the carrier's liability. Such contracts
are wanting in the element of voluntary assent.
"Par. 197. cc. Application and Extent of Rule — (aa) Negligence of Servants. — The rule
prohibiting limitation of liability for negligence is often stated as a prohibition of any contract
relieving the carrier from loss or damage caused by its own negligence or misfeasance, or that
of its servants; and it has been specifically decided in many cases that no contract limitation will
relieve the carrier from responsibility for the negligence, unskillfulness, or carelessness of its
employer." (Cited in Ysmael and Co. vs. Barreto, 51 Phil. 90, 98, 99).
In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P. and
Sanchez, JJ., concur
9
No. L-40597. June 29, 1979.*
AGUSTINO B. ONG YIU, petitioner vs. HONORABLE COURT OF APPEALS and
PHILIPPINE AIR LINES, INC., respondents.
Civil Law; Transportation; Breach of contract of transportation; Bad faith, Concept of; No bad
faith committed when airline company exerted due diligence with its duty in locating a
passenger’s lost luggage; Case at bar.—From the facts of the case, we agree with respondent
Court that PAL had not acted in bad faith. Bad faith means a breach of a known duty through
some motive of interest or ill will. It was the duty of PAL to look for petitioner’s luggage which
had been miscarried. PAL exerted due diligence in complying with such duty.
Same; Same; Same; Same; Moral Damages; No award of moral damages when bad faith is
absent.—In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not
entitled to moral damages.
Same; Same; Same; Same; Exemplary Damages; Exemplary damages not awarded when
defendant had not acted fraudulently or oppressively.—Petitioner is neither entitled to exemplary
damages. In contracts, as provided for in Article 2232 of the Civil Code, exemplary damages can
be granted if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner, which has not been proven in this case.
Same; Same; Same; Contracts of adhesion; Philippine Air Lines’ limited carriage liability of
P100.00 for loss or delay of its passengers’ baggage held valid and binding absent higher value
declared for luggage and actual value of goods lost.—While it may be true that petitioner had not
signed the plane ticket (Exh. “12”), he is nevertheless bound by the provisions thereof. “Such
provisions have been held to be a part of the contract of carriage, and valid and binding upon
the passenger regardless of the latter’s lack of knowledge or assent to the regulation”. It is what
is known as a contract of “adhesion”, in regards which it has been said that contracts of
adhesion wherein one party imposes a ready made form of contract on the other, as the plane
ticket in the case at bar, are contracts not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives
his consent. And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d 878;
Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, “a contract limiting liability upon an
agreed valuation does not offend against the policy of the law forbidding one from contracting
against his own negligence.” Considering, therefore, that petitioner had failed to declare a higher
value for his baggage, he cannot be permitted a recovery in excess of P100.00. Besides,
passengers are advised not to place valuable items inside their baggage but “to avail of our V-
cargo service” (Exh. “1”). It is likewise to be noted that there is nothing in the evidence to show
the actual value of the goods allegedly lost by petitioner. Ong Yiu vs. Court of Appeals, 91 SCRA
223, No. L-40597 June 29, 1979
MELENCIO-HERRERA, J.:
In this Petition for Review by Certiorari, petitioner, a practicing lawyer and businessman, seeks a
reversal of the Decision of the Court of Appeals in CA-G.R. No. 45005-R, which reduced his
claim for damages for breach of contract of transportation.
The facts are as follows:
On August 26, 1967, petitioner was a fare paying passenger of respondent Philippine Air Lines,
Inc. (PAL), on board Flight No. 463-R, from Mactan Cebu, bound for Butuan City. He was
scheduled to attend the trial of Civil Case No. 1005 and Spec. Procs. No. 1125 in the Court of
First Instance, Branch II, thereat, set for hearing on August 28-31, 1967. As a passenger, he

checked in one piece of luggage, a blue "maleta" for which he was issued Claim Check No.
2106-R (Exh. "A"). The plane left Mactan Airport, Cebu, at about 1:00 o'clock P.M., and arrived
at Bancasi airport, Butuan City, at past 2:00 o'clock P.M., of the same day. Upon arrival,
petitioner claimed his luggage but it could not be found. According to petitioner, it was only after
reacting indignantly to the loss that the matter was attended to by the porter clerk, Maximo
Gomez, which, however, the latter denies, At about 3:00 o'clock P.M., PAL Butuan, sent a
message to PAL, Cebu, inquiring about the missing luggage, which message was, in turn
relayed in full to the Mactan Airport teletype operator at 3:45 P.M. (Exh. "2") that same
afternoon. It must have been transmitted to Manila immediately, for at 3:59 that same afternoon,
PAL Manila wired PAL Cebu advising that the luggage had been over carried to Manila aboard
Flight No. 156 and that it would be forwarded to Cebu on Flight No. 345 of the same day.
Instructions were also given that the luggage be immediately forwarded to Butuan City on the
first available flight (Exh. "3"). At 5:00 P.M. of the same afternoon, PAL Cebu sent a message to
PAL Butuan that the luggage would be forwarded on Fright No. 963 the following day, August
27, 196'(. However, this message was not received by PAL Butuan as all the personnel had
already left since there were no more incoming flights that afternoon.
In the meantime, petitioner was worried about the missing luggage because it contained vital
documents needed for trial the next day. At 10:00 o'clock that evening, petitioner wired PAL
Cebu demanding the delivery of his baggage before noon the next day, otherwise, he would
hold PAL liable for damages, and stating that PAL's gross negligence had caused him undue
inconvenience, worry, anxiety and extreme embarrassment (Exh. "B"). This telegram was
received by the Cebu PAL supervisor but the latter felt no need to wire petitioner that his
luggage had already been forwarded on the assumption that by the time the message reached
Butuan City, the luggage would have arrived.
Early in the morning of the next day, August 27, 1967, petitioner went to the Bancasi Airport to
inquire about his luggage. He did not wait, however, for the morning flight which arrived at 10:00
o'clock that morning. This flight carried the missing luggage. The porter clerk, Maximo Gomez,
paged petitioner, but the latter had already left. A certain Emilio Dagorro a driver of a "colorum"
car, who also used to drive for petitioner, volunteered to take the luggage to petitioner. As
Maximo Gomez knew Dagorro to be the same driver used by petitioner whenever the latter was
in Butuan City, Gomez took the luggage and placed it on the counter. Dagorro examined the
lock, pressed it, and it opened. After calling the attention of Maximo Gomez, the "maleta" was
opened, Gomez took a look at its contents, but did not touch them. Dagorro then delivered the
"maleta" to petitioner, with the information that the lock was open. Upon inspection, petitioner
found that a folder containing certain exhibits, transcripts and private documents in Civil Case
No. 1005 and Sp. Procs. No. 1126 were missing, aside from two gift items for his parents-in-law.
Petitioner refused to accept the luggage. Dagorro returned it to the porter clerk, Maximo Gomez,
who sealed it and forwarded the same to PAL Cebu.
Meanwhile, petitioner asked for postponement of the hearing of Civil Case No. 1005 due to loss
of his documents, which was granted by the Court (Exhs. "C" and "C-1"). Petitioner returned to
Cebu City on August 28, 1967. In a letter dated August 29, 1967 addressed to PAL, Cebu,
petitioner called attention to his telegram (Exh. "D"), demanded that his luggage be produced
intact, and that he be compensated in the sum of P250,000,00 for actual and moral damages
within five days from receipt of the letter, otherwise, he would be left with no alternative but to file
suit (Exh. "D").
On August 31, 1967, Messrs. de Leon, Navarsi, and Agustin, all of PAL Cebu, went to
petitioner's office to deliver the "maleta". In the presence of Mr. Jose Yap and Atty. Manuel
Maranga the contents were listed and receipted for by petitioner (Exh. "E").
On September 5, 1967, petitioner sent a tracer letter to PAL Cebu inquiring about the results of
the investigation which Messrs. de Leon, Navarsi, and Agustin had promised to conduct to
pinpoint responsibility for the unauthorized opening of the "maleta" (Exh. "F").
10
The following day, September 6, 1967, PAL sent its reply hereinunder quoted verbatim:
Dear Atty. Ong Yiu:
This is with reference to your September 5, 1967, letter to Mr. Ricardo G. Paloma, Acting
Manager, Southern Philippines.
First of all, may we apologize for the delay in informing you of the result of our investigation
since we visited you in your office last August 31, 1967. Since there are stations other than Cebu
which are involved in your case, we have to communicate and await replies from them. We
regret to inform you that to date we have not found the supposedly lost folder of papers nor have
we been able to pinpoint the personnel who allegedly pilferred your baggage.
You must realize that no inventory was taken of the cargo upon loading them on any plane.
Consequently, we have no way of knowing the real contents of your baggage when same was
loaded.
We realized the inconvenience you encountered of this incident but we trust that you will give us
another opportunity to be of better service to you.
Very truly yours,
PHILIPPINE AIR LINES, INC.
(Sgd) JEREMIAS S. AGUSTIN
Branch Supervisor
Cebu
(Exhibit G, Folder of Exhibits) 1
On September 13, 1967, petitioner filed a Complaint against PAL for damages for breach of
contract of transportation with the Court of First Instance of Cebu, Branch V, docketed as Civil
Case No. R-10188, which PAL traversed. After due trial, the lower Court found PAL to have
acted in bad faith and with malice and declared petitioner entitled to moral damages in the sum
of P80,000.00, exemplary damages of P30,000.00, attorney's fees of P5,000.00, and costs.
Both parties appealed to the Court of Appeals — petitioner in so far as he was awarded only the
sum of P80,000.00 as moral damages; and defendant because of the unfavorable judgment
rendered against it.
On August 22, 1974, the Court of Appeals,* finding that PAL was guilty only of simple
negligence, reversed the judgment of the trial Court granting petitioner moral and exemplary
damages, but ordered PAL to pay plaintiff the sum of P100.00, the baggage liability assumed by
it under the condition of carriage printed at the back of the ticket.
Hence, this Petition for Review by Certiorari, filed on May 2, 1975, with petitioner making the
following Assignments of Error:
I. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING RESPONDENT PAL
GUILTY ONLY OF SIMPLE NEGLIGENCE AND NOT BAD FAITH IN THE BREACH OF ITS
CONTRACT OF TRANSPORTATION WITH PETITIONER.
II. THE HONORABLE COURT OF APPEALS MISCONSTRUED THE EVIDENCE AND
THE LAW WHEN IT REVERSED THE DECISION OF THE LOWER COURT AWARDING TO
PETITIONER MORAL DAMAGES IN THE AMOUNT OF P80,000.00, EXEMPLARY DAMAGES

OF P30,000.00, AND P5,000.00 REPRESENTING ATTORNEY'S FEES, AND ORDERED
RESPONDENT PAL TO COMPENSATE PLAINTIFF THE SUM OF P100.00 ONLY,
CONTRARY TO THE EXPLICIT PROVISIONS OF ARTICLES 2220, 2229, 2232 AND 2234 OF
THE CIVIL CODE OF THE PHILIPPINES.
On July 16, 1975, this Court gave due course to the Petition.
There is no dispute that PAL incurred in delay in the delivery of petitioner's luggage. The
question is the correctness of respondent Court's conclusion that there was no gross negligence
on the part of PAL and that it had not acted fraudulently or in bad faith as to entitle petitioner to
an award of moral and exemplary damages.
From the facts of the case, we agree with respondent Court that PAL had not acted in bad faith.
Bad faith means a breach of a known duty through some motive of interest or ill will. 2 It was the
duty of PAL to look for petitioner's luggage which had been miscarried. PAL exerted due
diligence in complying with such duty.
As aptly stated by the appellate Court:
We do not find any evidence of bad faith in this. On the contrary, We find that the defendant had
exerted diligent effort to locate plaintiff's baggage. The trial court saw evidence of bad faith
because PAL sent the telegraphic message to Mactan only at 3:00 o'clock that same afternoon,
despite plaintiff's indignation for the non-arrival of his baggage. The message was sent within
less than one hour after plaintiff's luggage could not be located. Efforts had to be exerted to
locate plaintiff's maleta. Then the Bancasi airport had to attend to other incoming passengers
and to the outgoing passengers. Certainly, no evidence of bad faith can be inferred from these
facts. Cebu office immediately wired Manila inquiring about the missing baggage of the plaintiff.
At 3:59 P.M., Manila station agent at the domestic airport wired Cebu that the baggage was over
carried to Manila. And this message was received in Cebu one minute thereafter, or at 4:00 P.M.
The baggage was in fact sent back to Cebu City that same afternoon. His Honor stated that the
fact that the message was sent at 3:59 P.M. from Manila and completely relayed to Mactan at
4:00 P.M., or within one minute, made the message appear spurious. This is a forced reasoning.
A radio message of about 50 words can be completely transmitted in even less than one minute
depending upon atmospheric conditions. Even if the message was sent from Manila or other
distant places, the message can be received within a minute. that is a scientific fact which
cannot be questioned. 3
Neither was the failure of PAL Cebu to reply to petitioner's rush telegram indicative of bad faith,
The telegram (Exh. B) was dispatched by petitioner at around 10:00 P.M. of August 26, 1967.
The PAL supervisor at Mactan Airport was notified of it only in the morning of the following day.
At that time the luggage was already to be forwarded to Butuan City. There was no bad faith,
therefore, in the assumption made by said supervisor that the plane carrying the bag would
arrive at Butuan earlier than a reply telegram. Had petitioner waited or caused someone to wait
at the Bancasi airport for the arrival of the morning flight, he would have been able to retrieve his
luggage sooner.
In the absence of a wrongful act or omission or of fraud or bad faith, petitioner is not entitled to
moral damages.
Art. 2217. Moral damages include physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation, and similar injury.
Though incapable of pecuniary computation, moral damages may be recovered if they are the
proximate result of the defendant's wrongful act of omission.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages if the
court should find that, under the circumstances, such damages are justly due. The same rule
applies to breaches of contract where the defendant acted fraudulently or in bad faith.
11
Petitioner is neither entitled to exemplary damages. In contracts, as provided for in Article 2232
of the Civil Code, exemplary damages can be granted if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner, which has not been proven in this case.
Petitioner further contends that respondent Court committed grave error when it limited PAL's
carriage liability to the amount of P100.00 as stipulated at the back of the ticket. In this
connection, respondent Court opined:
As a general proposition, the plaintiff's maleta having been pilfered while in the custody of the
defendant, it is presumed that the defendant had been negligent. The liability, however, of PAL
for the loss, in accordance with the stipulation written on the back of the ticket, Exhibit 12, is
limited to P100.00 per baggage, plaintiff not having declared a greater value, and not having
called the attention of the defendant on its true value and paid the tariff therefor. The validity of
this stipulation is not questioned by the plaintiff. They are printed in reasonably and fairly big
letters, and are easily readable. Moreover, plaintiff had been a frequent passenger of PAL from
Cebu to Butuan City and back, and he, being a lawyer and businessman, must be fully aware of
these conditions. 4
We agree with the foregoing finding. The pertinent Condition of Carriage printed at the back of
the plane ticket reads:
8. BAGGAGE LIABILITY ... The total liability of the Carrier for lost or damaged baggage
of the passenger is LIMITED TO P100.00 for each ticket unless a passenger declares a higher
valuation in excess of P100.00, but not in excess, however, of a total valuation of P1,000.00 and
additional charges are paid pursuant to Carrier's tariffs.
There is no dispute that petitioner did not declare any higher value for his luggage, much less
did he pay any additional transportation charge.
But petitioner argues that there is nothing in the evidence to show that he had actually entered
into a contract with PAL limiting the latter's liability for loss or delay of the baggage of its
passengers, and that Article 1750* of the Civil Code has not been complied with.
While it may be true that petitioner had not signed the plane ticket (Exh. "12"), he is nevertheless
bound by the provisions thereof. "Such provisions have been held to be a part of the contract of
carriage, and valid and binding upon the passenger regardless of the latter's lack of knowledge
or assent to the regulation". 5 It is what is known as a contract of "adhesion", in regards which it
has been said that contracts of adhesion wherein one party imposes a ready made form of
contract on the other, as the plane ticket in the case at bar, are contracts not entirely prohibited.
The one who adheres to the contract is in reality free to reject it entirely; if he adheres, he gives
his consent. 6 And as held in Randolph v. American Airlines, 103 Ohio App. 172, 144 N.E. 2d
878; Rosenchein vs. Trans World Airlines, Inc., 349 S.W. 2d 483, "a contract limiting liability
upon an agreed valuation does not offend against the policy of the law forbidding one from
contracting against his own negligence.
Considering, therefore, that petitioner had failed to declare a higher value for his baggage, he
cannot be permitted a recovery in excess of P100.00.Besides, passengers are advised not to
place valuable items inside their baggage but "to avail of our V-cargo service " (Exh. "1"). I t is
likewise to be noted that there is nothing in the evidence to show the actual value of the goods
allegedly lost by petitioner.
There is another matter involved, raised as an error by PAL — the fact that on October 24, 1974
or two months after the promulgation of the Decision of the appellate Court, petitioner's widow
filed a Motion for Substitution claiming that petitioner died on January 6, 1974 and that she only
came to know of the adverse Decision on October 23, 1974 when petitioner's law partner
informed her that he received copy of the Decision on August 28, 1974. Attached to her Motion

was an Affidavit of petitioner's law partner reciting facts constitutive of excusable negligence.
The appellate Court noting that all pleadings had been signed by petitioner himself allowed the
widow "to take such steps as she or counsel may deem necessary." She then filed a Motion for
Reconsideration over the opposition of PAL which alleged that the Court of Appeals Decision,
promulgated on August 22, 1974, had already become final and executory since no appeal had
been interposed therefrom within the reglementary period.
Under the circumstances, considering the demise of petitioner himself, who acted as his own
counsel, it is best that technicality yields to the interests of substantial justice. Besides, in the
'last analysis, no serious prejudice has been caused respondent PAL.
In fine, we hold that the conclusions drawn by respondent Court from the evidence on record are
not erroneous.
WHEREFORE, for lack of merit, the instant Petition is hereby denied, and the judgment sought
to be reviewed hereby affirmed in toto.
No costs.
SO ORDERED.
Teehankee, (Chairman), Makasiar, Fernandez, Guerrero and De Castro, JJ., concur.
12
No. L-74442. August 31, 1987.*
PAN AMERICAN WORLD AIRWAYS, INC., petitioner, vs. THE INTERMEDIATE APPELLATE
COURT, TEOFISTA P. TINITIGAN, joined by her husband, SEVERINO TINITIGAN,
respondents.
Carriers; Damages; A contract of carriage generates a relation attended with public duty, neglect
or malfeasance of the carrier's employees gives ground for an action for damages.—A contract
to transport passengers is quite different in kind and degree from any other contractual relation.
And this, because of the relation which an air-carrier sustains with the public. Its business is
mainly with the travelling public. It invites people to avail of the comforts and advantages it
offers. The contract of carriage, therefore, generates a relation attended with a public duty.
Neglect or malfeasance of the carrier's employees, naturally, could give ground for an action for
damages.
Civil Procedures; Evidence; Findings of trial Court on credibility of witnesses are respected.—All
of the issues raised by petitioner are factual issues which the trial court ruled upon by favoring
plaintiff's evidence as more credible than the evidence—for the defendant. A cursory reading of
the decision of the trial court as well as the decision of the appellate court reveals that all
evidence available were considered. It is not the function of this Court to analyze or weigh
evidence all over again, as Our jurisdiction is limited to reviewing errors of law that might have
been committed by the lower courts. Moreover, the findings of the lower court as to the credibility
of the witnesses will not be generally disturbed on appeal and if the appeal is on questions of
fact, the factual findings of the appellate court are binding on Us (Collector of Customs of Manila
vs. IAC, 137 SCRA 3).
NARVASA, J.:
Upon the following facts, found to have been satisfactorily established by the evidence, to wit:
1) that Edmundo P. Ongsiako, "with one piece of checked-in luggage, was a paying
passenger on the ... PAN AM Flight 842 that left Manila for Honolulu, Hawaii, U.S.A., at about
12:30 p.m. on June 8, 1978, with Los Angeles, California, as his ultimate destination:" 1
2) that at Honolulu, Ongsiako "discovered that his luggage was not carried on board ...;
(i)t was left at ... PAN AM's airport office in Manila where it was found a week later;" 2
3) "a PAN AM employee in Honolulu, instead of helping him search for his bag,
arrogantly threatened to "bump him off in Honolulu should he persist in looking for his bag;" 3
4) that "(o)ffers to forward the luggage to .. (Ongsiako) in Los Angeles or San Francisco
were refused, f s because, by the time it was found, ... (Ongsiako) was about to leave Los
Angeles, and secondly, ... (Ongsiako) was not sure where he would be staying in San Francisco;
5) that "(v)erbal complaint was made first at PAN AM's Honolulu airport office, then at
Los Angeles, but written complaint was made on July 20, 1978; and
6) that "(o)vertures towards settlement were rejected for being too inconsequential," 5
PAN AM (Pan American World Airways, Inc.) was sentenced by the Court of First Instance of
Rizal 6 on complaint of Ongsiako, to pay to the latter:
1. P9,629.50 representing cost of plaintiffs plane ticket as actual damages;
2. The equivalent in pesos of $400 at the current exchange rate as temperate or
moderate damages;

3. P350,000.00 as moral damages;
4. P100,000.00 as exemplary damages;
5. P26,000.00 as attorney's fees;
6. Costs.
On appeal taken by PAN AM, 7 the Trial Court's judgment was affirmed by the Intermediate
Appellate Court, with the sole modification that the award of actual damages was reduced to
P4,814.75 and that of exemplary damages, eliminated. 8
From this judgment of the appellate tribunal, in turn, PAN AM has taken an appeal on certiorari
to this Court. After receiving the private respondent's comment on the appeal petition, the reply
thereto and the rejoinder to the reply, the Court resolved on March 4, 1985 to give limited due
course to the petition as regards the sole issue of moral damages and required simultaneous
memoranda from the parties, 9 which have since been submitted.
Article 2220 of the Civil Code says that moral damages may be awarded in "breaches of
contract where the defendant acted fraudulently or in bad faith." So, proof of infringement of an
agreement by a party, standing alone, will not justify an award of moral damages. 10 There
must, in addition, as the law points out, be competent evidence of fraud of bad faith by that
party. 11 If the plaintiff, for instance, fails to take the witness stand and testify as to his social
humiliation, wounded feelings, anxiety, etc., moral damages cannot be recovered.12 The rule
applies, of course, to common carriers. 13
This Court finds that these basic legal principles have been correctly applied by both the Trial
Court and the Intermediate Appellate Court, in light of the proven facts. Said the latter, on this
precise matter: 14
In the present case, men of reasonable perceptions will not disagree with the conclusion that
plaintiff suffered mental anguish, anxiety and shock when he found that his luggage did not
travel with him. What traveller would not suffer from such feelings if he found himself in a foreign
land without any article of clothing other than what he had on? The injury thus suffered by
plaintiff is one that would arise generally, in the special circumstances of this case; it follows as a
matter of course. PAN AM breach of the contract was the substantial cause in bringing about the
harm or injury to the plaintiff. We adopt here the ruling of the court a quo:
"The Court believes and so holds that there is sufficient evidence of gross and reckless
negligence amounting to bad faith on the part of defendant. If defendant was not sure that it
could transport plaintiff and his luggage to Los Angeles, it should not have accepted plaintiff who
was a waitlisted passenger. It is not a valid excuse on its part to claim that plaintiff checked in at
the last minute and that there was insufficient time to load his bag in the plane. In fact, that
makes the position of defendant even more untenable, because in accepting and holding on to
plaintiff as its passenger, probably to fill in cancelled bookings, although it knew or must have
known that the bag of plaintiff might not be loaded on time, it was guilty of conduct amounting to
bad faith. ... Accepting last minute passengers and their baggage with no definite assurance that
the carrier can comply with its obligation due to lack of time amounts to "negligence so gross
and reckless as to amount to malice or bad faith (Fores vs. Miranda, L-12163, March 4,1959;
Necesito vs. Paras, L-1060606, June 30, 1958, cited in Lopez, et al. vs. PAN AM, supra)
(Record on Appeal, pp. 23-25)
Also a propos and also not otherwise shown to be erroneous are the observations of the Trial
Court on this precise point:
13
... (A) PAN AM employee in Honolulu, instead of helping him (Ongsiako) search for his bag,
arrogantly threatened to "bump him off" in Honolulu should he persist in looking for his bag. This
happened in the presence of several people, thereby subjecting plaintiff to indignity,
embarrassment and humiliation, which aggravated his health-his blood pressure, in this case. It
is difficult enough to be in a foreign country, worse if one's belongings are missing, and worst, if
instead of being helped, he is shouted at and threatened to be "bumped off" as in this case. This
must have been a very distressing and painful experience to plaintiff which justifies a finding of
bad faith and an award for moral damages in his favor. Considering the financial standing of
plaintiff who heads a corporation with a paid-up capital of 2-1/2 Millon Pesos and the anguish,
anxiety, wounded feelings, shame and humiliation which he suffered as heretofore discussed,
the Court assesses moral damages in his favor in the amount of P350,000.00.
PAN AM assails this award of moral damages as without evidentiary foundation, or at the very
least, excessive. It argues that no such arrogance or boorishness was displayed by the PAN AM
people at the Honolulu Airport, that what simply happened was, citing Ongsiako's own
testimony, that when Ongsiako could not find his luggage and asked for help, showing them his
baggage tag and ticket, one of the PAN AM employees there, "instead of helping ... (him) looked
at their watch and said, you better get up or you will be late on your flight, I am sorry I cannot
help you, there are so many people waiting for their turn. ..." 15 It claims, too, that even the
Court of Appeals itself declared that it was "not satisfied with the adequacy of the evidence
related to the ill-treatment suffered by the plaintiff at the hands of PAN AM Honolulu airport office
employees. ..." 16 The quotations from the transcript and judgment of the Appellate Court are
out of context. The record of Ongsiako's testimony reveals that he did say that "the PAN AM
employee embarrassed ... (him) in Honolulu by shouting at x x (him)," a statement that he
reaffirmed twice, 17 and that employee even refused to look at his baggage tag. 18 As regards
the Intermediate Appellate Court, it also did say that it was sustaining "the fun award of moral
damages,' but that it did not find that the evidence was adequate to establish that the conduct of
PAN AM was so "wanton, reckless, oppressive or malevolent" as to justify an award of
exemplary damages, a ruling that is not essentially inconsistent with Ongsiako's version of the
occurrence. In any event, even accepting PAN AM's version of the occurrence at face value, it is
clear that none of the PAN AM employees exerted the least effort to assist Ongsiako in his
predicament, despite his appeal for help; that not one of them even deigned to look at
Ongsiako's baggage tag, or listen to his problem, or give assurances that something would be
done about his difficulties, or otherwise show any sign of sympathy or commiseration; that
instead, they looked at their watches-an impolite and dismaying gesture of impatience, to be
sure, considering the circumstances-and told him he could not be helped because there were
other people waiting for their turn-to be served, of course, like Ongsiako, as they had a right to
expect as paying passengers-and that it was best if he just went to his plane so as not to miss
his flight. Surely, these acts of callous indifference to the plight of a person in a foreign land
could not be less distressing, depressing or disheartening to the latter, or judged less harshly,
simply because not attended by any shouted remarks.
All things considered, the Court is satisfied that moral damages have been correctly granted.
WHEREFORE, the petitioner's appeal is DISMISSED, and the judgment of the Intermediate
Appellate Court, AFFIRMED in toto. Costs against the petitioner.
Cruz, Gancayco, Griño-Aquino and Medialdea, JJ., concur.

G.R. No. 140047. July 13, 2004.*
PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, petitioner, vs.
V.P. EUSEBIO CONSTRUCTION, INC.; 3-PLEX INTERNATIONAL, INC., VICENTE P.
EUSEBIO; SOPLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA SANTOS; AND
FIRST INTEGRATED BONDING AND INSURANCE COMPANY, INC., respondents.
Civil Law; Contracts; Guaranty; Distinguished from Suretyship; By guaranty a person, called the
guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the
latter should fail to do so; if the person binds himself solidarily with the principal debtor, the
contract is called suretyship.—By guaranty a person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a
person binds himself solidarily with the principal debtor, the contract is called suretyship. Strictly
speaking, guaranty and surety are nearly related, and many of the principles are common to
both. In both contracts, there is a promise to answer for the debt or default of another. However,
in this jurisdiction, they may be distinguished thus: 1. A surety is usually bound with his principal
by the same instrument executed at the same time and on the same consideration. On the other
hand, the contract of guaranty is the guarantor’s own separate undertaking often supported by a
consideration separate from that supporting the contract of the principal; the original contract of
his principal is not his contract; 2. A surety assumes liability as a regular party to the
undertaking; while the liability of a guarantor is conditional depending on the failure of the
primary debtor to pay the obligation; 3. The obligation of a surety is primary, while that of a
guarantor is secondary; 4. A surety is an original promissor and debtor from the beginning, while
a guarantor is charged on his own undertaking; 5. A surety is, ordinarily, held to know every
default of his principal; whereas a guarantor is not bound to take notice of the non-performance
of his principal; 6. Usually, a surety will not be discharged either by the mere indulgence of the
creditor to the principal or by want of notice of the default of the principal, no matter how much
he may be injured thereby. A guarantor is often discharged by the mere indulgence of the
creditor to the principal, and is usually not liable unless notified of the default of the principal.
Same; Same; Same; Conditional Guaranty; That the guarantee issued by the petitioner is
unconditional and irrevocable does not make the petitioner a surety.—That the guarantee issued
by the petitioner is unconditional and irrevocable does not make the petitioner a surety. As a
guaranty, it is still characterized by its subsidiary and conditional quality because it does not take
effect until the fulfillment of the condition, namely, that the principal obligor should fail in his
obligation at the time and in the form he bound himself. In other words, an unconditional
guarantee is still subject to the condition that the principal debtor should default in his obligation
first before resort to the guarantor could be had. A conditional guaranty, as opposed to an
unconditional guaranty, is one which depends upon some extraneous event, beyond the mere
default of the principal, and generally upon notice of the principal’s default and reasonable
diligence in exhausting proper remedies against the principal.
Same; Same; Evidence; Appeals; It is a fundamental and settled rule that the findings of fact of
the trial court and the Court of Appeals are binding or conclusive upon this Court unless they are
not supported by the evidence or unless strong and cogent reasons dictate otherwise.—It is a
fundament and settled rule that the findings of fact of the trial court and the Court of Appeals are
binding or conclusive upon this Court unless they are not supported by the evidence or unless
strong and cogent reasons dictate otherwise. The factual findings of the Court of Appeals are
normally not reviewable by us under Rule 45 of the Rules of Court except when they are at
variance with those of the trial court. The trial court and the Court of Appeals were in unison that
the respondent contractor cannot be considered to have defaulted in its obligations because the
cause of the delay was not primarily attributable to it.
Same; Same; Lex Contractus; No conflicts rule on essential validity of contracts is expressly
provided for in our laws.—No conflicts rule on essential validity of contracts is expressly provided
14
for in our laws. The rule followed by most legal systems, however, is that the intrinsic validity of a
contract must be governed by the lex contractus or “proper law of the contract.” This is the law
voluntarily agreed upon by the parties (the lex loci voluntatis) or the law intended by them either
expressly or implicitly (the lex loci intentionis). The law selected may be implied from such
factors as substantial connection with the transaction, or the nationality or domicile of the parties.
Philippine courts would do well to adopt the first and most basic rule in most legal systems,
namely, to allow the parties to select the law applicable to their contract, subject to the limitation
that it is not against the law, morals, or public policy of the forum and that the chosen law must
bear a substantive relationship to the transaction.
Same; Same; Foreign Law; Processual Presumption; Where foreign law is not pleaded or, even
if pleaded, is not proved, the presumption is that foreign law is the same as ours.—Since that
foreign law was not properly pleaded or proved, the presumption of identity or similarity,
otherwise known as the processual presumption, comes into play. Where foreign law
is not pleaded or, even if pleaded, is not proved, the presumption is that foreign law is the same
as ours.
Same; Same; Default; Default or mora on the part of the debtor is the non-fulfillment of an
obligation with respect to time.—Our law, specifically Article 1169, last paragraph, of the Civil
Code, provides: “In reciprocal obligations, neither party incurs in delay if the other party does not
comply or is not ready to comply in a proper manner with what is incumbent upon him.” Default
or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a
cause imputable to the former. It is the non-fulfillment of an obligation with respect to time.
Same; Same; Same; Requisites; In order that the debtor may be in default it is necessary that
the following requisites be present.—In order that the debtor may be in default it is necessary
that the following requisites be present: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the
performance because it must appear that the tolerance or benevolence of the creditor must have
ended.
Same; Same; Same; Demand; Demand is generally necessary even if a period has been fixed in
the obligation.—Demand is generally necessary even if a period has been fixed in the obligation.
And default generally begins from the moment the creditor demands judicially or extra-judicially
the performance of the obligation. Without such demand, the effects of default will not arise.
Philippine Export and Foreign Loan Guarantee Corporation vs. V.P. Eusebio Construction, Inc.,
434 SCRA 202, G.R. No. 140047 July 13, 2004.
DECISION
DAVIDE, JR., C.J.:
This case is an offshoot of a service contract entered into by a Filipino construction firm with the
Iraqi Government for the construction of the Institute of Physical Therapy-Medical Center, Phase
II, in Baghdad, Iraq, at a time when the Iran-Iraq war was ongoing.
In a complaint filed with the Regional Trial Court of Makati City, docketed as Civil Case No. 91-
1906 and assigned to Branch 58, petitioner Philippine Export and Foreign Loan Guarantee
Corporation1 (hereinafter Philguarantee) sought reimbursement from the respondents of the
sum of money it paid to Al Ahli Bank of Kuwait pursuant to a guarantee it issued for respondent
V.P. Eusebio Construction, Inc. (VPECI).
The factual and procedural antecedents in this case are as follows:
On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing and
Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy–

Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the Project) to Ajyal
Trading and Contracting Company (hereinafter Ajyal), a firm duly licensed with the Kuwait
Chamber of Commerce for a total contract price of ID5,416,089/046 (or about US$18,739,668).2
On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of respondent
3-Plex International, Inc. (hereinafter 3-Plex), a local contractor engaged in construction
business, entered into a joint venture agreement with Ajyal wherein the former undertook the
execution of the entire Project, while the latter would be entitled to a commission of 4% of the
contract price.3 Later, or on 8 April 1981, respondent 3-Plex, not being accredited by or
registered with the Philippine Overseas Construction Board (POCB), assigned and transferred
all its rights and interests under the joint venture agreement to VPECI, a construction and
engineering firm duly registered with the POCB.4 However, on 2 May 1981, 3-Plex and VPECI
entered into an agreement that the execution of the Project would be under their joint
management.5
The SOB required the contractors to submit (1) a performance bond of ID271,808/610
representing 5% of the total contract price and (2) an advance payment bond of ID541,608/901
representing 10% of the advance payment to be released upon signing of the contract.6 To
comply with these requirements, respondents 3-Plex and VPECI applied for the issuance of a
guarantee with petitioner Philguarantee, a government financial institution empowered to issue
guarantees for qualified Filipino contractors to secure the performance of approved service
contracts abroad.7
Petitioner Philguarantee approved respondents' application. Subsequently, letters of guarantee8
were issued by Philguarantee to the Rafidain Bank of Baghdad covering 100% of the
performance and advance payment bonds, but they were not accepted by SOB. What SOB
required was a letter-guarantee from Rafidain Bank, the government bank of Iraq. Rafidain Bank
then issued a performance bond in favor of SOB on the condition that another foreign bank, not
Philguarantee, would issue a counter-guarantee to cover its exposure. Al Ahli Bank of Kuwait
was, therefore, engaged to provide a counter-guarantee to Rafidain Bank, but it required a
similar counter-guarantee in its favor from the petitioner. Thus, three layers of guarantees had to
be arranged.9
Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued in favor
of Al Ahli Bank of Kuwait Letter of Guarantee No. 81-194-F 10 (Performance Bond Guarantee) in
the amount of ID271,808/610 and Letter of Guarantee No. 81-195-F11 (Advance Payment
Guarantee) in the amount of ID541,608/901, both for a term of eighteen months from 25 May
1981. These letters of guarantee were secured by (1) a Deed of Undertaking12 executed by
respondents VPECI, Spouses Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and
Spouses Eduardo E. Santos and Iluminada Santos; and (2) a surety bond13 issued by
respondent First Integrated Bonding and Insurance Company, Inc. (FIBICI). The Surety Bond
was later amended on 23 June 1981 to increase the amount of coverage from P6.4 million to
P6.967 million and to change the bank in whose favor the petitioner's guarantee was issued,
from Rafidain Bank to Al Ahli Bank of Kuwait.14
On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service contract15
for the construction of the Institute of Physical Therapy – Medical Rehabilitation Center, Phase
II, in Baghdad, Iraq, wherein the joint venture contractor undertook to complete the Project within
a period of 547 days or 18 months. Under the Contract, the Joint Venture would supply
manpower and materials, and SOB would refund to the former 25% of the project cost in Iraqi
Dinar and the 75% in US dollars at the exchange rate of 1 Dinar to 3.37777 US Dollars.16
The construction, which was supposed to start on 2 June 1981, commenced only on the last
week of August 1981. Because of this delay and the slow progress of the construction work due
to some setbacks and difficulties, the Project was not completed on 15 November 1982 as
scheduled. But in October 1982, upon foreseeing the impossibility of meeting the deadline and
upon the request of Al Ahli Bank, the joint venture contractor worked for the renewal or
15
extension of the Performance Bond and Advance Payment Guarantee. Petitioner's Letters of
Guarantee Nos. 81-194-F (Performance Bond) and 81-195-F (Advance Payment Bond) with
expiry date of 25 November 1982 were then renewed or extended to 9 February 1983 and 9
March 1983, respectively.17 The surety bond was also extended for another period of one year,
from 12 May 1982 to 12 May 1983.18 The Performance Bond was further extended twelve times
with validity of up to 8 December 1986,19 while the Advance Payment Guarantee was extended
three times more up to 24 May 1984 when the latter was cancelled after full refund or
reimbursement by the joint venture contractor.20 The surety bond was likewise extended to 8
May 1987.21
As of March 1986, the status of the Project was 51% accomplished, meaning the structures
were already finished. The remaining 47% consisted in electro-mechanical works and the 2%,
sanitary works, which both required importation of equipment and materials.22
On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full
payment of its performance bond counter-guarantee.
Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requested
Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex
call on the performance guarantee for being a drastic action in contravention of its mutual
agreement with the latter that (1) the imposition of penalty would be held in abeyance until the
completion of the project; and (2) the time extension would be open, depending on the
developments on the negotiations for a foreign loan to finance the completion of the project.23 It
also wrote SOB protesting the call for lack of factual or legal basis, since the failure to complete
the Project was due to (1) the Iraqi government's lack of foreign exchange with which to pay its
(VPECI's) accomplishments and (2) SOB's noncompliance for the past several years with the
provision in the contract that 75% of the billings would be paid in US dollars.24 Subsequently, or
on 19 November 1986, respondent VPECI advised the petitioner not to pay yet Al Ahli Bank
because efforts were being exerted for the amicable settlement of the Project.25
On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating that it
had already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and
demanding reimbursement by the petitioner of what it paid to the latter bank plus interest
thereon and related expenses.26
Both petitioner Philguarantee and respondent VPECI sought the assistance of some government
agencies of the Philippines. On 10 August 1987, VPECI requested the Central Bank to hold in
abeyance the payment by the petitioner "to allow the diplomatic machinery to take its course, for
otherwise, the Philippine government , through the Philguarantee and the Central Bank, would
become instruments of the Iraqi Government in consummating a clear act of injustice and
inequity committed against a Filipino contractor."27
On 27 August 1987, the Central Bank authorized the remittance for its account of the amount of
US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing full payment of the
performance counter-guarantee for VPECI's project in Iraq. 28
On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli
Bank, and reiterated the joint and solidary obligation of the respondents to reimburse the
petitioner for the advances made on its counter-guarantee.29
The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21 January
1988.30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83
representing interest and penalty charges demanded by the latter bank.31
On 19 June 1991, the petitioner sent to the respondents separate letters demanding full
payment of the amount of P47,872,373.98 plus accruing interest, penalty charges, and 10%
attorney's fees pursuant to their joint and solidary obligations under the deed of undertaking and

surety bond.32 When the respondents failed to pay, the petitioner filed on 9 July 1991 a civil
case for collection of a sum of money against the respondents before the RTC of Makati City.
After due trial, the trial court ruled against Philguarantee and held that the latter had no valid
cause of action against the respondents. It opined that at the time the call was made on the
guarantee which was executed for a specific period, the guarantee had already lapsed or
expired. There was no valid renewal or extension of the guarantee for failure of the petitioner to
secure respondents' express consent thereto. The trial court also found that the joint venture
contractor incurred no delay in the execution of the Project. Considering the Project owner's
violations of the contract which rendered impossible the joint venture contractor's performance of
its undertaking, no valid call on the guarantee could be made. Furthermore, the trial court held
that no valid notice was first made by the Project owner SOB to the joint venture contractor
before the call on the guarantee. Accordingly, it dismissed the complaint, as well as the
counterclaims and cross-claim, and ordered the petitioner to pay attorney's fees of P100,000 to
respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex and the Santos Spouses,
plus costs. 33
In its 14 June 1999 Decision,34 the Court of Appeals affirmed the trial court's decision,
ratiocinating as follows:
First, appellant cannot deny the fact that it was fully aware of the status of project
implementation as well as the problems besetting the contractors, between 1982 to 1985, having
sent some of its people to Baghdad during that period. The successive renewals/extensions of
the guarantees in fact, was prompted by delays, not solely attributable to the contractors, and
such extension understandably allowed by the SOB (project owner) which had not anyway
complied with its contractual commitment to tender 75% of payment in US Dollars, and which
still retained overdue amounts collectible by VPECI.
… 2. A surety assumes liability as a regular party to the undertaking; while the liability of a
Second, appellant was very much aware of the violations committed by the SOB of its
contractual undertakings with VPECI, principally, the payment of foreign currency (US$) for 75%
of the total contract price, as well as of the complications and injustice that will result from its
payment of the full amount of the performance guarantee, as evident in PHILGUARANTEE's
letter dated 13 May 1987 ….
… 5. A surety is, ordinarily, held to know every default of his principal; whereas a guarantor is not
Third, appellant was fully aware that SOB was in fact still obligated to the Joint Venture and
there was still an amount collectible from and still being retained by the project owner, which
amount can be set-off with the sum covered by the performance guarantee.
… principal, and is usually not liable unless notified of the default of the principal. 38
Fourth, well-apprised of the above conditions obtaining at the Project site and cognizant of the
war situation at the time in Iraq, appellant, though earlier has made representations with the
SOB regarding a possible amicable termination of the Project as suggested by VPECI, made a
complete turn-around and insisted on acting in favor of the unjustified "call" by the foreign
banks.35
The petitioner then came to this Court via Rule 45 of the Rules of Court claiming that the Court
of Appeals erred in affirming the trial court's ruling that
I…RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF UNDERTAKING THEY
EXECUTED IN FAVOR OF PETITIONER IN CONSIDERATION FOR THE ISSUANCE OF ITS
COUNTER-GUARANTEE AND THAT PETITIONER CANNOT PASS ON TO RESPONDENTS
WHAT IT HAD PAID UNDER THE SAID COUNTER-GUARANTEE.
16
II…PETITIONER CANNOT CLAIM SUBROGATION.
III…IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD RESPONDENTS LIABLE
UNDER THEIR DEED OF UNDERTAKING.36
The main issue in this case is whether the petitioner is entitled to reimbursement of what it paid
under Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait based on the deed of
undertaking and surety bond from the respondents.
The petitioner asserts that since the guarantee it issued was absolute, unconditional, and
irrevocable the nature and extent of its liability are analogous to those of suretyship. Its liability
accrued upon the failure of the respondents to finish the construction of the Institute of Physical
Therapy Buildings in Baghdad.
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with
the principal debtor, the contract is called suretyship. 37
Strictly speaking, guaranty and surety are nearly related, and many of the principles are
common to both. In both contracts, there is a promise to answer for the debt or default of
another. However, in this jurisdiction, they may be distinguished thus:
1. A surety is usually bound with his principal by the same instrument executed at the same time
and on the same consideration. On the other hand, the contract of guaranty is the guarantor's
own separate undertaking often supported by a consideration separate from that supporting the
contract of the principal; the original contract of his principal is not his contract.
guarantor is conditional depending on the failure of the primary debtor to pay the obligation.
3. The obligation of a surety is primary, while that of a guarantor is secondary.
4. A surety is an original promissor and debtor from the beginning, while a guarantor is charged
on his own undertaking.
bound to take notice of the non-performance of his principal.
6. Usually, a surety will not be discharged either by the mere indulgence of the creditor to the
principal or by want of notice of the default of the principal, no matter how much he may be
injured thereby. A guarantor is often discharged by the mere indulgence of the creditor to the
In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81-194-F,
which provides in part as follows:
In consideration of your issuing the above performance guarantee/counter-guarantee, we hereby
unconditionally and irrevocably guarantee, under our Ref. No. LG-81-194 F to pay you on your
first written or telex demand Iraq Dinars Two Hundred Seventy One Thousand Eight Hundred
Eight and fils six hundred ten (ID271,808/610) representing 100% of the performance bond
required of V.P. EUSEBIO for the construction of the Physical Therapy Institute, Phase II,
Baghdad, Iraq, plus interest and other incidental expenses related thereto.
In the event of default by V.P. EUSEBIO, we shall pay you 100% of the obligation unpaid but in
no case shall such amount exceed Iraq Dinars (ID) 271,808/610 plus interest and other
incidental expenses…. (Emphasis supplied)39

Guided by the abovementioned distinctions between a surety and a guaranty, as well as the
factual milieu of this case, we find that the Court of Appeals and the trial court were correct in
ruling that the petitioner is a guarantor and not a surety. That the guarantee issued by the
petitioner is unconditional and irrevocable does not make the petitioner a surety. As a guaranty,
it is still characterized by its subsidiary and conditional quality because it does not take effect
until the fulfillment of the condition, namely, that the principal obligor should fail in his obligation
at the time and in the form he bound himself.40 In other words, an unconditional guarantee is
still subject to the condition that the principal debtor should default in his obligation first before
resort to the guarantor could be had. A conditional guaranty, as opposed to an unconditional
guaranty, is one which depends upon some extraneous event, beyond the mere default of the
principal, and generally upon notice of the principal's default and reasonable diligence in
exhausting proper remedies against the principal.41
It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default by
respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply
that of an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact that
petitioner's guaranty is unconditional does not make it a surety. Besides, surety is never
presumed. A party should not be considered a surety where the contract itself stipulates that he
is acting only as a guarantor. It is only when the guarantor binds himself solidarily with the
principal debtor that the contract becomes one of suretyship.42
Having determined petitioner's liability as guarantor, the next question we have to grapple with is
whether the respondent contractor has defaulted in its obligations that would justify resort to the
guaranty. This is a mixed question of fact and law that is better addressed by the lower courts,
since this Court is not a trier of facts.
It is a fundamental and settled rule that the findings of fact of the trial court and the Court of
Appeals are binding or conclusive upon this Court unless they are not supported by the evidence
or unless strong and cogent reasons dictate otherwise.43 The factual findings of the Court of
Appeals are normally not reviewable by us under Rule 45 of the Rules of Court except when
they are at variance with those of the trial court. 44 The trial court and the Court of Appeals were
in unison that the respondent contractor cannot be considered to have defaulted in its
obligations because the cause of the delay was not primarily attributable to it.
A corollary issue is what law should be applied in determining whether the respondent contractor
has defaulted in the performance of its obligations under the service contract. The question of
whether there is a breach of an agreement, which includes default or mora,45 pertains to the
essential or intrinsic validity of a contract. 46
No conflicts rule on essential validity of contracts is expressly provided for in our laws. The rule
followed by most legal systems, however, is that the intrinsic validity of a contract must be
governed by the lex contractus or "proper law of the contract." This is the law voluntarily agreed
upon by the parties (the lex loci voluntatis) or the law intended by them either expressly or
implicitly (the lex loci intentionis). The law selected may be implied from such factors as
substantial connection with the transaction, or the nationality or domicile of the parties.47
Philippine courts would do well to adopt the first and most basic rule in most legal systems,
namely, to allow the parties to select the law applicable to their contract, subject to the limitation
that it is not against the law, morals, or public policy of the forum and that the chosen law must
bear a substantive relationship to the transaction. 48
It must be noted that the service contract between SOB and VPECI contains no express choice
of the law that would govern it. In the United States and Europe, the two rules that now seem to
have emerged as "kings of the hill" are (1) the parties may choose the governing law; and (2) in
the absence of such a choice, the applicable law is that of the State that "has the most
significant relationship to the transaction and the parties."49 Another authority proposed that all
matters relating to the time, place, and manner of performance and valid excuses for non-
17
performance are determined by the law of the place of performance or lex loci solutionis, which
is useful because it is undoubtedly always connected to the contract in a significant way.50
In this case, the laws of Iraq bear substantial connection to the transaction, since one of the
parties is the Iraqi Government and the place of performance is in Iraq. Hence, the issue of
whether respondent VPECI defaulted in its obligations may be determined by the laws of Iraq.
However, since that foreign law was not properly pleaded or proved, the presumption of identity
or similarity, otherwise known as the processual presumption, comes into play. Where foreign
law is not pleaded or, even if pleaded, is not proved, the presumption is that foreign law is the
same as ours.51
Our law, specifically Article 1169, last paragraph, of the Civil Code, provides: "In reciprocal
obligations, neither party incurs in delay if the other party does not comply or is not ready to
comply in a proper manner with what is incumbent upon him."
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason
of a cause imputable to the former. 52 It is the non-fulfillment of an obligation with respect to
time.53
It is undisputed that only 51.7% of the total work had been accomplished. The 48.3% unfinished
portion consisted in the purchase and installation of electro-mechanical equipment and
materials, which were available from foreign suppliers, thus requiring US Dollars for their
importation. The monthly billings and payments made by SOB54 reveal that the agreement
between the parties was a periodic payment by the Project owner to the contractor depending on
the percentage of accomplishment within the period. 55 The payments were, in turn, to be used
by the contractor to finance the subsequent phase of the work. 56 However, as explained by
VPECI in its letter to the Department of Foreign Affairs (DFA), the payment by SOB purely in
Dinars adversely affected the completion of the project; thus:
4. Despite protests from the plaintiff, SOB continued paying the accomplishment billings of the
Contractor purely in Iraqi Dinars and which payment came only after some delays.
5. SOB is fully aware of the following:
…
5.2 That Plaintiff is a foreign contractor in Iraq and as such, would need foreign currency (US$),
to finance the purchase of various equipment, materials, supplies, tools and to pay for the cost of
project management, supervision and skilled labor not available in Iraq and therefore have to be
imported and or obtained from the Philippines and other sources outside Iraq.
5.3 That the Ministry of Labor and Employment of the Philippines requires the remittance into the
Philippines of 70% of the salaries of Filipino workers working abroad in US Dollars;
…
5.5 That the Iraqi Dinar is not a freely convertible currency such that the same cannot be used to
purchase equipment, materials, supplies, etc. outside of Iraq;
5.6 That most of the materials specified by SOB in the CONTRACT are not available in Iraq and
therefore have to be imported;
5.7 That the government of Iraq prohibits the bringing of local currency (Iraqui Dinars) out of Iraq
and hence, imported materials, equipment, etc., cannot be purchased or obtained using Iraqui
Dinars as medium of acquisition.
…

8. Following the approved construction program of the CONTRACT, upon completion of the civil
works portion of the installation of equipment for the building, should immediately follow,
however, the CONTRACT specified that these equipment which are to be installed and to form
part of the PROJECT have to be procured outside Iraq since these are not being locally
manufactured. Copy f the relevant portion of the Technical Specification is hereto attached as
Annex "C" and made an integral part hereof;
… Even assuming that there was delay and that the delay was attributable to VPECI, still the
10. Due to the lack of Foreign currency in Iraq for this purpose, and if only to assist the Iraqi
government in completing the PROJECT, the Contractor without any obligation on its part to do
so but with the knowledge and consent of SOB and the Ministry of Housing & Construction of
Iraq, offered to arrange on behalf of SOB, a foreign currency loan, through the facilities of Circle
International S.A., the Contractor's Sub-contractor and SACE MEDIO CREDITO which will act
as the guarantor for this foreign currency loan.
Arrangements were first made with Banco di Roma. Negotiation started in June 1985. SOB is
informed of the developments of this negotiation, attached is a copy of the draft of the loan
Agreement between SOB as the Borrower and Agent. The Several Banks, as Lender, and
counter-guaranteed by Istituto Centrale Per II Credito A Medio Termine (Mediocredito) Sezione
Speciale Per L'Assicurazione Del Credito All'Exportazione (Sace). Negotiations went on and
continued until it suddenly collapsed due to the reported default by Iraq in the payment of its
obligations with Italian government, copy of the news clipping dated June 18, 1986 is hereto
attached as Annex "D" to form an integral part hereof;
15. On September 15, 1986, Contractor received information from Circle International S.A. that
because of the news report that Iraq defaulted in its obligations with European banks, the
approval by Banco di Roma of the loan to SOB shall be deferred indefinitely, a copy of the letter
of Circle International together with the news clippings are hereto attached as Annexes "F" and
"F-1", respectively.57
As found by both the Court of Appeals and the trial court, the delay or the non-completion of the
Project was caused by factors not imputable to the respondent contractor. It was rather due
mainly to the persistent violations by SOB of the terms and conditions of the contract, particularly
its failure to pay 75% of the accomplished work in US Dollars. Indeed, where one of the parties
to a contract does not perform in a proper manner the prestation which he is bound to perform
under the contract, he is not entitled to demand the performance of the other party. A party does
not incur in delay if the other party fails to perform the obligation incumbent upon him.
The petitioner, however, maintains that the payments by SOB of the monthly billings in purely
Iraqi Dinars did not render impossible the performance of the Project by VPECI. Such posture is
quite contrary to its previous representations. In his 26 March 1987 letter to the Office of the
Middle Eastern and African Affairs (OMEAA), DFA, Manila, petitioner's Executive Vice-President
Jesus M. Tañedo stated that while VPECI had taken every possible measure to complete the
Project, the war situation in Iraq, particularly the lack of foreign exchange, was proving to be a
great obstacle; thus:
VPECI has taken every possible measure for the completion of the project but the war situation
in Iraq particularly the lack of foreign exchange is proving to be a great obstacle. Our
performance counterguarantee was called last 26 October 1986 when the negotiations for a
foreign currency loan with the Italian government through Banco de Roma bogged down
following news report that Iraq has defaulted in its obligation with major European banks. Unless
the situation in Iraq is improved as to allay the bank's apprehension, there is no assurance that
the project will ever be completed. 58
18
In order that the debtor may be in default it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance because it must appear that the
tolerance or benevolence of the creditor must have ended. 59
As stated earlier, SOB cannot yet demand complete performance from VPECI because it has
not yet itself performed its obligation in a proper manner, particularly the payment of the 75% of
the cost of the Project in US Dollars. The VPECI cannot yet be said to have incurred in delay.
effects of that delay ceased upon the renunciation by the creditor, SOB, which could be implied
when the latter granted several extensions of time to the former. 60 Besides, no demand has yet
been made by SOB against the respondent contractor. Demand is generally necessary even if a
period has been fixed in the obligation. And default generally begins from the moment the
creditor demands judicially or extra-judicially the performance of the obligation. Without such
demand, the effects of default will not arise.61
Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be
compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted
and all legal remedies against the said debtor have been resorted to by the creditor.62 It could
also set up compensation as regards what the creditor SOB may owe the principal debtor
VPECI.63 In this case, however, the petitioner has clearly waived these rights and remedies by
making the payment of an obligation that was yet to be shown to be rightfully due the creditor
and demandable of the principal debtor.
As found by the Court of Appeals, the petitioner fully knew that the joint venture contractor had
collectibles from SOB which could be set off with the amount covered by the performance
guarantee. In February 1987, the OMEAA transmitted to the petitioner a copy of a telex dated 10
February 1987 of the Philippine Ambassador in Baghdad, Iraq, informing it of the note verbale
sent by the Iraqi Ministry of Foreign Affairs stating that the past due obligations of the joint
venture contractor from the petitioner would "be deducted from the dues of the two
contractors."64
Also, in the project situationer attached to the letter to the OMEAA dated 26 March 1987, the
petitioner raised as among the arguments to be presented in support of the cancellation of the
counter-guarantee the fact that the amount of ID281,414/066 retained by SOB from the Project
was more than enough to cover the counter-guarantee of ID271,808/610; thus:
6.1 Present the following arguments in cancelling the counterguarantee:
· The Iraqi Government does not have the foreign exchange to fulfill its contractual obligations of
paying 75% of progress billings in US dollars.
…
· It could also be argued that the amount of ID281,414/066 retained by SOB from the proposed
project is more than the amount of the outstanding counterguarantee.65
In a nutshell, since the petitioner was aware of the contractor's outstanding receivables from
SOB, it should have set up compensation as was proposed in its project situationer.
Moreover, the petitioner was very much aware of the predicament of the respondents. In fact, in
its 13 May 1987 letter to the OMEAA, DFA, Manila, it stated:
VPECI also maintains that the delay in the completion of the project was mainly due to SOB's
violation of contract terms and as such, call on the guarantee has no basis.
While PHILGUARANTEE is prepared to honor its commitment under the guarantee,
PHILGUARANTEE does not want to be an instrument in any case of inequity committed against

a Filipino contractor. It is for this reason that we are constrained to seek your assistance not only
in ascertaining the veracity of Al Ahli Bank's claim that it has paid Rafidain Bank but possibly
averting such an event. As any payment effected by the banks will complicate matters, we
cannot help underscore the urgency of VPECI's bid for government intervention for the amicable
termination of the contract and release of the performance guarantee. 66
But surprisingly, though fully cognizant of SOB's violations of the service contract and VPECI's
outstanding receivables from SOB, as well as the situation obtaining in the Project site
compounded by the Iran-Iraq war, the petitioner opted to pay the second layer guarantor not
only the full amount of the performance bond counter-guarantee but also interests and penalty
charges.
This brings us to the next question: May the petitioner as a guarantor secure reimbursement
from the respondents for what it has paid under Letter of Guarantee No. 81-194-F?
As a rule, a guarantor who pays for a debtor should be indemnified by the latter67 and would be
legally subrogated to the rights which the creditor has against the debtor.68 However, a person
who makes payment without the knowledge or against the will of the debtor has the right to
recover only insofar as the payment has been beneficial to the debtor.69 If the obligation was
subject to defenses on the part of the debtor, the same defenses which could have been set up
against the creditor can be set up against the paying guarantor.70
From the findings of the Court of Appeals and the trial court, it is clear that the payment made by
the petitioner guarantor did not in any way benefit the principal debtor, given the project status
and the conditions obtaining at the Project site at that time. Moreover, the respondent contractor
was found to have valid defenses against SOB, which are fully supported by evidence and which
have been meritoriously set up against the paying guarantor, the petitioner in this case. And
even if the deed of undertaking and the surety bond secured petitioner's guaranty, the petitioner
is precluded from enforcing the same by reason of the petitioner's undue payment on the
guaranty. Rights under the deed of undertaking and the surety bond do not arise because these
contracts depend on the validity of the enforcement of the guaranty.
The petitioner guarantor should have waited for the natural course of guaranty: the debtor
VPECI should have, in the first place, defaulted in its obligation and that the creditor SOB should
have first made a demand from the principal debtor. It is only when the debtor does not or
cannot pay, in whole or in part, that the guarantor should pay.71 When the petitioner guarantor
in this case paid against the will of the debtor VPECI, the debtor VPECI may set up against it
defenses available against the creditor SOB at the time of payment. This is the hard lesson that
the petitioner must learn.
As the government arm in pursuing its objective of providing "the necessary support and
assistance in order to enable … [Filipino exporters and contractors to operate viably under the
prevailing economic and business conditions,"72 the petitioner should have exercised prudence
and caution under the circumstances. As aptly put by the Court of Appeals, it would be the
height of inequity to allow the petitioner to pass on its losses to the Filipino contractor VPECI
which had sternly warned against paying the Al Ahli Bank and constantly apprised it of the
developments in the Project implementation.
WHEREFORE, the petition for review on certiorari is hereby DENIED for lack of merit, and the
decision of the Court of appeals in CA-G.R. CV No. 39302 is AFFIRMED.
No pronouncement as to costs.
SO ORDERED.
Panganiban, Ynares-Santiago, Carpio, and Azcuna, JJ., concur.
19
G.R. No. 101538. June 23, 1992.*
AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian,
Augusto Benedicto Santos, petitioner, vs. NORTHWEST ORIENT AIRLINES and COURT
OF APPEALS, respondents.
Constitutional Law; Requisites for judicial inquiry into constitutionality of a law or treaty.—.It is
well-settled that courts will assume jurisdiction over a constitutional question only if it is shown
that the essential requisites of a judicial inquiry into such a question are first satisfied. Thus,
there must be an actual case or controversy involving a conflict of legal rights susceptible of
judicial determination; the constitutional question must have been opportunely raised by the
proper party; and the resolution of the question is unavoidably necessary to the decision of the
case itself.
Same; International Law; Doctrine of rebus sic stantibus does not operate automatically; Formal
government act of rejection necessary.—But the more important consideration is that the treaty
has not been rejected by the Philippine government. The doctrine of rebus sic stantibus does not
operate automatically to render the treaty inoperative. There is a necessity for a formal act of
rejection, usually made by the head of State, with a statement of the reasons why compliance
with the treaty is no longer required.
Same; Same; Actions; Jurisdiction; Right to court access applies only where court has
jurisdiction.—Obviously, the constitutional guaranty of access to courts refers only to courts with
appropriate jurisdiction as defined by law. It does not mean that a person can go to any court for
redress of his grievances regardless of the nature or value of his claim. If the petitioner is barred
from filing his complaint before our courts, it is because they are not vested with the appropriate
jurisdiction under the Warsaw Convention, which is part of the law of our land.
Same; Same; Sec. 28(1) of Warsaw Convention on Air Travel, re: where to file suit, is a matter
of jurisdiction, not venue.—A number of reasons tends to support the characterization of Article
28(1) as a jurisdiction and not a venue provision. First, the wording of Article 32, which indicates
the places where the action for damages “must” be brought, underscores the mandatory nature
of Article 28(1). Second, this characterization is consistent with one of the objectives of the
Convention, which is to “regulate in a uniform manner the conditions of international
transportation by air.” Third, the Convention does not contain any provision prescribing rules of
jurisdiction other than Article 28(1), which means that the phrase “rules as to jurisdiction” used in
Article 32 must refer only to Article 28(1). In fact, the last sentence of Article 32 specifically deals
with the exclusive enumeration in Article 28(1) as “jurisdictions,” which, as such cannot be left to
the will of the parties regardless of the time when the damage occurred.
Same; Same; Common Carriers; Jurisdiction; It is the passenger’s “ultimate destination,” not “an
agreed stopping place” that determines the country where suit against international carrier is to
be filed.—The place of destination, within the meaning of the Warsaw Convention, is determined
by the terms of the contract of carriage or, specifically in this case, the ticket between the
passenger and the carrier. Examination of the petitioner’s ticket shows that his ultimate
destination is San Francisco. Although the date of the return flight was left open, the contract of
carriage between the parties indicates that NOA was bound to transport the petitioner to San
Francisco from Manila. Manila should therefore be considered merely an agreed stopping place
and not the destination.
Same; Same; Same; Same.—The contract is a single undivided operation, beginning with the
place of departure and ending with the ultimate destination. The use of the singular in this
expression indicates the understanding of the parties to the Convention that every contract of
carriage has one place of departure and one place of destination. An intermediate place where
the carriage may be broken is not regarded as a “place of destination.”

Same; Same; Same; Words and Phrases; “Domicile” as used in the Warsaw Convention on Air
Travel not to be confined to its French meaning simply because it was written in French.—In
arriving at an interpretation of a treaty whose sole official language is French, are we bound to
apply French law? xxx We think this question and the underlying choice of law issue warrant
some discussion. xxx We do not think this statement can be regarded as a conclusion that
internal French law is to be “applied” in the choice of law sense, to determine the meaning and
scope of the Convention’s terms. Of course, French legal usage must be considered in arriving
at an accurate English translation of the French. But when an accurate English translation is
made and agreed upon, as here, the inquiry into meaning does not then revert to a quest for a
past or present French law to be “applied” for revelation of the proper scope of the terms. It does
not follow from the fact that the treaty is written in French that in interpreting it, we are forever
chained to French law, either as it existed when the treaty was written or in its present state of
development. There is no suggestion in the treaty that French law was intended to govern the
meaning of Warsaw’s terms, nor have we found any indication to this effect in its legislative
history or from our study of its application and interpretation by other courts. Indeed, analysis of
the cases indicates that the courts, in interpreting and applying the Warsaw Convention, have
not considered themselves bound to apply French law simply because the Convention is written
in French.
International Law; Common Carriers; Torts; Allegation of Tort against international carrier does
not exclude action from Warsaw Convention provision.—Presumably, the reason for the use of
the phrase “however founded,” is two-fold: to accommodate all of the multifarious bases on
which a claim might be founded in different countries, whether under code law or common law,
whether under contract or tort, etc.; and to include all bases on which a claim seeking relief for
an injury might be founded in any one country. In other words, if the injury occurs as described in
Article 17, any relief available is subject to the conditions and limitations established by the
Warsaw System, regardless of the particular cause of action which forms the basis on which a
plaintiff could seek relief.
Same; Same; Same; Same.—The private respondent correctly contends that the allegation of
willful misconduct resulting in a tort is insufficient to exclude the case from the comprehension of
the Warsaw Convention. Santos III vs. Northwest Orient Airlines, 210 SCRA 256, G.R. No.
101538 June 23, 1992
CRUZ, J.:
This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention, reading
as follows:
Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in the
territory of one of the High Contracting Parties, either before the court of the domicile of the
carrier or of his principal place of business, or where he has a place of business through which
the contract has been made, or before the court at the place of destination.
The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient
Airlines (NOA) is a foreign corporation with principal office in Minnesota, U.S.A. and licensed to
do business and maintain a branch office in the Philippines.
On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco.
U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The scheduled departure
date from Tokyo was December 20, 1986. No date was specified for his return to San Francisco.
1 and, as such, has the force and effect of law in this country.
On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco
airport for his scheduled departure to Manila. Despite a previous confirmation and re-
confirmation, he was informed that he had no reservation for his flight from Tokyo to Manila. He
therefore had to be wait-listed.
20
On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of Makati.
On April 13, 1987, NOA moved to dismiss the complaint on the ground of lack of jurisdiction.
Citing the above-quoted article, it contended that the complaint could be instituted only in the
territory of one of the High Contracting Parties, before:
1. the court of the domicile of the carrier;
2. the court of its principal place of business;
3. the court where it has a place of business through which the contract had been made;
4. the court of the place of destination.
The private respondent contended that the Philippines was not its domicile nor was this its
principal place of business. Neither was the petitioner's ticket issued in this country nor was his
destination Manila but San Francisco in the United States.
On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The
petitioner appealed to the Court of Appeals, which affirmed the decision of the lower court. 3 On
June 26, 1991, the petitioner filed a motion for reconsideration, but the same was denied. 4 The
petitioner then came to this Court, raising substantially the same issues it submitted in the Court
of Appeals.
The assignment of errors may be grouped into two major issues, viz:
(1) the constitutionality of Article 28(1) of the Warsaw Convention; and
(2) the jurisdiction of Philippine courts over the case.
The petitioner also invokes Article 24 of the Civil Code on the protection of minors.
I
THE ISSUE OF CONSTITUTIONALITY
A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the
Warsaw Convention violates the constitutional guarantees of due process and equal protection.
The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules
Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It
took effect on February 13, 1933. The Convention was concurred in by the Senate, through its
Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950, and was deposited with the Polish government
on November 9, 1950. The Convention became applicable to the Philippines on February 9,
1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201,
declaring our formal adherence thereto. "to the end that the same and every article and clause
thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the
citizens thereof." 5
The Convention is thus a treaty commitment voluntarily assumed by the Philippine government
The petitioner contends that Article 28(1) cannot be applied in the present case because it is
unconstitutional. He argues that there is no substantial distinction between a person who
purchases a ticket in Manila and a person who purchases his ticket in San Francisco. The

classification of the places in which actions for damages may be brought is arbitrary and
irrational and thus violates the due process and equal protection clauses.
It is well-settled that courts will assume jurisdiction over a constitutional question only if it is
shown that the essential requisites of a judicial inquiry into such a question are first satisfied.
Thus, there must be an actual case or controversy involving a conflict of legal rights susceptible
of judicial determination; the constitutional question must have been opportunely raised by the
proper party; and the resolution of the question is unavoidably necessary to the decision of the
case itself. 6
Courts generally avoid having to decide a constitutional question. This attitude is based on the
doctrine of separation of powers, which enjoins upon the departments of the government a
becoming respect for each other's acts.
The treaty which is the subject matter of this petition was a joint legislative-executive act. The
presumption is that it was first carefully studied and determined to be constitutional before it was
adopted and given the force of law in this country.
The petitioner's allegations are not convincing enough to overcome this presumption.
Apparently, the Convention considered the four places designated in Article 28 the most
convenient forums for the litigation of any claim that may arise between the airline and its
passenger, as distinguished from all other places. At any rate, we agree with the respondent
court that this case can be decided on other grounds without the necessity of resolving the
constitutional issue.
B. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the
Warsaw Convention is inapplicable because of a fundamental change in the circumstances that
served as its basis.
The petitioner goes at great lengths to show that the provisions in the Convention were intended
to protect airline companies under "the conditions prevailing then and which have long ceased to
exist." He argues that in view of the significant developments in the airline industry through the
years, the treaty has become irrelevant. Hence, to the extent that it has lost its basis for
approval, it has become unconstitutional.
The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this doctrine
constitutes an attempt to formulate a legal principle which would justify non-performance of a
treaty obligation if the conditions with relation to which the parties contracted have changed so
materially and so unexpectedly as to create a situation in which the exaction of performance
would be unreasonable." 7 The key element of this doctrine is the vital change in the condition of
the contracting parties that they could not have foreseen at the time the treaty was concluded.
The Court notes in this connection the following observation made in Day v. Trans World
Airlines, Inc.: 8
The Warsaw drafters wished to create a system of liability rules that would cover all the hazards
of air travel . . . The Warsaw delegates knew that, in the years to come, civil aviation would
change in ways that they could not foresee. They wished to design a system of air law that
would be both durable and flexible enough to keep pace with these changes . . . The ever-
changing needs of the system of civil aviation can be served within the framework they created.
It is true that at the time the Warsaw Convention was drafted, the airline industry was still in its
infancy. However, that circumstance alone is not sufficient justification for the rejection of the
treaty at this time. The changes recited by the petitioner were, realistically, not entirely
unforeseen although they were expected in a general sense only. In fact, the Convention itself,
anticipating such developments, contains the following significant provision:
21
Article 41. Any High Contracting Party shall be entitled not earlier than two years after the coming
into force of this convention to call for the assembling of a new international conference in order
to consider any improvements which may be made in this convention. To this end, it will
communicate with the Government of the French Republic which will take the necessary
measures to make preparations for such conference.
But the more important consideration is that the treaty has not been rejected by the Philippine
government. The doctrine of rebus sic stantibus does not operate automatically to render the
treaty inoperative. There is a necessity for a formal act of rejection, usually made by the head of
State, with a statement of the reasons why compliance with the treaty is no longer required.
In lieu thereof, the treaty may be denounced even without an expressed justification for this
action. Such denunciation is authorized under its Article 39, viz:
Article 39. (1) Any one of the High Contracting Parties may denounce this convention by a
notification addressed to the Government of the Republic of Poland, which shall at once inform
the Government of each of the High Contracting Parties.
(2) Denunciation shall take effect six months after the notification of denunciation, and
shall operate only as regards the party which shall have proceeded to denunciation.
Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or pursuant to
Article 39, is not a function of the courts but of the other branches of government. This is a
political act. The conclusion and renunciation of treaties is the prerogative of the political
departments and may not be usurped by the judiciary. The courts are concerned only with the
interpretation and application of laws and treaties in force and not with their wisdom or efficacy.
C. The petitioner claims that the lower court erred in ruling that the plaintiff must sue in
the United States, because this would deny him the right to access to our courts.
The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the United
States would constitute a constructive denial of his right to access to our courts for the protection
of his rights. He would consequently be deprived of this vital guaranty as embodied in the Bill of
Rights.
Obviously, the constitutional guaranty of access to courts refers only to courts with appropriate
jurisdiction as defined by law. It does not mean that a person can go to any court for redress of
his grievances regardless of the nature or value of his claim. If the petitioner is barred from filing
his complaint before our courts, it is because they are not vested with the appropriate jurisdiction
under the Warsaw Convention, which is part of the law of our land.
II
THE ISSUE OF JURISDICTION.
A. The petitioner claims that the lower court erred in not ruling that Article 28(1) of the
Warsaw Convention is a rule merely of venue and was waived by defendant when it did not
move to dismiss on the ground of improper venue.
By its own terms, the Convention applies to all international transportation of persons performed
by aircraft for hire.
International transportation is defined in paragraph (2) of Article 1 as follows:
(2) For the purposes of this convention, the expression "international transportation" shall
mean any transportation in which, according to the contract made by the parties, the place of

departure and the place of destination, whether or not there be a break in the transportation or a
transshipment, are situated [either] within the territories of two High Contracting Parties . . .
Whether the transportation is "international" is determined by the contract of the parties, which in
the case of passengers is the ticket. When the contract of carriage provides for the
transportation of the passenger between certain designated terminals "within the territories of
two High Contracting Parties," the provisions of the Convention automatically apply and
exclusively govern the rights and liabilities of the airline and its passenger.
Since the flight involved in the case at bar is international, the same being from the United
States to the Philippines and back to the United States, it is subject to the provisions of the
Warsaw Convention, including Article 28(1), which enumerates the four places where an action
for damages may be brought.
Whether Article 28(1) refers to jurisdiction or only to venue is a question over which authorities
are sharply divided. While the petitioner cites several cases holding that Article 28(1) refers to
venue rather than jurisdiction, 9 there are later cases cited by the private respondent supporting
the conclusion that the provision is jurisdictional. 10
Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent
or waiver upon d court which otherwise would have no jurisdiction over the subject-matter of an
action; but the venue of an action as fixed by statute may be changed by the consent of the
parties and an objection that the plaintiff brought his suit in the wrong county may be waived by
the failure of the defendant to make a timely objection. In either case, the court may render a
valid judgment. Rules as to jurisdiction can never be left to the consent or agreement of the
parties, whether or not a prohibition exists against their alteration. 11
A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and
not a venue provision. First, the wording of Article 32, which indicates the places where the
action for damages "must" be brought, underscores the mandatory nature of Article 28(1).
Second, this characterization is consistent with one of the objectives of the Convention, which is
to "regulate in a uniform manner the conditions of international transportation by air." Third, the
Convention does not contain any provision prescribing rules of jurisdiction other than Article
28(1), which means that the phrase "rules as to jurisdiction" used in Article 32 must refer only to
Article 28(1). In fact, the last sentence of Article 32 specifically deals with the exclusive
enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the will of the
parties regardless of the time when the damage occurred.
This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways, Ltd., 12
where it was held:
. . . Of more, but still incomplete, assistance is the wording of Article 28(2), especially when
considered in the light of Article 32. Article 28(2) provides that "questions of procedure shall be
governed by the law of the court to which the case is submitted" (Emphasis supplied). Section
(2) thus may be read to leave for domestic decision questions regarding the suitability and
location of a particular Warsaw Convention case.
In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a
dual concept. Jurisdiction in the international sense must be established in accordance with
Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular court must
be established pursuant to the applicable domestic law. Only after the question of which court
has jurisdiction is determined will the issue of venue be taken up. This second question shall be
governed by the law of the court to which the case is submitted.
The petitioner submits that since Article 32 states that the parties are precluded "before the
damages occurred" from amending the rules of Article 28(1) as to the place where the action
22
may be brought, it would follow that the Warsaw Convention was not intended to preclude them
from doing so "after the damages occurred."
Article 32 provides:
Art. 32. Any clause contained in the contract and all special agreements entered into before
the damage occurred by which the parties purport to infringe the rules laid down by this
convention, whether by deciding the law to be applied, or by altering the rules as to jurisdiction,
shall be null and void. Nevertheless for the transportation of goods, arbitration clauses shall be
allowed, subject to this convention, if the arbitration is to take place within one of the jurisdictions
referred to in the first paragraph of Article 28.
His point is that since the requirements of Article 28(1) can be waived "after the damages (shall
have) occurred," the article should be regarded as possessing the character of a "venue" and
not of a "jurisdiction" provision. Hence, in moving to dismiss on the ground of lack of jurisdiction,
the private respondent has waived improper venue as a ground to dismiss.
The foregoing examination of Article 28(1) in relation to Article 32 does not support this
conclusion. In any event, we agree that even granting arguendo that Article 28(1) is a venue and
not a jurisdictional provision, dismissal of the case was still in order. The respondent court was
correct in affirming the ruling of the trial court on this matter, thus:
Santos' claim that NOA waived venue as a ground of its motion to dismiss is not correct. True it
is that NOA averred in its MOTION TO DISMISS that the ground thereof is "the Court has no
subject matter jurisdiction to entertain the Complaint" which SANTOS considers as equivalent to
"lack of jurisdiction over the subject matter . . ." However, the gist of NOA's argument in its
motion is that the Philippines is not the proper place where SANTOS could file the action —
meaning that the venue of the action is improperly laid. Even assuming then that the specified
ground of the motion is erroneous, the fact is the proper ground of the motion — improper venue
— has been discussed therein.
Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-waiver if
there are special circumstances justifying this conclusion, as in the petition at bar. As we
observed in Javier vs. Intermediate Court of Appeals: 13
Legally, of course, the lack of proper venue was deemed waived by the petitioners when they
failed to invoke it in their original motion to dismiss. Even so, the motivation of the private
respondent should have been taken into account by both the trial judge and the respondent
court in arriving at their decisions.
The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of
Appeals, where it was held that Article 28(1) is a venue provision. However, the private
respondent avers that this was in effect reversed by the case of Aranas v. United Airlines, 15
where the same court held that Article 28(1) is a jurisdictional provision. Neither of these cases
is binding on this Court, of course, nor was either of them appealed to us. Nevertheless, we here
express our own preference for the later case of Aranas insofar as its pronouncements on
jurisdiction conform to the judgment we now make in this petition.
B. The petitioner claims that the lower court erred in not ruling that under Article 28(1) of
the Warsaw Convention, this case was properly filed in the Philippines, because Manila was the
destination of the plaintiff.
The Petitioner contends that the facts of this case are analogous to those in Aanestad v. Air
Canada. 16 In that case, Mrs. Silverberg purchased a round-trip ticket from Montreal to Los
Angeles and back to Montreal. The date and time of departure were specified but not of the
return flight. The plane crashed while on route from Montreal to Los Angeles, killing Mrs.
Silverberg. Her administratrix filed an action for damages against Air Canada in the U.S. District

Court of California. The defendant moved to dismiss for lack of jurisdiction but the motion was
denied thus:
. . . It is evident that the contract entered into between Air Canada and Mrs. Silverberg as
evidenced by the ticket booklets and the Flight Coupon No. 1, was a contract for Air Canada to
carry Mrs. Silverberg to Los Angeles on a certain flight, a certain time and a certain class, but
that the time for her to return remained completely in her power. Coupon No. 2 was only a
continuing offer by Air Canada to give her a ticket to return to Montreal between certain dates. . .
. is not regarded as a "place of destination."
The only conclusion that can be reached then, is that "the place of destination" as used in the
Warsaw Convention is considered by both the Canadian C.T.C. and the United States C.A.B. to
describe at least two "places of destination," viz., the "place of destination" of a particular flight
either an "outward destination" from the "point of origin" or from the "outward point of
destination" to any place in Canada.
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention of the flight on
which Mrs. Silverberg was killed, was Los Angeles according to the ticket, which was the
contract between the parties and the suit is properly filed in this Court which has jurisdiction.
The Petitioner avers that the present case falls squarely under the above ruling because the
date and time of his return flight to San Francisco were, as in the Aanestad case, also left open.
Consequently, Manila and not San Francisco should be considered the petitioner's destination.
The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where the
United States District Court (Eastern District of Pennsylvania) said:
. . . Although the authorities which addressed this precise issue are not extensive, both the
cases and the commentators are almost unanimous in concluding that the "place of destination"
referred to in the Warsaw Convention "in a trip consisting of several parts . . . is the ultimate
destination that is accorded treaty jurisdiction." . . .
But apart from that distinguishing feature, I cannot agree with the Court's analysis in Aanestad;
whether the return portion of the ticket is characterized as an option or a contract, the carrier
was legally bound to transport the passenger back to the place of origin within the prescribed
time and. the passenger for her part agreed to pay the fare and, in fact, did pay the fare. Thus
there was mutuality of obligation and a binding contract of carriage, The fact that the passenger
could forego her rights under the contract does not make it any less a binding contract.
Certainly, if the parties did not contemplate the return leg of the journey, the passenger would
not have paid for it and the carrier would not have issued a round trip ticket.
We agree with the latter case. The place of destination, within the meaning of the Warsaw
Convention, is determined by the terms of the contract of carriage or, specifically in this case,
the ticket between the passenger and the carrier. Examination of the petitioner's ticket shows
that his ultimate destination is San Francisco. Although the date of the return flight was left open,
the contract of carriage between the parties indicates that NOA was bound to transport the
petitioner to San Francisco from Manila. Manila should therefore be considered merely an
agreed stopping place and not the destination.
The petitioner submits that the Butz case could not have overruled the Aanestad case because
these decisions are from different jurisdictions. But that is neither here nor there. In fact, neither
of these cases is controlling on this Court. If we have preferred the Butz case, it is because,
exercising our own freedom of choice, we have decided that it represents the better, and correct,
interpretation of Article 28(1).
23
Article 1(2) also draws a distinction between a "destination" and an "agreed stopping place." It is
the "destination" and not an "agreed stopping place" that controls for purposes of ascertaining
jurisdiction under the Convention.
The contract is a single undivided operation, beginning with the place of departure and ending
with the ultimate destination. The use of the singular in this expression indicates the
understanding of the parties to the Convention that every contract of carriage has one place of
departure and one place of destination. An intermediate place where the carriage may be broken
C. The petitioner claims that the lower court erred in not ruling that under Art. 28(1) of the
Warsaw Convention, this case was properly filed in the Philippines because the defendant has
its domicile in the Philippines.
The petitioner argues that the Warsaw Convention was originally written in French and that in
interpreting its provisions, American courts have taken the broad view that the French legal
meaning must govern. 18 In French, he says, the "domicile" of the carrier means every place
where it has a branch office.
The private respondent notes, however, that in Compagnie Nationale Air France vs. Giliberto, 19
it was held:
The plaintiffs' first contention is that Air France is domiciled in the United States. They say that
the domicile of a corporation includes any country where the airline carries on its business on "a
regular and substantial basis," and that the United States qualifies under such definition. The
meaning of domicile cannot, however, be so extended. The domicile of a corporation is
customarily regarded as the place where it is incorporated, and the courts have given the
meaning to the term as it is used in article 28(1) of the Convention. (See Smith v. Canadian
Pacific Airways, Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v. Societe Anonyme Belge d'
Exploitation de la Navigation Aerienne Sabena Belgian World Airlines (E.D. pa. 1962). 207 F.
Supp, 191; Karfunkel v. Compagnie Nationale Air France (S.D.N.Y. 1977), 427 F. Suppl. 971,
974). Moreover, the structure of article 28(1), viewed as a whole, is also incompatible with the
plaintiffs' claim. The article, in stating that places of business are among the bases of the
jurisdiction, sets out two places where an action for damages may be brought; the country where
the carrier's principal place of business is located, and the country in which it has a place of
business through which the particular contract in question was made, that is, where the ticket
was bought, Adopting the plaintiffs' theory would at a minimum blur these carefully drawn
distinctions by creating a third intermediate category. It would obviously introduce uncertainty
into litigation under the article because of the necessity of having to determine, and without
standards or criteria, whether the amount of business done by a carrier in a particular country
was "regular" and "substantial." The plaintiff's request to adopt this basis of jurisdiction is in
effect a request to create a new jurisdictional standard for the Convention.
Furthermore, it was argued in another case 20 that:
. . . In arriving at an interpretation of a treaty whose sole official language is French, are we
bound to apply French law? . . . We think this question and the underlying choice of law issue
warrant some discussion
. . . We do not think this statement can be regarded as a conclusion that internal French law is to
be "applied" in the choice of law sense, to determine the meaning and scope of the Convention's
terms. Of course, French legal usage must be considered in arriving at an accurate English
translation of the French. But when an accurate English translation is made and agreed upon, as
here, the inquiry into meaning does not then revert to a quest for a past or present French law to
be "applied" for revelation of the proper scope of the terms. It does not follow from the fact that
the treaty is written in French that in interpreting it, we are forever chained to French law, either
as it existed when the treaty was written or in its present state of development. There is no
suggestion in the treaty that French law was intended to govern the meaning of Warsaw's terms,

nor have we found any indication to this effect in its legislative history or from our study of its
application and interpretation by other courts. Indeed, analysis of the cases indicates that the
courts, in interpreting and applying the Warsaw Convention, have, not considered themselves
bound to apply French law simply because the Convention is written in French. . . .
We agree with these rulings.
Notably, the domicile of the carrier is only one of the places where the complaint is allowed to be
filed under Article 28(1). By specifying the three other places, to wit, the principal place of
business of the carrier, its place of business where the contract was made, and the place of
destination, the article clearly meant that these three other places were not comprehended in the
term "domicile."
D. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of the
Warsaw Convention does not apply to actions based on tort.
The petitioner alleges that the gravamen of the complaint is that private respondent acted
arbitrarily and in bad faith, discriminated against the petitioner, and committed a willful
misconduct because it canceled his confirmed reservation and gave his reserved seat to
someone who had no better right to it. In short. the private respondent committed a tort.
Such allegation, he submits, removes the present case from the coverage of the Warsaw
Convention. He argues that in at least two American cases, 21 it was held that Article 28(1) of
the Warsaw Convention does not apply if the action is based on tort.
This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article in
question was interpreted thus:
. . . Assuming for the present that plaintiff's claim is "covered" by Article 17, Article 24 clearly
excludes any relief not provided for in the Convention as modified by the Montreal Agreement. It
does not, however, limit the kind of cause of action on which the relief may be founded; rather it
provides that any action based on the injuries specified in Article 17 "however founded," i.e.,
regardless of the type of action on which relief is founded, can only be brought subject to the
conditions and limitations established by the Warsaw System. Presumably, the reason for the
use of the phrase "however founded," in two-fold: to accommodate all of the multifarious bases
on which a claim might be founded in different countries, whether under code law or common
law, whether under contract or tort, etc.; and to include all bases on which a claim seeking relief
for an injury might be founded in any one country. In other words, if the injury occurs as
described in Article 17, any relief available is subject to the conditions and limitations established
by the Warsaw System, regardless of the particular cause of action which forms the basis on
which a plaintiff could seek
relief . . .
The private respondent correctly contends that the allegation of willful misconduct resulting in a
tort is insufficient to exclude the case from the comprehension of the Warsaw Convention. The
petitioner has apparently misconstrued the import of Article 25(l) of the Convention, which reads
as follows:
Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions of this
Convention which exclude or limit his liability. if the damage is caused by his willful misconduct
or by such default on his part as, in accordance with the law of the court to which the case is
submitted, is considered to be equivalent to willful misconduct.
It is understood under this article that the court called upon to determine the applicability of the
limitation provision must first be vested with the appropriate jurisdiction. Article 28(1) is the
provision in the Convention which defines that jurisdiction. Article 22 23 merely fixes the
monetary ceiling for the liability of the carrier in cases covered by the Convention. If the carrier is
24
indeed guilty of willful misconduct, it can avail itself of the limitations set forth in this article. But
this can be done only if the action has first been commenced properly under the rules on
jurisdiction set forth in Article 28(1).
III
THE ISSUE OF PROTECTION TO MINORS
The petitioner calls our attention to Article 24 of the Civil Code, which states:
Art. 24. In all contractual property or other relations, when one of the parties is at a
disadvantage on account of his moral dependence, ignorance, indigence, mental weakness,
tender age or other handicap, the courts must be vigilant for his protection.
Application of this article to the present case is misplaced. The above provision assumes that
the court is vested with jurisdiction to rule in favor of the disadvantaged minor, As already
explained, such jurisdiction is absent in the case at bar.
CONCLUSION
A number of countries have signified their concern over the problem of citizens being denied
access to their own courts because of the restrictive provision of Article 28(1) of the Warsaw
Convention. Among these is the United States, which has proposed an amendment that would
enable the passenger to sue in his own domicile if the carrier does business in that jurisdiction.
The reason for this proposal is explained thus:
In the event a US citizen temporarily residing abroad purchases a Rome to New York to Rome
ticket on a foreign air carrier which is generally subject to the jurisdiction of the US, Article 28
would prevent that person from suing the carrier in the US in a "Warsaw Case" even though
such a suit could be brought in the absence of the Convention.
The proposal was incorporated in the Guatemala Protocol amending the Warsaw Convention,
which was adopted at Guatemala City on March 8,
1971. 24 But it is still ineffective because it has not yet been ratified by the required minimum
number of contracting parties. Pending such ratification, the petitioner will still have to file his
complaint only in any of the four places designated by Article 28(1) of the Warsaw Convention.
The proposed amendment bolsters the ruling of this Court that a citizen does not necessarily
have the right to sue in his own courts simply because the defendant airline has a place of
business in his country.
The Court can only sympathize with the petitioner, who must prosecute his claims in the United
States rather than in his own country at least inconvenience. But we are unable to grant him the
relief he seeks because we are limited by the provisions of the Warsaw Convention which
continues to bind us. It may not be amiss to observe at this point that the mere fact that he will
have to litigate in the American courts does not necessarily mean he will litigate in vain. The
judicial system of that country in known for its sense of fairness and, generally, its strict
adherence to the rule of law.
WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.
Narvasa, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea,
Regalado, Davide, Jr., Romero, Nocon and Bellosillo, JJ., concur.