JURISDICTION CASES

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 92013 July 25, 1990

SALVADOR H. LAUREL, petitioner,

vs.
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL MANGLAPUS, as Secretary
of Foreign Affairs, and CATALINO MACARAIG, as Executive Secretary, respondents.

G.R. No. 92047 July 25, 1990

DIONISIO S. OJEDA, petitioner,

vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION TRUST CHAIRMAN
RAMON T. GARCIA, AMBASSADOR RAMON DEL ROSARIO, et al., as members of the
PRINCIPAL AND BIDDING COMMITTEES ON THE UTILIZATION/DISPOSITION PETITION OF
PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN, respondents.

Arturo M. Tolentino for petitioner in 92013.

GUTIERREZ, JR., J.:

These are two petitions for prohibition seeking to enjoin respondents, their representatives
and agents from proceeding with the bidding for the sale of the 3,179 square meters of land
at 306 Roppongi, 5-Chome Minato-ku Tokyo, Japan scheduled on February 21, 1990. We
granted the prayer for a temporary restraining order effective February 20, 1990. One of the
petitioners (in G.R. No. 92047) likewise prayes for a writ of mandamus to compel the
respondents to fully disclose to the public the basis of their decision to push through with
the sale of the Roppongi property inspire of strong public opposition and to explain the
proceedings which effectively prevent the participation of Filipino citizens and entities in the
bidding process.

The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the Court on
March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary Macaraig, et al. was filed, the
respondents were required to file a comment by the Court's resolution dated February 22,
1990. The two petitions were consolidated on March 27, 1990 when the memoranda of the
parties in the Laurel case were deliberated upon.

The Court could not act on these cases immediately because the respondents filed a motion
for an extension of thirty (30) days to file comment in G.R. No. 92047, followed by a second
motion for an extension of another thirty (30) days which we granted on May 8, 1990, a third
motion for extension of time granted on May 24, 1990 and a fourth motion for extension of
time which we granted on June 5, 1990 but calling the attention of the respondents to the
length of time the petitions have been pending. After the comment was filed, the petitioner in
G.R. No. 92047 asked for thirty (30) days to file a reply. We noted his motion and resolved to
decide the two (2) cases.

The subject property in this case is one of the four (4) properties in Japan acquired by the
Philippine government under the Reparations Agreement entered into with Japan on May 9,
1956, the other lots being:

(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo which has an area
of approximately 2,489.96 square meters, and is at present the site of the Philippine Embassy
Chancery;

(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area of around 764.72
square meters and categorized as a commercial lot now being used as a warehouse and
parking lot for the consulate staff; and

(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara, Nada-ku, Kobe, a
residential lot which is now vacant.

The properties and the capital goods and services procured from the Japanese government
for national development projects are part of the indemnification to the Filipino people for
their losses in life and property and their suffering during World War II.

The Reparations Agreement provides that reparations valued at $550 million would be
payable in twenty (20) years in accordance with annual schedules of procurements to be
fixed by the Philippine and Japanese governments (Article 2, Reparations Agreement). Rep.
Act No. 1789, the Reparations Law, prescribes the national policy on procurement and
utilization of reparations and development loans. The procurements are divided into those for
use by the government sector and those for private parties in projects as the then National
Economic Council shall determine. Those intended for the private sector shall be made
available by sale to Filipino citizens or to one hundred (100%) percent Filipino-owned entities
in national development projects.

The Roppongi property was acquired from the Japanese government under the Second Year
Schedule and listed under the heading "Government Sector", through Reparations Contract
No. 300 dated June 27, 1958. The Roppongi property consists of the land and building "for
the Chancery of the Philippine Embassy" (Annex M-D to Memorandum for Petitioner, p. 503).
As intended, it became the site of the Philippine Embassy until the latter was transferred to
Nampeidai on July 22, 1976 when the Roppongi building needed major repairs. Due to the
failure of our government to provide necessary funds, the Roppongi property has remained
undeveloped since that time.

A proposal was presented to President Corazon C. Aquino by former Philippine Ambassador

to Japan, Carlos J. Valdez, to make the property the subject of a lease agreement with a
Japanese firm - Kajima Corporation which shall construct two (2) buildings in Roppongi
and one (1) building in Nampeidai and renovate the present Philippine Chancery in
Nampeidai. The consideration of the construction would be the lease to the foreign
corporation of one (1) of the buildings to be constructed in Roppongi and the two (2)
buildings in Nampeidai. The other building in Roppongi shall then be used as the Philippine
Embassy Chancery. At the end of the lease period, all the three leased buildings shall be
occupied and used by the Philippine government. No change of ownership or title shall
occur. (See Annex "B" to Reply to Comment) The Philippine government retains the title all
throughout the lease period and thereafter. However, the government has not acted favorably
on this proposal which is pending approval and ratification between the parties. Instead, on
August 11, 1986, President Aquino created a committee to study the disposition/utilization of
Philippine government properties in Tokyo and Kobe, Japan through Administrative Order
No. 3, followed by Administrative Orders Numbered 3-A, B, C and D.

On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino citizens
or entities to avail of separations' capital goods and services in the event of sale, lease or
disposition. The four properties in Japan including the Roppongi were specifically mentioned
in the first "Whereas" clause.

Amidst opposition by various sectors, the Executive branch of the government has been
pushing, with great vigor, its decision to sell the reparations properties starting with the
Roppongi lot. The property has twice been set for bidding at a minimum floor price of $225
million. The first bidding was a failure since only one bidder qualified. The second one, after
postponements, has not yet materialized. The last scheduled bidding on February 21, 1990
was restrained by his Court. Later, the rules on bidding were changed such that the $225
million floor price became merely a suggested floor price.

The Court finds that each of the herein petitions raises distinct issues. The petitioner in G.R.
No. 92013 objects to the alienation of the Roppongi property to anyone while the petitioner in
G.R. No. 92047 adds as a principal objection the alleged unjustified bias of the Philippine
government in favor of selling the property to non-Filipino citizens and entities. These
petitions have been consolidated and are resolved at the same time for the objective is the
same - to stop the sale of the Roppongi property.

The petitioner in G.R. No. 92013 raises the following issues:

(1) Can the Roppongi property and others of its kind be alienated by the Philippine
Government?; and

(2) Does the Chief Executive, her officers and agents, have the authority and jurisdiction, to
sell the Roppongi property?

Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the authority of the
government to alienate the Roppongi property assails the constitutionality of Executive
Order No. 296 in making the property available for sale to non-Filipino citizens and entities.
He also questions the bidding procedures of the Committee on the Utilization or Disposition
of Philippine Government Properties in Japan for being discriminatory against Filipino
citizens and Filipino-owned entities by denying them the right to be informed about the
bidding requirements.

II
In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related lots
were acquired as part of the reparations from the Japanese government for diplomatic and
consular use by the Philippine government. Vice-President Laurel states that the Roppongi
property is classified as one of public dominion, and not of private ownership under Article
420 of the Civil Code (See infra).

The petitioner submits that the Roppongi property comes under "property intended for public
service" in paragraph 2 of the above provision. He states that being one of public dominion,
no ownership by any one can attach to it, not even by the State. The Roppongi and related
properties were acquired for "sites for chancery, diplomatic, and consular quarters, buildings
and other improvements" (Second Year Reparations Schedule). The petitioner states that
they continue to be intended for a necessary service. They are held by the State in
anticipation of an opportune use. (Citing 3 Manresa 65-66). Hence, it cannot be appropriated,
is outside the commerce of man, or to put it in more simple terms, it cannot be alienated nor
be the subject matter of contracts (Citing Municipality of Cavite v. Rojas, 30 Phil. 20 [1915]).
Noting the non-use of the Roppongi property at the moment, the petitioner avers that the
same remains property of public dominion so long as the government has not used it for
other purposes nor adopted any measure constituting a removal of its original purpose or
use.

The respondents, for their part, refute the petitioner's contention by saying that the subject
property is not governed by our Civil Code but by the laws of Japan where the property is
located. They rely upon the rule of lex situs which is used in determining the applicable law
regarding the acquisition, transfer and devolution of the title to a property. They also invoke
Opinion No. 21, Series of 1988, dated January 27, 1988 of the Secretary of Justice which used
the lex situs in explaining the inapplicability of Philippine law regarding a property situated in
Japan.

The respondents add that even assuming for the sake of argument that the Civil Code is
applicable, the Roppongi property has ceased to become property of public dominion. It has
become patrimonial property because it has not been used for public service or for
diplomatic purposes for over thirteen (13) years now (Citing Article 422, Civil Code) and
because the intention by the Executive Department and the Congress to convert it to private
use has been manifested by overt acts, such as, among others: (1) the transfer of the
Philippine Embassy to Nampeidai (2) the issuance of administrative orders for the possibility
of alienating the four government properties in Japan; (3) the issuance of Executive Order
No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the Comprehensive
Agrarian Reform Law] on June 10, 1988 which contains a provision stating that funds may be
taken from the sale of Philippine properties in foreign countries; (5) the holding of the public
bidding of the Roppongi property but which failed; (6) the deferment by the Senate in
Resolution No. 55 of the bidding to a future date; thus an acknowledgment by the Senate of
the government's intention to remove the Roppongi property from the public service
purpose; and (7) the resolution of this Court dismissing the petition in Ojeda v. Bidding
Committee, et al., G.R. No. 87478 which sought to enjoin the second bidding of the Roppongi
property scheduled on March 30, 1989.

III
In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the constitutionality
of Executive Order No. 296. He had earlier filed a petition in G.R. No. 87478 which the Court
dismissed on August 1, 1989. He now avers that the executive order contravenes the
constitutional mandate to conserve and develop the national patrimony stated in the
Preamble of the 1987 Constitution. It also allegedly violates:

(1) The reservation of the ownership and acquisition of alienable lands of the public domain
to Filipino citizens. (Sections 2 and 3, Article XII, Constitution; Sections 22 and 23 of
Commonwealth Act 141). itc-asl

(2) The preference for Filipino citizens in the grant of rights, privileges and concessions
covering the national economy and patrimony (Section 10, Article VI, Constitution);

(3) The protection given to Filipino enterprises against unfair competition and trade
practices;

(4) The guarantee of the right of the people to information on all matters of public concern
(Section 7, Article III, Constitution);

(5) The prohibition against the sale to non-Filipino citizens or entities not wholly owned by
Filipino citizens of capital goods received by the Philippines under the Reparations Act
(Sections 2 and 12 of Rep. Act No. 1789); and

(6) The declaration of the state policy of full public disclosure of all transactions involving
public interest (Section 28, Article III, Constitution).

Petitioner Ojeda warns that the use of public funds in the execution of an unconstitutional
executive order is a misapplication of public funds He states that since the details of the
bidding for the Roppongi property were never publicly disclosed until February 15, 1990 (or a
few days before the scheduled bidding), the bidding guidelines are available only in Tokyo,
and the accomplishment of requirements and the selection of qualified bidders should be
done in Tokyo, interested Filipino citizens or entities owned by them did not have the chance
to comply with Purchase Offer Requirements on the Roppongi. Worse, the Roppongi shall be
sold for a minimum price of $225 million from which price capital gains tax under Japanese
law of about 50 to 70% of the floor price would still be deducted.

IV

The petitioners and respondents in both cases do not dispute the fact that the Roppongi site
and the three related properties were through reparations agreements, that these were
assigned to the government sector and that the Roppongi property itself was specifically
designated under the Reparations Agreement to house the Philippine Embassy.

The nature of the Roppongi lot as property for public service is expressly spelled out. It is
dictated by the terms of the Reparations Agreement and the corresponding contract of
procurement which bind both the Philippine government and the Japanese government.

There can be no doubt that it is of public dominion unless it is convincingly shown that the
property has become patrimonial. This, the respondents have failed to do.
As property of public dominion, the Roppongi lot is outside the commerce of man. It cannot
be alienated. Its ownership is a special collective ownership for general use and enjoyment,
an application to the satisfaction of collective needs, and resides in the social group. The
purpose is not to serve the State as a juridical person, but the citizens; it is intended for the
common and public welfare and cannot be the object of appropration. (Taken from 3 Manresa,
66-69; cited in Tolentino, Commentaries on the Civil Code of the Philippines, 1963 Edition,
Vol. II, p. 26).

The applicable provisions of the Civil Code are:

ART. 419. Property is either of public dominion or of private ownership.

ART. 420. The following things are property of public dominion

(1) Those intended for public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, banks shores roadsteads, and others of
similar character;

(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.

ART. 421. All other property of the State, which is not of the character stated in
the preceding article, is patrimonial property.

The Roppongi property is correctly classified under paragraph 2 of Article 420 of the Civil
Code as property belonging to the State and intended for some public service.

Has the intention of the government regarding the use of the property been changed because
the lot has been Idle for some years? Has it become patrimonial?

The fact that the Roppongi site has not been used for a long time for actual Embassy service
does not automatically convert it to patrimonial property. Any such conversion happens only
if the property is withdrawn from public use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66
SCRA 481 [1975]). A property continues to be part of the public domain, not available for
private appropriation or ownership until there is a formal declaration on the part of the
government to withdraw it from being such (Ignacio v. Director of Lands, 108 Phil. 335 [1960]).

The respondents enumerate various pronouncements by concerned public officials

insinuating a change of intention. We emphasize, however, that an abandonment of the
intention to use the Roppongi property for public service and to make it patrimonial property
under Article 422 of the Civil Code must be definite Abandonment cannot be inferred from the
non-use alone specially if the non-use was attributable not to the government's own
deliberate and indubitable will but to a lack of financial support to repair and improve the
property (See Heirs of Felino Santiago v. Lazaro, 166 SCRA 368 [1988]). Abandonment must
be a certain and positive act based on correct legal premises.

A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of the
Roppongi property's original purpose. Even the failure by the government to repair the
building in Roppongi is not abandonment since as earlier stated, there simply was a shortage
of government funds. The recent Administrative Orders authorizing a study of the status and
conditions of government properties in Japan were merely directives for investigation but did
not in any way signify a clear intention to dispose of the properties.

Executive Order No. 296, though its title declares an "authority to sell", does not have a
provision in its text expressly authorizing the sale of the four properties procured from Japan
for the government sector. The executive order does not declare that the properties lost their
public character. It merely intends to make the properties available to foreigners and not to
Filipinos alone in case of a sale, lease or other disposition. It merely eliminates the restriction
under Rep. Act No. 1789 that reparations goods may be sold only to Filipino citizens and one
hundred (100%) percent Filipino-owned entities. The text of Executive Order No. 296
provides:

Section 1. The provisions of Republic Act No. 1789, as amended, and of other
laws to the contrary notwithstanding, the above-mentioned properties can be
made available for sale, lease or any other manner of disposition to non-
Filipino citizens or to entities owned by non-Filipino citizens.

Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi and
the three other properties were earlier converted into alienable real properties. As earlier
stated, Rep. Act No. 1789 differentiates the procurements for the government sector and the
private sector (Sections 2 and 12, Rep. Act No. 1789). Only the private sector properties can
be sold to end-users who must be Filipinos or entities owned by Filipinos. It is this nationality
provision which was amended by Executive Order No. 296.

Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the sources of
funds for its implementation, the proceeds of the disposition of the properties of the
Government in foreign countries, did not withdraw the Roppongi property from being
classified as one of public dominion when it mentions Philippine properties abroad. Section
63 (c) refers to properties which are alienable and not to those reserved for public use or
service. Rep Act No. 6657, therefore, does not authorize the Executive Department to sell the
Roppongi property. It merely enumerates possible sources of future funding to augment (as
and when needed) the Agrarian Reform Fund created under Executive Order No. 299.
Obviously any property outside of the commerce of man cannot be tapped as a source of
funds.

The respondents try to get around the public dominion character of the Roppongi property by
insisting that Japanese law and not our Civil Code should apply.

It is exceedingly strange why our top government officials, of all people, should be the ones
to insist that in the sale of extremely valuable government property, Japanese law and not
Philippine law should prevail. The Japanese law - its coverage and effects, when enacted,
and exceptions to its provision is not presented to the Court It is simply asserted that
the lex loci rei sitae or Japanese law should apply without stating what that law provides. It is
a ed on faith that Japanese law would allow the sale.

We see no reason why a conflict of law rule should apply when no conflict of law situation
exists. A conflict of law situation arises only when: (1) There is a dispute over the title or
ownership of an immovable, such that the capacity to take and transfer immovables, the
formalities of conveyance, the essential validity and effect of the transfer, or the
interpretation and effect of a conveyance, are to be determined (See Salonga, Private
International Law, 1981 ed., pp. 377-383); and (2) A foreign law on land ownership and its
conveyance is asserted to conflict with a domestic law on the same matters. Hence, the need
to determine which law should apply.

In the instant case, none of the above elements exists.

The issues are not concerned with validity of ownership or title. There is no question that the
property belongs to the Philippines. The issue is the authority of the respondent officials to
validly dispose of property belonging to the State. And the validity of the procedures adopted
to effect its sale. This is governed by Philippine Law. The rule of lex situs does not apply.

The assertion that the opinion of the Secretary of Justice sheds light on the relevance of
the lex situs rule is misplaced. The opinion does not tackle the alienability of the real
properties procured through reparations nor the existence in what body of the authority to
sell them. In discussing who are capable of acquiring the lots, the Secretary merely explains
that it is the foreign law which should determine who can acquire the properties so that the
constitutional limitation on acquisition of lands of the public domain to Filipino citizens and
entities wholly owned by Filipinos is inapplicable. We see no point in belaboring whether or
not this opinion is correct. Why should we discuss who can acquire the Roppongi lot when
there is no showing that it can be sold?

The subsequent approval on October 4, 1988 by President Aquino of the recommendation by

the investigating committee to sell the Roppongi property was premature or, at the very least,
conditioned on a valid change in the public character of the Roppongi property. Moreover, the
approval does not have the force and effect of law since the President already lost her
legislative powers. The Congress had already convened for more than a year.

Assuming for the sake of argument, however, that the Roppongi property is no longer of
public dominion, there is another obstacle to its sale by the respondents.

There is no law authorizing its conveyance.

Section 79 (f) of the Revised Administrative Code of 1917 provides

Section 79 (f ) Conveyances and contracts to which the Government is a party.

In cases in which the Government of the Republic of the Philippines is a
party to any deed or other instrument conveying the title to real estate or to
any other property the value of which is in excess of one hundred thousand
pesos, the respective Department Secretary shall prepare the necessary
papers which, together with the proper recommendations, shall be submitted
to the Congress of the Philippines for approval by the same. Such deed,
instrument, or contract shall be executed and signed by the President of the
Philippines on behalf of the Government of the Philippines unless the
Government of the Philippines unless the authority therefor be expressly
vested by law in another officer. (Emphasis supplied)
The requirement has been retained in Section 48, Book I of the Administrative Code of 1987
(Executive Order No. 292).

SEC. 48. Official Authorized to Convey Real Property. Whenever real

property of the Government is authorized by law to be conveyed, the deed of
conveyance shall be executed in behalf of the government by the following:

(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly vested
by law in another officer.

(2) For property belonging to the Republic of the Philippines but titled in the
name of any political subdivision or of any corporate agency or
instrumentality, by the executive head of the agency or instrumentality.
(Emphasis supplied)

It is not for the President to convey valuable real property of the government on his or her
own sole will. Any such conveyance must be authorized and approved by a law enacted by
the Congress. It requires executive and legislative concurrence.

Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale of
the Roppongi property does not withdraw the property from public domain much less
authorize its sale. It is a mere resolution; it is not a formal declaration abandoning the public
character of the Roppongi property. In fact, the Senate Committee on Foreign Relations is
conducting hearings on Senate Resolution No. 734 which raises serious policy
considerations and calls for a fact-finding investigation of the circumstances behind the
decision to sell the Philippine government properties in Japan.

The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass upon
the constitutionality of Executive Order No. 296. Contrary to respondents' assertion, we did
not uphold the authority of the President to sell the Roppongi property. The Court stated that
the constitutionality of the executive order was not the real issue and that resolving the
constitutional question was "neither necessary nor finally determinative of the case." The
Court noted that "[W]hat petitioner ultimately questions is the use of the proceeds of the
disposition of the Roppongi property." In emphasizing that "the decision of the Executive to
dispose of the Roppongi property to finance the CARP ... cannot be questioned" in view of
Section 63 (c) of Rep. Act No. 6657, the Court did not acknowledge the fact that the property
became alienable nor did it indicate that the President was authorized to dispose of the
Roppongi property. The resolution should be read to mean that in case the Roppongi
property is re-classified to be patrimonial and alienable by authority of law, the proceeds of a
sale may be used for national economic development projects including the CARP.

Moreover, the sale in 1989 did not materialize. The petitions before us question the proposed
1990 sale of the Roppongi property. We are resolving the issues raised in these petitions, not
the issues raised in 1989.

Having declared a need for a law or formal declaration to withdraw the Roppongi property
from public domain to make it alienable and a need for legislative authority to allow the sale
of the property, we see no compelling reason to tackle the constitutional issues raised by
petitioner Ojeda.

The Court does not ordinarily pass upon constitutional questions unless these questions are
properly raised in appropriate cases and their resolution is necessary for the determination
of the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass upon a constitutional
question although properly presented by the record if the case can be disposed of on some
other ground such as the application of a statute or general law (Siler v. Louisville and
Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v. Pullman Co., 312 U.S. 496
[1941]).

The petitioner in G.R. No. 92013 states why the Roppongi property should not be sold:

The Roppongi property is not just like any piece of property. It was given to the
Filipino people in reparation for the lives and blood of Filipinos who died and
suffered during the Japanese military occupation, for the suffering of widows
and orphans who lost their loved ones and kindred, for the homes and other
properties lost by countless Filipinos during the war. The Tokyo properties are
a monument to the bravery and sacrifice of the Filipino people in the face of an
invader; like the monuments of Rizal, Quezon, and other Filipino heroes, we do
not expect economic or financial benefits from them. But who would think of
selling these monuments? Filipino honor and national dignity dictate that we
keep our properties in Japan as memorials to the countless Filipinos who died
and suffered. Even if we should become paupers we should not think of selling
them. For it would be as if we sold the lives and blood and tears of our
countrymen. (Rollo- G.R. No. 92013, p.147)

The petitioner in G.R. No. 92047 also states:

Roppongi is no ordinary property. It is one ceded by the Japanese government

in atonement for its past belligerence for the valiant sacrifice of life and limb
and for deaths, physical dislocation and economic devastation the whole
Filipino people endured in World War II.

It is for what it stands for, and for what it could never bring back to life, that its
significance today remains undimmed, inspire of the lapse of 45 years since
the war ended, inspire of the passage of 32 years since the property passed on
to the Philippine government.

Roppongi is a reminder that cannot should not be dissipated ... (Rollo-

92047, p. 9)

It is indeed true that the Roppongi property is valuable not so much because of the inflated
prices fetched by real property in Tokyo but more so because of its symbolic value to all
Filipinos veterans and civilians alike. Whether or not the Roppongi and related properties
will eventually be sold is a policy determination where both the President and Congress must
concur. Considering the properties' importance and value, the laws on conversion and
disposition of property of public dominion must be faithfully followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ of
prohibition is issued enjoining the respondents from proceeding with the sale of the
Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary Restraining Order is
made PERMANENT.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. L-37750 May 19, 1978

SWEET LINES, INC., petitioner,

vs.
HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental Branch VII, LEOVIGILDO
TANDOG, JR., and ROGELIO TIRO, respondents.

Filiberto Leonardo, Abelardo C. Almario & Samuel B. Abadiano for petitioner.

Leovigildo Vallar for private respondents.

SANTOS, J.:

This is an original action for Prohibition with Pre Injunction filed October 3, 1973 to restrain
respondent Judge from proceeding further with Civil Case No. 4091, entitled Leovigildo D. Tandog,
Jr. and Rogelio Tiro v. Sweet Lines, Inc." after he denied petitioner's Motion to Dismiss the
complaint, and the Motion for Reconsideration of said order. 1

Briefly, the facts of record follow. Private respondents Atty. Leovigildo Tandog and Rogelio Tiro, a
contractor by professions, bought tickets Nos. 0011736 and 011737 for Voyage 90 on December 31,
1971 at the branch office of petitioner, a shipping company transporting inter-island passengers and
cargoes, at Cagayan de Oro City. Respondents were to board petitioner's vessel, M/S "Sweet Hope"
bound for Tagbilaran City via the port of Cebu. Upon learning that the vessel was not proceeding to
Bohol, since many passengers were bound for Surigao, private respondents per advice, went to the
branch office for proper relocation to M/S "Sweet Town". Because the said vessel was already filled
to capacity, they were forced to agree "to hide at the cargo section to avoid inspection of the officers
of the Philippine Coastguard." Private respondents alleged that they were, during the trip," "exposed
to the scorching heat of the sun and the dust coming from the ship's cargo of corn grits," and that the
tickets they bought at Cagayan de Oro City for Tagbilaran were not honored and they were
constrained to pay for other tickets. In view thereof, private respondents sued petitioner for damages
and for breach of contract of carriage in the alleged sum of P10,000.00 before respondents Court of
First Instance of Misamis Oriental. 2

Petitioner moved to dismiss the complaint on the ground of improper venue. This motion was
premised on the condition printed at the back of the tickets, i.e., Condition No. 14, which reads:

14. It is hereby agreed and understood that any and all actions arising out of the
conditions and provisions of this ticket, irrespective of where it is issued, shall be filed
in the competent courts in the City of Cebu. 3
The motion was denied by the trial court. 4 Petitioner moved to reconnsider the order of denial, but no
avail. 5 Hence, this instant petition for prohibition for preliminary injunction, 'alleging that the respondent
judge has departed from the accepted and usual course of judicial preoceeding" and "had acted without
or in excess or in error of his jurisdicton or in gross abuse of discretion. 6

In Our resolution of November 20, 1973, We restrained respondent Judge from proceeding further
with the case and required respondent to comment. 7 On January 18, 1974, We gave due course to the
petition and required respondent to answer. 8 Thereafter, the parties submitted their respesctive
memoranda in support of their respective contentions. 9

Presented thus for Our resolution is a question is aquestion which, to all appearances, is one of first
impression, to wit Is Condition No. 14 printed at the back of the petitioner's passage tickets
purchased by private respondents, which limits the venue of actions arising from the contract of
carriage to theCourt of First Instance of Cebu, valid and enforceable? Otherwise stated, may a
common carrier engaged in inter-island shipping stipulate thru condition printed at the back of
passage tickets to its vessels that any and all actions arising out of the ocntract of carriage should be
filed only in a particular province or city, in this case the City of Cebu, to the exclusion of all others?

Petitioner contends thaty Condition No. 14 is valid and enforceable, since private respndents
acceded to tit when they purchased passage tickets at its Cagayan de Oro branch office and took its
vessel M/S "Sweet Town" for passage to Tagbilaran, Bohol that the condition of the venue of
actions in the City of Cebu is proper since venue may be validly waived, citing cases; 10 that is an
effective waiver of venue, valid and binding as such, since it is printed in bold and capital letters and not in
fine print and merely assigns the place where the action sing from the contract is institution likewise citing
cases; 11 and that condition No. 14 is unequivocal and mandatory, the words and phrases "any and all",
"irrespective of where it is issued," and "shag" leave no doubt that the intention of Condition No. 14 is to
fix the venue in the City of Cebu, to the exclusion of other places; that the orders of the respondent Judge
are an unwarranted departure from established jurisprudence governing the case; and that he acted
without or in excess of his jurisdiction in is the orders complained of. 12

On the other hand, private respondents claim that Condition No. 14 is not valid, that the same is not
an essential element of the contract of carriage, being in itself a different agreement which requires
the mutual consent of the parties to it; that they had no say in its preparation, the existence of which
they could not refuse, hence, they had no choice but to pay for the tickets and to avail of petitioner's
shipping facilities out of necessity; that the carrier "has been exacting too much from the public by
inserting impositions in the passage tickets too burdensome to bear," that the condition which was
printed in fine letters is an imposition on the riding public and does not bind respondents, citing
cases; 13 that while venue 6f actions may be transferred from one province to another, such arrangement
requires the "written agreement of the parties", not to be imposed unilaterally; and that assuming that the
condition is valid, it is not exclusive and does not, therefore, exclude the filing of the action in Misamis
Oriental, 14

There is no question that there was a valid contract of carriage entered into by petitioner and private
respondents and that the passage tickets, upon which the latter based their complaint, are the best
evidence thereof. All the essential elements of a valid contract, i.e., consent, cause or consideration
and object, are present. As held in Peralta de Guerrero, et al. v. Madrigal Shipping Co., Inc., 15

It is a matter of common knowledge that whenever a passenger boards a ship for

transportation from one place to another he is issued a ticket by the shipper which
has all the elements of a written contract, Namely: (1) the consent of the contracting
 parties manifested by the fact that the passenger boards the ship and the shipper
consents or accepts him in the ship for transportation; (2) cause or consideration
which is the fare paid by the passenger as stated in the ticket; (3) object, which is the
transportation of the passenger from the place of departure to the place of
destination which are stated in the ticket.

It should be borne in mind, however, that with respect to the fourteen (14) conditions one of which
is "Condition No. 14" which is in issue in this case printed at the back of the passage tickets,
these are commonly known as "contracts of adhesion," the validity and/or enforceability of which will
have to be determined by the peculiar circumstances obtaining in each case and the nature of the
conditions or terms sought to be enforced. For, "(W)hile generally, stipulations in a contract come
about after deliberate drafting by the parties thereto, ... there are certain contracts almost all the
provisions of which have been drafted only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of the party is the signing of his
signature or his 'adhesion' thereto. Insurance contracts, bills of lading, contracts of make of lots on
the installment plan fall into this category" 16

By the peculiar circumstances under which contracts of adhesion are entered into namely, that it
is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by
the other party, in this instance the passengers, private respondents, who cannot change the same
and who are thus made to adhere thereto on the "take it or leave it" basis certain guidelines in the
determination of their validity and/or enforceability have been formulated in order to that justice and
fan play characterize the relationship of the contracting parties. Thus, this Court speaking through
Justice J.B.L. Reyes in Qua Chee Gan v. Law Union and Rock Insurance Co., 17 and later through
Justice Fernando in Fieldman Insurance v. Vargas, 18 held

The courts cannot ignore that nowadays, monopolies, cartels and concentration of
capital endowed with overwhelm economic power, manage to impose upon parties d
with them y prepared 'agreements' that the weaker party may not change one whit
his participation in the 'agreement' being reduced to the alternative 'to take it or leave
it,' labelled since Raymond Saleilles 'contracts by adherence' (contracts d' adhesion)
in contrast to those entered into by parties bargaining on an equal footing. Such
contracts (of which policies of insurance and international bill of lading are prime
examples) obviously cap for greater strictness and vigilance on the part of the courts
of justice with a view to protecting the weaker party from abuses and imposition, and
prevent their becoming traps for the unwary.

To the same effect and import, and, in recognition of the character of contracts of this kind, the
protection of the disadvantaged is expressly enjoined by the New Civil Code

In all contractual property or other relations, when one of the parties is at a

disadvantage on account of his moral dependence, ignorance indigence, mental
weakness, tender age and other handicap, the courts must be vigilant for his
protection. 19

Considered in the light Of the foregoing norms and in the context Of circumstances Prevailing in the
inter-island ship. ping industry in the country today, We find and hold that Condition No. 14 printed at
the back of the passage tickets should be held as void and unenforceable for the following reasons
first, under circumstances obligation in the inter-island ship. ping industry, it is not just and fair to bind
passengers to the terms of the conditions printed at the back of the passage tickets, on which
Condition No. 14 is Printed in fine letters, and second, Condition No. 14 subverts the public policy on
transfer of venue of proceedings of this nature, since the same will prejudice rights and interests of
innumerable passengers in different s of the country who, under Condition No. 14, will have to file
suits against petitioner only in the City of Cebu.

1. It is a matter of public knowledge, of which We can take judicial notice, that there is a dearth of
and acute shortage in inter- island vessels plying between the country's several islands, and the
facilities they offer leave much to be desired. Thus, even under ordinary circumstances, the piers are
congested with passengers and their cargo waiting to be transported. The conditions are even worse
at peak and/or the rainy seasons, when Passengers literally scramble to whatever accommodations
may be availed of, even through circuitous routes, and/or at the risk of their safety their immediate
concern, for the moment, being to be able to board vessels with the hope of reaching their
destinations. The schedules are as often as not if not more so delayed or altered. This was
precisely the experience of private respondents when they were relocated to M/S "Sweet Town" from
M/S "Sweet Hope" and then any to the scorching heat of the sun and the dust coming from the ship's
cargo of corn grits, " because even the latter was filed to capacity.

Under these circumstances, it is hardly just and proper to expect the passengers to examine their
tickets received from crowded/congested counters, more often than not during rush hours, for
conditions that may be printed much charge them with having consented to the conditions, so
printed, especially if there are a number of such conditions m fine print, as in this case. 20

Again, it should be noted that Condition No. 14 was prepared solely at the ms of the petitioner,
respondents had no say in its preparation. Neither did the latter have the opportunity to take the into
account prior to the purpose chase of their tickets. For, unlike the small print provisions of contracts
the common example of contracts of adherence which are entered into by the insured in his
awareness of said conditions, since the insured is afforded the op to and co the same, passengers
of inter-island v do not have the same chance, since their alleged adhesion is presumed only from
the fact that they purpose chased the tickets.

It should also be stressed that slapping companies are franchise holders of certificates of public
convenience and therefore, posses a virtual monopoly over the business of transporting passengers
between the ports covered by their franchise. This being so, shipping companies, like petitioner,
engaged in inter-island shipping, have a virtual monopoly of the business of transporting passengers
and may thus dictate their terms of passage, leaving passengers with no choice but to buy their
tickets and avail of their vessels and facilities. Finally, judicial notice may be taken of the fact that the
bulk of those who board these inter-island vested come from the low-income groups and are less
literate, and who have little or no choice but to avail of petitioner's vessels.

2. Condition No. 14 is subversive of public policy on transfers of venue of actions. For, although
venue may be changed or transferred from one province to another by agreement of the parties in
writing t to Rule 4, Section 3, of the Rules of Court, such an agreement will not be held valid where it
practically negates the action of the claimants, such as the private respondents herein. The
philosophy underlying the provisions on transfer of venue of actions is the convenience of the
plaintiffs as well as his witnesses and to promote 21 the ends of justice. Considering the expense and
trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of Cebu, he
would most probably decide not to file the action at all. The condition will thus defeat, instead of enhance,
the ends of justice. Upon the other hand, petitioner has branches or offices in the respective ports of call
of its vessels and can afford to litigate in any of these places. Hence, the filing of the suit in the CFI of
Misamis Oriental, as was done in the instant case, will not cause inconvenience to, much less prejudice,
petitioner.

Public policy is ". . . that principle of the law which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or against the public good ... 22 Under this
principle" ... freedom of contract or private dealing is restricted by law for the good of the public. 23 Clearly,
Condition No. 14, if enforced, will be subversive of the public good or interest, since it will frustrate in
meritorious cases, actions of passenger cants outside of Cebu City, thus placing petitioner company at a
decided advantage over said persons, who may have perfectly legitimate claims against it. The said
condition should, therefore, be declared void and unenforceable, as contrary to public policy to make
the courts accessible to all who may have need of their services.

WHEREFORE, the petition for prohibition is DISMISS. ED. The restraining order issued on
November 20, 1973, is hereby LIFTED and SET ASIDE. Costs against petitioner.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 72494 August 11, 1989

HONGKONG AND SHANGHAI BANKING CORPORATION, petitioner,

vs.
JACK ROBERT SHERMAN, DEODATO RELOJ and THE INTERMEDIATE APPELLATE
COURT, respondents.

Quiason, Makalintal, Barot & Torres for petitioner.

Alejandro, Aranzaso & Associates for private respondents.

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Intermediate Appellate Court (now
Court of Appeals) dated August 2, 1985, which reversed the order of the Regional Trial Court dated
February 28,1985 denying the Motion to Dismiss filed by private respondents Jack Robert Sherman
and Deodato Reloj.

A complaint for collection of a sum of money (pp. 49-52, Rollo) was filed by petitioner Hongkong and
Shanghai Banking Corporation (hereinafter referred to as petitioner BANK) against private
respondents Jack Robert Sherman and Deodato Reloj, docketed as Civil Case No. Q-42850 before
the Regional Trial Court of Quezon City, Branch 84.

It appears that sometime in 1981, Eastern Book Supply Service PTE, Ltd. (hereinafter referred to as
COMPANY), a company incorporated in Singapore applied with, and was granted by, the Singapore
branch of petitioner BANK an overdraft facility in the maximum amount of Singapore dollars
200,000.00 (which amount was subsequently increased to Singapore dollars 375,000.00) with
interest at 3% over petitioner BANK prime rate, payable monthly, on amounts due under said
overdraft facility; as a security for the repayment by the COMPANY of sums advanced by petitioner
BANK to it through the aforesaid overdraft facility, on October 7, 1982, both private respondents and
a certain Robin de Clive Lowe, all of whom were directors of the COMPANY at such time, executed
a Joint and Several Guarantee (p. 53, Rollo) in favor of petitioner BANK whereby private
respondents and Lowe agreed to pay, jointly and severally, on demand all sums owed by the
COMPANY to petitioner BANK under the aforestated overdraft facility.

The Joint and Several Guarantee provides, inter alia, that:

This guarantee and all rights, obligations and liabilities arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws
of the Republic of Singapore. We hereby agree that the Courts of Singapore shall
have jurisdiction over all disputes arising under this guarantee. ... (p. 33-A, Rollo).
The COMPANY failed to pay its obligation. Thus, petitioner BANK demanded payment of the
obligation from private respondents, conformably with the provisions of the Joint and Several
Guarantee. Inasmuch as the private respondents still failed to pay, petitioner BANK filed the above-
mentioned complaint.

On December 14,1984, private respondents filed a motion to dismiss (pp 54-56, Rollo) which was
opposed by petitioner BANK (pp. 58-62, Rollo). Acting on the motion, the trial court issued an order
dated February 28, 1985 (pp, 64-65, Rollo), which read as follows:

In a Motion to Dismiss filed on December 14, 1984, the defendants seek the
dismissal of the complaint on two grounds, namely:

1. That the court has no jurisdiction over the subject matter of the complaint; and

2. That the court has no jurisdiction over the persons of the defendants.

In the light of the Opposition thereto filed by plaintiff, the Court finds no merit in the
motion. "On the first ground, defendants claim that by virtue of the provision in the
Guarantee (the actionable document) which reads

This guarantee and all rights, obligations and liabilities arising

hereunder shall be construed and determined under and may be
enforced in accordance with the laws of the Republic of Singapore.
We hereby agree that the courts in Singapore shall have jurisdiction
over all disputes arising under this guarantee,

the Court has no jurisdiction over the subject matter of the case. The Court finds and
concludes otherwise. There is nothing in the Guarantee which says that the courts of
Singapore shall have jurisdiction to the exclusion of the courts of other countries or
nations. Also, it has long been established in law and jurisprudence that jurisdiction
of courts is fixed by law; it cannot be conferred by the will, submission or consent of
the parties.

On the second ground, it is asserted that defendant Robert' , Sherman is not a

citizen nor a resident of the Philippines. This argument holds no water. Jurisdiction
over the persons of defendants is acquired by service of summons and copy of the
complaint on them. There has been a valid service of summons on both defendants
and in fact the same is admitted when said defendants filed a 'Motion for Extension
of Time to File Responsive Pleading on December 5, 1984.

WHEREFORE, the Motion to Dismiss is hereby DENIED.

SO ORDERED.

A motion for reconsideration of the said order was filed by private respondents which was, however,
denied (p. 66, Rollo).

Private respondents then filed before the respondent Intermediate Appellate Court (now Court of
Appeals) a petition for prohibition with preliminary injunction and/or prayer for a restraining order (pp.
39-48, Rollo). On August 2, 1985, the respondent Court rendered a decision (p. 37, Rollo), the
dispositive portion of which reads:

WHEREFORE, the petition for prohibition with preliminary injuction is hereby

GRANTED. The respondent Court is enjoined from taking further cognizance of the
case and to dismiss the same for filing with the proper court of Singapore which is
the proper forum. No costs.

SO ORDERED.

The motion for reconsideration was denied (p. 38, Rollo), hence, the present petition.

RTC: ruled in favor of the Bank

CA: reversed and dismissed the case for filing with the proper court of Singapore which is the proper
forum

The main issue is whether or not Philippine courts have jurisdiction over the suit.

The controversy stems from the interpretation of a provision in the Joint and Several Guarantee, to
wit:

(14) This guarantee and all rights, obligations and liabilites arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws
of the Republic of Singapore. We hereby agree that the Courts in Singapore shall
have jurisdiction over all disputes arising under this guarantee. ... (p. 53-A, Rollo)

In rendering the decision in favor of private respondents, the Court of Appeals made, the following
observations (pp. 35-36, Rollo):

There are significant aspects of the case to which our attention is invited. The loan
was obtained by Eastern Book Service PTE, Ltd., a company incorporated
in Singapore. The loan was granted by the Singapore Branch of Hongkong and
Shanghai Banking Corporation. The Joint and Several Guarantee was also
concluded in Singapore. The loan was in Singaporean dollars and the repayment
thereof also in the same currency. The transaction, to say the least, took place in
Singporean setting in which the law of that country is the measure by which that
relationship of the parties will be governed.

CA Rationale
Loan: obtained in Singapore and granted by the Singapore branch of HSBC, was in
Singaporean dollars as well as the repayment

Transaction: took place in Singaporean setting in which the law of that country is the
measure by which that relationship of the parties will ne giverned

Joint and several Guarantee: concluded in Singapore

xxx xxx xxx

 Contrary to the position taken by respondents, the guarantee agreement compliance
that any litigation will be before the courts of Singapore and that the rights and
obligations of the parties shall be construed and determined in accordance with the
laws of the Republic of Singapore. A closer examination of paragraph 14 of the
Guarantee Agreement upon which the motion to dismiss is based, employs in clear
and unmistakeable (sic) terms the word 'shall' which under statutory construction is
mandatory.

Thus it was ruled that:

... the word 'shall' is imperative, operating to impose a duty which may be enforced
(Dizon vs. Encarnacion, 9 SCRA 714). lwph1.t

There is nothing more imperative and restrictive than what the agreement
categorically commands that 'all rights, obligations, and liabilities arising
hereunder shall be construed and determined under and may be enforced in
accordance with the laws of the Republic of Singapore.'

While it is true that "the transaction took place in Singaporean setting" and that the Joint and Several
Guarantee contains a choice-of-forum clause, the very essence of due process dictates that the
stipulation that "[t]his guarantee and all rights, obligations and liabilities arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws of the Republic
of Singapore. We hereby agree that the Courts in Singapore shall have jurisdiction over all disputes
arising under this guarantee" be liberally construed. One basic principle underlies all rules of
jurisdiction in International Law: a State does not have jurisdiction in the absence of some
reasonable basis for exercising it, whether the proceedings are in rem quasi in rem or in personam.
To be reasonable, the jurisdiction must be based on some minimum contacts that will not offend
traditional notions of fair play and substantial justice (J. Salonga, Private International Law, 1981, p.
46). Indeed, as pointed-out by petitioner BANK at the outset, the instant case presents a very odd
situation. In the ordinary habits of life, anyone would be disinclined to litigate before a foreign
tribunal, with more reason as a defendant. However, in this case, private respondents are Philippine
residents (a fact which was not disputed by them) who would rather face a complaint against them
before a foreign court and in the process incur considerable expenses, not to mention
inconvenience, than to have a Philippine court try and resolve the case. Private respondents' stance
is hardly comprehensible, unless their ultimate intent is to evade, or at least delay, the payment of a
just obligation.

The defense of private respondents that the complaint should have been filed in Singapore is based
merely on technicality. They did not even claim, much less prove, that the filing of the action here will
cause them any unnecessary trouble, damage, or expense. On the other hand, there is no showing
that petitioner BANK filed the action here just to harass private respondents.

In the case of Polytrade Corporation vs. Blanco, G.R. No. L-27033, October 31, 1969, 30 SCRA 187,
it was ruled:

... An accurate reading, however, of the stipulation, 'The parties agree to sue and be
sued in the Courts of Manila,' does not preclude the filing of suits in the residence of
plaintiff or defendant. The plain meaning is that the parties merely consented to be
sued in Manila. Qualifying or restrictive words which would indicate that Manila and
 Manila alone is the venue are totally absent therefrom. We cannot read into that
clause that plaintiff and defendant bound themselves to file suits with respect to the
last two transactions in question only or exclusively in Manila. For, that agreement
did not change or transfer venue. It simply is permissive. The parties solely agreed to
add the courts of Manila as tribunals to which they may resort. They did not waive
their right to pursue remedy in the courts specifically mentioned in Section 2(b) of
Rule 4. Renuntiatio non praesumitur.

This ruling was reiterated in the case of Neville Y. Lamis Ents., et al. v. Lagamon, etc., et al., G.R.
No. 57250, October 30, 1981, 108 SCRA 740, where the stipulation was "[i]n case of litigation,
jurisdiction shall be vested in the Court of Davao City." We held:

Anent the claim that Davao City had been stipulated as the venue, suffice it to say
that a stipulation as to venue does not preclude the filing of suits in the residence of
plaintiff or defendant under Section 2 (b), Rule 4, Rules of Court, in the absence of
qualifying or restrictive words in the agreement which would indicate that the place
named is the only venue agreed upon by the parties.

Applying the foregoing to the case at bar, the parties did not thereby stipulate that only the courts of
Singapore, to the exclusion of all the rest, has jurisdiction. Neither did the clause in question operate
to divest Philippine courts of jurisdiction. In International Law, jurisdiction is often defined as the light
of a State to exercise authority over persons and things within its boundaries subject to certain
exceptions. Thus, a State does not assume jurisdiction over travelling sovereigns, ambassadors and
diplomatic representatives of other States, and foreign military units stationed in or marching through
State territory with the permission of the latter's authorities. This authority, which finds its source in
the concept of sovereignty, is exclusive within and throughout the domain of the State. A State is
competent to take hold of any judicial matter it sees fit by making its courts and agencies assume
jurisdiction over all kinds of cases brought before them (J. Salonga, Private International Law, 1981,
pp. 37-38).lwph1.t

As regards the issue on improper venue, petitioner BANK avers that the objection to improper venue
has been waived. However, We agree with the ruling of the respondent Court that:

While in the main, the motion to dismiss fails to categorically use with exactitude the
words 'improper venue' it can be perceived from the general thrust and context of the
motion that what is meant is improper venue, The use of the word 'jurisdiction' was
merely an attempt to copy-cat the same word employed in the guarantee agreement
but conveys the concept of venue. Brushing aside all technicalities, it would appear
that jurisdiction was used loosely as to be synonymous with venue. It is in this spirit
that this Court must view the motion to dismiss. ... (p. 35, Rollo).

At any rate, this issue is now of no moment because We hold that venue here was properly laid for
the same reasons discussed above.

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

... In a conflict problem, a court will simply refuse to entertain the case if it is not
authorized by law to exercise jurisdiction. And even if it is so authorized, it may still
refuse to entertain the case by applying the principle of forum non conveniens. ...
However, whether a suit should be entertained or dismissed on the basis of the principle of forum
non conveniens depends largely upon the facts of the particular case and is addressed to the sound
discretion of the trial court (J. Salonga, Private International Law, 1981, p. 49). Thus, the respondent
lwph1.t

Court should not have relied on such principle.

Although the Joint and Several Guarantee prepared by petitioner BANK is a contract of adhesion
and that consequently, it cannot be permitted to take a stand contrary to the stipulations of the
contract, substantial bases exist for petitioner Bank's choice of forum, as discussed earlier.

Lastly, private respondents allege that neither the petitioner based at Hongkong nor its Philippine
branch is involved in the transaction sued upon. This is a vain attempt on their part to further thwart
the proceedings below inasmuch as well-known is the rule that a defendant cannot plead any
defense that has not been interposed in the court below.

ACCORDINGLY, the decision of the respondent Court is hereby REVERSED and the decision of the
Regional Trial Court is REINSTATED, with costs against private respondents. This decision is
immediately executory.

SO ORDERED.

SC: reversed CAs decision and reinstated that of the RTC

 SECOND DIVISION

[G.R. No. 103493. June 19, 1997]

PHILSEC INVESTMENT CORPORATION, BPI-INTERNATIONAL

FINANCE LIMITED, and ATHONA HOLDINGS, N.V., petitioners,
vs. THE HONORABLE COURT OF APPEALS, 1488, INC., DRAGO
DAIC, VENTURA O. DUCAT, PRECIOSO R. PERLAS, and
WILLIAM H. CRAIG, respondents.

DECISION
MENDOZA, J.:

This case presents for determination the conclusiveness of a foreign

judgment upon the rights of the parties under the same cause of action
asserted in a case in our local court.Petitioners brought this case in the
Regional Trial Court of Makati, Branch 56, which, in view of the pendency at
the time of the foreign action, dismissed Civil Case No. 16563 on the ground
of litis pendentia, in addition to forum non conveniens. On appeal, the Court of
Appeals affirmed. Hence this petition for review on certiorari.

The facts are as follows:

On January 15, 1983, private respondent Ventura O. Ducat obtained

separate loans from petitioners Ayala International Finance Limited (hereafter
called AYALA) and Philsec Investment Corporation (hereafter called
[1]

PHILSEC) in the sum of US$2,500,000.00, secured by shares of stock owned

by Ducat with a market value of P14,088,995.00. In order to facilitate the
payment of the loans, private respondent 1488, Inc., through its president,
private respondent Drago Daic, assumed Ducats obligation under an
Agreement, dated January 27, 1983, whereby 1488, Inc. executed a Warranty
Deed with Vendors Lien by which it sold to petitioner Athona Holdings, N.V.
(hereafter called ATHONA) a parcel of land in Harris County, Texas, U.S.A.,
for US$2,807,209.02, while PHILSEC and AYALA extended a loan to ATHONA
in the amount of US$2,500,000.00 as initial payment of the purchase price.
The balance of US$307,209.02 was to be paid by means of a promissory note
executed by ATHONA in favor of 1488, Inc. Subsequently, upon their receipt of
the US$2,500,000.00 from 1488, Inc., PHILSEC and AYALA released Ducat
from his indebtedness and delivered to 1488, Inc. all the shares of stock in
their possession belonging to Ducat.

As ATHONA failed to pay the interest on the balance of

US$307,209.02, the entire amount covered by the note became due and
demandable. Accordingly, on October 17, 1985, private respondent 1488, Inc.
sued petitioners PHILSEC, AYALA, and ATHONA in the United States for
payment of the balance of US$307,209.02 and for damages for breach of
contract and for fraud allegedly perpetrated by petitioners in misrepresenting
the marketability of the shares of stock delivered to 1488, Inc. under the
Agreement. Originally instituted in the United States District Court of Texas,
165th Judicial District, where it was docketed as Case No. 85-57746, the
venue of the action was later transferred to the United States District Court for
the Southern District of Texas, where 1488, Inc. filed an amended complaint,
reiterating its allegations in the original complaint. ATHONA filed an answer
with counterclaim, impleading private respondents herein as
counterdefendants, for allegedly conspiring in selling the property at a price
over its market value. Private respondent Perlas, who had allegedly appraised
the property, was later dropped as counterdefendant. ATHONA sought the
recovery of damages and excess payment allegedly made to 1488, Inc. and,
in the alternative, the rescission of sale of the property. For their part,
PHILSEC and AYALA filed a motion to dismiss on the ground of lack of
jurisdiction over their person, but, as their motion was denied, they later filed a
joint answer with counterclaim against private respondents and Edgardo V.
Guevarra, PHILSECs own former president, for the rescission of the sale on
the ground that the property had been overvalued. On March 13, 1990, the
United States District Court for the Southern District of Texas dismissed the
counterclaim against Edgardo V. Guevarra on the ground that it was frivolous
and [was] brought against him simply to humiliate and embarrass him. For this
reason, the U.S. court imposed so-called Rule 11 sanctions on PHILSEC and
AYALA and ordered them to pay damages to Guevarra.

On April 10, 1987, while Civil Case No. H-86-440 was pending in the
United States, petitioners filed a complaint For Sum of Money with Damages
and Writ of Preliminary Attachment against private respondents in the
Regional Trial Court of Makati, where it was docketed as Civil Case No.
16563. The complaint reiterated the allegation of petitioners in their respective
counterclaims in Civil Action No. H-86-440 of the United States District Court
of Southern Texas that private respondents committed fraud by selling the
property at a price 400 percent more than its true value of US$800,000.00.
Petitioners claimed that, as a result of private respondents fraudulent
misrepresentations, ATHONA, PHILSEC, and AYALA were induced to enter
into the Agreement and to purchase the Houston property. Petitioners prayed
that private respondents be ordered to return to ATHONA the excess payment
of US$1,700,000.00 and to pay damages. On April 20, 1987, the trial court
issued a writ of preliminary attachment against the real and personal
properties of private respondents. [2]

Private respondent Ducat moved to dismiss Civil Case No. 16563 on the
grounds of (1) litis pendentia, vis-a-vis Civil Action No. H-86-440 filed by 1488,
Inc. and Daic in the U.S., (2) forum non conveniens, and (3) failure of
petitioners PHILSEC and BPI-IFL to state a cause of action. Ducat contended
that the alleged overpricing of the property prejudiced only petitioner
ATHONA, as buyer, but not PHILSEC and BPI-IFL which were not parties to
the sale and whose only participation was to extend financial accommodation
to ATHONA under a separate loan agreement. On the other hand, private
respondents 1488, Inc. and its president Daic filed a joint Special Appearance
and Qualified Motion to Dismiss, contending that the action being in
personam, extraterritorial service of summons by publication was ineffectual
and did not vest the court with jurisdiction over 1488, Inc., which is a non-
resident foreign corporation, and Daic, who is a non-resident alien.

On January 26, 1988, the trial court granted Ducats motion to dismiss,
stating that the evidentiary requirements of the controversy may be more
suitably tried before the forum of the litis pendentia in the U.S., under the
principle in private international law of forum non conveniens, even as it noted
that Ducat was not a party in the U.S. case.

A separate hearing was held with regard to 1488, Inc. and Daics motion to
dismiss. On March 9, 1988, the trial court granted the motion to dismiss filed
[3]

by 1488, Inc. and Daic on the ground of litis pendentia considering that

the main factual element of the cause of action in this case which is the validity of
the sale of real property in the United States between defendant 1488 and plaintiff
ATHONA is the subject matter of the pending case in the United States District
Court which, under the doctrine of forum non conveniens, is the better (if not
exclusive) forum to litigate matters needed to determine the assessment and/or
fluctuations of the fair market value of real estate situated in Houston, Texas,
 U.S.A. from the date of the transaction in 1983 up to the present and verily, . . .
(emphasis by trial court)

The trial court also held itself without jurisdiction over 1488, Inc. and Daic
because they were non-residents and the action was not an action in rem
or quasi in rem, so that extraterritorial service of summons was
ineffective. The trial court subsequently lifted the writ of attachment it had
earlier issued against the shares of stocks of 1488, Inc. and Daic.

Petitioners appealed to the Court of Appeals, arguing that the trial court
erred in applying the principle of litis pendentia and forum non conveniens and
in ruling that it had no jurisdiction over the defendants, despite the previous
attachment of shares of stocks belonging to 1488, Inc. and Daic.

On January 6, 1992, the Court of Appeals affirmed the dismissal of Civil

[4]

Case No. 16563 against Ducat, 1488, Inc., and Daic on the ground of litis
pendentia, thus:

The plaintiffs in the U.S. court are 1488 Inc. and/or Drago Daic, while the defendants
are Philsec, the Ayala International Finance Ltd. (BPI-IFLs former name) and the
Athona Holdings, NV. The case at bar involves the same parties. The transaction sued
upon by the parties, in both cases is the Warranty Deed executed by and between
Athona Holdings and 1488 Inc. In the U.S. case, breach of contract and the
promissory note are sued upon by 1488 Inc., which likewise alleges fraud employed
by herein appellants, on the marketability of Ducats securities given in exchange for
the Texas property. The recovery of a sum of money and damages, for fraud
purportedly committed by appellees, in overpricing the Texas land, constitute the
action before the Philippine court, which likewise stems from the same Warranty
Deed.

The Court of Appeals also held that Civil Case No. 16563 was an action in
personam for the recovery of a sum of money for alleged tortious acts, so that
service of summons by publication did not vest the trial court with jurisdiction
over 1488, Inc. and Drago Daic. The dismissal of Civil Case No. 16563 on the
ground of forum non conveniens was likewise affirmed by the Court of
Appeals on the ground that the case can be better tried and decided by the
U.S. court:

The U.S. case and the case at bar arose from only one main transaction, and involve
foreign elements, to wit: 1) the property subject matter of the sale is situated in Texas,
U.S.A.; 2) the seller, 1488 Inc. is a non-resident foreign corporation; 3) although the
buyer, Athona Holdings, a foreign corporation which does not claim to be doing
business in the Philippines, is wholly owned by Philsec, a domestic corporation,
Athona Holdings is also owned by BPI-IFL, also a foreign corporation; 4) the
Warranty Deed was executed in Texas, U.S.A.

In their present appeal, petitioners contend that:

1. THE DOCTRINE OF PENDENCY OF ANOTHER ACTION BETWEEN THE SAME

PARTIES FOR THE SAME CAUSE (LITIS PENDENTIA) RELIED UPON BY THE
COURT OF APPEALS IN AFFIRMING THE TRIAL COURTS DISMISSAL OF THE
CIVIL ACTION IS NOT APPLICABLE.

2. THE PRINCIPLE OF FORUM NON CONVENIENS ALSO RELIED UPON BY THE

COURT OF APPEALS IN AFFIRMING THE DISMISSAL BY THE TRIAL COURT OF
THE CIVIL ACTION IS LIKEWISE NOT APPLICABLE.

3. AS A COROLLARY TO THE FIRST TWO GROUNDS, THE COURT OF APPEALS

ERRED IN NOT HOLDING THAT PHILIPPINE PUBLIC POLICY REQUIRED THE
ASSUMPTION, NOT THE RELINQUISHMENT, BY THE TRIAL COURT OF ITS
RIGHTFUL JURISDICTION IN THE CIVIL ACTION FOR THERE IS EVERY
REASON TO PROTECT AND VINDICATE PETITIONERS RIGHTS FOR
TORTIOUS OR WRONGFUL ACTS OR CONDUCT PRIVATE RESPONDENTS
(WHO ARE MOSTLY NON-RESIDENT ALIENS) INFLICTED UPON THEM HERE
IN THE PHILIPPINES.

We will deal with these contentions in the order in which they are made.

First. It is important to note in connection with the first point that while the
present case was pending in the Court of Appeals, the United States District
Court for the Southern District of Texas rendered judgment in the case before
[5]

it. The judgment, which was in favor of private respondents, was affirmed on
appeal by the Circuit Court of Appeals. Thus, the principal issue to be
[6]

resolved in this case is whether Civil Case No. 16536 is barred by the
judgment of the U.S. court.

Private respondents contend that for a foreign judgment to be pleaded as

res judicata, a judgment admitting the foreign decision is not necessary. On
the other hand, petitioners argue that the foreign judgment cannot be given
the effect of res judicata without giving them an opportunity to impeach it on
grounds stated in Rule 39, 50 of the Rules of Court, to wit: want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or fact.
 Petitioners contention is meritorious. While this Court has given the effect
of res judicata to foreign judgments in several cases, it was after the parties
[7]

opposed to the judgment had been given ample opportunity to repel them on
grounds allowed under the law. It is not necessary for this purpose to initiate
[8]

a separate action or proceeding for enforcement of the foreign judgment.

What is essential is that there is opportunity to challenge the foreign judgment,
in order for the court to properly determine its efficacy. This is because in this
jurisdiction, with respect to actions in personam, as distinguished from actions
in rem, a foreign judgment merely constitutes prima facie evidence of the
justness of the claim of a party and, as such, is subject to proof to the
contrary. Rule 39, 50 provides:
[9]

SEC. 50. Effect of foreign judgments. - The effect of a judgment of a tribunal of a

foreign country, having jurisdiction to pronounce the judgment is as follows:

(a) In case of a judgment upon a specific thing, the judgment is conclusive upon the
title to the thing;

(b) In case of a judgment against a person, the judgment is presumptive evidence of a

right as between the parties and their successors in interest by a subsequent title; but
the judgment may be repelled by evidence of a want of jurisdiction, want of notice to
the party, collusion, fraud, or clear mistake of law or fact.

Thus, in the case of General Corporation of the Philippines v. Union

Insurance Society of Canton, Ltd., which private respondents invoke for
[10]

claiming conclusive effect for the foreign judgment in their favor, the foreign
judgment was considered res judicata because this Court found from the
evidence as well as from appellants own pleadings that the foreign court did
[11]

not make a clear mistake of law or fact or that its judgment was void for want
of jurisdiction or because of fraud or collusion by the defendants. Trial had
been previously held in the lower court and only afterward was a decision
rendered, declaring the judgment of the Supreme Court of the State of
Washington to have the effect of res judicata in the case before the lower
court. In the same vein, in Philippine International Shipping Corp. v. Court of
Appeals, this Court held that the foreign judgment was valid and enforceable
[12]

in the Philippines there being no showing that it was vitiated by want of notice
to the party, collusion, fraud or clear mistake of law or fact. The prima
facie presumption under the Rule had not been rebutted.
 In the case at bar, it cannot be said that petitioners were given the
opportunity to challenge the judgment of the U.S. court as basis for declaring
it res judicata or conclusive of the rights of private respondents. The
proceedings in the trial court were summary. Neither the trial court nor the
appellate court was even furnished copies of the pleadings in the U.S. court or
apprised of the evidence presented thereat, to assure a proper determination
of whether the issues then being litigated in the U.S. court were exactly the
issues raised in this case such that the judgment that might be rendered
would constitute res judicata. As the trial court stated in its disputed order
dated March 9, 1988:

On the plaintiffs claim in its Opposition that the causes of action of this case
and the pending case in the United States are not identical, precisely the Order
of January 26, 1988 never found that the causes of action of this case and the
case pending before the USA Court, were identical. (emphasis added)

It was error therefore for the Court of Appeals to summarily rule that
petitioners action is barred by the principle of res judicata. Petitioners in fact
questioned the jurisdiction of the U.S. court over their persons, but their claim
was brushed aside by both the trial court and the Court of Appeals. [13]

Moreover, the Court notes that on April 22, 1992, 1488, Inc. and Daic filed
a petition for the enforcement of judgment in the Regional Trial Court of
Makati, where it was docketed as Civil Case No. 92-1070 and assigned to
Branch 134, although the proceedings were suspended because of the
pendency of this case. To sustain the appellate courts ruling that the foreign
judgment constitutes res judicata and is a bar to the claim of petitioners would
effectively preclude petitioners from repelling the judgment in the case for
enforcement. An absurdity could then arise: a foreign judgment is not subject
to challenge by the plaintiff against whom it is invoked, if it is pleaded to resist
a claim as in this case, but it may be opposed by the defendant if the foreign
judgment is sought to be enforced against him in a separate proceeding. This
is plainly untenable. It has been held therefore that:

[A] foreign judgment may not be enforced if it is not recognized in the jurisdiction
where affirmative relief is being sought. Hence, in the interest of justice, the
complaint should be considered as a petition for the recognition of the
Hongkong judgment under Section 50 (b), Rule 39 of the Rules of Court in order that
the defendant, private respondent herein, may present evidence of lack of jurisdiction,
notice, collusion, fraud or clear mistake of fact and law, if applicable.
[14]

Accordingly, to insure the orderly administration of justice, this case and

Civil Case No. 92-1070 should be consolidated. After all, the two have been
[15]

filed in the Regional Trial Court of Makati, albeit in different salas, this case
being assigned to Branch 56 (Judge Fernando V. Gorospe), while Civil Case
No. 92-1070 is pending in Branch 134 of Judge Ignacio Capulong.In such
proceedings, petitioners should have the burden of impeaching the foreign
judgment and only in the event they succeed in doing so may they proceed
with their action against private respondents.

Second. Nor is the trial courts refusal to take cognizance of the case
justifiable under the principle of forum non conveniens. First, a motion to
dismiss is limited to the grounds under Rule 16, 1, which does not
include forum non conveniens. The propriety of dismissing a case based on
[16]

this principle requires a factual determination, hence, it is more properly

considered a matter of defense. Second, 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. [17]

In this case, the trial court abstained from taking jurisdiction solely on the
basis of the pleadings filed by private respondents in connection with the
motion to dismiss. It failed to consider that one of the plaintiffs (PHILSEC) is a
domestic corporation and one of the defendants (Ventura Ducat) is a Filipino,
and that it was the extinguishment of the latters debt which was the object of
the transaction under litigation. The trial court arbitrarily dismissed the case
even after finding that Ducat was not a party in the U.S. case.

Third. It was error we think for the Court of Appeals and the trial court to
hold that jurisdiction over 1488, Inc. and Daic could not be obtained because
this is an action in personam and summons were served by extraterritorial
service. Rule 14, 17 on extraterritorial service provides that service of
summons on a non-resident defendant may be effected out of the Philippines
by leave of Court where, among others, the property of the defendant has
been attached within the Philippines. It is not disputed that the properties,
[18]

real and personal, of the private respondents had been attached prior to
service of summons under the Order of the trial court dated April 20, 1987. [19]
 Fourth. As for the temporary restraining order issued by the Court on June
29, 1994, to suspend the proceedings in Civil Case No. 92-1445 filed by
Edgardo V. Guevarra to enforce so-called Rule 11 sanctions imposed on the
petitioners by the U.S. court, the Court finds that the judgment sought to be
enforced is severable from the main judgment under consideration in Civil
Case No. 16563. The separability of Guevarras claim is not only admitted by
petitioners, it appears from the pleadings that petitioners only belatedly
[20]

impleaded Guevarra as defendant in Civil Case No. 16563. Hence, the TRO
[21]

should be lifted and Civil Case No. 92-1445 allowed to proceed.

WHEREFORE, the decision of the Court of Appeals is REVERSED and

Civil Case No. 16563 is REMANDED to the Regional Trial Court of Makati for
consolidation with Civil Case No. 92-1070 and for further proceedings in
accordance with this decision. The temporary restraining order issued on June
29, 1994 is hereby LIFTED.

SO ORDERED.
 SPECIAL SECOND DIVISION

JORGE GONZALES and G.R. No. 161957

PANEL OF ARBITRATORS,
Petitioners, Present:

PUNO, C. J.,
Chairperson,
- versus AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
NAZARIO, JJ.
CLIMAX MINING LTD.,
CLIMAX-ARIMCO MINING CORP.,
and AUSTRALASIAN PHILIPPINES Promulgated:
MINING INC.,
Respondents. January 22, 2007

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

JORGE GONZALES, G.R. No. 167994

Petitioner,

- versus

HON. OSCAR B. PIMENTEL, in his

capacity as PRESIDING JUDGE of BR. 148
of the REGIONAL TRIAL COURT of
MAKATI CITY, and CLIMAX-ARIMCO
MINING CORPORATION,
Respondents.
x-------------------------- --------------------------------------------------- x
 R E S O L U T I ON

TINGA, J.:

This is a consolidation of two petitions rooted in the same disputed Addendum

Contract entered into by the parties. In G.R. No. 161957, the Court in its Decision
of 28 February 2005[1] denied the Rule 45 petition of petitioner Jorge Gonzales
(Gonzales). It held that the DENR Panel of Arbitrators had no jurisdiction over the
complaint for the annulment of the Addendum Contract on grounds of fraud and
violation of the Constitution and that the action should have been brought before
the regular courts as it involved judicial issues. Both parties filed separate motions
for reconsideration. Gonzales avers in his Motion for Reconsideration [2] that the
Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute that
properly falls within the ambit of the Panels authority. Gonzales adds that the
Court failed to rule on other issues he raised relating to the sufficiency of his
complaint before the DENR Panel of Arbitrators and the timeliness of its filing.

Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for Partial
Reconsideration and/or Clarification[3] seeking reconsideration of that part of the
Decision holding that the case should not be brought for arbitration under Republic
Act (R.A.) No. 876, also known as the Arbitration Law.[4] Respondents, citing
American jurisprudence[5] and the UNCITRAL Model Law,[6] argue that the
arbitration clause in the Addendum Contract should be treated as an agreement
independent of the other terms of the contract, and that a claimed rescission of the
main contract does not avoid the duty to arbitrate. Respondents add that Gonzaless
argument relating to the alleged invalidity of the Addendum Contract still has to be
proven and adjudicated on in a proper proceeding; that is, an action separate from
the motion to compel arbitration. Pending judgment in such separate action, the
Addendum Contract remains valid and binding and so does the arbitration clause
therein. Respondents add that the holding in the Decision that the case should not
be brought under the ambit of the Arbitration Law appears to be premised on
Gonzaless having impugn[ed] the existence or validity of the addendum
contract. If so, it supposedly conveys the idea that Gonzaless unilateral repudiation
of the contract or mere allegation of its invalidity is all it takes to avoid
arbitration. Hence, respondents submit that the courts holding that the case should
not be brought under the ambit of the Arbitration Law be understood or clarified as
operative only where the challenge to the arbitration agreement has been sustained
by final judgment.

Both parties were required to file their respective comments to the other partys
motion for reconsideration/clarification.[7] Respondents filed their Comment on 17
August 2005,[8] while Gonzales filed his only on 25 July 2006.[9]

On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May 2005,
or while the motions for reconsideration in G.R. No. 161957 [10] were pending,
wherein Gonzales challenged the orders of the Regional Trial Court (RTC)
requiring him to proceed with the arbitration proceedings as sought by Climax-
Arimco Mining Corporation (Climax-Arimco).

On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were consolidated
upon the recommendation of the Assistant Division Clerk of Court since the cases
are rooted in the same Addendum Contract.

We first tackle the more recent case which is G.R. No. 167994. It stemmed from
the petition to compel arbitration filed by respondent Climax-Arimco before the
RTC of Makati City on 31 March 2000 while the complaint for the nullification of
the Addendum Contract was pending before the DENR Panel of Arbitrators. On 23
March 2000, Climax-Arimco had sent Gonzales a Demand for Arbitration pursuant
to Clause 19.1[11] of the Addendum Contract and also in accordance with Sec. 5 of
R.A. No. 876. The petition for arbitration was subsequently filed and Climax-
Arimco sought an order to compel the parties to arbitrate pursuant to the said
arbitration clause. The case, docketed as Civil Case No. 00-444, was initially
raffled to Br. 132 of the RTC of Makati City, with Judge Herminio I. Benito as
Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion to set
the application to compel arbitration for hearing.

On 14 April 2000, Gonzales filed a motion to dismiss which he however failed to

set for hearing. On 15 May 2000, he filed an Answer with Counterclaim,
[12]
questioning the validity of the Addendum Contract containing the arbitration
clause. Gonzales alleged that the Addendum Contract containing the arbitration
clause is void in view of Climax-Arimcos acts of fraud, oppression and violation of
the Constitution. Thus, the arbitration clause, Clause 19.1, contained in the
Addendum Contract is also null and void ab initio and legally inexistent.

On 18 May 2000, the RTC issued an order declaring Gonzaless motion to dismiss
moot and academic in view of the filing of his Answer with Counterclaim.[13]

On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial. [14] This the
RTC denied on 16 June 2000, holding that the petition for arbitration is a special
proceeding that is summary in nature. [15] However, on 7 July 2000, the RTC
granted Gonzaless motion for reconsideration of the 16 June 2000 Order and set
the case for pre-trial on 10 August 2000, it being of the view that Gonzales had
raised in his answer the issue of the making of the arbitration agreement.[16]

Climax-Arimco then filed a motion to resolve its pending motion to compel

arbitration. The RTC denied the same in its 24 July 2000 order.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I.

Benito for not possessing the cold neutrality of an impartial judge. [17] On 5 August
2000, Judge Benito issued an Order granting the Motion to Inhibit and ordered the
re-raffling of the petition for arbitration. [18] The case was raffled to the sala of
public respondent Judge Oscar B. Pimentel of Branch 148.

On 23 August 2000, Climax-Arimco filed a motion for reconsideration of the 24

July 2000 Order.[19] Climax-Arimco argued that R.A. No. 876 does not authorize a
pre-trial or trial for a motion to compel arbitration but directs the court to hear the
motion summarily and resolve it within ten days from hearing. Judge Pimentel
granted the motion and directed the parties to arbitration. On 13 February 2001,
Judge Pimentel issued the first assailed order requiring Gonzales to proceed with
arbitration proceedings and appointing retired CA Justice Jorge Coquia as sole
arbitrator.[20]

Gonzales moved for reconsideration on 20 March 2001 but this was denied in the
Order dated 7 March 2005.[21]
 Gonzales thus filed the Rule 65 petition assailing the Orders dated 13
February 2001 and 7 March 2005 of Judge Pimentel. Gonzales contends that public
respondent Judge Pimentel acted with grave abuse of discretion in immediately
ordering the parties to proceed with arbitration despite the proper, valid, and timely
raised argument in his Answer with Counterclaim that the Addendum Contract,
containing the arbitration clause, is null and void. Gonzales has also sought a
temporary restraining order to prevent the enforcement of the assailed orders
directing the parties to arbitrate, and to direct Judge Pimentel to hold a pre-trial
conference and the necessary hearings on the determination of the nullity of the
Addendum Contract.

In support of his argument, Gonzales invokes Sec. 6 of R.A. No. 876:

SEC. 6. Hearing by court.A party aggrieved by the failure,

neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of such
application shall be served either personally or by registered mail upon
the party in default. The court shall hear the parties, and upon being
satisfied that the making of the agreement or such failure to comply
therewith is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement. If
the making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that no
agreement in writing providing for arbitration was made, or that there is
no default in the proceeding thereunder, the proceeding shall be
dismissed. If the finding be that a written provision for arbitration was
made and there is a default in proceeding thereunder, an order shall be
made summarily directing the parties to proceed with the arbitration in
accordance with the terms thereof.

The court shall decide all motions, petitions or applications filed

under the provisions of this Act, within ten (10) days after such
motions, petitions, or applications have been heard by it.
 Gonzales also cites Sec. 24 of R.A. No. 9285 or the Alternative Dispute
Resolution Act of 2004:

SEC. 24. Referral to Arbitration.A court before which an action

is brought in a matter which is the subject matter of an arbitration
agreement shall, if at least one party so requests not later than the pre-
trial conference, or upon the request of both parties thereafter, refer the
parties to arbitration unless it finds that the arbitration agreement is null
and void, inoperative or incapable of being performed.

According to Gonzales, the above-quoted provisions of law outline the procedure

to be followed in petitions to compel arbitration, which the RTC did not
follow. Thus, referral of the parties to arbitration by Judge Pimentel despite the
timely and properly raised issue of nullity of the Addendum Contract was
misplaced and without legal basis. Both R.A. No. 876 and R.A. No. 9285 mandate
that any issue as to the nullity, inoperativeness, or incapability of performance of
the arbitration clause/agreement raised by one of the parties to the alleged
arbitration agreement must be determined by the court prior to referring them to
arbitration. They require that the trial court first determine or resolve the issue of
nullity, and there is no other venue for this determination other than a pre-trial and
hearing on the issue by the trial court which has jurisdiction over the
case. Gonzales adds that the assailed 13 February 2001 Order also violated his
right to procedural due process when the trial court erroneously ruled on the
existence of the arbitration agreement despite the absence of a hearing for the
presentation of evidence on the nullity of the Addendum Contract.

Respondent Climax-Arimco, on the other hand, assails the mode of review availed
of by Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:

SEC. 29. Appeals.An appeal may be taken from an order made in a

proceeding under this Act, or from a judgment entered upon an award
through certiorari proceedings, but such appeals shall be limited to
questions of law. The proceedings upon such an appeal, including the
judgment thereon shall be governed by the Rules of Court in so far as
they are applicable.
Climax-Arimco mentions that the special civil action for certiorari employed by
Gonzales is available only where there is no appeal or any plain, speedy, and
adequate remedy in the ordinary course of law against the challenged orders or
acts. Climax-Arimco then points out that R.A. No. 876 provides for an appeal from
such orders, which, under the Rules of Court, must be filed within 15 days from
notice of the final order or resolution appealed from or of the denial of the motion
for reconsideration filed in due time.Gonzales has not denied that the relevant 15-
day period for an appeal had elapsed long before he filed this petition for
certiorari. He cannot use the special civil action of certiorari as a remedy for a lost
appeal.

Climax-Arimco adds that an application to compel arbitration under Sec. 6 of R.A.

No. 876 confers on the trial court only a limited and special jurisdiction, i.e., a
jurisdiction solely to determine (a) whether or not the parties have a written
contract to arbitrate, and (b) if the defendant has failed to comply with that
contract. Respondent cites La Naval Drug Corporation v. Court of Appeals,
[22]
which holds that in a proceeding to compel arbitration, [t]he arbitration law
explicitly confines the courts authority only to pass upon the issue of whether there
is or there is no agreement in writing providing for arbitration, and [i]n the
affirmative, the statute ordains that the court shall issue an order summarily
directing the parties to proceed with the arbitration in accordance with the terms
thereof.[23] Climax-Arimco argues that R.A. No. 876 gives no room for any other
issue to be dealt with in such a proceeding, and that the court presented with an
application to compel arbitration may order arbitration or dismiss the same,
depending solely on its finding as to those two limited issues. If either of these
matters is disputed, the court is required to conduct a summary hearing on
it. Gonzaless proposition contradicts both the trial courts limited jurisdiction and
the summary nature of the proceeding itself.

Climax-Arimco further notes that Gonzaless attack on or repudiation of the

Addendum Contract also is not a ground to deny effect to the arbitration clause in
the Contract. The arbitration agreement is separate and severable from the contract
evidencing the parties commercial or economic transaction, it stresses. Hence, the
alleged defect or failure of the main contract is not a ground to deny enforcement
of the parties arbitration agreement. Even the party who has repudiated the main
contract is not prevented from enforcing its arbitration provision. R.A. No. 876
itself treats the arbitration clause or agreement as a contract separate from the
commercial, economic or other transaction to be arbitrated. The statute, in
particular paragraph 1 of Sec. 2 thereof, considers the arbitration stipulation an
independent contract in its own right whose enforcement may be prevented only on
grounds which legally make the arbitration agreement itself revocable, thus:

SEC. 2. Persons and matters subject to arbitration.Two or more

persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties to
any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them.Such submission or
contract shall be valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract.

xxxx

The grounds Gonzales invokes for the revocation of the Addendum Contractfraud
and oppression in the execution thereofare also not grounds for the revocation of
the arbitration clause in the Contract, Climax-Arimco notes. Such grounds may
only be raised by way of defense in the arbitration itself and cannot be used to
frustrate or delay the conduct of arbitration proceedings. Instead, these should be
raised in a separate action for rescission, it continues.

Climax-Arimco emphasizes that the summary proceeding to compel arbitration

under Sec. 6 of R.A. No. 876 should not be confused with the procedure in Sec. 24
of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an application to compel
arbitration where the courts authority is limited to resolving the issue of whether
there is or there is no agreement in writing providing for arbitration, while Sec. 24
of R.A. No. 9285 refers to an ordinary action which covers a matter that appears to
be arbitrable or subject to arbitration under the arbitration agreement. In the latter
case, the statute is clear that the court, instead of trying the case, may, on request of
either or both parties, refer the parties to arbitration, unless it finds that the
arbitration agreement is null and void, inoperative or incapable of being
performed. Arbitration may even be ordered in the same suit brought upon a matter
covered by an arbitration agreement even without waiting for the outcome of the
issue of the validity of the arbitration agreement. Art. 8 of the UNCITRAL Model
Law[24]states that where a court before which an action is brought in a matter which
is subject of an arbitration agreement refers the parties to arbitration, the arbitral
proceedings may proceed even while the action is pending.

Thus, the main issue raised in the Petition for Certiorari is whether it was proper
for the RTC, in the proceeding to compel arbitration under R.A. No. 876, to order
the parties to arbitrate even though the defendant therein has raised the twin issues
of validity and nullity of the Addendum Contract and, consequently, of the
arbitration clause therein as well.The resolution of both Climax-Arimcos Motion
for Partial Reconsideration and/or Clarification in G.R. No. 161957 and Gonzaless
Petition for Certiorari in G.R. No. 167994 essentially turns on whether the question
of validity of the Addendum Contract bears upon the applicability or enforceability
of the arbitration clause contained therein. The two pending matters shall thus be
jointly resolved.

We address the Rule 65 petition in G.R. No. 167994 first from the remedial
law perspective. It deserves to be dismissed on procedural grounds, as it was filed
in lieu of appeal which is the prescribed remedy and at that far beyond the
reglementary period. It is elementary in remedial law that the use of an erroneous
mode of appeal is cause for dismissal of the petition for certiorari and it has been
repeatedly stressed that a petition for certiorari is not a substitute for a lost appeal.
As its nature, a petition for certiorari lies only where there is no appeal, and no
plain, speedy and adequate remedy in the ordinary course of law.[25] The Arbitration
Law specifically provides for an appeal by certiorari, i.e., a petition for review
under certiorari under Rule 45 of the Rules of Court that raises pure questions of
law.[26] There is no merit to Gonzaless argument that the use of the permissive term
may in Sec. 29, R.A. No. 876 in the filing of appeals does not prohibit nor discount
the filing of a petition for certiorari under Rule 65. [27] Proper interpretation of the
aforesaid provision of law shows that the term may refers only to the filing of an
appeal, not to the mode of review to be employed. Indeed, the use of may merely
reiterates the principle that the right to appeal is not part of due process of law but
is a mere statutory privilege to be exercised only in the manner and in accordance
with law.
 Neither can BF Corporation v. Court of Appeals[28] cited by Gonzales
support his theory. Gonzales argues that said case recognized and allowed a
petition for certiorari under Rule 65 appealing the order of the Regional Trial Court
disregarding the arbitration agreement as an acceptable remedy.[29] The BF
Corporation case had its origins in a complaint for collection of sum of money
filed by therein petitioner BF Corporation against Shangri-la Properties, Inc.
(SPI). SPI moved to suspend the proceedings alleging that the construction
agreement or the Articles of Agreement between the parties contained a clause
requiring prior resort to arbitration before judicial intervention. The trial court
found that an arbitration clause was incorporated in the Conditions of Contract
appended to and deemed an integral part of the Articles of Agreement. Still, the
trial court denied the motion to suspend proceedings upon a finding that the
Conditions of Contract were not duly executed and signed by the parties. The trial
court also found that SPI had failed to file any written notice of demand for
arbitration within the period specified in the arbitration clause. The trial court
denied SPI's motion for reconsideration and ordered it to file its responsive
pleading. Instead of filing an answer, SPI filed a petition for certiorari under Rule
65, which the Court of Appeals, favorably acted upon. In a petition for review
before this Court, BF Corporation alleged, among others, that the Court of Appeals
should have dismissed the petition for certiorari since the order of the trial court
denying the motion to suspend proceedings is a resolution of an incident on the
merits and upon the continuation of the proceedings, the trial court would
eventually render a decision on the merits, which decision could then be elevated
to a higher court in an ordinary appeal.[30]

The Court did not uphold BF Corporations argument. The issue raised
before the Court was whether SPI had taken the proper mode of appeal before the
Court of Appeals.The question before the Court of Appeals was whether the trial
court had prematurely assumed jurisdiction over the controversy. The question of
jurisdiction in turn depended on the question of existence of the arbitration clause
which is one of fact. While on its face the question of existence of the arbitration
clause is a question of fact that is not proper in a petition for certiorari, yet since
the determination of the question obliged the Court of Appeals as it did to interpret
the contract documents in accordance with R.A. No. 876 and existing
jurisprudence, the question is likewise a question of law which may be properly
taken cognizance of in a petition for certiorari under Rule 65, so the Court held.[31]
 The situation in B.F. Corporation is not availing in the present petition. The
disquisition in B.F. Corporation led to the conclusion that in order that the question
of jurisdiction may be resolved, the appellate court had to deal first with a question
of law which could be addressed in a certiorari proceeding. In the present case,
Gonzaless petition raises a question of law, but not a question of jurisdiction. Judge
Pimentel acted in accordance with the procedure prescribed in R.A. No. 876 when
he ordered Gonzales to proceed with arbitration and appointed a sole arbitrator
after making the determination that there was indeed an arbitration agreement. It
has been held that as long as a court acts within its jurisdiction and does not
gravely abuse its discretion in the exercise thereof, any supposed error committed
by it will amount to nothing more than an error of judgment reviewable by a timely
appeal and not assailable by a special civil action of certiorari. [32] Even if we
overlook the employment of the wrong remedy in the broader interests of justice,
the petition would nevertheless be dismissed for failure of Gonzalez to show grave
abuse of discretion.

Arbitration, as an alternative mode of settling disputes, has long been recognized

and accepted in our jurisdiction. The Civil Code is explicit on the matter.[33] R.A.
No. 876 also expressly authorizes arbitration of domestic disputes. Foreign
arbitration, as a system of settling commercial disputes of an international
character, was likewise recognized when the Philippines adhered to the United
Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral
Awards of 1958," under the 10 May 1965 Resolution No. 71 of the Philippine
Senate, giving reciprocal recognition and allowing enforcement of international
arbitration agreements between parties of different nationalities within a
contracting state.[34] The enactment of R.A. No. 9285 on 2 April 2004 further
institutionalized the use of alternative dispute resolution systems, including
arbitration, in the settlement of disputes.

Disputes do not go to arbitration unless and until the parties have agreed to abide
by the arbitrators decision. Necessarily, a contract is required for arbitration to take
place and to be binding. R.A. No. 876 recognizes the contractual nature of the
arbitration agreement, thus:
 SEC. 2. Persons and matters subject to arbitration.Two or more
persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing, between them at the time of the
submission and which may be the subject of an action, or the parties to
any contract may in such contract agree to settle by arbitration a
controversy thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save upon such
grounds as exist at law for the revocation of any contract.

Such submission or contract may include question arising out of

valuations, appraisals or other controversies which may be collateral,
incidental, precedent or subsequent to any issue between the parties.

A controversy cannot be arbitrated where one of the parties to the

controversy is an infant, or a person judicially declared to be
incompetent, unless the appropriate court having jurisdiction approve a
petition for permission to submit such controversy to arbitration made
by the general guardian or guardian ad litem of the infant or of the
incompetent. [Emphasis added.]

Thus, we held in Manila Electric Co. v. Pasay Transportation Co.[35] that a

submission to arbitration is a contract. A clause in a contract providing that all
matters in dispute between the parties shall be referred to arbitration is a contract,
[36]
and in Del Monte Corporation-USA v. Court of Appeals[37] that [t]he provision
to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract. As a rule, contracts are
respected as the law between the contracting parties and produce effect as between
them, their assigns and heirs.[38]

The special proceeding under Sec. 6 of R.A. No. 876 recognizes the
contractual nature of arbitration clauses or agreements. It provides:

SEC. 6. Hearing by court.A party aggrieved by the failure,

neglect or refusal of another to perform under an agreement in writing
providing for arbitration may petition the court for an order directing
that such arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of such
 application shall be served either personally or by registered mail upon
the party in default. The court shall hear the parties, and upon being
satisfied that the making of the agreement or such failure to comply
therewith is not in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the agreement. If
the making of the agreement or default be in issue the court shall
proceed to summarily hear such issue. If the finding be that
no agreement in writing providing for arbitration was made, or that
there is no default in the proceeding thereunder, the proceeding shall be
dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding thereunder,
an order shall be made summarily directing the parties to proceed with
the arbitration in accordance with the terms thereof.

The court shall decide all motions, petitions or applications filed

under the provisions of this Act, within ten days after such motions,
petitions, or applications have been heard by it.[Emphasis added.]

This special proceeding is the procedural mechanism for the enforcement of the
contract to arbitrate. The jurisdiction of the courts in relation to Sec. 6 of R.A. No.
876 as well as the nature of the proceedings therein was expounded upon in La
Naval Drug Corporation v. Court of Appeals.[39] There it was held that R.A. No.
876 explicitly confines the court's authority only to the determination of whether or
not there is an agreement in writing providing for arbitration. In the affirmative, the
statute ordains that the court shall issue an order "summarily directing the parties
to proceed with the arbitration in accordance with the terms thereof." If the court,
upon the other hand, finds that no such agreement exists, "the proceeding shall be
dismissed."[40] The cited case also stressed that the proceedings are summary in
nature.[41] The same thrust was made in the earlier case of Mindanao Portland
Cement Corp. v. McDonough Construction Co. of Florida[42] which held, thus:

Since there obtains herein a written provision for arbitration as

well as failure on respondent's part to comply therewith, the court a
quo rightly ordered the parties to proceed to arbitration in accordance
with the terms of their agreement (Sec. 6, Republic Act 876).
Respondent's arguments touching upon the merits of the dispute are
improperly raised herein. They should be addressed to the arbitrators.
 This proceeding is merely a summary remedy to enforce the agreement
to arbitrate. The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they should
proceed to arbitration or not. x x x x[43]

Implicit in the summary nature of the judicial proceedings is the separable or

independent character of the arbitration clause or agreement. This was highlighted
in the cases of Manila Electric Co. v. Pasay Trans. Co.[44] and Del Monte
Corporation-USA v. Court of Appeals.[45]

The doctrine of separability, or severability as other writers call

it, enunciates that an arbitration agreement is independent of the main
contract. The arbitration agreement is to be treated as a separate agreement and the
arbitration agreement does not automatically terminate when the contract of which
it is part comes to an end.[46]

The separability of the arbitration agreement is especially significant to the

determination of whether the invalidity of the main contract also nullifies the
arbitration clause.Indeed, the doctrine denotes that the invalidity of the main
contract, also referred to as the container contract, does not affect the validity of
the arbitration agreement. Irrespective of the fact that the main contract is invalid,
the arbitration clause/agreement still remains valid and enforceable.[47]

The separability of the arbitration clause is confirmed in Art. 16(1) of the

UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules.[48]

The separability doctrine was dwelt upon at length in the U.S. case of Prima
Paint Corp. v. Flood & Conklin Manufacturing Co.[49] In that case, Prima Paint and
Flood and Conklin (F & C) entered into a consulting agreement whereby F & C
undertook to act as consultant to Prima Paint for six years, sold to Prima Paint a list
of its customers and promised not to sell paint to these customers during the same
period. The consulting agreement contained an arbitration clause. Prima Paint did
not make payments as provided in the consulting agreement, contending that F &
C had fraudulently misrepresented that it was solvent and able for perform its
contract when in fact it was not and had even intended to file for bankruptcy after
executing the consultancy agreement. Thus, F & C served Prima Paint with a
notice of intention to arbitrate. Prima Paint sued in court for rescission of the
consulting agreement on the ground of fraudulent misrepresentation and asked for
the issuance of an order enjoining F & C from proceeding with arbitration. F & C
moved to stay the suit pending arbitration. The trial court granted F & Cs motion,
and the U.S. Supreme Court affirmed.

The U.S. Supreme Court did not address Prima Paints argument that it had
been fraudulently induced by F & C to sign the consulting agreement and held that
no court should address this argument. Relying on Sec. 4 of the Federal Arbitration
Actwhich provides that if a party [claims to be] aggrieved by the alleged failure x x
x of another to arbitrate x x x, [t]he court shall hear the parties, and upon being
satisfied that the making of the agreement for arbitration or the failure to comply
therewith is not in issue, the court shall make an order directing the parties
to proceed to arbitration x x x. If the making of the arbitration agreement or the
failure, neglect, or refusal to perform the same be in issue, the court shall proceed
summarily to the trial thereofthe U.S. High Court held that the court should not
order the parties to arbitrate if the making of the arbitration agreement is in
issue. The parties should be ordered to arbitration if, and only if, they have
contracted to submit to arbitration. Prima Paint was not entitled to trial on the
question of whether an arbitration agreement was made because its allegations of
fraudulent inducement were not directed to the arbitration clause itself, but only to
the consulting agreement which contained the arbitration agreement. [50] Prima
Paint held that arbitration clauses are separable from the contracts in which they
are embedded, and that where no claim is made that fraud was directed to the
arbitration clause itself, a broad arbitration clause will be held to encompass
arbitration of the claim that the contract itself was induced by fraud.[51]

There is reason, therefore, to rule against Gonzales when he alleges that

Judge Pimentel acted with grave abuse of discretion in ordering the parties to
proceed with arbitration. Gonzaless argument that the Addendum Contract is null
and void and, therefore the arbitration clause therein is void as well, is not
tenable. First, the proceeding in a petition for arbitration under R.A. No. 876 is
limited only to the resolution of the question of whether the arbitration agreement
exists. Second, the separability of the arbitration clause from the Addendum
Contract means that validity or invalidity of the Addendum Contract will not affect
the enforceability of the agreement to arbitrate. Thus, Gonzaless petition for
certiorari should be dismissed.

This brings us back to G.R. No. 161957. The adjudication of the petition in
G.R. No. 167994 effectively modifies part of the Decision dated 28 February
2005 in G.R. No. 161957. Hence, we now hold that the validity of the contract
containing the agreement to submit to arbitration does not affect the applicability
of the arbitration clause itself. A contrary ruling would suggest that a partys mere
repudiation of the main contract is sufficient to avoid arbitration. That is exactly
the situation that the separability doctrine, as well as jurisprudence applying it,
seeks to avoid. We add that when it was declared in G.R. No. 161957 that the case
should not be brought for arbitration, it should be clarified that the case referred to
is the case actually filed by Gonzales before the DENR Panel of Arbitrators, which
was for the nullification of the main contract on the ground of fraud, as it had
already been determined that the case should have been brought before the regular
courts involving as it did judicial issues.

The Motion for Reconsideration of Gonzales in G.R. No. 161957 should

also be denied. In the motion, Gonzales raises the same question of jurisdiction,
more particularly that the complaint for nullification of the Addendum Contract
pertained to the DENR Panel of Arbitrators, not the regular courts. He insists that
the subject of his complaint is a mining dispute since it involves a dispute
concerning rights to mining areas, the Financial and Technical Assistance
Agreement (FTAA) between the parties, and it also involves claimowners. He adds
that the Court failed to rule on other issues he raised, such as whether he had ceded
his claims over the mineral deposits located within the Addendum Area of
Influence; whether the complaint filed before the DENR Panel of Arbitrators
alleged ultimate facts of fraud; and whether the action to declare the nullity of the
Addendum Contract on the ground of fraud has prescribed.

These are the same issues that Gonzales raised in his Rule 45 petition in
G.R. No. 161957 which were resolved against him in the Decision of 28 February
2005. Gonzales does not raise any new argument that would sway the Court even a
bit to alter its holding that the complaint filed before the DENR Panel of
Arbitrators involves judicial issues which should properly be resolved by the
regular courts. He alleged fraud or misrepresentation in the execution of the
Addendum Contract which is a ground for the annulment of a voidable contract.
Clearly, such allegations entail legal questions which are within the jurisdiction of
the courts.

The question of whether Gonzales had ceded his claims over the mineral
deposits in the Addendum Area of Influence is a factual question which is not
proper for determination before this Court. At all events, moreover, the question is
irrelevant to the issue of jurisdiction of the DENR Panel of Arbitrators. It should be
pointed out that the DENR Panel of Arbitrators made a factual finding in its Order
dated 18 October 2001, which it reiterated in its Order dated 25 June 2002, that
Gonzales had, through the various agreements, assigned his interest over the
mineral claims all in favor of [Climax-Arimco] as well as that without the
complainant [Gonzales] assigning his interest over the mineral claims in favor of
[Climax-Arimco], there would be no FTAA to speak of. [52] This finding was
affirmed by the Court of Appeals in its Decision dated 30 July 2003resolving the
petition for certiorari filed by Climax-Arimco in regard to the 18 October
2001 Order of the DENR Panel.[53]

The Court of Appeals likewise found that Gonzaless complaint alleged fraud
but did not provide any particulars to substantiate it. The complaint repeatedly
mentioned fraud, oppression, violation of the Constitution and similar conclusions
but nowhere did it give any ultimate facts or particulars relative to the allegations.
[54]

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all

averments of fraud, the circumstances constituting fraud must be stated with
particularity. This is to enable the opposing party to controvert the particular facts
allegedly constituting the same. Perusal of the complaint indeed shows that it failed
to state with particularity the ultimate facts and circumstances constituting the
alleged fraud. It does not state what particulars about Climax-Arimcos financial or
technical capability were misrepresented, or how the misrepresentation was
done. Incorporated in the body of the complaint are verbatim reproductions of the
contracts, correspondence and government issuances that reportedly explain the
allegations of fraud and misrepresentation, but these are, at best, evidentiary
matters that should not be included in the pleading.

As to the issue of prescription, Gonzaless claims of fraud and

misrepresentation attending the execution of the Addendum Contract are grounds
for the annulment of a voidable contract under the Civil Code.[55] Under Art. 1391
of the Code, an action for annulment shall be brought within four years, in the case
of fraud, beginning from the time of the discovery of the same. However, the time
of the discovery of the alleged fraud is not clear from the allegations of Gonzaless
complaint. That being the situation coupled with the fact that this Court is not a
trier of facts, any ruling on the issue of prescription would be uncalled for or even
unnecessary.

WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is

DISMISSED. Such dismissal effectively renders superfluous formal action on the
Motion for Partial Reconsideration and/or Clarification filed by Climax Mining
Ltd., et al. in G.R. No. 161957.

The Motion for Reconsideration filed by Jorge Gonzales in G.R. No. 161957
is DENIED WITH FINALITY.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-5887 December 16, 1910

THE UNITED STATES, plaintiff-appellee,

vs.
LOOK CHAW (alias LUK CHIU), defendant-appellant.

Thos. D. Aitken for appellant.

Attorney-General Villamor for appellee.

ARELLANO, C. J.:

The first complaint filed against the defendant, in the Court of First Instance of Cebu, stated that he
"carried, kept, possessed and had in his possession and control, 96 kilogrammes of opium," and that
"he had been surprised in the act of selling 1,000 pesos worth prepared opium."

The defense presented a demurrer based on two grounds, the second of which was the more than
one crime was charged in the complaint. The demurrer was sustained, as the court found that the
complaint contained two charges, one, for the unlawful possession of opium, and the other, for the
unlawful sale of opium, and, consequence of that ruling, it ordered that the fiscal should separated
one charge from the other and file a complaint for each violation; this, the fiscal did, and this cause
concerns only the unlawful possession of opium. It is registered as No. 375, in the Court of First
Instance of Cebu, and as No. 5887 on the general docket of this court.

The facts of the case are contained in the following finding of the trial court:

The evidence, it says, shows that between 11 and 12 o'clock a. m. on the present month
(stated as August 19, 1909), several persons, among them Messrs. Jacks and Milliron, chief
of the department of the port of Cebu and internal-revenue agent of Cebu, respectively, went
abroad the steamship Erroll to inspect and search its cargo, and found, first in a cabin near
the saloon, one sack (Exhibit A) and afterwards in the hold, another sack (Exhibit B). The
sack referred to as Exhibit A contained 49 cans of opium, and the other, Exhibit B, the larger
sack, also contained several cans of the same substance. The hold, in which the sack
mentioned in Exhibit B was found, was under the defendant's control, who moreover, freely
and of his own will and accord admitted that this sack, as well as the other referred to in
Exhibit B and found in the cabin, belonged to him. The said defendant also stated, freely and
voluntarily, that he had bought these sacks of opium, in Hongkong with the intention of
selling them as contraband in Mexico or Vera Cruz, and that, as his hold had already been
searched several times for opium, he ordered two other Chinamen to keep the sack. Exhibit
A.
It is to be taken into account that the two sacks of opium, designated as Exhibits A and B, properly
constitute the corpus delicti. Moreover, another lot of four cans of opium, marked, as Exhibit C, was
the subject matter of investigation at the trial, and with respect to which the chief of the department
of the port of Cebu testified that they were found in the part of the ship where the firemen habitually
sleep, and that they were delivered to the first officer of the ship to be returned to the said firemen
after the vessel should have left the Philippines, because the firemen and crew of foreign vessels,
pursuant to the instructions he had from the Manila custom-house, were permitted to retain certain
amounts of opium, always provided it should not be taken shore.

And, finally, another can of opium, marked "Exhibit D," is also corpus delicti and important as
evidence in this cause. With regard to this the internal-revenue agent testified as follows:itc-alf

FISCAL. What is it?

WITNESS. It is a can opium which was bought from the defendant by a secret-service agent
and taken to the office of the governor to prove that the accused had opium in his
possession to sell.

On motion by the defense, the court ruled that this answer might be stricken out "because it refers to
a sale." But, with respect to this answer, the chief of the department of customs had already given
this testimony, to wit:

FISCAL. Who asked you to search the vessel?

WITNESS. The internal-revenue agent came to my office and said that a party brought him a
sample of opium and that the same party knew that there was more opium on board the
steamer, and the agent asked that the vessel be searched.

The defense moved that this testimony be rejected, on the ground of its being hearsay evidence,
and the court only ordered that the part thereof "that there was more opium, on board the vessel" be
stricken out.

The defense, to abbreviate proceedings, admitted that the receptacles mentioned as Exhibits A, B,
and C, contained opium and were found on board the steamship Erroll, a vessel of English
nationality, and that it was true that the defendant stated that these sacks of opium were his and that
he had them in his possession.

According to the testimony of the internal-revenue agent, the defendant stated to him, in the
presence of the provincial fiscal, of a Chinese interpreter (who afterwards was not needed, because
the defendant spoke English), the warden of the jail, and four guards, that the opium seized in the
vessel had been bought by him in Hongkong, at three pesos for each round can and five pesos for
each one of the others, for the purpose of selling it, as contraband, in Mexico and Puerto de Vera
Cruz; that on the 15th the vessel arrived at Cebu, and on the same day he sold opium; that he had
tried to sell opium for P16 a can; that he had a contract to sell an amount of the value of about P500;
that the opium found in the room of the other two Chinamen prosecuted in another cause, was his,
and that he had left it in their stateroom to avoid its being found in his room, which had already been
searched many times; and that, according to the defendant, the contents of the large sack was 80
cans of opium, and of the small one, 49, and the total number, 129.
It was established that the steamship Erroll was of English nationality, that it came from Hongkong,
and that it was bound for Mexico, via the call ports of Manila and Cebu.

The defense moved for a dismissal of the case, on the grounds that the court had no jurisdiction to
try the same and the facts concerned therein did not constitute a crime. The fiscal, at the conclusion
of his argument, asked that the maximum penalty of the law be imposed upon the defendant, in view
of the considerable amount of opium seized. The court ruled that it did not lack jurisdiction, inasmuch
as the crime had been committed within its district, on the wharf of Cebu.

The court sentenced the defendant to five years' imprisonment, to pay a fine of P10,000, with
additional subsidiary imprisonment in case of insolvency, though not to exceed one third of the
principal penalty, and to the payment of the costs. It further ordered the confiscation, in favor of the
Insular Government, of the exhibits presented in the case, and that, in the event of an appeal being
taken or a bond given, or when the sentenced should have been served, the defendant be not
released from custody, but turned over to the customs authorities for the purpose of the fulfillment of
the existing laws on immigration.

From this judgment, the defendant appealed to this court. lawphi1.net

The appeal having been heard, together with the allegations made therein by the parties, it is found:
That, although the mere possession of a thing of prohibited use in these Islands, aboard a foreign
vessel in transit, in any of their ports, does not, as a general rule, constitute a crime triable by the
courts of this country, on account of such vessel being considered as an extension of its own
nationality, the same rule does not apply when the article, whose use is prohibited within the
Philippine Islands, in the present case a can of opium, is landed from the vessel upon Philippine soil,
thus committing an open violation of the laws of the land, with respect to which, as it is a violation of
the penal law in force at the place of the commission of the crime, only the court established in that
said place itself had competent jurisdiction, in the absence of an agreement under an international
treaty.

It is also found: That, even admitting that the quantity of the drug seized, the subject matter of the
present case, was considerable, it does not appear that, on such account, the two penalties fixed by
the law on the subject, should be imposed in the maximum degree.

Therefore, reducing the imprisonment and the fine imposed to six months and P1,000, respectively,
we affirm in all other respects the judgment appealed from, with the costs of this instance against the
appellant. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-11390 March 26, 1918

EL BANCO ESPAOL-FILIPINO, plaintiff-appellant,

vs.
VICENTE PALANCA, administrator of the estate of Engracio Palanca Tanquinyeng, defendant-
appellant.

Aitken and DeSelms for appellant.

Hartigan and Welch for appellee.

STREET, J.:

This action was instituted upon March 31, 1908, by "El Banco Espanol-Filipino" to foreclose a
mortgage upon various parcels of real property situated in the city of Manila. The mortgage in
question is dated June 16, 1906, and was executed by the original defendant herein, Engracio
Palanca Tanquinyeng y Limquingco, as security for a debt owing by him to the bank. Upon March
31, 1906, the debt amounted to P218,294.10 and was drawing interest at the rate of 8 per centum
per annum, payable at the end of each quarter. It appears that the parties to this mortgage at that
time estimated the value of the property in question at P292,558, which was about P75,000 in
excess of the indebtedness. After the execution of this instrument by the mortgagor, he returned to
China which appears to have been his native country; and he there died, upon January 29, 1810,
without again returning to the Philippine Islands.

As the defendant was a nonresident at the time of the institution of the present action, it was
necessary for the plaintiff in the foreclosure proceeding to give notice to the defendant by publication
pursuant to section 399 of the Code of Civil Procedure. An order for publication was accordingly
obtained from the court, and publication was made in due form in a newspaper of the city of Manila.
At the same time that the order of the court should deposit in the post office in a stamped envelope a
copy of the summons and complaint directed to the defendant at his last place of residence, to wit,
the city of Amoy, in the Empire of China. This order was made pursuant to the following provision
contained in section 399 of the Code of Civil Procedure:

In case of publication, where the residence of a nonresident or absent defendant is known,

the judge must direct a copy of the summons and complaint to be forthwith deposited by the
clerk in the post-office, postage prepaid, directed to the person to be served, at his place of
residence

Whether the clerk complied with this order does not affirmatively appear. There is, however, among
the papers pertaining to this case, an affidavit, dated April 4, 1908, signed by Bernardo Chan y
Garcia, an employee of the attorneys of the bank, showing that upon that date he had deposited in
the Manila post-office a registered letter, addressed to Engracio Palanca Tanquinyeng, at Manila,
containing copies of the complaint, the plaintiff's affidavit, the summons, and the order of the court
directing publication as aforesaid. It appears from the postmaster's receipt that Bernardo probably
used an envelope obtained from the clerk's office, as the receipt purports to show that the letter
emanated from the office.

The cause proceeded in usual course in the Court of First Instance; and the defendant not having
appeared, judgment was, upon July 2, 1908, taken against him by default. Upon July 3, 1908, a
decision was rendered in favor of the plaintiff. In this decision it was recited that publication had been
properly made in a periodical, but nothing was said about this notice having been given mail. The
court, upon this occasion, found that the indebtedness of the defendant amounted to P249,355. 32,
with interest from March 31, 1908. Accordingly it was ordered that the defendant should, on or
before July 6, 1908, deliver said amount to the clerk of the court to be applied to the satisfaction of
the judgment, and it was declared that in case of the failure of the defendant to satisfy the judgment
within such period, the mortgage property located in the city of Manila should be exposed to public
sale. The payment contemplated in said order was never made; and upon July 8, 1908, the court
ordered the sale of the property. The sale took place upon July 30, 1908, and the property was
bought in by the bank for the sum of P110,200. Upon August 7, 1908, this sale was confirmed by the
court.

About seven years after the confirmation of this sale, or to the precise, upon June 25, 1915, a motion
was made in this cause by Vicente Palanca, as administrator of the estate of the original defendant,
Engracio Palanca Tanquinyeng y Limquingco, wherein the applicant requested the court to set aside
the order of default of July 2, 1908, and the judgment rendered upon July 3, 1908, and to vacate all
the proceedings subsequent thereto. The basis of this application, as set forth in the motion itself,
was that the order of default and the judgment rendered thereon were void because the court had
never acquired jurisdiction over the defendant or over the subject of the action.

At the hearing in the court below the application to vacate the judgment was denied, and from this
action of the court Vicente Planca, as administrator of the estate of the original defendant, has
appealed. No other feature of the case is here under consideration than such as related to the action
of the court upon said motion.

The case presents several questions of importance, which will be discussed in what appears to be
the sequence of most convenient development. In the first part of this opinion we shall, for the
purpose of argument, assume that the clerk of the Court of First Instance did not obey the order of
the court in the matter of mailing the papers which he was directed to send to the defendant in
Amoy; and in this connection we shall consider, first, whether the court acquired the necessary
jurisdiction to enable it to proceed with the foreclosure of the mortgage and, secondly, whether those
proceedings were conducted in such manner as to constitute due process of law.

The word "jurisdiction," as applied to the faculty of exercising judicial power, is used in several
different, though related, senses since it may have reference (1) to the authority of the court to
entertain a particular kind of action or to administer a particular kind of relief, or it may refer to the
power of the court over the parties, or (2) over the property which is the subject to the litigation.

The sovereign authority which organizes a court determines the nature and extent of its powers in
general and thus fixes its competency or jurisdiction with reference to the actions which it may
entertain and the relief it may grant.
Jurisdiction over the person is acquired by the voluntary appearance of a party in court and his
submission to its authority, or it is acquired by the coercive power of legal process exerted over the
person.

Jurisdiction over the property which is the subject of the litigation may result either from a seizure of
the property under legal process, whereby it is brought into the actual custody of the law, or it may
result from the institution of legal proceedings wherein, under special provisions of law, the power of
the court over the property is recognized and made effective. In the latter case the property, though
at all times within the potential power of the court, may never be taken into actual custody at all. An
illustration of the jurisdiction acquired by actual seizure is found in attachment proceedings, where
the property is seized at the beginning of the action, or some subsequent stage of its progress, and
held to abide the final event of the litigation. An illustration of what we term potential jurisdiction over
the res, is found in the proceeding to register the title of land under our system for the registration of
land. Here the court, without taking actual physical control over the property assumes, at the
instance of some person claiming to be owner, to exercise a jurisdiction in rem over the property and
to adjudicate the title in favor of the petitioner against all the world.

In the terminology of American law the action to foreclose a mortgage is said to be a proceeding
quasi in rem, by which is expressed the idea that while it is not strictly speaking an action in rem yet
it partakes of that nature and is substantially such. The expression "action in rem" is, in its narrow
application, used only with reference to certain proceedings in courts of admiralty wherein the
property alone is treated as responsible for the claim or obligation upon which the proceedings are
based. The action quasi rem differs from the true action in rem in the circumstance that in the former
an individual is named as defendant, and the purpose of the proceeding is to subject his interest
therein to the obligation or lien burdening the property. All proceedings having for their sole object
the sale or other disposition of the property of the defendant, whether by attachment, foreclosure, or
other form of remedy, are in a general way thus designated. The judgment entered in these
proceedings is conclusive only between the parties.

In speaking of the proceeding to foreclose a mortgage the author of a well known treaties, has said:

Though nominally against person, such suits are to vindicate liens; they proceed upon
seizure; they treat property as primarily indebted; and, with the qualification above-
mentioned, they are substantially property actions. In the civil law, they are styled
hypothecary actions, and their sole object is the enforcement of the lien against the res; in
the common law, they would be different in chancery did not treat the conditional conveyance
as a mere hypothecation, and the creditor's right ass an equitable lien; so, in both, the suit is
real action so far as it is against property, and seeks the judicial recognition of a property
debt, and an order for the sale of the res. (Waples, Proceedings In Rem. sec. 607.)

It is true that in proceedings of this character, if the defendant for whom publication is made appears,
the action becomes as to him a personal action and is conducted as such. This, however, does not
affect the proposition that where the defendant fails to appear the action is quasi in rem; and it
should therefore be considered with reference to the principles governing actions in rem.

There is an instructive analogy between the foreclosure proceeding and an action of attachment,
concerning which the Supreme Court of the United States has used the following language:
 If the defendant appears, the cause becomes mainly a suit in personam, with the added
incident, that the property attached remains liable, under the control of the court, to answer
to any demand which may be established against the defendant by the final judgment of the
court. But, if there is no appearance of the defendant, and no service of process on him, the
case becomes, in its essential nature, a proceeding in rem, the only effect of which is to
subject the property attached to the payment of the defendant which the court may find to be
due to the plaintiff. (Cooper vs. Reynolds, 10 Wall., 308.)

In an ordinary attachment proceeding, if the defendant is not personally served, the preliminary
seizure is to, be considered necessary in order to confer jurisdiction upon the court. In this case the
lien on the property is acquired by the seizure; and the purpose of the proceedings is to subject the
property to that lien. If a lien already exists, whether created by mortgage, contract, or statute, the
preliminary seizure is not necessary; and the court proceeds to enforce such lien in the manner
provided by law precisely as though the property had been seized upon attachment. (Roller vs.
Holly, 176 U. S., 398, 405; 44 L. ed., 520.) It results that the mere circumstance that in an
attachment the property may be seized at the inception of the proceedings, while in the foreclosure
suit it is not taken into legal custody until the time comes for the sale, does not materially affect the
fundamental principle involved in both cases, which is that the court is here exercising a jurisdiction
over the property in a proceeding directed essentially in rem.

Passing now to a consideration of the jurisdiction of the Court of First Instance in a mortgage
foreclosure, it is evident that the court derives its authority to entertain the action primarily from the
statutes organizing the court. The jurisdiction of the court, in this most general sense, over the cause
of action is obvious and requires no comment. Jurisdiction over the person of the defendant, if
acquired at all in such an action, is obtained by the voluntary submission of the defendant or by the
personal service of process upon him within the territory where the process is valid. If, however, the
defendant is a nonresident and, remaining beyond the range of the personal process of the court,
refuses to come in voluntarily, the court never acquires jurisdiction over the person at all. Here the
property itself is in fact the sole thing which is impleaded and is the responsible object which is the
subject of the exercise of judicial power. It follows that the jurisdiction of the court in such case is
based exclusively on the power which, under the law, it possesses over the property; and any
discussion relative to the jurisdiction of the court over the person of the defendant is entirely apart
from the case. The jurisdiction of the court over the property, considered as the exclusive object of
such action, is evidently based upon the following conditions and considerations, namely: (1) that the
property is located within the district; (2) that the purpose of the litigation is to subject the property by
sale to an obligation fixed upon it by the mortgage; and (3) that the court at a proper stage of the
proceedings takes the property into custody, if necessary, and expose it to sale for the purpose of
satisfying the mortgage debt. An obvious corollary is that no other relief can be granted in this
proceeding than such as can be enforced against the property.

We may then, from what has been stated, formulated the following proposition relative to the
foreclosure proceeding against the property of a nonresident mortgagor who fails to come in and
submit himself personally to the jurisdiction of the court: (I) That the jurisdiction of the court is derived
from the power which it possesses over the property; (II) that jurisdiction over the person is not
acquired and is nonessential; (III) that the relief granted by the court must be limited to such as can
be enforced against the property itself.

It is important that the bearing of these propositions be clearly apprehended, for there are many
expressions in the American reports from which it might be inferred that the court acquires personal
jurisdiction over the person of the defendant by publication and notice; but such is not the case. In
truth the proposition that jurisdiction over the person of a nonresident cannot be acquired by
publication and notice was never clearly understood even in the American courts until after the
decision had been rendered by the Supreme Court of the United States in the leading case of
Pennoyer vs. Neff (95 U. S. 714; 24 L. ed., 565). In the light of that decision, and of other decisions
which have subsequently been rendered in that and other courts, the proposition that jurisdiction
over the person cannot be thus acquired by publication and notice is no longer open to question; and
it is now fully established that a personal judgment upon constructive or substituted service against a
nonresident who does not appear is wholly invalid. This doctrine applies to all kinds of constructive
or substituted process, including service by publication and personal service outside of the
jurisdiction in which the judgment is rendered; and the only exception seems to be found in the case
where the nonresident defendant has expressly or impliedly consented to the mode of service. (Note
to Raher vs. Raher, 35 L. R. A. [N. S. ], 292; see also 50 L .R. A., 585; 35 L. R. A. [N. S.], 312

The idea upon which the decision in Pennoyer vs. Neff (supra) proceeds is that the process from the
tribunals of one State cannot run into other States or countries and that due process of law requires
that the defendant shall be brought under the power of the court by service of process within the
State, or by his voluntary appearance, in order to authorize the court to pass upon the question of
his personal liability. The doctrine established by the Supreme Court of the United States on this
point, being based upon the constitutional conception of due process of law, is binding upon the
courts of the Philippine Islands. Involved in this decision is the principle that in proceedings in rem or
quasi in rem against a nonresident who is not served personally within the state, and who does not
appear, the relief must be confined to the res, and the court cannot lawfully render a personal
judgment against him. (Dewey vs. Des Moines, 173 U. S., 193; 43 L. ed., 665; Heidritter vs.
Elizabeth Oil Cloth Co., 112 U. S., 294; 28 L. ed., 729.) Therefore in an action to foreclose a
mortgage against a nonresident, upon whom service has been effected exclusively by publication,
no personal judgment for the deficiency can be entered. (Latta vs. Tutton, 122 Cal., 279; Blumberg
vs. Birch, 99 Cal., 416.)

It is suggested in the brief of the appellant that the judgment entered in the court below offends
against the principle just stated and that this judgment is void because the court in fact entered a
personal judgment against the absent debtor for the full amount of the indebtedness secured by the
mortgage. We do not so interpret the judgment.

In a foreclosure proceeding against a nonresident owner it is necessary for the court, as in all cases
of foreclosure, to ascertain the amount due, as prescribed in section 256 of the Code of Civil
Procedure, and to make an order requiring the defendant to pay the money into court. This step is a
necessary precursor of the order of sale. In the present case the judgment which was entered
contains the following words:

Because it is declared that the said defendant Engracio Palanca Tanquinyeng y Limquingco,
is indebted in the amount of P249,355.32, plus the interest, to the 'Banco Espanol-Filipino' . .
. therefore said appellant is ordered to deliver the above amount etc., etc.

This is not the language of a personal judgment. Instead it is clearly intended merely as a
compliance with the requirement that the amount due shall be ascertained and that the evidence of
this it may be observed that according to the Code of Civil Procedure a personal judgment against
the debtor for the deficiency is not to be rendered until after the property has been sold and the
proceeds applied to the mortgage debt. (sec. 260).
The conclusion upon this phase of the case is that whatever may be the effect in other respects of
the failure of the clerk of the Court of First Instance to mail the proper papers to the defendant in
Amoy, China, such irregularity could in no wise impair or defeat the jurisdiction of the court, for in our
opinion that jurisdiction rest upon a basis much more secure than would be supplied by any form of
notice that could be given to a resident of a foreign country.

Before leaving this branch of the case, we wish to observe that we are fully aware that many
reported cases can be cited in which it is assumed that the question of the sufficiency of publication
or notice in a case of this kind is a question affecting the jurisdiction of the court, and the court is
sometimes said to acquire jurisdiction by virtue of the publication. This phraseology was undoubtedly
originally adopted by the court because of the analogy between service by the publication and
personal service of process upon the defendant; and, as has already been suggested, prior to the
decision of Pennoyer vs. Neff (supra) the difference between the legal effects of the two forms of
service was obscure. It is accordingly not surprising that the modes of expression which had already
been molded into legal tradition before that case was decided have been brought down to the
present day. But it is clear that the legal principle here involved is not effected by the peculiar
language in which the courts have expounded their ideas.

We now proceed to a discussion of the question whether the supposed irregularity in the
proceedings was of such gravity as to amount to a denial of that "due process of law" which was
secured by the Act of Congress in force in these Islands at the time this mortgage was foreclosed.
(Act of July 1, 1902, sec. 5.) In dealing with questions involving the application of the constitutional
provisions relating to due process of law the Supreme Court of the United States has refrained from
attempting to define with precision the meaning of that expression, the reason being that the idea
expressed therein is applicable under so many diverse conditions as to make any attempt ay precise
definition hazardous and unprofitable. As applied to a judicial proceeding, however, it may be laid
down with certainty that the requirement of due process is satisfied if the following conditions are
present, namely; (1) There must be a court or tribunal clothed with judicial power to hear and
determine the matter before it; (2) jurisdiction must be lawfully acquired over the person of the
defendant or over the property which is the subject of the proceeding; (3) the defendant must be
given an opportunity to be heard; and (4) judgment must be rendered upon lawful hearing.

Passing at once to the requisite that the defendant shall have an opportunity to be heard, we
observe that in a foreclosure case some notification of the proceedings to the nonresident owner,
prescribing the time within which appearance must be made, is everywhere recognized as essential.
To answer this necessity the statutes generally provide for publication, and usually in addition
thereto, for the mailing of notice to the defendant, if his residence is known. Though commonly
called constructive, or substituted service of process in any true sense. It is merely a means
provided by law whereby the owner may be admonished that his property is the subject of judicial
proceedings and that it is incumbent upon him to take such steps as he sees fit to protect it. In
speaking of notice of this character a distinguish master of constitutional law has used the following
language:

. . . if the owners are named in the proceedings, and personal notice is provided for, it is
rather from tenderness to their interests, and in order to make sure that the opportunity for a
hearing shall not be lost to them, than from any necessity that the case shall assume that
form. (Cooley on Taxation [2d. ed.], 527, quoted in Leigh vs. Green, 193 U. S., 79, 80.)
It will be observed that this mode of notification does not involve any absolute assurance that the
absent owner shall thereby receive actual notice. The periodical containing the publication may
never in fact come to his hands, and the chances that he should discover the notice may often be
very slight. Even where notice is sent by mail the probability of his receiving it, though much
increased, is dependent upon the correctness of the address to which it is forwarded as well as upon
the regularity and security of the mail service. It will be noted, furthermore, that the provision of our
law relative to the mailing of notice does not absolutely require the mailing of notice unconditionally
and in every event, but only in the case where the defendant's residence is known. In the light of all
these facts, it is evident that actual notice to the defendant in cases of this kind is not, under the law,
to be considered absolutely necessary.

The idea upon which the law proceeds in recognizing the efficacy of a means of notification which
may fall short of actual notice is apparently this: Property is always assumed to be in the possession
of its owner, in person or by agent; and he may be safely held, under certain conditions, to be
affected with knowledge that proceedings have been instituted for its condemnation and sale.

It is the duty of the owner of real estate, who is a nonresident, to take measures that in some
way he shall be represented when his property is called into requisition, and if he fails to do
this, and fails to get notice by the ordinary publications which have usually been required in
such cases, it is his misfortune, and he must abide the consequences. (6 R. C. L., sec. 445
[p. 450]).

It has been well said by an American court:

If property of a nonresident cannot be reached by legal process upon the constructive notice,
then our statutes were passed in vain, and are mere empty legislative declarations, without
either force, or meaning; for if the person is not within the jurisdiction of the court, no
personal judgment can be rendered, and if the judgment cannot operate upon the property,
then no effective judgment at all can be rendered, so that the result would be that the courts
would be powerless to assist a citizen against a nonresident. Such a result would be a
deplorable one. (Quarl vs. Abbett, 102 Ind., 233; 52 Am. Rep., 662, 667.)

It is, of course universally recognized that the statutory provisions relative to publication or other
form of notice against a nonresident owner should be complied with; and in respect to the publication
of notice in the newspaper it may be stated that strict compliance with the requirements of the law
has been held to be essential. In Guaranty Trust etc. Co. vs. Green Cove etc., Railroad Co. (139 U.
S., 137, 138), it was held that where newspaper publication was made for 19 weeks, when the
statute required 20, the publication was insufficient.

With respect to the provisions of our own statute, relative to the sending of notice by mail, the
requirement is that the judge shall direct that the notice be deposited in the mail by the clerk of the
court, and it is not in terms declared that the notice must be deposited in the mail. We consider this
to be of some significance; and it seems to us that, having due regard to the principles upon which
the giving of such notice is required, the absent owner of the mortgaged property must, so far as the
due process of law is concerned, take the risk incident to the possible failure of the clerk to perform
his duty, somewhat as he takes the risk that the mail clerk or the mail carrier might possibly lose or
destroy the parcel or envelope containing the notice before it should reach its destination and be
delivered to him. This idea seems to be strengthened by the consideration that placing upon the
clerk the duty of sending notice by mail, the performance of that act is put effectually beyond the
control of the plaintiff in the litigation. At any rate it is obvious that so much of section 399 of the
Code of Civil Procedure as relates to the sending of notice by mail was complied with when the court
made the order. The question as to what may be the consequences of the failure of the record to
show the proof of compliance with that requirement will be discussed by us further on.

The observations which have just been made lead to the conclusion that the failure of the clerk to
mail the notice, if in fact he did so fail in his duty, is not such an irregularity, as amounts to a denial of
due process of law; and hence in our opinion that irregularity, if proved, would not avoid the
judgment in this case. Notice was given by publication in a newspaper and this is the only form of
notice which the law unconditionally requires. This in our opinion is all that was absolutely necessary
to sustain the proceedings.

It will be observed that in considering the effect of this irregularity, it makes a difference whether it be
viewed as a question involving jurisdiction or as a question involving due process of law. In the
matter of jurisdiction there can be no distinction between the much and the little. The court either has
jurisdiction or it has not; and if the requirement as to the mailing of notice should be considered as a
step antecedent to the acquiring of jurisdiction, there could be no escape from the conclusion that
the failure to take that step was fatal to the validity of the judgment. In the application of the idea of
due process of law, on the other hand, it is clearly unnecessary to be so rigorous. The jurisdiction
being once established, all that due process of law thereafter requires is an opportunity for the
defendant to be heard; and as publication was duly made in the newspaper, it would seem highly
unreasonable to hold that failure to mail the notice was fatal. We think that in applying the
requirement of due process of law, it is permissible to reflect upon the purposes of the provision
which is supposed to have been violated and the principle underlying the exercise of judicial power
in these proceedings. Judge in the light of these conceptions, we think that the provision of Act of
Congress declaring that no person shall be deprived of his property without due process of law has
not been infringed.

In the progress of this discussion we have stated the two conclusions; (1) that the failure of the clerk
to send the notice to the defendant by mail did not destroy the jurisdiction of the court and (2) that
such irregularity did not infringe the requirement of due process of law. As a consequence of these
conclusions the irregularity in question is in some measure shorn of its potency. It is still necessary,
however, to consider its effect considered as a simple irregularity of procedure; and it would be idle
to pretend that even in this aspect the irregularity is not grave enough. From this point of view,
however, it is obvious that any motion to vacate the judgment on the ground of the irregularity in
question must fail unless it shows that the defendant was prejudiced by that irregularity. The least,
therefore, that can be required of the proponent of such a motion is to show that he had a good
defense against the action to foreclose the mortgage. Nothing of the kind is, however, shown either
in the motion or in the affidavit which accompanies the motion.

An application to open or vacate a judgment because of an irregularity or defect in the proceedings

is usually required to be supported by an affidavit showing the grounds on which the relief is sought,
and in addition to this showing also a meritorious defense to the action. It is held that a general
statement that a party has a good defense to the action is insufficient. The necessary facts must be
averred. Of course if a judgment is void upon its face a showing of the existence of a meritorious
defense is not necessary. (10 R. C. L., 718.)

The lapse of time is also a circumstance deeply affecting this aspect of the case. In this connection
we quote the following passage from the encyclopedic treatise now in course of publication:
 Where, however, the judgment is not void on its face, and may therefore be enforced if
permitted to stand on the record, courts in many instances refuse to exercise their quasi
equitable powers to vacate a judgement after the lapse of the term ay which it was entered,
except in clear cases, to promote the ends of justice, and where it appears that the party
making the application is himself without fault and has acted in good faith and with ordinary
diligence. Laches on the part of the applicant, if unexplained, is deemed sufficient ground for
refusing the relief to which he might otherwise be entitled. Something is due to the finality of
judgments, and acquiescence or unnecessary delay is fatal to motions of this character,
since courts are always reluctant to interfere with judgments, and especially where they have
been executed or satisfied. The moving party has the burden of showing diligence, and
unless it is shown affirmatively the court will not ordinarily exercise its discretion in his favor.
(15 R. C. L., 694, 695.)

It is stated in the affidavit that the defendant, Engracio Palanca Tanquinyeng y Limquingco, died
January 29, 1910. The mortgage under which the property was sold was executed far back in 1906;
and the proceedings in the foreclosure were closed by the order of court confirming the sale dated
August 7, 1908. It passes the rational bounds of human credulity to suppose that a man who had
placed a mortgage upon property worth nearly P300,000 and had then gone away from the scene of
his life activities to end his days in the city of Amoy, China, should have long remained in ignorance
of the fact that the mortgage had been foreclosed and the property sold, even supposing that he had
no knowledge of those proceedings while they were being conducted. It is more in keeping with the
ordinary course of things that he should have acquired information as to what was transpiring in his
affairs at Manila; and upon the basis of this rational assumption we are authorized, in the absence of
proof to the contrary, to presume that he did have, or soon acquired, information as to the sale of his
property.

The Code of Civil Procedure, indeed, expressly declares that there is a presumption that things have
happened according to the ordinary habits of life (sec. 334 [26]); and we cannot conceive of a
situation more appropriate than this for applying the presumption thus defined by the lawgiver. In
support of this presumption, as applied to the present case, it is permissible to consider the
probability that the defendant may have received actual notice of these proceedings from the
unofficial notice addressed to him in Manila which was mailed by an employee of the bank's
attorneys. Adopting almost the exact words used by the Supreme Court of the United States in
Grannis vs. Ordeans (234 U. S., 385; 58 L. ed., 1363), we may say that in view of the well-known
skill of postal officials and employees in making proper delivery of letters defectively addressed, we
think the presumption is clear and strong that this notice reached the defendant, there being no proof
that it was ever returned by the postal officials as undelivered. And if it was delivered in Manila,
instead of being forwarded to Amoy, China, there is a probability that the recipient was a person
sufficiently interested in his affairs to send it or communicate its contents to him.

Of course if the jurisdiction of the court or the sufficiency of the process of law depended upon the
mailing of the notice by the clerk, the reflections in which we are now indulging would be idle and
frivolous; but the considerations mentioned are introduced in order to show the propriety of applying
to this situation the legal presumption to which allusion has been made. Upon that presumption,
supported by the circumstances of this case, ,we do not hesitate to found the conclusion that the
defendant voluntarily abandoned all thought of saving his property from the obligation which he had
placed upon it; that knowledge of the proceedings should be imputed to him; and that he acquiesced
in the consequences of those proceedings after they had been accomplished. Under these
circumstances it is clear that the merit of this motion is, as we have already stated, adversely
affected in a high degree by the delay in asking for relief. Nor is it an adequate reply to say that the
proponent of this motion is an administrator who only qualified a few months before this motion was
made. No disability on the part of the defendant himself existed from the time when the foreclosure
was effected until his death; and we believe that the delay in the appointment of the administrator
and institution of this action is a circumstance which is imputable to the parties in interest whoever
they may have been. Of course if the minor heirs had instituted an action in their own right to recover
the property, it would have been different.

It is, however, argued that the defendant has suffered prejudice by reason of the fact that the bank
became the purchaser of the property at the foreclosure sale for a price greatly below that which had
been agreed upon in the mortgage as the upset price of the property. In this connection, it appears
that in article nine of the mortgage which was the subject of this foreclosure, as amended by the
notarial document of July 19, 1906, the parties to this mortgage made a stipulation to the effect that
the value therein placed upon the mortgaged properties should serve as a basis of sale in case the
debt should remain unpaid and the bank should proceed to a foreclosure. The upset price stated in
that stipulation for all the parcels involved in this foreclosure was P286,000. It is said in behalf of the
appellant that when the bank bought in the property for the sum of P110,200 it violated that
stipulation.

It has been held by this court that a clause in a mortgage providing for a tipo, or upset price, does
not prevent a foreclosure, nor affect the validity of a sale made in the foreclosure proceedings.
(Yangco vs. Cruz Herrera and Wy Piaco, 11 Phil. Rep., 402; Banco-Espaol Filipino vs. Donaldson,
Sim and Co., 5 Phil. Rep., 418.) In both the cases here cited the property was purchased at the
foreclosure sale, not by the creditor or mortgagee, but by a third party. Whether the same rule should
be applied in a case where the mortgagee himself becomes the purchaser has apparently not been
decided by this court in any reported decision, and this question need not here be considered, since
it is evident that if any liability was incurred by the bank by purchasing for a price below that fixed in
the stipulation, its liability was a personal liability derived from the contract of mortgage; and as we
have already demonstrated such a liability could not be the subject of adjudication in an action
where the court had no jurisdiction over the person of the defendant. If the plaintiff bank became
liable to account for the difference between the upset price and the price at which in bought in the
property, that liability remains unaffected by the disposition which the court made of this case; and
the fact that the bank may have violated such an obligation can in no wise affect the validity of the
judgment entered in the Court of First Instance.

In connection with the entire failure of the motion to show either a meritorious defense to the action
or that the defendant had suffered any prejudice of which the law can take notice, we may be
permitted to add that in our opinion a motion of this kind, which proposes to unsettle judicial
proceedings long ago closed, can not be considered with favor, unless based upon grounds which
appeal to the conscience of the court. Public policy requires that judicial proceedings be upheld. The
maximum here applicable is non quieta movere. As was once said by Judge Brewer, afterwards a
member of the Supreme Court of the United States:

Public policy requires that judicial proceedings be upheld, and that titles obtained in those
proceedings be safe from the ruthless hand of collateral attack. If technical defects are
adjudged potent to destroy such titles, a judicial sale will never realize that value of the
property, for no prudent man will risk his money in bidding for and buying that title which he
has reason to fear may years thereafter be swept away through some occult and not readily
discoverable defect. (Martin vs. Pond, 30 Fed., 15.)
In the case where that language was used an attempt was made to annul certain foreclosure
proceedings on the ground that the affidavit upon which the order of publication was based
erroneously stated that the State of Kansas, when he was in fact residing in another State. It was
held that this mistake did not affect the validity of the proceedings.

In the preceding discussion we have assumed that the clerk failed to send the notice by post as
required by the order of the court. We now proceed to consider whether this is a proper assumption;
and the proposition which we propose to establish is that there is a legal presumption that the clerk
performed his duty as the ministerial officer of the court, which presumption is not overcome by any
other facts appearing in the cause.

In subsection 14 of section 334 of the Code of Civil Procedure it is declared that there is a
presumption "that official duty has been regularly performed;" and in subsection 18 it is declared that
there is a presumption "that the ordinary course of business has been followed." These
presumptions are of course in no sense novelties, as they express ideas which have always been
recognized. Omnia presumuntur rite et solemniter esse acta donec probetur in contrarium. There is
therefore clearly a legal presumption that the clerk performed his duty about mailing this notice; and
we think that strong considerations of policy require that this presumption should be allowed to
operate with full force under the circumstances of this case. A party to an action has no control over
the clerk of the court; and has no right to meddle unduly with the business of the clerk in the
performance of his duties. Having no control over this officer, the litigant must depend upon the court
to see that the duties imposed on the clerk are performed.

Other considerations no less potent contribute to strengthen the conclusion just stated. There is no
principle of law better settled than that after jurisdiction has once been required, every act of a court
of general jurisdiction shall be presumed to have been rightly done. This rule is applied to every
judgment or decree rendered in the various stages of the proceedings from their initiation to their
completion (Voorhees vs. United States Bank, 10 Pet., 314; 35 U. S., 449); and if the record is silent
with respect to any fact which must have been established before the court could have rightly acted,
it will be presumed that such fact was properly brought to its knowledge. (The Lessee of Grignon vs.
Astor, 2 How., 319; 11 L. ed., 283.)

In making the order of sale [of the real state of a decedent] the court are presumed to have
adjudged every question necessary to justify such order or decree, viz: The death of the
owners; that the petitioners were his administrators; that the personal estate was insufficient
to pay the debts of the deceased; that the private acts of Assembly, as to the manner of sale,
were within the constitutional power of the Legislature, and that all the provisions of the law
as to notices which are directory to the administrators have been complied with. . . . The
court is not bound to enter upon the record the evidence on which any fact was decided.
(Florentine vs. Barton, 2 Wall., 210; 17 L. ed., 785.) Especially does all this apply after long
lapse of time.

Applegate vs. Lexington and Carter County Mining Co. (117 U. S., 255) contains an instructive
discussion in a case analogous to that which is now before us. It there appeared that in order to
foreclose a mortgage in the State of Kentucky against a nonresident debtor it was necessary that
publication should be made in a newspaper for a specified period of time, also be posted at the front
door of the court house and be published on some Sunday, immediately after divine service, in such
church as the court should direct. In a certain action judgment had been entered against a
nonresident, after publication in pursuance of these provisions. Many years later the validity of the
proceedings was called in question in another action. It was proved from the files of an ancient
periodical that publication had been made in its columns as required by law; but no proof was
offered to show the publication of the order at the church, or the posting of it at the front door of the
court-house. It was insisted by one of the parties that the judgment of the court was void for lack of
jurisdiction. But the Supreme Court of the United States said:

The court which made the decree . . . was a court of general jurisdiction. Therefore every
presumption not inconsistent with the record is to be indulged in favor of its jurisdiction. . . . It
is to be presumed that the court before making its decree took care of to see that its order for
constructive service, on which its right to make the decree depended, had been obeyed.

It is true that in this case the former judgment was the subject of collateral , or indirect attack, while
in the case at bar the motion to vacate the judgment is direct proceeding for relief against it. The
same general presumption, however, is indulged in favor of the judgment of a court of general
jurisdiction, whether it is the subject of direct or indirect attack the only difference being that in case
of indirect attack the judgment is conclusively presumed to be valid unless the record affirmatively
shows it to be void, while in case of direct attack the presumption in favor of its validity may in certain
cases be overcome by proof extrinsic to the record.

The presumption that the clerk performed his duty and that the court made its decree with the
knowledge that the requirements of law had been complied with appear to be amply sufficient to
support the conclusion that the notice was sent by the clerk as required by the order. It is true that
there ought to be found among the papers on file in this cause an affidavit, as required by section
400 of the Code of Civil Procedure, showing that the order was in fact so sent by the clerk; and no
such affidavit appears. The record is therefore silent where it ought to speak. But the very purpose of
the law in recognizing these presumptions is to enable the court to sustain a prior judgment in the
face of such an omission. If we were to hold that the judgment in this case is void because the
proper affidavit is not present in the file of papers which we call the record, the result would be that in
the future every title in the Islands resting upon a judgment like that now before us would depend, for
its continued security, upon the presence of such affidavit among the papers and would be liable at
any moment to be destroyed by the disappearance of that piece of paper. We think that no court,
with a proper regard for the security of judicial proceedings and for the interests which have by law
been confided to the courts, would incline to favor such a conclusion. In our opinion the proper
course in a case of this kind is to hold that the legal presumption that the clerk performed his duty
still maintains notwithstanding the absence from the record of the proper proof of that fact.

In this connection it is important to bear in mind that under the practice prevailing in the Philippine
Islands the word "record" is used in a loose and broad sense, as indicating the collective mass of
papers which contain the history of all the successive steps taken in a case and which are finally
deposited in the archives of the clerk's office as a memorial of the litigation. It is a matter of general
information that no judgment roll, or book of final record, is commonly kept in our courts for the
purpose of recording the pleadings and principal proceedings in actions which have been
terminated; and in particular, no such record is kept in the Court of First Instance of the city of
Manila. There is, indeed, a section of the Code of Civil Procedure which directs that such a book of
final record shall be kept; but this provision has, as a matter of common knowledge, been generally
ignored. The result is that in the present case we do not have the assistance of the recitals of such a
record to enable us to pass upon the validity of this judgment and as already stated the question
must be determined by examining the papers contained in the entire file.
But it is insisted by counsel for this motion that the affidavit of Bernardo Chan y Garcia showing that
upon April 4, 1908, he sent a notification through the mail addressed to the defendant at Manila,
Philippine Islands, should be accepted as affirmative proof that the clerk of the court failed in his duty
and that, instead of himself sending the requisite notice through the mail, he relied upon Bernardo to
send it for him. We do not think that this is by any means a necessary inference. Of course if it had
affirmatively appeared that the clerk himself had attempted to comply with this order and had
directed the notification to Manila when he should have directed it to Amoy, this would be conclusive
that he had failed to comply with the exact terms of the order; but such is not this case. That the
clerk of the attorneys for the plaintiff erroneously sent a notification to the defendant at a mistaken
address affords in our opinion very slight basis for supposing that the clerk may not have sent notice
to the right address.

There is undoubtedly good authority to support the position that when the record states the evidence
or makes an averment with reference to a jurisdictional fact, it will not be presumed that there was
other or different evidence respecting the fact, or that the fact was otherwise than stated. If, to give
an illustration, it appears from the return of the officer that the summons was served at a particular
place or in a particular manner, it will not be presumed that service was also made at another place
or in a different manner; or if it appears that service was made upon a person other than the
defendant, it will not be presumed, in the silence of the record, that it was made upon the defendant
also (Galpin vs. Page, 18 Wall., 350, 366; Settlemier vs. Sullivan, 97 U. S., 444, 449). While we
believe that these propositions are entirely correct as applied to the case where the person making
the return is the officer who is by law required to make the return, we do not think that it is properly
applicable where, as in the present case, the affidavit was made by a person who, so far as the
provisions of law are concerned, was a mere intermeddler.

The last question of importance which we propose to consider is whether a motion in the cause is
admissible as a proceeding to obtain relief in such a case as this. If the motion prevails the judgment
of July 2, 1908, and all subsequent proceedings will be set aside, and the litigation will be renewed,
proceeding again from the date mentioned as if the progress of the action had not been interrupted.
The proponent of the motion does not ask the favor of being permitted to interpose a defense. His
purpose is merely to annul the effective judgment of the court, to the end that the litigation may again
resume its regular course.

There is only one section of the Code of Civil Procedure which expressly recognizes the authority of
a Court of First Instance to set aside a final judgment and permit a renewal of the litigation in the
same cause. This is as follows:

SEC. 113. Upon such terms as may be just the court may relieve a party or legal
representative from the judgment, order, or other proceeding taken against him through his
mistake, inadvertence, surprise, or excusable neglect; Provided, That application thereof be
made within a reasonable time, but in no case exceeding six months after such judgment,
order, or proceeding was taken.

An additional remedy by petition to the Supreme Court is supplied by section 513 of the same Code.
The first paragraph of this section, in so far as pertinent to this discussion, provides as follows:

When a judgment is rendered by a Court of First Instance upon default, and a party thereto
is unjustly deprived of a hearing by fraud, accident, mistake or excusable negligence, and
the Court of First Instance which rendered the judgment has finally adjourned so that no
 adequate remedy exists in that court, the party so deprived of a hearing may present his
petition to the Supreme Court within sixty days after he first learns of the rendition of such
judgment, and not thereafter, setting forth the facts and praying to have judgment set aside. .
..

It is evident that the proceeding contemplated in this section is intended to supplement the remedy
provided by section 113; and we believe the conclusion irresistible that there is no other means
recognized by law whereby a defeated party can, by a proceeding in the same cause, procure a
judgment to be set aside, with a view to the renewal of the litigation.

The Code of Civil Procedure purports to be a complete system of practice in civil causes, and it
contains provisions describing with much fullness the various steps to be taken in the conduct of
such proceedings. To this end it defines with precision the method of beginning, conducting, and
concluding the civil action of whatever species; and by section 795 of the same Code it is declared
that the procedure in all civil action shall be in accordance with the provisions of this Code. We are
therefore of the opinion that the remedies prescribed in sections 113 and 513 are exclusive of all
others, so far as relates to the opening and continuation of a litigation which has been once
concluded.

The motion in the present case does not conform to the requirements of either of these provisions;
and the consequence is that in our opinion the action of the Court of First Instance in dismissing the
motion was proper.

If the question were admittedly one relating merely to an irregularity of procedure, we cannot
suppose that this proceeding would have taken the form of a motion in the cause, since it is clear
that, if based on such an error, the came to late for relief in the Court of First Instance. But as we
have already seen, the motion attacks the judgment of the court as void for want of jurisdiction over
the defendant. The idea underlying the motion therefore is that inasmuch as the judgment is a nullity
it can be attacked in any way and at any time. If the judgment were in fact void upon its face, that is,
if it were shown to be a nullity by virtue of its own recitals, there might possibly be something in this.
Where a judgment or judicial order is void in this sense it may be said to be a lawless thing, which
can be treated as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its
head.

But the judgment in question is not void in any such sense. It is entirely regular in form, and the
alleged defect is one which is not apparent upon its face. It follows that even if the judgment could
be shown to be void for want of jurisdiction, or for lack of due process of law, the party aggrieved
thereby is bound to resort to some appropriate proceeding to obtain relief. Under accepted principles
of law and practice, long recognized in American courts, a proper remedy in such case, after the
time for appeal or review has passed, is for the aggrieved party to bring an action to enjoin the
judgment, if not already carried into effect; or if the property has already been disposed of he may
institute suit to recover it. In every situation of this character an appropriate remedy is at hand; and if
property has been taken without due process, the law concedes due process to recover it. We
accordingly old that, assuming the judgment to have been void as alleged by the proponent of this
motion, the proper remedy was by an original proceeding and not by motion in the cause. As we
have already seen our Code of Civil Procedure defines the conditions under which relief against a
judgment may be productive of conclusion for this court to recognize such a proceeding as proper
under conditions different from those defined by law. Upon the point of procedure here involved, we
refer to the case of People vs. Harrison (84 Cal., 607) wherein it was held that a motion will not lie to
vacate a judgment after the lapse of the time limited by statute if the judgment is not void on its face;
and in all cases, after the lapse of the time limited by statute if the judgment is not void on its face;
and all cases, after the lapse of such time, when an attempt is made to vacate the judgment by a
proceeding in court for that purpose an action regularly brought is preferable, and should be
required. It will be noted taken verbatim from the California Code (sec. 473).

The conclusions stated in this opinion indicate that the judgment appealed from is without error, and
the same is accordingly affirmed, with costs. So ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18176 October 26, 1966

LAZARO B. RAYRAY, plaintiff-appellant,

vs.
CHAE KYUNG LEE, defendant-appellee.

Jaime R. Nuevas for plaintiff and appellee.

Rafael Jose for defendant and appellant.

CONCEPCION, C.J.:

Appeal from a decision of the Court of Juvenile and Domestic Relations.

Plaintiff Lazaro Rayray seeks the annulment of his marriage to defendant Chae Kyung Lee.
Inasmuch as, the latter's whereabouts is unknown, and she was formerly a resident of Pusan, Korea,
summons was served by publication, as provided in the Rules of Court. Thereafter, plaintiff moved
that defendant be declared in default, she not having filed an answer, and that a date be set for the
reception of his evidence. Before acting on this motion, the lower court referred the case to the City
Fiscal of Manila pursuant to Articles 88 and 101 of the Civil Code of the Philippines, for the purpose
of determining whether or not a collusion between the parties exists. Said officer having found no
such collusion, the case was heard on the merits. In due course, thereafter, decision was rendered
dismissing plaintiff's complaint, without costs, upon the ground: (1) that the court could not nullify a
marriage contracted abroad; and (2) that the facts proven do not warrant the relief prayed for. A
reconsideration of this decision having been denied, plaintiff appealed to the Court of Appeals, which
certified the case to the Supreme Court, the jurisdiction of the lower court being in issue in the
appeal.

In relation thereto, the court a quo found that it had no jurisdiction to pass upon the validity of
plaintiff's marriage to the defendant, it having been solemnized in Seoul, Korea. Said conclusion is
erroneous. In order that a given case could be validly decided by a court of justice, it must have
jurisdiction over (1) the subject-matter of the litigation; (2) the person of the parties therein; and (3) in
actions in rem or quasi-in-rem, the res.1

The subject-matter of the present case is the annulment of plaintiff's marriage to the defendant,
which is within the jurisdiction of our courts of first instance,2 and, in Manila, of its Court of Juvenile
and Domestic Relations.3

The same acquired jurisdiction over plaintiff herein by his submission thereto in consequence of the
filing of the complaint herein.4 Defendant was placed under the jurisdiction of said court, upon the
service of summons by publication.5

This is an action in rem, for it concerns the status of the parties herein, and status affects or binds
the whole word. The res in the present case is the relation between said parties, or their marriage
tie.6 Jurisdiction over the same depends upon the nationality or domicile of the parties, not the place
of celebration of marriage, or the locus celebrationis.7 Plaintiff here is a citizen of the Philippines,
domiciled therein. His status is, therefore, subject to our jurisdiction, on both counts. True that
defendant was and under plaintiff's theory still is a non-resident alien. But, this fact does not
deprive the lower court of its jurisdiction to pass upon the validity of her marriage to plaintiff herein.

Indeed, marriage is one of the cases of double status, in that the status therein involves and affects
two persons. One is married, never in abstract or a vacuum, but, always to somebody else. Hence, a
judicial decree on the marriage status of a person necessarily reflects upon the status of another and
the relation between them. The prevailing rule is, accordingly, that a court has jurisdiction over
the res, in an action for annulment of marriage, provided, at least, one of the parties is domiciled in,
or a national of, the forum.8 Since plaintiff is a Filipino, domiciled in the Philippines, it follows that the
lower court had jurisdiction over the res, in addition to its jurisdiction over the subject-matter and the
parties. In other words, it could validly inquire into the legality of the marriage between the parties
herein.

As regards the substantial validity of said marriage, plaintiff testified that he met the defendant in
Pusan Korea, sometime in 1952, where she was operating a nightclub; that they lived together from
November 1952 to April 1955; that they were married in Pusan Korea, on March 15, 1953, as
attested to by their marriage certificate Exhibit D; that before the wedding she obtained the "police
clearance" Exhibit A, written in Korean language, and dated February 16, 1953, which was
necessary in order that she could contract marriage; that on June 30, 1953, he proceeded to India
and left the defendant, then in advanced stage of pregnancy, in Korea; that in October, 1953, she
joined him in India, bringing with her said Exhibit A, and its translation into English, Exhibit B; that he
then noticed that, on February 16, 1958, defendant was already married, according to said Exhibit B;
that as he confronted the defendant with the contents of this document, her reply was that it is not
unusual for a Korean girl to marry twice in Korea; that when he inquired about her status on March
15, 1953, defendant confided to him that she had lived with about two (2) Americans and a Korean,
adding, however, that there was no impediment to her contracting marriage with him; and that, later
on, they were separated and her whereabouts are now unknown to him.

The lower court considered plaintiffs evidence insufficient to establish that defendant was married to
another person prior to March 15, 1953, and we agree with this conclusion. To begin with, Exhibit A
is not signed. It merely purports to bear the seal of the Chief of Pusan National Police. Secondly, the
record does not show who prepared it, much less that he had personal knowledge of the truth of the
entry therein concerning defendant's status on February 15, 1953. It should be noted, that defendant
was a native, not of Pusan but of Seoul, Korea. Hence, Exhibit A could, at best, be no more than
hearsay evidence. Again, when plaintiff allegedly confronted the defendant with the contents of
Exhibit B, defendant did not say that she had been married before. Plaintiff declared that she
admitted having previously lived with several other men, adding, however, that she had no
impediment, thus, in effect, negating the alleged previous marriage.

Thirdly, if Exhibit A was obtained on February 16, 1953, in order to establish defendant's qualification
to contract marriage, why is it that the wedding took place, despite the entry in said document to the
effect that defendant was married already? There is no competent evidence to the effect that Korean
laws permit bigamy or polygamy. Moreover, the presumption is that the foreign law is identical to
the lex fori, or, in the case at bar, the Philippine Law.9 In fact, the statement, imputed by plaintiff to
the defendant, to the effect that, although she had cohabited before with other men, there was no
impediment to her marrying him, clearly suggests that a previous marriage on her part would have
been, in her opinion, a legal obstacle to her marriage with the plaintiffs. Then too, the marriage
certificate Exhibit D contains spaces for the entry of data on whether any of the contracting parties
had been previously married; whether the prior marriage had been dissolved by a decree of divorce;
and, if there had been such decree, the date thereof. Surely, these data would be absolutely
irrelevant if polygamy were sanctioned in Korea. And, again, why is it that Exhibit D states that
defendant had had no previous marriage?

Last, but not least, plaintiff cannot possibly secure the relief prayed for unless full faith and credence
are given to his testimony, but we cannot believe him for the records show that he would not hesitate
to lie when it suits his purpose. Thus, for instance, when plaintiff contracted marriage with the
defendant, he said that he was single, although, he admitted, this was a lie, because, sometime in
1940, he married in Baguio, one Adelaida Melecio or Valdez.10 But, then he would, also, have us
believe that his marriage with the latter was illegal or fictitious, because Adelaida and he did no more
than sign, on a small window in the City Hall of Baguio, certain documents the contents of which he
did not read.

WHEREFORE, the decision appealed from should be, as it is hereby, affirmed, with the costs of this
instance against plaintiff-appellant. It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-13525 November 30, 1962

FAR EAST INTERNATIONAL IMPORT and EXPORT CORPORATION, plaintiff-appellee,

vs.
NANKAI KOGYO CO. LTD., ET AL., defendants,
NANKAI KOGYO CO., LTD., defendant-appellant.

Protasio Canalita, Jesus Ocampo and Gonzalo D. David for plaintiff-appellee.

Marcial Ranola and Fernandez and Benedicto for defendant-appellant.

PAREDES, J.:

On December 26, 1956, the Far East International Import & Export Corporation, Far East for short,
organized under Philippine Laws, entered into a Contract of Sale of Steel Scrap with the Nankai
Kogyo Co., Ltd., Nankai for short, a foreign corporation organized under Japanese Laws with
address at Osaka, Japan. The buyer sign in Japan and the seller in Manila, Philippines. The
pertinent provisions of the agreement are represented below

1. Quantity: Approximately 5,000 (five thousand) metric tons 10% more or less.

xxx xxx xxx

10. Payments: BUYER shall establish an irrevocable without recourse Letter of Credit in the
amount of U.S. $312,500.00 with China Banking Corp. in Manila, not later than 30 days upon
receipt of SELLERS' confirmation about the availability of export permit, and shall be subject
to the following terms and conditions:

a. This Letter of Credit shall be drawable 90% of quantity been shipped

uponpresentation of:

xxx xxx xxx

b. the remaining balance of 10% of the shipment shall be adjusted between BUYER
and SELLER immediately after the discharge is completed at the port of destination,
and shall be drawable by the SELLER upon presentation of:

xxx xxx xxx

13. Force Majeure: the execution of this agrrement is subject to any and allGovernment
restrictions prohibiting or penalizing in whole or in part theexport of Iron & Steel Scrap from
the Philippines, and the Seller shall not be responsible for delay in or failure of shipment or
delivery or delays in transportation due to force majeure, strikes, dfferences with workmen,
accidents, fires, flood, mobilizations, wars, foreign wars, riots, revolutions, regulations and
 restrictions or to any conditions beyond thecontrol of the SELLER whether the nature herein
stated or not.

14. Dispute: In case of disputes, Board of Arbitration may be formed in Japan. Decision by
the board of Arbitration shall be final and binding on both BUYER AND SELLER.

Upon perfection of the contract and after having been informed of the readiness to ship and that the
Export License was to expire on March 18, 1957,Nankai opened a letter for credit (No. 38/80049)
with the China BankingCorporation, issued by the Nippon Kangyo, Ltd., Tokyo, Japan, in the
amountof $312,500.00 on January 30, 1957. On March 15, 1957, only four (4) daysbefore the
expiration of the Far East licence, three (3) boats sent by Nankai arrived in the Philippines, one to
load in Manila, the other two at Poro Point, San Fernando, La Union, and Tacloban, Leyte,
respectively. On March 19, 1957, the expiration of the export license, only 1,058.6 metric tonsof
scrap steel was loaded on the SS Mina (loading in Manila). The loading wasaccordingly stopped.
The boat at Poro Point was also unloaded of the 200 metric tons, for the same reason. An
agreement was reached wherby the Far East would seek an extension of the license. However, the
untimely death of President Magsaysay and the taking over by President Garcia changed the
picture, for the latter and/or his agents refused to extend the license. The two boats sailed to Japan
without any cargo, the third (SS Mina) only 1,058.6 metric tons.

On April 27, 1957, Nankai confirmed and acknowleged delivery of the 1,058.6 metric tons of steel
scrap, but asked for damages amounting to $148,135.00 consisting of dead freight charges,
damages, bank charges, phone and cable expenses (Exh. F).

On May 4, 1957, Far East wrote the Everett Steamship Corporation, requesting the issuance of a
complete set of the Bill of Lading for the shipment, in order that payment thereof be effected against
the Letter of Credit. Under date of May 7, 1957, the Everett informed Far East that they were not in a
position to comply because the Bill of Lading was issued and signed in Tokyo by the Master of the
boat, upon request of the Charterer, defendant herein.

As repeated requests, both against the shipping agent and the buyers (Nankai), for the issuance of
the of Bill Lading were ignored, Far East filed on May 16, 1957, the present complaint for Specific
Performance, damages, a writ of preliminiry mandatory injunction directed against Nankai and the
shipping company, to issue and deliver to the plaintiff, a complete set of negotiable of Lading for the
1,058.6 metric tons of scrap and a writ of preliminary injunction against the China Banking
Corporation and the Nankai to maintain the Letter Credit. The lower court issued on May 17, 1957
an ex parte writ of preliminary injunction, after Far East had posted a bond in the amount of
P50,000.00.

By Special Apperance, defendant Nankai filed a Motion to Dismiss the complaint and dissolve the
preliminary mandatory injunction on the followinggrounds: lack of jurisdiction over the person of the
defendant and the subject matter: and failure to state a cause of action against the said defendant.
On June 8, 1957 plaintiff Far East opposed the Special Appearance and Motion to Dismiss.

Before the Special Appearance, Motions to Dismiss and Dissolve Preliminary Mandatory Injunction
could be ruled upon by the court a quo, plaintiff filed a Motion to file amended complaint, it appearing
that Nankai had already taken the Bill of Lading for the shipment from the Master of the SS Mina and
used the same to secure the delivery of the 1,058.6 metric tons of scrap. The most important
amendments introduced are the allegation that defendant is doing business in the Philippines with
office address at R-517 Luneta Hotel, Manila, represented by Mr. Issei Ishida and Mr. Tominaga, and
the additional prayer to order the defendant Nankai to pay plaintiff the price of the scrapamounting to
$68,809.00 or its equivalent in Philippine currency.

The motions to dismiss the complaint and to dissolve the Writ of Preliminary Mandatory Injunction
were denied, the Court holding that the grounds therefor "do not appear to be indubitable".

On June 26, 1957, the defendant Nankai presented an opposition to the motion to admit amended
complaint, stating that the same is belated and an unfair and unjust attempt to establish by
allegation, a semblance of jurisdiction of the Court over the person of the defendant Nankai and the
subject matter.

Under date of June 29, 1957, the motion to file an amended complaint was denied. A motion for
reconsideration of the order was presented on July 31, 1957, plaintiff alleging that the amended
complaint contained facts which are necessary and indispensable for the complete resolution of the
issues between the parties and that the amendment is a matter of right, since defendants have not
yet filed a responsive pleading (Sec. 1, Rule 17, Rules of Court). An opposition was registered by
defendant. Before resolution on the reconsideration could be issued, defendant filed its Answer to
the original complaint containing the customary admissions and denials. As Special Defenses, it
reiterated the grounds contained in the Motion to Dismiss Complaint and Dissolve the Writ of
Preliminary Mandatory Injunction and the arguments invoked in the oppositions, replies, etc. On
August 20, 1957, the Amended Complaint was ordered admitted and on September 30, 1957,
Nankai presented its Answer, which is identical to the Answer to the original complaint.

At the trial, plaintiff Far East, thru the testimony of its Secretary Pablo Ocampo, showed that the
transaction in question was intended to be the beginning of business to be undertaken by Nankai, as
in fact, the representatives of the company had made inquiries as to the operation of mines and
mining rights in this jurisdiction; (Nankai) thru its representatives, Messrs. Ishida and Tominaga,
established a temporary office at Room 517 Luneta Hotel and manifested their intention to put up
one at the Madrigal building, which did not materialize, to the belated confirmation of the head office;
that in spite of the repeated demands and actual receipt of the delivery of the 1,056.8 metric tons of
scrap steel, Nankai and the steamship company failed and consistently refused to issue the Bill of
Lading, which acts prevented plaintiff from collecting the price of the scrap from theChina Banking
Corporation against the Letter of Credit. Defendant Everett Steamship Company and the China
Banking Corporation also presented evidence, both oral and documentary.

Defendant Nankai presented Francisco Santos, accountant of the Luneta Hotel, to prove that it has
not established an office at Room 517 of said Hotel; Nabuo Yoshida, chief of the Import Section of
defendant Nankai show that it has not established a branch office in the Philippines and that the
buying of the scrap was the only transiction of the defendant had in the Philippines; Tan Tiong Tick,
the financier of the exportation in behalf of appellee, and Tan Tia Cuan, the contact man, to prove
that the real party in interest is not the plaintiff Far East but the Delta Enterprises, and that the
plaintiffwas merely the holder of the Export License but had no scrap.

The lower court rendered judgment absolving, defendants Everett Steamship Company and China
Banking Corporation from liability and denied the claim for damages, both actual and moral, of the
parties; found that the question of jurisdiction over the person of defendant and the subject matter
has become moot and
 . . . hereby renders judgment in favor of the plaintiff and against defendant Nankai Kogyo
Co., Ltd., sentencing said defendant to pay plaintiff the amount of U.S. $67,710.50, or its
equivalent in pesos, with interest thereon at the legal rate from the date of filing of plaintiff's
complaint until fully paid, plus the sum of P1,000.00 as attorney's fees, and to pay the costs.

Defendant assigned six (6) errors allegedly committed by the lower court, which may be
consolidated into two propositions: to wit

(1) Whether or not the trial court acquired jurisdiction over the subject matter and over the
person of the defendant-appellant; and

(2) the propriety of the award.

Defendant contends that Philippine Courts have no jurisdiction to take cognizance of the case
because the Nankai is not doing business in the islands; and that while it has entered into the
transaction in question, same, however, does not constitute "doing business", so as to make it
amenable to summons and subject it to the Court's jurisdiction. It bolstered this claim by a provision
in the contract which provides that "In case of disputes, Board of Arbitration may be formed in Japan.
Decision of the Board of Arbitration shall be final and binding on both BUYER and SELLER".

The rule pertinent to the questions in issue provides

SEC. 14. Service upon private foreign corporations. If the defendant is a foreign
corporation, or a non-resident joint stock company or association, doing business in the
Philippines, service may be made on its resident agent designated in accordance with law
for that purpose, or, if there be no such agent, on the government official designated by law
to that effect, or on any officer or agent within the Philipines. (Rule 7).

The above rule indicates three modes of effecting service of summons upon a private, foreign
corporation, viz: (1) by serving upon the agent designated in accordance with law to accept service
of summons; (2) if there is no resident agent, by service on the government cial designated by law to
that effect; and (3) by serving on any officer or agent of said corporation with Philippines. The plaintiff
complied with the third stated above, for it has been shown that Mr. Ishida, who personally signed
the contract for the purchase of the scrap in question in behalf of the Nankai Kogyo, the Trade
Manager of said Company, Mr. Tominaga the Chief of the Petroleum Section of the same company
and Mr. Yoshida was the man-in-charge of the Import Section of the company's Tokyo Branch. All
these three, including the first two who were served with Summons, were officers of the defendant
company.

It is true that the defendant entered a Special Appearance, wherein it contested the jurisdiction of the
Philippines Courts to take cognizance of the case on grounds contained in the various pleadings
presented by it. The motion to dismiss on the ground of lack of jurisdiction had been overruled
because it did not appear indubitable. Subsequently, however, the defendant filed its Answer and
invoked defenses and grounds for dismissal of complaint other than lack of jurisdiction (See pars. 12
& 13 of Answer to Amended Complaint), which circumstance vested upon the Court jurisdiction to
take cognizance of the case.

Even though the defendant objects to the jurisdiction of the court, if at thesame time he
alleges any non-jurisdictional ground for dismissing the action, the Court acquires jurisdiction
 over him. Even though he does not intend to confer jurisdiction upon the court, his
appearance for some other purpose than to object to the jurisdiction subjects him to
jurisdiction of the court.Even though he does not wish to submit to the jurisdiction of the
court, he cannot ask the court to act upon any question except the question of jurisdiction,
without conferring jurisdiction upon the court.

Thus though a Special appearance to object to the jurisdiction is not a submission, if it is

followed by a motion to dismiss or to quash the motion invokes the jurisdiction of Court to
decide the issue raised by the motion; and a decision of that issue binds the defendant.
Therefore if the decision of the motion is based upon a finding of facts necessary to
jurisdiction, this finding binds the defendant and the court acquires jurisdiction to determine
the merits of the case.

. . . . Undoubtedly if after his objection to the jurisdiction is wrongly overruled, a defendant

files a cross complaint demanding affirmative relief, he cannot thereafter claim that the court
had no jurisdiction over him. (p. 352.) (I Conflict of Laws, Beale and authorities cited therein.)

Not only did appellant allege non-jurisdictional grounds in its pleadings to have the complaint
dismissed, but it also went into trial on the merits and presented evidence destined to resist
appellee's claim. Verily, there could not be a better situation of acquired jurisdiction based on
consent. Consequently, the provision of the contract wherein it was agreed that disputes should be
submitted to a Board of Arbitration which may be formed in Japan (in the supposition that it can
apply to the matter in dispute - payment of the scrap), seems to have been waived with appellant's
voluntary submission. Apart from the fact that the clause employs the word "may".

The appellant alleges that the lower court did not acquire jurisdiction, because it was not doing
business in the Philippines and the requirement of summons had not been fulfilled. It is difficult to lay
down any rule of universal application to determine when a foreign corporation is doing business.
Each case must turn upon its own peculiar facts and upon the language of the statute applicable.
But from the proven facts obtaining in this particular case, the appellant's defense of lack of
jurisdiction appears unavailing. The case of Pacific Micronesian Line, Inc. v. Baens del Rosario, et
al., G.R. No. L-7154, October 23, 1954, relied upon in the Motion to Dismiss and other pleadings
presented by defendant-appellant, stand on a different footing. Therein, We made the following
pronouncements:

. . . . And the only act it did here was to secure the services of Luceno Pelingon to act as
cook and chief steward in one of its vessels authorizing to that effect the Luzon Stevedoring
Co., Inc., a domestic corporation, and the contract of employment was entered into on July
18, 1951. It further appears that petitioner has never sent its ships to the Philippines nor has
it transported nor even solicited the transportation passengers and cargoes to and from the
Philippines. In words, petitioner engaged the services of Pelingon not as part of the
operation of its business but merely to employ him as member of the crew in one of its ships.
That act apparently is an isolated one, incidental, or casual, and "not of a character to
indicate a purpose to engage in business" within the meaning of the rule. (Emphasis ours.)

In the instant case, the testimony of Atty. Pablo Ocampo that appellant was doing business in the
Philippines corroborated by no less than Nabuo Yoshida, one of appellant's officers, that he was sent
to the Philippines by his company to look into the operation of mines, thereby revealing the
defendant's desire to continue engaging in business here, after receiving the shipment of the iron
under consideration, making the Philippines a base thereof.

The rule stated in the preceding section that the doing of a single act doesnot constitute
business within the meaning of statutes prescribing the conditions to be complied with the
foreign corporations must be qualified to this extent, that a single act may bring the
corporation. In such a case, the single act of transaction is not merly incidental or casual, but
is of such character as distinctly to indicate a purpose on the part of the foreign corporation
to do other business in the state, and to make the state a basis of operations for the conduct
of a part of corporation's ordinary business. (17 Fletchers Cyc. of Corporations, sec. 8470,
pp. 572-573, and authorities cited therein.) (Emphasis ours.)

It is finally noted that when defendant's motion to dismiss in the Micronesian case was denied, it
immediately brought the matter to this Court on Prohibition seeking to restrain the Workmen's
Compensation mission from exercising jurisdiction over the controversy. In the present case, the
defendant, while entering a Special Appearance to contest the jurisdiction of the Court, pursued its
defense further by filing its Answer and going into trial.

There is no appeal on the lower court's findings that the failure of the appellee herein to make full
shipment of the scrap was due, not to the fault of said appellee, but to the action and intervention of
the Philippine Government, which was beyond the control of the plaintiff. This aspect of the case is
particularly covered by paragraph 13 of the contract, heretofore reproduced..

WHEREFORE, the judgment appealed from is hereby affirmed, with costs against defendant-
appellant Nankai Kogyo.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-18164 January 23, 1967

WILLIAM F. GEMPERLE, plaintiff-appellant,

vs.
HELEN SCHENKER and PAUL SCHENKER as her husband, defendants-appellees.

Gamboa & Gamboa for plaintiff-appellant.

A. R. Narvasa for defendants-appellees.

CONCEPCION, C. J.:

Appeal, taken by plaintiff, William F. Gemperle, from a decision of the Court of First Instance of Rizal
dismissing this case for lack of jurisdiction over the person of defendant Paul Schenker and for want
of cause of action against his wife and co-defendant, Helen Schenker said Paul Schenker "being in
no position to be joined with her as party defendant, because he is beyond the reach of the
magistracy of the Philippine courts."

The record shows that sometime in 1952, Paul Schenker-hereinafter referred to as Schenker
acting through his wife and attorney-in-fact, Helen Schenker herein-after referred to as Mrs.
Schenker filed with the Court of First Instance of Rizal, a complaint which was docketed as
Civil Case No. Q-2796 thereof against herein plaintiff William F. Gemperle, for the enforcement of
Schenker's allegedly initial subscription to the shares of stock of the Philippines-Swiss Trading Co.,
Inc. and the exercise of his alleged pre-emptive rights to the then unissued original capital stock of
said corporation and the increase thereof, as well as for an accounting and damages. Alleging that,
in connection with said complaint, Mrs. Schenker had caused to be published some allegations
thereof and other matters, which were impertinent, irrelevant and immaterial to said case No. Q-
2796, aside from being false and derogatory to the reputation, good name and credit of Gemperle,
"with the only purpose of attacking" his" honesty, integrity and reputation" and of bringing him "into
public hatred, discredit, disrepute and contempt as a man and a businessman", Gemperle
commenced the present action against the Schenkers for the recovery of P300,000 as damages,
P30,000 as attorney's fees, and costs, in addition to praying for a judgment ordering Mrs. Schenker
"to retract in writing the said defamatory expressions". In due course, thereafter, the lower court,
rendered the decision above referred to. A reconsiderating thereof having been denied, Gemperle
interposed the present appeal.

The first question for determination therein is whether or not the lower court had acquired jurisdiction
over the person of Schenker. Admittedly, he, a Swiss citizen, residing in Zurich, Switzerland, has not
been actually served with summons in the Philippines, although the summons address to him and
Mrs. Schenker had been served personally upon her in the Philippines. It is urged by plaintiff that
jurisdiction over the person of Schenker has been secured through voluntary appearance on his
part, he not having made a special appearance to assail the jurisdiction over his person, and an
answer having been filed in this case, stating that "the defendants, by counsel, answering the
plaintiff's complaint, respectfully aver", which is allegedly a general appearance amounting to a
submission to the jurisdiction of the court, confirmed, according to plaintiff, by a P225,000
counterclaim for damages set up in said answer; but this counterclaim was set up by Mrs. Schenker
alone, not including her husband. Moreover, said answer contained several affirmative defenses,
one of which was lack of jurisdiction over the person of Schenker, thus negating the alleged waiver
of this defense. Nevertheless, We hold that the lower court had acquired jurisdiction over said
defendant, through service of the summons addressed to him upon Mrs. Schenker, it appearing from
said answer that she is the representative and attorney-in-fact of her husband aforementioned civil
case No. Q-2796, which apparently was filed at her behest, in her aforementioned representative
capacity. In other words, Mrs. Schenker had authority to sue, and had actually sued on behalf of her
husband, so that she was, also, empowered to represent him in suits filed against him, particularly in
a case, like the of the one at bar, which is consequence of the action brought by her on his behalf.

Inasmuch as the alleged absence of a cause of action against Mrs. Schenker is premised upon the
alleged lack of jurisdiction over the person of Schenker, which cannot be sustained, it follows that the
conclusion drawn therefore from is, likewise, untenable.

Wherefore, the decision appealed from should be, is hereby, reversed, and the case remanded to
the lower court for proceedings, with the costs of this instance defendants-appellees. It is so
ordered.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 73531. April 6, 1993.

DOLORES DELOS SANTOS, NICOLAS DELOS SANTOS and RICARDO DELOS SANTOS,
petitioners,
vs.
HON. JUDGE CAMILO MONTESA, JR. and JUANA DELOS SANTOS, respondents.

Jose C. Patalinjug for petitioners.

Leonardo O. Mancao for private respondent.

SYLLABUS

1. REMEDIAL LAW CIVIL PROCEDURE; SUMMONS; DEFENDANT'S VOLUNTARY

APPEARANCE IN THE ACTION EQUIVALENT TO SERVICE OF SUMMONS; CASE AT BAR. At
first blush, it would appear that the recourse pursued by petitioners could elicit a favorable response
from us in as much as the proof of service of the summons upon petitioners does not indicate
impossibility of personal service, a condition precedent for resorting to substituted service. Even
then, and assuming in gratia argumenti that the statutory norms on service of summons have not
been strictly complied with, still, any defect in form and in the manner of effecting service thereof
were nonetheless erased when petitioners' counsel moved to re-examine the impugned decision and
posed a subsequent bid on appeal to impede immediate execution (Boticano vs. Chu. Jr., 145 SCRA
541 [1987]); 1 Regalado, Remedial Law Compendium, 1988 Fifth Rev. Ed., p. 136). Indeed, such
demeanor is tantamount to voluntary submission to the competencia of the court within the purview
of Section 23, Rule 14 of the Revised Rules of Court since any mode of appearance in court by a
defendant or his lawyer is equivalent to service of summons, absent any indication that the
appearance of counsel for petitioner was precisely to protest the jurisdiction of the court over the
person of defendant (Carballo vs. Encarnacion, 49 O.G. 1383; 1 Regalado, supra, p. 144; Flores vs.
Zurbito, 37 Phil. 746 [1918]; 1 Martin, Rules of Court in the Philippines, 1989 Rev. Ed., p. 473 Sison,
et al. vs. Gonzales, 50 O.G. 4756; 1 Moran, Comments on the Rules of Court, 1970 Ed., p. 467).
Neither can We treat the motion for reconsideration directed against the unfavorable disposition as a
special appearance founded on the sole challenge on invalid service of summons since the
application therefor raised another ground on failure to state a cause of action when conciliation
proceedings at the barangay level were allegedly bypassed, nay, disregarded (Republic vs. Ker and
Co., Ltd., 64 O.G. 3761; Regalado, supra, p. 152).

2. ID APPEAL; ONLY QUESTIONS OF LAW MAY BE RAISED IN PETITION FOR REVIEW ON

CERTIORARI UNDER RULE 45; CASE AT BAR The fact that petitioners are supposedly occupying
a parcel of land other than the realty claimed by private respondent deserves scant consideration
since a clarification on a factual query of this nature is proscribed by the second paragraph, Section
2 of Rule 45 of the Revised Rules of Court. Verily, counsel for petitioners' assertion in the notice of
appeal filed with respondent judge that the grievance to be elevated to this Court will focus "fully on
a question of law" (p. 32 Rollo) is a self-defeating posture and operates as a legal bar for us to dwell
into the truth or falsehood of such factual premise (Article 1431, New Civil Code; Section 4, Rule
129; Section 2(a), Rule 131, Revised Rules on Evidence).

3. ID; JUDGMENT; EXECUTION PENDING APPEAL; PREVAILING PARTY MOVING FOR

EXECUTION PENDING APPEAL OBLIGED TO SERVE COPY OF MOTION ON ADVERSE
PARTY'S COUNSEL. Petitioners argue next that execution pending appeal was ordered without
any prior notice to them (p. 3, Petition; p. 7, Rollo). This notion is also devoid of substance since it
erroneously suggests that the court is duty-bound to notify petitioners of the immediate enforcement
of the appealed decision. A contrario, it is the prevailing party moving for execution pending appeal
under Section 2, Rule 39 of the Revised Rules of Court who is obliged to serve a copy of such
motion on the adverse party's counsel, which, on the face of the subject motion, was effected by
personal delivery (p. 23, Rollo; Lao vs. Mencias, 21 SCRA 1021 [1967]; 2 Martin, Rules of Court in
the Philippines, 1973 Ed., p. 288).

DECISION

MELO, J p:

In the suit for desahucio initiated below by herein private respondent against petitioners, the court of
origin ordered petitioners to vacate the lot in question to pay P5,000.00 per year as reasonable
rental from 1985 until possession is surrendered, and to pay P1,000.00 as attorney's fees and the
costs of the suit (pp. 37-38, Rollo). Upon appeal, Branch XIX of the Regional Trial Court of the Third
Judicial Region stationed in Malolos and presided over by herein respondent judge, granted private
respondents motion for execution pending appeal on account of petitioners' failure to post a
supersedeas bond (p. 21, Rollo). To set aside the proceedings below, the petition at hand was
instituted anchored on the supposition that petitioners were deprived of their day in court.

Petitioners' mental distress started when private respondent, who supposedly owns Lot 39 of the
Cadastral survey of Bustos with an area of 5,358 square meters covered by Original Certificate of
Title No. U-7924 a portion of which petitioners entered and occupied, lodged the complaint geared
towards petitioners' eviction. Summons was served through the mother of petitioners when the
process server was unable to locate Dolores, Nicolas, and Ricardo delos Santos in Talampas,
Bustos, Bulacan. For failure of petitioners to submit the corresponding answer, judgment was
rendered pursuant to the rules on summary procedure (pp. 2-3, Decision; pp. 37-38, Rollo).

Upon learning of said decision, petitioners sought to reconsider on the principal thesis that they were
never served notice of the conciliation meeting at the barangay level, as well as the summons. They
insist that private respondent was referring to a different piece of realty because petitioners actually
occupied Lot No. 3568 owned by Nicolas delos Santos under Original Certificate of Title No. F-
10418. Moreover, petitioners advanced the proposition that Dolores' husband should have been
impleaded. All of these arguments were to no avail. As indicated earlier, execution pending appeal
was ordered due to petitioners' failure to post a supersedeas bond.

To stave off the impending eviction of petitioners, this Court issued a restraining order on April 28,
1986 directed against the reviewing authority and private respondent until further orders (p. 52,
Rollo).

At first blush, it would appear that the recourse pursued by petitioners could elicit a favorable
response from us in as much as the proof of service of the summons upon petitioners does not
indicate impossibility of personal service, a condition precedent for resorting to substituted service.
Even then, and assuming in gratia argumenti that the statutory norms on service of summons have
not been strictly complied with, still, any defect in form and in the manner of effecting service thereof
were nonetheless erased when petitioners' counsel moved to re-examine the impugned decision and
posed a subsequent bid on appeal to impede immediate execution (Boticano vs. Chu. Jr., 145 SCRA
541 [1987]); 1 Regalado, Remedial Law Compendium, 1988 Fifth Rev. Ed., p. 136). Indeed, such
demeanor is tantamount to voluntary submission to the competencia of the court within the purview
of Section 23, Rule 14 of the Revised Rules of Court since any mode of appearance in court by a
defendant or his lawyer is equivalent to service of summons, absent any indication that the
appearance of counsel for petitioner was precisely to protest the jurisdiction of the court over the
person of defendant (Carballo vs. Encarnacion, 49 O.G. 1383; 1 Regalado, supra, p. 144; Flores vs.
Zurbito, 37 Phil. 746 [1918]; 1 Martin, Rules of Court in the Philippines, 1989 Rev. Ed., p. 473 Sison,
et al. vs. Gonzales, 50 O.G. 4756; 1 Moran, Comments on the Rules of Court, 1970 Ed., p. 467).

Neither can We treat the motion for reconsideration directed against the unfavorable disposition as a
special appearance founded on the sole challenge on invalid service of summons since the
application therefor raised another ground on failure to state a cause of action when conciliation
proceedings at the barangay level were allegedly bypassed, nay, disregarded (Republic vs. Ker and
Co., Ltd., 64 O.G. 3761; Regalado, supra, p. 152).

The fact that petitioners are supposedly occupying a parcel of land other than the realty claimed by
private respondent deserves scant consideration since a clarification on a factual query of this nature
is proscribed by the second paragraph, Section 2 of Rule 45 of the Revised Rules of Court. Verily,
counsel for petitioners' assertion in the notice of appeal filed with respondent judge that the
grievance to be elevated to this Court will focus "fully on a question of law" (p. 32 Rollo) is a self-
defeating posture and operates as a legal bar for us to dwell into the truth or falsehood of such
factual premise (Article 1431, New Civil Code; Section 4, Rule 129; Section 2(a), Rule 131, Revised
Rules on Evidence).

Petitioners argue next that execution pending appeal was ordered without any prior notice to them
(p. 3, Petition; p. 7, Rollo). This notion is also devoid of substance since it erroneously suggests that
the court is duty-bound to notify petitioners of the immediate enforcement of the appealed .appeal
under Section 2, Rule 39 of the Revised Rules of Court who is obliged to serve a copy of such
motion on the adverse party's counsel, which, on the face of the subject motion, was effected by
personal delivery (p. 23, Rollo; Lao vs. Mencias, 21 SCRA 1021 [1967]; 2 Martin, Rules of Court in
the Philippines, 1973 Ed., p. 288).

In fine, petitioners may not press the idea that they were deprived of their day in court amidst the
implicit forms of waiver performed by their lawyer in submitting every conceivable defense for
petitioners via the two motions for reconsideration below.

WHEREFORE, the petition is hereby DISMISSED for lack of merit and the restraining order issued
on April 28, 1986 LIFTED.

SO ORDERED.
SUPREME COURT OF THE UNITED STATES

REPUBLIC OF PHILIPPINES et al. v. PIMENTEL, temporary administrator of ESTATE

OF PIMENTEL, DECEASED, et al.

certiorari to the united states court of appeals for the ninth circuit

No. 061204.Argued March 17, 2008Decided June 12, 2008

A class action by and for human rights victims (Pimentel class) of Ferdinand Marcos,
while he was President of the Republic of the Philippines (Republic), led to a nearly $2
billion judgment in a United States District Court. The Pimentel class then sought to
attach the assets of Arelma, S. A. (Arelma), a company incorporated by Marcos, held by
a New York broker (Merrill Lynch). The Republic and a Philippine commission
(Commission) established to recover property wrongfully taken by Marcos are also
attempting to recover this and other Marcos property. The Philippine National Banc
(PNB) holds some of the disputed assets in escrow, awaiting the outcome of pending
litigation in the Sandiganbayan, a Philippine court determining whether Marcos property
should be forfeited to the Republic. Facing claims from various Marcos creditors,
including the Pimentel class, Merrill Lynch filed this interpleader action under 28 U. S. C.
1335, naming, among the defendants, the Republic, the Commission, Arelma, PNB (all
petitioners here), and the Pimentel class (respondents here). The Republic and the
Commission asserted sovereign immunity under the Foreign Sovereign Immunities Act
of 1976, and moved to dismiss pursuant to Federal Rule of Civil Procedure 19(b),
arguing that the action could not proceed without them. Arelma and PNB also sought a
Rule 19(b) dismissal. The District Court refused, but the Ninth Circuit reversed, holding
that the Republic and the Commission are entitled to sovereign immunity and are
required parties under Rule 19(a), and it entered a stay pending the Sandiganbayan
litigations outcome. Finding that that litigation could not determine entitlement to
Arelmas assets, the District Court vacated the stay and ultimately awarded the assets
to the Pimentel class. The Ninth Circuit affirmed, holding that dismissal was not
warranted under Rule 19(b) because, though the Republic and the Commission were
required parties, their claim had so little likelihood of success on the merits that the
action could proceed without them. The court found it unnecessary to consider whether
prejudice to those entities might be lessened by a judgment or interim decree in the
interpleader action, found the entities failure to obtain a judgment in the Sandiganbayan
an equitable consideration counseling against dismissing the interpleader suit, and
found that allowing the interpleader case to proceed would serve the Pimentel class
interests.

Held:

1. Because Arelma and PNB also seek review of the Ninth Circuits decision, this
Court need not rule on the question whether the Republic and the Commission, having
been dismissed from the suit, had the right to seek review of the decision that the suit
could proceed in their absence. As a general matter any party may move to dismiss an
action under Rule 19(b). Arelma and PNB have not lost standing to have the judgment
vacated in its entirety on procedural grounds simply because they did not appeal, or
petition for certiorari on, the underlying merits ruling denying them the interpleaded
assets. Pp. 79.

2. Rule 19 requires dismissal of the interpleader action. Pp. 920.

(a) Under Rule 19(a), nonjoinder even of a required person does not always result
in dismissal. When joinder is not feasible, the question whether an action should
proceed turns on nonexclusive considerations in Rule 19(b), which asks whether in
equity and good conscience, the action should proceed among the existing parties or
should be dismissed. The joinder issue can be complex, and the case-specific
determinations involve multiple factors, some substantive, some procedural, some
compelling by themselves, and some subject to balancing against opposing interests,
Provident Tradesmens Bank & Trust Co. v. Patterson, 390 U. S. 102, 119. Pp. 910.

(b) Here, Rule 19(a)s application is not contested: The Republic and the
Commission are required entities. And this Court need not decide the proper standard of
review for Rule 19(b) decisions, because the Ninth Circuits errors of law require
reversal. Pp. 1019.

(1) The first factor directs the court to consider, in determining whether the action
may proceed, the prejudice to absent entities and present parties in the event judgment
is rendered without joinder. Rule 19(b)(1). The Ninth Circuit gave insufficient weight to
the sovereign status of the Republic and the Commission in considering whether they
would be prejudiced if the case proceeded. Giving full effect to sovereign immunity
promotes the comity and dignity interests that contributed to the development of the
immunity doctrine. See, e.g., Verlinden B. V. v. Central Bank of Nigeria, 461 U. S. 480,
486. These interests are concrete here. The entities claims arise from historically and
politically significant events for the Republic and its people, and the entities have a
unique interest in resolving matters related to Arelmas assets. A foreign state has a
comity interest in using its courts for a dispute if it has a right to do so. Its dignity is not
enhanced if other nations bypass its courts without right or good cause. A more specific
affront could result if property the Republic and the Commission claim is seized by a
foreign court decree. This Court has not considered the precise question presented, but
authorities involving the intersection of joinder and the United States governmental
immunity, see, e.g., Mine Safety Appliances Co. v. Forrestal, 326 U. S. 371, 373375,
instruct that where sovereign immunity is asserted, and the sovereigns claims are not
frivolous, dismissal must be ordered where there is a potential for injury to the absent
sovereigns interests. The claims of the Republic and the Commission were not
frivolous, and the Ninth Circuit thus erred in ruling on their merits. The privilege of
sovereign immunity from suit is much diminished if an important and consequential
ruling affecting the sovereigns substantial interest is determined, or at least assumed,
by a federal court in its absence and over its objection. The Pimentel class interest in
recovering its damages is not discounted, but important comity concerns are implicated
by assertion of foreign sovereign immunity. The error is not that the courts below gave
too much weight to the Pimentel class interests, but that they did not accord proper
weight to the compelling sovereign immunity claim. Pp. 1116.

(2) The second factor is the extent to which any prejudice could be lessened or
avoided by relief or measures alternative to dismissal, Rule 19(b)(2), but no alternative
remedies or forms of relief have been proposed or appear to be available. As to the third
factorwhether a judgment rendered without the absent party would be adequate, Rule
19(b)(3)adequacy refers not to satisfaction of the Pimentel class claims, but to the
public stake in settling disputes by wholes, whenever possible, Provident
Bank, supra, at 111. Going forward with the action in the absence of the Republic and
the Commission would not further this public interest because they could not be bound
by a judgment to which they were not parties. As to the fourth factorwhether the
plaintiff would have an adequate remedy if the action were dismissed for nonjoinder,
Rule 19(b)(4)the Ninth Circuit made much of the tort victims lack of an alternative
forum. But Merrill Lynch, not the Pimentel class, is the plaintiff as the stakeholder in the
interpleader action. See 28 U. S. C. 1335(a). The Pimentel class interests are not
irrelevant to Rule 19(b)s equitable balance, but the Rules other provisions are the
relevant ones to consult. A dismissal on the ground of nonjoinder will not provide Merrill
Lynch with a judgment determining entitlement to the assets so it could be done with the
matter, but it likely would give Merrill Lynch an effective defense against piecemeal
litigation by various claimants and inconsistent, conflicting judgments. Any prejudice to
Merrill Lynch is outweighed by prejudice to the absent entities invoking sovereign
immunity. In the usual course, the Ninth Circuits failure to give sufficient weight to the
likely prejudice to the Republic and the Commission would warrant reversal and remand
for further determinations, but here, that error plus this Courts analysis under Rule
19(b)s additional provisions require the actions dismissal. Pp. 1720.

464 F. 3d 885, reversed and remanded.

Kennedy, J., delivered the opinion of the Court, in which Roberts, C. J., and Scalia,
Thomas, Ginsburg, Breyer, and Alito, JJ., joined, in which Souter, J., joined as to all but
Parts IVB and V, and in which Stevens, J., joined as to Part II. Stevens, J., and Souter,
J., filed opinions concurring in part and dissenting in part.
 SUPREME COURT OF THE UNITED STATES
REPUBLIC OF THE PHILIPPINES, et al., PETI-TIONERS v. JERRY
S. PIMENTEL, temporary administrator of the estate
of MARIANO J. PIMENTEL, DECEASED, et al.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OFAPPEALS FOR THE NINTH CIRCUIT

[June 12, 2008]

Justice Kennedy delivered the opinion of the Court.

This case turns on the interpretation and proper
application of Rule 19 of the Federal Rules of Civil
Procedure and requires us to address the Rules
operation in the context of foreign sovereign immunity.
This interpleader action was commenced to
determine the ownership of property allegedly stolen by
Ferdinand Marcos when he was the President of the
Republic of the Philippines. Two entities named in the
suit invoked sovereign immunity. They are the Republic
of the Philippines and the Philippine Presidential
Commission on Good Governance, referred to in turn as
the Republic and the Commission. They were dismissed,
but the interpleader action proceeded to judgment over
their objection. Together with two parties who remained
in the suit, the Republic and the Commission now insist
it was error to allow the litigation to proceed. Under
Rule 19, they contend, the action should have been
dismissed once it became clear they could not be joined
as parties without their consent.
The United States Court of Appeals for the Ninth
Circuit, agreeing with the District Court, held the action
could proceed without the Republic and the Commission
as parties. Among the reasons the Court of Appeals gave
was that the absent, sovereign entities would not prevail
on their claims. We conclude the Court of Appeals gave
insufficient weight to the foreign sovereign status of the
Republic and the Commission, and that the court further
erred in reaching and discounting the merits of their
claims.

I
 A
When the opinion of the Court of Appeals is
consulted, the reader will find its quotations from Rule
19 do not accord with its text as set out here; for after
the case was in the Court of Appeals and before it came
here, the text of the Rule changed. The Rules
Committee advised the changes were stylistic only, see
Advisory Committees Notes on 2007 Amendment to Fed.
Rule Civ. Proc. 19, 28 U. S. C. A., p. 168 (2008); and we
agree. These are the three relevant stylistic changes.
First, the word required replaced the word
necessary in subparagraph (a). Second, the 1966 Rule
set out factors in longer clauses and the 2007 Rule sets
out the factors affecting joinder in separate lettered
headings. Third, the word indispensable, which had
remained as a remnant of the pre-1966 Rule, is
altogether deleted from the current text. Though the
word indispensable had a lesser place in the 1966
Rule, it still had the latent potential to mislead.
As the substance and operation of the Rule both pre-
and post-2007 are unchanged, we will refer to the
present, revised version. The pre-2007 version is printed
in the Appendix of this opinion. The current Rule states,
in relevant part, as follows:
Rule 19. Required Joinder of Parties.
(a)Persons Required to Be Joined if Feasible.
(1)Required Party. A person who is subject to service
of process and whose joinder will not deprive the court
of subject-matter jurisdiction must be joined as a party
if:
(A)in that persons absence, the court cannot accord
complete relief among existing parties; or
(B)that person claims an interest relating to the
subject of the action and is so situated that disposing of
the action in the persons absence may:
(i)as a practical matter impair or impede the persons
ability to protect the interest; or
(ii)leave an existing party subject to a substantial risk
of incurring double, multiple, or otherwise inconsistent
obligations because of the interest.
(2)Joinder by Court Order. If a person has not been
joined as required, the court must order that the person
be made a party. A person who refuses to join as a
plaintiff may be made either a defendant or, in a proper
case, an involuntary plaintiff.
(3)Venue. If a joined party objects to venue and the
joinder would make venue improper, the court must
dismiss that party.
(b)When Joinder Is Not Feasible. If a person who is
required to be joined if feasible cannot be joined, the
court must determine whether, in equity and good
conscience, the action should proceed among the
existing parties or should be dismissed. The factors for
the court to consider include:
(1)the extent to which a judgment rendered in the
persons absence might prejudice that person or the
existing parties;
(2)the extent to which any prejudice could be
lessened or avoided by:
(A)protective provisions in the judgment;
(B)shaping the relief; or
(C)other measures;
(3)whether a judgment rendered in the persons
absence would be adequate; and
(4)whether the plaintiff would have an adequate
remedy if the action were dismissed for nonjoinder.
Fed. Rules Civ. Proc. 19(a)(b).
See also Rule 19(c) (imposing pleading requirements);
Rule 19(d) (creating exception for class actions).

B
In 1972, Ferdinand Marcos, then President of the
Republic, incorporated Arelma, S. A. (Arelma), under
Panamanian law. Around the same time, Arelma opened
a brokerage account with Merrill Lynch, Pierce, Fenner &
Smith Inc. (Merrill Lynch) in New York, in which it
deposited $2 million. As of the year 2000, the account
had grown to approximately $35 million.
Alleged crimes and misfeasance by Marcos during his
presidency became the subject of worldwide attention
and protest. A class action by and on behalf of some
9,539 of his human rights victims was filed against
Marcos and his estate, among others. The class action
was tried in the United States District Court for the
District of Hawaii and resulted in a nearly $2 billion
judgment for the class. See Hilao v. Estate of Marcos,
103 F. 3d 767 (CA9 1996). We refer to that litigation as
the Pimentel case and to its class members as the
Pimentel class. In a related action, the Estate of Roger
Roxas and Golden Budha [sic] Corporation (the Roxas
claimants) claim a right to execute against the assets to
satisfy their own judgment against Marcos widow,
Imelda Marcos. See Roxas v. Marcos, 89 Haw. 91, 113
115, 969 P. 2d 1209, 12311233 (1998).
The Pimentel class claims a right to enforce its
judgment by attaching the Arelma assets held by Merrill
Lynch. The Republic and the Commission claim a right to
the assets under a 1955 Philippine law providing that
property derived from the misuse of public office is
forfeited to the Republic from the moment of
misappropriation. See An Act Declaring Forfeiture in
Favor of the State Any Property Found To Have Been
Unlawfully Acquired by Any Public Officer or Employee
and Providing for the Proceedings Therefor, Rep. Act No.
1379, 51:9 O. G. 4457 (June 18, 1955).
After Marcos fled the Philippines in 1986, the
Commission was created to recover any property he
wrongfully took. Almost immediately the Commission
asked the Swiss Government for assistance in recovering
assetsincluding shares in Arelmathat Marcos had
moved to Switzerland. In compliance the Swiss
Government froze certain assets and, in 1990, that
freeze was upheld by the Swiss Federal Supreme Court.
In 1991, the Commission asked the Sandiganbayan, a
Philippine court of special jurisdiction over corruption
cases, to declare forfeited to the Republic any property
Marcos had obtained through misuse of his office. That
litigation is still pending in the Sandiganbayan.
The Swiss assets were transferred to an escrow
account set up by the Commission at the Philippine
National Banc (PNB), pending the Sandiganbayans
decision as to their rightful owner. The Republic and the
Commission requested that Merrill Lynch follow the same
course and transfer the Arelma assets to an escrow
account at PNB. Merrill Lynch did not do so. Facing
claims from various Marcos creditors, including the
Pimentel class, Merrill Lynch instead filed an
interpleader action under28 U. S. C. 1335. The named
defendants in the interpleader action were, among
others, the Republic and the Commission, Arelma, PNB,
and the Pimentel class (the respondents here).
The Pimentel case had been tried as a class action
before Judge Manuel Real of the United States District
Court for the Central District of California, who was
sitting by designation in the District of Hawaii after the
Judicial Panel on Multidistrict Litigation consolidated the
various human rights complaints against Marcos in that
court. See Hilao, supra, at 771. Judge Real directed
Merrill Lynch to file the interpleader action in the
District of Hawaii, and he presided over the matter.
 After being named as defendants in the interpleader
action, the Republic and the Commission asserted
sovereign immunity under the Foreign Sovereign
Immunities Act of 1976 (FSIA), 28 U. S. C. 1604. They
moved to dismiss pursuant to Rule 19(b), based on the
premise that the action could not proceed without
them. Arelma and PNB also moved to dismiss pursuant to
Rule 19(b). Without addressing whether they were
entitled to sovereign immunity, Judge Real initially
rejected the request by the Republic and the
Commission to dismiss the interpleader action. They
appealed, and the Court of Appeals reversed. It held the
Republic and the Commission are entitled to sovereign
immunity and that under Rule 19(a) they are required
parties (or necessary parties under the old
terminology). See In re Republic of the Philippines, 309
F. 3d 1143, 11491152 (CA9 2002). The Court of Appeals
entered a stay pending the outcome of the litigation in
the Sandiganbayan over the Marcos assets. See id., at
11521153.
After concluding that the pending litigation in the
Sandiganbayan could not determine entitlement to the
Arelma assets, Judge Real vacated the stay, allowed the
action to proceed, and awarded the assets to the
Pimentel class. A week later, in the case initiated before
the Sandiganbayan in 1991, the Republic asked that
court to declare the Arelma assets forfeited, arguing the
matter was ripe for decision. The Sandiganbayan has not
yet ruled.
In the interpleader case the Republic, the
Commission, Arelma, and PNB appealed the District
Courts judgment in favor of the Pimentel claimants.
This time the Court of Appeals affirmed. See Merrill
Lynch, Pierce, Fenner & Smith v. ENC Corp., 464 F. 3d
885 (CA9 2006). Dismissal of the interpleader suit, it
held, was not warranted under Rule 19(b) because,
though the Republic and the Commission were required
(necessary) parties under Rule 19(a), their claim had
so little likelihood of success on the merits that the
interpleader action could proceed without them. One of
the reasons the court gave was that any action
commenced by the Republic and the Commission to
recover the assets would be barred by New Yorks 6-year
statute of limitations for claims involving the
misappropriation of public property. See N. Y. Civ. Prac.
Law Ann. 213 (West Supp. 2008). The court thus found
it unnecessary to consider whether any prejudice to the
Republic and the Commission might be lessened by some
form of judgment or interim decree in the interpleader
action. The court also considered the failure of the
Republic and the Commission to obtain a judgment in
the Sandiganbayandespite the Arelma share
certificates having been located and held in escrow at
the PNB since 19971998to be an equitable
consideration counseling against dismissal of the
interpleader suit. The court further found it relevant
that allowing the interpleader case to proceed would
serve the interests of the Pimentel class, which, at this
point, likely has no other available forum in which to
enforce its judgment against property belonging to
Marcos.
This Court granted certiorari. See 552 U. S. ___
(2007).

II
We begin with the question we asked the parties to
address when we granted certiorari: Whether the
Republic and the Commission, having been dismissed
from the interpleader action based on their successful
assertion of sovereign immunity, had the right to appeal
the District Courts determination under Rule 19 that the
action could proceed in their absence; and whether they
have the right to seek this Courts review of the Court of
Appeals judgment affirming the District Court. See ibid.
Respondents contend that the Republic and the
Commission were not proper parties in the Court of
Appeals when it reviewed the District Courts judgment
allowing the action to proceed without them; and,
respondents continue, the Republic and the Commission
are not proper parties in the instant proceeding before
us. See Brief for Respondent Pimentel 21.
Without implying that respondents are correct in
saying the Republic and the Commission could neither
appeal nor become parties here, we conclude we need
not rule on this point. Other parties before us, Arelma
and PNB, also seek review of the Court of Appeals
decision affirming the District Court. They, too, moved
to dismiss the action under Rule 19(b), appealed from
the denial of their motion, and are petitioners before
this Court. As a general matter any party may move to
dismiss an action under Rule 19(b). A court with proper
jurisdiction may also consider sua sponte the absence of
a required person and dismiss for failure to join.
See, e.g., Minnesota v. Northern Securities Co., 184
U. S. 199, 235 (1902) ; see also Provident Tradesmens
Bank & Trust Co. v. Patterson, 390 U. S.
102, 111 (1968) .
Respondents argue, however, that Arelma and PNB
have no standing to raise before this Court the question
whether the action may proceed in the absence of the
Republic and the Commission. Arelma and PNB lost on
the merits of their underlying claims to the interpleaded
assets in both the District Court and the Court of
Appeals. By failing to petition for certiorari on that
merits ruling, respondents contend, Arelma and PNB
abandoned any entitlement to the interpleaded assets
and therefore lack a concrete stake in the outcome of
further proceedings. We disagree. Dismissal of the action
under Rule 19(b) would benefit Arelma and PNB by
vacating the judgment denying them the interpleaded
assets. A party that seeks to have a judgment vacated in
its entirety on procedural grounds does not lose standing
simply because the party does not petition for certiorari
on the substance of the order.

III
We turn to the question whether the interpleader
action could proceed in the District Court without the
Republic and the Commission as parties.
Subdivision (a) of Rule 19 states the principles that
determine when persons or entities must be joined in a
suit. The Rule instructs that nonjoinder even of a
required person does not always result in dismissal.
Subdivision (a) opens by noting that it addresses joinder
if Feasible. Where joinder is not feasible, the question
whether the action should proceed turns on the factors
outlined in subdivision (b). The considerations set forth
in subdivision (b) are nonexclusive, as made clear by the
introductory statement that [t]he factors for the court
to consider include. Fed. Rule Civ. Proc. 19(b). The
general direction is whether in equity and good
conscience, the action should proceed among the
existing parties or should be dismissed. Ibid. The design
of the Rule, then, indicates that the determination
whether to proceed will turn upon factors that are case
specific, which is consistent with a Rule based on
equitable considerations. This is also consistent with the
fact that the determination of who may, or must, be
parties to a suit has consequences for the persons and
entities affected by the judgment; for the judicial
system and its interest in the integrity of its processes
and the respect accorded to its decrees; and for society
and its concern for the fair and prompt resolution of
disputes. See, e.g., Illinois Brick Co. v. Illinois, 431 U. S.
720, 737739 (1977) . For these reasons, the issue of
joinder can be complex, and determinations are case
specific. See, e.g., Provident Bank, supra, at 118119.
Under the earlier Rules the term indispensable
party might have implied a certain rigidity that would
be in tension with this case-specific approach. The word
indispensable had an unforgiving connotation that did
not fit easily with a system that permits actions to
proceed even when some persons who otherwise should
be parties to the action cannot be joined. As the Court
noted in Provident Bank, the use of indispensable in
Rule 19 created the verbal anomaly of an
indispensable person who turns out to be dispensable
after all. 390 U. S., at 117, n. 12. Though the text has
changed, the new Rule 19 has the same design and, to
some extent, the same tension. Required persons may
turn out not to be required for the action to proceed
after all.
In all events it is clear that multiple factors must bear
on the decision whether to proceed without a required
person. This decision must be based on factors varying
with the different cases, some such factors being
substantive, some procedural, some compelling by
themselves, and some subject to balancing against
opposing interests. Id., at 119.

IV
We turn to Rule 19 as it relates to this case. The
application of subdivision (a) of Rule 19 is not contested.
The Republic and the Commission are required entities
because [w]ithout [them] as parties in this interpleader
action, their interests in the subject matter are not
protected. In re Republic of Philippines, 309 F. 3d, at
1152; see Fed. Rule Civ. Proc. 19(a)(1)(B)(i). All parties
appear to concede this. The disagreement instead
centers around the application of subdivision (b), which
addresses whether the action may proceed without the
Republic and the Commission, given that the Rule
requires them to be parties.
We have not addressed the standard of review for
Rule 19(b) decisions. The case-specific inquiry that must
be followed in applying the standards set forth in
subdivision (b), including the direction to consider
whether in equity and good conscience the case
should proceed, implies some degree of deference to
the district court. In this case, however, we find implicit
in the District Courts rulings, and explicit in the opinion
of the Court of Appeals, errors of law that require
reversal. Whatever the appropriate standard of review, a
point we need not decide, the judgment could not
stand. Cf. Koon v. United States, 518 U. S. 81, 99100
(1996) (a court by definition abuses its discretion when
it makes an error of law).
The Court of Appeals erred in not giving the necessary
weight to the absent entities assertion of sovereign
immunity. The court in effect decided the merits of the
Republic and the Commissions claims to the Arelma
assets. Once it was recognized that those claims were
not frivolous, it was error for the Court of Appeals to
address them on their merits when the required entities
had been granted sovereign immunity. The courts
consideration of the merits was itself an infringement on
foreign sovereign immunity; and, in any event, its
analysis was flawed. We discuss these errors first in the
context of how they affected the Court of Appeals
analysis under the first factor of Rule 19(b). We then
explain that the outcome suggested by the first factor is
confirmed by our analysis under the other provisions of
Rule 19(b). The action may notproceed.

A
As to the first Rule 19(b) factorthe extent to which a
judgment rendered in the persons absence might
prejudice that person or the existing parties, Fed. Rule
Civ. Proc. 19(b)(1)the judgment of the Court of Appeals
is incorrect.
In considering whether the Republic and the
Commission would be prejudiced if the action were to
proceed in their absence, the Court of Appeals gave
insufficient weight to their sovereign status. The
doctrine of foreign sovereign immunity has been
recognized since early in the history of our Nation. It is
premised upon the perfect equality and absolute
independence of sovereigns, and th[e] common interest
impelling them to mutual intercourse. Schooner
Exchange v. McFaddon, 7 Cranch 116, 137 (1812). The
Court has observed that the doctrine is designed to give
foreign states and their instrumentalities some
protection from the inconvenience of suit, Dole Food
Co. v. Patrickson, 538 U. S. 468, 479 (2003) .
The privilege is codified by federal statute. FSIA, 28
U. S. C. 13301, provides that a foreign state shall be
immune from the jurisdiction of the courts of the United
States and of the States except as provided in sections
1605 to 1607, absent existing international agreements
to the contrary. 1604; see Verlinden B. V. v. Central
Bank of Nigeria, 461 U. S. 480, 486489 (1983)
(explaining the history of the doctrines codification).
Exceptions to the general principle of foreign sovereign
immunity are contained in 16051607 of the statute.
They are inapplicable here, or at least the parties do not
invoke them. Immunity in this case, then, is
uncontested; and pursuant to the Court of Appeals
earlier ruling on the issue, the District Court dismissed
the Republic and the Commission from the action on this
ground.
 The District Court and the Court of Appeals failed to
give full effect to sovereign immunity when they held
the action could proceed without the Republic and the
Commission. Giving full effect to sovereign immunity
promotes the comity interests that have contributed to
the development of the immunity doctrine. See, e.g.,
id., at 486 ([F]oreign sovereign immunity is a matter of
grace and comity); National City Bank of N.
Y. v. Republic of China, 348 U. S. 356 , and n. 7 (1955)
(foreign sovereign immunity derives from standards of
public morality, fair dealing, reciprocal self-interest, and
respect for the power and dignity of the foreign
sovereign (quoting Schooner Exchange, supra, at 136
137, 143144)).
Comity and dignity interests take concrete form in
this case. The claims of the Republic and the
Commission arise from events of historical and political
significance for the Republic and its people. The
Republic and the Commission have a unique interest in
resolving the ownership of or claims to the Arelma assets
and in determining if, and how, the assets should be
used to compensate those persons who suffered grievous
injury under Marcos. There is a comity interest in
allowing a foreign state to use its own courts for a
dispute if it has a right to do so. The dignity of a foreign
state is not enhanced if other nations bypass its courts
without right or good cause. Then, too, there is the
more specific affront that could result to the Republic
and the Commission if property they claim is seized by
the decree of a foreign court. Cf. Republic of
Mexico v. Hoffman, 324 U. S. 30, 3536 (1945) (pre-FSIA,
common-law doctrine dictated that courts defer to
executive determination of immunity because [t]he
judicial seizure of the property of a friendly state may
be regarded as an affront to its dignity and may
affect our relations with it).
Though this Court has not considered a case posing
the precise question presented here, there are some
authorities involving the intersection of joinder and the
governmental immunity of the United States.
See, e.g., Mine Safety Appliances Co. v. Forrestal, 326
U. S. 371, 373375 (1945) (dismissing an action where
the Under Secretary of the Navy was sued in his official
capacity, because the Government was a required entity
that could not be joined when it withheld consent to be
sued); Minnesota v. United States, 305 U. S. 382, 386
388 (1939) (dismissing the action for nonjoinder of a
required entity where the United States was the owner
of the land in question but had not consented to suit).
The analysis of the joinder issue in those cases was
somewhat perfunctory, but the holdings were clear: A
case may not proceed when a required-entity sovereign
is not amenable to suit. These cases instruct us that
where sovereign immunity is asserted, and the claims of
the sovereign are not frivolous, dismissal of the action
must be ordered where there is a potential for injury to
the interests of the absent sovereign.
The Court of Appeals accordingly erred in undertaking
to rule on the merits of the Republic and the
Commissions claims. There may be cases where the
person who is not joined asserts a claim that is frivolous.
In that instance a court may have leeway under both
Rule 19(a)(1), defining required parties, and Rule 19(b),
addressing when a suit may go forward nonetheless, to
disregard the frivolous claim. Here, the claims of the
absent entities are not frivolous; and the Court of
Appeals should not haveproceeded on the premise that
those claims would be determined against the sovereign
entities that asserted immunity.
The Court of Appeals determined that the claims of
the Republic and the Commission as to the assets would
not succeed because a suit would be time barred in New
York. This is not necessarily so. If the Sandiganbayan
rules that the Republic owns the assets or stock of
Arelma because Marcos did not own them and the
property was forfeited to the Republic under Philippine
law, then New York misappropriation rules might not be
the applicable law. For instance, the Republic and the
Commission, standing in for Arelma based upon the
Sandiganbayans judgment, might not pursue a
misappropriation of public property suit, as the Court of
Appeals assumed they would. They might instead, or in
the alternative, file suit for breach of contract against
Merrill Lynch. They would argue the statute of
limitations would start to run if and when Merrill Lynch
refused to hand over the assets. See N. Y. Civ. Prac. Law
Ann. 213 (West Supp. 2008); Ely-Cruikshank Co. v. Bank
of Montreal, 81 N. Y.2d 399, 402, 615 N. E. 2d 985, 986
(1993) (In New York, a breach of contract cause of
action accrues at the time of the breach). Or the
Republic and the Commission might bring an action
either in state or federal court to enforce the
Sandiganbayans judgment. See 1 Restatement (Third) of
Foreign Relations Law of the United States 482,
Comment a (1986) (jurisdiction of foreign court
rendering judgment is presumed); id., at
Comment d (providing exceptions not relevant here);
see also 28 U. S. C. 2467(c) (providing for enforcement
of foreign forfeiture judgments in certain
circumstances). Merrill Lynch makes arguments why
these actions would not succeed, see Brief for Merrill
Lynch as Amicus Curiae 2627, to which the Republic,
the Commission, and the United States respond, see
Reply Brief for Petitioners 1418; Brief for United States
as Amicus Curiae 2428. We need not seek to predictthe
outcomes. It suffices that the claims would not be
frivolous.
As these comments indicate, Rule 19 cannot be
applied in a vacuum, and it may require some
preliminary assessment of the merits of certain claims.
For example, the Rule directs a court, in determining
who is a required person, to consider whether complete
relief can be afforded in their absence. See Fed. Rule
Civ. Proc. 19(a)(1)(A). Likewise, in the Rule 19(b) inquiry,
a court must examine, to some extent, the claims
presented and the interests likely to be asserted both by
the joined parties and the absent entities or persons.
Here, however, it was improper to issue a definitive
holding regarding a nonfrivolous, substantive claim made
by an absent, required entity that was entitled by its
sovereign status to immunity from suit. That privilege is
much diminished if an important and consequential
ruling affecting the sovereignssubstantial interest is
determined, or at least assumed, by a federal court in
the sovereigns absence and over its objection.
As explained above, the decision to proceed in the
absence of the Republic and the Commission ignored the
substantial prejudice those entities likely would incur.
This most directly implicates Rule 19(b)s first factor,
which directs consideration of prejudice both to absent
persons and those who are parties. We have discussed
the absent entities. As to existing parties, we do not
discount the Pimentel class interest in recovering
damages it was awarded pursuant to a judgment.
Furthermore, combating public corruption is a
significant international policy. The policy is manifested
in treaties providing for international cooperation in
recovering forfeited assets. See, e.g., United Nations
Convention Against Corruption, G.A. Res. 5814, chs. IV
and V, U.N. Doc. A/RES/58/4, pp. 22, 32 (Dec. 11,
2003) (reprinted in 43I. L. M. 37 (2004)); Treaty on
Mutual Legal Assistance in Criminal Matters Art. 16, Nov.
13, 1994, S. Treaty Doc. No. 10418 (1995). This policy
does support the interest of the Pimentel class in
recovering damages awarded to it. But it also
underscores the important comity concerns implicated
by the Republic and the Commission in asserting foreign
sovereign immunity. The error is not that the District
Court and the Court of Appeals gave too much weight to
the interest of the Pimentel class, but that it did not ac-
cord proper weight to the compelling claim of sovereign
immunity.
 Based on these considerations we conclude the
District Court and the Court of Appeals gave insufficient
weight to the likely prejudice to the Republic and the
Commission should the interpleader proceed in their
absence.

B
As to the second Rule 19(b) factorthe extent to
which any prejudice could be lessened or avoided by
relief or measures alternative to dismissal, Fed. Rule Civ.
Proc. 19(b)(2)there is no substantial argument to allow
the action to proceed. No alternative remedies or forms
of relief have been proposed to us or appear to be
available. See 7 C. Wright, A. Miller, & M. Kane, Federal
Practice and Procedure 1608, pp. 106110 (3d ed. 2001)
(collecting cases using alternative forms of relief,
including the granting of money damages rather than
specific performance, the use of declaratory judgment,
and the direction that payment be withheld pending
suits against the absent party). If the Marcos estate did
not own the assets, or if the Republic owns them now,
the claim of the Pimentel class likely fails; and in all
events, if there are equally valid but competing claims,
that too would require adjudication in a case where the
Republic and the Commission are parties. See State
Farm Fire & Casualty Co. v. Tashire, 386 U. S. 523 , and
n. 16 (1967); Russell v. Clarks Executors, 7 Cranch 69,
9899 (1812) (Marshall, C. J.); Wichita & Affiliated
Tribes of Okla. v. Hodel, 788 F. 2d 765, 774 (CADC 1986)
(Conflicting claims by beneficiaries to a common trust
present a textbook example of a case where one party
may be severely prejudiced by a decision in his absence
(citing Williams v. Bankhead, 19 Wall. 563, 570571
(1874))).

C
As to the third Rule 19(b) factorwhether a judgment
rendered without the absent party would be adequate,
Fed. Rule Civ. Proc. 19(b)(3)the Court of Appeals
understood adequacy to refer to satisfaction of the
Pimentel class claims. But adequacy refers to the
public stake in settling disputes by wholes, whenever
possible. Provident Bank, 390 U. S., at 111. This social
interest in the efficient administration of justice and the
avoidance of multiple litigation is an interest that has
traditionally been thought to support compulsory
joinder of absent and potentially adverse
claimants. Illinois Brick Co., 431 U. S., at 737738.
Going forward with the action without the Republic and
the Commission would not further the public interest in
settling the dispute as a whole because the Republic and
the Commission would not be bound by the judgment in
an action where they were not parties.

D
As to the fourth Rule 19(b) factorwhether the
plaintiff would have an adequate remedy if the action
were dismissed for nonjoinder, Fed. Rule Civ. Proc. 19(b)
(4)the Court of Appeals made much of what it
considered the tort victims lack of an alternative forum
should this action be dismissed. This seems to assume
the plaintiff in this interpleader action was the Pimentel
class. It is Merrill Lynch, however, that has the statutory
status of plaintiff as the stakeholder in the interpleader
action.
It is true that, in an interpleader action, the
stakeholder is often neutral as to the outcome, while
other parties press claims in the manner of a plaintiff.
That is insufficient, though, to overcome the statement
in the interpleader statute that the stakeholder is the
plaintiff. See 28 U. S. C. 1335(a) (conditioning
jurisdiction in part upon whether the plaintiff has
deposited such money or property at issue with the
district court or has given bond payable to the clerk of
the court in such amount and with such surety as the
court or judge may deem proper). We do not ignore
that, in context, the Pimentel class (and indeed all
interpleader claimants) are to some extent comparable
to the plaintiffs in noninterpleader cases. Their interests
are not irrelevant to the Rule 19(b) equitable balance;
but the other provisions of the Rule are the relevant
ones to consult.
Merrill Lynch, as the stakeholder, makes the point
that if the action is dismissed it loses the benefit of a
judgment allowing it to disburse the assets and be done
with the matter. Dismissal of the action, it urges, leaves
it without an adequate remedy, for it could potentially
be forced to defend lawsuits by the various claimants
in different jurisdictions, possibly leading to inconsistent
judgments. Brief for Merrill Lynch as Amicus Curiae 14.
A dismissal of the action on the ground of nonjoinder,
however, will protect Merrill Lynch in some respects.
That disposition will not provide Merrill Lynch with a
judgment determining the party entitled to the assets,
but it likely would provide Merrill Lynch with an
effective defense against piecemeal litigation and
inconsistent, conflicting judgments. As matters presently
stand, in any later suit against it Merrill Lynch may seek
to join the Republic and the Commission and have the
action dismissed under Rule 19(b) should they again
assert sovereign immunity. Dismissal for nonjoinder to
some extent will serve the purpose of interpleader,
which is to prevent a stakeholder from having to pay two
or more parties for one claim.
Any prejudice to Merrill Lynch in this regard is
outweighed by prejudice to the absent entities invoking
sovereign immunity. Dismissal under Rule 19(b) will
mean, in some instances, that plaintiffs will be left
without a forum for definitive resolution of their claims.
But that result is contemplated under the doctrine of
foreign sovereign immunity. See, e.g., Verlinden, 461
U. S., at 497 ([I]f a court determines that none of the
exceptions to sovereign immunity applies, the plaintiff
will be barred from raising his claim in any court in the
United States).

V
The Court of Appeals failure to give sufficient weight
to the likely prejudice to the Republic and the
Commission should the interpleader proceed in their
absence would, in the usual course, warrant reversal and
remand for further proceedings. In this case, however,
that error and our further analysis under the additional
provisions of Rule 19(b) lead us to conclude the action
must be dismissed. This leaves the Pimentel class, which
has waited for years now to be compensated for grievous
wrongs, with no immediate way to recover on its
judgment against Marcos. And it leaves Merrill Lynch, the
stakeholder, without a judgment.
The balance of equities may change in due course.
One relevant change may occur if it appears that the
Sandiganbayan cannot or will not issue its ruling within a
reasonable period of time. Other changes could result
when and if there is a ruling. If the Sandiganbayan rules
that the Republic and the Commission have no right to
the assets, their claims in some later interpleader suit
would be less substantial than they are now. If the ruling
is that the Republic and the Commission own the assets,
then they may seek to enforce a judgment in our courts;
or consent to become parties in an interpleader suit,
where their claims could be considered; or file in some
other forum if they can obtain jurisdiction over the
relevant persons. We do note that if Merrill Lynch, or
other parties, elect to commence further litigation in
light of changed circumstances, it would not be
necessary to file the new action in the District Court
where this action arose, provided venue and
jurisdictional requirements are satisfied elsewhere. The
present action, however, may not proceed.

***
 The judgment of the Court of Appeals for the Ninth
Circuit is reversed, and the case is remanded with
instructions to order the District Court to dismiss the
interpleader action.
It is so ordered.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-1403 October 29, 1948

VICENTE CALUAG and JULIANA GARCIA, petitioners,

vs.
POTENCIANO PECSON and ANGEL H. MOJICA, Judges of the Court of First Instance of
Bulacan, and LEON ALEJO, respondents.

Marcial G. Mendiola for petitioners.

Antonio Gonzalez for respondent L. Alejo.
The respondent Judge Pecson in his own behalf.

FERIA, J.:

This is a petition for certiorari and prohibition filed by the petitioners on the ground that the
respondent judge acted without or in excess of the jurisdiction of the court in rendering the resolution
dated April 1, 1947, which declares the petitioners guilty of contempt of court for not complying or
performing the order of the court of January 7, 1947, in case No. 5486 of the Court of First Instance
of Bulacan, requiring the petitioners to execute a deed of sale in favor of plaintiff over one-half of the
land pro indiviso in question, within ten days from the receipt of copy of said resolution, and which
orders that the petitioners be imprisoned until they perform the said act.

The first ground on which the petition is based is that the judgment of the court which the petitioners
are ordered to perform has not yet become final. This ground is unfounded. From the pleadings and
annexes it appears that the judgment of the lower against the petitioners was appealed to the Court
of Appeals and was affirmed by the latter in its decision promulgated on May 30, 1944; that the
petition to appeal to the Supreme Court by certiorari filed by the petitioners was denied on July 24,
1944; that a motion for reconsideration filed by the petitioners was also denied on August 21, 1944;
that the record of the case, having been destroyed during the liberation, was reconstituted; that on
September 24, 1945, the Deputy Clerk of this Court wrote a letter to and notified the petitioners of
the resolution of the Court declaring said record reconstituted, together with the copies of the
decision of the Court of Appeals and resolutions of the Supreme Court during Japanese occupation
of June 24 and August 21, 1944; and that on October 23, 1946, the clerk of Court of First Instance of
Bulacan notified the attorneys for both parties of the said decision of the Court of Appeals and
resolutions of the Supreme Court. There can be no question, therefore, that the judgment of the
Court of First Instance above-mentioned, as affirmed by the Court of Appeals, has become final and
executory.

The other two grounds alleged by the petitioners in support of the present petition for certiorari are:
that plaintiff's action abated or was extinguished upon the death of the plaintiff Fortunato Alejo,
because his right of legal redemption was a personal one, and therefore not transferable to his
successors in interest; and that, even assuming that it is a personal one and therefore transferable,
his successors in interest have failed to secure the substitution of said deceased by his legal
representative under section 17, Rule 3. These reasons or grounds do not deserve any serious
consideration, not only because they are without merits, but because the Court of First Instance of
Bulacan, having jurisdiction to render that judgment, the latter cannot be disobeyed however
erroneous it may be (Compaia General de Tabacos vs. Alhambra Cigar & Cigarette Mfg. Co., 33
Phil., 503; Golding vs. Balatbat, 36 Phil., 941). And this Court cannot in this proceeding correct any
error which may have been committed by the lower court.

However, although not alleged, we may properly take judicial notice of the fact that the respondent
Judges have acted without jurisdiction in proceeding against and declaring the petitioners guilty of
contempt of court.

The contempt supposed to have been committed by the petitioners is not a direct contempt under
section 1, Rule 64, for it is not a misbehavior in the presence of or so near a court or judge as to
interrupt the administration of justice. It is an indirect contempt or disobedience of a lawful order of
the court, under section 3, Rule 64, of the Rules of Court. According to sections 4 and 5 of said rule,
where a contempt under section 3 has been committed against a superior court or judge the charge
may be filed with such superior court, and the accused put under custody; but if the hearing is
ordered to be had forthwith, the accused may be released from custody upon filing a bond in an
amount to be fixed by the court for his appearance to answer the charge. From the record it appears
that no charge for contempt was filed against the petitioners nor was a trial held. The only
proceeding had in this case which led to the conviction of the defendants are: the order of January 7,
1947, issued by the lower court requiring the defendants to execute the deed of conveyance as
direct in the judgment within ten days from the receipt of the copy of said order, with the admonition
that upon failure to do so said petitioners will be dealt with for contempt of court; the motion of March
21, 1947, filed by the attorney for the respondent Leon Alejo, administrator of the estate of Fortunato
Alejo, that the petitioners be punished for contempt; and the resolution of the court of April 1, 1947,
denying the second motion for reconsideration of March 17, 1947, of the order of January 7, 1947,
filed by the petitioners, and ordering the petitioners to be imprisoned in the provincial jail until they
have complied with the order of the court above mentioned.

It is well settled that jurisdiction of the subject matter of a particular case is something more than the
general power conferred by law upon a court to take cognizance of cases of the general class to
which the particular case belongs. It is not enough that a court has power in abstract to try and
decide the class of litigations to which a case belongs; it is necessary that said power be properly
invoked, or called into activity, by the filing of a petition, complaint or other appropriate pleading. A
Court of First Instance has an abstract jurisdiction or power to try and decide criminal cases for
homicide committed within its territorial jurisdiction; but it has no power to try and decide a criminal
case against a person for homicide committed within its territory, unless a complaint or information
against him be filed with the said court. And it has also power to try civil cases involving title to real
estate situated within its district; but it has no jurisdiction to take cognizance of a dispute or
controversy between two persons over title of real property located in his province, unless a proper
complaint be filed with its court. So, although the Court of First Instance of Bulacan has power
conferred by law to punish as guilty of indirect contempt a party who disobeys its order or judgment,
it did not have or acquire jurisdiction of the particular case under consideration to declare the
petitioners guilty of indirect contempt, and order their confinement until they have executed the deed
of conveyance in question, because neither a charge has been filed against them nor a hearing
thereof held as required by law.

The respondent Judge Angel Mojica acted not only without jurisdiction in proceeding against and
declaring the petitioners guilty of contempt, but also in excess of jurisdiction in ordering the
confinement of the petitioners, because it had no power to impose such punishment upon the latter.

The respondent judge has no power under the law to order the confinement of the petitioners until
they have compiled with the order of the court. Section 9, Rule 39, in connection with section 7 of
Rule 64, provides that if a person is required by a judgment or order of the court to perform any other
act than the payment of money or sale or delivery of real or personal property, and said person
disobeys such judgment or order while it is yet in his power to perform it, he may be punished for
contempt and imprisoned until he performs said order. This provision is applicable only to specific
acts other than those provided for or covered by section 10 of the same Rule, that is, it refers to a
specific act which the party or person must personally do, because his personal qualification and
circumstances have been taken into consideration in accordance with the provision of article 1161 of
the Civil Code. But if a judgment directs a party to execute a conveyance of land or to deliver deeds
or other documents or to perform any specific act which may be performed by some other person, or
in some other way provided by law with the same effect, as in the present case, section 10, and not
said section 9 of Rule 39 applies; and under the provision of said section 10, the court may direct the
act to be done at the cost of the disobedient party, by some other person appointed or designated by
the court, and the act when so done shall have like effect as if done by the party himself.

It is also well settled by the authorities that a judgment may be void for want of power to render the
particular judgment, though the court may have had jurisdiction over the subject matter and the
parties. A wrong decision made within the limits of the court's authority is erroneous and may be
corrected on appeal or other direct review, but a wrong, or for that matter a correct, decision is void,
and may be set aside either directly or collaterally, where the court exceeds its jurisdiction and power
in rendering it. Hence though the court has acquired jurisdiction over the subject matter and the
particular case has been submitted properly to it for hearing and decision, it will overstep its
jurisdiction if it renders a judgment which it has no power under the law to render. A sentence which
imposes upon the defendant in a criminal prosecution a penalty different from or in excess of the
maximum which the court is authorized by law to impose for the offense of which the defendant was
convicted, is void for want or excess of jurisdiction, as to the excess in the latter case. And a
judgment of imprisonment which the court has no constitutional or statutory power to impose, as in
the present case, may also be collaterally attacked for want or rather in excess of jurisdiction.

In Cruz vs. Director of Prisons (17 Phil., 269, 272, 273), this Court said the following applicable to
punishment imposed for contempt of court:

. . . The courts uniformly hold that where a sentence imposes a punishment in excess of the
power of the court to impose, such sentence is void as to the excess, and some of the courts
hold that the sentence is void in toto; but the weight of authority sustains the proposition that
such a sentence is void only as to the excess imposed in case the parts are separable, the
rule being that the petitioner is not entitled to his discharge on a writ of habeas corpus unless
he has served out so much of the sentence as was valid. (Ex parte Erdmann, 88 Cal., 579;
Lowrey vs. Hogue, 85 Cal., 600; Armstrong vs. People, 37 Ill., 459; State vs. Brannon, 34 La
Ann., 942; People vs. Liscomb, 19 Am. Rep., 211; In re Taylor, 7 S. D., 382, 45 L. R. A.,
136; Ex parte Mooney, 26 W. Va., 36, 53 Am. Rep., 59; U. S. vs. Pridgeon, 153 U. S., 48; In
re Graham, 138 U. S., 461.)

In the present case, in view of the failure of the petitioners to execute the deed of conveyance
directed in the judgment of the court, the respondent may, under section 10, Rule 39, either order its
execution by some other person appointed or designated by the court at the expense of the
petitioners, or enter a judgment divesting the title of the petitioner over the property in question and
vesting it in Leon Alejo, administrator of estate of the deceased Fortunato Alejo, and such judgment
has the force and effect of a conveyance executed in due form of law.

In view of the foregoing, the order of the court of April 7, 1947, ordering the confinement of the
petitioners in the provincial jail until they have complied with the order of the court, is set aside
without costs. So ordered.
Moran, C.J., Pablo, Bengzon, Briones and Tuason, JJ., concur.
Paras, J., concurs in the result.

Separate Opinions

PERFECTO, J., concurring and dissenting:

On August 10, 1937, Fortunato Alejo filed a complaint against the spouses Vicente Caluag and
Juliana Garcia, herein petitioners, for the redemption of one-half pro indiviso of a parcel of land in
Guiguinto, Bulacan, covered by transfer certificate No. 19178. After trial, the Court of First Instance
of Bulacan rendered judgment on June 23, 1941, ordering petitioners to execute a deed of sale in
favor of Fortunato Alejo, upon payment by plaintiff, as purchase price, of the amount of P2,551. The
judgment was affirmed by the Court of Appeals of Central Luzon on May 30, 1944. A petition for
review on certiorari was denied by the Supreme Court of the so-called Republic of the Philippines on
July 28, 1944. Petitioners' counsel alleges, under oath, that he was not notified of said denial. The
record of the case was lost or burned during the liberation of Manila. Fortunato Alejo died on
December 10, 1944, petitioners made aware of the fact only on December 1, 1946. The record,
upon petition, was duly reconstituted on August 30, 1946, a resolution to said effect having been
issued by this Court.

On October 21, 1946, respondent Leon Alejo, judicial administrator of the estate of Fortunato Alejo,
filed a motion with the Court of First Instance of Bulacan for the execution of the judgment. On
October 28, the motion was indefinitely postponed. On November 21, Leon Alejo filed another
motion for the execution of the judgment, which was granted on January 7, 1947, Judge Potenciano
Pecson ordering defendants "to execute the deed of sale in favor of the plaintiff for the sum of
P2,551 over one-half of the land pro indiviso described in transfer certificate of title No. 19178 within
ten days from the receipt of a copy of this order; upon failure to do so the said defendants will be
dealt with for contempt of court:"

On February 3, 1947, Leon Alejo filed a petition praying that defendants be punished for contempt
for having failed to comply with the order of January 7. On February 19, defendants filed a petition
seeking reconsidering of the order of January 7, and dismissal of the complaint for contempt, upon
three grounds: (a) That the judgment of the Court of Appeals of Central Luzon, has not become final
and executory; (b) That the plaintiff's action was abated or extinguished upon Fortunato Alejo's
death, his right to legal redemption being personal; and (c) That his successors cannot ask for the
execution of the judgment because they failed to secure the reglementary substitution of parties and
amendment of the judgment.

On March 3, Judge Pecson denied defendants' petition and granted them five days within which to
comply with the order of January 7, otherwise they would be held in contempt of court. On March 17,
defendants filed another petition for reconsideration. On March 21, Leon Alejo moved again that
defendants be punished for contempt. On April 1, Judge Angel H. Mojica issued a resolution denying
the second petition for reconsideration, finding defendants guilty of contempt of court and ordering
their confinement in the provincial jail of Bulacan until they have complied with the order of January
7, directing further that warrant of arrest be issued to said effect. On April 1, 1947, Leon Alejo
deposited with the court of first instance the amount of P2,261.63, evidenced by provincial receipt
No. 211013.

Upon the above facts, petitioners raise before us several questions.

(a) LACK OF NOTIFICATION

Petitioners maintain that the decision of the Court of Appeals of Central Luzon, promulgated on May
30, 1944, and the resolution of the Supreme Court of the so-called Republic of the Philippines,
issued on July 24, 1944, denying their petition for review on certiorari, had not yet become final,
because their counsel has not yet received a copy of the resolution of denial dated July 24, 1944.

Although the allegation of non-receipt of notice is made under oath and the opposing party does not
specifically contradict the allegation, in respondent Leon Alejo's answer it is stated that petitioners
filed a motion for reconsideration of the resolution of denial of July 24, 1944, and the motion was
denied on August 21, 1944.

A perusal of the record as declared reconstituted by this Court demonstrates that on August 11,
1944, the Supreme Court of the so-called Republic of the Philippines adopted a resolution granting
petitioners an extension of five days only of the reglementary period within which to file a motion for
reconsideration of the resolution of denial of July 24, 1944, the extension granted being in response
to petitioners' prayer for an extension of ten days, and that on August 21, 1944, said Supreme Court
issued a resolution denying the motion for reconsideration, with Mr. Justice Ozaeta dissenting.

The authenticity of the copies of papers forming part of the reconstituted record has not been
disputed by petitioners. We may, therefore, assume that said record represents the proceedings
which have taken place. Upon this premise, we are constrained to dismiss petitioners' allegation that
they were not notified of the resolution of denial of July 24, 1944, as, otherwise, they could not have
filed a petition for extension of ten days and, after being given an extension of only five days, a
motion for reconsideration, the filing of which was necessarily based on petitioners' knowledge of the
resolution of denial of July 24, 1944, knowledge that they should have obtained, in the ordinary
course of judicial proceedings, from official notification.

Petitioners' contention, being based on a fact that is unacceptable, has no leg to stand on.

(b) EFFECT OF FORTUNATO ALEJO'S DEATH

The next question raised by petitioners is that upon Fortunato Alejo's death on December 10, 1944,
the complaint "was abated or extinguished," his "act of legal redemption being personal and not
real," and his heirs "could not have acquired that right" (of legal redemption).

Petitioners appear to labor under the confusion of mistaken concepts. They assume that the right of
legal redemption of Fortunato Alejo is of such personal nature that it could not be transmitted to his
heirs. The proposition has no basis in law. There is absolutely no reason why his heirs could not
inherit said right of legal redemption. Petitioners then jump to the proposition that Fortunato Alejo's
death "abated or extinguished" his complaint, premised on the wrong idea that the right of legal
redemption is not transmissible by inheritance. The reasoning is the result of a confusion of
petitioners' wrong concept on substantive law with a mistaken idea of adjective law.

Petitioners' contention has no merit.

(c) NINE-DAY PERIOD

Petitioners contend that, granting arguendo that the judgment has become final and executory and
that Fortunato Alejo's heirs stepped into his shoes after his death and could have exercised his right
of legal redemption, "they should have done or exercised it within nine days from his death or
knowledge thereof."

Petitioners chose not to adduce any reason in support of the theory which has absolutely no basis in
law.

(d) PROCEDURAL OMISSIONS

Petitioners allege that Fortunato Alejo's heirs, or the administrator or executor of his estate, are not
entitled to the execution of the judgment due to three procedural omissions, i.e.: (a) No petition for
substitution has been filed with the Court of Appeals of Central Luzon; (b) No petition to secure
amendment of the judgment so as to make effective the substitution; and (c) No petition to remand
the record to the Court of First Instance of Bulacan.

The grounds alleged are exclusively technical in nature and of scant importance. After the judgment
became final and executory, it is late to raise the question of substitution. In the present case, it
happens that Leon Alejo is appearing as the judicial administrator of the deceased Fortunato Alejo.
Such a representative capacity, undoubtedly given to him by proper judicial appointment, satisfies
fully the legal purposes of substitution. The remanding of the record to the Court of First Instance of
Bulacan is a matter of official duty, compliance of which does not require any initiative from any
party.

(e) CONTEMPT OF COURT

Petitioners allege that they could not properly and legally be declared in contempt of court because:
(a) The judgment sought to be executed ordered them to execute the corresponding deed of sale
upon payment by plaintiff of the sum of P2,551, and only the sum of P2,261.63 has so far been paid
or consigned, thus leaving a balance of P289.37, and (b). The judgment provides that the sale be
executed "in favor of Fortunato Alejo, who is now dead."

Respondent Leon Alejo answered that the amount deposited with the Court of First Instance of
Bulacan is P2,551. At the hearing, his attorney explained that two deposits were made, one in the
sum of P2,261.63 and the other in the amount of P289.37, due to a misunderstanding of the clerk of
the lower court of said respondent. But the fact that the deposit was made only on April 1, 1947, as
alleged under oath by petitioners, is not denied by respondent. April 1, 1947, is the date of the
resolution issued by Judge Mojica, ordering confinement of petitioners in the provincial jail of
Bulacan until they comply with the order of January 7, 1947.

Upon the technicality of substitution, petitioners' contention is without merit.

We are of opinion that the resolution holding petitioners guilty of contempt and ordering their
confinement in the provincial jail of Bulacan should be denied force and effect upon weightier
grounds than the ones alleged by petitioners.

The applicable provisions of law in this case is section 10 of Rule 39 which provides:

Judgment for specific acts; vesting title. If a judgment directs a party to execute a
conveyance of land, or to deliver deeds or other documents, or to perform any other specific
act, and the party fails to comply within the time specified, the court may direct the act to be
done at the cost of the disobedient party by some other person appointed by the court and
the act when so done shall have like effect as if done by the party. If real or personal property
 is within the Philippines, the court in lieu of directing a conveyance thereof may enter a
judgment divesting the title of any party and vesting it in others and such judgment shall
have the force and effect of a conveyance executed in due form of law.

Accordingly, instead of intimidating petitioners to be dealt with for contempt of court, as provided in
the last part of its order of January 7, 1947, and insisting in its order of March 3, 1947, that
petitioners should comply with said order of January 7, reiterating that, otherwise, "the court will be
constrained to hold said defendants in contempt of court" and, lastly, in issuing the resolution of April
1, 1947, finding petitioners guilty of contempt, ordering their confinement in the provincial jail of
Bulacan, until they have complied with the order of January 7, and, to said effect, ordering their
arrest, the lower court should have directed that the deed of sale provided in the judgment and in the
order of January 7, to be executed by petitioners, be done by some other person "appointed by the
court" and "at the cost of the disobedient party." The lower court's orders intimidating petitioners with
punishment for contempt, and ordering their arrest and confinement in the provincial jail of Bulacan
for an indeterminate period, until they have complied with the order of January 7, a course of action
that petitioners may not follow until their respective deaths, must be declared null and void.

There are members of this Court which hold the position that the lower court could have legally
followed two alternatives, either by applying the above-quoted section 10 of Rule 39 or by punishing
petitioners for contempt, by applying section 9 of the same Rule 39, but they are of opinion that the
lower court acted with grave abuse of discretion by resorting to the drastic measure of contempt
proceedings, when the proceeding outlined by section 10 of Rule 39 could be availed of easily and
without causing unnecessary suffering to any party. The rule is that when two or more means are
available to attain a legal end, harsher ones should only be adopted as a last resort.

There are other members of this Court, among them the writer of this opinion, that are convinced
that in the case at bar section 9 of Rule 39 is not applicable and the lower court could not have
followed other proceeding than the one outlined by section 10 of Rule 39. Furthermore, those of us
who maintain such position, are of opinion that, even in the hypothesis that the lower court could
have followed the contempt proceedings outlined by section 9 of Rule 39, the lower court could only
punish petitioners with fine or fixed term of imprisonment, or both, as provided by section 6 of Rule
64, but never to hold them in confinement, as provided in the resolution of April 1, 1947, for an
indefinite period, until petitioners should choose to execute the deed of sale in question. Although
that authority is granted in section 7 of Rule 64, we hold that said section cannot be given force nor
effect, because it is null and void as violative of the following constitutional mandate: "Excessive
fines shall not be imposed, nor cruel and unusual punishment inflicted." (Section 1 [19], Article III of
the Constitution.).

While petitioners could have avoided altogether any imprisonment or they could reduce its term to
any period of time they may choose, there is nothing to preclude them from undergoing forty or more
years imprisonment, if they decide to continue refusing that long, while the life imprisonment
provided by the Revised Penal Code for the most heinous crimes, murder, parricide, treason, and
others, is limited to a maximum of thirty years. Is it not shocking that a longer term should be
imposed for a simple refusal to sign a deed of sale, for which refusal the disobedient party may have
strong reasons, because he may deem it humiliating, than for the most hateful crimes known under
our laws? By the way, is it not absurd for the lower court to wait for petitioners to execute the deed of
sale until they choose to perform the action required of them, which may take years, instead of
appointing a third person to perform the act according to section 10 Rule 39, which will take just a
small fraction of a day?lawphil.net

For all the foregoing, the orders of the lower court of January 7, March 3, and April 1, 1947, are set
aside. To make effective the execution of the deed of sale as provided in the judgment in question,
upon the validity of which the members of this Court follow the same alignment as that in the case
of Co Kim Cham vs. Valdez, L-5, 1 the lower court is ordered to follow the procedure outlined by
section 10 of Rule 39. The petition is denied in all other respects.
 Ways of Disposing
Conflicts of Law Cases
 THIRD DIVISION

[G.R. No. 115849. January 24, 1996]

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank

of the Philippines) and MERCURIO RIVERA, petitioners, vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of
DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.

DECISION
PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank

officers in an exchange of letters and/or in a meeting with the buyers
constitute a perfected and enforceable contract of sale over 101 hectares of
land in Sta. Rosa, Laguna? Does the doctrine of apparent authority apply in
this case? If so, may the Central Bank-appointed conservator of Producers
Bank (now First Philippine International Bank) repudiate such apparent
authority after said contract has been deemed perfected? During the
pendency of a suit for specific performance, does the filing of a derivative suit
by the majority shareholders and directors of the distressed bank to prevent
the enforcement or implementation of the sale violate the ban against forum-
shopping?
Simply stated, these are the major questions brought before this Court in
the instant Petition for review on certiorari under Rule 45 of the Rules of
Court, to set aside the Decision promulgated January 14, 1994 of the
respondent Court of Appeals in CA-G.R. CV No. 35756 and the Resolution
[1]

promulgated June 14, 1994 denying the motion for reconsideration. The
dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of

the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the
reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against
defendant bank. In all other aspects, said decision is hereby AFFIRMED.

All references to the original plaintiffs in the decision and its dispositive portion are
deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C.
Ejercito.
Costs against appellant bank.

The dispositive portion of the trial courts decision dated July 10, 1991, on
[2]

the other hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the

plaintiffs and against the defendants as follows:

1. Declaring the existence of a perfected contract to buy and sell over the six (6)
parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares,
more or less, covered by and embraced in Transfer Certificates of Title Nos. T-106932
to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs as
buyers and the defendant Producers Bank for an agreed price of Five and One Half
Million (P5,500,000.00) Pesos;

2. Ordering defendant Producers Bank of the Philippines, upon finality of this

decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor
of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of
land, and to immediately deliver to the plaintiffs the owners copies of T.C.T. Nos. T-
106932 to T-106937, inclusive, for purposes of registration of the same deed and
transfer of the six (6) titles in the names of the plaintiffs;

3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P 200,000.00 each in moral damages;

4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P
100,000.00 as exemplary damages;

5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorneys fees;

6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and
moderate damages in the amount of P20,000.00;

With costs against the defendants.

After the parties filed their comment, reply, rejoinder, sur-rejoinder and
reply to sur-rejoinder, the petition was given due course in a Resolution
dated January 18, 1995. Thence, the parties filed their respective memoranda
and reply memoranda. The First Division transferred this case to the Third
Division per resolution dated October 23, 1995. After carefully deliberating on
the aforesaid submissions, the Court assigned the case to the undersigned
ponente for the writing of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of

the Philippines; petitioner Bank, for brevity) is a banking institution organized
and existing under the laws of the Republic of the Philippines. Petitioner
Mercurio Rivera (petitioner Rivera, for brevity) is of legal age and was, at all
times material to this case, Head Manager of the Property Management
Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal
age and is the assignee of original plaintiffs-appellees Demetrio Demetria and
Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and
Resolution sought to be set aside through this petition.

The Facts

The facts of this case are summarized in the respondent Courts Decision,
[3]
as follows:

(1) In the course of its banking operations, the defendant Producer Bank of the
Philippines acquired six parcels of land with a total area of 101 hectares located at
Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T-
106932 to T-106937. The property used to be owned by BYME Investment and
Development Corporation which had them mortgaged with the bank as collateral fora
loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose.

(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME
Investments legal counsel, Jose Fajardo, met with defendant Mercurio Rivera,
Manager of the Property Management Department of the defendant bank. The
meeting was held pursuant to plaintiffs plan to buy the property (TSN of Jan. 16,
1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant
Rivera, made a formal purchase offer to the bank through a letter dated August 30,
1987 (Exh. B), as follows:
 August 30, 1987

The Producers Bank of the Philippines

Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.

Gentlemen:

I have the honor to submit my formal offer to purchase your properties covered by
titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares,
more or less.

TCT NO. AREA

T-106932 113,580 sq.m.

T-106933 70,899 sq.m.
T-106934 52,246 sq.m.
T-106935 96,768 sq.m.
T-106936 187,114 sq.m.
T-106937 481,481 sq.m.

My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND

(P3,500,000.00) PESOS, in cash.

Kindly contact me at Telephone Number 921-1344.

(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal
reply by letter which is hereunder quoted (Exh. C):

September 1, 1987

J-P M-P GUTIERREZ ENTERPRISES

142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila

Attention: JOSE O. JANOLO Dear Sir:

Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa,
Laguna (formerly owned by Byme industrial Corp.). Please be informed however that
the banks counter-offer is at P5.5 million for more than 101 hectares on lot basis.

We shall be very glad to hear your position on the matter.

Best regards.

(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply,
wrote (Exh.

September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila

Attention: Mr. Mercurio Rivera

Gentlemen:

In reply to your letter regarding my proposal to purchase your 101-hectare lot located
at Sta. Rosa Laguna, I would like to amend my previous offer and I now propose to
buy the said lot at P4.250 million in CASH.

Hoping that this proposal meets your satisfaction.

(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took
place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the
Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME
lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff
Janolo sent to the bank, through Rivera, the following letter (Exh. E):

The Producers Bank of the Philippines

Paseo de Roxas, Makati
Metro Manila

Attention: Mr. Mercurio Rivera

Re: 101 Hectares of Land in Sta. Rosa, Laguna

Gentlemen:
Pursuant to our discussion last 28 September 1987, we are pleased to inform you that
we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna,
formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION
FIVE HUNDRED THOUSAND (P5,500,000.00).

Thank you.

(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting
Conservator in the person of defendant Leonida T. Encarnacion. On November 4,
1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. F):

Attention: Atty. Demetrio Demetria

Dear Sir:

Your proposal to buy the properties the bank foreclosed from Byme Investment Corp.
located at Sta. Rosa, Laguna is under study yet as of this time by the newly created
committee for submission to the newly designated Acting Conservator of the bank.

For your information.

(7) What thereafter transpired was a series of demands by the plaintiffs for compliance
by the bank with what plaintiff considered as a perfected contract of sale, which
demands were in one form or another refused by the bank. As detailed by the trial
court in its decision, on November 17, 1987, plaintiffs through a letter to defendant
Rivera (Exhibit G) tendered payment of the amount of P5.5 million pursuant to (our)
perfected sale agreement. Defendants refused to receive both the payment and the
letter. Instead, the parcels of land involved in the transaction were advertised by the
bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs demanded the
execution by the bank of the documents on what was considered as a perfected
agreement. Thus:

Mr. Mercurio Rivera

Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila

Dear Mr. Rivera:

This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your
101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T-
106932 to 106937.

From the documents at hand, it appears that your counter-offer dated September 1,
1987 of this same lot in the amount of P5.5 million was accepted by our client thru a
letter dated September 30, 1987 and was received by you on October 5, 1987.

In view of the above circumstances, we believe that an agreement has been perfected.
We were also informed that despite repeated follow-up to consummate the purchase,
you now refuse to honor your commitment. Instead, you have advertised for sale the
same lot to others.

In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days
from your receipt hereof We are ready to remit the agreed amount of P5.5 million at
your advice. Otherwise, we shall be constrained to file the necessary court action to
protect the interest of our client.

We trust that you will be guided accordingly.

(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing
letter and stated, in its communication of December 2, 1987 (Exh. I), that said letter
has been referred x x x to the office of our Conservator for proper disposition.
However, no response came from the Acting Conservator. On December 14, 1987, the
plaintiffs made a second tender of payment (Exhs. L and L-1), this time through the
Acting Conservator, defendant Encarnacion. Plaintiffs letter reads:

PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila

Attn.: Atty. NIDA ENCARNACION Central Bank Conservator

Gentlemen:

We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC
Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the
101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and
106937 and registered under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5
Million as the purchase price of the said lots. Please inform us of the date of
documentation of the sale immediately.

Kindly acknowledge receipt of our payment.

(9) The foregoing letter drew no response for more than four months. Then, on May 3,
1988, plaintiff, through counsel, made a final demand for compliance by the bank
with its obligations under the considered perfected contract of sale (Exhibit N). As
recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12,
1988 (Annex 4 of defendants answer to amended complaint), the defendants through
Acting Conservator Encarnacion repudiated the authority of defendant Rivera and
claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5
Million are unauthorized or illegal. On that basis, the defendants justified the refusal
of the tenders of payment and the non-compliance with the obligations under what the
plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages
against the bank, its Manager Rivera and Acting Conservator Encarnacion. The basis
of the suit was that the transaction had with the bank resulted in a perfected contract
of sale. The defendants took the position that there was no such perfected sale because
the defendant Rivera is not authorized to sell the property, and that there was no
meeting of the minds as to the price.

On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip
Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court,
alleging that as owner of 80% of the Banks outstanding shares of stock, he had a
substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an
order denying the motion to intervene on the ground that it was filed after trial had
already been concluded. It also denied a motion for reconsideration filed thereafter.
From the trial courts decision, the Bank, petitioner Rivera and conservator
Encarnacion appealed to the Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the denial of his motion for
intervention.

In the course of the proceedings in the respondent Court, Carlos

Ejercito was substituted in place of Demetria and Janolo, in view of the
assignment of the latters rights in the matter in litigation to said private
respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of
Appeals, Henry Co and several other stockholders of the Bank, through
counsel Angara Abello Concepcion Regala and Cruz, filed an action
(hereafter, the Second Case) -purportedly a derivative suit - with the Regional
Trial Court of Makati, Branch 134, docketed as Civil Case No. 92-1606,
against Encarnacion, Demetria and Janolo to declare any perfected sale of
the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale. In his answer, Janolo argued that the Second Case
[4]

was barred by litis pendentia by virtue of the case then pending in the Court of
Appeals. During the pre-trial conference in the Second Case, plaintiffs filed a
Motion for Leave of Court to Dismiss the Case Without Prejudice. Private
respondent opposed this motion on the ground, among others, that plaintiffs
act of forum shopping justifies the dismissal of both cases, with prejudice.
Private respondent, in his memorandum, averred that this motion is still
[5]

pending in the Makati RTC.

In their Petition and Memorandum, petitioners summarized their position
[6] [7]

as follows:
I.

The Court of Appeals erred in declaring that a contract of sale was perfected between
Ejercito (in substitution of Demetria and Janolo) and the bank.
II.

The Court of Appeals erred in declaring the existence of an enforceable contract of

sale between the parties.
III.

The Court of Appeals erred in declaring that the conservator does not have the power
to overrule or revoke acts of previous management.
IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence
on record.

On the other hand, private respondents prayed for dismissal of the instant
suit on the ground that:
[8]

I.

Petitioners have engaged in forum shopping.

II.
The factual findings and conclusions of the Court of Appeals are supported by the
evidence on record and may no longer be questioned in this case.
III.

The Court of Appeals correctly held that there was a perfected contract between
Demetria and Janolo (substituted by respondent Ejercito) and the bank.
IV.

The Court of Appeals has correctly held that the conservator, apart from being
estopped from repudiating the agency and the contract, has no authority to revoke the
contract of sale.

The Issues

From the foregoing positions of the parties, the issues in this case may be
summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable under the
statute of frauds?
4) Did the bank conservator have the unilateral power to repudiate the
authority of the bank officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of
facts?

The First Issue: Was There Forum-Shopping?

In order to prevent the vexations of multiple petitions and actions, the

Supreme Court promulgated Revised Circular No. 28-91 requiring that a party
must certify under oath x x x [that] (a) he has not (t)heretofore commenced
any other action or proceeding involving the same issues in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (b) to the best of
his knowledge, no such action or proceeding is pending in said courts or
agencies. A violation of the said circular entails sanctions that include the
summary dismissal of the multiple petitions or complaints. To be sure,
petitioners have included a VERIFICATION/CERTIFICATION in their Petition
stating for the record(,) the pendency of Civil Case No. 92-1606 before the
Regional Trial Court of Makati, Branch 134, involving a derivative suit filed by
stockholders of petitioner Bank against the conservator and other defendants
but which is the subject of a pending Motion to Dismiss Without Prejudice. [9]

Private respondent Ejercito vigorously argues that in spite of this

verification, petitioners are guilty of actual forum shopping because the instant
petition pending before this Court involves identical parties or interests
represented, rights asserted and reliefs sought (as that) currently pending
before the Regional Trial Court, Makati Branch 134 in the Second Case. In
fact, the issues in the two cases are so intertwined that a judgment or
resolution in either case will constitute res judicata in the other. [10]

On the other hand, petitioners explain that there is no forum-shopping

[11]

because:

1) In the earlier or First Case from which this proceeding arose, the Bank was
impleaded as a defendant, whereas in the Second Case (assuming the Bank is the real
party in interest in a derivative suit), it was the plaintiff;

2) The derivative suit is not properly a suit for and in behalf of the corporation under
the circumstances;

3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank

president and attached to the Petition identifies the action as a derivative suit, it does
not mean that it is one and (t)hat is a legal question for the courts to decide;

4) Petitioners did not hide the Second Case as they mentioned it in the said
VERIFICATION/CERTIFICATION.

We rule for private respondent.

To begin with, forum-shopping originated as a concept in private
international law, where non-resident litigants are given the option to choose
[12]

the forum or place wherein to bring their suit for various reasons or excuses,
including to secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more friendly venue.
To combat these less than honorable excuses, the principle of forum non
conveniens was developed whereby 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.
 In this light, Blacks Law Dictionary says that forum-shopping occurs
[13]

when a party attempts to have his action tried in a particular court or

jurisdiction where he feels he will receive the most favorable judgment or
verdict. Hence, according to Words and Phrases, a litigant is open to the
[14]

charge of forum shopping whenever he chooses a forum with slight

connection to factual circumstances surrounding his suit, and litigants should
be encouraged to attempt to settle their differences without imposing undue
expense and vexatious situations on the courts.
In the Philippines, forum-shopping has acquired a connotation
encompassing not only a choice of venues, as it was originally understood in
conflicts of laws, but also to a choice of remedies. As to the first (choice of
venues), the Rules of Court, for example, allow a plaintiff to commence
personal actions where the defendant or any of the defendants resides or may
be found, or where the plaintiff or any of the plaintiffs resides, at the election of
the plaintiff (Rule 4, Sec. 2 [b]). As to remedies, aggrieved parties, for
example, are given a choice of pursuing civil liabilities independently of the
criminal, arising from the same set of facts. A passenger of a public utility
vehicle involved in a vehicular accident may sue on culpa contractual, culpa
aquiliana or culpa criminal - each remedy being available independently of the
others - although he cannot recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually
shops for a forum of his action. This was the original concept of the term forum
shopping.

Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available
courts, or invoke all relevant remedies simultaneously. This practice had not only
resulted to (sic) conflicting adjudications among different courts and consequent
confusion enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.

Thus, forum-shopping had acquired a different concept - which is unethical

professional legal practice. And this necessitated or had given rise to the formulation
of rules and canons discouraging or altogether prohibiting the practice. [15]

What therefore originally started both in conflicts of laws and in our

domestic law as a legitimate device for solving problems has been abused
and misused to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the
Supreme Court, as already mentioned, promulgated Circular 28-91. And even
before that, the Court had proscribed it in the Interim Rules and Guidelines
issued on January 11, 1983 and had struck down in several cases the [16]

inveterate use of this insidious malpractice. Forum-shopping as the filing of

repetitious suits in different courts has been condemned by Justice Andres R.
Narvasa (now Chief Justice) in Minister of Natural Resources, et al. vs. Heirs
of Orval Hughes, et al., as a reprehensible manipulation of court processes
and proceedings x x x. When does forum-shopping take place?
[17]

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a

party seeks a favorable opinion (other than by appeal or certiorari) in another. The
principle applies not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an administrative
proceeding is pending, as in this case, in order to defeat administrative processes and
in anticipation of an unfavorable administrative ruling and a favorable court ruling.
This is specially so, as in this case, where the court in which the second suit was
brought, has no jurisdiction [18]

The test for determining whether a party violated the rule against forum-
shopping has been laid down in the 1986 case of Buan vs. Lopez, also by [19]

Chief Justice Narvasa, and that is, forum-shopping exists where the elements
of litis pendentia are present or where a final judgment in one case will
amount to res judicata in the other, as follows:

There thus exists between the action before this Court and RTC Case No. 86-36563
identity of parties, or at least such parties as represent the same interests in both
actions, as well as identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and the identity on the two preceding particulars is such
that any judgment rendered in the other action, will, regardless of which party is
successful, amount to res adjudicata in the action under consideration: all the
requisites, in fine, of auter action pendant.

xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563,
an identity as regards parties, or interests represented, rights asserted and relief
sought, as well as basis thereof, to a degree sufficient to give rise to the ground for
dismissal known as auter action pendant or lis pendens. That same identity puts into
operation the sanction of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the controversy which
might ensue from attempts to seek reconsideration of or to appeal from the Order of
the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986,
which dismissed the petition upon grounds which appear persuasive.
 Consequently, where a litigant (or one representing the same interest or
person) sues the same party against whom another action or actions for the
alleged violation of the same right and the enforcement of the same relief
is/are still pending, the defense of litis pendencia in one case is a bar to the
others; and, a final judgment in one would constitute res judicata and thus
would cause the dismissal of the rest. In either case, forum shopping could be
cited by the other party as a ground to ask for summary dismissal of the
two (or more) complaints or petitions, and for the imposition of the other
[20]

sanctions, which are direct contempt of court, criminal prosecution, and

disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it
with the Second Case, it is obvious that there exist identity of parties or
interests represented, identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave
rise to the instant petition was filed by the buyer (herein private respondent
and his predecessors-in-interest) against the seller (herein petitioners) to
enforce the alleged perfected sale of real estate. On the other hand, the
complaint in the Second Case seeks to declare such purported sale involving
[21]

the same real property as unenforceable as against the Bank, which is the
petitioner herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to accomplish what
the Bank itself failed to do in the original case in the trial court. In brief, the
objective or the relief being sought, though worded differently, is the same,
namely, to enable the petitioner Bank to escape from the obligation to sell the
property to respondent. In Danville Maritime, Inc. vs. Commission on Audit,
this Court ruled that the filing by a party of two apparently different actions,
[22]

but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded
different respondents therein - PNOC in the case before the lower court and the COA
in the case before this Court and sought what seems to be different reliefs. Petitioner
asks this Court to set aside the questioned letter-directive of the COA dated October
10, 1988 and to direct said body to approve the Memorandum of Agreement entered
into by and between the PNOC and petitioner, while in the complaint before the lower
court petitioner seeks to enjoin the PNOC from conducting a rebidding and from
selling to other parties the vessel T/T Andres Bonifacio, and for an extension of time
for it to comply with the paragraph 1 of the memorandum of agreement and
damages. One can see that although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the same, that is, the
approval of the sale of vessel in favor of petitioner, and to overturn the letter-directive
of the COA of October 10, 1988 disapproving the sale. (italics supplied)

In an earlier case, but with the same logic and vigor, we held:
[23]

In other words, the filing by the petitioners of the instant special civil action
for certiorari and prohibition in this Court despite the pendency of their action in the
Makati Regional Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same essential facts and
circumstances. The petitioners claim of absence of identity simply because the PCGG
had not been impleaded in the RTC suit, and the suit did not involve certain acts
which transpired after its commencement, is specious. In the RTC action, as in the
action before this Court, the validity of the contract to purchase and sell of September
1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of
implementing the same (by paying the pledgee banks the amount of their loans,
obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the
relief was the same: the prevention of such implementation and/or the restoration of
the status quo ante. When the acts sought to be restrained took place anyway despite
the issuance by the Trial Court of a temporary restraining order, the RTC suit did not
become functus oflcio. It remained an effective vehicle for obtention of relief; and
petitioners remedy in the premises was plain and patent: the filing of an amended and
supplemental pleading in the RTC suit, so as to include the PCGG as defendant and
seek nullification of the acts sought to be enjoined but nonetheless done. The remedy
was certainly not the institution of another action in another forum based on
essentially the same facts. The adoption of this latter recourse renders the petitioners
amenable to disciplinary action and both their actions, in this Court as well as in the
Court a quo, dismissible.

In the instant case before us, there is also identity of parties, or at least, of
interests represented. Although the plaintiffs in the Second Case (Henry L.
Co. et al.) are not name parties in the First Case, they represent the same
interest and entity, namely, petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal
interest in the matter in controversy. They are not principally or even subsidiarily
liable; much less are they direct parties in the assailed contract of sale; and

Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a derivative suit. In the caption itself, petitioners claim to
have brought suit for and in behalf of the Producers Bank of the Philippines. Indeed,
[24]

this is the very essence of a derivative suit:

An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or
hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; italics supplied).

In the face of the damaging admissions taken from the complaint in the
Second Case, petitioners, quite strangely, sought to deny that the Second
Case was a derivative suit, reasoning that it was brought, not by the minority
shareholders, but by Henry Co et al., who not only own, hold or control over
80% of the outstanding capital stock, but also constitute the majority in the
Board of Directors of petitioner Bank. That being so, then they really represent
the Bank. So, whether they sued derivatively or directly, there is undeniably an
identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the
personality of the Bank is separate and distinct from its shareholders. But the
rulings of this Court are consistent: When the fiction is urged as a means of
perpetrating a fraud or an illegal act or as a vehicle for the evasion of an
existing obligation, the circumvention of statutes, the achievement or
perfection of a monopoly or generally the perpetration of knavery or crime, the
veil with which the law covers and isolates the corporation from the members
or stockholders who compose it will be lifted to allow for its consideration
merely as an aggregation of individuals. [25]

In addition to the many cases where the corporate fiction has been
[26]

disregarded, we now add the instant case, and declare herewith that the
corporate veil cannot be used to shield an otherwise blatant violation of the
prohibition against forum-shopping. Shareholders, whether suing as the
majority in direct actions or as the minority in a derivative suit, cannot be
allowed to trifle with court processes, particularly where, as in this case, the
corporation itself has not been remiss in vigorously prosecuting or defending
corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their shareholders
as fronts to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping,
even assuming arguendo that there is identity of parties, causes of action and
reliefs sought, because it (the Bank) was the defendant in the (first) case while
it was the plaintiff in the other (Second Case), citing as authority Victronics
Computers, Inc. vs. Regional Trial Court, Branch 63, Makati, etc. et al.,
where the Court held:
[27]
The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff - instead of filing a responsive pleading
in the other case - setting forth therein, as causes of action, specific denials, special
and affirmative defenses or even counterclaims. Thus, Velhagens and Kings motion to
dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as
such did not exist in the first place. (italics supplied)

Petitioner pointed out that since it was merely the defendant in the original
case, it could not have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in factual
setting between Victronics and the present suit. In the former, as underscored
in the above-quoted Court ruling, the defendants did not file any responsive
pleading in the first case. In other words, they did not make any denial or raise
any defense or counter-claim therein. In the case before us however,
petitioners filed a responsive pleading to the complaint - as a result of which,
the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter-claims in
their responsive pleadings, the petitioners became plaintiffs themselves in the
original case, giving unto themselves the very remedies they repeated in the
Second Case.
Ultimately, what is truly important to consider in determining whether
forum-shopping exists or not is the vexation caused the courts and parties-
litigant by a party who asks different courts and/or administrative agencies to
rule on the same or related causes and/or to grant the same or substantially
the same reliefs, in the process creating the possibility of conflicting decisions
being rendered by the different fora upon the same issue. In this case, this is
exactly the problem: a decision recognizing the perfection and directing the
enforcement of the contract of sale will directly conflict with a possible
decision in the Second Case barring the parties from enforcing or
implementing the said sale. Indeed, a final decision in one would
constitute res judicata in the other. [28]

The foregoing conclusion finding the existence of forum-shopping

notwithstanding, the only sanction possible now is the dismissal of both cases
with prejudice, as the other sanctions cannot be imposed because petitioners
present counsel entered their appearance only during the proceedings in this
Court, and the Petitions VERIFICATION/CERTIFICATION contained sufficient
allegations as to the pendency of the Second Case to show good faith in
observing Circular 28-91. The lawyers who filed the Second Case are not
before us; thus the rudiments of due process prevent us from motu
propio imposing disciplinary measures against them in this Decision.
However, petitioners themselves (and particularly Henry Co, et al.) as litigants
are admonished to strictly follow the rules against forum-shopping and not to
trifle with court proceedings and processes. They are warned that a repetition
of the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be
dismissed not merely because of forum-shopping but also because of the
substantive issues raised, as will be discussed shortly.

The Second Issue: Was The Contract Perfected?

The respondent Court correctly treated the question of whether or not

there was, on the basis of the facts established, a perfected contract of sale
as the ultimate issue. Holding that a valid contract has been established,
respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the
defendant bank as acquired assets consisting of six (6) parcels of land specifically
identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is
likewise beyond cavil that the bank intended to sell the property. As testified to by the
Banks Deputy Conservator, Jose Entereso, the bank was looking for buyers of the
property. It is definite that the plaintiffs wanted to purchase the property and it was
precisely for this purpose that they met with defendant Rivera, Manager of the
Property Management Department of the defendant bank, in early August 1987. The
procedure in the sale of acquired assets as well as the nature and scope of the authority
of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which
testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus
(TSN of July 30, 1990. pp. 19-20):

A: The procedure runs this way: Acquired assets was turned over to me and then I
published it in the form of an inter-office memorandum distributed to all branches that
these are acquired assets for sale. I was instructed to advertise acquired assets for sale
so on that basis, I have to entertain offer; to accept offer, formal offer and upon having
been offered, I present it to the Committee. I provide the Committee with necessary
information about the property such as original loan of the borrower, bid price during
the foreclosure, total claim of the bank, the appraised value at the time the property is
being offered for sale and then the information which are relative to the evaluation of
the bank to buy which the Committee considers and it is the Committee that evaluate
as against the exposure of the bank and it is also the Committee that submit to the
Conservator for final approval and once approved, we have to execute the deed of sale
and it is the Conservator that sign the deed of sale, sir.

The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of
buying the property, dealt with and talked to the right person. Necessarily, the agenda
was the price of the property, and plaintiffs were dealing with the bank official
authorized to entertain offers, to accept offers and to present the offer to the
Committee before which the said official is authorized to discuss information relative
to price determination. Necessarily, too, it being inherent in his authority, Rivera is the
officer from whom official information regarding the price, as determined by the
Committee and approved by the Conservator, can be had. And Rivera confirmed his
authority when he talked with the plaintiff in August 1987. The testimony of plaintiff
Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):

Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you
ask him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it
would take because he was saying that the matter of pricing will be passed upon
by the committee. And when I asked him how long it will take for the committee to
decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two weeks (sic) time, in effect what he was saying he
was not the one who was to decide. But he would refer it to the committee and he
would relay the decision of the committee to me.
Q: Please answer the question.
A: He did not say that he had the authority(.) But he said he would refer the matter to
the committee and he would relay the decision to me and he did just like that.

Parenthetically, the Committee referred to was the Past Due Committee of which Luis
Co was the Head, with Jose Entereso as one of the members.

What transpired after the meeting of early August 1987 are consistent with the
authority and the duties of Rivera and the banks internal procedure in the matter of the
sale of banks assets. As advised by Rivera, the plaintiffs made a formal offer by a
letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in
cash. The letter was for the attention of Mercurio Rivera who was tasked to convey
and accept such offers. Considering an aspect of the official duty of Rivera as some
sort of intermediary between the plaintiffs-buyers with their proposed buying price on
one hand, and the bank Committee, the Conservator and ultimately the bank itself
with the set price on the other, and considering further the discussion of price at the
meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no
other logical conclusion than that when, on September 1, 1987, Rivera informed
plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101
hectares on lot basis, such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs
offer for discussion by the Committee of such matters as original loan of borrower,
bid price during foreclosure, total claim of the bank, and market value. Tersely put,
under the established facts, the price of P5.5 Million was, as clearly worded in Riveras
letter (Exh. E), the official and definitive price at which the bank was selling the
property.

There were averments by defendants below, as well as before this Court, that the P5.5
Million price was not discussed by the Committee and that it was merely quoted to
start negotiations regarding the price. As correctly characterized by the trial court, this
is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best
equivocal and considering the gratuitous and self-serving character of these
declarations, the banks submission on this point does not inspire belief. Both Co and
Entereso, as members of the Past Due Committee of the bank, claim that the offer of
the plaintiff was never discussed by the Committee. In the same vein, both Co and
Entereso openly admit that they seldom attend the meetings of the Committee. It is
important to note that negotiations on the price had started in early August and the
plaintiffs had already offered an amount as purchase price, having been made to
understand by Rivera, the official in charge of the negotiation, that the price will be
submitted for approval by the bank and that the banks decision will be relayed to
plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is
the official bank price. At any rate, the bank placed its official, Rivera, in a position of
authority to accept offers to buy and negotiate the sale by having the offer officially
acted upon by the bank. The bank cannot turn around and later say, as it now does,
that what Rivera states as the banks action on the matter is not in fact so. It is a
familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith dealt with
the corporation through such agent, he estopped from denying his authority (Francisco
v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370;
Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993). [29]

Article 1318 of the Civil Code enumerates the requisites of a valid and
perfected contract as follows: (1) Consent of the contracting parties; (2) Object
certain which is the subject matterof the contract; (3) Cause of the obligation
which is established.
There is no dispute on requisite no. 2. The object of the questioned
contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with an
aggregate area of about 101 hectares, more or less, and covered by Transfer
Certificates of Title Nos. T-106932 to T-106937. There is, however, a dispute
on the first and third requisites.
Petitioners allege that there is no counter-offer made by the Bank, and any
supposed counter-offer which Rivera (or Co) may have made is unauthorized.
Since there was no counter-offer by the Bank, there was nothing for Ejercito
(in substitution of Demetria and Janolo) to accept. They disputed the factual
[30]

basis of the respondent Courts findings that there was an offer made by
Janolo for P3.5 million, to which the Bank counter-offered P5.5 million. We
have perused the evidence but cannot find fault with the said Courts findings
of fact. Verily, in a petition under Rule 45 such as this, errors of fact -if there be
any - are, as a rule, not reviewable. The mere fact that respondent Court (and
the trial court as well) chose to believe the evidence presented by respondent
more than that presented by petitioners is not by itself a reversible error. in
fact, such findings merit serious consideration by this Court, particularly
where, as in this case, said courts carefully and meticulously discussed their
findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the
Court of Appeals, let us review the question of Riveras authority to act and
petitioners allegations that the P5.5 million counter-offer was extinguished by
the P4.25 million revised offer of Janolo. Here, there are questions of law
which could be drawn from the factual findings of the respondent Court. They
also delve into the contractual elements of consent and cause.
The authority of a corporate officer in dealing with third persons may be
actual or apparent. The doctrine of apparent authority, with special reference
to banks, was laid out in Prudential Bank vs. Court of Appeals, where it was
[31]

held that:

Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agents apparent representation yields to the
principals true representation and the contract is considered as entered into between
the principal and the third person (citing National Food Authority vs. Intermediate
Appellate Court, 184 SCRA 166).

A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its officers
and agents as worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their employment; nor will
it be permitted to shirk its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his authority even
though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).

Application of these principles is especially necessary because banks have a fiduciary

relationship with the public and their stability depends on the confidence of the people
in their honesty and efficiency. Such faith will be eroded where banks do not exercise
strict care in the selection and supervision of its employees, resulting in prejudice to
their depositors.

From the evidence found by respondent Court, it is obvious that petitioner

Rivera has apparent or implied authority to act for the Bank in the matter of
selling its acquired assets. This evidence includes the following:

(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to
this case, Manager of the Property Management Department of the Bank. By his own
admission, Rivera was already the person in charge of the Banks acquired assets
(TSN, August 6, 1990, pp. 8-9);

(b) As observed by respondent Court, the land was definitely being sold by the Bank.
And during the initial meeting between the buyers and Rivera, the latter suggested that
the buyers offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);

(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million
(TSN, 30 July 1990, p. 11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for
P5.5 million (TSN, July 30, p. 11);

(e) Rivera received the letter dated September 17, 1987 containing the buyers
proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);

(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final
price of the Bank (TSN, January 16, 1990, p. 18);

(g) Rivera arranged the meeting between the buyers and Luis Co on September 28,
1987, during which the Banks offer of P5.5 million was confirmed by Rivera (TSN,
April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the
Bank, confirmed Riveras statement as to the finality of the Banks counter-offer of
P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);

(h) In its newspaper advertisements and announcements, the Bank referred to Rivera
as the officer acting for the Bank in relation to parties interested in buying assets
owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Banks
advertisements offering for sale the property in question (cf. Exhs. S and S-I).

In the very recent case of Limketkai Sons Milling, Inc. vs. Court of
Appeals, et al., the Court, through Justice Jose A. R. Melo, affirmed the
[32]

doctrine of apparent authority as it held that the apparent authority of the

officer of the Bank of P.I. in charge of acquired assets is borne out by similar
circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority
through documents and testimony which seek to establish
Riveras actual authority. These pieces of evidence, however, are inherently
weak as they consist of Riveras self-serving testimony and various inter-office
memoranda that purport to show his limited actual authority, of which private
respondent cannot be charged with knowledge. In any event, since the issue
is apparent authority, the existence of which is borne out by the respondent
Courts findings, the evidence of actual authority is immaterial insofar as the
liability of a corporation is concerned. [33]

Petitioners also argued that since Demetria and Janolo were experienced
lawyers and their law firm had once acted for the Bank in three criminal cases,
they should be charged with actual knowledge of Riveras limited authority. But
the Court of Appeals in its Decision (p. 12) had already made a factual finding
that the buyers had no notice of Riveras actual authority prior to the sale. In
fact, the Bank has not shown that they acted as its counsel in respect to any
acquired assets; on the other hand, respondent has proven that Demetria and
Janolo merely associated with a loose aggrupation of lawyers (not a
professional partnership), one of whose members (Atty. Susana Parker) acted
in said criminal cases.
Petitioners also alleged that Demetrias and Janolos P4.25 million counter-
offer in the letter dated September 17, 1987 extinguished the Banks offer of
P5.5 million. They disputed the respondent Courts finding that there was a
[34]

meeting of minds when on 30 September 1987 Demetria and Janolo through

Annex L (letter dated September 30, 1987) accepted Riveras counter offer of
P5.5 million under Annex J (letter dated September 17, 1987), citing the late
Justice Paras, Art. 1319 of the Civil Code and related Supreme Court
[35] [36]

rulings starting with Beaumont vs. Prieto. [37]

 However, the above-cited authorities and precedents cannot apply in the
instant case because, as found by the respondent Court which reviewed the
testimonies on this point, what was accepted by Janolo in his letter dated
September 30, 1987 was the Banks offer of P5.5 million as confirmed and
reiterated to Demetria and Atty. Jose Fajardo by Rivera and Co during their
meeting on September 28, 1987. Note that the said letter of September 30,
1987 begins with (p)ursuant to our discussion last 28 September 1987 x x x.
Petitioners insist that the respondent Court should have believed the
testimonies of Rivera and Co that the September 28, 1987 meeting was
meant to have the offerors improve on their position of P5.5 million.
However, both the trial court and the Court of Appeals found petitioners
[38]

testimonial evidence not credible, and we find no basis for changing this
finding of fact.
Indeed, we see no reason to disturb the lower courts (both the RTC and
the CA) common finding that private respondents evidence is more in keeping
with truth and logic - that during the meeting on September 28, 1987, Luis Co
and Rivera confirmed that the P5.5 million price has been passed upon by the
Committee and could no longer be lowered (TSN of April 27, 1990, pp. 34-35).
Hence, assuming arguendo that the counter-offer of P4.25 million
[39]

extinguished the offer of P5.5 million, Luis Cos reiteration of the said P5.5
million price during the September 28, 1987 meeting revived the said offer.
And by virtue of the September 30, 1987 letter accepting this revived offer,
there was a meeting of the minds, as the acceptance in said letter was
absolute and unqualified.
We note that the Banks repudiation, through Conservator Encarnacion, of
Riveras authority and action, particularly the latters counter-offer of P5.5
million, as being unauthorized and illegal came only on May 12, 1988 or more
than seven (7) months after Janolos acceptance. Such delay, and the
absence of any circumstance which might have justifiably prevented the Bank
from acting earlier, clearly characterizes the repudiation as nothing more than
a last-minute attempt on the Banks part to get out of a binding contractual
obligation.
Taken together, the factual findings of the respondent Court point to an
implied admission on the part of the petitioners that the written offer made
on September 1, 1987 was carried through during the meeting of September
28, 1987. This is the conclusion consistent with human experience, truth and
good faith.
 It also bears noting that this issue of extinguishment of the Banks offer of
P5.5 million was raised for the first time on appeal and should thus be
disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of
law, theories, issues of fact and arguments not adequately brought to the attention of
the trial court need not be, and ordinarily will not be, considered by a reviewing court,
as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243,
November 14, 1986, 145 SCRA 592). [40]

xxx It is settled jurisprudence that an issue which was neither averred in the complaint
nor raised during the trial in the court below cannot be raised for the first time on
appeal as it would be offensive to the basic rules of fair play, justice and due process
(Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434
[1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs.
IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990). [41]

Since the issue was not raised in the pleadings as an affirmative defense,
private respondent was not given an opportunity in the trial court to controvert
the same through opposing evidence. Indeed, this is a matter of due process.
But we passed upon the issue anyway, if only to avoid deciding the case on
purely procedural grounds, and we repeat that, on the basis of the evidence
already in the record and as appreciated by the lower courts, the inevitable
conclusion is simply that there was a perfected contract of sale.

The Third Issue: Is the Contract Enforceable?

The petition alleged: [42]

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million
during the meeting of 28 September 1987, and it was this verbal offer that Demetria
and Janolo accepted with their letter of 30 September 1987, the contract produced
thereby would be unenforceable by action - there being no note, memorandum or
writing subscribed by the Bank to evidence such contract. (Please see Article 1403[2],
Civil Code.)

Upon the other hand, the respondent Court in its Decision (p. 14) stated:

x x x Of course, the banks letter of September 1, 1987 on the official price and the
plaintiffs acceptance of the price on September 30, 1987, are not, in themselves,
formal contracts of sale. They are however clear embodiments of the fact that a
contract of sale was perfected between the parties, such contract being binding in
whatever form it may have been entered into (case citations omitted). Stated simply,
the banks letter of September 1, 1987, taken together with plaintiffs letter
dated September 30, 1987, constitute in law a sufficient memorandum of a perfected
contract of sale.

The respondent Court could have added that the written communications
commenced not only from September 1, 1987 but from Janolos August 20,
1987 letter. We agree that, taken together, these letters constitute sufficient
memoranda - since they include the names of the parties, the terms and
conditions of the contract, the price and a description of the property as the
object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting
on September 28, 1987 did constitute a new offer which was accepted by
Janolo on September 30, 1987. Still, the statute of frauds will not apply by
reason of the failure of petitioners to object to oral testimony proving petitioner
Banks counter-offer of P5.5 million. Hence, petitioners - by such utter failure to
object - are deemed to have waived any defects of the contract under the
statute of frauds, pursuant to Article 1405 of the Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article
1403, are ratified by the failure to object to the presentation of oral evidence to prove
the same, or by the acceptance of benefits under them.

As private respondent pointed out in his Memorandum, oral testimony on

the reaffirmation of the counter-offer of P5.5 million is aplenty -and the silence
of petitioners all throughout the presentation makes the evidence binding on
them thus:
A - Yes, sir. I think it was September 28, 1987 and I was again present because Atty.
Demetria told me to accompany him and we were able to meet Luis Co at the
Bank.

xxx xxx xxx

Q - Now, what transpired during this meeting with Luis Co of the Producers Bank?
A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q - What price?
A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio
Rivera is the final price and that is the price they intends (sic) to have, sir.
Q - What do you mean?
A - That is the amount they want, sir.
 Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic) that the
defendant Riveras counter-offer of 5.5 million was the defendants bank (sic) final
offer?
A - He said in a day or two, he will make final acceptance, sir.
Q - What is the response of Mr. Luis Co?
A - He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

----0----
Q - What transpired during that meeting between you and Mr. Luis Co of the defendant
Bank?
A - We went straight to the point because he being a busy person, I told him if the
amount of P5.5 million could still be reduced and he said that was already passed
upon by the committee. What the bank expects which was contrary to what Mr.
Rivera stated. And he told me that is the final offer of the bank P5.5 million and we
should indicate our position as soon as possible.
Q - What was your response to the answer of Mr. Luis Co?
A - I said that we are going to give him our answer in a few days and he said that was
it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his office.
Q - For the record, your Honor please, will you tell this Court who was with Mr. Co in
his Office in Producers Bank Building during this meeting?
A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q - By Mr. Co you are referring to?
A - Mr. Luis Co.
Q - After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the
counter offer by the bank?
A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which offer
we accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]

---- 0 ----
Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by
the Committee and it is not within his power to reduce this amount. What can you
say to that statement that the amount of P5.5 million was reached by the
Committee?
A - It was not discussed by the Committee but it was discussed initially by Luis Co and
the group of Atty. Demetrio Demetria and Atty. Pajardo (sic), in that September 28,
1987 meeting, sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]

The Fourth Issue: May the Conservator Revoke

the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed
by the Central Bank of the Philippines during the time that the negotiation and
perfection of the contract of sale took place. Petitioners energetically
contended that the conservator has the power to revoke or overrule actions of
the management or the board of directors of a bank, under Section 28-A of
Republic Act No. 265 (otherwise known as the Central Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or

examining department, the Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi - banking functions is in a state of continuing inability
or unwillingness to maintain a state of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator to
take charge of the assets, liabilities, and the management of that institution, collect all
monies and debts due said institution and exercise all powers necessary to preserve
the assets of the institution, reorganize the management thereof, and restore its
viability. He shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the contrary
notwithstanding, and such other powers as the Monetary Board shall deem necessary.

In the first place, this issue of the Conservators alleged authority to revoke
or repudiate the perfected contract of sale was raised for the first time in this
Petition - as this was not litigated in the trial court or Court of Appeals. As
already stated earlier, issues not raised and/or ventilated in the trial court, let
alone in the Court of Appeals, cannot be raised for the first time on appeal as
it would be offensive to the basic rules of fair play, justice and due process. [43]

In the second place, there is absolutely no evidence that the Conservator,

at the time the contract was perfected, actually repudiated or overruled said
contract of sale. The Banks acting conservator at the time, Rodolfo Romey,
never objected to the sale of the property to Demetria and Janolo. What
petitioners are really referring to is the letter of Conservator Encarnacion, who
took over from Romey after the sale was perfected on September 30,
1987 (Annex V, petition) which unilaterally repudiated - not the contract - but
the authority of Rivera to make a binding offer - and which unarguably came
months after the perfection of the contract. Said letter dated May 12, 1988 is
reproduced hereunder:
 May 12, 1988

Atty. Noe C. Zarate

Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro Manila

Dear Atty. Zarate:

This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and
Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your
clients nor perfected a contract to sell and buy with any of them for the following
reasons.

In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by
former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager
Perfecto M. Pascua detailed the functions of Property Management Department
(PMD) staff and officers (Annex A), you will immediately read that Manager Mr.
Mercurio Rivera or any of his subordinates has no authority, power or right to make
any alleged counter-offer. In short, your lawyer-clients did not deal with the
authorized officers of the bank.

Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas
Pambansa Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as
amended), only the Board of Directors/Conservator may authorize the sale of any
property of the corporation/bank.

Our records do not show that Mr. Rivera was authorized by the old board or by any of
the bank conservators (starting January, 1984) to sell the aforesaid property to any of
your clients. Apparently, what took place were just preliminary discussions/
consultations between him and your clients, which everyone knows cannot bind the
Banks Board or Conservator.

We are, therefore, constrained to refuse any tender of payment by your clients, as the
same is patently violative of corporate and banking laws. We believe that this is more
than sufficient legal justification for refusing said alleged tender.

Rest assured that we have nothing personal against your clients. All our acts are
official, legal and in accordance with law. We also have no personal interest in any of
the properties of the Bank.
Please be advised accordingly.

Very truly yours,

(Sgd.) Leonida T. Encarnacion

LEONIDA T. ENCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and
far-reaching powers to the conservator of a bank, it must be pointed out that
such powers must be related to the (preservation of) the assets of the bank,
(the reorganization of) the management thereof and (the restoration of) its
viability. Such powers, enormous and extensive as they are, cannot extend to
the post-facto repudiation of perfected transactions, otherwise they would
infringe against the non-impairment clause of the Constitution. If the [44]

legislature itself cannot revoke an existing valid contract, how can it delegate
such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to
revoke contracts that are, under existing law, deemed to be defective - i.e.,
void, voidable, unenforceable or rescissible. Hence, the conservator merely
takes the place of a banks board of directors. What the said board cannot do -
such as repudiating a contract validly entered into under the doctrine of
implied authority - the conservator cannot do either. Ineluctably, his power is
not unilateral and he cannot simply repudiate valid obligations of the Bank. His
authority would be only to bring court actions to assail such contracts - as he
has already done so in the instant case. A contrary understanding of the law
would simply not be permitted by the Constitution. Neither by common sense.
To rule otherwise would be to enable a failing bank to become solvent, at the
expense of third parties, by simply getting the conservator to unilaterally
revoke all previous dealings which had one way or another come to be
considered unfavorable to the Bank, yielding nothing to perfected contractual
rights nor vested interests of the third parties who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Fact?

Basic is the doctrine that in petitions for review under Rule 45 of the Rules
of Court, findings of fact by the Court of Appeals are not reviewable by the
Supreme Court. In Andres vs. Manufacturers Hanover & Trust Corporation,
we held:
[45]
x x x. The rule regarding questions of fact being raised with this Court in a petition for
certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante
vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:

The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. The jurisdiction of the
Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing
and revising the errors of law imputed to it, its findings of the fact being conclusive
[Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737,
reiterating a long line of decisions]. This Court has emphatically declared that it is
not the function of the Supreme Court to analyze or weigh such evidence all
over again, its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court (Tiongco v. De la Merced, G.R. No. L-24426, July
25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28,
1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G.R. No. L-47531, February
20, 1984, 127 SCRA 596). Barring, therefore, a showing that the findings complained
of are totally devoid of support in the record, or that they are so glaringly erroneous
as to constitute serious abuse of discretion, such findings must stand, for this Court is
not expected or required to examine or contrast the oral and documentary evidence
submitted by the parties [Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December
17, 1966, 18 SCRA 973] [at pp. 144-145.]

Likewise, in Bernardo vs. Court of Appeals, we held:

[46]

The resolution of this petition invites us to closely scrutinize the facts of the case,
relating to the sufficiency of evidence and the credibility of witnesses presented. This
Court so held that it is not the function of the Supreme Court to analyze or weigh such
evidence all over again. The Supreme Courts jurisdiction is limited to reviewing errors
of law that may have been committed by the lower court. The Supreme Court is not a
trier of facts. x x x

As held in the recent case of Chua Tiong Tay vs. Court of Appeals and
Goldrock Construction and Development Corp.: [47]

The Court has consistently held that the factual findings of the trial court, as well as
the Court of Appeals, are final and conclusive and may not be reviewed on appeal.
Among the exceptional circumstances where a reassessment of facts found by the
lower courts is allowed are when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts; when the
findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench,
we find none of the above grounds present to justify the re-evaluation of the findings
of fact made by the courts below.

In the same vein, the ruling of this Court in the recent case of South Sea
Surety and Insurance Company, Inc. vs. Hon. Court of Appeals, et al. is [48]

equally applicable to the present case:

We see no valid reason to discard the factual conclusions of the appellate court. x x x
(I)t is not the function of this Court to assess and evaluate all over again the evidence,
testimonial and documentary, adduced by the parties, particularly where, such as here,
the findings of both the trial court and the appellate court on the matter coincide.
(italics supplied)

Petitioners, however, assailed the respondent Courts Decision as fraught

with findings and conclusions which were not only contrary to the evidence on
record but have no bases at all, specifically the findings that (1) the Banks
counter-offer price of P5.5 million had been determined by the past due
committee and approved by conservator Romey, after Rivera presented the
same for discussion and (2) the meeting with Co was not to scale down the
price and start negotiations anew, but a meeting on the already determined
price of P5.5 million. Hence, citing Philippine National Bank vs. Court of
Appeals, petitioners are asking us to review and reverse such factual
[49]

findings.
The first point was clearly passed upon by the Court of Appeals, thus: [50]

There can be no other logical conclusion than that when, on September 1, 1987,
Rivera informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for
more than 101 hectares on lot basis, such counter-offer price had been determined by
the Past Due Committee and approved by the Conservator after Rivera had duly
presented plaintiffs offer for discussion by the Committee x x x. Tersely put, under the
established fact, the price of P5.5 Million was, as clearly worded in Riveras letter
(Exh. E), the official and definitive price at which the bank was selling the property.
(p. 11, CA Decision)

xxx xxx xxx

xxx. The argument deserves scant consideration. As pointed out by plaintiff, during
the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the
senior vice-president of the bank, where the topic was the possible lowering of the
price, the bank official refused it and confirmed that the P5.5 Million price had been
passed upon by the Committee and could no longer be lowered (TSN of April 27,
1990, pp. 34-35) (p. 15, CA Decision).

The respondent Court did not believe the evidence of the petitioners on
this point, characterizing it as not credible and at best equivocal,
and considering the gratuitous and self-serving character of these
declarations, the banks submissions on this point do not inspire belief.
To become credible and unequivocal, petitioners should have presented
then Conservator Rodolfo Romey to testify on their behalf, as he would have
been in the best position to establish their thesis. Under the rules on evidence,
such suppression gives rise to the presumption that his testimony would
[51]

have been adverse, if produced.

The second point was squarely raised in the Court of Appeals, but
petitioners evidence was deemed insufficient by both the trial court and the
respondent Court, and instead, it was respondents submissions that were
believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the
findings of fact by the lower courts are valid and correct. But the petitioners
are now asking this Court to disturb these findings to fit the conclusion they
are espousing. This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may
disregard findings of fact by the Court of Appeals. We have studied both the
[52]

records and the CA Decision and we find no such exceptions in this case. On
the contrary, the findings of the said Court are supported by a preponderance
of competent and credible evidence. The inferences and conclusions are
reasonably based on evidence duly identified in the Decision. Indeed, the
appellate court patiently traversed and dissected the issues presented before
it, lending credibility and dependability to its findings. The best that can be
said in favor of petitioners on this point is that the factual findings of
respondent Court did not correspond to petitioners claims, but were closer to
the evidence as presented in the trial court by private respondent. But this
alone is no reason to reverse or ignore such factual findings, particularly
where, as in this case, the trial court and the appellate court were in common
agreement thereon. Indeed, conclusions of fact of a trial judge - as affirmed by
the Court of Appeals - are conclusive upon this Court, absent any serious
abuse or evident lack of basis or capriciousness of any kind, because the trial
court is in a better position to observe the demeanor of the witnesses and
their courtroom manner as well as to examine the real evidence presented.
 Epilogue

In summary, there are two procedural issues involved - forum-shopping

and the raising of issues for the first time on appeal [viz., the extinguishment
of the Banks offer of P5.5 million and the conservators powers to repudiate
contracts entered into by the Banks officers] - which per se could justify the
dismissal of the present case. We did not limit ourselves thereto, but delved
as well into the substantive issues - the perfection of the contract of sale and
its enforceability, which required the determination of questions of fact. While
the Supreme Court is not a trier of facts and as a rule we are not required to
look into the factual bases of respondent Courts decisions and resolutions, we
did so just the same, if only to find out whether there is reason to disturb any
of its factual findings, for we are only too aware of the depth, magnitude and
vigor by which the parties, through their respective eloquent counsel, argued
their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is
operating abnormally under a government-appointed conservator and there is
need to rehabilitate the Bank in order to get it back on its feet x x x as many
people depend on (it) for investments, deposits and well as employment. As of
June 1987, the Banks overdraft with the Central Bank had already reached
P1.023 billion x x x and there were (other) offers to buy the subject properties
for a substantial amount of money. [53]

While we do not deny our sympathy for this distressed bank, at the same
time, the Court cannot emotionally close its eyes to overriding considerations
of substantive and procedural law, like respect for perfected contracts, non-
impairment of obligations and sanctions against forum-shopping, which must
be upheld under the rule of law and blind justice.
This Court cannot just gloss over private respondents submission that,
while the subject properties may currently command a much higher price, it is
equally true that at the time of the transaction in 1987, the price agreed upon
of P5.5 million was reasonable, considering that the Bank acquired these
properties at a foreclosure sale for no more than P 3.5 million. That the
[54]

Bank procrastinated and refused to honor its commitment to sell cannot now
be used by it to promote its own advantage, to enable it to escape its binding
obligation and to reap the benefits of the increase in land values. To rule in
favor of the Bank simply because the property in question has algebraically
accelerated in price during the long period of litigation is to reward
lawlessness and delays in the fulfillment of binding contracts. Certainly, the
Court cannot stamp its imprimatur on such outrageous proposition.
 WHEREFORE, finding no reversible error in the questioned Decision and
Resolution, the Court hereby DENIES the petition. The assailed Decision is
AFFIRMED. Moreover, petitioner Bank is REPRIMANDED for engaging in
forum-shopping and WARNED that a repetition of the same or similar acts will
be dealt with more severely. Costs against petitioners.
SO ORDERED.

SYLLABUS

1. CIVIL LAW; PRIVATE INTERNATIONAL LAW; ORIGIN OF FORUM-

SHOPPING. - Forum-Shopping originated as a concept in private
international law, where non-resident litigants are given the option to
choose the forum or place wherein to bring their suit for various reasons or
excuses, including to secure procedural advantages, to annoy and harass
the defendant, to avoid overcrowded dockets, or to select a more friendly
venue. To combat these less than honorable excuses, the principle of
forum non conveniens was developed whereby a court, in conflict 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. Hence, according to Words and Phrases, a
litigant is open to the charge of forum shopping whenever he chooses a
forum with the slight connection to factual circumstances surrounding his
suit, and litigants should be encouraged to attempt to settle their
differences without imposing undue expense and vexatious situations on
the courts.

2. REMEDIAL LAW; CIVIL PROCEDURE; FORUM-SHOPPING; AS A

CHOICE OF VENUE AND AS A CHOICE OF REMEDY; CONSTRUED.
- In the Philippines, forum shopping has acquired a connotation
encompassing not only a choice of venues, as it was originally understood
in conflicts of law, but also to a choice of remedies. As to the first (choice
of venues), the Rules of Court, for example, allow a plaintiff to commence
personal actions where the defendant or any of the defendants resides or
may be found, or where the plaintiff or any of the plaintiffs resides, at the
election of the plaintiff (Rule 4, Sec. 2 [b]). As to remedies, aggrieved
parties, for example, are given a choice of pursuing civil liabilities
independently of the criminal, arising from the same set of facts. A
passenger of a public utility vehicle involved in a vehicular accident may
sue on culpa contractual, culpa aquiliana or culpa criminal - each remedy
 being available independently of the others - although he cannot recover
more than once. In either of these situations (choice of venue or choice of
remedy), the litigant actually shops for a forum of his action. This was the
original concept of the term forum-shopping.

3. ID.; ID.; ID.; AS AN UNETHICAL PRACTICE; WHEN PRESENT. - What

originally started both in conflicts of laws and in our domestic law as a
legitimate device for solving problems has been abused and mis-used to
assure scheming litigants of dubious reliefs. To avoid or minimize this
unethical practice of subverting justice, the Supreme Court, as already
mentioned, promulgated Circular 28-91. And even before that, the Court
had proscribed it in the Interim Rules and Guidelines issued on January
11, 1983 and had struck down in several cases the inveterate use of this
insidious malpractice. Forum-shopping as the filing of repetitious suits in
different courts has been condemned by Justice Andres R. Narvasa (now
Chief Justice) in Minister of Natural Resources, et al., vs. Heirs
of Orval Hughes, et al., as a reprehensible manipulation of court
processes and proceedings x x x. When does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse opinion in
one forum, a party seeks a favorable opinion (other than by appeal or
certiorari) in another. The principle applies not only with respect to suits
filed in the courts but also in connection with litigations commenced in the
courts while an administrative proceeding is pending, as in this case, in
order to defeat administrative processes and in anticipation of an
unfavorable administrative ruling and a favorable court ruling. This is
specially so, as in this case, where the court in which the second suit was
brought, has no jurisdiction.

4. ID; ID.; ID.; AS A GROUND FOR SUMMARY DISMISSAL. - The test for
determining whether a party violated the rule against forum shopping has
been laid down in the 1986 case of Buan vs. Lopez, 145 SCRA 34
(October 13, 1986), also by Chief Justice Narvasa, and that is, forum
shopping exists where the elements of litis pendentia are present or where
a final judgment in one case will amount to res judicata in the other.
Consequently, where a litigant (or one representing the same interest or
person) sues the same party against whom another action or actions for
the alleged violation of the same right and the enforcement of the same
relief is/are still pending, the defense of litis pendencia in one case is a bar
to the others; and, a final judgment in one would
 constitute res judicata and this would cause the dismissal of the rest. In
either case, forum-shopping could be cited by the other party as a ground
to ask for summary dismissal of the two (or more) complaints or petitions,
and for the imposition of the other sanctions, which are direct contempt of
court, criminal prosecution, and disciplinary action against the erring
lawyer. What is truly important to consider in determining whether forum-
shopping exists or not is the vexation caused the courts and parties-litigant
by a party who asks different courts and/or administrative agencies to rule
on the same or related causes and/or to grant the same or substantially
the same reliefs, in the process creating the possibility of conflicting
decisions being rendered by the different fora upon the same issue.

5. ID.; ID.; ID.; ID.; APPLICATION OF PRINCIPLE IN CASE AT BAR.

- Applying the foregoing principles in the present case and comparing it
with the Second Case, it is obvious that there exist identity of parties or
interests represented, identity of rights or causes and identity
of reliefs sought. Very simply stated, the original complaint in the court a
quo which gave rise to the instant petition was filed by the buyer to enforce
the alleged perfected sale of real estate. On the other hand, the complaint
in the Second Case seeks to declare such purported sale involving the
same real property as unenforceable as against the Bank, which is the
petitioner herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to accomplish
what the Bank itself failed to do in the original case in the trial court. In
brief, the objective or the relief being sought, though worded differently, is
the same, namely, to enable the petitioner Bank to escape from the
obligation to sell the property to respondent. In this case, a decision
recognizing the perfection and directing the enforcement of the contract of
sale will directly conflict with a possible decision in the Second Case
barring the parties from enforcing or implementing the said sale. Indeed, a
final decision in one would constitute res judicata in the other.
 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
Complaint2 before 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 FOREIGN CORPORATIONS (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 OF FORUM 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 NON-CONVENIENS 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 of an 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;25that 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 by litis 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 39-hectare piece of real estate
located in the Philippines;28 that 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 to certiorari 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 of forum 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.
 Republic of the Philippines
SUPREME COURT

FIRST DIVISION

G.R. No. 120077 October 13, 2000

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

PARDO, J.:

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

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

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

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

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

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

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

MHICL is a corporation duly organized and existing under the laws of Hong Kong. 7 MHC is an
"incorporator" of MHICL, owning 50% of its capital stock.8

By virtue of a "management agreement"9 with the Palace Hotel (Wang Fu Company Limited),
MHICL10 trained the personnel and staff of the Palace Hotel at Beijing, China.
Now the facts.

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

Mr. Shmidt offered respondent Santos the same position as printer, but with a higher monthly salary
and increased benefits. The position was slated to open on October 1, 1988. 11

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

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

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

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

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

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

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

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

Subsequently, respondent Santos signed an amended "employment agreement" with the Palace
Hotel, effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace Hotel. The
Vice President (Operations and Development) of petitioner MHICL Miguel D. Cergueda signed the
employment agreement under the word "noted".

From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He returned
to China and reassumed his post on July 17, 1989.

On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a handwritten
note that respondent Santos be given one (1) month notice of his release from employment.
On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr. Shmidt
that his employment at the Palace Hotel print shop would be terminated due to business reverses
brought about by the political upheaval in China. 15 We quote the letter:16

"After the unfortunate happenings in China and especially Beijing (referring to Tiannamen
Square incidents), our business has been severely affected. To reduce expenses, we will not
open/operate printshop for the time being.

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

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

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

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

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

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

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

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

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

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

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

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

On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners, thus: 19
 "WHEREFORE, judgment is hereby rendered:

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

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

"b) P50,000.00 as moral damages;

"c) P40,000.00 as exemplary damages; and

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

"SO ORDERED."

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

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

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

"SO ORDERED."

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

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

On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the testimonial
and documentary evidence presented to and heard by him. 23

Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National Capital Region,
Arbitration Branch, and the case was transferred to Labor Arbiter Jose G. de Vera. 24

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

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

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

"SO ORDERED."

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

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

Hence, this petition.30

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

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

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

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

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

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

The petition is meritorious.

I. Forum Non-Conveniens

The NLRC was a seriously inconvenient forum.

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

The employment contract. Respondent Santos was hired directly by the Palace Hotel, a foreign
employer, through correspondence sent to the Sultanate of Oman, where respondent Santos was
then employed. He was hired without the intervention of the POEA or any authorized recruitment
agency of the government.36
Under the rule of forum non conveniens, a Philippine court or agency may assume jurisdiction over
the case if it chooses to do so provided: (1) that the Philippine court is one to which the parties may
conveniently resort to; (2) that the Philippine court is in a position to make an intelligent decision as
to the law and the facts; and (3) that the Philippine court has or is likely to have power to enforce its
decision.37 The conditions are unavailing in the case at bar.

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

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

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

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

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

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

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

II. MHC Not Liable

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

True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock. However,
this is not enough to pierce the veil of corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction
is used to defeat public convenience, justify wrong, protect fraud or defend a crime. 41 It is done
only when a corporation is a mere alter ego or business conduit of a person or another corporation.

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

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

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

III. MHICL not Liable

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

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

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

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

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

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

"(2) the payment of wages;

 "(3) the power to dismiss; and

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

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

Neither is there evidence to suggest that MHICL was a "labor-only contractor." 52 There is no proof
that MHICL "supplied" respondent Santos or even referred him for employment to the Palace Hotel.

Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the same
entity. The fact that the Palace Hotel is a member of the "Manila Hotel Group" is not enough to
pierce the corporate veil between MHICL and the Palace Hotel.

IV. Grave Abuse of Discretion

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

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

"1. Unfair labor practice cases;

"2. Termination disputes;

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

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

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

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

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

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

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

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

V. The Fallo

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

No costs.

SO ORDERED.
 SECOND DIVISION

[G.R. No. 102223. August 22, 1996]

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-

TRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and
FRANCISCO S.AGUIRRE, petitioners, vs. THE COURT OF
APPEALS, ITEC INTERNATIONAL, INC., and ITEC,
INC., respondents.

DECISION
TORRES, JR., J.:

Business Corporations, according to Lord Coke, have no souls. They do

business peddling goods, wares or even services across national boundaries
in soulless forms in quest for profits albeit at times, unwelcomed in these
strange lands venturing into uncertain markets and, the risk of dealing with
wily competitors.

This is one of the issues in the case at bar.

Contested in this petition for review on Certiorari is the Decision of the

Court of Appeals on June 7, 1991, sustaining the RTC Order dated February
22, 1991, denying the petitioners Motion to Dismiss, and directing the
issuance of a writ of preliminary injunction, and its companion Resolution of
October 9, 1991, denying the petitioners Motion for Reconsideration.

Petitioners COMMUNICATION MATERIALS AND DESIGN, INC., (CMDI,

for brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for brevity) are both
domestic corporations, while petitioner Francisco S. Aguirre is their President
and majority stockholder. Private Respondents ITEC, INC. and/or ITEC,
INTERNATIONAL, INC. (ITEC, for brevity) are corporations duly organized
and existing under the laws of the State of Alabama, United States of
America. There is no dispute that ITEC is a foreign corporation not licensed to
do business in the Philippines.

On August 14, 1987, ITEC entered into a contract with petitioner ASPAC
referred to as Representative Agreement. Pursuant to the contract, ITEC
[1]
engaged ASPAC as its exclusive representative in the Philippines for the sale
of ITECs products, in consideration of which, ASPAC was paid a stipulated
commission. The agreement was signed by G.A. Clark and Francisco S.
Aguirre, presidents of ITEC and ASPAC respectively, for and in behalf of their
companies. The said agreement was initially for a term of twenty-four
[2]

months. After the lapse of the agreed period, the agreement was renewed for
another twenty-four months.

Through a License Agreement entered into by the same parties on

[3]

November 10, 1988, ASPAC was able to incorporate and use the name ITEC
in its own name. Thus, ASPAC Multi-Trade, Inc. became legally and publicly
known as ASPAC-ITEC (Philippines).

By virtue of said contracts, ASPAC sold electronic products, exported by

ITEC, to their sole customer, the Philippine Long Distance Telephone
Company, (PLDT, for brevity).

To facilitate their transactions, ASPAC, dealing under its new appellation,

and PLDT executed a document entitled PLDT-ASPAC/ITEC
PROTOCOL which defined the project details for the supply of ITECs
[4]

Interface Equipment in connection with the Fifth Expansion Program of PLDT.

One year into the second term of the parties Representative Agreement,
ITEC decided to terminate the same, because petitioner ASPAC allegedly
violated its contractual commitment as stipulated in their agreements.
[5]

ITEC charges the petitioners and another Philippine Corporation, DIGITAL

BASE COMMUNICATIONS, INC. (DIGITAL, for brevity), the President of
which is likewise petitioner Aguirre, of using knowledge and information of
ITECs products specifications to develop their own line of equipment and
product support, which are similar, if not identical to ITECs own, and offering
them to ITECs former customer.

On January 31, 1991, the complaint in Civil Case No. 91-294, was filed
[6]

with the Regional Trial Court of Makati, Branch 134 by ITEC, INC. Plaintiff
sought to enjoin, first, preliminarily and then, after trial, permanently; (1)
defendants DIGITAL, CMDI, and Francisco Aguirre and their agents and
business associates, to cease and desist from selling or attempting to sell to
PLDT and to any other party, products which have been copied or
manufactured in like manner, similar or identical to the products, wares and
equipment of plaintiff, and (2) defendant ASPAC, to cease and desist from
using in its corporate name, letter heads, envelopes, sign boards and
business dealings, plaintiffs trademark, internationally known as ITEC; and the
recovery from defendants in solidum, damages of at least P500,000.00,
attorneys fees and litigation expenses.

In due time, defendants filed a motion to dismiss the complaint on the

[7]

following grounds: (1) That plaintiff has no legal capacity to sue as it is a

foreign corporation doing business in the Philippines without the required BOI
authority and SEC license, and (2) that plaintiff is simply engaged in forum
shopping which justifies the application against it of the principle of forum non
conveniens.

On February 8, 1991, the complaint was amended by virtue of which ITEC

INTERNATIONAL, INC. was substituted as plaintiff instead of ITEC, INC. [8]

In their Supplemental Motion to Dismiss, defendants took note of the

[9]

amendment of the complaint and asked the court to consider in toto their
motion to dismiss and their supplemental motion as their answer to the
amended complaint.

After conducting hearings on the prayer for preliminary injunction, the

court a quo on February 22, 1991, issued its Order: (1) denying the motion to
[10]

dismiss for being devoid of legal merit with a rejection of both grounds relied
upon by the defendants in their motion to dismiss, and (2) directing the
issuance of a writ of preliminary injunction on the same day.

From the foregoing order, petitioners elevated the case to the respondent
Court of Appeals on a Petition for Certiorari and Prohibition under Rule 65 of
[11]

the Revised Rules of Court, assailing and seeking the nullification and the
setting aside of the Order and the Writ of Preliminary Injunction issued by the
Regional Trial Court.

The respondent appellate court stated, thus:

We find no reason whether in law or from the facts of record, to disagree with the
(lower courts) ruling. We therefore are unable to find in respondent Judges issuance of
said writ the grave abuse of discretion ascribed thereto by the petitioners.
In fine, We find that the petition prima facie does not show that Certiorari lies in the
present case and therefore, the petition does not deserve to be given due course.

WHEREFORE, the present petition should be, as it is hereby, denied due course and
accordingly, is hereby dismissed. Costs against the petitioners.

SO ORDERED." [12]

Petitioners filed a motion for reconsideration on June 7, 1991, which was

[13]

likewise denied by the respondent court.

WHEREFORE, the present motion for reconsideration should be, as it is hereby,

denied for lack of merit. For the same reason, the motion to have the motion for
reconsideration set for oral argument likewise should be and is hereby denied.

SO ORDERED." [14]

Petitioners are now before us via Petition for Review on Certiorari under [15]

Rule 45 of the Revised Rules of Court.

It is the petitioners submission that private respondents are foreign

corporations actually doing business in the Philippines without the requisite
authority and license from the Board of Investments and the Securities and
Exchange Commission, and thus, disqualified from instituting the present
action in our courts. It is their contention that the provisions of the
Representative Agreement, petitioner ASPAC executed with private
respondent ITEC, are similarly highly restrictive in nature as those found in the
agreements which confronted the Court in the case of Top-Weld
Manufacturing, Inc. vs. ECED S.A. et al., as to reduce petitioner ASPAC to a
[16]

mere conduit or extension of private respondents in the Philippines.

In that case, we ruled that respondent foreign corporations are doing

business in the Philippines because when the respondents entered into the
disputed contracts with the petitioner, they were carrying out the purposes for
which they were created, i.e., to manufacture and market welding products
and equipment. The terms and conditions of the contracts as well as the
respondents conduct indicate that they established within our country a
continuous business, and not merely one of a temporary character. The
respondents could be exempted from the requirements of Republic Act 5455 if
the petitioner is an independent entity which buys and distributes products not
only of the petitioner, but also of other manufacturers or transacts business in
its name and for its account and not in the name or for the account of the
foreign principal. A reading of the agreements between the petitioner and the
respondents shows that they are highly restrictive in nature, thus making the
petitioner a mere conduit or extension of the respondents.

It is alleged that certain provisions of the Representative Agreement

executed by the parties are similar to those found in the License Agreement of
the parties in the Top-Weld case which were considered as highly restrictive
by this Court. The provisions in point are:

2.0 Terms and Conditions of Sales.

2.1 Sale of ITEC products shall be at the purchase price set by ITEC from time to
time. Unless otherwise expressly agreed to in writing by ITEC the purchase price is
net to ITEC and does not include any transportation charges, import charges or taxes
into or within the Territory. All orders from customers are subject to formal
acceptance by ITEC at its Huntsville, Alabama U.S.A. facility.

xxx xxx xxx

3.0 Duties of Representative

3.1. REPRESENTATIVE SHALL:

3.1.1. Not represent or offer for sale within the Territory any product which competes
with an existing ITEC product or any product which ITEC has under active
development.

3.1.2. Actively solicit all potential customers within the Territory in a systematic and
businesslike manner.

3.1.3. Inform ITEC of all request for proposals, requests for bids, invitations to bid
and the like within the Territory.

3.1.4. Attain the Annual Sales Goal for the Territory established by ITEC. The Sales
Goals for the first 24 months is set forth on Attachment two (2) hereto. The Sales Goal
for additional twelve month periods, if any, shall be sent to the Sales Agent by ITEC
at the beginning of each period. These Sales Goals shall be incorporated into this
Agreement and made a part hereof.
 xxx xxx xxx

6.0. Representative as Independent Contractor

xxx xxx xxx

6.2. When acting under this Agreement REPRESENTATIVE is authorized to solicit

sales within the Territory on ITECs behalf but is authorized to bind ITEC only in its
capacity as Representative and no other, and then only to specific customers and on
terms and conditions expressly authorized by ITEC in writing. [17]

Aside from the abovestated provisions, petitioners point out the following
matters of record, which allegedly witness to the respondents' activities within
the Philippines in pursuit of their business dealings:

a. While petitioner ASPAC was the authorized exclusive representative for three (3)
years, it solicited from and closed several sales for and on behalf of private
respondents as to their products only and no other, to PLDT, worth no less than US
$15 Million (p. 20, tsn, Feb. 18, 1991);

b. Contract No. 1 (Exhibit for Petitioners) which covered these sales and identified by
private respondents sole witness, Mr. Clarence Long, is not in the name of petitioner
ASPAC as such representative, but in the name of private respondent ITEC, INC. (p.
20, tsn, Feb. 18, 1991);

c. The document denominated as PLDT-ASPAC/ITEC PROTOCOL (Annex C of the

original and amended complaints) which defined the responsibilities of the parties
thereto as to the supply, installation and maintenance of the ITEC equipment sold
under said Contract No. 1 is, as its very title indicates, in the names jointly of the
petitioner ASPAC and private respondents;

d. To evidence receipt of the purchase price of US $15 Million, private respondent

ITEC, Inc. issued in its letter head, a Confirmation of payment dated November 13,
1989 and its Invoice dated November 22, 1989 (Annexes 1 and 2 of the Motion to
Dismiss and marked as Exhibits 2 and 3 for the petitioners), both of which were
identified by private respondents sole witness, Mr. Clarence Long (pp. 25-27, tsn, Feb.
18, 1991).[18]

Petitioners contend that the above acts or activities belie the supposed
independence of petitioner ASPAC from private respondents. The unrebutted
evidence on record below for the petitioners likewise reveal the continuous
character of doing business in the Philippines by private respondents based
on the standards laid down by this Court in Wang Laboratories, Inc. vs. Hon.
Rafael T. Mendoza, et al. and again in TOP-WELD. (supra) It thus appears
[19]

that as the respondent Court of Appeals and the trial courts failure to give
credence on the grounds relied upon in support of their Motion to Dismiss that
petitioners ascribe grave abuse of discretion amounting to an excess of
jurisdiction of said courts.

Petitioners likewise argue that since private respondents have no capacity

to bring suit here, the Philippines is not the most convenient forum because
the trial court is devoid of any power to enforce its orders issued or decisions
rendered in a case that could not have been commenced to begin with, such
that in insisting to assume and exercise jurisdiction over the case below, the
trial court had gravely abused its discretion and even actually exceeded its
jurisdiction.

As against petitioners insistence that private respondent is doing business

in the Philippines, the latter maintains that it is not.

We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the Rules
and Regulations Implementing the Omnibus Investments Code of 1987, the
following:

(1) A foreign firm is deemed not engaged in business in the Philippines if it transacts
business through middlemen, acting in their own names, such as indebtors,
commercial bookers or commercial merchants.

(2) A foreign corporation is deemed not doing business if its representative domiciled
in the Philippines has an independent status in that it transacts business in its name
and for its account.
[20]

Private respondent argues that a scrutiny of its Representative Agreement

with the Petitioners will show that although ASPAC was named as
representative of ITEC., ASPAC actually acted in its own name and for its own
account. The following provisions are particularly mentioned:

3.1.7.1. In the event that REPRESENTATIVE imports directly from ITEC,

REPRESENTATIVE will pay for its own account; all customs duties and import fees
imposed on any ITEC products; all import expediting or handling charges and
expenses imposed on ITEC products; and any stamp tax fees imposed on ITEC.

xxx xxx xxx

4.1. As complete consideration and payment for acting as representative under this
Agreement, REPRESENTATIVE shall receive a sales commission equivalent to a
percentum of the FOB value of all ITEC equipment sold to customers within the
territory as a direct result of REPRESENTATIVEs sales efforts. [21]

More importantly, private respondents charge ASPAC of admitting its

independence from ITEC by entering and ascribing to provision No. 6 of the
Representative Agreement.

6.0. Representative as Independent Contractor

6.1. When performing any of its duties under this Agreement, REPRESENTATIVE
shall act as an independent contractor and not as an employee, worker, laborer,
partner, joint venturer of ITEC as these terms are defined by the laws, regulations,
decrees or the like of any jurisdiction, including the jurisdiction of the United States,
the state of Alabama and the Territory. [22]

Although it admits that the Representative Agreement contains provisions

which both support and belie the independence of ASPAC, private
respondents echoes the respondent courts finding that the lower court did not
commit grave abuse of discretion nor acted in excess of jurisdiction when it
found that the ground relied upon by the petitioners in their motion to dismiss
does not appear to be indubitable. [23]

The issues before us now are whether or not private respondent ITEC is
an unlicensed corporation doing business in the Philippines, and if it is,
whether or not this fact bars it from invoking the injunctive authority of our
courts.

Considering the above, it is necessary to state what is meant by doing

business in the Philippines. Section 133 of the Corporation Code, provides
that No foreign corporation, transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to maintain or
intervene in any action, suit or proceeding in any court or administrative
agency of the Philippines; but such corporation may be sued or proceeded
against before Philippine Courts or administrative tribunals on any valid cause
of action recognized under Philippine laws. [24]

Generally, a foreign corporation has no legal existence within the state in

which it is foreign. This proceeds from the principle that juridical existence of a
corporation is confined within the territory of the state under whose laws it was
incorporated and organized, and it has no legal status beyond such
territory. Such foreign corporation may be excluded by any other state from
doing business within its limits, or conditions may be imposed on the exercise
of such privileges. Before a foreign corporation can transact business in this
[25]

country, it must first obtain a license to transact business in the Philippines,

and a certificate from the appropriate government agency. If it transacts
business in the Philippines without such a license, it shall not be permitted to
maintain or intervene in any action, suit, or proceeding in any court or
administrative agency of the Philippines, but it may be sued on any valid
cause of action recognized under Philippine laws. [26]

In a long line of decisions, this Court has not altogether prohibited a

foreign corporation not licensed to do business in the Philippines from suing or
maintaining an action in Philippine Courts. What it seeks to prevent is a
foreign corporation doing business in the Philippines without a license from
gaining access to Philippine Courts. [27]

The purpose of the law in requiring that foreign corporations doing

business in the Philippines be licensed to do so and that they appoint an
agent for service of process is to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object is not to
prevent the foreign corporation from performing single acts, but to prevent it
from acquiring a domicile for the purpose of business without taking steps
necessary to render it amenable to suit in the local courts. The implication of
[28]

the law is that it was never the purpose of the legislature to exclude a foreign
corporation which happens to obtain an isolated order for business from the
Philippines, and thus, in effect, to permit persons to avoid their contracts made
with such foreign corporations. [29]

There is no exact rule or governing principle as to what constitutes doing

or engaging or transacting business. Indeed, such case must be judged in the
light of its peculiar circumstances, upon its peculiar facts and upon the
language of the statute applicable. The true test, however, seems to be
whether the foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized. [30]

Article 44 of the Omnibus Investments Code of 1987 defines the phrase to

include:

soliciting orders, purchases, service contracts, opening offices, whether called liaison
offices or branches; appointing representatives or distributors who are domiciled in
the Philippines or who in any calendar year stay in the Philippines for a period or
periods totaling one hundred eighty (180) days or more; participating in the
management, supervision or control of any domestic business firm, entity or
corporation in the Philippines, and any other act or acts that imply a continuity or
commercial dealings or arrangements and contemplate to that extent the performance
of acts or works, or the exercise of some of the functions normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and object of the
business organization.

Thus, a foreign corporation with a settling agent in the Philippines which

issued twelve marine policies covering different shipments to the
Philippines and a foreign corporation which had been collecting premiums on
[31]

outstanding policies were regarded as doing business here.

[32]

The same rule was observed relating to a foreign corporation with an

exclusive distributing agent in the Philippines, and which has been selling its
products here since 1929, and a foreign corporation engaged in the business
[33]

of manufacturing and selling computers worldwide, and had installed at least

26 different products in several corporations in the Philippines, and allowed its
registered logo and trademark to be used and made it known that there exists
a designated distributor in the Philippines. [34]

In Georg Grotjahn GMBH and Co. vs. Isnani, it was held that the[35]

uninterrupted performance by a foreign corporation of acts pursuant to its

primary purposes and functions as a regional area headquarters for its home
office, qualifies such corporation as one doing business in the country.

These foregoing instances should be distinguished from a single or

isolated transaction or occasional, incidental, or casual transactions, which do
not come within the meaning of the law, for in such case, the foreign
[36]

corporation is deemed not engaged in business in the Philippines.

 Where a single act or transaction, however, is not merely incidental or
casual but indicates the foreign corporations intention to do other business in
the Philippines, said single act or transaction constitutes doing or engaging in
or transacting business in the Philippines. [37]

In determining whether a corporation does business in the Philippines or

not, aside from their activities within the forum, reference may be made to the
contractual agreements entered into by it with other entities in the country.
Thus, in the Top-Weld case (supra), the foreign corporations LICENSE AND
TECHNICAL AGREEMENT and DISTRIBUTOR AGREEMENT with their local
contacts were made the basis of their being regarded by this Tribunal as
corporations doing business in the country. Likewise, in Merill Lynch Futures,
Inc. vs. Court of Appeals, etc. the FUTURES CONTRACT entered into by the
[38]

petitioner foreign corporation weighed heavily in the courts ruling.

With the abovestated precedents in mind, we are persuaded to conclude

that private respondent had been engaged in or doing business in the
Philippines for some time now. This is the inevitable result after a scrutiny of
the different contracts and agreements entered into by ITEC with its various
business contacts in the country, particularly ASPAC and Telephone
Equipment Sales and Services, Inc. (TESSI, for brevity). The latter is a local
electronics firm engaged by ITEC to be its local technical representative, and
to create a service center for ITEC products sold locally. Its arrangements,
with these entities indicate convincingly ITECs purpose to bring about the
situation among its customers and the general public that they are dealing
directly with ITEC, and that ITEC is actively engaging in business in the
country.

In its Master Service Agreement with TESSI, private respondents

[39]

required its local technical representative to provide the employees of the

technical and service center with ITEC identification cards and business
cards, and to correspond only on ITEC, Inc., letterhead. TESSI personnel are
instructed to answer the telephone with ITEC Technical Assistance Center.,
such telephone being listed in the telephone book under the heading of ITEC
Technical Assistance Center, and all calls being recorded and forwarded to
ITEC on a weekly basis.

What is more, TESSI was obliged to provide ITEC with a monthly report
detailing the failure and repair of ITEC products, and to requisition monthly the
materials and components needed to replace stock consumed in the warranty
repairs of the prior month.

A perusal of the agreements between petitioner ASPAC and the

respondents shows that there are provisions which are highly restrictive in
nature, such as to reduce petitioner ASPAC to a mere extension or instrument
of the private respondent.

The No Competing Product provision of the Representative Agreement

between ITEC and ASPAC provides: The Representative shall not represent
or offer for sale within the Territory any product which competes with an
existing ITEC product or any product which ITEC has under active
development. Likewise pertinent is the following provision: When acting under
this Agreement, REPRESENTATIVE is authorized to solicit sales within the
Territory on ITECs behalf but is authorized to bind ITEC only in its capacity as
Representative and no other, and then only to specific customers and on
terms and conditions expressly authorized by ITEC in writing.

When ITEC entered into the disputed contracts with ASPAC and TESSI,
they were carrying out the purposes for which it was created, i.e., to market
electronics and communications products. The terms and conditions of the
contracts as well as ITECs conduct indicate that they established within our
country a continuous business, and not merely one of a temporary character. [40]

Notwithstanding such finding that ITEC is doing business in the country,

petitioner is nonetheless estopped from raising this fact to bar ITEC from
instituting this injunction case against it.

A foreign corporation doing business in the Philippines may sue in

Philippine Courts although not authorized to do business here against a
Philippine citizen or entity who had contracted with and benefited by said
corporation. To put it in another way, a party is estopped to challenge the
[41]

personality of a corporation after having acknowledged the same by entering

into a contract with it. And the doctrine of estoppel to deny corporate
existence applies to a foreign as well as to domestic corporations. One who
[42]

has dealt with a corporation of foreign origin as a corporate entity is estopped

to deny its corporate existence and capacity. The principle will be applied to
prevent a person contracting with a foreign corporation from later taking
advantage of its noncompliance with the statutes chiefly in cases where such
person has received the benefits of the contract. [43]

The rule is deeply rooted in the time-honored axiom of Commodum ex

injuria sua non habere debet - no person ought to derive any advantage of his
own wrong. This is as it should be for as mandated by law, 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. [44]

Concededly, corporations act through agents like directors and officers.

Corporate dealings must be characterized by utmost good faith and fairness.
Corporations cannot just feign ignorance of the legal rules as in most cases,
they are manned by sophisticated officers with tried management skills and
legal experts with practiced eye on legal problems. Each party to a corporate
transaction is expected to act with utmost candor and fairness and, thereby
allow a reasonable proportion between benefits and expected burdens. This is
a norm which should be observed where one or the other is a foreign entity
venturing in a global market.

As observed by this Court in TOP-WELD (supra), viz:

The parties are charged with knowledge of the existing law at the time
they enter into a contract and at the time it is to become operative.
(Twiehaus v. Rosner, 245 SW 2d 107; Hall v. Bucher, 227 SW 2d 98).
Moreover, a person is presumed to be more knowledgeable about his own
state law than his alien or foreign contemporary. In this case, the record
shows that, at least, petitioner had actual knowledge of the applicability of
R.A. No. 5455 at the time the contract was executed and at all times
thereafter. This conclusion is compelled by the fact that the same statute is
now being propounded by the petitioner to bolster its claim. We, therefore
sustain the appellate courts view that it was incumbent upon TOP-WELD to
know whether or not IRTI and ECED were properly authorized to engage in
business in the Philippines when they entered into the licensing and
distributorship agreements. The very purpose of the law was circumvented
and evaded when the petitioner entered into said agreements despite the
prohibition of R.A. No. 5455. The parties in this case being equally guilty of
violating R.A. No. 5455, they are in pari delicto, in which case it follows as a
consequence that petitioner is not entitled to the relief prayed for in this case.
 The doctrine of lack of capacity to sue based on the failure to acquire a
local license is based on considerations of sound public policy. The license
requirement was imposed to subject the foreign corporation doing business in
the Philippines to the jurisdiction of its courts. It was never intended to favor
domestic corporations who enter into solitary transactions with unwary foreign
firms and then repudiate their obligations simply because the latter are not
licensed to do business in this country.[45]

In Antam Consolidated Inc. vs. Court of Appeals, et al. we expressed our

[46]

chagrin over this commonly used scheme of defaulting local companies which
are being sued by unlicensed foreign companies not engaged in business in
the Philippines to invoke the lack of capacity to sue of such foreign
companies. Obviously, the same ploy is resorted to by ASPAC to prevent the
injunctive action filed by ITEC to enjoin petitioner from using knowledge
possibly acquired in violation of fiduciary arrangements between the parties.

By entering into the Representative Agreement with ITEC, Petitioner is

charged with knowledge that ITEC was not licensed to engage in business
activities in the country, and is thus estopped from raising in defense such
incapacity of ITEC, having chosen to ignore or even presumptively take
advantage of the same.

In Top-Weld, we ruled that a foreign corporation may be exempted from

the license requirement in order to institute an action in our courts if its
representative in the country maintained an independent status during the
existence of the disputed contract. Petitioner is deemed to have acceded to
such independent character when it entered into the Representative
Agreement with ITEC, particularly, provision 6.2 (supra).

Petitioners insistence on the dismissal of this action due to the application,

or non application, of the private international law rule of forum non
conveniens defies well-settled rules of fair play. According to petitioner, the
Philippine Court has no venue to apply its discretion whether to give
cognizance or not to the present action, because it has not acquired
jurisdiction over the person of the plaintiff in the case, the latter allegedly
having no personality to sue before Philippine Courts. This argument is
misplaced because the court has already acquired jurisdiction over the plaintiff
in the suit, by virtue of his filing the original complaint. And as we have already
observed, petitioner are not at liberty to question plaintiffs standing to sue,
having already acceded to the same by virtue of its entry into the
Representative Agreement referred to earlier.

Thus, having acquired jurisdiction, it is now for the Philippine Court, based
on the facts of the case, whether to give due course to the suit or dismiss it,
on the principle of forum non conveniens. Hence, the Philippine Court may
[47]

refuse to assume jurisdiction in spite of its having acquired

jurisdiction. Conversely, the 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.[48]

The aforesaid requirements having been met, and in view of the courts
disposition to give due course to the questioned action, the matter of the
present forum not being the most convenient as a ground for the suits
dismissal, deserves scant consideration.

IN VIEW OF THE FOREGOING PREMISES, the instant Petition is hereby

DISMISSED. The decision of the Court of Appeals dated June 7, 1991,
upholding the RTC Order dated February 22, 1991, denying the petitioners
Motion to Dismiss, and ordering the issuance of the Writ of Preliminary
Injunction is hereby affirmed in toto.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. Nos. 90306-07 July 30, 1990

K.K. SHELL SEKIYU OSAKA HATSUBAISHO and FU HING OIL CO., LTD., petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ATLANTIC VENUS CO., S.A., and THE VESSEL M/V
"ESTELLA", respondents.

Hernandez, Velicaria Vibar & Santiago for petitioners.

Cesar C. Cruz & Partners for private respondents

CORTES, J:

Ordinarily, the Court will not disturb the factual findings of the Court of Appeals, these being
considered final and conclusive. However, when its factual conclusions are manifestly mistaken, the
Court will step in to correct the misapprehension [De la Cruz v. Sosing, 94 Phil. 26 (1953); Castillo v.
Court of Appeals, G.R. No. L-48290, September 29, 1983, 124 SCRA 808.] This case is one such
instance calling for the Court's review of the facts.

On January 7,1987, Kumagai Kaiun Kaisha, Ltd. (hereinafter referred to as Kumagai), a corporation
formed and existing under the laws of Japan, filed a complaint for the collection of a sum of money
with preliminary attachment against Atlantic Venus Co., S.A. (hereinafter referred to as "Atlantic"), a
corporation registered in Panama, the vessel MV Estella and Crestamonte Shipping Corporation
(hereinafter referred to as "Crestamonte"), a Philippine corporation. Atlantic is the owner of the MV
Estella. The complaint, docketed as Civil Case No. 8738930 of the Regional Trial Court, Branch XIV,
Manila alleged that Crestamonte, as bareboat charterer and operator of the MV Estella, appointed
N.S. Shipping Corporation (hereinafter referred to as "NSS"), a Japanese corporation, as its general
agent in Japan. The appointment was formalized in an Agency Agreement. NSS in turn appointed
Kumagai as its local agent in Osaka, Japan. Kumagai supplied the MV Estella with supplies and
services but despite repeated demands Crestamonte failed to pay the amounts due.

NSS and Keihin Narasaki Corporation (hereinafter referred to a Keihin filed complaints-in-
intervention.

On May 19,1987, petitioner Fu Hing Oil Co., Ltd. (hereinafter referred to as Fu Hing"), a corporation
organized in Hong Kong and not doing business in the Philippines, filed a motion for leave to
intervene with an attached complaint-in-intervention, alleging that Fu Hing supplied marine diesel
oil/fuel to the MV Estella and incurred barge expenses for the total sum of One Hundred Fifty-two
Thousand Four Hundred Twelve Dollars and Fifty-Six Cents (US$152,412.56) but such has
remained unpaid despite demand and that the claim constitutes a maritime lien. The issuance of a
writ of attachment was also prayed for.
On July 16, 1987, petitioner K.K. Shell Sekiyu Osaka Hatsubaisho (hereinafter referred to as K.K.
Shell"), a corporation organized in Japan and not doing business in the Philippines, likewise filed a
motion to intervene with an attached complaint-in-intervention, alleging that upon request of NSS,
Crestamonte's general agent in Japan, K.K. Shell provided and supplied marine diesel oil/fuel to the
W Estella at the ports of Tokyo and Mutsure in Japan and that despite previous demands
Crestamonte has failed to pay the amounts of Sixteen Thousand Nine Hundred Ninety-Six Dollars
and Ninety- Six Cents (US$16,996.96) and One Million Yen (Y1,000,000.00) and that K.K. Shell's
claim constitutes a maritime lien on the MV Estella. The complaint-in-intervention sought the
issuance of a writ of preliminary attachment.

The trial court allowed the intervention of Fu Hing and K.K. Shell on June 19,1987 and August 11,
1987, respectively. Writs of preliminary attachment were issued on August 25, 1987 upon posting of
the appropriate bonds. Upon the posting of counterbonds, the writs of attachment were discharged
on September 3, 1987.

Atlantic and the MV Estella moved to dismiss the complaints-in- intervention filed by Fu Hing and
K.K. Shell.

In the meantime, Atlantic and the AWU Estella filed a petition in the Court of Appeals against the trial
court judge, Kumagai, NSS and Keihin, docketed as CA-G.R. SP No. 12999, which sought the
annulment of the orders of the trial court dated April 30, 1987 and August 11, 1987. Among others,
the omnibus order dated August 11, 1987 denied the motion to reconsider the order allowing Fu
Hing's intervention and granted K.K. Shell's motion to intervene. Again Fu Hing and K.K. Shell
intervened, CA-G.R. SP No. 12999 was consolidated with another case (CA-G.R. SP No. 12341). Fu
Hing and K.K. Shell intervened in CA-G.R. SP No. 12999.

In a decision dated June 14, 1989, the Court of Appeals annulled the orders of the trial court and
directed it to cease and desist from proceeding with the case.

According to the Court of Appeals, Fu Hing and K.K. Shell were not suppliers but sub-agents of
NSS, hence they were bound by the Agency Agreement between Crestamonte and NSS,
particularly, the choice of forum clause, which provides:

12.0-That this Agreement shall be governed by the Laws of Japan. Any matters,
disputes, and/or differences arising between the parties hereto concerned regarding
this Agreement shall be subject exclusively to the jurisdiction of the District Courts of
Japan.

Thus, concluded the Court of Appeals, the trial court should have disallowed their motions to
intervene.

A motion for reconsideration was filed by Fu Hing and K.K. Shell but this was denied by the Court of
Appeals. Hence this petition;

In this case, we shall review the decision of the Court of Appeals only insofar as it relate to the
intervention of K.K. Shell. Fu Hing Oil Co., Ltd. filed a motion to withdraw as co-petitioner on March
7, 1990, alleging that an amicable settlement had been reached with private respondents. The Court
granted the motion on March 19, 1990.
After considering the pleadings filed by the parties and the arguments raised therein, the Court finds
reversible error on the part of the Court of Appeals in so far; as it disallowed petitioners' intervention
in the case before the trial court and ordered the latter to cease and desist from proceeding with the
case.

1. A reading of the Agency Agreement fails to support the conclusion that K.K. Shell is a sub-agent of
NSS and is, therefore, bound by the agreement.

The body of the Agency Agreement entered into by and between Crestamonte (referred to in the
agreement as "Owner") and NSS ("Agent") provides:

WITNESSETH

That the OWNER has appointed and by these presents hereby appoints the AGENT as its General
Agents for all Japan in connection with the Owner's vessels and/or providing suitable vessels for
Japan Ports under the following terms and conditions:

1.0 - In general, the Agent will abide by the Owner's decisions regarding the mode of
operations of the vessels in Japan and that all cargo bookings, vessel's
fixtures/charters, etc. by the Agent, shall always be subject to the prior approval and
consent of the Owners.

2.0 - That the Agent shall provide for the necessary services required for the
husbanding of the Owner's vessels in all Japan Ports and issue Bill(s) of Lading to
Shippers in the form prescribed by the Owners.

3.0 - That the Agent shall be responsible for fixing south-bound cargoes with
revenues sufficient to cover ordinary liner operation expenses such as bunkers,
additives, lubricating oil, water, running repairs, drydocking expenses, usual port
disbursement accounts, cargo handling charges including stevedorage, provisions
and ship's stores and cash advance to crew (excluding crew provisions).

The Agent expressly agrees that the Owner's cash flow in Japan shall be essentially
the Agent's responsibility, and should the revenue for south-bound cargoes as above-
mentioned be insufficient to cover the aforesaid expenses, the Agent shall provide
credit to the extent of the vessels' requirements, provided however that said
obligation shall be secured by the Owner committing at least forty-eight (48) mailings
of Japan/Philippines liner service per year.

The Agent shall settle, in behalf of the Owner, all outstanding payments for the
operation costs on Owner's liner service carried forward from the present Owner's
agent, subject to approval of Owner's Representative in Japan in regard to amount
and nature thereof.

4.0- That the agent shall furnish office space of approximately thirty (30) square
meters for the exclusive use of the Owner and its representatives, within the
premises of the Agent's office, free of charge.
 5.0 That the responsibilities of the Agent in regard to the cargo shall begin, in the
case of imports into the territory of Japan, from the time such cargo has left the ship's
tackles, and shall cease, in case of export, upon completion of loading.

6.0 That the remuneration of the Agent from the Owner shall be as follows:

xxx xxx xxx

7.0 That the Agent shall exert best efforts to recommend to Owners stevedoring
and other expenses incurred in connection with work on board the Owner's vessels,
as well as customs house charges, pilotage, harbour dues, cables, etc. which are for
Owner's account, on the cheapest possible terms. Owners shall decide and may
appoint through the Agent the services described herein.

8.0 That the Agent shall be responsible for the due collection of and due payment
to the Owner of all outward freight prepaid for cargo without delay upon the sailing of
each vessel from the port. The Agent shall be also responsible for the due collection
of all inward freight payable at the port against delivery unless otherwise instructed
by the Owner to the contrary.

9.0 The account statements supported by vouchers in two copies itemized for
each service and/or supply for each vessel, shall be forwarded by the Agent to the
Owner promptly after the departure of each vessel but in no case later than 60 days
thereafter.

10.0 That the freightage to be collected by the Agent in Japan shall be paid to the
Owner after deducting the total amount of disbursements incurred in Japan.

11.0 That this Agreement takes effect as of April 15, 1983 and shall remain in
force unless terminated by either party upon 60 days notice.

12.0 That this Agreement shall be governed by the Laws of Japan. Any matters,
disputes, and/or differences arising between the parties hereto concerned regarding
this reement shall be subject exclusively to the jurisdiction of the District Courts of
Japan. [Annex "G" of the Petition, Rollo, pp. 100-104.]

No express reference to the contracting of sub-agents or the applicability of the terms of the
agreement, particularly the choice-of-forum clause, to sub-agents is made in the text of the
agreement. What the contract clearly states are NSS' principal duties, i.e., that it shall provide for the
necessary services required for the husbanding of Crestamonte's vessels in Japanese ports (section
2.0) and shall be responsible for fixing southbound cargoes with revenues sufficient to cover
ordinary expenses (section 3.0). itc-asl

Moreover, the complaint-in-intervention filed by K.K. Shell merely alleges that it provided and
supplied the MV Estella with marine diesel oil/fuel, upon request of NSS who was acting for and as
duly appointed agent of Crestamonte [Rollo, pp. 116117.] There is thus no basis for the Court of
Appeal's finding, as regards K.K Shell in relation to its intervention in Civil Case No. 87-38930, that
"the sub-agents admitted in their pleadings that they were appointed as local agent/sub-agent or
representatives by NSS by virtue of said Agency Agreement" [Decision, p. 7; Rollo, p. 33.] What the
Court of Appeals could have been referring to was K.K. Shell's Urgent Motion for Leave to Intervene
dated February 24, 1987 in another case (Civil Case No. 86-38704) in another court and involving
other vessels (NW Ofelia and MV Christina C), where it was alleged that K.K. Shell is "one of the
representatives of NS Shipping Corporation for the supply of bunker oil, fuel oil, provisions and other
necessaries to vessels of which NS Shipping Corporation was the general agent." [Comment, p. 17;
Rollo, p. 274.] However, this allegation does not conclusively establish a sub-agency between NSS
and K.K. Shell. It is therefore surprising how the Court of Appeals could have come to the
conclusion, just on the basis of the Agency Agreement and the pleadings filed in the trial court, that
"Crestamonte is the principal, NSS is the agent and ... Fu Hing and K.K Shell are the sub-agents."
[Decision, p. 6; Rollo, p. 32.]

In view of the inconclusiveness of the Agency Agreement and the pleadings filed in the trial court,
additional evidence, if there be any, would still have to be presented to establish the allegation that
K.K. Shell is a sub-agent of NSS.

In the same vein, as the choice-of-forum clause in the agreement (paragraph 12.0) has not been
conclusively shown to be binding upon K.K. Shell, additional evidence would also still have to be
presented to establish this defense, K.K. Shell cannot therefore, as of yet, be barred from instituting
an action in the Philippines.

2. Private respondents have anticipated the possibility that the courts will not find that K.K. Shell is
expressly bound by the Agency Agreement, and thus they fall back on the argument that even if this
were so, the doctrine of forum non conveniens would be a valid ground to cause the dismissal of
K.K. Shell's complaint-in-intervention.

K.K. Shell counters this argument by invoking its right as maritime lienholder. It cites Presidential
Decree No. 1521, the Ship Mortgage Decree of 1978, which provides:

SEC. 21. Maritime Lien for Necessaries; person entitled to such lien-Any person
furnishing repairs, supplies, to wage, use of dry dock or marine railway, or other
necessaries, to any vessel, whether foreign or domestic, upon the order of the owner
of such vessel, or of a person authorized by the owner, shall have a maritime lien on
the vessel, which may be enforced by suit in rem, and it shall be necessary to allege
or prove that credit was given to the vessel.

Private respondents on the other hand argue that even if P.D. No. 1521 is applicable, K.K. Shell
cannot rely on the maritime lien because the fuel was provided not exclusively for the benefit of the
MV Estella, but for the benefit of Crestamonte in general. Under the law it must be established that
the credit was extended to the vessel itself. Now, this is a defense that calls precisely for a factual
determination by the trial court of who benefitted from the delivery of the fuel. Hence, again, the
necessity for the reception of evidence before the trial court.

In other words, considering the dearth of evidence due to the fact that the private respondents have
yet to file their answer in the proceedings below and trial on the merits is still to be conducted,
whether or not petitioners are indeed maritime lienholders and as such may enforce the lien against
the MV Estella are matters that still have to be established.

Neither are we ready to rule on the private respondents' invocation of the doctrine of forum non
conveniens, as the exact nature of the relationship of the parties is still to be established. We leave
this matter to the sound discretion of the trial court judge who is in the best position, after some vital
facts are established, to determine whether special circumstances require that his court desist from
assuming jurisdiction over the suit.

It was clearly reversible error on the. part of the Court of Appeals to annul the trial court's orders,
insofar as K.K. Shell is concerned, and order the trial court to cease and desist from proceeding with
Civil Case No. 87-38930. There are still numerous material facts to be established in order to arrive
at a conclusion as to the true nature of the relationship between Crestamonte and K.K. Shell and
between NSS and K.K. Shell. The best recourse would have been to allow the trial court to proceed
with Civil Case No. 87-38930 and consider whatever defenses may be raised by private respondents
after they have filed their answer and evidence to support their conflicting claims has been
presented. The Court of Appeals, however, substituted its judgment for that of the trial court and
decided the merits of the case, even in the absence of evidence, on the pretext of reviewing an
interlocutory order.

WHEREFORE, the petition is GRANTED and the decision of the Court of Appeals is REVERSED in
CA-G.R. SP No. 12999, insofar as it annulled the order of the August 11, 1987 and directed the trial
court to cease and desist from proceeding with Civil Case No. 87-38930.

SO ORDERED.
 THIRD DIVISION

KAZUHIRO HASEGAWA and G.R. No. 149177

NIPPON ENGINEERING
CONSULTANTS CO., LTD.,
Present:
Petitioners,

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus - CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

Promulgated:
MINORU KITAMURA,
Respondent. November 23, 2007

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

DECISION

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

On March 30, 1999, petitioner Nippon Engineering Consultants

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

When the STAR Project was near completion, the Department of

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

On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's

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

Threatened with impending unemployment, respondent, through

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

As he was not able to generate a positive response from the

petitioners, respondent consequently initiated on June 1,
2000 Civil Case No. 00-0264 for specific performance and
damages with the Regional Trial Court of Lipa City.[11]

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

In the meantime, on June 20, 2000, the DPWH approved Nippon's

request for the replacement of Kitamura by a certain Y. Kotake as
project manager of the BBRI Project.[13]

On June 29, 2000, the RTC, invoking our ruling in Insular

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

Aggrieved by this development, petitioners filed with the CA,

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

Ruling on the merits of the second petition, the appellate court

rendered the assailed April 18, 2001 Decision[22] finding no grave
abuse of discretion in the trial court's denial of the motion to
dismiss. The CA ruled, among others, that the principle of lex loci
celebrationis was not applicable to the case, because nowhere in
the pleadings was the validity of the written agreement put in
issue. The CA thus declared that the trial court was correct in
applying instead the principle of lex loci solutionis.[23]

Petitioners' motion for reconsideration was subsequently denied

by the CA in the assailed July 25, 2001 Resolution.[24]

Remaining steadfast in their stance despite the series of denials,

petitioners instituted the instant Petition for Review
on Certiorari[25] imputing the following errors to the appellate
court:

A. THE HONORABLE COURT OF APPEALS GRAVELY ERRED

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

B. THE HONORABLE COURT OF APPEALS GRAVELY ERRED

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

The pivotal question that this Court is called upon to resolve is

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

However, before ruling on this issue, we must first dispose of the

procedural matters raised by the respondent.

Kitamura contends that the finality of the appellate court's

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

We do not agree. When the CA dismissed CA-G.R. SP No. 60205

on account of the petition's defective certification of non-forum
shopping, it was a dismissal without prejudice. [27] The same holds
true in the CA's dismissal of the said case due to defects in the
formal requirement of verification[28] and in the other requirement
in Rule 46 of the Rules of Court on the statement of the material
dates.[29] The dismissal being without prejudice, petitioners can re-
file the petition, or file a second petition attaching thereto the
appropriate verification and certificationas they, in fact didand
stating therein the material dates, within the prescribed
period[30] in Section 4, Rule 65 of the said Rules. [31]

The dismissal of a case without prejudice signifies the absence of

a decision on the merits and leaves the parties free to litigate the
matter in a subsequent action as though the dismissed action had
not been commenced. In other words, the termination of a case
not on the merits does not bar another action involving the same
parties, on the same subject matter and theory. [32]

Necessarily, because the said dismissal is without prejudice and

has no res judicata effect, and even if petitioners still indicated in
the verification and certification of the
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 Reply [38] an updated
Authorization[39] for Hasegawa to act on behalf of the company in
the instant petition, the Court finds the same as sufficient
compliance with the Rules.
However, the Court cannot extend the same liberal treatment to
the defect in the verification and certification. As respondent
pointed out, and to which we agree, Hasegawa is truly not
authorized to act on behalf of Nippon in this case. The aforesaid
September 4, 2000 Authorization and even the subsequent
August 17, 2001 Authorization were issued only by Nippon's
president and chief executive officer, not by the company's board
of directors. In not a few cases, we have ruled that corporate
powers are exercised by the board of directors; thus, no person,
not even its officers, can bind the corporation, in the absence of
authority from the board.[40] Considering that Hasegawa verified
and certified the petition only on his behalf and not on behalf of
the other petitioner, the petition has to be denied pursuant
to Loquias v. Office of the Ombudsman.[41] Substantial compliance
will not suffice in a matter that demands strict observance of the
Rules.[42] While technical rules of procedure are designed not to
frustrate the ends of justice, nonetheless, they are intended to
effect the proper and orderly disposition of cases and effectively
prevent the clogging of court dockets.[43]

Further, the Court has observed that petitioners incorrectly filed a

Rule 65 petition to question the trial court's denial of their motion
to dismiss. It is a well-established rule that an order denying
a motion to dismiss is interlocutory,
and cannot be the subject of the extraordinary petition for certior
ari 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 parties [46] following
the [state of the] most significant relationship rule in Private
International Law.[47]

The Court notes that petitioners adopted an additional but

different theory when they elevated the case to the appellate
court. In the Motion to Dismiss [48] filed with the trial court,
petitioners never contended that the RTC is an inconvenient
forum. They merely argued that the applicable law which will
determine the validity or invalidity of respondent's claim is that
of Japan, following the principles of lex loci celebrationis and lex
contractus.[49] While not abandoning this stance in their petition
before the appellate court, petitioners on certiorari significantly
invoked the defense of forum non conveniens.[50] On petition for
review before this Court, petitioners dropped their other
arguments, maintained the forum non conveniens defense, and
introduced their new argument that the applicable principle is the
[state of the] most significant relationship rule. [51]

Be that as it may, this Court is not inclined to deny this petition

merely on the basis of the change in theory, as explained
in Philippine Ports Authority v. City of Iloilo.[52] We only pointed out
petitioners' inconstancy in their arguments to emphasize their
incorrect assertion of conflict of laws principles.

To elucidate, in the judicial resolution of conflicts problems, three

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

Analytically, jurisdiction and choice of law are two distinct

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

In this case, only the first phase is at issuejurisdiction. Jurisdiction,

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

Jurisdiction over the subject matter in a judicial proceeding is

conferred by the sovereign authority which establishes and
organizes the court. It is given only by law and in the manner
prescribed by law.[58] It is further determined by the allegations of
the complaint irrespective of whether the plaintiff is entitled to all
or some of the claims asserted therein. [59] To succeed in its motion
for the dismissal of an action for lack of jurisdiction over the
subject matter of the claim,[60] the movant must show that the
court or tribunal cannot act on the matter submitted to it because
no law grants it the power to adjudicate the claims. [61]
In the instant case, petitioners, in their motion to dismiss, do not
claim that the trial court is not properly vested by law with
jurisdiction to hear the subject controversy for, indeed, Civil Case
No. 00-0264 for specific performance and damages is one not
capable of pecuniary estimation and is properly cognizable by the
RTC of Lipa City.[62] What they rather raise as grounds to question
subject matter jurisdiction are the principles of lex loci
celebrationis and lex contractus, and the state of the most
significant relationship rule.

The Court finds the invocation of these grounds unsound.

Lex loci celebrationis relates to the law of the place of the

ceremony[63] or the law of the place where a contract is made.
[64]
The doctrine of lex contractus or lex loci contractus means the
law of the place where a contract is executed or to be performed.
[65]
It controls the nature, construction, and validity of the
contract[66] and it may pertain to the law voluntarily agreed upon
by the parties or the law intended by them either expressly or
implicitly.[67] Under the state of the most significant relationship
rule, to ascertain what state law to apply to a dispute, the court
should determine which state has the most substantial connection
to the occurrence and the parties. In a case involving a contract,
the court should consider where the contract was made, was
negotiated, was to be performed, and the domicile, place of
business, or place of incorporation of the parties. [68] This rule
takes into account several contacts and evaluates them according
to their relative importance with respect to the particular issue to
be resolved.[69]
Since these three principles in conflict of laws make reference to
the law applicable to a dispute, they are rules proper for the
second phase, the choice of law. [70] They determine which state's
law is to be applied in resolving the substantive issues of a
conflicts problem.[71] Necessarily, as the only issue in this case is
that of jurisdiction, choice-of-law rules are not only inapplicable
but also not yet called for.

Further, petitioners' premature invocation of choice-of-law rules is

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

It should be noted that when a conflicts case, one involving a

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

Neither can the other ground raised, forum non conveniens,

[76]
be used to deprive the trial court of its jurisdiction herein. First,
it is not a proper basis for a motion to dismiss because Section 1,
Rule 16 of the Rules of Court does not include it as a ground.
[77]
Second, whether a suit should be entertained or dismissed on
the basis of the said doctrine depends largely upon the facts of
the particular case and is addressed to the sound discretion of the
trial court.[78] In this case, the RTC decided to assume jurisdiction.
Third, the propriety of dismissing a case based on this principle
requires a factual determination; hence, this conflicts principle is
more properly considered a matter of defense. [79]

Accordingly, since the RTC is vested by law with the power to

entertain and hear the civil case filed by respondent and the
grounds raised by petitioners to assail that jurisdiction are
inappropriate, the trial and appellate courts correctly denied the
petitioners motion to dismiss.

WHEREFORE, premises considered, the petition for review

on certiorari is DENIED. SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 61594 September 28, 1990

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,

vs
HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in
his capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN
MAMASIG, respondents.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

Ledesma, Saludo & Associates for private respondents.

FELICIANO, J.:

On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign

corporation licensed to do business in the Philippines, executed in Manila two (2) separate contracts
of employment, one with private respondent Ethelynne B. Farrales and the other with private
respondent Ma. M.C. Mamasig. 1 The contracts, which became effective on 9 January 1979, provided in
pertinent portion as follows:

5. DURATION OF EMPLOYMENT AND PENALTY

This agreement is for a period of three (3) years, but can be extended by the mutual
consent of the parties.

xxx xxx xxx

6. TERMINATION

xxx xxx xxx

Notwithstanding anything to contrary as herein provided, PIA reserves the right to

terminate this agreement at any time by giving the EMPLOYEE notice in writing in
advance one month before the intended termination or in lieu thereof, by paying the
EMPLOYEE wages equivalent to one month's salary.

xxx xxx xxx

10. APPLICABLE LAW:

 This agreement shall be construed and governed under and by the laws of Pakistan,
and only the Courts of Karachi, Pakistan shall have the jurisdiction to consider any
matter arising out of or under this agreement.

Respondents then commenced training in Pakistan. After their training period, they began
discharging their job functions as flight attendants, with base station in Manila and flying
assignments to different parts of the Middle East and Europe.

On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the contracts of
employment, PIA through Mr. Oscar Benares, counsel for and official of the local branch of PIA, sent
separate letters both dated 1 August 1980 to private respondents Farrales and Mamasig advising
both that their services as flight stewardesses would be terminated "effective 1 September 1980,
conformably to clause 6 (b) of the employment agreement [they had) executed with [PIA]." 2

On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint,
docketed as NCR-STF-95151-80, for illegal dismissal and non-payment of company benefits and
bonuses, against PIA with the then Ministry of Labor and Employment ("MOLE"). After several
unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose M. Pascual ordered the parties
to submit their position papers and evidence supporting their respective positions. The PIA submitted
its position paper, 3 but no evidence, and there claimed that both private respondents were habitual
absentees; that both were in the habit of bringing in from abroad sizeable quantities of "personal effects";
and that PIA personnel at the Manila International Airport had been discreetly warned by customs officials
to advise private respondents to discontinue that practice. PIA further claimed that the services of both
private respondents were terminated pursuant to the provisions of the employment contract.

In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the
reinstatement of private respondents with full backwages or, in the alternative, the payment to them
of the amounts equivalent to their salaries for the remainder of the fixed three-year period of their
employment contracts; the payment to private respondent Mamasig of an amount equivalent to the
value of a round trip ticket Manila-USA Manila; and payment of a bonus to each of the private
respondents equivalent to their one-month salary. 4 The Order stated that private respondents had
attained the status of regular employees after they had rendered more than a year of continued service;
that the stipulation limiting the period of the employment contract to three (3) years was null and void as
violative of the provisions of the Labor Code and its implementing rules and regulations on regular and
casual employment; and that the dismissal, having been carried out without the requisite clearance from
the MOLE, was illegal and entitled private respondents to reinstatement with full backwages.

On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister, MOLE,
adopted the findings of fact and conclusions of the Regional Director and affirmed the latter's award
save for the portion thereof giving PIA the option, in lieu of reinstatement, "to pay each of the
complainants [private respondents] their salaries corresponding to the unexpired portion of the
contract[s] [of employment] . . .". 5

In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director and the
Order of the Deputy Minister as having been rendered without jurisdiction; for having been rendered
without support in the evidence of record since, allegedly, no hearing was conducted by the hearing
officer, Atty. Jose M. Pascual; and for having been issued in disregard and in violation of petitioner's
rights under the employment contracts with private respondents.
1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction over the
subject matter of the complaint initiated by private respondents for illegal dismissal, jurisdiction over
the same being lodged in the Arbitration Branch of the National Labor Relations Commission
("NLRC") It appears to us beyond dispute, however, that both at the time the complaint was initiated
in September 1980 and at the time the Orders assailed were rendered on January 1981 (by
Regional Director Francisco L. Estrella) and August 1982 (by Deputy Minister Vicente Leogardo, Jr.),
the Regional Director had jurisdiction over termination cases.

Art. 278 of the Labor Code, as it then existed, forbade the termination of the services of employees
with at least one (1) year of service without prior clearance from the Department of Labor and
Employment:

Art. 278. Miscellaneous Provisions . . .

(b) With or without a collective agreement, no employer may shut down his
establishment or dismiss or terminate the employment of employees with at least one
year of service during the last two (2) years, whether such service is continuous or
broken, without prior written authority issued in accordance with such rules and
regulations as the Secretary may promulgate . . . (emphasis supplied)

Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made
clear that in case of a termination without the necessary clearance, the Regional Director
was authorized to order the reinstatement of the employee concerned and the payment of
backwages; necessarily, therefore, the Regional Director must have been given jurisdiction
over such termination cases:

Sec. 2. Shutdown or dismissal without clearance. Any shutdown or dismissal

without prior clearance shall be conclusively presumed to be termination of
employment without a just cause. The Regional Director shall, in such case order the
immediate reinstatement of the employee and the payment of his wages from the
time of the shutdown or dismissal until the time of reinstatement. (emphasis supplied)

Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was similarly
very explicit about the jurisdiction of the Regional Director over termination of employment
cases:

Under PD 850, termination cases with or without CBA are now placed under
the original jurisdiction of the Regional Director. Preventive suspension cases, now
made cognizable for the first time, are also placed under the Regional Director.
Before PD 850, termination cases where there was a CBA were under the jurisdiction
of the grievance machinery and voluntary arbitration, while termination cases where
there was no CBA were under the jurisdiction of the Conciliation Section.

In more details, the major innovations introduced by PD 850 and its implementing
rules and regulations with respect to termination and preventive suspension cases
are:

1. The Regional Director is now required to rule on every application for clearance,
whether there is opposition or not, within ten days from receipt thereof.
 xxx xxx xxx

(Emphasis supplied)

2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction, still
his order was null and void because it had been issued in violation of petitioner's right to procedural
due process . 6 This claim, however, cannot be given serious consideration. Petitioner was ordered by the
Regional Director to submit not only its position paper but also such evidence in its favor as it might have.
Petitioner opted to rely solely upon its position paper; we must assume it had no evidence to sustain its
assertions. Thus, even if no formal or oral hearing was conducted, petitioner had ample opportunity to
explain its side. Moreover, petitioner PIA was able to appeal his case to the Ministry of Labor and
Employment. 7

There is another reason why petitioner's claim of denial of due process must be rejected. At the time
the complaint was filed by private respondents on 21 September 1980 and at the time the Regional
Director issued his questioned order on 22 January 1981, applicable regulation, as noted above,
specified that a "dismissal without prior clearance shall be conclusively presumed to be
termination of employment without a cause", and the Regional Director was required in such case
to" order the immediate reinstatement of the employee and the payment of his wages from the time
of the shutdown or dismiss until . . . reinstatement." In other words, under the then applicable rule,
the Regional Director did not even have to require submission of position papers by the parties in
view of the conclusive (juris et de jure) character of the presumption created by such applicable law
and regulation. In Cebu Institute of Technology v. Minister of Labor and Employment, 8 the Court
pointed out that "under Rule 14, Section 2, of the Implementing Rules and Regulations, the termination of
[an employee] which was without previous clearance from the Ministry of Labor is conclusively presumed
to be without [just] cause . . . [a presumption which] cannot be overturned by any contrary proof however
strong."

3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of employment
with private respondents Farrales and Mamasig, arguing that its relationship with them was
governed by the provisions of its contract rather than by the general provisions of the Labor Code. 9

Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by
agreement between the parties; while paragraph 6 provided that, notwithstanding any other
provision in the Contract, PIA had the right to terminate the employment agreement at any time by
giving one-month's notice to the employee or, in lieu of such notice, one-months salary.

A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the
law between the parties. 10 The principle of party autonomy in contracts is not, however, an absolute
principle. The rule in Article 1306, of our Civil Code is that the contracting parties may establish such
stipulations as they may deem convenient, "provided they are not contrary to law, morals, good customs,
public order or public policy." Thus, counter-balancing the principle of autonomy of contracting parties is
the equally general rule that provisions of applicable law, especially provisions relating to matters affected
with public policy, are deemed written into the contract. 11 Put a little differently, the governing principle is
that parties may not contract away applicable provisions of law especially peremptory provisions dealing
with matters heavily impressed with public interest. The law relating to labor and employment is clearly
such an area and parties are not at liberty to insulate themselves and their relationships from the impact
of labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the
contractual provisions invoked by petitioner PIA in terms of their consistency with applicable Philippine
law and regulations.
As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that paragraph
5 of that employment contract was inconsistent with Articles 280 and 281 of the Labor Code as they
existed at the time the contract of employment was entered into, and hence refused to give effect to
said paragraph 5. These Articles read as follows:

Art. 280. Security of Tenure. In cases of regular employment, the employer shall
not terminate the services of an employee except for a just cause or when authorized
by this Title An employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and to his backwages computed from
the time his compensation was withheld from him up to the time his reinstatement.

Art. 281. Regular and Casual Employment. The provisions of written agreement to
the contrary notwithstanding and regardless of the oral agreements of the parties, an
employment shall be deemed to be regular where the employee has been engaged
to perform activities which are usually necessary or desirable in the usual business
or trade of the employer, except where the employment has been fixed for a specific
project or undertaking the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or services to be
performed is seasonal in nature and the employment is for the duration of the
season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph: provided, that, any employee who has rendered at least one year of
service, whether such service is continuous or broken, shall be considered as
regular employee with respect to the activity in which he is employed and his
employment shall continue while such actually exists. (Emphasis supplied)

In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the Court had occasion to examine in
detail the question of whether employment for a fixed term has been outlawed under the above quoted
provisions of the Labor Code. After an extensive examination of the history and development of Articles
280 and 281, the Court reached the conclusion that a contract providing for employment with a fixed
period was not necessarily unlawful:

There can of course be no quarrel with the proposition that where from the
circumstances it is apparent that periods have been imposed to preclude acquisition
of tenurial security by the employee, they should be struck down or disregarded as
contrary to public policy, morals, etc. But where no such intent to circumvent the law
is shown, or stated otherwise, where the reason for the law does not exist e.g. where
it is indeed the employee himself who insists upon a period or where the nature of
the engagement is such that, without being seasonal or for a specific project, a
definite date of termination is a sine qua non would an agreement fixing a period be
essentially evil or illicit, therefore anathema Would such an agreement come within
the scope of Article 280 which admittedly was enacted "to prevent the circumvention
of the right of the employee to be secured in . . . (his) employment?"

As it is evident from even only the three examples already given that Article 280 of
the Labor Code, under a narrow and literal interpretation, not only fails to exhaust the
gamut of employment contracts to which the lack of a fixed period would be an
anomaly, but would also appear to restrict, without reasonable distinctions, the right
 of an employee to freely stipulate with his employer the duration of his engagement,
it logically follows that such a literal interpretation should be eschewed or avoided.
The law must be given reasonable interpretation, to preclude absurdity in its
application. Outlawing the whole concept of term employment and subverting to boot
the principle of freedom of contract to remedy the evil of employers" using it as a
means to prevent their employees from obtaining security of tenure is like cutting off
the nose to spite the face or, more relevantly, curing a headache by lopping off the
head.

xxx xxx xxx

Accordingly, and since the entire purpose behind the development of legislation
culminating in the present Article 280 of the Labor Code clearly appears to have
been, as already observed, to prevent circumvention of the employee's right to be
secure in his tenure, the clause in said article indiscriminately and completely ruling
out all written or oral agreements conflicting with the concept of regular employment
as defined therein should be construed to refer to the substantive evil that the Code
itself has singled out: agreements entered into precisely to circumvent security of
tenure. It should have no application to instances where a fixed period of
employment was agreed upon knowingly and voluntarily by the parties, without any
force, duress or improper pressure being brought to bear upon the employee and
absent any other circumstances vitiating his consent, or where it satisfactorily
appears that the employer and employee dealt with each other on more or less equal
terms with no moral dominance whatever being exercised by the former over the
latter. Unless thus limited in its purview, the law would be made to apply to purposes
other than those explicitly stated by its framers; it thus becomes pointless and
arbitrary, unjust in its effects and apt to lead to absurd and unintended
consequences. (emphasis supplied)

It is apparent from Brent School that the critical consideration is the presence or absence of
a substantial indication that the period specified in an employment agreement was designed
to circumvent the security of tenure of regular employees which is provided for in Articles 280
and 281 of the Labor Code. This indication must ordinarily rest upon some aspect of the
agreement other than the mere specification of a fixed term of the ernployment agreement,
or upon evidence aliunde of the intent to evade.

Examining the provisions of paragraphs 5 and 6 of the employment agreement between petitioner
PIA and private respondents, we consider that those provisions must be read together and when so
read, the fixed period of three (3) years specified in paragraph 5 will be seen to have been effectively
neutralized by the provisions of paragraph 6 of that agreement. Paragraph 6 in effect took back from
the employee the fixed three (3)-year period ostensibly granted by paragraph 5 by rendering such
period in effect a facultative one at the option of the employer PIA. For petitioner PIA claims to be
authorized to shorten that term, at any time and for any cause satisfactory to itself, to a one-month
period, or even less by simply paying the employee a month's salary. Because the net effect of
paragraphs 5 and 6 of the agreement here involved is to render the employment of private
respondents Farrales and Mamasig basically employment at the pleasure of petitioner PIA, the Court
considers that paragraphs 5 and 6 were intended to prevent any security of tenure from accruing in
favor of private respondents even during the limited period of three (3) years, 13 and thus to escape
completely the thrust of Articles 280 and 281 of the Labor Code.
Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies,
firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue for
settlement of any dispute arising out of or in connection with the agreement "only [in] courts of
Karachi Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the application of
Philippine labor laws and regulations to the subject matter of this case, i.e., the employer-employee
relationship between petitioner PIA and private respondents. We have already pointed out that the
relationship is much affected with public interest and that the otherwise applicable Philippine laws
and regulations cannot be rendered illusory by the parties agreeing upon some other law to govern
their relationship. Neither may petitioner invoke the second clause of paragraph 10, specifying the
Karachi courts as the sole venue for the settlement of dispute; between the contracting parties. Even
a cursory scrutiny of the relevant circumstances of this case will show the multiple and substantive
contacts between Philippine law and Philippine courts, on the one hand, and the relationship
between the parties, upon the other: the contract was not only executed in the Philippines, it was
also performed here, at least partially; private respondents are Philippine citizens and respondents,
while petitioner, although a foreign corporation, is licensed to do business (and actually doing
business) and hence resident in the Philippines; lastly, private respondents were based in the
Philippines in between their assigned flights to the Middle East and Europe. All the above contacts
point to the Philippine courts and administrative agencies as a proper forum for the resolution of
contractual disputes between the parties. Under these circumstances, paragraph 10 of the
employment agreement cannot be given effect so as to oust Philippine agencies and courts of the
jurisdiction vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not
undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be
presumed that the applicable provisions of the law of Pakistan are the same as the applicable
provisions of Philippine law. 14

We conclude that private respondents Farrales and Mamasig were illegally dismissed and that public
respondent Deputy Minister, MOLE, had not committed any grave abuse of discretion nor any act
without or in excess of jurisdiction in ordering their reinstatement with backwages. Private
respondents are entitled to three (3) years backwages without qualification or deduction. Should
their reinstatement to their former or other substantially equivalent positions not be feasible in view
of the length of time which has gone by since their services were unlawfully terminated, petitioner
should be required to pay separation pay to private respondents amounting to one (1) month's salary
for every year of service rendered by them, including the three (3) years service putatively rendered.

ACCORDINGLY, the Petition for certiorari is hereby DISMISSED for lack of merit, and the Order
dated 12 August 1982 of public respondent is hereby AFFIRMED, except that (1) private
respondents are entitled to three (3) years backwages, without deduction or qualification; and (2)
should reinstatement of private respondents to their former positions or to substantially equivalent
positions not be feasible, then petitioner shall, in lieu thereof, pay to private respondents separation
pay amounting to one (1)-month's salary for every year of service actually rendered by them and for
the three (3) years putative service by private respondents. The Temporary Restraining Order issued
on 13 September 1982 is hereby LIFTED. Costs against petitioner.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-104776 December 5, 1994

BIENVENIDO M. CADALIN, ROLANDO M. AMUL, DONATO B. EVANGELISTA, and the rest of

1,767 NAMED-COMPLAINANTS, thru and by their Attorney-in-fact, Atty. GERARDO A. DEL
MUNDO, petitioners,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION'S ADMINISTRATOR, NATIONAL
LABOR RELATIONS COMMISSION, BROWN & ROOT INTERNATIONAL, INC. AND/OR ASIA
INTERNATIONAL BUILDERS CORPORATION, respondents.

QUIASON, J.:

The petition in G.R. No. 104776, entitled "Bienvenido M. Cadalin, et. al. v. Philippine Overseas
Employment Administration's Administrator, et. al.," was filed under Rule 65 of the Revised Rules of
Court:

(1) to modify the Resolution dated September 2, 1991 of the National Labor
Relations Commission (NLRC) in POEA Cases Nos.
L-84-06-555, L-85-10-777, L-85-10-779 and L-86-05-460; (2) to render a new
decision: (i) declaring private respondents as in default; (ii) declaring the said labor
cases as a class suit; (iii) ordering Asia International Builders Corporation (AIBC) and
Brown and Root International Inc. (BRII) to pay the claims of the 1,767 claimants in
said labor cases; (iv) declaring Atty. Florante M. de Castro guilty of forum-shopping;
and (v) dismissing POEA Case No. L-86-05-460; and

(3) to reverse the Resolution dated March 24, 1992 of NLRC, denying the motion for
reconsideration of its Resolution dated September 2, 1991 (Rollo, pp. 8-288).

The petition in G.R. Nos. 104911-14, entitled "Bienvenido M. Cadalin, et. al., v. Hon. National Labor
Relations Commission, et. al.," was filed under Rule 65 of the Revised Rules of Court:

(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA Cases
Nos. L-84-06-555, L-85-10-777, L-85-10-799 and
L-86-05-460 insofar as it: (i) applied the three-year prescriptive period under the
Labor Code of the Philippines instead of the ten-year prescriptive period under the
Civil Code of the Philippines; and (ii) denied the
"three-hour daily average" formula in the computation of petitioners' overtime pay;
and

(2) to reverse the Resolution dated March 24, 1992 of NLRC, denying the motion for
reconsideration of its Resolution dated September 2, 1991 (Rollo, pp. 8-25; 26-220).
The petition in G.R. Nos. 105029-32, entitled "Asia International Builders Corporation, et. al., v.
National Labor Relations Commission, et. al." was filed under Rule 65 of the Revised Rules of Court:

(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA Cases
Nos. L-84-06-555, L-85-10-777, L-85-10-779 and
L-86-05-460, insofar as it granted the claims of 149 claimants; and

(2) to reverse the Resolution dated March 21, 1992 of NLRC insofar as it denied the
motions for reconsideration of AIBC and BRII (Rollo, pp. 2-59; 61-230).

The Resolution dated September 2, 1991 of NLRC, which modified the decision of POEA in four
labor cases: (1) awarded monetary benefits only to 149 claimants and (2) directed Labor Arbiter
Fatima J. Franco to conduct hearings and to receive evidence on the claims dismissed by the POEA
for lack of substantial evidence or proof of employment.

Consolidation of Cases

G.R. Nos. 104776 and 105029-32 were originally raffled to the Third Division while G.R. Nos.
104911-14 were raffled to the Second Division. In the Resolution dated July 26, 1993, the Second
Division referred G.R. Nos. 104911-14 to the Third Division (G.R. Nos. 104911-14, Rollo, p. 895).

In the Resolution dated September 29, 1993, the Third Division granted the motion filed in G.R. Nos.
104911-14 for the consolidation of said cases with G.R. Nos. 104776 and 105029-32, which were
assigned to the First Division (G.R. Nos. 104911-14, Rollo, pp. 986-1,107; G.R. Nos. 105029-
30, Rollo, pp. 369-377, 426-432). In the Resolution dated October 27, 1993, the First Division
granted the motion to consolidate G.R. Nos. 104911-14 with G.R. No. 104776 (G.R. Nos. 104911-
14, Rollo, p. 1109; G.R. Nos. 105029-32, Rollo, p. 1562).

On June 6, 1984, Bienvenido M.. Cadalin, Rolando M. Amul and Donato B. Evangelista, in their own
behalf and on behalf of 728 other overseas contract workers (OCWs) instituted a class suit by filing
an "Amended Complaint" with the Philippine Overseas Employment Administration (POEA) for
money claims arising from their recruitment by AIBC and employment by BRII (POEA Case No. L-
84-06-555). The claimants were represented by Atty. Gerardo del Mundo.

BRII is a foreign corporation with headquarters in Houston, Texas, and is engaged in construction;
while AIBC is a domestic corporation licensed as a service contractor to recruit, mobilize and deploy
Filipino workers for overseas employment on behalf of its foreign principals.

The amended complaint principally sought the payment of the unexpired portion of the employment
contracts, which was terminated prematurely, and secondarily, the payment of the interest of the
earnings of the Travel and Reserved Fund, interest on all the unpaid benefits; area wage and salary
differential pay; fringe benefits; refund of SSS and premium not remitted to the SSS; refund of
withholding tax not remitted to the BIR; penalties for committing prohibited practices; as well as the
suspension of the license of AIBC and the accreditation of BRII (G.R. No. 104776, Rollo, pp. 13-14).

At the hearing on June 25, 1984, AIBC was furnished a copy of the complaint and was given,
together with BRII, up to July 5, 1984 to file its answer.
On July 3, 1984, POEA Administrator, upon motion of AIBC and BRII, ordered the claimants to file a
bill of particulars within ten days from receipt of the order and the movants to file their answers within
ten days from receipt of the bill of particulars. The POEA Administrator also scheduled a pre-trial
conference on July 25, 1984.

On July 13, 1984, the claimants submitted their "Compliance and Manifestation." On July 23, 1984,
AIBC filed a "Motion to Strike Out of the Records", the "Complaint" and the "Compliance and
Manifestation." On July 25, 1984, the claimants filed their "Rejoinder and Comments," averring,
among other matters, the failure of AIBC and BRII to file their answers and to attend the pre-trial
conference on July 25, 1984. The claimants alleged that AIBC and BRII had waived their right to
present evidence and had defaulted by failing to file their answers and to attend the pre-trial
conference.

On October 2, 1984, the POEA Administrator denied the "Motion to Strike Out of the Records" filed
by AIBC but required the claimants to correct the deficiencies in the complaint pointed out in the
order.

On October 10, 1984, claimants asked for time within which to comply with the Order of October 2,
1984 and filed an "Urgent Manifestation," praying that the POEA Administrator direct the parties to
submit simultaneously their position papers, after which the case should be deemed submitted for
decision. On the same day, Atty. Florante de Castro filed another complaint for the same money
claims and benefits in behalf of several claimants, some of whom were also claimants in POEA Case
No. L-84-06-555 (POEA Case No. 85-10-779).

On October 19, 1984, claimants filed their "Compliance" with the Order dated October 2, 1984 and
an "Urgent Manifestation," praying that the POEA direct the parties to submit simultaneously their
position papers after which the case would be deemed submitted for decision. On the same day,
AIBC asked for time to file its comment on the "Compliance" and "Urgent Manifestation" of
claimants. On November 6, 1984, it filed a second motion for extension of time to file the comment.

On November 8, 1984, the POEA Administrator informed AIBC that its motion for extension of time
was granted.

On November 14, 1984, claimants filed an opposition to the motions for extension of time and asked
that AIBC and BRII be declared in default for failure to file their answers.

On November 20, 1984, AIBC and BRII filed a "Comment" praying, among other reliefs, that
claimants should be ordered to amend their complaint.

On December 27, 1984, the POEA Administrator issued an order directing AIBC and BRII to file their
answers within ten days from receipt of the order.

On February 27, 1985, AIBC and BRII appealed to NLRC seeking the reversal of the said order of
the POEA Administrator. Claimants opposed the appeal, claiming that it was dilatory and praying that
AIBC and BRII be declared in default.

On April 2, 1985, the original claimants filed an "Amended Complaint and/or Position Paper" dated
March 24, 1985, adding new demands: namely, the payment of overtime pay, extra night work pay,
annual leave differential pay, leave indemnity pay, retirement and savings benefits and their share of
forfeitures (G.R. No. 104776, Rollo, pp. 14-16). On April 15, 1985, the POEA Administrator directed
AIBC to file its answer to the amended complaint (G.R. No. 104776, Rollo, p. 20).

On May 28, 1985, claimants filed an "Urgent Motion for Summary Judgment." On the same day, the
POEA issued an order directing AIBC and BRII to file their answers to the "Amended Complaint,"
otherwise, they would be deemed to have waived their right to present evidence and the case would
be resolved on the basis of complainant's evidence.

On June 5, 1985, AIBC countered with a "Motion to Dismiss as Improper Class Suit and Motion for
Bill of Particulars Re: Amended Complaint dated March 24, 1985." Claimants opposed the motions.

On September 4, 1985, the POEA Administrator reiterated his directive to AIBC and BRII to file their
answers in POEA Case No. L-84-06-555.

On September 18, 1985, AIBC filed its second appeal to the NLRC, together with a petition for the
issuance of a writ of injunction. On September 19, 1985, NLRC enjoined the POEA Administrator
from hearing the labor cases and suspended the period for the filing of the answers of AIBC and
BRII.

On September 19, 1985, claimants asked the POEA Administrator to include additional claimants in
the case and to investigate alleged wrongdoings of BRII, AIBC and their respective lawyers.

On October 10, 1985, Romeo Patag and two co-claimants filed a complaint (POEA Case No. L-85-
10-777) against AIBC and BRII with the POEA, demanding monetary claims similar to those subject
of POEA Case No. L-84-06-555. In the same month, Solomon Reyes also filed his own complaint
(POEA Case No. L-85-10-779) against AIBC and BRII.

On October 17, 1985, the law firm of Florante M. de Castro & Associates asked for the substitution
of the original counsel of record and the cancellation of the special powers of attorney given the
original counsel.

On December 12, 1985, Atty. Del Mundo filed in NLRC a notice of the claim to enforce attorney's
lien.

On May 29, 1986, Atty. De Castro filed a complaint for money claims (POEA Case No. 86-05-460) in
behalf of 11 claimants including Bienvenido Cadalin, a claimant in POEA Case No. 84-06-555.

On December 12, 1986, the NLRC dismissed the two appeals filed on February 27, 1985 and
September 18, 1985 by AIBC and BRII.

In narrating the proceedings of the labor cases before the POEA Administrator, it is not amiss to
mention that two cases were filed in the Supreme Court by the claimants, namely G.R. No. 72132
on September 26, 1985 and Administrative Case No. 2858 on March 18, 1986. On May 13, 1987,
the Supreme Court issued a resolution in Administrative Case No. 2858 directing the POEA
Administrator to resolve the issues raised in the motions and oppositions filed in POEA Cases Nos.
L-84-06-555 and L-86-05-460 and to decide the labor cases with deliberate dispatch.

AIBC also filed a petition in the Supreme Court (G.R. No. 78489), questioning the Order dated
September 4, 1985 of the POEA Administrator. Said order required BRII and AIBC to answer the
amended complaint in POEA Case No. L-84-06-555. In a resolution dated November 9, 1987, we
dismissed the petition by informing AIBC that all its technical objections may properly be resolved in
the hearings before the POEA.

Complaints were also filed before the Ombudsman. The first was filed on September 22, 1988 by
claimant Hermie Arguelles and 18 co-claimants against the POEA Administrator and several NLRC
Commissioners. The Ombudsman merely referred the complaint to the Secretary of Labor and
Employment with a request for the early disposition of POEA Case No. L-84-06-555. The second
was filed on April 28, 1989 by claimants Emigdio P. Bautista and Rolando R. Lobeta charging AIBC
and BRII for violation of labor and social legislations. The third was filed by Jose R. Santos,
Maximino N. Talibsao and Amado B. Bruce denouncing AIBC and BRII of violations of labor laws.

On January 13, 1987, AIBC filed a motion for reconsideration of the NLRC Resolution dated
December 12, 1986.

On January 14, 1987, AIBC reiterated before the POEA Administrator its motion for suspension of
the period for filing an answer or motion for extension of time to file the same until the resolution of
its motion for reconsideration of the order of the NLRC dismissing the two appeals. On April 28,
1987, NLRC en banc denied the motion for reconsideration.

At the hearing on June 19, 1987, AIBC submitted its answer to the complaint. At the same hearing,
the parties were given a period of 15 days from said date within which to submit their respective
position papers. On June 24, 1987 claimants filed their "Urgent Motion to Strike Out Answer,"
alleging that the answer was filed out of time. On June 29, 1987, claimants filed their "Supplement to
Urgent Manifestational Motion" to comply with the POEA Order of June 19, 1987. On February 24,
1988, AIBC and BRII submitted their position paper. On March 4, 1988, claimants filed their "Ex-
Parte Motion to Expunge from the Records" the position paper of AIBC and BRII, claiming that it was
filed out of time.

On September 1, 1988, the claimants represented by Atty. De Castro filed their memorandum in
POEA Case No. L-86-05-460. On September 6, 1988, AIBC and BRII submitted their Supplemental
Memorandum. On September 12, 1988, BRII filed its "Reply to Complainant's Memorandum." On
October 26, 1988, claimants submitted their "Ex-Parte Manifestational Motion and Counter-
Supplemental Motion," together with 446 individual contracts of employments and service records.
On October 27, 1988, AIBC and BRII filed a "Consolidated Reply."

On January 30, 1989, the POEA Administrator rendered his decision in POEA Case No. L-84-06-555
and the other consolidated cases, which awarded the amount of $824,652.44 in favor of only 324
complainants.

On February 10, 1989, claimants submitted their "Appeal Memorandum For Partial Appeal" from the
decision of the POEA. On the same day, AIBC also filed its motion for reconsideration and/or appeal
in addition to the "Notice of Appeal" filed earlier on February 6, 1989 by another counsel for AIBC.

On February 17, 1989, claimants filed their "Answer to Appeal," praying for the dismissal of the
appeal of AIBC and BRII.

On March 15, 1989, claimants filed their "Supplement to Complainants' Appeal Memorandum,"
together with their "newly discovered evidence" consisting of payroll records.
On April 5, 1989, AIBC and BRII submitted to NLRC their "Manifestation," stating among other
matters that there were only 728 named claimants. On April 20, 1989, the claimants filed their
"Counter-Manifestation," alleging that there were 1,767 of them.

On July 27, 1989, claimants filed their "Urgent Motion for Execution" of the Decision dated January
30, 1989 on the grounds that BRII had failed to appeal on time and AIBC had not posted the
supersedeas bond in the amount of $824,652.44.

On December 23, 1989, claimants filed another motion to resolve the labor cases.

On August 21, 1990, claimants filed their "Manifestational Motion," praying that all the 1,767
claimants be awarded their monetary claims for failure of private respondents to file their answers
within the reglamentary period required by law.

On September 2, 1991, NLRC promulgated its Resolution, disposing as follows:

WHEREFORE, premises considered, the Decision of the POEA in these

consolidated cases is modified to the extent and in accordance with the following
dispositions:

1. The claims of the 94 complainants identified and listed in Annex

"A" hereof are dismissed for having prescribed;

2. Respondents AIBC and Brown & Root are hereby ordered, jointly
and severally, to pay the 149 complainants, identified and listed in
Annex "B" hereof, the peso equivalent, at the time of payment, of the
total amount in US dollars indicated opposite their respective names;

3. The awards given by the POEA to the 19 complainants classified

and listed in Annex "C" hereof, who appear to have worked
elsewhere than in Bahrain are hereby set aside.

4. All claims other than those indicated in Annex "B", including those
for overtime work and favorably granted by the POEA, are hereby
dismissed for lack of substantial evidence in support thereof or are
beyond the competence of this Commission to pass upon.

In addition, this Commission, in the exercise of its powers and authority under Article
218(c) of the Labor Code, as amended by R.A. 6715, hereby directs Labor Arbiter
Fatima J. Franco of this Commission to summon parties, conduct hearings and
receive evidence, as expeditiously as possible, and thereafter submit a written report
to this Commission (First Division) of the proceedings taken, regarding the claims of
the following:

(a) complainants identified and listed in Annex "D" attached and

made an integral part of this Resolution, whose claims were
dismissed by the POEA for lack of proof of employment in Bahrain
(these complainants numbering 683, are listed in pages 13 to 23 of
the decision of POEA, subject of the appeals) and,
 (b) complainants identified and listed in Annex "E" attached and made
an integral part of this Resolution, whose awards decreed by the
POEA, to Our mind, are not supported by substantial evidence" (G.R.
No. 104776; Rollo, pp. 113-115; G.R. Nos. 104911-14, pp. 85-87;
G.R. Nos. 105029-31, pp. 120-122).

On November 27, 1991, claimant Amado S. Tolentino and 12

co-claimants, who were former clients of Atty. Del Mundo, filed a petition for certiorari with the
Supreme Court (G.R. Nos. 120741-44). The petition was dismissed in a resolution dated January 27,
1992.

Three motions for reconsideration of the September 2, 1991 Resolution of the NLRC were filed. The
first, by the claimants represented by Atty. Del Mundo; the second, by the claimants represented by
Atty. De Castro; and the third, by AIBC and BRII.

In its Resolution dated March 24, 1992, NLRC denied all the motions for reconsideration.

Hence, these petitions filed by the claimants represented by Atty. Del Mundo (G.R. No. 104776), the
claimants represented by Atty. De Castro (G.R. Nos. 104911-14) and by AIBC and BRII (G.R. Nos.
105029-32).

II

Compromise Agreements

Before this Court, the claimants represented by Atty. De Castro and AIBC and BRII have submitted,
from time to time, compromise agreements for our approval and jointly moved for the dismissal of
their respective petitions insofar as the claimants-parties to the compromise agreements were
concerned (See Annex A for list of claimants who signed quitclaims).

Thus the following manifestations that the parties had arrived at a compromise agreement and the
corresponding motions for the approval of the agreements were filed by the parties and approved by
the Court:

1) Joint Manifestation and Motion involving claimant Emigdio Abarquez and 47 co-
claimants dated September 2, 1992 (G.R. Nos. 104911-14, Rollo, pp. 263-406; G.R.
Nos. 105029-32, Rollo, pp.
470-615);

2) Joint Manifestation and Motion involving petitioner Bienvenido Cadalin and 82 co-
petitioners dated September 3, 1992 (G.R. No. 104776, Rollo, pp. 364-507);

3) Joint Manifestation and Motion involving claimant Jose

M. Aban and 36 co-claimants dated September 17, 1992 (G.R. Nos. 105029-
32, Rollo, pp. 613-722; G.R. No. 104776, Rollo, pp. 518-626; G.R. Nos. 104911-
14, Rollo, pp. 407-516);

4) Joint Manifestation and Motion involving claimant Antonio T. Anglo and 17 co-
claimants dated October 14, 1992 (G.R. Nos.
 105029-32, Rollo, pp. 778-843; G.R. No. 104776, Rollo, pp. 650-713; G.R. Nos.
104911-14, Rollo, pp. 530-590);

5) Joint Manifestation and Motion involving claimant Dionisio Bobongo and 6 co-
claimants dated January 15, 1993 (G.R. No. 104776, Rollo, pp. 813-836; G.R. Nos.
104911-14, Rollo, pp. 629-652);

6) Joint Manifestation and Motion involving claimant Valerio A. Evangelista and 4 co-
claimants dated March 10, 1993 (G.R. Nos. 104911-14, Rollo, pp. 731-746; G.R. No.
104776, Rollo, pp. 1815-1829);

7) Joint Manifestation and Motion involving claimants Palconeri Banaag and 5 co-
claimants dated March 17, 1993 (G.R. No. 104776, Rollo, pp. 1657-1703; G.R. Nos.
104911-14, Rollo, pp. 655-675);

8) Joint Manifestation and Motion involving claimant Benjamin Ambrosio and 15 other
co-claimants dated May 4, 1993 (G.R. Nos. 105029-32, Rollo, pp. 906-956; G.R.
Nos. 104911-14, Rollo, pp. 679-729; G.R. No. 104776, Rollo, pp. 1773-1814);

9) Joint Manifestation and Motion involving Valerio Evangelista and 3 co-claimants

dated May 10, 1993 (G.R. No. 104776, Rollo, pp. 1815-1829);

10) Joint Manifestation and Motion involving petitioner Quiterio R. Agudo and 36 co-
claimants dated June 14, 1993 (G.R. Nos. 105029-32, Rollo, pp. 974-1190; G.R.
Nos. 104911-14, Rollo, pp. 748-864; G.R. No. 104776, Rollo, pp. 1066-1183);

11) Joint Manifestation and Motion involving claimant Arnaldo J. Alonzo and 19 co-
claimants dated July 22, 1993 (G.R. No. 104776, Rollo, pp. 1173-1235; G.R. Nos.
105029-32, Rollo, pp. 1193-1256; G.R. Nos. 104911-14, Rollo, pp. 896-959);

12) Joint Manifestation and Motion involving claimant Ricardo C. Dayrit and 2 co-
claimants dated September 7, 1993 (G.R. Nos.
105029-32, Rollo, pp. 1266-1278; G.R. No. 104776, Rollo, pp. 1243-1254; G.R. Nos.
104911-14, Rollo, pp. 972-984);

13) Joint Manifestation and Motion involving claimant Dante C. Aceres and 37 co-
claimants dated September 8, 1993 (G.R. No. 104776, Rollo, pp. 1257-1375; G.R.
Nos. 104911-14, Rollo, pp. 987-1105; G.R. Nos. 105029-32, Rollo, pp. 1280-1397);

14) Joint Manifestation and Motion involving Vivencio V. Abella and 27 co-claimants
dated January 10, 1994 (G.R. Nos. 105029-32, Rollo, Vol. II);

15) Joint Manifestation and Motion involving Domingo B. Solano and six co-claimants
dated August 25, 1994 (G.R. Nos. 105029-32; G.R. No. 104776; G.R. Nos. 104911-
14).

III

The facts as found by the NLRC are as follows:

We have taken painstaking efforts to sift over the more than fifty volumes now
comprising the records of these cases. From the records, it appears that the
complainants-appellants allege that they were recruited by respondent-appellant
AIBC for its accredited foreign principal, Brown & Root, on various dates from 1975
to 1983. They were all deployed at various projects undertaken by Brown & Root in
several countries in the Middle East, such as Saudi Arabia, Libya, United Arab
Emirates and Bahrain, as well as in Southeast Asia, in Indonesia and Malaysia.

Having been officially processed as overseas contract workers by the Philippine

Government, all the individual complainants signed standard overseas employment
contracts (Records, Vols. 25-32. Hereafter, reference to the records would be
sparingly made, considering their chaotic arrangement) with AIBC before their
departure from the Philippines. These overseas employment contracts invariably
contained the following relevant terms and conditions.

PART B

(1) Employment Position Classification :

(Code) :

(2) Company Employment Status :

(3) Date of Employment to Commence on :
(4) Basic Working Hours Per Week :
(5) Basic Working Hours Per Month :
(6) Basic Hourly Rate :
(7) Overtime Rate Per Hour :
(8) Projected Period of Service
(Subject to C(1) of this [sic]) :
Months and/or
Job Completion

xxx xxx xxx

3. HOURS OF WORK AND COMPENSATION

a) The Employee is employed at the hourly rate and overtime rate as set out in Part
B of this Document.

b) The hours of work shall be those set forth by the Employer, and Employer may, at
his sole option, change or adjust such hours as maybe deemed necessary from time
to time.

4. TERMINATION

a) Notwithstanding any other terms and conditions of this agreement, the Employer
may, at his sole discretion, terminate employee's service with cause, under this
agreement at any time. If the Employer terminates the services of the Employee
under this Agreement because of the completion or termination, or suspension of the
work on which the Employee's services were being utilized, or because of a
reduction in force due to a decrease in scope of such work, or by change in the type
of construction of such work. The Employer will be responsible for his return
transportation to his country of origin. Normally on the most expeditious air route,
economy class accommodation.

xxx xxx xxx

10. VACATION/SICK LEAVE BENEFITS

a) After one (1) year of continuous service and/or satisfactory completion of contract,
employee shall be entitled to 12-days vacation leave with pay. This shall be
computed at the basic wage rate. Fractions of a year's service will be computed on
a pro-rata basis.

b) Sick leave of 15-days shall be granted to the employee for every year of service
for non-work connected injuries or illness. If the employee failed to avail of such
leave benefits, the same shall be forfeited at the end of the year in which said sick
leave is granted.

11. BONUS

A bonus of 20% (for offshore work) of gross income will be accrued and payable only
upon satisfactory completion of this contract.

12. OFFDAY PAY

The seventh day of the week shall be observed as a day of rest with 8 hours regular
pay. If work is performed on this day, all hours work shall be paid at the premium
rate. However, this offday pay provision is applicable only when the laws of the Host
Country require payments for rest day.

In the State of Bahrain, where some of the individual complainants were deployed,
His Majesty Isa Bin Salman Al Kaifa, Amir of Bahrain, issued his Amiri Decree No. 23
on June 16, 1976, otherwise known as the Labour Law for the Private Sector
(Records, Vol. 18). This decree took effect on August 16, 1976. Some of the
provisions of Amiri Decree No. 23 that are relevant to the claims of the complainants-
appellants are as follows (italics supplied only for emphasis):

Art. 79: . . . A worker shall receive payment for each extra hour
equivalent to his wage entitlement increased by a minimum of twenty-
five per centum thereof for hours worked during the day; and by a
minimum of fifty per centum thereof for hours worked during the
night which shall be deemed to being from seven o'clock in the
evening until seven o'clock in the morning. . . .

Art. 80: Friday shall be deemed to be a weekly day of rest on full pay.

. . . an employer may require a worker, with his consent, to work on

his weekly day of rest if circumstances so require and in respect of
 which an additional sum equivalent to 150% of his normal wage shall
be paid to him. . . .

Art. 81: . . . When conditions of work require the worker to work on

any official holiday, he shall be paid an additional sum equivalent to
150% of his normal wage.

Art. 84: Every worker who has completed one year's continuous
service with his employer shall be entitled to leave on full pay for a
period of not less than 21 days for each year increased to a period
not less than 28 days after five continuous years of service.

A worker shall be entitled to such leave upon a quantum meruit in

respect of the proportion of his service in that year.

Art. 107: A contract of employment made for a period of indefinite

duration may be terminated by either party thereto after giving the
other party thirty days' prior notice before such termination, in writing,
in respect of monthly paid workers and fifteen days' notice in respect
of other workers. The party terminating a contract without giving the
required notice shall pay to the other party compensation equivalent
to the amount of wages payable to the worker for the period of such
notice or the unexpired portion thereof.

Art. 111: . . . the employer concerned shall pay to such worker, upon
termination of employment, a leaving indemnity for the period of his
employment calculated on the basis of fifteen days' wages for each
year of the first three years of service and of one month's wages for
each year of service thereafter. Such worker shall be entitled to
payment of leaving indemnity upon a quantum meruit in proportion to
the period of his service completed within a year.

All the individual complainants-appellants have already been

repatriated to the Philippines at the time of the filing of these cases
(R.R. No. 104776, Rollo, pp. 59-65).

IV

The issues raised before and resolved by the NLRC were:

First: Whether or not complainants are entitled to the benefits provided by Amiri
Decree No. 23 of Bahrain;

(a) Whether or not the complainants who have worked in Bahrain are
entitled to the above-mentioned benefits.

(b) Whether or not Art. 44 of the same Decree (allegedly prescribing a

more favorable treatment of alien employees) bars complainants from
enjoying its benefits.
Second: Assuming that Amiri Decree No. 23 of Bahrain is applicable in these
cases, whether or not complainants' claim for the benefits provided therein have
prescribed.

Third: Whether or not the instant cases qualify as a class suit.

Fourth: Whether or not the proceedings conducted by the POEA, as well as the
decision that is the subject of these appeals, conformed with the requirements of due
process;

(a) Whether or not the respondent-appellant was denied its right to

due process;

(b) Whether or not the admission of evidence by the POEA after

these cases were submitted for decision was valid;

(c) Whether or not the POEA acquired jurisdiction over Brown & Root
International, Inc.;

(d) Whether or not the judgment awards are supported by substantial

evidence;

(e) Whether or not the awards based on the averages and formula
presented by the complainants-appellants are supported by
substantial evidence;

(f) Whether or not the POEA awarded sums beyond what the
complainants-appellants prayed for; and, if so, whether or not these
awards are valid.

Fifth: Whether or not the POEA erred in holding respondents AIBC and Brown &
Root jointly are severally liable for the judgment awards despite the alleged finding
that the former was the employer of the complainants;

(a) Whether or not the POEA has acquired jurisdiction over Brown &
Root;

(b) Whether or not the undisputed fact that AIBC was a licensed
construction contractor precludes a finding that Brown & Root is liable
for complainants claims.

Sixth: Whether or not the POEA Administrator's failure to hold respondents in

default constitutes a reversible error.

Seventh: Whether or not the POEA Administrator erred in dismissing the following
claims:

a. Unexpired portion of contract;

 b. Interest earnings of Travel and Reserve Fund;

c. Retirement and Savings Plan benefits;

d. War Zone bonus or premium pay of at least 100% of basic pay;

e. Area Differential Pay;

f. Accrued interests on all the unpaid benefits;

g. Salary differential pay;

h. Wage differential pay;

i. Refund of SSS premiums not remitted to SSS;

j. Refund of withholding tax not remitted to BIR;

k. Fringe benefits under B & R's "A Summary of Employee Benefits"

(Annex "Q" of Amended Complaint);

l. Moral and exemplary damages;

m. Attorney's fees of at least ten percent of the judgment award;

n. Other reliefs, like suspending and/or cancelling the license to

recruit of AIBC and the accreditation of B & R issued by POEA;

o. Penalty for violations of Article 34 (prohibited practices), not

excluding reportorial requirements thereof.

Eighth: Whether or not the POEA Administrator erred in not dismissing POEA
Case No. (L) 86-65-460 on the ground of multiplicity of suits (G.R. Nos. 104911-
14, Rollo, pp. 25-29, 51-55).

Anent the first issue, NLRC set aside Section 1, Rule 129 of the 1989 Revised Rules on Evidence
governing the pleading and proof of a foreign law and admitted in evidence a simple copy of the
Bahrain's Amiri Decree No. 23 of 1976 (Labour Law for the Private Sector). NLRC invoked Article
221 of the Labor Code of the Philippines, vesting on the Commission ample discretion to use every
and all reasonable means to ascertain the facts in each case without regard to the technicalities of
law or procedure. NLRC agreed with the POEA Administrator that the Amiri Decree No. 23, being
more favorable and beneficial to the workers, should form part of the overseas employment contract
of the complainants.

NLRC, however, held that the Amiri Decree No. 23 applied only to the claimants, who worked in
Bahrain, and set aside awards of the POEA Administrator in favor of the claimants, who worked
elsewhere.
On the second issue, NLRC ruled that the prescriptive period for the filing of the claims of the
complainants was three years, as provided in Article 291 of the Labor Code of the Philippines, and
not ten years as provided in Article 1144 of the Civil Code of the Philippines nor one year as
provided in the Amiri Decree No. 23 of 1976.

On the third issue, NLRC agreed with the POEA Administrator that the labor cases cannot be treated
as a class suit for the simple reason that not all the complainants worked in Bahrain and therefore,
the subject matter of the action, the claims arising from the Bahrain law, is not of common or general
interest to all the complainants.

On the fourth issue, NLRC found at least three infractions of the cardinal rules of administrative due
process: namely, (1) the failure of the POEA Administrator to consider the evidence presented by
AIBC and BRII; (2) some findings of fact were not supported by substantial evidence; and (3) some
of the evidence upon which the decision was based were not disclosed to AIBC and BRII during the
hearing.

On the fifth issue, NLRC sustained the ruling of the POEA Administrator that BRII and AIBC are
solidarily liable for the claims of the complainants and held that BRII was the actual employer of the
complainants, or at the very least, the indirect employer, with AIBC as the labor contractor.

NLRC also held that jurisdiction over BRII was acquired by the POEA Administrator through the
summons served on AIBC, its local agent.

On the sixth issue, NLRC held that the POEA Administrator was correct in denying the Motion to
Declare AIBC in default.

On the seventh issue, which involved other money claims not based on the Amiri Decree No. 23,
NLRC ruled:

(1) that the POEA Administrator has no jurisdiction over the claims for refund of the
SSS premiums and refund of withholding taxes and the claimants should file their
claims for said refund with the appropriate government agencies;

(2) the claimants failed to establish that they are entitled to the claims which are not
based on the overseas employment contracts nor the Amiri Decree No. 23 of 1976;

(3) that the POEA Administrator has no jurisdiction over claims for moral and
exemplary damages and nonetheless, the basis for granting said damages was not
established;

(4) that the claims for salaries corresponding to the unexpired portion of their contract
may be allowed if filed within the three-year prescriptive period;

(5) that the allegation that complainants were prematurely repatriated prior to the
expiration of their overseas contract was not established; and

(6) that the POEA Administrator has no jurisdiction over the complaint for the
suspension or cancellation of the AIBC's recruitment license and the cancellation of
the accreditation of BRII.
NLRC passed sub silencio the last issue, the claim that POEA Case No. (L) 86-65-460 should have
been dismissed on the ground that the claimants in said case were also claimants in POEA Case
No. (L) 84-06-555. Instead of dismissing POEA Case No. (L) 86-65-460, the POEA just resolved the
corresponding claims in POEA Case No. (L) 84-06-555. In other words, the POEA did not pass upon
the same claims twice.

G.R. No. 104776

Claimants in G.R. No. 104776 based their petition for certiorari on the following grounds:

(1) that they were deprived by NLRC and the POEA of their right to a speedy
disposition of their cases as guaranteed by Section 16, Article III of the 1987
Constitution. The POEA Administrator allowed private respondents to file their
answers in two years (on June 19, 1987) after the filing of the original complaint (on
April 2, 1985) and NLRC, in total disregard of its own rules, affirmed the action of the
POEA Administrator;

(2) that NLRC and the POEA Administrator should have declared AIBC and BRII in
default and should have rendered summary judgment on the basis of the pleadings
and evidence submitted by claimants;

(3) the NLRC and POEA Administrator erred in not holding that the labor cases filed
by AIBC and BRII cannot be considered a class suit;

(4) that the prescriptive period for the filing of the claims is ten years; and

(5) that NLRC and the POEA Administrator should have dismissed POEA Case No.
L-86-05-460, the case filed by Atty. Florante de Castro (Rollo, pp. 31-40).

AIBC and BRII, commenting on the petition in G.R. No. 104776, argued:

(1) that they were not responsible for the delay in the disposition of the labor cases,
considering the great difficulty of getting all the records of the more than 1,500
claimants, the piece-meal filing of the complaints and the addition of hundreds of new
claimants by petitioners;

(2) that considering the number of complaints and claimants, it was impossible to
prepare the answers within the ten-day period provided in the NLRC Rules, that
when the motion to declare AIBC in default was filed on July 19, 1987, said party had
already filed its answer, and that considering the staggering amount of the claims
(more than US$50,000,000.00) and the complicated issues raised by the parties, the
ten-day rule to answer was not fair and reasonable;

(3) that the claimants failed to refute NLRC's finding that

there was no common or general interest in the subject matter of the controversy
which was the applicability of the Amiri Decree No. 23. Likewise, the nature of the
claims varied, some being based on salaries pertaining to the unexpired portion of
 the contracts while others being for pure money claims. Each claimant demanded
separate claims peculiar only to himself and depending upon the particular
circumstances obtaining in his case;

(4) that the prescriptive period for filing the claims is that prescribed by Article 291 of
the Labor Code of the Philippines (three years) and not the one prescribed by Article
1144 of the Civil Code of the Philippines (ten years); and

(5) that they are not concerned with the issue of whether POEA Case No. L-86-05-
460 should be dismissed, this being a private quarrel between the two labor lawyers
(Rollo, pp. 292-305).

Attorney's Lien

On November 12, 1992, Atty. Gerardo A. del Mundo moved to strike out the joint manifestations and
motions of AIBC and BRII dated September 2 and 11, 1992, claiming that all the claimants who
entered into the compromise agreements subject of said manifestations and motions were his clients
and that Atty. Florante M. de Castro had no right to represent them in said agreements. He also
claimed that the claimants were paid less than the award given them by NLRC; that Atty. De Castro
collected additional attorney's fees on top of the 25% which he was entitled to receive; and that the
consent of the claimants to the compromise agreements and quitclaims were procured by fraud
(G.R. No. 104776, Rollo, pp. 838-810). In the Resolution dated November 23, 1992, the Court
denied the motion to strike out the Joint Manifestations and Motions dated September 2 and 11,
1992 (G.R. Nos. 104911-14, Rollo, pp. 608-609).

On December 14, 1992, Atty. Del Mundo filed a "Notice and Claim to Enforce Attorney's Lien,"
alleging that the claimants who entered into compromise agreements with AIBC and BRII with the
assistance of Atty. De Castro, had all signed a retainer agreement with his law firm (G.R. No.
104776, Rollo, pp. 623-624; 838-1535).

Contempt of Court

On February 18, 1993, an omnibus motion was filed by Atty. Del Mundo to cite Atty. De Castro and
Atty. Katz Tierra for contempt of court and for violation of Canons 1, 15 and 16 of the Code of
Professional Responsibility. The said lawyers allegedly misled this Court, by making it appear that
the claimants who entered into the compromise agreements were represented by Atty. De Castro,
when in fact they were represented by Atty. Del Mundo (G.R. No. 104776, Rollo, pp. 1560-1614).

On September 23, 1994, Atty. Del Mundo reiterated his charges against Atty. De Castro for unethical
practices and moved for the voiding of the quitclaims submitted by some of the claimants.

G.R. Nos. 104911-14

The claimants in G.R. Nos. 104911-14 based their petition for certiorari on the grounds that NLRC
gravely abused its discretion when it: (1) applied the three-year prescriptive period under the Labor
Code of the Philippines; and (2) it denied the claimant's formula based on an average overtime pay
of three hours a day (Rollo, pp. 18-22).
The claimants argue that said method was proposed by BRII itself during the negotiation for an
amicable settlement of their money claims in Bahrain as shown in the Memorandum dated April 16,
1983 of the Ministry of Labor of Bahrain (Rollo, pp. 21-22).

BRII and AIBC, in their Comment, reiterated their contention in G.R. No. 104776 that the prescriptive
period in the Labor Code of the Philippines, a special law, prevails over that provided in the Civil
Code of the Philippines, a general law.

As to the memorandum of the Ministry of Labor of Bahrain on the method of computing the overtime
pay, BRII and AIBC claimed that they were not bound by what appeared therein, because such
memorandum was proposed by a subordinate Bahrain official and there was no showing that it was
approved by the Bahrain Minister of Labor. Likewise, they claimed that the averaging method was
discussed in the course of the negotiation for the amicable settlement of the dispute and any offer
made by a party therein could not be used as an admission by him (Rollo, pp. 228-236).

G.R. Nos. 105029-32

In G.R. Nos. 105029-32, BRII and AIBC claim that NLRC gravely abused its discretion when it: (1)
enforced the provisions of the Amiri Decree No. 23 of 1976 and not the terms of the employment
contracts; (2) granted claims for holiday, overtime and leave indemnity pay and other benefits, on
evidence admitted in contravention of petitioner's constitutional right to due process; and (3) ordered
the POEA Administrator to hold new hearings for the 683 claimants whose claims had been
dismissed for lack of proof by the POEA Administrator or NLRC itself. Lastly, they allege that
assuming that the Amiri Decree No. 23 of 1976 was applicable, NLRC erred when it did not apply the
one-year prescription provided in said law (Rollo, pp. 29-30).

VI

G.R. No. 104776; G.R. Nos. 104911-14; G.R. Nos. 105029-32

All the petitions raise the common issue of prescription although they disagreed as to the time that
should be embraced within the prescriptive period.

To the POEA Administrator, the prescriptive period was ten years, applying Article 1144 of the Civil
Code of the Philippines. NLRC believed otherwise, fixing the prescriptive period at three years as
provided in Article 291 of the Labor Code of the Philippines.

The claimants in G.R. No. 104776 and G.R. Nos. 104911-14, invoking different grounds, insisted that
NLRC erred in ruling that the prescriptive period applicable to the claims was three years, instead of
ten years, as found by the POEA Administrator.

The Solicitor General expressed his personal view that the prescriptive period was one year as
prescribed by the Amiri Decree No. 23 of 1976 but he deferred to the ruling of NLRC that Article 291
of the Labor Code of the Philippines was the operative law.

The POEA Administrator held the view that:

These money claims (under Article 291 of the Labor Code) refer to those arising from
the employer's violation of the employee's right as provided by the Labor Code.
 In the instant case, what the respondents violated are not the rights of the workers as
provided by the Labor Code, but the provisions of the Amiri Decree No. 23 issued in
Bahrain, which ipso facto amended the worker's contracts of employment.
Respondents consciously failed to conform to these provisions which specifically
provide for the increase of the worker's rate. It was only after June 30, 1983, four
months after the brown builders brought a suit against B & R in Bahrain for this same
claim, when respondent AIBC's contracts have undergone amendments in Bahrain
for the new hires/renewals (Respondent's Exhibit 7).

Hence, premises considered, the applicable law of prescription to this instant case is
Article 1144 of the Civil Code of the Philippines, which provides:

Art. 1144. The following actions may be brought within ten years from
the time the cause of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

Thus, herein money claims of the complainants against the respondents shall
prescribe in ten years from August 16, 1976. Inasmuch as all claims were filed within
the ten-year prescriptive period, no claim suffered the infirmity of being prescribed
(G.R. No. 104776, Rollo, 89-90).

In overruling the POEA Administrator, and holding that the prescriptive period is three years as
provided in Article 291 of the Labor Code of the Philippines, the NLRC argued as follows:

The Labor Code provides that "all money claims arising from employer-employee
relations . . . shall be filed within three years from the time the cause of action
accrued; otherwise they shall be forever barred" (Art. 291, Labor Code, as
amended). This three-year prescriptive period shall be the one applied here and
which should be reckoned from the date of repatriation of each individual
complainant, considering the fact that the case is having (sic) filed in this country. We
do not agree with the POEA Administrator that this three-year prescriptive period
applies only to money claims specifically recoverable under the Philippine Labor
Code. Article 291 gives no such indication. Likewise, We can not consider
complainants' cause/s of action to have accrued from a violation of their employment
contracts. There was no violation; the claims arise from the benefits of the law of the
country where they worked. (G.R. No. 104776, Rollo, pp.
90-91).

Anent the applicability of the one-year prescriptive period as provided by the Amiri Decree No. 23 of
1976, NLRC opined that the applicability of said law was one of characterization, i.e., whether to
characterize the foreign law on prescription or statute of limitation as "substantive" or "procedural."
NLRC cited the decision in Bournias v. Atlantic Maritime Company (220 F. 2d. 152, 2d Cir. [1955],
where the issue was the applicability of the Panama Labor Code in a case filed in the State of New
York for claims arising from said Code. In said case, the claims would have prescribed under the
Panamanian Law but not under the Statute of Limitations of New York. The U.S. Circuit Court of
Appeals held that the Panamanian Law was procedural as it was not "specifically intended to be
substantive," hence, the prescriptive period provided in the law of the forum should apply. The Court
observed:

. . . And where, as here, we are dealing with a statute of limitations of a foreign

country, and it is not clear on the face of the statute that its purpose was to limit the
enforceability, outside as well as within the foreign country concerned, of the
substantive rights to which the statute pertains, we think that as a yardstick for
determining whether that was the purpose this test is the most satisfactory one. It
does not lead American courts into the necessity of examining into the unfamiliar
peculiarities and refinements of different foreign legal systems. . .

The court further noted:

xxx xxx xxx

Applying that test here it appears to us that the libelant is entitled to succeed, for the
respondents have failed to satisfy us that the Panamanian period of limitation in
question was specifically aimed against the particular rights which the libelant seeks
to enforce. The Panama Labor Code is a statute having broad objectives, viz: "The
present Code regulates the relations between capital and labor, placing them on a
basis of social justice, so that, without injuring any of the parties, there may be
guaranteed for labor the necessary conditions for a normal life and to capital an
equitable return to its investment." In pursuance of these objectives the Code gives
laborers various rights against their employers. Article 623 establishes the period of
limitation for all such rights, except certain ones which are enumerated in Article 621.
And there is nothing in the record to indicate that the Panamanian legislature gave
special consideration to the impact of Article 623 upon the particular rights sought to
be enforced here, as distinguished from the other rights to which that Article is also
applicable. Were we confronted with the question of whether the limitation period of
Article 621 (which carves out particular rights to be governed by a shorter limitation
period) is to be regarded as "substantive" or "procedural" under the rule of "specifity"
we might have a different case; but here on the surface of things we appear to be
dealing with a "broad," and not a "specific," statute of limitations (G.R. No.
104776, Rollo, pp.
92-94).

Claimants in G.R. Nos. 104911-14 are of the view that Article 291 of the Labor Code of the
Philippines, which was applied by NLRC, refers only to claims "arising from the employer's violation
of the employee's right as provided by the Labor Code." They assert that their claims are based on
the violation of their employment contracts, as amended by the Amiri Decree No. 23 of 1976 and
therefore the claims may be brought within ten years as provided by Article 1144 of the Civil Code of
the Philippines (Rollo, G.R. Nos. 104911-14, pp.
18-21). To bolster their contention, they cite PALEA v. Philippine Airlines, Inc., 70 SCRA 244 (1976).

AIBC and BRII, insisting that the actions on the claims have prescribed under the Amiri Decree No.
23 of 1976, argue that there is in force in the Philippines a "borrowing law," which is Section 48 of
the Code of Civil Procedure and that where such kind of law exists, it takes precedence over the
common-law conflicts rule (G.R. No. 104776, Rollo, pp. 45-46).
First to be determined is whether it is the Bahrain law on prescription of action based on the Amiri
Decree No. 23 of 1976 or a Philippine law on prescription that shall be the governing law.

Article 156 of the Amiri Decree No. 23 of 1976 provides:

A claim arising out of a contract of employment shall not be actionable after the lapse
of one year from the date of the expiry of the contract. (G.R. Nos. 105029-31, Rollo,
p. 226).

As a general rule, a foreign procedural law will not be applied in the forum. Procedural matters, such
as service of process, joinder of actions, period and requisites for appeal, and so forth, are governed
by the laws of the forum. This is true even if the action is based upon a foreign substantive law
(Restatement of the Conflict of Laws, Sec. 685; Salonga, Private International Law, 131 [1979]).

A law on prescription of actions is sui generis in Conflict of Laws in the sense that it may be viewed
either as procedural or substantive, depending on the characterization given such a law.

Thus in Bournias v. Atlantic Maritime Company, supra, the American court applied the statute of
limitations of New York, instead of the Panamanian law, after finding that there was no showing that
the Panamanian law on prescription was intended to be substantive. Being considered merely a
procedural law even in Panama, it has to give way to the law of the forum on prescription of actions.

However, the characterization of a statute into a procedural or substantive law becomes irrelevant
when the country of the forum has a "borrowing statute." Said statute has the practical effect of
treating the foreign statute of limitation as one of substance (Goodrich, Conflict of Laws 152-153
[1938]). A "borrowing statute" directs the state of the forum to apply the foreign statute of limitations
to the pending claims based on a foreign law (Siegel, Conflicts, 183 [1975]). While there are several
kinds of "borrowing statutes," one form provides that an action barred by the laws of the place where
it accrued, will not be enforced in the forum even though the local statute has not run against it
(Goodrich and Scoles, Conflict of Laws, 152-153 [1938]). Section 48 of our Code of Civil Procedure
is of this kind. Said Section provides:

If by the laws of the state or country where the cause of action arose, the action is
barred, it is also barred in the Philippines Islands.

Section 48 has not been repealed or amended by the Civil Code of the Philippines. Article 2270 of
said Code repealed only those provisions of the Code of Civil Procedures as to which were
inconsistent with it. There is no provision in the Civil Code of the Philippines, which is inconsistent
with or contradictory to Section 48 of the Code of Civil Procedure (Paras, Philippine Conflict of Laws
104 [7th ed.]).

In the light of the 1987 Constitution, however, Section 48 cannot be enforced ex proprio
vigore insofar as it ordains the application in this jurisdiction of Section 156 of the Amiri Decree No.
23 of 1976.

The courts of the forum will not enforce any foreign claim obnoxious to the forum's public policy
(Canadian Northern Railway Co. v. Eggen, 252 U.S. 553, 40 S. Ct. 402, 64 L. ed. 713 [1920]). To
enforce the one-year prescriptive period of the Amiri Decree No. 23 of 1976 as regards the claims in
question would contravene the public policy on the protection to labor.
In the Declaration of Principles and State Policies, the 1987 Constitution emphasized that:

The state shall promote social justice in all phases of national development. (Sec.
10).

The state affirms labor as a primary social economic force. It shall protect the rights
of workers and promote their welfare (Sec. 18).

In article XIII on Social Justice and Human Rights, the 1987 Constitution provides:

Sec. 3. The State shall afford full protection to labor, local and overseas, organized
and unorganized, and promote full employment and equality of employment
opportunities for all.

Having determined that the applicable law on prescription is the Philippine law, the next question is
whether the prescriptive period governing the filing of the claims is three years, as provided by the
Labor Code or ten years, as provided by the Civil Code of the Philippines.

The claimants are of the view that the applicable provision is Article 1144 of the Civil Code of the
Philippines, which provides:

The following actions must be brought within ten years from the time the right of
action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

NLRC, on the other hand, believes that the applicable provision is Article 291 of the Labor Code of
the Philippines, which in pertinent part provides:

Money claims-all money claims arising from employer-employee relations accruing

during the effectivity of this Code shall be filed within three (3) years from the time
the cause of action accrued, otherwise they shall be forever barred.

xxx xxx xxx

The case of Philippine Air Lines Employees Association v. Philippine Air Lines, Inc., 70 SCRA 244
(1976) invoked by the claimants in G.R. Nos. 104911-14 is inapplicable to the cases at bench (Rollo,
p. 21). The said case involved the correct computation of overtime pay as provided in the collective
bargaining agreements and not the Eight-Hour Labor Law.

As noted by the Court: "That is precisely why petitioners did not make any reference as to the
computation for overtime work under the Eight-Hour Labor Law (Secs. 3 and 4, CA No. 494) and
instead insisted that work computation provided in the collective bargaining agreements between the
parties be observed. Since the claim for pay differentials is primarily anchored on the written
contracts between the litigants, the ten-year prescriptive period provided by Art. 1144(1) of the New
Civil Code should govern."

Section 7-a of the Eight-Hour Labor Law (CA No. 444 as amended by R.A. No. 19933) provides:

Any action to enforce any cause of action under this Act shall be commenced within
three years after the cause of action accrued otherwise such action shall be forever
barred, . . . .

The court further explained:

The three-year prescriptive period fixed in the Eight-Hour Labor Law (CA No. 444 as
amended) will apply, if the claim for differentials for overtime work is solely based on
said law, and not on a collective bargaining agreement or any other contract. In the
instant case, the claim for overtime compensation is not so much because of
Commonwealth Act No. 444, as amended but because the claim is demandable right
of the employees, by reason of the above-mentioned collective bargaining
agreement.

Section 7-a of the Eight-Hour Labor Law provides the prescriptive period for filing "actions to enforce
any cause of action under said law." On the other hand, Article 291 of the Labor Code of the
Philippines provides the prescriptive period for filing "money claims arising from employer-employee
relations." The claims in the cases at bench all arose from the employer-employee relations, which is
broader in scope than claims arising from a specific law or from the collective bargaining agreement.

The contention of the POEA Administrator, that the three-year prescriptive period under Article 291 of
the Labor Code of the Philippines applies only to money claims specifically recoverable under said
Code, does not find support in the plain language of the provision. Neither is the contention of the
claimants in G.R. Nos. 104911-14 that said Article refers only to claims "arising from the employer's
violation of the employee's right," as provided by the Labor Code supported by the facial reading of
the provision.

VII

G.R. No. 104776

A. As to the first two grounds for the petition in G.R. No. 104776, claimants aver: (1) that while their
complaints were filed on June 6, 1984 with POEA, the case was decided only on January 30, 1989,
a clear denial of their right to a speedy disposition of the case; and (2) that NLRC and the POEA
Administrator should have declared AIBC and BRII in default (Rollo, pp.
31-35).

Claimants invoke a new provision incorporated in the 1987 Constitution, which provides:

Sec. 16. All persons shall have the right to a speedy disposition of their cases before
all judicial, quasi-judicial, or administrative bodies.

It is true that the constitutional right to "a speedy disposition of cases" is not limited to the accused in
criminal proceedings but extends to all parties in all cases, including civil and administrative cases,
and in all proceedings, including judicial and quasi-judicial hearings. Hence, under the Constitution,
any party to a case may demand expeditious action on all officials who are tasked with the
administration of justice.

However, as held in Caballero v. Alfonso, Jr., 153 SCRA 153 (1987), "speedy disposition of cases" is
a relative term. Just like the constitutional guarantee of "speedy trial" accorded to the accused in all
criminal proceedings, "speedy disposition of cases" is a flexible concept. It is consistent with delays
and depends upon the circumstances of each case. What the Constitution prohibits are
unreasonable, arbitrary and oppressive delays which render rights nugatory.

Caballero laid down the factors that may be taken into consideration in determining whether or not
the right to a "speedy disposition of cases" has been violated, thus:

In the determination of whether or not the right to a "speedy trial" has been violated,
certain factors may be considered and balanced against each other. These are
length of delay, reason for the delay, assertion of the right or failure to assert it, and
prejudice caused by the delay. The same factors may also be considered in
answering judicial inquiry whether or not a person officially charged with the
administration of justice has violated the speedy disposition of cases.

Likewise, in Gonzales v. Sandiganbayan, 199 SCRA 298, (1991), we held:

It must be here emphasized that the right to a speedy disposition of a case, like the
right to speedy trial, is deemed violated only when the proceeding is attended by
vexatious, capricious, and oppressive delays; or when unjustified postponements of
the trial are asked for and secured, or when without cause or justified motive a long
period of time is allowed to elapse without the party having his case tried.

Since July 25, 1984 or a month after AIBC and BRII were served with a copy of the amended
complaint, claimants had been asking that AIBC and BRII be declared in default for failure to file their
answers within the ten-day period provided in Section 1, Rule III of Book VI of the Rules and
Regulations of the POEA. At that time, there was a pending motion of AIBC and BRII to strike out of
the records the amended complaint and the "Compliance" of claimants to the order of the POEA,
requiring them to submit a bill of particulars.

The cases at bench are not of the run-of-the-mill variety, such that their final disposition in the
administrative level after seven years from their inception, cannot be said to be attended by
unreasonable, arbitrary and oppressive delays as to violate the constitutional rights to a speedy
disposition of the cases of complainants.

The amended complaint filed on June 6, 1984 involved a total of 1,767 claimants. Said complaint
had undergone several amendments, the first being on April 3, 1985.

The claimants were hired on various dates from 1975 to 1983. They were deployed in different
areas, one group in and the other groups outside of, Bahrain. The monetary claims totalling more
than US$65 million according to Atty. Del Mundo, included:

1. Unexpired portion of contract;

 2. Interest earnings of Travel and Fund;

3. Retirement and Savings Plan benefit;

4. War Zone bonus or premium pay of at least 100% of basic pay;

5. Area Differential pay;

6. Accrued Interest of all the unpaid benefits;

7. Salary differential pay;

8. Wage Differential pay;

9. Refund of SSS premiums not remitted to Social Security System;

10. Refund of Withholding Tax not remitted to Bureau of Internal Revenue (B.I.R.);

11. Fringe Benefits under Brown & Root's "A Summary of Employees Benefits
consisting of 43 pages (Annex "Q" of Amended Complaint);

12. Moral and Exemplary Damages;

13. Attorney's fees of at least ten percent of amounts;

14. Other reliefs, like suspending and/or cancelling the license to recruit of AIBC and
issued by the POEA; and

15. Penalty for violation of Article 34 (Prohibited practices) not excluding reportorial
requirements thereof (NLRC Resolution, September 2, 1991, pp. 18-19; G.R. No.
104776, Rollo, pp. 73-74).

Inasmuch as the complaint did not allege with sufficient definiteness and clarity of some facts, the
claimants were ordered to comply with the motion of AIBC for a bill of particulars. When claimants
filed their "Compliance and Manifestation," AIBC moved to strike out the complaint from the records
for failure of claimants to submit a proper bill of particulars. While the POEA Administrator denied the
motion to strike out the complaint, he ordered the claimants "to correct the deficiencies" pointed out
by AIBC.

Before an intelligent answer could be filed in response to the complaint, the records of employment
of the more than 1,700 claimants had to be retrieved from various countries in the Middle East.
Some of the records dated as far back as 1975.

The hearings on the merits of the claims before the POEA Administrator were interrupted several
times by the various appeals, first to NLRC and then to the Supreme Court.

Aside from the inclusion of additional claimants, two new cases were filed against AIBC and BRII on
October 10, 1985 (POEA Cases Nos.
L-85-10-777 and L-85-10-779). Another complaint was filed on May 29, 1986 (POEA Case No. L-86-
05-460). NLRC, in exasperation, noted that the exact number of claimants had never been
completely established (Resolution, Sept. 2, 1991, G.R. No. 104776, Rollo, p. 57). All the three new
cases were consolidated with POEA Case No. L-84-06-555.

NLRC blamed the parties and their lawyers for the delay in terminating the proceedings, thus:

These cases could have been spared the long and arduous route towards resolution
had the parties and their counsel been more interested in pursuing the truth and the
merits of the claims rather than exhibiting a fanatical reliance on technicalities.
Parties and counsel have made these cases a litigation of emotion. The
intransigence of parties and counsel is remarkable. As late as last month, this
Commission made a last and final attempt to bring the counsel of all the parties (this
Commission issued a special order directing respondent Brown & Root's resident
agent/s to appear) to come to a more conciliatory stance. Even this failed (Rollo,
p. 58).

The squabble between the lawyers of claimants added to the delay in the disposition of the cases, to
the lament of NLRC, which complained:

It is very evident from the records that the protagonists in these consolidated cases
appear to be not only the individual complainants, on the one hand, and AIBC and
Brown & Root, on the other hand. The two lawyers for the complainants, Atty.
Gerardo Del Mundo and Atty. Florante De Castro, have yet to settle the right of
representation, each one persistently claiming to appear in behalf of most of the
complainants. As a result, there are two appeals by the complainants. Attempts by
this Commission to resolve counsels' conflicting claims of their respective authority to
represent the complainants prove futile. The bickerings by these two counsels are
reflected in their pleadings. In the charges and countercharges of falsification of
documents and signatures, and in the disbarment proceedings by one against the
other. All these have, to a large extent, abetted in confounding the issues raised in
these cases, jumble the presentation of evidence, and even derailed the prospects of
an amicable settlement. It would not be far-fetched to imagine that both counsel,
unwittingly, perhaps, painted a rainbow for the complainants, with the proverbial pot
of gold at its end containing more than US$100 million, the aggregate of the claims in
these cases. It is, likewise, not improbable that their misplaced zeal and exuberance
caused them to throw all caution to the wind in the matter of elementary rules of
procedure and evidence (Rollo, pp. 58-59).

Adding to the confusion in the proceedings before NLRC, is the listing of some of the complainants
in both petitions filed by the two lawyers. As noted by NLRC, "the problem created by this situation is
that if one of the two petitions is dismissed, then the parties and the public respondents would not
know which claim of which petitioner was dismissed and which was not."

B. Claimants insist that all their claims could properly be consolidated in a "class suit" because "all
the named complainants have similar money claims and similar rights sought irrespective of whether
they worked in Bahrain, United Arab Emirates or in Abu Dhabi, Libya or in any part of the Middle
East" (Rollo, pp. 35-38).
A class suit is proper where the subject matter of the controversy is one of common or general
interest to many and the parties are so numerous that it is impracticable to bring them all before the
court (Revised Rules of Court, Rule 3, Sec. 12).

While all the claims are for benefits granted under the Bahrain Law, many of the claimants worked
outside Bahrain. Some of the claimants were deployed in Indonesia and Malaysia under different
terms and conditions of employment.

NLRC and the POEA Administrator are correct in their stance that inasmuch as the first requirement
of a class suit is not present (common or general interest based on the Amiri Decree of the State of
Bahrain), it is only logical that only those who worked in Bahrain shall be entitled to file their claims in
a class suit.

While there are common defendants (AIBC and BRII) and the nature of the claims is the same (for
employee's benefits), there is no common question of law or fact. While some claims are based on
the Amiri Law of Bahrain, many of the claimants never worked in that country, but were deployed
elsewhere. Thus, each claimant is interested only in his own demand and not in the claims of the
other employees of defendants. The named claimants have a special or particular interest in specific
benefits completely different from the benefits in which the other named claimants and those
included as members of a "class" are claiming (Berses v. Villanueva, 25 Phil. 473 [1913]). It appears
that each claimant is only interested in collecting his own claims. A claimants has no concern in
protecting the interests of the other claimants as shown by the fact, that hundreds of them have
abandoned their co-claimants and have entered into separate compromise settlements of their
respective claims. A principle basic to the concept of "class suit" is that plaintiffs brought on the
record must fairly represent and protect the interests of the others (Dimayuga v. Court of Industrial
Relations, 101 Phil. 590 [1957]). For this matter, the claimants who worked in Bahrain can not be
allowed to sue in a class suit in a judicial proceeding. The most that can be accorded to them under
the Rules of Court is to be allowed to join as plaintiffs in one complaint (Revised Rules of Court, Rule
3, Sec. 6).

The Court is extra-cautious in allowing class suits because they are the exceptions to the
condition sine qua non, requiring the joinder of all indispensable parties.

In an improperly instituted class suit, there would be no problem if the decision secured is favorable
to the plaintiffs. The problem arises when the decision is adverse to them, in which case the others
who were impleaded by their self-appointed representatives, would surely claim denial of due
process.

C. The claimants in G.R. No. 104776 also urged that the POEA Administrator and NLRC should
have declared Atty. Florante De Castro guilty of "forum shopping, ambulance chasing activities,
falsification, duplicity and other unprofessional activities" and his appearances as counsel for some
of the claimants as illegal (Rollo, pp. 38-40).

The Anti-Forum Shopping Rule (Revised Circular No. 28-91) is intended to put a stop to the practice
of some parties of filing multiple petitions and complaints involving the same issues, with the result
that the courts or agencies have to resolve the same issues. Said Rule, however, applies only to
petitions filed with the Supreme Court and the Court of Appeals. It is entitled "Additional
Requirements For Petitions Filed with the Supreme Court and the Court of Appeals To Prevent
Forum Shopping or Multiple Filing of Petitioners and Complainants." The first sentence of the circular
expressly states that said circular applies to an governs the filing of petitions in the Supreme Court
and the Court of Appeals.

While Administrative Circular No. 04-94 extended the application of the anti-forum shopping rule to
the lower courts and administrative agencies, said circular took effect only on April 1, 1994.

POEA and NLRC could not have entertained the complaint for unethical conduct against Atty. De
Castro because NLRC and POEA have no jurisdiction to investigate charges of unethical conduct of
lawyers.

Attorney's Lien

The "Notice and Claim to Enforce Attorney's Lien" dated December 14, 1992 was filed by Atty.
Gerardo A. Del Mundo to protect his claim for attorney's fees for legal services rendered in favor of
the claimants (G.R. No. 104776, Rollo, pp. 841-844).

A statement of a claim for a charging lien shall be filed with the court or administrative agency which
renders and executes the money judgment secured by the lawyer for his clients. The lawyer shall
cause written notice thereof to be delivered to his clients and to the adverse party (Revised Rules of
Court, Rule 138, Sec. 37). The statement of the claim for the charging lien of Atty. Del Mundo should
have been filed with the administrative agency that rendered and executed the judgment.

Contempt of Court

The complaint of Atty. Gerardo A. Del Mundo to cite Atty. Florante De Castro and Atty. Katz Tierra for
violation of the Code of Professional Responsibility should be filed in a separate and appropriate
proceeding.

G.R. No. 104911-14

Claimants charge NLRC with grave abuse of discretion in not accepting their formula of "Three
Hours Average Daily Overtime" in computing the overtime payments. They claim that it was BRII
itself which proposed the formula during the negotiations for the settlement of their claims in Bahrain
and therefore it is in estoppel to disclaim said offer (Rollo, pp. 21-22).

Claimants presented a Memorandum of the Ministry of Labor of Bahrain dated April 16, 1983, which
in pertinent part states:

After the perusal of the memorandum of the Vice President and the Area Manager,
Middle East, of Brown & Root Co. and the Summary of the compensation offered by
the Company to the employees in respect of the difference of pay of the wages of the
overtime and the difference of vacation leave and the perusal of the documents
attached thereto i.e., minutes of the meetings between the Representative of the
employees and the management of the Company, the complaint filed by the
employees on 14/2/83 where they have claimed as hereinabove stated, sample of
the Service Contract executed between one of the employees and the company
through its agent in (sic) Philippines, Asia International Builders Corporation where it
has been provided for 48 hours of work per week and an annual leave of 12 days
and an overtime wage of 1 & 1/4 of the normal hourly wage.
 xxx xxx xxx

The Company in its computation reached the following averages:

A. 1. The average duration of the actual service of the employee is 35 months for the
Philippino (sic) employees . . . .

2. The average wage per hour for the Philippino (sic) employee is US$2.69 . . . .

3. The average hours for the overtime is 3 hours plus in all public holidays and
weekends.

4. Payment of US$8.72 per months (sic) of service as compensation for the

difference of the wages of the overtime done for each Philippino (sic) employee . . .
(Rollo, p.22).

BRII and AIBC countered: (1) that the Memorandum was not prepared by them but by a subordinate
official in the Bahrain Department of Labor; (2) that there was no showing that the Bahrain Minister
of Labor had approved said memorandum; and (3) that the offer was made in the course of the
negotiation for an amicable settlement of the claims and therefore it was not admissible in evidence
to prove that anything is due to the claimants.

While said document was presented to the POEA without observing the rule on presenting official
documents of a foreign government as provided in Section 24, Rule 132 of the 1989 Revised Rules
on Evidence, it can be admitted in evidence in proceedings before an administrative body. The
opposing parties have a copy of the said memorandum, and they could easily verify its authenticity
and accuracy.

The admissibility of the offer of compromise made by BRII as contained in the memorandum is
another matter. Under Section 27, Rule 130 of the 1989 Revised Rules on Evidence, an offer to
settle a claim is not an admission that anything is due.

Said Rule provides:

Offer of compromise not admissible. In civil cases, an offer of compromise is not

an admission of any liability, and is not admissible in evidence against the offeror.

This Rule is not only a rule of procedure to avoid the cluttering of the record with unwanted evidence
but a statement of public policy. There is great public interest in having the protagonists settle their
differences amicable before these ripen into litigation. Every effort must be taken to encourage them
to arrive at a settlement. The submission of offers and counter-offers in the negotiation table is a
step in the right direction. But to bind a party to his offers, as what claimants would make this Court
do, would defeat the salutary purpose of the Rule.

G.R. Nos. 105029-32

A. NLRC applied the Amiri Decree No. 23 of 1976, which provides for greater benefits than those
stipulated in the overseas-employment contracts of the claimants. It was of the belief that "where the
laws of the host country are more favorable and beneficial to the workers, then the laws of the host
country shall form part of the overseas employment contract." It quoted with approval the
observation of the POEA Administrator that ". . . in labor proceedings, all doubts in the
implementation of the provisions of the Labor Code and its implementing regulations shall be
resolved in favor of labor" (Rollo, pp. 90-94).

AIBC and BRII claim that NLRC acted capriciously and whimsically when it refused to enforce the
overseas-employment contracts, which became the law of the parties. They contend that the
principle that a law is deemed to be a part of a contract applies only to provisions of Philippine law in
relation to contracts executed in the Philippines.

The overseas-employment contracts, which were prepared by AIBC and BRII themselves, provided
that the laws of the host country became applicable to said contracts if they offer terms and
conditions more favorable that those stipulated therein. It was stipulated in said contracts that:

The Employee agrees that while in the employ of the Employer, he will not engage in
any other business or occupation, nor seek employment with anyone other than the
Employer; that he shall devote his entire time and attention and his best energies,
and abilities to the performance of such duties as may be assigned to him by the
Employer; that he shall at all times be subject to the direction and control of the
Employer; and that the benefits provided to Employee hereunder are substituted for
and in lieu of all other benefits provided by any applicable law, provided of course,
that total remuneration and benefits do not fall below that of the host country
regulation or custom, it being understood that should applicable laws establish that
fringe benefits, or other such benefits additional to the compensation herein agreed
cannot be waived, Employee agrees that such compensation will be adjusted
downward so that the total compensation hereunder, plus the non-waivable benefits
shall be equivalent to the compensation herein agreed (Rollo, pp. 352-353).

The overseas-employment contracts could have been drafted more felicitously. While a part thereof
provides that the compensation to the employee may be "adjusted downward so that the total
computation (thereunder) plus the non-waivable benefits shall be equivalent to the compensation"
therein agreed, another part of the same provision categorically states "that total remuneration and
benefits do not fall below that of the host country regulation and custom."

Any ambiguity in the overseas-employment contracts should be interpreted against AIBC and BRII,
the parties that drafted it (Eastern Shipping Lines, Inc. v. Margarine-Verkaufs-Union, 93 SCRA 257
[1979]).

Article 1377 of the Civil Code of the Philippines provides:

The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.

Said rule of interpretation is applicable to contracts of adhesion where there is already a prepared
form containing the stipulations of the employment contract and the employees merely "take it or
leave it." The presumption is that there was an imposition by one party against the other and that the
employees signed the contracts out of necessity that reduced their bargaining power (Fieldmen's
Insurance Co., Inc. v. Songco, 25 SCRA 70 [1968]).
Applying the said legal precepts, we read the overseas-employment contracts in question as
adopting the provisions of the Amiri Decree No. 23 of 1976 as part and parcel thereof.

The parties to a contract may select the law by which it is to be governed (Cheshire, Private
International Law, 187 [7th ed.]). In such a case, the foreign law is adopted as a "system" to regulate
the relations of the parties, including questions of their capacity to enter into the contract, the
formalities to be observed by them, matters of performance, and so forth (16 Am Jur 2d,
150-161).

Instead of adopting the entire mass of the foreign law, the parties may just agree that specific
provisions of a foreign statute shall be deemed incorporated into their contract "as a set of terms."
By such reference to the provisions of the foreign law, the contract does not become a foreign
contract to be governed by the foreign law. The said law does not operate as a statute but as a set of
contractual terms deemed written in the contract (Anton, Private International Law, 197 [1967]; Dicey
and Morris, The Conflict of Laws, 702-703, [8th ed.]).

A basic policy of contract is to protect the expectation of the parties (Reese, Choice of Law in Torts
and Contracts, 16 Columbia Journal of Transnational Law 1, 21 [1977]). Such party expectation is
protected by giving effect to the parties' own choice of the applicable law (Fricke v. Isbrandtsen Co.,
Inc., 151 F. Supp. 465, 467 [1957]). The choice of law must, however, bear some relationship to the
parties or their transaction (Scoles and Hayes, Conflict of Law 644-647 [1982]). There is no question
that the contracts sought to be enforced by claimants have a direct connection with the Bahrain law
because the services were rendered in that country.

In Norse Management Co. (PTE) v. National Seamen Board, 117 SCRA 486 (1982), the
"Employment Agreement," between Norse Management Co. and the late husband of the private
respondent, expressly provided that in the event of illness or injury to the employee arising out of
and in the course of his employment and not due to his own misconduct, "compensation shall be
paid to employee in accordance with and subject to the limitation of the Workmen's Compensation
Act of the Republic of the Philippines or the Worker's Insurance Act of registry of the vessel,
whichever is greater." Since the laws of Singapore, the place of registry of the vessel in which the
late husband of private respondent served at the time of his death, granted a better compensation
package, we applied said foreign law in preference to the terms of the contract.

The case of Bagong Filipinas Overseas Corporation v. National Labor Relations Commission, 135
SCRA 278 (1985), relied upon by AIBC and BRII is inapposite to the facts of the cases at bench. The
issue in that case was whether the amount of the death compensation of a Filipino seaman should
be determined under the shipboard employment contract executed in the Philippines or the
Hongkong law. Holding that the shipboard employment contract was controlling, the court
differentiated said case from Norse Management Co. in that in the latter case there was an express
stipulation in the employment contract that the foreign law would be applicable if it afforded greater
compensation.

B. AIBC and BRII claim that they were denied by NLRC of their right to due process when said
administrative agency granted Friday-pay differential, holiday-pay differential, annual-leave
differential and leave indemnity pay to the claimants listed in Annex B of the Resolution. At first,
NLRC reversed the resolution of the POEA Administrator granting these benefits on a finding that the
POEA Administrator failed to consider the evidence presented by AIBC and BRII, that some findings
of fact of the POEA Administrator were not supported by the evidence, and that some of the
evidence were not disclosed to AIBC and BRII (Rollo, pp. 35-36; 106-107). But instead of remanding
the case to the POEA Administrator for a new hearing, which means further delay in the termination
of the case, NLRC decided to pass upon the validity of the claims itself. It is this procedure that AIBC
and BRII complain of as being irregular and a "reversible error."

They pointed out that NLRC took into consideration evidence submitted on appeal, the same
evidence which NLRC found to have been "unilaterally submitted by the claimants and not disclosed
to the adverse parties" (Rollo, pp. 37-39).

NLRC noted that so many pieces of evidentiary matters were submitted to the POEA administrator
by the claimants after the cases were deemed submitted for resolution and which were taken
cognizance of by the POEA Administrator in resolving the cases. While AIBC and BRII had no
opportunity to refute said evidence of the claimants before the POEA Administrator, they had all the
opportunity to rebut said evidence and to present their
counter-evidence before NLRC. As a matter of fact, AIBC and BRII themselves were able to present
before NLRC additional evidence which they failed to present before the POEA Administrator.

Under Article 221 of the Labor Code of the Philippines, NLRC is enjoined to "use every and all
reasonable means to ascertain the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process."

In deciding to resolve the validity of certain claims on the basis of the evidence of both parties
submitted before the POEA Administrator and NLRC, the latter considered that it was not expedient
to remand the cases to the POEA Administrator for that would only prolong the already protracted
legal controversies.

Even the Supreme Court has decided appealed cases on the merits instead of remanding them to
the trial court for the reception of evidence, where the same can be readily determined from the
uncontroverted facts on record (Development Bank of the Philippines v. Intermediate Appellate
Court, 190 SCRA 653 [1990]; Pagdonsalan v. National Labor Relations Commission, 127 SCRA 463
[1984]).

C. AIBC and BRII charge NLRC with grave abuse of discretion when it ordered the POEA
Administrator to hold new hearings for 683 claimants listed in Annex D of the Resolution dated
September 2, 1991 whose claims had been denied by the POEA Administrator "for lack of proof" and
for 69 claimants listed in Annex E of the same Resolution, whose claims had been found by NLRC
itself as not "supported by evidence" (Rollo, pp. 41-45).

NLRC based its ruling on Article 218(c) of the Labor Code of the Philippines, which empowers it "[to]
conduct investigation for the determination of a question, matter or controversy, within its jurisdiction,
. . . ."

It is the posture of AIBC and BRII that NLRC has no authority under Article 218(c) to remand a case
involving claims which had already been dismissed because such provision contemplates only
situations where there is still a question or controversy to be resolved (Rollo, pp. 41-42).

A principle well embedded in Administrative Law is that the technical rules of procedure and
evidence do not apply to the proceedings conducted by administrative agencies (First Asian
Transport & Shipping Agency, Inc. v. Ople, 142 SCRA 542 [1986]; Asiaworld Publishing House, Inc.
v. Ople, 152 SCRA 219 [1987]). This principle is enshrined in Article 221 of the Labor Code of the
Philippines and is now the bedrock of proceedings before NLRC.

Notwithstanding the non-applicability of technical rules of procedure and evidence in administrative

proceedings, there are cardinal rules which must be observed by the hearing officers in order to
comply with the due process requirements of the Constitution. These cardinal rules are collated
in Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).

VIII

The three petitions were filed under Rule 65 of the Revised Rules of Court on the grounds that
NLRC had committed grave abuse of discretion amounting to lack of jurisdiction in issuing the
questioned orders. We find no such abuse of discretion.

WHEREFORE, all the three petitions are DISMISSED.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 104235 November 18, 1993

SPOUSES CESAR & SUTHIRA ZALAMEA and LIANA ZALAMEA, petitioners,

vs.
HONORABLE COURT OF APPEALS and TRANSWORLD AIRLINES, INC., respondents.

Sycip, Salazar, Hernandez, Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for private-respondent.

NOCON, J.:

Disgruntled over TransWorld Airlines, Inc.'s refusal to accommodate them in TWA Flight 007
departing from New York to Los Angeles on June 6, 1984 despite possession of confirmed tickets,
petitioners filed an action for damages before the Regional Trial Court of Makati, Metro Manila,
Branch 145. Advocating petitioner's position, the trial court categorically ruled that respondent
TransWorld Airlines (TWA) breached its contract of carriage with petitioners and that said breach
was "characterized by bad faith." On appeal, however, the appellate court found that while there was
a breach of contract on respondent TWA's part, there was neither fraud nor bad faith because under
the Code of Federal Regulations by the Civil Aeronautics Board of the United States of America it is
allowed to overbook flights.

The factual backdrop of the case is as follows:

Petitioners-spouses Cesar C. Zalamea and Suthira Zalamea, and their daughter, Liana Zalamea,
purchased three (3) airline tickets from the Manila agent of respondent TransWorld Airlines, Inc. for a
flight to New York to Los Angeles on June 6, 1984. The tickets of petitioners-spouses were
purchased at a discount of 75% while that of their daughter was a full fare ticket. All three tickets
represented confirmed reservations.

While in New York, on June 4, 1984, petitioners received notice of the reconfirmation of their
reservations for said flight. On the appointed date, however, petitioners checked in at 10:00 a.m., an
hour earlier than the scheduled flight at 11:00 a.m. but were placed on the wait-list because the
number of passengers who had checked in before them had already taken all the seats available on
the flight. Liana Zalamea appeared as the No. 13 on the wait-list while the two other Zalameas were
listed as "No. 34, showing a party of two." Out of the 42 names on the wait list, the first 22 names
were eventually allowed to board the flight to Los Angeles, including petitioner Cesar Zalamea. The
two others, on the other hand, at No. 34, being ranked lower than 22, were not able to fly. As it were,
those holding full-fare tickets were given first priority among the wait-listed passengers. Mr. Zalamea,
who was holding the full-fare ticket of his daughter, was allowed to board the plane; while his wife
and daughter, who presented the discounted tickets were denied boarding. According to Mr.
Zalamea, it was only later when he discovered the he was holding his daughter's full-fare ticket.

Even in the next TWA flight to Los Angeles Mrs. Zalamea and her daughter, could not be
accommodated because it was also fully booked. Thus, they were constrained to book in another
flight and purchased two tickets from American Airlines at a cost of Nine Hundred Eighteen
($918.00) Dollars.

Upon their arrival in the Philippines, petitioners filed an action for damages based on breach of
contract of air carriage before the Regional Trial Court of Makati, Metro Manila, Branch 145. As
aforesaid, the lower court ruled in favor of petitioners in its decision 1 dated January 9, 1989 the
dispositive portion of which states as follows:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay plaintiffs

the following amounts:

(1) US $918.00, or its peso equivalent at the time of payment representing the price
of the tickets bought by Suthira and Liana Zalamea from American Airlines, to enable
them to fly to Los Angeles from New York City;

(2) US $159.49, or its peso equivalent at the time of payment, representing the price
of Suthira Zalamea's ticket for TWA Flight 007;

(3) Eight Thousand Nine Hundred Thirty-Four Pesos and Fifty Centavos (P8,934.50,
Philippine Currency, representing the price of Liana Zalamea's ticket for TWA Flight
007,

(4) Two Hundred Fifty Thousand Pesos (P250,000.00), Philippine Currency, as moral
damages for all the plaintiffs'

(5) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as and for
attorney's fees; and

(6) The costs of suit.

SO ORDERED. 2

On appeal, the respondent Court of Appeals held that moral damages are recoverable in a damage
suit predicated upon a breach of contract of carriage only where there is fraud or bad faith. Since it is
a matter of record that overbooking of flights is a common and accepted practice of airlines in the
United States and is specifically allowed under the Code of Federal Regulations by the Civil
Aeronautics Board, no fraud nor bad faith could be imputed on respondent TransWorld Airlines.

Moreover, while respondent TWA was remiss in not informing petitioners that the flight was
overbooked and that even a person with a confirmed reservation may be denied accommodation on
an overbooked flight, nevertheless it ruled that such omission or negligence cannot under the
circumstances be considered to be so gross as to amount to bad faith.
Finally, it also held that there was no bad faith in placing petitioners in the wait-list along with forty-
eight (48) other passengers where full-fare first class tickets were given priority over discounted
tickets.

The dispositive portion of the decision of respondent Court of Appeals 3 dated October 25, 1991 states
as follows:

WHEREFORE, in view of all the foregoing, the decision under review is hereby
MODIFIED in that the award of moral and exemplary damages to the plaintiffs is
eliminated, and the defendant-appellant is hereby ordered to pay the plaintiff the
following amounts:

(1) US$159.49, or its peso equivalent at the time of the payment, representing the
price of Suthira Zalamea's ticket for TWA Flight 007;

(2) US$159.49, or its peso equivalent at the time of the payment, representing the
price of Cesar Zalamea's ticket for TWA Flight 007;

(3) P50,000.00 as and for attorney's fees.

(4) The costs of suit.

SO ORDERED. 4

Not satisfied with the decision, petitioners raised the case on petition for review on certiorari and
alleged the following errors committed by the respondent Court of Appeals, to wit:

I.

. . . IN HOLDING THAT THERE WAS NO FRAUD OR BAD FAITH ON THE PART OF

RESPONDENT TWA BECAUSE IT HAS A RIGHT TO OVERBOOK FLIGHTS.

II.

. . . IN ELIMINATING THE AWARD OF EXEMPLARY DAMAGES.

III.

. . . IN NOT ORDERING THE REFUND OF LIANA ZALAMEA'S TWA TICKET AND

PAYMENT FOR THE AMERICAN AIRLINES
TICKETS. 5

That there was fraud or bad faith on the part of respondent airline when it did not allow petitioners to
board their flight for Los Angeles in spite of confirmed tickets cannot be disputed. The U.S. law or
regulation allegedly authorizing overbooking has never been proved. Foreign laws do not prove
themselves nor can the courts take judicial notice of them. Like any other fact, they must be alleged
and proved. 6 Written law may be evidenced by an official publication thereof or by a copy attested by the
officer having the legal custody of the record, or by his deputy, and accompanied with a certificate that
such officer has custody. The certificate may be made by a secretary of an embassy or legation, consul
general, consul, vice-consul, or consular agent or by any officer in the foreign service of the Philippines
stationed in the foreign country in which the record is kept, and authenticated by the seal of his office. 7

Respondent TWA relied solely on the statement of Ms. Gwendolyn Lather, its customer service
agent, in her deposition dated January 27, 1986 that the Code of Federal Regulations of the Civil
Aeronautics Board allows overbooking. Aside from said statement, no official publication of said
code was presented as evidence. Thus, respondent court's finding that overbooking is specifically
allowed by the US Code of Federal Regulations has no basis in fact.

Even if the claimed U.S. Code of Federal Regulations does exist, the same is not applicable to the
case at bar in accordance with the principle of lex loci contractus which require that the law of the
place where the airline ticket was issued should be applied by the court where the passengers are
residents and nationals of the forum and the ticket is issued in such State by the defendant
airline. 8 Since the tickets were sold and issued in the Philippines, the applicable law in this case would be
Philippine law.

Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling the
passengers concerned to an award of moral damages. In Alitalia Airways v. Court of Appeals, 9 where
passengers with confirmed bookings were refused carriage on the last minute, this Court held that when
an airline issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of
carriage arises, and the passenger has every right to expect that he would fly on that flight and on that
date. If he does not, then the carrier opens itself to a suit for breach of contract of carriage. Where an
airline had deliberately overbooked, it took the risk of having to deprive some passengers of their seats in
case all of them would show up for the check in. For the indignity and inconvenience of being refused a
confirmed seat on the last minute, said passenger is entitled to an award of moral damages.

Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals, 10 where private respondent was not allowed
to board the plane because her seat had already been given to another passenger even before the
allowable period for passengers to check in had lapsed despite the fact that she had a confirmed ticket
and she had arrived on time, this Court held that petitioner airline acted in bad faith in violating private
respondent's rights under their contract of carriage and is therefore liable for the injuries she has
sustained as a result.

In fact, existing jurisprudence abounds with rulings where the breach of contract of carriage amounts
to bad faith. In Pan American World Airways, Inc. v. Intermediate Appellate Court, 11 where a would-be
passenger had the necessary ticket, baggage claim and clearance from immigration all clearly and
unmistakably showing that she was, in fact, included in the passenger manifest of said flight, and yet was
denied accommodation in said flight, this Court did not hesitate to affirm the lower court's finding awarding
her damages.

A contract to transport passengers is quite different in kind and degree from any other contractual
relation. So ruled this Court in Zulueta v. Pan American World Airways, Inc. 12 This is so, for a contract
of carriage generates a relation attended with public duty a duty to provide public service and
convenience to its passengers which must be paramount to self-interest or enrichment. Thus, it was also
held that the switch of planes from Lockheed 1011 to a smaller Boeing 707 because there were only 138
confirmed economy class passengers who could very well be accommodated in the smaller planes,
thereby sacrificing the comfort of its first class passengers for the sake of economy, amounts to bad faith.
Such inattention and lack of care for the interest of its passengers who are entitled to its utmost
consideration entitles the passenger to an award of moral damages. 13
Even on the assumption that overbooking is allowed, respondent TWA is still guilty of bad faith in not
informing its passengers beforehand that it could breach the contract of carriage even if they have
confirmed tickets if there was overbooking. Respondent TWA should have incorporated stipulations
on overbooking on the tickets issued or to properly inform its passengers about these policies so that
the latter would be prepared for such eventuality or would have the choice to ride with another
airline.

Respondent TWA contends that Exhibit I, the detached flight coupon upon which were written the
name of the passenger and the points of origin and destination, contained such a notice. An
examination of Exhibit I does not bear this out. At any rate, said exhibit was not offered for the
purpose of showing the existence of a notice of overbooking but to show that Exhibit I was used for
flight 007 in first class of June 11, 1984 from New York to Los Angeles.

Moreover, respondent TWA was also guilty of not informing its passengers of its alleged policy of
giving less priority to discounted tickets. While the petitioners had checked in at the same time, and
held confirmed tickets, yet, only one of them was allowed to board the plane ten minutes before
departure time because the full-fare ticket he was holding was given priority over discounted tickets.
The other two petitioners were left behind.

It is respondent TWA's position that the practice of overbooking and the airline system of boarding
priorities are reasonable policies, which when implemented do not amount to bad faith. But the issue
raised in this case is not the reasonableness of said policies but whether or not said policies were
incorporated or deemed written on petitioners' contracts of carriage. Respondent TWA failed to show
that there are provisions to that effect. Neither did it present any argument of substance to show that
petitioners were duly apprised of the overbooked condition of the flight or that there is a hierarchy of
boarding priorities in booking passengers. It is evident that petitioners had the right to rely upon the
assurance of respondent TWA, thru its agent in Manila, then in New York, that their tickets
represented confirmed seats without any qualification. The failure of respondent TWA to so inform
them when it could easily have done so thereby enabling respondent to hold on to them as
passengers up to the last minute amounts to bad faith. Evidently, respondent TWA placed its self-
interest over the rights of petitioners under their contracts of carriage. Such conscious disregard of
petitioners' rights makes respondent TWA liable for moral damages. To deter breach of contracts by
respondent TWA in similar fashion in the future, we adjudge respondent TWA liable for exemplary
damages, as well.

Petitioners also assail the respondent court's decision not to require the refund of Liana Zalamea's
ticket because the ticket was used by her father. On this score, we uphold the respondent court.
Petitioners had not shown with certainty that the act of respondent TWA in allowing Mr. Zalamea to
use the ticket of her daughter was due to inadvertence or deliberate act. Petitioners had also failed
to establish that they did not accede to said agreement. The logical conclusion, therefore, is that
both petitioners and respondent TWA agreed, albeit impliedly, to the course of action taken.

The respondent court erred, however, in not ordering the refund of the American Airlines tickets
purchased and used by petitioners Suthira and Liana. The evidence shows that petitioners Suthira
and Liana were constrained to take the American Airlines flight to Los Angeles not because they
"opted not to use their TWA tickets on another TWA flight" but because respondent TWA could not
accommodate them either on the next TWA flight which was also fully booked. 14 The purchase of the
American Airlines tickets by petitioners Suthira and Liana was the consequence of respondent TWA's
unjustifiable breach of its contracts of carriage with petitioners. In accordance with Article 2201, New Civil
Code, respondent TWA should, therefore, be responsible for all damages which may be reasonably
attributed to the non-performance of its obligation. In the previously cited case of Alitalia Airways v. Court
of Appeals, 15 this Court explicitly held that a passenger is entitled to be reimbursed for the cost of the
tickets he had to buy for a flight to another airline. Thus, instead of simply being refunded for the cost of
the unused TWA tickets, petitioners should be awarded the actual cost of their flight from New York to Los
Angeles. On this score, we differ from the trial court's ruling which ordered not only the reimbursement of
the American Airlines tickets but also the refund of the unused TWA tickets. To require both prestations
would have enabled petitioners to fly from New York to Los Angeles without any fare being paid.

The award to petitioners of attorney's fees is also justified under Article 2208(2) of the Civil Code
which allows recovery when the defendant's act or omission has compelled plaintiff to litigate or to
incur expenses to protect his interest. However, the award for moral damages and exemplary
damages by the trial court is excessive in the light of the fact that only Suthira and Liana Zalamea
were actually "bumped off." An award of P50,000.00 moral damages and another P50,000.00
exemplary damages would suffice under the circumstances obtaining in the instant case.

WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of
Appeals is hereby MODIFIED to the extent of adjudging respondent TransWorld Airlines to pay
damages to petitioners in the following amounts, to wit:

(1) US$918.00 or its peso equivalent at the time of payment representing the price of the tickets
bought by Suthira and Liana Zalamea from American Airlines, to enable them to fly to Los Angeles
from New York City;

(2) P50,000.00 as moral damages;

(3) P50,000.00 as exemplary damages;

(4) P50,000.00 as attorney's fees; and

(5) Costs of suit.

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-23678 June 6, 1967

TESTATE ESTATE OF AMOS G. BELLIS, deceased.

PEOPLE'S BANK and TRUST COMPANY, executor.
MARIA CRISTINA BELLIS and MIRIAM PALMA BELLIS, oppositors-appellants,
vs.
EDWARD A. BELLIS, ET AL., heirs-appellees.

Vicente R. Macasaet and Jose D. Villena for oppositors appellants.

Paredes, Poblador, Cruz and Nazareno for heirs-appellees E. A. Bellis, et al.
Quijano and Arroyo for heirs-appellees W. S. Bellis, et al.
J. R. Balonkita for appellee People's Bank & Trust Company.
Ozaeta, Gibbs and Ozaeta for appellee A. B. Allsman.

BENGZON, J.P., J.:

This is a direct appeal to Us, upon a question purely of law, from an order of the Court of First
Instance of Manila dated April 30, 1964, approving the project of partition filed by the executor in
Civil Case No. 37089 therein. 1wph1.t

The facts of the case are as follows:

Amos G. Bellis, born in Texas, was "a citizen of the State of Texas and of the United States." By his
first wife, Mary E. Mallen, whom he divorced, he had five legitimate children: Edward A. Bellis,
George Bellis (who pre-deceased him in infancy), Henry A. Bellis, Alexander Bellis and Anna Bellis
Allsman; by his second wife, Violet Kennedy, who survived him, he had three legitimate children:
Edwin G. Bellis, Walter S. Bellis and Dorothy Bellis; and finally, he had three illegitimate children:
Amos Bellis, Jr., Maria Cristina Bellis and Miriam Palma Bellis.

On August 5, 1952, Amos G. Bellis executed a will in the Philippines, in which he directed that after
all taxes, obligations, and expenses of administration are paid for, his distributable estate should be
divided, in trust, in the following order and manner: (a) $240,000.00 to his first wife, Mary E. Mallen;
(b) P120,000.00 to his three illegitimate children, Amos Bellis, Jr., Maria Cristina Bellis, Miriam
Palma Bellis, or P40,000.00 each and (c) after the foregoing two items have been satisfied, the
remainder shall go to his seven surviving children by his first and second wives, namely: Edward A.
Bellis, Henry A. Bellis, Alexander Bellis and Anna Bellis Allsman, Edwin G. Bellis, Walter S. Bellis,
and Dorothy E. Bellis, in equal shares. 1wph1.t

Subsequently, or on July 8, 1958, Amos G. Bellis died a resident of San Antonio, Texas, U.S.A. His
will was admitted to probate in the Court of First Instance of Manila on September 15, 1958.

The People's Bank and Trust Company, as executor of the will, paid all the bequests therein
including the amount of $240,000.00 in the form of shares of stock to Mary E. Mallen and to the
three (3) illegitimate children, Amos Bellis, Jr., Maria Cristina Bellis and Miriam Palma Bellis, various
amounts totalling P40,000.00 each in satisfaction of their respective legacies, or a total of
P120,000.00, which it released from time to time according as the lower court approved and allowed
the various motions or petitions filed by the latter three requesting partial advances on account of
their respective legacies.

On January 8, 1964, preparatory to closing its administration, the executor submitted and filed its
"Executor's Final Account, Report of Administration and Project of Partition" wherein it reported, inter
alia, the satisfaction of the legacy of Mary E. Mallen by the delivery to her of shares of stock
amounting to $240,000.00, and the legacies of Amos Bellis, Jr., Maria Cristina Bellis and Miriam
Palma Bellis in the amount of P40,000.00 each or a total of P120,000.00. In the project of partition,
the executor pursuant to the "Twelfth" clause of the testator's Last Will and Testament divided
the residuary estate into seven equal portions for the benefit of the testator's seven legitimate
children by his first and second marriages.

On January 17, 1964, Maria Cristina Bellis and Miriam Palma Bellis filed their respective oppositions
to the project of partition on the ground that they were deprived of their legitimes as illegitimate
children and, therefore, compulsory heirs of the deceased.

Amos Bellis, Jr. interposed no opposition despite notice to him, proof of service of which is
evidenced by the registry receipt submitted on April 27, 1964 by the executor.1

After the parties filed their respective memoranda and other pertinent pleadings, the lower court, on
April 30, 1964, issued an order overruling the oppositions and approving the executor's final account,
report and administration and project of partition. Relying upon Art. 16 of the Civil Code, it applied
the national law of the decedent, which in this case is Texas law, which did not provide for legitimes.

Their respective motions for reconsideration having been denied by the lower court on June 11,
1964, oppositors-appellants appealed to this Court to raise the issue of which law must apply
Texas law or Philippine law.

In this regard, the parties do not submit the case on, nor even discuss, the doctrine of renvoi, applied
by this Court in Aznar v. Christensen Garcia, L-16749, January 31, 1963. Said doctrine is usually
pertinent where the decedent is a national of one country, and a domicile of another. In the present
case, it is not disputed that the decedent was both a national of Texas and a domicile thereof at the
time of his death.2 So that even assuming Texas has a conflict of law rule providing that the
domiciliary system (law of the domicile) should govern, the same would not result in a reference
back (renvoi) to Philippine law, but would still refer to Texas law. Nonetheless, if Texas has a conflicts
rule adopting the situs theory (lex rei sitae) calling for the application of the law of the place where
the properties are situated, renvoi would arise, since the properties here involved are found in the
Philippines. In the absence, however, of proof as to the conflict of law rule of Texas, it should not be
presumed different from ours.3Appellants' position is therefore not rested on the doctrine of renvoi.
As stated, they never invoked nor even mentioned it in their arguments. Rather, they argue that their
case falls under the circumstances mentioned in the third paragraph of Article 17 in relation to Article
16 of the Civil Code.

Article 16, par. 2, and Art. 1039 of the Civil Code, render applicable the national law of the decedent,
in intestate or testamentary successions, with regard to four items: (a) the order of succession; (b)
the amount of successional rights; (e) the intrinsic validity of the provisions of the will; and (d) the
capacity to succeed. They provide that

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 successions, 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 he the nature of the property and
regardless of the country wherein said property may be found.

ART. 1039. Capacity to succeed is governed by the law of the nation of the decedent.

Appellants would however counter that Art. 17, paragraph three, of the Civil Code, stating that

Prohibitive laws concerning persons, their acts or property, and those which have for their
object public order, public policy and good customs shall not be rendered ineffective by laws
or judgments promulgated, or by determinations or conventions agreed upon in a foreign
country.

prevails as the exception to Art. 16, par. 2 of the Civil Code afore-quoted. This is not correct.
Precisely, Congress deleted the phrase, "notwithstanding the provisions of this and the next
preceding article" when they incorporated Art. 11 of the old Civil Code as Art. 17 of the new Civil
Code, while reproducing without substantial change the second paragraph of Art. 10 of the old Civil
Code as Art. 16 in the new. It must have been their purpose to make the second paragraph of Art. 16
a specific provision in itself which must be applied in testate and intestate succession. As further
indication of this legislative intent, Congress added a new provision, under Art. 1039, which decrees
that capacity to succeed is to be governed by the national law of the decedent.

It is therefore evident that whatever public policy or good customs may be involved in our System of
legitimes, Congress has not intended to extend the same to the succession of foreign nationals. For
it has specifically chosen to leave, inter alia, the amount of successional rights, to the decedent's
national law. Specific provisions must prevail over general ones.

Appellants would also point out that the decedent executed two wills one to govern his Texas
estate and the other his Philippine estate arguing from this that he intended Philippine law to
govern his Philippine estate. Assuming that such was the decedent's intention in executing a
separate Philippine will, it would not alter the law, for as this Court ruled in Miciano v. Brimo, 50 Phil.
867, 870, a provision in a foreigner's will to the effect that his properties shall be distributed in
accordance with Philippine law and not with his national law, is illegal and void, for his national law
cannot be ignored in regard to those matters that Article 10 now Article 16 of the Civil Code
states said national law should govern.

The parties admit that the decedent, Amos G. Bellis, was a citizen of the State of Texas, U.S.A., and
that under the laws of Texas, there are no forced heirs or legitimes. Accordingly, since the intrinsic
validity of the provision of the will and the amount of successional rights are to be determined under
Texas law, the Philippine law on legitimes cannot be applied to the testacy of Amos G. Bellis.
Wherefore, the order of the probate court is hereby affirmed in toto, with costs against appellants. So
ordered.