Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

120135 March 31, 2003

BANK OF AMERICA NT & SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners, vs. COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA, JR., respondents. AUSTRIA-MARTINEZ, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the November 29, 1994 decision of the Court of Appeals1 and the April 28, 1995 resolution denying petitioners' motion for reconsideration. The factual background of the case is as follows: On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a Complaint2before the Regional Trial Court of Pasig against the Bank of America NT&SA and Bank of America International, Ltd. (defendant banks for brevity) alleging that: they were engaged in the shipping business; they owned two vessels: Don Aurelio and El Champion, through their wholly-owned corporations; they deposited their revenues from said business together with other funds with the branches of said banks in the United Kingdom and Hongkong up to 1979; with their business doing well, the defendant banks induced them to increase the number of their ships in operation, offering them easy loans to acquire said vessels;3 thereafter, the defendant banks acquired, through their (Litonjuas') corporations as the borrowers: (a) El Carrier4; (b) El General5; (c) El Challenger6; and (d) El Conqueror7; the vessels were registered in the names of their corporations; the operation and the funds derived therefrom were placed under the complete and exclusive control and disposition of the petitioners;8 and the possession the vessels was also placed by defendant banks in the hands of persons selected and designated by them (defendant banks).9 The Litonjuas claimed that defendant banks as trustees did not fully render an account of all the income derived from the operation of the vessels as well as of the proceeds of the subsequent foreclosure sale;10 because of the breach of their fiduciary duties and/or negligence of the petitioners and/or the persons designated by them in the operation of private respondents' six vessels, the revenues derived from the operation of all the vessels declined drastically; the loans acquired for the purchase of the four additional vessels then matured and remained unpaid, prompting defendant banks to have all the six vessels, including the two vessels originally owned by the private respondents, foreclosed and sold at public auction to answer for the obligations incurred for and in behalf of the operation of the vessels; they (Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten percent (10%) of the acquisition cost of the four vessels and were left with the unpaid balance of their loans with defendant banks.11 The Litonjuas prayed for the accounting of the revenues derived in the operation of the six vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners; damages for breach of trust; exemplary damages and attorney's fees. 12 Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of action against them.13 On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus: "WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby DENIED. The defendant is therefore, given a period of ten (10) days to file its Answer to the complaint. "SO ORDERED."14 Instead of filing an answer the defendant banks went to the Court of Appeals on a "Petition for Review on Certiorari"15 which was aptly treated by the appellate court as a petition for certiorari. They assailed the above-quoted order as well as the subsequent denial of their

Motion for Reconsideration.16 The appellate court dismissed the petition and denied petitioners' Motion for Reconsideration.17 Hence, herein petition anchored on the following grounds: "1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT THE SEPARATE PERSONALITIES OF THE PRIVATE RESPONDENTS (MERE STOCKHOLDERS) AND THE FOREIGNCORPORATIONS (THE REAL BORROWERS) CLEARLY SUPPORT, BEYOND ANY DOUBT, THE PROPOSITION THAT THE PRIVATE RESPONDENTS HAVE NO PERSONALITIES TO SUE. "2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE THE PRINCIPLE OFFORUM NON CONVENIENS IS NOT MANDATORY, THERE ARE, HOWEVER, SOME GUIDELINES TO FOLLOW IN DETERMINING WHETHER THE CHOICE OF FORUM SHOULD BE DISTURBED. UNDER THE CIRCUMSTANCES SURROUNDING THE INSTANT CASE, DISMISSAL OF THE COMPLAINT ON THE GROUND OF FORUM NONCONVENIENS IS MORE APPROPRIATE AND PROPER. "3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN THE PHILIPPINES. IN FACT, THE PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL BASIS FOR THE DISMISSAL OF THE COMPLAINT FILED BY THE PRIVATE RESPONDENT. COROLLARY TO THIS, THE RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT PRIVATE RESPONDENTS ARE GUILTY OF FORUM SHOPPING." 18 As to the first assigned error: Petitioners argue that the borrowers and the registered owners of the vessels are the foreign corporations and not private respondents Litonjuas who are mere stockholders; and that the revenues derived from the operations of all the vessels are deposited in the accounts of the corporations. Hence, petitioners maintain that these foreign corporations are the legal entities that have the personalities to sue and not herein private respondents; that private respondents, being mere shareholders, have no claim on the vessels as owners since they merely have an inchoate right to whatever may remain upon the dissolution of the said foreign corporations and after all creditors have been fully paid and satisfied; 19 and that while private respondents may have allegedly spent amounts equal to 10% of the acquisition costs of the vessels in question, their 10% however represents their investments as stockholders in the foreign corporations.20 Anent the second assigned error, petitioners posit that while the application of the principle of forum non conveniens is discretionary on the part of the Court, said discretion is limited by the guidelines pertaining to the private as well as public interest factors in determining whether plaintiffs' choice of forum should be disturbed, as elucidated in Gulf Oil Corp. vs. Gilbert21 and Piper Aircraft Co. vs. Reyno,22 to wit: "Private interest factors include: (a) the relative ease of access to sources of proof; (b) the availability of compulsory process for the attendance of unwilling witnesses; (c) the cost of obtaining attendance of willing witnesses; or (d) all other practical problems that make trial of a case easy, expeditious and inexpensive. Public interest factors include: (a) the administrative difficulties flowing from court congestion; (b) the local interest in having localized controversies decided at home; (c) the avoidance of unnecessary problems in conflict of laws or in the application of foreign law; or (d) the unfairness of burdening citizens in an unrelated forum with jury duty."23 In support of their claim that the local court is not the proper forum, petitioners allege the following: "i) The Bank of America Branches involved, as clearly mentioned in the Complaint, are based in Hongkong and England. As such, the evidence and the witnesses are not readily available in the Philippines; "ii) The loan transactions were obtained, perfected, performed, consummated and partially paid outside the Philippines; "iii) The monies were advanced outside the Philippines. Furthermore, the mortgaged vessels were part ofan offshore fleet, not based in the Philippines; "iv) All the loans involved were granted to the Private Respondents' foreign CORPORATIONS;

"v) The Restructuring Agreements were ALL governed by the laws of England; "vi) The subsequent sales of the mortgaged vessels and the application of the sales proceeds occurred and transpired outside the Philippines, and the deliveries of the sold mortgaged vessels were likewise made outside the Philippines; "vii) The revenues of the vessels and the proceeds of the sales of these vessels were ALL deposited to the Accounts of the foreign CORPORATIONS abroad; and "viii) Bank of America International Ltd. is not licensed nor engaged in trade or business in the Philippines."24 Petitioners argue further that the loan agreements, security documentation and all subsequent restructuring agreements uniformly, unconditionally and expressly provided that they will be governed by the laws of England;25 that Philippine Courts would then have to apply English law in resolving whatever issues may be presented to it in the event it recognizes and accepts herein case; that it would then be imposing a significant and unnecessary expense and burden not only upon the parties to the transaction but also to the local court. Petitioners insist that the inconvenience and difficulty of applying English law with respect to a wholly foreign transaction in a case pending in the Philippines may be avoided by its dismissal on the ground of forum non conveniens. 26 Finally, petitioners claim that private respondents have already waived their alleged causes of action in the case at bar for their refusal to contest the foreign civil cases earlier filed by the petitioners against them in Hongkong and England, to wit: "1.) Civil action in England in its High Court of Justice, Queen's Bench Division Commercial Court (1992-Folio No. 2098) against (a) LIBERIAN TRANSPORT NAVIGATION. SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL CHALLENGER SA; (d) ESPRIONA SHIPPING CO. SA; (e) PACIFIC NAVIGATOS CORP. SA; (f) EDDIE NAVIGATION CORP. SA; (g) EDUARDO K. LITONJUA & (h) AURELIO K. LITONJUA. "2.) Civil action in England in its High Court of Justice, Queen's Bench Division, Commercial Court (1992-Folio No. 2245) against (a) EL CHALLENGER S.A., (b) ESPRIONA SHIPPING COMPANY S.A., (c) EDUARDO KATIPUNAN LITONJUA and (d) AURELIO KATIPUNAN LITONJUA. "3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of 1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA, JR., and (h) EDUARDO KATIPUNAN LITONJUA. "4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of 1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e) EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN LITONJUA, RJ., and (h) EDUARDO KATIPUNAN LITONJUA." and that private respondents' alleged cause of action is already barred by the pendency of another action or bylitis pendentia as shown above.27 On the other hand, private respondents contend that certain material facts and pleadings are omitted and/or misrepresented in the present petition for certiorari; that the prefatory statement failed to state that part of the security of the foreign loans were mortgages on a 39hectare piece of real estate located in the Philippines; 28that while the complaint was filed only by the stockholders of the corporate borrowers, the latter are wholly-owned by the private respondents who are Filipinos and therefore under Philippine laws, aside from the said corporate borrowers being but their alter-egos, they have interests of their own in the vessels.29 Private respondents also argue that the dismissal by the Court of Appeals of the petition for certiorari was justified because there was neither allegation nor any showing whatsoever by the petitioners that they had no appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law from the Order of the trial judge denying their Motion to Dismiss; that the remedy available to the petitioners after their Motion to Dismiss was denied

was to file an Answer to the complaint;30 that as upheld by the Court of Appeals, the decision of the trial court in not applying the principle of forum non conveniens is in the lawful exercise of its discretion.31 Finally, private respondents aver that the statement of petitioners that the doctrine of res judicata also applies to foreign judgment is merely an opinion advanced by them and not based on a categorical ruling of this Court;32 and that herein private respondents did not actually participate in the proceedings in the foreign courts. 33 We deny the petition for lack of merit. It is a well-settled rule that the order denying the motion to dismiss cannot be the subject of petition for certiorari. Petitioners should have filed an answer to the complaint, proceed to trial and await judgment before making an appeal. As repeatedly held by this Court: "An order denying a motion to dismiss is interlocutory and cannot be the subject of the extraordinary petition for certiorari or mandamus. The remedy of the aggrieved party is to file an answer and to interpose as defenses the objections raised in his motion to dismiss, proceed to trial, and in case of an adverse decision, to elevate the entire case by appeal in due course. xxx Under certain situations, recourse tocertiorari or mandamus is considered appropriate, i.e., (a) when the trial court issued the order without or in excess of jurisdiction; (b) where there is patent grave abuse of discretion by the trial court; or (c) appeal would not prove to be a speedy and adequate remedy as when an appeal would not promptly relieve a defendant from the injurious effects of the patently mistaken order maintaining the plaintiff's baseless action and compelling the defendant needlessly to go through a protracted trial and clogging the court dockets by another futile case."34 Records show that the trial court acted within its jurisdiction when it issued the assailed Order denying petitioners' motion to dismiss. Does the denial of the motion to dismiss constitute a patent grave abuse of discretion? Would appeal, under the circumstances, not prove to be a speedy and adequate remedy? We will resolve said questions in conjunction with the issues raised by the parties. First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss the complaint on the ground that plaintiffs have no cause of action against defendants since plaintiffs are merely stockholders of the corporations which are the registered owners of the vessels and the borrowers of petitioners? No. Petitioners' argument that private respondents, being mere stockholders of the foreign corporations, have no personalities to sue, and therefore, the complaint should be dismissed, is untenable. A case is dismissible for lack of personality to sue upon proof that the plaintiff is not the real party-in-interest. Lack of personality to sue can be used as a ground for a Motion to Dismiss based on the fact that the complaint, on the face thereof, evidently states no cause of action.35 In San Lorenzo Village Association, Inc. vs. Court of Appeals, 36 this Court clarified that a complaint states a cause of action where it contains three essential elements of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or omission of the defendant in violation of said legal right. If these elements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.37 To emphasize, it is not the lack or absence of cause of action that is a ground for dismissal of the complaint but rather the fact that the complaint states no cause of action.38 "Failure to state a cause of action" refers to the insufficiency of allegation in the pleading, unlike "lack of cause of action" which refers to the insufficiency of factual basis for the action. "Failure to state a cause of action" may be raised at the earliest stages of an action through a motion to dismiss the complaint, while "lack of cause of action" may be raised any time after the questions of fact have been resolved on the basis of stipulations, admissions or evidence presented.39 In the case at bar, the complaint contains the three elements of a cause of action. It alleges that: (1) plaintiffs, herein private respondents, have the right to demand for an accounting from defendants (herein petitioners), as trustees by reason of the fiduciary relationship that was created between the parties involving the vessels in question; (2) petitioners have the obligation, as trustees, to render such an accounting; and (3) petitioners failed to do the same. Petitioners insist that they do not have any obligation to the private respondents as they are mere stockholders of the corporation; that the corporate entities have juridical personalities separate and distinct from those of the private respondents. Private respondents maintain that the corporations are wholly owned by them and prior to the incorporation of such entities, they

were clients of petitioners which induced them to acquire loans from said petitioners to invest on the additional ships. We agree with private respondents. As held in the San Lorenzo case, 40 "xxx assuming that the allegation of facts constituting plaintiffs' cause of action is not as clear and categorical as would otherwise be desired, any uncertainty thereby arising should be so resolved as to enable a full inquiry into the merits of the action." As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicity of suits which the law abhors, and conduce to the definitive determination and termination of the dispute. To do otherwise, that is, to abort the action on account of the alleged fatal flaws of the complaint would obviously be indecisive and would not end the controversy, since the institution of another action upon a revised complaint would not be foreclosed. 41 Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens? No. The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient', emerged in private international law to deter the practice of global forum shopping, 42 that is to prevent non-resident litigants from choosing the forum or place wherein to bring their suit for malicious reasons, such as to secure procedural advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to select a more friendly venue. Under this doctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere.43 Whether a suit should be entertained or dismissed on the basis of said doctrine depends largely upon the facts of the particular case and is addressed to the sound discretion of the trial court.44 In the case of Communication Materials and Design, Inc. vs. Court of Appeals,45 this Court held that "xxx [a Philippine Court may assume jurisdiction over the case if it chooses to do so; provided, that the following requisites are met: (1) that the Philippine Court is one to which the parties may conveniently resort to; (2) that the Philippine Court is in a position to make an intelligent decision as to the law and the facts; and, (3) that the Philippine Court has or is likely to have power to enforce its decision."46 Evidently, all these requisites are present in the instant case. Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of Appeals,47 that the doctrine offorum non conveniens should not be used as a ground for a motion to dismiss because Sec. 1, Rule 16 of the Rules of Court does not include said doctrine as a ground. This Court further ruled that while it is within the discretion of the trial court to abstain from assuming jurisdiction on this ground, it should do so only after vital facts are established, to determine whether special circumstances require the court's desistance; and that the propriety of dismissing a case based on this principle of forum non conveniens requires a factual determination, hence it is more properly considered a matter of defense.48 Third issue. Are private respondents guilty of forum shopping because of the pendency of foreign action? No. Forum shopping exists where the elements of litis pendentia are present and where a final judgment in one case will amount to res judicata in the other.49 Parenthetically, for litis pendentia to be a ground for the dismissal of an action there must be: (a) identity of the parties or at least such as to represent the same interest in both actions; (b) identity of rights asserted and relief prayed for, the relief being founded on the same acts; and (c) the identity in the two cases should be such that the judgment which may be rendered in one would, regardless of which party is successful, amount to res judicata in the other.50 In case at bar, not all the requirements for litis pendentia are present. While there may be identity of parties, notwithstanding the presence of other respondents,51 as well as the reversal in positions of plaintiffs and defendants52, still the other requirements necessary for litis pendentia were not shown by petitioner. It merely mentioned that civil cases were filed in Hongkong and England without however showing the identity of rights asserted and the reliefs sought for as well as the presence of the elements of res judicata should one of the cases be adjudged. As the Court of Appeals aptly observed:

"xxx [T]he petitioners, by simply enumerating the civil actions instituted abroad involving the parties herein xxx, failed to provide this Court with relevant and clear specifications that would show the presence of the above-quoted elements or requisites for res judicata. While it is true that the petitioners in their motion for reconsideration (CA Rollo, p. 72), after enumerating the various civil actions instituted abroad, did aver that "Copies of the foreign judgments are hereto attached and made integral parts hereof as Annexes 'B', 'C', 'D' and 'E'", they failed, wittingly or inadvertently, to include a single foreign judgment in their pleadings submitted to this Court as annexes to their petition. How then could We have been expected to rule on this issue even if We were to hold that foreign judgments could be the basis for the application of the aforementioned principle of res judicata?"53 Consequently, both courts correctly denied the dismissal of herein subject complaint. WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners. SO ORDERED. Bellosillo, (Chairman), Mendoza, Quisumbing and Callejo, Sr., JJ., concur.

Footnotes
1

In CA-G.R. SP No. 34382, entitled, "Bank of America NT&SA, Bank of America International Ltd., Plaintiffs/Petitioners, versus, Hon. Manuel S. Padolina, as Judge Regional Trial Court of Pasig, M.M., Branch 162 and Eduardo Litonjua, Sr., et al., Defendants/Respondents".
2

Docketed as Civil Case No. 63181 and entitled, "Eduardo K. Lintonjua, Sr. and Aurelio K. Litonjua, Jr., Plaintiffs, versus, Bank of America, National Trust & Savings Corporation and Bank of America, Internaitonal Ltd., Defendants." p. 54, SC Rollo.
3

Id., at pp. 54-56. Panamanian flag, registered owners Espriona Shipping Co., S.A. Liberian flag, registered owners Liberia Transport Navigation S.A. Panamanian flag, registered owners El Challenger S.A. Panamanian flag, registered owners Eshley Compania Naviera S.A. Rollo, p. 57. Id., at 58. Id., at p. 59. Id., at p. 60. Rollo, pp. 62-63. Id., at p. 38. Id., at pp. 24-25. Rollo, pp. 71-98 Rollo, at p. 71-98.

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13

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17

Id., at pp. 48-50. Rollo, p. 18. Id., at p. 20. Id., at p. 21. 330 US 501, 508 (1947), cited on page 14, Petition for Review. 454 US 235, 241 (1981), cited on page 14, Petition for Review. Petition for Review, p. 14; Rollo, p. 24. Rollo, pp. 24-25. Rollo, p. 26, Petition for Review, 16. Rollo, pp. 25-26. Id., p. 248 Rollo, pp. 103-104. Id., at pp. 104-105. Id., at pp. 108-109. Id., at p. 117. Id., at p. 120. Id., at p. 121.

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27

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32

33

34

Far East Bank and Trust Company vs. Court of Appeals and SMP, Inc., 341 SCRA 485, 492 (2000).
35

Columbia Pictures Inc. vs. Court of Appeals, 261 SCRA 144, 162 (1996). San Lorenzo Village Association, Inc. vs. Court of Appeals, 288 SCRA 115 (1998). Id. at p. 128. Ibid. Dabuco et al., vs. Court of Appeals, (January 20, 2002). Supra, at p. 128. Ibid, at p. 128 (1998).

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37

38

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40

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42

Jorge R. Coquia and Elizabeth Aguiling-Pangalangan, CONFLICTS OF LAWS, pp. 40-41, 2000 Ed.
43

First Philippine International Bank vs. Court of Appeals, 252 SCRA 259, 281 (1996). Hongkong and Shanghai Banking Corp. vs. Sherman, 176 SCRA 331, 339 (1989). 260 SCRA 673 (1996). Id. at p. 695.

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45

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47

Philsec. Investment Corp. vs. Court of Appeals, 274 SCRA 102, 113 (1997), citing Hongkong and Shanghai Banking Corp. vs. Sherman, 176 SCRA 331 at 339 (1989).
48

Id. at p. 113.

49

R & M General Merchandise, Inc. vs. Court of Appeals and La Perla Industries, Inc., G.R. No. 144189 (October 5, 2001).
50

Ibid. Dasmarinas Vill.Assn. Inc., et al., vs. CA, 299 SCRA 598, 605 (1998). Cokaliong Shipping Lines, Inc. vs. Amin, 260 SCRA 122, 125 (1996). Rollo, p. 47; CA Decision, p. 14.

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Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 122191 October 8, 1998 SAUDI ARABIAN AIRLINES, petitioner, vs. COURT OF APPEALS, MILAGROS P. MORADA and HON. RODOLFO A. ORTIZ, in his capacity as Presiding Judge of Branch 89, Regional Trial Court of Quezon City, respondents.

QUISUMBING, J.: This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and set aside the Resolution 1dated September 27, 1995 and the Decision 2 dated April 10, 1996 of the Court of Appeals 3 in CA-G.R. SP No. 36533, 4 and the Orders 5 dated August 29, 1994 6 and February 2, 1995 7 that were issued by the trial court inCivil Case No. Q-93-18394. 8 The pertinent antecedent facts which gave rise to the instant petition, as stated in the questioned Decision 9, are as follows: On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight Attendant for its airlines based in Jeddah, Saudi Arabia. . . . On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went to a disco dance with fellow crew members Thamer Al-Gazzawi and Allah Al-Gazzawi, both Saudi nationals. Because it was almost morning when they returned to their hotels, they agreed to have breakfast together at the room of Thamer. When they were in te (sic) room, Allah left on some pretext. Shortly after he did, Thamer attempted to rape plaintiff. Fortunately, a roomboy and several security personnel heard her cries for help and rescued her. Later, the Indonesian police came and arrested Thamer and Allah Al-Gazzawi, the latter as an accomplice. When plaintiff returned to Jeddah a few days later, several SAUDIA officials interrogated her about the Jakarta incident. They then requested her to go back to Jakarta to help arrange the release of Thamer and Allah. In Jakarta, SAUDIA Legal Officer Sirah Akkad and base manager Baharini negotiated with the police for the immediate release of the detained crew members but did not succeed because plaintiff refused to cooperate. She was afraid that she might be tricked into something she did not want because of her inability to understand the local dialect. She also declined to sign a blank paper and a document written in the local dialect. Eventually, SAUDIA allowed plaintiff to return to Jeddah but barred her from the Jakarta flights. Plaintiff learned that, through the intercession of the Saudi Arabian government, the Indonesian authorities agreed to deport Thamer and Allah after two weeks of detention. Eventually, they were again put in service by defendant SAUDI (sic). In September 1990, defendant SAUDIA transferred plaintiff to Manila. On January 14, 1992, just when plaintiff thought that the Jakarta incident was already behind her, her superiors requested her to see Mr. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he brought her to the police station where the police took her passport and questioned her about the Jakarta incident. Miniewy simply stood by as the police put pressure on her to make a statement dropping the case against Thamer and Allah. Not until she agreed to do so did the police return her passport and allowed her to catch the afternoon flight out of Jeddah.

One year and a half later or on lune 16, 1993, in Riyadh, Saudi Arabia, a few minutes before the departure of her flight to Manila, plaintiff was not allowed to board the plane and instead ordered to take a later flight to Jeddah to see Mr. Miniewy, the Chief Legal Officer of SAUDIA. When she did, acertain Khalid of the SAUDIA office brought her to a Saudi court where she was asked to sign a document written in Arabic. They told her that this was necessary to close the case against Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before the court on June 27, 1993. Plaintiff then returned to Manila. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once again and see Miniewy on June 27, 1993 for further investigation. Plaintiff did so after receiving assurance from SAUDIA's Manila manager, Aslam Saleemi, that the investigation was routinary and that it posed no danger to her. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27, 1993. Nothing happened then but on June 28, 1993, a Saudi judge interrogated plaintiff through an interpreter about the Jakarta incident. After one hour of interrogation, they let her go. At the airport, however, just as her plane was about to take off, a SAUDIA officer told her that the airline had forbidden her to take flight. At the Inflight Service Office where she was told to go, the secretary of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah, at the crew quarters, until further orders. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where the judge, to her astonishment and shock, rendered a decision, translated to her in English, sentencing her to five months imprisonment and to 286 lashes. Only then did she realize that the Saudi court had tried her, together with Thamer and Allah, for what happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco, dancing and listening to the music in violation of Islamic laws; and (3) socializing with the male crew, in contravention of Islamic tradition. 10 Facing conviction, private respondent sought the help of her employer, petitioner SAUDIA. Unfortunately, she was denied any assistance. She then asked the Philippine Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to pay for her upkeep, she worked on the domestic flight of SAUDIA, while Thamer and Allah continued to serve in the international flights. 11 Because she was wrongfully convicted, the Prince of Makkah dismissed the case against her and allowed her to leave Saudi Arabia. Shortly before her return to Manila, 12 she was terminated from the service by SAUDIA, without her being informed of the cause. On November 23, 1993, Morada filed a Complaint Al-Balawi ("Al-Balawi"), its country manager.
13

for damages against SAUDIA, and Khaled

On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised the following grounds, to wit: (1) that the Complaint states no cause of action against Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that the claim or demand set forth in the Complaint has been waived, abandoned or otherwise extinguished; and (4) that the trial court has no jurisdiction to try the case. On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) reply 16 thereto on March 3, 1994.
15

. Saudia filed a

On June 23, 1994, Morada filed an Amended Complaint 17 wherein Al-Balawi was dropped as party defendant. On August 11, 1994, Saudia filed its Manifestation and Motion to Dismiss Amended Complaint 18. The trial court issued an Order 19 dated August 29, 1994 denying the Motion to Dismiss Amended Complaint filed by Saudia. From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA filed on September 20, 1994, its Motion for Reconsideration 21 of the Order dated August 29, 1994. It alleged that the trial court has no jurisdiction to hear and try the case on the basis of Article 21

of the Civil Code, since the proper law applicable is the law of the Kingdom of Saudi Arabia. On October 14, 1994, Morada filed her Opposition 22 (To Defendant's Motion for Reconsideration). In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that since its Motion for Reconsideration raised lack of jurisdiction as its cause of action, the Omnibus Motion Rule does not apply, even if that ground is raised for the first time on appeal. Additionally, SAUDIA alleged that the Philippines does not have any substantial interest in the prosecution of the instant case, and hence, without jurisdiction to adjudicate the same. Respondent Judge subsequently issued another Order 24 dated February 2, 1995, denying SAUDIA's Motion for Reconsideration. The pertinent portion of the assailed Order reads as follows: Acting on the Motion for Reconsideration of defendant Saudi Arabian Airlines filed, thru counsel, on September 20, 1994, and the Opposition thereto of the plaintiff filed, thru counsel, on October 14, 1994, as well as the Reply therewith of defendant Saudi Arabian Airlines filed, thru counsel, on October 24, 1994, considering that a perusal of the plaintiffs Amended Complaint, which is one for the recovery of actual, moral and exemplary damages plus attorney's fees, upon the basis of the applicable Philippine law, Article 21 of the New Civil Code of the Philippines, is, clearly, within the jurisdiction of this Court as regards the subject matter, and there being nothing new of substance which might cause the reversal or modification of the order sought to be reconsidered, the motion for reconsideration of the defendant, is DENIED. SO ORDERED.
25

Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and Prohibition with Prayer for Issuance of Writ of Preliminary Injunction and/or Temporary Restraining Order 26 with the Court of Appeals. Respondent Court of Appeals promulgated a Resolution with Temporary Restraining Order 27 dated February 23, 1995, prohibiting the respondent Judge from further conducting any proceeding, unless otherwise directed, in the interim. In another Resolution 28 promulgated on September 27, 1995, now assailed, the appellate court denied SAUDIA's Petition for the Issuance of a Writ of Preliminary Injunction dated February 18, 1995, to wit: The Petition for the Issuance of a Writ of Preliminary Injunction is hereby DENIED, after considering the Answer, with Prayer to Deny Writ of Preliminary Injunction (Rollo, p. 135) the Reply and Rejoinder, it appearing that herein petitioner is not clearly entitled thereto (Unciano Paramedical College, et. Al., v. Court of Appeals, et. Al., 100335, April 7, 1993, Second Division). SO ORDERED. On October 20, 1995, SAUDIA filed with this Honorable Court the instant Petition with Prayer for Temporary Restraining Order dated October 13, 1995.
29

for Review

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

The trial court has no jurisdiction to hear and try Civil Case No. Q-93-18394 based on Article 21 of the New Civil Code since the proper law applicable is the law of the Kingdom of Saudi Arabia inasmuch as this case involves what is known in private international law as a "conflicts problem". Otherwise, the Republic of the Philippines will sit in judgment of the acts done by another sovereign state which is abhorred. II Leave of court before filing a supplemental pleading is not a jurisdictional requirement. Besides, the matter as to absence of leave of court is now moot and academic when this Honorable Court required the respondents to comment on petitioner's April 30, 1996 Supplemental Petition For Review With Prayer For A Temporary Restraining Order Within Ten (10) Days From Notice Thereof. Further, the Revised Rules of Court should be construed with liberality pursuant to Section 2, Rule 1 thereof. III Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-G.R. SP NO. 36533 entitled "Saudi Arabian Airlines v. Hon. Rodolfo A. Ortiz, et al." and filed its April 30, 1996 Supplemental Petition For Review With Prayer For A Temporary Restraining Order on May 7, 1996 at 10:29 a.m. or within the 15-day reglementary period as provided for under Section 1, Rule 45 of the Revised Rules of Court. Therefore, the decision in CA-G.R. SP NO. 36533 has not yet become final and executory and this Honorable Court can take cognizance of this case. 33 From the foregoing factual and procedural antecedents, the following issues emerge for our resolution: I. WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THE REGIONAL TRIAL COURT OF QUEZON CITY HAS JURISDICTION TO HEAR AND TRY CIVIL CASE NO. Q-93-18394 ENTITLED "MILAGROS P. MORADA V. SAUDI ARABIAN AIRLINES". II. WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING THAT IN THIS CASE PHILIPPINE LAW SHOULD GOVERN. Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at the outset. It maintains that private respondent's claim for alleged abuse of rights occurred in the Kingdom of Saudi Arabia. It alleges that the existence of a foreign element qualifies the instant case for the application of the law of the Kingdom of Saudi Arabia, by virtue of the lex loci delicti commissi rule. 34 On the other hand, private respondent contends that since her Amended Complaint is based on Articles 19 35and 21 36 of the Civil Code, then the instant case is properly a matter of domestic law. 37 Under the factual antecedents obtaining in this case, there is no dispute that the interplay of events occurred in two states, the Philippines and Saudi Arabia. As stated by private respondent in her Amended Complaint
38

dated June 23, 1994:

2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines corporation doing business in the Philippines. It may be served with summons and other court processes at Travel Wide Associated Sales (Phils.). Inc., 3rd Floor, Cougar Building, 114 Valero St., Salcedo Village, Makati, Metro Manila. xxx xxx xxx

6. Plaintiff learned that, through the intercession of the Saudi Arabian government, the Indonesian authorities agreed to deport Thamer and Allah after two weeks of detention. Eventually, they were again put in service by defendant SAUDIA. In September 1990, defendant SAUDIA transferred plaintiff to Manila. 7. On January 14, 1992, just when plaintiff thought that the Jakarta incident was already behind her, her superiors reauested her to see MR. Ali Meniewy, Chief Legal Officer of SAUDIA in Jeddah, Saudi Arabia. When she saw him, he brought her to the police station where the police took her passport and questioned her about the Jakarta incident. Miniewy simply stood by as the police put pressure on her to make a statement dropping the case against Thamer and Allah. Not until she agreed to do so did the police return her passport and allowed her to catch the afternoon flight out of Jeddah. 8. One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few minutes before the departure of her flight to Manila, plaintiff was not allowed to board the plane and instead ordered to take a later flight to Jeddah to see Mr. Meniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA office brought her to a Saudi court where she was asked to sigh a document written in Arabic. They told her that this was necessary to close the case against Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before the court on June 27, 1993. Plaintiff then returned to Manila. 9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once again and see Miniewy on June 27, 1993 for further investigation. Plaintiff did so after receiving assurance from SAUDIA's Manila manger, Aslam Saleemi, that the investigation was routinary and that it posed no danger to her. 10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27, 1993. Nothing happened then but on June 28, 1993, a Saudi judge interrogated plaintiff through an interpreter about the Jakarta incident. After one hour of interrogation, they let her go. At the airport, however, just as her plane was about to take off, a SAUDIA officer told her that the airline had forbidden her to take that flight. At the Inflight Service Office where she was told to go, the secretary of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah, at the crew quarters, until further orders. 11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where the judge, to her astonishment and shock, rendered a decision, translated to her in English, sentencing her to five months imprisonment and to 286 lashes. Only then did she realize that the Saudi court had tried her, together with Thamer and Allah, for what happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco, dancing, and listening to the music in violation of Islamic laws; (3) socializing with the male crew, in contravention of Islamic tradition. 12. Because SAUDIA refused to lend her a hand in the case, plaintiff sought the help of the Philippines Embassy in Jeddah. The latter helped her pursue an appeal from the decision of the court. To pay for her upkeep, she worked on the domestic flights of defendant SAUDIA while, ironically, Thamer and Allah freely served the international flights.39 Where the factual antecedents satisfactorily establish the existence of a foreign element, we agree with petitioner that the problem herein could present a "conflicts" case. A factual situation that cuts across territorial lines and is affected by the diverse laws of two or more states is said to contain a "foreign element". The presence of a foreign element is inevitable since social and economic affairs of individuals and associations are rarely confined to the geographic limits of their birth or conception. 40 The forms in which this foreign element may appear are many. 41 The foreign element may simply consist in the fact that one of the parties to a contract is an alien or has a foreign domicile, or that a contract between nationals of one State involves properties situated in another State. In other cases, the foreign element may assume a complex form. 42

In the instant case, the foreign element consisted in the fact that private respondent Morada is a resident Philippine national, and that petitioner SAUDIA is a resident foreign corporation. Also, by virtue of the employment of Morada with the petitioner Saudia as a flight stewardess, events did transpire during her many occasions of travel across national borders, particularly from Manila, Philippines to Jeddah, Saudi Arabia, and vice versa, that caused a "conflicts" situation to arise. We thus find private respondent's assertion that the case is purely domestic, imprecise. A conflicts problem presents itself here, and the question of jurisdiction 43 confronts the court a quo. After a careful study of the private respondent's Amended Complaint, 44 and the Comment thereon, we note that she aptly predicated her cause of action on Articles 19 and 21 of the New Civil Code. On one hand, Article 19 of the New Civil Code provides: Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice give everyone his due and observe honesty and good faith. On the other hand, Article 21 of the New Civil Code provides: Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for damages. Thus, in Philippine National Bank (PNB) vs. Court of Appeals,
45

this Court held that:

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

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

We observe that the motion to dismiss filed on April 14, 1962, aside from disputing the lower court's jurisdiction over defendant's person, prayed for dismissal of the complaint on the ground that plaintiff's cause of action has prescribed. By interposing such second ground in its motion to dismiss, Ker and Co., Ltd. availed of an affirmative defense on the basis of which it prayed the court to resolve controversy in its favor. For the court to validly decide the said plea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon the latter's person, who, being the proponent of the affirmative defense, should be deemed to have abandoned its special appearance and voluntarily submitted itself to the jurisdiction of the court. Similarly, the case of De Midgely vs. Ferandos, held that; When the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the person, it must be for the sole and separate purpose of objecting to the jurisdiction of the court. If his motion is for any other purpose than to object to the jurisdiction of the court over his person, he thereby submits himself to the jurisdiction of the court. A special appearance by motion made for the purpose of objecting to the jurisdiction of the court over the person will be held to be a general appearance, if the party in said motion should, for example, ask for a dismissal of the action upon the further ground that the court had no jurisdiction over the subject matter. 52 Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of Quezon City. Thus, we find that the trial court has jurisdiction over the case and that its exercise thereof, justified. As to the choice of applicable law, we note that choice-of-law problems seek to answer two important questions: (1) What legal system should control a given situation where some of the

significant facts occurred in two or more states; and (2) to what extent should the chosen legal system regulate the situation. 53 Several theories have been propounded in order to identify the legal system that should ultimately control. Although ideally, all choice-of-law theories should intrinsically advance both notions of justice and predictability, they do not always do so. The forum is then faced with the problem of deciding which of these two important values should be stressed. 54 Before a choice can be made, it is necessary for us to determine under what category a certain set of facts or rules fall. This process is known as "characterization", or the "doctrine of qualification". It is the "process of deciding whether or not the facts relate to the kind of question specified in a conflicts rule." 55 The purpose of "characterization" is to enable the forum to select the proper law. 56 Our starting point of analysis here is not a legal relation, but a factual situation, event, or operative fact. 57 An essential element of conflict rules is the indication of a "test" or "connecting factor" or "point of contact". Choice-of-law rules invariably consist of a factual relationship (such as property right, contract claim) and a connecting factor or point of contact, such as the situs of the res, the place of celebration, the place of performance, or the place of wrongdoing. 58 Note that one or more circumstances may be present to serve as the possible test for the determination of the applicable law. 59 These "test factors" or "points of contact" or "connecting factors" could be any of the following: (1) The nationality of a person, his domicile, his residence, his place of sojourn, or his origin; (2) the seat of a legal or juridical person, such as a corporation; (3) the situs of a thing, that is, the place where a thing is, or is deemed to be situated. In particular, the lex situs is decisive when real rights are involved; (4) the place where an act has been done, the locus actus, such as the place where a contract has been made, a marriage celebrated, a will signed or a tort committed. The lex loci actus is particularly important in contracts and torts; (5) the place where an act is intended to come into effect, e.g., the place of performance of contractual duties, or the place where a power of attorney is to be exercised; (6) the intention of the contracting parties as to the law that should govern their agreement, the lex loci intentionis; (7) the place where judicial or administrative proceedings are instituted or done. The lex fori the law of the forum is particularly important because, as we have seen earlier, matters of "procedure" not going to the substance of the claim involved are governed by it; and because the lex fori applies whenever the content of the otherwise applicable foreign law is excluded from application in a given case for the reason that it falls under one of the exceptions to the applications of foreign law; and (8) the flag of a ship, which in many cases is decisive of practically all legal relationships of the ship and of its master or owner as such. It also covers contractual relationships particularly contracts of affreightment. 60 (Emphasis ours.) After a careful study of the pleadings on record, including allegations in the Amended Complaint deemed admitted for purposes of the motion to dismiss, we are convinced that there is reasonable basis for private respondent's assertion that although she was already working in Manila, petitioner brought her to Jeddah on the pretense that she would merely testify in an investigation of the charges she made against the two SAUDIA crew members for the attack on her person while they were in Jakarta. As it turned out, she was the one made to face trial for very serious charges, including adultery and violation of Islamic laws and tradition.

There is likewise logical basis on record for the claim that the "handing over" or "turning over" of the person of private respondent to Jeddah officials, petitioner may have acted beyond its duties as employer. Petitioner's purported act contributed to and amplified or even proximately caused additional humiliation, misery and suffering of private respondent. Petitioner thereby allegedly facilitated the arrest, detention and prosecution of private respondent under the guise of petitioner's authority as employer, taking advantage of the trust, confidence and faith she reposed upon it. As purportedly found by the Prince of Makkah, the alleged conviction and imprisonment of private respondent was wrongful. But these capped the injury or harm allegedly inflicted upon her person and reputation, for which petitioner could be liable as claimed, to provide compensation or redress for the wrongs done, once duly proven. Considering that the complaint in the court a quo is one involving torts, the "connecting factor" or "point of contact" could be the place or places where the tortious conduct or lex loci actus occurred. And applying the torts principle in a conflicts case, we find that the Philippines could be said as a situs of the tort (the place where the alleged tortious conduct took place). This is because it is in the Philippines where petitioner allegedly deceived private respondent, a Filipina residing and working here. According to her, she had honestly believed that petitioner would, in the exercise of its rights and in the performance of its duties, "act with justice, give her due and observe honesty and good faith." Instead, petitioner failed to protect her, she claimed. That certain acts or parts of the injury allegedly occurred in another country is of no moment. For in our view what is important here is the place where the over-all harm or the totality of the alleged injury to the person, reputation, social standing and human rights of complainant, had lodged, according to the plaintiff below (herein private respondent). All told, it is not without basis to identify the Philippines as the situs of the alleged tort. Moreover, with the widespread criticism of the traditional rule of lex loci delicti commissi, modern theories and rules on tort liability 61 have been advanced to offer fresh judicial approaches to arrive at just results. In keeping abreast with the modern theories on tort liability, we find here an occasion to apply the "State of the most significant relationship" rule, which in our view should be appropriate to apply now, given the factual context of this case. In applying said principle to determine the State which has the most significant relationship, the following contacts are to be taken into account and evaluated according to their relative importance with respect to the particular issue: (a) the place where the injury occurred; (b) the place where the conduct causing the injury occurred; (c) the domicile, residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered. 62 As already discussed, there is basis for the claim that over-all injury occurred and lodged in the Philippines. There is likewise no question that private respondent is a resident Filipina national, working with petitioner, a resident foreign corporation engaged here in the business of international air carriage. Thus, the "relationship" between the parties was centered here, although it should be stressed that this suit is not based on mere labor law violations. From the record, the claim that the Philippines has the most significant contact with the matter in this dispute, 63 raised by private respondent as plaintiff below against defendant (herein petitioner), in our view, has been properly established. Prescinding from this premise that the Philippines is the situs of the tort complained of and the place "having the most interest in the problem", we find, by way of recapitulation, that the Philippine law on tort liability should have paramount application to and control in the resolution of the legal issues arising out of this case. Further, we hold that the respondent Regional Trial Court has jurisdiction over the parties and the subject matter of the complaint; the appropriate venue is in Quezon City, which could properly apply Philippine law. Moreover, we find untenable petitioner's insistence that "[s]ince private respondent instituted this suit, she has the burden of pleading and proving the applicable Saudi law on the matter." 64 As aptly said by private respondent, she has "no obligation to plead and prove the law of the Kingdom of Saudi Arabia since her cause of action is based on Articles 19 and 21" of the Civil Code of the Philippines. In her Amended Complaint and subsequent pleadings, she never alleged that Saudi law should govern this case. 65 And as correctly held by the respondent appellate court, "considering that it was the petitioner who was invoking the applicability of the law of Saudi Arabia, then the burden was on it [petitioner] to plead and to establish what the law of Saudi Arabia is". 66 Lastly, no error could be imputed to the respondent appellate court in upholding the trial court's denial of defendant's (herein petitioner's) motion to dismiss the case. Not only was jurisdiction in order and venue properly laid, but appeal after trial was obviously available, and expeditious trial itself indicated by the nature of the case at hand. Indubitably, the Philippines is the state intimately concerned with the ultimate outcome of the case below, not just for the benefit of all

the litigants, but also for the vindication of the country's system of law and justice in a transnational setting. With these guidelines in mind, the trial court must proceed to try and adjudge the case in the light of relevant Philippine law, with due consideration of the foreign element or elements involved. Nothing said herein, of course, should be construed as prejudging the results of the case in any manner whatsoever. WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case No. Q-9318394 entitled "Milagros P. Morada vs. Saudi Arabia Airlines" is hereby REMANDED to Regional Trial Court of Quezon City, Branch 89 for further proceedings. SO ORDERED. Davide, Jr., Bellosillo, Vitug and Panganiban, JJ., concur. Footnotes 1 Annex "A", PETITION, October 13, 1995; rollo, p. 36. 2 Annex "A", SUPPLEMENTAL PETITION, April 30, 1996; rollo, pp. 88-102. 3 Penned by Associate Justice Bernardo Ll. Salas, and concurred in by Associate Justice Jorge S. Imperial and Associate Justice Pacita Caizares-Nye. 4 Entitled "Saudi Arabian Airlines vs. Hon. Judge Rodolfo A. Ortiz, in his capacity as Presiding Judge of Branch 89 of the Regional Trial Court of Quezon City and Milagros P. Morada". 5 Issued by respondent Judge Hon. Rodolfo A. Ortiz of Branch 89, Regional Trial Court of Quezon City. 6 Annex "B", PETITION, October 13, 1995; rollo, pp. 37-39. 7 Annex "B", PETITION, October 13, 1995; rollo, p. 40. 8 Entitled "Milagros P. Morada vs. Saudi Arabian Airlines". 9 Supra, note 2. 10 Decision, pp. 2-4; see rollo, pp. 89-91. 11 Private respondent's Comment; rollo, p. 50. 12 Ibid., pp. 50-51. 13 Dated November 19, 1993, and docketed as Civil Case No. Q-93-18394, Branch 89, Regional Trial Court of Quezon City. 14 Dated January 14, 1994. 15 Dated February 4, 1994. 16 Reply dated March 1, 1994. 17 Records, pp. 65-84. 18 Rollo, p. 65. 19 Supra, note 6. 20 Hon. Rodolfo A. Ortiz. 21 Dated September 19, 1994. 22 Records, pp. 108-116.

23 Records, pp. 117-128. 24 Supra, note 7. 25 Ibid. 26 Dated February 18, 1995; see supra, note 4. 27 Supra, note 7. 28 Records, p. 180. 29 Rollo, pp. 1-44. 30 Supra, note 2. 31 Rollo, pp. 80-86. 32 Memorandum for Petitioner dated October 9, 1996, rollo, pp. 149-180; and Memorandum for Private Respondent, October 30, 1996, rollo, pp. 182-210. 33 Rollo, pp. 157-159. All caps in the original. 34 Memorandum for Petitioner, p. 14, rollo, p. 162. 35 Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith. 36 Art 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good customs or public policy shall compensate the latter for the damages. 37 Memorandum for Private Respondent, p. 9, rollo, p. 190. 38 Records, pp. 65-71. 39 Supra, note 17, pp. 65-68. 40 Salonga, Private International Law, 1995 edition, p. 3. 41 Ibid., citing Cheshire and North, Private International Law, p. 5 by P.M. North and J.J. Faucett (Butterworths; London, 1992). 42 Ibid. 43 Paras, Philippine Conflict of Laws, sixth edition (1984), p. 24, citing Leflar, The Law of Conflict of Laws, pp. 5-6. 44 Supra, note 17. 45 83 SCRA 237, 247. 46 Supra, note at 17, at p. 6. Morada prays that judgment be rendered against Saudia, ordering it to pay: (1) not less than P250,000.00 as actual damages; (2) P4 million in moral damages; (3) P500,000.00 in exemplary damages, and (4) P500,000.00 in attorney's fees. 47 Baguioro v. Barrios, 77 Phil. 120. 48 Jurisdiction over the subject matter is conferred by law and is defined as the authority of a court to hear and decide cases of the general class to which the proceedings in question belong. (Reyes v. Diaz, 73 Phil. 484, 487)

49 Supra, note 37, p. 58, citing Gulf Oil Corporation v. Gilbert, 350 U.S. 501, 67 Sup. Ct. 839 (1947). 50 Omnibus Motion to Dismiss dated January 14, 1994; Reply (to Plaintiff's Opposition) dated February 19, 1994; Comment (to Plaintiffs Motion to Admit Amended Complaint dated June 23, 1994) dated July 20, 1993; Manifestation and Motion to Dismiss Amended Complaint dated June 23, 1994 under date August 11, 1994; and Motion for Reconsideration dated September 19, 1994. 51 18 SCRA 207, 213-214. 52 64 SCRA 23, 31. 53 Coquia and Pangalangan. Conflict of Laws, 1995 edition p. 65, citing Von Mehren, Recent Trends in Choice-of-Law Methodology, 60 Cornell L. Rev. 927 (1975). 54 Ibid. 55 Supra, note 40 at p. 94, citing Falconbridge, Essays on the Conflict of Laws, p. 50. 56 Ibid. 57 Supra, note 37, at p. 136; cf. Mussbaum, Principle of Private International Law, p. 173; and Rabel, The Conflict of Laws: A Comparative Study, pp. 51-52. 58 Supra, note 37, p. 137. 59 Ibid. 60 Supra, note 37, at pp. 138-139. 61 Includes the (1) German rule of elective concurrence; (2) "State of the most significant relationship" rule (the Second Restatement of 1969); (3) State interest analysis; and (4) Caver's Principle of Preference. 62 Supra, note 37, p. 396. 63 Supra, note 59, p. 79, citing Ruben v. Irving Trust Co., 305 N.Y. 288, 305, 113 N.E. 2d 424, 431. 64 Memorandum for Petitioner, p. 22; rollo, p. 170. 65 Memorandum for Private Respondent, pp. 21-22; rollo, pp. 202-203. 66 CA Decision, p. 10; rollo, p. 97.

FIRST DIVISION

[G.R. No. 124371. November 23, 2000]

PAULA T. LLORENTE, petitioner, LLORENTE, respondents.

vs. COURT

OF

APPEALS

and

ALICIA

F.

DECISION PARDO, J.:

The Case The case raises a conflict of laws issue. What is before us is an appeal from the decision of the Court of Appeals[1] modifying that of the Regional Trial Court, Camarines Sur, Branch 35, Iriga City [2]declaring respondent Alicia F. Llorente (herinafter referred to as Alicia), as co-owners of whatever property she and the deceased Lorenzo N. Llorente (hereinafter referred to as Lorenzo) may have acquired during the twenty-five (25) years that they lived together as husband and wife.

The Facts The deceased Lorenzo N. Llorente was an enlisted serviceman of the United States Navy from March 10, 1927 to September 30, 1957.[3] On February 22, 1937, Lorenzo and petitioner Paula Llorente (hereinafter referred to as Paula) were married before a parish priest, Roman Catholic Church, in Nabua, Camarines Sur.[4] Before the outbreak of the Pacific War, Lorenzo departed for the United States and Paula stayed in the conjugal home in barrio Antipolo, Nabua, Camarines Sur.[5] On November 30, 1943, Lorenzo was admitted to United States citizenship and Certificate of Naturalization No. 5579816 was issued in his favor by the United States District Court, Southern District of New York.[6] Upon the liberation of the Philippines by the American Forces in 1945, Lorenzo was granted an accrued leave by the U. S. Navy, to visit his wife and he visited the Philippines. [7] He discovered that his wife Paula was pregnant and was living in and having an adulterous relationship with his brother, Ceferino Llorente.[8] On December 4, 1945, Paula gave birth to a boy registered in the Office of the Registrar of Nabua as Crisologo Llorente, with the certificate stating that the child was not legitimate and the line for the fathers name was left blank.[9] Lorenzo refused to forgive Paula and live with her. In fact, on February 2, 1946, the couple drew a written agreement to the effect that (1) all the family allowances allotted by the United States Navy as part of Lorenzos salary and all other obligations for Paulas daily maintenance and support would be suspended; (2) they would dissolve their marital union in accordance with judicial proceedings; (3) they would make a separate agreement regarding their conjugal property acquired during their marital life; and (4) Lorenzo would not prosecute Paula for her adulterous act since she voluntarily admitted her fault and agreed to separate from Lorenzo peacefully. The agreement was signed by both Lorenzo and Paula and was witnessed by Paulas father and stepmother. The agreement was notarized by Notary Public Pedro Osabel.[10] Lorenzo returned to the United States and on November 16, 1951 filed for divorce with the Superior Court of the State of California in and for the County of San Diego. Paula was represented by counsel, John Riley, and actively participated in the proceedings. On November 27, 1951, the Superior Court of the State of California, for the County of San Diego found all factual allegations to be true and issued an interlocutory judgment of divorce.[11]

On December 4, 1952, the divorce decree became final.[12] In the meantime, Lorenzo returned to the Philippines. On January 16, 1958, Lorenzo married Alicia F. Llorente in Manila.[13] Apparently, Alicia had no knowledge of the first marriage even if they resided in the same town as Paula, who did not oppose the marriage or cohabitation.[14] From 1958 to 1985, Lorenzo and Alicia lived together as husband and wife. [15] Their twenty-five (25) year union produced three children, Raul, Luz and Beverly, all surnamed Llorente.[16] On March 13, 1981, Lorenzo executed a Last Will and Testament. The will was notarized by Notary Public Salvador M. Occiano, duly signed by Lorenzo with attesting witnesses Francisco Hugo, Francisco Neibres and Tito Trajano. In the will, Lorenzo bequeathed all his property to Alicia and their three children, to wit: (1) I give and bequeath to my wife ALICIA R. FORTUNO exclusively my residential house and lot, located at San Francisco, Nabua, Camarines Sur, Philippines, including ALL the personal properties and other movables or belongings that may be found or existing therein; (2) I give and bequeath exclusively to my wife Alicia R. Fortuno and to my children, Raul F. Llorente, Luz F. Llorente and Beverly F. Llorente, in equal shares, all my real properties whatsoever and wheresoever located, specifically my real properties located at Barangay AroAldao, Nabua, Camarines Sur; Barangay Paloyon, Nabua, Camarines Sur; Barangay Baras, Sitio Puga, Nabua, Camarines Sur; and Barangay Paloyon, Sitio Nalilidong, Nabua, Camarines Sur; (3) I likewise give and bequeath exclusively unto my wife Alicia R. Fortuno and unto my children, Raul F. Llorente, Luz F. Llorente and Beverly F. Llorente, in equal shares, my real properties located in Quezon City Philippines, and covered by Transfer Certificate of Title No. 188652; and my lands in Antipolo, Rizal, Philippines, covered by Transfer Certificate of Title Nos. 124196 and 165188, both of the Registry of Deeds of the province of Rizal, Philippines; (4) That their respective shares in the above-mentioned properties, whether real or personal properties, shall not be disposed of, ceded, sold and conveyed to any other persons, but could only be sold, ceded, conveyed and disposed of by and among themselves; (5) I designate my wife ALICIA R. FORTUNO to be the sole executor of this my Last Will and Testament, and in her default or incapacity of the latter to act, any of my children in the order of age, if of age; (6) I hereby direct that the executor named herein or her lawful substitute should served (sic) without bond; (7) I hereby revoke any and all my other wills, codicils, or testamentary dispositions heretofore executed, signed, or published, by me; (8) It is my final wish and desire that if I die, no relatives of mine in any degree in the Llorentes Side should ever bother and disturb in any manner whatsoever my wife Alicia R. Fortunato and my children with respect to any real or personal properties I gave and bequeathed respectively to each one of them by virtue of this Last Will and Testament.[17] On December 14, 1983, Lorenzo filed with the Regional Trial Court, Iriga, Camarines Sur, a petition for the probate and allowance of his last will and testament wherein Lorenzo moved that Alicia be appointed Special Administratrix of his estate.[18] On January 18, 1984, the trial court denied the motion for the reason that the testator Lorenzo was still alive.[19] On January 24, 1984, finding that the will was duly executed, the trial court admitted the will to probate.[20] On June 11, 1985, before the proceedings could be terminated, Lorenzo died. [21] On September 4, 1985, Paula filed with the same court a petition [22] for letters of administration over Lorenzos estate in her favor. Paula contended (1) that she was Lorenzos surviving spouse, (2) that the various property were acquired during their marriage, (3) that Lorenzos will disposed of all his property in favor of Alicia and her children, encroaching on her legitime and 1/2 share in the conjugal property. [23]

On December 13, 1985, Alicia filed in the testate proceeding (Sp. Proc. No. IR-755), a petition for the issuance of letters testamentary.[24] On October 14, 1985, without terminating the testate proceedings, the trial court gave due course to Paulas petition in Sp. Proc. No. IR-888.[25] On November 6, 13 and 20, 1985, the order was published in the newspaper Bicol Star.[26] On May 18, 1987, the Regional Trial Court issued a joint decision, thus: Wherefore, considering that this court has so found that the divorce decree granted to the late Lorenzo Llorente is void and inapplicable in the Philippines, therefore the marriage he contracted with Alicia Fortunato on January 16, 1958 at Manila is likewise void. This being so the petition of Alicia F. Llorente for the issuance of letters testamentary is denied. Likewise, she is not entitled to receive any share from the estate even if the will especially said so her relationship with Lorenzo having gained the status of paramour which is under Art. 739 (1). On the other hand, the court finds the petition of Paula Titular Llorente, meritorious, and so declares the intrinsic disposition of the will of Lorenzo Llorente dated March 13, 1981 as void and declares her entitled as conjugal partner and entitled to one-half of their conjugal properties, and as primary compulsory heir, Paula T. Llorente is also entitled to one-third of the estate and then one-third should go to the illegitimate children, Raul, Luz and Beverly, all surname (sic) Llorente, for them to partition in equal shares and also entitled to the remaining free portion in equal shares. Petitioner, Paula Llorente is appointed legal administrator of the estate of the deceased, Lorenzo Llorente. As such let the corresponding letters of administration issue in her favor upon her filing a bond in the amount (sic) of P100,000.00 conditioned for her to make a return to the court within three (3) months a true and complete inventory of all goods, chattels, rights, and credits, and estate which shall at any time come to her possession or to the possession of any other person for her, and from the proceeds to pay and discharge all debts, legacies and charges on the same, or such dividends thereon as shall be decreed or required by this court; to render a true and just account of her administration to the court within one (1) year, and at any other time when required by the court and to perform all orders of this court by her to be performed. On the other matters prayed for in respective petitions for want of evidence could not be granted. SO ORDERED.[27] In time, Alicia filed with the trial court a motion for reconsideration of the aforequoted decision.[28] On September 14, 1987, the trial court denied Alicias motion for reconsideration but modified its earlier decision, stating that Raul and Luz Llorente are not children legitimate or otherwise of Lorenzo since they were not legally adopted by him. [29] Amending its decision of May 18, 1987, the trial court declared Beverly Llorente as the only illegitimate child of Lorenzo, entitling her to one-third (1/3) of the estate and one-third (1/3) of the free portion of the estate.[30] On September 28, 1987, respondent appealed to the Court of Appeals. [31] On July 31, 1995, the Court of Appeals promulgated its decision, affirming with modification the decision of the trial court in this wise: WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that Alicia is declared as co-owner of whatever properties she and the deceased may have acquired during the twenty-five (25) years of cohabitation. SO ORDERED.[32] On August 25, 1995, petitioner filed with the Court of Appeals a motion for reconsideration of the decision.[33] On March 21, 1996, the Court of Appeals,[34] denied the motion for lack of merit. Hence, this petition.[35]

The Issue Stripping the petition of its legalese and sorting through the various arguments raised,[36] the issue is simple. Who are entitled to inherit from the late Lorenzo N. Llorente? We do not agree with the decision of the Court of Appeals. We remand the case to the trial court for ruling on the intrinsic validity of the will of the deceased.

The Applicable Law The fact that the late Lorenzo N. Llorente became an American citizen long before and at the time of: (1) his divorce from Paula; (2) marriage to Alicia; (3) execution of his will; and (4) death, is duly established, admitted and undisputed. Thus, as a rule, issues arising from these incidents are necessarily governed by foreign law. The Civil Code clearly provides: Art. 15. Laws relating to family rights and duties, or to the status, condition and legal capacity of persons are binding upon citizens of the Philippines, even though living abroad. Art. 16. Real property as well as personal property is subject to the law of the country where it is situated. However, intestate and testamentary succession, both with respect to the order of succession and to the amount of successional rights and to the intrinsic validity of testamentary provisions, shall be regulated by the national law of the person whose succession is under consideration, whatever may be the nature of the property and regardless of the country wherein said property may be found. (emphasis ours) True, foreign laws do not prove themselves in our jurisdiction and our courts are not authorized to take judicial notice of them. Like any other fact, they must be alleged and proved.[37] While the substance of the foreign law was pleaded, the Court of Appeals did not admit the foreign law. The Court of Appeals and the trial court called to the fore the renvoi doctrine, where the case was referred back to the law of the decedents domicile, in this case, Philippine law. We note that while the trial court stated that the law of New York was not sufficiently proven, in the same breath it made the categorical, albeit equally unproven statement that American law follows the domiciliary theory hence, Philippine law applies when determining the validity of Lorenzos will.[38] First, there is no such thing as one American law. The "national law" indicated in Article 16 of the Civil Code cannot possibly apply to general American law. There is no such law governing the validity of testamentary provisions in the United States. Each State of the union has its own law applicable to its citizens and in force only within the State. It can therefore refer to no other than the law of the State of which the decedent was a resident. [39] Second, there is no showing that the application of the renvoi doctrine is called for or required by New York State law. The trial court held that the will was intrinsically invalid since it contained dispositions in favor of Alice, who in the trial courts opinion was a mere paramour. The trial court threw the will out, leaving Alice, and her two children, Raul and Luz, with nothing. The Court of Appeals also disregarded the will. It declared Alice entitled to one half (1/2) of whatever property she and Lorenzo acquired during their cohabitation, applying Article 144 of the Civil Code of the Philippines. The hasty application of Philippine law and the complete disregard of the will, already probated as duly executed in accordance with the formalities of Philippine law, is fatal, especially in light of the factual and legal circumstances here obtaining.

Validity of the Foreign Divorce

In Van Dorn v. Romillo, Jr.[40] we held that owing to the nationality principle embodied in Article 15 of the Civil Code, only Philippine nationals are covered by the policy against absolute divorces, the same being considered contrary to our concept of public policy and morality. In the same case, the Court ruled that aliens may obtain divorces abroad, provided they are valid according to their national law. Citing this landmark case, the Court held in Quita v. Court of Appeals,[41] that once proven that respondent was no longer a Filipino citizen when he obtained the divorce from petitioner, the ruling in Van Dorn would become applicable and petitioner could very well lose her right to inherit from him. In Pilapil v. Ibay-Somera,[42] we recognized the divorce obtained by the respondent in his country, the Federal Republic of Germany. There, we stated that divorce and its legal effects may be recognized in the Philippines insofar as respondent is concerned in view of the nationality principle in our civil law on the status of persons. For failing to apply these doctrines, the decision of the Court of Appeals must be reversed.[43] We hold that the divorce obtained by Lorenzo H. Llorente from his first wife Paula was valid and recognized in this jurisdiction as a matter of comity. Now, the effects of this divorce (as to the succession to the estate of the decedent) are matters best left to the determination of the trial court.

Validity of the Will The Civil Code provides: Art. 17. The forms and solemnities of contracts, wills, and other public instruments shall be governed by the laws of the country in which they are executed. When the acts referred to are executed before the diplomatic or consular officials of the Republic of the Philippines in a foreign country, the solemnities established by Philippine laws shall be observed in their execution. (underscoring ours) The clear intent of Lorenzo to bequeath his property to his second wife and children by her is glaringly shown in the will he executed. We do not wish to frustrate his wishes, since he was a foreigner, not covered by our laws on family rights and duties, status, condition and legal capacity.[44] Whether the will is intrinsically valid and who shall inherit from Lorenzo are issues best proved by foreign law which must be pleaded and proved. Whether the will was executed in accordance with the formalities required is answered by referring to Philippine law. In fact, the will was duly probated. As a guide however, the trial court should note that whatever public policy or good customs may be involved in our system of legitimes, Congress did not intend to extend the same to the succession of foreign nationals. Congress specifically left the amount of successional rights to the decedent's national law.[45] Having thus ruled, we find it unnecessary to pass upon the other issues raised.

The Fallo WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G. R. SP No. 17446 promulgated on July 31, 1995 is SET ASIDE. In lieu thereof, the Court REVERSES the decision of the Regional Trial Court and RECOGNIZES as VALID the decree of divorce granted in favor of the deceased Lorenzo N. Llorente by the Superior Court of the State of California in and for the County of San Diego, made final on December 4, 1952. Further, the Court REMANDS the cases to the court of origin for determination of the intrinsic validity of Lorenzo N. Llorentes will and determination of the parties successional rights allowing proof of foreign law with instructions that the trial court shall proceed with all deliberate dispatch to settle the estate of the deceased within the framework of the Rules of Court. No costs.

SO ORDERED. Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

[1]

In CA-G. R. SP. No. 17446, promulgated on July 31, 1995, Lipana-Reyes+, J., ponente, Torres, Jr. and Hofilena, JJ., concurring.
[2]

In Spec. Proc. No. IR-755 (In the Matter of the Probate and Allowance of the Last Will and Testament of Lorenzo N. Llorente, Lorenzo N. Llorente, Petitioner) and Spec. Proc. No. IR888 (Petition for the Grant of Letters of Administration for the Estate of Lorenzo N. Llorente, Paula T. Llorente, Petitioner), dated May 18, 1987, Judge Esteban B. Abonal, presiding.
[3] [4] [5] [6]

Decision, Court of Appeals, Rollo, p. 51. Exh. B, Trial Court Folder of Exhibits, p. 61. Ibid.

This was issued pursuant to Lorenzos petition, Petition No. 4708849, filed with the U.S. Court. Exhs.H and H-3 Trial Court Folder of Exhibits, p. 157, 159.
[7] [8] [9]

Decision, Court of Appeals, Rollo, p. 51; Exh. B, Trial Court Folder of Exhibits, p. 61. Ibid. Exh. A, Trial Court Folder of Exhibits, p. 60. Exh. B-1 Trial Court Folder of Exhibits, p. 62. Exh. D, Trial Court Folder of Exhibits, pp. 63-64. Exh. E, Trial Court Folder of Exhibits, p. 69. Exh. F, Trial Court Folder of Exhibits, p. 148. Decision, Court of Appeals, Rollo, p. 52. Comment, Rollo, p. 147. Decision, Court of Appeals, Rollo, p. 52. Exh. A, Trial Court Folder of Exhibits, pp. 3-4; Decision, Court of Appeals, Rollo, p. 52. Docketed as Spec. Proc. No. IR-755. Decision, RTC, Rollo, p. 37. Ibid. Ibid. Docketed as Spec. Proc. No. IR-888. Decision, RTC, Rollo, p. 38. Decision, Court of Appeals, Rollo, p. 52. Ibid., pp. 52-53. Ibid., p. 53. RTC Decision, Rollo, p. 37. Order, Regional Trial Court in Spec. Proc. Nos. IR-755 and 888, Rollo, p. 46. Citing Article 335 of the Civil Code, which states, The following cannot adopt: xxx

[10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29]

(3) a married person, without the consent of the other spouse; xxx, the trial court reasoned that since the divorce obtained by Lorenzo did not dissolve his first marriage with Paula, then the adoption of Raul and Luz was void, as Paula did not give her consent to it.
[30] [31] [32] [33]

Order, Regional Trial Court, Rollo, p. 47. Docketed as CA-G. R. SP No. 17446. Decision, Court of Appeals, Rollo, p. 56.

On August 31, 1995, petitioner also filed with this Court a verified complaint against the members of the Special Thirteenth Division, Court of Appeals, Associate Justices Justo P.

Torres, Jr., Celia Lipana-Reyes + and Hector Hofilena for law, manifest incompetence and extreme bias (Rollo, p. 15).
[34]

gross

ignorance

of

the

Again with Associate Justice Celia Lipana-Reyes+, ponente, concurred in by Associate Justices Justo P. Torres, Jr. and Hector Hofilena (Former Special Thirteenth Division).
[35] [36]

Filed on May 10, 1996, Rollo, pp. 9-36.

Petitioner alleges (1) That the Court of Appeals lost its jurisdiction over the case when it issued the resolution denying the motion for reconsideration; (2) That Art. 144 of the Civil Case has been repealed by Arts. 253 and 147 of the Family Code and (3) That Alicia and her children not are entitled to any share in the estate of the deceased (Rollo, p. 19).
[37] [38] [39] [40] [41] [42] [43]

Collector of Internal Revenue v. Fisher, 110 Phil. 686 (1961). Joint Record on Appeal, p. 255; Rollo, p. 40. In Re: Estate of Edward Christensen, Aznar v. Helen Garcia, 117 Phil. 96 (1963). 139 SCRA 139 (1985). 300 SCRA 406 (1998). 174 SCRA 653 (1989).

The ruling in the case of Tenchavez v. Escano (122 Phil. 752 [1965]) that provides that a foreign divorce between Filipino citizens sought and decreed after the effectivity of the present civil code is not entitled to recognition as valid in this jurisdiction is NOT applicable in the case at bar as Lorenzo was no longer a Filipino citizen when he obtained the divorce.
[44]

Article 15, Civil Code provides Laws relating to family rights and duties, or to the status, condition and legal capacity of persons are binding upon citizens of the Philippines, even though living abroad. (Underscoring ours)
[45]

Bellis v. Bellis, 126 Phil. 726 (1967).

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 140047 July 13, 2004

PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, petitioner, vs. V.P. EUSEBIO CONSTRUCTION, INC.; 3-PLEX INTERNATIONAL, INC.; VICENTE P. EUSEBIO; SOLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA SANTOS; AND FIRST INTEGRATED BONDING AND INSURANCE COMPANY, INC., respondents.

DECISION

DAVIDE, JR., 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. 911906 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 Undertaking 12 executed by respondents VPECI, Spouses Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and Spouses Eduardo E. Santos and Iluminada Santos; and (2) a surety bond 13 issued by respondent First Integrated Bonding and Insurance Company, Inc. (FIBICI). The Surety Bond was later amended on 23 June 1981 to increase the amount of coverage from P6.4 million to P6.967 million and to change the bank in whose favor the petitioner's guarantee was issued, from Rafidain Bank to Al Ahli Bank of Kuwait.14 On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service 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 extension of the Performance Bond and Advance Payment Guarantee. Petitioner's Letters of Guarantee Nos. 81-194-F (Performance Bond) and 81-195-F (Advance Payment Bond) with expiry date of 25 November 1982 were then renewed or extended to 9 February 1983 and 9 March 1983, respectively.17 The surety bond was also extended for another period of one year, from 12 May 1982 to 12 May 1983. 18 The Performance Bond was further extended twelve times with validity of up to 8 December 1986,19 while the Advance Payment Guarantee was extended three times more up to 24 May 1984 when the latter was cancelled after full refund or reimbursement by the joint venture contractor. 20 The surety bond was likewise extended to 8 May 1987.21 As of March 1986, the status of the Project was 51% accomplished, meaning the structures were already finished. The remaining 47% consisted in electro-mechanical works and the 2%, sanitary works, which both required importation of equipment and materials. 22 On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full payment of its performance bond counter-guarantee. Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requested Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex call on the performance guarantee for being a drastic action in contravention of its mutual agreement with the latter that (1) the imposition of penalty would be held in abeyance until the completion of the project; and (2) the time extension would be open, depending on the developments on the negotiations for a foreign loan to finance the completion of the project.23 It also wrote SOB protesting the call for lack of factual or legal basis, since the failure to complete the Project was due to (1) the Iraqi government's lack of foreign exchange with which to pay its (VPECI's) accomplishments and (2) SOB's noncompliance for the past several years with the provision in the contract that 75% of the billings would be paid in US dollars.24 Subsequently, or on 19 November 1986, respondent VPECI advised the petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the amicable settlement of the Project.25 On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating that it had already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, and demanding reimbursement by the petitioner of what it paid to the latter bank plus interest thereon and related expenses.26

Both petitioner Philguarantee and respondent VPECI sought the assistance of some government agencies of the Philippines. On 10 August 1987, VPECI requested the Central Bank to hold in abeyance the payment by the petitioner "to allow the diplomatic machinery to take its course, for otherwise, the Philippine government , through the Philguarantee and the Central Bank, would become instruments of the Iraqi Government in consummating a clear act of injustice and inequity committed against a Filipino contractor." 27 On 27 August 1987, the Central Bank authorized the remittance for its account of the amount of US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing full payment of the performance counter-guarantee for VPECI's project in Iraq. 28 On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to Al Ahli Bank, and reiterated the joint and solidary obligation of the respondents to reimburse the petitioner for the advances made on its counter-guarantee.29 The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21 January 1988.30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83 representing interest and penalty charges demanded by the latter bank. 31 On 19 June 1991, the petitioner sent to the respondents separate letters demanding full payment of the amount of P47,872,373.98 plus accruing interest, penalty charges, and 10% attorney's fees pursuant to their joint and solidary obligations under the deed of undertaking and surety bond.32 When the respondents failed to pay, the petitioner filed on 9 July 1991 a civil case for collection of a sum of money against the respondents before the RTC of Makati City. After due trial, the trial court ruled against Philguarantee and held that the latter had no valid cause of action against the respondents. It opined that at the time the call was made on the guarantee which was executed for a specific period, the guarantee had already lapsed or expired. There was no valid renewal or extension of the guarantee for failure of the petitioner to secure respondents' express consent thereto. The trial court also found that the joint venture contractor incurred no delay in the execution of the Project. Considering the Project owner's violations of the contract which rendered impossible the joint venture contractor's performance of its undertaking, no valid call on the guarantee could be made. Furthermore, the trial court held that no valid notice was first made by the Project owner SOB to the joint venture contractor before the call on the guarantee. Accordingly, it dismissed the complaint, as well as the counterclaims and cross-claim, and ordered the petitioner to pay attorney's fees of P100,000 to respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex and the Santos Spouses, plus costs. 33 In its 14 June 1999 Decision,34 the Court of Appeals affirmed the trial court's decision, ratiocinating as follows: First, appellant cannot deny the fact that it was fully aware of the status of project implementation as well as the problems besetting the contractors, between 1982 to 1985, having sent some of its people to Baghdad during that period. The successive renewals/extensions of the guarantees in fact, was prompted by delays, not solely attributable to the contractors, and such extension understandably allowed by the SOB (project owner) which had not anyway complied with its contractual commitment to tender 75% of payment in US Dollars, and which still retained overdue amounts collectible by VPECI. Second, appellant was very much aware of the violations committed by the SOB of its contractual undertakings with VPECI, principally, the payment of foreign currency (US$) for 75% of the total contract price, as well as of the complications and injustice that will result from its payment of the full amount of the performance guarantee, as evident in PHILGUARANTEE's letter dated 13 May 1987 . Third, appellant was fully aware that SOB was in fact still obligated to the Joint Venture and there was still an amount collectible from and still being retained by the project owner, which amount can be set-off with the sum covered by the performance guarantee.

 Fourth, well-apprised of the above conditions obtaining at the Project site and cognizant of the war situation at the time in Iraq, appellant, though earlier has made representations with the SOB regarding a possible amicable termination of the Project as suggested by VPECI, made a complete turn-around and insisted on acting in favor of the unjustified "call" by the foreign banks.35 The petitioner then came to this Court via Rule 45 of the Rules of Court claiming that the Court of Appeals erred in affirming the trial court's ruling that I RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF UNDERTAKING THEY EXECUTED IN FAVOR OF PETITIONER IN CONSIDERATION FOR THE ISSUANCE OF ITS COUNTERGUARANTEE AND THAT PETITIONER CANNOT PASS ON TO RESPONDENTS WHAT IT HAD PAID UNDER THE SAID COUNTER-GUARANTEE. II PETITIONER CANNOT CLAIM SUBROGATION. III IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD RESPONDENTS LIABLE UNDER THEIR DEED OF UNDERTAKING.36 The main issue in this case is whether the petitioner is entitled to reimbursement of what it paid under Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait based on the deed of undertaking and surety bond from the respondents. The petitioner asserts that since the guarantee it issued was absolute, unconditional, and irrevocable the nature and extent of its liability are analogous to those of suretyship. Its liability accrued upon the failure of the respondents to finish the construction of the Institute of Physical Therapy Buildings in Baghdad. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the contract is called suretyship. 37 Strictly speaking, guaranty and surety are nearly related, and many of the principles are common to both. In both contracts, there is a promise to answer for the debt or default of another. However, in this jurisdiction, they may be distinguished thus: 1. A surety is usually bound with his principal by the same instrument executed at the same time and on the same consideration. On the other hand, the contract of guaranty is the guarantor's own separate undertaking often supported by a consideration separate from that supporting the contract of the principal; the original contract of his principal is not his contract. 2. A surety assumes liability as a regular party to the undertaking; while the liability of a guarantor is conditional depending on the failure of the primary debtor to pay the obligation. 3. The obligation of a surety is primary, while that of a guarantor is secondary. 4. A surety is an original promissor and debtor from the beginning, while a guarantor is charged on his own undertaking. 5. A surety is, ordinarily, held to know every default of his principal; whereas a guarantor is not bound to take notice of the non-performance of his principal. 6. Usually, a surety will not be discharged either by the mere indulgence of the creditor to the principal or by want of notice of the default of the principal, no matter how much he may be injured thereby. A guarantor is often discharged by the mere indulgence of

the creditor to the principal, and is usually not liable unless notified of the default of the principal. 38 In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81-194-F, which provides in part as follows: In consideration of your issuing the above performance guarantee/counter-guarantee, we hereby unconditionally and irrevocably guarantee, under our Ref. No. LG-81-194 F to pay you on your first written or telex demand Iraq Dinars Two Hundred Seventy One Thousand Eight Hundred Eight and fils six hundred ten (ID271,808/610) representing 100% of the performance bond required of V.P. EUSEBIO for the construction of the Physical Therapy Institute, Phase II, Baghdad, Iraq, plus interest and other incidental expenses related thereto. In the event of default by V.P. EUSEBIO, we shall pay you 100% of the obligation unpaid but in no case shall such amount exceed Iraq Dinars (ID) 271,808/610 plus interest and other incidental expenses. (Emphasis supplied) 39 Guided by the abovementioned distinctions between a surety and a guaranty, as well as the factual milieu of this case, we find that the Court of Appeals and the trial court were correct in ruling that the petitioner is a guarantor and not a surety. That the guarantee issued by the petitioner is unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still characterized by its subsidiary and conditional quality because it does not take effect until the fulfillment of the condition, namely, that the principal obligor should fail in his obligation at the time and in the form he bound himself.40 In other words, an unconditional guarantee is still subject to the condition that the principal debtor should default in his obligation first before resort to the guarantor could be had. A conditional guaranty, as opposed to an unconditional guaranty, is one which depends upon some extraneous event, beyond the mere default of the principal, and generally upon notice of the principal's default and reasonable diligence in exhausting proper remedies against the principal.41 It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default by respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply that of an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact that petitioner's guaranty is unconditional does not make it a surety. Besides, surety is never presumed. A party should not be considered a surety where the contract itself stipulates that he is acting only as a guarantor. It is only when the guarantor binds himself solidarily with the principal debtor that the contract becomes one of suretyship. 42 Having determined petitioner's liability as guarantor, the next question we have to grapple with is whether the respondent contractor has defaulted in its obligations that would justify resort to the guaranty. This is a mixed question of fact and law that is better addressed by the lower courts, since this Court is not a trier of facts. It is a fundamental and settled rule that the findings of fact of the trial court and the Court of Appeals are binding or conclusive upon this Court unless they are not supported by the evidence or unless strong and cogent reasons dictate otherwise.43 The factual findings of the Court of Appeals are normally not reviewable by us under Rule 45 of the Rules of Court except when they are at variance with those of the trial court. 44 The trial court and the Court of Appeals were in unison that the respondent contractor cannot be considered to have defaulted in its obligations because the cause of the delay was not primarily attributable to it. A corollary issue is what law should be applied in determining whether the respondent contractor has defaultedin 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.47Philippine 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 nonperformance are determined by the law of the place of performance or lex loci solutionis, which is useful because it is undoubtedly always connected to the contract in a significant way. 50 In this case, the laws of Iraq bear substantial connection to the transaction, since one of the parties is the Iraqi Government and the place of performance is in Iraq. Hence, the issue of whether respondent VPECI defaulted in its obligations may be determined by the laws of Iraq. However, since that foreign law was not properly pleaded or proved, the presumption of identity or similarity, otherwise known as the processual presumption, comes into play. Where foreign law is not pleaded or, even if pleaded, is not proved, the presumption is that foreign law is the same as ours.51 Our law, specifically Article 1169, last paragraph, of the Civil Code, provides: "In reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what is incumbent upon him." Default or mora on the part of the debtor is the delay in the fulfillment of the prestation by reason of a cause imputable to the former. 52 It is the non-fulfillment of an obligation with respect to time.53 It is undisputed that only 51.7% of the total work had been accomplished. The 48.3% unfinished portion consisted in the purchase and installation of electro-mechanical equipment and materials, which were available from foreign suppliers, thus requiring US Dollars for their importation. The monthly billings and payments made by SOB 54 reveal that the agreement between the parties was a periodic payment by the Project owner to the contractor depending on the percentage of accomplishment within the period. 55 The payments were, in turn, to be used by the contractor to finance the subsequent phase of the work. 56 However, as explained by VPECI in its letter to the Department of Foreign Affairs (DFA), the payment by SOB purely in Dinars adversely affected the completion of the project; thus: 4. Despite protests from the plaintiff, SOB continued paying the accomplishment billings of the Contractor purely in Iraqi Dinars and which payment came only after some delays. 5. SOB is fully aware of the following: 5.2 That Plaintiff is a foreign contractor in Iraq and as such, would need foreign currency (US$), to finance the purchase of various equipment, materials, supplies, tools and to pay for the cost of project management, supervision and skilled labor not available in Iraq and therefore have to be imported and or obtained from the Philippines and other sources outside Iraq. 5.3 That the Ministry of Labor and Employment of the Philippines requires the remittance into the Philippines of 70% of the salaries of Filipino workers working abroad in US Dollars; 5.5 That the Iraqi Dinar is not a freely convertible currency such that the same cannot be used to purchase equipment, materials, supplies, etc. outside of Iraq; 5.6 That most of the materials specified by SOB in the CONTRACT are not available in Iraq and therefore have to be imported;

5.7 That the government of Iraq prohibits the bringing of local currency (Iraqui Dinars) out of Iraq and hence, imported materials, equipment, etc., cannot be purchased or obtained using Iraqui Dinars as medium of acquisition. 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; 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. Taedo 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 In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor

delays performance; and (3) that the creditor requires the performance because it must appear that the tolerance or benevolence of the creditor must have ended. 59 As stated earlier, SOB cannot yet demand complete performance from VPECI because it has not yet itself performed its obligation in a proper manner, particularly the payment of the 75% of the cost of the Project in US Dollars. The VPECI cannot yet be said to have incurred in delay. Even assuming that there was delay and that the delay was attributable to VPECI, still the effects of that delay ceased upon the renunciation by the creditor, SOB, which could be implied when the latter granted several extensions of time to the former. 60 Besides, no demand has yet been made by SOB against the respondent contractor. Demand is generally necessary even if a period has been fixed in the obligation. And default generally begins from the moment the creditor demands judicially or extra-judicially the performance of the obligation. Without such demand, the effects of default will not arise.61 Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and all legal remedies against the said debtor have been resorted to by the creditor.62 It could also set up compensation as regards what the creditor SOB may owe the principal debtor VPECI.63 In this case, however, the petitioner has clearly waived these rights and remedies by making the payment of an obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal debtor. As found by the Court of Appeals, the petitioner fully knew that the joint venture contractor had collectibles from SOB which could be set off with the amount covered by the performance guarantee. In February 1987, the OMEAA transmitted to the petitioner a copy of a telex dated 10 February 1987 of the Philippine Ambassador in Baghdad, Iraq, informing it of the note verbale sent by the Iraqi Ministry of Foreign Affairs stating that the past due obligations of the joint venture contractor from the petitioner would "be deducted from the dues of the two contractors."64 Also, in the project situationer attached to the letter to the OMEAA dated 26 March 1987, the petitioner raised as among the arguments to be presented in support of the cancellation of the counter-guarantee the fact that the amount of ID281,414/066 retained by SOB from the Project was more than enough to cover the counter-guarantee of ID271,808/610; thus: 6.1 Present the following arguments in cancelling the counterguarantee: The Iraqi Government does not have the foreign exchange to fulfill its contractual obligations of paying 75% of progress billings in US dollars. 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.

Footnotes
1

Now known as the Trade Investment Development Corporation of the Philippines. Exhibit "V" and "2-3," Original Record, vol. III (hereinafter OR III), 395. Exh.12-E," OR III, 433. Exh.12-E," OR III, 433. Exh."9-A," OR III, 416. Exh."12-G," OR III, 435.

Exh."V," OR III, 395. Exh."13-V," OR III, 447. CA Decision, 3. Exh."A," OR III, 49. Exh."B," OR III, 64. Exh."11," OR III, 421. Exh."12," OR III, 81. Exh."E-1," OR III, 83. Exh."1," OR III, 276. Exh."1-J," OR III, 282. Exh."A-1," OR III, 51. Exh."E-2," OR III, 84. Exhs. "A-2" to "A-13," OR III, 51-63. Exhs. "B-2" to "B-4," OR III, 67-69. Exhs."E" to "E-12," OR III, 84. TSN, 10 April 1992, 41-44. Exh. "22," OR III, 344-345. Exh."40," OR III, 366. Exh."16," OR III, 220. Exh."G-12-a," OR III, 207. Exh.7-A," OR III, 306. Exh."G-12-g," OR III, 213. Exh."I," OR III, 230. Exh."G-12-h," OR III, 214. Exhs."G-13-d" to "G-13-f," OR III, 220-222; Exh."G-12-h," OR III, 214. Exhs. "Q" to "T," OR III, 254-263. Per Judge Zosimo Z. Angeles. Rollo, 72-79.

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

29

30

31

32

33

34

Per Associate Justice Martin S. Villarama, Jr. with Associate Justices Angelina Sandoval-Gutierrez (now Supreme Court Associate Justice) and Romeo A. Brawner concurring. Rollo, 48-71.
35

Rollo, 61-68. Id., 293-294. Article 2047, Civil Code.

36

37

38

E. Zobel Inc. v. CA, G.R. No. 113931, 6 May 1998, 290 SCRA 1; VI Ambrosio Padilla, Civil Law 497-498 (5th ed. 1969)(hereinafter Padilla) .
39

Exh. "A," OR III, 49-50. VI Padilla 494. Black's Law Dictionary 635 (5th ed. 1979). Art.2047, Civil Code. Alba v. Court of Appeals, G.R. No. 120066, 9 September 1999, 314 SCRA 36.

40

41

42

43

44

Development Bank of the Philippines v. Court of Appeals, G.R. No. 119712, 29 January 1999, 302 SCRA 362.
45

Disederio P. Jurado, Comments and Jurisprudence on Obligations and Contracts 49 (7th Revised ed. 1980) (hereinafter Jurado ).
46

Jovito R. Salonga, Private International Law 350 (1995 ed.) (hereinafter Salonga). Edgardo L. PAras, Philippine Conflict of Laws 414 (6th ed. 1984). Salonga, 356. Id., 355. Jorge R. Coquia & Elizabeth A. Pangalangan, Conflict of Laws 418 (1995 ed.).

47

48

49

50

51

Lim v. Collector of Customs, 36 Phil. 472 (1917); International Harvester Co. v. Hamburg-American Line, 42 Phil. 845; Miciano v. Brimo, 50 Phil. 867 (1924).
52

IV Arturo M. Tolentino, Commentaries and Jurisprudence on the Civil Code of the Philippines 101 (hereinafter Tolentino).
53

Jurado, 50. Exhs. "16" to "16-O,"OR III, 454-469. See Court of Appeals' Decision, 19, Rollo, 66; RTC's Decision, 22, Rollo, 93. RTC's Decision, 22; Rollo, 93. Exhs. "4-A" to "4-D," OR III, 296-298. Exh."25," OR III, 352. IV Tolentino 110. Id.,102. Id.,110. Art.2058, Civil Code. Art.1280, Civil Code. Exh. "23," OR III, 348-349. Exh."25-E," OR III, 355. Exh. "5," OR III, 303-304.

54

55

56

57

58

59

60

61

62

63

64

65

66

67

Art.2066, Civil Code. Arts.1302(3) and 2067, Civil Code. Art.1236, second par., Civil Code. VI Padilla, 545. V Tolentino, 521. 4th Whereas Clause of Executive Order No. 185, which took effect on 5 June 1987.

68

69

70

71

72

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 149177 November 23, 2007

KAZUHIRO HASEGAWA and NIPPON ENGINEERING CONSULTANTS CO., LTD., Petitioners, vs. MINORU KITAMURA, Respondent. DECISION NACHURA, J.: Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the April 18, 2001 Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 60827, and the July 25, 2001 Resolution2denying the motion for reconsideration thereof. On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd. (Nippon), a Japanese consultancy firm providing technical and management support in the infrastructure projects of foreign governments,3 entered into an Independent Contractor Agreement (ICA) with respondent Minoru Kitamura, a Japanese national permanently residing in the Philippines.4 The agreement provides that respondent was to extend professional services to Nippon for a year starting on April 1, 1999.5 Nippon then assigned respondent to work as the project manager of the Southern Tagalog Access Road (STAR) Project in the Philippines, following the company's consultancy contract with the Philippine Government.6 When the STAR Project was near completion, the Department of Public Works and Highways (DPWH) engaged the consultancy services of Nippon, on January 28, 2000, this time for the detailed engineering and construction supervision of the Bongabon-Baler Road Improvement (BBRI) Project.7 Respondent was named as the project manager in the contract's Appendix 3.1.8 On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's general manager for its International Division, informed respondent that the company had no more intention of automatically renewing his ICA. His services would be engaged by the company only up to the substantial completion of the STAR Project on March 31, 2000, just in time for the ICA's expiry.9 Threatened with impending unemployment, respondent, through his lawyer, requested a negotiation conferenceand demanded that he be assigned to the BBRI project. Nippon insisted that respondents contract was for a fixed term that had already expired, and refused to negotiate for the renewal of the ICA. 10 As he was not able to generate a positive response from the petitioners, respondent consequently initiated on June 1, 2000 Civil Case No. 00-0264 for specific performance and damages with the Regional Trial Court of Lipa City.11 For their part, petitioners, contending that the ICA had been perfected in Japan and executed by and between Japanese nationals, moved to dismiss the complaint for lack of jurisdiction. They asserted that the claim forimproper pre-termination of respondent's ICA could only be heard and ventilated in the proper courts of Japan following the principles of lex loci celebrationis and lex contractus.12 In the meantime, on June 20, 2000, the DPWH approved Nippon's request for the replacement of Kitamura by a certain Y. Kotake as project manager of the BBRI Project.13 On June 29, 2000, the RTC, invoking our ruling in Insular Government v. Frank14 that matters connected with the performance of contracts are regulated by the law prevailing at the place of performance,15 denied the motion to dismiss.16 The trial court subsequently denied petitioners' motion for reconsideration,17 prompting them to file with the appellate court, on August 14, 2000, their first Petition for Certiorari under Rule 65 [docketed as CA-G.R. SP No. 60205].18 On August 23, 2000, the CA resolved to dismiss the petition on procedural groundsfor lack of

statement of material dates and for insufficient verification and certification against forum shopping.19 An Entry of Judgment was later issued by the appellate court on September 20, 2000.20 Aggrieved by this development, petitioners filed with the CA, on September 19, 2000, still within the reglementary period, a second Petition for Certiorari under Rule 65 already stating therein the material dates and attaching thereto the proper verification and certification. This second petition, which substantially raised the same issues as those in the first, was docketed as CA-G.R. SP No. 60827.21 Ruling on the merits of the second petition, the appellate court rendered the assailed April 18, 2001 Decision22finding no grave abuse of discretion in the trial court's denial of the motion to dismiss. The CA ruled, among others, that the principle of lex loci celebrationis was not applicable to the case, because nowhere in the pleadings was the validity of the written agreement put in issue. The CA thus declared that the trial court was correct in applying instead the principle of lex loci solutionis.23 Petitioners' motion for reconsideration was subsequently denied by the CA in the assailed July 25, 2001 Resolution.24 Remaining steadfast in their stance despite the series of denials, petitioners instituted the instant Petition for Review on Certiorari25 imputing the following errors to the appellate court: A. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE TRIAL COURT VALIDLY EXERCISED JURISDICTION OVER THE INSTANT CONTROVERSY, DESPITE THE FACT THAT THE CONTRACT SUBJECT MATTER OF THE PROCEEDINGS A QUO WAS ENTERED INTO BY AND BETWEEN TWO JAPANESE NATIONALS, WRITTEN WHOLLY IN THE JAPANESE LANGUAGE AND EXECUTED IN TOKYO, JAPAN. B. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN OVERLOOKING THE NEED TO REVIEW OUR ADHERENCE TO THE PRINCIPLE OF LEX LOCI SOLUTIONIS IN THE LIGHT OF RECENT DEVELOPMENT[S] IN PRIVATE INTERNATIONAL LAWS. 26 The pivotal question that this Court is called upon to resolve is whether the subject matter jurisdiction of Philippine courts in civil cases for specific performance and damages involving contracts executed outside the country by foreign nationals may be assailed on the principles of lex loci celebrationis, lex contractus, the "state of the most significant relationship rule," or forum non conveniens. However, before ruling on this issue, we must first dispose of the procedural matters raised by the respondent. Kitamura contends that the finality of the appellate court's decision in CA-G.R. SP No. 60205 has already barred the filing of the second petition docketed as CA-G.R. SP No. 60827 (fundamentally raising the same issues as those in the first one) and the instant petition for review thereof. We do not agree. When the CA dismissed CA-G.R. SP No. 60205 on account of the petition's defective certification of non-forum shopping, it was a dismissal without prejudice.27 The same holds true in the CA's dismissal of the said case due to defects in the formal requirement of verification28 and in the other requirement in Rule 46 of the Rules of Court on the statement of the material dates.29 The dismissal being without prejudice, petitioners can re-file the petition, or file a second petition attaching thereto the appropriate verification and certificationas they, in fact didand stating therein the material dates, within the prescribed period 30 in Section 4, Rule 65 of the said Rules.31 The dismissal of a case without prejudice signifies the absence of a decision on the merits and leaves the parties free to litigate the matter in a subsequent action as though the dismissed action had not been commenced. In other words, the termination of a case not on the merits does not bar another action involving the same parties, on the same subject matter and theory.32 Necessarily, because the said dismissal is without prejudice and has no res judicata effect, and even if petitioners still indicated in the verification and certification of the second certiorari petition that the first had already been dismissed on procedural grounds,33 petitioners are no longer required by the Rules to indicate in their certification of

non-forum shopping in the instant petition for review of the second certiorari petition, the status of the aforesaid first petition before the CA. In any case, an omission in the certificate of non-forum shopping about any event that will not constitute res judicata and litis pendentia, as in the present case, is not a fatal defect. It will not warrant the dismissal and nullification of the entire proceedings, considering that the evils sought to be prevented by the said certificate are no longer present.34 The Court also finds no merit in respondent's contention that petitioner Hasegawa is only authorized to verify and certify, on behalf of Nippon, the certiorari petition filed with the CA and not the instant petition. True, the Authorization 35 dated September 4, 2000, which is attached to the second certiorari petition and which is also attached to the instant petition for review, is limited in scopeits wordings indicate that Hasegawa is given the authority to sign for and act on behalf of the company only in the petition filed with the appellate court, and that authority cannot extend to the instant petition for review. 36 In a plethora of cases, however, this Court has liberally applied the Rules or even suspended its application whenever a satisfactory explanation and a subsequent fulfillment of the requirements have been made. 37 Given that petitioners herein sufficiently explained their misgivings on this point and appended to their Reply38 an updated Authorization39 for Hasegawa to act on behalf of the company in the instant petition, the Court finds the same as sufficient compliance with the Rules. However, the Court cannot extend the same liberal treatment to the defect in the verification and certification. As respondent pointed out, and to which we agree, Hasegawa is truly not authorized to act on behalf of Nippon in this case. The aforesaid September 4, 2000 Authorization and even the subsequent August 17, 2001 Authorization were issued only by Nippon's president and chief executive officer, not by the company's board of directors. In not a few cases, we have ruled that corporate powers are exercised by the board of directors; thus, no person, not even its officers, can bind the corporation, in the absence of authority from the board.40Considering that Hasegawa verified and certified the petition only on his behalf and not on behalf of the other petitioner, the petition has to be denied pursuant to Loquias v. Office of the Ombudsman.41 Substantial compliance will not suffice in a matter that demands strict observance of the Rules.42 While technical rules of procedure are designed not to frustrate the ends of justice, nonetheless, they are intended to effect the proper and orderly disposition of cases and effectively prevent the clogging of court dockets.43 Further, the Court has observed that petitioners incorrectly filed a Rule 65 petition to question the trial court's denial of their motion to dismiss. It is a well-established rule that an order denying a motion to dismiss is interlocutory, and cannot be the subject of the extraordinary petition for certiorari or mandamus. The appropriate recourse is to file an answer and to interpose as defenses the objections raised in the motion, to proceed to trial, and, in case of an adverse decision, to elevate the entire case by appeal in due course.44 While there are recognized exceptions to this rule,45 petitioners' case does not fall among them. This brings us to the discussion of the substantive issue of the case. Asserting that the RTC of Lipa City is an inconvenient forum, petitioners question its jurisdiction to hear and resolve the civil case for specific performance and damages filed by the respondent. The ICA subject of the litigation was entered into and perfected in Tokyo, Japan, by Japanese nationals, and written wholly in the Japanese language. Thus, petitioners posit that local courts have no substantial relationship to the parties46following the [state of the] most significant relationship rule in Private International Law.47 The Court notes that petitioners adopted an additional but different theory when they elevated the case to the appellate court. In the Motion to Dismiss48 filed with the trial court, petitioners never contended that the RTC is an inconvenient forum. They merely argued that the applicable law which will determine the validity or invalidity of respondent's claim is that of Japan, following the principles of lex loci celebrationis and lex contractus.49 While not abandoning this stance in their petition before the appellate court, petitioners on certiorari significantly invoked the defense of forum non conveniens.50 On petition for review before this Court, petitioners dropped their other arguments, maintained the forum non conveniens defense, and introduced their new argument that the applicable principle is the [state of the] most significant relationship rule.51 Be that as it may, this Court is not inclined to deny this petition merely on the basis of the change in theory, as explained in Philippine Ports Authority v. City of Iloilo.52 We only pointed out petitioners' inconstancy in their arguments to emphasize their incorrect assertion of conflict of laws principles.

To elucidate, in the judicial resolution of conflicts problems, three consecutive phases are involved: jurisdiction, choice of law, and recognition and enforcement of judgments. Corresponding to these phases are the following questions: (1) Where can or should litigation be initiated? (2) Which law will the court apply? and (3) Where can the resulting judgment be enforced?53 Analytically, jurisdiction and choice of law are two distinct concepts.54 Jurisdiction considers whether it is fair to cause a defendant to travel to this state; choice of law asks the further question whether the application of a substantive law which will determine the merits of the case is fair to both parties. The power to exercise jurisdiction does not automatically give a state constitutional authority to apply forum law. While jurisdiction and the choice of the lex fori will often coincide, the "minimum contacts" for one do not always provide the necessary "significant contacts" for the other. 55 The question of whether the law of a state can be applied to a transaction is different from the question of whether the courts of that state have jurisdiction to enter a judgment.56 In this case, only the first phase is at issuejurisdiction.1wphi1 Jurisdiction, however, has various aspects. For a court to validly exercise its power to adjudicate a controversy, it must have jurisdiction over the plaintiff or the petitioner, over the defendant or the respondent, over the subject matter, over the issues of the case and, in cases involving property, over the res or the thing which is the subject of the litigation.57 In assailing the trial court's jurisdiction herein, petitioners are actually referring to subject matter jurisdiction. Jurisdiction over the subject matter in a judicial proceeding is conferred by the sovereign authority which establishes and organizes the court. It is given only by law and in the manner prescribed by law.58 It is further determined by the allegations of the complaint irrespective of whether the plaintiff is entitled to all or some of the claims asserted therein. 59 To succeed in its motion for the dismissal of an action for lack of jurisdiction over the subject matter of the claim,60 the movant must show that the court or tribunal cannot act on the matter submitted to it because no law grants it the power to adjudicate the claims.61 In the instant case, petitioners, in their motion to dismiss, do not claim that the trial court is not properly vested by law with jurisdiction to hear the subject controversy for, indeed, Civil Case No. 00-0264 for specific performance and damages is one not capable of pecuniary estimation and is properly cognizable by the RTC of Lipa City.62What they rather raise as grounds to question subject matter jurisdiction are the principles of lex loci celebrationis and lex contractus, and the "state of the most significant relationship rule." The Court finds the invocation of these grounds unsound. Lex loci celebrationis relates to the "law of the place of the ceremony" 63 or the law of the place where a contract is made.64 The doctrine of lex contractus or lex loci contractus means the "law of the place where a contract is executed or to be performed."65 It controls the nature, construction, and validity of the contract66 and it may pertain to the law voluntarily agreed upon by the parties or the law intended by them either expressly or implicitly. 67 Under the "state of the most significant relationship rule," to ascertain what state law to apply to a dispute, the court should determine which state has the most substantial connection to the occurrence and the parties. In a case involving a contract, the court should consider where the contract was made, was negotiated, was to be performed, and the domicile, place of business, or place of incorporation of the parties.68 This rule takes into account several contacts and evaluates them according to their relative importance with respect to the particular issue to be resolved. 69 Since these three principles in conflict of laws make reference to the law applicable to a dispute, they are rules proper for the second phase, the choice of law.70 They determine which state's law is to be applied in resolving the substantive issues of a conflicts problem. 71 Necessarily, as the only issue in this case is that of jurisdiction, choice-of-law rules are not only inapplicable but also not yet called for. Further, petitioners' premature invocation of choice-of-law rules is exposed by the fact that they have not yet pointed out any conflict between the laws of Japan and ours. Before determining which law should apply, first there should exist a conflict of laws situation requiring the application of the conflict of laws rules.72 Also, when the law of a foreign country is invoked to provide the proper rules for the solution of a case, the existence of such law must be pleaded and proved.73

It should be noted that when a conflicts case, one involving a foreign element, is brought before a court or administrative agency, there are three alternatives open to the latter in disposing of it: (1) dismiss the case, either because of lack of jurisdiction or refusal to assume jurisdiction over the case; (2) assume jurisdiction over the case and apply the internal law of the forum; or (3) assume jurisdiction over the case and take into account or apply the law of some other State or States.74 The courts power to hear cases and controversies is derived from the Constitution and the laws. While it may choose to recognize laws of foreign nations, the court is not limited by foreign sovereign law short of treaties or other formal agreements, even in matters regarding rights provided by foreign sovereigns.75 Neither can the other ground raised, forum non conveniens,76 be used to deprive the trial court of its jurisdiction herein. First, it is not a proper basis for a motion to dismiss because Section 1, Rule 16 of the Rules of Court does not include it as a ground.77 Second, whether a suit should be entertained or dismissed on the basis of the said doctrine depends largely upon the facts of the particular case and is addressed to the sound discretion of the trial court. 78 In this case, the RTC decided to assume jurisdiction. Third, the propriety of dismissing a case based on this principle requires a factual determination; hence, this conflicts principle is more properly considered a matter of defense.79 Accordingly, since the RTC is vested by law with the power to entertain and hear the civil case filed by respondent and the grounds raised by petitioners to assail that jurisdiction are inappropriate, the trial and appellate courts correctly denied the petitioners motion to dismiss. WHEREFORE, premises considered, the petition for review on certiorari is DENIED. SO ORDERED. ANTONIO EDUARDO B. NACHURA Associate Justice WE CONCUR: CONSUELO YNARES-SANTIAGO Associate Justice Chairperson MA. ALICIA AUSTRIA-MARTINEZ Associate Justice MINITA V. CHICO-NAZARIO Associate Justice

RUBEN T. REYES Associate Justice ATTESTATION I attest that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. CONSUELO YNARES-SANTIAGO Associate Justice Chairperson, Third Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes

Penned by Associate Justice Bienvenido L. Reyes, with the late Associate Justice Eubulo G. Verzola and Associate Justice Marina L. Buzon, concurring; rollo, pp. 37-44.
2

Id. at 46-47. CA rollo (CA-G.R. SP No. 60827), p. 84. Id. at 116-120. Id. at 32-36. Id. at 85. Id. at 121-148. Id. at 166-171. Id. at 38. Id. at 39-41. Id. at 109. Id. at 53-57. Id. at 42-43. 13 Phil. 236 (1909). Insular Government v. Frank, id. at 240. CA rollo (CA-G.R. SP No. 60827), pp. 25-26. Id. at 27-28. CA rollo (CA-G.R. SP No. 60205), pp. 2-42.

10

11

12

13

14

15

16

17

18

19

Id. at 44. The August 23, 2000 Resolution penned by Associate Justice Delilah Vidallon-Magtolis (retired), with the concurrence of Associate Justices Eloy R. Bello, Jr. (retired) and Elvi John S. Asuncion (dismissed) pertinently provides as follows: "A cursory reading of the petition indicates no statement as to the date when the petitioners filed their motion for reconsideration and when they received the order of denial thereof, as required in Section 3, paragraph 2, Rule 46 of the 1997 Rules of Civil Procedure as amended by Circular No. 39-98 dated August 18, 1998 of the Supreme Court. Moreover, the verification and certification of non-forum shopping was executed by petitioner Kazuhiro Hasegawa for both petitioners without any indication that the latter had authorized him to file the same. "WHEREFORE, the [petition] is DENIED due course and DISMISSED outright. "SO ORDERED."
20

Id. at 45. CA rollo (CA-G.R. SP No. 60827), pp. 2-24. Supra note 1. Id. at 222. Supra note 2.

21

22

23

24

25

Rollo, pp. 3-35. Id. at 15.

26

27

See Spouses Melo v. Court of Appeals, 376 Phil. 204, 213-214 (1999), in which the Supreme Court ruled that compliance with the certification against forum shopping is separate from, and independent of, the avoidance of forum shopping itself. Thus, there is a difference in the treatmentin terms of imposable sanctionsbetween failure to comply with the certification requirement and violation of the prohibition against forum shopping. The former is merely a cause for the dismissal, without prejudice, of the complaint or initiatory pleading, while the latter is a ground for summary dismissal thereof and constitutes direct contempt. See also Philippine Radiant Products, Inc. v. Metropolitan Bank & Trust Company, Inc., G.R. No. 163569, December 9, 2005, 477 SCRA 299, 314, in which the Court ruled that the dismissal due to failure to append to the petition the board resolution authorizing a corporate officer to file the same for and in behalf of the corporation is without prejudice. So is the dismissal of the petition for failure of the petitioner to append thereto the requisite copies of the assailed order/s.
28

See Torres v. Specialized Packaging Development Corporation, G.R. No. 149634, July 6, 2004, 433 SCRA 455, 463-464, in which the Court made the pronouncement that the requirement of verification is simply a condition affecting the form of pleadings, and noncompliance therewith does not necessarily render it fatally defective.
29

Section 3, Rule 46 of the Rules of Court pertinently states that "x x x [i]n actions filed under Rule 65, the petition shall further indicate the material dates showing when notice of the judgment or final order or resolution subject thereof was received, when a motion for new trial or reconsideration, if any, was filed and when notice of the denial thereof was received. x x x"
30

Estrera v. Court of Appeals, G.R. Nos. 154235-36, August 16, 2006, 499 SCRA 86, 95; and Spouses Melo v. Court of Appeals, supra note 27, at 214.
31

The Rules of Court pertinently provides in Section 4, Rule 65 that "[t]he petition may be filed not later than sixty (60) days from notice of the judgment, order or resolution. In case a motion for reconsideration or new trial is timely filed, whether such motion is required or not, the sixty (60) day period shall be counted from notice of the denial of said motion. x x x"
32

Delgado v. Court of Appeals, G.R. No. 137881, December 21, 2004, 447 SCRA 402, 415.
33

CA rollo (CA-G.R. SP No. 60827), p. 21.

34

Fuentebella v. Castro, G.R. No. 150865, June 30, 2006, 494 SCRA 183, 193-194; see Roxas v. Court of Appeals, 415 Phil. 430 (2001).
35

Rollo, p. 33; CA rollo (CA-G.R. SP No. 60827), p. 23. The Authorization dated September 4, 2000 pertinently reads: "I, KEN TAKAGI, President and Chief Executive Officer of NIPPON ENGINEERING CONSULTANTS CO., LTD., a corporation duly organized and existing in accordance with the corporation laws of Japan, with principal address at 3-23-1 Komagome, Toshima-ku Tokyo, Japan, hereby authorize its International Division General Manager, Mr. Kazuhiro Hasegawa, to sign and act for and in behalf of Nippon Engineering Consultants Co., Ltd., for purposes of filing a Petition for Certiorari before the proper tribunal in the case entitled: "Kazuhiro Hasegawa and Nippon Engineering Consultants Co., Ltd. vs. Minoru Kitamura and Hon. Avelino C. Demetria of the Regional Trial Court, Fourth Judicial Region-Branch 85, Lipa City," and to do such other things, acts and deals which may be necessary and proper for the attainment of the said objectives" [Underscoring ours].
36

Cf. Orbeta v. Sendiong, G.R. No. 155236, July 8, 2005, 463 SCRA 180, 199-200, in which the Court ruled that the agent's signing therein of the verification and certification is already covered by the provisions of the general power of attorney issued by the principal.

37

Barcenas v. Tomas, G.R. No. 150321, March 31, 2005, 454 SCRA 593, 604. Dated October 11, 2001; rollo, pp. 192-203. Dated August 17, 2001, id. at 202.

38

39

40

San Pablo Manufacturing Corporation v. Commissioner of Internal Revenue, G.R. No. 147749, June 22, 2006, 492 SCRA 192, 197; LDP Marketing, Inc. v. Monter, G.R. No. 159653, January 25, 2006, 480 SCRA 137, 142; Expertravel & Tours, Inc. v. Court of Appeals, G.R. No. 152392, May 26, 2005, 459 SCRA 147, 160.
41

392 Phil. 596, 603-604 (2000). Loquias v. Office of the Ombudsman, id.at 604. Santos v. Court of Appeals, 413 Phil. 41, 54 (2001). Yutingco v. Court of Appeals, 435 Phil. 83, 92 (2002).

42

43

44

45

Bank of America NT & SA v. Court of Appeals, 448 Phil. 181, 193 (2003). As stated herein, under certain situations resort to certiorari is considered appropriate when: (1) the trial court issued the order without or in excess of jurisdiction; (2) there is patent grave abuse of discretion by the trial court; or (3) appeal would not prove to be a speedy and adequate remedy as when an appeal would not promptly relieve a defendant from the injurious effects of the patently mistaken order maintaining the plaintiffs baseless action and compelling the defendants needlessly to go through a protracted trial and clogging the court dockets with another futile case.
46

Rollo, p. 228. Id. at 234-245. Dated June 5, 2000; CA rollo (CA-G.R. SP No. 60827), pp. 53-57. Id. at 55. Id. at 14. Rollo, pp. 19-28. 453 Phil. 927, 934 (2003). Scoles, Hay, Borchers, Symeonides, Conflict of Laws, 3rd ed. (2000), p. 3. Coquia and Aguiling-Pangalangan, Conflict of Laws, 1995 ed., p. 64.

47

48

49

50

51

52

53

54

55

Supra note 53, at 162, citing Hay, The Interrelation of Jurisdictional Choice of Law in U.S. Conflicts Law, 28 Int'l. & Comp. L.Q. 161 (1979).
56

Shaffer v. Heitner, 433 U.S. 186, 215; 97 S.Ct. 2569, 2585 (1977), citing Justice Black's Dissenting Opinion in Hanson v. Denckla, 357 U.S. 235, 258; 78 S. Ct. 1228, 1242 (1958).
57

See Regalado, Remedial Law Compendium, Vol. 1, 8th Revised Ed., pp. 7-8. U.S. v. De La Santa, 9 Phil. 22, 25-26 (1907).

58

59

Bokingo v. Court of Appeals, G.R. No. 161739, May 4, 2006, 489 SCRA 521, 530; Tomas Claudio Memorial College, Inc. v. Court of Appeals, 374 Phil. 859, 864 (1999).
60

See RULES OF COURT, Rule 16, Sec. 1. See In Re: Calloway, 1 Phil. 11, 12 (1901).

61

62

Bokingo v. Court of Appeals, supra note 59, at 531-533; Radio Communications of the Phils. Inc. v. Court of Appeals, 435 Phil. 62, 68-69 (2002).
63

Garcia v. Recio, 418 Phil. 723, 729 (2001); Board of Commissioners (CID) v. Dela Rosa, G.R. Nos. 95122-23, May 31, 1991, 197 SCRA 853, 888.
64

<http://web2.westlaw.com/search/default.wl?rs=WLW7.10&action=Search&fn=_top& sv=Split& method=TNC&query=CA(+lex+loci+celebrationis+)&db=DIBLACK&utid=%7bD0AE3BEE -91BC-4B2B-B7883FB4D963677B%7d&vr=2.0&rp=%2fsearch%2fdefault.wl&mt=WLIGeneralSubscription > (visited October 22, 2007).

65

<http://web2.westlaw.com/search/default.wl?rs=WLW7.10&action=Search&fn=_top& sv=Split& method=TNC&query=CA(+lex+loci+contractus+)&db=DIBLACK&utid=%7bD0AE3BEE91BC-4B2B-B7883FB4D963677B%7d&vr=2.0&rp=%2fsearch%2fdefault.wl&mt=WLIGeneralSubscription >(visited October 22, 2007).

66

Id.

67

Philippine Export and Foreign Loan Guarantee Corporation v. V.P. Eusebio Construction, Inc., G.R. No. 140047, July 13, 2004, 434 SCRA 202, 214-215.
68

<http://web2.westlaw.com/search/default.wl?rs=WLW7.10&action=Search&fn=_top& sv=Split& method=TNC&query=CA(+most+significant+relationship+)&db=DIBLACK&utid=%7bD0 AE3BEE-91BC-4B2B-B7883FB4D963677B%7d&vr=2.0&rp=%2fsearch%2fdefault.wl&mt= WLIGeneralSubscription> (visited October 22, 2007).

69

Saudi Arabian Airlines v. Court of Appeals, 358 Phil. 105, 127 (1998). The contacts which were taken into account in this case are the following: (a) the place where the injury occurred; (b) the place where the conduct causing the injury occurred; (c) the domicile, residence, nationality, place of incorporation and place of business of the parties; and (d) the place where the relationship, if any, between the parties is centered.
70

See Auten v. Auten, 308 N.Y 155, 159-160 (1954). Supra note 53, at 117-118; supra note 54, at 64-65. Laurel v. Garcia, G.R. Nos. 92013 and 92047, July 25, 1990, 187 SCRA 797, 810-811.

71

72

73

International Harvester Company in Russia v. Hamburg-American Line, 42 Phil. 845, 855 (1918).
74

Salonga, Private International Law, 1995 ed., p. 44.

75

Veitz, Jr. v. Unisys Corporation, 676 F. Supp. 99, 101 (1987), citing Randall v. Arabian Am. Oil. Co., 778 F. 2d 1146 (1985).
76

Under this rule, a court, in conflicts cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere (Bank of America NT & SA v. Court of Appeals, supra note 45, at 196). The court may refuse to entertain a case for any of the following practical reasons: (1) the belief that the matter can be better tried and decided elsewhere, either because the main aspects of the case transpired in a foreign jurisdiction or the material witnesses have their residence there; (2) the belief that the non-resident plaintiff sought the forum, a practice known as forum shopping, merely to secure procedural advantages or to convey or harass the defendant; (3) the unwillingness to extend local judicial facilities to non-residents or aliens when the docket may already be overcrowded; (4) the inadequacy of the local judicial machinery for effectuating the right sought to be maintained; and (5) the difficulty of ascertaining foreign law (Puyat v. Zabarte, 405 Phil. 413, 432 [2001]).

77

Philsec Investment Corporation v. Court of Appeals, G.R. No. 103493, June 19, 1997, 274 SCRA 102, 113.
78

Bank of America NT & SA v. Court of Appeals, supra note 45, at 196. Bank of America NT & SA v. Court of Appeals, supra note 45, at 197.

79

Republic of the Philippines SUPREME COURT SECOND DIVISION G.R. No. 155014 November 11, 2005 CRESCENT PETROLEUM, LTD., Petitioner, vs. M/V "LOK MAHESHWARI," THE SHIPPING CORPORATION OF INDIA, and PORTSERV LIMITED and/or TRANSMAR SHIPPING, INC., Respondents. DECISION PUNO, J.: This petition for review on certiorari under Rule 45 seeks the (a) reversal of the November 28, 2001 Decision of the Court of Appeals in CA-G.R. No. CV-54920,1 which dismissed for "want of jurisdiction" the instant case, and the September 3, 2002 Resolution of the same appellate court,2 which denied petitioners motion for reconsideration, and (b) reinstatement of the July 25, 1996 Decision3 of the Regional Trial Court (RTC) in Civil Case No. CEB-18679, which held that respondents were solidarily liable to pay petitioner the sum prayed for in the complaint. The facts are as follows: Respondent M/V "Lok Maheshwari" (Vessel) is an oceangoing vessel of Indian registry that is owned by respondent Shipping Corporation of India (SCI), a corporation organized and existing under the laws of India and principally owned by the Government of India. It was time-chartered by respondent SCI to Halla Merchant Marine Co. Ltd. (Halla), a South Korean company. Halla, in turn, sub-chartered the Vessel through a time charter to Transmar Shipping, Inc. (Transmar). Transmar further sub-chartered the Vessel to Portserv Limited (Portserv). Both Transmar and Portserv are corporations organized and existing under the laws of Canada. On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. (Crescent), a corporation organized and existing under the laws of Canada that is engaged in the business of selling petroleum and oil products for the use and operation of oceangoing vessels, to deliver marine fuel oils (bunker fuels) to the Vessel. Petitioner Crescent granted and confirmed the request through an advice via facsimile dated November 2, 1995. As security for the payment of the bunker fuels and related services, petitioner Crescent received two (2) checks in the amounts of US$100,000.00 and US$200,000.00. Thus, petitioner Crescent contracted with its supplier, Marine Petrobulk Limited (Marine Petrobulk), another Canadian corporation, for the physical delivery of the bunker fuels to the Vessel. On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting to US$103,544 inclusive of barging and demurrage charges to the Vessel at the port of Pioneer Grain, Vancouver, Canada. The Chief Engineer Officer of the Vessel duly acknowledged and received the delivery receipt. Marine Petrobulk issued an invoice to petitioner Crescent for the US$101,400.00 worth of the bunker fuels. Petitioner Crescent issued a check for the same amount in favor of Marine Petrobulk, which check was duly encashed. Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated November 21, 1995 to "Portserv Limited, and/or the Master, and/or Owners, and/or Operators, and/or Charterers of M/V Lok Maheshwari" in the amount of US$103,544.00 with instruction to remit the amount on or before December 1, 1995. The period lapsed and several demands were made but no payment was received. Also, the checks issued to petitioner Crescent as security for the payment of the bunker fuels were dishonored for insufficiency of funds.As a consequence, petitioner Crescent incurred additional expenses of US$8,572.61 for interest, tracking fees, and legal fees. On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner Crescent instituted before the RTC of Cebu City an action "for a sum of money with prayer for temporary restraining order and writ of preliminary attachment" against respondents Vessel and SCI, Portserv and/or Transmar. The case was raffled to Branch 10 and docketed as Civil Case No. CEB-18679.

On May 3, 1996, the trial court issued a writ of attachment against the Vessel with bond at P2,710,000.00. Petitioner Crescent withdrew its prayer for a temporary restraining order and posted the required bond. On May 18, 1996, summonses were served to respondents Vessel and SCI, and Portserv and/or Transmar through the Master of the Vessel. On May 28, 1996, respondents Vessel and SCI, through Pioneer Insurance and Surety Corporation (Pioneer), filed an urgent ex-parte motion to approve Pioneers letter of undertaking, to consider it as counter-bond and to discharge the attachment. On May 29, 1996, the trial court granted the motion; thus, the letter of undertaking was approved as counter-bond to discharge the attachment. For failing to file their respective answers and upon motion of petitioner Crescent, the trial court declared respondents Vessel and SCI, Portserv and/or Transmar in default. Petitioner Crescent was allowed to present its evidence ex-parte. On July 25, 1996, the trial court rendered its decision in favor of petitioner Crescent, thus: WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff [Crescent] and against the defendants [Vessel, SCI, Portserv and/or Transmar]. Consequently, the latter are hereby ordered to pay plaintiff jointly and solidarily, the following: (a) the sum of US$103,544.00, representing the outstanding obligation; (b) interest of US$10,978.50 as of July 3, 1996, plus additional interest at 18% per annum for the period thereafter, until the principal account is fully paid; (c) attorneys fees of P300,000.00; and (d) P200,000.00 as litigation expenses. SO ORDERED. On August 19, 1996, respondents Vessel and SCI appealed to the Court of Appeals. They attached copies of the charter parties between respondent SCI and Halla, between Halla and Transmar, and between Transmar and Portserv. They pointed out that Portserv was a time charterer and that there is a clause in the time charters between respondent SCI and Halla, and between Halla and Transmar, which states that "the Charterers shall provide and pay for all the fuel except as otherwise agreed." They submitted a copy of Part II of the Bunker Fuel Agreement between petitioner Crescent and Portserv containing a stipulation that New York law governs the "construction, validity and performance" of the contract. They likewise submitted certified copies of the Commercial Instruments and Maritime Lien Act of the United States (U.S.), some U.S. cases, and some Canadian cases to support their defense. On November 28, 2001, the Court of Appeals issued its assailed Decision, which reversed that of the trial court,viz: WHEREFORE, premises considered, the Decision dated July 25, 1996, issued by the Regional Trial Court of Cebu City, Branch 10, is hereby REVERSED and SET ASIDE, and a new one is entered DISMISSING the instant case for want of jurisdiction. The appellate court denied petitioner Crescents motion for reconsideration explaining that it "dismissed the instant action primarily on the ground of forum non conveniens considering that the parties are foreign corporations which are not doing business in the Philippines." Hence, this petition submitting the following issues for resolution, viz: 1. Philippine courts have jurisdiction over a foreign vessel found inside Philippine waters for the enforcement of a maritime lien against said vessel and/or its owners and operators; 2. The principle of forum non conveniens is inapplicable to the instant case; 3. The trial court acquired jurisdiction over the subject matter of the instant case, as well as over the res and over the persons of the parties;

4. The enforcement of a maritime lien on the subject vessel is expressly granted by law. The Ship Mortgage Acts as well as the Code of Commerce provides for relief to petitioner for its unpaid claim; 5. The arbitration clause in the contract was not rigid or inflexible but expressly allowed petitioner to enforce its maritime lien in Philippine courts provided the vessel was in the Philippines; 6. The law of the state of New York is inapplicable to the present controversy as the same has not been properly pleaded and proved; 7. Petitioner has legal capacity to sue before Philippine courts as it is suing upon an isolated business transaction; 8. Respondents were duly served summons although service of summons upon respondents is not a jurisdictional requirement, the action being a suit quasi in rem; 9. The trial courts decision has factual and legal bases; and, 10. The respondents should be held jointly and solidarily liable. In a nutshell, this case is for the satisfaction of unpaid supplies furnished by a foreign supplier in a foreign port to a vessel of foreign registry that is owned, chartered and sub-chartered by foreign entities. Under Batas Pambansa Bilang 129, as amended by Republic Act No. 7691, RTCs exercise exclusive original jurisdiction "(i)n all actions in admiralty and maritime where the demand or claim exceeds two hundred thousand pesos (P200,000) or in Metro Manila, where such demand or claim exceeds four hundred thousand pesos (P400,000)." Two (2) tests have been used to determine whether a case involving a contract comes within the admiralty and maritime jurisdiction of a court - the locational test and the subject matter test. The English rule follows the locational test wherein maritime and admiralty jurisdiction, with a few exceptions, is exercised only on contracts made upon the sea and to be executed thereon. This is totally rejected under the American rule where the criterion in determining whether a contract is maritime depends on the nature and subject matter of the contract, having reference to maritime service and transactions.4 In International Harvester Company of the Philippines v. Aragon,5 we adopted the American rule and held that "(w)hether or not a contract is maritime depends not on the place where the contract is made and is to be executed, making the locality the test, but on the subject matter of the contract, making the true criterion a maritime service or a maritime transaction." A contract for furnishing supplies like the one involved in this case is maritime and within the jurisdiction of admiralty.6 It may be invoked before our courts through an action in rem or quasi in rem or an action in personam. Thus: 7 xxx "Articles 579 and 584 [of the Code of Commerce] provide a method of collecting or enforcing not only the liens created under Section 580 but also for the collection of any kind of lien whatsoever."8 In the Philippines, we have a complete legislation, both substantive and adjective, under which to bring an action in rem against a vessel for the purpose of enforcing liens. The substantive law is found in Article 580 of the Code of Commerce. The procedural law is to be found in Article 584 of the same Code. The result is, therefore, that in the Philippines any vessel even though it be a foreign vessel found in any port of this Archipelago may be attached and sold under the substantive law which defines the right, and the procedural law contained in the Code of Commerce by which this right is to be enforced. 9 x x x. But where neither the law nor the contract between the parties creates any lien or charge upon the vessel, the only way in which it can be seized before judgment is by pursuing the remedy relating to attachment under Rule 59 [now Rule 57] of the Rules of Court.10 But, is petitioner Crescent entitled to a maritime lien under our laws? Petitioner Crescent bases its claim of a maritime lien on Sections 21, 22 and 23 of Presidential Decree No. 1521 (P.D. No. 1521), also known as theShip Mortgage Decree of 1978, viz: Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. - Any person furnishing repairs, supplies, towage, use of dry dock or maritime 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. Sec. 22. Persons Authorized to Procure Repairs, Supplies and Necessaries. - The following persons shall be presumed to have authority from the owner to procure repairs, supplies, towage, use of dry dock or marine railway, and other necessaries for the vessel: The managing owner, ships husband, master or any person to whom the management of the vessel at the port of supply is entrusted. No person tortuously or unlawfully in possession or charge of a vessel shall have authority to bind the vessel. Sec. 23. Notice to Person Furnishing Repairs, Supplies and Necessaries. - The officers and agents of a vessel specified in Section 22 of this Decree shall be taken to include such officers and agents when appointed by a charterer, by an owner pro hac vice, or by an agreed purchaser in possession of the vessel; but nothing in this Decree shall be construed to confer a lien when the furnisher knew, or by exercise of reasonable diligence could have ascertained, that because of the terms of a charter party, agreement for sale of the vessel, or for any other reason, the person ordering the repairs, supplies, or other necessaries was without authority to bind the vessel therefor. Petitioner Crescent submits that these provisions apply to both domestic and foreign vessels, as well as domestic and foreign suppliers of necessaries. It contends that the use of the term "any person" in Section 21 implies that the law is not restricted to domestic suppliers but also includes all persons who supply provisions and necessaries to a vessel, whether foreign or domestic. It points out further that the law does not indicate that the supplies or necessaries must be furnished in the Philippines in order to give petitioner the right to seek enforcement of the lien with a Philippine court.11 Respondents Vessel and SCI, on the other hand, maintain that Section 21 of the P.D. No. 1521 or the Ship Mortgage Decree of 1978 does not apply to a foreign supplier like petitioner Crescent as the provision refers only to a situation where the person furnishing the supplies is situated inside the territory of the Philippines and not where the necessaries were furnished in a foreign jurisdiction like Canada.12 We find against petitioner Crescent. I. P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted "to accelerate the growth and development of the shipping industry" and "to extend the benefits accorded to overseas shipping under Presidential Decree No. 214 to domestic shipping."13 It is patterned closely from the U.S. Ship Mortgage Act of 1920 and the Liberian Maritime Law relating to preferred mortgages.14 Notably, Sections 21, 22 and 23 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 are identical to Subsections P, Q, and R, respectively, of the U.S. Ship Mortgage Act of 1920, which is part of the Federal Maritime Lien Act. Hence, U.S. jurisprudence finds relevance to determining whether P.D. No. 1521 or the Ship Mortgage Decree of 1978 applies in the present case. The various tests used in the U.S. to determine whether a maritime lien exists are the following: One. "In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in a foreign port, whether such lien exists, or whether the court has or will exercise jurisdiction, depends on the law of the country where the supplies were furnished, which must be pleaded and proved."15 This principle was laid down in the 1888 case of The Scotia,16 reiterated in The Kaiser Wilhelm II17 (1916), in The Woudrichem18(1921) and in The City of Atlanta19 (1924). Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factor methodologies as the law of the place of supply.20 In Lauritzen v. Larsen,21 a Danish seaman, while temporarily in New York, joined the crew of a ship of Danish flag and registry that is owned by a Danish citizen. He signed the ships articles providing that the rights of the crew members would be governed by Danish law and by the employers contract with the Danish Seamens Union, of which he was a member. While in Havana and in the course of his employment, he was negligently injured. He sued the

shipowner in a federal district court in New York for damages under the Jones Act. In holding that Danish law and not the Jones Act was applicable, the Supreme Court adopted a multiplecontact test to determine, in the absence of a specific Congressional directive as to the statutes reach, which jurisdictions law should be applied. The following factors were considered: (1) place of the wrongful act; (2) law of the flag; (3) allegiance or domicile of the injured; (4) allegiance of the defendant shipowner; (5) place of contract; (6) inaccessibility of foreign forum; and (7) law of the forum. Several years after Lauritzen, the U.S. Supreme Court in the case of Romero v. International Terminal Operating Co.22 again considered a foreign seamans personal injury claim under both the Jones Act and the general maritime law. The Court held that the factors first announced in the case of Lauritzen were applicable not only to personal injury claims arising under the Jones Act but to all matters arising under maritime law in general.23 Hellenic Lines, Ltd. v. Rhoditis24 was also a suit under the Jones Act by a Greek seaman injured aboard a ship of Greek registry while in American waters. The ship was operated by a Greek corporation which has its largest office in New York and another office in New Orleans and whose stock is more than 95% owned by a U.S. domiciliary who is also a Greek citizen. The ship was engaged in regularly scheduled runs between various ports of the U.S. and the Middle East, Pakistan, and India, with its entire income coming from either originating or terminating in the U.S. The contract of employment provided that Greek law and a Greek collective bargaining agreement would apply between the employer and the seaman and that all claims arising out of the employment contract were to be adjudicated by a Greek court. The U.S. Supreme Court observed that of the seven factors listed in the Lauritzen test, four were in favor of the shipowner and against jurisdiction. In arriving at the conclusion that the Jones Act applies, it ruled that the application of the Lauritzen test is not a mechanical one. It stated thus: "[t]he significance of one or more factors must be considered in light of the national interest served by the assertion of Jones Act jurisdiction. (footnote omitted) Moreover, the list of seven factors in Lauritzen was not intended to be exhaustive. x x x [T]he shipowners base of operations is another factor of importance in determining whether the Jones Act is applicable; and there well may be others." The principles enunciated in these maritime tort cases have been extended to cases involving unpaid supplies and necessaries such as the cases of Forsythe International U.K., Ltd. v. M/V Ruth Venture,25 and Comoco Marine Services v. M/V El Centroamericano.26 Three. The factors provided in Restatement (Second) of Conflicts of Law have also been applied, especially in resolving cases brought under the Federal Maritime Lien Act. Their application suggests that in the absence of an effective choice of law by the parties, the forum contacts to be considered include: (a) the place of contracting; (b) the place of negotiation of the contract; (c) the place of performance; (d) the location of the subject matter of the contract; and (e) the domicile, residence, nationality, place of incorporation and place of business of the parties.27 In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield,28 an admiralty action in rem was brought by an American supplier against a vessel of Norwegian flag owned by a Norwegian Company and chartered by a London time charterer for unpaid fuel oil and marine diesel oil delivered while the vessel was in U.S. territory. The contract was executed in London. It was held that because the bunker fuel was delivered to a foreign flag vessel within the jurisdiction of the U.S., and because the invoice specified payment in the U.S., the admiralty and maritime law of the U.S. applied. The U.S. Court of Appeals recognized the modern approach to maritime conflict of law problems introduced in the Lauritzen case. However, it observed that Lauritzen involved a torts claim under the Jones Act while the present claim involves an alleged maritime lien arising from unpaid supplies. It made a disclaimer that its conclusion is limited to the unique circumstances surrounding a maritime lien as well as the statutory directives found in the Maritime Lien Statute and that the initial choice of law determination is significantly affected by the statutory policies surrounding a maritime lien. It ruled that the facts in the case call for the application of the Restatement (Second) of Conflicts of Law. The U.S. Court gave much significance to the congressional intent in enacting the Maritime Lien Statute to protect the interests of American supplier of goods, services or necessaries by making maritime liens available where traditional services are routinely rendered. It concluded that the Maritime Lien Statute represents a relevant policy of the forum that serves the needs of the international legal system as well as the basic policies underlying maritime law. The court also gave equal importance to the predictability of result and protection of justified expectations in a particular field of law. In the maritime realm, it is expected that when necessaries are furnished to a vessel in an American port by an American

supplier, the American Lien Statute will apply to protect that supplier regardless of the place where the contract was formed or the nationality of the vessel. The same principle was applied in the case of Swedish Telecom Radio v. M/V Discovery I29 where the American court refused to apply the Federal Maritime Lien Act to create a maritime lien for goods and services supplied by foreign companies in foreign ports. In this case, a Swedish company supplied radio equipment in a Spanish port to refurbish a Panamanian vessel damaged by fire. Some of the contract negotiations occurred in Spain and the agreement for supplies between the parties indicated Swedish companys willingness to submit to Swedish law. The ship was later sold under a contract of purchase providing for the application of New York law and was arrested in the U.S. The U.S. Court of Appeals also held that while the contacts-based framework set forth in Lauritzen was useful in the analysis of all maritime choice of law situations, the factors were geared towards a seamans injury claim. As in Gulf Trading, the lien arose by operation of law because the ships owner was not a party to the contract under which the goods were supplied. As a result, the court found it more appropriate to consider the factors contained in Section 6 of the Restatement (Second) of Conflicts of Law. The U.S. Court held that the primary concern of the Federal Maritime Lien Act is the protection of American suppliers of goods and services. The same factors were applied in the case of Ocean Ship Supply, Ltd. v. M/V Leah.30 II. Finding guidance from the foregoing decisions, the Court cannot sustain petitioner Crescents insistence on the application of P.D. No. 1521 or the Ship Mortgage Decree of 1978 and hold that a maritime lien exists. First. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only falls under one the law of the forum. All other elements are foreign Canada is the place of the wrongful act, of the allegiance or domicile of the injured and the place of contract; India is the law of the flag and the allegiance of the defendant shipowner. Balancing these basic interests, it is inconceivable that the Philippine court has any interest in the case that outweighs the interests of Canada or India for that matter. Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following the factors under Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien Act of the U.S., P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted primarily to protect Filipino suppliers and was not intended to create a lien from a contract for supplies between foreign entities delivered in a foreign port. Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of 1978 and rule that a maritime lien exists would not promote the public policy behind the enactment of the law to develop the domestic shipping industry. Opening up our courts to foreign suppliers by granting them a maritime lien under our laws even if they are not entitled to a maritime lien under their laws will encourage forum shopping. Finally. The submission of petitioner is not in keeping with the reasonable expectation of the parties to the contract. Indeed, when the parties entered into a contract for supplies in Canada, they could not have intended the laws of a remote country like the Philippines to determine the creation of a lien by the mere accident of the Vessels being in Philippine territory. III. But under which law should petitioner Crescent prove the existence of its maritime lien? In light of the interests of the various foreign elements involved, it is clear that Canada has the most significant interest in this dispute. The injured party is a Canadian corporation, the subcharterer which placed the orders for the supplies is also Canadian, the entity which physically delivered the bunker fuels is in Canada, the place of contracting and negotiation is in Canada, and the supplies were delivered in Canada. The arbitration clause contained in the Bunker Fuel Agreement which states that New York law governs the "construction, validity and performance" of the contract is only a factor that may be considered in the choice-of-law analysis but is not conclusive. As in the cases of Gulf Trading and Swedish Telecom, the lien that is the subject matter of this case arose by

operation of law and not by contract because the shipowner was not a party to the contract under which the goods were supplied. It is worthy to note that petitioner Crescent never alleged and proved Canadian law as basis for the existence of a maritime lien. To the end, it insisted on its theory that Philippine law applies. Petitioner contends that even if foreign law applies, since the same was not properly pleaded and proved, such foreign law must be presumed to be the same as Philippine law pursuant to the doctrine of processual presumption. Thus, we are left with two choices: (1) dismiss the case for petitioners failure to establish a cause of action31 or (2) presume that Canadian law is the same as Philippine law. In either case, the case has to be dismissed. It is well-settled that a party whose cause of action or defense depends upon a foreign law has the burden of proving the foreign law. Such foreign law is treated as a question of fact to be properly pleaded and proved.32Petitioner Crescents insistence on enforcing a maritime lien before our courts depended on the existence of a maritime lien under the proper law. By erroneously claiming a maritime lien under Philippine law instead of proving that a maritime lien exists under Canadian law, petitioner Crescent failed to establish a cause of action. 33 Even if we apply the doctrine of processual presumption, the result will still be the same. Under P.D. No. 1521 or the Ship Mortgage Decree of 1978, the following are the requisites for maritime liens on necessaries to exist: (1) the "necessaries" must have been furnished to and for the benefit of the vessel; (2) the "necessaries" must have been necessary for the continuation of the voyage of the vessel; (3) the credit must have been extended to the vessel; (4) there must be necessity for the extension of the credit; and (5) the necessaries must be ordered by persons authorized to contract on behalf of the vessel.34 These do not avail in the instant case. First. It was not established that benefit was extended to the vessel. While this is presumed when the master of the ship is the one who placed the order, it is not disputed that in this case it was the sub-charterer Portserv which placed the orders to petitioner Crescent. 35 Hence, the presumption does not arise and it is incumbent upon petitioner Crescent to prove that benefit was extended to the vessel. Petitioner did not. Second. Petitioner Crescent did not show any proof that the marine products were necessary for the continuation of the vessel. Third. It was not established that credit was extended to the vessel. It is presumed that "in the absence of fraud or collusion, where advances are made to a captain in a foreign port, upon his request, to pay for necessary repairs or supplies to enable his vessel to prosecute her voyage, or to pay harbor dues, or for pilotage, towage and like services rendered to the vessel, that they are made upon the credit of the vessel as well as upon that of her owners."36 In this case, it was the sub-charterer Portserv which requested for the delivery of the bunker fuels. The issuance of two checks amounting to US$300,000 in favor of petitioner Crescent prior to the delivery of the bunkers as security for the payment of the obligation weakens petitioner Crescents contention that credit was extended to the Vessel. We also note that when copies of the charter parties were submitted by respondents in the Court of Appeals, the time charters between respondent SCI and Halla and between Halla and Transmar were shown to contain a clause which states that "the Charterers shall provide and pay for all the fuel except as otherwise agreed." This militates against petitioner Crescents position that Portserv is authorized by the shipowner to contract for supplies upon the credit of the vessel. Fourth. There was no proof of necessity of credit. A necessity of credit will be presumed where it appears that the repairs and supplies were necessary for the ship and that they were ordered by the master. This presumption does not arise in this case since the fuels were not ordered by the master and there was no proof of necessity for the supplies. Finally. The necessaries were not ordered by persons authorized to contract in behalf of the vessel as provided under Section 22 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 the managing owner, the ships husband, master or any person with whom the management of the vessel at the port of supply is entrusted. Clearly, Portserv, a sub-charterer under a time charter, is not someone to whom the management of the vessel has been entrusted. A time charter is a contract for the use of a vessel for a specified period of time or for the duration of

one or more specified voyages wherein the owner of the time-chartered vessel retains possession and control through the master and crew who remain his employees. 37 Not enjoying the presumption of authority, petitioner Crescent should have proved that Portserv was authorized by the shipowner to contract for supplies. Petitioner failed. A discussion on the principle of forum non conveniens is unnecessary. IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. No. CV 54920, dated November 28, 2001, and its subsequent Resolution of September 3, 2002 are AFFIRMED. The instant petition for review on certiorari is DENIED for lack of merit. Cost against petitioner. SO ORDERED. REYNATO S. PUNO Associate Justice WE CONCUR: MA. ALICIA AUSTRIA-MARTINEZ Associate Justice ROMEO J. CALLEJO, SR. DANTE O. TINGA Associate Justice Associate Justice (on leave) MINITA V. CHICO-NAZARIO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Acting Chief Justice

Footnotes
*

On leave.

Penned by Associate Justice Juan Q. Enriquez, Jr., concurred in by Associate Justices Delilah Vidallon-Magtolis and Candido V. Rivera; Rollo, pp. 72-81.
2

Penned by Associate Justice Juan Q. Enriquez, Jr., concurred in by Associate Justices Delilah Vidallon-Magtolis and Josefina Guevara-Salonga; id., pp. 83-85.
3

Penned by Judge Leonardo B. Canares, Regional Trial Court, Branch 10, Cebu City; id., pp. 87-90.
4

Hernandez, Eduardo F. and Peasales, Antero A., Philippine Admiralty and Maritime Law (1987 ed.), pp. 9-10, citing New England Mutual Marine Insurance Co. v. Dunkan 8 U.S. (11 Wall) 1 (1870).
5

G.R. No. L-2372, August 26, 1949.

2 C.J.S. Section 39, p. 100.

Agbayani, Aguedo F., Commentaries and Jurisprudence on the Commercial Laws of the Philippines IV (1987), p. 178, citing McMicking v. Banco Espaol-Filipino, 13 Phil. 429 (1909), Ivanvich v. Odlin, 1 Phil. 284 (1902), and Heather v. Steamer "San Nicholas," 7 Phil. 532 (1907).
8

Mcmicking v. Banco Espaol-Filipino, id. Ivancich vs. Odlin & Pacific Lumber Co., supra. Heather vs. Steamer "San Nicholas," supra. Rollo, p. 315. Id., p. 469. 1st and 4th Whereas Clauses, P.D. No. 1521. See note 4, p. 133. The Woudrichem, 278 F. 568. 35 F. 907. 230 F. 717. 278 F. 568. 17 F.2d 308.

10

11

12

13

14

15

16

17

18

19

20

Dougherty, William F., "Multi-contact analysis for a multinational industry: The United States approach to choice of law analysis in the enforcement of maritime liens," University of San Francisco Maritime Law Journal (2000-2001), p. 89.
21

345 U.S. 571 (1953). 358 U.S. 354, 1959 AMC 832 (1959). See Dougherty, p. 82. 398 U.S. 306, 1970 AMC 994 (1970).

22

23

24

25

633 F.Supp.74 (1985). A British corporation based in London brought an in rem action against the vessel M/V Ruth Venture to enforce a maritime lien. A Liberian sub-charterer contracted for the supply of bunkers in London with Forsythe as its broker. The bunkers were furnished to the vessel at Richards Bay, South Africa but was not paid. The vessel was arrested in Portland, Oregon. In ruling that English law applies, it held that the Lauritzen/Rhoditis factors should be applied in a balancing analysis. "[T]he choice of law questions involving maritime liens is to be resolved by weighing and evaluating the points of contract between the transaction and the sovereign legal systems touched and affected by it The interests of competing sovereigns may be taken into account without rejecting altogether the contacts the bar and the maritime industry are accustomed to weigh in making the initial determination of governing law." Because English law disallows a lien for bunkers, the court held there was no lien.
26

1983 WL 602 (D.Or.) (1983). This involves a suit by a Singaporean corporation against a Panamanian vessel that is owned by Costa Ricans for supplies furnished in Singapore. The court, applying the Lauritzen factors, held that U.S. law did not apply to determine whether there exists a maritime lien. The case was dismissed under the doctrine of forum non conveniens. (See Tetley, William, Maritime Liens, Mortgages and Conflict of Laws, University of San Francisco Maritime Law Journal [Fall, 1993], p. 17.)
27

Gulf Trading and Transportation Co. v.The Vessel Hoegh Shield, 658 F.2d 363 (1981).

28

Id. 712 F.Supp 1542 (1988). 729 F.2d 971 (1984). Coquia, J. R. and Aguiling-Pangalangan, E., Conflict of Laws (2000), p. 129. Id., p. 121, citing Beale, The Conflict of Laws, Section 621.2 (1935). See note 31. Agbayani, p. 631. TSN, p. 6. Agbayani, p. 631, citing 70 Am Jur 2d, 479. Litonjua Shipping Inc. v. National Seamen Board, G.R. No. 51910, August 10, 1989.

29

30

31

32

33

34

35

36

37

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 162894 February 26, 2008

RAYTHEON INTERNATIONAL, INC., petitioner, vs. STOCKTON W. ROUZIE, JR., respondent. DECISION TINGA, J.: Before this Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks the reversal of the Decision 1 and Resolution2 of the Court of Appeals in CA-G.R. SP No. 67001 and the dismissal of the civil case filed by respondent against petitioner with the trial court. As culled from the records of the case, the following antecedents appear: Sometime in 1990, Brand Marine Services, Inc. (BMSI), a corporation duly organized and existing under the laws of the State of Connecticut, United States of America, and respondent Stockton W. Rouzie, Jr., an American citizen, entered into a contract whereby BMSI hired respondent as its representative to negotiate the sale of services in several government projects in the Philippines for an agreed remuneration of 10% of the gross receipts. On 11 March 1992, respondent secured a service contract with the Republic of the Philippines on behalf of BMSI for the dredging of rivers affected by the Mt. Pinatubo eruption and mudflows. 3 On 16 July 1994, respondent filed before the Arbitration Branch of the National Labor Relations Commission (NLRC) a suit against BMSI and Rust International, Inc. (RUST), Rodney C. Gilbert and Walter G. Browning for alleged nonpayment of commissions, illegal termination and breach of employment contract.4 On 28 September 1995, Labor Arbiter Pablo C. Espiritu, Jr. rendered judgment ordering BMSI and RUST to pay respondents money claims.5 Upon appeal by BMSI, the NLRC reversed the decision of the Labor Arbiter and dismissed respondents complaint on the ground of lack of jurisdiction.6 Respondent elevated the case to this Court but was dismissed in a Resolution dated 26 November 1997. The Resolution became final and executory on 09 November 1998. On 8 January 1999, respondent, then a resident of La Union, instituted an action for damages before the Regional Trial Court (RTC) of Bauang, La Union. The Complaint, 7 docketed as Civil Case No. 1192-BG, named as defendants herein petitioner Raytheon International, Inc. as well as BMSI and RUST, the two corporations impleaded in the earlier labor case. The complaint essentially reiterated the allegations in the labor case that BMSI verbally employed respondent to negotiate the sale of services in government projects and that respondent was not paid the commissions due him from the Pinatubo dredging project which he secured on behalf of BMSI. The complaint also averred that BMSI and RUST as well as petitioner itself had combined and functioned as one company. In its Answer,8 petitioner alleged that contrary to respondents claim, it was a foreign corporation duly licensed to do business in the Philippines and denied entering into any arrangement with respondent or paying the latter any sum of money. Petitioner also denied combining with BMSI and RUST for the purpose of assuming the alleged obligation of the said companies.9 Petitioner also referred to the NLRC decision which disclosed that per the written agreement between respondent and BMSI and RUST, denominated as "Special Sales Representative Agreement," the rights and obligations of the parties shall be governed by the laws of the State of Connecticut.10Petitioner sought the dismissal of the complaint on grounds of failure to state a cause of action and forum non conveniens and prayed for damages by way of compulsory counterclaim.11 On 18 May 1999, petitioner filed an Omnibus Motion for Preliminary Hearing Based on Affirmative Defenses and for Summary Judgment12 seeking the dismissal of the complaint on grounds of forum non conveniens and failure to state a cause of action. Respondent opposed

the same. Pending the resolution of the omnibus motion, the deposition of Walter Browning was taken before the Philippine Consulate General in Chicago.13 In an Order14 dated 13 September 2000, the RTC denied petitioners omnibus motion. The trial court held that the factual allegations in the complaint, assuming the same to be admitted, were sufficient for the trial court to render a valid judgment thereon. It also ruled that the principle of forum non conveniens was inapplicable because the trial court could enforce judgment on petitioner, it being a foreign corporation licensed to do business in the Philippines.15 Petitioner filed a Motion for Reconsideration16 of the order, which motion was opposed by respondent.17 In an Order dated 31 July 2001,18 the trial court denied petitioners motion. Thus, it filed a Rule 65 Petition19 with the Court of Appeals praying for the issuance of a writ of certiorari and a writ of injunction to set aside the twin orders of the trial court dated 13 September 2000 and 31 July 2001 and to enjoin the trial court from conducting further proceedings.20 On 28 August 2003, the Court of Appeals rendered the assailed Decision 21 denying the petition for certiorari for lack of merit. It also denied petitioners motion for reconsideration in the assailed Resolution issued on 10 March 2004. 22 The appellate court held that although the trial court should not have confined itself to the allegations in the complaint and should have also considered evidence aliunde in resolving petitioners omnibus motion, it found the evidence presented by petitioner, that is, the deposition of Walter Browning, insufficient for purposes of determining whether the complaint failed to state a cause of action. The appellate court also stated that it could not rule one way or the other on the issue of whether the corporations, including petitioner, named as defendants in the case had indeed merged together based solely on the evidence presented by respondent. Thus, it held that the issue should be threshed out during trial. 23 Moreover, the appellate court deferred to the discretion of the trial court when the latter decided not to desist from assuming jurisdiction on the ground of the inapplicability of the principle of forum non conveniens. Hence, this petition raising the following issues: WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO DISMISS THE COMPLAINTFOR FAILURE TO STATE A CAUSE OF ACTION AGAINST RAYTHEON INTERNATIONAL, INC. WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO DISMISS THE COMPLAINT ON THE GROUND OF FORUM NON CONVENIENS.24 Incidentally, respondent failed to file a comment despite repeated notices. The Ceferino Padua Law Office, counsel on record for respondent, manifested that the lawyer handling the case, Atty. Rogelio Karagdag, had severed relations with the law firm even before the filing of the instant petition and that it could no longer find the whereabouts of Atty. Karagdag or of respondent despite diligent efforts. In a Resolution25 dated 20 November 2006, the Court resolved to dispense with the filing of a comment. The instant petition lacks merit. Petitioner mainly asserts that the written contract between respondent and BMSI included a valid choice of law clause, that is, that the contract shall be governed by the laws of the State of Connecticut. It also mentions the presence of foreign elements in the dispute namely, the parties and witnesses involved are American corporations and citizens and the evidence to be presented is located outside the Philippines that renders our local courts inconvenient forums. Petitioner theorizes that the foreign elements of the dispute necessitate the immediate application of the doctrine of forum non conveniens. Recently in Hasegawa v. Kitamura,26 the Court outlined three consecutive phases involved in judicial resolution of conflicts-of-laws problems, namely: jurisdiction, choice of law, and recognition and enforcement of judgments. Thus, in the instances 27 where the Court held that the local judicial machinery was adequate to resolve controversies with a foreign element, the following requisites had to be proved: (1) that the Philippine Court is one to which the parties may conveniently resort; (2) that the Philippine Court is in a position to make an intelligent

decision as to the law and the facts; and (3) that the Philippine Court has or is likely to have the power to enforce its decision.28 On the matter of jurisdiction over a conflicts-of-laws problem where the case is filed in a Philippine court and where the court has jurisdiction over the subject matter, the parties and the res, it may or can proceed to try the case even if the rules of conflict-of-laws or the convenience of the parties point to a foreign forum. This is an exercise of sovereign prerogative of the country where the case is filed.29 Jurisdiction over the nature and subject matter of an action is conferred by the Constitution and the law30 and by the material allegations in the complaint, irrespective of whether or not the plaintiff is entitled to recover all or some of the claims or reliefs sought therein. 31 Civil Case No. 1192-BG is an action for damages arising from an alleged breach of contract. Undoubtedly, the nature of the action and the amount of damages prayed are within the jurisdiction of the RTC. As regards jurisdiction over the parties, the trial court acquired jurisdiction over herein respondent (as party plaintiff) upon the filing of the complaint. On the other hand, jurisdiction over the person of petitioner (as party defendant) was acquired by its voluntary appearance in court.32 That the subject contract included a stipulation that the same shall be governed by the laws of the State of Connecticut does not suggest that the Philippine courts, or any other foreign tribunal for that matter, are precluded from hearing the civil action. Jurisdiction and choice of law are two distinct concepts. Jurisdiction considers whether it is fair to cause a defendant to travel to this state; choice of law asks the further question whether the application of a substantive law which will determine the merits of the case is fair to both parties. 33The choice of law stipulation will become relevant only when the substantive issues of the instant case develop, that is, after hearing on the merits proceeds before the trial court. Under the doctrine of forum non conveniens, a court, in conflicts-of-laws cases, may refuse impositions on its jurisdiction where it is not the most "convenient" or available forum and the parties are not precluded from seeking remedies elsewhere. 34 Petitioners averments of the foreign elements in the instant case are not sufficient to oust the trial court of its jurisdiction over Civil Case No. No. 1192-BG and the parties involved. Moreover, the propriety of dismissing a case based on the principle of forum non conveniens requires a factual determination; hence, it is more properly considered as a matter of defense. While it is within the discretion of the trial court to abstain from assuming jurisdiction on this ground, it should do so only after vital facts are established, to determine whether special circumstances require the courts desistance. 35 Finding no grave abuse of discretion on the trial court, the Court of Appeals respected its conclusion that it can assume jurisdiction over the dispute notwithstanding its foreign elements. In the same manner, the Court defers to the sound discretion of the lower courts because their findings are binding on this Court. Petitioner also contends that the complaint in Civil Case No. 1192-BG failed to state a cause of action against petitioner. Failure to state a cause of action refers to the insufficiency of allegation in the pleading.36 As a general rule, the elementary test for failure to state a cause of action is whether the complaint alleges facts which if true would justify the relief demanded. 37 The complaint alleged that petitioner had combined with BMSI and RUST to function as one company. Petitioner contends that the deposition of Walter Browning rebutted this allegation. On this score, the resolution of the Court of Appeals is instructive, thus: x x x Our examination of the deposition of Mr. Walter Browning as well as other documents produced in the hearing shows that these evidence aliunde are not quite sufficient for us to mete a ruling that the complaint fails to state a cause of action. Annexes "A" to "E" by themselves are not substantial, convincing and conclusive proofs that Raytheon Engineers and Constructors, Inc. (REC) assumed the warranty obligations of defendant Rust International in the Makar Port Project in General Santos City, after Rust International ceased to exist after being absorbed by REC. Other documents already submitted in evidence are likewise meager to preponderantly conclude that Raytheon International, Inc., Rust International[,] Inc. and Brand Marine Service, Inc. have combined into one company, so much so that Raytheon International, Inc., the

surviving company (if at all) may be held liable for the obligation of BMSI to respondent Rouzie for unpaid commissions. Neither these documents clearly speak otherwise.38 As correctly pointed out by the Court of Appeals, the question of whether petitioner, BMSI and RUST merged together requires the presentation of further evidence, which only a full-blown trial on the merits can afford. WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision and Resolution of the Court of Appeals in CA-G.R. SP No. 67001 are hereby AFFIRMED. Costs against petitioner. SO ORDERED. DANTE O. TINGA Associate Justice

WE CONCUR:
*

ANTONIO T. CARPIO Associate Justice Acting Chairperson CONCHITA CARPIO MORALES Associate Justice

**

ANGELINA SANDOVALGUTIERREZ Associate Justice

PRESBITERO J. VELASCO, JR. Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Acting Chairperson

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairpersons Attestation, it is hereby certified that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. REYNATO S. PUNO Chief Justice

Footnotes
*

Acting Chairperson.

**

As replacement of Justice Leonardo A. Quisumbing who inhibited himself per Administrative Circular No. 84-2007.

Rollo, pp. 42-46. Dated 28 August 2003; penned by Associate Justice Arsenio J. Magpale and concurred in by Associate Justices Bienvenido L. Reyes, Acting Chairperson of the Special Ninth Division, and Rebecca De Guia-Salvador.
2

Id. at 47.Dated 10 March 2004. Id. at 48-49. Id. at 61-62. Id. at 63-74. Id. at 75-90. Id. at 48-54. Id. at 91-99. Id. at 94. Id. at 96. Id. at 97-98. Id. at 100-111. Records, Vol. I, pp. 180-238. Rollo, pp. 127-131. Id. at 130. Id. at 132-149. Id. at 150-151. Id. at 162. Id. at 163-192. Id. at 191. Supra note 1. Supra note 2. Id. at 44. Id. at 18. Id. at 318. G.R. No. 149177, 23 November 2007.

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

Bank of America NT & SA v. Court of Appeals, 448 Phil. 181 (2003); Puyat v. Zabarte, 405 Phil. 413 (2001); Philsec Investment Corporation v. Court of Appeals, G.R. No. 103493, 19 June 1997, 274 SCRA 102.
28

The Manila Hotel Corp. v. NLRC, 397 Phil. 1, 16-17 (2000); Communication Materials and Design, Inc. v. CA, 329 Phil. 487, 510-511 (1996).
29

Agpalo, Ruben E. CONFLICT OF LAWS (Private International Law), 2004 Ed., p. 491.

30

Heirs of Julian Dela Cruz and Leonora Talaro v. Heirs of Alberto Cruz, G.R. No. 162890, 22 November 2005, 475 SCRA 743, 756.
31

Laresma v. Abellana, G.R. No. 140973, 11 November 2004, 442 SCRA 156, 168. See Arcelona v. CA, 345 Phil. 250, 267 (1997). Hasegawa v. Kitamura, supra note 26. Bank of America NT & SA v. Court of Appeals, supra note 27. Philsec Investment Corporation v. Court of Appeals, supra note 27 at 113. Bank of America NT & SA v. Court of Appeals, supra note 27 at 194.

32

33

34

35

36

37

Banco Filipino Savings and Mortgage Bank v. Court of Appeals, G.R. No. 143896, 8 July 2005, 463 SCRA 64, 73.
38

Rollo, p. 44.

Facts: On February 22, 1937, Lorenzo and petitioner Paula were married before a parish priest in Nabua, Camarines Sur. On November 30, 1943, Lorenzo was admitted to United States citizenship and Certificate of Naturalization No. 5579816 was issued in his favor by the United States District Court, Southern District of New York. Upon the liberation of the Philippines by the American Forces in 1945, Lorenzo was granted an accrued leave by the U. S. Navy, to visit his wife and he visited the Philippines. He discovered that his wife Paula was pregnant and was living in and having an adulterous relationship with his brother, Ceferino Llorente. Lorenzo refused to forgive Paula and live with her . He then returned to the United States and on November 16, 1951 filed for divorce with the Superior Court of the State of California in and for the County of San Diego. Paula was represented by counsel, John Riley, and actively participated in the proceedings. On November 27, 1951, theSuperior Court of the State of California, for the County of San Diego found all factual allegations to be true and issued an interlocutory judgment of divorce. On December 4, 1952, the divorce decree became final. Lorenzo went back to the Philippines and on January 16, 1958 married Alicia F. Llorente in Manila. From 1958 to 1985, Lorenzo and Alicia lived together as husband and wife.Their twenty-five (25) year union produced three children, Raul, Luz and Beverly, all surnamed Llorente. On March 13, 1981, Lorenzo executed a Last Will and Testament. The will was notarized by Notary Public Salvador M. Occiano, duly signed by Lorenzo with attesting witnesses Francisco Hugo, Francisco Neibres and Tito Trajano. In the will, Lorenzo bequeathed all his property to Alicia and their three children. On December 14, 1983, Lorenzo filed with the Regional Trial Court, Iriga, Camarines Sur, a petition for the probate and allowance of hislast will and testament wherein Lorenzo moved that Alicia be appointed Special Administratrix of his estate. On January 24, 1984, finding that the will was duly executed, the trial court admitted the will to probate but before the proceedings could be terminated , Lorenzo died. Paula filed with the same court a petition for letters of administrationover Lorenzos estate in her favor contending that she was Lorenzos surviving spouse, that such properties were acquired during their marriage and that Lorenzos will would encroach her legitime. Alicia filed in the testate proceeding , a petition for the issuance ofletters testamentary. On October 14, 1985, without terminating the testate proceedings, the trial court gave due course to Paulas petition. The Regional Trial Court found that the divorce decree granted to the late Lorenzo Llorente is void and inapplicable in the Philippines, therefore the marriage he contracted with Alicia Fortunato on January 16, 1958 at Manila is likewise void. This being so the petition of Alicia F. Llorente for the issuance of letters testamentary is denied. Likewise, she is not entitled to receive any share from the estate even if the will especially said so her relationship with Lorenzo having gained the status of paramour which is under Art. 739 (1). Petitioner, Paula Llorente is appointed legal administrator of the estate of the deceased, Lorenzo Llorente. Issue: Who are entitled to inherit from the late Lorenzo N. Llorente? Held: The trial court held that the will was intrinsically invalid since it contained dispositions in favor of Alice, who in the trial courts opinion was a mere paramour. The trial court threw the will out, leaving Alice, and her two children, Raul and Luz, with nothing. The Court of Appeals also disregarded the will. It declared Alice entitled to one half (1/2) of whatever property she and Lorenzo acquired during their cohabitation, applying Article 144 of the Civil Code of the Philippines. The hasty application of Philippine law and the complete disregard of the will, already probated

as duly executed in accordance with the formalities of Philippine law, is fatal, especially in light of the factual and legal circumstances here obtaining. Lorenzo N. Llorente became an American citizen long before and at the time of: (1) his divorce from Paula; (2) marriage to Alicia; (3) execution of his will; and (4) death, is duly established, admitted and undisputed. Thus, as a rule, issues arising from these incidents are necessarily governed by foreign law. Art. 16. Real property as well as personal property is subject to the law of the country where it is situated. However, intestate and testamentary succession, both with respect to the order of succession and to the amount of successional rights and to the intrinsic validity of testamentary provisions, shall be regulated by the national law of the person whose succession is under consideration, whatever may be the nature of the property and regardless of the country wherein said property may be found. But the hasty disregard of both the RTC and CA of Lorenzos Will by calling to the fore the RENVOI doctrine, claiming that American law follows domiciliary rule is unjustified. There is no such thing as American law for the whole nation of the US, for the country comprises of a group of States, each State having its own applicable law, enforceable only within that state. As to the validity of the foreign divorce , jurisprudence reiterates that once it is proven that an individual is no longer a Filipino, thus an alien, when he obtains a divorce abroad, its effects shall be recognized in the Philippines. The Supreme Court held that the divorce obtained by Lorenzo H. Llorente from his first wife Paula was valid and recognized in this jurisdiction as a matter of comity. Now, the effects of this divorce (as to the succession to the estate of the decedent) are matters best left to the determination of the trial court. Whether the will is intrinsically valid and who shall inherit from Lorenzo are issues best proved by foreign law which must be pleaded and proved. Whether the will was executed in accordance with the formalities required is answered by referring to Philippine law. In fact, the will was duly probated. The decision of the CA is set aside and that of the RTC is reversed. Court REMANDS the cases to the court of origin for determination of the intrinsic validity of Lorenzo N. Llorentes will and determination of the parties successional rights allowing proof of foreign law withinstructions that the trial court shall proceed with all deliberate dispatch to settle the estate of the deceased within the framework of the Rules of Court.

LLORENTE vs. CA, G.R. No. 124371. November 23, 2000 PAULA T. LLORENTE, petitioner, VS. COURT OF APPEALS and ALICIA F. LLORENTE, respondents November 23, 2000 FACTS: Lorenzo Llorente and petitioner Paula Llorente were married in 1937 in the Philippines. Lorenzo was an enlisted serviceman of the US Navy. Soon after, he left for the US where through naturalization, he became a US Citizen. Upon his visitation of his wife, he discovered that she was living with his brother and a child was born. The child was registered as legitimate but the name of the father was left blank. Llorente filed a divorce in California, which later on became final. He married Alicia and they lived together for 25 years bringing 3 children. He made his last will and testament stating that all his properties will be given to his second marriage. He filed a petition of probate that made or appointed Alicia his special administrator of his estate. Before the proceeding could be terminated, Lorenzo died. Paula filed a letter of administration over Llorentes estate. The trial granted the letter and denied the motion for reconsideration. An appeal was made to the Court of Appeals, which affirmed and modified the judgment of the Trial Court that she be declared co-owner of whatever properties, she and the deceased, may have acquired during their 25 years of cohabitation. ISSUE: Whether or not the National Law shall apply. RULING: Lorenzo Llorente was already an American citizen when he divorced Paula. Such was also the situation when he married Alicia and executed his will. As stated in Article 15 of the civil code, aliens may obtain divorces abroad, provided that they are validly required in their National Law. Thus the divorce obtained by Llorente is valid because the law that governs him is not Philippine Law but his National Law since the divorce was contracted after he became an American citizen. Furthermore, his National Law allowed divorce. The case was remanded to the court of origin for determination of the intrinsic validity of Lorenzo Llorentes will and determination of the parties successional rights allowing proof of foreign law.