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CASES

BASIC PRINCIPLES

[G.R. No. 122191. October 8, 1998]


SAUDI ARABIAN AIRLINES, petitioner, vs. COURT OF APPEALS, MILAGROS P.
MORADA and HON. RODOLFO A. ORTIZ, in his capacity as Presiding Judge
of Branch 89, Regional Trial Court of Quezon City, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul
and set aside the Resolution[1] dated September 27, 1995 and the Decision [2] dated
April 10, 1996 of the Court of Appeals [3] in CA-G.R. SP No. 36533,[4] and the
Orders[5] dated August 29, 1994[6] and February 2, 1995[7]that were issued by the
trial court in Civil Case No. Q-93-18394.[8]
The pertinent antecedent facts which gave rise to the instant petition, as stated in
the questioned Decision[9], are as follows:
On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight Attendant for its
airlines based in Jeddah, Saudi Arabia. x x x
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went to a disco
dance with fellow crew members Thamer Al-Gazzawi and Allah Al-Gazzawi, both
Saudi nationals. Because it was almost morning when they returned to their hotels,
they agreed to have breakfast together at the room of Thamer. When they were in
te (sic) room, Allah left on some pretext. Shortly after he did, Thamer attempted to
rape plaintiff. Fortunately, a roomboy and several security personnel heard her
cries for help and rescued her. Later, the Indonesian police came and arrested
Thamer and Allah Al-Gazzawi, the latter as an accomplice.
When plaintiff returned to Jeddah a few days later, several SAUDIA officials
interrogated her about the Jakarta incident. They then requested her to go back to
Jakarta to help arrange the release of Thamer and Allah. In Jakarta, SAUDIA Legal
Officer Sirah Akkad and base manager Baharini negotiated with the police for the
immediate release of the detained crew members but did not succeed because
plaintiff refused to cooperate. She was afraid that she might be tricked into
something she did not want because of her inability to understand the local
dialect. She also declined to sign a blank paper and a document written in the local
dialect. Eventually, SAUDIA allowed plaintiff to return to Jeddah but barred her from
the Jakarta flights.

Plaintiff learned that, through the intercession of the Saudi Arabian government, the
Indonesian authorities agreed to deport Thamer and Allah after two weeks of
detention. Eventually, they were again put in service by defendant SAUDI (sic). In
September 1990, defendant SAUDIA transferred plaintiff to Manila.
On January 14, 1992, just when plaintiff thought that the Jakarta incident was
already behind her, her superiors requested her to see Mr. Ali Meniewy, Chief Legal
Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he brought her to
the police station where the police took her passport and questioned her about the
Jakarta incident. Miniewy simply stood by as the police put pressure on her to make
a statement dropping the case against Thamer and Allah. Not until she agreed to
do so did the police return her passport and allowed her to catch the afternoon
flight out of Jeddah.
One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few
minutes before the departure of her flight to Manila, plaintiff was not allowed to
board the plane and instead ordered to take a later flight to Jeddah to see Mr.
Miniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of the
SAUDIA office brought her to a Saudi court where she was asked to sign a document
written in Arabic. They told her that this was necessary to close the case against
Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before
the court on June 27, 1993. Plaintiff then returned to Manila.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once
again and see Miniewy on June 27, 1993 for further investigation. Plaintiff did so
after receiving assurance from SAUDIAs Manila manager, Aslam Saleemi, that the
investigation was routinary and that it posed no danger to her.
In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June
27, 1993. Nothing happened then but on June 28, 1993, a Saudi judge interrogated
plaintiff through an interpreter about the Jakarta incident. After one hour of
interrogation, they let her go. At the airport, however, just as her plane was about
to take off, a SAUDIA officer told her that the airline had forbidden her to take
flight. At the Inflight Service Office where she was told to go, the secretary of Mr.
Yahya Saddick took away her passport and told her to remain in Jeddah, at the crew
quarters, until further orders.
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court
where the judge, to her astonishment and shock, rendered a decision, translated to
her in English, sentencing her to five months imprisonment and to 286 lashes. Only
then did she realize that the Saudi court had tried her, together with Thamer and
Allah, for what happened in Jakarta. The court found plaintiff guilty of (1) adultery;
(2) going to a disco, dancing and listening to the music in violation of Islamic laws;
and (3) socializing with the male crew, in contravention of Islamic tradition. [10]

Facing conviction, private respondent sought the help of her employer, petitioner
SAUDIA. Unfortunately, she was denied any assistance. She then asked the
Philippine Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to
pay for her upkeep, she worked on the domestic flight of SAUDIA, while Thamer and
Allah continued to serve in the international flights. [11]
Because she was wrongfully convicted, the Prince of Makkah dismissed the case
against her and allowed her to leave Saudi Arabia. Shortly before her return to
Manila,[12] she was terminated from the service by SAUDIA, without her being
informed of the cause.
On November 23, 1993, Morada filed a Complaint [13] for damages against SAUDIA,
and Khaled Al-Balawi (Al- Balawi), its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss [14] which raised
the following grounds, to wit: (1) that the Complaint states no cause of action
against Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that
the claim or demand set forth in the Complaint has been waived, abandoned or
otherwise extinguished; and (4) that the trial court has no jurisdiction to try the
case.
On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) [15] Saudia
filed a reply[16] thereto on March 3, 1994.
On June 23, 1994, Morada filed an Amended Complaint [17] wherein Al-Balawi was
dropped as party defendant. On August 11, 1994, Saudia filed its Manifestation and
Motion to Dismiss Amended Complaint[18].
The trial court issued an Order [19] dated August 29, 1994 denying the Motion to
Dismiss Amended Complaint filed by Saudia.
From the Order of respondent Judge[20] denying the Motion to Dismiss, SAUDIA filed
on September 20, 1994, its Motion for Reconsideration [21] of the Order dated August
29, 1994. It alleged that the trial court has no jurisdiction to hear and try the case
on the basis of Article 21 of the Civil Code, since the proper law applicable is the law
of the Kingdom of Saudi Arabia. On October 14, 1994, Morada filed her
Opposition[22] (To Defendants Motion for Reconsideration).
In the Reply[23] filed with the trial court on October 24, 1994, SAUDIA alleged that
since its Motion for Reconsideration raised lack of jurisdiction as its cause of action,
the Omnibus Motion Rule does not apply, even if that ground is raised for the first
time on appeal. Additionally, SAUDIA alleged that the Philippines does not have any
substantial interest in the prosecution of the instant case, and hence, without
jurisdiction to adjudicate the same.

Respondent Judge subsequently issued another Order [24] dated February 2, 1995,
denying SAUDIAs Motion for Reconsideration. The pertinent portion of the assailed
Order reads as follows:
Acting on the Motion for Reconsideration of defendant Saudi Arabian Airlines filed,
thru counsel, on September 20, 1994, and the Opposition thereto of the plaintiff
filed, thru counsel, on October 14, 1994, as well as the Reply therewith of defendant
Saudi Arabian Airlines filed, thru counsel, on October 24, 1994, considering that a
perusal of the plaintiffs Amended Complaint, which is one for the recovery of
actual, moral and exemplary damages plus attorneys fees, upon the basis of the
applicable Philippine law, Article 21 of the New Civil Code of the Philippines, is,
clearly, within the jurisdiction of this Court as regards the subject matter, and there
being nothing new of substance which might cause the reversal or modification of
the order sought to be reconsidered, the motion for reconsideration of the
defendant, is DENIED.
SO ORDERED.[25]
Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and
Prohibition with Prayer for Issuance of Writ of Preliminary Injunction and/or
Temporary Restraining Order[26] with the Court of Appeals.
Respondent Court of Appeals promulgated a Resolution with Temporary Restraining
Order[27] dated February 23, 1995, prohibiting the respondent Judge from further
conducting any proceeding, unless otherwise directed, in the interim.
In another Resolution[28] promulgated on September 27, 1995, now assailed, the
appellate court denied SAUDIAs Petition for the Issuance of a Writ of Preliminary
Injunction dated February 18, 1995, to wit:
The Petition for the Issuance of a Writ of Preliminary Injunction is hereby DENIED,
after considering the Answer, with Prayer to Deny Writ of Preliminary Injunction
(Rollo, p. 135) the Reply and Rejoinder, it appearing that herein petitioner is not
clearly entitled thereto (Unciano Paramedical College, et. Al., v. Court of Appeals, et.
Al., 100335, April 7, 1993, Second Division).
SO ORDERED.
On October 20, 1995, SAUDIA filed with this Honorable Court the instant
Petition[29] for Review with Prayer for Temporary Restraining Order dated October 13,
1995.
However, during the pendency of the instant Petition, respondent Court of Appeals
rendered the Decision[30] dated April 10, 1996, now also assailed. It ruled that the
Philippines is an appropriate forum considering that the Amended Complaints basis
for recovery of damages is Article 21 of the Civil Code, and thus, clearly within the
jurisdiction of respondent Court. It further held that certiorari is not the proper

remedy in a denial of a Motion to Dismiss, inasmuch as the petitioner should have


proceeded to trial, and in case of an adverse ruling, find recourse in an appeal.
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order[31] dated April 30, 1996, given due course by this
Court. After both parties submitted their Memoranda, [32] the instant case is now
deemed submitted for decision.
Petitioner SAUDIA raised the following issues:
I
The trial court has no jurisdiction to hear and try Civil Case No. Q-93-18394 based
on Article 21 of the New Civil Code since the proper law applicable is the law of the
Kingdom of Saudi Arabia inasmuch as this case involves what is known in private
international law as a conflicts problem. Otherwise, the Republic of the Philippines
will sit in judgment of the acts done by another sovereign state which is abhorred.
II.
Leave of court before filing a supplemental pleading is not a jurisdictional
requirement. Besides, the matter as to absence of leave of court is now moot and
academic when this Honorable Court required the respondents to comment on
petitioners April 30, 1996 Supplemental Petition For Review With Prayer For A
Temporary Restraining Order Within Ten (10) Days From Notice Thereof. Further, the
Revised Rules of Court should be construed with liberality pursuant to Section 2,
Rule 1 thereof.
III.
Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-G.R. SP NO.
36533 entitled Saudi Arabian Airlines v. Hon. Rodolfo A. Ortiz, et al. and filed its
April 30, 1996 Supplemental Petition For Review With Prayer For A Temporary
Restraining Order on May 7, 1996 at 10:29 a.m. or within the 15-day reglementary
period as provided for under Section 1, Rule 45 of the Revised Rules of
Court. Therefore, the decision in CA-G.R. SP NO. 36533 has not yet become final
and executory and this Honorable Court can take cognizance of this case. [33]
From the foregoing factual and procedural antecedents, the following issues emerge
for our resolution:
I.
WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THE
REGIONAL TRIAL COURT OF QUEZON CITY HAS JURISDICTION TO HEAR AND TRY
CIVIL CASE NO. Q-93-18394 ENTITLED MILAGROS P. MORADA V. SAUDI ARABIAN
AIRLINES.

II.
WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING THAT IN THE CASE
PHILIPPINE LAW SHOULD GOVERN.
Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at
the outset. It maintains that private respondents claim for alleged abuse of rights
occurred in the Kingdom of Saudi Arabia. It alleges that the existence of a foreign
element qualifies the instant case for the application of the law of the Kingdom of
Saudi Arabia, by virtue of the lex loci delicti commissi rule.[34]
On the other hand, private respondent contends that since her Amended Complaint
is based on Articles 19[35] and 21[36] of the Civil Code, then the instant case is
properly a matter of domestic law.[37]
Under the factual antecedents obtaining in this case, there is no dispute that the
interplay of events occurred in two states, the Philippines and Saudi Arabia.
As stated by private respondent in her Amended Complaint [38] dated June 23, 1994:
2.
Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines
corporation doing business in the Philippines. It may be served with summons and
other court processes at Travel Wide Associated Sales (Phils.), Inc., 3 rd Floor, Cougar
Building, 114 Valero St., Salcedo Village, Makati, Metro Manila.
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6.
Plaintiff learned that, through the intercession of the Saudi Arabian
government, the Indonesian authorities agreed to deport Thamer and Allah after
two weeks of detention. Eventually, they were again put in service by defendant
SAUDIA. In September 1990, defendant SAUDIA transferred plaintiff to Manila.
7.
On January 14, 1992, just when plaintiff thought that the Jakarta incident was
already behind her, her superiors requested her to see MR. Ali Meniewy, Chief Legal
Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he brought her to
the police station where the police took her passport and questioned her about the
Jakarta incident. Miniewy simply stood by as the police put pressure on her to make
a statement dropping the case against Thamer and Allah. Not until she agreed to
do so did the police return her passport and allowed her to catch the afternoon
flight out of Jeddah.
8.
One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few
minutes before the departure of her flight to Manila, plaintiff was not allowed to
board the plane and instead ordered to take a later flight to Jeddah to see Mr.
Meniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of the
SAUDIA office brought her to a Saudi court where she was asked to sign a document
written in Arabic. They told her that this was necessary to close the case against

Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before
the court on June 27, 1993. Plaintiff then returned to Manila.
9.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah
once again and see Miniewy on June 27, 1993 for further investigation. Plaintiff did
so after receiving assurance from SAUDIAs Manila manager, Aslam Saleemi, that
the investigation was routinary and that it posed no danger to her.
10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on
June 27, 1993. Nothing happened then but on June 28, 1993, a Saudi judge
interrogated plaintiff through an interpreter about the Jakarta incident. After one
hour of interrogation, they let her go. At the airport, however, just as her plane was
about to take off, a SAUDIA officer told her that the airline had forbidden her to take
that flight. At the Inflight Service Office where she was told to go, the secretary of
Mr. Yahya Saddick took away her passport and told her to remain in Jeddah, at the
crew quarters, until further orders.
11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same
court where the judge, to her astonishment and shock, rendered a decision,
translated to her in English, sentencing her to five months imprisonment and to 286
lashes. Only then did she realize that the Saudi court had tried her, together with
Thamer and Allah, for what happened in Jakarta. The court found plaintiff guilty of
(1) adultery; (2) going to a disco, dancing, and listening to the music in violation of
Islamic laws; (3) socializing with the male crew, in contravention of Islamic tradition.
12. Because SAUDIA refused to lend her a hand in the case, plaintiff sought the
help of the Philippine Embassy in Jeddah. The latter helped her pursue an appeal
from the decision of the court. To pay for her upkeep, she worked on the domestic
flights of defendant SAUDIA while, ironically, Thamer and Allah freely served the
international flights.[39]
Where the factual antecedents satisfactorily establish the existence of a foreign
element, we agree with petitioner that the problem herein could present a
conflicts case.
A factual situation that cuts across territorial lines and is affected by the diverse
laws of two or more states is said to contain a foreign element. The presence of a
foreign element is inevitable since social and economic affairs of individuals and
associations are rarely confined to the geographic limits of their birth or conception.
[40]

The forms in which this foreign element may appear are many. [41] The foreign
element may simply consist in the fact that one of the parties to a contract is an
alien or has a foreign domicile, or that a contract between nationals of one State
involves properties situated in another State. In other cases, the foreign element
may assume a complex form.[42]

In the instant case, the foreign element consisted in the fact that private respondent
Morada is a resident Philippine national, and that petitioner SAUDIA is a resident
foreign corporation. Also, by virtue of the employment of Morada with the
petitioner Saudia as a flight stewardess, events did transpire during her many
occasions of travel across national borders, particularly from Manila, Philippines to
Jeddah, Saudi Arabia, and vice versa, that caused a conflicts situation to arise.
We thus find private respondents assertion that the case is purely domestic,
imprecise. A conflicts problem presents itself here, and the question of
jurisdiction[43] confronts the court a quo.
After a careful study of the private respondents Amended Complaint, [44] and the
Comment thereon, we note that she aptly predicated her cause of action on Articles
19 and 21 of the New Civil Code.
On one hand, Article 19 of the New Civil Code provides;
Art. 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice give everyone his due and observe honesty and good
faith.
On the other hand, Article 21 of the New Civil Code provides:
Art. 21. Any person who willfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the latter for
damages.
Thus, in Philippine National Bank (PNB) vs. Court of Appeals,[45] this Court held that:
The aforecited provisions on human relations were intended to expand the concept
of torts in this jurisdiction by granting adequate legal remedy for the untold number
of moral wrongs which is impossible for human foresight to specifically provide in
the statutes.
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its
provisions. Thus, we agree with private respondents assertion that violations of
Articles 19 and 21 are actionable, with judicially enforceable remedies in the
municipal forum.
Based on the allegations[46] in the Amended Complaint, read in the light of the Rules
of Court on jurisdiction[47] we find that the Regional Trial Court (RTC) of Quezon City
possesses jurisdiction over the subject matter of the suit. [48] Its authority to try and
hear the case is provided for under Section 1 of Republic Act No. 7691, to wit:
Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the
Judiciary Reorganization Act of 1980, is hereby amended to read as follows:

SEC. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise exclusive
jurisdiction:
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(8) In all other cases in which demand, exclusive of interest, damages of whatever
kind, attorneys fees, litigation expenses, and costs or the value of the property in
controversy exceeds One hundred thousand pesos (P100,000.00) or, in such other
cases in Metro Manila, where the demand, exclusive of the above-mentioned items
exceeds Two hundred Thousand pesos (P200,000.00). (Emphasis ours)
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And following Section 2 (b), Rule 4 of the Revised Rules of Courtthe venue,
Quezon City, is appropriate:
SEC. 2 Venue in Courts of First Instance. [Now Regional Trial Court]
(a) x x x

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(b) Personal actions. All other actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the plaintiff
or any of the plaintiff resides, at the election of the plaintiff.
Pragmatic considerations, including the convenience of the parties, also weigh
heavily in favor of the RTC Quezon City assuming jurisdiction. Paramount is the
private interest of the litigant. Enforceability of a judgment if one is obtained is
quite obvious. Relative advantages and obstacles to a fair trial are equally
important. Plaintiff may not, by choice of an inconvenient forum, vex, harass, or
oppress the defendant, e.g. by inflicting upon him needless expense or
disturbance. But unless the balance is strongly in favor of the defendant, the
plaintiffs choice of forum should rarely be disturbed. [49]
Weighing the relative claims of the parties, the court a quo found it best to hear the
case in the Philippines. Had it refused to take cognizance of the case, it would be
forcing plaintiff (private respondent now) to seek remedial action elsewhere, i.e. in
the Kingdom of Saudi Arabia where she no longer maintains substantial
connections. That would have caused a fundamental unfairness to her.
Moreover, by hearing the case in the Philippines no unnecessary difficulties and
inconvenience have been shown by either of the parties. The choice of forum of the
plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over the persons of the parties
herein. By filing her Complaint and Amended Complaint with the trial court, private
respondent has voluntary submitted herself to the jurisdiction of the court.

The records show that petitioner SAUDIA has filed several motions [50] praying for the
dismissal of Moradas Amended Complaint. SAUDIA also filed an Answer In Ex
Abundante Cautelam dated February 20, 1995. What is very patent and explicit
from the motions filed, is that SAUDIA prayed for other reliefs under the
premises. Undeniably, petitioner SAUDIA has effectively submitted to the trial
courts jurisdiction by praying for the dismissal of the Amended Complaint on
grounds other than lack of jurisdiction.
As held by this Court in Republic vs. Ker and Company, Ltd.:[51]
We observe that the motion to dismiss filed on April 14, 1962, aside from disputing
the lower courts jurisdiction over defendants person, prayed for dismissal of the
complaint on the ground that plaintiffs cause of action has prescribed. By
interposing such second ground in its motion to dismiss, Ker and Co., Ltd. availed of
an affirmative defense on the basis of which it prayed the court to resolve
controversy in its favor. For the court to validly decide the said plea of defendant
Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon the latters person,
who, being the proponent of the affirmative defense, should be deemed to have
abandoned its special appearance and voluntarily submitted itself to the jurisdiction
of the court.
Similarly, the case of De Midgely vs. Ferandos, held that:
When the appearance is by motion for the purpose of objecting to the jurisdiction
of the court over the person, it must be for the sole and separate purpose of
objecting to the jurisdiction of the court. If his motion is for any other purpose than
to object to the jurisdiction of the court over his person, he thereby submits himself
to the jurisdiction of the court. A special appearance by motion made for the
purpose of objecting to the jurisdiction of the court over the person will be held to
be a general appearance, if the party in said motion should, for example, ask for a
dismissal of the action upon the further ground that the court had no jurisdiction
over the subject matter. [52]
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of
Quezon City. Thus, we find that the trial court has jurisdiction over the case and
that its exercise thereof, justified.
As to the choice of applicable law, we note that choice-of-law problems seek to
answer two important questions: (1) What legal system should control a given
situation where some of the significant facts occurred in two or more states; and (2)
to what extent should the chosen legal system regulate the situation. [53]
Several theories have been propounded in order to identify the legal system that
should ultimately control. Although ideally, all choice-of-law theories should
intrinsically advance both notions of justice and predictability, they do not always

do so. The forum is then faced with the problem of deciding which of these two
important values should be stressed. [54]
Before a choice can be made, it is necessary for us to determine under what
category a certain set of facts or rules fall. This process is known as
characterization, or the doctrine of qualification. It is the process of deciding
whether or not the facts relate to the kind of question specified in a conflicts
rule.[55] The purpose of characterization is to enable the forum to select the
proper law.[56]
Our starting point of analysis here is not a legal relation, but a factual situation,
event, or operative fact. [57] An essential element of conflict rules is the indication of
a test or connecting factor or point of contact. Choice-of-law rules invariably
consist of a factual relationship (such as property right, contract claim) and a
connecting factor or point of contact, such as the situs of the res, the place of
celebration, the place of performance, or the place of wrongdoing. [58]
Note that one or more circumstances may be present to serve as the possible test
for the determination of the applicable law. [59] These test factors or points of
contact or connecting factors could be any of the following:
(1) The nationality of a person, his domicile, his residence, his place of sojourn, or
his origin;
(2) the seat of a legal or juridical person, such as a corporation;
(3) the situs of a thing, that is, the place where a thing is, or is deemed to be
situated. In particular, the lex situs is decisive when real rights are involved;
(4) the place where an act has been done, the locus actus, such as the
place where a contract has been made, a marriage celebrated, a will
signed or a tort committed. The lex loci actus is particularly important in
contracts and torts;
(5) the place where an act is intended to come into effect, e.g., the place of
performance of contractual duties, or the place where a power of attorney is to be
exercised;
(6) the intention of the contracting parties as to the law that should govern their
agreement, the lex loci intentionis;
(7) the place where judicial or administrative proceedings are instituted or
done. The lex forithe law of the forumis particularly important because, as we
have seen earlier, matters of procedure not going to the substance of the claim
involved are governed by it; and because the lex fori applies whenever the content
of the otherwise applicable foreign law is excluded from application in a given case

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

Moreover, with the widespread criticism of the traditional rule of lex loci delicti
commissi, modern theories and rules on tort liability [61] have been advanced to offer
fresh judicial approaches to arrive at just results. In keeping abreast with
the modern theories on tort liability, we find here an occasion to apply the State of
the most significant relationship rule, which in our view should be appropriate to
apply now, given the factual context of this case.
In applying said principle to determine the State which has the most significant
relationship, the following contacts are to be taken into account and evaluated
according to their relative importance with respect to the particular issue: (a) the
place where the injury occurred; (b) the place where the conduct causing the injury
occurred; (c) the domicile, residence, nationality, place of incorporation and place of
business of the parties, and (d) the place where the relationship, if any, between the
parties is centered.[62]
As already discussed, there is basis for the claim that over-all injury occurred and
lodged in the Philippines. There is likewise no question that private respondent is a
resident Filipina national, working with petitioner, a resident foreign corporation
engaged here in the business of international air carriage. Thus, the relationship
between the parties was centered here, although it should be stressed that this suit
is not based on mere labor law violations. From the record, the claim that the
Philippines has the most significant contact with the matter in this dispute, [63] raised
by private respondent as plaintiff below against defendant (herein petitioner), in our
view, has been properly established.
Prescinding from this premise that the Philippines is the situs of the tort complaint
of and the place having the most interest in the problem, we find, by way of
recapitulation, that the Philippine law on tort liability should have paramount
application to and control in the resolution of the legal issues arising out of this
case. Further, we hold that the respondent Regional Trial Court has jurisdiction over
the parties and the subject matter of the complaint; the appropriate venue is in
Quezon City, which could properly apply Philippine law. Moreover, we find
untenable petitioners insistence that [s]ince private respondent instituted this
suit, she has the burden of pleading and proving the applicable Saudi law on the
matter.[64] As aptly said by private respondent, she has no obligation to plead and
prove the law of the Kingdom of Saudi Arabia since her cause of action is based on
Articles 19 and 21 of the Civil Code of the Philippines. In her Amended Complaint
and subsequent pleadings she never alleged that Saudi law should govern this case.
[65]
And as correctly held by the respondent appellate court, considering that it was
the petitioner who was invoking the applicability of the law of Saudi Arabia, thus the
burden was on it [petitioner] to plead and to establish what the law of Saudi Arabia
is.[66]
Lastly, no error could be imputed to the respondent appellate court in upholding the
trial courts denial of defendants (herein petitioners) motion to dismiss the

case. Not only was jurisdiction in order and venue properly laid, but appeal after
trial was obviously available, and the expeditious trial itself indicated by the nature
of the case at hand. Indubitably, the Philippines is the state intimately concerned
with the ultimate outcome of the case below not just for the benefit of all the
litigants, but also for the vindication of the countrys system of law and justice in a
transnational setting. With these guidelines in mind, the trial court must proceed to
try and adjudge the case in the light of relevant Philippine law, with due
consideration of the foreign element or elements involved. Nothing said herein, of
course, should be construed as prejudging the results of the case in any manner
whatsoever.
WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case No.
Q-93-18394 entitled Milagros P. Morada vs. Saudi Arabia Airlines is hereby
REMANDED to Regional Trial Court of Quezon City, Branch 89 for further
proceedings.
SO ORDERED.

JURISDICTION
KAZUHIRO HASEGAWA and NIPPON G.R. No. 149177
ENGINEERING CONSULTANTS CO., LTD.,
Petitioners,

Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus -

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

MINORU KITAMURA,

Promulgated:

Respondent.
November 23, 2007

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

DECISION

NACHURA, J.:

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

On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd.


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

When the STAR Project was near completion, the Department of Public Works
and Highways (DPWH) engaged the consultancy services ofNippon, 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. Nippon insisted that respondents contract was for a fixed term that had
already expired, and refused to negotiate for the renewal of the ICA.[10]

As he was not able to generate a positive response from the petitioners,


respondent consequently initiated on June 1, 2000 Civil Case No. 00-0264 for
specific performance and damages with the Regional Trial Court of Lipa City.[11]

For their part, petitioners, contending that the ICA had been perfected
in Japan and executed by and between Japanese nationals, moved to dismiss the
complaint for lack of jurisdiction. They asserted that the claim for improper pretermination 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
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 forCertiorari 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]
[14]

Aggrieved by this development, petitioners filed with the CA, on September


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

Ruling on the merits of the second petition, the appellate court rendered the
assailed April 18, 2001 Decision[22] finding no grave abuse of discretion in the trial
court's denial of the motion to dismiss. The CA ruled, among others, that the
principle of lex loci celebrationis was not applicable to the case, because nowhere in
the pleadings was the validity of the written agreement put in issue. The CA thus
declared that the trial court was correct in applying instead the principle of lex loci
solutionis.[23]

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


the assailed July 25, 2001 Resolution.[24]

Remaining steadfast in their stance despite the series of denials, petitioners


instituted the instant Petition for Review on Certiorari[25]imputing the following errors
to the appellate court:

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

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

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

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

Kitamura contends that the finality of the appellate court's decision in CA-G.R.
SP No. 60205 has already barred the filing of the second petition docketed as CAG.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 ofNippon,
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 wellestablished rule that an order denying a motion to dismiss is interlocutory,

and cannot be the subject of the extraordinarypetition for certiorari or mandamus.


The appropriate recourse is to file an answer and to interpose as defenses the
objections raised in themotion, 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 certiorarisignificantly 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.


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]
[54]

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.

G.R. No. 112573 February 9, 1995


NORTHWEST
ORIENT
AIRLINES,
INC. petitioner,
vs.
COURT OF APPEALS and C.F. SHARP & COMPANY INC., respondents.

PADILLA, JR., J.:


This petition for review on certiorari seeks to set aside the decision of the
Court of Appeals affirming the dismissal of the petitioner's complaint to
enforce the judgment of a Japanese court. The principal issue here is
whether a Japanese court can acquire jurisdiction over a Philippine
corporation doing business in Japan by serving summons through
diplomatic channels on the Philippine corporation at its principal office in
Manila after prior attempts to serve summons in Japan had failed.
Petitioner Northwest Orient Airlines, Inc. (hereinafter NORTHWEST), a
corporation organized under the laws of the State of Minnesota, U.S.A.,
sought to enforce in Civil Case No. 83-17637 of the Regional Trial Court
(RTC), Branch 54, Manila, a judgment rendered in its favor by a Japanese

court against private respondent C.F. Sharp & Company, Inc., (hereinafter
SHARP), a corporation incorporated under Philippine laws.
As found by the Court of Appeals in the challenged decision of 10
November 1993, 1 the following are the factual and procedural
antecedents of this controversy:
On May 9, 1974, plaintiff Northwest Airlines and defendant C.F. Sharp &
Company, through its Japan branch, entered into an International
Passenger Sales Agency Agreement, whereby the former authorized the
latter to sell its air transportation tickets. Unable to remit the proceeds of
the ticket sales made by defendant on behalf of the plaintiff under the
said agreement, plaintiff on March 25, 1980 sued defendant in Tokyo,
Japan, for collection of the unremitted proceeds of the ticket sales, with
claim for damages.
On April 11, 1980, a writ of summons was issued by the 36th Civil
Department, Tokyo District Court of Japan against defendant at its office
at the Taiheiyo Building, 3rd floor, 132, Yamashita-cho, Naka-ku,
Yokohoma, Kanagawa Prefecture. The attempt to serve the summons was
unsuccessful because the bailiff was advised by a person in the office that
Mr. Dinozo, the person believed to be authorized to receive court
processes was in Manila and would be back on April 24, 1980.
On April 24, 1980, bailiff returned to the defendant's office to serve the
summons. Mr. Dinozo refused to accept the same claiming that he was no
longer an employee of the defendant.
After the two attempts of service were unsuccessful, the judge of the
Tokyo District Court decided to have the complaint and the writs of
summons served at the head office of the defendant in Manila. On July 11,
1980, the Director of the Tokyo District Court requested the Supreme
Court of Japan to serve the summons through diplomatic channels upon
the defendant's head office in Manila.
On August 28, 1980, defendant received from Deputy Sheriff Rolando
Balingit the writ of summons (p. 276, Records). Despite receipt of the
same, defendant failed to appear at the scheduled hearing. Thus, the
Tokyo Court proceeded to hear the plaintiff's complaint and on [January
29, 1981], rendered judgment ordering the defendant to pay the plaintiff
the sum of 83,158,195 Yen and damages for delay at the rate of 6% per
annum from August 28, 1980 up to and until payment is completed (pp.
12-14, Records).

On March 24, 1981, defendant received from Deputy Sheriff Balingit copy
of the judgment. Defendant not having appealed the judgment, the same
became final and executory.
Plaintiff was unable to execute the decision in Japan, hence, on May 20,
1983, a suit for enforcement of the judgment was filed by plaintiff before
the Regional Trial Court of Manila Branch 54. 2
On July 16, 1983, defendant filed its answer averring that the judgment of
the Japanese Court sought to be enforced is null and void and
unenforceable in this jurisdiction having been rendered without due and
proper notice to the defendant and/or with collusion or fraud and/or upon
a clear mistake of law and fact (pp. 41-45, Rec.).
Unable to settle the case amicably, the case was tried on the merits. After
the plaintiff rested its case, defendant on April 21, 1989, filed a Motion for
Judgment on a Demurrer to Evidence based on two grounds:
(1) the foreign judgment sought to be enforced is null and void for want of
jurisdiction and (2) the said judgment is contrary to Philippine law and
public policy and rendered without due process of law. Plaintiff filed its
opposition after which the court a quo rendered the now assailed decision
dated June 21, 1989 granting the demurrer motion and dismissing the
complaint (Decision, pp. 376-378, Records). In granting the demurrer
motion, the trial court held that:
The foreign judgment in the Japanese Court sought in this action is null
and void for want of jurisdiction over the person of the defendant
considering that this is an action in personam; the Japanese Court did not
acquire jurisdiction over the person of the defendant because
jurisprudence requires that the defendant be served with summons in
Japan in order for the Japanese Court to acquire jurisdiction over it, the
process of the Court in Japan sent to the Philippines which is outside
Japanese jurisdiction cannot confer jurisdiction over the defendant in the
case before the Japanese Court of the case at bar. Boudard versus Tait 67
Phil. 170. The plaintiff contends that the Japanese Court acquired
jurisdiction because the defendant is a resident of Japan, having four (4)
branches doing business therein and in fact had a permit from the
Japanese government to conduct business in Japan (citing the exhibits
presented by the plaintiff); if this is so then service of summons should
have been made upon the defendant in Japan in any of these alleged four
branches; as admitted by the plaintiff the service of the summons issued
by the Japanese Court was made in the Philippines thru a Philippine
Sheriff. This Court agrees that if the defendant in a foreign court is a
resident in the court of that foreign court such court could acquire
jurisdiction over the person of the defendant but it must be served upon

the defendant in the territorial jurisdiction of the foreign court. Such is


not the case here because the defendant was served with summons in the
Philippines and not in Japan.
Unable to accept the said decision, plaintiff on July 11, 1989 moved for
reconsideration of the decision, filing at the same time a conditional
Notice of Appeal, asking the court to treat the said notice of appeal "as in
effect after and upon issuance of the court's denial of the motion for
reconsideration."
Defendant opposed the motion for reconsideration to which a Reply dated
August 28, 1989 was filed by the plaintiff.
On October 16, 1989, the lower court disregarded the Motion for
Reconsideration and gave due course to the plaintiff's Notice of Appeal. 3
In its decision, the Court of Appeals sustained the trial court. It agreed
with the latter in its reliance upon Boudard vs. Tait 4 wherein it was held
that "the process of the court has no extraterritorial effect and no
jurisdiction is acquired over the person of the defendant by serving him
beyond the boundaries of the state." To support its position, the Court of
Appeals further stated:
In an action strictly in personam, such as the instant case, personal
service of summons within the forum is required for the court to acquire
jurisdiction over the defendant (Magdalena Estate Inc. vs. Nieto, 125 SCRA
230). To confer jurisdiction on the court, personal or substituted service of
summons on the defendant not extraterritorial service is necessary (Dial
Corp vs. Soriano, 161 SCRA 739).
But while plaintiff-appellant concedes that the collection suit filed is an
action in personam, it is its theory that a distinction must be made
between an action in personam against a resident defendant and an
action in personam against a non-resident defendant. Jurisdiction is
acquired over a non-resident defendant only if he is served personally
within the jurisdiction of the court and over a resident defendant if by
personal, substituted or constructive service conformably to statutory
authorization. Plaintiff-appellant argues that since the defendant-appellee
maintains branches in Japan it is considered a resident defendant.
Corollarily, personal, substituted or constructive service of summons when
made in compliance with the procedural rules is sufficient to give the court
jurisdiction to render judgment in personam.
Such an argument does not persuade.

It is a general rule that processes of the court cannot lawfully be served


outside the territorial limits of the jurisdiction of the court from which it
issues (Carter vs. Carter; 41 S.E. 2d 532, 201) and this isregardless of the
residence or citizenship of the party thus served (Iowa-Rahr vs. Rahr, 129
NW 494, 150 Iowa 511, 35 LRC, NS, 292, Am. Case 1912 D680). There must
be actual service within the proper territorial limits on defendant or
someone authorized to accept service for him. Thus, a defendant, whether
a resident or not in the forum where the action is filed, must be served
with summons within that forum.
But even assuming a distinction between a resident defendant and nonresident defendant were to be adopted, such distinction applies only to
natural persons and not in the corporations. This finds support in the
concept that "a corporation has no home or residence in the sense in
which those terms are applied to natural persons" (Claude Neon Lights vs.
Phil. Advertising Corp., 57 Phil. 607). Thus, as cited by the defendantappellee in its brief:
Residence is said to be an attribute of a natural person, and can be
predicated on an artificial being only by more or less imperfect analogy.
Strictly speaking, therefore, a corporation can have no local residence or
habitation. It has been said that a corporation is a mere ideal existence,
subsisting only in contemplation of law an invisible being which can
have, in fact, no locality and can occupy no space, and therefore cannot
have a dwelling place. (18 Am. Jur. 2d, p. 693 citing Kimmerle v. Topeka, 88
370, 128 p. 367; Wood v. Hartfold F. Ins. Co., 13 Conn 202)
Jurisprudence so holds that the foreign or domestic character of a
corporation is to be determined by the place of its origin where its charter
was granted and not by the location of its business activities (Jennings v.
Idaho Rail Light & P. Co., 26 Idaho 703, 146 p. 101), A corporation is a
"resident" and an inhabitant of the state in which it is incorporated and no
other (36 Am. Jur. 2d, p. 49).
Defendant-appellee is a Philippine Corporation duly organized under the
Philippine laws. Clearly, its residence is the Philippines, the place of its
incorporation, and not Japan. While defendant-appellee maintains
branches in Japan, this will not make it a resident of Japan. A corporation
does not become a resident of another by engaging in business there even
though licensed by that state and in terms given all the rights and
privileges of a domestic corporation (Galveston H. & S.A.R. Co. vs.
Gonzales, 151 US 496, 38 L ed. 248, 4 S Ct. 401).
On this premise, defendant appellee is a non-resident corporation. As
such, court processes must be served upon it at a place within the state in

which the action is brought and not elsewhere (St. Clair vs. Cox, 106 US
350, 27 L ed. 222, 1 S. Ct. 354). 5
It then concluded that the service of summons effected in Manila or
beyond the territorial boundaries of Japan was null and did not confer
jurisdiction upon the Tokyo District Court over the person of SHARP;
hence, its decision was void.
Unable to obtain a reconsideration of the decision, NORTHWEST elevated
the case to this Court contending that the respondent court erred in
holding that SHARP was not a resident of Japan and that summons on
SHARP could only be validly served within that country.
A foreign judgment is presumed to be valid and binding in the country
from which it comes, until the contrary is shown. It is also proper to
presume the regularity of the proceedings and the giving of due notice
therein. 6
Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in
personam of a tribunal of a foreign country having jurisdiction to
pronounce the same is presumptive evidence of a right as between the
parties and their successors-in-interest by a subsequent title. The
judgment may, however, be assailed by evidence of want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or
fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines
or elsewhere, enjoys the presumption that it was acting in the lawful
exercise of jurisdiction and has regularly performed its official duty.
Consequently, the party attacking a foreign judgment has the burden of
overcoming the presumption of its validity. 7 Being the party challenging
the judgment rendered by the Japanese court, SHARP had the duty to
demonstrate the invalidity of such judgment. In an attempt to discharge
that burden, it contends that the extraterritorial service of summons
effected at its home office in the Philippines was not only ineffectual but
also void, and the Japanese Court did not, therefore acquire jurisdiction
over it.
It is settled that matters of remedy and procedure such as those relating
to the service of process upon a defendant are governed by the lex fori or
the internal law of the forum. 8 In this case, it is the procedural law of
Japan where the judgment was rendered that determines the validity of
the extraterritorial service of process on SHARP. As to what this law is is a
question of fact, not of law. It may not be taken judicial notice of and must
be pleaded and proved like any other fact. 9 Sections 24 and 25, Rule 132
of the Rules of Court provide that it may be evidenced by an official
publication or by a duly attested or authenticated copy thereof. It was

then incumbent upon SHARP to present evidence as to what that Japanese


procedural law is and to show that under it, the assailed extraterritorial
service is invalid. It did not. Accordingly, the presumption of validity and
regularity of the service of summons and the decision thereafter rendered
by the Japanese court must stand.
Alternatively in the light of the absence of proof regarding Japanese
law, the presumption of identity or similarity or the so-called processual
presumption 10 may be invoked. Applying it, the Japanese law on the
matter is presumed to be similar with the Philippine law on service of
summons on a private foreign corporation doing business in the
Philippines. Section 14, Rule 14 of the Rules of Court provides that if the
defendant is a foreign corporation doing business in the Philippines,
service may be made: (1) on its resident agent designated in accordance
with law for that purpose, or, (2) if there is no such resident agent, on the
government official designated by law to that effect; or (3) on any of its
officers or agents within the Philippines.
If the foreign corporation has designated an agent to receive summons,
the designation is exclusive, and service of summons is without force and
gives the court no jurisdiction unless made upon him. 11
Where the corporation has no such agent, service shall be made on the
government official designated by law, to wit: (a) the Insurance
Commissioner in the case of a foreign insurance company; (b) the
Superintendent of Banks, in the case of a foreign banking corporation; and
(c) the Securities and Exchange Commission, in the case of other foreign
corporations duly licensed to do business in the Philippines. Whenever
service of process is so made, the government office or official served
shall transmit by mail a copy of the summons or other legal proccess to
the corporation at its home or principal office. The sending of such copy is
a necessary part of the service. 12
SHARP contends that the laws authorizing service of process upon the
Securities and Exchange Commission, the Superintendent of Banks, and
the Insurance Commissioner, as the case may be, presuppose a situation
wherein the foreign corporation doing business in the country no longer
has any branches or offices within the Philippines. Such contention is
belied by the pertinent provisions of the said laws. Thus, Section 128 of
the Corporation Code13 and Section 190 of the Insurance Code 14 clearly
contemplate two situations: (1) if the corporation had left the Philippines
or had ceased to transact business therein, and (2) if the corporation has
no designated agent. Section 17 of the General Banking Act 15 does not
even speak a corporation which had ceased to transact business in the
Philippines.

Nowhere in its pleadings did SHARP profess to having had a resident


agent authorized to receive court processes in Japan. This silence could
only mean, or least create an impression, that it had none. Hence, service
on the designated government official or on any of SHARP's officers or
agents in Japan could be availed of. The respondent, however, insists that
only service of any of its officers or employees in its branches in Japan
could be resorted to. We do not agree. As found by the respondent court,
two attempts at service were made at SHARP's Yokohama branch. Both
were unsuccessful. On the first attempt, Mr. Dinozo, who was believed to
be the person authorized to accept court process, was in Manila. On the
second, Mr. Dinozo was present, but to accept the summons because,
according to him, he was no longer an employee of SHARP. While it may be
true that service could have been made upon any of the officers or agents
of SHARP at its three other branches in Japan, the availability of such a
recourse would not preclude service upon the proper government official,
as stated above.
As found by the Court of Appeals, it was the Tokyo District Court which
ordered that summons for SHARP be served at its head office in the
Philippine's after the two attempts of service had failed. 16 The Tokyo
District Court requested the Supreme Court of Japan to cause the delivery
of the summons and other legal documents to the Philippines. Acting on
that request, the Supreme Court of Japan sent the summons together with
the other legal documents to the Ministry of Foreign Affairs of Japan
which, in turn, forwarded the same to the Japanese Embassy in Manila .
Thereafter, the court processes were delivered to the Ministry (now
Department) of Foreign Affairs of the Philippines, then to the Executive
Judge of the Court of First Instance (now Regional Trial Court) of Manila,
who forthwith ordered Deputy Sheriff Rolando Balingit to serve the same
on SHARP at its principal office in Manila. This service is equivalent to
service on the proper government official under Section 14, Rule 14 of the
Rules of Court, in relation to Section 128 of the Corporation Code. Hence,
SHARP's contention that such manner of service is not valid under
Philippine laws holds no water. 17
In deciding against the petitioner, the respondent court sustained the trial
court's reliance on Boudard vs. Tait 18where this Court held:
The fundamental rule is that jurisdiction in personam over nonresidents,
so as to sustain a money judgment, must be based upon personal service
within the state which renders the judgment.
xxx xxx xxx

The process of a court, has no extraterritorial effect, and no jurisdiction is


acquired over the person of the defendant by serving him beyond the
boundaries of the state. Nor has a judgment of a court of a foreign country
against a resident of this country having no property in such foreign
country based on process served here, any effect here against either the
defendant personally or his property situated here.
Process issuing from the courts of one state or country cannot run into
another, and although a nonresident defendant may have been personally
served with such process in the state or country of his domicile, it will not
give such jurisdiction as to authorize a personal judgment against him.
It
further
availed
of
the
ruling
in Magdalena
Estate,
Inc. vs. Nieto 19 and Dial Corp. vs. Soriano, 20 as well as the principle laid
down by the Iowa Supreme Court in the 1911 case of Raher vs. Raher. 21
The first three cases are, however, inapplicable. Boudard involved the
enforcement of a judgment of the civil division of the Court of First
Instance of Hanoi, French Indo-China. The trial court dismissed the case
because the Hanoi court never acquired jurisdiction over the person of the
defendant considering that "[t]he, evidence adduced at the trial
conclusively proves that neither the appellee [the defendant] nor his
agent or employees were ever in Hanoi, French Indo-China; and that the
deceased Marie Theodore Jerome Boudard had never, at any time, been his
employee." In Magdalena Estate, what was declared invalid resulting in
the failure of the court to acquire jurisdiction over the person of the
defendants in an action in personam was the service of summons through
publication against non-appearing resident defendants. It was claimed
that the latter concealed themselves to avoid personal service of
summons upon them. In Dial, the defendants were foreign corporations
which were not, domiciled and licensed to engage in business in the
Philippines and which did not have officers or agents, places of business,
or properties here. On the other hand, in the instant case, SHARP was
doing business in Japan and was maintaining four branches therein.
Insofar as to the Philippines is concerned, Raher is a thing of the past. In
that case, a divided Supreme Court of Iowa declared that the principle
that there can be no jurisdiction in a court of a territory to render a
personal judgment against anyone upon service made outside its limits
was applicable alike to cases of residents and non-residents. The principle
was put at rest by the United States Supreme Court when it ruled in the
1940 case ofMilliken vs. Meyer 22 that domicile in the state is alone
sufficient to bring an absent defendant within the reach of the state's
jurisdiction for purposes of a personal judgment by means of appropriate
substituted service or personal service without the state. This principle is

embodied in section 18, Rule 14 of the Rules of Court which allows service
of summons on residents temporarily out of the Philippines to be made
out of the country. The rationale for this rule was explained in Milliken as
follows:
[T]he authority of a state over one of its citizens is not terminated by the
mere fact of his absence from the state. The state which accords him
privileges and affords protection to him and his property by virtue of his
domicile may also exact reciprocal duties. "Enjoyment of the privileges of
residence within the state, and the attendant right to invoke the
protection of its laws, are inseparable" from the various incidences of
state citizenship. The responsibilities of that citizenship arise out of the
relationship to the state which domicile creates. That relationship is not
dissolved by mere absence from the state. The attendant duties, like the
rights and privileges incident to domicile, are not dependent on
continuous presence in the state. One such incident of domicile is
amenability to suit within the state even during sojourns without the
state, where the state has provided and employed a reasonable method
for apprising such an absent party of the proceedings against him. 23
The domicile of a corporation belongs to the state where it was
incorporated. 24 In a strict technical sense, such domicile as a corporation
may have is single in its essence and a corporation can have only one
domicile which is the state of its creation. 25
Nonetheless, a corporation formed in one-state may, for certain purposes,
be regarded a resident in another state in which it has offices and
transacts business. This is the rule in our jurisdiction and apropos thereto,
it may be necessery to quote what we stated in State Investment House,
Inc, vs. Citibank, N.A., 26 to wit:
The issue is whether these Philippine branches or units may be considered
"residents of the Philippine Islands" as that term is used in Section 20 of
the Insolvency Law . . . or residents of the state under the laws of which
they were respectively incorporated. The answer cannot be found in the
Insolvency Law itself, which contains no definition of the term, resident, or
any clear indication of its meaning. There are however other statutes,
albeit of subsequent enactment and effectivity, from which enlightening
notions of the term may be derived.
The National Internal Revenue Code declares that the term "'resident
foreign corporation' applies to a foreign corporation engaged in trade or
business within the Philippines," as distinguished from a "'non-resident
foreign corporation' . . . (which is one) not engaged in trade or bussiness
within the Philippines." [Sec. 20, pars. (h) and (i)].

The Offshore Banking Law, Presidential Decree No. 1034, states "that
branches, subsidiaries, affiliation, extension offices or any other units of
corporation or juridical person organized under the laws of any foreign
country operating in the Philippines shall be considered residents of the
Philippines. [Sec. 1(e)].
The General Banking Act, Republic Act No. 337, places "branches and
agencies in the Philippines of foreign banks . . . (which are) called
Philippine branches," in the same category as "commercial banks, savings
associations, mortgage banks, development banks, rural banks, stock
savings and loan associations" (which have been formed and organized
under Philippine laws), making no distinction between the former and the
latter in so far as the terms "banking institutions" and "bank" are used in
the Act [Sec. 2], declaring on the contrary that in "all matters not
specifically covered by special provisions applicable only to foreign banks,
or their branches and agencies in the Philippines, said foreign banks or
their branches and agencies lawfully doing business in the Philippines
"shall be bound by all laws, rules, and regulations applicable to domestic
banking corporations of the same class, except such laws, rules and
regulations as provided for the creation, formation, organization, or
dissolution of corporations
or as fix the
relation,
liabilities,
responsibilities, or duties of members, stockholders or officers of
corporation. [Sec. 18].
This court itself has already had occasion to hold [Claude Neon Lights,
Fed. Inc. vs. Philippine Advertising Corp., 57 Phil. 607] that a foreign
corporation licitly doing business in the Philippines, which is a defendant
in a civil suit, may not be considered a non-resident within the scope of
the legal provision authorizing attachment against a defendant not
residing in the Philippine Islands; [Sec. 424, in relation to Sec. 412 of Act
No. 190, the Code of Civil Procedure; Sec. 1(f), Rule 59 of the Rules of
1940, Sec. 1(f), Rule 57, Rules of 1964] in other words, a preliminary
attachment may not be applied for and granted solely on the asserted fact
that the defendant is a foreign corporation authorized to do business in
the Philippines and is consequently and necessarily, "a party who
resides out of the Philippines." Parenthetically, if it may not be considered
as a party not residing in the Philippines, or as a party who resides out of
the country, then, logically, it must be considered a party who does reside
in the Philippines, who is a resident of the country. Be this as it may, this
Court pointed out that:
. . . Our laws and jurisprudence indicate a purpose to assimilate foreign
corporations, duly licensed to do business here, to the status of domestic
corporations. (Cf. Section 73, Act No. 1459, and Marshall Wells Co. vs.
Henry W. Elser & Co., 46 Phil. 70, 76; Yu Cong Eng vs. Trinidad, 47 Phil.

385, 411) We think it would be entirely out of line with this policy should
we make a discrimination against a foreign corporation, like the petitioner,
and subject its property to the harsh writ of seizure by attachment when it
has complied not only with every requirement of law made specially of
foreign corporations, but in addition with every requirement of law made
of domestic corporations. . . .
Obviously, the assimilation of foreign corporations authorized to do
business in the Philippines "to the status of domestic corporations,
subsumes
their
being
found
and
operating
as
corporations,
hence,residing, in the country.
The same principle is recognized in American law: that the residence of a
corporation, if it can be said to have a residence, is necessarily where it
exercises corporate functions . . .;" that it is considered as dwelling "in the
place where its business is done . . .," as being "located where its
franchises are exercised . . .," and as being "present where it is engaged
in the prosecution of the corporate enterprise;" that a "foreign corporation
licensed to do business in a state is a resident of any country where it
maintains an office or agent for transaction of its usual and customary
business for venue purposes;" and that the "necessary element in its
signification is locality of existence." [Words and Phrases, Permanent Ed.,
vol. 37, pp. 394, 412, 493].
In as much as SHARP was admittedly doing business in Japan through its
four duly registered branches at the time the collection suit against it was
filed, then in the light of the processual presumption, SHARP may be
deemed a resident of Japan, and, as such, was amenable to the
jurisdiction of the courts therein and may be deemed to have assented to
the said courts' lawful methods of serving process. 27
Accordingly, the extraterritorial service of summons on it by the Japanese
Court was valid not only under the processual presumption but also
because of the presumption of regularity of performance of official duty.
We find NORTHWEST's claim for attorney's fees, litigation expenses, and
exemplary damages to be without merit. We find no evidence that would
justify an award for attorney's fees and litigation expenses under Article
2208 of the Civil Code of the Philippines. Nor is an award for exemplary
damages warranted. Under Article 2234 of the Civil Code, before the court
may consider the question of whether or not exemplary damages should
be awarded, the plaintiff must show that he is entitled to moral,
temperate, or compensatory damaged. There being no such proof
presented by NORTHWEST, no exemplary damages may be adjudged in its
favor.

WHEREFORE, the instant petition is partly GRANTED, and the challenged


decision is AFFIRMED insofar as it denied NORTHWEST's claims for
attorneys fees, litigation expenses, and exemplary damages but
REVERSED insofar as in sustained the trial court's dismissal of
NORTHWEST's complaint in Civil Case No. 83-17637 of Branch 54 of the
Regional Trial Court of Manila, and another in its stead is hereby rendered
ORDERING private respondent C.F. SHARP L COMPANY, INC. to pay to
NORTHWEST the amounts adjudged in the foreign judgment subject of
said case, with interest thereon at the legal rate from the filing of the
complaint therein until the said foreign judgment is fully satisfied.
Costs against the private respondent.
SO ORDERED.

[G.R. No. 108538. January 22, 1996]


LOURDES A. VALMONTE and ALFREDO D. VALMONTE, petitioners, vs. THE
HONORABLE COURT OF APPEALS, THIRD DIVISION and ROSITA
DIMALANTA, respondents.
DECISION
MENDOZA, J.:
Petitioner Lourdes A. Valmonte is a foreign resident. The question is
whether in an action for partition filed against her and her husband, who
is also her attorney, summons intended for her may be served on her
husband, who has a law office in the Philippines. The Regional Trial Court
of Manila, Branch 48, said no and refused to declare Lourdes A. Valmonte
in default, but the Court of Appeals said yes. Hence this petition for
review on certiorari.
The facts of the case are as follows:
Petitioners Lourdes A. Valmonte and Alfredo D. Valmonte are husband and
wife. They are both residents of 90222 Carkeek Drive South Seattle,
Washington, U.S.A. Petitioner Alfredo D. Valmonte, who is a member of
the Philippine bar, however, practices his profession in the Philippines,
commuting for this purpose between his residence in the state of
Washington and Manila, where he holds office at S-304 Gedisco Centre,
1564 A. Mabini, Ermita, Manila.
On March 9, 1992, private respondent Rosita Dimalanta, who is the sister
of petitioner Lourdes A. Valmonte, filed a complaint for partition of real

property and accounting of rentals against petitioners Lourdes A.


Valmonte and Alfredo D. Valmonte before the Regional Trial Court of
Manila, Branch 48. The subject of the action is a three-door apartment
located in Paco, Manila.
In her Complaint, private respondent alleged:
The plaintiff is of legal age, a widow and is at present a resident of 14823
Conway Road, Chesterfield, Missouri, U.S.A., while the defendants are
spouses, of legal age and at present residents of 90222 Carkeek Drive,
South Seattle, Washington, U.S.A., but, for purposes of this complaint may
be served with summons at Gedisco Center, Unit 304, 1564 A. Mabini St.,
Ermita, Manila where defendant Alfredo D. Valmonte as defendant Lourdes
Arreola Valmontes spouse holds office and where he can be found.
Apparently, the foregoing averments were made on the basis of a letter
previously sent by petitioner Lourdes A. Valmonte to private respondents
counsel
in which, in regard to the partition of the property in question, she
referred private respondents counsel to her husband as the party to
whom all communications intended for her should be sent. The letter
reads:
July 4, 1991
Dear Atty. Balgos:
This is in response to your letter, dated 20 June 1991, which I received
on 3 July 1991. Please address all communications to my lawyer, Atty.
Alfredo D. Valmonte, whose address, telephone and fax numbers appear
below.
c/o Prime Marine
Gedisco Center, Unit 304
1564 A. Mabini, Ermita
Metro Manila
Telephone:
Fax:

521-1736

21-2095

Service of summons was then made upon petitioner Alfredo D. Valmonte,


who at the time, was at his office in Manila. Petitioner Alfredo D. Valmonte
accepted the summons, insofar as he was concerned, but refused to

accept the summons for his wife, Lourdes A. Valmonte, on the ground that
he was not authorized to accept the process on her behalf. Accordingly the
process server left without leaving a copy of the summons and complaint
for petitioner Lourdes A. Valmonte.
Petitioner Alfredo D. Valmonte thereafter filed his Answer with
Counterclaim. Petitioner Lourdes A. Valmonte, however, did not file her
Answer. For this reason private respondent moved to declare her in
default. Petitioner Alfredo D. Valmonte entered a special appearance in
behalf of his wife and opposed the private respondents motion.
In its Order dated July 3, 1992, the trial court, denied private respondents
motion to declare petitioner Lourdes A. Valmonte in default. A motion for
reconsideration was similarly denied on September 23, 1992. Whereupon,
private respondent filed a petition for certiorari, prohibition and
mandamus with the Court of Appeals.
On December 29, 1992, the Court of Appeals rendered a decision granting
the petition and declaring Lourdes A. Valmonte in default. A copy of the
appellate courts decision was received by petitioner Alfredo D. Valmonte
on January 15, 1993 at
his Manila office
and
on January
21,
1993 in Seattle,Washington. Hence, this petition.
The issue at bar is whether in light of the facts set forth above, petitioner
Lourdes A. Valmonte was validly served with summons. In holding that she
had been, the Court of Appeals stated:[1]
[I]n her above-quoted reply, Mrs. Valmonte clearly and unequivocally
directed the aforementioned counsel of Dimalanta to address all
communications (evidently referring to her controversy with her sister
Mrs. Dimalanta over the Paco property, now the subject of the instant
case) to her lawyer who happens also to be her husband. Such directive
was made without any qualification just as was her choice/designation of
her husband Atty. Valmonte as her lawyer likewise made without any
qualification or reservation. Any disclaimer therefore on the part of Atty.
Valmonte as to his being his wifes attorney (at least with regard to the
dispute vis-a-vis [sic] the Paco property) would appear to be feeble or
trifling, if not incredible.
This view is bolstered by Atty. Valmontes subsequent alleged special
appearance made on behalf of his wife. Whereas Mrs. Valmonte had
manifestly authorized her husband to serve as her lawyer relative to her
dispute with her sister over the Paco property and to receive all
communications regarding the same and subsequently to appear on her
behalf by way of a so-called special appearance, she would nonetheless
now insist that the same husband would nonetheless had absolutely no

authority to receive summons on her behalf. In effect, she is asserting that


representation by her lawyer (who is also her husband) as far as the Paco
property controversy is concerned, should only be made by him when such
representation would be favorable to her but not otherwise. It would
obviously be inequitable for this Court to allow private respondent
Lourdes A. Valmonte to hold that her husband has the authority to
represent her when an advantage is to be obtained by her and to deny
such authority when it would turn out to be her disadvantage. If this be
allowed, Our Rules of Court, instead of being an instrument to promote
justice would be made use of to thwart or frustrate the same.
xxx

xxx

xxx

Turning to another point, it would not do for Us to overlook the fact that
the disputed summons was served not upon just an ordinary lawyer of
private respondent Lourdes A. Valmonte, but upon her lawyer husband.
But that is not all, the same lawyer/husband happens to be also her codefendant in the instant case which involves real property which,
according to her lawyer/husband/ co-defendant, belongs to the conjugal
partnership of the defendants (the spouses Valmonte). It is highly
inconceivable and certainly it would be contrary to human nature for the
lawyer/husband/co-defendant to keep to himself the fact that they (the
spouses Valmonte) had been sued with regard to a property which he
claims to be conjugal. Parenthetically, there is nothing in the records of
the case before Us regarding any manifestation by private respondent
Lourdes A. Valmonte about her lack of knowledge about the case
instituted against her and her lawyer/husband/co-defendant by her sister
Rosita.
PREMISES CONSIDERED, the instant petition for certiorari, prohibition and
mandamus is given due course. This Court hereby Resolves to nullify the
orders of the court a quo dated July 3, 1992 and September 23, 1992 and
further declares private respondent Lourdes Arreola Valmonte as having
been properly served with summons.
Petitioners assail the aforequoted decision, alleging that the Court of
Appeals erred (1) in refusing to apply the provisions of Rule 14, 17 of the
Revised Rules of Court and applying instead Rule 14, 8 when the fact is
that petitioner Lourdes A. Valmonte is a nonresident defendant; and (2)
because even if Rule 14, 8 is the applicable provision, there was no valid
substituted service as there was no strict compliance with the
requirement by leaving a copy of the summons and complaint with
petitioner Alfredo D. Valmonte. Private respondent, upon the other hand,
asserts that petitioners are invoking a technicality and that strict
adherence to the rules would only result in a useless ceremony.

We hold that there was no valid service of process on Lourdes A.


Valmonte.
To provide perspective, it will be helpful to determine first the nature of
the action filed against petitioners Lourdes A. Valmonte and Alfredo D.
Valmonte by private respondent, whether it is an action in personam, in
rem or quasi in rem. This is because the rules on service of summons
embodied in Rule 14 apply according to whether an action is one or the
other of these actions.
In an action in personam, personal service of summons or, if this is not
possible and he cannot be personally served, substituted service, as
provided in Rule 14, 7-8[2] is essential for the acquisition by the court of
jurisdiction over the person of a defendant who does not voluntarily
submit himself to the authority of the court. [3] If defendant cannot be
served with summons because he is temporarily abroad, but otherwise he
is a Philippine resident, service of summons may, by leave of court, be
made by publication.[4] Otherwise stated, a resident defendant in an
action in personam, who cannot be personally served with summons, may
be summoned either by means of substituted service in accordance with
Rule 14, 8 or by publication as provided in 17 and 18 of the same Rule.
[5]

In all of these cases, it should be noted, defendant must be a resident of


the Philippines, otherwise an action in personam cannot be brought
because jurisdiction over his person is essential to make a binding
decision.
On the other hand, if the action is in rem or quasi in rem, jurisdiction over
the person of the defendant is not essential for giving the court
jurisdiction so long as the court acquires jurisdiction over the res. If the
defendant is a nonresident and he is not found in the country, summons
may be served extraterritorially in accordance with Rule 14, 17, which
provides:
17. Extraterritorial service. - When the defendant does not reside and is
not found in the Philippines and the action affects the personal status of
the plaintiff or relates to, or the subject of which is, property within the
Philippines, in which the defendant has or claims a lien or interest, actual
or contingent, or in which the relief demanded consists, wholly or in part,
in excluding the defendant from any interest therein, or the property of
the defendant has been attached within the Philippines, service may, by
leave of court, be effected out of the Philippines by personal service as
under Section 7; or by publication in a newspaper of general circulation in
such places and for such time as the court may order, in which case a copy

of the summons and order of the court shall be sent by registered mail to
the last known address of the defendant, or in any other manner the court
may deem sufficient. Any order granting such leave shall specify a
reasonable time, which shall not be less than sixty (60) days after notice,
within which the defendant must answer.
In such cases, what gives the court jurisdiction in an action in rem or
quasi in rem is that it has jurisdiction over the res, i.e. the personal status
of the plaintiff who is domiciled in the Philippines or the property litigated
or attached. Service of summons in the manner provided in 17 is not for
the purpose of vesting it with jurisdiction but for complying with the
requirements of fair play or due process, so that he will be informed of the
pendency of the action against him and the possibility that property in the
Philippines belonging to him or in which he has an interest may be
subjected to a judgment in favor of the plaintiff and he can thereby take
steps to protect his interest if he is so minded. [6]
Applying the foregoing rules to the case at bar, private respondents
action, which is for partition and accounting under Rule 69, is in the
nature of an action quasi in rem. Such an action is essentially for the
purpose of affecting the defendants interest in a specific property and not
to render a judgment against him. As explained in the leading case
of Banco Espaol Filipino v. Palanca :[7]
[An action quasi in rem is] an action which while not strictly speaking an
action in rem partakes of that nature and is substantially such. . . . The
action quasi in 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.
As petitioner Lourdes A. Valmonte is a nonresident who is not found in the
Philippines, service of summons on her must be in accordance with Rule
14, 17. Such service, to be effective outside the Philippines, must be
made either (1) by personal service; (2) by publication in a newspaper of
general circulation in such places and for such time as the court may
order, in which case a copy of the summons and order of the court should
be sent by registered mail to the last known address of the defendant; or
(3) in any other manner which the court may deem sufficient.

Since in the case at bar, the service of summons upon petitioner Lourdes
A. Valmonte was not done by means of any of the first two modes, the
question is whether the service on her attorney, petitioner Alfredo D.
Valmonte, can be justified under the third mode, namely, in any . . .
manner the court may deem sufficient.
We hold it cannot. This mode of service, like the first two, must be made
outside the Philippines, such as through the Philippine Embassy in the
foreign country where the defendant resides.[8] Moreover, there are
several reasons why the service of summons on Atty. Alfredo D. Valmonte
cannot be considered a valid service of summons on petitioner Lourdes A.
Valmonte. In the first place, service of summons on petitioner Alfredo D.
Valmonte was not made upon the order of the court as required by Rule
14, 17 and certainly was not a mode deemed sufficient by the court
which in fact refused to consider the service to be valid and on that basis
declare petitioner Lourdes A. Valmonte in default for her failure to file an
answer.
In the second place, service in the attempted manner on petitioner was
not made upon prior leave of the trial court as required also in Rule 14,
17. As provided in 19, such leave must be applied for by motion in
writing, supported by affidavit of the plaintiff or some person on his behalf
and setting forth the grounds for the application.
Finally, and most importantly, because there was no order granting such
leave, petitioner Lourdes A. Valmonte was not given ample time to file her
Answer which, according to the rules, shall be not less than sixty (60) days
after notice. It must be noted that the period to file an Answer in an action
against a resident defendant differs from the period given in an action
filed against a nonresident defendant who is not found in the Philippines.
In the former, the period is fifteen (15) days from service of summons,
while in the latter, it is at least sixty (60) days from notice.
Strict compliance with these requirements alone can assure observance of
due process. That is why in one case, [9] although the Court considered
publication in the Philippines of the summons (against the contention that
it should be made in the foreign state where defendant was residing)
sufficient, nonetheless the service was considered insufficient because no
copy of the summons was sent to the last known correct address in
the Philippines.
Private respondent cites the ruling in De Leon v. Hontanosas, 67 SCRA
458,462-463 (1975), in which it was held that service of summons upon
the defendants husband was binding on her. But the ruling in that case is
justified because summons were served upon defendants husband in

their conjugal home in Cebu City and the wife was only temporarily
absent, having gone to Dumaguete City for a vacation. The action was for
collection of a sum of money. In accordance with Rule 14, 8, substituted
service could be made on any person of sufficient discretion in the
dwelling place of the defendant, and certainly defendants husband, who
was there, was competent to receive the summons on her behalf. In any
event, it appears that defendant in that case submitted to the jurisdiction
of the court by instructing her husband to move for the dissolution of the
writ of attachment issued in that case.
On the other hand, in the case of Gemperle v. Schenker, [10] it was held that
service on the wife of a nonresident defendant was found sufficient
because the defendant had appointed his wife as his attorney-in-fact. It
was held that although defendant Paul Schenker was a Swiss citizen and
resident of Switzerland, service of summons upon his wife Helen Schenker
who was in the Philippines was sufficient because she was her husbands
representative and attorney-in-fact in a civil case, which he had earlier
filed against William Gemperle. In fact Gemperles action was for damages
arising from allegedly derogatory statements contained in the complaint
filed in the first case. As this Court said, i]n 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 one at bar, which is a consequence of the
action brought by her on his behalf. [11] Indeed, if instead of filing an
independent action Gemperle filed a counterclaim in the action brought by
Mr. Schenker against him, there would have been no doubt that the trial
court could have acquired jurisdiction over Mr. Schenker through his agent
and attorney-in-fact, Mrs. Schenker.
In contrast, in the case at bar, petitioner Lourdes A. Valmonte did not
appoint her husband as her attorney-in-fact. Although she wrote private
respondent s attorney that all communications intended for her should
be addressed to her husband who is also her lawyer at the latters address
in Manila, no power of attorney to receive summons for her can be
inferred therefrom. In fact the letter was written seven months before the
filing of this case below, and it appears that it was written in connection
with the negotiations between her and her sister, respondent Rosita
Dimalanta, concerning the partition of the property in question. As is
usual in negotiations of this kind, the exchange of correspondence was
carried on by counsel for the parties. But the authority given to
petitioners husband in these negotiations certainly cannot be construed
as also including an authority to represent her in any litigation.
For the foregoing reasons, we hold that there was no valid service on
petitioner Lourdes A. Valmonte in this case.

WHEREFORE, the decision appealed from is REVERSED and the orders


dated July 3, 1992 and September 23, 1992 of the Regional Trial Court of
Manila, Branch 48 are REINSTATED.
SO ORDERED.

ASIAVEST LIMITED, petitioner, vs. THE COURT OF APPEALS AND ANTONIO


HERAS, respondents.
DECISION
DAVIDE, JR., J.:
In issue is the enforceability in the Philippines of a foreign judgment. The
antecedents are summarized in the 24 August 1990 Decision [1] of Branch
107 of the Regional Trial Court of Quezon City in Civil Case No. Q-52452;
thus:
The plaintiff Asiavest Limited filed a complaint on December 3, 1987
against the defendant Antonio Heras praying that said defendant be
ordered to pay to the plaintiff the amounts awarded by the Hong Kong
Court Judgment dated December 28, 1984 and amended on April 13, 1987,
to wit:
1)
US$1,810,265.40 or its equivalent in Hong Kong currency at the time
of payment with legal interest from December 28, 1984 until fully paid;
2)
interest on the sum of US$1,500.00 at 9.875% per annum from
October 31, 1984 to December 28, 1984; and
3)

HK$905.00 at fixed cost in the action; and

4) at least $80,000.00 representing attorneys fees, litigation expenses


and cost, with interest thereon from the date of the judgment until fully
paid.
On March 3, 1988, the defendant filed a Motion to Dismiss. However,
before the court could resolve the said motion, a fire which partially razed
the Quezon City Hall Building on June 11, 1988 totally destroyed the office
of this Court, together with all its records, equipment and properties. On
July 26, 1988, the plaintiff, through counsel filed a Motion for
Reconstitution of Case Records. The Court, after allowing the defendant
to react thereto, granted the said Motion and admitted the annexes
attached thereto as the reconstituted records of this case per Order dated
September 6, 1988. Thereafter, the Motion to Dismiss, the resolution of

which had been deferred, was denied by the Court in its Order of October
4, 1988.
On October 19, 1988, defendant filed his Answer. The case was then set
for pre-trial conference. At the conference, the parties could not arrive at
any settlement. However, they agreed on the following stipulations of
facts:
1)
The defendant admits the existence of the judgment dated
December 28, 1984 as well as its amendment dated April 13, 1987, but not
necessarily the authenticity or validity thereof;
2)
The plaintiff is not doing business and is not licensed to do business
in the Philippines;
3)
The residence of defendant, Antonio Heras, is New Manila, Quezon
City.
The only issue for this Court to determine is, whether or not the judgment
of the Hong Kong Court has been repelled by evidence of want of
jurisdiction, want of notice to the party, collusion, fraud or clear mistake
of law or fact, such as to overcome the presumption established in Section
50, Rule 39 of the Rules of Court in favor of foreign judgments.
In view of the admission by the defendant of the existence of the
aforementioned judgment (Pls. See Stipulations of Facts in the Order
dated January 5, 1989 as amended by the Order of January 18, 1989), as
well as the legal presumption in favor of the plaintiff as provided for in
paragraph (b), Sec. 50, (Ibid.), the plaintiff presented only documentary
evidence to show rendition, existence, and authentication of such
judgment by the proper officials concerned (Pls. See Exhibits A thru B,
with their submarkings). In addition, the plaintiff presented testimonial
and documentary evidence to show its entitlement to attorneys fees and
other expenses of litigation.
On the other hand, the defendant presented two witnesses, namely,
Fortunata dela Vega and Russel Warren Lousich.
The gist of Ms. dela Vegas testimony is to the effect that no writ of
summons or copy of a statement of claim of Asiavest Limited was ever
served in the office of the Navegante Shipping Agency Limited and/or for
Mr. Antonio Heras, and that no service of the writ of summons was either
served on the defendant at his residence in New Manila, Quezon City. Her
knowledge is based on the fact that she was the personal secretary of Mr.
Heras during his JD Transit days up to the latter part of 1972 when he
shifted or diversified to shipping business in Hong Kong; that she was in-

charge of all his letters and correspondence, business commitments,


undertakings, conferences and appointments, until October 1984 when Mr.
Heras left Hong Kong for good; that she was also the Officer-in-Charge or
Office Manager of Navegante Shipping Agency LTD, a Hong Kong
registered and based company acting as ships agent, up to and until the
company closed shop sometime in the first quarter of 1985, when shipping
business collapsed worldwide; that the said company held office at 34-35
Connaught Road, Central Hong Kong and later transferred to Caxton
House at Duddel Street, Hong Kong, until the company closed shop in
1985; and that she was certain of such facts because she held office at
Caxton House up to the first quarter of 1985.
Mr. Lousich was presented as an expert on the laws of Hong Kong, and as
a representative of the law office of the defendants counsel who made a
verification of the record of the case filed by the plaintiff in Hong Kong
against the defendant, as well as the procedure in serving Court processes
in Hong Kong.
In his affidavit (Exh. 2) which constitutes his direct testimony, the said
witness stated that:
The defendant was sued on the basis of his personal guarantee of the
obligations of Compania Hermanos de Navegacion S.A. There is no record
that a writ of summons was served on the person of the defendant in
Hong Kong, or that any such attempt at service was made. Likewise,
there is no record that a copy of the judgment of the High Court was
furnished or served on the defendant; anyway, it is not a legal
requirement to do so under Hong Kong laws;
a) The writ of summons or claim can be served by the solicitor (lawyer) of
the claimant or plaintiff. In Hong Kong there are no Court personnel who
serve writs of summons and/or most other processes.
b) If the writ of summons or claim (or complaint) is not contested, the
claimant or the plaintiff is not required to present proof of his claim or
complaint nor present evidence under oath of the claim in order to obtain
a Judgment.
c) There is no legal requirement that such a Judgment or decision
rendered by the Court in Hong Kong [to] make a recitation of the facts or
the law upon which the claim is based.
d) There is no necessity to furnish the defendant with a copy of the
Judgment or decision rendered against him.

e) In an action based on a guarantee, there is no established legal


requirement or obligation under Hong Kong laws that the creditor must
first bring proceedings against the principal debtor. The creditor can
immediately go against the guarantor.
On cross examination, Mr. Lousich stated that before he was
commissioned by the law firm of the defendants counsel as an expert
witness and to verify the records of the Hong Kong case, he had been
acting as counsel for the defendant in a number of commercial matters;
that there was an application for service of summons upon the defendant
outside the jurisdiction of Hong Kong; that there was an order of the Court
authorizing service upon Heras outside of Hong Kong, particularly in
Manila or any other place in the Philippines (p. 9, TSN, 2/14/90); that there
must be adequate proof of service of summons, otherwise the Hong Kong
Court will refuse to render judgment (p. 10, ibid); that the mere fact that
the Hong Kong Court rendered judgment, it can be presumed that there
was service of summons; that in this case, it is not just a
presumption because there was an affidavit stating that service was
effected in [sic] a particular man here in Manila; that such affidavit was
filed by one Jose R. Fernandez of the firm Sycip Salazar on the 21 st of
December 1984, and stated in essence that on Friday, the 23 rd of
November 1984 he served the 4 th defendant at No. 6 First Street, Quezon
City by leaving it at that address with Mr. Dionisio Lopez, the son-in-law of
the 4th defendant the copy of the writ and Mr. Lopez informed me and I
barely believed that he would bring the said writ to the attention of the
4th defendant (pp. 11-12, ibid.); that upon filing of that affidavit, the
Court was asked and granted judgment against the 4 th defendant; and that
if the summons or claim is not contested, the claimant of the plaintiff is
not required to present proof of his claim or complaint or present evidence
under oath of the claim in order to obtain judgment; and that such
judgment can be enforced in the same manner as a judgment rendered
after full hearing.
The trial court held that since the Hong Kong court judgment had been
duly proved, it is a presumptive evidence of a right as between the
parties; hence, the party impugning it had the burden to prove want of
jurisdiction over his person. HERAS failed to discharge that burden. He
did not testify to state categorically and under oath that he never
received summons. Even his own witness Lousich admitted that HERAS
was served with summons in his Quezon City residence. As to De la
Vegas testimony regarding non-service of summons, the same was
hearsay and had no probative value.
As to HERAS contention that the Hong Kong court judgment violated the
Constitution and the procedural laws of the Philippines because it

contained no statements of the facts and the law on which it was based,
the trial court ruled that since the issue related to procedural matters, the
law of the forum, i.e., Hong Kong laws, should govern. As testified by the
expert witness Lousich, such legalities were not required under Hong
Kong laws. The trial court also debunked HERAS contention that the
principle of excussion under Article 2058 of the Civil Code of the
Philippines was violated. It declared that matters of substance are
subject to the law of the place where the transaction occurred; in this
case, Hong Kong laws must govern.
The trial court concluded that the Hong Kong court judgment should be
recognized and given effect in this jurisdiction for failure of HERAS to
overcome the legal presumption in favor of the foreign judgment. It then
decreed; thus:
WHEREFORE, judgment is hereby rendered ordering defendant to pay to
the plaintiff the following sums or their equivalents in Philippine currency
at the time of payment: US$1,810,265.40 plus interest on the sum of
US$1,500,000.00 at 9.875% per annum from October 31, 1984 to
December 28, 1984, and HK$905 as fixed cost, with legal interests on the
aggregate amount from December 28, 1984, and to pay attorneys fees in
the sum of P80,000.00.
ASIAVEST moved for the reconsideration of the decision. It sought an
award of judicial costs and an increase in attorneys fees in the amount of
US$19,346.45 with interest until full payment of the said obligations. On
the other hand, HERAS no longer opposed the motion and instead
appealed the decision to the Court of Appeals, which docketed the appeal
as CA-G.R. CV No. 29513.
In its order[2] November 1990, the trial court granted ASIAVESTs motion
for reconsideration by increasing the award of attorneys fees to
US$19,345.65 OR ITS EQUIVALENT IN PHILIPPINE CURRENCY, AND TO PAY
THE COSTS OF THIS SUIT, provided that ASIAVEST would pay the
corresponding filing fees for the increase. ASIAVEST appealed the order
requiring prior payment of filing fees. However, it later withdrew its
appeal and paid the additional filing fees.
On 3 April 1997, the Court of Appeals rendered its decision [3] reversing the
decision of the trial court and dismissing ASIAVESTs complaint without
prejudice. It underscored the fact that a foreign judgment does not of
itself have any extraterritorial application. For it to be given effect, the
foreign tribunal should have acquired jurisdiction over the person and the
subject matter. If such tribunal has not acquired jurisdiction, its judgment
is void.

The Court of Appeals agreed with the trial court that matters of remedy
and procedure such as those relating to service of summons upon the
defendant are governed by the lex fori, which was, in this case, the law of
Hong Kong. Relative thereto, it gave weight to Lousichs testimony that
under the Hong Kong law, the substituted service of summons upon
HERAS effected in the Philippines by the clerk of Sycip Salazar Hernandez
& Gatmaitan firm would be valid provided that it was done in accordance
with Philippine laws. It then stressed that where the action is in
personam and the defendant is in the Philippines, the summons should be
personally served on the defendant pursuant to Section 7, Rule 14 of the
Rules of Court.[4] Substituted service may only be availed of where the
defendant cannot be promptly served in person, the fact of impossibility
of personal service should be explained in the proof of service. It also
found as persuasive HERAS argument that instead of directly using the
clerk of the Sycip Salazar Hernandez & Gatmaitan law office, who was not
authorized by the judge of the court issuing the summons, ASIAVEST
should have asked for leave of the local courts to have the foreign
summons served by the sheriff or other court officer of the place where
service was to be made, or for special reasons by any person authorized
by the judge.
The Court of Appeals agreed with HERAS that notice sent outside the
state to a non-resident is unavailing to give jurisdiction in an action
against him personally for money recovery. Summons should have been
personally served on HERAS in Hong Kong, for, as claimed by ASIAVEST,
HERAS was physically present in Hong Kong for nearly 14 years. Since
there was not even an attempt to serve summons on HERAS in Hong Kong,
the Hong Kong Supreme Court did not acquire jurisdiction over
HERAS. Nonetheless, it did not totally foreclose the claim of ASIAVEST;
thus:
While We are not fully convinced that [HERAS] has a meritorious defense
against [ASIAVESTs] claims or that [HERAS] ought to be absolved of any
liability, nevertheless, in view of the foregoing discussion, there is a need
to deviate from the findings of the lower court in the interest of justice
and fair play. This, however, is without prejudice to whatever action
[ASIAVEST] might deem proper in order to enforce its claims against
[HERAS].
Finally, the Court of Appeals also agreed with HERAS that it was
necessary that evidence supporting the validity of the foreign judgment
be submitted, and that our courts are not bound to give effect to foreign
judgments which contravene our laws and the principle of sound morality
and public policy.

ASIAVEST forthwith filed the instant petition alleging that the Court of
Appeals erred in ruling that
I.
IT WAS NECESSARY FOR [ASIAVEST] TO
SUPPORTING THE VALIDITY OF THE JUDGMENT;

PRESENT

EVIDENCE

II.
THE SERVICE OF SUMMONS ON [HERAS] WAS DEFECTIVE UNDER
PHILIPPINE LAW;
III.
SUMMONS SHOULD HAVE BEEN PERSONALLY SERVED ON HERAS IN
HONG KONG;
IV.
THE HONG KONG SUMMONS SHOULD HAVE BEEN SERVED WITH LEAVE
OF PHILIPPINE COURTS;
V.
THE FOREIGN JUDGMENT CONTRAVENES PHILIPPINE LAWS, THE
PRINCIPLES OF SOUND MORALITY, AND THE PUBLIC POLICY OF THE
PHILIPPINES.
Being interrelated, we shall take up together the assigned errors.
Under paragraph (b) of Section 50, Rule 39 of the Rules of Court, [5] which
was the governing law at the time this case was decided by the trial court
and respondent Court of Appeals, a foreign judgment against a person
rendered by a court having jurisdiction to pronounce the judgment is
presumptive evidence of a right as between the parties and their
successors in interest by the subsequent title. However, the judgment
may be repelled by evidence of want of jurisdiction, want of notice to the
party, collusion, fraud, or clear mistake of law or fact.
Also, Section 3(n) of Rule 131 of the New Rules of Evidence provides that
in the absence of proof to the contrary, a court, or judge acting as such,
whether in the Philippines or elsewhere, is presumed to have acted in the
lawful exercise of jurisdiction.
Hence, once the authenticity of the foreign judgment is proved, the
burden to repel it on grounds provided for in paragraph (b) of Section 50,

Rule 39 of the Rules of Court is on the party challenging the foreign


judgment -- HERAS in this case.
At the pre-trial conference, HERAS admitted the existence of the Hong
Kong judgment. On the other hand, ASIAVEST presented evidence to
prove rendition, existence, and authentication of the judgment by the
proper officials. The judgment is thus presumed to be valid and binding in
the country from which it comes, until the contrary is shown.
[6]
Consequently, the first ground relied upon by ASIAVEST has merit. The
presumption of validity accorded foreign judgment would be rendered
meaningless were the party seeking to enforce it be required to first
establish its validity.
The main argument raised against the Hong Kong judgment is that the
Hong Kong Supreme Court did not acquire jurisdiction over the person of
HERAS. This involves the issue of whether summons was properly and
validly served on HERAS. It is settled that matters of remedy and
procedure such as those relating to the service of process upon the
defendant are governed by the lex fori or the law of the forum, [7] i.e., the
law of Hong Kong in this case. HERAS insisted that according to his
witness Mr. Lousich, who was presented as an expert on Hong Kong laws,
there was no valid service of summons on him.
In his counter-affidavit,[8] which served as his direct testimony per
agreement of the parties,[9] Lousich declared that the record of the Hong
Kong case failed to show that a writ of summons was served upon HERAS
in Hong Kong or that any such attempt was made. Neither did the record
show that a copy of the judgment of the court was served on HERAS. He
stated further that under Hong Kong laws (a) a writ of summons could be
served by the solicitor of the claimant or plaintiff; and (b) where the said
writ or claim was not contested, the claimant or plaintiff was not required
to present proof under oath in order to obtain judgment.
On cross-examination by counsel for ASIAVEST, Lousich testified that the
Hong Kong court authorized service of summons on HERAS outside of its
jurisdiction, particularly in the Philippines. He admitted also the existence
of an affidavit of one Jose R. Fernandez of the Sycip Salazar Hernandez &
Gatmaitan law firm stating that he (Fernandez) served summons on HERAS
on 13 November 1984 at No. 6, 1 st St., Quezon City, by leaving a copy with
HERASs son-in-law Dionisio Lopez.[10] On redirect examination, Lousich
declared that such service of summons would be valid under Hong Kong
laws provided that it was in accordance with Philippine laws. [11]
We note that there was no objection on the part of ASIAVEST on the
qualification of Mr. Lousich as an expert on the Hong Kong law. Under

Sections 24 and 25, Rule 132 of the New Rules of Evidence, the record of
public documents of a sovereign authority, tribunal, official body, or public
officer may be proved by (1) an official publication thereof or (2) a copy
attested by the officer having the legal custody thereof, which must be
accompanied, if the record is not kept in the Philippines, with a certificate
that such officer has the custody. The certificate may be issued by a
secretary of the embassy or legation, consul general, consul, vice consul,
or consular agent, or 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. The attestation must state, in
substance, that the copy is a correct copy of the original, or a specific part
thereof, as the case may be, and must be under the official seal of the
attesting officer.
Nevertheless, the testimony of an expert witness may be allowed to prove
a foreign law. An authority[12] on private international law thus noted:
Although it is desirable that foreign law be proved in accordance with the
above rule, however, the Supreme Court held in the case of Willamette
Iron and Steel Works v. Muzzal,[13] that Section 41, Rule 123 (Section 25,
Rule 132 of the Revised Rules of Court) does not exclude the presentation
of other competent evidence to prove the existence of a foreign law. In
that case, the Supreme Court considered the testimony under oath of an
attorney-at-law of San Francisco, California, who quoted verbatim a
section of California Civil Code and who stated that the same was in force
at the time the obligations were contracted, as sufficient evidence to
establish the existence of said law. Accordingly, in line with this view, the
Supreme Court in the Collector of Internal Revenue v. Fisher et al.,
[14]
upheld the Tax Court in considering the pertinent law of California as
proved by the respondents witness. In that case, the counsel for
respondent testified that as an active member of the California Bar since
1951, he is familiar with the revenue and taxation laws of the State of
California. When asked by the lower court to state the pertinent California
law as regards exemption of intangible personal properties, the witness
cited Article 4, Sec. 13851 (a) & (b) of the California Internal and Revenue
Code as published in Derrings California Code, a publication of BancroftWhitney Co., Inc. And as part of his testimony, a full quotation of the cited
section was offered in evidence by respondents. Likewise, in several
naturalization cases, it was held by the Court that evidence of the law of a
foreign country on reciprocity regarding the acquisition of citizenship,
although not meeting the prescribed rule of practice, may be allowed and
used as basis for favorable action, if, in the light of all the circumstances,
the Court is satisfied of the authenticity of the written proof
offered.[15] Thus, in a number of decisions, mere authentication of the

Chinese Naturalization Law by the Chinese Consulate General of Manila


was held to be competent proof of that law.[16]
There is, however, nothing in the testimony of Mr. Lousich that touched on
the specific law of Hong Kong in respect of service of summons either in
actions in rem or in personam, and where the defendant is either a
resident or nonresident of Hong Kong. In view of the absence of proof of
the Hong Kong law on this particular issue, the presumption of identity or
similarity or the so-called processual presumption shall come into play. It
will thus be presumed that the Hong Kong law on the matter is similar to
the Philippine law.[17]
As stated in Valmonte vs. Court of Appeals,[18] it will be helpful to
determine first whether the action is in personam, in rem, or quasi in
rem because the rules on service of summons under Rule 14 of the Rules
of Court of the Philippines apply according to the nature of the action.
An action in personam is an action against a person on the basis of his
personal liability. An action in rem is an action against the thing itself
instead of against the person.[19] An action quasi in rem is one wherein 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.[20]
In an action in personam, jurisdiction over the person of the defendant is
necessary for the court to validly try and decide the case. Jurisdiction
over the person of aresident defendant who does not voluntarily appear in
court can be acquired by personal service of summons as provided under
Section 7, Rule 14 of the Rules of Court. If he cannot be personally served
with summons within a reasonable time, substituted service may be made
in accordance with Section 8 of said Rule. If he is temporarily out of the
country, any of the following modes of service may be resorted to: (1)
substituted service set forth in Section 8; [21] (2) personal service outside
the country, with leave of court; (3) service by publication, also with leave
of court;[22] or (4) any other manner the court may deem sufficient.[23]
However, in an action in personam wherein the defendant is a nonresident who does not voluntarily submit himself to the authority of the
court, personal service of summons within the state is essential to the
acquisition of jurisdiction over her person. [24] This method of service is
possible if such defendant is physically present in the country. If he is not
found therein, the court cannot acquire jurisdiction over his person and
therefore cannot validly try and decide the case against him. [25] An
exception was laid down in Gemperle v. Schenker[26] wherein a nonresident was served with summons through his wife, who was a resident

of the Philippines and who was his representative and attorney-in-fact in a


prior civil case filed by him; moreover, the second case was a mere
offshoot of the first case.
On the other hand, in a proceeding in rem or quasi in rem, jurisdiction
over the person of the defendant is not a prerequisite to confer
jurisdiction on the court provided that the court acquires jurisdiction over
the res. Nonetheless, summons must be served upon the defendant not
for the purpose of vesting the court with jurisdiction but merely for
satisfying the due process requirements. [27] Thus, where the defendant is a
non-resident who is not found in the Philippines and (1) the action affects
the personal status of the plaintiff; (2) the action relates to, or the subject
matter of which is property in the Philippines in which the defendant has
or claims a lien or interest; (3) the action seeks the exclusion of the
defendant from any interest in the property located in the Philippines; or
(4) the property of the defendant has been attached in the Philippines -service of summons may be effected by (a) personal service out of the
country, with leave of court; (b) publication, also with leave of court; or (c)
any other manner the court may deem sufficient.[28]
In the case at bar, the action filed in Hong Kong against HERAS was in
personam, since it was based on his personal guarantee of the obligation
of the principal debtor. Before we can apply the foregoing rules, we must
determine first whether HERAS was a resident of Hong Kong.
Fortunata de la Vega, HERASs personal secretary in Hong Kong since 1972
until 1985,[29] testified that HERAS was the President and part owner of a
shipping company in Hong Kong during all those times that she served as
his secretary. He had in his employ a staff of twelve. [30] He had business
commitments, undertakings, conferences, and appointments until October
1984 when [he] left Hong Kong for good.[31] HERASs other witness,
Russel Warren Lousich, testified that he had acted as counsel for HERAS
for a number of commercial matters. [32] ASIAVEST then infers that
HERAS was a resident of Hong Kong because he maintained a business
there.
It must be noted that in his Motion to Dismiss, [33] as well as in his
Answer[34] to ASIAVESTs complaint for the enforcement of the Hong Kong
court judgment, HERAS maintained that the Hong Kong court did not have
jurisdiction over him because the fundamental rule is that jurisdiction in
personam over non-resident defendants, so as to sustain a money
judgment, must be based upon personal service of summons within the
state which renders the judgment.[35]

For its part, ASIAVEST, in its Opposition to the Motion to


Dismiss[36] contended: The question of Hong Kong courts want of
jurisdiction is therefore a triable issue if it is to be pleaded by the
defendant to repel the foreign judgment. Facts showing jurisdictional
lack (e.g. that the Hong Kong suit was in personam, that defendant was
not a resident of Hong Kong when the suit was filed or that he did not
voluntarily submit to the Hong Kong courts jurisdiction) should be alleged
and proved by the defendant.[37]
In his Reply (to the Opposition to Motion to Dismiss), [38] HERAS argued
that the lack of jurisdiction over his person was corroborated by
ASIAVESTs allegation in the complaint that he has his residence at No. 6,
1st St., New Manila, Quezon City, Philippines. He then concluded that
such judicial admission amounted to evidence that he was and is not a
resident of Hong Kong.
Significantly, in the pre-trial conference, the parties came up with
stipulations of facts, among which was that the residence of defendant,
Antonio Heras, is New Manila, Quezon City.[39]
We note that the residence of HERAS insofar as the action for the
enforcement of the Hong Kong court judgment is concerned, was never in
issue. He never challenged the service of summons on him through a
security guard in his Quezon City residence and through a lawyer in his
office in that city. In his Motion to Dismiss, he did not question the
jurisdiction of the Philippine court over his person on the ground of invalid
service of summons. What was in issue was his residence as far as the
Hong Kong suit was concerned. We therefore conclude that the stipulated
fact that HERAS is a resident of New Manila, Quezon City, Philippines
refers to his residence at the time jurisdiction over his person was being
sought by the Hong Kong court. With that stipulation of fact, ASIAVEST
cannot now claim that HERAS was a resident of Hong Kong at the time.
Accordingly, since HERAS was not a resident of Hong Kong and the action
against him was, indisputably, one in personam, summons should have
been personally served on him in Hong Kong. The extraterritorial service
in the Philippines was therefore invalid and did not confer on the Hong
Kong court jurisdiction over his person. It follows that the Hong Kong
court judgment cannot be given force and effect here in the Philippines for
having been rendered without jurisdiction.
Even assuming that HERAS was formerly a resident of Hong Kong, he was
no longer so in November 1984 when the extraterritorial service of
summons was attempted to be made on him. As declared by his secretary,
which statement was not disputed by ASIAVEST, HERAS left Hong Kong in

October 1984 for good.[40] His absence in Hong Kong must have been the
reason why summons was not served on him therein; thus, ASIAVEST was
constrained to apply for leave to effect service in the Philippines, and
upon obtaining a favorable action on the matter, it commissioned the
Sycip Salazar Hernandez & Gatmaitan law firm to serve the summons here
in the Philippines.
In Brown v. Brown,[41] the defendant was previously a resident of the
Philippines. Several days after a criminal action for concubinage was filed
against him, he abandoned the Philippines. Later, a proceeding quasi in
rem was instituted against him. Summons in the latter case was served
on the defendants attorney-in-fact at the latters address. The Court held
that under the facts of the case, it could not be said that the defendant
was still a resident of the Philippines because he ha[d] escaped to his
country and [was] therefore an absentee in the Philippines. As such, he
should have been summoned in the same manner as one who does not
reside and is not found in the Philippines.
Similarly, HERAS, who was also an absentee, should have been served
with summons in the same manner as a non-resident not found in Hong
Kong. Section 17, Rule 14 of the Rules of Court providing for
extraterritorial service will not apply because the suit against him was in
personam. Neither can we apply Section 18, which allows extraterritorial
service on a resident defendant who is temporarily absent from the
country, because even if HERAS be considered as a resident of Hong Kong,
the undisputed fact remains that he left Hong Kong not only temporarily
but for good.
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered DENYING
the petition in this case and AFFIRMING the assailed judgment of the
Court of Appeals in CA-G.R. CV No. 29513.
No costs.
SO ORDERED.

[G.R. Nos. 121576-78. June 16, 2000]


BANCO DO BRASIL, petitioner, vs. THE COURT OF APPEALS, HON. ARSENIO
M. GONONG, and CESAR S. URBINO, SR.,respondents.
DECISION
DE LEON, JR., J.:

Before us is a petition for review on certiorari of the Decision[1] and the


Resolution[2] of the Court of Appeals[3] dated July 19, 1993 and August 15,
1995, respectively, which reinstated the entire Decision [4] dated February
18, 1991 of the Regional Trial Court of Manila, Branch 8, holding, among
others, petitioner Banco do Brasil liable to private respondent Cesar
Urbino, Sr. for damages amounting to $300,000.00.[5]
At the outset, let us state that this case should have been consolidated
with the recently decided case of Vlason Enterprises Corporation v. Court
of Appeals and Duraproof Services, represented by its General Manager,
Cesar Urbino Sr.[6], for these two (2) cases involved the same material
antecedents, though the main issue proffered in the present petition vary
with the Vlason case.
The material antecedents, as quoted from the Vlason[7] case, are:
Poro Point Shipping Services, then acting as the local agent of Omega Sea
Transport Company of Honduras & Panama, a Panamanian Company
(hereafter referred to as Omega), requested permission for its vessel M/V
Star Ace, which had engine trouble, to unload its cargo and to store it at
the Philippine Ports Authority (PPA) compound in San Fernando, La Union
while awaiting transhipment to Hongkong. The request was approved by
the Bureau of Customs.[8] Despite the approval, the customs personnel
boarded the vessel when it docked on January 7, 1989, on suspicion that it
was the hijacked M/V Silver Med owned by Med Line Philippines Co., and
that its cargo would be smuggled into the country. [9] The district customs
collector seized said vessel and its cargo pursuant to Section 2301, Tariff
and Customs Code. A notice of hearing of SFLU Seizure Identification No.
3-89 was served on its consignee, Singkong Trading Co. of Hongkong, and
its shipper, Dusit International Co., Ltd. of Thailand.
While seizure proceedings were ongoing, La Union was hit by three
typhoons, and the vessel ran aground and was abandoned. On June 8,
1989, its authorized representative, Frank Cadacio, entered into salvage
agreement with private respondent to secure and repair the vessel at the
agreed consideration of $1 million and "fifty percent (50%) [of] the cargo
after all expenses, cost and taxes."[10]
Finding that no fraud was committed, the District Collector of Customs,
Aurelio M. Quiray, lifted the warrant of seizure on July 1989. [11] However, in
a Second Indorsement dated November 11, 1989, then Customs
Commissioner Salvador M. Mison declined to issue a clearance for Quirays
Decision; instead, he forfeited the vessel and its cargo in accordance with
Section 2530 of the Tariff and Customs Code. [12] Accordingly, acting District

Collector of Customs John S. Sy issued a Decision decreeing the forfeiture


and the sale of the cargo in favor of the government. [13]
To enforce its preferred salvors lien, herein Private Respondent Duraproof
Services filed with the Regional Trial Court of Manila a Petition
forCertiorari, Prohibition and Mandamus[14] assailing the actions of
Commissioner Mison and District Collector Sy. Also impleaded as
respondents were PPA Representative Silverio Mangaoang and Med Line
Philippines, Inc.
On January 10, 1989, private respondent amended its Petition [15] to include
former District Collector Quiray; PPA Port Manager Adolfo Ll. Amor, Jr.; x
Vlason Enterprises as represented by its president, Vicente Angliongto;
Singkong Trading Company as represented by Atty. Eddie Tamondong;
Banco Du Brasil; Dusit International Co.; Thai-Nan Enterprises Ltd., and
Thai-United Trading Co., Ltd.[16] x x x
Summonses for the amended Petition were served on Atty. Joseph
Capuyan for Med Line Philippines: Anglionto (through his secretary, Betty
Bebero), Atty. Tamondong and Commissioner Mison. [17] Upon motion of the
private respondent, the trial court allowed summons by publication to be
served upon defendants who were not residents and had no direct
representative in the country.[18]
On January 29, 1990, private respondent moved to declare respondents in
default, but the trial court denied the motion in its February 23, 1990
Order[19], because Mangaoang and Amor had jointly filed a Motion to
Dismiss, while Mison and Med Line had moved separately for an extension
to file a similar motion. [20] Later it rendered an Order dated July 2, 1990,
giving due course to the motions to dismiss filed by Mangaoang and Amor
on the ground of litis pendentia, and by the commissioner and district
collector of customs on the ground of lack of jurisdiction. [21] In another
Order, the trial court dismissed the action against Med Line Philippines on
the ground of litis pendentia.[22]
On two other occasions, private respondent again moved to declare the
following in default: [Vlason], Quiray, Sy and Mison on March 26, 1990;
[23]
and Banco [do] Bra[s]il, Dusit International Co., Inc., Thai-Nan
Enterprises Ltd. and Thai-United Trading Co., Ltd. on August 24, 1990.
[24]
There is no record, however, that the trial court acted upon the motions.
On September 18, 1990, [private respondent] filed another Motion for
leave to amend the petition, [25] alleging that its counsel failed to include
"necessary and/or indispensable parties": Omega represented by Cadacio;
and M/V Star Ace represented by Capt. Nahon Rada, relief captain. Aside
from impleading these additional respondents, private respondent also

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

c. Preservation, securing and guarding fees on the vessel in the amount of


$225,000.00;
d. Maintenance fees in the amount of P2,685,000.00;
e. Salaries of the crew from August 16, 1989 to December 1989 in the
amount of $43,000.00 and unpaid salaries from January 1990 up to the
present;
f. Attorneys fees in the amount of P656,000.00;
3. [Vlason] Enterprises to pay [private respondent] in the amount of
P3,000,000.00 for damages;
4. Banco [Du] Brasil to pay [private respondent] in the amount of
$300,000.00 in damages;[35] and finally,
5. Costs of [s]uit."
Subsequently, upon the motion of Omega, Singkong Trading Co., and
private
respondent,
the
trial
court
approved
a
Compromise
[36]
Agreement among the movants, reducing by 20 percent the amounts
adjudged. For their part, respondents-movants agreed not to appeal the
Decision.[37]On March 8, 1991, private respondent moved for the execution
of judgment, claiming that the trial court Decision had already become
final and executory. The Motion was granted and a Writ of Execution was
issued. To satisfy the Decision, Sheriffs Jorge Victorino, Amado Sevilla and
Dionisio Camagon were deputized on March 13, 1991 to levy and to sell
on execution the defendants vessel and personal property.
xxx
On March 18, 1991, the Bureau of Customs also filed an ex parte Motion to
recall the execution, and to quash the notice of levy and the sale on
execution. Despite this Motion, the auction sale was conducted on March
21, 1991 by Sheriff Camagon, with private respondent submitting the
winning bid. The trial court ordered the deputy sheriffs to cease and
desist from implementing the Writ of Execution and from levying on the
personal property of the defendants. Nevertheless, Sheriff Camagon
issued the corresponding Certificate of Sale on March 27, 1991.
On April 10, 1991, petitioner Banco do Brasil filed, by special appearance,
an Urgent Motion to Vacate Judgement and to Dismiss Case [38] on the
ground that the February 18, 1991 Decision of the trial court is void with
respect to it for having been rendered without validly acquiring
jurisdiction over the person of Banco do Brasil. Petitioner subsequently
amended its petition[39] to specifically aver that its special appearance is

solely for the purpose of questioning the Courts exercise of personal


jurisdiction.
On May 20, 1991, the trial court issued an Order [40] acting favorably on
petitioners motion and set aside as against petitioner the decision dated
February 18, 1991 for having been rendered without jurisdiction over
Banco do Brasils person. Private respondent sought reconsideration [41] of
the Order dated May 20, 1991. However, the trial court in an
Order[42] dated June 21, 1991 denied said motion.
Meanwhile, a certiorari petition[43] was filed by private respondent before
public respondent Court of Appeals seeking to nullify the cease and desist
Order dated April 5, 1991 issued by Judge Arsenio M. Gonong. Two (2)
more separate petitions for certiorari were subsequently filed by private
respondent. The second petition[44] sought to nullify the Order[45] dated
June 26, 1992 setting aside the Deputy Sheriffs return dated April 1, 1991
as well as the certificate of sale issued by Deputy Sheriff Camagon. The
third petition[46] sought to nullify the Order dated October 5, 1992 of the
Court of Tax Appeals directing the Commissioner of Customs to place
Bureau of Customs and PNP officers and guards to secure the M/V Star Ace
and its cargoes, make inventory of the goods stored in the premises as
indicated to belong to the private respondent. Likewise challenged was
the Order dated August 17, 1992 authorizing the sale of M/V Star Ace and
its cargoes.
These three (3) petitions were consolidated and on July 19, 1993, the
appellate court rendered its Decision [47] granting private respondents
petitions, thereby nullifying and setting aside the disputed orders and
effectively "giving way to the entire [decision dated February 18, 1991 of
the x x x Regional Trial Court of Manila, Branch 8, in Civil Case No. 8951451
which remains valid, final and executory,
if
not
yet
wholly
executed."[48]
Private respondent Urbino, Vlason Enterprises and petitioner Banco do
Brasil filed separate motions for reconsideration. For its part, petitioner
Banco do Brasil sought reconsideration, insofar as its liability for
damages, on the ground that there was no valid service of summons as
service was on the wrong party the ambassador of Brazil. Hence, it
argued, the trial court did not acquire jurisdiction over petitioner Banco do
Brasil.[49] Nonetheless, the appellate court denied the motions for
reconsideration in its Resolution[50] dated August 15, 1995.
Hence, the instant petition.
Petitioner Banco do Brasil takes exception to the appellate courts
declaration that the suit below is in rem, not in personam,[51] thus, service

of summons by publication was sufficient for the court to acquire


jurisdiction over the person of petitioner Banco do Brasil, and thereby
liable to private respondent Cesar Urbino for damages claimed, amounting
to $300,000.00. Petitioner further challenges the finding that the February
18, 1991 decision of the trial court was already final and thus, cannot be
modified or assailed.[52]
Petitioner avers that the action filed against it is an action for damages,
as such it is an action in personam which requires personal service of
summons be made upon it for the court to acquire jurisdiction over it.
However, inasmuch as petitioner Banco do Brasil is a non-resident foreign
corporation, not engaged in business in the Philippines, unless it has
property located in the Philippines which may be attached to convert the
action into an action in rem, the court cannot acquire jurisdiction over it in
respect of an action in personam.
The petition bears merit, thus the same should be as it is hereby granted.
First. When the defendant is a nonresident and he is not found in the
country, summons may be served extraterritorially in accordance
with Rule 14, Section 17[53] of the Rules of Court. Under this provision,
there are only four (4) instances when extraterritorial service of summons
is proper, namely: "(1) when the action affects the personal status of the
plaintiffs; (2) when the action relates to, or the subject of which is
property, within the Philippines, in which the defendant claims a lien or
interest, actual or contingent; (3) when the relief demanded in such action
consists, wholly or in part, in excluding the defendant from any interest in
property located in the Philippines; and (4) when the defendant nonresidents property has been attached within the Philippines." [54] In these
instances, service of summons may be effected by (a) personal service out
of the country, with leave of court; (b) publication, also with leave of
court; or (c) any other manner the court may deem sufficient.[55]
Clear from the foregoing, extrajudicial service of summons apply only
where the action is in rem, an action against the thing itself instead of
against the person, or in an action quasi in rem, where an individual is
named as defendant and the purpose of the proceeding is to subject his
interest therein to the obligation or loan burdening the property. This is so
inasmuch as, in in rem and quasi in rem actions, jurisdiction over the
person of the defendant is not a prerequisite to confer jurisdiction on the
court provided that the court acquires jurisdiction over the res.[56]
However, where the action is in personam, one brought against a person
on the basis of his personal liability, jurisdiction over the person of the
defendant is necessary for the court to validly try and decide the case.

When the defendant is a non-resident, personal service of summons within


the state is essential to the acquisition of jurisdiction over the person.
[57]
This cannot be done, however, if the defendant is not physically
present in the country, and thus, the court cannot acquire jurisdiction over
his person and therefore cannot validly try and decide the case against
him.[58]
In the instant case, private respondents suit against petitioner is
premised on petitioners being one of the claimants of the subject vessel
M/V Star Ace.[59]Thus, it can be said that private respondent initially
sought only to exclude petitioner from claiming interest over the subject
vessel M/V Star Ace. However, private respondent testified during the
presentation of evidence that, for being a nuisance defendant, petitioner
caused irreparable damage to private respondent in the amount of
$300,000.00.[60] Therefore, while the action is in rem, by claiming
damages, the relief demanded went beyond the res and sought a relief
totally alien to the action.
It must be stressed that any relief granted in rem or quasi in rem actions
must be confined to the res, and the court cannot lawfully render a
personal judgment against the defendant.[61] Clearly, the publication of
summons effected by private respondent is invalid and ineffective for the
trial court to acquire jurisdiction over the person of petitioner, since by
seeking to recover damages from petitioner for the alleged commission of
an injury to his person or property [62] caused by petitioners being a
nuisance defendant, private respondents action became in personam.
Bearing in mind the in personam nature of the action, personal or, if not
possible, substituted service of summons on petitioner, and not
extraterritorial service, is necessary to confer jurisdiction over the person
of petitioner and validly hold it liable to private respondent for damages.
Thus, the trial court had no jurisdiction to award damages amounting to
$300,000.00 in favor of private respondent and as against herein
petitioner.
Second. We settled the issue of finality of the trial courts decision dated
February 18, 1991 in the Vlason case, wherein we stated that, considering
the admiralty case involved multiple defendants, "each defendant had a
different period within which to appeal, depending on the date of receipt
of decision."[63]Only upon the lapse of the reglementary period to appeal,
with no appeal perfected within such period, does the decision become
final and executory.[64]
In the case of petitioner, its Motion to Vacate Judgment and to Dismiss
Case was filed on April 10, 1991, only six (6) days after it learned of the
existence of the case upon being informed by the Embassy of the

Federative Republic of Brazil in the Philippines, on April 4, 1991, of the


February 18, 1991 decision.[65]Thus, in the absence of any evidence on the
date of receipt of decision, other than the alleged April 4, 1991 date when
petitioner learned of the decision, the February 18, 1991 decision of the
trial court cannot be said to have attained finality as regards the
petitioner.
WHEREFORE, the subject petition is hereby GRANTED. The Decision and
the Resolution of the Court of Appeals dated July 19, 1993 and August 15,
1995, respectively, in CA-G.R. SP Nos. 24669, 28387 and 29317 are hereby
REVERSED and SET ASIDE insofar as they affect petitioner Banco do Brasil.
The Order dated May 20, 1991 of the Regional Trial Court of Manila,
Branch 8 in Civil Case No. 89-51451 is REINSTATED.
SO ORDERED.

[G.R. No. 150656. April 29, 2003]


MARGARITA
ROMUALDEZ-LICAROS, petitioner, vs.
LICAROS, respondent.

ABELARDO

B.

DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari[1] to annul the Decision[2] dated 9
August 2001 of the Court of Appeals in CA-G.R. SP No. 58487, as well as
the Resolution dated 23 October 2001 denying the motion for
reconsideration. The Court of Appeals dismissed the petition to annul the
following decisions[3]rendered by Branch 143 of the Regional Trial Court of
Makati:
(1) The Decision dated 27 December 1990 [4] granting the dissolution of the
conjugal partnership of gains of the spouses Abelardo B. Licaros and
Margarita Romualdez-Licaros;
(2) The Decision dated 8 November 1991 [5] declaring the marriage between
the same spouses null and void.
The Facts
The antecedent facts as found by the Court of Appeals are as follows:

x x x Abelardo Licaros (Abelardo, for short) and Margarita RomualdezLicaros (Margarita, hereafter) were lawfully married on December 15,
1968. Out of this marital union were born Maria Concepcion and Abelardo,
Jr. Ironically, marital differences, squabbles and irreconcilable conflicts
transpired between the spouses, such that sometime in 1979, they agreed
to separate from bed and board.
In 1982, Margarita left for the United States and there, to settle down with
her two (2) children. In the United States, on April 26, 1989, Margarita
applied for divorce before the Superior Court of California, County of San
Mateo (Annex 1, Rejoinder, pp. 164-165) where she manifested that she
does not desire counseling at that time(Quotation, p. 166, Rollo). On
August 6, 1990, Margarita was granted the decree of divorce (Annex 2,
Answer, p. 108, Rollo) together with a distribution of properties between
her and Abelardo (pp. 167-168, Rollo).
Not long after, on August 17, 1990, Abelardo and Margarita executed an
Agreement of Separation of Properties (pp. 60-64, Rollo). This was
followed-up by a petition filed on August 21, 1990 before the Regional
Trial Court of Makati for the dissolution of the conjugal partnership of
gains of the spouses and for the approval of the agreement of separation
of their properties. This was docketed as Special Proceeding No.
2551. On December 27, 1990, a decision was issued granting the petition
and approving the separation of property agreement.
For his part, on June 24, 1991, Abelardo commenced Civil Case No. 911757, for the declaration of nullity of his marriage with Margarita, based
on psychological incapacity under the New Family Code. As Margarita was
then residing at 96 Mulberry Lane, Atherton, California, U.S.A., Abelardo
initially moved that summons be served through the International Express
Courier Service. The court a quo denied the motion. Instead, it ordered
that summons be served by publication in a newspaper of general
circulation once a week for three (3) consecutive weeks, at the same time
furnishing respondent a copy of the order, as well as the corresponding
summons and a copy of the petition at the given address in the United
States through the Department of Foreign Affairs, all at the expense of
Abelardo. Respondent was given sixty (60) days after publication to file a
responsive pleading.
On July 15, 1991, Process Server, Maximo B. Dela Rosa, submitted his
Officers Return quoted hereunder:
OFFICERS RETURN
THIS IS TO CERTIFY that on July 3, 1991, I have served a copy of summons
and complaint with annexes together with order dated June 28, 1991

issued by the Court in the above-entitled case upon defendant Margarita


Romualdez-Licaros c/o DFA. (sent by Mail) thru Pat G. Martines receiving
Clerk of Department of Foreign Affairs a person authorized to receive this
kind of process who acknowledged the receipt thereof at ADB Bldg., Roxas
Blvd., Pasay City, Metro Manila. (p. 40, Rollo)
As required by law, the case was referred to Trial Prosecutor Bruselas, Jr.
to find out any possible collusion between the parties in the
case. Thereafter, with the negative report of collusion, Abelardo was
allowed to present his evidence ex-parte. On November 8, 1991, the
Decision (Annex A, Petition) was handed down in Civil Case No. 91-1757
declaring the marriage between Abelardo and Margarita null and void.
Almost nine (9) years later, on April 28, 2000, the petition at bench was
commenced when Margarita received a letter dated November 18, 1991
from a certain Atty. Angelo Q. Valencia informing her that she no longer
has the right to use the family name Licaros inasmuch as her marriage
to Abelardo had already been judicially dissolved by the Regional Trial
Court of Makati on November 8, 1991. Asseverating to have immediately
made some verifications and finding the information given to be true,
petitioner commenced the instant petition on the following grounds:
(A) THERE WAS EXTRINSIC FRAUD IN THE PREPARATION AND FILING BY
ABELARDO OF THE PETITION FOR DISSOLUTION OF THE CONJUGAL
PARTNERSHIP OF GAINS AND ITS ANNEX, THE AGREEMENT OF SEPARATION
OF PROPERTIES.
(B) THE TRIAL COURT LACKED JURISDICTION TO HEAR AND DECIDE THE
PETITION FOR DECLARATION OF NULLITY OF MARRIAGE.[6]
The Ruling of the Court of Appeals
The Court of Appeals debunked the claim of Margarita that there was
extrinsic fraud in the preparation and filing by Abelardo of the Petition
forDissolution of Conjugal Partnership of Gains and its annex,
the Agreement of Separation of Properties. The Court of Appeals stated:
x x x, the extrinsic fraud alluded to consists of Abelardo coercing
Margarita into signing the petition to dissolve their conjugal partnership
of gains together with the agreement of separation of properties, by
threatening to cut-off all financial and material support of their children
then still studying in the United States; that petitioner had no hand
directly or indirectly in the preparation of the petition and agreement of
separation of properties; that petitioner never met the counsel for the
petitioner, nor the notary public who notarized the deed; and, petitioner

never received any notice of the pendency of the petition nor a copy of the
decision.
Antithetically, a meticulous perusal of the controversial petition
(Annex B-1) and the agreement of separation of properties (pp. 60-64,
Rollo) readily shows that the same were signed by the petitioner on the
proper space after the prayer and on the portion for the verification of the
petition. The same is true with the agreement of separation of
properties. What is striking to note is that on August 6, 1990, Margarita
appeared before Amado P. Cortez, Consul of the Republic of the
Philippines at the San Francisco, California, United States Consulate
Office, to affirm and acknowledge before said official that she executed
the agreement of separation of properties of her own free will and deed,
after being informed of the contents thereof. And yet, there is no showing
that Abelardo was with her at the Philippine Consulate Office in confirming
the separation of property agreement. Moreover, on page 2 of the same
agreement, it is specifically stated that such property separation
document shall be subject to approval later on by the proper court of
competent jurisdiction. The clear import of this is that the agreement
must have to be submitted before the proper court for approval, which
explains and confirms petitioners signature on the petition filed in court.
In main, We see no indication nor showing of coercion or fraud from these
facts, which could very well be considered as extrinsic or collateral fraud
to justify a petition under Rule 47. From all indications, the pretended
coerced documents were rather freely and voluntarily executed by the
parties therein knowing fully well the imports thereof. This conclusion
finds more weight if We consider the fact that the separation of property
was fully implemented and enforced, when apparently both parties
correspondingly received the properties respectively assigned to each of
them under the said document.[7]
The Court of Appeals also rejected Margaritas claim that the trial court
lacked jurisdiction to hear and decide the Petition for Declaration of
Nullity of Marriage for improper service of summons on her. The case
involves the marital status of the parties, which is an action in
rem or quasi in rem. The Court of Appeals ruled that in such an action the
purpose of service of summons is not to vest the trial court with
jurisdiction over the person of the defendant, but only to comply with
due process. The Court of Appeals concluded that any irregularity in the
service of summons involves due process which does not destroy the trial
courts
jurisdiction
over
the res which is
the
parties
marital
status. Neither does such irregularity invalidate the judgment rendered in
the case. Thus, the Court of Appeals dismissed the petition for annulment
of judgment, stating that:

At bar, the case involves the personal (marital) status of the plaintiff and
the defendant. This status is the res over which the Philippine court has
acquired jurisdiction. This is also the kind of action which the Supreme
Court had ruled that service of summons may be served extraterritorially
under Section 15 (formerly Section 17) of Rule 14 and where such service
of summons is not for the purpose of vesting the trial court with
jurisdiction over the person of the defendant but only for the purpose of
complying with the requirements of fair play and due process. A fortiori,
the court a quo had properly acquired jurisdiction over the person of
herein petitioner-defendant when summons was served by publication and
a copy of the summons, the complaint with annexes, together with the
Order of June 28, 1991, was served to the defendant through the
Department of Foreign Affairs by registered mail and duly received by said
office to top it all. Such mode was upon instruction and lawful order of the
court and could even be treated as any other manner the court may deem
sufficient.[8]
Hence, the instant petition.
The Issues
The issues raised by Margarita are restated as follows:
I. Whether Margarita was validly served with summons in the case for
declaration of nullity of her marriage with Abelardo;
II. Whether there was extrinsic fraud in the preparation and filing by
Abelardo of the Petition for Dissolution of the Conjugal Partnership of
Gains and its annex, the Agreement of Separation of Properties.
The Courts Ruling
The petition is bereft of merit.
First Issue: Validity of the Service of Summons on Margarita
Margarita insists that the trial court never acquired jurisdiction over her
person in the petition for declaration of nullity of marriage since she was
never validly served with summons. Neither did she appear in court to
submit voluntarily to its jurisdiction.
On the other hand, Abelardo argues that jurisdiction over the person of a
non-resident defendant in an action in rem or quasi in rem is not
necessary. The trial and appellate courts made a clear factual finding that
there was proper summons by publication effected through the
Department of Foreign Affairs as directed by the trial court. Thus, the

trial court acquired jurisdiction to render the decision declaring the


marriage a nullity.
Summons is a writ by which the defendant is notified of the action brought
against him. Service of such writ is the means by which the court acquires
jurisdiction over his person.[9]
As a rule, when the defendant does not reside and is not found in the
Philippines, Philippine courts cannot try any case against him because of
the impossibility of acquiring jurisdiction over his person unless he
voluntarily appears in court. But when the case is one of actions in
rem or quasi in remenumerated in Section 15,[10] Rule 14 of the Rules of
Court, Philippine courts have jurisdiction to hear and decide the case. In
such instances, Philippine courts have jurisdiction over the res, and
jurisdiction over the person of the non-resident defendant is not essential.
[11]

Actions in personam[12] and actions in rem or quasi in rem differ in that


actions in personam are directed against specific persons and seek
personal judgments. On the other hand, actions in rem or quasi in rem are
directed against the thing or property or status of a person and seek
judgments with respect thereto as against the whole world. [13]
At the time Abelardo filed the petition for nullity of the marriage in 1991,
Margarita was residing in the United States. She left the Philippines in
1982 together with her two children. The trial court considered Margarita
a non-resident defendant who is not found in the Philippines. Since the
petition affects the personal status of the plaintiff, the trial court
authorized extraterritorial service of summons under Section 15, Rule 14
of the Rules of Court. The term personal status includes family
relations, particularly the relations between husband and wife. [14]
Under Section 15 of Rule 14, a defendant who is a non-resident and is not
found in the country may be served with summons by extraterritorial
service in four instances: (1) when the action affects the personal status
of the plaintiff; (2) when the action relates to, or the subject of which is
property within the Philippines, in which the defendant has or claims a
lien or interest, actual or contingent; (3) when the relief demanded
consists, wholly or in part, in excluding the defendant from any interest in
property located in the Philippines; or (4) when the property of the
defendant has been attached within the Philippines.
In these instances, extraterritorial service of summons may be effected
under any of three modes: (1) by personal service out of the country, with
leave of court; (2) by publication and sending a copy of the summons and
order of the court by registered mail to the defendants last known

address, also with leave of court; or (3) by any other means the judge may
consider sufficient.
Applying the foregoing rule, the trial court required extraterritorial service
of summons to be effected on Margarita in the following manner:
x x x, service of Summons by way of publication in a newspaper of general
circulation once a week for three (3) consecutive weeks, at the same time,
furnishing respondent copy of this Order as well as the corresponding
Summons and copy of the petition at her given address at No. 96 Mulberry
Lane, Atherton, California, U.S.A.,thru the Department of Foreign Affairs,
all at the expense of petitioner.[15] (Emphasis ours)
The trial courts prescribed mode of extraterritorial service does not fall
under the first or second mode specified in Section 15 of Rule 14, but
under the third mode. This refers to any other means that the judge may
consider sufficient.
The Process Servers Return of 15 July 1991 shows that the summons
addressed to Margarita together with the complaint and its annexes were
sent by mail to the Department of Foreign Affairs with acknowledgment of
receipt. The Process Servers certificate of service of summons is prima
facie evidence of the facts as set out in the certificate. [16] Before
proceeding to declare the marriage between Margarita and Abelardo null
and void, the trial court stated in its Decision dated 8 November 1991
that compliance with the jurisdictional requirements hav(e) (sic) been
duly established. We hold that delivery to the Department of Foreign
Affairs was sufficient compliance with the rule. After all, this is exactly
what the trial court required and considered as sufficient to effect service
of summons under the third mode of extraterritorial service pursuant to
Section 15 of Rule 14.
Second Issue: Validity of the Judgment Dissolving the
Conjugal Partnership of Gains
Margarita claims that Abelardo coerced her into signing the Petition for
Dissolution of the Conjugal Partnership of Gains (Petition) and its
annex,
theAgreement
of
Separation
of
Properties (Agreement). Abelardo allegedly threatened to cut off all
financial and material support to their children if Margarita did not sign
the documents.
The trial court did not find anything amiss in the Petition and Agreement
that Abelardo filed, and thus the trial court approved the same. The Court
of Appeals noted that a meticulous perusal of the Petition and Agreement

readily shows that Margarita signed the same on the proper space after
the prayer and on the portion for the verification of the petition. The
Court of Appeals observed further that on 6 August 1990, Margarita
appeared before Consul Amado Cortez in the Philippine Consulate Office in
San Francisco, California, to affirm that she executed the Agreement of
her own free will. There was no showing that Abelardo was at that time
with her at the Philippine Consulate Office. Abelardo secured judicial
approval of the Agreement as specifically required in the Agreement.
The Court is bound by the factual findings of the trial and appellate courts
that the parties freely and voluntarily executed the documents and that
there is no showing of coercion or fraud. As a rule, in an appeal
by certiorari under Rule 45, the Court does not pass upon questions of fact
as the factual findings of the trial and appellate courts are binding on the
Court. The Court is not a trier of facts. The Court will not examine the
evidence introduced by the parties below to determine if the trial and
appellate courts correctly assessed and evaluated the evidence on record.
[17]

The due and regular execution of an instrument acknowledged before an


officer authorized to administer oaths cannot be overthrown by bare
allegations of coercion but only by clear and convincing proof. [18] A person
acknowledging an instrument before an officer authorized to administer
oaths acknowledges that he freely and voluntarily executed the
instrument, giving rise to a prima facie presumption of such fact.
In the instant case, Margarita acknowledged the Agreement before Consul
Cortez. The certificate of acknowledgment signed by Consul Cortez states
that Margarita personally appeared before him and acknowledged before
me that SHE executed the same of her own free will and deed.[19] Thus,
there is aprima facie presumption that Margarita freely and voluntarily
executed the Agreement. Margarita has failed to rebut this prima
facie presumption with clear and convincing proof of coercion on the part
of Abelardo.
A document acknowledged before a notary public is prima facie evidence
of the due and regular execution of the document. [20] A notarized
document has in its favor the presumption of regularity in its execution,
and to contradict the same, there must be evidence that is clear,
convincing and more than merely preponderant. [21]
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. SP No. 58487
dismissing the petition to annul judgment is AFFIRMED.
SO ORDERED.

[G.R. No. 127692. March 10, 2004]


FORTUNATO GOMEZ and AURORA GOMEZ, petitioners, vs. COURT OF
APPEALS, ADOLFO TROCINO and MARIANO TROCINO, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the decision[1] of the Court of Appeals
datedSeptember 30, 1996, in CA-G.R. SP No. 40067, nullifying the decision
and orders of the Regional Trial Court of Cebu City (Branch 10) in Civil
Case No. CEB-11103, for want of jurisdiction.
Civil Case No. CEB-11103 is an action for specific performance and/or
rescission filed by herein petitioners, spouses Fortunato and Aurora
Gomez, against the heirs of Jesus J. Trocino, Sr., which include herein
respondents and their mother Caridad Trocino.[2]
Filed on December 16, 1991, the complaint alleges: Some time in 1975,
the spouses Jesus and Caridad Trocino mortgaged two parcels of land
covered by TCT Nos. 10616 and 31856 to Dr. Clarence Yujuico. The
mortgage was subsequently foreclosed and the properties sold at public
auction on July 11, 1988, and before the expiry of the redemption period,
the spouses Trocino sold the property to petitioners on December 12,
1989, who in turn, redeemed the same from Dr. Yujuico. The spouses
Trocino, however, refused to convey ownership of the properties to
petitioners, hence, the complaint.
On January 10, 1992, the trial courts Process Server served summons on
respondents, in the manner described in his Return of Service, to wit:
Respectfully returned to the Branch Clerk of Court, Regional Trial Court of
Cebu, Branch 10, the herein attached original summons issued in the
above-entitled case with the information that on January 8, 1992 summons
and copies of the complaint were served to the defendants Jacob, Jesus Jr.,
Adolfo, Mariano, Consolacion, Alice, Racheal thru defendant Caridad
Trocino at their given address at Maria Cristina Extension (besides Sacred
Heart School for Girls), Cebu City, evidence by her signature found at the
lower portion of the original summons. [3]
WHEREFORE I, respectfully return the original summons duly served to the
court of origin.

Cebu City, Philippines, January 10, 1992.


(signed)
DELFIN D. BARNIDO
RTC Process Server
On January 27, 1992, the defendants, through their counsel Atty. Expedito
P. Bugarin, filed their Answer. Defendant Caridad A. Trocino, respondents
mother, verified said pleading.[4]
After trial on the merits, the RTC rendered its decision on March 1993,
with the following disposition:
WHEREFORE, premises considered, judgment is hereby rendered in favor
of the plaintiffs and against the defendants.
The latter are hereby ordered to jointly and severally execute a Deed of
Sale in favor of the plaintiffs and to deliver the owners duplicate copies of
TCT Nos. 10616 and 31856, covering the properties sold, to the plaintiffs
within ten (10) days from the finality of the judgment, after which
plaintiffs
shall
pay
in
turn
to
the
defendants
the
balance
of P2,000,000.00. Otherwise, the sale is rescinded and revoked and the
defendants are directed to return to the plaintiffs the amount
of P500,000.00, with interest of 12% per annum computed from December
6, 1989, until the full amount is paid.
In addition thereto, defendants are to pay jointly and severally to the
plaintiffs, the amount of P50,000.00 as moral damages; P20,000.00 as
exemplary
damages; P40,000.00
by
way
of
attorneys
fees;
and P10,000.00 as litigation expenses.
SO ORDERED.[5]
Due to the defendants failure to deliver the owners duplicate of TCT Nos.
10616 and 31856, the RTC issued an order on August 29, 1995 declaring
said titles null and void, and ordering the Register of Deeds of Cebu City
to issue new titles in the name of herein petitioners.[6]
Thereafter, or on March 13, 1996, respondents Adolfo and Mariano Trocino
filed with the Court of Appeals, a petition for the annulment of the
judgment rendered by the RTC-Cebu (Branch 10) in Civil Case No. CEB11103. Private respondents alleged that the trial courts decision is null
and void on the ground that it did not acquire jurisdiction over their
persons as they were not validly served with a copy of the summons and
the complaint. According to them, at the time summons was served on

them, Adolfo Trocino was already in Ohio, U.S.A., and has been residing
there for 25 years, while Mariano Trocino was in Talibon, Bohol, and has
been residing there since 1986. They also refuted the receipt of the
summons by Caridad A. Trocino, and the representation made by Atty.
Bugarin in their behalf. Respondents also contended that they have a
meritorious defense.[7] Petitioners filed their Comment/Answer to the
petition.[8]
On September 30, 1996, the Court of Appeals issued the assailed Decision
granting the petition and annulling the decision of the RTC-Cebu (Branch
10). The decretal portion of the decision reads:
WHEREFORE, the decision of the Regional Trial Court of Cebu City, Branch
10, in Civil Case No. CEB-11103 as well as all Orders issued to implement
the same are hereby ANNULLED AND SET ASIDE. The Register of Deeds of
Cebu City is hereby ENJOINED from cancelling Transfer Certificates of Title
Nos. 10616 and 31856. No pronouncement as to costs.
SO ORDERED.[9]
Their motion for reconsideration having been denied by the Court of
Appeals, petitioners filed the present petition, setting forth the following
assignment of errors:
I. THE COURT OF APPEALS ERRED IN FINDING LACK OF PRIOR
KNOWLEDGE ON THE PART OF RESPONDENTS TROCINO, REGARDING THE
PROCEEDINGS BEFORE THE RTC OF CEBU CITY AND IN NOT DISMISSING
THE PETITION FOR VIOLATION OF SUPREME COURT CIRCULAR 04-94.
II. THE COURT OF APPEALS ERRED IN DECLARING THE NEED FOR
PERSONAL AND/OR EXTRATERRITORIAL SERVICE OF SUMMONS, DESPITE
THE NATURE OF THE CAUSE OF ACTION BEING ONE IN REM.
III. THE COURT OF APPEALS ERRED IN ANNULLING THE JUDGMENT,
CAUSING FURTHER USELESS LITIGATION AND UNNECESSARY EXPENSE ON
PETITIONERS AND RESPONDENTS, ESPECIALLY SINCE RESPONDENTS HAVE
NOT SHOWN ANY VALID DEFENSE AS GROUND FOR REVERSAL OF
JUDGMENT OF THE RTC.
IV. THE COURT OF APPEALS ERRED IN RULING THAT ITS JUDGMENT IS
APPLICABLE IN FAVOR OF CARIDAD TROCINO.[10]
Summons is a writ by which the defendant is notified of the action brought
against him. Service of such writ is the means by which the court acquires
jurisdiction over his person.[11] Any judgment without such service in the
absence of a valid waiver is null and void.[12]

The resolution of the present petition hinges on the issue of whether or


not summons was effectively served on respondents. If in the affirmative,
the trial court had validly acquired jurisdiction over their persons and
therefore its judgment is valid.
To resolve whether there was valid service of summons on respondents,
the nature of the action filed against them must first be determined. As
the Court explained in Asiavest Limited vs. Court of Appeals, it will be
helpful to determine first whether the action is in personam, in rem, or
quasi in rem because the rules on service of summons under Rule 14 of
the Rules of Court of the Philippines apply according to the nature of the
action.[13]
In actions in personam, summons on the defendant must be served by
handing a copy thereof to the defendant in person, or, if he refuses to
receive it, by tendering it to him. This is specifically provided in Section 7,
Rule 14 of the Rules of Court,[14] which states:
SEC. 7. Personal service of summons.-- The summons shall be served by
handing a copy thereof to the defendant in person or, if he refuses to
receive it, by tendering it to him.
If efforts to find defendant personally makes prompt service impossible,
substituted service may be effected by leaving copies of the summons at
the defendant's dwelling house or residence with some person of suitable
age and discretion then residing therein, or by leaving the copies at the
defendant's office or regular place of business with some competent
person in charge thereof.[15] In substituted service, it is mandated that the
fact of impossibility of personal service should be explained in the proof of
service.[16]
When the defendant in an action in personam is a non-resident who does
not voluntarily submit himself to the authority of the court, personal
service of summons within the State is essential to the acquisition of
jurisdiction over his person. This cannot be done if the defendant is not
physically present in the country, and thus, the court cannot acquire
jurisdiction over his person and therefore cannot validly try and decide
the case against him.[17] An exception was accorded in Gemperle vs.
Schenker wherein service of summons through the non-residents wife,
who was a resident of the Philippines, was held valid, as the latter was his
representative and attorney-in-fact in a prior civil case filed by the nonresident, and the second case was merely an offshoot of the first case. [18]
Meanwhile, in actions in rem or quasi in rem, jurisdiction over the person
of the defendant is not a prerequisite to confer jurisdiction on the court
provided that the court acquires jurisdiction over the res, although

summons must be served upon the defendant in order to satisfy the due
process requirements.[19]Thus, where the defendant is a non-resident who
is not found in the Philippines, and (1) the action affects the personal
status of the plaintiff; (2) the action relates to, or the subject matter of
which is property in the Philippines in which the defendant has or claims a
lien or interest; (3) the action seeks the exclusion of the defendant from
any interest in the property located in the Philippines; or (4) the property
of the defendant has been attached in the Philippines, summons may be
served extraterritorially by (a) personal service out of the country, with
leave of court; (b) publication, also with leave of court; or (c) any other
manner the court may deem sufficient.[20]
In the present case, petitioners cause of action in Civil Case No. CEB11103 is anchored on the claim that the spouses Jesus and Caridad Trocino
reneged on their obligation to convey ownership of the two parcels of land
subject of their sale. Thus, petitioners pray in their complaint that the
spouses Trocino be ordered to execute the appropriate deed of sale and
that the titles be delivered to them (petitioners); or in the alternative,
that the sale be revoked and rescinded; and spouses Trocino ordered to
return to petitioners their down payment in the amount of P500,000.00
plus interests. The action instituted by petitioners affect the parties
alone, not the whole world. Hence, it is an action in personam, i.e., any
judgment therein is binding only upon the parties properly impleaded. [21]
Contrary to petitioners belief, the complaint they filed for specific
performance and/or rescission is not an action in rem. While it is a real
action because it affects title to or possession of the two parcels of land
covered by TCT Nos. 10616 and 31856, it does not automatically follow
that the action is already one in rem. In Hernandez vs. Rural Bank of
Lucena, Inc., the Court made the following distinction:
In a personal action, the plaintiff seeks the recovery of personal property,
the enforcement of a contract or the recovery of damages. In a real action,
the plaintiff seeks the recovery of real property, or, as indicated in section
2(a) of Rule 4, a real action is an action affecting title to real property or
for the recovery of possession, or for partition or condemnation of, or
foreclosure of a mortgage on, real property.
An action in personam is an action against a person on the basis of his
personal liability, while an action in rem is an action against the thing
itself, instead of against the person. Hence, a real action may at the same
time be an action in personam and not necessarily an action in rem. [22]
The objective sought in petitioners complaint was to establish a claim
against respondents for their alleged refusal to convey to them the title to

the two parcels of land that they inherited from their father, Jesus Trocino,
who was one of the sellers of the properties to petitioners. Hence, to
repeat, Civil Case No. CEB-11103 is an action in personam because it is an
action against persons, namely, herein respondents, on the basis of their
personal liability. As such, personal service of summons upon the
defendants is essential in order for the court to acquire of jurisdiction over
their persons.[23]
A distinction, however, must be made with regard to service of summons
on respondents Adolfo Trocino and Mariano Trocino. Adolfo Trocino, as
records show, is already a resident of Ohio, U.S.A. for 25 years. Being a
non-resident, the court cannot acquire jurisdiction over his person and
validly try and decide the case against him.
On the other hand, Mariano Trocino has been in Talibon, Bohol since
1986. To validly acquire jurisdiction over his person, summons must be
served on him personally, or through substituted service, upon showing of
impossibility of personal service. Such impossibility, and why efforts
exerted towards personal service failed, should be explained in the proof
of service. The pertinent facts and circumstances attendant to the service
of summons must be stated in the proof of service or Officers
Return. Failure to do so would invalidate all subsequent proceedings on
jurisdictional grounds.[24]
In the present case, the process server served the summons and copies of
the complaint on respondents Jacob, Jesus, Jr., Adolfo, Mariano,
Consolacion, Alice and Racheal,[25] through their mother, Caridad Trocino.
[26]
The return did not contain any particulars as to the impossibility of
personal service on Mariano Trocino within a reasonable time. Such
improper service renders the same ineffective.
Due process of law requires personal service to support a personal
judgment, and, when the proceeding is strictly in personam brought to
determine the personal rights and obligations of the parties, personal
service within the state or a voluntary appearance in the case is essential
to the acquisition of jurisdiction so as to constitute compliance with the
constitutional requirement of due process. [27]
Moreover, inasmuch as the sheriffs return failed to state the facts and
circumstances showing the impossibility of personal service of summons
upon respondents within a reasonable time, petitioners should have
sought the issuance of an alias summons. Under Section 5, Rule 14 of the
Rules of Court, alias summons may be issued when the original summons
is returned without being served on any or all of the defendants.

[28]

Petitioners, however, did not do so, and they should now bear the
consequences of their lack of diligence.
The fact that Atty. Expedito Bugarin represented all the respondents
without any exception does not transform the ineffective service of
summons into a valid one. It does not constitute a valid waiver or even a
voluntary submission to the trial courts jurisdiction. There was not even
the slightest proof showing that respondents authorized Atty. Bugarins
appearance for and in their behalf. As found by the Court of Appeals:
While Caridad Trocino may have engaged the services of Atty. Bugarin, it
did not necessarily mean that Atty. Bugarin also had the authority to
represent the defendant heirs. The records show that in all the pleadings
which required verification, only Caridad Trocino signed the same. There
was never a single instance where defendant heirs signed the
pleading. The fact that a pleading is signed by one defendant does not
necessarily mean that it is binding on a co-defendant. Furthermore,
Caridad Trocino represented herself as the principal defendant in her
Motion to Withdraw Appeal. (Rollo, p. 80)
Since the defendant heirs are co-defendants, the trial court should have
verified the extent of Atty. Bugarins authority when petitioners failed to
appear as early as the pre-trial stage, where the parties are required to
appear. The absence of the defendant heirs should have prompted the
trial court to inquire from the lawyer whether he was also representing
the other petitioners. As co-defendant and co-heirs over the disputed
properties, the defendant heirs had every right to be present during the
trial. Only Caridad Trocino appeared and testified on her own behalf. All
the defenses raised were her own, not the defendant heirs. [29]
Consequently, the judgment sought to be executed against respondents
were rendered without jurisdiction as there was neither a proper service
of summons nor was there any waiver or voluntary submission to the trial
courts jurisdiction. Hence, the same is void, with regard to private
respondents except Caridad Trocino.
It must be pointed out that while it was the spouses Jesus and Caridad
Trocino who sold the properties to petitioners, their right to proceed
against Jesus Trocino when he died was passed on to his heirs, which
includes respondents and Caridad Trocino. Such transmission of right
occurred by operation of law, more particularly by succession, which is a
mode of acquisition by virtue of which the property, rights and obligations
to the extent of the value of the inheritance of a person are transmitted.
[30]
When the process server personally served the summons on Caridad
Trocino, the trial court validly acquired jurisdiction over her person

alone. Hence, the trial courts decision is valid and binding with regard to
her, but only in proportion to Caridad Trocinos share. As aptly stated by
the Court of Appeals:
This Courts decision is therefore applicable to all the defendant heirs with
the exception of defendant Caridad Trocino considering that it was the
latter who entered into the alleged sale without the consent of her
husband. She is therefore estopped from questioning her own authority
to enter into the questioned sale. Moreover, Caridad Trocino was validly
served with summons and was accorded due process.[31]
WHEREFORE, the petition for review is DENIED. The decision of the Court
of Appeals in CA-G.R. SP No. 40067 is AFFIRMED.
Costs against petitioners.
SO ORDERED.

ST. AVIATION SERVICES CO., G.R. No. 140288


PTE., LTD.,
Petitio
ner,
Present:

PUNO, J., Chairperson,


SANDOVAL-GUTIERREZ,
CORONA,

-versus-

AZCUNA, and
GARCIA, JJ.

GRAND
INTERNATIONAL Promulgated:
AIRWAYS, INC.,
Respond

ent.

October 23, 2006

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

DECISION

SANDOVAL-GUTIERREZ, J.:

Challenged in the instant Petition for Review on Certiorari are the Decision
of the Court of Appeals dated July 30, 1999 and its Resolution
dated September 29, 1999 in CA-G.R. SP No. 51134 setting aside the
Orders dated October 30, 1998 and December 16, 1998 of the Regional
Trial Court (RTC), Branch 117, Pasay City in Civil Case No. 98-1389.
St. Aviation Services Co., Pte., Ltd., petitioner, is a foreign corporation
based in Singapore. It is engaged in the manufacture, repair, and
maintenance of airplanes and aircrafts. Grand International Airways, Inc.,
respondent, is a domestic corporation engaged in airline operations.
Sometime in January 1996, petitioner and respondent executed an
Agreement for the Maintenance and Modification of Airbus A 300 B4-103
Aircraft Registration No. RP-C8882 (First Agreement). Under this
stipulation, petitioner agreed to undertake maintenance and modification
works on respondents aircraft. The parties agreed on the mode and
manner of payment by respondent of the contract price, including interest
in case of default. They also agreed that the construction, validity and
performance thereof shall be governed by the laws of Singapore. They
further agreed to submit any suit arising from their agreement to the nonexclusive jurisdiction of the Singapore courts.
At about the same time, or on January 12, 1996, the parties verbally
agreed that petitioner will repair and undertake maintenance works on
respondents other aircraft, Aircraft No. RP-C8881; and that the works

shall be based on a General Terms of Agreement (GTA).


are similar to those of their First Agreement.

The GTA terms

Petitioner undertook the contracted works and thereafter promptly


delivered the aircrafts to respondent. During the period from March 1996
to October 1997, petitioner billed respondent in the total amount
of
US$303,731.67 or S$452,560.18. But despite petitioners
repeated demands, respondent failed to pay, in violation of the terms
agreed upon.
On December 12, 1997, petitioner filed with the High Court of
the Republic of Singapore an action for the sum of S$452,560.18,
including interest and costs, against respondent, docketed as Suit No.
2101. Upon petitioners motion, the court issued a Writ of Summons to
be served extraterritorially or outside Singapore upon respondent. The
court sought the assistance of the sheriff of Pasay City to effect service of
the summons upon respondent. However, despite receipt of summons,
respondent failed to answer the claim.
On February 17, 1998, on motion of petitioner, the Singapore High Court
rendered a judgment by default against respondent.
On August 4, 1998, petitioner filed with the RTC, Branch 117, Pasay City, a
Petition for Enforcement of Judgment, docketed as Civil Case No. 98-1389.
Respondent filed a Motion to Dismiss the Petition on two grounds: (1) the
Singapore High Court did not acquire jurisdiction over its person; and (2)
the foreign judgment sought to be enforced is void for having been
rendered in violation of its right to due process.
On October 30, 1998, the RTC denied respondents motion to dismiss,
holding that neither one of the two grounds (of Grand) is among the
grounds for a motion to dismiss under Rule 16 of the 1997 Rules of Civil
Procedure.
Respondent filed a motion for reconsideration but was denied by the RTC
in its Order dated December 16, 1998.
On February 15, 1999, respondent filed with the Court of Appeals a
Petition for Certiorari assailing the RTC Order denying its motion to
dismiss. Respondent alleged that the extraterritorial service of summons
on its office in the Philippines is defective and that the Singapore court
did not acquire jurisdiction over its person. Thus, its judgment sought to
be enforced is void. Petitioner, in its comment, moved to dismiss the
petition for being unmeritorious.

On July 30, 1999, the Court of Appeals issued its Decision granting
petition
and
setting
aside
the
Orders
dated October
1998 and
December 16, 1998 of the RTC without prejudice to
right of private respondent to initiate another proceeding before
proper court to enforce its claim. It found:

the
30,
the
the

In the case at bar, the complaint does not involve the personal status of
plaintiff, nor any property in which the defendant has a claim or interest,
or which the private respondent has attached but purely an action for
collection of debt. It is a personal action as well as an
action in personam, not an action in rem or quasi in rem. As a personal
action, the service of summons should be personal or substituted, not
extraterritorial, in order to confer jurisdiction on the court.

Petitioner seasonably filed a motion for reconsideration but it was denied


on September 29, 1999.
Hence, the instant Petition for Review on Certiorari.
The issues to be resolved are: (1) whether the Singapore High Court has
acquired jurisdiction over the person of respondent by the service of
summons upon its office in the Philippines; and (2) whether the judgment
by default in Suit No. 2101 by the Singapore High Court is enforceable in
the Philippines.
Generally, in the absence of a special contract, no sovereign is bound to
give effect within its dominion to a judgment rendered by a tribunal of
another country; however, under the rules of comity, utility and
convenience, nations have established a usage among civilized states by
which final judgments of foreign courts of competent jurisdiction are
reciprocally respected and rendered efficacious under certain conditions
that may vary in different countries.[1] Certainly, the Philippine legal
system has long ago accepted into its jurisprudence and procedural rules
the viability of an action for enforcement of foreign judgment, as well as
the requisites for such valid enforcement, as derived from internationally
accepted doctrines.[2]
The conditions for the recognition and enforcement of a foreign judgment
in our legal system are contained in Section 48, Rule 39 of the 1997 Rules
of Civil Procedure, as amended, thus:
SEC. 48. Effect of foreign judgments. The effect of a judgment or final
order of a tribunal of a foreign country, having jurisdiction to render the
judgment or final order is as follows:

(a)
In case of a judgment or final order upon a specific
thing, the judgment or final order is conclusive upon the title to the thing;
and
(b)
In case of a judgment or final order against a person,
the judgment or final order is presumptive evidence of a right as between
the parties and their successors in interest by a subsequent title;
In either case, the judgment or final order may be repelled by evidence of
a want of jurisdiction, want of notice to the party, collusion, fraud, or clear
mistake of law or fact.

Under the above Rule, a foreign judgment or order against a person is


merely presumptive evidence of a right as between the parties. It may be
repelled, among others, by want of jurisdiction of the issuing authority or
by want of notice to the party against whom it is enforced. The party
attacking a foreign judgment has the burden of overcoming the
presumption of its validity.[3]
Respondent, in assailing the validity of the judgment sought to be
enforced, contends that the service of summons is void and that
theSingapore court did not acquire jurisdiction over it.
Generally, matters of remedy and procedure such as those relating to the
service of process upon a defendant are governed by the lex forior the
internal law of the forum,[4] which in this case is the law
of Singapore. Here, petitioner moved for leave of court to serve a copy of
the Writ of Summons outside Singapore. In an Order dated December 24,
1997, the Singapore High Court granted leave to serve a copy of the Writ
of Summons on the Defendant by a method of service authorized by the
law of the Philippines for service of any originating process issued by the
Philippines at
ground
floor,
APMC
Building,
136 Amorsolo corner Gamboa Street, 1229 Makati City, or elsewhere in the
Philippines.[5] This
service
of
summons
outside Singapore is
in
accordance
with
Order
11,
r.
4(2)
of
the
Rules
of
Court
1996[6] of Singapore, which provides.
(2) Where in accordance with these Rules, an originating process is to be
served on a defendant in any country with respect to which there does not
subsist a Civil Procedure Convention providing for service in that country
of process of the High Court, the originating process may be served
a) through the government of that country, where that government is
willing to effect service;

b) through a Singapore Consular authority in that country, except where


service through such an authority is contrary to the law of the country; or
c) by a method of service authorized by the law of that country for service
of any originating process issued by that country.

In the Philippines, jurisdiction over a party is acquired by service of


summons by the sheriff,[7] his deputy or other proper court officer either
personally by handing a copy thereof to the defendant [8] or by substituted
service.[9] In this case, the Writ of Summons issued by the Singapore High
Court
was
served
upon
respondent
at
its
office
located
at Mercure
Hotel (formerly Village Hotel), MIA Road, Pasay
City. The Sheriffs Return shows that it was received on May 2, 1998 by
Joyce T. Austria, Secretary of the General Manager of respondent
company.[10] But respondent completely ignored the summons, hence, it
was declared in default.
Considering that the Writ of Summons was served upon respondent in
accordance with our Rules, jurisdiction was acquired by the Singapore
High Court over its person. Clearly, the judgment of default rendered by
that court against respondent is valid.
WHEREFORE, we GRANT the petition. The challenged Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 51134 areSET ASIDE.

The RTC, Branch 117, Pasay City is hereby DIRECTED to hear Civil Case No.
98-1389 with dispatch.

PIONEER INTERNATIONAL, LTD.,

G.R. No. 156848

Petitioner,
Present:

QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES,
- versus -

TINGA, and
VELASCO, JR., JJ.

HON. TEOFILO GUADIZ, JR.,

Promulgated:

in his capacity as Presiding Judge of


Regional
Trial
Court,
Branch
147,Makati City, and ANTONIO D.
TODARO,

October 11, 2007

Respondents.

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

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari [1] of the Decision[2] dated 27


September 2001 and of the Resolution[3] dated 14 January 2003 of the
Court of Appeals (appellate court) in CA-G.R. SP No. 54062. The Decision
affirmed the Orders[4] dated 4 January 1999[5] and 3 June 1999[6] of Branch
147 of the Regional Trial Court of Makati City (trial court) in Civil Case No.
98-124. The trial court denied the motion to dismiss filed by Pioneer
International, Ltd. (PIL)[7] in its special appearance.

The Facts

On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for


sum of money and damages with preliminary attachment against PIL,
Pioneer Concrete Philippines, Inc. (PCPI), Pioneer Philippines Holdings,
Inc.
(PPHI),
John
G.
McDonald
(McDonald),
and
Philip
J. Klepzig(Klepzig). PIL and its co-defendants were served copies of the
summons
and
of
the
complaint
at
PPHI
and PCPIs office
in Alabang, Muntinlupa, through Cecille L. De Leon (De Leon), who
was Klepzigs Executive Assistant.

Todaro alleged that PIL is a corporation duly organized under


Australian laws, while PCPI and PPHI are corporations duly organized
under Philippine laws. PIL is engaged in the ready-mix and concrete
aggregates business and has established a presence worldwide. PIL
established PPHI as the holding company of the stocks of its operating
company in the Philippines, PCPI. McDonald is the Chief Executive Officer
of PILsHong Kong office while Klepzig is the President and Managing
Director of PPHI and PCPI. For his part, Todaro further alleged that he was
the managing director of Betonval Readyconcrete, Inc. (Betonval) from
June 1975 up to his resignation in February 1996.
Before Todaro filed his complaint, there were several meetings and
exchanges of letters between Todaro and the officers of Pioneer Concrete

(Hong Kong) Limited, Pioneer Concrete Group HK, PPHI, and


PIL. According to Todaro, PIL contacted him in May 1996 and asked if he
could join it in establishing a pre-mixed concrete plant and in overseeing
its operations in the Philippines. Todaro confirmed his availability and
expressed
interest
in
joining
PIL. Todaro met
with
several
of PILs representatives and even gave PIL the names of three of his
subordinates in Betonval whom he would like to join him in PIL.

Todaro attached nine letters, marked as Annexes A to I,


to his complaint. Annex A[8] shows that on 15 July 1996, Todaro, under
the letterhead of Ital Tech Distributors, Inc., sent a letter to Max Lindsay
(Lindsay) of Pioneer Concrete (Hong Kong) Limited. Todaro wrote that
[m]y aim is to run again a ready-mix concrete company in
thePhilippines and not to be a part-time consultant. Otherwise, I could
have charged your company with a much higher fee.

Annex B[9] shows that on 4 September 1996, Lindsay, under the


letterhead of Pioneer Concrete (Hong Kong) Limited, responded by fax
to Todaros faxed letter to McDonald and proposed that Todaro join
Pioneer on a retainer basis for 2 to 3 months on the understanding that
[Todaro] would become a permanent employee if as we expect, our entry
proceeds. The faxed letter to McDonald referred to by Lindsay is not
found in the rollo and was not attached to Todaros complaint.

Annex C[10] shows that on the same date as that of Annex


B, Todaro, under the letterhead of Ital Tech Distributors, Inc., faxed
another
letter
to
Lindsay
of Pioneer
Concrete
(Hong
Kong)
Limited. Todaro asked for a formal letter addressed to him about the
proposed retainer. Todaro requested that the letter contain a statement
on his remuneration package and on his permanent employment with
PIONEER once it has established itself on a permanent basis in
the Philippines.

Annex D[11] shows that Todaro, under the letterhead of Ital Tech
Distributors, Inc., sent a letter to McDonald of PIL. Todaro confirmed the
following to McDonald:

1.
That I am accepting the proposal of PIONEER INTL. as a
consultant for three (3) months, starting October 1, 1996, with a retainer
fee of U.S. $15,000.00 per month;
2.
That after three (3) months consultancy, I should be
employed by PIONEER INTL., on a permanent basis, as its Managing
Director or CEO in thePhilippines. Remuneration package will be mutually
agreed upon by PIONEER and the undersigned;
3.
That Gino Martinel and the Sales Manager Jun Ong, will be
hired as well, on a permanent basis, by PIONEER as soon as the company
is established. Salary, likewise, will be accepted by both PIONEER and the
respective parties.

Annex E[12] is a faxed letter dated 18 November 1996 of McDonald,


under the letterhead of Pioneer Concrete Group HK, to Todaro of Ital Tech
Distributors, Inc. The first three paragraphs of McDonalds letter read:

Further to our recent meeting in Hong Kong, I am now able to confirm my


offer to engage you as a consultant to Pioneer International Ltd. Should
Pioneer proceed with an investment in the Philippines, then Pioneer would
offer you a position to manage the premixed concrete operations.
Pioneer will probably be in a position to make a decision on proceeding
with an investment by mid January 97.
The basis for your consultancy would be:

n
Monthly fee USD 15,000 per month billed on monthly basis
and payable 15 days from billing date.
n

Additional pre-approved expenses to be reimbursed.

n
Driver and secretarial support-basis for reimbursement of
this to be agreed.
n
Arrangement to commence from 1st November 96, reflecting
your contributions so far and to continue until Pioneer makes a decision.

Annex F[13] shows Todaros faxed reply, under the letterhead of


Ital Tech Distributors, Inc., to McDonald of Pioneer Concrete Group HK

dated 19
November
1996. Todaro confirmed
McDonalds
package
concerning the consultancy and reiterated his desire to be the manager of
Pioneers Philippine business venture.

Annex G[14] shows Todaros faxed reply, under the letterhead of


Ital Tech Distributors, Inc., to McDonald of PIL dated 8 April
1997. Todaro informed McDonald that he was willing to extend assistance
to the Pioneer representative from Queensland. The tenor of the letter
revealed that Todaro had not yet occupied his expected position.

Annex H[15] shows Klepzigs letter, under the letterhead of PPHI,


to Todaro dated 18 September 1997. Klepzigs message reads:

It has not proven possible for this company to meet with your
expectations regarding the conditions of your providing Pioneer with
consultancy services. This, and your refusal to consider my terms of offer
of permanent employment, leave me no alternative but to withdraw these
offers of employment with this company.
As you provided services under your previous agreement with our Pioneer
Hong Kong office during the month of August, I will see that they pay you
at the previous rates until the end of August. They have authorized me on
behalf of Pioneer International Ltd. to formally advise you that the
agreement will cease from August 31st as per our previous discussions.
Annex
I[16] shows
the
letter
dated
20
October
1997
of
K.M. Folwell (Folwell), PILs Executive General Manager of Australia and
Asia, to Todaro. Folwell confirmed the contents of Klepzigs 18 September
1997 letter. Folwells message reads:

Thank you for your letter to Dr. Schubert dated 29th September
1997 regarding the alleged breach of contract with you. Dr. Schubert has
asked me to investigate this matter.
I have discussed and examined the material regarding your association
with Pioneer over the period from mid 1996 through to September 1997.
Clearly your consultancy services to Pioneer Hong Kong are well
documented and have been appropriately rewarded. However, in regard
to your request and expectation to be given permanent employment with

Pioneer Philippines Holdings, Inc. I am informed that negotiations to


reach agreement on appropriate terms and conditions have not been
successful.
The employment conditions you specified in your letter to John McDonald
dated 11th September are well beyond our expectations.
Mr. Todaro, I regret that we do not wish to pursue our association with you
any further. Mr. Klepzig was authorized to terminate this association and
the letter he sent to you dated 18th September has my support.
Thank you for your involvement with Pioneer. I wish you all the best for
the future. (Emphasis added)

PIL
filed,
by
special
appearance,
a
motion
to
dismiss Todaros complaint. PILs co-defendants, PCPI, PPHI, and Klepzig,
filed a separate motion to dismiss. [17] PIL asserted that the trial court has
no jurisdiction over PIL because PIL is a foreign corporation not doing
business in thePhilippines. PIL also questioned the service of summons on
it. Assuming arguendo that Klepzig is PILs agent in the Philippines, it was
notKlepzig but De Leon who received the summons for PIL. PIL further
stated that the National Labor Relations Commission (NLRC), and not the
trial court, has jurisdiction over the subject matter of the action. It
claimed that assuming that the trial court has jurisdiction over the subject
matter of the action, the complaint should be dismissed on the ground
of forum non-conveniens. Finally, PIL maintained that the complaint does
not state a cause of action because there was no perfected contract, and
no personal judgment could be rendered by the trial court against PIL
because PIL is a foreign corporation not doing business in
the Philippines and there was improper service of summons on PIL.

Todaro filed a Consolidated Opposition dated 26 August 1998 to


refute PILs assertions. PIL filed, still by special appearance, a Reply on 2
October 1998.

The Ruling of the Trial Court

On 4 January 1999, the trial court issued an order [18] which ruled in
favor of Todaro. The trial court denied the motions to dismiss filed by PIL,
PCPI, PPHI, and Klepzig.

The trial court stated that the merits of a motion to dismiss a


complaint for lack of cause of action are tested on the strength of the
allegation of facts in the complaint. The trial court found that the
allegations in the complaint sufficiently establish a cause of action. The
trial court declared that Todaros cause of action is based on an alleged
breach of a contractual obligation and an alleged violation of Articles 19
and 21 of the Civil Code. Therefore, the cause of action does not lie within
the jurisdiction of the NLRC but with the trial court.

The trial court also asserted its jurisdiction over PIL, holding that
PIL did business in the Philippines when it entered into a contract
withTodaro. Although PIL questions the service of summons on Klepzig,
whom PIL claims is not its agent, the trial court ruled that PIL failed to
adduce evidence to prove its contention. Finally, on the issue of forum
non-conveniens, the trial court found that it is more convenient to hear
and decide the case in the Philippines because Todaro resides in
the Philippines and the contract allegedly breached involves employment
in thePhilippines.

PIL filed an urgent omnibus motion for the reconsideration of the


trial courts 4 January 1999 order and for the deferment of filing its
answer. PCPI, PPHI, and Klepzig likewise filed an urgent omnibus
motion. Todaro filed a consolidated opposition, to which PIL, PCPI, PPHI,
and Klepzig filed a joint reply. The trial court issued an order [19] on 3 June
1999 denying the motions of PIL, PCPI, PPHI, and Klepzig. The trial court
gave PIL, PCPI, PPHI, and Klepzig 15 days within which to file their
respective answers.

PIL did not file an answer before the trial court and instead filed a
petition for certiorari before the appellate court.

The Ruling of the Appellate Court

The appellate court denied PILs petition and affirmed the trial
courts ruling in toto. The dispositive portion of the appellate courts
decision reads:

WHEREFORE, premises considered, the present petition for


certiorari is hereby DENIED DUE COURSE and accordingly DISMISSED. The
assailed
Orders
dated January
4,
1999 and June
3,
1999 of
the Regional Trial Court of Makati City, Branch 147, in Civil Case No, 98124 are hereby AFFIRMED intoto.
SO ORDERED.[20]
On 14 January 2003, the appellate court dismissed [21] PILs motion for
reconsideration
for
lack
of
merit. The
appellate
court
stated
thatPILs motion raised no new substantial or weighty arguments that
could impel the appellate court from departing or overturning its previous
decision. PIL then filed a petition for review on certiorari before this
Court.

The Issues

PIL raised the following issues before this Court:

A.
[The trial court] did not and cannot acquire jurisdiction over the
person of [PIL] considering that:
A.1.
[PIL] is
the Philippines.

foreign

corporation

not

doing

business

in

A.2.
Moreover, the complaint does not contain appropriate allegations
of ultimate facts showing that [PIL] is doing or transacting business in
thePhilippines.

A.3.
Assuming arguendo that jurisdiction may be acquired over
the
person of [PIL], [the trial court] still failed to acquire
jurisdiction since
summons was improperly served on [PIL].

B.
[Todaro] does not have a cause of action and the complaint fails to
state a cause of action. Jurisprudence is settled in that in resolving a
motion to dismiss, a court can consider all the pleadings filed in the case,
including annexes, motions and all evidence on record.

C.
[The trial court] did not and cannot acquire jurisdiction over the
subject matter of the complaint since the allegations contained therein
indubitably show that [Todaro] bases his claims on an alleged breach of an
employment contract. Thus, exclusive jurisdiction is vested with the
[NLRC].

D. Pursuant to the principle of forum non-conveniens, [the trial court]


committed grave abuse of discretion when it took cognizance of the case.
[22]

The Ruling of the Court

The petition has partial merit. We affirm with modification the


rulings of the trial and appellate courts. Apart from the issue on service
of summons, the rulings of the trial and appellate courts on the issues
raised by PIL are correct.

Cause of Action

Section 2, Rule 2 of the 1997 Rules of Civil Procedure states that a


cause of action is the act or omission by which a party violates a right of
another.

The general rule is that the allegations in a complaint are sufficient


to constitute a cause of action against the defendants if, admitting the
facts alleged, the court can render a valid judgment upon the same in
accordance with the prayer therein. A cause of action exists if the
following elements are present, namely: (1) a right in favor of the plaintiff
by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate
such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting a breach of
the obligation of the defendant to the plaintiff for which the latter may
maintain an action for recovery of damages.[23]

In the present case, the summary of Todaros allegations states that


PIL, PCPI, PPHI, McDonald, and Klepzig did not fulfill their contractual
obligation to employ Todaro on a permanent basis in PILs Philippine
office. Todaros allegations are thus sufficient to establish a cause of
action. We quote with approval the trial courts ruling on this matter:

On the issue of lack of cause of action It is well-settled that the


merits of a motion to dismiss a complaint for lack of cause of action is
tested on the strength of the allegations of fact contained in the
complaint and no other (De Jesus, et al. vs. Belarmino, et al., 95 Phil. 366
[1954]). This Court finds that the allegations of the complaint, specifically
paragraphs 13-33 thereof, paragraphs 30-33 alleging as follows:
30.
All of the acts set forth in the foregoing have been done
with the knowledge, consent and/or approval of the defendants who acted
in concert and/or in conspiracy with one another.
31.
Under the circumstances, there is a valid contract entered
into between [Todaro] and the Pioneer Group, whereby, among others, the
Pioneer Group would employ [Todaro], on a permanent basis, to manage
and operate the ready-mix concrete operations, if the Pioneer Group
decides to invest in the Philippines.
32.
The
Pioneer
Group
has
decided
to
invest
in
the Philippines. The refusal of the defendants to comply with the Pioneer
Groups undertaking to employ [Todaro] to manage their Philippine readymix operations, on a permanent basis, is a direct breach of an obligation
under a valid and perfected contract.

33.
Alternatively, assuming without conceding, that there was
no contractual obligation on the part of the Pioneer Group to employ
[Todaro] on a permanent basis, in their Philippine operations, the Pioneer
Group and the other defendants did not act with justice, give [Todaro] his
due and observe honesty and good faith and/or they have willfully caused
injury to [Todaro] in a manner that is contrary to morals, good customs,
and public policy, as mandated under Arts. 19 and 21 of the New Civil
Code.
sufficiently establish a cause of action for breach of contract and/or
violation of Articles 19 and 21 of the New Civil Code. Whether or not these
allegations are true is immaterial for the court cannot inquire into the
truth thereof, the test being whether, given the allegations of fact in the
complaint, a valid judgment could be rendered in accordance with the
prayer in the complaint.[24]

It should be emphasized that the presence of a cause of action rests


on the sufficiency, and not on the veracity, of the allegations in the
complaint. The veracity of the allegations will have to be examined during
the trial on the merits. In resolving a motion to dismiss based on lack of
cause of action, the trial court is limited to the four corners of the
complaint and its annexes. It is not yet necessary for the trial court to
examine the truthfulness of the allegations in the complaint. Such
examination is proper during the trial on the merits.

Forum Non-Conveniens

The doctrine of forum non-conveniens requires an examination of


the truthfulness of the allegations in the complaint. Section 1, Rule 16 of
the 1997 Rules of Civil Procedure does not mention forum nonconveniens as a ground for filing a motion to dismiss. The propriety of
dismissing a case based on forum non-conveniens requires a factual
determination; hence, it is more properly considered a matter of
defense. While it is within the discretion of the trial court to abstain from
assuming jurisdiction on this ground, the trial court should do so only
after vital facts are established to determine whether special
circumstances require the courts desistance.[25]

Jurisdiction over PIL

PIL questions the trial courts exercise of jurisdiction over it on two


levels. First, that PIL is a foreign corporation not doing business in
thePhilippines and because of this, the service of summons on PIL did not
follow the mandated procedure. Second, that Todaros claims are based
on an alleged breach of an employment contract so Todaro should have
filed his complaint before the NLRC and not before the trial court.

Transacting Business in the Philippines and


Service of Summons

The first level has two sub-issues: PILs transaction of business in


the Philippines and the service of summons on PIL. Section 12, Rule 14 of
the 1997 Rules of Civil Procedure provides the manner by which summons
may be served upon a foreign juridical entity which has transacted
business in the Philippines. Thus:

Service upon foreign private juridical entity. When the


defendant is a foreign juridical entity which has transacted 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 any of its officers
or agents within the Philippines.

As to the first sub-issue, PIL insists that its sole act of transacting
or doing business in the Philippines consisted of its investment in
PPHI. Under Philippine law, PILs mere investment in PPHI does not
constitute doing business. However, we affirm the lower courts ruling
and declare that, based on the allegations in Todaros complaint, PIL was
doing business in the Philippines when it negotiated Todarosemployment
with PPHI. Section 3(d) of Republic Act No. 7042, Foreign Investments Act
of 1991, states:

The phrase doing business shall include soliciting orders, service


contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods
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 of commercial dealings or arrangements and contemplate to
that extent the performance of acts or works, or the exercise of some of
the functions normally incident to, and in progressive prosecution of
commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase doing business shall
not be deemed to include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account; (Emphases added)

PILs alleged acts in actively negotiating to employ Todaro to run its


pre-mixed concrete operations in the Philippines, which acts are
hypothetically admitted in PILs motion to dismiss, are not mere acts of a
passive investor in a domestic corporation. Such are managerial and
operational acts in directing and establishing commercial operations in
the Philippines. The annexes that Todaro attached to his complaint give
us an idea on the extent of PILs involvement in the negotiations
regarding Todaros employment. In Annex E, McDonald of Pioneer
Concrete Group HK confirmed his offer to engage Todaro as a consultant of
PIL. In
Annex
F, Todaro accepted
the
consultancy. In
Annex
H, Klepzigof PPHI stated that PIL authorized him to tell Todaro about
the cessation of his consultancy. Finally, in Annex I, Folwell of PIL wrote
to Todaroto confirm that Pioneer no longer wishes to be associated
with Todaro and
that Klepzig is
authorized
to
terminate
this
association.
Folwellfurther referred to a Dr. Schubert and to Pioneer
Hong Kong. These confirmations and references tell us that, in this
instance, the various officers and companies under the Pioneer brand
name do not work independently of each other. It cannot be denied that
PIL had knowledge of and even authorized the non-implementation
of Todaros alleged permanent employment. In fact, in the letters
to Todaro, the word Pioneer was used to refer not just to PIL alone but
also to all corporations negotiating with Todaro under the Pioneer name.

As further proof of the interconnection of the various Pioneer corporations


with regard to their negotiations with Todaro, McDonald of Pioneer
Concrete Group HK confirmed Todaros engagement as consultant of PIL
(Annex E) while Folwell of PIL stated that Todaro rendered consultancy
services to Pioneer HK (Annex I). In this sense, the various Pioneer
corporations were not acting as separate corporations. The behavior of
the various Pioneer corporations shoots down their defense that the
corporations have separate and distinct personalities, managements, and
operations. The various Pioneer corporations were all working in concert
to negotiate an employment contract betweenTodaro and PPHI, a domestic
corporation.

Finally, the phrase doing business in the Philippines in the former


version of Section 12, Rule 14 now reads has transacted business in the
Philippines. The scope is thus broader in that it is enough for the
application of the Rule that the foreign private juridical entity
has transacted business in the Philippines.[26]

As to the second sub-issue, the purpose of summons is not only to


acquire jurisdiction over the person of the defendant, but also to give
notice to the defendant that an action has been commenced against it and
to afford it an opportunity to be heard on the claim made against it. The
requirements of the rule on summons must be strictly followed; otherwise,
the trial court will not acquire jurisdiction over the defendant.

When summons is to be served on a natural person, service of


summons should be made in person on the defendant. [27] Substituted
service is resorted to only upon the concurrence of two requisites: (1)
when the defendant cannot be served personally within a reasonable time
and (2) when there is impossibility of prompt service as shown by the
statement in the proof of service in the efforts made to find the defendant
personally and that such efforts failed.[28]

The statutory requirements of substituted service must be followed


strictly, faithfully, and fully, and any substituted service other than by the
statute is considered ineffective. Substituted service is in derogation of
the usual method of service. It is a method extraordinary in character

and may be used only as prescribed and in the circumstances authorized


by the statute.[29] The need for strict compliance with the requirements of
the rule on summons is also exemplified in the exclusive enumeration of
the agents of a domestic private juridical entity who are authorized to
receive summons.

At present, Section 11 of Rule 14 provides that when the defendant


is a domestic private juridical entity, service may be made on the
president, managing partner, general manager, corporate secretary,
treasurer, or in-house counsel. The previous version of Section 11
allowed for the service of summons on the president, manager, secretary,
cashier, agent, or any of its directors. The present Section 11 qualified
manager to general manager and secretary to corporate
secretary. The present Section 11 also removed cashier, agent, or any
of its directors from the exclusive enumeration.

When summons is served on a foreign juridical entity, there are


three prescribed ways: (1) service on its resident agent designated in
accordance with law for that purpose, (2) service on the government
official designated by law to receive summons if the corporation does not
have a resident agent, and (3) service on any of the corporations officers
or agents within the Philippines.[30]

In the present case, service of summons on PIL failed to follow any


of
the
prescribed
processes. PIL
had
no
resident
agent
in
thePhilippines. Summons was not served on the Securities and Exchange
Commission (SEC), the designated government agency, [31] since PIL is not
registered with the SEC. Summons for PIL was served on De
Leon, Klepzigs Executive
Assistant. Klepzig is PILs agent
within
thePhilippines because PIL authorized Klepzig to notify Todaro of the
cessation of his consultancy (Annexes H and I). [32] The authority given
by PIL to Klepzig to notify Todaro implies that Klepzig was likewise
authorized to receive Todaros response to PILs notice. Todaro responded
to PILs notice by filing a complaint before the trial court.

However, summons was not served personally on Klepzig as agent of


PIL. Instead, summons was served on De Leon, Klepzigs Executive
Assistant. In this instance, De Leon was not PILs agent but a mere

employee of Klepzig. In effect, the sheriff[33] resorted to substituted


service. For symmetry, we apply the rule on substituted service of
summons on a natural person and we find that no reason was given to
justify the service of PILs summons on De Leon.

Thus,
we
rule
that
PIL
transacted
business
in
the Philippines and Klepzig was its agent within the Philippines. However,
there was improper service of summons on PIL since summons was not
served personally on Klepzig.

NLRC Jurisdiction

As to the second level, Todaro prays for payment of damages due


him because of PILs non-implementation of Todaros alleged employment
agreement with PPHI. The appellate court stated its ruling on this
matter, thus:

It could not be denied that there was no existing contract yet to


speak of between PIONEER INTL. and [Todaro]. Since there was an
absence of an employment contract between the two parties, this Court is
of the opinion and so holds that no employer-employee relationship
actually exists. Record reveals that all that was agreed upon by [Todaro]
and the Pioneer Concrete, acting in behalf of PIONEER INTL., was the
confirmation of the offer to engage the services of the former as
consultant of PIONEER INTL. (Rollo, p. 132). The failure on the part of
PIONEER INTL. to abide by the said agreement, which was duly confirmed
by PIONEER INTL., brought about a breach of an obligation on a valid and
perfected agreement. There being no employer-employee relationship
established between [PIL] and [Todaro], it could be said that the instant
case falls within the jurisdiction of the regular courts of justice as the
money claim of [Todaro] did not arise out of or in connection with [an]
employer-employee relationship.[34]

Todaros employment in the Philippines would not be with PIL but


with PPHI as stated in the 20 October 1997 letter of Folwell. Assuming the
existence of the employment agreement, the employer-employee
relationship would be between PPHI and Todaro, not between PIL

andTodaro. PILs liability for the non-implementation of the alleged


employment agreement is a civil dispute properly belonging to the regular
courts. Todaros causes of action as stated in his complaint are, in
addition to breach of contract, based on violation of Articles 19 and 21 of
the New Civil Code for the clear and evident bad faith and malice [35] on
the part of defendants. The NLRCs jurisdiction is limited to those
enumerated under Article 217 of the Labor Code.[36]
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision
dated 27 September 2001 and the Resolution dated 14 January 2003 of the
appellate court are AFFIRMED with the MODIFICATION that there was
improper service of summons on Pioneer International, Ltd. The case is
remanded to the trial court for proper service of summons and trial. No
costs.

SO ORDERED.

VICTORIA REGNER,

G.R. No. 168747

Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus -

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

CYNTHIA R. LOGARTA, TERESA


R. TORMIS and CEBU COUNTRY
CLUB, Inc.,

Promulgated:

NACHURA,

Respondents.

October 19, 2007

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

DECISION

CHICO-NAZARIO, J.:

This Petition for Review on Certiorari seeks to reverse the


Decision dated 6 May 2005 of the Court of Appeals in CA-G.R. CV No.
71028 entitled, Victoria Regner v. Cynthia Logarta, Teresa R. Tormis and
Cebu Country Club, Inc., which affirmed the Order dated 9 November
2000 of the Regional Trial Court (RTC) of Cebu, granting herein
respondents motion to dismiss Civil Case No. CEB 23927. The Order
dated 9 November 2000 of the RTC dismissed herein petitioners
complaint for declaration of nullity of a deed of donation, for failure to
serve summons on Cynthia Logarta, an indispensable party therein.
[1]

Civil Case
antecedents:

No.

CEB.

23927

arose

from

the

following

factual

Luis Regner (Luis) had three daughters with his first wife, Anicita C.
Regner, namely, Cynthia Logarta (Cynthia) and Teresa Tormis (Teresa), the
respondents herein, and Melinda Regner-Borja (Melinda).

Herein petitioner Victoria Regner (Victoria) is the second wife of


Luis.

During the lifetime of Luis, he acquired several properties, among


which is a share at Cebu Country Club Inc., evidenced by Proprietary
Ownership Certificate No. 0272. On 15 May 1998, Luis executed a

Deed[2] of Donation in favor of respondents Cynthia and Teresa covering


Proprietary Ownership Certificate No. 0272 of the Cebu Country Club, Inc.

Luis passed away on 11 February 1999.

On 15 June 1999, Victoria filed a Complaint[3] for Declaration of Nullity of


the Deed of Donation with Prayer for Issuance of a Writ of Preliminary
Injunction and Temporary Restraining Order against Cynthia and Teresa
with the RTC, docketed as Civil Case No. CEB. 23927. Victoria alleged in
her complaint that: on 17 March 1997, Luis made a written declaration
wherein he stated that due to his illness and forgetfulness, he would not
sign any document without the knowledge of his lawyer, Atty. Francis
Zosa; on 15 May 1998, when Luis was already very ill and no longer of
sound and disposing mind, Cynthia and Teresa , conspiring and
confederating with each other, fraudulently made or caused to be
fraudulently made a Deed of Donation whereby they made it appear that
Luis donated to them Proprietary Ownership Certificate No. 0272; since
Luis no longer had the ability to write or affix his signature, Melinda,
acting under the influence of her sisters, Cynthia and Teresa, fraudulently
manipulated the hand of Luis so that he could affix his thumbmark on the
assailed Deed of Donation; on 8 February 1998, or three days before the
death of Luis, and when he was already in comatose condition at the Cebu
Doctors Hospital, Melinda, Teresa, and Cynthia caused the preparation of
an affidavit to the effect that Luis affirmed the Deed of Donation he
allegedly executed earlier by lifting his hand to affix his thumbmark on the
said affidavit.

Sheriff Melchor A. Solon served the summonses on Cynthia and Teresa at


the Borja Family Clinic in Tagbilaran City wherein Melinda worked as a
doctor, but Melinda refused to receive the summonses for her sisters and
informed the sheriff that their lawyer, Atty. Francis Zosa, would be the one
to receive the same.

Upon her arrival in the Philippines, on 1 June 2000, Teresa was personally
served the summons at Room 304, Regency Crest Condominium,
Banilad, Cebu City. She filed her Answer[4] with counterclaim with the RTC
on 6 June 2000.

Subsequently, on 12 September 2002, Teresa filed a motion to dismiss


Civil Case No. CEB 23927 because of petitioners failure to prosecute her
action for an unreasonable length of time.

Petitioner opposed[5] the motion and filed her own motion to set the case
for pre-trial, to which Teresa filed her rejoinder on the ground that their
sister, Cynthia, an indispensable party, had not yet been served a
summons. Thus, Teresa prayed for the dismissal of petitioners complaint,
as the case would not proceed without Cynthias presence.

On 9 November 2000, the RTC issued an Order[6] granting respondent


Teresas motion to dismiss, pertinent portions of which read:

Considering that the donees in the Deed of Donation are Cynthia R.


Logarta and Teresa R. Tormis, they are therefore an (sic) indispensable
party (sic). In the case of Quisumbing vs. Court of Appeals, 189 SCRA 325,
indispensable parties are those with such an interest in the controversy
that a final decree would necessarily affect their rights so that the court
could not proceed without their presence

Wherefore, in view of the foregoing, the instant case is hereby dismissed


without prejudice.

A motion for reconsideration was filed by petitioner, but the same


was denied in an Order dated 14 February 2001.

Aggrieved, petitioner appealed to the Court of Appeals. On 6 May


2005, the Court of Appeals rendered a Decision denying the appeal and
affirming in toto the order of dismissal of the complaint by the RTC and
the denial of the motion for reconsideration thereof. The Court of Appeals
ratiocinated that petitioners failure to move for an extraterritorial service

of summons constitutes failure to prosecute for an unreasonable length of


time, thus:

[T]he plaintiff-appellant [Victoria Regner] should have moved for the


extraterritorial service of summons for both defendants-appellees Teresa
R. Tormis and Cynthia R. Logarta as they were not residing and were not
found in the Philippines when plaintiff-appellant [Victoria Regner] filed
this case below. Although defendant-appellant Teresa Tormis was
personally served with summons on June 1, 2000 when she came to
the Philippines but the same was only effected after a long wait or after
the lapse of almost one year from the date the complaint was filed on June
15, 1999. To allow this practice would be to make the continuation of like
proceedings before the courts dependent on when the defendants would
be personally served with summons by the time they would come to
the Philippines, which would only unnecessarily delay the proceedings and
clog the court dockets as well. The afore-cited rule was precisely crafted
to meet situations similar to the present case to avoid unnecessary
delays.

It has to be emphasized that it is incumbent upon the plaintiff


[Victoria Regner] to move with leave of court for the extraterritorial
service of summons. Taking into account the considerable time that had
elapsed from the filing of the complaint on June 15, 1999 until defendantappellee Teresa R. Tormis, through counsel, filed a motion to dismiss on
September 12, 2000, or approximately fifteen (15) months, without any
act on the part of plaintiff-appellant [Victoria Regner] to move for
extraterritorial service of summons upon the person of defendant-appellee
Cynthia Logarta renders plaintiff-appellants [Victoria Regner] complaint
dismissible for failure to prosecute her action for unreasonable length of
time under Section 3, Rule 17, Revised Rules of Court, x x x. [7]

Hence, this appeal via petition[8] for review on certiorari filed by


petitioner raising the following assignment of errors:

THE COURT OF APPEALS ERRED IN HOLDING THAT THE DELAY IN SERVING


SUMMONS ON ONE OF THE DEFENDANTS CONSTITUTES A FAILURE TO

PROSECUTE NOTWITHSTANDING THAT THE REST OF THE CO-DEFENDANTS


WERE DULY SERVED WITH SUMMONSES

THE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT THE ANSWER


FILED BY ONE INDIVIDUAL DEFENDANT REDOUNDS TO THE BENEFIT OF THE
OTHER DEFENDANT WHO HAS NOT BEEN SERVED WITH SUMMONS, THE
NATURE OF ACTION BEING ADMITTEDLY COMMON AMONG ALL
DEFENDANTS.[9]

From the foregoing, this Court identifies the issues to be resolved in this
petition as: (1) Whether a co-donee is an indispensable party in an action
to declare the nullity of the deed of donation, and (2) whether delay in the
service of summons upon one of the defendants constitutes failure to
prosecute that would warrant dismissal of the complaint.

A Court must acquire jurisdiction over the persons of indispensable


parties before it can validly pronounce judgments personal to the
parties. Courts acquire jurisdiction over a party plaintiff upon the filing of
the complaint. On the other hand, jurisdiction over the person of a party
defendant is assured upon the service of summons in the manner required
by law or otherwise by his voluntary appearance. As a rule, if a defendant
has not been summoned, the court acquires no jurisdiction over his
person, and a personal judgment rendered against such defendant is null
and void.[10] A decision that is null and void for want of jurisdiction on the
part of the trial court is not a decision in the contemplation of law and,
hence, it can never become final and executory.[11]

Rule 3, Section 7 of the Rules of Court, defines indispensable parties as


parties-in-interest without whom there can be no final determination of an
action. As such, they must be joined either as plaintiffs or as
defendants. The general rule with reference to the making of parties in a
civil action requires, of course, the joinder of all necessary parties where
possible, and the joinder of all indispensable parties under any and all
conditions, their presence being a sine qua non for the exercise of judicial
power.[12] It is precisely when an indispensable party is not before
the court [that] the action should be dismissed. [13] The absence of an
indispensable party renders all subsequent actions of the court null and

void for want of authority to act, not only as to the absent parties but
even as to those present.[14]

As we ruled in Alberto v. Mananghala[15]:

In an action for recovery of property against a person who purchased it


from another who in turn acquired it from others by the same means or by
donation or otherwise, the predecessors of defendants are indispensable
parties if the transfers, if not voided, may bind plaintiff. (Garcia vs.
Reyes, 17 Phil. 127.) In the latter case, this Court held:

In order to bring this suit duly to a close, it is imperative to determine the


only question raised in connection with the pending appeal, to wit,
whether all the persons who intervened in the matter of the transfers and
donation herein referred to, are or are not necessary parties to this suit,
since it is asked in the complaint that the said transfers and donation be
declared null and void an indispensable declaration for the purpose, in a
proper case, of concluding the plaintiff to be the sole owner of the house
in dispute.

If such a declaration of annulment can directly affect the persons who


made and who were concerned in the said transfers, nothing could be
more proper and just than to hear them in the litigation, as parties
interested in maintaining the validity of those transactions, and therefore,
whatever be the nature of the judgment rendered, Francisco Reyes,
Dolores Carvajal, Alfredo Chicote, Vicente Miranda, and Rafael Sierra,
besides the said minors, must be included in the case as defendants.
(Garcia vs. Reyes, 17 Phil., 130-131.)

It takes no great degree of legal sophistication to realize that Cynthia and


Teresa are indispensable parties to Civil Case No. CEB 23927. Cynthia and
Teresa allegedly derived their rights to the subject property by way of
donation from their father Luis. The central thrust of the petitioners
complaint in Civil Case No. CEB 23927 was that Luis could not have
donated Proprietary Ownership Certificate No. 0272 to his daughters

Cynthia and Teresa, as Luis was already very ill and no longer of sound
and disposing mind at the time of donation on 15 May 1997. Accordingly,
the prayer in petitioners complaint was for the trial court to declare null
and void the Deed of Donation and to restrain the Cebu Country Club, Inc.
from transferring title and ownership of Proprietary Ownership Certificate
No. 0272 to Cynthia and Teresa.

Thus, based on the Deed of Donation, Teresa and Cynthia are co-owners of
Proprietary Membership Certificate No. 0272 of Cebu Country Club,
Inc. The country club membership certificate is undivided and it is
impossible to pinpoint which specific portion of the property belongs to
either Teresa or Cynthia. Indeed, both Teresa and Cynthia are
indispensable parties in Civil Case No. CEB 23927.

An indispensable party has been defined as follows:

An indispensable party is a party who has such an interest in the


controversy or subject matter that a final adjudication cannot be made, in
his absence, without injuring or affecting that interest, a party who has
not only an interest in the subject matter of the controversy, but also has
an interest of such nature that a final decree cannot be made without
affecting his interest or leaving the controversy in such a condition that
its final determination may be wholly inconsistent with equity and good
conscience. It has also been considered that an indispensable party is a
person in whose absence there cannot be a determination between the
parties already before the court which is effective, complete, or
equitable. Further, an indispensable party is one who must be included in
an action before it may properly go forward.

A person is not an indispensable party, however, if his interest in the


controversy or subject matter is separable from the interest of the other
parties, so that it will not necessarily be directly or injuriously affected by
a decree which does complete justice between them. Also, a person is not
an indispensable party if his presence would merely permit complete relief
between him and those already parties to the action, or if he has no
interest in the subject matter of the action. It is not a sufficient reason to
declare a person to be an indispensable party that his presence will avoid
multiple litigation.[16]

In Servicewide Specialists, Incorporated v. Court of Appeals,[17] this


Court held that no final determination of a case could be made if an
indispensable party is not legally present therein:

An indispensable party is one whose interest will be affected by


the courts action in the litigation, and without whom no final
determination of the case can be had. The partys interest in the subject
matter of the suit and in the relief sought are so inextricably intertwined
with the other parties that his legal presence as a party to the proceeding
is an absolute necessity. In his absence there cannot be a resolution of
the dispute of the parties before the court which is effective, complete, or
equitable.

The rationale for treating all the co-owners of a property as indispensable


parties in a suit involving the co-owned property is explained inArcelona v.
Court of Appeals[18]:

As held by the Supreme Court, were the courts to permit an action in


ejectment to be maintained by a person having merely an undivided
interest in any given tract of land, a judgment in favor of the defendants
would not be conclusive as against the other co-owners not parties to the
suit, and thus the defendant in possession of the property might be
harassed by as many succeeding actions of ejectment, as there might be
co-owners of the title asserted against him. The purpose of this provision
was to prevent multiplicity of suits by requiring the person asserting a
right against the defendant to include with him, either as co-plaintiffs or
as co-defendants, all persons standing in the same position, so that the
whole matter in dispute may be determined once and for all in one
litigation.

Applying the foregoing definitions and principles to the present case, this
Court finds that any decision in Civil Case No. CEB 23927 cannot bind

Cynthia, and the Court cannot nullify the donation of the property she now
co-owns with Teresa, even if limited only to the portion belonging to
Teresa, to whom summons was properly served, since ownership of the
property is still pro indiviso. Obviously, Cynthia is an indispensable party
in Civil Case No. CEB 23927 without whom the lower court is barred from
making a final adjudication as to the validity of the entire
donation. Without the presence of indispensable parties to a suit or
proceeding, a judgment therein cannot attain finality.[19]

Being an indispensable party in Civil Case No. CEB 23927, the trial
court must also acquire jurisdiction over Cynthias person through the
proper service of summons.

Based on the foregoing disquisitions, the issue of whether the


answer filed by Teresa should benefit Cynthia who was not served
summons need not be discussed.

As to determine whether Cynthia was properly served a summons, it


will be helpful to determine first the nature of the action filed against
Cynthia and Teresa by petitioner Victoria, whether it is an action in
personam, in rem or quasi in rem. This is because the rules on service of
summons embodied in Rule 14 apply according to whether an action is one
or the other of these actions.

In a personal action, the plaintiff seeks the recovery of personal property,


the enforcement of a contract or the recovery of damages.[20] In contrast,
in a real action, the plaintiff seeks the recovery of real property; or, as
indicated in Section 2(a), Rule 4 of the then Rules of Court, a real action is
an action affecting title to real property or for the recovery of
possession, or for partition or condemnation of, or foreclosure of
mortgage on, real property. An action in personam is an action against a
person on the basis of his personal liability, while an action in rem is an
action against the thing itself, instead of against the person. [21]

In an action in personam, personal service of summons or, if this is not


possible and he cannot be personally served, substituted service, as
provided in Section 7, Rule 14 of the Rules of Court, [22] is essential for the

acquisition by the court of jurisdiction over the person of a defendant who


does not voluntarily submit himself to the authority of the court.[23] If
defendant cannot be served a summons because he is temporarily abroad,
but is otherwise a Philippine resident, service of summons may, by leave
of court, be made by publication.[24] Otherwise stated, a resident
defendant in an action in personam, who cannot be personally served a
summons, may be summoned either by means of substituted service in
accordance with Section 7, Rule 14 of the Rules of Court, or by publication
as provided in Sections 15 and 16 of the same Rule.

In all of these cases, it should be noted, defendant must be a


resident of the Philippines; otherwise an action in personam cannot be
brought because jurisdiction over his person is essential to make a
binding decision.

On the other hand, if the action is in rem or quasi in


rem, jurisdiction over the person of the defendant is not essential for
giving the court jurisdiction so long as the court acquires jurisdiction over
the res. If the defendant is a nonresident and he is not found in the
country, summons may be served extraterritorially in accordance with
Section 15, Rule 14 of the Rules of Court, which provides:

Section 15. Extraterritorial service. - When the defendant does not reside
and is not found in the Philippines, and the action affects the personal
status of the plaintiff or relates to, or the subject of which is, property
within the Philippines, in which the defendant has or claims a lien or
interest, actual or contingent, or in which the relief demanded consists,
wholly or in part, in excluding the defendant from any interest therein, or
the property of the defendant has been attached within the Philippines,
service may, by leave of court, be effected out of the Philippines by
personal service as under Section 6; or by publication in a newspaper of
general circulation in such places and for such time as the court may
order, in which case a copy of the summons and order of the court shall be
sent by registered mail to the last known address of the defendant, or in
any other manner the court may deem sufficient. Any order granting such
leave shall specify a reasonable time, which shall not be less than sixty
(60) days after notice, within which the defendant must answer.

As stated above, there are only four instances wherein a defendant who
is a non-resident and is not found in the country may be served a
summons by extraterritorial service, to wit: (1) when the action affects
the personal status of the plaintiff; (2) when the action relates to, or the
subject of which is property within the Philippines, on which the defendant
claims a lien or an interest, actual or contingent; (3) when the relief
demanded in such action consists, wholly or in part, in excluding the
defendant from any interest in property located in the Philippines; and (4)
when the defendant non-residents property has been attached within the
Philippines. In these instances, service of summons may be effected by
(a) personal service out of the country, with leave of court; (b) publication,
also with leave of court; or (c) any other manner the court may deem
sufficient.[25]

In such cases, what gives the court jurisdiction in an action in rem or


quasi in rem is that it has jurisdiction over the res, i.e., the personal
status of the plaintiff who is domiciled in the Philippines or the property
litigated or attached. Service of summons in the manner provided in
Section 15, Rule 14 of the Rules of Court is not for the purpose of vesting
the court with jurisdiction, but for complying with the requirements of fair
play or due process, so that the defendant will be informed of the
pendency of the action against him; and the possibility that property in
the Philippines belonging to him, or in which he has an interest, might be
subjected to a judgment in favor of the plaintiff and he can thereby take
steps to protect his interest if he is so minded. [26]

In petitioners Complaint in Civil Case No. CEB No. 23427, she alleged that
Cynthia is residing at 462 West Vine No. 201, Glendale, California, 912041,
U.S.A.; while Teresa is residing at 2408 South Hacienda Boulevard,
Hacienda Heights, California, but they usually visit here in the Philippines
and can be served summonses and other processes at the Borja Family
Clinic, Bohol. Pertinent portions of the Complaint read:

2.
Defendant Cynthia R. Logarta is a Filipino, of legal age, married to
Ramon Logarta, resident (sic) 463 West Vine No.201, Glendale, California,
912041, USA. She however usually visits in the Philippines and can be
served with summons and other processes of this Honorable Court at
Borja Family Clinic, Tagbilaran, Bohol;

3.
Defendant Teresa R. Tormis is likewise a Filipino, of legal age,
married to Antonio Tormis, and a resident of 2408 South Hacienda
Heights, California, 19745, U.S.A. She however usually visits in
the Philippines and can be served with summons and other processes of
this Honorable Court at Borja Family Clinic, Tagbilaran, Bohol.[27]

Petitioner prayed for a declaration of nullity of the deed of donation, to


restrain Cebu Country Club, Inc. from transferring title and ownership of
Proprietary Ownership Certificate No. 0272 to Cynthia and Teresa, and for
moral and exemplary damages. Civil Case No. CEB 23927 is evidently an
action against Cynthia and Teresa on the basis of their personal liability
for the alleged fraudulent transfer of the subject Country Club
membership from Luis to their name. In this sense, petitioner questions
the participation and shares of Cynthia and Teresa in the transferred
Country Club membership. Moreover, the membership certificate from the
Cebu Country Club, Inc. is a personal property. Thus, the action instituted
by petitioner before the RTC is in personam.

Being an action in personam, the general rule requires the personal


service of summons on Cynthia within the Philippines, but this is not
possible in the present case because Cynthia is a non-resident and is not
found within the Philippines.

As Cynthia is a nonresident who is not found in the Philippines, service of


summons on her must be in accordance with Section 15, Rule 14 of the
Rules of Court. Such service, to be effective outside the Philippines, must
be made either (1) by personal service; (2) by publication in a newspaper
of general circulation in such places and for such time as the court may
order, in which case a copy of the summons and order of the court should
be sent by registered mail to the last known address of the defendant; or
(3) in any other manner which the court may deem sufficient. The third
mode, like the first two, must be made outside the Philippines, such as
through the Philippine Embassy in the foreign country where Cynthia
resides.

Since in the case at bar, the service of summons upon Cynthia was not
done by any of the authorized modes, the trial court was correct in
dismissing petitioners complaint.

Section 3, Rule 17 of the 1997 Rules of Civil Procedure, states

SEC. 3. Dismissal due to fault of plaintiff. If, for no justifiable


cause, the plaintiff fails to appear on the date of the presentation of his
evidence in chief on the complaint, or to prosecute his action for an
unreasonable length of time, or to comply with these Rules or any order of
the court, the complaint may be dismissed upon motion of the defendant
or upon the court's own motion, without prejudice to the right of the
defendant to prosecute his counterclaim in the same or in a separate
action. This dismissal shall have the effect of an adjudication upon the
merits, unless otherwise declared by the court.

As can be gleaned from the rule, there are three instances when the
complaint may be dismissed due to the plaintiff's fault: (1) if he fails to
appear during a scheduled trial, especially on the date for the
presentation of his evidence in chief; (2) if he fails to prosecute his action
for an unreasonable length of time; and (3) if he fails to comply with the
rules or any order of the court.[28]

Considering the circumstances of the case, it can be concluded that the


petitioner failed to prosecute the case for an unreasonable length of time.
There is failure to prosecute when the plaintiff, being present, is not ready
or is unwilling to proceed with the scheduled trial or when postponements
in the past were due to the plaintiff's own making, intended to be dilatory
or caused substantial prejudice on the part of the defendant. [29]

While a court can dismiss a case on the ground of failure to prosecute, the
true test for the exercise of such power is whether, under the prevailing
circumstances, the plaintiff is culpable for want of due diligence in failing
to proceed with reasonable promptitude. [30] As to what constitutes an
unreasonable length of time, within the purview of the above-quoted

provision, the Court has ruled that it depends upon the circumstances of
each particular case, and that the sound discretion of the court in the
determination of said question will not be disturbed, in the absence of
patent abuse; and that the burden of showing abuse of judicial
discretion is upon the appellant since every presumption is in favor of the
correctness of the court's action. [31] Likewise, the concept of promptness
is a relative term and must not unnecessarily be an inflexible one. It
connotes an action without hesitation and loss of time. As to what
constitutes the term is addressed to the consideration of the trial court,
bearing in mind that while actions must be disposed of with dispatch, the
essential ingredient is the administration of justice and not mere speed. [32]

It is well to quote the doctrine laid in Padua v. Ericta,[33] as accentuated in


the subsequent case Marahay v. Melicor[34]:

Courts should not brook undue delays in the


ventilation and determination of causes. It should be their constant effort
to assure that litigations are prosecuted and resolved with dispatch.
Postponements of trials and hearings should not be allowed except on
meritorious grounds; and the grant or refusal thereof rests entirely in the
sound discretion of the Judge. It goes without saying, however, that
discretion must be reasonably and wisely exercised, in the light of the
attendant circumstances. Some reasonable deferment of the proceedings
may be allowed or tolerated to the end that cases may be adjudged only
after full and free presentation of evidence by all the parties, especially
where the deferment would cause no substantial prejudice to any part.
The desideratum of a speedy disposition of cases should not, if at all
possible, result in the precipitate loss of a partys right to present
evidence and either in plaintiff's being non-suited or the defendant's being
pronounced liable under an ex parte judgment.

[T]rial courts have x x x the duty to dispose of


controversies after trial on the merits whenever possible. It is deemed an
abuse of discretion for them, on their own motion, to enter a dismissal
which is not warranted by the circumstances of the case (Municipality of
Dingras v. Bonoan, 85 Phil. 458-59 [1950]). While it is true that the
dismissal of an action on grounds specified under Section 3, Rule 17 of the
Revised Rules of Court is addressed to their discretion (Flores v. Phil. Alien
Property Administrator, 107 Phil. 778 [1960]; Montelibano v. Benares, 103
Phil. 110 [1958]; Adorable v. Bonifacio, 105 Phil. 1269 [1959]; Inter-Island

Gas Service, Inc. v. De la Gerna, L-17631, October 19, 1966, 18 SCRA 390),
such discretion must be exercised soundly with a view to the
circumstances surrounding each particular case (Vernus-Sanciangco v.
Sanciangco, L-12619, April 28, 1962, 4 SCRA 1209). If facts obtain that
serve as mitigating circumstances for the delay, the same should be
considered and dismissal denied or set aside (Rudd v. Rogerson, 15 ALR 2d
672; Cervi v. Greenwood, 147 Colo. 190, 362 P.2d 1050 [1961]), especially
where the suit appears to be meritorious and the plaintiff was not culpably
negligent and no injury results to defendant (27 C.J.S. 235-36; 15 ALR 3rd
680). (Abinales vs. Court of First Instance of Zamboanga City, Br. I, 70
SCRA 590, 595).

It is true that the allowance or denial of petitions for


postponement and the setting aside of orders previously issued, rest
principally upon the sound discretion of the judge to whom they are
addressed, but always predicated on the consideration that more than the
mere convenience of the courts or of the parties of the case, the ends of
justice and fairness would be served thereby (Camara Vda. de Zubiri v.
Zubiri, et al., L-16745, December 17, 1966). When no substantial rights
are affected and the intention to delay is not manifest, the corresponding
motion to transfer the hearing having been filed accordingly, it is sound
judicial discretion to allow them (Rexwell Corp. v. Canlas, L-16746,
December 30, 1961). x x x.

This Court recalls that the complaint herein was filed on 15 June
1999. The summonses for Cynthia and Teresa were served on their sister
Melinda at the Borja Family Clinic in Tagbilaran City, but the latter refused
to receive the same. It was only on 1 June 2000 that summons was served
on Teresa at Room 304, Regency Crest Condominium, Banilad, Cebu City,
when she was in the Philippines for a visit. However, the summons for
Cynthia was never served upon her.

Although Section 1, Rule 14 of the Rules, imposes upon the clerk of court
the duty to serve summons, this does not relieve the petitioner of her own
duty as the plaintiff in a civil case to prosecute the case diligently. If the
clerk had been negligent, it was petitioners duty to call the courts
attention to that fact. It must be noted that it was not even petitioner
who called the courts attention that summons had not been served on

Cynthia, but Teresa. This despite the fact that petitioner was aware, as
early as 15 June 1999, when she filed her complaint, that the summonses
could not be served on Teresa and Cynthia, as she admitted therein that
Teresa and Cynthia were residing abroad. Petitioner as plaintiff should
have asked that Cynthia and Teresa be summoned by publication at the
earliest possible time. She cannot idly sit by and wait till this is
done. She cannot afterwards wash her hands and say that the delay was
not her fault. She cannot simply "fold [her] hands" and say that it is the
duty of the clerk of court to have the summonses served on Cynthia and
Teresa for the prompt disposition of her case. If there were no means of
summoning any of the defendants, petitioner should have so informed the
court within a reasonable period of time, so that the case could be
disposed of one way or another and the administration of justice would
not suffer delay. The non-performance of that duty by petitioner as
plaintiff is an express ground for dismissing an action. For, indeed, this
duty imposed upon her was precisely to spur on the slothful.

For failure to diligently pursue the complaint, petitioner trifled with the
right of the respondents to speedy trial. It also sorely tried the patience
of the court and wasted its precious time and attention. To allow
petitioner to wait until such time that summonses were served on
respondents would frustrate the protection against unreasonable delay in
the prosecution of cases and violate the constitutional mandate of speedy
dispensation of justice which would in time erode the peoples confidence
in the judiciary. We take a dim view of petitioners complacent
attitude. Ex nihilo nihil fit.[35]

Likewise, petitioners counsel inexplicably failed to diligently pursue the


service of summonses on respondents. These were acts of negligence,
laxity and truancy which the court could have very easily avoided or
timely remedied. Petitioner and her counsel could not avail themselves of
this Courts sympathy, considering their apparent complacency, if not
delinquency, in the conduct of their litigation.

Considering the foregoing, we sustain the dismissal by the trial court of


the petitioners complaint for failure to prosecute for a period of more
than one year (from the time of filing thereof on 15 June 1997 until
Teresas filing of a motion to dismiss).

WHEREFORE, premises considered, the instant petition is DENIED for lack


of merit and the assailed Decision dated 6 May 2005 of the Court of
Appeals in CA-G.R. CV No. 71028 is hereby AFFIRMED. Costs against
petitioner.

SO ORDERED.

FOREIGN CORPORTATIONS
MR HOLDINGS, LTD., petitioner, vs. SHERIFF CARLOS P. BAJAR, SHERIFF
FERDINAND M. JANDUSAY, SOLIDBANK CORPORATION, AND MARCOPPER
MINING CORPORATION, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
In the present Petition for Review on Certiorari, petitioner MR Holdings,
Ltd. assails the a) Decision[1] dated January 8, 1999 of the Court of
Appeals in CA-G.R. SP No. 49226 finding no grave abuse of discretion on
the part of Judge Leonardo P. Ansaldo of the Regional Trial Court (RTC),
Branch 94, Boac, Marinduque, in denying petitioners application for a writ
of preliminary injunction;[2] and b) Resolution[3] dated March 29, 1999
denying petitioners motion for reconsideration.
The facts of the case are as follows:
Under a Principal Loan Agreement [4] and Complementary Loan
Agreement,[5] both dated November 4, 1992, Asian Development Bank
(ADB), a multilateral development finance institution, agreed to extend to
Marcopper Mining Corporation (Marcopper) a loan in the aggregate
amount of US$40,000,000.00 to finance the latters mining project at Sta.
Cruz, Marinduque. The principal loan of US$ 15,000,000.00 was sourced
from ADBs ordinary capital resources, while the complementary loan of
US$ 25,000,000.00 was funded by the Bank of Nova Scotia, a participating
finance institution.
On even date, ADB and Placer Dome, Inc., (Placer Dome), a foreign
corporation which owns 40% of Marcopper, executed a Support and
Standby Credit Agreement whereby the latter agreed to provide

Marcopper with cash flow support for the payment of its obligations to
ADB.
To secure the loan, Marcopper executed in favor of ADB a Deed of Real
Estate and Chattel Mortgage[6] dated November 11, 1992, covering
substantially all of its (Marcoppers) properties and assets in Marinduque.
It was registered with the Register of Deeds on November 12, 1992.
When Marcopper defaulted in the payment of its loan obligation, Placer
Dome, in fulfillment of its undertaking under the Support and Standby
Credit Agreement, and presumably to preserve its international credit
standing, agreed to have its subsidiary corporation, petitioner MR
Holding, Ltd., assumed Marcoppers obligation to ADB in the amount of
US$ 18,453,450.02. Consequently, in an Assignment Agreement[7] dated
March 20, 1997, ADB assigned to petitioner all its rights, interests and
obligations under the principal and complementary loan agreements,
(Deed of Real Estate and Chattel Mortgage, and Support and Standby
Credit Agreement). On December 8, 1997, Marcopper likewise executed
a Deed of Assignment[8] in favor of petitioner. Under its provisions,
Marcopper assigns, transfers, cedes and conveys to petitioner, its assigns
and/or successors-in-interest all of its (Marcoppers) properties, mining
equipment and facilities, to wit:
Land and Mining Rights
Building and Other Structures
Other Land Improvements
Machineries & Equipment, and Warehouse Inventory
Mine/Mobile Equipment
Transportation Equipment and Furniture & Fixtures
Meanwhile, it appeared that on May 7, 1997, Solidbank Corporation
(Solidbank) obtained a Partial Judgment [9] against Marcopper from the RTC,
Branch 26, Manila, in Civil Case No. 96-80083 entitled Solidbank
Corporation vs. Marcopper Mining Corporation, John E. Loney, Jose E.
Reyes and Teodulo C. Gabor, Jr., the decretal portion of which reads:
WHEREFORE, PREMISES CONSIDERED, partial judgment is hereby
rendered ordering defendant Marcopper Mining Corporation, as follows:
1. To pay plaintiff Solidbank the sum of Fifty Two Million Nine Hundred
Seventy Thousand Pesos Seven Hundred Fifty Six and 89/100 only (PHP
52,970,756.89), plus interest and charges until fully paid;

2. To pay an amount equivalent to Ten Percent (10%) of above-stated


amount as attorneys fees; and
3. To pay the costs of suit.
"SO ORDERED.
Upon Solidbanks motion, the RTC of Manila issued a writ of execution
pending appeal directing Carlos P. Bajar, respondent sheriff, to require
Marcopper to pay the sums of money to satisfy the Partial
Judgment.[10] Thereafter, respondent Bajar issued two notices of levy on
Marcoppers personal and real properties, and over all its stocks of scrap
iron
and
unserviceable
mining
equipment. [11] Together
with
sheriff Ferdinand M. Jandusay (also a respondent) of the RTC, Branch 94,
Boac, Marinduque, respondent Bajar issued two notices setting the public
auction sale of the levied properties on August 27, 1998 at the Marcopper
mine site.[12]
Having learned of the scheduled auction sale, petitioner served an
Affidavit of Third-Party Claim[13] upon respondent sheriffs on August 26,
1998, asserting its ownership over all Marcoppers mining properties,
equipment and facilities by virtue of the Deed of Assignment.
Upon the denial of its Affidavit of ThirdParty Claim by the RTC of
Manila,[14] petitioner
commenced
with
the
RTC
of
Boac,
Marinduque, presided by Judge Leonardo P. Ansaldo, a complaint for
reivindication of properties, etc., with prayer for preliminary injunction
and temporary restraining order against respondents Solidbank,
Marcopper, and sheriffs Bajar and Jandusay. [15] The case was docketed as
Civil Case No. 98-13.
In
an
Order[16]dated
October
6,
1998,
Judge
Ansaldo
denied petitioners application for a writ of preliminary injunction on
the ground that a) petitioner has no legal capacity to sue, it being a
foreign corporation doing business in the Philippines without
license; b) an injunction will amount to staying the execution of a final
judgment by a court of co-equal and concurrent jurisdiction; and c) the
validity of the Assignment Agreement and the Deed of Assignment
has been put into serious question by the timing of their execution and
registration.
Unsatisfied, petitioner elevated the matter to the Court of Appeals on a
Petition for Certiorari, Prohibition and Mandamus, docketed therein as CAG.R. SP No. 49226. On January 8, 1999, the Court of Appeals rendered a
Decision holding that Judge Ansaldo did not commit grave abuse of

discretion in denying petitioners prayer for a writ of preliminary


injunction, ratiocinating as follows:
Petitioner contends that it has the legal capacity to sue and seek redress
from Philippine courts as it is a non-resident foreign corporation not doing
business in the Philippines and suing on isolated transactions.
xxx

xxx

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

xxx

While petitioner may just be an assignee to the Deeds of Assignment, it


may still fall within the meaning of doing business in light of the
Supreme Court ruling in the case of Far East International Import and
Export Corporation vs. Nankai Kogyo Co., 6 SCRA 725, that:
Where a single act or transaction however is not merely incidental or
casual but indicates the foreign corporations intention to do other
business in the Philippines, said single act or transaction constitutes
doing or engaging in or transacting business in the Philippines.
Furthermore, the court went further by declaring that even a single act
may constitute doing business if it is intended to be the beginning of a
series of transactions. (Far East International Import and Export
Corporation vs. Nankai Kogyo Co. supra).
On the issue of whether petitioner is the bona fide owner of all the
mining facilities and equipment of Marcopper, petitioner relies heavily on
the Assignment Agreement allegedly executed on March 20, 1997 wherein
all the rights and interest of Asian Development Bank (ADB) in a purported
Loan Agreement were ceded and transferred in favor of the petitioner as
assignee, in addition to a subsequent Deed of Assignment dated
December 28, 1997 conveying absolutely all the properties, mining
equipment and facilities of Marcopper in favor of petitioner.

The Deeds of Assignment executed in favor of petitioner cannot be


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

C.
THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR
IN MAKING A FACTUAL FINDING ON THE EXISTENCE OF AN ATTACHMENT ON
THE PROPERTIES SUBJECT OF INSTANT CASE, THE SAME BEING CONTRARY
TO THE FACTS ON RECORD, THUS, MATERIALLY CONTRIBUTING TO THE
SAID COURTS MISPERCEPTION AND MISAPPRECIATION OF THE MERITS OF
PETITIONERS CASE.
D.
THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR
IN HOLDING THAT THE SAID ASSIGNMENT AGREEMENT AND THE DEED OF
ASSIGNMENT ARE NOT BINDING ON RESPONDENT SOLIDBANK WHO IS NOT
A PARTY THERETO, THE SAME BEING CONTRARY TO LAW AND ESTABLISHED
JURISPRUDENCE ON PRIOR REGISTERED MORTGAGE LIENS AND ON
PREFERENCE OF CREDITS.
E.
THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR
IN FINDING THAT THE AFOREMENTIONED ASSIGNMENT AGREEMENT AND
DEED OF ASSIGNMENT ARE SHAM, SIMULATED, OF DUBIOUS CHARACTER,
AND WERE MADE IN BAD FAITH AND IN FRAUD OF CREDITORS,
PARTICULARLY RESPONDENT SOLIDBANK, THE SAME BEING IN COMPLETE
DISREGARD OF, VIZ: (1) THE LAW AND ESTABLISHED JURISPRUDENCE ON
PRIOR, REGISTERED MORTGAGE LIENS AND ON PREFERENCE OF CREDITS,
BY REASON OF WHICH THERE EXISTS NO CAUSAL CONNECTION BETWEEN
THE SAID CONTRACTS AND THE PROCEEDINGS IN CIVIL CASE NO. 9680083; (2) THAT THE ASIAN DEVELOPMENT BANK WILL NOT OR COULD NOT
HAVE AGREED TO A SHAM; SIMULATED, DUBIOUS AND FRAUDULENT
TRANSACTION; AND (3) THAT RESPONDENT SOLIDBANKS BIGGEST
STOCKHOLDER, THE BANK OF NOVA SCOTIA, WAS A MAJOR BENEFICIARY
OF THE ASSIGNMENT AGREEMENT IN QUESTION.
F.
THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR
IN HOLDING THAT PETITIONER IS WITHOUT LEGAL CAPACITY TO SUE AND
SEEK REDRESS FROM PHILIPPINE COURTS, IT BEING THE CASE THAT
SECTION 133 OF THE CORPORATION CODE IS WITHOUT APPLICATION TO
PETITIONER, AND IT BEING THE CASE THAT THE SAID COURT MERELY
RELIED ON SURMISES AND CONJECTURES IN OPINING THAT PETITIONER
INTENDS TO DO BUSINESS IN THE PHILIPPINES.
G.
THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR
IN HOLDING THAT RESPONDENT MARCOPPER, PLACER DOME, INC., AND
PETITIONER ARE ONE AND THE SAME ENTITY, THE SAME BEING WITHOUT
FACTUAL OR LEGAL BASIS.
H.
THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR
IN HOLDING PETITIONER GUILTY OF FORUM SHOPPING, IT BEING CLEAR
THAT NEITHER LITIS PENDENTIA NOR RES JUDICATA MAY BAR THE INSTANT

REIVINDICATORY ACTION, AND IT BEING CLEAR THAT AS THIRD-PARTY


CLAIMANT, THE LAW AFFORDS PETITIONER THE RIGHT TO FILE SUCH
REIVINDICATORY ACTION.
I.
THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR
IN RENDERING A DECISION WHICH IN EFFECT SERVES AS JUDGMENT ON
THE MERITS OF THE CASE.
J.
THE SHERIFFS LEVY AND SALE, THE SHERIFFS CERTIFICATE OF SALE
DATED OCTOBER 12, 1998, THE RTC-MANILA ORDER DATED FEBRUARY 12,
1999, AND THE RTC-BOAC ORDER DATED NOVEMBER 25, 1998 ARE NULL
AND VOID.
K.
THE HONORABLE COURT OF APPEALS COMMITS A REVERSIBLE ERROR
IN AFFIRMING THE DENIAL BY THE RTC-BOAC OF PETITIONERS
APPLICATION FOR PRELIMINARY INJUNCTION, THE SAME BEING IN TOTAL
DISREGARD OF PETITIONERS RIGHT AS ASSIGNEE OF A PRIOR,
REGISTERED MORTGAGE LIEN, AND IN DISREGARD OF THE LAW AND
JURISPRUDENCE ON PREFERENCE OF CREDIT."
In its petition, petitioner alleges that it is not doing business in the
Philippines and characterizes its participation in the assignment contracts
(whereby Marcoppers assets where transferred to it) as mere isolated
acts that cannot foreclose its right to sue in local courts. Petitioner
likewise maintains that the two assignment contracts, although executed
during the pendency of Civil Case No. 96-80083 in the RTC of Manila, are
not fraudulent conveyances as they were supported by valuable
considerations. Moreover, they were executed in connection with prior
transactions that took place as early as 1992 which involved ADB, a
reputable financial institution. Petitioner further claims that when it paid
Marcoppers obligation to ADB, it stepped into the latters shoes and
acquired its (ADBS) rights, titles, and interests under the Deed of Real
Estate and Chattel Mortgage. Lastly, petitioner asserts its existence as a
corporation, separate and distinct from Placer Dome and Marcopper.
In its comment, Solidbank avers that: a) petitioner is doing business in
the Philippines and this is evidenced by the huge investment it poured
into the assignment contracts; b) granting that petitioner is not doing
business in the Philippines, the nature of its transaction reveals an
intention to do business or to begin a series of transaction in the
country; c) petitioner, Marcopper and Placer Dome are one and the same
entity, petitioner being then a wholly-owned subsidiary of Placer
Dome, which, in turn, owns 40% of Marcopper; d) the timing under which
the assignments contracts were executed shows that petitioners purpose
was to defeat any judgment favorable to it (Solidbank); and e) petitioner

violated the rule on forum shopping since the object of Civil Case No. 9813 (at RTC, Boac, Marinduque) is similar to the other cases filed by
Marcopper in order to forestall the sale of the levied properties.
Marcopper, in a separate comment, states that it is merely a nominal party
to the present case and that its principal concerns are being ventilated in
another case.
The petition is impressed with merit.
Crucial to the outcome of this case is our resolution of the following
issues: 1) Does petitioner have the legal capacity to sue? 2) Was the
Deed of Assignment between Marcopper and petitioner executed in fraud
of creditors? 3) Are petitioner MR Holdings, Ltd., Placer Dome, and
Marcopper one and the same entity? and 4) Is petitioner guilty of forum
shopping?
We shall resolve the issues in seriatim.
I
The Court of Appeals ruled that petitioner has no legal capacity to sue in
the Philippine courts because it is a foreign corporation doing business
here without license. A review of this ruling does not pose much
complexity
as
the
principles
governing
a
foreign
corporations right to sue in local courts have long been settled by our
Corporation Law.[17] These principles may be condensed in three
statements, to wit: a) if a foreign corporation does business in the
Philippines without a license, it cannot sue before the Philippine courts;
[18]
b) if a foreign corporation is not doing business in the Philippines,
it needs no license to sue before Philippine courts on an isolated
transaction[19]or on a cause of action entirely independent of any business
transaction;[20] and c) if a foreign corporation does business in the
Philippines with the required license, it can suebefore Philippine courts on
any transaction. Apparently, it is not the absence of the prescribed
license but the doing (of) business in the Philippines without such
license which debars the foreign corporation from access to our courts. [21]
The task at hand requires us to weigh the facts vis--vis the established
principles. The question whether or not a foreign corporation is doing
business is dependent principally upon the facts and circumstances of
each particular case, considered in the light of the purposes and language
of the pertinent statute or statutes involved and of the general principles
governing the jurisdictional authority of the state over such corporations.
[22]

Batas Pambansa Blg. 68, otherwise known as The Corporation Code of


the Philippines, is silent as to what constitutes doing or transacting
business in the Philippines. Fortunately, jurisprudence has supplied the
deficiency and has held that the term implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent, the
performance of acts or works or the exercise of some of the functions
normally incident to, and in progressive prosecution of, the purpose and
object for which the corporation was organized. [23] In Mentholatum Co.
Inc., vs. Mangaliman,[24] this Court laid down the test to determine
whether a foreign company is doing business, thus:
x x x The true test, however, seems to be whether the foreign
corporation is continuing the body or substance of the business or
enterprise for which it was organized or whether it has substantially
retired from it and turned it over to another. (Traction Cos. vs. Collectors
of Int. Revenue [C.C.A., Ohio], 223 F. 984,987.) x x x.
The traditional case law definition has metamorphosed into a statutory
definition, having been adopted with some qualifications in various pieces
of legislation in our jurisdiction. For instance, Republic Act No. 7042,
otherwise known as the Foreign Investment Act of 1991, defines doing
business as follows:
d) The phrase doing business shall include soliciting orders, service
contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods
totalling one hundred eight(y) (180) days or more; participating in the
management, supervision or control of any domestic business, firm, entity,
or corporation in the Philippines; and any other act or acts that imply a
continuity of commercial dealings or arrangements, and contemplate to
that extent the performance of acts or works; or the exercise of some of
the functions normally incident to, and in progressive prosecution of,
commercial gain or of the purpose and object of the business
organization; Provided, however, That the phrase doing business shall
not be deemed to include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor, nor having a nominee director or
officer to represent its interests in such corporation, nor appointing a
representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account. (Emphasis supplied) [25]
Likewise, Section 1 of Republic Act No. 5455,[26] provides that:

SECTION. 1. Definition and scope of this Act. - (1) x x x the phrase doing
business shall include soliciting orders, purchases, service contracts,
opening offices, whether called liaison offices or branches; appointing
representatives or distributors who are domiciled in the Philippines or who
in any calendar year stay in the Philippines for a period or periods totaling
one hundred eighty days or more; participating in the management,
supervision or control of any domestic business firm, entity or corporation
in the Philippines; and any other act or acts that imply a continuity of
commercial dealings or arrangements, and contemplate to that extent the
performance of acts or works, or the exercise of some of the functions
normally incident to, and in progressive prosecution of, commercial gain
or of the purpose and object of the business organization.
There are other statutes[27] defining the term doing business in the same
tenor as those above-quoted, and as may be observed, one
common denominator among them all is the concept of continuity.
In the case at bar, the Court of Appeals categorized as doing
business petitioners participation under the Assignment Agreement
and the Deed of Assignment. This is simply untenable. The expression
doing business should not be given such a strict and literal construction
as to make it apply to any corporate dealing whatever.[28] At this early
stage and with petitioners acts or transactions limited to the assignment
contracts, it cannot be said that it had performed acts intended to
continue the business for which it was organized. It may not be amiss to
point out that the purpose or business for which petitioner was
organized is not discernible in the records. No effort was exerted by the
Court of Appeals to establish the nexus between petitioners business and
the acts supposed to constitute doing business. Thus, whether the
assignment contracts were incidental to petitioners business or were
continuation thereof is beyond determination. We cannot apply the case
cited by the Court of Appeals, Far East Intl Import and Export Corp. vs.
Nankai Kogyo Co., Ltd.,[29] which held that a single act may still constitute
doing business if it is not merely incidental or casual, but is of such
character as distinctly to indicate a purpose on the part of the foreign
corporation to do other business in the state. In said case, there was an
express admission from an official of the foreign corporation that he was
sent to the Philippines to look into the operation of mines, thereby
revealing the foreign corporations desire to continue engaging in
business here. But in the case at bar, there is no evidence of similar
desire or intent. Unarguably, petitioner may, as the Court of Appeals
suggested, decide to operate Marcoppers mining business, but, of course,
at this stage, that is a mere speculation. Or it may decide to sell the
credit secured by the mining properties to an offshore investor, in which

case the acts will still be isolated transactions. To see through the
present facts an intention on the part of petitioner to start a series of
business transaction is to rest on assumptions or probabilities falling
short of actual proof. Courts should never base its judgments on a state
of facts so inadequately developed that it cannot be determined where
inference ends and conjecture begins.
Indeed, the Court of Appeals holding that petitioner was determined to be
doing business in the Philippines is based mainly on conjectures and
speculation. In concluding that the unmistakable intention of petitioner
is to continue Marcoppers business, the Court of Appeals hangs on the
wobbly premise that there is no other way for petitioner to recover its
huge financial investments which it poured into Marcoppers rehabilitation
without it (petitioner) continuing Marcoppers business in the
country.[30] This is a mere presumption. Absent overt acts of petitioner
from which we may directly infer its intention to continue Marcoppers
business, we cannot give our concurrence. Significantly, a view
subscribed upon by many authorities is that the mere ownership by a
foreign corporation of a property in a certain state,unaccompanied by its
active use in furtherance of the business for which it was formed, is
insufficient in itself to constitute doing business. [31] In Chittim vs. Belle
Fourche Bentonite Products Co.,[32] it was held that even if a foreign
corporation
purchased
and took conveyances of a mining
claim, did some assessment work thereon, and endeavored to sell it, its
acts will not constitute the doing of business so as to subject the
corporation to the statutory requirements for the transacting of
business. On the same vein, petitioner, a foreign corporation, which
becomes the assignee of mining properties, facilities and equipment
cannot be automatically considered as doing business, nor presumed to
have the intention of engaging in mining business.
One important point. Long before petitioner assumed Marcoppers debt to
ADB and became their assignee under the two assignment contracts,
there already existed a Support and Standby Credit Agreement between
ADB and Placer Dome whereby the latter bound itself to provide cash flow
support for Marcoppers payment of its obligations to ADB. Plainly,
petitioners payment of US$ 18,453, 450.12 to ADB was more of a
fulfillment of an obligation under the Support and Standby Credit
Agreement rather than an investment. That petitioner had to step into
the shoes of ADB as Marcoppers creditor was just a necessary legal
consequence of the transactions that transpired. Also, we must hasten to
add that the Support and Standby Credit Agreement was executed four
(4) years prior to Marcoppers insovency, hence, the alleged intention of

petitioner to continue Marcoppers business could have no basis for at


that time, Marcoppers fate cannot yet be determined.
In the final analysis, we are convinced that petitioner was engaged only in
isolated acts or transactions. Single or isolated acts, contracts, or
transactions of foreign corporations are not regarded as a doing or
carrying on of business. Typical examples of these are the making of a
single contract, sale, sale with the taking of a note and mortgage in the
state to secure payment therefor, purchase, or note, or the mere
commission of a tort.[33] In these instances, there is no purpose to do any
other business within the country.
II
Solidbank contends that from the chronology and timing of events, it is
evident that there existed a pre-set pattern of response on the part of
Marcopper to defeat whatever court ruling that may be rendered in favor
of Solidbank.
We are not convinced.
While it may appear, at initial glance, that the assignment contracts are in
the nature of fraudulent conveyances, however, a closer look at the events
that transpired prior to the execution of those contracts gives rise to a
different conclusion. The obvious flaw in the Court of Appeals Decision
lies in its constricted view of the facts obtaining in the case. In its factual
narration, the Court of Appeals definitely left out some events. We shall
see later the significance of those events.
Article 1387 of the Civil Code of the Philippines provides:
Art. 1387. All contracts by virtue of which the debtor alienates property
by gratuitous title are presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient property to pay all
debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by
persons against whom some judgment has been rendered in any instance
or some writ of attachment has been issued. The decision or attachment
need not refer to the property alienated, and need not have been obtained
by the party seeking rescission.
In addition to these presumptions, the design to defraud creditors may be
proved in any other manner recognized by law and of evidence.
This article presumes the existence of fraud made by a debtor. Thus, in
the absence of satisfactory evidence to the contrary, an alienation of a

property will be held fraudulent if it is made after a judgment has been


rendered against the debtor making the alienation. [34] This presumption of
fraud is not conclusive and may be rebutted by satisfactory and
convincing evidence. All that is necessary is to establish affirmatively that
the conveyance is made in good faith and for a sufficient and valuable
consideration.[35]
The Assignment Agreement and the Deed of Assignment were
executed for valuable considerations. Patent from the Assignment
Agreement is the fact that petitioner assumed the payment of US$
18,453,450.12 to ADB in satisfaction of Marcoppers remaining debt as of
March 20, 1997.[36] Solidbank cannot deny this fact considering that a
substantial portion of the said payment, in the sum of US$ 13,886,791.06,
was remitted in favor of the Bank of Nova Scotia, its major stockholder. [37]
The facts of the case so far show that the assignment contracts were
executed in good faith. The execution of the Assignment Agreement on
Macrh 20, 1997 and the Deed of Assignment on December 8,1997 is not
the alpha of this case. While the execution of these assignment contracts
almost coincided with the rendition on May 7, 1997 of the Partial Judgment
in Civil Case No. 96-80083 by the Manila RTC, however, there was no
intention on the part of petitioner to defeat Solidbanks claim. It bears
reiterating that as early as November 4, 1992, Placer Dome had already
bound itself under a Support and Standby Credit Agreement to provide
Marcopper with cash flow support for the payment to ADB of its
obligations. When Marcopper ceased operations on account of disastrous
mine tailings spill into the Boac River and ADB pressed for payment of the
loan, Placer Dome agreed to have its subsidiary, herein petitioner, paid
ADB the amount of US $18,453,450.12. Thereupon, ADB and Marcopper
executed, respectively, in favor of petitioner an Assignment Agreement
and a Deed of Assignment. Obviously, the assignment contracts were
connected with transactions that happened long before the rendition in
1997 of the Partial Judgment in Civil Case No. 96-80083 by the Manila
RTC. Those contracts cannot be viewed in isolation. If we may add, it is
highly inconceivable that ADB, a reputable international financial
organization, will connive with Marcopper to feign or simulate a contract
in 1992 just to defraud Solidbank for its claim four years thereafter. And it
is equally incredible for petitioner to be paying the huge sum of US $ 18,
453, 450.12 to ADB only for the purpose of defrauding Solidbank of the
sum of P52,970.756.89.
It is said that the test as to whether or not a conveyance is fraudulent is -does it prejudice the rights of creditors? [38] We cannot see how Solidbanks
right was prejudiced by the assignment contracts considering that
substantially all of Marcoppers properties were already covered by the

registered Deed of Real Estate and Chattel Mortgage executed by


Marcopper in favor of ADB as early as November 11, 1992. As such,
Solidbank cannot assert a better right than ADB, the latter being a
preferred creditor. It is basic that mortgaged properties answer primarily
for the mortgaged credit, not for the judgment credit of the mortgagors
unsecured creditor. Considering that petitioner assumed Marcoppers debt
to ADB, it follows that Solidbanks right as judgment creditor over the
subject properties must give way to that of the former.
III
The record is lacking in circumstances that would suggest that petitioner
corporation, Placer Dome and Marcopper are one and the same entity.
While admittedly, petitioner is a wholly-owned subsidiary of Placer Dome,
which in turn, which, in turn, was then a minority stockholder of
Marcopper, however, the mere fact that a corporation owns all of the
stocks of another corporation, taken alone is not sufficient to justify their
being treated as one entity. If used to perform legitimate functions, a
subsidiarys separate existence shall be respected, and the liability of the
parent corporation as well as the subsidiary will be confined to those
arising in their respective business. [39]
The recent case of Philippine National Bank vs. Ritratto Group Inc.,
[40]
outlines the circumstances which are useful in the determination of
whether a subsidiary is but a mere instrumentality of the parentcorporation, to wit:
(a) The parent corporation owns all or most of the capital stock of the
subsidiary.
(b)
The parent and subsidiary corporations have common directors
or officers.
(c) The parent corporation finances the subsidiary.
(d)
The parent corporation subscribes to all the capital stock of the
subsidiary or otherwise causes its incorporation.
(e)

The subsidiary has grossly inadequate capital.

(f) The parent corporation pays the salaries and other expenses or losses
of the subsidiary.
(g)
The subsidiary has substantially no business except with the
parent corporation or no assets except those conveyed to or by the parent
corporation.

(h)
In the papers of the parent corporation or in the statements of
its officers, the subsidiary is described as a department or division of the
parent corporation, or its business or financial responsibility is referred to
as the parent corporations own.
(i) The parent corporation uses the property of the subsidiary as its own.
(j) The directors or executives of the subsidiary do not act independently
in the interest of the subsidiary, but take their orders from the parent
corporation.
(k)
The
observed.

formal

legal

requirements

of

the

subsidiary

are

not

In this catena of circumstances, what is only extant in the records is the


matter of stock ownership. There are no other factors indicative that
petitioner is a mere instrumentality of Marcopper or Placer Dome. The
mere fact that Placer Dome agreed, under the terms of the Support and
Standby Credit Agreement to provide Marcopper with cash flow support
in paying its obligations to ADB, does not mean that its personality has
merged with that of Marcopper. This singular undertaking, performed by
Placer Dome with its own stockholders in Canada and elsewhere, is not a
sufficient ground to merge its corporate personality with Marcopper which
has its own set of shareholders, dominated mostly by Filipino citizens. The
same view applies to petitioners payment of Marcoppers remaining debt
to ADB.
With the foregoing considerations and the absence of fraud in the
transaction of the three foreign corporations, we find it improper to pierce
the veil of corporate fiction that equitable doctrine developed to address
situations where the corporate personality of a corporation is abused or
used for wrongful purposes.
IV
On the issue of forum shopping, there could have been a violation of the
rules thereon if petitioner and Marcopper were indeed one and the same
entity. But since petitioner has a separate personality, it has the right to
pursue its third-party claim by filing the independent reivindicatory action
with the RTC of Boac, Marinduque, pursuant to Rule 39, Section 16 of the
1997 Rules of Civil Procedures. This remedy has been recognized in a
long line of cases decided by this Court.[41] In Rodriguez vs. Court of
Appeals,[42] we held:
. . . It has long been settled in this jurisdiction that the claim of
ownership of a third party over properties levied for execution of a

judgment presents no issue for determination by the court issuing the writ
of execution.
. . .Thus, when a property levied upon by the sheriff pursuant to a writ of
execution is claimed by third person in a sworn statement of ownership
thereof, as prescribed by the rules, an entirely different matter calling for
a new adjudication arises. And dealing as it does with the all important
question of title, it is reasonable to require the filing of proper pleadings
and the holding of a trial on the matter in view of the requirements of due
process.
. . . In other words, construing Section 17 of Rule 39 of the Revised Rules
of Court (now Section 16 of the 1997 Rules of Civil Procedure), the rights
of third-party claimants over certain properties levied upon by the sheriff
to satisfy the judgment may not be taken up in the case where such
claims are presented but in a separate and independent action instituted
by the claimants. (Emphasis supplied)
This reivindicatory action has for its object the recovery of ownership or
possession of the property seized by the sheriff, despite the third party
claim, as well as damages resulting therefrom, and it may be brought
against the sheriff and such other parties as may be alleged to have
connived with him in the supposedly wrongful execution proceedings,
such as the judgment creditor himself. Such action is an entirely separate
and distinct action from that in which execution has been issued. Thus,
there being no identity of parties and cause of action between Civil Case
No. 98-13 (RTC, Boac) and those cases filed by Marcopper, including Civil
Case No. 96-80083 (RTC, Manila) as to give rise to res judicata or litis
pendentia, Solidbanks allegation of forum-shopping cannot prosper. [43]
All considered, we find petitioner to be entitled to the issuance of a writ of
preliminary injunction. Section 3, Rule 58 of the 1997 Rules of Civil
Procedure provides:
SEC. 3 Grounds for issuance of preliminary injunction. A preliminary
injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance of
the act or acts complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the acts or
acts complained of during the litigation would probably work injustice to
the applicant; or

(c) That a party, court, agency or a person is doing, threatening, or is


attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject
of the action or proceeding, and tending to render the judgment
ineffectual.
Petitioners right to stop the further execution of the properties covered
by the assignment contracts is clear under the facts so far
established. An execution can be issued only against a party and not
against one who did not have his day in court. [44] The duty of the sheriff is
to levy the property of the judgment debtor not that of a third
person. For, as the saying goes, one mans goods shall not be sold for
another man's debts.[45] To allow the execution of petitioners properties
would surely work injustice to it and render the judgment on the
reivindicatory action, should it be favorable, ineffectual. In Arabay, Inc.,
vs. Salvador,[46] this Court held that an injunction is a proper remedy to
prevent a sheriff from selling the property of one person for the purpose
of paying the debts of another; and that while the general rule is that no
court has authority to interfere by injunction with the judgments or
decrees of another court of equal or concurrent or coordinate jurisdiction,
however, it is not so when a third-party claimant is involved. We quote
the instructive words of Justice Querube C. Makalintal in Abiera vs. Court
of Appeals,[47] thus:
The rationale of the decision in the Herald Publishing Company case [48] is
peculiarly applicable to the one before Us, and removes it from the
general doctrine enunciated in the decisions cited by the respondents and
quoted earlier herein.
1. Under Section 17 of Rule 39 a third person who claims property levied
upon on execution may vindicate such claim by action. Obviously a
judgment rendered in his favor, that is, declaring him to be the owner of
the property, would not constitute interference with the powers or
processes of the court which rendered the judgment to enforce which the
execution was levied. If that be so and it is so because the property,
being that of a stranger, is not subject to levy then an interlocutory
order such as injunction, upon a claim and prima facie showing of
ownership by the claimant, cannot be considered as such interference
either.
WHEREFORE, the petition is GRANTED. The assailed Decision dated
January 8, 1999 and the Resolution dated March 29, 1999 of the Court of
Appeals in CA G.R. No. 49226 are set aside. Upon filing of a bond
of P1,000,000.00, respondent sheriffs are restrained from further
implementing the writ of execution issued in Civil Case No. 96-80083 by

the RTC, Branch 26, Manila, until further orders from this Court. The RTC,
Branch 94, Boac, Marinduque, is directed to dispose of Civil Case No. 9813 with dispatch.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and Carpio, JJ., concur.

ALFRED HAHN, petitioner, vs. COURT OF APPEALS and BAYERISCHE


MOTOREN WERKE AKTIENGESELLSCHAFT (BMW),respondents.
DECISION
MENDOZA, J.:
This is a petition for review of the decision [1] of the Court of Appeals
dismissing a complaint for specific performance which petitioner had filed
against private respondent on the ground that the Regional Trial Court of
Quezon City did not acquire jurisdiction over private respondent, a
nonresident foreign corporation, and of the appellate court's order
denying petitioner's motion for reconsideration.
The following are the facts:
Petitioner Alfred Hahn is a Filipino citizen doing business under the name
and style "Hahn-Manila." On the other hand, private respondent
Bayerische Motoren Werke Aktiengesellschaft (BMW) is a nonresident
foreign corporation existing under the laws of the former Federal Republic
of Germany, with principal office at Munich, Germany.
On March 7, 1967, petitioner executed in favor of private respondent a
"Deed of Assignment with Special Power of Attorney," which reads in full
as follows:
WHEREAS, the ASSIGNOR is the present owner and holder of the BMW
trademark and device in the Philippines which ASSIGNOR uses and has
been using on the products manufactured by ASSIGNEE, and for which
ASSIGNOR is the authorized exclusive Dealer of the ASSIGNEE in the
Philippines, the same being evidenced by certificate of registration issued
by the Director of Patents on 12 December 1963 and is referred to as
Trademark No. 10625;
WHEREAS, the ASSIGNOR has agreed to transfer and consequently record
said transfer of the said BMW trademark and device in favor of the
ASSIGNEE herein with the Philippines Patent Office;

NOW THEREFORE, in view of the foregoing and in consideration of the


stipulations hereunder stated, the ASSIGNOR hereby affirms the said
assignment and transfer in favor of the ASSIGNEE under the following
terms and conditions:
1. The ASSIGNEE shall take appropriate steps against any user other than
ASSIGNOR or infringer of the BMW trademark in the Philippines, for such
purpose, the ASSIGNOR shall inform the ASSIGNEE immediately of any
such use or infringement of the said trademark which comes to his
knowledge and upon such information the ASSIGNOR shall automatically
act as Attorney-In-Fact of the ASSIGNEE for such case, with full power,
authority and responsibility to prosecute unilaterally or in concert with
ASSIGNEE, any such infringer of the subject mark and for purposes hereof
the ASSIGNOR is hereby named and constituted as ASSIGNEE's AttorneyIn-Fact, but any such suit without ASSIGNEE's consent will exclusively be
the responsibility and for the account of the ASSIGNOR,
2. That the ASSIGNOR and the ASSIGNEE shall continue business relations
as has been usual in the past without a formal contract, and for that
purpose, the dealership of ASSIGNOR shall cover the ASSIGNEE's complete
production program with the only limitation that, for the present, in view
of ASSIGNEE's limited production, the latter shall not be able to supply
automobiles to ASSIGNOR.
Per the agreement, the parties "continue[d] business relations as has
been usual in the past without a formal contract." But on February 16,
1993, in a meeting with a BMW representative and the president of
Columbia Motors Corporation (CMC), Jose Alvarez, petitioner was informed
that BMW was arranging to grant the exclusive dealership of BMW cars
and products to CMC, which had expressed interest in acquiring the same.
On February 24, 1993, petitioner received confirmation of the information
from BMW which, in a letter, expressed dissatisfaction with various
aspects of petitioner's business, mentioning among other things, decline
in sales, deteriorating services, and inadequate showroom and warehouse
facilities, and petitioner's alleged failure to comply with the standards for
an exclusive BMW dealer.[2] Nonetheless, BMW expressed willingness to
continue business relations with the petitioner on the basis of a "standard
BMW importer" contract, otherwise, it said, if this was not acceptable to
petitioner, BMW would have no alternative but to terminate petitioner's
exclusive dealership effective June 30, 1993.
Petitioner protested, claiming that the termination of his exclusive
dealership would be a breach of the Deed of Assignment. [3] Hahn insisted
that as long as the assignment of its trademark and device subsisted, he
remained BMW's exclusive dealer in the Philippines because the

assignment was made in consideration of the exclusive dealership. In the


same letter petitioner explained that the decline in sales was due to lower
prices offered for BMW cars in the United States and the fact that few
customers returned for repairs and servicing because of the durability of
BMW parts and the efficiency of petitioner's service.
Because of Hahn's insistence on the former business relation, BMW
withdrew on March 26, 1993 its offer of a "standard importer contract"
and terminated the exclusive dealer relationship effective June 30, 1993.
[4]
At a conference of BMW Regional Importers held on April 26, 1993 in
Singapore, Hahn was surprised to find Alvarez among those invited from
the Asian region. On April 29, 1993, BMW proposed that Hahn and CMC
jointly import and distribute BMW cars and parts.
Hahn found the proposal unacceptable. On May 14, 1993, he filed a
complaint for specific performance and damages against BMW to compel it
to continue the exclusive dealership. Later he filed an amended complaint
to include an application for temporary restraining order and for writs of
preliminary, mandatory and prohibitory injunction to enjoin BMW from
terminating his exclusive dealership. Hahn's amended complaint alleged in
pertinent parts:
2. Defendant [BMW] is a foreign corporation doing business in the
Philippines with principal offices at Munich, Germany. It may be served
with summons and other court processes through the Secretary of the
Department of Trade and Industry of the Philippines. . . .
....
5. On March 7, 1967, Plaintiff executed in favor of defendant BMW a Deed
of Assignment with Special Power of Attorney covering the trademark and
in consideration thereof, under its first whereas clause, Plaintiff was duly
acknowledged as the "exclusive Dealer of the Assignee in the
Philippines" . . . .
....
8. From the time the trademark "BMW & DEVICE" was first used by the
Plaintiff in the Philippines up to the present, Plaintiff, through its firm
name "HAHN MANILA" and without any monetary contribution from
defendant BMW, established BMW's goodwill and market presence in the
Philippines. Pursuant thereto, Plaintiff has invested a lot of money and
resources in order to single-handedly compete against other motorcycle
and car companies .... Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and
promote the car and products of defendant BMW.

....
10. In a letter dated February 24, 1993, defendant BMW advised Plaintiff
that it was willing to maintain with Plaintiff a relationship but only "on the
basis of a standard BMW importer contract as adjusted to reflect the
particular situation in the Philippines" subject to certain conditions,
otherwise, defendant BMW would terminate Plaintiff's exclusive
dealership and any relationship for cause effective June 30, 1993. . . .
....
15. The actuations of defendant BMW are in breach of the assignment
agreement between itself and plaintiff since the consideration for the
assignment of the BMW trademark is the continuance of the exclusive
dealership agreement. It thus, follows that the exclusive dealership should
continue for so long as defendant BMW enjoys the use and ownership of
the trademark assigned to it by Plaintiff.
The case was docketed as Civil Case No. Q-93-15933 and raffled to Branch
104 of the Quezon City Regional Trial Court, which on June 14, 1993 issued
a temporary restraining order. Summons and copies of the complaint and
amended complaint were thereafter served on the private respondent
through the Department of Trade and Industry, pursuant to Rule 14, 14
of the Rules of Court. The order, summons and copies of the complaint and
amended complaint were later sent by the DTI to BMW via registered mail
on June 15, 1993[5] and received by the latter on June 24, 1993.
On June 17, 1993, without proof of service on BMW, the hearing on the
application for the writ of preliminary injunction proceeded ex parte, with
petitioner Hahn testifying. On June 30, 1993, the trial court issued an
order granting the writ of preliminary injunction upon the filing of a bond
of P100,000.00. On July 13, 1993, following the posting of the required
bond, a writ of preliminary injunction was issued.
On July 1, 1993, BMW moved to dismiss the case, contending that the trial
court did not acquire jurisdiction over it through the service of summons
on the Department of Trade and Industry, because it (BMW) was a foreign
corporation and it was not doing business in the Philippines. It contended
that the execution of the Deed of Assignment was an isolated transaction;
that Hahn was not its agent because the latter undertook to assemble and
sell BMW cars and products without the participation of BMW and sold
other products; and that Hahn was an indentor or middleman transacting
business in his own name and for his own account.
Petitioner Alfred Hahn opposed the motion. He argued that BMW was
doing business in the Philippines through him as its agent, as shown by

the fact that BMW invoices and order forms were used to document his
transactions; that he gave warranties as exclusive BMW dealer; that BMW
officials periodically inspected standards of service rendered by him; and
that he was described in service booklets and international publications of
BMW as a "BMW Importer" or "BMW Trading Company" in the Philippines.
The trial court[6] deferred resolution of the Motion to dismiss until after
trial on the merits for the reason that the grounds advanced by BMW in its
motion did not seem to be indubitable.
Without seeking reconsideration of the aforementioned order, BMW filed a
petition for certiorari with the Court of Appeals alleging that:
I. THE RESPONDENT JUDGE ACTED WITH UNDUE HASTE OR OTHERWISE
INJUDICIOUSLY IN PROCEEDINGS LEADING TOWARD THE ISSUANCE OF THE
WRIT OF PRELIMINARY INJUNCTION, AND IN PRESCRIBING THE TERMS FOR
THE ISSUANCE THEREOF.
II. THE RESPONDENT JUDGE PATENTLY ERRED IN DEFERRING RESOLUTION
OF THE MOTION TO DISMISS ON THE GROUND OF LACK OF JURISDICTION,
AND THEREBY FAILING TO IMMEDIATELY DISMISS THE CASE A QUO.
BMW asked for the immediate issuance of a temporary restraining order
and, after hearing, for a writ of preliminary injunction, to enjoin the trial
court from proceeding further in Civil Case No. Q-93-15933. Private
respondent pointed out that, unless the trial court's order was set aside, it
would be forced to submit to the jurisdiction of the court by filing its
answer or to accept judgment in default, when the very question was
whether the court had jurisdiction over it.
The Court of Appeals enjoined the trial court from hearing petitioner's
complaint. On December 20, 1993, it rendered judgment finding the trial
court guilty of grave abuse of discretion in deferring resolution of the
motion to dismiss. It stated:
Going by the pleadings already filed with the respondent court before it
came out with its questioned order of July 26, 1993, we rule and so hold
that petitioner's (BMW) motion to dismiss could be resolved then and
there, and that the respondent judge's deferment of his action thereon
until after trial on the merit constitutes, to our mind, grave abuse of
discretion.
....
. . . [T]here is not much appreciable disagreement as regards the factual
matters relating, to the motion to dismiss. What truly divide (sic) the
parties and to which they greatly differ is the legal conclusions they

respectively draw from such facts, (sic) with Hahn maintaining that on the
basis thereof, BMW is doing business in the Philippines while the latter
asserts that it is not.
Then, after stating that any ruling which the trial court might make on the
motion to dismiss would anyway be elevated to it on appeal, the Court of
Appeals itself resolved the motion. It ruled that BMW was not doing
business in the country and, therefore, jurisdiction over it could not be
acquired through service of summons on the DTI pursuant to Rule 14,
Section 14. The court upheld private respondent's contention that Hahn
acted in his own name and for his own account and independently of BMW,
based on Alfred Hahn's allegations that he had invested his own money
and resources in establishing BMW's goodwill in the Philippines and on
BMW's claim that Hahn sold products other than those of BMW. It held
that petitioner was a mere indentor or broker and not an agent through
whom private respondent BMW transacted business in the Philippines.
Consequently, the Court of Appeals dismissed petitioner's complaint
against BMW.
Hence, this appeal. Petitioner contends that the Court of Appeals erred (1)
in finding that the trial court gravely abused its discretion in deferring
action on the motion to dismiss and (2) in finding that private respondent
BMW is not doing business in the Philippines and, for this reason,
dismissing petitioner's case.
Petitioner's appeal is well taken. Rule 14, 14 provides:
14. Service upon foreign corporations. If the defendant is a foreign
corporation, or a nonresident 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 of its officers or agents within the Philippines. (Emphasis added)
What acts are considered "doing business in the Philippines" are
enumerated in 3(d) of the Foreign Investments Act of 1991 (R.A. No.
7042) as follows:[7]
d) the phrase "doing business" shall include soliciting orders, service
contracts,
opening
offices,
whether
called
"liaison"
offices
or
branches, appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or
periods totalling one hundred 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 of commercial dealings or arrangements and

contemplate to that extent the performance of acts or works, or the


exercise of some of the functions normally incident to, and in progressive
prosecution of, commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase "doing
business" shall not be deemed to include mere investment as a
shareholder by a foreign entity in domestic corporations duly registered to
do business, and/or the exercise of rights as such investor; nor having, a
nominee director or officer to represent its interests in such
corporation; nor appointing a representative or distributor domiciled in
the Philippines which transacts business in its own name and for its own
account. (Emphasis supplied)
Thus, the phrase includes "appointing representatives or distributors in
the Philippines" but not when the representative or distributor "transacts
business in its name and for its own account." In addition, Section 1(f)(1)
of the Rules and Regulations implementing (IRR) the Omnibus Investment
Code of 1987 (E.O. No. 226) provided:
(f) "Doing business" shall be any act or combination of acts, enumerated
in Article 44 of the Code. In particular, "doing business" includes:
(1).... A foreign firm which does business through middlemen acting in
their own names, such as indentors, commercial brokers or commission
merchants, shall not be deemed doing business in the Philippines. But
such indentors, commercial brokers or commission merchants shall be the
ones deemed to be doing business in the Philippines.
The question is whether petitioner Alfred Hahn is the agent or distributor
in the Philippines of private respondent BMW. If he is, BMW may be
considered doing business in the Philippines and the trial court acquired
jurisdiction over it (BMW) by virtue of the service of summons on the
Department of Trade and Industry. Otherwise, if Hahn is not the agent of
BMW but an independent dealer, albeit of BMW cars and products, BMW, a
foreign corporation, is not considered doing business in the Philippines
within the meaning of the Foreign Investments Act of 1991 and the IRR,
and the trial court did not acquire jurisdiction over it (BMW).
The Court of Appeals held that petitioner Alfred Hahn acted in his own
name and for his own account and not as agent or distributor in the
Philippines of BMW on the ground that "he alone had contacts with
individuals or entities interested in acquiring BMW vehicles. Independence
characterizes Hahn's undertakings, for which reason he is to be
considered, under governing statutes, as doing business." (p. 13) In
support of this conclusion, the appellate court cited the following
allegations in Hahn's amended complaint:

8. From the time the trademark "BMW & DEVICE" was first used by the
Plaintiff in the Philippines up to the present, Plaintiff, through its firm
name "HAHN MANILA" and without any monetary contributions from
defendant BMW; established BMW's goodwill and market presence in the
Philippines. Pursuant thereto, Plaintiff invested a lot of money and
resources in order to single-handedly compete against other motorcycle
and car companies.... Moreover, Plaintiff has built buildings and other
infrastructures such as service centers and showrooms to maintain and
promote the car and products of defendant BMW.
As the above quoted allegations of the amended complaint show, however,
there is nothing to support the appellate court's finding that Hahn
solicited orders alone and for his own account and without "interference
from, let alone direction of, BMW." (p. 13) To the contrary, Hahn claimed
he took orders for BMW cars and transmitted them to BMW. Upon receipt
of the orders, BMW fixed the down payment and pricing charges, notified
Hahn of the scheduled production month for the orders, and reconfirmed
the orders by signing and returning to Hahn the acceptance sheets.
Payment was made by the buyer directly to BMW. Title to cars purchased
passed directly to the buyer and Hahn never paid for the purchase price of
BMW cars sold in the Philippines. Hahn was credited with a commission
equal to 14% of the purchase price upon the invoicing of a vehicle order
by BMW. Upon confirmation in writing that the vehicles had been
registered in the Philippines and serviced by him, Hahn received an
additional 3% of the full purchase price. Hahn performed after-sale
services,
including,
warranty
services,
for
which
he
received
reimbursement from BMW. All orders were on invoices and forms of BMW.
[8]

These allegations were substantially admitted by BMW which, in its


petition for certiorari before the Court of Appeals, stated:[9]
9.4. As soon as the vehicles are fully manufactured and full payment of
the purchase prices are made, the vehicles are shipped to the Philippines.
(The payments may be made by the purchasers or third-persons or even
by Hahn.) The bills of lading are made up in the name of the purchasers,
but Hahn-Manila is therein indicated as the person to be notified.
9.5. It is Hahn who picks up the vehicles from the Philippine ports, for
purposes of conducting pre-delivery inspections. Thereafter, he delivers
the vehicles to the purchasers.
9.6. As soon as BMW invoices the vehicle ordered, Hahn is credited with a
commission of fourteen percent (14%) of the full purchase price thereof,
and as soon as he confirms in writing, that the vehicles have been

registered in the Philippines and have been serviced by him, he will


receive an additional three percent (3%) of the full purchase prices as
commission.
Contrary to the appellate court's conclusion, this arrangement shows an
agency. An agent receives a commission upon the successful conclusion of
a sale. On the other hand, a broker earns his pay merely by bringing the
buyer and the seller together, even if no sale is eventually made.
As to the service centers and showrooms which he said he had put up at
his own expense, Hahn said that he had to follow BMW specifications as
exclusive dealer of BMW in the Philippines. According to Hahn, BMW
periodically inspected the service centers to see to it that BMW standards
were maintained. Indeed, it would seem from BMW's letter to Hahn that it
was for Hahn's alleged failure to maintain BMW standards that BMW was
terminating Hahn's dealership.
The fact that Hahn invested his own money to put up these service
centers and showrooms does not necessarily prove that he is not an agent
of BMW. For as already noted, there are facts in the record which suggest
that BMW exercised control over Hahn's activities as a dealer and made
regular inspections of Hahn's premises to enforce compliance with BMW
standards and specifications.[10] For example, in its letter to Hahn dated
February 23, 1996, BMW stated:
In the last years we have pointed out to you in several discussions and
letters that we have to tackle the Philippine market more professionally
and that we are through your present activities not adequately prepared
to cope with the forthcoming challenges.[11]
In effect, BMW was holding Hahn accountable to it under the 1967
Agreement.
This case fits into the mould of Communications Materials, Inc. v. Court of
Appeals,[12] in
which
the
foreign
corporation
entered
into
a
"Representative Agreement" and a "Licensing Agreement" with a domestic
corporation, by virtue of which the latter was appointed "exclusive
representative" in the Philippines for a stipulated commission. Pursuant to
these contracts, the domestic corporation sold products exported by the
foreign corporation and put up a service center for the products sold
locally. This Court held that these acts constituted doing business in the
Philippines. The arrangement showed that the foreign corporation's
purpose was to penetrate the Philippine market and establish its presence
in the Philippines.

In addition, BMW held out private respondent Hahn as its exclusive


distributor in the Philippines, even as it announced in the Asian region
that Hahn was the "official BMW agent" in the Philippines. [13]
The Court of Appeals also found that petitioner Alfred Hahn dealt in other
products, and not exclusively in BMW products, and, on this basis, ruled
that Hahn was not an agent of BMW. (p. 14) This finding is based entirely
on allegations of BMW in its motion to dismiss filed in the trial court and in
its petition forcertiorari before the Court of Appeals.[14] But this allegation
was denied by Hahn[15] and therefore the Court of Appeals should not have
cited it as if it were the fact.
Indeed this is not the only factual issue raised, which should have
indicated to the Court of Appeals the necessity of affirming the trial
court's order deferring resolution of BMW's motion to dismiss. Petitioner
alleged that whether or not he is considered an agent of BMW, the fact is
that BMW did business in the Philippines because it sold cars directly to
Philippine buyers. [16] This was denied by BMW, which claimed that Hahn
was not its agent and that, while it was true that it had sold cars to
Philippine buyers, this was done without solicitation on its part. [17]
It is not true then that the question whether BMW is doing business could
have been resolved simply by considering the parties' pleadings. There
are genuine issues of facts which can only be determined on the basis of
evidence duly presented. BMW cannot short circuit the process on the
plea that to compel it to go to trial would be to deny its right not to
submit to the jurisdiction of the trial court which precisely it denies. Rule
16, 3 authorizes courts to defer the resolution of a motion to dismiss until
after the trial if the ground on which the motion is based does not appear
to be indubitable. Here the record of the case bristles with factual issues
and it is not at all clear whether some allegations correspond to the proof.
Anyway, private respondent need not apprehend that by responding to the
summons it would be waiving its objection to the trial court's jurisdiction.
It is now settled that. for purposes of having summons served on a foreign
corporation in accordance with Rule 14, 14, it is sufficient that it be
alleged in the complaint that the foreign corporation is doing business in
the Philippines. The court need not go beyond the allegations of the
complaint in order to determine whether it has jurisdiction. [18] A
determination that the foreign corporation is doing business is only
tentative and is made only for the purpose of enabling the local court to
acquire jurisdiction over the foreign corporation through service of
summons pursuant to Rule 14, 14. Such determination does not foreclose
a contrary finding should evidence later show that it is not transacting
business in the country. As this Court has explained:

This is not to say, however, that the petitioner's right to question the
jurisdiction of the court over its person is now to be deemed a foreclosed
matter. If it is true, as Signetics claims, that its only involvement in the
Philippines was through a passive investment in Sigfil, which it even later
disposed of, and that TEAM Pacific is not its agent, then it cannot really be
said to be doing business in the Philippines. It is a defense, however, that
requires the contravention of the allegations of the complaint, as well as a
full ventilation, in effect, of the main merits of the case, which should not
thus be within the province of a mere motion to dismiss. So, also, the
issue posed by the petitioner as to whether a foreign corporation which
has done business in the country, but which has ceased to do business at
the time of the filing, of a complaint, can still be made to answer for a
cause of action which accrued while it was doing, business, is another
matter that would yet have to await the reception and admission of
evidence. Since these points have seasonably been raised by the
petitioner, there should be no real cause for what may understandably be
its apprehension, i.e., that by its participation during the trial on the
merits, it may, absent an invocation of separate or independent reliefs of
its own, be considered to have voluntarily submitted itself to the court's
jurisdiction.[19]
Far from committing an abuse of discretion, the trial court properly
deferred resolution of the motion to dismiss and thus avoided prematurely
deciding a question which requires a factual basis, with the same result if
it had denied the motion and conditionally assumed jurisdiction. It is the
Court of Appeals which, by ruling that BMW is not doing business on the
basis merely of uncertain allegations in the pleadings, disposed of the
whole case with finality and thereby deprived petitioner of his right to be
heard on his cause of action. Nor was there justification for nullifying the
writ of preliminary injunction issued by the trial court. Although the
injunction was issued ex parte, the fact is that BMW was subsequently
heard on its defense by filing a motion to dismiss.
WHEREFORE, the decision of the Court of Appeals is REVERSED and the
case is REMANDED to the trial court for further proceedings.
SO ORDERED.

EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and DELFIN J.


WENCESLAO, petitioners, vs. INGENIEUBURO BIRKHAHN + NOLTE,
Ingeniurgesellschaft mbh and HEERS & BROCKSTEDT GMBH &
CO., respondents.
DECISION

YNARES-SANTIAGO, J.:
Assailed in this Petition for Review under Rule 45 of the Rules of Court is
the Decision[1] of the Court of Appeals dated May 15, 2003, which
sustained the Order of the Regional Trial Court of Angeles City, Branch 61,
dated June 28, 2001, and its subsequent Resolution dated August 3, 2003
denying petitioners motion for reconsideration.
European Resources and Technologies Inc. (hereinafter ERTI), a
corporation organized and existing under the laws of the Republic of
the Philippines, is joined by Delfin J. Wenceslao as petitioner in this
case. Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers &
Brockstedt Gmbh & Co. are German corporations who are respondents in
this case and shall be collectively referred to as the German
Consortium.
The German Consortium tendered and submitted its bid to the Clark
Development Corporation (CDC) to construct, operate and manage
the IntegratedWaste Management Center at the Clark Special Economic
Zone (CSEZ). CDC accepted the German Consortiums bid and awarded
the contract to it. OnOctober 6, 1999, CDC and the German Consortium
executed the Contract for Services[2] which embodies the terms and
conditions of their agreement.
The Contract for Services provides that the German Consortium shall be
empowered to enter into a contract or agreement for the use of the
integrated waste management center by corporations, local government
units, entities, and persons not only within the CSEZ but also outside. For
waste collected within the CSEZ, the German Consortium may impose a
tipping fee per ton of waste collected from locators and residents of the
CSEZ, which fees shall be subject to the schedule agreed upon by the
parties and specified in the Contract for Services. For its operations
outside of the CSEZ, the German Consortium shall pay CDC US$1.50 per
ton of non-hazardous solid waste collected.[3] The CDC shall guarantee that
nineteen thousand eighteen hundred (19,800) tons per year of solid waste
volume shall be collected from inside and outside the CSEZ. [4] The contract
has a term of twenty-five (25) years, [5] during which time the German
Consortium shall operate the waste management center on a day-to-day
basis.[6]
Article VIII, Section 7 of the Contract for Services provides that the
German Consortium shall undertake to organize a local corporation as its
representative for this project. On April 18, 2000, the German Consortium
entered into a Joint Venture with D.M. Wenceslao and Associates, Inc.
(DMWAI) and Ma. Elena B. Villarama (doing business as LBV and

Associates), embodied in a Memorandum of Understanding [7] (MOU)


signed by the parties. Under the MOU, the parties agreed to jointly form a
local corporation to which the German Consortium shall assign its rights
under the Contract for Services. Pursuant to this agreement, petitioner
European Resources and Technologies, Inc. was incorporated. The parties
likewise agreed to prepare and finalize a Shareholders Agreement within
one (1) month from the execution of the MOU, which shall provide that the
German Consortium shall own fifteen percent (15%) of the equity in the
joint venture corporation, DMWAI shall own seventy percent (70%) and
LBV&A shall own fifteen percent (15%). In the event that the parties fail
to execute the Shareholders Agreement, the MOU shall be considered null
and void.[8]
On August 1, 2000, without the Shareholders Agreement having been
executed, the German Consortium and petitioner ERTI entered into a
Memorandum of Agreement (MOA)[9] whereby the German Consortium
ceded its rights and obligations under the Contract for Services in favor of
ERTI and assigned unto ERTI, among others, its license from CDC to
engage in the business of providing environmental services needed in the
CSEZ in connection with the waste management within the CSEZ and other
areas.[10] Likewise, the parties agreed that should there be a
disagreement between or among them relative to the interpretation or
implementation of the MOA and the collateral documents including but not
limited to the Contract for Services between the German Consortium and
CDC, the dispute shall be referred to a panel of arbitrators. [11]
On December 11, 2000, ERTI received a letter from BN Consultants
Philippines, Inc., signed by Mr. Holger Holst for and on behalf of the
German Consortium,[12] stating that the German Consortiums contract
with DMWAI, LBV&A and ERTI has been terminated or extinguished on the
following grounds: (a) the CDC did not give its approval to the
Consortiums request for the approval of the assignment or transfer by
the German Consortium in favor of ERTI of its rights and interests under
the Contract for Services; (b) the parties failed to prepare and finalize the
Shareholders Agreement pursuant to the provision of the MOU; (c) there
is no more factual or legal basis for the joint venture to continue; and (d)
with the termination of the MOU, the MOA is also deemed terminated or
extinguished.
Attached to the letter was a copy of the letter of the CDC, [13] stating that
the German Consortiums assignment of an eighty-five percent (85%)
majority interest to another party violated its representation to undertake
both the financial and technical aspects of the project. The dilution of the
Consortiums interest in ERTI is a substantial modification of the

Consortiums representations which were used as bases for the award of


the project to it.
On February 20, 2001, petitioner ERTI, through counsel, sent a letter to
CDC requesting for the reconsideration of its disapproval of the
agreement between ERTI and the German Consortium.
Before CDC could act upon petitioner ERTIs letter, the German Consortium
filed a complaint for injunction against herein petitioners before
the RegionalTrial Court of Angeles City, Branch 61, docketed as Civil Case
No. 10049. The German Consortium claimed that petitioner ERTIs
continued misrepresentation as to their right to accept solid wastes from
third parties for processing at the waste management center will cause
irreparable damage to the Consortium and its exclusive right to operate
the waste management center at the CSEZ. Moreover, petitioner ERTIs
acts destroy the Consortiums credibility and undermine customer
confidence in it. Hence, the German Consortium prayed that a writ of
temporary restraining order be issued against petitioner ERTI and, after
hearing, a writ of preliminary injunction be likewise issued ordering
petitioner ERTI to cease and desist from misrepresenting to third parties
or the public that it has any right or interest in the waste management
center at CSEZ.[14]
Petitioners filed their Opposition to the application for preliminary
injunction on February 7, 2001. The following day, February 8, 2001,
petitioners sent respondents, through Mr. Holger Holst, a letter
demanding that the parties proceed to arbitration in accordance with
Section 17 of the MOA. At the hearings on the application for injunction,
petitioners objected to the presentation of evidence on the ground that
the trial court had no jurisdiction over the case since the German
Consortium was composed of foreign corporations doing business in the
country without a license. Moreover, the MOA between the parties
provides that the dispute should be referred to arbitration.
The trial court overruled the objection and proceeded with
hearing. On June 28, 2001, the trial court issued an Order granting
writ of preliminary injunction.[15] Petitioners filed a motion
reconsideration, which was denied in a Resolution dated November
2001.

the
the
for
21,

On January 17, 2002, petitioners filed a petition for certiorari and


prohibition under Rule 65 of the Rules of Court before the Court of
Appeals,
assailing
the
trial
courts
Orders
dated June
28,
2001 and November 21, 2001.

Meanwhile, on February 11, 2002, the temporary restraining order issued


was lifted in view of respondents failure to file sufficient bond.
[16]
OnSeptember 6, 2002, all proceedings in Civil Case No. 10049 were
suspended until the petition for certiorari pending before the Court of
Appeals shall have been resolved.[17]
On May 15, 2003, the Court of Appeals dismissed the petition for
certiorari. Petitioners Motion for Reconsideration was denied in a
Resolution datedAugust 25, 2003.
Hence, this petition arguing that the Court of Appeals committed
reversible error in:
(a)
Ruling that petitioners are estopped from assailing the capacity of
the respondents to institute the suit for injunction
(b)

Ruling that respondents are entitled to an injunctive writ.

(c)
Not holding that the dispute is covered by the arbitration clause in
the memorandum of agreement.
(d)
Issuing the writ of preliminary injunction that is tantamount to a
decision of the case on the merits.[18]
The petition is partly meritorious.
There is no general rule or governing principle laid down as to what
constitutes doing or engaging in or transacting business in
the Philippines. Thus, it has often been held that a single act or
transaction may be considered as doing business when a corporation
performs acts for which it was created or exercises some of the functions
for which it was organized.[19] We have held that the act of participating in
a bidding process constitutes doing business because it shows the
foreign corporations intention to engage in business in the Philippines. In
this regard, it is the performance by a foreign corporation of the acts for
which it was created, regardless of volume of business, that determines
whether a foreign corporation needs a license or not.[20]
Consequently,
the
German
Consortium
is
doing
business
in
the Philippines without the appropriate license as required by our
laws. By participating in the bidding conducted by the CDC for the
operation of the waste management center, the German Consortium
exhibited its intent to transact business in thePhilippines. Although the
Contract for Services provided for the establishment of a local corporation
to serve as respondents representative, it is clear from the other
provisions of the Contract for Services as well as the letter by the CDC
containing the disapproval that it will be the German Consortium which

shall manage and conduct the operations of the waste management


center for at least twenty-five years. Moreover, the German Consortium
was allowed to transact with other entities outside the CSEZ for solid
waste collection. Thus, it is clear that the local corporation to be
established will merely act as a conduit or extension of the German
Consortium.
As a general rule, unlicensed foreign non-resident corporations cannot file
suits in the Philippines. Section 133 of the Corporation Code specifically
provides:
SECTION 133.
No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines, but such corporation
may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under
Philippine laws.
A corporation has legal status only within the state or territory in which it
was organized. For this reason, a corporation organized in another country
has no personality to file suits in the Philippines. In order to subject a
foreign corporation doing business in the country to the jurisdiction of our
courts, it must acquire a license from the Securities and Exchange
Commission (SEC) and appoint an agent for service of process. Without
such license, it cannot institute a suit in the Philippines.[21]
However, there are exceptions to this rule. In a number of cases,[22] we
have declared a party estopped from challenging or questioning the
capacity of an unlicensed foreign corporation from initiating a suit in our
courts. In the case of Communication Materials and Design, Inc. v. Court
of Appeals,[23] a foreign corporation instituted an action before our courts
seeking to enjoin a local corporation, with whom it had a Representative
Agreement, from using its corporate name, letter heads, envelopes, sign
boards and business dealings as well as the foreign corporations
trademark. The case arose when the foreign corporation discovered that
the local corporation has violated certain contractual commitments as
stipulated in their agreement. In said case, we held that a foreign
corporation doing business in the Philippines without license may sue in
Philippine Courts a Philippine citizen or entity that had contracted with
and benefited from it.
Hence, the party is estopped from questioning the capacity of a foreign
corporation to institute an action in our courts where it had obtained
benefits from its dealings with such foreign corporation and thereafter

committed a breach of or sought to renege on its obligations. The rule


relating to estoppel is deeply rooted in the axiom of commodum ex injuria
sua non habere debetno person ought to derive any advantage from his
own wrong.
In the case at bar, petitioners have clearly not received any benefit from
its transactions with the German Consortium. In fact, there is no question
that petitioners were the ones who have expended a considerable amount
of money and effort preparatory to the implementation of the
MOA. Neither do petitioners seek to back out from their obligations under
both the MOU and the MOA by challenging respondents capacity to
sue. The reverse could not be any more accurate. Petitioners are
insisting on the full validity and implementation of their agreements with
the German Consortium.
To rule that the German Consortium has the capacity to institute an action
against petitioners even when the latter have not committed any breach
of its obligation would be tantamount to an unlicensed foreign corporation
gaining access to our courts for protection and redress. We cannot allow
this without violating the very rationale for the law prohibiting a foreign
corporation not licensed to do business in the Philippines from suing or
maintaining an action in Philippine courts. The object of requiring a
license is not to prevent the foreign corporation from performing single
acts, but to prevent it from acquiring domicile for the purpose of business
without taking the steps necessary to render it amenable to suits in the
local courts.[24] In other words, the foreign corporation is merely prevented
from being in a position where it takes the good without accepting the
bad.
On the issue of whether the respondents were entitled to the injunctive
writ, the petitioners claim that respondents right is not in esse but is
rather a future right which is contingent upon a judicial declaration that
the MOA has been validly rescinded. The Court of Appeals, in its decision,
held that the MOA should be deemed subject to a suspensive condition,
that is, that CDCs prior written consent must be obtained for the validity
of the assignment.
This issue must be resolved in a separate proceeding. It must be noted
that the hearing conducted in the trial court was merely a preliminary
hearing relating to the issuance of the injunctive writ. In order to fully
appreciate the facts of this case and the surrounding circumstances
relating to the agreements and contract involved, further proof should be
presented for consideration of the court. Likewise, corollary matters, such
as whether either of the parties is liable for damages and to what extent,

cannot be resolved with absolute certainty, thus rendering any decision


we might make incomplete as to fully dispose of this case.
More importantly, it is evident that CDC must be made a proper party in
any case which seeks to resolve the effectivity or ineffectivity of its
disapproval of the assignment made between petitioners and respondent
German Consortium. Where, as in the instant case, CDC is not impleaded
as a party, any decision of the court which will inevitably affect or involve
CDC cannot be deemed binding on it.
For the same reason, petitioners assertion that the instant case should be
referred to arbitration pursuant to the provision of the MOA is untenable.
We have ruled in several cases that arbitration agreements are valid,
binding, enforceable and not contrary to public policy such that when
there obtains a written provision for arbitration which is not complied
with, the trial court should suspend the proceedings and order the parties
to proceed to arbitration in accordance with the terms of their agreement.
[25]
In the case at bar, the MOA between petitioner ERTI and respondent
German Consortium provided:
17.
Should there be a disagreement between or among the Parties
relative to the interpretation or implementation of this Agreement and the
collateral documents including but not limited to the Contract for Services
between GERMAN CONSORTIUM and CDC and the Parties cannot resolve
the same by themselves, the same shall be endorsed to a panel of
arbitrators which shall be convened in accordance with the process
ordained under the Arbitration Law of the Republic of the Philippines. [26]
Indeed, to brush aside a contractual agreement calling for arbitration in
case of disagreement between parties would be a step backward. [27] But
there are exceptions to this rule. Even if there is an arbitration clause,
there are instances when referral to arbitration does not appear to be the
most prudent action. The object of arbitration is to allow the expeditious
determination of a dispute. Clearly, the issue before us could not be
speedily and efficiently resolved in its entirety if we allow simultaneous
arbitration proceedings and trial, or suspension of trial pending
arbitration.[28]
As discussed earlier, the dispute between respondent German Consortium
and petitioners involves the disapproval by the CDC of the assignment by
the German Consortium of its rights under the Contract for Services to
petitioner ERTI. Admittedly, the arbitration clause is contained in the MOA
to which only the German Consortium and petitioner ERTI were
parties. Even if the case is brought before an arbitration panel, the
decision will not be binding upon CDC who is a non-party to the arbitration

agreement. What is more, the arbitration panel will not be able to


completely dispose of all the issues of this case without including CDC in
its proceedings. Accordingly, the interest of justice would only be served
if the trial court hears and adjudicates the case in a single and complete
proceeding.
Lastly, petitioners question the propriety of the issuance of writ of
preliminary injunction claiming that such is already tantamount to
granting the main prayer of respondents complaint without the benefit of
a trial. Petitioners point out that the purpose of a preliminary injunction
is to prevent threatened or continuous irremediable injury to some of the
parties before their claims can be thoroughly studied and decided. It
cannot be used to railroad the main case and seek a judgment without a
full-blown trial as in the instant case.
The Court of Appeals ruled that since petitioners did not raise this issue
during the hearing on the application for preliminary injunction before the
trial court, the same cannot be raised for the first time on appeal and even
in special civil actions for certiorari as in this case.
At the outset, it must be noted that with the finding that the German
Consortium is without any personality to file the petition with the trial
court, the propriety of the injunction writ issued is already moot and
academic. Even assuming for the sake of argument that respondents have
the capacity to file the petition, we find merit in the issue raised by
petitioners against the injunction writ issued.
Before an injunctive writ can be issued, it is essential that the following
requisites are present: (1) there must be a right in esse or the existence
of a right to be protected; and (2) the act against which injunction to be
directed is a violation of such right. [29] The onus probandi is on movant to
show that there exists a right to be protected, which is directly threatened
by the act sought to be enjoined. Further, there must be a showing that
the invasion of the right is material and substantial and that there is an
urgent and paramount necessity for the writ to prevent a serious damage.
[30]

Thus, it is clear that for the issuance of the writ of preliminary injunction
to be proper, it must be shown that the invasion of the right sought to be
protected is material and substantial, that the right of complainant is
clear and unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage. [31] At the time of its
application for an injunctive writ, respondents right to operate and
manage the waste management center, to the exclusion of or without any
participation by petitioner ERTI, cannot be said to be clear and

unmistakable. The MOA executed between respondents and petitioner


ERTI has not yet been judicially declared as rescinded when the complaint
was lodged in court.[32] Hence, a cloud of doubt exists over respondent
German Consortiums exclusive right relating to the waste management
center.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No. 68923
dated May 15, 2003 is REVERSED and SET ASIDE. The Orders of the trial
court dated June 28, 2001 and November 21, 2001 are ANNULLED and SET
ASIDE and Civil Case No. 10049 is DISMISSED for lack of legal capacity of
respondents to institute the action. Costs against respondents.
SO ORDERED.

AGILENT
TECHNOLOGIES
SINGAPORE
(PTE)
LTD., petitioner,
vs. INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION, TEOH
KIANG HONG, TEOH KIANG SENG, ANTHONY CHOO, JOANNE KATE M. DELA
CRUZ, JEAN KAY M. DELA CRUZ and ROLANDO T. NACILLA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the Decision dated August 12, 2002 of the
Court of Appeals in CA-G.R. SP No. 66574, which dismissed Civil Case No.
3123-2001-C and annulled and set aside the Order dated September 4,
2001 issued by the Regional Trial Court of Calamba, Laguna, Branch 92.
Petitioner Agilent Technologies Singapore (Pte.), Ltd. (Agilent) is a
foreign corporation, which, by its own admission, is not licensed to do
business in thePhilippines.[1] Respondent Integrated Silicon Technology
Philippines Corporation (Integrated Silicon) is a private domestic
corporation, 100% foreign owned, which is engaged in the business of
manufacturing
and
assembling
electronics
components.
[2]
Respondents Teoh Kiang
Hong, Teoh Kiang Seng and
Anthony Choo,
Malaysian nationals, are current members of Integrated Silicons board of
directors, while Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and
Rolando T. Nacilla are its former members.[3]
The juridical relation among the various parties in this case can be traced
to a 5-year Value Added Assembly Services Agreement (VAASA), entered
into on April 2, 1996 between Integrated Silicon and the Hewlett-Packard
Singapore (Pte.) Ltd., Singapore Components Operation (HP-Singapore).
[4]
Under the terms of the VAASA, Integrated Silicon was to locally
manufacture and assemble fiber optics for export to HP-Singapore. HP-

Singapore, for its part, was to consign raw materials to Integrated Silicon;
transport machinery to the plant of Integrated Silicon; and pay Integrated
Silicon the purchase price of the finished products. [5] The VAASA had a
five-year term, beginning on April 2, 1996, with a provision for annual
renewal by mutual written consent. [6] On September 19, 1999, with the
consent of Integrated Silicon,[7] HP-Singapore assigned all its rights and
obligations in the VAASA to Agilent.[8]
On May 25, 2001, Integrated Silicon filed a complaint for Specific
Performance and Damages against Agilent and its officers Tan Bian Ee,
Lim Chin Hong, Tey Boon Teck and Francis Khor, docketed as Civil Case No.
3110-01-C. It alleged that Agilent breached the parties oral agreement to
extend theVAASA. Integrated Silicon thus prayed that defendant be
ordered to execute a written extension of the VAASA for a period of five
years as earlier assured and promised; to comply with the
extended VAASA; and to pay actual, moral, exemplary damages and
attorneys fees.[9]
On June 1, 2001, summons and a copy of the complaint were served on
Atty. Ramon Quisumbing, who returned these processes on the claim that
he was not the registered agent of Agilent. Later, he entered a special
appearance to assail the courts jurisdiction over the person of Agilent.
On July 2, 2001, Agilent filed a separate complaint against Integrated
Silicon, Teoh Kang Seng, Teoh Kiang Gong, Anthony Choo, Joanne Kate
M. delaCruz, Jean Kay M. dela Cruz and Rolando T. Nacilla,[10] for Specific
Performance, Recovery of Possession, and Sum of Money with Replevin,
Preliminary Mandatory Injunction, and Damages, before the Regional
Trial Court, Calamba, Laguna, Branch 92, docketed as Civil Case No. 31232001-C. Agilentprayed that a writ of replevin or, in the alternative, a writ
of preliminary mandatory injunction, be issued ordering defendants to
immediately return and deliver to plaintiff its equipment, machineries and
the materials to be used for fiber-optic components which were left in the
plant of Integrated Silicon. It further prayed that defendants be ordered
to pay actual and exemplary damages and attorneys fees. [11]
Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C, [12] on
the grounds of lack of Agilents legal capacity to sue;[13] litis pendentia;
[14]
forum shopping;[15] and failure to state a cause of action.[16]
On September 4, 2001, the trial court denied the Motion to Dismiss and
granted petitioner Agilents application for a writ of replevin.[17]
Without filing a motion for reconsideration, respondents filed a petition
for certiorari with the Court of Appeals.[18]

In the meantime, upon motion filed by respondents, Judge Antonio


S. Pozas of Branch 92 voluntarily inhibited himself in Civil Case No. 31232001-C. The case was re-raffled and assigned to Branch 35, the same
branch where Civil Case No. 3110-2001-C is pending.
On August 12, 2002, the Court of Appeals granted respondents petition
for certiorari, set aside the assailed Order of the trial court
dated September 4, 2001, and ordered the dismissal of Civil Case No.
3123-2001-C.
Hence, the instant petition raising the following errors:
I.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN NOT
DISMISSING
RESPONDENTS
PETITION
FOR
CERTIORARI
FOR
RESPONDENTS FAILURE TO FILE A MOTION FOR RECONSIDERATION
BEFORE RESORTING TO THE REMEDY OF CERTIORARI.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING
AND SETTING ASIDE THE TRIAL COURTS ORDER DATED 4 SEPTEMBER
2001AND ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C
BELOW ON THE GROUND OF LITIS PENDENTIA, ON ACCOUNT OF THE
PENDENCY OF CIVIL CASE NO. 3110-2001-C.
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ANNULLING
AND SETTING ASIDE THE TRIAL COURTS ORDER DATED 4 SEPTEMBER
2001AND ORDERING THE DISMISSAL OF CIVIL CASE NO. 3123-2001-C
BELOW ON THE GROUND OF FORUM SHOPPING, ON ACCOUNT OF THE
PENDENCY OF CIVIL CASE NO. 3110-2001-C.
IV.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN ORDERING
THE DISMISSAL OF CIVIL CASE NO. 323-2001-C BELOW INSTEAD OF
ORDERING IT CONSOLIDATED WITH CIVIL CASE NO. 3110-2001-C.[19]
The two primary issues raised in this petition: (1) whether or not the Court
of Appeals committed reversible error in giving due course to
respondents petition, notwithstanding the failure to file a Motion for
Reconsideration of the September 4, 2001 Order; and (2) whether or not
the Court of Appeals committed reversible error in dismissing Civil Case
No. 3123-2001-C.

We find merit in the petition.


The Court of Appeals, citing the case of Malayang Manggagawa sa ESSO v.
ESSO Standard Eastern, Inc.,[20] held that the lower court had no
jurisdiction over Civil Case No. 3123-2001-C because of the pendency of
Civil Case No. 3110-2001-C and, therefore, a motion for reconsideration
was not necessary before resort to a petition for certiorari. This was error.
Jurisdiction is fixed by law. Batas Pambansa Blg. 129 vests jurisdiction
over the subject matter of Civil Case No. 3123-2001-C in the RTC. [21]
The Court of Appeals ruling that the assailed Order issued by the RTC
of Calamba, Branch 92, was a nullity for lack of jurisdiction due
to litis pendentiaand forum shopping, has no legal basis. The pendency of
another action does not strip a court of the jurisdiction granted by law.
The Court of Appeals further ruled that a Motion for Reconsideration was
not necessary in view of the urgent necessity in this case. We are not
convinced. In the case of Bache and Co. (Phils.), Inc. v. Ruiz,[22] relied on
by the Court of Appeals, it was held that time is of the essence in view of
the tax assessments sought to be enforced by respondent officers of the
Bureau of Internal Revenue against petitioner corporation, on account of
which immediate and more direct action becomes necessary. Tax
assessments in that case were based on documents seized by virtue of an
illegal search, and the deprivation of the right to due process tainted the
entire proceedings with illegality. Hence, the urgent necessity of
preventing
the
enforcement
of
the
tax
assessments
was
patent. Respondents, on the other hand, cite the case of Geronimo v.
Commission on Elections,[23] where the urgent necessity of resolving a
disqualification case for a position in local government warranted the
expeditious resort to certiorari. In the case at bar, there is no analogously
urgent circumstance which would necessitate the relaxation of the rule on
a Motion for Reconsideration.
Indeed, none of the exceptions for dispensing with a Motion for
Reconsideration is present here. None of the following cases cited by
respondents serves as adequate basis for their procedural lapse.
In Vigan Electric Light Co., Inc. v. Public Service Commission,[24] the
questioned order was null and void for failure of respondent tribunal to
comply with due process requirements; in Matanguihan v. Tengco,[25] the
questioned order was a patent nullity for failure to acquire jurisdiction
over the defendants, which fact the records plainly disclosed; and
in National Electrification Administration v. Court of Appeals,[26] the
questioned orders were void for vagueness. No such patent nullity is
evident in the Order issued by the trial court in this case. Finally, while

urgency may be a ground for dispensing with a Motion for


Reconsideration, in the case of Vivo v. Cloribel,[27] cited by respondents,
the slow progress of the case would have rendered the issues moot had a
motion for reconsideration been availed of. We find no such urgent
circumstance in the case at bar.
Respondents, therefore, availed of a premature remedy when they
immediately raised the matter to the Court of Appeals on certiorari; and
the appellate court committed reversible error when it took cognizance of
respondents petition instead of dismissing the same outright.
We come now to the substantive issues of the petition.
Litis pendentia is a Latin term which literally means a pending suit. It is
variously referred to in some decisions as lis pendens and auter action
pendant. While it is normally connected with the control which the court
has on a property involved in a suit during the continuance proceedings, it
is more interposed as a ground for the dismissal of a civil action pending
in court.
Litis pendentia as a ground for the dismissal of a civil action refers to that
situation wherein another action is pending between the same parties for
the same cause of action, such that the second action becomes
unnecessary and vexatious. For litis pendentia to be invoked, the
concurrence of the following requisites is necessary:
(a)
identity of parties or at least such as represent the same
interest in both actions;
(b)
identity
of
rights
asserted
and reliefs prayed
the reliefs being founded on the same facts; and

for,

(c)
the identity in the two cases should be such that the judgment
that may be rendered in one would, regardless of which party is
successful, amount tores judicata in the other.[28]
The Court of Appeals correctly appreciated the identity of parties in Civil
Cases No. 3123-2001-C and 3110-2001-C. Well-settled is the rule
that lispendens requires only substantial, and not absolute, identity of
parties.[29] There is substantial identity of parties when there is a
community of interest between a party in the first case and a party in the
second case, even if the latter was not impleaded in the first case.[30] The
parties in these cases are vying over the interests of the two opposing
corporations; the individuals are only incidentally impleaded, being the
natural persons purportedly accused of violating these corporations
rights.

Likewise, the fact that the positions of the parties are reversed, i.e., the
plaintiffs in the first case are the defendants in the second case or vice
versa, does not negate the identity of parties for purposes of determining
whether the case is dismissible on the ground of litis pendentia.[31]
The identity of parties notwithstanding, litis pendentia does not obtain in
this case because of the absence of the second and third requisites. The
rights asserted in each of the cases involved are separate and distinct;
there are two subjects of controversy presented for adjudication; and two
causes of action are clearly involved. The fact that respondents instituted
a prior action for Specific Performance and Damages is not a ground for
defeating the petitioners action for Specific Performance, Recovery of
Possession, and Sum of Money with Replevin, Preliminary Mandatory
Injunction, and Damages.
In Civil Case No. 3110-2001-C filed by respondents, the issue is whether or
not there was a breach of an oral promise to renew of the VAASA. The
issue in Civil Case No. 3123-2001-C, filed by petitioner, is whether
petitioner has the right to take possession of the subject
properties. Petitioners right of possession is founded on the ownership
of the subject goods, which ownership is not disputed and is not
contingent on the extension or non-extension of theVAASA. Hence,
the replevin suit can validly be tried even while the prior suit is being
litigated in the Regional Trial Court.
Possession of the subject properties is not an issue in Civil Case No. 31102001-C. The reliefs sought by respondent Integrated Silicon therein are as
follows: (1) execution of a written extension or renewal of the VAASA; (2)
compliance with the extended VAASA; and (3) payment of overdue
accounts,
damages,
and
attorneys
fees. The reliefs sought
by
petitioner Agilent in Civil Case No. 3123-2001-C, on the other hand, are as
follows: (1) issuance of a Writ of Replevin or Writ of Preliminary
Mandatory Injunction; (2) recovery of possession of the subject properties;
(3) damages and attorneys fees.
Concededly, some items or pieces of evidence may be admissible in both
actions. It cannot be said, however, that exactly the same evidence will
support the decisions in both, since the legally significant and controlling
facts in each case are entirely different. Although the VAASA figures
prominently in both suits, Civil Case No. 3110-2001-C is premised on a
purported breach of an oral obligation to extend the VAASA, and damages
arising out of Agilents alleged failure to comply with such purported
extension. Civil Case No. 3123-2001-C, on the other hand, is premised on
a breach of the VAASA itself, and damages arising to Agilent out of that
purported breach.

It necessarily follows that the third requisite for litis pendentia is also
absent. The following are the elements of res judicata:
(a)

The former judgment must be final;

(b)
The court which rendered judgment must have jurisdiction over
the parties and the subject matter;
(c)

It must be a judgment on the merits; and

(d)
There must be between the first and second actions identity of
parties, subject matter, and cause of action. [32]
In this case, any judgment rendered in one of the actions will not amount
to res judicata in the other action. There being different causes of action,
the decision in one case will not constitute res judicata as to the other.
Of course, a decision in one case may, to a certain extent, affect the other
case. This, however, is not the test to determine the identity of the
causes of action. Whatever difficulties or inconvenience may be entailed if
both causes of action are pursued on separate remedies, the proper
solution is not the dismissal order of the Court of Appeals. The possible
consolidation of said cases, as well as stipulations and appropriate modes
of discovery, may well be considered by the court below to subserve not
only procedural expedience but, more important, the ends of justice. [33]
We now proceed to the issue of forum shopping.
The test for determining whether a party violated the rule against forumshopping was laid down in the case of Buan v. Lopez.[34] 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 final other. There
being no litispendentia in this case, a judgment in the said case will not
amount to res judicata in Civil Case No. 3110-2001-C, and respondents
contention on forum shopping must likewise fail.
We are not unmindful of the afflictive consequences that may be suffered
by both petitioner and respondents if replevin is granted by the trial court
in Civil Case No. 3123-2001-C. If respondent Integrated Silicon eventually
wins Civil Case No. 3110-2001-C, and the VAASAs terms are extended,
petitioner corporation will have to comply with its obligations thereunder,
which would include the consignment of properties similar to those it may
recover by way ofreplevin in Civil Case No. 3123-2001-C. However,
petitioner will also suffer an injustice if denied the remedy of replevin,
resort to which is not only allowed but encouraged by law.

Respondents argue that since Agilent is an unlicensed foreign corporation


doing business in the Philippines, it lacks the legal capacity to file suit.
[35]
The assailed acts of petitioner Agilent, purportedly in the nature of
doing business in the Philippines, are the following: (1) mere entering
into the VAASA, which is a service contract; [36] (2) appointment of a fulltime representative in Integrated Silicon, to oversee and supervise the
production of Agilents products;[37] (3) the appointment by Agilent of six
full-time staff members, who were permanently stationed at Integrated
Silicons facilities in order to inspect the finished goods for Agilent;[38] and
(4) Agilents participation in the management, supervision and control of
Integrated Silicon,[39] including instructing Integrated Silicon to hire more
employees to meet Agilents increasing production needs,[40] regularly
performing quality audit, evaluation and supervision of Integrated
Silicons employees,[41] regularly performing inventory audit of raw
materials to be used by Integrated Silicon, which was also required to
provide weekly inventory updates to Agilent,[42] and providing and
dictating Integrated Silicon on the daily production schedule, volume and
models of the products to manufacture and ship for Agilent.[43]
A foreign corporation without a license is not ipso facto incapacitated from
bringing an action in Philippine courts. A license is necessary only if a
foreign corporation is transacting or doing business in the
country. The Corporation Code provides:
Sec. 133.
Doing business without a license. 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.
The aforementioned provision prevents an unlicensed foreign corporation
doing business in the Philippines from accessing our courts.
In a number of cases, however, we have held that an unlicensed foreign
corporation doing business in the Philippines may bring suit in Philippine
courts against a Philippine citizen or entity who had contracted with and
benefited from said corporation.[44] Such a suit is premised on the doctrine
of estoppel. A party is estopped from challenging the personality of a
corporation after having acknowledged the same by entering into a
contract with it. This doctrine ofestoppel to deny corporate existence and
capacity applies to foreign as well as domestic corporations. [45] The
application of this principle prevents 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.[46]
The principles regarding the right of a foreign corporation to bring suit in
Philippine courts may thus be condensed in four statements: (1) if a
foreign corporation does business in the Philippines without a license, it
cannot sue before the Philippine courts; [47] (2) if a foreign corporation
is not doing business in the Philippines, it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action
entirely independent of any business transaction [48]; (3) if a foreign
corporation does business in the Philippines without a license, a Philippine
citizen or entity which has contracted with said corporation may
be estopped from challenging the foreign corporations corporate
personality in a suit brought before Philippine courts; [49] and (4) if a
foreign corporation does business in the Philippines with the required
license, it can sue before Philippine courts on any transaction.
The challenge to Agilents legal capacity to file suit hinges on whether or
not it is doing business in the Philippines. However, there is no definitive
rule on what constitutes doing, engaging in, or transacting
business in the Philippines, as this Court observed in the case
of Mentholatum v. Mangaliman.[50] The Corporation Code itself is silent as
to what acts constitute doing or transacting business in the Philippines.
Jurisprudence has it, however, that the term implies a continuity of
commercial dealings and arrangements, and contemplates, to that extent,
the performance of acts or works or the exercise of some of the functions
normally incident to or in progressive prosecution of the purpose and
subject of its organization.[51]
In Mentholatum,[52] this Court discoursed on the two general tests to
determine whether or not a foreign corporation can be considered as
doing
business
in
the Philippines. The
first
of
these
is
[53]
the substance test, thus:
The true test [for doing business], however, seems to be whether the
foreign corporation is continuing the body of the business or enterprise
for which it was organized or whether it has substantially retired from it
and turned it over to another.
The second test is the continuity test, expressed thus:[54]
The term [doing business] implies a continuity of commercial dealings and
arrangements, and contemplates, to that extent, the performance of acts
or works or the exercise of some of the functions normally incident to, and

in the progressive
organization.

prosecution

of,

the

purpose

and

object

of

its

Although each case must be judged in light of its attendant circumstances,


jurisprudence has evolved several guiding principles for the application of
these tests. For instance, considering that it transacted with its Philippine
counterpart for seven years, engaging in futures contracts, this Court
concluded that the foreign corporation in Merrill Lynch Futures, Inc. v.
Court of Appeals and Spouses Lara,[55] was doing business in
the Philippines. In Commissioner of Internal Revenue v. Japan Airlines
(JAL),[56] the Court held that JAL was doing business in the
Philippines, i.e., its commercial dealings in the country were continuous
despite the fact that no JAL aircraft landed in the country as it sold
tickets in the Philippines through a general sales agent, and opened a
promotions office here as well.
In General Corp. of the Phils. v. Union Insurance Society of Canton and
Firemans Fund Insurance,[57] a foreign insurance corporation was held to
be doing business in the Philippines, as it appointed a settling agent here,
and issued 12 marine insurance policies. We held that these transactions
were not isolated or casual, but manifested the continuity of the foreign
corporations conduct and its intent to establish a continuous business in
the country. In EriksPTE Ltd. v. Court of Appeals and Enriquez,[58] the
foreign corporation sold its products to a Filipino buyer who ordered the
goods 16 times within an eight-month period. Accordingly, this Court
ruled that the corporation was doing business in the Philippines, as there
was a clear intention on its part to continue the body of its business here,
despite the relatively short span of time involved. Communication
Materials and Design, Inc., et al. v. Court of Appeals, ITEC, et al.
[59]
and Top-Weld Manufacturing v. ECED, IRTI, et al.[60] both involved the
License and Technical Agreement and Distributor Agreement of foreign
corporations with their respective local counterparts that were the
primary bases for the Courts ruling that the foreign corporations were
doing business in the Philippines. [61] In particular, the Court cited
the highly restrictive nature of certain provisions in the agreements
involved, such that, as stated inCommunication Materials, the Philippine
entity is reduced to a mere extension or instrument of the foreign
corporation. For example, in Communication Materials, the Court deemed
the No Competing Product provision of the Representative Agreement
therein restrictive.[62]
The case law definition has evolved into a statutory definition, having
been
adopted
with
some
qualifications
in various
pieces
of
legislation. The Foreign Investments Act of 1991 (the FIA; Republic Act
No. 7042, as amended), defines doing business as follows:

Sec. 3, par. (d). The phrase doing business shall include soliciting
orders, service contracts, opening offices, whether called liaison offices
or branches; appointing representatives or distributors domiciled in the
Philippines or who in any calendar year stay in the country for a period or
periods 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 of commercial dealings or arrangements, and
contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in the
progressive prosecution of, commercial gain or of the purpose and object
of the business organization.
An analysis of the relevant case law, in conjunction with Section 1 of the
Implementing Rules and Regulations of the FIA (as amended by Republic
Act No. 8179), would demonstrate that the acts enumerated in the VAASA
do not constitute doing business in the Philippines.
Section 1 of the Implementing Rules and Regulations of the FIA (as
amended by Republic Act No. 8179) provides that the following
shall not be deemed doing business:
(1)
Mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the exercise
of rights as such investor;
(2)
Having a nominee director or officer to represent its interest in
such corporation;
(3)
Appointing a representative or distributor domiciled
the Philippines which transacts business in the representatives
distributors own name and account;

in
or

(4)
The publication of a general advertisement through any print or
broadcast media;
(5)
Maintaining a stock of goods in the Philippines solely for the
purpose of having the same processed by another entity in
the Philippines;
(6)
Consignment by a foreign entity of equipment with a local
company to be used in the processing of products for export;
(7)

Collecting information in the Philippines; and

(8)
Performing services auxiliary to an existing isolated contract of
sale which are not on a continuing basis, such as installing in the

Philippines machinery it has manufactured or exported to the Philippines,


servicing the same, training domestic workers to operate it, and similar
incidental services.
By and large, to constitute doing business, the activity to be undertaken
in the Philippines is one that is for profit-making.[63]
By the clear terms of the VAASA, Agilents activities in the Philippines
were confined to (1) maintaining a stock of goods in the Philippines solely
for the purpose of having the same processed by Integrated Silicon; and
(2) consignment of equipment with Integrated Silicon to be used in the
processing of products for export. As such, we hold that, based on the
evidence presented thus far, Agilent cannot be deemed to be doing
business in the Philippines. Respondents contention that Agilent lacks
the legal capacity to file suit is therefore devoid of merit. As a foreign
corporation not doing business in thePhilippines, it needed no license
before it can sue before our courts.
Finally, as to Agilents purported failure to state a cause of action against
the individual respondents, we likewise rule in favor of petitioner. A
Motion to Dismiss hypothetically admits all the allegations in the
Complaint, which plainly alleges that these individual respondents had
committed
or
permitted
the
commission
of
acts
prejudicial
to Agilent. Whether or not these individuals had divested themselves of
their interests in Integrated Silicon, or are no longer members of
Integrated Silicons Board of Directors, is a matter of defense best
threshed out during trial.
WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED. The
Decision of the Court of Appeals in CA-G.R. SP No. 66574 dated August 12,
2002, which dismissed Civil Case No. 3123-2001-C, is REVERSED and SET
ASIDE. The Order dated September 4, 2001 issued by the Regional Trial
Court of Calamba, Laguna, Branch 92, in Civil Case No. 3123-2001-C, is
REINSTATED. Agilents application for a Writ of Replevin is GRANTED.
No pronouncement as to costs.
SO ORDERED.

PIONEER INTERNATIONAL, LTD.,

G.R. No. 156848

Petitioner,
Present:

QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES,
- versus -

TINGA, and
VELASCO, JR., JJ.

HON. TEOFILO GUADIZ, JR.,

Promulgated:

in his capacity as Presiding Judge of


Regional
Trial
Court,
Branch
147,Makati City, and ANTONIO D.
TODARO,

October 11, 2007

Respondents.

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

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari [1] of the Decision[2] dated 27


September 2001 and of the Resolution[3] dated 14 January 2003 of the
Court of Appeals (appellate court) in CA-G.R. SP No. 54062. The Decision
affirmed the Orders[4] dated 4 January 1999[5] and 3 June 1999[6] of Branch
147 of the Regional Trial Court of Makati City (trial court) in Civil Case No.
98-124. The trial court denied the motion to dismiss filed by Pioneer
International, Ltd. (PIL)[7] in its special appearance.

The Facts

On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for


sum of money and damages with preliminary attachment against PIL,
Pioneer Concrete Philippines, Inc. (PCPI), Pioneer Philippines Holdings,
Inc.
(PPHI),
John
G.
McDonald
(McDonald),
and
Philip
J. Klepzig(Klepzig). PIL and its co-defendants were served copies of the
summons
and
of
the
complaint
at
PPHI
and PCPIs office
in Alabang, Muntinlupa, through Cecille L. De Leon (De Leon), who
was Klepzigs Executive Assistant.

Todaro alleged that PIL is a corporation duly organized under


Australian laws, while PCPI and PPHI are corporations duly organized
under Philippine laws. PIL is engaged in the ready-mix and concrete
aggregates business and has established a presence worldwide. PIL
established PPHI as the holding company of the stocks of its operating
company in the Philippines, PCPI. McDonald is the Chief Executive Officer
of PILsHong Kong office while Klepzig is the President and Managing
Director of PPHI and PCPI. For his part, Todaro further alleged that he was
the managing director of Betonval Readyconcrete, Inc. (Betonval) from
June 1975 up to his resignation in February 1996.
Before Todaro filed his complaint, there were several meetings and
exchanges of letters between Todaro and the officers of Pioneer Concrete
(Hong Kong) Limited, Pioneer Concrete Group HK, PPHI, and
PIL. According to Todaro, PIL contacted him in May 1996 and asked if he
could join it in establishing a pre-mixed concrete plant and in overseeing
its operations in the Philippines. Todaro confirmed his availability and
expressed
interest
in
joining
PIL. Todaro met
with
several

of PILs representatives and even gave PIL the names of three of his
subordinates in Betonval whom he would like to join him in PIL.

Todaro attached nine letters, marked as Annexes A to I,


to his complaint. Annex A[8] shows that on 15 July 1996, Todaro, under
the letterhead of Ital Tech Distributors, Inc., sent a letter to Max Lindsay
(Lindsay) of Pioneer Concrete (Hong Kong) Limited. Todaro wrote that
[m]y aim is to run again a ready-mix concrete company in
thePhilippines and not to be a part-time consultant. Otherwise, I could
have charged your company with a much higher fee.

Annex B[9] shows that on 4 September 1996, Lindsay, under the


letterhead of Pioneer Concrete (Hong Kong) Limited, responded by fax
to Todaros faxed letter to McDonald and proposed that Todaro join
Pioneer on a retainer basis for 2 to 3 months on the understanding that
[Todaro] would become a permanent employee if as we expect, our entry
proceeds. The faxed letter to McDonald referred to by Lindsay is not
found in the rollo and was not attached to Todaros complaint.

Annex C[10] shows that on the same date as that of Annex


B, Todaro, under the letterhead of Ital Tech Distributors, Inc., faxed
another
letter
to
Lindsay
of Pioneer
Concrete
(Hong
Kong)
Limited. Todaro asked for a formal letter addressed to him about the
proposed retainer. Todaro requested that the letter contain a statement
on his remuneration package and on his permanent employment with
PIONEER once it has established itself on a permanent basis in
the Philippines.

Annex D[11] shows that Todaro, under the letterhead of Ital Tech
Distributors, Inc., sent a letter to McDonald of PIL. Todaro confirmed the
following to McDonald:

1.
That I am accepting the proposal of PIONEER INTL. as a
consultant for three (3) months, starting October 1, 1996, with a retainer
fee of U.S. $15,000.00 per month;

2.
That after three (3) months consultancy, I should be
employed by PIONEER INTL., on a permanent basis, as its Managing
Director or CEO in thePhilippines. Remuneration package will be mutually
agreed upon by PIONEER and the undersigned;
3.
That Gino Martinel and the Sales Manager Jun Ong, will be
hired as well, on a permanent basis, by PIONEER as soon as the company
is established. Salary, likewise, will be accepted by both PIONEER and the
respective parties.

Annex E[12] is a faxed letter dated 18 November 1996 of McDonald,


under the letterhead of Pioneer Concrete Group HK, to Todaro of Ital Tech
Distributors, Inc. The first three paragraphs of McDonalds letter read:

Further to our recent meeting in Hong Kong, I am now able to confirm my


offer to engage you as a consultant to Pioneer International Ltd. Should
Pioneer proceed with an investment in the Philippines, then Pioneer would
offer you a position to manage the premixed concrete operations.
Pioneer will probably be in a position to make a decision on proceeding
with an investment by mid January 97.
The basis for your consultancy would be:

n
Monthly fee USD 15,000 per month billed on monthly basis
and payable 15 days from billing date.
n

Additional pre-approved expenses to be reimbursed.

n
Driver and secretarial support-basis for reimbursement of
this to be agreed.
n
Arrangement to commence from 1st November 96, reflecting
your contributions so far and to continue until Pioneer makes a decision.

Annex F[13] shows Todaros faxed reply, under the letterhead of


Ital Tech Distributors, Inc., to McDonald of Pioneer Concrete Group HK
dated 19
November
1996. Todaro confirmed
McDonalds
package
concerning the consultancy and reiterated his desire to be the manager of
Pioneers Philippine business venture.

Annex G[14] shows Todaros faxed reply, under the letterhead of


Ital Tech Distributors, Inc., to McDonald of PIL dated 8 April
1997. Todaro informed McDonald that he was willing to extend assistance
to the Pioneer representative from Queensland. The tenor of the letter
revealed that Todaro had not yet occupied his expected position.

Annex H[15] shows Klepzigs letter, under the letterhead of PPHI,


to Todaro dated 18 September 1997. Klepzigs message reads:

It has not proven possible for this company to meet with your
expectations regarding the conditions of your providing Pioneer with
consultancy services. This, and your refusal to consider my terms of offer
of permanent employment, leave me no alternative but to withdraw these
offers of employment with this company.
As you provided services under your previous agreement with our Pioneer
Hong Kong office during the month of August, I will see that they pay you
at the previous rates until the end of August. They have authorized me on
behalf of Pioneer International Ltd. to formally advise you that the
agreement will cease from August 31st as per our previous discussions.
Annex
I[16] shows
the
letter
dated
20
October
1997
of
K.M. Folwell (Folwell), PILs Executive General Manager of Australia and
Asia, to Todaro. Folwell confirmed the contents of Klepzigs 18 September
1997 letter. Folwells message reads:

Thank you for your letter to Dr. Schubert dated 29th September
1997 regarding the alleged breach of contract with you. Dr. Schubert has
asked me to investigate this matter.
I have discussed and examined the material regarding your association
with Pioneer over the period from mid 1996 through to September 1997.
Clearly your consultancy services to Pioneer Hong Kong are well
documented and have been appropriately rewarded. However, in regard
to your request and expectation to be given permanent employment with
Pioneer Philippines Holdings, Inc. I am informed that negotiations to
reach agreement on appropriate terms and conditions have not been
successful.

The employment conditions you specified in your letter to John McDonald


dated 11th September are well beyond our expectations.
Mr. Todaro, I regret that we do not wish to pursue our association with you
any further. Mr. Klepzig was authorized to terminate this association and
the letter he sent to you dated 18th September has my support.
Thank you for your involvement with Pioneer. I wish you all the best for
the future. (Emphasis added)

PIL
filed,
by
special
appearance,
a
motion
to
dismiss Todaros complaint. PILs co-defendants, PCPI, PPHI, and Klepzig,
filed a separate motion to dismiss. [17] PIL asserted that the trial court has
no jurisdiction over PIL because PIL is a foreign corporation not doing
business in thePhilippines. PIL also questioned the service of summons on
it. Assuming arguendo that Klepzig is PILs agent in the Philippines, it was
notKlepzig but De Leon who received the summons for PIL. PIL further
stated that the National Labor Relations Commission (NLRC), and not the
trial court, has jurisdiction over the subject matter of the action. It
claimed that assuming that the trial court has jurisdiction over the subject
matter of the action, the complaint should be dismissed on the ground
of forum non-conveniens. Finally, PIL maintained that the complaint does
not state a cause of action because there was no perfected contract, and
no personal judgment could be rendered by the trial court against PIL
because PIL is a foreign corporation not doing business in
the Philippines and there was improper service of summons on PIL.

Todaro filed a Consolidated Opposition dated 26 August 1998 to


refute PILs assertions. PIL filed, still by special appearance, a Reply on 2
October 1998.

The Ruling of the Trial Court

On 4 January 1999, the trial court issued an order [18] which ruled in
favor of Todaro. The trial court denied the motions to dismiss filed by PIL,
PCPI, PPHI, and Klepzig.

The trial court stated that the merits of a motion to dismiss a


complaint for lack of cause of action are tested on the strength of the
allegation of facts in the complaint. The trial court found that the
allegations in the complaint sufficiently establish a cause of action. The
trial court declared that Todaros cause of action is based on an alleged
breach of a contractual obligation and an alleged violation of Articles 19
and 21 of the Civil Code. Therefore, the cause of action does not lie within
the jurisdiction of the NLRC but with the trial court.

The trial court also asserted its jurisdiction over PIL, holding that
PIL did business in the Philippines when it entered into a contract
withTodaro. Although PIL questions the service of summons on Klepzig,
whom PIL claims is not its agent, the trial court ruled that PIL failed to
adduce evidence to prove its contention. Finally, on the issue of forum
non-conveniens, the trial court found that it is more convenient to hear
and decide the case in the Philippines because Todaro resides in
the Philippines and the contract allegedly breached involves employment
in thePhilippines.

PIL filed an urgent omnibus motion for the reconsideration of the


trial courts 4 January 1999 order and for the deferment of filing its
answer. PCPI, PPHI, and Klepzig likewise filed an urgent omnibus
motion. Todaro filed a consolidated opposition, to which PIL, PCPI, PPHI,
and Klepzig filed a joint reply. The trial court issued an order [19] on 3 June
1999 denying the motions of PIL, PCPI, PPHI, and Klepzig. The trial court
gave PIL, PCPI, PPHI, and Klepzig 15 days within which to file their
respective answers.

PIL did not file an answer before the trial court and instead filed a
petition for certiorari before the appellate court.

The Ruling of the Appellate Court

The appellate court denied PILs petition and affirmed the trial
courts ruling in toto. The dispositive portion of the appellate courts
decision reads:

WHEREFORE, premises considered, the present petition for


certiorari is hereby DENIED DUE COURSE and accordingly DISMISSED. The
assailed
Orders
dated January
4,
1999 and June
3,
1999 of
the Regional Trial Court of Makati City, Branch 147, in Civil Case No, 98124 are hereby AFFIRMED intoto.
SO ORDERED.[20]
On 14 January 2003, the appellate court dismissed [21] PILs motion for
reconsideration
for
lack
of
merit. The
appellate
court
stated
thatPILs motion raised no new substantial or weighty arguments that
could impel the appellate court from departing or overturning its previous
decision. PIL then filed a petition for review on certiorari before this
Court.

The Issues

PIL raised the following issues before this Court:

A.
[The trial court] did not and cannot acquire jurisdiction over the
person of [PIL] considering that:
A.1.
[PIL] is
the Philippines.

foreign

corporation

not

doing

business

in

A.2.
Moreover, the complaint does not contain appropriate allegations
of ultimate facts showing that [PIL] is doing or transacting business in
thePhilippines.

A.3.
Assuming arguendo that jurisdiction may be acquired over
the
person of [PIL], [the trial court] still failed to acquire
jurisdiction since
summons was improperly served on [PIL].

B.
[Todaro] does not have a cause of action and the complaint fails to
state a cause of action. Jurisprudence is settled in that in resolving a
motion to dismiss, a court can consider all the pleadings filed in the case,
including annexes, motions and all evidence on record.

C.
[The trial court] did not and cannot acquire jurisdiction over the
subject matter of the complaint since the allegations contained therein
indubitably show that [Todaro] bases his claims on an alleged breach of an
employment contract. Thus, exclusive jurisdiction is vested with the
[NLRC].

D. Pursuant to the principle of forum non-conveniens, [the trial court]


committed grave abuse of discretion when it took cognizance of the case.
[22]

The Ruling of the Court

The petition has partial merit. We affirm with modification the


rulings of the trial and appellate courts. Apart from the issue on service
of summons, the rulings of the trial and appellate courts on the issues
raised by PIL are correct.

Cause of Action

Section 2, Rule 2 of the 1997 Rules of Civil Procedure states that a


cause of action is the act or omission by which a party violates a right of
another.

The general rule is that the allegations in a complaint are sufficient


to constitute a cause of action against the defendants if, admitting the
facts alleged, the court can render a valid judgment upon the same in
accordance with the prayer therein. A cause of action exists if the
following elements are present, namely: (1) a right in favor of the plaintiff
by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate
such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting a breach of
the obligation of the defendant to the plaintiff for which the latter may
maintain an action for recovery of damages.[23]

In the present case, the summary of Todaros allegations states that


PIL, PCPI, PPHI, McDonald, and Klepzig did not fulfill their contractual
obligation to employ Todaro on a permanent basis in PILs Philippine
office. Todaros allegations are thus sufficient to establish a cause of
action. We quote with approval the trial courts ruling on this matter:

On the issue of lack of cause of action It is well-settled that the


merits of a motion to dismiss a complaint for lack of cause of action is
tested on the strength of the allegations of fact contained in the
complaint and no other (De Jesus, et al. vs. Belarmino, et al., 95 Phil. 366
[1954]). This Court finds that the allegations of the complaint, specifically
paragraphs 13-33 thereof, paragraphs 30-33 alleging as follows:
30.
All of the acts set forth in the foregoing have been done
with the knowledge, consent and/or approval of the defendants who acted
in concert and/or in conspiracy with one another.
31.
Under the circumstances, there is a valid contract entered
into between [Todaro] and the Pioneer Group, whereby, among others, the
Pioneer Group would employ [Todaro], on a permanent basis, to manage
and operate the ready-mix concrete operations, if the Pioneer Group
decides to invest in the Philippines.
32.
The
Pioneer
Group
has
decided
to
invest
in
the Philippines. The refusal of the defendants to comply with the Pioneer
Groups undertaking to employ [Todaro] to manage their Philippine readymix operations, on a permanent basis, is a direct breach of an obligation
under a valid and perfected contract.

33.
Alternatively, assuming without conceding, that there was
no contractual obligation on the part of the Pioneer Group to employ
[Todaro] on a permanent basis, in their Philippine operations, the Pioneer
Group and the other defendants did not act with justice, give [Todaro] his
due and observe honesty and good faith and/or they have willfully caused
injury to [Todaro] in a manner that is contrary to morals, good customs,
and public policy, as mandated under Arts. 19 and 21 of the New Civil
Code.
sufficiently establish a cause of action for breach of contract and/or
violation of Articles 19 and 21 of the New Civil Code. Whether or not these
allegations are true is immaterial for the court cannot inquire into the
truth thereof, the test being whether, given the allegations of fact in the
complaint, a valid judgment could be rendered in accordance with the
prayer in the complaint.[24]

It should be emphasized that the presence of a cause of action rests


on the sufficiency, and not on the veracity, of the allegations in the
complaint. The veracity of the allegations will have to be examined during
the trial on the merits. In resolving a motion to dismiss based on lack of
cause of action, the trial court is limited to the four corners of the
complaint and its annexes. It is not yet necessary for the trial court to
examine the truthfulness of the allegations in the complaint. Such
examination is proper during the trial on the merits.

Forum Non-Conveniens

The doctrine of forum non-conveniens requires an examination of


the truthfulness of the allegations in the complaint. Section 1, Rule 16 of
the 1997 Rules of Civil Procedure does not mention forum nonconveniens as a ground for filing a motion to dismiss. The propriety of
dismissing a case based on forum non-conveniens requires a factual
determination; hence, it is more properly considered a matter of
defense. While it is within the discretion of the trial court to abstain from
assuming jurisdiction on this ground, the trial court should do so only
after vital facts are established to determine whether special
circumstances require the courts desistance.[25]

Jurisdiction over PIL

PIL questions the trial courts exercise of jurisdiction over it on two


levels. First, that PIL is a foreign corporation not doing business in
thePhilippines and because of this, the service of summons on PIL did not
follow the mandated procedure. Second, that Todaros claims are based
on an alleged breach of an employment contract so Todaro should have
filed his complaint before the NLRC and not before the trial court.

Transacting Business in the Philippines and


Service of Summons

The first level has two sub-issues: PILs transaction of business in


the Philippines and the service of summons on PIL. Section 12, Rule 14 of
the 1997 Rules of Civil Procedure provides the manner by which summons
may be served upon a foreign juridical entity which has transacted
business in the Philippines. Thus:

Service upon foreign private juridical entity. When the


defendant is a foreign juridical entity which has transacted 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 any of its officers
or agents within the Philippines.

As to the first sub-issue, PIL insists that its sole act of transacting
or doing business in the Philippines consisted of its investment in
PPHI. Under Philippine law, PILs mere investment in PPHI does not
constitute doing business. However, we affirm the lower courts ruling
and declare that, based on the allegations in Todaros complaint, PIL was
doing business in the Philippines when it negotiated Todarosemployment
with PPHI. Section 3(d) of Republic Act No. 7042, Foreign Investments Act
of 1991, states:

The phrase doing business shall include soliciting orders, service


contracts, opening offices, whether called liaison offices or branches;
appointing representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or periods
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 of commercial dealings or arrangements and contemplate to
that extent the performance of acts or works, or the exercise of some of
the functions normally incident to, and in progressive prosecution of
commercial gain or of the purpose and object of the business
organization: Provided, however, That the phrase doing business shall
not be deemed to include mere investment as a shareholder by a foreign
entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or
officer to represent its interests in such corporation; nor appointing a
representative or distributor domiciled in the Philippines which transacts
business in its own name and for its own account; (Emphases added)

PILs alleged acts in actively negotiating to employ Todaro to run its


pre-mixed concrete operations in the Philippines, which acts are
hypothetically admitted in PILs motion to dismiss, are not mere acts of a
passive investor in a domestic corporation. Such are managerial and
operational acts in directing and establishing commercial operations in
the Philippines. The annexes that Todaro attached to his complaint give
us an idea on the extent of PILs involvement in the negotiations
regarding Todaros employment. In Annex E, McDonald of Pioneer
Concrete Group HK confirmed his offer to engage Todaro as a consultant of
PIL. In
Annex
F, Todaro accepted
the
consultancy. In
Annex
H, Klepzigof PPHI stated that PIL authorized him to tell Todaro about
the cessation of his consultancy. Finally, in Annex I, Folwell of PIL wrote
to Todaroto confirm that Pioneer no longer wishes to be associated
with Todaro and
that Klepzig is
authorized
to
terminate
this
association.
Folwellfurther referred to a Dr. Schubert and to Pioneer
Hong Kong. These confirmations and references tell us that, in this
instance, the various officers and companies under the Pioneer brand
name do not work independently of each other. It cannot be denied that
PIL had knowledge of and even authorized the non-implementation
of Todaros alleged permanent employment. In fact, in the letters
to Todaro, the word Pioneer was used to refer not just to PIL alone but
also to all corporations negotiating with Todaro under the Pioneer name.

As further proof of the interconnection of the various Pioneer corporations


with regard to their negotiations with Todaro, McDonald of Pioneer
Concrete Group HK confirmed Todaros engagement as consultant of PIL
(Annex E) while Folwell of PIL stated that Todaro rendered consultancy
services to Pioneer HK (Annex I). In this sense, the various Pioneer
corporations were not acting as separate corporations. The behavior of
the various Pioneer corporations shoots down their defense that the
corporations have separate and distinct personalities, managements, and
operations. The various Pioneer corporations were all working in concert
to negotiate an employment contract betweenTodaro and PPHI, a domestic
corporation.

Finally, the phrase doing business in the Philippines in the former


version of Section 12, Rule 14 now reads has transacted business in the
Philippines. The scope is thus broader in that it is enough for the
application of the Rule that the foreign private juridical entity
has transacted business in the Philippines.[26]

As to the second sub-issue, the purpose of summons is not only to


acquire jurisdiction over the person of the defendant, but also to give
notice to the defendant that an action has been commenced against it and
to afford it an opportunity to be heard on the claim made against it. The
requirements of the rule on summons must be strictly followed; otherwise,
the trial court will not acquire jurisdiction over the defendant.

When summons is to be served on a natural person, service of


summons should be made in person on the defendant. [27] Substituted
service is resorted to only upon the concurrence of two requisites: (1)
when the defendant cannot be served personally within a reasonable time
and (2) when there is impossibility of prompt service as shown by the
statement in the proof of service in the efforts made to find the defendant
personally and that such efforts failed.[28]

The statutory requirements of substituted service must be followed


strictly, faithfully, and fully, and any substituted service other than by the
statute is considered ineffective. Substituted service is in derogation of
the usual method of service. It is a method extraordinary in character

and may be used only as prescribed and in the circumstances authorized


by the statute.[29] The need for strict compliance with the requirements of
the rule on summons is also exemplified in the exclusive enumeration of
the agents of a domestic private juridical entity who are authorized to
receive summons.

At present, Section 11 of Rule 14 provides that when the defendant


is a domestic private juridical entity, service may be made on the
president, managing partner, general manager, corporate secretary,
treasurer, or in-house counsel. The previous version of Section 11
allowed for the service of summons on the president, manager, secretary,
cashier, agent, or any of its directors. The present Section 11 qualified
manager to general manager and secretary to corporate
secretary. The present Section 11 also removed cashier, agent, or any
of its directors from the exclusive enumeration.

When summons is served on a foreign juridical entity, there are


three prescribed ways: (1) service on its resident agent designated in
accordance with law for that purpose, (2) service on the government
official designated by law to receive summons if the corporation does not
have a resident agent, and (3) service on any of the corporations officers
or agents within the Philippines.[30]

In the present case, service of summons on PIL failed to follow any


of
the
prescribed
processes. PIL
had
no
resident
agent
in
thePhilippines. Summons was not served on the Securities and Exchange
Commission (SEC), the designated government agency, [31] since PIL is not
registered with the SEC. Summons for PIL was served on De
Leon, Klepzigs Executive
Assistant. Klepzig is PILs agent
within
thePhilippines because PIL authorized Klepzig to notify Todaro of the
cessation of his consultancy (Annexes H and I). [32] The authority given
by PIL to Klepzig to notify Todaro implies that Klepzig was likewise
authorized to receive Todaros response to PILs notice. Todaro responded
to PILs notice by filing a complaint before the trial court.

However, summons was not served personally on Klepzig as agent of


PIL. Instead, summons was served on De Leon, Klepzigs Executive
Assistant. In this instance, De Leon was not PILs agent but a mere

employee of Klepzig. In effect, the sheriff[33] resorted to substituted


service. For symmetry, we apply the rule on substituted service of
summons on a natural person and we find that no reason was given to
justify the service of PILs summons on De Leon.

Thus,
we
rule
that
PIL
transacted
business
in
the Philippines and Klepzig was its agent within the Philippines. However,
there was improper service of summons on PIL since summons was not
served personally on Klepzig.

NLRC Jurisdiction

As to the second level, Todaro prays for payment of damages due


him because of PILs non-implementation of Todaros alleged employment
agreement with PPHI. The appellate court stated its ruling on this
matter, thus:

It could not be denied that there was no existing contract yet to


speak of between PIONEER INTL. and [Todaro]. Since there was an
absence of an employment contract between the two parties, this Court is
of the opinion and so holds that no employer-employee relationship
actually exists. Record reveals that all that was agreed upon by [Todaro]
and the Pioneer Concrete, acting in behalf of PIONEER INTL., was the
confirmation of the offer to engage the services of the former as
consultant of PIONEER INTL. (Rollo, p. 132). The failure on the part of
PIONEER INTL. to abide by the said agreement, which was duly confirmed
by PIONEER INTL., brought about a breach of an obligation on a valid and
perfected agreement. There being no employer-employee relationship
established between [PIL] and [Todaro], it could be said that the instant
case falls within the jurisdiction of the regular courts of justice as the
money claim of [Todaro] did not arise out of or in connection with [an]
employer-employee relationship.[34]

Todaros employment in the Philippines would not be with PIL but


with PPHI as stated in the 20 October 1997 letter of Folwell. Assuming the
existence of the employment agreement, the employer-employee
relationship would be between PPHI and Todaro, not between PIL

andTodaro. PILs liability for the non-implementation of the alleged


employment agreement is a civil dispute properly belonging to the regular
courts. Todaros causes of action as stated in his complaint are, in
addition to breach of contract, based on violation of Articles 19 and 21 of
the New Civil Code for the clear and evident bad faith and malice [35] on
the part of defendants. The NLRCs jurisdiction is limited to those
enumerated under Article 217 of the Labor Code.[36]
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision
dated 27 September 2001 and the Resolution dated 14 January 2003 of the
appellate court are AFFIRMED with the MODIFICATION that there was
improper service of summons on Pioneer International, Ltd. The case is
remanded to the trial court for proper service of summons and trial. No
costs.

EXCEPTIONS TO COMITY

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 Attorneyin-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.
G.R. Nos. 104911-14 December 5, 1994
BIENVENIDO
M.
CADALIN,
ET
AL., petitioners,
vs.
HON. NATIONAL LABOR RELATIONS COMMISSION, BROWN & ROOT
INTERNATIONAL,
INC.
and/or
ASIA
INTERNATIONAL
BUILDERS
CORPORATION, respondents.
G.R. Nos. 105029-32 December 5, 1994
ASIA INTERNATIONAL BUILDER CORPORATION and BROWN & ROOT
INTERNATIONAL,
INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, BIENVENIDO M. CADALIN,
ROLANDO M. AMUL, DONATO B. EVANGELISTA, ROMEO PATAG, RIZALINO

REYES, IGNACIO DE VERA, SOLOMON B. REYES, JOSE M. ABAN, EMIGDIO N.


ABARQUEZ, ANTONIO ACUPAN, ROMEO ACUPAN, BENJAMIN ALEJANDRE,
WILFREDO D. ALIGADO, MARTIN AMISTAD, JR., ROLANDO B. AMUL,
AMORSOLO ANADING, ANTONIO T. ANGLO, VICENTE ARLITA, HERBERT AYO,
SILVERIO BALATAZO, ALFREDO BALOBO, FALCONERO BANAAG, RAMON
BARBOSA, FELIX BARCENA, FERNANDO BAS, MARIO BATACLAN, ROBERTO
S. BATICA, ENRICO BELEN, ARISTEO BICOL, LARRY C. BICOL, PETRONILLO
BISCOCHO,
FELIX
M.
BOBIER,
DIONISIO
BOBONGO,
BAYANI
S.
BRACAMANTE, PABLITO BUSTILLO, GUILLERMO CABEZAS, BIENVENIDO
CADALIN, RODOLFO CAGATAN, AMANTE CAILAO, IRENEO CANDOR, JOSE
CASTILLO, MANUEL CASTILLO, REMAR CASTROJERES, REYNALDO CAYAS,
ROMEO CECILIO, TEODULO CREUS, BAYANI DAYRIT, RICARDO DAYRIT,
ERNESTO T. DELA CRUZ, FRANCISCO DE GUZMAN, ONOFRE DE RAMA,
IGNACIO DE VERA, MODESTO DIZON, REYNALDO DIZON, ANTONIO S.
DOMINGUEZ, GILBERT EBRADA, RICARDO EBRADA, ANTONIO EJERCITO, JR.,
EDUARTE ERIDAO, ELADIO ESCOTOTO, JOHN ESGUERRA, EDUARDO
ESPIRITU, ERNESTO ESPIRITU, RODOLFO ESPIRITU, NESTOR M. ESTEVA,
BENJAMIN ESTRADA, VALERIO EVANGELISTA, OLIGARIO FRANCISCO, JESUS
GABAWAN, ROLANDO GARCIA, ANGEL GUDA, PACITO HERNANDEZ,
ANTONIO HILARIO, HENRY L. JACOB, HONESTO JARDINIANO, ANTONIO
JOCSON, GERARDO LACSAMANA, EFREN U. LIRIO LORETO LONTOC, ISRAEL
LORENZO, ALEJANDRO LORINO, JOSE MABALAY, HERMIE MARANAN,
LEOVIGILDO MARCIAL, NOEL MARTINEZ, DANTE MATREO, LUCIANO
MELENDEZ, RENATO MELO, FRANCIS MEDIODIA, JOSE C. MILANES,
RAYMUNDO C. MILAY, CRESENCIANO MIRANDA, ILDEFONSO C. MOLINA,
ARMANDO B. MONDEJAR RESURRECCION D. NAZARENO, JUAN OLINDO,
FRANCISCO R. OLIVARES, PEDRO ORBISTA, JR., RICARDO ORDONEZ, ERNIE
PANCHO, JOSE PANCHO, GORGONIO P. PARALA, MODESTO PINPIN, JUANITO
PAREA, ROMEO I. PATAG, FRANCISCO PINPIN, LEONARDO POBLETE, JAIME
POLLOS, DOMINGO PONDALIS, EUGENIO RAMIREZ, LUCIEN M. RESPALL,
GAUDENCIO RETANAN, JR., TOMAS B. RETENER, ALVIN C. REYES, RIZALINO
REYES, SOLOMON B. REYES, VIRGILIO G. RICAZA, RODELIO RIETA, JR.,
BENITO RIVERA, JR., BERNARDO J. ROBILLOS, PABLO A. ROBLES, JOSE
ROBLEZA, QUIRINO RONQUILLO, AVELINO M. ROQUE, MENANDRO L.
SABINO, PEDRO SALGATAR, EDGARDO SALONGA, NUMERIANO SAN MATEO,
FELIZARDO DE LOS SANTOS, JR., GABRIEL SANTOS, JUANITO SANTOS,
PAQUITO SOLANTE, CONRADO A. SOLIS, JR., RODOLFO SULTAN, ISAIAS
TALACTAC, WILLIAM TARUC, MENANDRO TEMPROSA, BIENVENIDO S.
TOLENTINO, BENEDICTO TORRES, MAXIMIANO TORRES, FRANCISCO G.
TRIAS, SERGIO A. URSOLINO, ROGELIO VALDEZ, LEGORIO E. VERGARA,
DELFIN VICTORIA, GILBERT VICTORIA, HERNANE VICTORIANO, FRANCISCO
VILLAFLORES, DOMINGO VILLAHERMOSA, ROLANDO VILLALOBOS, ANTONIO
VILLAUZ, DANILO VILLANUEVA, ROGELIO VILLANUEVA, ANGEL VILLARBA,
JUANITO VILLARINO, FRANCISCO ZARA, ROGELIO AALAGOS, NICANOR B.

ABAD, ANDRES ABANES, REYNALDO ABANES, EDUARDO ABANTE, JOSE


ABARRO, JOSEFINO ABARRO, CELSO S. ABELANIO, HERMINIO ABELLA,
MIGUEL ABESTANO, RODRIGO G. ABUBO, JOSE B. ABUSTAN, DANTE
ACERES, REYNALDO S. ACOJIDO, LEOWILIN ACTA, EUGENIO C. ACUEZA,
EDUARDO ACUPAN, REYNALDO ACUPAN, SOLANO ACUPAN, MANUEL P.
ADANA, FLORENTINO R. AGNE, QUITERIO R. AGUDO, MANUEL P.
AGUINALDO, DANTE AGUIRRE, HERMINIO AGUIRRE, GONZALO ALBERTO,
JR., CONRADO ALCANTARA, LAMBERTO Q. ALCANTARA, MARIANITO J.
ALCANTARA, BENCIO ALDOVER, EULALIO V. ALEJANDRO, BENJAMIN
ALEJANDRO, EDUARDO L. ALEJANDRO, MAXIMINO ALEJANDRO, ALBERTO
ALMENAR, ARNALDO ALONZO, AMADO ALORIA, CAMILO ALVAREZ, MANUEL
C. ALVAREZ, BENJAMIN R. AMBROCIO, CARLOS AMORES, BERNARD P.
ANCHETA, TIMOTEO O. ANCHETA, JEOFREY ANI, ELINO P. ANTILLON,
ARMANDRO B. ANTIPONO, LARRY T. ANTONIO, ANTONIO APILADO, ARTURO
P. APILADO, FRANCISCO APOLINARIO, BARTOLOME M. AQUINO, ISIDRO
AQUINO, PASTOR AQUINO, ROSENDO M. AQUINO, ROBERTO ARANGORIN,
BENJAMIN O. ARATEA, ARTURO V. ARAULLO, PRUDENCIO ARAULLO,
ALEXANDER ARCAIRA, FRANCISCO ARCIAGA, JOSE AREVALO, JUANTO
AREVALO, RAMON AREVALO, RODOLFO AREVALO, EULALIO ARGUELLES,
WILFREDO P. ARICA, JOSE M. ADESILLO, ANTONIO ASUNCION, ARTEMIO M.
ASUNCION, EDGARDO ASUNCION, REXY M. ASUNCION, VICENTE AURELIO,
ANGEL AUSTRIA, RICARDO P. AVERILLA, JR., VIRGILIO AVILA, BARTOLOME
AXALAN, ALFREDO BABILONIA, FELIMON BACAL, JOSE L. BACANI, ROMULO
R. BALBIERAN, VICENTE BALBIERAN, RODOLFO BALITBIT, TEODORO Y.
BALOBO, DANILO O. BARBA, BERNARDO BARRO, JUAN A. BASILAN,
CEFERINO BATITIS, VIVENCIO C. BAUAN, GAUDENCIO S. BAUTISTA,
LEONARDO BAUTISTA, JOSE D. BAUTISTA, ROSTICO BAUTISTA, RUPERTO B.
BAUTISTA, TEODORO S. BAUTISTA, VIRGILIO BAUTISTA, JESUS R. BAYA,
WINIEFREDO BAYACAL, WINIEFREDO BEBIT, BEN G. BELIR, ERIC B. BELTRAN,
EMELIANO BENALES, JR., RAUL BENITEZ, PERFECTO BENSAN, IRENEO
BERGONIO, ISABELO BERMUDEZ, ROLANDO I. BERMUDEZ, DANILO BERON,
BENJAMIN BERSAMIN, ANGELITO BICOL, ANSELMO BICOL, CELESTINO
BICOL, JR., FRANCISCO BICOL, ROGELIO BICOL, ROMULO L. BICOL, ROGELIO
BILLIONES, TEOFILO N. BITO, FERNANDO BLANCO, AUGUSTO BONDOC,
DOMINGO BONDOC, PEPE S. BOOC, JAMES R. BORJA, WILFREDO BRACEROS,
ANGELES C. BRECINO, EURECLYDON G. BRIONES, AMADO BRUGE, PABLITO
BUDILLO,
ARCHIMEDES
BUENAVENTURA,
BASILIO
BUENAVENTURA,
GUILLERMO BUENCONSEJO, ALEXANDER BUSTAMANTE, VIRGILIO BUTIONG,
JR., HONESTO P. CABALLA, DELFIN CABALLERO, BENEDICTO CABANIGAN,
MOISES CABATAY, HERMANELI CABRERA, PEDRO CAGATAN, JOVEN C.
CAGAYAT, ROGELIO L. CALAGOS, REYNALDO V. CALDEJON, OSCAR C.
CALDERON, NESTOR D. CALLEJA, RENATO R. CALMA, NELSON T. CAMACHO,
SANTOS T. CAMACHO, ROBERTO CAMANA, FLORANTE C. CAMANAG
EDGARDO M. CANDA, SEVERINO CANTOS, EPIFANIO A. CAPONPON, ELIAS

D. CARILLO, JR., ARMANDO CARREON, MENANDRO M. CASTAEDA,


BENIGNO A. CASTILLO, CORNELIO L. CASTILLO, JOSEPH B. CASTILLO,
ANSELMO CASTILLO, JOAQUIN CASTILLO, PABLO L. CASTILLO, ROMEO P.
CASTILLO, SESINANDO CATIBOG, DANILO CASTRO, PRUDENCIO A. CASTRO,
RAMO CASTRO, JR., ROMEO A. DE CASTRO, JAIME B. CATLI, DURANA D.
CEFERINO, RODOLFO B. CELIS, HERMINIGILDO CEREZO, VICTORIANO
CELESTINO, BENJAMIN CHAN, ANTONIO C. CHUA, VIVENCIO B. CIABAL,
RODRIGO CLARETE, AUGUSTO COLOMA, TURIANO CONCEPCION, TERESITO
CONSTANTINO, ARMANDO CORALES, RENATO C. CORCUERA, APOLINAR
CORONADO, ABELARDO CORONEL, FELIX CORONEL, JR., LEONARDO
CORPUZ, JESUS M. CORRALES, CESAR CORTEMPRATO, FRANCISCO O.
CORVERA, FRANCISCO COSTALES, SR., CELEDONIO CREDITO, ALBERTO A.
CREUS, ANACLETO V. CRUZ, DOMINGO DELA CRUZ, AMELIANO DELA CRUZ,
JR., PANCHITO CRUZ, REYNALDO B. DELA CRUZ, ROBERTO P. CRUZ,
TEODORO S. CRUZ, ZOSIMO DELA CRUZ, DIONISIO A. CUARESMA, FELIMON
CUIZON, FERMIN DAGONDON, RICHARD DAGUINSIN, CRISANTO A. DATAY,
NICASIO DANTINGUINOO, JOSE DATOON, EDUARDO DAVID, ENRICO T.
DAVID, FAVIO DAVID, VICTORIANO S. DAVID, EDGARDO N. DAYACAP,
JOSELITO T. DELOSO, CELERINO DE GUZMAN, ROMULO DE GUZMAN,
LIBERATO DE GUZMAN, JOSE DE LEON, JOSELITO L. DE LUMBAN, NAPOLEON
S. DE LUNA, RICARDO DE RAMA, GENEROSO DEL ROSARIO, ALBERTO DELA
CRUZ, JOSE DELA CRUZ, LEONARDO DELOS REYES, ERNESTO F. DIATA,
EDUARDO A. DIAZ, FELIX DIAZ, MELCHOR DIAZ, NICANOR S. DIAZ,
GERARDO C. DIGA, CLEMENTE DIMATULAC, ROLANDO DIONISIO, PHILIPP G.
DISMAYA, BENJAMIN DOCTOLERO, ALBERTO STO. DOMINGO, BENJAMIN E.
DOZA, BENJAMIN DUPA, DANILO C. DURAN, GREGORIO D. DURAN, RENATO
A. EDUARTE, GODOFREDO E. EISMA, ARDON B. ELLO, UBED B. ELLO,
JOSEFINO ENANO, REYNALDO ENCARNACION, EDGARDO ENGUANCIO, ELIAS
EQUIPANO, FELIZARDO ESCARMOSA, MIGUEL ESCARMOSA, ARMANDO
ESCOBAR, ROMEO T. ESCUYOS, ANGELITO ESPIRITU, EDUARDO S. ESPIRITU,
REYNALDO ESPIRITU, ROLANDO ESPIRITU, JULIAN ESPREGANTE, IGMIDIO
ESTANISLAO, ERNESTO M. ESTEBAN, MELANIO R. ESTRO, ERNESTO M.
ESTEVA, CONRADO ESTUAR, CLYDE ESTUYE, ELISEO FAJARDO, PORFIRIO
FALQUEZA, WILFREDO P. FAUSTINO, EMILIO E. FERNANDEZ, ARTEMIO
FERRER, MISAEL M. FIGURACION, ARMANDO F. FLORES, BENJAMIN FLORES,
EDGARDO C. FLORES, BUENAVENTURA FRANCISCO, MANUEL S. FRANCISCO,
ROLANDO FRANCISCO, VALERIANO FRANCISCO, RODOLFO GABAWAN,
ESMERALDO GAHUTAN, CESAR C. GALANG, SANTIAGO N. GALOSO, GABRIEL
GAMBOA, BERNARDO GANDAMON, JUAN GANZON, ANDRES GARCIA, JR.,
ARMANDO M. GARCIA, EUGENIO GARCIA, MARCELO L. GARCIA, PATRICIO L.
GARCIA, JR., PONCIANO G. GARCIA, PONCIANO G. GARCIA, JR., RAFAEL P.
GARCIA, ROBERTO S. GARCIA, OSIAS G. GAROFIL, RAYMUNDO C. GARON,
ROLANDO G. GATELA, AVELINO GAYETA, RAYMUNDO GERON, PLACIDO
GONZALES, RUPERTO H. GONZALES, ROGELIO D. GUANIO, MARTIN V.

GUERRERO, JR., ALEXIS GUNO, RICARDO L. GUNO, FRANCISCO GUPIT,


DENNIS J. GUTIERREZ, IGNACIO B. GUTIERREZ, ANGELITO DE GUZMAN, JR.,
CESAR H. HABANA, RAUL G. HERNANDEZ, REYNALDO HERNANDEZ,
JOVENIANO D. HILADO, JUSTO HILAPO, ROSTITO HINAHON, FELICISIMO
HINGADA, EDUARDO HIPOLITO, RAUL L. IGNACIO, MANUEL L. ILAGAN,
RENATO L. ILAGAN, CONRADO A. INSIONG, GRACIANO G. ISLA, ARNEL L.
JACOB, OSCAR J. JAPITENGA, CIRILO HICBAN, MAXIMIANO HONRADES,
GENEROSO IGNACIO, FELIPE ILAGAN, EXPEDITO N. JACOB, MARIO JASMIN,
BIENVENIDO JAVIER, ROMEO M. JAVIER, PRIMO DE JESUS, REYNALDO DE
JESUS, CARLOS A. JIMENEZ, DANILO E. JIMENEZ, PEDRO C. JOAQUIN, FELIPE
W. JOCSON, FELINO M. JOCSON, PEDRO N. JOCSON, VALENTINO S. JOCSON,
PEDRO B. JOLOYA, ESTEBAN P. JOSE, JR., RAUL JOSE, RICARDO SAN JOSE,
GERTRUDO KABIGTING, EDUARDO S. KOLIMLIM, SR., LAURO J. LABAY,
EMMANUEL C. LABELLA, EDGARDO B. LACERONA, JOSE B. LACSON, MARIO
J. LADINES, RUFINO LAGAC, RODRIGO LAGANAPAN, EFREN M. LAMADRID,
GUADENCIO LATANAN, VIRGILIO LATAYAN, EMILIANO LATOJA, WENCESLAO
LAUREL, ALFREDO LAXAMANA, DANIEL R. LAZARO, ANTONIO C. LEANO,
ARTURO S. LEGASPI, BENITO DE LEMOS, JR., PEDRO G. DE LEON, MANOLITO
C. LILOC, GERARDO LIMUACO, ERNESTO S. LISING, RENATO LISING,
WILFREDO S. LISING, CRISPULO LONTOC, PEDRO M. LOPERA, ROGELIO
LOPERA, CARLITO M. LOPEZ, CLODY LOPEZ, GARLITO LOPEZ, GEORGE F.
LOPEZ, VIRGILIO M. LOPEZ, BERNARDITO G. LOREJA, DOMINGO B. LORICO,
DOMINGO LOYOLA, DANTE LUAGE, ANTONIO M. LUALHATI, EMMANUEL
LUALHATI, JR., LEONIDEZ C. LUALHATI, SEBASTIAN LUALHATI, FRANCISCO
LUBAT, ARMANDO LUCERO, JOSELITO L. DE LUMBAN, THOMAS VICENTE O.
LUNA, NOLI MACALADLAD, ALFREDO MACALINO, RICARDO MACALINO,
ARTURO V. MACARAIG, ERNESTO V. MACARAIG, RODOLFO V. MACARAIG,
BENJAMIN
MACATANGAY,
HERMOGENES
MACATANGAY,
RODEL
MACATANGAY, ROMULO MACATANGAY, OSIAS Q. MADLANGBAYAN, NICOLAS
P. MADRID, EDELBERTO G. MAGAT, EFREN C. MAGBANUA, BENJAMIN
MAGBUHAT, ALFREDO C. MAGCALENG, ANTONIO MAGNAYE, ALFONSO
MAGPANTAY, RICARDO C. MAGPANTAY, SIMEON M. MAGPANTAY, ARMANDO
M. MAGSINO, MACARIO S. MAGSINO, ANTONIO MAGTIBAY, VICTOR V.
MAGTIBAY, GERONIMO MAHILUM, MANUEL MALONZO, RICARDO MAMADIS,
RODOLFO MANA, BERNARDO A. MANALILI, MANUEL MANALILI, ANGELO
MANALO, AGUILES L. MANALO, LEOPOLDO MANGAHAS, BAYANI MANIGBAS,
ROLANDO C. MANIMTIM, DANIEL MANONSON, ERNESTO F. MANUEL,
EDUARDO MANZANO, RICARDO N. MAPA, RAMON MAPILE, ROBERTO C.
MARANA, NEMESIO MARASIGAN, WENCESLAO MARASIGAN, LEONARDO
MARCELO, HENRY F. MARIANO, JOEL MARIDABLE, SANTOS E. MARINO,
NARCISO A. MARQUEZ, RICARDO MARTINEZ, DIEGO MASICAMPO, AURELIO
MATABERDE, RENATO MATILLA, VICTORIANO MATILLA, VIRGILIO MEDEL,
LOLITO M. MELECIO, BENIGNO MELENDEZ, RENER J. MEMIJE, REYNALDO F.
MEMIJE, RODEL MEMIJE, AVELINO MENDOZA, JR., CLARO MENDOZA,

TIMOTEO MENDOZA, GREGORIO MERCADO, ERNANI DELA MERCED,


RICARDO MERCENA, NEMESIO METRELLO, RODEL MEMIJE, GASPAR MINIMO,
BENJAMIN MIRANDA, FELIXBERTO D. MISA, CLAUDIO A. MODESTO, JR.,
OSCAR MONDEDO, GENEROSO MONTON, RENATO MORADA, RICARDO
MORADA, RODOLFO MORADA, ROLANDO M. MORALES, FEDERICO M.
MORENO, VICTORINO A. MORTEL, JR., ESPIRITU A. MUNOZ, IGNACIO
MUNOZ, ILDEFONSO MUNOZ, ROGELIO MUNOZ, ERNESTO NAPALAN,
MARCELO A. NARCIZO, REYNALDO NATALIA, FERNANDO C. NAVARETTE,
PACIFICO D. NAVARRO, FLORANTE NAZARENO, RIZAL B. NAZARIO, JOSUE
NEGRITE, ALFREDO NEPUMUCENO, HERBERT G. NG, FLORENCIO NICOLAS,
ERNESTO C. NINON, AVELINO NUQUI, NEMESIO D. OBA, DANILO OCAMPO,
EDGARDO OCAMPO, RODRIGO E. OCAMPO, ANTONIO B. OCCIANO,
REYNALDO P. OCSON, BENJAMIN ODESA, ANGEL OLASO, FRANCISCO
OLIGARIO, ZOSIMO OLIMBO, BENJAMIN V. ORALLO, ROMEO S. ORIGINES,
DANILO R. ORTANEZ, WILFREDO OSIAS, VIRGILIO PA-A, DAVID PAALAN,
JESUS N. PACHECO, ALFONSO L. PADILLA, DANILO PAGSANJAN, NUMERIANO
PAGSISIHAN, RICARDO T. PAGUIO, EMILIO PAKINGAN, LEANDRO PALABRICA,
QUINCIANO PALO, JOSE PAMATIAN, GONZALO PAN, PORFIRIO PAN,
BIENVENIDO PANGAN, ERNESTO PANGAN, FRANCISCO V. PASIA, EDILBERTO
PASIMIO, JR., JOSE V. PASION, ANGELITO M. PENA, DIONISIO PENDRAS,
HERMINIO PERALTA, REYNALDO M. PERALTA, ANTONIO PEREZ, ANTOLIANO
E. PEREZ, JUAN PEREZ, LEON PEREZ, ROMEO E. PEREZ, ROMULO PEREZ,
WILLIAM PEREZ, FERNANDO G. PERINO, FLORENTINO DEL PILAR, DELMAR
F. PINEDA, SALVADOR PINEDA, ELIZALDE PINPIN, WILFREDO PINPIN,
ARTURO POBLETE, DOMINADOR R. PRIELA, BUENAVENTURA PRUDENTE,
CARMELITO PRUDENTE, DANTE PUEYO, REYNALDO Q. PUEYO, RODOLFO O.
PULIDO, ALEJANDRO PUNIO, FEDERICO QUIMAN, ALFREDO L. QUINTO,
ROMEO QUINTOS, EDUARDO W. RACABO, RICARDO C. DE RAMA, RICARDO
L. DE RAMA, ROLANDO DE RAMA, FERNANDO A. RAMIREZ, LITO S.
RAMIREZ, RICARDO G. RAMIREZ, RODOLFO V. RAMIREZ, ALBERTO RAMOS,
ANSELMO C. RAMOS, TOBIAS RAMOS, WILLARFREDO RAYMUNDO,
REYNALDO RAQUEDAN, MANUEL F. RAVELAS, WILFREDO D. RAYMUNDO,
ERNESTO E. RECOLASO, ALBERTO REDAZA, ARTHUR REJUSO, TORIBIO M.
RELLAMA, JAIME RELLOSA, EUGENIO A. REMOQUILLO, GERARDO RENTOZA,
REDENTOR C. REY, ALFREDO S. REYES, AMABLE S. REYES, BENEDICTO R.
REYES, GREGORIO B. REYES, JOSE A. REYES, JOSE C. REYES, ROMULO M.
REYES, SERGIO REYES, ERNESTO F. RICO, FERNANDO M. RICO, EMMANUEL
RIETA, RICARDO RIETA, LEO B. ROBLES, RUBEN ROBLES, RODOLFO
ROBLEZA,
RODRIGO
ROBLEZA,
EDUARDO
ROCABO,
ANTONIO
R.
RODRIGUEZ, BERNARDO RODRIGUEZ, ELIGIO RODRIGUEZ, ALMONTE
ROMEO, ELIAS RONQUILLO, ELISE RONQUILLO, LUIS VAL B. RONQUILLO,
REYNOSO P. RONQUILLO, RODOLFO RONQUILLO, ANGEL ROSALES, RAMON
ROSALES, ALBERTO DEL ROSARIO, GENEROSO DEL ROSARIO, TEODORICO
DEL ROSARIO, VIRGILIO L. ROSARIO, CARLITO SALVADOR, JOSE

SAMPARADA, ERNESTO SAN PEDRO, ADRIANO V. SANCHA, GERONIMO M.


SANCHA, ARTEMIO B. SANCHEZ, NICASIO SANCHEZ, APOLONIO P.
SANTIAGO, JOSELITO S. SANTIAGO, SERGIO SANTIAGO, EDILBERTO C.
SANTOS, EFREN S. SANTOS, RENATO D. SANTOS, MIGUEL SAPUYOT, ALEX
S. SERQUINA, DOMINADOR P. SERRA, ROMEO SIDRO, AMADO M. SILANG,
FAUSTINO D. SILANG, RODOLFO B. DE SILOS, ANICETO G. SILVA, EDGARDO
M. SILVA, ROLANDO C. SILVERTO, ARTHUR B. SIMBAHON, DOMINGO
SOLANO, JOSELITO C. SOLANTE, CARLITO SOLIS, CONRADO SOLIS, III,
EDGARDO SOLIS, ERNESTO SOLIS, ISAGANI M. SOLIS, EDUARDO L. SOTTO,
ERNESTO G. STA. MARIA, VICENTE G. STELLA, FELIMON SUPANG, PETER
TANGUINOO, MAXIMINO TALIBSAO, FELICISMO P. TALUSIK, FERMIN TARUC,
JR., LEVY S. TEMPLO, RODOLFO S. TIAMSON, LEONILO TIPOSO, ARNEL
TOLENTINO, MARIO M. TOLENTINO, FELIPE TORRALBA, JOVITO V. TORRES,
LEONARDO DE TORRES, GAVINO U. TUAZON, AUGUSTO B. TUNGUIA,
FRANCISCO UMALI, SIMPLICIO UNIDA, WILFREDO V. UNTALAN, ANTONIO
VALDERAMA, RAMON VALDERAMA, NILO VALENCIANO, EDGARDO C.
VASQUEZ, ELPIDIO VELASQUEZ, NESTOR DE VERA, WILFREDO D. VERA,
BIENVENIDO VERGARA, ALFREDO VERGARA, RAMON R. VERZOSA, FELICITO
P. VICMUNDO, ALFREDO VICTORIANO, TEOFILO P. VIDALLO, SABINO N.
VIERNEZ, JESUS J. VILLA, JOVEN VILLABLANCO, EDGARDO G. VILLAFLORES,
CEFERINO VILLAGERA, ALEX VILLAHERMOZA, DANILO A. VILLANUEVA,
ELITO VILLANUEVA, LEONARDO M. VILLANUEVA, MANUEL R. VILLANUEVA,
NEPTHALI VILLAR, JOSE V. VILLAREAL, FELICISIMO VILLARINO, RAFAEL
VILLAROMAN, CARLOS VILLENA, FERDINAND VIVO, ROBERTO YABUT,
VICENTE YNGENTE, AND ORO C. ZUNIGA,respondents.
Gerardo A. Del Mundo and Associates for petitioners.
Romulo, Mabanta, Sayoc, Buenaventura, De los Angeles Law Offices for
BRII/AIBC.
Florante M. De Castro for private respondents in 105029-32.

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. 10502930, 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).
I
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-84-06555 (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. L84-06-555. 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-8605-460 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. L84-06-555. 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. 813836; 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 coclaimants 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. 11731235; G.R. Nos. 105029-32, Rollo, pp. 1193-1256; G.R. Nos. 10491114, 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. 10502932, Rollo, pp. 1280-1397);
14) Joint Manifestation and Motion involving Vivencio V. Abella and 27 coclaimants 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
(Code) :
(2)
(3)
(4)
(5)
(6)
(7)

Position

Classification

Company
Employment
Status
Date
of
Employment
to
Commence
on
Basic
Working
Hours
Per
Week
Basic
Working
Hours
Per
Month
Basic
Hourly
Rate
Overtime
Rate
Per
Hour

:
:
:
:
:
:
:

(8)
Projected
(Subject
to
C(1)
Months
Job Completion

of

Period
this

of
[sic])

Service
:
and/or

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.
V
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 factoamended 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 employeremployee 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 152153 [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
development. (Sec. 10).

social

justice

in

all

phases

of

national

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 employeremployee 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,


oppressive delays which render rights nugatory.

arbitrary

and

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
decision secured is favorable to the plaintiffs. The problem arises
the decision is adverse to them, in which case the others who
impleaded by their self-appointed representatives, would surely
denial of due process.

if the
when
were
claim

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. 2122).
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.

SO ORDERED.
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 employeremployee 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.

BANK OF AMERICA, NT and SA, petitioner, vs. AMERICAN


CORPORATION and COURT OF APPEALS, respondents.

REALTY

DECISION
BUENA, J.:
Does a mortgage-creditor waive its remedy to foreclose the real estate mortgage
constituted over a third party mortgagors property situated in the Philippines by
filing an action for the collection of the principal loan before foreign courts?
Sought to be reversed in the instant petition for review on certiorari under Rule 45
of the Rules of Court are the decision [1] of public respondent Court of Appeals in CA
G.R. CV No. 51094, promulgated on 30 September 1997 and its resolution, [2] dated
22 May 1998, denying petitioners motion for reconsideration.
Petitioner Bank of America NT & SA (BANTSA) is an international banking and
financing institution duly licensed to do business in the Philippines, organized and
existing under and by virtue of the laws of the State of California, United States of
America while private respondent American Realty Corporation (ARC) is a domestic
corporation.
Bank of America International Limited (BAIL), on the other hand, is a limited liability
company organized and existing under the laws of England.
As borne by the records, BANTSA and BAIL on several occasions granted three
major multi-million United States (US) Dollar loans to the following corporate
borrowers: (1) Liberian Transport Navigation, S.A.; (2) El Challenger S.A. and (3)
Eshley Compania Naviera S.A. (hereinafter collectively referred to as borrowers),
all of which are existing under and by virtue of the laws of the Republic of Panama
and are foreign affiliates of private respondent. [3]

Due to the default in the payment of the loan amortizations, BANTSA and the
corporate borrowers signed and entered into restructuring agreements. As
additional security for the restructured loans, private respondent ARC as third party
mortgagor executed two real estate mortgages, [4] dated 17 February 1983 and 20
July 1984, over its parcels of land including improvements thereon, located at Barrio
Sto. Cristo, San Jose Del Monte, Bulacan, and which are covered by Transfer
Certificate of Title Nos. T-78759, T-78760, T-78761, T-78762 and T-78763.
Eventually, the corporate borrowers defaulted in the payment of the restructured
loans prompting petitioner BANTSA to file civil actions [5] before foreign courts for the
collection of the principal loan, to wit:
a) In England, in its High Court of Justice, Queens Bench Division, Commercial
Court (1992-Folio No. 2098) against Liberian Transport Navigation S.A., Eshley
Compania Naviera S.A., El Challenger S.A., Espriona Shipping Company S.A., Eddie
Navigation Corp., S.A., Eduardo Katipunan Litonjua and Aurelio Katipunan Litonjua
on June 17, 1992.
b) In England, in its High Court of Justice, Queens Bench Division, Commercial Court
(1992-Folio No. 2245) against El Challenger S.A., Espriona Shipping Company S.A.,
Eduardo Katipuan Litonjua & Aurelio Katipunan Litonjua on July 2, 1992;
c) In Hongkong, in the Supreme Court of Hongkong High Court (Action No. 4039 of
1992) against Eshley Compania Naviera S.A., El Challenger S.A., Espriona Shipping
Company S.A. Pacific Navigators Corporation, Eddie Navigation Corporation S.A.,
Litonjua Chartering (Edyship) Co., Inc., Aurelio Katipunan Litonjua, Jr. and Eduardo
Katipunan Litonjua on November 19, 1992; and
d) In Hongkong, in the Supreme Court of Hongkong High Court (Action No. 4040 of
1992) against Eshley Compania Naviera S.A., El Challenger S.A., Espriona Shipping
Company, S.A., Pacific Navigators Corporation, Eddie Navigation Corporation S.A.,
Litonjua Chartering (Edyship) Co., Jr. and Eduardo Katipunan Litonjua on November
21, 1992.
In the civil suits instituted before the foreign courts, private respondent ARC, being
a third party mortgagor, was not impleaded as party-defendant.
On 16 December 1992, petitioner BANTSA filed before the Office of the Provincial
Sheriff of Bulacan, Philippines, an application for extrajudicial foreclosure [6] of real
estate mortgage.
On 22 January 1993, after due publication and notice, the mortgaged real properties
were sold at public auction in an extrajudicial foreclosure sale, with Integrated
Credit and Corporation Services Co. (ICCS) as the highest bidder for the sum of
Twenty Four Million Pesos (P24,000,000.00).[7]

On 12 February 1993, private respondent filed before the Pasig Regional Trial Court,
Branch 159, an action for damages [8] against the petitioner, for the latters act of
foreclosing extrajudicially the real estate mortgages despite the pendency of civil
suits before foreign courts for the collection of the principal loan.
In its answer[9] petitioner alleged that the rule prohibiting the mortgagee from
foreclosing the mortgage after an ordinary suit for collection has been filed, is not
applicable in the present case, claiming that:
a) The plaintiff, being a mere third party mortgagor and not a party to the
principal restructuring agreements, was never made a party defendant in the civil
cases filed in Hongkong and England;
b) There is actually no civil suit for sum of money filed in the Philippines since the
civil actions were filed in Hongkong and England. As such, any decisions (sic) which
may be rendered in the abovementioned courts are not (sic) enforceable in the
Philippines unless a separate action to enforce the foreign judgments is first filed in
the Philippines, pursuant to Rule 39, Section 50 of the Revised Rules of Court.
c) Under English Law, which is the governing law under the principal agreements,
the mortgagee does not lose its security interest by filing civil actions for sums of
money.
On 14 December 1993, private respondent filed a motion for suspension [10] of the
redemption period on the ground that it cannot exercise said right of redemption
without at the same time waiving or contradicting its contentions in the case that
the foreclosure of the mortgage on its properties is legally improper and therefore
invalid.
In an order[11] dated 28 January 1994, the trial court granted the private
respondents motion for suspension after which a copy of said order was duly
received by the Register of Deeds of Meycauayan, Bulacan.
On 07 February 1994, ICCS, the purchaser of the mortgaged properties at the
foreclosure sale, consolidated its ownership over the real properties, resulting to the
issuance of Transfer Certificate of Title Nos. T-18627, T-186272, T-186273, T-16471
and T-16472 in its name.
On 18 March 1994, after the consolidation of ownership in its favor, ICCS sold the
real properties to Stateland Investment Corporation for the amount of Thirty Nine
Million Pesos (P39,000,000.00).[12] Accordingly, Transfer Certificate of Title Nos. T187781(m), T-187782(m), T-187783(m), T-16653P(m) and T-16652P(m) were issued
in the latters name.
After trial, the lower court rendered a decision [13] in favor of private respondent ARC
dated 12 May 1993, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered declaring that the filing in foreign


courts by the defendant of collection suits against the principal debtors operated as
a waiver of the security of the mortgages. Consequently, the plaintiffs rights as
owner and possessor of the properties then covered by Transfer Certificates of Title
Nos. T-78759, T-78762, T-78763, T-78760 and T-78761, all of the Register of Deeds
of Meycauayan, Bulacan, Philippines, were violated when the defendant caused the
extrajudicial foreclosure of the mortgages constituted thereon.
Accordingly, the defendant is hereby ordered to pay the plaintiff the following
sums, all with legal interest thereon from the date of the filing of the complaint up
to the date of actual payment:
1) Actual or compensatory damages in the amount of Ninety Nine Million Pesos
(P99,000,000.00);
2) Exemplary damages in the amount of Five Million Pesos (P5,000,000.00); and
3) Costs of suit.
SO ORDERED.
On appeal, the Court of Appeals affirmed the assailed decision of the lower court
prompting petitioner to file a motion for reconsideration which the appellate court
denied.
Hence, the instant petition for review [14] on certiorari where herein petitioner
BANTSA ascribes to the Court of Appeals the following assignment of errors:
1. The Honorable Court of Appeals disregarded the doctrines laid down by this Hon.
Supreme Court in the cases of Caltex Philippines, Inc. vs. Intermediate
Appellate Courtdocketed as G.R. No. 74730 promulgated on August 25, 1989
and Philippine Commercial International Bank vs. IAC, 196 SCRA 29 (1991
case), although said cases were duly cited, extensively discussed and specifically
mentioned, as one of the issues in the assignment of errors found on page 5 of the
decision dated September 30, 1997.
2. The Hon. Court of Appeals acted with grave abuse of discretion when it awarded
the private respondent actual and exemplary damages totalling P171,600,000.00,
as of July 12, 1998 although such huge amount was not asked nor prayed for in
private respondents complaint, is contrary to law and is totally unsupported by
evidence (sic).
In fine, this Court is called upon to resolve two main issues:
1. Whether or not the petitioners act of filing a collection suit against the principal
debtors for the recovery of the loan before foreign courts constituted a waiver of the
remedy of foreclosure.

2. Whether or not the award by the lower court of actual and exemplary damages
in favor of private respondent ARC, as third-party mortgagor, is proper.
The petition is bereft of merit.
First, as to the issue of availability of remedies, petitioner submits that a waiver of
the remedy of foreclosure requires the concurrence of two requisites: an ordinary
civil action for collection should be filed and subsequently a final judgment be
correspondingly rendered therein.
According to petitioner, the mere filing of a personal action to collect the principal
loan does not suffice; a final judgment must be secured and obtained in the
personal action so that waiver of the remedy of foreclosure may be appreciated. To
put it differently, absent any of the two requisites, the mortgagee-creditor is
deemed not to have waived the remedy of foreclosure.
We do not agree.
Certainly, this Court finds petitioners arguments untenable and upholds the
jurisprudence laid down in Bachrach[15] and similar cases adjudicated thereafter,
thus:
In the absence of express statutory provisions, a mortgage creditor may institute
against the mortgage debtor either a personal action for debt or a real action to
foreclose the mortgage. In other words, he may pursue either of the two remedies,
but not both. By such election, his cause of action can by no means be impaired,
for each of the two remedies is complete in itself. Thus, an election to bring a
personal action will leave open to him all the properties of the debtor for
attachment and execution, even including the mortgaged property itself. And, if he
waives such personal action and pursues his remedy against the mortgaged
property, an unsatisfied judgment thereon would still give him the right to sue for a
deficiency judgment, in which case, all the properties of the defendant, other than
the mortgaged property, are again open to him for the satisfaction of the
deficiency. In either case, his remedy is complete, his cause of action undiminished,
and any advantages attendant to the pursuit of one or the other remedy are purely
accidental and are all under his right of election. On the other hand, a rule that
would authorize the plaintiff to bring a personal action against the debtor and
simultaneously or successively another action against the mortgaged property,
would result not only in multiplicity of suits so offensive to justice (Soriano vs.
Enriques, 24 Phil. 584) and obnoxious to law and equity (Osorio vs. San Agustin, 25
Phil., 404), but also in subjecting the defendant to the vexation of being sued in the
place of his residence or of the residence of the plaintiff, and then again in the place
where the property lies.

In Danao vs. Court of Appeals,[16] this Court, reiterating jurisprudence enunciated


in Manila Trading and Supply Co. vs. Co Kim[17]and Movido vs. RFC,
[18]
invariably held:
x x x The rule is now settled that a mortgage creditor may elect to waive his
security and bring, instead, an ordinary action to recover the indebtedness with the
right to execute a judgment thereon on all the properties of the debtor, including
the subject matter of the mortgage x x x, subject to the qualification that if he fails
in the remedy by him elected, he cannot pursue further the remedy he has
waived. (Underscoring Ours)
Anent real properties in particular, the Court has laid down the rule that a mortgage
creditor may institute against the mortgage debtor either a personal action for debt
or a real action to foreclose the mortgage.[19]
In our jurisdiction, the remedies available to the mortgage creditor are deemed
alternative and not cumulative. Notably, an election of one remedy operates as a
waiver of the other. For this purpose, a remedy is deemed chosen upon the filing of
the suit for collection or upon the filing of the complaint in an action for foreclosure
of mortgage, pursuant to the provision of Rule 68 of the 1997 Rules of Civil
Procedure. As to extrajudicial foreclosure, such remedy is deemed elected by the
mortgage creditor upon filing of the petition not with any court of justice but with
the Office of the Sheriff of the province where the sale is to be made, in accordance
with the provisions of Act No. 3135, as amended by Act No. 4118.
In the case at bench, private respondent ARC constituted real estate mortgages
over its properties as security for the debt of the principal debtors. By doing so,
private respondent subjected itself to the liabilities of a third party
mortgagor. Under the law, third persons who are not parties to a loan may secure
the latter by pledging or mortgaging their own property. [20]
Notwithstanding, there is no legal provision nor jurisprudence in our jurisdiction
which makes a third person who secures the fulfillment of anothers obligation by
mortgaging his own property, to be solidarily bound with the principal obligor. The
signatory to the principal contractloanremains to be primarily bound. It is only
upon default of the latter that the creditor may have recourse on the mortgagors by
foreclosing the mortgaged properties in lieu of an action for the recovery of the
amount of the loan.[21]
In the instant case, petitioners contention that the requisites of filing the action for
collection and rendition of final judgment therein should concur, is untenable.
Thus, in Cerna vs. Court of Appeals,[22] we agreed with the petitioner in said case,
that the filing of a collection suit barred the foreclosure of the mortgage:

A mortgagee who files a suit for collection abandons the remedy of foreclosure of
the chattel mortgage constituted over the personal property as security for the debt
or value of the promissory note when he seeks to recover in the said collection
suit.
x x x When the mortgagee elects to file a suit for collection, not foreclosure,
thereby abandoning the chattel mortgage as basis for relief, he clearly manifests his
lack of desire and interest to go after the mortgaged property as security for the
promissory note x x x.
Contrary to petitioners arguments, we therefore reiterate the rule, for clarity and
emphasis, that the mere act of filing of an ordinary action for collection operates as
a waiver of the mortgage-creditors remedy to foreclose the mortgage. By the mere
filing of the ordinary action for collection against the principal debtors, the
petitioner in the present case is deemed to have elected a remedy, as a result of
which a waiver of the other necessarily must arise. Corollarily, no final judgment in
the collection suit is required for the rule on waiver to apply.
Hence, in Caltex Philippines, Inc. vs. Intermediate Appellate Court,[23] a case
relied upon by petitioner, supposedly to buttress its contention, this Court had
occasion to rule that the mere act of filing a collection suit for the recovery of a
debt secured by a mortgage constitutes waiver of the other remedy of foreclosure.
In the case at bar, petitioner BANTSA only has one cause of action which is nonpayment of the debt. Nevertheless, alternative remedies are available for its
enjoyment and exercise. Petitioner then may opt to exercise only one of two
remedies so as not to violate the rule against splitting a cause of action.
As elucidated by this Court in the landmark case of Bachrach Motor Co., Inc. vs.
Icarangal.[24]
For non-payment of a note secured by mortgage, the creditor has a single cause of
action against the debtor. This single cause of action consists in the recovery of the
credit with execution of the security. In other words, the creditor in his action may
make two demands, the payment of the debt and the foreclosure of his
mortgage. But both demands arise from the same cause, the non-payment of the
debt, and for that reason, they constitute a single cause of action. Though the debt
and the mortgage constitute separate agreements, the latter is subsidiary to the
former, and both refer to one and the same obligation. Consequently, there exists
only one cause of action for a single breach of that obligation. Plaintiff, then, by
applying the rules above stated, cannot split up his single cause of action by filing a
complaint for payment of the debt, and thereafter another complaint for foreclosure
of the mortgage. If he does so, the filing of the first complaint will bar the
subsequent complaint. By allowing the creditor to file two separate complaints
simultaneously or successively, one to recover his credit and another to foreclose
his mortgage, we will, in effect, be authorizing him plural redress for a single breach

of contract at so much cost to the courts and with so much vexation and oppression
to the debtor.
Petitioner further faults the Court of Appeals for allegedly disregarding the doctrine
enunciated in Caltex, wherein this High Court relaxed the application of the general
rules to wit:
In the present case, however, we shall not follow this rule to the letter but declare
that it is the collection suit which was waived and/or abandoned. This ruling is more
in harmony with the principles underlying our judicial system. It is of no moment
that the collection suit was filed ahead, what is determinative is the fact that the
foreclosure proceedings ended even before the decision in the collection suit was
rendered. x x x
Notably, though, petitioner took the Caltex ruling out of context. We must stress
that the Caltex case was never intended to overrule the well-entrenched doctrine
enunciated in Bachrach, which to our mind still finds applicability in cases of this
sort. To reiterate, Bachrach is still good law.
We then quote the decision[25]of the trial court, in the present case, thus:
The aforequoted ruling in Caltex is the exception rather than the rule, dictated by
the peculiar circumstances obtaining therein. In the said case, the Supreme Court
chastised Caltex for making x x x a mockery of our judicial system when it initially
filed a collection suit then, during the pendency thereof, foreclosed extrajudicially
the mortgaged property which secured the indebtedness, and still pursued the
collection suit to the end. Thus, to prevent a mockery of our judicial system, the
collection suit had to be nullified because the foreclosure proceedings have already
been pursued to their end and can no longer be undone.
xxx

xxx

xxx

In the case at bar, it has not been shown whether the defendant pursued to the
end or are still pursuing the collection suits filed in foreign courts. There is no
occasion, therefore, for this court to apply the exception laid down by the Supreme
Court in Caltex, by nullifying the collection suits. Quite obviously, too, the aforesaid
collection suits are beyond the reach of this Court. Thus the only way the court may
prevent the spector of a creditor having plural redress for a single breach of
contract is by holding, as the Court hereby holds, that the defendant has waived
the right to foreclose the mortgages constituted by the plaintiff on its properties
originally covered by Transfer Certificates of Title Nos. T-78759, T-78762, T-78760
and T-78761. (RTC Decision pp., 10-11)
In this light, the actuations of Caltex are deserving of severe criticism, to say the
least.[26]

Moreover, petitioner attempts to mislead this Court by citing the case of PCIB vs.
IAC.[27] Again, petitioner tried to fit a square peg in a round hole. It must be
stressed that far from overturning the doctrine laid down in Bachrach, this Court in
PCIB buttressed its firm stand on this issue by declaring:
While the law allows a mortgage creditor to either institute a personal action for
the debt or a real action to foreclosure the mortgage, he cannot pursue both
remedies simultaneously or successively as was done by PCIB in this case.
xxx

xxx

xxx

Thus, when the PCIB filed Civil Case No. 29392 to enforce payment of the 1.3
million promissory note secured by real estate mortgages and subsequently filed a
petition for extrajudicial foreclosure, it violates the rule against splitting a cause of
action.
Accordingly, applying the foregoing rules, we hold that petitioner, by the expediency
of filing four civil suits before foreign courts, necessarily abandoned the remedy to
foreclose the real estate mortgages constituted over the properties of third-party
mortgagor and herein private respondent ARC. Moreover, by filing the four civil
actions and by eventually foreclosing extrajudicially the mortgages, petitioner in
effect transgressed the rules against splitting a cause of action well-enshrined in
jurisprudence and our statute books.
In Bachrach, this Court resolved to deny the creditor the remedy of foreclosure after
the collection suit was filed, considering that the creditor should not be
afforded plural redress for a single breach of contract. For cause of action should
not be confused with the remedy created for its enforcement. [28]
Notably, it is not the nature of the redress which is crucial but the efficacy of the
remedy chosen in addressing the creditors cause. Hence, a suit brought before a
foreign court having competence and jurisdiction to entertain the action is deemed,
for this purpose, to be within the contemplation of the remedy available to the
mortgagee-creditor. This pronouncement would best serve the interest of justice
and fair play and further discourage the noxious practice of splitting up a lone cause
of action.
Incidentally, BANTSA alleges that under English Law, which according to petitioner
is the governing law with regard to the principal agreements, the mortgagee does
not lose its security interest by simply filing civil actions for sums of money. [29]
We rule in the negative.
This argument shows desperation on the part of petitioner to rivet its crumbling
cause. In the case at bench, Philippine law shall apply notwithstanding the
evidence presented by petitioner to prove the English law on the matter.

In a long line of decisions, this Court adopted the well-imbedded principle in our
jurisdiction that there is no judicial notice of any foreign law. A foreign law must be
properly pleaded and proved as a fact. [30] Thus, if the foreign law involved is not
properly pleaded and proved, our courts will presume that the foreign law is the
same as our local or domestic or internal law. [31] This is what we refer to as the
doctrine of processual presumption.
In the instant case, assuming arguendo that the English Law on the matter were
properly pleaded and proved in accordance with Section 24, Rule 132 of the Rules of
Court and the jurisprudence laid down in Yao Kee, et al. vs. Sy-Gonzales,[32] said
foreign law would still not find applicability.
Thus, when the foreign law, judgment or contract is contrary to a sound and
established public policy of the forum, the said foreign law, judgment or order shall
not be applied.[33]
Additionally, 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. [34]
The public policy sought to be protected in the instant case is the principle
imbedded in our jurisdiction proscribing the splitting up of a single cause of action.
Section 4, Rule 2 of the 1997 Rules of Civil Procedure is pertinent If two or more suits are instituted on the basis of the same cause of action, the
filing of one or a judgment upon the merits in any one is available as a ground for
the dismissal of the others.
Moreover, foreign law should not be applied when its application would work
undeniable injustice to the citizens or residents of the forum. To give justice is the
most important function of law; hence, a law, or judgment or contract that is
obviously unjust negates the fundamental principles of Conflict of Laws. [35]
Clearly then, English Law is not applicable.
As to the second pivotal issue, we hold that the private respondent is entitled to the
award of actual or compensatory damages inasmuch as the act of petitioner
BANTSA in extrajudicially foreclosing the real estate mortgages constituted a clear
violation of the rights of herein private respondent ARC, as third-party mortgagor.
Actual or compensatory damages are those recoverable because of pecuniary loss
in business, trade, property, profession, job or occupation and the same must be
proved, otherwise if the proof is flimsy and non-substantial, no damages will be
given.[36] Indeed, the question of the value of property is always a difficult one to
settle as valuation of real property is an imprecise process since real estate has no

inherent value readily ascertainable by an appraiser or by the court. [37] The opinions
of men vary so much concerning the real value of property that the best the courts
can do is hear all of the witnesses which the respective parties desire to present,
and then, by carefully weighing that testimony, arrive at a conclusion which is just
and equitable.[38]
In the instant case, petitioner assails the Court of Appeals for relying heavily on the
valuation made by Philippine Appraisal Company. In effect, BANTSA questions the
act of the appellate court in giving due weight to the appraisal report composed of
twenty three pages, signed by Mr. Lauro Marquez and submitted as evidence by
private respondent. The appraisal report, as the records would readily show, was
corroborated by the testimony of Mr. Reynaldo Flores, witness for private
respondent.
On this matter, the trial court observed:
The record herein reveals that plaintiff-appellee formally offered as evidence the
appraisal report dated March 29, 1993 (Exhibit J, Records, p. 409), consisting of
twenty three (23) pages which set out in detail the valuation of the property to
determine its fair market value (TSN, April 22, 1994, p. 4), in the amount of
P99,986,592.00 (TSN, ibid., p. 5), together with the corroborative testimony of one
Mr. Reynaldo F. Flores, an appraiser and director of Philippine Appraisal Company,
Inc. (TSN, ibid., p. 3). The latters testimony was subjected to extensive crossexamination by counsel for defendant-appellant (TSN, April 22, 1994, pp. 6-22). [39]
In the matter of credibility of witnesses, the Court reiterates the familiar and wellentrenched rule that the factual findings of the trial court should be respected.
[40]
The time-tested jurisprudence is that the findings and conclusions of the trial
court on the credibility of witnesses enjoy a badge of respect for the reason that
trial courts have the advantage of observing the demeanor of witnesses as they
testify.[41]
This Court will not alter the findings of the trial court on the credibility of witnesses,
principally because they are in a better position to assess the same than the
appellate court.[42] Besides, trial courts are in a better position to examine real
evidence as well as observe the demeanor of witnesses. [43]
Similarly, the appreciation of evidence and the assessment of the credibility of
witnesses rest primarily with the trial court. [44] In the case at bar, we see no reason
that would justify this Court to disturb the factual findings of the trial court, as
affirmed by the Court of Appeals, with regard to the award of actual damages.
In arriving at the amount of actual damages, the trial court justified the award by
presenting the following ratiocination in its assailed decision [45], to wit:

Indeed, the Court has its own mind in the matter of valuation. The size of the
subject real properties are (sic) set forth in their individual titles, and the Court itself
has seen the character and nature of said properties during the ocular inspection it
conducted. Based principally on the foregoing, the Court makes the following
observations:
1. The properties consist of about 39 hectares in Bo. Sto. Cristo, San Jose del
Monte, Bulacan, which is (sic) not distant from Metro Manila the biggest urban
center in the Philippines and are easily accessible through well-paved roads;
2. The properties are suitable for development into a subdivision for low cost
housing, as admitted by defendants own appraiser (TSN, May 30, 1994, p. 31);
3. The pigpens which used to exist in the property have already been
demolished. Houses of strong materials are found in the vicinity of the property
(Exhs. 2, 2-1 to 2-7), and the vicinity is a growing community. It has even been
shown that the house of the Barangay Chairman is located adjacent to the property
in question (Exh. 27), and the only remaining piggery (named Cherry Farm) in the
vicinity is about 2 kilometers away from the western boundary of the property in
question (TSN, November 19, p. 3);
4. It will not be hard to find interested buyers of the property, as indubitably
shown by the fact that on March 18, 1994, ICCS (the buyer during the foreclosure
sale) sold the consolidated real estate properties to Stateland Investment
Corporation, in whose favor new titles were issued, i.e., TCT Nos. T-187781(m); T187782(m), T-187783(m); T-16653P(m) and T-166521(m) by the Register of Deeds
of Meycauayan (sic), Bulacan;
5. The fact that ICCS was able to sell the subject properties to Stateland
Investment Corporation for Thirty Nine Million (P39,000,000.00) Pesos, which is
more than triple defendants appraisal (Exh. 2) clearly shows that the Court cannot
rely on defendants aforesaid estimate (Decision, Records, p. 603).
It is a fundamental legal aphorism that the conclusions of the trial judge on the
credibility of witnesses command great respect and consideration especially when
the conclusions are supported by the evidence on record. [46] Applying the foregoing
principle, we therefore hold that the trial court committed no palpable error in
giving credence to the testimony of Reynaldo Flores, who according to the records,
is a licensed real estate broker, appraiser and director of Philippine Appraisal
Company, Inc. since 1990.[47] As the records show, Flores had been with the
company for 26 years at the time of his testimony.
Of equal importance is the fact that the trial court did not confine itself to the
appraisal report dated 29 March 1993, and the testimony given by Mr. Reynaldo
Flores, in determining the fair market value of the real property. Above all these,
the record would likewise show that the trial judge in order to appraise himself of

the characteristics and condition of the property, conducted an ocular inspection


where the opposing parties appeared and were duly represented.
Based on these considerations and the evidence submitted, we affirm the ruling of
the trial court as regards the valuation of the property
x x x a valuation of Ninety Nine Million Pesos (P99,000,000.00) for the 39-hectare
properties (sic) translates to just about Two Hundred Fifty Four Pesos (P254.00) per
square meter. This appears to be, as the court so holds, a better approximation of
the fair market value of the subject properties. This is the amount which should be
restituted
by
the
defendant
to the plaintiff by way
of
[48]
actual or compensatory damages x x x.
Further, petitioner ascribes error to the lower court for awarding an amount
allegedly not asked nor prayed for in private respondents complaint.
Notwithstanding the fact that the award of actual and compensatory damages by
the lower court exceeded that prayed for in the complaint, the same is nonetheless
valid, subject to certain qualifications.
On this issue, Rule 10, Section 5 of the Rules of Court is pertinent:
SEC. 5. Amendment to conform to or authorize presentation of evidence. When
issues not raised by the pleadings are tried with the express or implied consent of
the parties, they shall be treated in all respects as if they had been raised in the
pleadings. Such amendment of the pleadings as may be necessary to cause them
to conform to the evidence and to raise these issues may be made upon motion of
any party at any time, even after judgement; but failure to amend does not affect
the result of the trial of these issues. If evidence is objected to at the trial on the
ground that it is not within the issues made by the pleadings, the court may allow
the pleadings to be amended and shall do so with liberality if the presentation of the
merits of the action and the ends of substantial justice will be subserved
thereby. The court may grant a continuance to enable the amendment to be
made.
The jurisprudence enunciated in Talisay-Silay Milling Co., Inc. vs. Asociacion
de Agricultures de Talisay-Silay, Inc.[49] citing Northern Cement Corporation
vs. Intermediate Appellate Court [50] is enlightening:
There have been instances where the Court has held that even without the
necessary amendment, the amount proved at the trial may be validly awarded, as
in Tuazon v. Bolanos (95 Phil. 106), where we said that if the facts shown entitled
plaintiff to relief other than that asked for, no amendment to the complaint was
necessary, especially where defendant had himself raised the point on which
recovery was based. The appellate court could treat the pleading as amended to
conform to the evidence although the pleadings were actually not

amended. Amendment is also unnecessary when only clerical error or non


substantial matters are involved, as we held in Bank of the Philippine Islands vs.
Laguna (48 Phil. 5). In Co Tiamco vs. Diaz (75 Phil. 672), we stressed that the rule
on amendment need not be applied rigidly, particularly where no surprise or
prejudice is caused the objecting party. And in the recent case of National Power
Corporation vs. Court of Appeals (113 SCRA 556), we held that where there is a
variance in the defendants pleadings and the evidence adduced by it at the trial,
the Court may treat the pleading as amended to conform with the evidence.
It is the view of the Court that pursuant to the above-mentioned rule and in light of
the decisions cited, the trial court should not be precluded from awarding an
amount higher than that claimed in the pleading notwithstanding the absence of the
required amendment. But it is upon the condition that the evidence of such higher
amount has been presented properly, with full opportunity on the part of the
opposing parties to support their respective contentions and to refute each others
evidence.
The failure of a party to amend a pleading to conform to the evidence adduced
during trial does not preclude an adjudication by the court on the basis of such
evidence which may embody new issues not raised in the pleadings, or serve as a
basis for a higher award of damages. Although the pleading may not have been
amended to conform to the evidence submitted during trial, judgment may
nonetheless be rendered, not simply on the basis of the issues alleged but also on
the basis of issues discussed and the assertions of fact proved in the course of
trial. The court may treat the pleading as if it had been amended to conform to the
evidence, although it had not been actually so amended. Former Chief Justice Moran
put the matter in this way:
`When evidence is presented by one party, with the expressed or implied consent of
the adverse party, as to issues not alleged in the pleadings, judgment may be
rendered validly as regards those issues, which shall be considered as if they have
been raised in the pleadings. There is implied consent to the evidence thus
presented when the adverse party fails to object thereto.
Clearly, a court may rule and render judgment on the basis of the evidence before
it even though the relevant pleading had not been previously amended, so long as
no surprise or prejudice is thereby caused to the adverse party. Put a little
differently, so long as the basis requirements of fair play had been met, as where
litigants were given full opportunity to support their respective contentions and to
object to or refute each others evidence, the court may validly treat the pleadings
as if they had been amended to conform to the evidence and proceed to adjudicate
on the basis of all the evidence before it.
In the instant case, inasmuch as the petitioner was afforded the opportunity to
refute and object to the evidence, both documentary and testimonial, formally

offered by private respondent, the rudiments of fair play are deemed satisfied. In
fact, the testimony of Reynaldo Flores was put under scrutiny during the course of
the cross-examination. Under these circumstances, the court acted within the
bounds of its jurisdiction and committed no reversible error in awarding actual
damages the amount of which is higher than that prayed for. Verily, the lower
courts actuations are sanctioned by the Rules and supported by jurisprudence.
Similarly, we affirm the grant of exemplary damages although the amount of Five
Million Pesos (P5,000,000.00) awarded, being excessive, is subject to
reduction. Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.[51] Considering its purpose, it must be fair and reasonable
in every case and should not be awarded to unjustly enrich a prevailing party. [52] In
our view, an award of P50,000.00 as exemplary damages in the present case
qualifies the test of reasonableness.
WHEREFORE, premises considered, the instant petition is DENIED for lack of
merit. The decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION
of the amount awarded as exemplary damages. Accordingly, petitioner is hereby
ordered to pay private respondent the sum of P99,000,000.00 as actual or
compensatory damages; P50,000.00 as exemplary damage and the costs of suit.
SO ORDERED.
FORUM NON CONVENIENS

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD. petitioners,
vs. NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J.
DIOSANA AND MARCELO G. SANTOS, respondents.
DECISION
PARDO, J.:
The case before the Court is a petition for certiorari[1] 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 respondents 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 attorneys 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, Peoples 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), MHICL[10] 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 familys piggery and poultry business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr.
Henks 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. Shmidts 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 attorneys 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 attorneys 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 aforequoted 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 un-expired 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) attorneys fees of 10% of
complainants total award.
SO ORDERED.
On February 2, 1995, petitioners filed a motion for reconsideration arguing that
Labor Arbiter de Veras 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 petitioners 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 NLRC [33]
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 Peoples 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, Peoples 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 NLRCs
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 corporations
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 MHICLs 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 employees 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 andnot 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
respondents 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.
GIL MIGUEL T. PUYAT, petitioner, vs. RON ZABARTE, respondent.
DECISION
PANGANIBAN, J.:
Summary judgment in a litigation is resorted to if there is no genuine issue as to
any material fact, other than the amount of damages. If this verity is evident from
the pleadings and the supporting affidavits, depositions and admissions on file with
the court, the moving party is entitled to such remedy as a matter of course.
The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court,
challenging the August 31, 1999 Decision [1] of the Court of Appeals (CA), which
affirmed the Regional Trial Court (RTC) of Pasig City, Branch 67 in Civil Case No.
64107; and the January 20, 2000 CA Resolution [2] which denied reconsideration.
The assailed CA Decision disposed as follows:
WHEREFORE, finding no error in the judgment appealed from, the same is
AFFIRMED."[3]
The Facts

The facts of this case, as narrated by the Court of Appeals, are as follows: [4]
It appears that on 24 January 1994, [Respondent] Ron Zabarte commenced [an
action] to enforce the money judgment rendered by the Superior Court for the State
of California, County of Contra Costa, U.S.A. On 18 March 1994, [petitioner] filed his
Answer with the following special and affirmative defenses:
x x x

x x x

x x x

8)
The Superior Court for the State of California, County of Contra Costa[,] did
not properly acquire jurisdiction over the subject matter of and over the persons
involved in [C]ase #C21-00265.

9)
The Judgment on Stipulations for Entry in Judgment in Case #C21-00265
dated December 12, 1991 was obtained without the assistance of counsel for
[petitioner] and without sufficient notice to him and therefore, was rendered in clear
violation of [petitioners] constitutional rights to substantial and procedural due
process.
10)
The Judgment on Stipulation for Entry in Judgment in Case #C21-00265
dated December 12, 1991 was procured by means of fraud or collusion or undue
influence and/or based on a clear mistake of fact and law.
11)
The Judgment on Stipulation for Entry in Judgment in Case #C21-00265
dated December 12, 1991 is contrary to the laws, public policy and canons of
morality obtaining in the Philippines and the enforcement of such judgment in the
Philippines would result in the unjust enrichment of [respondent] at the expense of
[petitioner] in this case.
12)
The Judgment on Stipulation for Entry in Judgment in Case #C21-00265
dated December 12, 1991 is null and void and unenforceable in the Philippines.
13)
In the transaction, which is the subject matter in Case #C21-00265,
[petitioner] is not in any way liable, in fact and in law, to [respondent] in this case,
as contained in [petitioners] Answer to Complaint in Case #C21-00265 dated April
1, 1991, Annex B of [respondents] Complaint dated December 6, 1993.
14)
[Respondent] is guilty of misrepresentation or falsification in the filing of his
Complaint in this case dated December 6, 1993. Worse, [respondent] has no
capacity to sue in the Philippines.
15)

Venue has been improperly laid in this case.

(Record, pp. 42-44)


On 1 August 1994, [respondent] filed a [M]otion for [S]ummary [J]udgment under
Rule 34 of the Rules of Court alleging that the [A]nswer filed by [petitioner] failed to
tender any genuine issue as to the material facts. In his [O]pposition to
[respondents] motion, [petitioner] demurred as follows:
2)
[Petitioner] begs to disagree[;] in support hereof, [he] wishes to mention that
in his Answer with Special and Affirmative Defenses dated March 16, 1994
[petitioner] has interposed that the Judgment on Stipulations for Entry in Judgment
is null and void, fraudulent, illegal and unenforceable, the same having been
obtained by means of fraud, collusion, undue influence and/or clear mistake of fact
and law. In addition, [he] has maintained that said Judgment on Stipulations for
Entry in Judgment was obtained without the assistance of counsel for [petitioner]
and without sufficient notice to him and therefore, was rendered in violation of his
constitutional rights to substantial and procedural due process.

The [M]otion for [S]ummary [J]udgment was set for hearing on 12 August 1994
during which [respondent] marked and submitted in evidence the following:
Exhibit A - x x x Judgment on Stipulation For Entry In Judgment of the Supreme
Court of the State of California[,] County of Contra Costa[,] signed by Hon. Ellen
James, Judge of the Superior Court.
Exhibit B - x x x Certificate of Authentication of the [O]rder signed by the Hon.
Ellen James, issued by the Consulate General of the Republic of the Philippines.
Exhibit C - [R]eturn of the [W]rit of [E]xecution (writ unsatisfied) issued by the
sheriff/marshall, County of Santa Clara, State of California.
Exhibit D - [W]rit of [E]xecution
Exhibit 'E' [P]roof of [S]ervice of copies of [W]rit of [E]xecution, [N]otice of [L]evy,
[M]emorandum of [G]arnishee, [E]xemptions from [E]nforcement of [J]udgment.
Exhibit F - Certification issued by the Secretary of State, State of California that
Stephen Weir is the duly elected, qualified and acting [c]ounty [c]lerk of the County
of Contra Costa of the State of California.
Exhibit G - Certificate of [A]uthentication of the [W]rit of [E]xecution.
On 6 April 1995, the court a quo issued an [O]rder granting [respondents] [M]otion
for [S]ummary [J]udgment [and] likewise granting [petitioner] ten (10) days to
submit opposing affidavits, after which the case would be deemed submitted for
resolution (Record, pp. 152-153). [Petitioner] filed a [M]otion for [R]econsideration
of the aforesaid [O]rder and [respondent] filed [C]omment. On 30 June 1995,
[petitioner] filed a [M]otion to [D]ismiss on the ground of lack of jurisdiction over the
subject matter of the case and forum-non-conveniens (Record, pp. 166-170). In his
[O]pposition to the [M]otion (Record, pp. 181-182) [respondent] contended that
[petitioner could] no longer question the jurisdiction of the lower court on the
ground that [the latters] Answer had failed to raise the issue of
jurisdiction. [Petitioner] countered by asserting in his Reply that jurisdiction [could]
not be fixed by agreement of the parties. The lower court dismissed [his] [M]otion
for [R]econsideration and [M]otion [to] [D]ismiss (Record, pp. 196-198), x x x.
The RTC[5] eventually rendered its February 21, 1997 Decision, [6] which disposed as
follows:
WHEREFORE, judgment is hereby
[respondent] the following amounts:

rendered,

ordering

[petitioner]

to

pay

1. The amount of U.S. dollars $241,991.33, with the interest of legal rate from
October 18, 1991, or its peso equivalent, pursuant to the [J]udgment of [S]tipulation
for [E]ntry in [J]udgment dated December 19, 1991;

2. The amount of P30,000.00 as attorneys fees;


3. To pay the costs of suit.
The claim for moral damages, not having been substantiated, it is hereby
denied.[7]
Ruling of the Court of Appeals

Affirming the trial court, the Court of Appeals held that petitioner was estopped
from assailing the judgment that had become final and had, in fact, been partially
executed. The CA also ruled that summary judgment was proper, because
petitioner had failed to tender any genuine issue of fact and was merely
maneuvering to delay the full effects of the judgment.
Citing Ingenohl v. Olsen,[8] the CA also rejected petitioners argument that the RTC
should have dismissed the action for the enforcement of a foreign judgment, on the
ground of forum non conveniens. It reasoned out that the recognition of the foreign
judgment was based on comity, reciprocity and res judicata.
Hence, this Petition.[9]
Issue

In his Memorandum, petitioner submits this lone but all-embracing issue:


Whether or not the Court of Appeals acted in a manner x x x contrary to law when
it affirmed the Order of the trial court granting respondents Motion for Summary
Judgment and rendering judgment against the petitioner. [10]
In his discussion, petitioner contends that the CA erred in ruling in this wise:
1. That his Answer failed to tender a genuine issue of fact regarding the following:
(a) the jurisdiction of a foreign court over the subject matter
(b) the validity of the foreign judgment
(c) the judgments conformity to Philippine laws, public policy, canons of morality,
and norms against unjust enrichment
2. That the principle of forum non conveniens was inapplicable to the instant case.
This Courts Ruling

The Petition has no merit.


First Question: Summary Judgment

Petitioner vehemently insists that summary judgment is inappropriate to resolve the


case at bar, arguing that his Answer allegedly raised genuine and material factual
matters which he should have been allowed to prove during trial.
On the other hand, respondent argues that the alleged genuine issues of fact
raised by petitioner are mere conclusions of law, or propositions arrived at not by
any process of natural reasoning from a fact or a combination of facts stated but by
the application of the artificial rules of law to the facts pleaded. [11]
The RTC granted respondents Motion for Summary Judgment because petitioner, in
his Answer, admitted the existence of the Judgment on Stipulation for Entry in
Judgment. Besides, he had already paid $5,000 to respondent, as provided in the
foreign judgment sought to be enforced. [12] Hence, the trial court ruled that, there
being no genuine issue as to any material fact, the case should properly be resolved
through summary judgment. The CA affirmed this ruling.
We concur with the lower courts. Summary judgment is a procedural device for the
prompt disposition of actions in which the pleadings raise only a legal issue, and not
a genuine issue as to any material fact. By genuine issue is meant a question of
fact that calls for the presentation of evidence. It should be distinguished from an
issue that is sham, contrived, set in bad faith and patently unsubstantial. [13]
Summary judgment is resorted to in order to avoid long drawn out litigations and
useless delays. When affidavits, depositions and admissions on file show that there
are no genuine issues of fact to be tried, the Rules allow a party to pierce the
allegations in the pleadings and to obtain immediate relief by way of summary
judgment. In short, since the facts are not in dispute, the court is allowed to decide
the case summarily by applying the law to the material facts.
Petitioner contends that by allowing summary judgment, the two courts a
quo prevented him from presenting evidence to substantiate his claims. We do not
agree. Summary judgment is based on facts directly proven by affidavits,
depositions or admissions.[14] In this case, the CA and the RTC both merely ruled that
trial was not necessary to resolve the case. Additionally and correctly, the RTC
specifically ordered petitioner to submit opposing affidavits to support his
contentions that (1) the Judgment on Stipulation for Entry in Judgment was procured
on the basis of fraud, collusion, undue influence, or a clear mistake of law or fact;
and (2) that it was contrary to public policy or the canons of morality. [15]
Again, in its Order[16] dated November 29, 1995, the trial court clarified that the
opposing affidavits were for [petitioner] to spell out the facts or circumstances
[that] would constitute lack of jurisdiction over the subject matter of and over the
persons involved in Case No. C21-00265, and that would render the judgment
therein null and void. In this light, petitioners contention that he was not allowed
to present evidence to substantiate his claims is clearly untenable.

For summary judgment to be valid, Rule 34, Section 3 of the Rules of Court, requires
(a) that there must be no genuine issue as to any material fact, except for the
amount of damages; and (b) that the party presenting the motion for summary
judgment must be entitled to a judgment as a matter of law. [17] As mentioned
earlier, petitioner admitted that a foreign judgment had been rendered against him
and in favor of respondent, and that he had paid $5,000 to the latter in partial
compliance therewith. Hence, respondent, as the party presenting the Motion for
Summary Judgment, was shown to be entitled to the judgment.
The CA made short shrift of the first requirement. To show that petitioner had raised
no genuine issue, it relied instead on the finality of the foreign judgment which was,
in fact, partially executed. Hence, we shall show in the following discussion how the
defenses presented by petitioner failed to tender any genuine issue of fact, and why
a full-blown trial was not necessary for the resolution of the issues.
Jurisdiction

Petitioner alleges that jurisdiction over Case No. C21-00265, which involved
partnership interest, was vested in the Securities and Exchange Commission, not in
the Superior Court of California, County of Contra Costa.
We disagree. In the absence of proof of California law on the jurisdiction of courts,
we presume that such law, if any, is similar to Philippine law. We base this
conclusion on the presumption of identity or similarity, also known as processual
presumption.[18] The Complaint,[19] which respondent filed with the trial court, was
for the enforcement of a foreign judgment. He alleged therein that the action of the
foreign court was for the collection of a sum of money, breach of promissory notes,
and damages.[20]
In our jurisdiction, such a case falls under the jurisdiction of civil courts, not of the
Securities and Exchange Commission (SEC). The jurisdiction of the latter is
exclusively over matters enumerated in Section 5, PD 902-A, [21] prior to its latest
amendment. If the foreign court did not really have jurisdiction over the case, as
petitioner claims, it would have been very easy for him to show this. Since
jurisdiction is determined by the allegations in a complaint, he only had to submit a
copy of the complaint filed with the foreign court. Clearly, this issue did not warrant
trial.
Rights to Counsel and to Due Process

Petitioner contends that the foreign judgment, which was in the form of a
Compromise Agreement, cannot be executed without the parties being assisted by
their chosen lawyers. The reason for this, he points out, is to eliminate collusion,
undue influence and/or improper exertion of ascendancy by one party over the
other. He alleges that he discharged his counsel during the proceedings, because
he felt that the latter was not properly attending to the case. The judge, however,

did not allow him to secure the services of another counsel. Insisting that petitioner
settle the case with respondent, the judge practically imposed the settlement
agreement on him. In his Opposing Affidavit, petitioner states:
It is true that I was initially represented by a counsel in the proceedings in #C2100625. I discharged him because I then felt that he was not properly attending to
my case or was not competent enough to represent my interest. I asked the Judge
for time to secure another counsel but I was practically discouraged from engaging
one as the Judge was insistent that I settle the case at once with the
[respondent]. Being a foreigner and not a lawyer at that I did not know what to
do. I felt helpless and the Judge and [respondents] lawyer were the ones telling me
what to do. Under ordinary circumstances, their directives should have been taken
with a grain of salt especially so [since respondents] counsel, who was telling me
what to do, had an interest adverse to mine. But [because] time constraints and
undue influence exerted by the Judge and [respondents] counsel on me disturbed
and seriously affected my freedom to act according to my best judgment and
belief. In point of fact, the terms of the settlement were practically imposed on me
by the Judge seconded all the time by [respondents] counsel. I was then helpless
as I had no counsel to assist me and the collusion between the Judge and
[respondents] counsel was becoming more evident by the way I was treated in the
Superior Court of [t]he State of California. I signed the Judgment on Stipulation for
Entry in Judgment without any lawyer assisting me at the time and without being
fully aware of its terms and stipulations. [22]
The manifestation of petitioner that the judge and the counsel for the opposing
party had pressured him would gain credibility only if he had not been given
sufficient time to engage the services of a new lawyer. Respondents
Affidavit[23] dated May 23, 1994, clarified, however, that petitioner had sufficient
time, but he failed to retain a counsel. Having dismissed his lawyer as early as June
19, 1991, petitioner directly handled his own defense and negotiated a settlement
with respondent and his counsel in December 1991. Respondent also stated that
petitioner, ignoring the judges reminder of the importance of having a lawyer,
argued that he would be the one to settle the case and pay anyway. Eventually,
the Compromise Agreement was presented in court and signed before Judge Ellen
James on January 3, 1992. Hence, petitioners rights to counsel and to due process
were not violated.
Unjust Enrichment

Petitioner avers that the Compromise Agreement violated the norm against unjust
enrichment because the judge made him shoulder all the liabilities in the case, even
if there were two other defendants, G.S.P & Sons, Inc. and the Genesis Group.
We cannot exonerate petitioner from his obligation under the foreign judgment,
even if there are other defendants who are not being held liable together with

him. First, the foreign judgment itself does not mention these other defendants,
their participation or their liability to respondent. Second, petitioners undated
Opposing Affidavit states: [A]lthough myself and these entities were initially
represented by Atty. Lawrence L. Severson of the Law Firm Kouns, Quinlivan &
Severson, x x x I discharged x x x said lawyer. Subsequently, I assumed the
representation for myself and these firms and this was allowed by the Superior
Court of the State of California without any authorization from G.G.P. & Sons, Inc.
and the Genesis Group. [24] Clearly, it was petitioner who chose to represent the
other defendants; hence, he cannot now be allowed to impugn a decision based on
this ground.
In any event, contrary to petitioners contention, unjust enrichment or solutio
indebiti does not apply to this case. This doctrine contemplates payment when
there is no duty to pay, and the person who receives the payment has no right to
receive it.[25] In this case, petitioner merely argues that the other two defendants
whom he represented were liable together with him. This is not a case of unjust
enrichment.
We do not see, either, how the foreign judgment could be contrary to law, morals,
public policy or the canons of morality obtaining in the country. Petitioner owed
money, and the judgment required him to pay it. That is the long and the short of
this case.
In addition, the maneuverings of petitioner before the trial court reinforce our belief
that his claims are unfounded. Instead of filing opposing affidavits to support his
affirmative defenses, he filed a Motion for Reconsideration of the Order allowing
summary judgment, as well as a Motion to Dismiss the action on the ground
of forum non conveniens. His opposing affidavits were filed only after the Order of
November 29, 1995 had denied both Motions. [26] Such actuation was considered by
the trial court as a dilatory ploy which justified the resolution of the action by
summary judgment. According to the CA, petitioners allegations sought to delay
the full effects of the judgment; hence, summary judgment was proper. On this
point, we concur with both courts.
Second Question: Forum Non Conveniens

Petitioner argues that the RTC should have refused to entertain the Complaint for
enforcement of the foreign judgment on the principle of forum non conveniens. He
claims that the trial court had no jurisdiction, because the case involved partnership
interest, and there was difficulty in ascertaining the applicable law in California. All
the aspects of the transaction took place in a foreign country, and respondent is not
even Filipino.
We disagree. Under the principle of forum non conveniens, even if the exercise of
jurisdiction is authorized by law, courts may nonetheless refuse to entertain a case
for any of the following practical reasons:

1) The belief that the matter can be better tried and decided elsewhere, either
because the main aspects of the case transpired in a foreign jurisdiction or the
material witnesses have their residence there;
2) The belief that the non-resident plaintiff sought the forum[,] a practice known
as forum shopping[,] merely to secure procedural advantages or to convey or
harass the defendant;
3) The unwillingness to extend local judicial facilities to non-residents or aliens
when the docket may already be overcrowded;
4) The inadequacy of the local judicial machinery for effectuating the right sought
to be maintained; and
The difficulty of ascertaining foreign law. [27]
None of the aforementioned reasons barred the RTC from exercising its
jurisdiction. In the present action, there was no more need for material witnesses,
no forum shopping or harassment of petitioner, no inadequacy in the local
machinery to enforce the foreign judgment, and no question raised as to the
application of any foreign law.
Authorities agree that the issue of whether a suit should be entertained or
dismissed on the basis of the above-mentioned principle depends largely upon the
facts of each case and on the sound discretion of the trial court. [28] Since the present
action lodged in the RTC was for the enforcement of a foreign judgment, there was
no need to ascertain the rights and the obligations of the parties based on foreign
laws or contracts. The parties needed only to perform their obligations under the
Compromise Agreement they had entered into.
Under Section 48, Rule 39 of the 1997 Rules of Civil Procedure, a judgment in an
action in personam rendered by a foreign tribunal clothed with jurisdiction is
presumptive evidence of a right as between the parties and their successors-ininterest by a subsequent title.[29]
Also, under Section 5(n) of Rule 131, a court -- whether in the Philippines or
elsewhere -- enjoys the presumption that it is acting in the lawful exercise of its
jurisdiction, and that it is regularly performing its official duty. [30] Its judgment may,
however, be assailed if there is evidence of want of jurisdiction, want of notice to
the party, collusion, fraud or clear mistake of law or fact. But precisely, this
possibility signals the need for a local trial court to exercise jurisdiction. Clearly, the
application of forum non coveniens is not called for.
The grounds relied upon by petitioner are contradictory. On the one hand, he insists
that the RTC take jurisdiction over the enforcement case in order to invalidate the
foreign judgment; yet, he avers that the trial court should not exercise jurisdiction
over the same case on the basis of forum non conveniens. Not only do these

defenses weaken each other, but they bolster the finding of the lower courts that he
was merely maneuvering to avoid or delay payment of his obligation.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision and
Resolution AFFIRMED. Double costs against petitioner.
SO ORDERED.
Melo, (Chairman), Vitug, Gonzaga-Reyes, and Sandoval-Gutierrez, JJ., concur.
PIONEER INTERNATIONAL, LTD.,

G.R. No. 156848

Petitioner,
Present:

QUISUMBING, J.,
Chairperson,
CARPIO,
CARPIO MORALES,
- versus -

TINGA, and
VELASCO, JR., JJ.

HON. TEOFILO GUADIZ, JR.,

Promulgated:

in his capacity as Presiding Judge of


Regional
Trial
Court,
Branch
147,Makati City, and ANTONIO D.
TODARO,

October 11, 2007

Respondents.

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

DECISION

CARPIO, J.:

The Case

This is a petition for review on certiorari [1] of the Decision[2] dated 27


September 2001 and of the Resolution[3] dated 14 January 2003 of the Court of
Appeals (appellate court) in CA-G.R. SP No. 54062. The Decision affirmed the
Orders[4] dated 4
January
1999[5] and 3
June
1999[6] of
Branch
147
of
the Regional Trial Court of Makati City (trial court) in Civil Case No. 98-124. The trial
court denied the motion to dismiss filed by Pioneer International, Ltd. (PIL) [7] in its
special appearance.

The Facts

On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for sum of


money and damages with preliminary attachment against PIL, Pioneer Concrete
Philippines, Inc. (PCPI), Pioneer Philippines Holdings, Inc. (PPHI), John G. McDonald
(McDonald), and Philip J. Klepzig(Klepzig). PIL and its co-defendants were served
copies of the summons and of the complaint at PPHI and PCPIs office
in Alabang, Muntinlupa,
through Cecille L.
De
Leon
(De
Leon),
who
was Klepzigs Executive Assistant.

Todaro alleged that PIL is a corporation duly organized under Australian laws,
while PCPI and PPHI are corporations duly organized under Philippine laws. PIL is
engaged in the ready-mix and concrete aggregates business and has established a
presence worldwide. PIL established PPHI as the holding company of the stocks of
its operating company in the Philippines, PCPI. McDonald is the Chief Executive
Officer of PILsHong Kong office while Klepzig is the President and Managing Director
of PPHI and PCPI. For his part, Todaro further alleged that he was the managing

director of Betonval Readyconcrete, Inc. (Betonval) from June 1975 up to his


resignation in February 1996.
Before Todaro filed his complaint, there were several meetings and exchanges
of letters between Todaro and the officers of Pioneer Concrete (Hong Kong) Limited,
Pioneer Concrete Group HK, PPHI, and PIL. According to Todaro, PIL contacted him in
May 1996 and asked if he could join it in establishing a pre-mixed concrete plant
and in overseeing its operations in the Philippines. Todaro confirmed his availability
and
expressed
interest
in
joining
PIL. Todaro met
with
several
of PILs representatives and even gave PIL the names of three of his subordinates
in Betonval whom he would like to join him in PIL.

Todaro attached
nine
letters,
marked
as
Annexes
A
to
I,
[8]
to his complaint. Annex A shows that on 15 July 1996, Todaro, under the
letterhead of Ital Tech Distributors, Inc., sent a letter to Max Lindsay (Lindsay)
of Pioneer Concrete (Hong Kong) Limited. Todaro wrote that [m]y aim is to run
again a ready-mix concrete company in thePhilippines and not to be a part-time
consultant. Otherwise, I could have charged your company with a much higher
fee.

Annex B[9] shows that on 4 September 1996, Lindsay, under the letterhead
of Pioneer Concrete (Hong Kong) Limited, responded by fax to Todaros faxed letter
to McDonald and proposed that Todaro join Pioneer on a retainer basis for 2 to 3
months on the understanding that [Todaro] would become a permanent employee if
as we expect, our entry proceeds. The faxed letter to McDonald referred to by
Lindsay is not found in the rollo and was not attached to Todaros complaint.

Annex C[10] shows that on the same date as that of Annex B, Todaro, under
the letterhead of Ital Tech Distributors, Inc., faxed another letter to Lindsay
of Pioneer Concrete (Hong Kong) Limited. Todaro asked for a formal letter
addressed to him about the proposed retainer. Todaro requested that the letter
contain a statement on his remuneration package and on his permanent
employment with PIONEER once it has established itself on a permanent basis in
the Philippines.

Annex D[11] shows that Todaro, under the letterhead of Ital Tech Distributors,
Inc., sent a letter to McDonald of PIL. Todaro confirmed the following to McDonald:

1.
That I am accepting the proposal of PIONEER INTL. as a consultant for
three (3) months, starting October 1, 1996, with a retainer fee of U.S. $15,000.00
per month;
2.
That after three (3) months consultancy, I should be employed by
PIONEER INTL., on a permanent basis, as its Managing Director or CEO in
thePhilippines. Remuneration package will be mutually agreed upon by PIONEER
and the undersigned;
3.
That Gino Martinel and the Sales Manager Jun Ong, will be hired as
well, on a permanent basis, by PIONEER as soon as the company is
established. Salary, likewise, will be accepted by both PIONEER and the respective
parties.

Annex E[12] is a faxed letter dated 18 November 1996 of McDonald, under


the letterhead of Pioneer Concrete Group HK, to Todaro of Ital Tech Distributors,
Inc. The first three paragraphs of McDonalds letter read:

Further to our recent meeting in Hong Kong, I am now able to confirm my offer to
engage you as a consultant to Pioneer International Ltd. Should Pioneer proceed
with an investment in the Philippines, then Pioneer would offer you a position to
manage the premixed concrete operations.
Pioneer will probably be in a position to make a decision on proceeding with an
investment by mid January 97.
The basis for your consultancy would be:

n
Monthly fee USD 15,000 per month billed on monthly basis and
payable 15 days from billing date.
n

Additional pre-approved expenses to be reimbursed.

n
agreed.

Driver and secretarial support-basis for reimbursement of this to be

n
Arrangement to commence from 1st November 96, reflecting your
contributions so far and to continue until Pioneer makes a decision.

Annex F[13] shows Todaros faxed reply, under the letterhead of Ital Tech
Distributors, Inc., to McDonald of Pioneer Concrete Group HK dated 19 November

1996. Todaro confirmed McDonalds package concerning the consultancy and


reiterated his desire to be the manager of Pioneers Philippine business venture.

Annex G[14] shows Todaros faxed reply, under the letterhead of Ital Tech
Distributors, Inc., to McDonald of PIL dated 8 April 1997. Todaro informed McDonald
that he was willing to extend assistance to the Pioneer representative
from Queensland. The tenor of the letter revealed that Todaro had not yet occupied
his expected position.

Annex H[15] shows Klepzigs letter, under the letterhead


to Todaro dated 18 September 1997. Klepzigs message reads:

of

PPHI,

It has not proven possible for this company to meet with your expectations
regarding the conditions of your providing Pioneer with consultancy services. This,
and your refusal to consider my terms of offer of permanent employment, leave me
no alternative but to withdraw these offers of employment with this company.
As you provided services under your previous agreement with our Pioneer Hong
Kong office during the month of August, I will see that they pay you at the previous
rates until the end of August. They have authorized me on behalf of Pioneer
International Ltd. to formally advise you that the agreement will cease from August
31st as per our previous discussions.
Annex
I[16] shows
the
letter
dated
20
October
1997
of
K.M. Folwell (Folwell), PILs Executive General Manager of Australia and Asia,
to Todaro. Folwell confirmed
the
contents
of Klepzigs 18
September
1997 letter. Folwells message reads:

Thank you for your letter to Dr. Schubert dated 29th September 1997 regarding the
alleged breach of contract with you. Dr. Schubert has asked me to investigate this
matter.
I have discussed and examined the material regarding your association with Pioneer
over the period from mid 1996 through to September 1997.
Clearly your consultancy services to Pioneer Hong Kong are well documented and
have been appropriately rewarded. However, in regard to your request and
expectation to be given permanent employment with Pioneer Philippines
Holdings, Inc. I am informed that negotiations to reach agreement on appropriate
terms and conditions have not been successful.

The employment conditions you specified in your letter to John McDonald dated
11th September are well beyond our expectations.
Mr. Todaro, I regret that we do not wish to pursue our association with you any
further. Mr. Klepzig was authorized to terminate this association and the letter he
sent to you dated 18th September has my support.
Thank you for your involvement with Pioneer. I wish you all the best for the future.
(Emphasis added)

PIL
filed,
by
special
appearance,
a
motion
to
dismiss Todaros complaint. PILs co-defendants, PCPI, PPHI, and Klepzig, filed a
separate motion to dismiss.[17] PIL asserted that the trial court has no jurisdiction
over PIL because PIL is a foreign corporation not doing business in
thePhilippines. PIL
also
questioned
the
service
of
summons
on
it.
Assuming arguendo that Klepzig is PILs agent
in
the Philippines,
it
was
notKlepzig but De Leon who received the summons for PIL. PIL further stated that
the National Labor Relations Commission (NLRC), and not the trial court, has
jurisdiction over the subject matter of the action. It claimed that assuming that the
trial court has jurisdiction over the subject matter of the action, the complaint
should be dismissed on the ground of forum non-conveniens. Finally, PIL
maintained that the complaint does not state a cause of action because there was
no perfected contract, and no personal judgment could be rendered by the trial
court against PIL because PIL is a foreign corporation not doing business in
the Philippines and there was improper service of summons on PIL.

Todaro filed
a
Consolidated
Opposition
dated 26
August
1998 to
refute PILs assertions. PIL filed, still by special appearance, a Reply on 2 October
1998.

The Ruling of the Trial Court

On 4 January 1999, the trial court issued an order [18] which ruled in favor
of Todaro. The trial court denied the motions to dismiss filed by PIL, PCPI, PPHI,
and Klepzig.

The trial court stated that the merits of a motion to dismiss a complaint for
lack of cause of action are tested on the strength of the allegation of facts in the

complaint. The trial court found that the allegations in the complaint sufficiently
establish a cause of action. The trial court declared that Todaros cause of action is
based on an alleged breach of a contractual obligation and an alleged violation of
Articles 19 and 21 of the Civil Code. Therefore, the cause of action does not lie
within the jurisdiction of the NLRC but with the trial court.

The trial court also asserted its jurisdiction over PIL, holding that PIL did
business in the Philippines when it entered into a contract withTodaro. Although PIL
questions the service of summons on Klepzig, whom PIL claims is not its agent, the
trial court ruled that PIL failed to adduce evidence to prove its contention. Finally,
on the issue of forum non-conveniens, the trial court found that it is more
convenient to hear and decide the case in the Philippines because Todaro resides in
the Philippines and the contract allegedly breached involves employment in
thePhilippines.

PIL filed an urgent omnibus motion for the reconsideration of the trial
courts 4 January 1999 order and for the deferment of filing its answer. PCPI, PPHI,
and Klepzig likewise filed an urgent omnibus motion. Todaro filed a consolidated
opposition, to which PIL, PCPI, PPHI, and Klepzig filed a joint reply. The trial court
issued an order[19] on 3 June 1999 denying the motions of PIL, PCPI, PPHI,
and Klepzig. The trial court gave PIL, PCPI, PPHI, and Klepzig 15 days within which
to file their respective answers.

PIL did not file an answer before the trial court and instead filed a petition for
certiorari before the appellate court.

The Ruling of the Appellate Court

The appellate court denied PILs petition and affirmed the trial courts
ruling in toto. The dispositive portion of the appellate courts decision reads:

WHEREFORE, premises considered, the present petition for certiorari is


hereby DENIED DUE COURSE and accordingly DISMISSED. The assailed Orders

dated January 4, 1999 and June 3, 1999 of the Regional Trial Court of Makati City,
Branch 147, in Civil Case No, 98-124 are hereby AFFIRMED intoto.
SO ORDERED.[20]
On 14 January 2003, the appellate court dismissed [21] PILs motion for
reconsideration for lack of merit. The appellate court stated thatPILs motion raised
no new substantial or weighty arguments that could impel the appellate court from
departing or overturning its previous decision. PIL then filed a petition for review on
certiorari before this Court.

The Issues

PIL raised the following issues before this Court:

A.
[The trial court] did not and cannot acquire jurisdiction over the person of [PIL]
considering that:
A.1.

[PIL] is a foreign corporation not doing business in the Philippines.

A.2.
Moreover, the complaint does not contain appropriate allegations of
ultimate facts showing that [PIL] is doing or transacting business in
thePhilippines.

A.3.
Assuming arguendo that jurisdiction may be acquired over
the person of
[PIL], [the trial court] still failed to acquire
jurisdiction since summons
was improperly served on [PIL].

B.
[Todaro] does not have a cause of action and the complaint fails to state a
cause of action. Jurisprudence is settled in that in resolving a motion to dismiss, a
court can consider all the pleadings filed in the case, including annexes, motions
and all evidence on record.

C.
[The trial court] did not and cannot acquire jurisdiction over the subject matter
of the complaint since the allegations contained therein indubitably show that
[Todaro] bases his claims on an alleged breach of an employment contract. Thus,
exclusive jurisdiction is vested with the [NLRC].

D. Pursuant to the principle of forum non-conveniens, [the trial court] committed


grave abuse of discretion when it took cognizance of the case. [22]

The Ruling of the Court

The petition has partial merit. We affirm with modification the rulings of the
trial and appellate courts. Apart from the issue on service of summons, the rulings
of the trial and appellate courts on the issues raised by PIL are correct.

Cause of Action

Section 2, Rule 2 of the 1997 Rules of Civil Procedure states that a cause of
action is the act or omission by which a party violates a right of another.

The general rule is that the allegations in a complaint are sufficient to


constitute a cause of action against the defendants if, admitting the facts alleged,
the court can render a valid judgment upon the same in accordance with the prayer
therein. A cause of action exists if the following elements are present, namely: (1)
a right in favor of the plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named defendant to respect or not
to violate such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting a breach of the
obligation of the defendant to the plaintiff for which the latter may maintain an
action for recovery of damages.[23]

In the present case, the summary of Todaros allegations states that PIL, PCPI,
PPHI, McDonald, and Klepzig did not fulfill their contractual obligation to
employ Todaro on a permanent basis in PILs Philippine office. Todaros allegations

are thus sufficient to establish a cause of action. We quote with approval the trial
courts ruling on this matter:

On the issue of lack of cause of action It is well-settled that the merits of a


motion to dismiss a complaint for lack of cause of action is tested on the strength of
the allegations of fact contained in the complaint and no other (De Jesus, et al.
vs. Belarmino, et al., 95 Phil. 366 [1954]). This Court finds that the allegations of the
complaint, specifically paragraphs 13-33 thereof, paragraphs 30-33 alleging as
follows:
30.
All of the acts set forth in the foregoing have been done with the
knowledge, consent and/or approval of the defendants who acted in concert and/or
in conspiracy with one another.
31.
Under the circumstances, there is a valid contract entered into
between [Todaro] and the Pioneer Group, whereby, among others, the Pioneer
Group would employ [Todaro], on a permanent basis, to manage and operate the
ready-mix concrete operations, if the Pioneer Group decides to invest in the
Philippines.
32.
The Pioneer Group has decided to invest in the Philippines. The
refusal of the defendants to comply with the Pioneer Groups undertaking to employ
[Todaro] to manage their Philippine ready-mix operations, on a permanent basis, is a
direct breach of an obligation under a valid and perfected contract.
33.
Alternatively, assuming without conceding, that there was no
contractual obligation on the part of the Pioneer Group to employ [Todaro] on a
permanent basis, in their Philippine operations, the Pioneer Group and the other
defendants did not act with justice, give [Todaro] his due and observe honesty and
good faith and/or they have willfully caused injury to [Todaro] in a manner that is
contrary to morals, good customs, and public policy, as mandated under Arts. 19
and 21 of the New Civil Code.
sufficiently establish a cause of action for breach of contract and/or violation of
Articles 19 and 21 of the New Civil Code. Whether or not these allegations are true
is immaterial for the court cannot inquire into the truth thereof, the test being
whether, given the allegations of fact in the complaint, a valid judgment could be
rendered in accordance with the prayer in the complaint. [24]

It should be emphasized that the presence of a cause of action rests on the


sufficiency, and not on the veracity, of the allegations in the complaint. The
veracity of the allegations will have to be examined during the trial on the
merits. In resolving a motion to dismiss based on lack of cause of action, the trial

court is limited to the four corners of the complaint and its annexes. It is not yet
necessary for the trial court to examine the truthfulness of the allegations in the
complaint. Such examination is proper during the trial on the merits.

Forum Non-Conveniens

The doctrine of forum non-conveniens requires an examination of the


truthfulness of the allegations in the complaint. Section 1, Rule 16 of the 1997
Rules of Civil Procedure does not mention forum non-conveniens as a ground for
filing a motion to dismiss. The propriety of dismissing a case based on forum nonconveniens requires a factual determination; hence, it is more properly considered a
matter of defense. While it is within the discretion of the trial court to abstain from
assuming jurisdiction on this ground, the trial court should do so only after vital
facts are established to determine whether special circumstances require the
courts desistance.[25]

Jurisdiction over PIL

PIL questions the trial courts exercise of jurisdiction over it on two


levels. First, that PIL is a foreign corporation not doing business in
thePhilippines and because of this, the service of summons on PIL did not follow the
mandated procedure. Second, that Todaros claims are based on an alleged breach
of an employment contract so Todaro should have filed his complaint before the
NLRC and not before the trial court.

Transacting Business in the Philippines and


Service of Summons

The first level has two sub-issues: PILs transaction of business in


the Philippines and the service of summons on PIL. Section 12, Rule 14 of the 1997
Rules of Civil Procedure provides the manner by which summons may be served
upon
a
foreign
juridical
entity
which
has
transacted
business
in
the Philippines. Thus:

Service upon foreign private juridical entity. When the defendant is a


foreign juridical entity which has transacted 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 any of its officers or agents within the Philippines.

As to the first sub-issue, PIL insists that its sole act of transacting or doing
business in the Philippines consisted of its investment in PPHI. Under Philippine
law, PILs mere investment in PPHI does not constitute doing business. However,
we affirm the lower courts ruling and declare that, based on the allegations
in Todaros complaint, PIL was doing business in the Philippines when it
negotiated Todarosemployment with PPHI. Section 3(d) of Republic Act No. 7042,
Foreign Investments Act of 1991, states:

The phrase doing business shall include soliciting orders, service


contracts, opening offices, whether called liaison offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods 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 of commercial dealings or arrangements
and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or of the purpose and object of the
business organization: Provided, however, That the phrase doing business shall
not be deemed to include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the exercise of rights
as such investor; nor having a nominee director or officer to represent its interests
in such corporation; nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account;
(Emphases added)

PILs alleged acts in actively negotiating to employ Todaro to run its pre-mixed
concrete operations in the Philippines, which acts are hypothetically admitted
in PILs motion to dismiss, are not mere acts of a passive investor in a domestic
corporation. Such are managerial and operational acts in directing and establishing

commercial operations in the Philippines. The annexes that Todaro attached to his
complaint give us an idea on the extent of PILs involvement in the negotiations
regarding Todaros employment. In Annex E, McDonald of Pioneer Concrete Group
HK confirmed his offer to engage Todaro as a consultant of PIL. In Annex
F, Todaro accepted the consultancy. In Annex H, Klepzigof PPHI stated that PIL
authorized him to tell Todaro about the cessation of his consultancy. Finally, in
Annex I, Folwell of PIL wrote to Todaroto confirm that Pioneer no longer wishes
to be associated with Todaro and that Klepzig is authorized to terminate this
association.
Folwellfurther referred to a Dr. Schubert and to Pioneer Hong
Kong. These confirmations and references tell us that, in this instance, the various
officers and companies under the Pioneer brand name do not work independently of
each other. It cannot be denied that PIL had knowledge of and even authorized the
non-implementation of Todaros alleged permanent employment. In fact, in the
letters to Todaro, the word Pioneer was used to refer not just to PIL alone but also
to all corporations negotiating with Todaro under the Pioneer name.

As further proof of the interconnection of the various Pioneer corporations with


regard to their negotiations with Todaro, McDonald of Pioneer Concrete Group HK
confirmed Todaros engagement as consultant of PIL (Annex E) while Folwell of PIL
stated that Todaro rendered consultancy services to Pioneer HK (Annex I). In this
sense, the various Pioneer corporations were not acting as separate
corporations. The behavior of the various Pioneer corporations shoots down their
defense that the corporations have separate and distinct personalities,
managements, and operations. The various Pioneer corporations were all working
in concert to negotiate an employment contract betweenTodaro and PPHI, a
domestic corporation.

Finally, the phrase doing business in the Philippines in the former version of
Section 12, Rule 14 now reads has transacted business in the Philippines. The
scope is thus broader in that it is enough for the application of the Rule that the
foreign private juridical entity has transacted business in the Philippines.[26]

As to the second sub-issue, the purpose of summons is not only to acquire


jurisdiction over the person of the defendant, but also to give notice to the
defendant that an action has been commenced against it and to afford it an
opportunity to be heard on the claim made against it. The requirements of the rule
on summons must be strictly followed; otherwise, the trial court will not acquire
jurisdiction over the defendant.

When summons is to be served on a natural person, service of summons


should be made in person on the defendant. [27] Substituted service is resorted to
only upon the concurrence of two requisites: (1) when the defendant cannot be
served personally within a reasonable time and (2) when there is impossibility of
prompt service as shown by the statement in the proof of service in the efforts
made to find the defendant personally and that such efforts failed. [28]

The statutory requirements of substituted service must be followed strictly,


faithfully, and fully, and any substituted service other than by the statute is
considered ineffective. Substituted service is in derogation of the usual method of
service. It is a method extraordinary in character and may be used only as
prescribed and in the circumstances authorized by the statute. [29] The need for
strict compliance with the requirements of the rule on summons is also exemplified
in the exclusive enumeration of the agents of a domestic private juridical entity who
are authorized to receive summons.

At present, Section 11 of Rule 14 provides that when the defendant is a


domestic private juridical entity, service may be made on the president, managing
partner, general manager, corporate secretary, treasurer, or in-house counsel. The
previous version of Section 11 allowed for the service of summons on the
president, manager, secretary, cashier, agent, or any of its directors. The present
Section 11 qualified manager to general manager and secretary to corporate
secretary. The present Section 11 also removed cashier, agent, or any of its
directors from the exclusive enumeration.

When summons is served on a foreign juridical entity, there are three


prescribed ways: (1) service on its resident agent designated in accordance with
law for that purpose, (2) service on the government official designated by law to
receive summons if the corporation does not have a resident agent, and (3) service
on any of the corporations officers or agents within the Philippines. [30]

In the present case, service of summons on PIL failed to follow any of the
prescribed processes. PIL had no resident agent in thePhilippines. Summons was
not served on the Securities and Exchange Commission (SEC), the designated
government agency,[31] since PIL is not registered with the SEC. Summons for PIL
was served on De Leon, Klepzigs Executive Assistant. Klepzig is PILs agent within
thePhilippines because PIL authorized Klepzig to notify Todaro of the cessation of
his consultancy (Annexes H and I).[32] The authority given by PIL to Klepzig to

notify Todaro implies


that Klepzig was likewise
authorized
to
receive Todaros response to PILs notice. Todaro responded to PILs notice by filing
a complaint before the trial court.

However, summons was not served personally on Klepzig as agent of


PIL. Instead, summons was served on De Leon, Klepzigs Executive Assistant. In
this instance, De Leon was not PILs agent but a mere employee of Klepzig. In
effect, the sheriff[33] resorted to substituted service. For symmetry, we apply the rule
on substituted service of summons on a natural person and we find that no reason
was given to justify the service of PILs summons on De Leon.

Thus, we rule that PIL transacted business in the Philippines and Klepzig was
its agent within the Philippines. However, there was improper service of summons
on PIL since summons was not served personally on Klepzig.

NLRC Jurisdiction

As to the second level, Todaro prays for payment of damages due him
because of PILs non-implementation of Todaros alleged employment agreement
with PPHI. The appellate court stated its ruling on this matter, thus:

It could not be denied that there was no existing contract yet to speak of
between PIONEER INTL. and [Todaro]. Since there was an absence of an
employment contract between the two parties, this Court is of the opinion and so
holds that no employer-employee relationship actually exists. Record reveals that
all that was agreed upon by [Todaro] and the Pioneer Concrete, acting in behalf of
PIONEER INTL., was the confirmation of the offer to engage the services of the
former as consultant of PIONEER INTL. (Rollo, p. 132). The failure on the part of
PIONEER INTL. to abide by the said agreement, which was duly confirmed by
PIONEER INTL., brought about a breach of an obligation on a valid and perfected
agreement. There being no employer-employee relationship established between
[PIL] and [Todaro], it could be said that the instant case falls within the jurisdiction
of the regular courts of justice as the money claim of [Todaro] did not arise out of or
in connection with [an] employer-employee relationship. [34]

Todaros employment in the Philippines would not be with PIL but with PPHI as
stated in the 20 October 1997 letter of Folwell. Assuming the existence of the
employment agreement, the employer-employee relationship would be between
PPHI and Todaro, not between PIL andTodaro. PILs liability for the nonimplementation of the alleged employment agreement is a civil dispute properly
belonging to the regular courts. Todaros causes of action as stated in his
complaint are, in addition to breach of contract, based on violation of Articles 19
and 21 of the New Civil Code for the clear and evident bad faith and malice [35] on
the part of defendants. The NLRCs jurisdiction is limited to those enumerated under
Article 217 of the Labor Code.[36]
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated 27
September 2001 and the Resolution dated 14 January 2003 of the appellate court
are AFFIRMED with the MODIFICATION that there was improper service of
summons on Pioneer International, Ltd. The case is remanded to the trial court for
proper service of summons and trial. No costs.

SO ORDERED.
G.R. No. 162894

February 26, 2008

RAYTHEON
INTERNATIONAL,
vs.
STOCKTON W. ROUZIE, JR., respondent.

INC., petitioner,

DECISION
TINGA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure which seeks the reversal of the Decision 1 and Resolution2 of
the Court of Appeals in CA-G.R. SP No. 67001 and the dismissal of the civil case filed
by respondent against petitioner with the trial court.
As culled from the records of the case, the following antecedents appear:
Sometime in 1990, Brand Marine Services, Inc. (BMSI), a corporation duly organized
and existing under the laws of the State of Connecticut, United States of America,
and respondent Stockton W. Rouzie, Jr., an American citizen, entered into a contract
whereby BMSI hired respondent as its representative to negotiate the sale of
services in several government projects in the Philippines for an agreed
remuneration of 10% of the gross receipts. On 11 March 1992, respondent secured
a service contract with the Republic of the Philippines on behalf of BMSI for the
dredging of rivers affected by the Mt. Pinatubo eruption and mudflows. 3

On 16 July 1994, respondent filed before the Arbitration Branch of the National
Labor Relations Commission (NLRC) a suit against BMSI and Rust International, Inc.
(RUST), Rodney C. Gilbert and Walter G. Browning for alleged nonpayment of
commissions, illegal termination and breach of employment contract. 4 On 28
September 1995, Labor Arbiter Pablo C. Espiritu, Jr. rendered judgment ordering
BMSI and RUST to pay respondents money claims. 5 Upon appeal by BMSI, the NLRC
reversed the decision of the Labor Arbiter and dismissed respondents complaint on
the ground of lack of jurisdiction. 6 Respondent elevated the case to this Court but
was dismissed in a Resolution dated 26 November 1997. The Resolution became
final and executory on 09 November 1998.
On 8 January 1999, respondent, then a resident of La Union, instituted an action for
damages before the Regional Trial Court (RTC) of Bauang, La Union. The
Complaint,7 docketed as Civil Case No. 1192-BG, named as defendants herein
petitioner Raytheon International, Inc. as well as BMSI and RUST, the two
corporations impleaded in the earlier labor case. The complaint essentially
reiterated the allegations in the labor case that BMSI verbally employed respondent
to negotiate the sale of services in government projects and that respondent was
not paid the commissions due him from the Pinatubo dredging project which he
secured on behalf of BMSI. The complaint also averred that BMSI and RUST as well
as petitioner itself had combined and functioned as one company.
In its Answer,8 petitioner alleged that contrary to respondents claim, it was a
foreign corporation duly licensed to do business in the Philippines and denied
entering into any arrangement with respondent or paying the latter any sum of
money. Petitioner also denied combining with BMSI and RUST for the purpose of
assuming the alleged obligation of the said companies. 9 Petitioner also referred to
the NLRC decision which disclosed that per the written agreement between
respondent and BMSI and RUST, denominated as "Special Sales Representative
Agreement," the rights and obligations of the parties shall be governed by the laws
of the State of Connecticut.10Petitioner sought the dismissal of the complaint on
grounds of failure to state a cause of action and forum non conveniens and prayed
for damages by way of compulsory counterclaim. 11
On 18 May 1999, petitioner filed an Omnibus Motion for Preliminary Hearing Based
on Affirmative Defenses and for Summary Judgment 12 seeking the dismissal of the
complaint on grounds of forum non conveniens and failure to state a cause of
action. Respondent opposed the same. Pending the resolution of the omnibus
motion, the deposition of Walter Browning was taken before the Philippine Consulate
General in Chicago.13
In an Order14 dated 13 September 2000, the RTC denied petitioners omnibus
motion. The trial court held that the factual allegations in the complaint, assuming
the same to be admitted, were sufficient for the trial court to render a valid
judgment thereon. It also ruled that the principle of forum non conveniens was

inapplicable because the trial court could enforce judgment on petitioner, it being a
foreign corporation licensed to do business in the Philippines. 15
Petitioner filed a Motion for Reconsideration 16 of the order, which motion was
opposed by respondent.17 In an Order dated 31 July 2001, 18 the trial court denied
petitioners motion. Thus, it filed a Rule 65 Petition 19 with the Court of Appeals
praying for the issuance of a writ of certiorari and a writ of injunction to set aside
the twin orders of the trial court dated 13 September 2000 and 31 July 2001 and to
enjoin the trial court from conducting further proceedings. 20
On 28 August 2003, the Court of Appeals rendered the assailed Decision 21 denying
the petition for certiorari for lack of merit. It also denied petitioners motion for
reconsideration in the assailed Resolution issued on 10 March 2004. 22
The appellate court held that although the trial court should not have confined itself
to the allegations in the complaint and should have also considered
evidence aliunde in resolving petitioners omnibus motion, it found the evidence
presented by petitioner, that is, the deposition of Walter Browning, insufficient for
purposes of determining whether the complaint failed to state a cause of action.
The appellate court also stated that it could not rule one way or the other on the
issue of whether the corporations, including petitioner, named as defendants in the
case had indeed merged together based solely on the evidence presented by
respondent. Thus, it held that the issue should be threshed out during
trial.23 Moreover, the appellate court deferred to the discretion of the trial court
when the latter decided not to desist from assuming jurisdiction on the ground of
the inapplicability of the principle of forum non conveniens.
Hence, this petition raising the following issues:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO DISMISS THE
COMPLAINT FOR FAILURE TO STATE A CAUSE OF ACTION AGAINST RAYTHEON
INTERNATIONAL, INC.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO DISMISS THE
COMPLAINT ON THE GROUND OF FORUM NON CONVENIENS.24
Incidentally, respondent failed to file a comment despite repeated notices. The
Ceferino Padua Law Office, counsel on record for respondent, manifested that the
lawyer handling the case, Atty. Rogelio Karagdag, had severed relations with the law
firm even before the filing of the instant petition and that it could no longer find the
whereabouts of Atty. Karagdag or of respondent despite diligent efforts. In a
Resolution25 dated 20 November 2006, the Court resolved to dispense with the filing
of a comment.
The instant petition lacks merit.

Petitioner mainly asserts that the written contract between respondent and BMSI
included a valid choice of law clause, that is, that the contract shall be governed by
the laws of the State of Connecticut. It also mentions the presence of foreign
elements in the dispute namely, the parties and witnesses involved are American
corporations and citizens and the evidence to be presented is located outside the
Philippines that renders our local courts inconvenient forums. Petitioner theorizes
that the foreign elements of the dispute necessitate the immediate application of
the doctrine of forum non conveniens.
Recently in Hasegawa v. Kitamura,26 the Court outlined three consecutive phases
involved in judicial resolution of conflicts-of-laws problems, namely: jurisdiction,
choice of law, and recognition and enforcement of judgments. Thus, in the
instances27 where the Court held that the local judicial machinery was adequate to
resolve controversies with a foreign element, the following requisites had to be
proved: (1) that the Philippine Court is one to which the parties may conveniently
resort; (2) that the Philippine Court is in a position to make an intelligent decision as
to the law and the facts; and (3) that the Philippine Court has or is likely to have the
power to enforce its decision.28
On the matter of jurisdiction over a conflicts-of-laws problem where the case is filed
in a Philippine court and where the court has jurisdiction over the subject matter,
the parties and the res, it may or can proceed to try the case even if the rules of
conflict-of-laws or the convenience of the parties point to a foreign forum. This is an
exercise of sovereign prerogative of the country where the case is filed. 29
Jurisdiction over the nature and subject matter of an action is conferred by the
Constitution and the law30 and by the material allegations in the complaint,
irrespective of whether or not the plaintiff is entitled to recover all or some of the
claims or reliefs sought therein. 31 Civil Case No. 1192-BG is an action for damages
arising from an alleged breach of contract. Undoubtedly, the nature of the action
and the amount of damages prayed are within the jurisdiction of the RTC.
As regards jurisdiction over the parties, the trial court acquired jurisdiction over
herein respondent (as party plaintiff) upon the filing of the complaint. On the other
hand, jurisdiction over the person of petitioner (as party defendant) was acquired by
its voluntary appearance in court. 32
That the subject contract included a stipulation that the same shall be governed by
the laws of the State of Connecticut does not suggest that the Philippine courts, or
any other foreign tribunal for that matter, are precluded from hearing the civil
action. Jurisdiction and choice of law are two distinct concepts. Jurisdiction considers
whether it is fair to cause a defendant to travel to this state; choice of law asks the
further question whether the application of a substantive law which will determine
the merits of the case is fair to both parties. 33The choice of law stipulation will

become relevant only when the substantive issues of the instant case develop, that
is, after hearing on the merits proceeds before the trial court.
Under the doctrine of forum non conveniens, a court, in conflicts-of-laws cases, may
refuse impositions on its jurisdiction where it is not the most "convenient" or
available forum and the parties are not precluded from seeking remedies
elsewhere.34 Petitioners averments of the foreign elements in the instant case are
not sufficient to oust the trial court of its jurisdiction over Civil Case No. No. 1192-BG
and the parties involved.
Moreover, the propriety of dismissing a case based on the principle of forum non
conveniens requires a factual determination; hence, it is more properly considered
as a matter of defense. While it is within the discretion of the trial court to abstain
from assuming jurisdiction on this ground, it should do so only after vital facts are
established, to determine whether special circumstances require the courts
desistance.35
Finding no grave abuse of discretion on the trial court, the Court of Appeals
respected its conclusion that it can assume jurisdiction over the dispute
notwithstanding its foreign elements. In the same manner, the Court defers to the
sound discretion of the lower courts because their findings are binding on this Court.
Petitioner also contends that the complaint in Civil Case No. 1192-BG failed to state
a cause of action against petitioner. Failure to state a cause of action refers to the
insufficiency of allegation in the pleading. 36 As a general rule, the elementary test
for failure to state a cause of action is whether the complaint alleges facts which if
true would justify the relief demanded.37
The complaint alleged that petitioner had combined with BMSI and RUST to function
as one company. Petitioner contends that the deposition of Walter Browning
rebutted this allegation. On this score, the resolution of the Court of Appeals is
instructive, thus:
x x x Our examination of the deposition of Mr. Walter Browning as well as other
documents produced in the hearing shows that these evidence aliunde are not quite
sufficient for us to mete a ruling that the complaint fails to state a cause of action.
Annexes "A" to "E" by themselves are not substantial, convincing and conclusive
proofs that Raytheon Engineers and Constructors, Inc. (REC) assumed the warranty
obligations of defendant Rust International in the Makar Port Project in General
Santos City, after Rust International ceased to exist after being absorbed by REC.
Other documents already submitted in evidence are likewise meager to
preponderantly conclude that Raytheon International, Inc., Rust International[,] Inc.
and Brand Marine Service, Inc. have combined into one company, so much so that
Raytheon International, Inc., the surviving company (if at all) may be held liable for

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

THIRD DIVISION

KAZUHIRO HASEGAWA and NIPPON G.R. No. 149177


ENGINEERING CONSULTANTS CO., LTD.,
Petitioners,

Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus -

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

MINORU KITAMURA,

Promulgated:

Respondent.
November 23, 2007

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

DECISION

NACHURA, J.:

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

On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd.


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

When the STAR Project was near completion, the Department of Public Works
and Highways (DPWH) engaged the consultancy services ofNippon, 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. Nippon insisted that respondents contract was for a fixed term that had
already expired, and refused to negotiate for the renewal of the ICA.[10]

As he was not able to generate a positive response from the petitioners,


respondent consequently initiated on June 1, 2000 Civil Case No. 00-0264 for
specific performance and damages with the Regional Trial Court of Lipa City.[11]

For their part, petitioners, contending that the ICA had been perfected
in Japan and executed by and between Japanese nationals, moved to dismiss the
complaint for lack of jurisdiction. They asserted that the claim for improper pretermination 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 forCertiorari 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 secondPetition for Certiorari under

Rule 65 already stating therein the material dates and attaching thereto the proper
verification and certification. This second petition, which substantially raised the
same issues as those in the first, was docketed as CA-G.R. SP No. 60827.[21]

Ruling on the merits of the second petition, the appellate court rendered the
assailed April 18, 2001 Decision[22] finding no grave abuse of discretion in the trial
court's denial of the motion to dismiss. The CA ruled, among others, that the
principle of lex loci celebrationis was not applicable to the case, because nowhere in
the pleadings was the validity of the written agreement put in issue. The CA thus
declared that the trial court was correct in applying instead the principle of lex loci
solutionis.[23]

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


the assailed July 25, 2001 Resolution.[24]

Remaining steadfast in their stance despite the series of denials, petitioners


instituted the instant Petition for Review on Certiorari[25]imputing the following errors
to the appellate court:

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

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

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

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

Kitamura contends that the finality of the appellate court's decision in CA-G.R.
SP No. 60205 has already barred the filing of the second petition docketed as CAG.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 ofNippon,
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 wellestablished rule that an order denying a motion to dismiss is interlocutory,
and cannot be the subject of the extraordinarypetition for certiorari or mandamus.
The appropriate recourse is to file an answer and to interpose as defenses the
objections raised in themotion, 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 certiorarisignificantly 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]

[54]

Analytically, jurisdiction and choice of law are two distinct concepts.


Jurisdiction considers whether it is fair to cause a defendant to travel to this

state; choice of law asks the further question whether the application of a
substantive law which will determine the merits of the case is fair to both parties.
The 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.

G.R. No. 156848

October 11, 2007

PIONEER
INTERNATIONAL,
LTD., petitioner,
vs.
HON. TEOFILO GUADIZ, JR., in his capacity as Presiding Judge of Regional
Trial Court, Branch 147, Makati City, and ANTONIO D. TODARO, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for review on certiorari 1 of the Decision2 dated 27 September 2001
and of the Resolution3 dated 14 January 2003 of the Court of Appeals (appellate
court) in CA-G.R. SP No. 54062. The Decision affirmed the Orders 4 dated 4 January
19995 and 3 June 19996 of Branch 147 of the Regional Trial Court of Makati City (trial
court) in Civil Case No. 98-124. The trial court denied the motion to dismiss filed by
Pioneer International, Ltd. (PIL)7 in its special appearance.
The Facts
On 16 January 1998, Antonio D. Todaro (Todaro) filed a complaint for sum of money
and damages with preliminary attachment against PIL, Pioneer Concrete Philippines,
Inc. (PCPI), Pioneer Philippines Holdings, Inc. (PPHI), John G. McDonald (McDonald),
and Philip J. Klepzig (Klepzig). PIL and its co-defendants were served copies of the
summons and of the complaint at PPHI and PCPIs office in Alabang, Muntinlupa,
through Cecille L. De Leon (De Leon), who was Klepzigs Executive Assistant.
Todaro alleged that PIL is a corporation duly organized under Australian laws, while
PCPI and PPHI are corporations duly organized under Philippine laws. PIL is engaged
in the ready-mix and concrete aggregates business and has established a presence
worldwide. PIL established PPHI as the holding company of the stocks of its
operating company in the Philippines, PCPI. McDonald is the Chief Executive Officer
of PILs Hong Kong office while Klepzig is the President and Managing Director of
PPHI and PCPI. For his part, Todaro further alleged that he was the managing
director of Betonval Readyconcrete, Inc. (Betonval) from June 1975 up to his
resignation in February 1996.
Before Todaro filed his complaint, there were several meetings and exchanges of
letters between Todaro and the officers of Pioneer Concrete (Hong Kong) Limited,
Pioneer Concrete Group HK, PPHI, and PIL. According to Todaro, PIL contacted him in
May 1996 and asked if he could join it in establishing a pre-mixed concrete plant

and in overseeing its operations in the Philippines. Todaro confirmed his availability
and expressed interest in joining PIL. Todaro met with several of PILs
representatives and even gave PIL the names of three of his subordinates in
Betonval whom he would like to join him in PIL.
Todaro attached nine letters, marked as Annexes "A" to "I," to his complaint. Annex
"A"8 shows that on 15 July 1996, Todaro, under the letterhead of Ital Tech
Distributors, Inc., sent a letter to Max Lindsay (Lindsay) of Pioneer Concrete (Hong
Kong) Limited. Todaro wrote that "[m]y aim is to run again a ready-mix concrete
company in the Philippines and not to be a part-time consultant. Otherwise, I could
have charged your company with a much higher fee."
Annex "B"9 shows that on 4 September 1996, Lindsay, under the letterhead of
Pioneer Concrete (Hong Kong) Limited, responded by fax to Todaros faxed letter to
McDonald and proposed that Todaro "join Pioneer on a retainer basis for 2 to 3
months on the understanding that [Todaro] would become a permanent employee if
as we expect, our entry proceeds." The faxed letter to McDonald referred to by
Lindsay is not found in the rollo and was not attached to Todaros complaint.
Annex "C"10 shows that on the same date as that of Annex "B," Todaro, under the
letterhead of Ital Tech Distributors, Inc., faxed another letter to Lindsay of Pioneer
Concrete (Hong Kong) Limited. Todaro asked for a formal letter addressed to him
about the proposed retainer. Todaro requested that the letter contain a statement
on his remuneration package and on his permanent employment "with PIONEER
once it has established itself on a permanent basis in the Philippines."
Annex "D"11 shows that Todaro, under the letterhead of Ital Tech Distributors, Inc.,
sent a letter to McDonald of PIL. Todaro confirmed the following to McDonald:
1. That I am accepting the proposal of PIONEER INTL. as a consultant for three (3)
months, starting October 1, 1996, with a retainer fee of U.S. $15,000.00 per month;
2. That after three (3) months consultancy, I should be employed by PIONEER INTL.,
on a permanent basis, as its Managing Director or CEO in the Philippines.
Remuneration package will be mutually agreed upon by PIONEER and the
undersigned;
3. That Gino Martinel and the Sales Manager Jun Ong, will be hired as well, on a
permanent basis, by PIONEER as soon as the company is established. Salary,
likewise, will be accepted by both PIONEER and the respective parties.
Annex "E"12 is a faxed letter dated 18 November 1996 of McDonald, under the
letterhead of Pioneer Concrete Group HK, to Todaro of Ital Tech Distributors, Inc. The
first three paragraphs of McDonalds letter read:
Further to our recent meeting in Hong Kong, I am now able to confirm my offer to
engage you as a consultant to Pioneer International Ltd. Should Pioneer proceed

with an investment in the Philippines, then Pioneer would offer you a position to
manage the premixed concrete operations.
Pioneer will probably be in a position to make a decision on proceeding with an
investment by mid January 97.
The basis for your consultancy would be:

Monthly fee USD 15,000 per month billed on monthly basis and payable 15
days from billing date.

Additional pre-approved expenses to be reimbursed.

Driver and secretarial support-basis for reimbursement of this to be agreed.

Arrangement to commence from 1st November 96, reflecting


contributions so far and to continue until Pioneer makes a decision.

your

Annex "F"13 shows Todaros faxed reply, under the letterhead of Ital Tech
Distributors, Inc., to McDonald of Pioneer Concrete Group HK dated 19 November
1996. Todaro confirmed McDonalds package concerning the consultancy and
reiterated his desire to be the manager of Pioneers Philippine business venture.
Annex "G"14 shows Todaros faxed reply, under the letterhead of Ital Tech
Distributors, Inc., to McDonald of PIL dated 8 April 1997. Todaro informed McDonald
that he was willing to extend assistance to the Pioneer representative from
Queensland. The tenor of the letter revealed that Todaro had not yet occupied his
expected position.
Annex "H"15 shows Klepzigs letter, under the letterhead of PPHI, to Todaro dated 18
September 1997. Klepzigs message reads:
It has not proven possible for this company to meet with your expectations
regarding the conditions of your providing Pioneer with consultancy services. This,
and your refusal to consider my terms of offer of permanent employment, leave me
no alternative but to withdraw these offers of employment with this company.
As you provided services under your previous agreement with our Pioneer Hong
Kong office during the month of August, I will see that they pay you at the previous
rates until the end of August. They have authorized me on behalf of Pioneer
International Ltd. to formally advise you that the agreement will cease from August
31st as per our previous discussions.
Annex "I"16 shows the letter dated 20 October 1997 of K.M. Folwell (Folwell), PILs
Executive General Manager of Australia and Asia, to Todaro. Folwell confirmed the
contents of Klepzigs 18 September 1997 letter. Folwells message reads:

Thank you for your letter to Dr. Schubert dated 29 th September 1997 regarding the
alleged breach of contract with you. Dr. Schubert has asked me to investigate this
matter.
I have discussed and examined the material regarding your association with Pioneer
over the period from mid 1996 through to September 1997.
Clearly your consultancy services to Pioneer Hong Kong are well documented and
have been appropriately rewarded. However, in regard to your request and
expectation to be given permanent employment with Pioneer Philippines
Holdings, Inc. I am informed that negotiations to reach agreement on appropriate
terms and conditions have not been successful.
The employment conditions you specified in your letter to John McDonald dated
11th September are well beyond our expectations.
Mr. Todaro, I regret that we do not wish to pursue our association with you any
further. Mr. Klepzig was authorized to terminate this association and the letter he
sent to you dated 18th September has my support.
Thank you for your involvement with Pioneer. I wish you all the best for the future.
(Emphasis added)
PIL filed, by special appearance, a motion to dismiss Todaros complaint. PILs codefendants, PCPI, PPHI, and Klepzig, filed a separate motion to dismiss. 17 PIL
asserted that the trial court has no jurisdiction over PIL because PIL is a foreign
corporation not doing business in the Philippines. PIL also questioned the service of
summons on it. Assuming arguendo that Klepzig is PILs agent in the Philippines, it
was not Klepzig but De Leon who received the summons for PIL. PIL further stated
that the National Labor Relations Commission (NLRC), and not the trial court, has
jurisdiction over the subject matter of the action. It claimed that assuming that the
trial court has jurisdiction over the subject matter of the action, the complaint
should be dismissed on the ground of forum non-conveniens. Finally, PIL maintained
that the complaint does not state a cause of action because there was no perfected
contract, and no personal judgment could be rendered by the trial court against PIL
because PIL is a foreign corporation not doing business in the Philippines and there
was improper service of summons on PIL.
Todaro filed a Consolidated Opposition dated 26 August 1998 to refute PILs
assertions. PIL filed, still by special appearance, a Reply on 2 October 1998.
The Ruling of the Trial Court
On 4 January 1999, the trial court issued an order 18 which ruled in favor of Todaro.
The trial court denied the motions to dismiss filed by PIL, PCPI, PPHI, and Klepzig.

The trial court stated that the merits of a motion to dismiss a complaint for lack of
cause of action are tested on the strength of the allegation of facts in the complaint.
The trial court found that the allegations in the complaint sufficiently establish a
cause of action. The trial court declared that Todaros cause of action is based on an
alleged breach of a contractual obligation and an alleged violation of Articles 19 and
21 of the Civil Code. Therefore, the cause of action does not lie within the
jurisdiction of the NLRC but with the trial court.
The trial court also asserted its jurisdiction over PIL, holding that PIL did business in
the Philippines when it entered into a contract with Todaro. Although PIL questions
the service of summons on Klepzig, whom PIL claims is not its agent, the trial court
ruled that PIL failed to adduce evidence to prove its contention. Finally, on the issue
of forum non-conveniens, the trial court found that it is more convenient to hear and
decide the case in the Philippines because Todaro resides in the Philippines and the
contract allegedly breached involves employment in the Philippines.
PIL filed an urgent omnibus motion for the reconsideration of the trial courts 4
January 1999 order and for the deferment of filing its answer. PCPI, PPHI, and
Klepzig likewise filed an urgent omnibus motion. Todaro filed a consolidated
opposition, to which PIL, PCPI, PPHI, and Klepzig filed a joint reply. The trial court
issued an order19on 3 June 1999 denying the motions of PIL, PCPI, PPHI, and Klepzig.
The trial court gave PIL, PCPI, PPHI, and Klepzig 15 days within which to file their
respective answers.
PIL did not file an answer before the trial court and instead filed a petition for
certiorari before the appellate court.
The Ruling of the Appellate Court
The appellate court denied PILs petition and affirmed the trial courts ruling in toto.
The dispositive portion of the appellate courts decision reads:
WHEREFORE, premises considered, the present petition for certiorari is hereby
DENIED DUE COURSE and accordingly DISMISSED. The assailed Orders dated
January 4, 1999 and June 3, 1999 of the Regional Trial Court of Makati City, Branch
147, in Civil Case No, 98-124 are hereby AFFIRMED in toto.
SO ORDERED.20
On 14 January 2003, the appellate court dismissed 21 PILs motion for reconsideration
for lack of merit. The appellate court stated that PILs motion raised no new
substantial or weighty arguments that could impel the appellate court from
departing or overturning its previous decision. PIL then filed a petition for review on
certiorari before this Court.
The Issues

PIL raised the following issues before this Court:


A. [The trial court] did not and cannot acquire jurisdiction over the person of [PIL]
considering that:
A.1. [PIL] is a foreign corporation "not doing business" in the Philippines.
A.2. Moreover, the complaint does not contain appropriate allegations of ultimate
facts showing that [PIL] is doing or transacting business in the Philippines.
A.3. Assuming arguendo that jurisdiction may be acquired over the person of [PIL],
[the trial court] still failed to acquire jurisdiction since summons was improperly
served on [PIL].
B. [Todaro] does not have a cause of action and the complaint fails to state a cause
of action. Jurisprudence is settled in that in resolving a motion to dismiss, a court
can consider all the pleadings filed in the case, including annexes, motions and all
evidence on record.
C. [The trial court] did not and cannot acquire jurisdiction over the subject matter of
the complaint since the allegations contained therein indubitably show that [Todaro]
bases his claims on an alleged breach of an employment contract. Thus, exclusive
jurisdiction is vested with the [NLRC].
D. Pursuant to the principle of forum non-conveniens, [the trial court] committed
grave abuse of discretion when it took cognizance of the case. 22
The Ruling of the Court
The petition has partial merit. We affirm with modification the rulings of the trial and
appellate courts. Apart from the issue on service of summons, the rulings of the trial
and appellate courts on the issues raised by PIL are correct.
Cause of Action
Section 2, Rule 2 of the 1997 Rules of Civil Procedure states that a cause of action is
the act or omission by which a party violates a right of another.
The general rule is that the allegations in a complaint are sufficient to constitute a
cause of action against the defendants if, admitting the facts alleged, the court can
render a valid judgment upon the same in accordance with the prayer therein. A
cause of action exists if the following elements are present, namely: (1) a right in
favor of the plaintiff by whatever means and under whatever law it arises or is
created; (2) an obligation on the part of the named defendant to respect or not to
violate such right; and (3) an act or omission on the part of such defendant violative
of the right of the plaintiff or constituting a breach of the obligation of the defendant
to the plaintiff for which the latter may maintain an action for recovery of
damages.23

In the present case, the summary of Todaros allegations states that PIL, PCPI, PPHI,
McDonald, and Klepzig did not fulfill their contractual obligation to employ Todaro on
a permanent basis in PILs Philippine office. Todaros allegations are thus sufficient
to establish a cause of action. We quote with approval the trial courts ruling on this
matter:
On the issue of lack of cause of action It is well-settled that the merits of a motion
to dismiss a complaint for lack of cause of action is tested on the strength of the
allegations of fact contained in the complaint and no other (De Jesus, et al. vs.
Belarmino, et al., 95 Phil. 366 [1954]). This Court finds that the allegations of the
complaint, specifically paragraphs 13-33 thereof, paragraphs 30-33 alleging as
follows:
"30. All of the acts set forth in the foregoing have been done with the knowledge,
consent and/or approval of the defendants who acted in concert and/or in
conspiracy with one another.
31. Under the circumstances, there is a valid contract entered into between [Todaro]
and the Pioneer Group, whereby, among others, the Pioneer Group would employ
[Todaro], on a permanent basis, to manage and operate the ready-mix concrete
operations, if the Pioneer Group decides to invest in the Philippines.
32. The Pioneer Group has decided to invest in the Philippines. The refusal of the
defendants to comply with the Pioneer Groups undertaking to employ [Todaro] to
manage their Philippine ready-mix operations, on a permanent basis, is a direct
breach of an obligation under a valid and perfected contract.
33. Alternatively, assuming without conceding, that there was no contractual
obligation on the part of the Pioneer Group to employ [Todaro] on a permanent
basis, in their Philippine operations, the Pioneer Group and the other defendants did
not act with justice, give [Todaro] his due and observe honesty and good faith
and/or they have willfully caused injury to [Todaro] in a manner that is contrary to
morals, good customs, and public policy, as mandated under Arts. 19 and 21 of the
New Civil Code."
sufficiently establish a cause of action for breach of contract and/or violation of
Articles 19 and 21 of the New Civil Code. Whether or not these allegations are true
is immaterial for the court cannot inquire into the truth thereof, the test being
whether, given the allegations of fact in the complaint, a valid judgment could be
rendered in accordance with the prayer in the complaint. 24
It should be emphasized that the presence of a cause of action rests on the
sufficiency, and not on the veracity, of the allegations in the complaint. The veracity
of the allegations will have to be examined during the trial on the merits. In
resolving a motion to dismiss based on lack of cause of action, the trial court is
limited to the four corners of the complaint and its annexes. It is not yet necessary

for the trial court to examine the truthfulness of the allegations in the complaint.
Such examination is proper during the trial on the merits.
Forum Non-Conveniens
The doctrine of forum non-conveniens requires an examination of the truthfulness of
the allegations in the complaint. Section 1, Rule 16 of the 1997 Rules of Civil
Procedure does not mention forum non-conveniens as a ground for filing a motion to
dismiss. The propriety of dismissing a case based on forum non-conveniens requires
a factual determination; hence, it is more properly considered a matter of defense.
While it is within the discretion of the trial court to abstain from assuming
jurisdiction on this ground, the trial court should do so only after vital facts are
established to determine whether special circumstances require the courts
desistance.25
Jurisdiction over PIL
PIL questions the trial courts exercise of jurisdiction over it on two levels. First, that
PIL is a foreign corporation not doing business in the Philippines and because of this,
the service of summons on PIL did not follow the mandated procedure. Second, that
Todaros claims are based on an alleged breach of an employment contract so
Todaro should have filed his complaint before the NLRC and not before the trial
court.
Transacting
Business
Service of Summons

in

the

Philippines

and

The first level has two sub-issues: PILs transaction of business in the Philippines
and the service of summons on PIL. Section 12, Rule 14 of the 1997 Rules of Civil
Procedure provides the manner by which summons may be served upon a foreign
juridical entity which has transacted business in the Philippines. Thus:
Service upon foreign private juridical entity. When the defendant is a foreign
juridical entity which has transacted 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 any of its officers or agents within the Philippines.
As to the first sub-issue, PIL insists that its sole act of "transacting" or "doing
business" in the Philippines consisted of its investment in PPHI. Under Philippine
law, PILs mere investment in PPHI does not constitute "doing business." However,
we affirm the lower courts ruling and declare that, based on the allegations in
Todaros complaint, PIL was doing business in the Philippines when it negotiated
Todaros employment with PPHI. Section 3(d) of Republic Act No. 7042, Foreign
Investments Act of 1991, states:

The phrase "doing business" shall include soliciting orders, service


contracts, opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar
year stay in the country for a period or periods 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 of commercial dealings or arrangements
and contemplate to that extent the performance of acts or works, or the
exercise of some of the functions normally incident to, and in progressive
prosecution of commercial gain or of the purpose and object of the
business organization:Provided, however, That the phrase "doing business" shall
not be deemed to include mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or the exercise of rights
as such investor; nor having a nominee director or officer to represent its interests
in such corporation; nor appointing a representative or distributor domiciled in the
Philippines which transacts business in its own name and for its own account;
(Emphases added)
PILs alleged acts in actively negotiating to employ Todaro to run its pre-mixed
concrete operations in the Philippines, which acts are hypothetically admitted in
PILs motion to dismiss, are not mere acts of a passive investor in a domestic
corporation. Such are managerial and operational acts in directing and establishing
commercial operations in the Philippines. The annexes that Todaro attached to his
complaint give us an idea on the extent of PILs involvement in the negotiations
regarding Todaros employment. In Annex "E," McDonald of Pioneer Concrete Group
HK confirmed his offer to engage Todaro as a consultant of PIL. In Annex "F," Todaro
accepted the consultancy. In Annex "H," Klepzig of PPHI stated that PIL authorized
him to tell Todaro about the cessation of his consultancy. Finally, in Annex "I,"
Folwell of PIL wrote to Todaro to confirm that "Pioneer" no longer wishes to be
associated with Todaro and that Klepzig is authorized to terminate this association.
Folwell further referred to a Dr. Schubert and to Pioneer Hong Kong. These
confirmations and references tell us that, in this instance, the various officers and
companies under the Pioneer brand name do not work independently of each other.
It cannot be denied that PIL had knowledge of and even authorized the nonimplementation of Todaros alleged permanent employment. In fact, in the letters to
Todaro, the word "Pioneer" was used to refer not just to PIL alone but also to all
corporations negotiating with Todaro under the Pioneer name.
As further proof of the interconnection of the various Pioneer corporations with
regard to their negotiations with Todaro, McDonald of Pioneer Concrete Group HK
confirmed Todaros engagement as consultant of PIL (Annex "E") while Folwell of PIL
stated that Todaro rendered consultancy services to Pioneer HK (Annex "I"). In this
sense, the various Pioneer corporations were not acting as separate corporations.
The behavior of the various Pioneer corporations shoots down their defense that the

corporations have separate and distinct personalities, managements, and


operations. The various Pioneer corporations were all working in concert to
negotiate an employment contract between Todaro and PPHI, a domestic
corporation.
Finally, the phrase "doing business in the Philippines" in the former version of
Section 12, Rule 14 now reads "has transacted business in the Philippines." The
scope is thus broader in that it is enough for the application of the Rule that the
foreign private juridical entity "has transacted business in the Philippines." 26
As to the second sub-issue, the purpose of summons is not only to acquire
jurisdiction over the person of the defendant, but also to give notice to the
defendant that an action has been commenced against it and to afford it an
opportunity to be heard on the claim made against it. The requirements of the rule
on summons must be strictly followed; otherwise, the trial court will not acquire
jurisdiction over the defendant.
When summons is to be served on a natural person, service of summons should be
made in person on the defendant.27 Substituted service is resorted to only upon the
concurrence of two requisites: (1) when the defendant cannot be served personally
within a reasonable time and (2) when there is impossibility of prompt service as
shown by the statement in the proof of service in the efforts made to find the
defendant personally and that such efforts failed. 28
The statutory requirements of substituted service must be followed strictly,
faithfully, and fully, and any substituted service other than by the statute is
considered ineffective. Substituted service is in derogation of the usual method of
service. It is a method extraordinary in character and may be used only as
prescribed and in the circumstances authorized by the statute. 29 The need for strict
compliance with the requirements of the rule on summons is also exemplified in the
exclusive enumeration of the agents of a domestic private juridical entity who are
authorized to receive summons.
At present, Section 11 of Rule 14 provides that when the defendant is a domestic
private juridical entity, service may be made on the "president, managing partner,
general manager, corporate secretary, treasurer, or in-house counsel." The previous
version of Section 11 allowed for the service of summons on the "president,
manager, secretary, cashier, agent, or any of its directors." The present Section 11
qualified "manager" to "general manager" and "secretary" to "corporate secretary."
The present Section 11 also removed "cashier, agent, or any of its directors" from
the exclusive enumeration.
When summons is served on a foreign juridical entity, there are three prescribed
ways: (1) service on its resident agent designated in accordance with law for that
purpose, (2) service on the government official designated by law to receive

summons if the corporation does not have a resident agent, and (3) service on any
of the corporations officers or agents within the Philippines. 30
In the present case, service of summons on PIL failed to follow any of the prescribed
processes. PIL had no resident agent in the Philippines. Summons was not served on
the Securities and Exchange Commission (SEC), the designated government
agency,31 since PIL is not registered with the SEC. Summons for PIL was served on
De Leon, Klepzigs Executive Assistant. Klepzig is PILs "agent within the Philippines"
because PIL authorized Klepzig to notify Todaro of the cessation of his consultancy
(Annexes "H" and "I").32 The authority given by PIL to Klepzig to notify Todaro implies
that Klepzig was likewise authorized to receive Todaros response to PILs notice.
Todaro responded to PILs notice by filing a complaint before the trial court.
However, summons was not served personally on Klepzig as agent of PIL. Instead,
summons was served on De Leon, Klepzigs Executive Assistant. In this instance, De
Leon was not PILs agent but a mere employee of Klepzig. In effect, the
sheriff33 resorted to substituted service. For symmetry, we apply the rule on
substituted service of summons on a natural person and we find that no reason was
given to justify the service of PILs summons on De Leon.
Thus, we rule that PIL transacted business in the Philippines and Klepzig was its
agent within the Philippines. However, there was improper service of summons on
PIL since summons was not served personally on Klepzig.
NLRC Jurisdiction
As to the second level, Todaro prays for payment of damages due him because of
PILs non-implementation of Todaros alleged employment agreement with PPHI. The
appellate court stated its ruling on this matter, thus:
It could not be denied that there was no existing contract yet to speak of between
PIONEER INTL. and [Todaro]. Since there was an absence of an employment contract
between the two parties, this Court is of the opinion and so holds that no employeremployee relationship actually exists. Record reveals that all that was agreed upon
by [Todaro] and the Pioneer Concrete, acting in behalf of PIONEER INTL., was the
confirmation of the offer to engage the services of the former as consultant of
PIONEER INTL. (Rollo, p. 132). The failure on the part of PIONEER INTL. to abide by
the said agreement, which was duly confirmed by PIONEER INTL., brought about a
breach of an obligation on a valid and perfected agreement. There being no
employer-employee relationship established between [PIL] and [Todaro], it could be
said that the instant case falls within the jurisdiction of the regular courts of justice
as the money claim of [Todaro] did not arise out of or in connection with [an]
employer-employee relationship.34
Todaros employment in the Philippines would not be with PIL but with PPHI as
stated in the 20 October 1997 letter of Folwell. Assuming the existence of the

employment agreement, the employer-employee relationship would be between


PPHI and Todaro, not between PIL and Todaro. PILs liability for the nonimplementation of the alleged employment agreement is a civil dispute properly
belonging to the regular courts. Todaros causes of action as stated in his complaint
are, in addition to breach of contract, based on "violation of Articles 19 and 21 of
the New Civil Code" for the "clear and evident bad faith and malice" 35 on the part of
defendants. The NLRCs jurisdiction is limited to those enumerated under Article 217
of the Labor Code.36
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision dated 27
September 2001 and the Resolution dated 14 January 2003 of the appellate court
are AFFIRMED with the MODIFICATION that there was improper service of
summons on Pioneer International, Ltd. The case is remanded to the trial court for
proper service of summons and trial. No costs.
SO ORDERED.

[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.
DECISION
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 Appeals [1] 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 Complaint[2] 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 Carrier [4]; (b) El General[5]; (c) El Challenger [6]; and (d) El
Conqueror[7]; 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 attorneys 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. Gilbert[21] 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
foreign CORPORATIONS;
v)

were

granted

to

the

Private

Respondents

The Restructuring Agreements were ALL governed by the laws of England;

vi)
The subsequent sales of the mortgaged vessels and the application of the
sales proceeds occurred and transpired outside the Philippines, and the deliveries of
the sold mortgaged vessels were likewise made outside the Philippines;
vii) The revenues of the vessels and the proceeds of the sales of these vessels
were ALL deposited to the Accounts of the foreign CORPORATIONS abroad; and
viii) Bank of America International Ltd. is not licensed nor engaged in trade or
business in the Philippines. [24]
Petitioners argue further that the loan agreements, security documentation and all
subsequent restructuring agreements uniformly, unconditionally and expressly
provided that they will be governed by the laws of England; [25] that Philippine
Courts would then have to apply English law in resolving whatever issues may be
presented to it in the event it recognizes and accepts herein case; that it would then
be imposing a significant and unnecessary expense and burden not only upon the
parties to the transaction but also to the local court. Petitioners insist that the
inconvenience and difficulty of applying English law with respect to a wholly foreign
transaction in a case pending in the Philippines may be avoided by its dismissal on
the ground of forum non conveniens. [26]
Finally, petitioners claim that private respondents have already waived their alleged
causes of action in the case at bar for their refusal to contest the foreign civil cases
earlier filed by the petitioners against them in Hongkong and England, to wit:
1.) Civil action in England in its High Court of Justice, Queens 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, Queens 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 judicataalso 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 plaintiffs
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 nonconveniens?
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 courts 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 defendants [52], 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.

[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) [1] and
Philsec Investment Corporation (hereafter called 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-86440 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 BPIIFL 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[3] granted the motion to dismiss filed 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 [4] affirmed the dismissal of Civil 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[5] in the case before it. The judgment,
which was in favor of private respondents, was affirmed on appeal by the Circuit
Court of Appeals.[6] Thus, the principal issue to be 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, [7] it was after the parties opposed to
the judgment had been given ample opportunity to repel them on grounds allowed
under the law.[8] It is not necessary for this purpose to initiate 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. [9] Rule 39, 50 provides:
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.,[10] which private respondents invoke for 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[11] that the foreign court did 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,[12] this Court held that the foreign judgment was valid and enforceable 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.[15] After all, the two have been 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.[16] The
propriety of dismissing a case based on 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.[18] It is not disputed that the properties, 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, [20] it appears from the
pleadings that petitioners only belatedly impleaded Guevarra as defendant in Civil
Case No. 16563.[21] Hence, the TRO 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.