G.R. No. 149177 November 23, 2007 motion to dismiss.

motion to dismiss.16 The trial court subsequently denied petitioners' motion for reconsideration, 17 prompting
them to file with the appellate court, on August 14, 2000, their first Petition for Certiorari under Rule 65
KAZUHIRO HASEGAWA and NIPPON ENGINEERING CONSULTANTS CO., LTD., Petitioners, [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
vs.
MINORU KITAMURA, Respondent. against forum shopping.19 An Entry of Judgment was later issued by the appellate court on September 20,
2000.20

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 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 60827, and the July 25, 2001
Resolution2 denying the motion for reconsideration thereof.
On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd. (Nippon), a Japanese consultancy firm
providing technical and management support in the infrastructure projects of foreign governments, 3 entered into
an Independent Contractor Agreement (ICA) with respondent Minoru Kitamura, a Japanese national
permanently residing in the Philippines.4 The agreement provides that respondent was to extend professional
services to Nippon for a year starting on April 1, 1999. 5 Nippon then assigned respondent to work as the project
manager of the Southern Tagalog Access Road (STAR) Project in the Philippines, following the company's
consultancy contract with the Philippine Government.6
When the STAR Project was near completion, the Department of Public Works and Highways (DPWH)
engaged the consultancy services of Nippon, on January 28, 2000, this time for the detailed engineering and
construction supervision of the Bongabon-Baler Road Improvement (BBRI) Project. 7 Respondent was named
as the project manager in the contract's Appendix 3.1.8
On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's general manager for its International Division,
informed respondent that the company had no more intention of automatically renewing his ICA. His services
would be engaged by the company only up to the substantial completion of the STAR Project on March 31,
2000, just in time for the ICA's expiry.9
Threatened with impending unemployment, respondent, through his lawyer, requested a negotiation
conference and demanded that he be assigned to the BBRI project. 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
Aggrieved by this development, petitioners filed with the CA, on September 19, 2000, still within the
reglementary period, a second Petition for Certiorari under Rule 65 already stating therein the material dates
and attaching thereto the proper verification and certification. This second petition, which substantially raised
the same issues as those in the first, was docketed as CA-G.R. SP No. 60827.21
Ruling on the merits of the second petition, the appellate court rendered the assailed April 18, 2001
Decision22finding no grave abuse of discretion in the trial court's denial of the motion to dismiss. The CA ruled,
among others, that the principle of lex loci celebrationis was not applicable to the case, because nowhere in the
pleadings was the validity of the written agreement put in issue. The CA thus declared that the trial court was
correct in applying instead the principle of lex loci solutionis.23
Petitioners' motion for reconsideration was subsequently denied by the CA in the assailed July 25, 2001
Resolution.24
Remaining steadfast in their stance despite the series of denials, petitioners instituted the instant Petition for
Review on Certiorari25 imputing the following errors to the appellate court:
A. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE TRIAL
COURT VALIDLY EXERCISED JURISDICTION OVER THE INSTANT CONTROVERSY, DESPITE
THE FACT THAT THE CONTRACT SUBJECT MATTER OF THE PROCEEDINGS A QUO WAS
ENTERED INTO BY AND BETWEEN TWO JAPANESE NATIONALS, WRITTEN WHOLLY IN THE
JAPANESE LANGUAGE AND EXECUTED IN TOKYO, JAPAN.
B. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN OVERLOOKING THE NEED TO
REVIEW OUR ADHERENCE TO THE PRINCIPLE OF LEX LOCI SOLUTIONIS IN THE LIGHT OF
RECENT DEVELOPMENT[S] IN PRIVATE INTERNATIONAL LAWS.26
The pivotal question that this Court is called upon to resolve is whether the subject matter jurisdiction of
Philippine courts in civil cases for specific performance and damages involving contracts executed outside the
country by foreign nationals may be assailed on the principles of lex loci celebrationis, lex contractus, the "state
of the most significant relationship rule," or forum non conveniens.
However, before ruling on this issue, we must first dispose of the procedural matters raised by the respondent.

For their part, petitioners, contending that the ICA had been perfected in Japan and executed by and between
Japanese nationals, moved to dismiss the complaint for lack of jurisdiction. They asserted that the claim for
improper pre-termination of respondent's ICA could only be heard and ventilated in the proper courts of Japan
following the principles of lex loci celebrationis and lex contractus.12
Kitamura contends that the finality of the appellate court's decision in CA-G.R. SP No. 60205 has already
barred the filing of the second petition docketed as CA-G.R. SP No. 60827 (fundamentally raising the same
issues as those in the first one) and the instant petition for review thereof.

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

On June 29, 2000, the RTC, invoking our ruling in Insular Government v. Frank14 that matters connected with
the performance of contracts are regulated by the law prevailing at the place of performance, 15 denied the
We do not agree. When the CA dismissed CA-G.R. SP No. 60205 on account of the petition's defective
certification of non-forum shopping, it was a dismissal without prejudice. 27 The same holds true in the CA's
dismissal of the said case due to defects in the formal requirement of verification 28 and in the other requirement
in Rule 46 of the Rules of Court on the statement of the material dates. 29 The dismissal being without prejudice,
petitioners can re-file the petition, or file a second petition attaching thereto the appropriate verification and
certificationas they, in fact didand stating therein the material dates, within the prescribed period 30 in
Section 4, Rule 65 of the said Rules.31
The dismissal of a case without prejudice signifies the absence of a decision on the merits and leaves the
parties free to litigate the matter in a subsequent action as though the dismissed action had not been
commenced. In other words, the termination of a case not on the merits does not bar another action involving
the same parties, on the same subject matter and theory.32
Necessarily, because the said dismissal is without prejudice and has no res judicata effect, and even if
petitioners still indicated in the verification and certification of the second certiorari petition that the first had
already been dismissed on procedural grounds,33 petitioners are no longer required by the Rules to indicate in
their certification of non-forum shopping in the instant petition for review of the second certiorari petition, the
status of the aforesaid first petition before the CA. In any case, an omission in the certificate of non-forum
shopping about any event that will not constitute res judicata and litis pendentia, as in the present case, is not a
fatal defect. It will not warrant the dismissal and nullification of the entire proceedings, considering that the evils
sought to be prevented by the said certificate are no longer present. 34
The Court also finds no merit in respondent's contention that petitioner Hasegawa is only authorized to verify
and certify, on behalf of Nippon, the certiorari petition filed with the CA and not the instant petition. True, the
Authorization35 dated September 4, 2000, which is attached to the second certiorari petition and which is also
attached to the instant petition for review, is limited in scopeits wordings indicate that Hasegawa is given the
authority to sign for and act on behalf of the company only in the petition filed with the appellate court, and that
authority cannot extend to the instant petition for review.36 In a plethora of cases, however, this Court has
liberally applied the Rules or even suspended its application whenever a satisfactory explanation and a
subsequent fulfillment of the requirements have been made.37 Given that petitioners herein sufficiently
explained their misgivings on this point and appended to their Reply38 an updated Authorization39 for Hasegawa
to act on behalf of the company in the instant petition, the Court finds the same as sufficient compliance with
the Rules.
However, the Court cannot extend the same liberal treatment to the defect in the verification and certification.
As respondent pointed out, and to which we agree, Hasegawa is truly not authorized to act on behalf of Nippon
in this case. The aforesaid September 4, 2000 Authorization and even the subsequent August 17, 2001
Authorization were issued only by Nippon's president and chief executive officer, not by the company's board of
directors. In not a few cases, we have ruled that corporate powers are exercised by the board of directors; thus,
no person, not even its officers, can bind the corporation, in the absence of authority from the
board.40 Considering that Hasegawa verified and certified the petition only on his behalf and not on behalf of
the other petitioner, the petition has to be denied pursuant to Loquias v. Office of the Ombudsman.41 Substantial
compliance will not suffice in a matter that demands strict observance of the Rules. 42 While technical rules of
procedure are designed not to frustrate the ends of justice, nonetheless, they are intended to effect the proper
and orderly disposition of cases and effectively prevent the clogging of court dockets. 43
Further, the Court has observed that petitioners incorrectly filed a Rule 65 petition to question the trial court's
denial of their motion to dismiss. It is a well-established rule that an order denying a motion to dismiss is
interlocutory, and cannot be the subject of the extraordinary petition for certiorari or mandamus. The
appropriate recourse is to file an answer and to interpose as defenses the objections raised in the motion, to
proceed to trial, and, in case of an adverse decision, to elevate the entire case by appeal in due course. 44 While
there are recognized exceptions to this rule,45 petitioners' case does not fall among them.
This brings us to the discussion of the substantive issue of the case.
Asserting that the RTC of Lipa City is an inconvenient forum, petitioners question its jurisdiction to hear and
resolve the civil case for specific performance and damages filed by the respondent. The ICA subject of the
litigation was entered into and perfected in Tokyo, Japan, by Japanese nationals, and written wholly in the
Japanese language. Thus, petitioners posit that local courts have no substantial relationship to the
parties46following the [state of the] most significant relationship rule in Private International Law.47
The Court notes that petitioners adopted an additional but different theory when they elevated the case to the
appellate court. In the Motion to Dismiss48 filed with the trial court, petitioners never contended that the RTC is
an inconvenient forum. They merely argued that the applicable law which will determine the validity or invalidity
of respondent's claim is that of Japan, following the principles of lex loci celebrationis and lex
contractus.49 While not abandoning this stance in their petition before the appellate court, petitioners
on certiorari significantly invoked the defense of forum non conveniens.50 On petition for review before this
Court, petitioners dropped their other arguments, maintained the forum non conveniens defense, and
introduced their new argument that the applicable principle is the [state of the] most significant relationship
rule.51
Be that as it may, this Court is not inclined to deny this petition merely on the basis of the change in theory, as
explained in Philippine Ports Authority v. City of Iloilo.52 We only pointed out petitioners' inconstancy in their
arguments to emphasize their incorrect assertion of conflict of laws principles.
To elucidate, in the judicial resolution of conflicts problems, three consecutive phases are involved: jurisdiction,
choice of law, and recognition and enforcement of judgments. Corresponding to these phases are the following
questions: (1) Where can or should litigation be initiated? (2) Which law will the court apply? and (3) Where can
the resulting judgment be enforced?53
Analytically, jurisdiction and choice of law are two distinct concepts. 54 Jurisdiction considers whether it is fair to
cause a defendant to travel to this state; choice of law asks the further question whether the application of a
substantive law which will determine the merits of the case is fair to both parties. The power to exercise
jurisdiction does not automatically give a state constitutional authority to apply forum law. While jurisdiction and
the choice of the lex fori will often coincide, the "minimum contacts" for one do not always provide the
necessary "significant contacts" for the other.55 The question of whether the law of a state can be applied to a
transaction is different from the question of whether the courts of that state have jurisdiction to enter a
judgment.56
In this case, only the first phase is at issuejurisdiction.1wphi1 Jurisdiction, however, has various aspects.
For a court to validly exercise its power to adjudicate a controversy, it must have jurisdiction over the plaintiff or
the petitioner, over the defendant or the respondent, over the subject matter, over the issues of the case and, in
cases involving property, over the res or the thing which is the subject of the litigation.57 In assailing the trial
court's jurisdiction herein, petitioners are actually referring to subject matter jurisdiction.
Jurisdiction over the subject matter in a judicial proceeding is conferred by the sovereign authority which
establishes and organizes the court. It is given only by law and in the manner prescribed by law.58 It is further
determined by the allegations of the complaint irrespective of whether the plaintiff is entitled to all or some of
the claims asserted therein.59 To succeed in its motion for the dismissal of an action for lack of jurisdiction over
the subject matter of the claim,60 the movant must show that the court or tribunal cannot act on the matter
submitted to it because no law grants it the power to adjudicate the claims. 61
In the instant case, petitioners, in their motion to dismiss, do not claim that the trial court is not properly vested
by law with jurisdiction to hear the subject controversy for, indeed, Civil Case No. 00-0264 for specific
performance and damages is one not capable of pecuniary estimation and is properly cognizable by the RTC of SO ORDERED.
Lipa City.62What they rather raise as grounds to question subject matter jurisdiction are the principles of lex loci
celebrationisand 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. 105395 December 10, 1993
BANK OF AMERICA, NT & SA, petitioners,
vs.
COURT OF APPEALS, INTER-RESIN INDUSTRIAL CORPORATION, FRANCISCO TRAJANO, JOHN DOE
AND JANE DOE, respondents.
VITUG, J.:
A "fiasco," involving an irrevocable letter of credit, has found the distressed parties coming to court as
adversaries in seeking a definition of their respective rights or liabilities thereunder.
On 05 March 1981, petitioner Bank of America, NT & SA, Manila, received by registered mail an Irrevocable
Letter of Credit No. 20272/81 purportedly issued by Bank of Ayudhya, Samyaek Branch, for the account of
General Chemicals, Ltd., of Thailand in the amount of US$2,782,000.00 to cover the sale of plastic ropes and
"agricultural files," with the petitioner as advising bank and private respondent Inter-Resin Industrial
Corporation as beneficiary.
On 11 March 1981, Bank of America wrote Inter-Resin informing the latter of the foregoing and transmitting,
along with the bank's communication,
the latter of credit. Upon receipt of the letter-advice with the letter of credit, Inter-Resin sent Atty. Emiliano
Tanay to Bank of America to have the letter of credit confirmed. The bank did not. Reynaldo Dueas, bank
employee in charge of letters of credit, however, explained to Atty. Tanay that there was no need for
confirmation because the letter of credit would not have been transmitted if it were not genuine.
Between 26 March to 10 April 1981, Inter-Resin sought to make a partial availment under the letter of credit by
submitting to Bank of America invoices, covering the shipment of 24,000 bales of polyethylene rope to General
Chemicals valued at US$1,320,600.00, the corresponding packing list, export declaration and bill of lading.
Finally, after being satisfied that Inter-Resin's documents conformed with the conditions expressed in the letter
of credit, Bank of America issued in favor of Inter-Resin a Cashier's Check for P10,219,093.20, "the Peso
equivalent of the draft (for) US$1,320,600.00 drawn by Inter-Resin, after deducting the costs for documentary
stamps, postage and mail issuance." 1 The check was picked up by Inter-Resin's Executive Vice-President
Barcelina Tio. On 10 April 1981, Bank of America wrote Bank of Ayudhya advising the latter of the availment
under the letter of credit and sought the corresponding reimbursement therefor.
Meanwhile, Inter-Resin, through Ms. Tio, presented to Bank of America the documents for the second
availment under the same letter of credit consisting of a packing list, bill of lading, invoices, export declaration
and bills in set, evidencing the second shipment of goods. Immediately upon receipt of a telex from the Bank of
Ayudhya declaring the letter of credit fraudulent, 2 Bank of America stopped the processing of Inter-Resin's
documents and sent a telex to its branch office in Bangkok, Thailand, requesting assistance in determining the
authenticity of the letter of credit. 3 Bank of America kept Inter-Resin informed of the developments. Sensing a
fraud, Bank of America sought the assistance of the National Bureau of Investigation (NBI). With the help of the
staff of the Philippine Embassy at Bangkok, as well as the police and customs personnel of Thailand, the NBI
agents, who were sent to Thailand, discovered that the vans exported by Inter-Resin did not contain ropes but
plastic strips, wrappers, rags and waste materials. Here at home, the NBI also investigated Inter-Resin's
President Francisco Trajano and Executive Vice President Barcelina Tio, who, thereafter, were criminally
charged for estafa through falsification of commercial documents. The case, however, was eventually
dismissed by the Rizal Provincial Fiscal who found no prima facie evidence to warrant prosecution.
Bank of America sued Inter-Resin for the recovery of P10,219,093.20, the peso equivalent of the draft for
US$1,320,600.00 on the partial availment of the now disowned letter of credit. On the other hand, Inter-Resin
claimed that not only was it entitled to retain P10,219,093.20 on its first shipment but also to the balance
US$1,461,400.00 covering the second shipment.
On 28 June 1989, the trial court ruled for Inter-Resin, 4 holding that:
(a) Bank of America made assurances that enticed Inter-Resin to send the merchandise to Thailand; (b) the
telex declaring the letter of credit fraudulent was unverified and self-serving, hence, hearsay, but even
assuming that the letter of credit was fake, "the fault should be borne by the BA which was careless and
negligent" 5 for failing to utilize its modern means of communication to verify with Bank of Ayudhya in Thailand
the authenticity of the letter of credit before sending the same to Inter-Resin; (c) the loading of plastic products
into the vans were under strict supervision, inspection and verification of government officers who have in their
favor the presumption of regularity in the performance of official functions; and (d) Bank of America failed to
prove the participation of Inter-Resin or its employees in the alleged fraud as, in fact, the complaint for estafa
through falsification of documents was dismissed by the Provincial Fiscal of Rizal. 6
On appeal, the Court of Appeals 7 sustained the trial court; hence, this present recourse by petitioner Bank of
America.
The following issues are raised by Bank of America: (a) whether it has warranted the genuineness and
authenticity of the letter of credit and, corollarily, whether it has acted merely as an advising bank or as a
confirming bank; (b) whether Inter-Resin has actually shipped the ropes specified by the letter of credit; and (c)
following the dishonor of the letter of credit by Bank of Ayudhya, whether Bank of America may recover against
Inter-Resin under the draft executed in its partial availment of the letter of credit. 8
In rebuttal, Inter-Resin holds that: (a) Bank of America cannot, on appeal, belatedly raise the issue of being
only an advising bank; (b) the findings of the trial court that the ropes have actually been shipped is binding on
the Court; and, (c) Bank of America cannot recover from Inter-Resin because the drawer of the letter of credit is
the Bank of Ayudhya and not Inter-Resin.
If only to understand how the parties, in the first place, got themselves into the mess, it may be well to start by
recalling how, in its modern use, a letter of credit is employed in trade transactions.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of
dealing with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with
his goods before he is paid, and a buyer, who wants to have control of the goods before paying. 9 To break the
impasse, the buyer may be required to contract a bank to issue a letter of credit in favor of the seller so that, by
virtue of the latter of credit, the issuing bank can authorize the seller to draw drafts and engage to pay them
upon their presentment simultaneously with the tender of documents required by the letter of credit. 10 The
buyer and the seller agree on what documents are to be presented for payment, but ordinarily they are
documents of title evidencing or attesting to the shipment of the goods to the buyer.
Once the credit is established, the seller ships the goods to the buyer and in the process secures the required
shipping documents or documents of title. To get paid, the seller executes a draft and presents it together with
the required documents to the issuing bank. The issuing bank redeems the draft and pays cash to the seller if it
finds that the documents submitted by the seller conform with what the letter of credit requires. The bank then
obtains possession of the documents upon paying the seller. The transaction is completed when the buyer
reimburses the issuing bank and acquires the documents entitling him to the goods. Under this arrangement,
the seller gets paid only if he delivers the documents of title over the goods, while the buyer acquires said
documents and control over the goods only after reimbursing the bank.
What characterizes letters of credit, as distinguished from other accessory contracts, is the engagement of the
issuing bank to pay the seller of the draft and the required shipping documents are presented to it. In turn, this
arrangement assures the seller of prompt payment, independent of any breach of the main sales contract. By
this so-called "independence principle," the bank determines compliance with the letter of credit only by
examining the shipping documents presented; it is precluded from determining whether the main contract is
actually accomplished or not. 11
There would at least be three (3) parties: (a) the buyer, 12 who procures the letter of credit and obliges himself
to reimburse the issuing bank upon receipts of the documents of title; (b) the bank issuing the letter of
credit, 13 which undertakes to pay the seller upon receipt of the draft and proper document of titles and to
surrender the documents to the buyer upon reimbursement; and, (c) the seller, 14 who in compliance with the
contract of sale ships the goods to the buyer and delivers the documents of title and draft to the issuing bank to
recover payment.
The number of the parties, not infrequently and almost invariably in international trade practice, may be
increased. Thus, the services of an advising (notifying) bank 15 may be utilized to convey to the seller the
existence of the credit; or, of a confirming bank 16 which will lend credence to the letter of credit issued by a
lesser known issuing bank; or, of apaying bank, 17 which undertakes to encash the drafts drawn by the exporter.
Further, instead of going to the place of the issuing bank to claim payment, the buyer may approach another
bank, termed the negotiating bank, 18 to have the draft discounted.
Being a product of international commerce, the impact of this commercial instrument transcends national
boundaries, and it is thus not uncommon to find a dearth of national law that can adequately provide for its
governance. This country is no exception. Our own Code of Commerce basically introduces only its concept
under Articles 567-572, inclusive, thereof. It is no wonder then why great reliance has been placed on
commercial usage and practice, which, in any case, can be justified by the universal acceptance of the
autonomy of contract rules. The rules were later developed into what is now known as the Uniform Customs
and Practice for Documentary Credits ("U.C.P.") issued by the International Chamber of Commerce. It is by no
means a complete text by itself, for, to be sure, there are other principles, which, although part of lex
mercatoria, are not dealt with the U.C.P.
In FEATI Bank and Trust Company v. Court of Appeals, 19 we have accepted, to the extent of their pertinency,
the application in our jurisdiction of this international commercial credit regulatory set of rules. 20 In Bank of
Phil. Islands v. De Nery, 21 we have said that the observances of the U.C.P. is justified by Article 2 of the Code
of Commerce which expresses that, in the absence of any particular provision in the Code of Commerce,
commercial transactions shall be governed by usages and customs generally observed. We have further
observed that there being no specific provisions which govern the legal complexities arising from transactions
involving letters of credit not only between or among banks themselves but also between banks and the seller
or the buyer, as the case may be, the applicability of the U.C.P. is undeniable.
The first issue raised with the petitioner, i.e., that it has in this instance merely been advising bank, is outrightly
rejected by Inter-Resin and is thus sought to be discarded for having been raised only on appeal. We cannot
agree. The crucial point of dispute in this case is whether under the "letter of credit," Bank of America has
incurred any liability to the "beneficiary" thereof, an issue that largely is dependent on the bank's participation in
that transaction; as a mere advising or notifying bank, it would not be liable, but as a confirming bank, had this
been the case, it could be considered as having incurred that liability. 22
In Insular Life Assurance Co. Ltd. Employees Association Natu vs. Insular Life Assurance Co., Ltd., 23 the
Court said: Where the issues already raised also rest on other issues not specifically presented, as long as the
latter issues bear relevance and close relation to the former and as long as they arise from the matters on
record, the court has the authority to include them in its discussion of the controversy and to pass upon them
just as well. In brief, in those cases where questions not particularly raised by the parties surface as necessary
for the complete adjudication of the rights and obligations of the parties, the interests of justice dictate that the
court should consider and resolve them. The rule that only issues or theories raised in the initial proceedings
may be taken up by a party thereto on appeal should only refer to independent, not concomitant matters, to
support or oppose the cause of action or defense. The evil that is sought to be avoided, i.e., surprise to the
adverse party, is in reality not existent on matters that are properly litigated in the lower court and appear on
record.
It cannot seriously be disputed, looking at this case, that Bank of America has, in fact, only been an advising,
not confirming, bank, and this much is clearly evident, among other things, by the provisions of the letter of
credit itself, the petitioner bank's letter of advice, its request for payment of advising fee, and the admission of
Inter-Resin that it has paid the same. That Bank of America has asked Inter-Resin to submit documents
required by the letter of credit and eventually has paid the proceeds thereof, did not obviously make it a
confirming bank. The fact, too, that the draft required by the letter of credit is to be drawn under the account of
General Chemicals (buyer) only means the same had to be presented to Bank of Ayudhya (issuing bank) for
payment. It may be significant to recall that the letter of credit is an engagement of the issuing bank, not the
advising bank, to pay the draft.
No less important is that Bank of America's letter of 11 March 1981 has expressly stated that "[t]he enclosure
issolely an advise of credit opened by the abovementioned correspondent and conveys no engagement by
us." 24This written reservation by Bank of America in limiting its obligation only to being an advising bank is in
consonance with the provisions of U.C.P.
As an advising or notifying bank, Bank of America did not incur any obligation more than just notifying Inter-
Resin of the letter of credit issued in its favor, let alone to confirm the letter of credit. 25 The bare statement of
the bank employees, aforementioned, in responding to the inquiry made by Atty. Tanay, Inter-Resin's
representative, on the authenticity of the letter of credit certainly did not have the effect of novating the letter of
credit and Bank of America's letter of advise, 26 nor can it justify the conclusion that the bank must now assume
total liability on the letter of credit. Indeed, Inter-Resin itself cannot claim to have been all that free from fault. As
the seller, the issuance of the letter of credit should have obviously been a great concern to it. 27 It would have,
in fact, been strange if it did not, prior to the letter of credit, enter into a contract, or negotiated at the every
least, with General Chemicals. 28 In the ordinary course of business, the perfection of contract precedes the
issuance of a letter of credit.
Bringing the letter of credit to the attention of the seller is the primordial obligation of an advising bank. The
view that Bank of America should have first checked the authenticity of the letter of credit with bank of Ayudhya,
by using advanced mode of business communications, before dispatching the same to Inter-Resin finds no real
support in U.C.P. Article 18 of the U.C.P. states that: "Banks assume no liability or responsibility for the
consequences arising out of the delay and/or loss in transit of any messages, letters or documents, or for delay,
mutilation or other errors arising in the transmission of any telecommunication . . ." As advising bank, Bank of
America is bound only to check the "apparent authenticity" of the letter of credit, which it did. 29 Clarifying its
meaning, Webster's Ninth New Collegiate Dictionary 30 explains that the word "APPARENT suggests
appearance to unaided senses that is not or may not be borne out by more rigorous examination or greater
knowledge."
May Bank of America then recover what it has paid under the letter of credit when the corresponding draft for SO ORDERED.
partial availment thereunder and the required documents were later negotiated with it by Inter-Resin? The
answer is yes. This kind of transaction is what is commonly referred to as a discounting arrangement. This
time, Bank of America has acted independently as a negotiating bank, thus saving Inter-Resin from the
hardship of presenting the documents directly to Bank of Ayudhya to recover payment. (Inter-Resin, of course,
could have chosen other banks with which to negotiate the draft and the documents.) As a negotiating bank,
Bank of America has a right to recourse against the issuer bank and until reimbursement is obtained, Inter-
Resin, as the drawer of the draft, continues to assume a contingent liability thereon. 31

While bank of America has indeed failed to allege material facts in its complaint that might have likewise
warranted the application of the Negotiable Instruments Law and possible then allowed it to even go after the
indorsers of the draft, this failure, 32/ nonetheless, does not preclude petitioner bank's right (as negotiating
bank) of recovery from Inter-Resin itself. Inter-Resin admits having received P10,219,093.20 from bank of
America on the letter of credit and in having executed the corresponding draft. The payment to Inter-Resin has
given, as aforesaid, Bank of America the right of reimbursement from the issuing bank, Bank of Ayudhya which,
in turn, would then seek indemnification from the buyer (the General Chemicals of Thailand). Since Bank of
Ayudhya disowned the letter of credit, however, Bank of America may now turn to Inter-Resin for restitution.

Between the seller and the negotiating bank there is the usual relationship existing between a drawer
and purchaser of drafts. Unless drafts drawn in pursuance of the credit are indicated to be without
recourse therefore, the negotiating bank has the ordinary right of recourse against the seller in the
event of dishonor by the issuing bank . . . The fact that the correspondent and the negotiating bank
may be one and the same does not affect its rights and obligations in either capacity, although a
special agreement is always a possibility . . . 33

The additional ground raised by the petitioner, i.e., that Inter-Resin sent waste instead of its products, is really
of no consequence. In the operation of a letter of credit, the involved banks deal only with documents and not
on goods described in those documents. 34

The other issues raised in then instant petition, for instance, whether or not Bank of Ayudhya did issue the letter
of credit and whether or not the main contract of sale that has given rise to the letter of credit has been
breached, are not relevant to this controversy. They are matters, instead, that can only be of concern to the
herein parties in an appropriate recourse against those, who, unfortunately, are not impleaded in these
proceedings.

In fine, we hold that

First, given the factual findings of the courts below, we conclude that petitioner Bank of America has acted
merely as a notifying bank and did not assume the responsibility of a confirming bank; and

Second, petitioner bank, as a negotiating bank, is entitled to recover on Inter-Resin's partial availment as
beneficiary of the letter of credit which has been disowned by the alleged issuer bank.

No judgment of civil liability against the other defendants, Francisco Trajano and other unidentified parties, can
be made, in this instance, there being no sufficient evidence to warrant any such finding.

WHEREFORE, the assailed decision is SET ASIDE, and respondent Inter-Resin Industrial Corporation is
ordered to refund to petitioner Bank of America NT & SA the amount of P10,219,093.20 with legal interest from
the filing of the complaint until fully paid.

No costs.
 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.

G.R. No. 120077 October 13, 2000 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

THE MANILA HOTEL CORP. AND MANILA HOTEL INTL. LTD., petitioners,
vs. On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified his acceptance of the offer.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER CEFERINA J. DIOSANA AND MARCELO G.
SANTOS,respondents. 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.
PARDO, J.:

The case before the Court is a petition for certiorari 1 to annul the following orders of the National Labor On May 30, 1988, respondent Santos resigned from the Mazoon Printing Press, effective June 30, 1988, under
the pretext that he was needed at home to help with the family's piggery and poultry business.
Relations Commission (hereinafter referred to as "NLRC") for having been issued without or with excess
jurisdiction and with grave abuse of discretion: 2
On June 4, 1988, respondent Santos wrote the Palace Hotel and acknowledged Mr. Henk's letter. Respondent
Santos enclosed four (4) signed copies of the employment contract (dated June 4, 1988) and notified them that
(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 he was going to arrive in Manila during the first week of July 1988.
(hereinafter referred to as "POEA"), had jurisdiction over private respondent's complaint;
The employment contract of June 4, 1988 stated that his employment would commence September 1, 1988 for
(2) Decision of December 15, 1994.5 Directing petitioners to jointly and severally pay private a period of two years.12 It provided for a monthly salary of nine hundred dollars (US$900.00) net of taxes,
payable fourteen (14) times a year.13
respondent twelve thousand and six hundred dollars (US$ 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 On June 30, 1988, respondent Santos was deemed resigned from the Mazoon Printing Press.
(US$3,600.00) as "14th month pay" or a total of nineteen thousand and eight hundred dollars
(US$19,800.00) or its peso equivalent and attorney's fees amounting to ten percent (10%) of the total On July 1, 1988, respondent Santos arrived in Manila.
award; and

On November 5, 1988, respondent Santos left for Beijing, China. He started to work at the Palace Hotel. 14
(3) Order of March 30, 1995.6 Denying the motion for reconsideration of the petitioners.

Subsequently, respondent Santos signed an amended "employment agreement" with the Palace Hotel,
In May, 1988, private respondent Marcelo Santos (hereinafter referred to as "Santos") was an overseas worker
effective November 5, 1988. In the contract, Mr. Shmidt represented the Palace Hotel. The Vice President
employed as a printer at the Mazoon Printing Press, Sultanate of Oman. Subsequently, in June 1988, he was (Operations and Development) of petitioner MHICL Miguel D. Cergueda signed the employment agreement
directly hired by the Palace Hotel, Beijing, People's Republic of China and later terminated due to
under the word "noted".
retrenchment.

From June 8 to 29, 1989, respondent Santos was in the Philippines on vacation leave. He returned to China
Petitioners are the Manila Hotel Corporation (hereinafter referred to as "MHC") and the Manila Hotel
and reassumed his post on July 17, 1989.
International Company, Limited (hereinafter referred to as "MHICL").

On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna suggested in a handwritten note that
When the case was filed in 1990, MHC was still a government-owned and controlled corporation duly
respondent Santos be given one (1) month notice of his release from employment.
organized and existing under the laws of the Philippines.

On August 10, 1989, the Palace Hotel informed respondent Santos by letter signed by Mr. Shmidt that his
MHICL is a corporation duly organized and existing under the laws of Hong Kong. 7 MHC is an "incorporator" of
employment at the Palace Hotel print shop would be terminated due to business reverses brought about by the
MHICL, owning 50% of its capital stock.8 political upheaval in China.15 We quote the letter:16

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.
 "After the unfortunate happenings in China and especially Beijing (referring to Tiannamen Square
incidents), our business has been severely affected. To reduce expenses, we will not open/operate
printshop for the time being.
"We sincerely regret that a decision like this has to be made, but rest assured this does in no way
reflect your past performance which we found up to our expectations."
"Should a turnaround in the business happen, we will contact you directly and give you priority on
future assignment."
On September 5, 1989, the Palace Hotel terminated the employment of respondent Santos and paid all
benefits due him, including his plane fare back to the Philippines.
On October 3, 1989, respondent Santos was repatriated to the Philippines.
On October 24, 1989, respondent Santos, through his lawyer, Atty. Ednave wrote Mr. Shmidt, demanding full
compensation pursuant to the employment agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:17
His service with the Palace Hotel, Beijing was not abruptly terminated but we followed the one-month
notice clause and Mr. Santos received all benefits due him.
"For your information the Print Shop at the Palace Hotel is still not operational and with a low
business outlook, retrenchment in various departments of the hotel is going on which is a normal
management practice to control costs.
"When going through the latest performance ratings, please also be advised that his performance
was below average and a Chinese National who is doing his job now shows a better approach.
"In closing, when Mr. Santos received the letter of notice, he hardly showed up for work but still
enjoyed free accommodation/laundry/meals up to the day of his departure."
On February 20, 1990, respondent Santos filed a complaint for illegal dismissal with the Arbitration Branch,
National Capital Region, National Labor Relations Commission (NLRC). He prayed for an award of nineteen
thousand nine hundred and twenty three dollars (US$19,923.00) as actual damages, forty thousand pesos
(P40,000.00) as exemplary damages and attorney's fees equivalent to 20% of the damages prayed for. The
complaint named MHC, MHICL, the Palace Hotel and Mr. Shmidt as respondents.
The Palace Hotel and Mr. Shmidt were not served with summons and neither participated in the proceedings
before the Labor Arbiter.18
On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case against petitioners, thus: 19
"WHEREFORE, judgment is hereby rendered:
"1. directing all the respondents to pay complainant jointly and severally;
"a) $20,820 US dollars or its equivalent in Philippine currency as unearned salaries;
"b) P50,000.00 as moral damages;
"c) P40,000.00 as exemplary damages; and
"d) Ten (10) percent of the total award as attorney's fees.
"SO ORDERED."
On July 23, 1991, petitioners appealed to the NLRC, arguing that the POEA, not the NLRC had jurisdiction over
the case.
On August 28, 1992, the NLRC promulgated a resolution, stating: 20
"WHEREFORE, let the appealed Decision be, as it is hereby, declared null and void for want of
jurisdiction. Complainant is hereby enjoined to file his complaint with the POEA.
"SO ORDERED."
On September 18, 1992, respondent Santos moved for reconsideration of the afore-quoted resolution. He
argued that the case was not cognizable by the POEA as he was not an "overseas contract worker." 21
On May 31, 1993, the NLRC granted the motion and reversed itself. The NLRC directed Labor Arbiter Emerson
Tumanon to hear the case on the question of whether private respondent was retrenched or dismissed. 22
On January 13, 1994, Labor Arbiter Tumanon completed the proceedings based on the testimonial and
documentary evidence presented to and heard by him.23
Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter of the National Capital Region,
Arbitration Branch, and the case was transferred to Labor Arbiter Jose G. de Vera. 24
On November 25, 1994, Labor Arbiter de Vera submitted his report. 25 He found that respondent Santos was
illegally dismissed from employment and recommended that he be paid actual damages equivalent to his
salaries for the unexpired portion of his contract.26
On December 15, 1994, the NLRC ruled in favor of private respondent, to wit: 27
"WHEREFORE, finding that the report and recommendations of Arbiter de Vera are supported by
substantial evidence, judgment is hereby rendered, directing the respondents to jointly and severally
pay complainant the following computed contractual benefits: (1) US$12,600.00 as salaries for the
unexpired portion of the parties' contract; (2) US$3,600.00 as extra four (4) months salary for the two
(2) years period (sic) of the parties' contract; (3) US$3,600.00 as "14th month pay" for the aforesaid
two (2) years contract stipulated by the parties or a total of US$19,800.00 or its peso equivalent, plus
(4) attorney's fees of 10% of complainant's total award.
"SO ORDERED."
On February 2, 1995, petitioners filed a motion for reconsideration arguing that Labor Arbiter de Vera's
recommendation had no basis in law and in fact.28
On March 30, 1995, the NLRC denied the motion for reconsideration. 29
Hence, this petition. 30
On October 9, 1995, petitioners filed with this Court an urgent motion for the issuance of a temporary
restraining order and/or writ of preliminary injunction and a motion for the annulment of the entry of judgment of
the NLRC dated July 31, 1995.31
On November 20, 1995, the Court denied petitioner's urgent motion. The Court required respondents to file
their respective comments, without giving due course to the petition. 32
On March 8, 1996, the Solicitor General filed a manifestation stating that after going over the petition and its
annexes, they can not defend and sustain the position taken by the NLRC in its assailed decision and orders.
The Solicitor General prayed that he be excused from filing a comment on behalf of the 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 People's
Republic of China.
No power to determine the facts. Neither can the NLRC determine the facts surrounding the alleged illegal
dismissal as all acts complained of took place in Beijing, People's Republic of China. The NLRC was not in a
position to determine whether the Tiannamen Square incident truly adversely affected operations of the Palace
Hotel as to justify respondent Santos' retrenchment.
Principle of effectiveness, no power to execute decision. Even assuming that a proper decision could be
reached by the NLRC, such would not have any binding effect against the employer, the Palace Hotel. The
Palace Hotel is a corporation incorporated under the laws of China and was not even served with summons.
Jurisdiction over its person was not acquired.
This is not to say that Philippine courts and agencies have no power to solve controversies involving foreign
employers. Neither are we saying that we do not have power over an employment contract executed in a
foreign country. If Santos were an "overseas contract worker", a Philippine forum, specifically the POEA, not
the NLRC, would protect him.39 He is not an "overseas contract worker" a fact which he admits with
conviction.40
Even assuming that the NLRC was the proper forum, even on the merits, the NLRC's decision cannot be
sustained.
II. MHC Not Liable
Even if we assume two things: (1) that the NLRC had jurisdiction over the case, and (2) that MHICL was liable
for Santos' retrenchment, still MHC, as a separate and distinct juridical entity cannot be held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of its capital stock. However, this is not
enough to pierce the veil of corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted to when the corporate fiction is used to
defeat public convenience, justify wrong, protect fraud or defend a crime. 41 It is done only when a corporation
is a mere alter ego or business conduit of a person or another corporation.
In Traders Royal Bank v. Court of Appeals,42 we held that "the mere ownership by a single stockholder or by
another corporation of all or nearly all of the capital stock of a corporation is not of itself a sufficient reason for
disregarding the fiction of separate corporate personalities."
The tests in determining whether the corporate veil may be pierced are: First, the defendant must have control
or complete domination of the other corporation's finances, policy and business practices with regard to the
transaction attacked. There must be proof that the other corporation had no separate mind, will or existence
with respect the act complained of. Second, control must be used by the defendant to commit fraud or
wrong. Third, the aforesaid control or breach of duty must be the proximate cause of the injury or loss
complained of. The absence of any of the elements prevents the piercing of the corporate veil. 43
It is basic that a corporation has a personality separate and distinct from those composing it as well as from
that of any other legal entity to which it may be related. 44 Clear and convincing evidence is needed to pierce the
veil of corporate fiction.45 In this case, we find no evidence to show that MHICL and MHC are one and the same
entity.
III. MHICL not Liable
Respondent Santos predicates MHICL's liability on the fact that MHICL "signed" his employment contract with
the Palace Hotel. This fact fails to persuade us.
First, we note that the Vice President (Operations and Development) of MHICL, Miguel D. Cergueda signed the
employment contract as a mere witness. He merely signed under the word "noted".
When one "notes" a contract, one is not expressing his agreement or approval, as a party
would.46 In Sichangco v. Board of Commissioners of Immigration,47 the Court recognized that the term "noted"
means that the person so noting has merely taken cognizance of the existence of an act or declaration, without
exercising a judicious deliberation or rendering a decision on the matter.
Mr. Cergueda merely signed the "witnessing part" of the document. The "witnessing part" of the document is
that which, "in a deed or other formal instrument is that part which comes after the recitals, or where there are
no recitals, after the parties (emphasis ours)."48 As opposed to a party to a contract, a witness is simply one
who, "being present, personally sees or perceives a thing; a beholder, a spectator, or eyewitness." 49 One who
"notes" something just makes a "brief written statement"50 a memorandum or observation.
Second, and more importantly, there was no existing employer-employee relationship between Santos and
MHICL. In determining the existence of an employer-employee relationship, the following elements are
considered:51
"(1) the selection and engagement of the employee;
"(2) the payment of wages;
"(3) the power to dismiss; and
"(4) the power to control employee's conduct."
MHICL did not have and did not exercise any of the aforementioned powers. It did not select respondent
Santos as an employee for the Palace Hotel. He was referred to the Palace Hotel by his friend, Nestor Buenio.
MHICL did not engage respondent Santos to work. The terms of employment were negotiated and finalized
through correspondence between respondent Santos, Mr. Schmidt and Mr. Henk, who were officers and
representatives of the Palace Hotel and not MHICL. Neither did respondent Santos adduce any proof that
MHICL had the power to control his conduct. Finally, it was the Palace Hotel, through Mr. Schmidt
and not MHICL that terminated respondent Santos' services.
Neither is there evidence to suggest that MHICL was a "labor-only contractor." 52 There is no proof that MHICL
"supplied" respondent Santos or even referred him for employment to the Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are one and the same entity. The fact
that the Palace Hotel is a member of the "Manila Hotel Group" is not enough to pierce the corporate veil
between MHICL and the Palace Hotel.
IV. Grave Abuse of Discretion
Considering that the NLRC was forum non-conveniens and considering further that no employer-employee
relationship existed between MHICL, MHC and respondent Santos, Labor Arbiter Ceferina J. Diosana clearly
had no jurisdiction over respondent's claim in NLRC NCR Case No. 00-02-01058-90.
Labor Arbiters have exclusive and original jurisdiction only over the following: 53
"1. Unfair labor practice cases;
"2. Termination disputes;
"3. If accompanied with a claim for reinstatement, those cases that workers may file involving wages,
rates of pay, hours of work and other terms and conditions of employment;
"4. Claims for actual, moral, exemplary and other forms of damages arising from employer-employee
relations;
"5. Cases arising from any violation of Article 264 of this Code, including questions involving legality
of strikes and lockouts; and
"6. Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all
other claims, arising from employer-employee relations, including those of persons in domestic or
household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of
whether accompanied with a claim for reinstatement."
In all these cases, an employer-employee relationship is an indispensable jurisdictional requirement.
The jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising
from an employer-employee relationship which can be resolved by reference to the Labor Code, or other labor
statutes, or their collective bargaining agreements.54
"To determine which body has jurisdiction over the present controversy, we rely on the sound judicial principle
that jurisdiction over the subject matter is conferred by law and is determined by the allegations of the
complaint irrespective of whether the plaintiff is entitled to all or some of the claims asserted therein." 55
The lack of jurisdiction of the Labor Arbiter was obvious from the allegations of the complaint. His failure to
dismiss the case amounts to grave abuse of discretion. 56
V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and ANNULS the orders and resolutions of To protect his interests, Suzuki thenexecuted an Affidavit of Adverse Claim 12 dated September 8, 2003, withthe
the National Labor Relations Commission dated May 31, 1993, December 15, 1994 and March 30, 1995 in Registry of Deeds of Mandaluyong City, annotated as Entry No. 3292/C-No. 18186 in CCT No. 18186. Suzuki
NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-01058-90). No costs. SO ORDERED. then demanded the delivery of the titles.13 Orion, (through Perez), however, refused to surrender the titles, and
cited the need to consult Orions legal counsel as its reason.
G.R. No. 205487 November 12, 2014
On October 14, 2003, Suzuki received a letter from Orions counsel dated October 9, 2003, stating that Kang
obtained another loan in the amount of P1,800,000.00. When Kang failed to pay, he executed a Dacion en
ORION SAVINGS BANK, Petitioner,
vs. Pagodated February 2, 2003, in favorof Orion covering Unit No. 536. Orion, however, did not register the
Dacion en Pago, until October 15, 2003.
SHIGEKANE SUZUKI, Respondent.

DECISION On October 28, 2003, Suzuki executed an Affidavit of Adverse Claim over Parking Slot No. 42 (covered by CCT
No. 9118) and this was annotated as Entry No. 4712/C-No. 9118 in the parking lots title.

BRION, J.:
On January 27, 2004, Suzuki filed a complaint for specific performance and damages against Kang and Orion.
At the pre-trial, the parties made the following admissions and stipulations:
Before us is the Petition for Review on Certiorari1 filed by petitioner Orion Savings Bank (Orion) under Rule 45
of the Rules of Court, assailing the decision 2 dated August 23, 2012 and the resolution3 dated January 25, 2013
of the Court of Appeals (CA) in CA-G.R. CV No. 94104. 1. That as of August 26, 2003, Kang was the registered owner of Unit No. 536 and Parking Slot No.
42;

The Factual Antecedents

2. That the mortgage in favor ofOrion supposedly executed by Kang, with Entry No. 66432/C-10186
dated February 2, 1999, was subsequently cancelled by Entry No. 73232/T No. 10186 dated June 16,
In the first week of August 2003, respondent Shigekane Suzuki (Suzuki), a Japanese national, met with Ms. 2000;
Helen Soneja (Soneja) to inquire about a condominium unit and a parking slot at Cityland Pioneer,
Mandaluyong City, allegedly owned by Yung Sam Kang (Kang), a Korean national and a Special Resident
3. That the alleged Dacion en Pagowas never annotated in CCT Nos. 18186 and 9118;
Retiree's Visa (SRRV) holder.

At the meeting, Soneja informed Suzuki that Unit No. 536 [covered by Condominium Certificate of Title (CCT) 4. That Orion only paid the appropriate capital gains tax and the documentary stamp tax for the
alleged Dacion en Pago on October 15, 2003;
No. 18186]4 and Parking Slot No. 42 [covered by CCT No. 9118]5 were for sale for P3,000,000.00. Soneja
likewise assured Suzuki that the titles to the unit and the parking slot were clean. After a brief negotiation, the
parties agreed to reduce the price to P2,800,000.00. On August 5, 2003, Suzuki issued Kang a Bank of the 5. That Parking Slot No. 42, covered by CCT No. 9118, was never mortgaged to Orion; and
Philippine Island (BPI) Check No. 833496 for One Hundred Thousand Pesos (P100,000.00) as reservation
fee.7 On August 21, 2003, Suzuki issued Kang another check, BPI Check No. 83350, 8 this time 6. That when Suzuki bought the properties, he went to Orion to obtain possession of the titles.
for P2,700,000.00 representing the remaining balance of the purchase price. Suzuki and Kang then executed a
Deed of Absolute Sale dated August 26, 20039 covering Unit No. 536 and Parking Slot No. 42. Soon after,
Suzuki took possession of the condominium unit and parking lot, and commenced the renovation of the interior The RTC Ruling
of the condominium unit.
In its decision14 dated June 29, 2009, the Regional Trial Court (RTC), Branch 213, Mandaluyong City ruled
Kang thereafter made several representations with Suzuki to deliver the titles to the properties, which were infavor of Suzuki and ordered Orion to deliver the CCT Nos. 18186 and 9118 to Suzuki.
then allegedly in possession of Alexander Perez (Perez, Orions Loans Officer) for safekeeping. Despite
several verbal demands, Kang failed to deliver the documents. Suzuki later on learned that Kang had left the The court found that Suzuki was an innocent purchaser for value whose rights over the properties prevailed
country, prompting Suzuki to verify the status of the properties with the Mandaluyong City Registry of Deeds. over Orions. The RTC further noted that Suzuki exerted efforts to verify the status of the properties but he did
not find any existing encumbrance inthe titles. Although Orion claims to have purchased the property by way of
Before long, Suzuki learned that CCT No. 9118 representing the title to the Parking Slot No. 42 contained no a Dacion en Pago, Suzuki only learned about it two (2) months after he bought the properties because Orion
annotations although it remained under the name of Cityland Pioneer. This notwithstanding, Cityland Pioneer, never bothered to register or annotate the Dacion en Pagoin CCT Nos. 18186 and 9116.
through Assistant Vice President Rosario D. Perez, certified that Kang had fully paid the purchase price of Unit.
No. 53610 and Parking Slot No. 42.11 CCT No. 18186 representing the title to the condominium unit had no The RTC further ordered Orion and Kang to jointly and severally pay Suzuki moral damages, exemplary
existing encumbrance, except for anannotation under Entry No. 73321/C-10186 which provided that any damages, attorneys fees, appearance fees, expenses for litigation and cost ofsuit. Orion timely appealed the
conveyance or encumbrance of CCT No. 18186 shall be subject to approval by the Philippine Retirement RTC decision with the CA.
Authority (PRA). Although CCT No. 18186 contained Entry No. 66432/C-10186 dated February 2, 1999
representing a mortgage in favor of Orion for a P1,000,000.00 loan, that annotation was subsequently
cancelled on June 16, 2000 by Entry No. 73232/T. No. 10186. Despite the cancellation of the mortgage to The CA Ruling
Orion, the titles to the properties remained in possession of Perez.
On August 23, 2012, the CA partially granted Orions appeal and sustained the RTC insofar as it upheld
Suzukis right over the properties. The CA further noted that Entry No. 73321/C-10186 pertaining to the
withdrawal of investment of an SRRV only serves as a warning to an SRRV holder about the implications of a
conveyance of a property investment. It deviated from the RTC ruling, however, by deleting the award for moral
damages, exemplary damages, attorneys fees, expenses for litigation and cost of suit.
Orion sought a reconsideration of the CA decision but the CA denied the motion in its January 25, 2013
resolution. Orion then filed a petition for review on certiorariunder Rule 45 with this Court.
The Petition and Comment
Orions petition is based on the following grounds/arguments:15
1. The Deed of Sale executed by Kang in favor of Suzuki is null and void. Under Korean law, any
conveyance of a conjugal property should be made with the consent of both spouses;
2. Suzuki is not a buyer in good faith for he failed to check the owners duplicate copies of the CCTs;
3. Knowledge of the PRA restriction under Entry No. 73321/C-10186, which prohibits any conveyance
or encumbrance of the property investment, defeats the alleged claim of good faith by Suzuki; and
4. Orion should not be faulted for exercising due diligence.
In his Comment,16 Suzuki asserts that the issue on spousal consent was belatedly raised on appeal. Moreover,
proof of acquisition during the marital coverture is a condition sine qua nonfor the operation of the presumption
of conjugal ownership.17 Suzuki additionally maintains that he is a purchaser in good faith, and is thus entitled
to the protection of the law.
The Courts Ruling
We deny the petition for lack of merit.
The Court may inquire into conclusions of fact when the inference made is manifestly mistaken
In a Rule 45 petition, the latitude of judicial review generally excludes a factual and evidentiary re-evaluation,
and the Court ordinarily abides by the uniform factual conclusions of the trial court and the appellate court. 18 In
the present case, while the courts below both arrived at the same conclusion, there appears tobe an
incongruence in their factual findings and the legal principle they applied to the attendant factual
circumstances. Thus, we are compelled to examine certain factual issues in the exercise of our sound
discretion to correct any mistaken inference that may have been made. 19
Philippine Law governs the transfer of real property
Orion believes that the CA erred in not ruling on the issue of spousal consent. We cannot uphold this position,
however, because the issue of spousal consent was only raised on appeal to the CA. It is a well-settled
principle that points of law, theories, issues, and arguments not brought to the attention of the trial court cannot
be raised for the first time on appeal and considered by a reviewing court. 20 To consider these belated
arguments would violate basic principles of fairplay, justice, and due process.
Having said these, we shall nonetheless discuss the issues Orion belatedly raised, if only to put an end to
lingering doubts on the correctness of the denial of the present petition.
It is a universal principle thatreal or immovable property is exclusively subject to the laws of the country or state
where it is located.21 The reason is found in the very nature of immovable property its immobility.
Immovables are part of the country and so closely connected to it that all rights over them have their natural
center of gravity there.22
Thus, all matters concerning the titleand disposition ofreal property are determined by what is known as the lex
loci rei sitae, which can alone prescribe the mode by which a title canpass from one person to another, or by
which an interest therein can be gained or lost.23 This general principle includes all rules governing the descent,
alienation and transfer of immovable property and the validity, effect and construction of wills and other
conveyances.24
This principle even governs the capacity of the person making a deed relating to immovable property, no matter
what its nature may be. Thus, an instrument will be ineffective to transfer title to land if the person making it is
incapacitated by the lex loci rei sitae, even though under the law of his domicile and by the law of the place
where the instrument is actually made, his capacity is undoubted. 25
On the other hand, property relations between spouses are governed principally by the national law of the
spouses.26 However, the party invoking the application of a foreign law has the burden of proving the foreign
law. The foreign law is a question of fact to be properly pleaded and proved as the judge cannot take judicial
notice of a foreign law.27 He is presumed to know only domestic or the law of the forum. 28
To prove a foreign law, the party invoking it must present a copy thereof and comply with Sections 24 and 25 of
Rule 132 of the Revised Rules of Court which reads:
SEC. 24. Proof of official record. The record of public documents referred to in paragraph (a) of Section 19,
when admissible for any purpose, may be evidenced by an official publication thereof or by a copy attested by
the officer having the legal custody of the record, or by his deputy, and accompanied, if the record is not kept in
the Philippines, with a certificate that such officer has the custody. If the office in which the record is kept is in a
foreign country, the certificate may be made by a secretary of the embassy or legation, consul general, consul,
vice consul, or consular agent or by any officer in the foreign service of the Philippines stationed in the foreign
country inwhich the record is kept, and authenticated by the seal of his office. (Emphasis supplied)
SEC. 25. What attestation ofcopy must state. Whenever a copy of a document or record is attested for the
purpose of the evidence, 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. The attestation must be under the official seal of the attesting
officer, if there be any, or if he be the clerk of a court having a seal, under the seal of such court.
Accordingly, matters concerning the title and disposition of real property shall be governed by Philippine law
while issues pertaining to the conjugal natureof the property shall be governed by South Korean law, provided it
is proven as a fact.
In the present case, Orion, unfortunately failed to prove the South Korean law on the conjugal ownership
ofproperty. It merely attached a "Certification from the Embassy of the Republic of Korea" 29 to prove the
existence of Korean Law. This certification, does not qualify as sufficient proof of the conjugal nature of the
property for there is no showing that it was properly authenticated bythe seal of his office, as required under
Section 24 of Rule 132.30
Accordingly, the International Law doctrine of presumed-identity approachor processual presumption comes
into play, i.e., where a foreign law is not pleaded or, evenif pleaded, is not proven, the presumption is that
foreign law is the same as Philippine Law.31
Under Philippine Law, the phrase "Yung Sam Kang married to' Hyun Sook Jung" is merely descriptive of the
civil status of Kang.32 In other words, the import from the certificates of title is that Kang is the owner of the
properties as they are registered in his name alone, and that he is married to Hyun Sook Jung.
We are not unmindful that in numerous cases we have held that registration of the property in the name of only
one spouse does not negate the possibility of it being conjugal or community property.33 In those cases,
however, there was proof that the properties, though registered in the name of only one spouse, were indeed
either conjugal or community properties.34 Accordingly, we see no reason to declare as invalid Kangs
conveyance in favor of Suzuki for the supposed lack of spousal consent.
The petitioner failed to adduce sufficient evidence to prove the due execution of the Dacion en Pago
Article 1544 of the New Civil Codeof the Philippines provides that:
ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good
faith.
The application of Article 1544 of the New Civil Code presupposes the existence of two or more duly executed
contracts of sale. In the present case, the Deed of Sale dated August 26, 2003 35 between Suzuki and Kang was
admitted by Orion36 and was properly identified by Suzukis witness Ms. Mary Jane Samin (Samin). 37
It is not disputed, too, that the Deed of Sale dated August 26, 2003 was consummated. In a contract of sale,
the seller obligates himself to transfer the ownership of the determinate thing sold, and to deliver the same to
the buyer, who obligates himself to pay a price certain to the seller.38 The execution of the notarized deed of
saleand the actual transfer of possession amounted to delivery that produced the legal effect of transferring
ownership to Suzuki.39
On the other hand, although Orion claims priority in right under the principle of prius tempore, potior jure
(i.e.,first in time, stronger in right), it failedto prove the existence and due execution of the Dacion en Pagoin its
favor.
At the outset, Orion offered the Dacion en Pagoas Exhibit "5"with submarkings "5-a" to "5-c" to prove the
existence of the February 6, 2003 transaction in its Formal Offer dated July 20, 2008. Orion likewise offered in
evidence the supposed promissory note dated September 4, 2002 as Exhibit "12"to prove the existence of the
additionalP800,000.00 loan. The RTC, however, denied the admission of Exhibits "5" and "12,"among others, in
its order dated August 19, 2008 "since the same [were] not identified in court by any witness." 40
Despite the exclusion of its most critical documentary evidence, Orion failed to make a tender ofexcluded
evidence, as provided under Section 40, Rule 132 of the Rules of Court. For this reason alone, we are
prevented from seriously considering Exhibit "5" and its submarkings and Exhibit "12" in the present petition.
Moreover, even if we consider Exhibit "5" and its submarkings and Exhibit "12" in the present petition, the
copious inconsistencies and contradictions in the testimonial and documentary evidence of Orion, militate
against the conclusion that the Dacion en Pagowas duly executed. First, there appears to be no due and
demandable obligation when the Dacion en Pago was executed, contrary to the allegations of Orion. Orions
witness Perez tried to impress upon the RTC that Kang was in default in his P1,800,000.00 loan. During his
direct examination, he stated:
ATTY. CRUZAT:
Q: Okay, so this loan of P1.8 million, what happened to this loan, Mr. Witness?
A: Well it became past due, there has been delayed interest payment by Mr. Kangand...
Q: So what did you do after there were defaults[?]
A: We have to secure the money or the investment of the bank through loans and we have executed
a dacion en pagobecause Mr. Kang said he has no money. So we just execute[d] the dacion en pago
rather than going through the Foreclosure proceedings.
xxxx
Q: Can you tell the court when was this executed?
A: February 6, 2003, your Honor.41
A reading of the supposed promissory note, however, shows that there was nodefault to speak of when the
supposed Dacion en Pagowas executed.
Based on the promissory note, Kangs loan obligation wouldmature only on August 27, 2003. Neither can Orion
claim that Kang had been in default in his installment payments because the wordings of the promissory note
provide that "[t]he principal of this loanand its interest and other charges shall be paid by me/us in accordance
hereunder: SINGLE PAYMENT LOANS.42 "There was thus no due and demandable loan obligation when the
alleged Dacion en Pago was executed.
Second, Perez, the supposed person who prepared the Dacion en Pago,appears to only have a vague idea of
the transaction he supposedly prepared. During his cross-examination, he testified:
ATTY. DE CASTRO:
Q: And were you the one who prepared this [dacion en pago] Mr. witness?
A: Yes, sir. I personally prepared this.
xxxx
 Q: So this 1.8 million pesos is already inclusive of all the penalties, interest and surcharge due from
Mr. Yung Sam Kang?
A: Its just the principal, sir.
Q: So you did not state the interest [and] penalties?
A: In the [dacion en pago], we do not include interest, sir. We may actually includethat but....
Q: Can you read the Second Whereas Clause, Mr. Witness?
A: Whereas the first party failed to pay the said loan to the second party and as of February 10, 2003,
the outstanding obligation which is due and demandable principal and interest and other charges
included amounts to P1,800,000.00 pesos, sir.
xxxx
Q: You are now changing your answer[.] [I]t now includes interest and other charges, based on this
document?
A: Yes, based on that document, sir.43
Third, the Dacion en Pago,mentioned that the P1,800,000.00 loan was secured by a real estate
mortgage. However, no document was ever presented to prove this real estate mortgage aside from it
being mentioned in the Dacion en Pago itself.
ATTY. DE CASTRO:
Q: Would you know if there is any other document like a supplement to that Credit Line Agreement
referring to this 1.8 million peso loan by Mr. Yung Sam Kang which says that there was a subsequent
collateralization or security given by Mr. Yung [Sam]
Kang for the loan?
xxxx
A: The [dacion en pago], sir.44
Fourth,the Dacion en Pago was first mentioned only two (2) months after Suzuki and Samin demanded the
delivery of the titles sometime in August 2003,and after Suzuki caused the annotation of his affidavit of adverse
claim. Records show that it was only on October 9, 2003, when Orion, through its counsel, Cristobal Balbin
Mapile & Associates first spoke of the Dacion en Pago.45 Not even Perez mentioned any Dacion en Pago on
October 1, 2003, when he personally received a letter demanding the delivery of the titles.Instead, Perez
refused to accept the letter and opted to first consult with his lawyer.46
Notably, even the October 9, 2003 letter contained material inconsistencies in its recital of facts surrounding the
execution of the Dacion en Pago. In particular, it mentioned that "on [September 4, 2002], after paying the
original loan, [Kang] applied and was granted a new Credit Line Facility by [Orion] x x x for ONE MILLION
EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00)." Perez, however, testified that there was "no cash
movement" in the originalP1,000,000.00 loan. In his testimony, he said:
COURT:
xxxx
Q: Would you remember what was the subject matter of that real estate mortgage for that
firstP1,000,000.00 loan?
A: Its a condominium Unit in Cityland, sir.
xxxx
Q: Would you recall if there was any payment by Mr. Yung Sam Kang of this P1,000,000.00 loan?
A: None sir.
Q: No payments?
A: None sir.
Q: And from 1999 to 2002, there was no payment, either by way of payment to the principal, by way
ofpayment of interest, there was no payment by Mr. Yung Sam Kang of this loan?
A: Literally, there was no actual cash movement, sir.
Q: There was no actual cash?
A: Yes, sir.
Q: And yet despite no payment, the bank Orion Savings Bank still extended an P800,000.00
additional right?
A: Yes, sir.47
Fifth, it is undisputed that notwithstanding the supposed execution of theDacion en Pago on February 2, 2003,
Kang remained in possession of the condominium unit. In fact, nothing in the records shows that Orion even
bothered to take possession of the property even six (6) months after the supposed date of execution of the
Dacion en Pago. Kang was even able to transfer possession of the condominium unit to Suzuki, who then
made immediate improvements thereon. If Orion really purchased the condominium unit on February 2, 2003
and claimed to be its true owner, why did it not assert its ownership immediately after the alleged sale took
place? Why did it have to assert its ownership only after Suzuki demanded the delivery of the titles? These
gaps have remained unanswered and unfilled.
In Suntay v. CA,48 we held that the most prominent index of simulation is the complete absence of anattempt on
the part of the vendee to assert his rights of ownership over the property in question. After the sale, the vendee
should have entered the land and occupied the premises. The absence of any attempt on the part of Orion to the PRA restriction. Orion, thus, is estopped from impugning the validity of the conveyance in favor of Suzuki
assert its right of dominion over the property allegedly soldto it is a clear badge of fraud. That notwithstanding on the basis of the PRA restriction that Orion itself ignored and "attempted" to circumvent.
the execution of the Dacion en Pago, Kang remained in possession of the disputed condominium unit from
the time of the execution of the Dacion en Pagountil the propertys subsequent transfer to Suzuki
With the conclusion that Orion failed to prove the authenticity of the Dacion en Pago, we see no reason for the
unmistakably strengthens the fictitious nature of the Dacion en Pago. application of the rules on double sale under Article 1544 of the New Civil Code. Suzuki, moreover, successfully
adduced sufficient evidence to establish the validity of conveyance in his favor.
These circumstances, aside from the glaring inconsistencies in the documents and testimony of Orions
witness, indubitably prove the spurious nature of the Dacion en Pago. WHEREFORE, premises considered, we DENY the petition for lack of merit. Costs against petitioner Orion
Savings Bank.
The fact that the Dacion en Pago
is a notarized document does not SO ORDERED.
support the conclusion that the
sale it embodies is a true
conveyance

Public instruments are evidence of the facts that gave rise to their execution and are to be considered as
containing all the terms of the agreement.49 While a notarized document enjoys this presumption, "the fact that
a deed is notarized is not a guarantee of the validity of its contents." 50 The presumption of regularity of
notarized documents is not absolute and may be rebutted by clear and convincing evidence to the contrary.51

In the present case, the presumption cannot apply because the regularity in the execution of the Dacion en
Pago and the loan documents was challenged in the proceedings below where their prima facievalidity was
overthrown by the highly questionable circumstances surrounding their execution. 52

Effect of the PRA restriction on

the validity of Suzukis title to the
property

Orion argues that the PRA restriction in CCT No. 18186 affects the conveyance to Suzuki. In particular, Orion
assails the status of Suzuki as a purchaser in good faith in view of the express PRA restriction contained in
CCT No. 18186.53

We reject this suggested approachoutright because, to our mind, the PRA restriction cannot affect the
conveyance in favor of Suzuki. On this particular point, we concur withthe following findings of the CA:

x x x the annotation merely servesas a warning to the owner who holds a Special Resident Retirees
Visa(SRRV) that he shall lose his visa if he disposes his property which serves as his investment in order to
qualify for such status. Section 14 of the Implementing Investment Guidelines under Rule VIII-A of the Rules
and Regulations Implementing Executive Order No. 1037, Creating the Philippine Retirement Park System
Providing Funds Therefor and For Other Purpose ( otherwise known as the Philippine Retirement Authority)
states:

Section 14. Should the retiree-investor withdraw his investment from the Philippines, or transfer the same to
another domestic enterprise, orsell, convey or transfer his condominium unit or units to another person, natural
or juridical without the prior approval of the Authority, the Special Resident Retirees Visa issued to him, and/or
unmarried minor child or children[,] may be cancelled or revoked by the Philippine Government, through the
appropriate government department or agency, upon recommendation of the Authority.54

Moreover, Orion should not be allowed to successfully assail the good faith of Suzuki on the basis of the PRA
restriction. Orion knew of the PRA restriction when it transacted with Kang. Incidentally, Orion admitted
accommodating Kangs request to cancel the mortgage annotation despite the lack of payment to circumvent
G.R. No. 124110 April 20, 2001
UNITED AIRLINES, INC., Petitioner
vs.
COURT OF APPEALS, ANICETO FONTANILLA, in his personal capacity and in behalf of his minor
son MYCHAL ANDREW FONTANILLA, Respondents.
KAPUNAN, J.:
On March 1, 1989, private respondent Aniceto Fontanilla purchased from petitioner United Airlines, through the
Philippine Travel Bureau in Manila three (3) "Visit the U.S.A." tickets for himself, his wife and his minor son
Mychal for the following routes:
a. San Francisco to Washinton (15 April 1989);
b. Washington to Chicago (25 April 1989);
c. Chicago to Los Angeles (29 April 1989);
d. Los Angeles to San Francisco (01 may 1989 for petitioners wife and 05 May 1989 for petitioner
and his son). 1
All flights had been confirmed previously by United Airlines. 2
The Fontanillas proceeded to the United States as planned, where they used the first coupon from San
Francisco to Washington. On April 24, 1989, Aniceto Fontanilla bought two (2) additional coupons each for
himself, his wife and his son from petitioner at its office in Washington Dulles Airport. After paying the penalty
for rewriting their tickets, the Fontanillas were issued tickets with corresponding boarding passes with the
words "CHECK-IN REQUIRED," for United Airlines Flight No. 1108, set to leave from Los Angeles to San
Francisco at 10:30 a.m. on May 5, 1989.3
The cause of the non-boarding of the Fontanillas on United Airlines Flight No. 1108 makes up the bone of
contention of this controversy.1wphi1.nt
Private respondents version is as follows:
Aniceto Fontanilla and his son Mychal claim that on May 5, 1989, upon their arrival at the los Angeles Airport
for their flight, they proceeded to united Airlines counter where they were attended by an employee wearing a
nameplate bearing the name "LINDA." Linda examined their tickets, punched something into her computer and
then told them that boarding would be in fifteen minutes.4
When the flight was called, the Fontanillas proceeded to the plane. To their surprise, the stewardess at the gate
did not allow them to board the plane, as they had no assigned seat numbers. They were then directed to go
back to the "check-in" counter where Linda subsequently informed them that the flight had been overbooked
and asked them to wait.5
The Fontanillas tried to explain to Linda the special circumstances of their visit. However, Linda told them in
arrogant manner, "So what, I can not do anything about it."6
Subsequently, three other passengers with Caucasian features were graciously allowed to baord, after the
Fontanillas were told that the flight had been overbooked.7
The plane then took off with the Fontanillas baggage in tow, leaving them behind.8
The Fontanillas then complained to Linda, who in turn gave them an ugly stare and rudely uttered, "its not my
fault. Its the fault of the company. Just sit down and wait." 9 When Mr. Fontanilla reminded Linda of the
inconvenience being caused to them, she bluntly retorted, "Who do you think you are? You lousy Flips are
good for nothing beggars. You always ask for American aid." After which she remarked "Dont worry about your
baggage. Anyway there is nothing in there. What are you doing here anyway? I will report you to immigration.
You Filipinos should go home."10 Such rude statements were made in front of other people in the airport
causing the Fontanillas to suffer shame, humiliation and embarrassment. The chastening situation even caused
the younger Fontanilla to break into tears.11
After some time, Linda, without any explanation, offered the Fontanillas $50.00 each. She simply said "Take it
or leave it." This, the Fontanillas declined.12
The Fontanillas then proceeded to the United Airlines customer service counter to plead their case. The male
employee at the counter reacted by shouting that he was ready for it and left without saying anything. 13
The Fontanillas were not booked on the next flight, which departed for San Francisco at 11:00 a.m. It was only
at 12:00 noon that they were able to leave Los Angeles on United Airlines Flight No. 803.
Petitioner United Airlines has a different version of what occurred at the Los Angeles Airport on May 5, 1989.
According to United Airlines, the Fontanillas did not initially go to the check-in counter to get their seat
assignments for UA Flight 1108. They instead proceeded to join the queue boarding the aircraft without first
securing their seat assignments as required in their ticket and boarding passes. Having no seat assignments,
the stewardess at the door of the plane instructed them to go to the check-in counter. When the Fontanillas
proceeded to the check-in counter, Linda Allen, the United Airlines Customer Representative at the counter
informed them that the flight was overbooked. She booked them on the next available flight and offered them
denied boarding compensation. Allen vehemently denies uttering the derogatory and racist words attributed to
her by the Fontanillas.14
The incident prompted the Fontanillas to file Civil Case No. 89-4268 for damages before the Regional Trial
Court of Makati. After trial on the merits, the trial court rendered a decision, the dispositive portion of which
reads as follows:
WHEREFORE, judgment is rendered dismissing the complaint. The counterclaim is likewise
dismissed as it appears that plaintiffs were not actuated by legal malice when they filed the instant
complaint.15
On appeal, the Court of Appeals ruled in favor of the Fontanillas. The appellate court found that there was an
admission on the part of United Airlines that the Fontanillas did in fact observe the check-in requirement. It
ruled further that even assuming there was a failure to observe the check-in requirement, United Airlines failed
to comply with the procedure laid down in cases where a passenger is denied boarding. The appellate court
likewise gave credence to the claim of Aniceto Fontanilla that the employees of United Airlines were
discourteous and arbitrary and, worse, discriminatory. In light of such treatment, the Fontanillas were entitled to
moral damages. The dispositive portion of the decision of the respondent Court of Appeals dated 29 September
1995, states as follows:
 WHEREFORE, in view of the foregoing, judgment appealed herefrom is hereby REVERSED and SET On the first issue raised by the petitioner, the respondent Court of Appeals ruled that when Rule 9, Section 1 of
ASIDE, and a new judgment is entered ordering defendant-appellee to pay plaintiff-appellant the the Rules of Court,18 there was an implied admission in petitioners answer in the allegations in the complaint
following: that private respondent and his son observed the "check-in requirement at the Los Angeles Airport." Thus:

A perusal of the above pleadings filed before the trial court disclosed that there exist a blatant
admission on the part of the defendant-appellee that the plaintiffs-appellants indeed observed the
"check-in" requirement at the Los Angeles Airport on May 5, 1989. In view of defendant-appellees
a. P200,000.00 as moral damages;
admission of plaintiffs-appellants material averment in the complaint. We find no reason why the trial
court should rule against such admission.19
b. P200,000.00 as exemplary damages;
We disagree with the above conclusion reached by respondent Court of Appeals. Paragraph 7 of private
c. P50,000.00 as attorneys fees; respondents complaint states:

No pronouncement as to costs. 7. On May 5, 1989 at 9:45 a.m., plaintiff and his son checked in at defendants designated counter at
the airport in Los Angeles for their scheduled flight to San Francisco on defendants Flight No. 1108. 20
SO ORDERED.16
Responding to the above allegations, petitioner averred in paragraph 4 of its answer, thus:
Petitioner United Airlines now comes to this Court raising the following assignments of errors;
4. Admits the allegation set forth in paragraph 7 of the complaint except to deny that plaintiff and his
I son checked in at 9:45 a.m., for lack of knowledge or information at this point in time as to the truth
thereof.21

RESPONDENT COURT OF APPEALS GRVAELY ERRED IN RULING THAT THE TRIAL COURT
WAS WRONG IN FAILING TO CONSIDER THE ALLEGED ADMISSION THAT PRIVATE
RESPONDENT OBSERVED THE CHECK-IN REQUIREMENT.
II
The rule authorizing an answer that the defendant has no knowledge or information sufficient to form a belief as
to the truth of an averment giving such answer is asserted is so plainly and necessarily within the defendants
knowledge that his averment of ignorance must be palpably untrue.22 Whether or not private respondents
checked in at petitioners designated counter at the airport at 9:45 a.m. on May 5, 1989 must necessarily be
within petitioners knowledge.

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE
RESPONDENTS FAILURE TO CHECK-IN WILL NOT DEFEAT HIS CLAIMS BECAUSE THE
DENIED BOARDING RULES WERE NOT COMPLIED WITH.
III
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE
RESPONDENT IS ENTITLED TO MORAL DAMAGES OF P200,000.
IV
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE
RESPONDENT IS ENTITLED TO EXEMPLARY DAMAGES OF P200,000.
V
While there was no specific denial as to the fact of compliance with the "check-in" requirement by private
respondents, petitioner presented evidence to support its contention that there indeed was no compliance.
Private respondents then are said to have waived the rule on admission. It not only presented evidence to
support its contention that there was compliance with the check-in requirement, it even allowed petitioner to
present rebutal evidence. In the case of Yu Chuck vs. "Kong Li Po," we ruled that:
The object of the rule is to relieve a party of the trouble and expense in proving in the first instance an
alleged fact, the existence or non-existence of which is necessarily within the knowledge of the
adverse party, and of the necessity (to his opponents case) of establishing which such adverse party
is notified by his opponents pleadings.
The plaintiff may, of course, waive the rule and that is what must be considered to have done (sic) by
introducing evidence as to the execution of the document and failing to object to the defendants
evidence in refutation; all this evidence is now competent and the case must be decided thereupon. 23

The determination of the other issues raised is dependent on whether or not there was a breach of contract in
RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT PRIVATE bad faith on the part of the petitioner in not allowing the Fontanillas to board United Airlines Flight 1108.
RESPONDENT IS ENTITLED TO ATTORNEYS FEES OF P50,000.17

It must be remembered that the general rule in civil cases is that the party having the burden of proof of an
essential fact must produce a preponderance of evidence thereon. 24 Although the evidence adduced by the
plaintiff is stronger than that presented by the defendant, a judgment cannot be entered in favor of the former, if
his evidence is not sufficient to sustain his cause of action. The plaintiff must rely on the strength of his own
evidence and not upon the weakness of the defendants.25 Proceeding from this, and considering the
contradictory findings of facts by the Regional Trial Court and the Court of Appeals, the question before this
Court is whether or not private respondents were able to prove with adequate evidence his allegations of
breach of contract in bad faith.
We rule in the negative.
Time and again, the Court has pronounced that appellate courts should not, unless for strong and cogent
reasons, reverse the findings of facts of trial courts. This is so because trial judges are in better position to
examine real evidence and at a vantage point to observe the actuation and the demeanor of the
witnesses.26While not the sole indicator of the credibility of a witness, it is of such weight that it has been said to
be the touchstone of credibility.27
Aniceto Fontanillas assertion that upon arrival at the airport at 9:45 a.m., he immediately proceeded to the
check-in counter, and that Linda Allen punched in something into the computer is specious and not supported
by the evidence on record. In support of their allegations, private respondents submitted a copy of the boarding
pass. Explicitly printed on the boarding pass are the words "Check-In Required." Curiously, the said pass did
not indicate any seat number. If indeed the Fontanillas checked in at the designated time as they claimed, why
then were they not assigned seat numbers? Absent any showing that Linda was so motivated, we do not buy
into private respondents claim that Linda intentionally deceived him, and made him the laughing stock among
the passengers.28 Hence, as correctly observed by the trial court:
Plaintiffs fail to realize that their failure to check in, as expressly required in their boarding passes, is
they very reason why they were not given their respective seat numbers, which resulted in their being
denied boarding.29
Neither do we agree with the conclusion reached by the appellate court that private respondents failure to
comply with the check-in requirement will not defeat his claim as the denied boarding rules were not complied
with. Notably, the appellate court relied on the Code of Federal Regulation Part on Oversales which states:
250.6 Exceptions to eligibility for denied boarding compensation.
A passenger denied board involuntarily from an oversold flight shall not be eligible for denied board
compensation if:
a. The passenger does not comply with the carriers contract of carriage or tariff provisions
regarding ticketing, reconfirmation, check-in, and acceptability for transformation.
The appellate court, however, erred in applying the laws of the United States as, in the case at bar, Philippine
law is the applicable law. Although, the contract of carriage was to be performed in the United States, the
tickets were purchased through petitioners agent in Manila. It is true that the tickets were "rewritten" in
Washington, D.C. however, such fact did not change the nature of the original contract of carriage entered into
by the parties in Manila.
In the case of Zalanea vs. Court of Appeals,30 this Court applied the doctrine of lex loci contractus. According to
the doctrine, as a general rule, the law of the place where a contract is made or entered into governs with
respect to its nature and validity, obligation and interpretation. This has been said to be the rule even though
the place where the contract was made is different from the place where it is to be performed, and particularly
so, if the place of the making and the place of performance are the same. Hence, the court should apply the
law of the place where the airline ticket was issued, when the passengers are residents and nationals of the
forum and the ticket is issued in such State by the defendant airline.
The law of the forum on the subject matter is Economic Regulations No. 7 as amended by Boarding Priority
and Denied Board Compensation of the Civil Aeronautics Board which provides that the check-in requirement
be complied with before a passenger may claim against a carrier for being denied boarding:
Sec. 5. Amount of Denied Boarding Compensation Subject to the exceptions provided hereinafter
under Section 6, carriers shall pay to passengers holding confirmed reserved space and who have
presented themselves at the proper place and time and fully complied with the carriers check-in and
reconfirmation procedures and who are acceptable for carriage under the Carriers tariff but who have
been denied boarding for lack of space, a compensation at the rate of: xxx
Private respondents narration that they were subjected to harsh and derogatory remarks seems incredulous.
However, this Court will not attempt to surmise what really happened, suffice to say, private respondent was not
able to prove his cause of action, for as the trial court correctly observed:
xxx plaintiffs claim to have been discriminated against and insulted in the presence of several people.
Unfortunately, plaintiffs limited their evidence to the testimony of Aniceto Fontanilla, without any
corroboration by the people who saw or heard the discriminatory remarks and insults; while such
limited testimony could possibly be true, it does not enable the Court to reach the conclusion that
plaintiffs have, by a preponderance of evidence, proven that they are entitled to P1,650,000.00
damages from defendant.31
As to the award of moral and exemplary damages, we find error in the award of such by the Court of Appeals.
For the plaintiff to be entitled to an award of moral damages arising from a breach of contract of carriage, the
carrier must have acted with fraud or bad faith. The appellate court predicated its award on our pronouncement
in the case of Zalanea vs. Court of Appeals, supra, where we stated:
Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling passengers
concerned to an award of moral damages. In Alitalia Airways vs. Court of Appeals, where passengers
with confirmed booking were refused carriage on the last minute, this Court held that when an airline
issues a ticket to a passenger confirmed on a particular flight, on a certain date, a contract of carriage
arises, and the passenger has every right to except that he would fly on that flight and on that date. If
he does not, then the carrier opens itself to a suit for breach of contract of carriage. Where an airline
had deliberately overbooked, it took the risk of having to deprive some passengers of their seats in
case all of them would show up for check in. For the indignity and inconvenience of being refused a
confirmed seat on the last minute, said passenger is entitled to moral damages. (Emphasis supplied).
However, the Courts ruling in said case should be read in consonance with existing laws, particularly,
Economic Regulations No. 7, as amended, of the Civil Aeronautics Board:
Sec. 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to
its operation of flights or portions of flights originating from or terminating at, or serving a point within
the territory of the Republic of the Philippines insofar as it denies boarding to a passenger on a flight,
or portion of a flight inside or outside the Philippines, for which he holds confirmed reserved space.
Furthermore, this Regulation is designed to cover only honest mistakes on the part of the carriers and
excludes deliberate and willful acts of non-accommodation. Provided, however, that overbooking not
 exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and
willful act of non-accommodation.

What this Court considers as bad faith is the willful and deliberate overbooking on the part of the airline carrier.
The above-mentioned law clearly states that when the overbooking does not exceed ten percent (10%), it is not
considered as deliberate and therefore does not amount to bad faith. While there may have been overbooking
in this case, private respondents were not able to prove that the overbooking on United Airlines Flight 1108
exceeded ten percent.

As earlier stated, the Court is of the opinion that the private respondents were not able to prove that they were
subjected to coarse and harsh treatment by the ground crew of united Airlines. Neither were they able to show
that there was bad faith on part of the carrier airline. Hence, the award of moral and exemplary damages by the
Court of Appeals is improper. Corollarily, the award of attorneys fees is, likewise, denied for lack of any legal
and factual basis.

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G.R. CV No. 37044 is
herebyREVERSED and SET ASIDE. The decision of the Regional Trial Court of Makati City in Civil Case No.
89-4268 dated April 8, 1991 is hereby REINSTATED.

SO ORDERED.