HASEGAWA VS. KITAMURA G.R. NO. 149177 Kitamura by a certain Y.

Kotake as project manager of

the BBRI Project.[13]
NACHURA, J.:
On June 29, 2000, the RTC, invoking our ruling
Before the Court is a petition for review in Insular Government v. Frank[14] that matters
on certiorari under Rule 45 of the Rules of Court connected with the performance of contracts are
assailing the April 18, 2001 Decision[1] of the Court of regulated by the law prevailing at the place of
Appeals (CA) in CA-G.R. SP No. 60827, and the July performance,[15] denied the motion to dismiss.[16] The
25, 2001 Resolution[2] denying the motion for trial court subsequently denied petitioners' motion for
reconsideration thereof. reconsideration,[17] prompting them to file with the
appellate court, on August 14, 2000, their first Petition
On March 30, 1999, petitioner Nippon Engineering for Certiorari under Rule 65 [docketed as CA-G.R. SP
Consultants Co., Ltd. (Nippon), a Japanese consultancy No. 60205].[18] On August 23, 2000, the CA resolved to
firm providing technical and management support in the dismiss the petition on procedural groundsfor lack of
infrastructure projects of foreign governments,[3] entered statement of material dates and for insufficient
into an Independent Contractor Agreement (ICA) with verification and certification against forum
respondent Minoru Kitamura, a Japanese national shopping.[19] An Entry of Judgment was later issued by
permanently residing in the Philippines.[4] The the appellate court on September 20, 2000.[20]
agreement provides that respondent was to extend
professional services to Nippon for a year starting Aggrieved by this development, petitioners filed with the
on April 1, 1999.[5] Nippon then assigned respondent to CA, on September 19, 2000, still within the reglementary
work as the project manager of the Southern Tagalog period, a second Petition for Certiorari under Rule 65
Access Road (STAR) Project in the Philippines, already stating therein the material dates and attaching
following the company's consultancy contract with the thereto the proper verification and certification. This
Philippine Government.[6] second petition, which substantially raised the same
issues as those in the first, was docketed as CA-G.R.
When the STAR Project was near completion, the SP No. 60827.[21]
Department of Public Works and Highways (DPWH)
engaged the consultancy services of Nippon, Ruling on the merits of the second petition, the appellate
on January 28, 2000, this time for the detailed court rendered the assailed April 18,
engineering and construction supervision of the 2001 Decision[22] finding no grave abuse of discretion in
Bongabon-Baler Road Improvement (BBRI) the trial court's denial of the motion to dismiss. The CA
Project.[7] Respondent was named as the project ruled, among others, that the principle of lex loci
manager in the contract's Appendix 3.1.[8] celebrationis was not applicable to the case, because
nowhere in the pleadings was the validity of the written
On February 28, 2000, petitioner Kazuhiro agreement put in issue. The CA thus declared that the
Hasegawa, Nippon's general manager for its trial court was correct in applying instead the principle
International Division, informed respondent that the of lex loci solutionis.[23]
company had no more intention of automatically
renewing his ICA. His services would be engaged by the Petitioners' motion for reconsideration was subsequently
company only up to the substantial completion of the denied by the CA in the assailed July 25,
STAR Project on March 31, 2000, just in time for 2001 Resolution.[24]
the ICA's expiry.[9]
Remaining steadfast in their stance despite the series of
Threatened with impending unemployment, respondent, denials, petitioners instituted the instant Petition for
through his lawyer, requested a negotiation conference Review on Certiorari[25] imputing the following errors to
and demanded that he be assigned to the BBRI the appellate court:
project. Nipponinsisted that respondents contract was
for a fixed term that had already expired, and refused to A. THE HONORABLE COURT OF
negotiate for the renewal of the ICA.[10] APPEALS GRAVELY ERRED IN
FINDING THAT THE TRIAL COURT
As he was not able to generate a positive response from VALIDLY EXERCISED JURISDICTION
the petitioners, respondent consequently initiated OVER THE INSTANT
on June 1, 2000 Civil Case No. 00-0264 for specific CONTROVERSY, DESPITE THE FACT
performance and damages with THAT THE CONTRACT SUBJECT
the Regional Trial Court of Lipa City.[11] MATTER OF THE PROCEEDINGS A
QUO WAS ENTERED INTO BY AND
For their part, petitioners, contending that the ICA had BETWEEN TWO JAPANESE
been perfected in Japan and executed by and between NATIONALS, WRITTEN WHOLLY IN
Japanese nationals, moved to dismiss the complaint for THE JAPANESE LANGUAGE AND
lack of jurisdiction. They asserted that the claim for EXECUTED IN TOKYO, JAPAN.
improper pre-termination of respondent's ICA could only
be heard and ventilated in the proper courts B. THE HONORABLE COURT OF
of Japan following the principles of lex loci APPEALS GRAVELY ERRED IN
celebrationis and lex contractus.[12] OVERLOOKING THE NEED TO
REVIEW OUR ADHERENCE TO THE
In the meantime, on June 20, 2000, the DPWH PRINCIPLE OF LEX LOCI
approved Nippon's request for the replacement of SOLUTIONISIN THE LIGHT OF
 RECENT DEVELOPMENT[S] IN
PRIVATE INTERNATIONAL LAWS.[26]
The pivotal question that this Court is called upon to
resolve is whether the subject matter jurisdiction of
Philippine courts in civil cases for specific performance
and damages involving contracts executed outside the
country by foreign nationals may be assailed on the
principles of lex loci celebrationis, lex contractus, the
state of the most significant relationship rule, or forum
non conveniens.
However, before ruling on this issue, we must first
dispose of the procedural matters raised by the
respondent.
Kitamura contends that the finality of the appellate
court's decision in CA-G.R. SP No. 60205 has already
barred the filing of the second petition docketed as CA-
G.R. SP No. 60827 (fundamentally raising the same
issues as those in the first one) and the instant petition
for review thereof.
We do not agree. When the CA dismissed CA-G.R. SP
No. 60205 on account of the petition's defective
certification of non-forum shopping, it was a dismissal
without prejudice.[27] The same holds true in the CA's
dismissal of the said case due to defects in the formal
requirement of verification[28] and in the other
requirement in Rule 46 of the Rules of Court on the
statement of the material dates.[29] The dismissal being
without prejudice, petitioners can re-file the petition, or
file a second petition attaching thereto the appropriate
verification and certificationas they, in fact didand stating
therein the material dates, within the prescribed
period[30] in Section 4, Rule 65 of the said Rules.[31]
The dismissal of a case without prejudice signifies the
absence of a decision on the merits and leaves the
parties free to litigate the matter in a subsequent action
as though the dismissed action had not been
commenced. In other words, the termination of a case
not on the merits does not bar another action involving
the same parties, on the same subject matter and
theory.[32]
Necessarily, because the said dismissal is without
prejudice and has no res judicata effect, and even if
petitioners still indicated in the verification and
certification of the second certiorari petition that the first
had already been dismissed on procedural
grounds,[33] petitioners are no longer required by the
Rules to indicate in their certification of non-forum
shopping in the instant petition for review of the second
certiorari petition, the status of the aforesaid first petition
before the CA. In any case, an omission in the certificate
of non-forum shopping about any event that will not
constitute res judicata and litis pendentia, as in the
present case, is not a fatal defect. It will not warrant
the dismissal and nullification of the entire proceedings,
considering that the evils sought to be prevented by the
said certificate are no longer present.[34]
The Court also finds no merit in respondent's contention
that petitioner Hasegawa is only authorized to verify and
certify, on behalf of Nippon, the certiorari petition filed
with the CA and not the instant petition. True, the
Authorization[35] dated September 4, 2000, which is
attached to the second certiorari petition and which is
also attached to the instant petition for review, is limited
in scopeits wordings indicate that Hasegawa is given the
authority to sign for and act on behalf of the company
only in the petition filed with the appellate court, and that
authority cannot extend to the instant petition for
review.[36] In a plethora of cases, however, this Court
has liberally applied the Rules or even suspended its
application whenever a satisfactory explanation and a
subsequent fulfillment of the requirements have been
made.[37] Given that petitioners herein sufficiently
explained their misgivings on this point and appended to
their Reply[38] an updated Authorization[39] for Hasegawa
to act on behalf of the company in the instant petition,
the Court finds the same as sufficient compliance with
the Rules.
However, the Court cannot extend the same liberal
treatment to the defect in the verification and
certification. As respondent pointed out, and to which we
agree, Hasegawa is truly not authorized to act on behalf
of Nippon in this case. The aforesaid September 4, 2000
Authorization and even the subsequent August 17, 2001
Authorization were issued only by Nippon's president
and chief executive officer, not by the company's board
of directors. In not a few cases, we have ruled that
corporate powers are exercised by the board of
directors; thus, no person, not even its officers, can bind
the corporation, in the absence of authority from the
board.[40] Considering that Hasegawa verified and
certified the petition only on his behalf and not on behalf
of the other petitioner, the petition has to be denied
pursuant to Loquias v. Office of the
Ombudsman.[41] Substantial compliance will not suffice
in a matter that demands strict observance of the
Rules.[42] While technical rules of procedure are
designed not to frustrate the ends of justice,
nonetheless, they are intended to effect the proper and
orderly disposition of cases and effectively prevent the
clogging of court dockets.[43]
Further, the Court has observed that petitioners
incorrectly filed a Rule 65 petition to question the trial
court's denial of their motion to dismiss. It is a well-
established rule that an order denying
a motion to dismiss is interlocutory,
and cannot be the subject of the extraordinary petition fo
r 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
parties[46] following the [state of the] most significant
relationship rule in Private International Law.[47]
The Court notes that petitioners adopted an additional
but different theory when they elevated the case to the
appellate court. In the Motion to Dismiss[48] filed with the
trial court, petitioners never contended that the RTC is
an inconvenient forum. They merely argued that the
applicable law which will determine the validity or
invalidity of respondent's claim is that of Japan,
following the principles of lex loci celebrationis and lex
contractus.[49] While not abandoning this stance in their
petition before the appellate court, petitioners
on certiorari significantly invoked the defense of forum
non conveniens.[50] On petition for review before this
Court, petitioners dropped their other arguments,
maintained the forum non conveniens defense, and
introduced their new argument that the applicable
principle is the [state of the] most significant relationship
rule.[51]
Be that as it may, this Court is not inclined to deny this
petition merely on the basis of the change in theory, as
explained in Philippine Ports Authority v. City of
Iloilo.[52] We only pointed out petitioners' inconstancy in
their arguments to emphasize their incorrect assertion of
conflict of laws principles.
To elucidate, in the judicial resolution of conflicts
problems, three consecutive phases are involved:
jurisdiction, choice of law, and recognition and
enforcement of judgments. Corresponding to these
phases are the following questions: (1) Where can or
should litigation be initiated? (2) Which law will the court
apply? and (3) Where can the resulting judgment be
enforced?[53]
Analytically, jurisdiction and choice of law are two
distinct concepts.[54] Jurisdiction considers whether it is
fair to cause a defendant to travel to this state; choice of
law asks the further question whether the application of
a substantive law which will determine the merits of the
case is fair to both parties. The power to exercise
jurisdiction does not automatically give a state
constitutional authority to apply forum law. While
jurisdiction and the choice of the lex fori will often
coincide, the minimum contacts for one do not always
provide the necessary significant contacts for the
other.[55] The question of whether the law of a state can
be applied to a transaction is different from the question
of whether the courts of that state have jurisdiction to
enter a judgment.[56]
In this case, only the first phase is at issuejurisdiction.
Jurisdiction, however, has various aspects. For a court
to validly exercise its power to adjudicate a controversy,
it must have jurisdiction over the plaintiff or the
petitioner, over the defendant or the respondent, over
the subject matter, over the issues of the case and, in
cases involving property, over the res or the thing which
is the subject of the litigation.[57] In assailing the trial
court's jurisdiction herein, petitioners are actually
referring to subject matter jurisdiction.
Jurisdiction over the subject matter in a judicial
proceeding is conferred by the sovereign authority which
establishes and organizes the court. It is given only by
law and in the manner prescribed by law.[58] It is further
determined by the allegations of the complaint
irrespective of whether the plaintiff is entitled to all or
some of the claims asserted therein.[59] To succeed in its
motion for the dismissal of an action for lack of
jurisdiction over the subject matter of the claim,[60] the
movant must show that the court or tribunal cannot act
on the matter submitted to it because no law grants it
the power to adjudicate the claims.[61]
In the instant case, petitioners, in their motion to
dismiss, do not claim that the trial court is not properly
vested by law with jurisdiction to hear the subject
controversy for, indeed, Civil Case No. 00-0264 for
specific performance and damages is one not capable
of pecuniary estimation and is properly cognizable by
the RTC of Lipa City.[62] What they rather raise as
grounds to question subject matter jurisdiction are the
principles of lex loci celebrationis and lex
contractus, and the state of the most significant
relationship rule.
The Court finds the invocation of these grounds
unsound.
Lex loci celebrationis relates to the law of the place of
the ceremony[63] or the law of the place where a contract
is made.[64] The doctrine of lex contractus or lex loci
contractus means the law of the place where a contract
is executed or to be performed.[65] It controls the nature,
construction, and validity of the contract[66] and it may
pertain to the law voluntarily agreed upon by the parties
or the law intended by them either expressly or
implicitly.[67] Under the state of the most significant
relationship rule, to ascertain what state law to apply to
a dispute, the court should determine which state has
the most substantial connection to the occurrence and
the parties. In a case involving a contract, the court
should consider where the contract was made, was
negotiated, was to be performed, and the domicile,
place of business, or place of incorporation of the
parties.[68] This rule takes into account several contacts
and evaluates them according to their relative
importance with respect to the particular issue to be
resolved.[69]
Since these three principles in conflict of laws make
reference to the law applicable to a dispute, they are
rules proper for the second phase, the choice of
law.[70] They determine which state's law is to be applied
in resolving the substantive issues of a conflicts
problem.[71] Necessarily, as the only issue in this case is
that of jurisdiction, choice-of-law rules are not only
inapplicable but also not yet called for.
Further, petitioners' premature invocation of choice-of-
law rules is exposed by the fact that they have not yet
pointed out any conflict between the laws of Japan and
ours. Before determining which law should apply, first
there should exist a conflict of laws situation requiring
the application of the conflict of laws rules.[72] Also, when
the law of a foreign country is invoked to provide the
proper rules for the solution of a case, the existence of
such law must be pleaded and proved.[73]
It should be noted that when a conflicts case, one
involving a foreign element, is brought before a court or
administrative agency, there are three alternatives open
to the latter in disposing of it: (1) dismiss the case, either
because of lack of jurisdiction or refusal to assume
jurisdiction over the case; (2) assume jurisdiction over
the case and apply the internal law of the forum; or (3)
assume jurisdiction over the case and take into account
or apply the law of some other State or States.[74] The
courts power to hear cases and controversies is derived
from the Constitution and the laws. While it may choose
to recognize laws of foreign nations, the court is not
limited by foreign sovereign law short of treaties or other
formal agreements, even in matters regarding rights
provided by foreign sovereigns.[75]
Neither can the other ground raised, forum non
conveniens,[76] be used to deprive the trial court of its
jurisdiction herein. First, it is not a proper basis for a
motion to dismiss because Section 1, Rule 16 of the
Rules of Court does not include it as a
ground.[77] Second, whether a suit should be entertained
or dismissed on the basis of the said doctrine depends
largely upon the facts of the particular case and is
addressed to the sound discretion of the trial court.[78] In
this case, the RTC decided to assume jurisdiction. Third,
the propriety of dismissing a case based on this
principle requires a factual determination; hence, this
conflicts principle is more properly considered a matter
of defense.[79]
Accordingly, since the RTC is vested by law with the
power to entertain and hear the civil case filed by
respondent and the grounds raised by petitioners to
assail that jurisdiction are inappropriate, the trial and
appellate courts correctly denied the petitioners motion
to dismiss.
WHEREFORE, premises considered, the
petition for review on certiorari is DENIED.
SO ORDERED.
RAYTHEON INTL. VS. ROUZIE GR. NO. 162894
TINGA, J.:
Before this Court is a petition for review on certiorari
under Rule 45 of the 1997 Rules of Civil Procedure
which seeks the reversal of the Decision[1] and
Resolution[2] of the Court of Appeals in CA-G.R. SP No.
67001 and the dismissal of the civil case filed by
respondent against petitioner with the trial court.
As culled from the records of the case, the
following antecedents appear:
Sometime in 1990, Brand Marine Services, Inc.
(BMSI), a corporation duly organized and existing under
the laws of the State of Connecticut, United States of
America, and respondent Stockton W. Rouzie, Jr., an
American citizen, entered into a contract whereby BMSI
hired respondent as its representative to negotiate the
sale of services in several government projects in the
Philippines for an agreed remuneration of 10% of the
gross receipts. On 11 March 1992, respondent secured
a service contract with the Republic of the Philippines on
behalf of BMSI for the dredging of rivers affected by
the Mt. Pinatubo eruption and mudflows.[3]
On 16 July 1994, respondent filed before the
Arbitration Branch of the National Labor Relations
Commission (NLRC) a suit against BMSI and Rust
International, Inc. (RUST), Rodney C. Gilbert and Walter
G. Browning for alleged nonpayment of commissions,
illegal termination and breach of employment
contract.[4] On 28 September 1995, Labor Arbiter Pablo
C. Espiritu, Jr. rendered judgment ordering BMSI and
RUST to pay respondents money claims.[5] Upon appeal
by BMSI, the NLRC reversed the decision of the Labor
Arbiter and dismissed respondents complaint on the
ground of lack of jurisdiction.[6] Respondent elevated the
case to this Court but was dismissed in a Resolution
dated 26 November 1997. The Resolution became final
and executory on 09 November 1998.
On 8 January 1999, respondent, then a resident
of La Union, instituted an action for damages before the
Regional Trial Court (RTC) of Bauang, La Union. The
Complaint,[7] docketed as Civil Case No. 1192-BG,
named as defendants herein petitioner Raytheon
International, Inc. as well as BMSI and RUST, the two
corporations impleaded in the earlier labor case. The
complaint essentially reiterated the allegations in the
labor case that BMSI verbally employed respondent to
negotiate the sale of services in government projects
and that respondent was not paid the commissions due
him from the Pinatubo dredging project which he
secured on behalf of BMSI. The complaint also averred
that BMSI and RUST as well as petitioner itself had
combined and functioned as one company.
In its Answer,[8] petitioner alleged that contrary
to respondents claim, it was a foreign corporation duly
licensed to do business in the Philippines and denied
entering into any arrangement with respondent or
paying the latter any sum of money. Petitioner also
denied combining with BMSI and RUST for the purpose
of assuming the alleged obligation of the said
companies.[9] Petitioner also referred to the NLRC
decision which disclosed that per the written agreement
between respondent and BMSI and RUST, denominated
as Special Sales Representative Agreement, the rights
and obligations of the parties shall be governed by the
laws of the State of Connecticut.[10] Petitioner sought the
dismissal of the complaint on grounds of failure to state
a cause of action and forum non conveniens and prayed
for damages by way of compulsory counterclaim.[11]
On 18 May 1999, petitioner filed an Omnibus
Motion for Preliminary Hearing Based on Affirmative
Defenses and for Summary Judgment[12] seeking the
dismissal of the complaint on grounds of forum non
conveniens and failure to state a cause of action.
Respondent opposed the same. Pending the resolution
of the omnibus motion, the deposition of Walter
Browning was taken before the Philippine Consulate
General in Chicago.[13]
In an Order[14] dated 13 September 2000, the
RTC denied petitioners omnibus motion. The trial court
held that the factual allegations in the complaint,
assuming the same to be admitted, were sufficient for
the trial court to render a valid judgment thereon. It also
ruled that the principle of forum non conveniens was
inapplicable because the trial court could enforce
judgment on petitioner, it being a foreign corporation
licensed to do business in the Philippines.[15]
Petitioner filed a Motion for
Reconsideration[16] of the order, which motion was
opposed by respondent.[17] In an Order dated 31 July
2001,[18] the trial court denied petitioners motion. Thus, it
filed a Rule 65 Petition[19] with the Court of Appeals
praying for the issuance of a writ of certiorari and a writ
of injunction to set aside the twin orders of the trial court
dated 13 September 2000 and 31 July 2001 and to
enjoin the trial court from conducting further
proceedings.[20]
On 28 August 2003, the Court of Appeals
rendered the assailed Decision[21] denying the petition
for certiorari for lack of merit. It also denied petitioners
motion for reconsideration in the assailed Resolution
issued on 10 March 2004.[22]
The appellate court held that although the trial
court should not have confined itself to the allegations in
the complaint and should have also considered
evidence aliunde in resolving petitioners omnibus
motion, it found the evidence presented by petitioner,
that is, the deposition of Walter Browning, insufficient for
purposes of determining whether the complaint failed to
state a cause of action. The appellate court also stated
that it could not rule one way or the other on the issue of
whether the corporations, including petitioner, named as
defendants in the case had indeed merged together
based solely on the evidence presented by respondent.
Thus, it held that the issue should be threshed out
during trial.[23] Moreover, the appellate court deferred to
the discretion of the trial court when the latter decided
not to desist from assuming jurisdiction on the ground of
the inapplicability of the principle of forum non
conveniens.
Hence, this petition raising the following issues:
WHETHER OR NOT THE
COURT OF APPEALS ERRED IN
REFUSING TO DISMISS THE
COMPLAINT FOR FAILURE TO
STATE A CAUSE OF ACTION
AGAINST RAYTHEON
INTERNATIONAL, INC.
WHETHER OR NOT THE
COURT OF APPEALS ERRED IN
REFUSING TO DISMISS THE
COMPLAINT ON THE GROUND
OF FORUM NON CONVENIENS.[24]
Incidentally, respondent failed to file a comment
despite repeated notices. The Ceferino Padua Law
Office, counsel on record for respondent, manifested
that the lawyer handling the case, Atty. Rogelio
Karagdag, had severed relations with the law firm even
before the filing of the instant petition and that it could
no longer find the whereabouts of Atty. Karagdag or of
respondent despite diligent efforts. In a whether the application of a substantive law which will
Resolution[25] dated 20 November 2006, the Court
resolved to dispense with the filing of a comment.
The instant petition lacks merit.
Petitioner mainly asserts that the written
contract between respondent and BMSI included a valid
choice of law clause, that is, that the contract shall be
governed by the laws of the State of Connecticut. It also
mentions the presence of foreign elements in the
dispute namely, the parties and witnesses involved are
American corporations and citizens and the evidence to
be presented is located outside the Philippines that
renders our local courts inconvenient forums. Petitioner
theorizes that the foreign elements of the dispute
necessitate the immediate application of the doctrine
of forum non conveniens.
Recently in Hasegawa v. Kitamura,[26] the Court
outlined three consecutive phases involved in judicial
resolution of conflicts-of-laws problems, namely:
jurisdiction, choice of law, and recognition and
enforcement of judgments. Thus, in the
instances[27] where the Court held that the local judicial
machinery was adequate to resolve controversies with a
foreign element, the following requisites had to be
proved: (1) that the Philippine Court is one to which the
parties may conveniently resort; (2) that the Philippine
Court is in a position to make an intelligent decision as
to the law and the facts; and (3) that the Philippine Court
has or is likely to have the power to enforce its
decision.[28]
On the matter of jurisdiction over a conflicts-of-
laws problem where the case is filed in a Philippine
court and where the court has jurisdiction over the
subject matter, the parties and the res, it may or can
proceed to try the case even if the rules of conflict-of-
laws or the convenience of the parties point to a foreign
forum. This is an exercise of sovereign prerogative of
the country where the case is filed.[29]
Jurisdiction over the nature and subject matter
of an action is conferred by the Constitution and the
law[30] and by the material allegations in the complaint,
irrespective of whether or not the plaintiff is entitled to
recover all or some of the claims or reliefs sought
therein.[31] Civil Case No. 1192-BG is an action for
damages arising from an alleged breach of contract.
Undoubtedly, the nature of the action and the amount of
damages prayed are within the jurisdiction of the RTC.
As regards jurisdiction over the parties, the trial
court acquired jurisdiction over herein respondent (as
party plaintiff) upon the filing of the complaint. On the
other hand, jurisdiction over the person of petitioner (as
party defendant) was acquired by its voluntary
appearance in court.[32]
That the subject contract included a stipulation
that the same shall be governed by the laws of the State
of Connecticut does not suggest that the Philippine
courts, or any other foreign tribunal for that matter, are
precluded from hearing the civil action. Jurisdiction and
choice of law are two distinct concepts. Jurisdiction
considers whether it is fair to cause a defendant to travel
to this state; choice of law asks the further question
determine the merits of the case is fair to both
parties.[33] The choice of law stipulation will become
relevant only when the substantive issues of the instant
case develop, that is, after hearing on the merits
proceeds before the trial court.
Under the doctrine of forum non conveniens, a
court, in conflicts-of-laws cases, may refuse impositions
on its jurisdiction where it is not the most convenient or
available forum and the parties are not precluded from
seeking remedies elsewhere.[34] Petitioners averments
of the foreign elements in the instant case are not
sufficient to oust the trial court of its jurisdiction over
Civil Case No. No. 1192-BG and the parties involved.
Moreover, the propriety of dismissing a case
based on the principle of forum non conveniens requires
a factual determination; hence, it is more properly
considered as a matter of defense. While it is within the
discretion of the trial court to abstain from assuming
jurisdiction on this ground, it should do so only after vital
facts are established, to determine whether special
circumstances require the courts desistance.[35]
Finding no grave abuse of discretion on the trial
court, the Court of Appeals respected its conclusion that
it can assume jurisdiction over the dispute
notwithstanding its foreign elements. In the same
manner, the Court defers to the sound discretion of the
lower courts because their findings are binding on this
Court.
Petitioner also contends that the complaint in
Civil Case No. 1192-BG failed to state a cause of action
against petitioner. Failure to state a cause of action
refers to the insufficiency of allegation in the
pleading.[36] As a general rule, the elementary test for
failure to state a cause of action is whether the
complaint alleges facts which if true would justify the
relief demanded.[37]
The complaint alleged that petitioner had
combined with BMSI and RUST to function as one
company. Petitioner contends that the deposition of
Walter Browning rebutted this allegation. On this score,
the resolution of the Court of Appeals is instructive, thus:
x x x Our examination of the
deposition of Mr. Walter Browning as
well as other documents produced in
the hearing shows that these
evidence aliunde are not quite sufficient
for us to mete a ruling that the
complaint fails to state a cause of
action.
Annexes A to E by themselves
are not substantial, convincing and
conclusive proofs that Raytheon
Engineers and Constructors, Inc. (REC)
assumed the warranty obligations of
defendant Rust International in
the Makar Port Project in General
Santos City, after Rust International
ceased to exist after being absorbed by
REC. Other documents already
submitted in evidence are likewise
meager to preponderantly conclude that
Raytheon International, Inc., Rust
International[,] Inc. and Brand Marine
Service, Inc. have combined into one
company, so much so that Raytheon
International, Inc., the surviving
company (if at all) may be held liable for
the obligation of BMSI to
respondent Rouzie for unpaid
commissions. Neither these documents
clearly speak otherwise.[38]
As correctly pointed out by the Court of
Appeals, the question of whether petitioner, BMSI and
RUST merged together requires the presentation of
further evidence, which only a full-blown trial on the
merits can afford.
WHEREFORE, the instant petition for review on
certiorari is DENIED. The Decision and Resolution of
the Court of Appeals in CA-G.R. SP No. 67001 are
hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
HSBC VS. SHERMAN G.R. NO. 72492
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision
of the Intermediate Appellate Court (now Court of
Appeals) dated August 2, 1985, which reversed the
order of the Regional Trial Court dated February
28,1985 denying the Motion to Dismiss filed by private
respondents Jack Robert Sherman and Deodato Reloj.
A complaint for collection of a sum of money (pp. 49-
52, Rollo) was filed by petitioner Hongkong and
Shanghai Banking Corporation (hereinafter referred to
as petitioner BANK) against private respondents Jack
Robert Sherman and Deodato Reloj, docketed as Civil
Case No. Q-42850 before the Regional Trial Court of
Quezon City, Branch 84.
It appears that sometime in 1981, Eastern Book Supply
Service PTE, Ltd. (hereinafter referred to as
COMPANY), a company incorporated in Singapore
applied with, and was granted by, the Singapore branch
of petitioner BANK an overdraft facility in the maximum
amount of Singapore dollars 200,000.00 (which amount
was subsequently increased to Singapore dollars
375,000.00) with interest at 3% over petitioner BANK
prime rate, payable monthly, on amounts due under said
overdraft facility; as a security for the repayment by the
COMPANY of sums advanced by petitioner BANK to it
through the aforesaid overdraft facility, on October 7,
1982, both private respondents and a certain Robin de
Clive Lowe, all of whom were directors of the
COMPANY at such time, executed a Joint and Several
Guarantee (p. 53, Rollo) in favor of petitioner BANK
whereby private respondents and Lowe agreed to pay,
jointly and severally, on demand all sums owed by the
COMPANY to petitioner BANK under the aforestated
overdraft facility.
The Joint and Several Guarantee provides, inter alia,
that:
This guarantee and all rights,
obligations and liabilities arising
hereunder shall be construed and
determined under and may be enforced
in accordance with the laws of the
Republic of Singapore. We hereby
agree that the Courts of Singapore shall
have jurisdiction over all disputes
 arising under this guarantee. ... (p. 33-
A, Rollo).
The COMPANY failed to pay its obligation. Thus,
petitioner BANK demanded payment of the obligation
from private respondents, conformably with the
provisions of the Joint and Several Guarantee.
Inasmuch as the private respondents still failed to pay,
petitioner BANK filed the above-mentioned complaint.
On December 14,1984, private respondents filed a
motion to dismiss (pp 54-56, Rollo) which was opposed
by petitioner BANK (pp. 58-62, Rollo). Acting on the
motion, the trial court issued an order dated February
28, 1985 (pp, 64-65, Rollo), which read as follows:
In a Motion to Dismiss filed on
December 14, 1984, the defendants
seek the dismissal of the complaint on
two grounds, namely:
1. That the court has no jurisdiction over
the subject matter of the complaint; and
2. That the court has no jurisdiction over
the persons of the defendants.
In the light of the Opposition thereto
filed by plaintiff, the Court finds no merit
in the motion. "On the first ground,
defendants claim that by virtue of the
provision in the Guarantee (the
actionable document) which reads —
This guarantee and all
rights, obligations and
liabilities arising
hereunder shall be
construed and
determined under and
may be enforced in
accordance with the
laws of the Republic of
Singapore. We hereby
agree that the courts in
Singapore shall have
jurisdiction over all
disputes arising under
this guarantee,
the Court has no jurisdiction over the
subject matter of the case. The Court
finds and concludes otherwise. There is
nothing in the Guarantee which says
that the courts of Singapore shall have
jurisdiction to the exclusion of the courts
of other countries or nations. Also, it
has long been established in law and
jurisprudence that jurisdiction of courts
is fixed by law; it cannot be conferred by
the will, submission or consent of the
parties.
On the second ground, it is asserted
that defendant Robert' , Sherman is not
a citizen nor a resident of the
Philippines. This argument holds no
water. Jurisdiction over the persons of
defendants is acquired by service of
summons and copy of the complaint on
them. There has been a valid service of
summons on both defendants and in
fact the same is admitted when said
defendants filed a 'Motion for Extension
of Time to File Responsive Pleading on
December 5, 1984.
WHEREFORE, the Motion to Dismiss is
hereby DENIED.
SO ORDERED.
A motion for reconsideration of the said order was filed
by private respondents which was, however, denied (p.
66, Rollo).
Private respondents then filed before the respondent
Intermediate Appellate Court (now Court of Appeals) a
petition for prohibition with preliminary injunction and/or
prayer for a restraining order (pp. 39-48, Rollo). On
August 2, 1985, the respondent Court rendered a
decision (p. 37, Rollo), the dispositive portion of which
reads:
WHEREFORE, the petition for
prohibition with preliminary injuction is
hereby GRANTED. The respondent
Court is enjoined from taking further
cognizance of the case and to dismiss
the same for filing with the proper court
of Singapore which is the proper forum.
No costs.
SO ORDERED.
The motion for reconsideration was denied (p.
38, Rollo), hence, the present petition.
The main issue is whether or not Philippine courts have
jurisdiction over the suit.
The controversy stems from the interpretation of a
provision in the Joint and Several Guarantee, to wit:
(14) This guarantee and all rights,
obligations and liabilites arising
hereunder shall be construed and
determined under and may be enforced
in accordance with the laws of the
Republic of Singapore. We hereby
agree that the Courts in Singapore shall
have jurisdiction over all disputes
arising under this guarantee. ... (p. 53-
A, Rollo)
In rendering the decision in favor of private respondents,
the Court of Appeals made, the following observations
(pp. 35-36, Rollo):
There are significant aspects of the
case to which our attention is invited.
 The loan was obtained by Eastern Book
Service PTE, Ltd., a company
incorporated in Singapore. The loan
was granted by the Singapore Branch
of Hongkong and Shanghai Banking
Corporation. The Joint and Several
Guarantee was also concluded
in Singapore. The loan was in
Singaporean dollars and the repayment
thereof also in the same currency. The
transaction, to say the least, took place
in Singporean setting in which the law
of that country is the measure by which
that relationship of the parties will be
governed.
xxx xxx xxx
Contrary to the position taken by
respondents, the guarantee agreement
compliance that any litigation will be
before the courts of Singapore and that
the rights and obligations of the parties
shall be construed and determined in
accordance with the laws of the
Republic of Singapore. A closer
examination of paragraph 14 of the
Guarantee Agreement upon which the
motion to dismiss is based, employs in
clear and unmistakeable (sic) terms the
word 'shall' which under statutory
construction is mandatory.
Thus it was ruled that:
... the word 'shall' is imperative,
operating to impose a duty which may
be enforced (Dizon vs. Encarnacion, 9
SCRA 714).lâwphî1.ñèt
There is nothing more imperative and
restrictive than what the agreement
categorically commands that 'all rights,
obligations, and liabilities arising
hereunder shall be construed and
determined under and may be enforced
in accordance with the laws of the
Republic of Singapore.'
While it is true that "the transaction took place in
Singaporean setting" and that the Joint and Several
Guarantee contains a choice-of-forum clause, the very
essence of due process dictates that the stipulation that
"[t]his guarantee and all rights, obligations and liabilities
arising hereunder shall be construed and determined
under and may be enforced in accordance with the laws
of the Republic of Singapore. We hereby agree that the
Courts in Singapore shall have jurisdiction over all
disputes arising under this guarantee" be liberally
construed. One basic principle underlies all rules of
jurisdiction in International Law: a State does not have
jurisdiction in the absence of some reasonable basis for
exercising it, whether the proceedings are in rem quasi
in rem or in personam. To be reasonable, the jurisdiction
must be based on some minimum contacts that will not
offend traditional notions of fair play and substantial
justice (J. Salonga, Private International Law, 1981, p.
46). Indeed, as pointed-out by petitioner BANK at the
outset, the instant case presents a very odd situation. In
the ordinary habits of life, anyone would be disinclined
to litigate before a foreign tribunal, with more reason as
a defendant. However, in this case, private respondents
are Philippine residents (a fact which was not disputed
by them) who would rather face a complaint against
them before a foreign court and in the process incur
considerable expenses, not to mention inconvenience,
than to have a Philippine court try and resolve the case.
Private respondents' stance is hardly comprehensible,
unless their ultimate intent is to evade, or at least delay,
the payment of a just obligation.
The defense of private respondents that the complaint
should have been filed in Singapore is based merely on
technicality. They did not even claim, much less prove,
that the filing of the action here will cause them any
unnecessary trouble, damage, or expense. On the other
hand, there is no showing that petitioner BANK filed the
action here just to harass private respondents.
In the case of Polytrade Corporation vs. Blanco, G.R.
No. L-27033, October 31, 1969, 30 SCRA 187, it was
ruled:
... An accurate reading, however, of the
stipulation, 'The parties agree to sue
and be sued in the Courts of Manila,'
does not preclude the filing of suits in
the residence of plaintiff or defendant.
The plain meaning is that the parties
merely consented to be sued in Manila.
Qualifying or restrictive words which
would indicate that Manila and Manila
alone is the venue are totally absent
therefrom. We cannot read into that
clause that plaintiff and defendant
bound themselves to file suits with
respect to the last two transactions in
question only or exclusively in Manila.
For, that agreement did not change or
transfer venue. It simply is permissive.
The parties solely agreed to add the
courts of Manila as tribunals to which
they may resort. They did not waive
their right to pursue remedy in the
courts specifically mentioned in Section
2(b) of Rule 4. Renuntiatio non
praesumitur.
This ruling was reiterated in the case of Neville Y. Lamis
Ents., et al. v. Lagamon, etc., et al., G.R. No. 57250,
October 30, 1981, 108 SCRA 740, where the stipulation
was "[i]n case of litigation, jurisdiction shall be vested in
the Court of Davao City." We held:
Anent the claim that Davao City had
been stipulated as the venue, suffice it
to say that a stipulation as to venue
does not preclude the filing of suits in
the residence of plaintiff or defendant
under Section 2 (b), Rule 4, Rules of
Court, in the absence of qualifying or
restrictive words in the agreement
 which would indicate that the place 1981, p. 49).lâwphî1.ñèt Thus, the respondent Court
named is the only venue agreed upon should not have relied on such principle.
by the parties.
Although the Joint and Several Guarantee prepared by
Applying the foregoing to the case at bar, the parties did petitioner BANK is a contract of adhesion and that
not thereby stipulate that only the courts of Singapore, consequently, it cannot be permitted to take a stand
to the exclusion of all the rest, has jurisdiction. Neither contrary to the stipulations of the contract, substantial
did the clause in question operate to divest Philippine bases exist for petitioner Bank's choice of forum, as
courts of jurisdiction. In International Law, jurisdiction is discussed earlier.
often defined as the light of a State to exercise authority
over persons and things within its boundaries subject to Lastly, private respondents allege that neither the
certain exceptions. Thus, a State does not assume petitioner based at Hongkong nor its Philippine branch is
jurisdiction over travelling sovereigns, ambassadors and involved in the transaction sued upon. This is a vain
diplomatic representatives of other States, and foreign attempt on their part to further thwart the proceedings
military units stationed in or marching through State below inasmuch as well-known is the rule that a
territory with the permission of the latter's authorities. defendant cannot plead any defense that has not been
This authority, which finds its source in the concept of interposed in the court below.
sovereignty, is exclusive within and throughout the
domain of the State. A State is competent to take hold of
ACCORDINGLY, the decision of the respondent Court is
any judicial matter it sees fit by making its courts and hereby REVERSED and the decision of the Regional
agencies assume jurisdiction over all kinds of cases Trial Court is REINSTATED, with costs against private
brought before them (J. Salonga, Private International
respondents. This decision is immediately executory.
Law, 1981, pp. 37-38).lâwphî1.ñèt
SO ORDERED.
As regards the issue on improper venue, petitioner
BANK avers that the objection to improper venue has
been waived. However, We agree with the ruling of the
respondent Court that:
QUEZON VS. ENCARNACION 9 SCRA 794
While in the main, the motion to dismiss
fails to categorically use with exactitude
the words 'improper venue' it can be POLYTRADE VS. BLANCO G.R. NO. L-27033
perceived from the general thrust and
context of the motion that what is meant SANCHEZ, J.:
is improper venue, The use of the word
'jurisdiction' was merely an attempt to
Suit before the Court of First Instance of Bulacan on four
copy-cat the same word employed in
causes of action to recover the purchase price of
the guarantee agreement but conveys
rawhide delivered by plaintiff to defendant. 1 Plaintiff
the concept of venue. Brushing aside all
corporation has its principal office and place of business
technicalities, it would appear that
in Makati, Rizal. Defendant is a resident of Meycauayan,
jurisdiction was used loosely as to be
Bulacan. Defendant moved to dismiss upon the ground
synonymous with venue. It is in this
of improper venue. He claims that by contract suit may
spirit that this Court must view the
only be lodged in the courts of Manila. The Bulacan
motion to dismiss. ... (p. 35, Rollo).
court overruled him. He did not answer the complaint. In
consequence, a default judgment was rendered against
At any rate, this issue is now of no moment because We him on September 21, 1966, thus:
hold that venue here was properly laid for the same
reasons discussed above.
WHEREFORE, judgment is hereby rendered in
favor of plaintiff and against defendant ordering
The respondent Court likewise ruled that (pp. 36- defendant to pay plaintiff the following amounts:
37, Rollo):

... In a conflict problem, a court will First Cause of Action — P60,845.67, with interest
simply refuse to entertain the case if it is amount is paid.
not authorized by law to exercise
jurisdiction. And even if it is so Second Cause of — P51,952.55, with interest
authorized, it may still refuse to Action full amount is paid.
entertain the case by applying the
Third Cause of Action — P53,973.07, with interest
principle of forum non conveniens. ...
amount is paid.
However, whether a suit should be entertained or Fourth Cause of — P41,075.22, with interest t
dismissed on the basis of the principle of forum non Action
conveniens depends largely upon the facts of the
particular case and is addressed to the sound discretion
of the trial court (J. Salonga, Private International Law, In addition, defendant shall pay plaintiff
attorney's fees amounting to 25% of the
 principal amount due in each cause of action,
and the costs of the suit. The amount of
P400.00 shall be deducted from the total
amount due plaintiff in accordance with this
judgment.
Defendant appealed.
1. The forefront question is whether or not venue was
properly laid in the province of Bulacan where defendant
is a resident.
Section 2 (b), Rule 4 of the Rules of Court on venue of
personal actions triable by courts of first instance — and
this is one — provides that such "actions may be
commenced and tried where the defendant or any of the
defendants resides or may be found, or where the
plaintiff or any of the plaintiffs resides, at the election of
the plaintiff." Qualifying this provision in Section 3 of the
same Rule which states that venue may be stipulated by
written agreement — "By written agreement of the
parties the venue of an action may be changed or
transferred from one province to another."
Defendant places his case upon Section 3 of Rule 4 just
quoted. According to defendant, plaintiff and defendant,
by written contracts covering the four causes of action,
stipulated that: "The parties agree to sue and be sued in
the Courts of Manila." This agreement is
valid.3 Defendant says that because of such covenant
he can only be sued in the courts of Manila. We are thus
called upon to shake meaning from the terms of the
agreement just quoted.
But first to the facts. No such stipulation appears in the
contracts covering the first two causes of action. The
general rule set forth in Section 2 (b), Rule 4, governs,
and as to said two causes of action, venue was properly
laid in Bulacan, the province of defendant's residence.
The stipulation adverted to is only found in the
agreements covering the third and fourth causes of
action. An accurate reading, however, of the stipulation,
"The parties agree to sue and be sued in the Courts of
Manila," does not preclude the filing of suits in the
residence of plaintiff or defendant. The plain meaning is
that the parties merely consented to be sued in Manila.
Qualifying or restrictive words which would indicate that
Manila and Manila alone is the venue are totally absent
therefrom. We cannot read into that clause that plaintiff
and defendant bound themselves to file suits with
respect to the last two transactions in question only or
exclusively in Manila. For, that agreement did not
change or transfer venue. It simply is permissive. The
parties solely agreed to add the courts of Manila as
tribunals to which they may resort. They did not waive
their right to pursue remedy in the courts specifically
mentioned in Section 2(b) of Rule 4. Renuntiatio non
praesumitur.
Illuminating on this point is Engel vs. Shubert Theatrical
Co., 151 N.Y.S. 593, 594. And this, became there the
stipulation as to venue is along lines similar to the
present. Said stipulation reads: "In case of dispute, both
contracting parties agree to submit to the jurisdiction of
the Vienna courts." And the ruling is: "By the clause in
question the parties do not agree to submit their
disputes to the jurisdiction of the Viennese court, and to
those courts only. There is nothing exclusive in the
language used. They do agree to submit to the
Viennese jurisdiction, but they say not a word in
restriction of the jurisdiction of courts elsewhere; and
whatever may be said on the subject of the legality of
contracts to submit controversies to courts of certain
jurisdictions exclusively, it is entirely plain that such
agreements should be strictly construed, and should not
be extended by implication."
Venue here was properly laid.
2. Defendant next challenges the lower court's grant to
plaintiff of interest at the rate of one per centum per
month. Defendant says that no such stipulation as to
right of interest appears in the sales confirmation orders
which provided: "TERMS — 60 days after delivery with
interest accruing on postdated cheques beyond 30
days." The flaw in this argument lies in that the interest
and the rate thereof are expressly covenanted in the
covering trust receipts executed by defendant in favor of
plaintiff, as follows: "All obligations of the undersigned
under this agreement of trust shall bear interest at the
rate of one per centum (1%) per month from the date
due until paid."
On this score, we find no error.
3. Defendant protests the award of attorneys' fees which
totals P51,961.63, i.e., 25% of the total principal
indebtedness of P207,846.51 (exclusive of interest).
Defendant's thesis is that the foregoing sum is
"exorbitant and unconscionable."
To be borne in mind is that the attorneys' fees here
provided is not, strictly speaking, the attorneys' fees
recoverable as between attorney and client spoken of
and regulated by the Rules of Court. Rather, the
attorneys' fees here are in the nature of liquidated
damages and the stipulation therefor is aptly called a
penal clause.4 It has been said that so long as such
stipulation does not contravene law, morals, or public
order, it is strictly binding upon defendant.5 The
attorneys' fees so provided are awarded in favor of the
litigant, not his counsel. It is the litigant, not counsel,
who is the judgment creditor entitled to enforce the
judgment by execution.6
The governing law then is Article 2227 of the Civil
Code, viz.: "Liquidated damages, whether intended as
an indemnity or a penalty, shall be equitably reduced if
they are iniquitous or unconscionable." For this reason,
we do not really have to strictly view the reasonableness
of the attorneys' fees in the light of such factors as the
amount and character of the services rendered, the
nature and importance of the litigation, and the
professional character and the social standing of the
attorney. We do concede, however, that these factors
may be an aid in the determination of the iniquity or
unconscionableness of attorneys' fees as liquidated
damages.
May the attorneys' fees (P51,961.63) here granted be
tagged as iniquitous or unconscionable? Upon the
circumstances, our answer is in the negative. Plaintiff's That said loan, now overdue, is
lawyers concededly are of high standing. More evidenced by a Promise Note signed by
important is that this case should not have gone to the defendant Neville Y. Lamis
court. It could have been easily avoided had defendant Enterprises through its proprietor and
been faithful in complying with his obligations. It is not General Manager Neville Y. Lamis,
denied that the rawhide was converted into leather and copy of which is hereto attached as
sold by defendant. He raises no defense. In fact, he did Annex "A" and form part of this
not even answer the complaint in the lower court, and complaint the substance and/or content
was thus declared in default. Nor does he deny the of said note are hereby quoted as
principal liability. Add to all these the fact that the writ of follows:
attachment issued below upon defendant's properties
yielded no more than P400 and the picture is complete. PROMISSORY NOTE
The continued maintenance by defendant of the suit is
plainly intended for delay. The attorneys' fees awarded
January 26, 1979
cannot be called iniquitous or unconscionable.

In the very recent case of Universal Motors Corporation

vs. Dy Hian Tat (1969), 28 SCRA 161, 170, we allowed
attorneys' fees in the form of liquidated damages at the For value received, on or before
rate of 25% of the total amount of the indebtedness. February 28, 1979, Neville Y. Lamis
Here, the trial court has already reduced the attorneys' Enterprises of Hiway, Villa Consuelo
fees from the stipulated 25% "of the total amount Subdivision, General Santos City,
involved, principal and interest, then unpaid" to only promise to pay the sum of Fifty Five
25% of the principal amount due. There is no reason Thousand Pesos (P55,000.00)
why such judgment should be disturbed. Philippine Currency.

FOR THE REASON GIVEN, the appealed judgment is Interest of 14% per annum will be
hereby affirmed, except that interest granted, in charged on delayed payment and
reference to the fourth cause of action, should start from twenty five (25%) of the amount due as
March 24, 1965. attorney's fees and expenses of
collection in the event of judicial
collection.
Costs against defendant-appellant. So ordered.
In case of litigation, jurisdiction shall be
vested in the Court of Davao City.
N. LAMIS VS. LAGAMON, ET.AL G.R. NO. 57250

ABAD SANTOS, J.:

NEVILLE Y. LAMIS ENTS By: (Sgd.)
NEVILLE Y. LAMIS Proprietor/Gen.
This is an appeal by certiorari to annul the order of the
Manager
respondent judge, dated April 2, 1981, which denied a
motion to dismiss Civil Case No. 1395 of the Court of
First Instance of Davao at Tagum III

Santiago Maningo in a complaint dated November 3,
198 1, sued Neville Y. Lamis Enterprises and Neville
Lamis for sums of money in the above-mentioned civil
case under the following causes of action:
FIRST CAUSE OF ACTION
I the said loan, the defendants are now
That as First Cause of Action against
the defendants, it is hereby averred,
that sometimes on January 26, 1979,
the defendants obtained a loan from the
plaintiff in the sum of FIFTY FIVE
THOUSAND (P 55,000.00) PESOS
payable on or before February 28, 1979
at 14% interest per annum:
That the defendants have not paid said
loan nor any part thereof, despite
plaintiff's demand for payment;
IV
That for having purposely failed to pay
liable to plaintiff for the payment of
interest and at, Attorney's fees which,
as per computation, it is already P
ll,550.00 for and as interest and P
20,625.00 for attorney's fees;
SECOND CAUSE OF ACTION
I

II That as second cause of action against

the defendant, it is hereby averred that
sometimes on January 29, 1979,
 defendant Neville Y. Lamis Enterprises,
represented by its Proprietor and
General Manager Neville Y. Lamis had,
by way of Chattel Mortgage acquired
from the plaintiff a certain personal
property worth P200,000.00 on
installment basis hereinafter described
as follows:
One (1) unit:
Komatsu Crawler Tractor D8CA-12 with
Cummins Engine NH- 22OC1
0168Nl2521 Chassis No. D80A-9659
complete with Hydraulic angle Dozer
with Towing Winch Carco No. 21568.
UNIT IN GOOD OPERATING
CONDITION;
II
That the above-described properties
had already been delivered to the
defendant subject however to the terms
and conditions as provided for under
the Chattel Mortgage contract, the
pertinent portion of which reads as
follows:
For value received, I/we
jointly and severally
promise to pay to the
order of Santiago
Maningo at its office,
the principal sum of
Two Hundred
Thousand, Philippine
Currency with interest
at the rate stipulated
hereinbelow,
installment basis as
follows:
P120,000.00 — February 16, 1979
P80,000.00 — March 16, 1979
Hereto attached as Annex "B" and form
part hereof is the xerox copy of the
Chattel Mortgage Contract covering
said properties;
III
That until recently, and despite the
lapse of the period stated in the Chattel
Mortgage contract consisting of two
installments, no single payment and/or
installment having been made by the
defendants to the prejudice and great
damage on the part of the plaintiff;
IV
That for having purposely failed to pay a
single payment and/or installments on
the amount due that defendants are
now liable to the penalty of P10.00 for
every month or fraction thereof, that an
installment remains overdue, in which
case, as per computation under the
penalty clause, of the Chattel Mortgage
Contract, the penalty of P500.00
computed as of September 30, 1980,
can now be charged and collected from
the defendant;
V
That for having purposely failed to pay a
single installment and/or payment
thereof, the defendants are now liable
to the plaintiff for damages in the form
of interest and attorney's fees
equivalent to 14% and 25%
respectively, in which case, as per
computation under the Chattel
Mortgage Contract, the interest of
P45,661.00 computed as of September
30, 1980 can now be charged and
collected from the defendant plus
another amount of P50,000.00 for and
as attorney's fees;
THIRD CAUSE OF ACTION
Plaintiff does hereby reproduces and
incorporate as part hereof, all the
allegations stated under the first and
second cause of action in this
complaint, and thus respectively aver:
I
in
That as a legal consequence of the
Promissory Note and the Chattel
Mortgage Contract the defendants had
made and entered into with the plaintiff
as promisee and/or as mortgagee
thereof, there a certain right is created
in favor of the plaintiff, the breach
thereof, either through the manipulation
of legal maneuvers or through any other
means by the defendants purposely to
evade payments of a certain
obligations, which incidentally, is
exactly, what the defendants had done
here, there entitles the plaintiff for
damages under the provision of Article
19 of the New Civil Code, which says:
Every person must, in
the exercise of his
rights, and in the
performance thereof,
give everyone his due,
and observe honesty
and good faith.
II
 That on August 16, 1979, that is several
months after the defendants had failed
to pay their obligation with the plaintiff,
to the latter's surprise, the defendants
after having received several demands
from the plaintiff, through counsel, in
clear abuse of their rights under the
provisions of the Article above-
mentioned and basically, for a certain
purpose to evade the fulfillment of their
obligations with the plaintiff, had
maliciously filed a groundless suit in the
Court of First Instance of Rizal, Branch
XXV thereof, for specific performance
against the plaintiff;
III
That actually, said action for Specific
performance was filed in bad faith and
basically to evade and/or delay the
payments of their obligation with the
plaintiff. It was made for no other
purpose except to defeat the rights of
the plaintiff under the law;
IV
That with the filing of the defendant's
most malicious complaint against the
plaintiff, the latter had suffered mental
anguish, fright, anxieties and certainly
such wounded feeling, where the
amount of P200,000.00 had been asked
and prayed for to compensate the
plaintiff for his moral damages;
V
That with the filing of the defendant's
most malicious complaint against the
plaintiff there an abuse of a right had
been committed by the defendants, in
which case, as a corrective measure
against them, the amount of P
30,000.00 should be imposed by way of
example or correction for the public
good; ...
The suit mentioned in par. II of Maningo's Third Cause
of Action (supra) was filed by Neville Lamis Ents.
against Santiago Maningo in the Court of First Instance
of Rizal (Civil Case No. 35199) by means of a complaint
dated November 16, 1979, alleging the following causes
of action:
FIRST CAUSE OF ACTION
1. That plaintiff is a single proprietorship
firm duly established and existing under
the laws of the Philippines with principal
office address at 8 Fairlane Street,
Fairlane Subdivision, Marikina, Metro
Manila; and defendant is of legal age,
Filipino, married, and with residence
address at 29 Palm Drive, Bajada,
Davao City, where summons may be
served;
2. That on January 27,1979 defendant
and plaintiff executed a memorandum
of agreement whereby defendant shall
specifically advance unto plaintiff for the
latter's logging operations with ETCO
TIMBER CORPORATION at General
Santos City which corporation, the
proprietor of plaintiff's firm, NEVILLE Y.
LAMIS is now President likewise
thereof, the sum of ONE HUNDRED
THOUSAND PESOS (P100,000.00)
payable as follows:
a) IMMEDIATE; UPON SIGNING OF
THIS MEMO OF AGREEMENT
.................................................P
50,000.00;
and
b) TO BE RELEASED ONE WEEK
FROM DATE
HEREOF.................................................
........... P 50,000.00
/Par. A-1, (a) & (b)
copy of which memorandum of
agreement is herewith attached as
Annex "A" hereof
3. That to the aforesaid conditions
defendant only complied and released
the sum of P50,000 upon the signing of
the agreement and failed to release the
balance Of P50,000 unto pig within one
week from date of the memorandum of
agreement. inspite of the latter's
repeated calls and demands for the
release of the same (copy of one of
which demands is herein attached as.
Annex "B " hereof, and defendant
refused and still refuses to release the
said amount up to the present to the
prejudice of the plaintiff's logging
operation and productions;
4. That the performance of aforesaid
obligation is now long overdue and
defendant just simply ignores the same;
SECOND CAUSE OF ACTION
1. Plaintiff reproduces herein the
allegations in paragraph 1 of the First
Cause of Action
2. That under the same memorandum
of agreement in paragraph A No. 2 (a)
thereof defendant have covenanted
himself unto plaintiff to deliver one (1)
unit of 'D80A-12 Komatsu Bulldozer
with winch in good operating condition,
for a value of P200,000.00;
3. That the bulldozer delivered however
to the defendant by the plaintiff was one
outside of the specifications covenanted
by the parties as it was later found out
by plaintiff after defendant's mechanic
have dismantled the same for repairs
before operation, Chat the unit was not
D80A-12 but an outmoded model of
Komatsu bulldozer D80A-8 which is
much lower in power than the D80A-12
originally contracted hence, defendant
evieted his warranty under the said
memo agreement of 'GOOD
OPERATING CONDITION' and 'D8O-A'
to the great prejudice of plaintiff;
4. That the actual value of the tractor
model delivered by defendant to plaintiff
is currently tagged at only between
P120,000 to P150,000 at well
established outlets thereof and not to
reach P200,000 or even P170,000 as
valued by defendant.
THIRD CAUSE OF ACTION
1. That plaintiff reproduces the
allegation of paragraph 1 of the First
Cause of Action to form an integral part
hereof;
2. That under the same memorandum
of agreement, aforesaid defendant
further failed to deliver unto plaintiff the
'JH-65 Payloader with log-grapple,
complete and in good operating
condition one week after date of said
contract,' in open defiance of paragraph
A No. 2 (b) hereof, the pertinent
provision of which is herewith
reproduced to wit;
'2. To be released by
SANTIAGO MANINGO
to N.Y. LAMIS
ENTS/ETCO TIMBER
CORP. operations ...
b. JH-
65
Payloa
der
with
log-
grapple
comple
te and
in good
operati
ng
conditi
on,
after
one (1)
week
hereof
...'
3. That the performance of aforesaid
obligation by defendant has been long
overdue and in spite of repeated calls
and demands by plaintiff of its delivery
defendant refused and still refuses to
deliver the same in violation of the
covenant and to the great prejudice and
damage of the plaintiff;
FOURTH CAUSE OF ACTION
1. That plaintiff reproduces all the
allegations contained in paragraph I of
the First Cause of Action to form
likewise an integral part hereof;
2. That by reason of the non-
performance of defendant, plaintiff
suffered actual financial losses, aside
from loss of business good will in its
failure to ship and comply with the
terms of the agreement between itself
thru ETCO TIMBER CORP. and their
Japanese buyer, MITSUI & CO., LTD.
of Tokyo, Japan under which plaintiff
having been assured of the '
compliance of defendant's covenant
accepted to supply logs to MITSUI &
CO., LTD., in the volume of about 2,000
cubic meters equivalent to U.S.
$200,000 or approximately equivalent to
p 1,460,000 under Mitsui Foreign Letter
of Credit No. G/HK780014 as opened
on 18th of November 1978 thru
SUMITOMO BANK, LTD. 8 Queen's
Road Central, Hongkong and coursed
thru Equitable Banking Corporation
under their reference No. O.B.-L.C.
78/893 as amended to expire on
February 28,1979 copy of which L/C
and extension are hereby attached as
Annexes "C" and "C-1 " hereof of which
defendant has the full knowledge
thereof;
FIFTH CAUSE OF ACTION
1. That plaintiff reproduces ail the
allegations contained in paragraph I of
the First Clause of Action to form an
integral part hereof;
2. That by reason of the non-
performance and breach of defendant's
covenant plaintiff suffered further losses
in the repairs of the unit maliciously
misrepresented to by defendant which
amount is no less than P6,000 for labor
and parts, and further suffered a great
period of time loss as caused by the
non- operating condition of the unit at
the time of delivery thereof and several
months thereof thereafter.
SIXTH CAUSE OF ACTION
1. That plaintiff reproduces the
allegation contained in paragraph 1 of
the First Cause of Action and made an
integral part hereof;
2. That by reason further defendant's
non-performance in the contract,
plaintiff suffered moral damages by the
evident loss of its credit standing and
commitments as well as mental anxiety
and embarrassment to its creditors and
suppliers in the equivalent amount of
not less than P30,000.00;
3. That the acts of defendant merits an
imposition of exemplary damages which
the plaintiff asks this Honorable Court to
be fixed at P20,000.00;
4. That to enforce its rights the plaintiff
has availed of the legal consultations
with special luminaries in Manila, to
which in representation thereof, it has
spent no less than P3,000.00;
SEVENTH CAUSE OF ACTION
1. That plaintiff reproduces the
allegation contained in paragraph 1 of
the First Cause of Action as intregal
part hereof;
2. That by reason of the saturated
misrepresentations made by defendant
and with the hope in view that
defendant may be able to comply with
his obligations, should proper
commercial documentation in good faith
are executed, plaintiff herein
unhesitatingly heeded to the
requirement of defendant and executed
a promissory note for P55,000.00
inclusive of P5,000 usurious interest
thereon for a period of 30 days, issued
on January 26,1979 to become due on
February 28, 1979, and delivered to
defendant on January 27, 1979 to cover
the release of the first obligation of cash
advances of defendant; which
promissory note is merely a guarantee
of the payment unto defendant should
he be able to comply with his
contractual obligations, copy of the
same is herewith attached as Annex "D"
hereof,
3. That aside from the aforesaid
promissory note defendant still required
plaintiff to further cover the said
advance with post dated checks of the
plaintiff which the latter issued originally
with its Metro Bank Davao Account
(Magsaysay Branch);
4. That sometime in May 1979,
defendant visited plaintiff at their office
in General Santos City renewing its
promise to deliver very soon the JH-65
Payloader and P50,000 balance of the
memo agreement dated January 27,
1979, provided plaintiff in consideration
thereof shall renew its checks covering
the transaction to enable him to
produce the cash needed, to which
plaintiff was again deceived by
defendant in issuing the following
checks in guarantee of the P50,000 first
advanced by him
RCBC Main Office Account No. 9366-2
1. Check No.6923588-
P60,000-July 3l, 1979;
2. Check No.6923589-
Pl0,000-July 3l, 1979.
All of which checks are now in the
possession of defendant;
5. That defendant had the fullest of
know that the performance of payment
of plaintiff's aforesaid checks were all
dependent upon his compliance of the
original contract of January 27, 1979;
6. That the collection of payment made
by defendant unto plaintiff is obviously
showing of his 'loan shark' mentality of
charging a total sum of P20,000 interest
charges for a total period of just over
four months of maturity date on the
P50,000 originally released by him
pursuant to the contract in open
defiance of usury laws;
EIGHT CAUSE OF ACTION
1. That plaintiff reproduces the
allegation of paragraph I of the First
Cause of Action as part hereof
2. That by reason further of the
continued misrepresentations of
defendant for his farther compliance of
their original contract subject hereof,
sometime in June 1979, defendant
renewed his prior checks of guarantee
in good faith and issued the following
checks amounting to a total of
P170,000 in favor of defendant to wit: a)
RCBC Check No. 6923586 dated July
2, 1979 for P100,000 and b) RCBC
Check No. 6923587 dated July 9, 1979
for ?70,000; which checks are all in the
possession of defendant;
 3. That the issuance of checks were all TOTAL.......... P l00,000.00
premised on the guarantee that
defendant shall already comply very 2. To be released by SANTIAGO
soon his promise to deliver the P50,000 MANINGO to N.Y. LAMIS ENTS./ETCO
cash advance balance subject of the TIMBER operations:
contract and the JH-65 Payloader
likewise covered by the same in order
a) D80 A-12 Komatsu
for plaintiff to comply with its log
Bulldozer with which,
commitments to its buyers including
good operating
defendant himself condition, immediate,

4. That defendant however continuously

Value.............................
failed to comply with his contractual
................ P
obligations pursuant to the subject
200,000.00
memorandum of agreement for which
reason the defendant has no right to
enforce collection by virtue of aforesaid b) JH-65 Payloader
checks against plaintiff as by the default with long-grapple,
of defendant himself as well as complete and in good
misrepresentations and misdelivery of operating condition,
the required units the obligation of after one (1) week
plaintiff did not expire under the same hereof.
contract;
Value .............................................P
FACTS COMMON TO ALL CAUSES 180,000.00
OF ACTION ABOVE-MENTIONED
B. TO BE PERFORMED BY NEVILLE
1. Plaintiff reproduces the allegation in Y. LAMIS ENTS. (SCHEDULE OF RE-
paragraph 1 of the complaint as integral PAYMENTS):
part hereof;
1. AFTER MITSUI
2. That plaintiff is willing to perform its PARTIAL EXPORT ON
part of the obligation contained in OR ABOUT FIRST
subject memorandum of agreement WEEK FEBRUARY,
between plaintiff and defendant dated 1979 FOR 700 CU. M.:
January 27, 1979 provided full
compliance by defendant of his a) Partial payment of
preceding obligations as raised is cash advance
properly enforced by this Honorable ..............P 55,000.00
court and provided further that the
prices of logs stipulated therein to be b) Down payment on
sold to defendant shall indispensably be D80A-12
adjusted to conform with the present tractor............120,000.0
local current market price; 0

xxx xxx xxx Total

.............................P
The memorandum of agreement in the Lamis complaint 175,000.00
reads as follows:
2. AFTER LOCAL LOG
MEMORANDUM OF AGREEMENT SHIPMENT WITH
SARMIENTO ON OR
A. TO BE PERFORMED BY ABOUT LAST WEEK
SANTIAGO MANINGO: FEBRUARY, 1979 for
1,000 CU.M.:
1. To be advanced by SANTIAGO
MANINGO to N.Y. LAMIS ENTS./ETCO a) Full payment of cash
TIMBER operations: advance..................... P
55,000.00
a) Immediate, upon signing of this
memo of agreement......... P 50,000.00 b) Full payment of
D80A-12
tractor.....................
b) To be released one (l) week from 80,000.00
date hereof......................... 50,000.00
 Total.............................. SUBMITTED TO BE IMPROPERLY
....P l35,000.00 LAID.

3. AFTER MITSUI On the question of venue it is alleged that the proper

FULL BALANCE venue for Civil Case No. 1395 should be Davao City
REPORT SHIPMENT where the plaintiff resides and as stipulated in the
ON OR ABOUT END promissory note dated February 26, 1979 and in the
OF MARCH, 1979 FOR chattel mortgage dated February 27, 1979. However,
1,200 CU. M.: the respondent judge found that Maningo has "not only
legal residence but also physical residence in Busaon,
Full payment of JH 65 Tagum Davao" and We are not inclined to disturb this
payloader/grapple......... finding Anent the claim that Davao City had been
........ P180,000.00 stipulated the venue, suffice it to say that a stipulation as
to venue does not preclude the filing of suits in the
WE AGREE: residence of plaintiff or defendant under Section 2 (b),
Rule 4, Rules of Court, in f he absence of qualifying or
restrictive words in the agreement which would indicate
(Sgd.) SANTIAGO MANINGO that the place named is the only venue agreed upon by
the parties The stipulation did not deprive Maningo of
ADDENDUM: SHOULD his right to pursue remedy in the court specifically
THE EXPECTED mentioned in Section 2 (b) of Rule 4, Rules of
EXPORT SHIPMENT/S Court. Renuntiato non praesumitur. (Polytrade
WITH MITSUI & CO., Corporation vs. Blanco, No. L-27033,Oct.31, 1969,30
LTD. FAIL, SUBJECT SCRA187.)
LOGS OF N.Y. LAMIS
ENTS/ETCO TIMBER However, We believe that the first ground invoked in the
CORP. SHALL BE motion to dismiss is well-taken; the respondent judge
PURCHASED BY L.S. should have dismissed, Civil Case No. 1395 on that
SARMIENTO INDS. ground.
THRU SANTIAGO
MANINGO AT THE
CURRENT PRICE OF Rule 16, Sec. 1 of the Rules of Court provides that a
motion to dismiss an action may be made, inter alia, on
P350.00/CU. M. FOR
the ground that "there is another action pending
EXPORTABLE;
between the same parties for the same cause."
P270/CU. M. FOR LSQ
GRADE & P170.00/CU.
M. FOR SAWMILL It has been said that for this ground to be invoked "there
GRADE, ALL PRICES must be, between the action under consideration and
F.O.B. VESSEL. the other action, (1) Identity of parties, or at least such
as representing the same interest in both actions; (2)
Identity of rights asserted and relief prayed for, the relief
being founded on the same facts; and (3) the Identity on
the two preceding particulars should be such that any
NEVILLE Y. LAMIS ENTS By: (Sgd.) judgment which may be rendered on the other action
NEVILLE Y. LAMIS Proprietor/Gen. will, regardless of which party is successful, amount
Manager to res adjudicata in the action under consideration." (1
Moran, Rules of Court, pp. 488-489 [1970].)
Davao City, Philippines, January 27,
1979. The petitioner contends that in so far as the complaint in
Civil Case No. 1395 seeks to collect the P 55,000
By motion dated February 18, 1981, which the alleged loan, it should be dismissed on the ground
defendant filed in Civil Case No. 1395, the dismissal of of litis pendencia because there is another case on the
the complaint was sought on the following grounds: same cause pending between them in the Court of First
Instance of Rizal And with respect to the claim for P
(1) THAT THE SUBJECT IS IN 'LIS 200,000, the same can not be set up in the present
PENDENS' AND/OR 'MULTIPLICITY action on the ground of multiplicity of suits since
OF SUIT' OF A PRIOR AND EXISTING Santiago Maningo's claim under the deed of chattel
CIVIL CASE NO. 35199 ENTITLED mortgage (over the tractor) partook of a compulsory
NEVILLE Y. LAMIS ENTS PLAINTIFF counterclaim which not having been set up in Civil Case
VERSUS SANTIAGO MANINGO, No. 35199 was forever barred under See. 4, Rule 9 of
DEFENDANT, BEFORE CFI PASIG, the Rules of Court.
BRANCH XXV FILED ON NOVEMBER
16, 1979. The private respondent, on the other hand, states that
although the causes of action in Civil Case No. 1395
(2) THAT VENUE IN THE HEREIN arose from the Memorandum Agreement sued upon in
CASE IS RESPECTFULLY Civil Case No. 35199, the respective causes of action in
the two cases are distinct in nature. He claims that Civil
Case No. 35199 is basically for the performance of
certain supposedly valid obligations whereas Civil Case
No. 1395 is principally for collection of over due
accounts. He also argues that on the assumption that
the petitioner succeeds in compelling the private
respondents to perform under the Memorandum
Agreement, the private respondent would not be barred
from seeking judgment in a separate case for the loan
and the purchase price of the tractor. Finally, he
maintains that the evidence to support the claims in the
two actions are not the same.
We find the position of the petitioner tenable. The claim
of the private respondent for P55,000 admittedly arose
from the same transaction i.e., the Memorandum of
Agreement sued upon in Civil Case No. 35199,
notwithstanding that no mention of the agreement is
made in Civil Case No. 1395. Moreover, it appears that
in the answer with a counter-claim filed by the private
respondent as the defendant in Civil Case No. 35199,
the same amount of P55,000 was demanded of the
plaintiff therein. Indubitably, in the resolution of the
issues of facts and law in Civil Case No. 35199, relative
to the claimed amount, the right of the private
respondent thereto will have to be passed upon.
Similarly the private respondent's claim for the purchase
price of the tractor is barred. This claim should have
been set up in Civil Case No. 35199, of which, in one of
the causes of action it was alleged that there was a
misdelivery of tractor for which reason the plaintiff
therein asks for the delivery of the tractor specified in
the Memorandum Agreement.
In Yu Lay v. Galmes (40 Phil. 651 [1920]), a
counterclaim is compulsory if (a) it matured before
answer; (b) it arises out of or is necessarily connected
with the transaction or occurrence that is the subject
matter of the opposing party's claim; (c) it does not
require for its adjudication the presence of third persons
of whom the court cannot acquire jurisdiction; and (d) it
is within the jurisdiction of the court. And in Carpena v.
Manalo, (L-13143, April 26, 1961, 1 SCRA 1060), it was
held that where the claim is necessarily connected with
or arise out of the transaction involved in the first case,
the same claim is barred if not set up as a counterclaim
in the previous case.
It is clear that in the light of the jurisprudence cited, the
private respondent's claim for the purchase price of the
tractor is in the nature of a compulsory counterclaim and
to allow it in the present action will violate the principle
against multiplicity of suits.
WHEREFORE, the petition is granted; the order of the
respondent judge dated April 2, 1981 in Civil Case No.
1395 is hereby set aside and another one entered
ordering the dismissal of said case. No special
pronouncement as to costs.
SO ORDERED.
SAUDI ARABIAN AIRLINES VS. CA G.R. NO. 122191
QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the
Rules of Court seeks to annul and set aside the
Resolution 1dated September 27, 1995 and the
Decision 2 dated April 10, 1996 of the Court of
Appeals 3 in CA-G.R. SP No. 36533, 4and the
Orders 5 dated August 29, 1994 6 and February 2,
1995 7 that were issued by the trial court in Civil Case
No. Q-93-18394. 8
The pertinent antecedent facts which gave rise to the
instant petition, as stated in the questioned Decision 9,
are as follows:
On January 21, 1988 defendant
SAUDIA hired plaintiff as a Flight
Attendant for its airlines based in
Jeddah, Saudi Arabia. . . .
On April 27, 1990, while on a lay-over in
Jakarta, Indonesia, plaintiff went to a
disco dance with fellow crew members
Thamer Al-Gazzawi and Allah Al-
Gazzawi, both Saudi nationals.
Because it was almost morning when
they returned to their hotels, they
agreed to have breakfast together at the
room of Thamer. When they were in te
(sic) room, Allah left on some pretext.
Shortly after he did, Thamer attempted
to rape plaintiff. Fortunately, a roomboy
and several security personnel heard
her cries for help and rescued her.
Later, the Indonesian police came and
arrested Thamer and Allah Al-Gazzawi,
the latter as an accomplice.
When plaintiff returned to Jeddah a few
days later, several SAUDIA officials
interrogated her about the Jakarta
incident. They then requested her to go
back to Jakarta to help arrange the
release of Thamer and Allah. In Jakarta,
SAUDIA Legal Officer Sirah Akkad and
base manager Baharini negotiated with
the police for the immediate release of
the detained crew members but did not
succeed because plaintiff refused to
cooperate. She was afraid that she
might be tricked into something she did
not want because of her inability to
understand the local dialect. She also
declined to sign a blank paper and a
document written in the local dialect.
Eventually, SAUDIA allowed plaintiff to
return to Jeddah but barred her from the
Jakarta flights.
Plaintiff learned that, through the
intercession of the Saudi Arabian
government, the Indonesian authorities
agreed to deport Thamer and Allah after
two weeks of detention. Eventually, they
were again put in service by defendant
SAUDI (sic). In September 1990,
defendant SAUDIA transferred plaintiff
to Manila.
On January 14, 1992, just when plaintiff
thought that the Jakarta incident was
already behind her, her superiors
requested her to see Mr. Ali Meniewy,
Chief Legal Officer of SAUDIA, in
Jeddah, Saudi Arabia. When she saw
him, he brought her to the police station
where the police took her passport and
questioned her about the Jakarta
incident. Miniewy simply stood by as the
police put pressure on her to make a
statement dropping the case against
Thamer and Allah. Not until she agreed
to do so did the police return her
passport and allowed her to catch the
afternoon flight out of Jeddah.
One year and a half later or on lune 16,
1993, in Riyadh, Saudi Arabia, a few
minutes before the departure of her
flight to Manila, plaintiff was not allowed
to board the plane and instead ordered
to take a later flight to Jeddah to see
Mr. Miniewy, the Chief Legal Officer of
SAUDIA. When she did, a certain
Khalid of the SAUDIA office brought her
to a Saudi court where she was asked
to sign a document written in Arabic.
They told her that this was necessary to
close the case against Thamer and
Allah. As it turned out, plaintiff signed a
notice to her to appear before the court
on June 27, 1993. Plaintiff then returned
to Manila.
Shortly afterwards, defendant SAUDIA
summoned plaintiff to report to Jeddah
once again and see Miniewy on June
27, 1993 for further investigation.
Plaintiff did so after receiving assurance
from SAUDIA's Manila manager, Aslam
Saleemi, that the investigation was
routinary and that it posed no danger to
her.
In Jeddah, a SAUDIA legal officer
brought plaintiff to the same Saudi court
on June 27, 1993. Nothing happened
then but on June 28, 1993, a Saudi
judge interrogated plaintiff through an
interpreter about the Jakarta incident.
After one hour of interrogation, they let
her go. At the airport, however, just as
her plane was about to take off, a
SAUDIA officer told her that the airline
had forbidden her to take flight. At the
Inflight Service Office where she was
told to go, the secretary of Mr. Yahya
Saddick took away her passport and
told her to remain in Jeddah, at the
crew quarters, until further orders.
On July 3, 1993 a SAUDIA legal officer
again escorted plaintiff to the same
court where the judge, to her
astonishment and shock, rendered a
decision, translated to her in English,
sentencing her to five months
imprisonment and to 286 lashes. Only
then did she realize that the Saudi court
had tried her, together with Thamer and
Allah, for what happened in Jakarta.
The court found plaintiff guilty of (1)
adultery; (2) going to a disco, dancing
and listening to the music in violation of
Islamic laws; and (3) socializing with the
male crew, in contravention of Islamic
tradition. 10
Facing conviction, private respondent sought the help of
her employer, petitioner SAUDIA. Unfortunately, she
was denied any assistance. She then asked the
Philippine Embassy in Jeddah to help her while her case
is on appeal. Meanwhile, to pay for her upkeep, she
worked on the domestic flight of SAUDIA, while Thamer
and Allah continued to serve in the international
flights. 11
Because she was wrongfully convicted, the Prince of
Makkah dismissed the case against her and allowed her
to leave Saudi Arabia. Shortly before her return to
Manila, 12 she was terminated from the service by
SAUDIA, without her being informed of the cause.
On November 23, 1993, Morada filed a Complaint 13 for
damages against SAUDIA, and Khaled Al-Balawi ("Al-
Balawi"), its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion
To Dismiss 14 which raised the following grounds, to wit:
(1) that the Complaint states no cause of action against
Saudia; (2) that defendant Al-Balawi is not a real party in
interest; (3) that the claim or demand set forth in the
Complaint has been waived, abandoned or otherwise
extinguished; and (4) that the trial court has no
jurisdiction to try the case.
On February 10, 1994, Morada filed her Opposition (To
Motion to Dismiss) 15. Saudia filed a reply 16 thereto on
March 3, 1994.
On June 23, 1994, Morada filed an Amended
Complaint 17 wherein Al-Balawi was dropped as party
defendant. On August 11, 1994, Saudia filed its
Manifestation and Motion to Dismiss Amended
Complaint 18.
The trial court issued an Order 19 dated August 29, 1994
denying the Motion to Dismiss Amended Complaint filed
by Saudia.
From the Order of respondent Judge 20 denying the
Motion to Dismiss, SAUDIA filed on September 20,
1994, its Motion for Reconsideration 21 of the Order
dated August 29, 1994. It alleged that the trial court has
no jurisdiction to hear and try the case on the basis of
Article 21 of the Civil Code, since the proper law
applicable is the law of the Kingdom of Saudi Arabia. On
 22
October 14, 1994, Morada filed her Opposition (To
Defendant's Motion for Reconsideration).
In the Reply 23 filed with the trial court on October 24,
1994, SAUDIA alleged that since its Motion for
Reconsideration raised lack of jurisdiction as its cause
of action, the Omnibus Motion Rule does not apply,
even if that ground is raised for the first time on appeal.
Additionally, SAUDIA alleged that the Philippines does
not have any substantial interest in the prosecution of
the instant case, and hence, without jurisdiction to
adjudicate the same.
Respondent Judge subsequently issued another
Order 24 dated February 2, 1995, denying SAUDIA's
Motion for Reconsideration. The pertinent portion of the
assailed Order reads as follows:
Acting on the Motion for
Reconsideration of defendant Saudi
Arabian Airlines filed, thru counsel, on
September 20, 1994, and the
Opposition thereto of the plaintiff filed,
thru counsel, on October 14, 1994, as
well as the Reply therewith of defendant
Saudi Arabian Airlines filed, thru
counsel, on October 24, 1994,
considering that a perusal of the
plaintiffs Amended Complaint, which is
one for the recovery of actual, moral
and exemplary damages plus attorney's
fees, upon the basis of the applicable
Philippine law, Article 21 of the New
Civil Code of the Philippines, is, clearly,
within the jurisdiction of this Court as
regards the subject matter, and there
being nothing new of substance which
might cause the reversal or modification
of the order sought to be reconsidered,
the motion for reconsideration of the
defendant, is DENIED.
SO ORDERED. 25
Consequently, on February 20, 1995, SAUDIA filed its
Petition for Certiorari and Prohibition with Prayer for
Issuance of Writ of Preliminary Injunction and/or
Temporary Restraining Order 26 with the Court of
Appeals.
Respondent Court of Appeals promulgated a Resolution
with Temporary Restraining Order 27 dated February 23,
1995, prohibiting the respondent Judge from further
conducting any proceeding, unless otherwise directed,
in the interim.
In another Resolution 28 promulgated on September 27,
1995, now assailed, the appellate court denied
SAUDIA's Petition for the Issuance of a Writ of
Preliminary Injunction dated February 18, 1995, to wit:
The Petition for the Issuance of a Writ
of Preliminary Injunction is hereby
DENIED, after considering the Answer,
with Prayer to Deny Writ of Preliminary
Injunction (Rollo, p. 135) the Reply and
Rejoinder, it appearing that herein
petitioner is not clearly entitled thereto
(Unciano Paramedical College,
et. Al., v. Court of Appeals,
et. Al., 100335, April 7, 1993, Second
Division).
SO ORDERED.
On October 20, 1995, SAUDIA filed with this Honorable
Court the instant Petition 29 for Review with Prayer for
Temporary Restraining Order dated October 13, 1995.
However, during the pendency of the instant Petition,
respondent Court of Appeals rendered the
Decision 30 dated April 10, 1996, now also assailed. It
ruled that the Philippines is an appropriate forum
considering that the Amended Complaint's basis for
recovery of damages is Article 21 of the Civil Code, and
thus, clearly within the jurisdiction of respondent Court.
It further held that certiorari is not the proper remedy in a
denial of a Motion to Dismiss, inasmuch as the petitioner
should have proceeded to trial, and in case of an
adverse ruling, find recourse in an appeal.
On May 7, 1996, SAUDIA filed its Supplemental Petition
for Review with Prayer for Temporary Restraining
Order 31 dated April 30, 1996, given due course by this
Court. After both parties submitted their
Memoranda, 32 the instant case is now deemed
submitted for decision.
Petitioner SAUDIA raised the following issues:
I
The trial court has no jurisdiction to hear
and try Civil Case No. Q-93-18394
based on Article 21 of the New Civil
Code since the proper law applicable is
the law of the Kingdom of Saudi Arabia
inasmuch as this case involves what is
known in private international law as a
"conflicts problem". Otherwise, the
Republic of the Philippines will sit in
judgment of the acts done by another
sovereign state which is abhorred.
II
Leave of court before filing a
supplemental pleading is not a
jurisdictional requirement. Besides, the
matter as to absence of leave of court is
now moot and academic when this
Honorable Court required the
respondents to comment on petitioner's
April 30, 1996 Supplemental Petition
For Review With Prayer For A
Temporary Restraining Order Within
Ten (10) Days From Notice Thereof.
Further, the Revised Rules of Court
should be construed with liberality
pursuant to Section 2, Rule 1 thereof.
 III
Petitioner received on April 22, 1996 the
April 10, 1996 decision in CA-G.R. SP
NO. 36533 entitled "Saudi Arabian
Airlines v. Hon. Rodolfo A. Ortiz, et al."
and filed its April 30, 1996
Supplemental Petition For Review With
Prayer For A Temporary Restraining
Order on May 7, 1996 at 10:29 a.m. or
within the 15-day reglementary period
as provided for under Section 1, Rule
45 of the Revised Rules of Court.
Therefore, the decision in CA-G.R. SP
NO. 36533 has not yet become final
and executory and this Honorable Court
can take cognizance of this case. 33
From the foregoing factual and procedural antecedents,
the following issues emerge for our resolution:
I.
WHETHER RESPONDENT
APPELLATE COURT ERRED IN
HOLDING THAT THE REGIONAL
TRIAL COURT OF QUEZON CITY HAS
JURISDICTION TO HEAR AND TRY
CIVIL CASE NO. Q-93-18394
ENTITLED "MILAGROS P. MORADA
V. SAUDI ARABIAN AIRLINES".
II.
WHETHER RESPONDENT
APPELLATE COURT ERRED IN
RULING THAT IN THIS CASE
PHILIPPINE LAW SHOULD GOVERN.
Petitioner SAUDIA claims that before us is a conflict of
laws that must be settled at the outset. It maintains that
private respondent's claim for alleged abuse of rights
occurred in the Kingdom of Saudi Arabia. It alleges that
the existence of a foreign element qualifies the instant
case for the application of the law of the Kingdom of
Saudi Arabia, by virtue of the lex loci delicti
commissi rule. 34
On the other hand, private respondent contends that
since her Amended Complaint is based on Articles
19 35 and 21 36 of the Civil Code, then the instant case is
properly a matter of domestic law. 37
Under the factual antecedents obtaining in this case,
there is no dispute that the interplay of events occurred
in two states, the Philippines and Saudi Arabia.
As stated by private respondent in her Amended
Complaint 38 dated June 23, 1994:
2. Defendant SAUDI ARABIAN
AIRLINES or SAUDIA is a foreign
airlines corporation doing business in
the Philippines. It may be served with
summons and other court processes at
Travel Wide Associated Sales (Phils.).
Inc., 3rd Floor, Cougar Building, 114
Valero St., Salcedo Village, Makati,
Metro Manila.
xxx xxx xxx
6. Plaintiff learned that, through the
intercession of the Saudi Arabian
government, the Indonesian authorities
agreed to deport Thamer and Allah after
two weeks of detention. Eventually, they
were again put in service by defendant
SAUDIA. In September 1990, defendant
SAUDIA transferred plaintiff to Manila.
7. On January 14, 1992, just when
plaintiff thought that the Jakarta incident
was already behind her, her superiors
reauested her to see MR. Ali Meniewy,
Chief Legal Officer of SAUDIA in
Jeddah, Saudi Arabia. When she saw
him, he brought her to the police station
where the police took her passport and
questioned her about the Jakarta
incident. Miniewy simply stood by as the
police put pressure on her to make a
statement dropping the case against
Thamer and Allah. Not until she agreed
to do so did the police return her
passport and allowed her to catch the
afternoon flight out of Jeddah.
8. One year and a half later or on June
16, 1993, in Riyadh, Saudi Arabia, a
few minutes before the departure of her
flight to Manila, plaintiff was not allowed
to board the plane and instead ordered
to take a later flight to Jeddah to see
Mr. Meniewy, the Chief Legal Officer of
SAUDIA. When she did, a certain
Khalid of the SAUDIA office brought her
to a Saudi court where she was asked
to sigh a document written in Arabic.
They told her that this was necessary to
close the case against Thamer and
Allah. As it turned out, plaintiff signed a
notice to her to appear before the court
on June 27, 1993. Plaintiff then returned
to Manila.
9. Shortly afterwards, defendant
SAUDIA summoned plaintiff to report to
Jeddah once again and see Miniewy on
June 27, 1993 for further investigation.
Plaintiff did so after receiving assurance
from SAUDIA's Manila manger, Aslam
Saleemi, that the investigation was
routinary and that it posed no danger to
her.
10. In Jeddah, a SAUDIA legal officer
brought plaintiff to the same Saudi court
on June 27, 1993. Nothing happened
then but on June 28, 1993, a Saudi
judge interrogated plaintiff through an
 interpreter about the Jakarta incident.
After one hour of interrogation, they let
her go. At the airport, however, just as
her plane was about to take off, a
SAUDIA officer told her that the airline
had forbidden her to take that flight. At
the Inflight Service Office where she
was told to go, the secretary of Mr.
Yahya Saddick took away her passport
and told her to remain in Jeddah, at the
crew quarters, until further orders.
11. On July 3, 1993 a SAUDIA legal
officer again escorted plaintiff to the
same court where the judge, to her
astonishment and shock, rendered a
decision, translated to her in English,
sentencing her to five months
imprisonment and to 286 lashes. Only
then did she realize that the Saudi court
had tried her, together with Thamer and
Allah, for what happened in Jakarta.
The court found plaintiff guilty of (1)
adultery; (2) going to a disco, dancing,
and listening to the music in violation of
Islamic laws; (3) socializing with the
male crew, in contravention of Islamic
tradition.
12. Because SAUDIA refused to lend
her a hand in the case, plaintiff sought
the help of the Philippines Embassy in
Jeddah. The latter helped her pursue an
appeal from the decision of the court.
To pay for her upkeep, she worked on
the domestic flights of defendant
SAUDIA while, ironically, Thamer and
Allah freely served the international
flights. 39
Where the factual antecedents satisfactorily establish
the existence of a foreign element, we agree with
petitioner that the problem herein could present a
"conflicts" case.
A factual situation that cuts across territorial lines and is
affected by the diverse laws of two or more states is
said to contain a "foreign element". The presence of a
foreign element is inevitable since social and economic
affairs of individuals and associations are rarely
confined to the geographic limits of their birth or
conception. 40
The forms in which this foreign element may appear are
many. 41 The foreign element may simply consist in the
fact that one of the parties to a contract is an alien or
has a foreign domicile, or that a contract between
nationals of one State involves properties situated in
another State. In other cases, the foreign element may
assume a complex form. 42
In the instant case, the foreign element consisted in the
fact that private respondent Morada is a resident
Philippine national, and that petitioner SAUDIA is a
resident foreign corporation. Also, by virtue of the
employment of Morada with the petitioner Saudia as a
flight stewardess, events did transpire during her many
occasions of travel across national borders, particularly
from Manila, Philippines to Jeddah, Saudi Arabia, and
vice versa, that caused a "conflicts" situation to arise.
We thus find private respondent's assertion that the
case is purely domestic, imprecise. A conflicts problem
presents itself here, and the question of
jurisdiction 43 confronts the court a quo.
After a careful study of the private respondent's
Amended Complaint, 44 and the Comment thereon, we
note that she aptly predicated her cause of action on
Articles 19 and 21 of the New Civil Code.
On one hand, Article 19 of the New Civil Code provides:
Art. 19. Every person must, in the
exercise of his rights and in the
performance of his duties, act with
justice give everyone his due and
observe honesty and good faith.
On the other hand, Article 21 of the New Civil Code
provides:
Art. 21. Any person who willfully causes
loss or injury to another in a manner
that is contrary to morals, good customs
or public policy shall compensate the
latter for damages.
Thus, in Philippine National Bank (PNB) vs. Court of
Appeals, 45 this Court held that:
The aforecited provisions on human
relations were intended to expand the
concept of torts in this jurisdiction by
granting adequate legal remedy for the
untold number of moral wrongs which is
impossible for human foresight to
specifically provide in the statutes.
Although Article 19 merely declares a principle of law,
Article 21 gives flesh to its provisions. Thus, we agree
with private respondent's assertion that violations of
Articles 19 and 21 are actionable, with judicially
enforceable remedies in the municipal forum.
Based on the allegations 46 in the Amended Complaint,
read in the light of the Rules of Court on
jurisdiction 47 we find that the Regional Trial Court (RTC)
of Quezon City possesses jurisdiction over the subject
matter of the suit. 48 Its authority to try and hear the case
is provided for under Section 1 of Republic Act No.
7691, to wit:
Sec. 1. Section 19 of Batas Pambansa
Blg. 129, otherwise known as the
"Judiciary Reorganization Act of 1980",
is hereby amended to read as follows:
Sec. 19. Jurisdiction in Civil Cases. —
Regional Trial Courts shall exercise
exclusive jurisdiction:
 xxx xxx xxx
(8) In all other cases in
which
demand, exclusive of
interest, damages of
whatever kind,
attorney's fees,
litigation expenses, and
cots or the value of the
property in controversy
exceeds One hundred
thousand pesos
(P100,000.00) or, in
such other cases in
Metro Manila, where
the demand, exclusive
of the above-mentioned
items exceeds Two
hundred Thousand
pesos (P200,000.00).
(Emphasis ours)
xxx xxx xxx
And following Section 2 (b), Rule 4 of the Revised Rules
of Court — the venue, Quezon City, is appropriate:
Sec. 2 Venue in Courts of First
Instance. — [Now Regional Trial Court]
(a) xxx xxx xxx
(b) Personal actions. — All other
actions may be commenced and tried
where the defendant or any of the
defendants resides or may be found, or
where the plaintiff or any of the plaintiff
resides, at the election of the plaintiff.
Pragmatic considerations, including the convenience of
the parties, also weigh heavily in favor of the RTC
Quezon City assuming jurisdiction. Paramount is the
private interest of the litigant. Enforceability of a
judgment if one is obtained is quite obvious. Relative
advantages and obstacles to a fair trial are equally
important. Plaintiff may not, by choice of an inconvenient
forum, "vex", "harass", or "oppress" the
defendant, e.g. by inflicting upon him needless expense
or disturbance. But unless the balance is strongly in
favor of the defendant, the plaintiffs choice of forum
should rarely be disturbed. 49
Weighing the relative claims of the parties, the court a
quo found it best to hear the case in the Philippines.
Had it refused to take cognizance of the case, it would
be forcing plaintiff (private respondent now) to seek
remedial action elsewhere, i.e. in the Kingdom of Saudi
Arabia where she no longer maintains substantial
connections. That would have caused a fundamental
unfairness to her.
Moreover, by hearing the case in the Philippines no
unnecessary difficulties and inconvenience have been
shown by either of the parties. The choice of forum of
the plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over
the persons of the parties herein. By filing her Complaint
and Amended Complaint with the trial court, private
respondent has voluntary submitted herself to the
jurisdiction of the court.
The records show that petitioner SAUDIA has filed
several motions 50 praying for the dismissal of Morada's
Amended Complaint. SAUDIA also filed an Answer
In Ex Abundante Cautelam dated February 20, 1995.
What is very patent and explicit from the motions filed, is
that SAUDIA prayed for other reliefs under the
premises. Undeniably, petitioner SAUDIA has effectively
submitted to the trial court's jurisdiction by praying for
the dismissal of the Amended Complaint on grounds
other than lack of jurisdiction.
As held by this Court in Republic vs. Ker and Company,
Ltd.: 51
We observe that the motion to dismiss
filed on April 14, 1962, aside from
disputing the lower court's jurisdiction
over defendant's person, prayed for
dismissal of the complaint on the
ground that plaintiff's cause of action
has prescribed. By interposing such
second ground in its motion to dismiss,
Ker and Co., Ltd. availed of an
affirmative defense on the basis of
which it prayed the court to resolve
controversy in its favor. For the court to
validly decide the said plea of defendant
Ker & Co., Ltd., it necessarily had to
acquire jurisdiction upon the latter's
person, who, being the proponent of the
affirmative defense, should be deemed
to have abandoned its special
appearance and voluntarily submitted
itself to the jurisdiction of the court.
Similarly, the case of De Midgely vs. Ferandos, held
that;
When the appearance is by motion for
the purpose of objecting to the
jurisdiction of the court over the person,
it must be for the sole and separate
purpose of objecting to the jurisdiction
of the court. If his motion is for any
other purpose than to object to the
jurisdiction of the court over his person,
he thereby submits himself to the
jurisdiction of the court. A special
appearance by motion made for the
purpose of objecting to the jurisdiction
of the court over the person will be held
to be a general appearance, if the party
in said motion should, for example, ask
for a dismissal of the action upon the
further ground that the court had no
jurisdiction over the subject matter. 52
Clearly, petitioner had submitted to the jurisdiction of the
Regional Trial Court of Quezon City. Thus, we find that
the trial court has jurisdiction over the case and that its
exercise thereof, justified.
As to the choice of applicable law, we note that choice-
of-law problems seek to answer two important
questions: (1) What legal system should control a given
situation where some of the significant facts occurred in
two or more states; and (2) to what extent should the
chosen legal system regulate the situation. 53
Several theories have been propounded in order to
identify the legal system that should ultimately control.
Although ideally, all choice-of-law theories should
intrinsically advance both notions of justice and
predictability, they do not always do so. The forum is
then faced with the problem of deciding which of these
two important values should be stressed. 54
Before a choice can be made, it is necessary for us to
determine under what category a certain set of facts or
rules fall. This process is known as "characterization", or
the "doctrine of qualification". It is the "process of
deciding whether or not the facts relate to the kind of
question specified in a conflicts rule." 55 The purpose of
"characterization" is to enable the forum to select the
proper law. 56
Our starting point of analysis here is not a legal relation,
but a factual situation, event, or operative fact. 57 An
essential element of conflict rules is the indication of a
"test" or "connecting factor" or "point of contact".
Choice-of-law rules invariably consist of a factual
relationship (such as property right, contract claim) and
a connecting factor or point of contact, such as
the situs of the res, the place of celebration, the place of
performance, or the place of wrongdoing. 58
Note that one or more circumstances may be present to
serve as the possible test for the determination of the
applicable law. 59 These "test factors" or "points of
contact" or "connecting factors" could be any of the
following:
(1) The nationality of a person, his
domicile, his residence, his place of
sojourn, or his origin;
(2) the seat of a legal or juridical
person, such as a corporation;
(3) the situs of a thing, that is, the place
where a thing is, or is deemed to be
situated. In particular, the lex situs is
decisive when real rights are involved;
(4) the place where an act has been
done, the locus actus, such as the place
where a contract has been made, a
marriage celebrated, a will signed or a
tort committed. The lex loci actus is
particularly important in contracts and
torts;
(5) the place where an act is intended to
come into effect, e.g., the place of
performance of contractual duties, or
the place where a power of attorney is
to be exercised;
(6) the intention of the contracting
parties as to the law that should govern
their agreement, the lex loci intentionis;
(7) the place where judicial or
administrative proceedings are
instituted or done. The lex fori — the
law of the forum — is particularly
important because, as we have seen
earlier, matters of "procedure" not going
to the substance of the claim involved
are governed by it; and because the lex
fori applies whenever the content of the
otherwise applicable foreign law is
excluded from application in a given
case for the reason that it falls under
one of the exceptions to the
applications of foreign law; and
(8) the flag of a ship, which in many
cases is decisive of practically all legal
relationships of the ship and of its
master or owner as such. It also covers
contractual relationships particularly
contracts of affreightment. 60 (Emphasis
ours.)
After a careful study of the pleadings on record,
including allegations in the Amended Complaint deemed
admitted for purposes of the motion to dismiss, we are
convinced that there is reasonable basis for private
respondent's assertion that although she was already
working in Manila, petitioner brought her to Jeddah on
the pretense that she would merely testify in an
investigation of the charges she made against the two
SAUDIA crew members for the attack on her person
while they were in Jakarta. As it turned out, she was the
one made to face trial for very serious charges,
including adultery and violation of Islamic laws and
tradition.
There is likewise logical basis on record for the claim
that the "handing over" or "turning over" of the person of
private respondent to Jeddah officials, petitioner may
have acted beyond its duties as employer. Petitioner's
purported act contributed to and amplified or even
proximately caused additional humiliation, misery and
suffering of private respondent. Petitioner thereby
allegedly facilitated the arrest, detention and prosecution
of private respondent under the guise of petitioner's
authority as employer, taking advantage of the trust,
confidence and faith she reposed upon it. As purportedly
found by the Prince of Makkah, the alleged conviction
and imprisonment of private respondent was wrongful.
But these capped the injury or harm allegedly inflicted
upon her person and reputation, for which petitioner
could be liable as claimed, to provide compensation or
redress for the wrongs done, once duly proven.
Considering that the complaint in the court a quo is one
involving torts, the "connecting factor" or "point of
contact" could be the place or places where the tortious
conduct or lex loci actus occurred. And applying the
torts principle in a conflicts case, we find that the
Philippines could be said as a situs of the tort (the place
where the alleged tortious conduct took place). This is
because it is in the Philippines where petitioner allegedly
deceived private respondent, a Filipina residing and
working here. According to her, she had honestly
believed that petitioner would, in the exercise of its
rights and in the performance of its duties, "act with
justice, give her due and observe honesty and good
faith." Instead, petitioner failed to protect her, she
claimed. That certain acts or parts of the injury allegedly
occurred in another country is of no moment. For in our
view what is important here is the place where the over-
all harm or the totality of the alleged injury to the person,
reputation, social standing and human rights of
complainant, had lodged, according to the plaintiff below
(herein private respondent). All told, it is not without
basis to identify the Philippines as the situs of the
alleged tort.
Moreover, with the widespread criticism of the traditional
rule of lex loci delicti commissi, modern theories and
rules on tort liability 61 have been advanced to offer fresh
judicial approaches to arrive at just results. In keeping
abreast with the modern theories on tort liability, we find
here an occasion to apply the "State of the most
significant relationship" rule, which in our view should be
appropriate to apply now, given the factual context of
this case.
In applying said principle to determine the State which
has the most significant relationship, the following
contacts are to be taken into account and evaluated
according to their relative importance with respect to the
particular issue: (a) the place where the injury occurred;
(b) the place where the conduct causing the injury
occurred; (c) the domicile, residence, nationality, place
of incorporation and place of business of the parties,
and (d) the place where the relationship, if any, between
the parties is centered. 62
As already discussed, there is basis for the claim that
over-all injury occurred and lodged in the Philippines.
There is likewise no question that private respondent is
a resident Filipina national, working with petitioner, a
resident foreign corporation engaged here in the
business of international air carriage. Thus, the
"relationship" between the parties was centered here,
although it should be stressed that this suit is not based
on mere labor law violations. From the record, the claim
that the Philippines has the most significant contact with
the matter in this dispute, 63 raised by private
respondent as plaintiff below against defendant (herein
petitioner), in our view, has been properly established.
Prescinding from this premise that the Philippines is the
situs of the tort complained of and the place "having the
most interest in the problem", we find, by way of
recapitulation, that the Philippine law on tort liability
should have paramount application to and control in the
resolution of the legal issues arising out of this case.
Further, we hold that the respondent Regional Trial
Court has jurisdiction over the parties and the subject
matter of the complaint; the appropriate venue is in
Quezon City, which could properly apply Philippine law.
Moreover, we find untenable petitioner's insistence that
"[s]ince private respondent instituted this suit, she has
the burden of pleading and proving the applicable Saudi
law on the matter." 64 As aptly said by private
respondent, she has "no obligation to plead and prove
the law of the Kingdom of Saudi Arabia since her cause
of action is based on Articles 19 and 21" of the Civil
Code of the Philippines. In her Amended Complaint and
subsequent pleadings, she never alleged that Saudi law
should govern this case. 65 And as correctly held by the
respondent appellate court, "considering that it was the
petitioner who was invoking the applicability of the law of
Saudi Arabia, then the burden was on it [petitioner] to
plead and to establish what the law of Saudi Arabia
is". 66
Lastly, no error could be imputed to the respondent
appellate court in upholding the trial court's denial of
defendant's (herein petitioner's) motion to dismiss the
case. Not only was jurisdiction in order and venue
properly laid, but appeal after trial was obviously
available, and expeditious trial itself indicated by the
nature of the case at hand. Indubitably, the Philippines
is the state intimately concerned with the ultimate
outcome of the case below, not just for the benefit of all
the litigants, but also for the vindication of the country's
system of law and justice in a transnational setting. With
these guidelines in mind, the trial court must proceed to
try and adjudge the case in the light of relevant
Philippine law, with due consideration of the foreign
element or elements involved. Nothing said herein, of
course, should be construed as prejudging the results of
the case in any manner whatsoever.
WHEREFORE, the instant petition for certiorari is
hereby DISMISSED. Civil Case No. Q-93-18394 entitled
"Milagros P. Morada vs. Saudi Arabia Airlines" is hereby
REMANDED to Regional Trial Court of Quezon City,
Branch 89 for further proceedings.
SO ORDERED.
KOREA TECH VS. LERMA G.R. NO. 143581
VELASCO, JR., J.:
In our jurisdiction, the policy is to favor alternative
methods of resolving disputes, particularly in civil and
commercial disputes. Arbitration along with mediation,
conciliation, and negotiation, being inexpensive, speedy
and less hostile methods have long been favored by this
Court. The petition before us puts at issue an arbitration
clause in a contract mutually agreed upon by the parties
stipulating that they would submit themselves to
arbitration in a foreign country. Regrettably, instead of
hastening the resolution of their dispute, the parties
wittingly or unwittingly prolonged the controversy.
Petitioner Korea Technologies Co., Ltd.
(KOGIES) is a Korean corporation which is engaged in
the supply and installation of Liquefied Petroleum Gas
(LPG) Cylinder manufacturing plants, while private
respondent Pacific General Steel Manufacturing Corp.
(PGSMC) is a domestic corporation.
On March 5, 1997, PGSMC and KOGIES
executed a Contract[1] whereby KOGIES would set up
an LPG Cylinder Manufacturing Plant in
Carmona, Cavite. The contract was executed in
the Philippines. On April 7, 1997, the parties executed,
in Korea, an Amendment for Contract No. KLP-970301
dated March 5, 1997[2] amending the terms of
payment. The contract and its amendment stipulated
that KOGIES will ship the machinery and facilities
necessary for manufacturing LPG cylinders for which
PGSMC would pay USD 1,224,000. KOGIES would
install and initiate the operation of the plant for which
PGSMC bound itself to pay USD 306,000 upon the
plants production of the 11-kg. LPG cylinder
samples. Thus, the total contract price amounted to
USD 1,530,000.
On October 14, 1997, PGSMC entered into a
Contract of Lease[3] with Worth Properties, Inc. (Worth)
for use of Worths 5,079-square meter property with a
4,032-square meter warehouse building to house the
LPG manufacturing plant. The monthly rental was PhP
322,560 commencing on January 1, 1998 with a 10%
annual increment clause.Subsequently, the
machineries, equipment, and facilities for the
manufacture of LPG cylinders were shipped, delivered,
and installed in the Carmona plant. PGSMC paid
KOGIES USD 1,224,000.
However, gleaned from the
Certificate[4] executed by the parties on January 22,
1998, after the installation of the plant, the initial
operation could not be conducted as PGSMC
encountered financial difficulties affecting the supply of
materials, thus forcing the parties to agree that KOGIES
would be deemed to have completely complied with the
terms and conditions of the March 5, 1997 contract.
For the remaining balance of USD306,000 for
the installation and initial operation of the plant, PGSMC
issued two postdated checks: (1) BPI Check No.
0316412 dated January 30, 1998 for PhP 4,500,000;
and (2) BPI Check No. 0316413 dated March 30, 1998
for PhP 4,500,000.[5]
When KOGIES deposited the checks, these
were dishonored for the reason PAYMENT
STOPPED. Thus, on May 8, 1998, KOGIES sent a
demand letter[6] to PGSMC threatening criminal action
for violation of Batas Pambansa Blg. 22 in case of
nonpayment. On the same date, the wife of PGSMCs
President faxed a letter dated May 7, 1998 to KOGIES
President who was then staying at
a Makati City hotel. She complained that not only did
KOGIES deliver a different brand of hydraulic press from
that agreed upon but it had not delivered several
equipment parts already paid for.
On May 14, 1998, PGSMC replied that the two
checks it issued KOGIES were fully funded but the
payments were stopped for reasons previously made
known to KOGIES.[7]
On June 1, 1998, PGSMC informed KOGIES
that PGSMC was canceling their Contract dated March
5, 1997 on the ground that KOGIES had altered the
quantity and lowered the quality of the machineries and
equipment it delivered to PGSMC, and that PGSMC
would dismantle and transfer the machineries,
equipment, and facilities installed in the Carmona
plant. Five days later, PGSMC filed before the Office of
the Public Prosecutor an Affidavit-Complaint
for Estafa docketed as I.S. No. 98-03813 against Mr.
Dae Hyun Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC
informing the latter that PGSMC could not unilaterally
rescind their contract nor dismantle and transfer the
machineries and equipment on mere imagined violations
by KOGIES. It also insisted that their disputes should be
settled by arbitration as agreed upon in Article 15, the
arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote
KOGIES reiterating the contents of its June 1,
1998 letter threatening that the machineries, equipment,
and facilities installed in the plant would be dismantled
and transferred on July 4, 1998. Thus, on July 1, 1998,
KOGIES instituted an Application for Arbitration before
the Korean Commercial Arbitration Board (KCAB)
in Seoul, Korea pursuant to Art. 15 of the Contract as
amended.
On July 3, 1998, KOGIES filed a
Complaint for Specific Performance, docketed as Civil
Case No. 98-117[8] against PGSMC before the
Muntinlupa City Regional Trial Court (RTC). The RTC
granted a temporary restraining order (TRO) on July 4,
1998, which was subsequently extended until July 22,
1998. In its complaint, KOGIES alleged that PGSMC
had initially admitted that the checks that were stopped
were not funded but later on claimed that it stopped
payment of the checks for the reason that their value
was not received as the former allegedly breached their
contract by altering the quantity and lowering the quality
of the machinery and equipment installed in the plant
and failed to make the plant operational although it
earlier certified to the contrary as shown in a January
22, 1998 Certificate. Likewise, KOGIES averred that
PGSMC violated Art. 15 of their Contract, as amended,
by unilaterally rescinding the contract without resorting
to arbitration. KOGIES also asked that PGSMC be
restrained from dismantling and transferring the
machinery and equipment installed in the plant which
the latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an opposition to
the TRO arguing that KOGIES was not entitled to the
TRO since Art. 15, the arbitration clause, was null and
void for being against public policy as it ousts the local
courts of jurisdiction over the instant controversy.
On July 17, 1998, PGSMC filed its Answer with
Compulsory Counterclaim [9] asserting that it had the full
right to dismantle and transfer the machineries and
equipment because it had paid for them in full as
stipulated in the contract; that KOGIES was not entitled
to the PhP 9,000,000 covered by the checks for failing
to completely install and make the plant operational; and
that KOGIES was liable for damages amounting to PhP
4,500,000 for altering the quantity and lowering the
quality of the machineries and equipment. Moreover,
PGSMC averred that it has already paid PhP 2,257,920
in rent (covering January to July 1998) to Worth and it
was not willing to further shoulder the cost of renting the
premises of the plant considering that the LPG cylinder
manufacturing plant never became operational.
 After the parties submitted their Memoranda,
on July 23, 1998, the RTC issued an Order denying the
application for a writ of preliminary injunction, reasoning
that PGSMC had paid KOGIES USD 1,224,000, the
value of the machineries and equipment as shown in the
contract such that KOGIES no longer had proprietary
rights over them.And finally, the RTC held that Art. 15 of
the Contract as amended was invalid as it tended to
oust the trial court or any other court jurisdiction over
any dispute that may arise between the
parties. KOGIES prayer for an injunctive writ was
denied.[10] The dispositive portion of the Order stated:
WHEREFORE, in view of the foregoing
consideration, this Court believes and
so holds that no cogent reason exists
for this Court to grant the writ of
preliminary injunction to restrain and
refrain defendant from dismantling the
machineries and facilities at the lot and
building of Worth Properties,
Incorporated at Carmona, Cavite and
transfer the same to another site: and
therefore denies plaintiffs application for
a writ of preliminary injunction.
On July 29, 1998, KOGIES filed its Reply to
Answer and Answer to Counterclaim.[11] KOGIES denied
it had altered the quantity and lowered the quality of the
machinery, equipment, and facilities it delivered to the
plant. It claimed that it had performed all the
undertakings under the contract and had already
produced certified samples of LPG cylinders. It averred
that whatever was unfinished was PGSMCs fault since it
failed to procure raw materials due to lack of
funds. KOGIES, relying on Chung Fu Industries (Phils.),
Inc. v. Court of Appeals,[12] insisted that the arbitration
clause was without question valid.
After KOGIES filed a Supplemental
Memorandum with Motion to Dismiss[13] answering
PGSMCs memorandum of July 22, 1998 and seeking
dismissal of PGSMCs counterclaims, KOGIES, on
August 4, 1998, filed its Motion for Reconsideration[14] of
the July 23, 1998 Order denying its application for
an injunctive writ claiming that the contract was not
merely for machinery and facilities worth USD 1,224,000
but was for the sale of an LPG manufacturing plant
consisting of supply of all the machinery and facilities
and transfer of technology for a total contract price of
USD 1,530,000 such that the dismantling and transfer of
the machinery and facilities would result in the
dismantling and transfer of the very plant itself to the
great prejudice of KOGIES as the still unpaid
owner/seller of the plant. Moreover, KOGIES points out
that the arbitration clause under Art. 15 of the Contract
as amended was a valid arbitration stipulation under Art.
2044 of the Civil Code and as held by this Court
in Chung Fu Industries (Phils.), Inc.[15]
In the meantime, PGSMC filed a Motion for
Inspection of Things[16] to determine whether there was
indeed alteration of the quantity and lowering of quality
of the machineries and equipment, and whether these
were properly installed. KOGIES opposed the motion
positing that the queries and issues raised in the motion
for inspection fell under the coverage of the arbitration
clause in their contract.
On September 21, 1998, the trial court issued
an Order (1) granting PGSMCs motion for inspection;
(2) denying KOGIES motion for reconsideration of the
July 23, 1998 RTC Order; and (3) denying KOGIES
motion to dismiss PGSMCs compulsory counterclaims
as these counterclaims fell within the requisites of
compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent
Motion for Reconsideration[17] of the September 21,
1998 RTC Order granting inspection of the plant and
denying dismissal of PGSMCs compulsory
counterclaims.
Ten days after, on October 12, 1998, without
waiting for the resolution of its October 2, 1998 urgent
motion for reconsideration, KOGIES filed before the
Court of Appeals (CA) a petition for
certiorari[18] docketed as CA-G.R. SP No. 49249,
seeking annulment of the July 23, 1998 and September
21, 1998 RTC Orders and praying for the issuance of
writs of prohibition, mandamus, and preliminary
injunction to enjoin the RTC and PGSMC from
inspecting, dismantling, and transferring the machineries
and equipment in the Carmona plant, and to direct the
RTC to enforce the specific agreement on arbitration to
resolve the dispute.
In the meantime, on October 19, 1998, the RTC
denied KOGIES urgent motion for reconsideration and
directed the Branch Sheriff to proceed with the
inspection of the machineries and equipment in the plant
on October 28, 1998.[19]
Thereafter, KOGIES filed a Supplement to the
Petition[20] in CA-G.R. SP No. 49249 informing the CA
about the October 19, 1998 RTC Order. It also
reiterated its prayer for the issuance of the writs of
prohibition, mandamus and preliminary injunction which
was not acted upon by the CA. KOGIES asserted that
the Branch Sheriff did not have the technical expertise
to ascertain whether or not the machineries and
equipment conformed to the specifications in the
contract and were properly installed.
On November 11, 1998, the Branch Sheriff filed
his Sheriffs Report[21] finding that the enumerated
machineries and equipment were not fully and properly
installed.
The Court of Appeals affirmed the trial court and
declared
the arbitration clause against public policy
On May 30, 2000, the CA rendered the assailed
Decision[22] affirming the RTC Orders and dismissing the
petition for certiorari filed by KOGIES. The CA found
that the RTC did not gravely abuse its discretion in
issuing the assailed July 23, 1998 and September 21,
1998 Orders. Moreover, the CA reasoned that KOGIES
contention that the total contract price for USD
1,530,000 was for the whole plant and had not been
fully paid was contrary to the finding of the RTC that
PGSMC fully paid the price of USD 1,224,000, which
was for all the machineries and equipment. According to
the CA, this determination by the RTC was a factual
finding beyond the ambit of a petition for certiorari.
On the issue of the validity of the arbitration
clause, the CA agreed with the lower court that an
arbitration clause which provided for a final
determination of the legal rights of the parties to the
contract by arbitration was against public policy.
On the issue of nonpayment of docket fees and
non-attachment of a certificate of non-forum shopping
by PGSMC, the CA held that the counterclaims of
PGSMC were compulsory ones and payment of docket
fees was not required since the Answer with
counterclaim was not an initiatory pleading. For the
same reason, the CA said a certificate of non-forum
shopping was also not required.
Furthermore, the CA held that the petition for
certiorari had been filed prematurely since KOGIES did
not wait for the resolution of its urgent motion for
reconsideration of the September 21, 1998 RTC Order
which was the plain, speedy, and adequate remedy
available. According to the CA, the RTC must be given
the opportunity to correct any alleged error it has
committed, and that since the assailed orders were
interlocutory, these cannot be the subject of a petition
for certiorari.
Hence, we have this Petition for Review on
Certiorari under Rule 45.
The Issues
Petitioner posits that the appellate court
committed the following errors:
a. PRONOUNCING THE QUESTION
OF OWNERSHIP OVER THE
MACHINERY AND FACILITIES AS A
QUESTION OF FACT BEYOND THE
AMBIT OF A PETITION FOR
CERTIORARI INTENDED ONLY FOR
CORRECTION OF ERRORS OF
JURISDICTION OR GRAVE ABUSE
OF DISCRETION AMOUNTING TO
LACK OF (SIC) EXCESS OF
JURISDICTION, AND CONCLUDING
THAT THE TRIAL COURTS FINDING
ON THE SAME QUESTION WAS
IMPROPERLY RAISED IN THE
PETITION BELOW;
b. DECLARING AS NULL AND VOID
THE ARBITRATION CLAUSE IN
ARTICLE 15 OF THE CONTRACT
BETWEEN THE PARTIES FOR BEING
CONTRARY TO PUBLIC POLICY AND
FOR OUSTING THE COURTS OF
JURISDICTION;
c. DECREEING PRIVATE
RESPONDENTS COUNTERCLAIMS
TO BE ALL COMPULSORY NOT
NECESSITATING PAYMENT OF
DOCKET FEES AND CERTIFICATION
OF NON-FORUM SHOPPING;
d. RULING THAT THE
PETITION WAS FILED
PREMATURELY WITHOUT WAITING
FOR THE RESOLUTION OF THE
MOTION FOR RECONSIDERATION
OF THE ORDER DATED SEPTEMBER
21, 1998 OR WITHOUT GIVING THE
TRIAL COURT AN OPPORTUNITY TO
CORRECT ITSELF;
e. PROCLAIMING THE
TWO ORDERS DATED JULY 23
AND SEPTEMBER 21, 1998 NOT TO
BE PROPER SUBJECTS OF
CERTIORARI AND PROHIBITION FOR
BEING INTERLOCUTORY IN
NATURE;
f. NOT GRANTING THE
RELIEFS AND REMEDIES PRAYED
FOR IN HE (SIC) PETITION AND,
INSTEAD, DISMISSING THE SAME
FOR ALLEGEDLY WITHOUT
MERIT.[23]
The Courts Ruling
The petition is partly meritorious.
Before we delve into the substantive issues, we
shall first tackle the procedural issues.
The rules on the payment of docket fees for
counterclaims
and cross claims were amended effective August
16, 2004
KOGIES strongly argues that when PGSMC
filed the counterclaims, it should have paid docket fees
and filed a certificate of non-forum shopping, and that its
failure to do so was a fatal defect.
We disagree with KOGIES.
As aptly ruled by the CA, the counterclaims of
PGSMC were incorporated in its Answer with
Compulsory Counterclaim dated July 17, 1998 in
accordance with Section 8 of Rule 11, 1997 Revised
Rules of Civil Procedure, the rule that was effective at
the time the Answer with Counterclaim was filed. Sec. 8
on existing counterclaim or cross-claimstates, A
compulsory counterclaim or a cross-claim that a
defending party has at the time he files his answer shall
be contained therein.
On July 17, 1998, at the time PGSMC filed its
Answer incorporating its counterclaims against KOGIES,
it was not liable to pay filing fees for said counterclaims
being compulsory in nature. We stress, however, that
effective August 16, 2004 under Sec. 7, Rule 141, as
amended by A.M. No. 04-2-04-SC, docket fees are now
required to be paid in compulsory counterclaim or cross-
claims.
 As to the failure to submit a certificate of forum
shopping, PGSMCs Answer is not an initiatory pleading
which requires a certification against forum shopping
under Sec. 5[24] of Rule 7, 1997 Revised Rules of Civil
Procedure. It is a responsive pleading, hence, the
courts a quo did not commit reversible error in denying
KOGIES motion to dismiss PGSMCs compulsory
counterclaims.
Interlocutory orders proper subject of certiorari
Citing Gamboa v. Cruz,[25] the CA also
pronounced that certiorari and Prohibition are neither
the remedies to question the propriety of an interlocutory
order of the trial court.[26] The CA erred on its reliance
on Gamboa. Gamboa involved the denial of a motion to
acquit in a criminal case which was not assailable in an
action for certiorari since the denial of a motion to quash
required the accused to plead and to continue with the
trial, and whatever objections the accused had in his
motion to quash can then be used as part of his defense
and subsequently can be raised as errors on his appeal
if the judgment of the trial court is adverse to him. The
general rule is that interlocutory orders cannot be
challenged by an appeal.[27] Thus, in Yamaoka v.
Pescarich Manufacturing Corporation, we held:
The proper remedy in such
cases is an ordinary appeal from an
adverse judgment on the merits,
incorporating in said appeal the grounds
for assailing the interlocutory
orders. Allowing appeals from
interlocutory orders would result in the
sorry spectacle of a case being subject
of a counterproductive ping-pong to and
from the appellate court as often as a
trial court is perceived to have made an
error in any of its interlocutory
rulings. However, where the assailed
interlocutory order was issued with
grave abuse of discretion or patently
erroneous and the remedy of appeal
would not afford adequate and
expeditious relief, the Court allows
certiorari as a mode of redress.[28]
Also, appeals from interlocutory orders would
open the floodgates to endless occasions for dilatory
motions. Thus, where the interlocutory order was issued
without or in excess of jurisdiction or with grave abuse of
discretion, the remedy is certiorari.[29]
The alleged grave abuse of discretion of the
respondent court equivalent to lack of jurisdiction in the
issuance of the two assailed orders coupled with the fact
that there is no plain, speedy, and adequate remedy in
the ordinary course of law amply provides the basis for
allowing the resort to a petition for certiorari under Rule
65.
Prematurity of the petition before the CA
Neither do we think that KOGIES was guilty of
forum shopping in filing the petition for certiorari. Note
that KOGIES motion for reconsideration of the July 23,
1998 RTC Order which denied the issuance of the
injunctive writ had already been denied. Thus, KOGIES
only remedy was to assail the RTCs interlocutory order
via a petition for certiorari under Rule 65.
While the October 2, 1998 motion for
reconsideration of KOGIES of the September 21, 1998
RTC Order relating to the inspection of things, and the
allowance of the compulsory counterclaims has not yet
been resolved, the circumstances in this case would
allow an exception to the rule that before certiorari may
be availed of, the petitioner must have filed a motion for
reconsideration and said motion should have been first
resolved by the court a quo. The reason behind the rule
is to enable the lower court, in the first instance, to pass
upon and correct its mistakes without the intervention of
the higher court.[30]
The September 21, 1998 RTC Order directing
the branch sheriff to inspect the plant, equipment, and
facilities when he is not competent and knowledgeable
on said matters is evidently flawed and devoid of any
legal support. Moreover, there is an urgent necessity to
resolve the issue on the dismantling of the facilities and
any further delay would prejudice the interests of
KOGIES. Indeed, there is real and imminent threat of
irreparable destruction or substantial damage to
KOGIES equipment and machineries. We find the resort
to certiorari based on the gravely abusive orders of the
trial court sans the ruling on the October 2, 1998 motion
for reconsideration to be proper.
The Core Issue: Article 15 of the Contract
We now go to the core issue of the validity of
Art. 15 of the Contract, the arbitration clause. It
provides:
Article 15. Arbitration.All
disputes, controversies, or differences
which may arise between the parties,
out of or in relation to or in connection
with this Contract or for the breach
thereof, shall finally be settled by
arbitration in Seoul, Korea in
accordance with the Commercial
Arbitration Rules of the Korean
Commercial Arbitration Board. The
award rendered by the arbitration(s)
shall be final and binding upon both
parties concerned. (Emphasis
supplied.)
Petitioner claims the RTC and the CA erred in
ruling that the arbitration clause is null and void.
Petitioner is correct.
Established in this jurisdiction is the rule that the
law of the place where the contract is made
governs. Lex loci contractus. The contract in this case
was perfected here in the Philippines. Therefore, our
laws ought to govern. Nonetheless, Art. 2044 of the Civil
Code sanctions the validity of mutually agreed arbitral
clause or the finality and binding effect of an arbitral
award. Art. 2044 provides, Any stipulation that the
arbitrators award or decision shall be final, is valid,
without prejudice to Articles 2038, 2039 and 2040.
(Emphasis supplied.)
Arts. 2038,[31] 2039,[32] and 2040[33] abovecited
refer to instances where a compromise or an arbitral
award, as applied to Art. 2044 pursuant to Art.
2043,[34] may be voided, rescinded, or annulled, but
these would not denigrate the finality of the arbitral
award.
The arbitration clause was mutually and
voluntarily agreed upon by the parties. It has not been
shown to be contrary to any law, or against morals,
good customs, public order, or public policy. There has
been no showing that the parties have not dealt with
each other on equal footing. We find no reason why the
arbitration clause should not be respected and complied
with by both parties. In Gonzales v. Climax Mining
Ltd.,[35] we held that submission to arbitration is a
contract and that a clause in a contract providing that all
matters in dispute between the parties shall be referred
to arbitration is a contract.[36] Again in Del Monte
Corporation-USA v. Court of Appeals, we likewise ruled
that [t]he provision to submit to arbitration any dispute
arising therefrom and the relationship of the parties is
part of that contract and is itself a contract.[37]
Arbitration clause not contrary to public policy
The arbitration clause which stipulates that the
arbitration must be done in Seoul, Korea in accordance
with the Commercial Arbitration Rules of the KCAB, and
that the arbitral award is final and binding, is not
contrary to public policy. This Court has sanctioned the
validity of arbitration clauses in a catena of cases. In the
1957 case of Eastboard Navigation Ltd. v. Juan Ysmael
and Co., Inc.,[38] this Court had occasion to rule that an
arbitration clause to resolve differences and breaches of
mutually agreed contractual terms is valid. In BF
Corporation v. Court of Appeals, we held that [i]n this
jurisdiction, arbitration has been held valid and
constitutional. Even before the approval on June 19,
1953 of Republic Act No. 876, this Court has
countenanced the settlement of disputes through
arbitration. Republic Act No. 876 was adopted to
supplement the New Civil Codes provisions on
arbitration.[39] And in LM Power Engineering Corporation
v. Capitol Industrial Construction Groups, Inc., we
declared that:
Being an inexpensive, speedy
and amicable method of settling
disputes, arbitrationalong with
mediation, conciliation and negotiationis
encouraged by the Supreme
Court. Aside from unclogging judicial
dockets, arbitration also hastens the
resolution of disputes, especially of the
commercial kind. It is thus regarded as
the wave of the future in international
civil and commercial disputes. Brushing
aside a contractual agreement calling
for arbitration between the parties would
be a step backward.
Consistent with the above-
mentioned policy of encouraging
alternative dispute resolution methods,
courts should liberally construe
arbitration clauses. Provided such
clause is susceptible of an interpretation
that covers the asserted dispute, an
order to arbitrate should be
granted. Any doubt should be resolved
in favor of arbitration.[40]
Having said that the instant arbitration clause is
not against public policy, we come to the question on
what governs an arbitration clause specifying that in
case of any dispute arising from the contract, an arbitral
panel will be constituted in a foreign country and the
arbitration rules of the foreign country would govern and
its award shall be final and binding.
RA 9285 incorporated the UNCITRAL Model law
to which we are a signatory
For domestic arbitration proceedings, we have
particular agencies to arbitrate disputes arising from
contractual relations. In case a foreign arbitral body is
chosen by the parties, the arbitration rules of our
domestic arbitration bodies would not be applied. As
signatory to the Arbitration Rules of the UNCITRAL
Model Law on International Commercial Arbitration[41] of
the United Nations Commission on International Trade
Law (UNCITRAL) in the New York Convention on June
21, 1985, the Philippines committed itself to be bound
by the Model Law. We have even incorporated the
Model Law in Republic Act No. (RA) 9285, otherwise
known as the Alternative Dispute Resolution Act of
2004 entitled An Act to Institutionalize the Use of an
Alternative Dispute Resolution System in the Philippines
and to Establish the Office for Alternative Dispute
Resolution, and for Other Purposes, promulgated on
April 2, 2004. Secs. 19 and 20 of Chapter 4 of the Model
Law are the pertinent provisions:
CHAPTER 4 - INTERNATIONAL
COMMERCIAL ARBITRATION
SEC. 19. Adoption of the Model
Law on International Commercial
Arbitration.International commercial
arbitration shall be governed by the
Model Law on International Commercial
Arbitration (the Model Law) adopted by
the United Nations Commission on
International Trade Law on June 21,
1985 (United Nations Document
A/40/17) and recommended for
enactment by the General Assembly in
Resolution No. 40/72 approved on
December 11, 1985, copy of which is
hereto attached as Appendix A.
SEC. 20. Interpretation of
Model Law.In interpreting the Model
Law, regard shall be had to its
international origin and to the need for
uniformity in its interpretation and resort
may be made to the travaux
preparatories and the report of the
Secretary General of the United Nations
Commission on International Trade Law
 dated March 25, 1985 entitled,
International Commercial Arbitration:
Analytical Commentary on Draft Trade
identified by reference number A/CN.
9/264.
While RA 9285 was passed only in 2004, it
nonetheless applies in the instant case since it is a
procedural law which has a retroactive effect. Likewise,
KOGIES filed its application for arbitration before the
KCAB on July 1, 1998 and it is still pending because no
arbitral award has yet been rendered. Thus, RA 9285 is
applicable to the instant case. Well-settled is the rule
that procedural laws are construed to be applicable to
actions pending and undetermined at the time of their
passage, and are deemed retroactive in that sense and
to that extent. As a general rule, the retroactive
application of procedural laws does not violate any
personal rights because no vested right has yet
attached nor arisen from them.[42]
Among the pertinent features of RA 9285
applying and incorporating the UNCITRAL Model Law
are the following:
(1) The RTC must refer to arbitration in proper cases
Under Sec. 24, the RTC does not have
jurisdiction over disputes that are properly the subject of
arbitration pursuant to an arbitration clause, and
mandates the referral to arbitration in such cases, thus:
SEC. 24. Referral to
Arbitration.A court before which an
action is brought in a matter which is
the subject matter of an arbitration
agreement shall, if at least one party so
requests not later than the pre-trial
conference, or upon the request of both
parties thereafter, refer the parties to
arbitration unless it finds that the
arbitration agreement is null and void,
inoperative or incapable of being
performed.
(2) Foreign arbitral awards must be confirmed by the
RTC
Foreign arbitral awards while mutually stipulated
by the parties in the arbitration clause to be final and
binding are not immediately enforceable or cannot be
implemented immediately. Sec. 35[43] of the UNCITRAL
Model Law stipulates the requirement for the arbitral
award to be recognized by a competent court for
enforcement, which court under Sec. 36 of the
UNCITRAL Model Law may refuse recognition or
enforcement on the grounds provided for. RA 9285
incorporated these provisos to Secs. 42, 43, and 44
relative to Secs. 47 and 48, thus:
SEC. 42. Application of
the New York Convention.The New
York Convention shall govern the
recognition and enforcement of arbitral
awards covered by said Convention.
The recognition and
enforcement of such arbitral awards
shall be filed with the Regional Trial
Court in accordance with the rules of
procedure to be promulgated by the
Supreme Court. Said procedural rules
shall provide that the party relying on
the award or applying for its
enforcement shall file with the court the
original or authenticated copy of the
award and the arbitration agreement. If
the award or agreement is not made in
any of the official languages, the party
shall supply a duly certified translation
thereof into any of such languages.
The applicant shall establish
that the country in which foreign
arbitration award was made in party to
the New York Convention.
xxxx
SEC. 43. Recognition and
Enforcement of Foreign Arbitral Awards
Not Covered by the New York
Convention.The recognition and
enforcement of foreign arbitral awards
not covered by the New York
Convention shall be done in accordance
with procedural rules to be promulgated
by the Supreme Court. The Court may,
on grounds of comity and reciprocity,
recognize and enforce a non-
convention award as a convention
award.
SEC. 44. Foreign Arbitral Award Not
Foreign Judgment.A foreign arbitral
award when confirmed by a court of a
foreign country, shall be recognized and
enforced as a foreign arbitral award and
not as a judgment of a foreign court.
A foreign arbitral award, when
confirmed by the Regional Trial Court,
shall be enforced in the same manner
as final and executory decisions of
courts of law of the Philippines
xxxx
SEC. 47. Venue and
Jurisdiction.Proceedings for recognition
and enforcement of an arbitration
agreement or for vacations, setting
aside, correction or modification of an
arbitral award, and any application with
a court for arbitration assistance and
supervision shall be deemed as special
proceedings and shall be filed with the
Regional Trial Court (i) where arbitration
proceedings are conducted; (ii) where
the asset to be attached or levied upon,
or the act to be enjoined is located; (iii)
 where any of the parties to the dispute
resides or has his place of business; or
(iv) in the National Judicial Capital
Region, at the option of the applicant.
SEC. 48. Notice of Proceeding
to Parties.In a special proceeding for
recognition and enforcement of an
arbitral award, the Court shall send
notice to the parties at their address of
record in the arbitration, or if any part
cannot be served notice at such
address, at such partys last known
address. The notice shall be sent al
least fifteen (15) days before the date
set for the initial hearing of the
application.
It is now clear that foreign arbitral awards when
confirmed by the RTC are deemed not as a judgment of
a foreign court but as a foreign arbitral award, and when
confirmed, are enforced as final and executory decisions
of our courts of law.
Thus, it can be gleaned that the concept of a
final and binding arbitral award is similar to judgments or
awards given by some of our quasi-judicial bodies, like
the National Labor Relations Commission and Mines
Adjudication Board, whose final judgments are
stipulated to be final and binding, but not immediately
executory in the sense that they may still be judicially
reviewed, upon the instance of any party. Therefore, the
final foreign arbitral awards are similarly situated in that
they need first to be confirmed by the RTC.
(3) The RTC has jurisdiction to review foreign
arbitral awards
Sec. 42 in relation to Sec. 45 of RA 9285
designated and vested the RTC with specific authority
and jurisdiction to set aside, reject, or vacate a foreign
arbitral award on grounds provided under Art. 34(2) of
the UNCITRAL Model Law. Secs. 42 and 45 provide:
SEC. 42. Application of
the New York Convention.The New
York Convention shall govern the
recognition and enforcement of arbitral
awards covered by said Convention.
The recognition and
enforcement of such arbitral awards
shall be filed with the Regional Trial
Court in accordance with the rules of
procedure to be promulgated by the
Supreme Court. Said procedural rules
shall provide that the party relying on
the award or applying for its
enforcement shall file with the court the
original or authenticated copy of the
award and the arbitration agreement. If
the award or agreement is not made in
any of the official languages, the party
shall supply a duly certified translation
thereof into any of such languages.
The applicant shall establish
that the country in which foreign
arbitration award was made is party to
the New York Convention.
If the application for rejection or
suspension of enforcement of an award
has been made, the Regional Trial
Court may, if it considers it proper,
vacate its decision and may also, on the
application of the party claiming
recognition or enforcement of the
award, order the party to provide
appropriate security.
xxxx
SEC. 45. Rejection of a Foreign
Arbitral Award.A party to a foreign
arbitration proceeding may oppose an
application for recognition and
enforcement of the arbitral award in
accordance with the procedures and
rules to be promulgated by the
Supreme Court only on those grounds
enumerated under Article V of the New
York Convention. Any other ground
raised shall be disregarded by the
Regional Trial Court.
Thus, while the RTC does not have jurisdiction
over disputes governed by arbitration mutually agreed
upon by the parties, still the foreign arbitral award is
subject to judicial review by the RTC which can set
aside, reject, or vacate it. In this sense, what this Court
held in Chung Fu Industries (Phils.), Inc. relied upon by
KOGIES is applicable insofar as the foreign arbitral
awards, while final and binding, do not oust courts of
jurisdiction since these arbitral awards are not absolute
and without exceptions as they are still judicially
reviewable. Chapter 7 of RA 9285 has made it clear that
all arbitral awards, whether domestic or foreign, are
subject to judicial review on specific grounds provided
for.
(4) Grounds for judicial review different in domestic
and foreign arbitral awards
The differences between a final arbitral award
from an international or foreign arbitral tribunal and an
award given by a local arbitral tribunal are the specific
grounds or conditions that vest jurisdiction over our
courts to review the awards.
For foreign or international arbitral awards which
must first be confirmed by the RTC, the grounds for
setting aside, rejecting or vacating the award by the
RTC are provided under Art. 34(2) of the UNCITRAL
Model Law.
For final domestic arbitral awards, which also
need confirmation by the RTC pursuant to Sec. 23 of RA
876[44] and shall be recognized as final and executory
decisions of the RTC,[45] they may only be assailed
before the RTC and vacated on the grounds provided
under Sec. 25 of RA 876.[46]
(5) RTC decision of assailed foreign arbitral award
appealable
Sec. 46 of RA 9285 provides for an appeal
before the CA as the remedy of an aggrieved party in
cases where the RTC sets aside, rejects, vacates,
modifies, or corrects an arbitral award, thus:
SEC. 46. Appeal from Court
Decision or Arbitral Awards.A decision
of the Regional Trial Court confirming,
vacating, setting aside, modifying or
correcting an arbitral award may be
appealed to the Court of Appeals in
accordance with the rules and
procedure to be promulgated by the
Supreme Court.
The losing party who appeals
from the judgment of the court
confirming an arbitral award shall be
required by the appellate court to post a
counterbond executed in favor of the
prevailing party equal to the amount of
the award in accordance with the rules
to be promulgated by the Supreme
Court.
Thereafter, the CA decision may further be
appealed or reviewed before this Court through a
petition for review under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its interests
Thus, based on the foregoing features of RA
9285, PGSMC must submit to the foreign arbitration as
it bound itself through the subject contract. While it may
have misgivings on the foreign arbitration done
in Korea by the KCAB, it has available remedies under
RA 9285. Its interests are duly protected by the law
which requires that the arbitral award that may be
rendered by KCAB must be confirmed here by the RTC
before it can be enforced.
With our disquisition above, petitioner is correct
in its contention that an arbitration clause, stipulating
that the arbitral award is final and binding, does not oust
our courts of jurisdiction as the international arbitral
award, the award of which is not absolute and without
exceptions, is still judicially reviewable under certain
conditions provided for by the UNCITRAL Model Law on
ICA as applied and incorporated in RA 9285.
Finally, it must be noted that there is nothing in
the subject Contract which provides that the parties may
dispense with the arbitration clause.
Unilateral rescission improper and illegal
Having ruled that the arbitration clause of the
subject contract is valid and binding on the parties, and
not contrary to public policy; consequently, being bound
to the contract of arbitration, a party may not unilaterally
rescind or terminate the contract for whatever cause
without first resorting to arbitration.
What this Court held in University of the
Philippines v. De Los Angeles[47] and reiterated in
succeeding cases,[48] that the act of treating a contract
as rescinded on account of infractions by the other
contracting party is valid albeit provisional as it can be
judicially assailed, is not applicable to the instant case
on account of a valid stipulation on arbitration. Where an
arbitration clause in a contract is availing, neither of the
parties can unilaterally treat the contract as rescinded
since whatever infractions or breaches by a party or
differences arising from the contract must be brought
first and resolved by arbitration, and not through an
extrajudicial rescission or judicial action.
The issues arising from the contract between
PGSMC and KOGIES on whether the equipment and
machineries delivered and installed were properly
installed and operational in the plant in Carmona,
Cavite; the ownership of equipment and payment of the
contract price; and whether there was substantial
compliance by KOGIES in the production of the
samples, given the alleged fact that PGSMC could not
supply the raw materials required to produce the sample
LPG cylinders, are matters proper for arbitration.Indeed,
we note that on July 1, 1998, KOGIES instituted an
Application for Arbitration before the KCAB
in Seoul, Korea pursuant to Art. 15 of the Contract as
amended. Thus, it is incumbent upon PGSMC to abide
by its commitment to arbitrate.
Corollarily, the trial court gravely abused its
discretion in granting PGSMCs Motion for Inspection of
Things on September 21, 1998, as the subject matter of
the motion is under the primary jurisdiction of the
mutually agreed arbitral body, the KCAB in Korea.
In addition, whatever findings and conclusions
made by the RTC Branch Sheriff from the inspection
made on October 28, 1998, as ordered by the trial court
on October 19, 1998, is of no worth as said Sheriff is not
technically competent to ascertain the actual status of
the equipment and machineries as installed in the plant.
For these reasons, the September 21, 1998 and
October 19, 1998 RTC Orders pertaining to the grant of
the inspection of the equipment and machineries have
to be recalled and nullified.
Issue on ownership of plant proper for arbitration
Petitioner assails the CA ruling that the issue petitioner
raised on whether the total contract price of USD
1,530,000 was for the whole plant and its installation is
beyond the ambit of a Petition for Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot be raised in an
original action for certiorari.[49] Whether or not there was
full payment for the machineries and equipment and
installation is indeed a factual issue prohibited by Rule
65.
However, what appears to constitute a grave abuse of
discretion is the order of the RTC in resolving the issue
on the ownership of the plant when it is the arbitral body
(KCAB) and not the RTC which has jurisdiction and
authority over the said issue. The RTCs determination of
such factual issue constitutes grave abuse of discretion
and must be reversed and set aside.

RTC has interim jurisdiction to protect the rights of
the parties
Anent the July 23, 1998 Order denying the
issuance of the injunctive writ paving the way for
PGSMC to dismantle and transfer the equipment and
machineries, we find it to be in order considering the
factual milieu of the instant case.
Firstly, while the issue of the proper installation
of the equipment and machineries might well be under
the primary jurisdiction of the arbitral body to decide, yet
the RTC under Sec. 28 of RA 9285 has jurisdiction to
hear and grant interim measures to protect vested rights
of the parties. Sec. 28 pertinently provides:
SEC. 28. Grant of interim
Measure of Protection.(a) It is not
incompatible with an arbitration
agreement for a party to request,
before constitution of the tribunal,
from a Court to grant such
measure. After constitution of the
arbitral tribunal and during arbitral
proceedings, a request for an interim
measure of protection, or modification
thereof, may be made with the
arbitral or to the extent that the
arbitral tribunal has no power to act
or is unable to act effectivity, the
request may be made with the
Court. The arbitral tribunal is deemed
constituted when the sole arbitrator or
the third arbitrator, who has been
nominated, has accepted the
nomination and written communication
of said nomination and acceptance has
been received by the party making the
request.
(b) The following rules on
interim or provisional relief shall be
observed:
Any party may request that
provisional relief be granted against the
adverse party.
Such relief may be granted:
(i) to prevent irreparable loss
or injury;
(ii) to provide security for the
performance of any obligation;
(iii) to produce or preserve any
evidence; or
(iv) to compel any other
appropriate act or omission.
(c) The order granting
provisional relief may be conditioned
upon the provision of security or any act
or omission specified in the order.
(d) Interim or provisional relief
is requested by written application
transmitted by reasonable means to the
Court or arbitral tribunal as the case
may be and the party against whom the
relief is sought, describing in
appropriate detail the precise relief, the
party against whom the relief is
requested, the grounds for the relief,
and the evidence supporting the
request.
(e) The order shall be binding
upon the parties.
(f) Either party may apply with
the Court for assistance in
implementing or enforcing an interim
measure ordered by an arbitral tribunal.
(g) A party who does not
comply with the order shall be liable for
all damages resulting from
noncompliance, including all expenses,
and reasonable attorney's fees, paid in
obtaining the orders judicial
enforcement. (Emphasis ours.)
Art. 17(2) of the UNCITRAL Model Law
on ICA defines an interim measure of protection as:
Article 17. Power of arbitral tribunal to
order interim measures
xxx xxx xxx
(2) An interim measure is
any temporary measure, whether in the
form of an award or in another form, by
which, at any time prior to the issuance
of the award by which the dispute is
finally decided, the arbitral tribunal
orders a party to:
(a) Maintain or restore the status quo
pending determination of the dispute;
(b) Take action that would prevent, or
refrain from taking action that is likely to
cause, current or imminent harm or
prejudice to the arbitral process itself;
(c) Provide a means of preserving
assets out of which a subsequent award
may be satisfied; or
(d) Preserve evidence that may be
relevant and material to the resolution
of the dispute.
Art. 17 J of UNCITRAL Model Law on ICA also
grants courts power and jurisdiction to issue interim
measures:
Article 17 J. Court-ordered interim
measures
A court shall have the same
power of issuing an interim measure in
 relation to arbitration proceedings,
irrespective of whether their place is in
the territory of this State, as it has in
relation to proceedings in courts. The
court shall exercise such power in
accordance with its own procedures in
consideration of the specific features of
international arbitration.
In the recent 2006 case of Transfield
Philippines, Inc. v. Luzon Hydro Corporation, we were
explicit that even the pendency of an arbitral proceeding
does not foreclose resort to the courts for provisional
reliefs. We explicated this way:
As a fundamental point, the pendency
of arbitral proceedings does not
foreclose resort to the courts for
provisional reliefs. The Rules of the
ICC, which governs the parties arbitral
dispute, allows the application of a party
to a judicial authority for interim or
conservatory measures. Likewise,
Section 14 of Republic Act (R.A.) No.
876 (The Arbitration Law) recognizes
the rights of any party to petition the
court to take measures to safeguard
and/or conserve any matter which is the
subject of the dispute in arbitration. In
addition, R.A. 9285, otherwise known
as the Alternative Dispute Resolution
Act of 2004, allows the filing of
provisional or interim measures with the
regular courts whenever the arbitral
tribunal has no power to act or to act
effectively.[50]
It is thus beyond cavil that the RTC has
authority and jurisdiction to grant interim measures of
protection.
Secondly, considering that the equipment and
machineries are in the possession of PGSMC, it has the
right to protect and preserve the equipment and
machineries in the best way it can. Considering that the
LPG plant was non-operational, PGSMC has the right to
dismantle and transfer the equipment and machineries
either for their protection and preservation or for the
better way to make good use of them which is
ineluctably within the management discretion of
PGSMC.
Thirdly, and of greater import is the reason that
maintaining the equipment and machineries in Worths
property is not to the best interest of PGSMC due to the
prohibitive rent while the LPG plant as set-up is not
operational. PGSMC was losing PhP322,560 as monthly
rentals or PhP3.87M for 1998 alone without considering
the 10% annual rent increment in maintaining the plant.
Fourthly, and corollarily, while the KCAB can
rule on motions or petitions relating to the preservation
or transfer of the equipment and machineries as an
interim measure, yet on hindsight, the July 23, 1998
Order of the RTC allowing the transfer of the equipment
and machineries given the non-recognition by the lower
courts of the arbitral clause, has accorded an interim
measure of protection to PGSMC which would otherwise
been irreparably damaged.
Fifth, KOGIES is not unjustly prejudiced as it
has already been paid a substantial amount based on
the contract. Moreover, KOGIES is amply protected by
the arbitral action it has instituted before the KCAB, the
award of which can be enforced in our jurisdiction
through the RTC. Besides, by our decision, PGSMC is
compelled to submit to arbitration pursuant to the valid
arbitration clause of its contract with KOGIES.
PGSMC to preserve the subject equipment and
machineries
Finally, while PGSMC may have been granted
the right to dismantle and transfer the subject equipment
and machineries, it does not have the right to convey or
dispose of the same considering the pending arbitral
proceedings to settle the differences of the
parties. PGSMC therefore must preserve and maintain
the subject equipment and machineries with the
diligence of a good father of a family[51] until final
resolution of the arbitral proceedings and enforcement
of the award, if any.
WHEREFORE, this petition is PARTLY
GRANTED, in that:
(1) The May 30, 2000 CA Decision in CA-G.R.
SP No. 49249 is REVERSED and SET ASIDE;
(2) The September 21, 1998 and October 19,
1998 RTC Orders in Civil Case No. 98-117
are REVERSED and SET ASIDE;
(3) The parties are hereby ORDERED to submit
themselves to the arbitration of their dispute and
differences arising from the subject Contract before the
KCAB; and
(4) PGSMC is hereby ALLOWED to dismantle
and transfer the equipment and machineries, if it had not
done so, and ORDERED to preserve and maintain them
until the finality of whatever arbitral award is given in the
arbitration proceedings.
No pronouncement as to costs.
SO ORDERED.
UNITED AIRLINES INC. VS. CA G.R. NO. 124110
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 Washington (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.
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 board,
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
ASIDE, and a new judgment is entered ordering
defendant-appellee to pay plaintiff-appellant the
following:
a) P200,000.00 as moral damages;
b) P200,000.00 as exemplary damages;
c) P50, 000.00 as attorneys fees.
No pronouncement as to costs.
SO ORDERED.[16]
Petitioner United Airlines now comes to this Court
raising the following assignment of errors:
I
the check-in requirement at the Los Angeles Airport.
Thus:
A perusal of the above pleadings filed before the
trial court disclosed that there exists 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 admission of plaintiffs-appellants
material averment in the complaint, We find no reason
why the trial court should rule against such
admission.[19]
We disagree with the above conclusion reached by
respondent Court of Appeals. Paragraph 7 of private
respondents' complaint states:
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]

Responding to the above allegations, petitioner

RESPONDENT COURT OF APPEALS GRAVELY
averred in paragraph 4 of its answer, thus:
ERRED IN RULING THAT THE TRIAL COURT
WAS WRONG IN FAILING TO CONSIDER THE
ALLEGED ADMISSION THAT PRIVATE 4. Admits the allegation set forth in paragraph 7 of the
RESPONDENT OBSERVED THE CHECK-IN complaint except to deny that plaintiff and his son
REQUIREMENT. checked in at 9:45 a.m., for lack of knowledge or
information at this point in time as to the truth thereof.[21]
II
The rule authorizing an answer that the defendant
has no knowledge or information sufficient to form a
RESPONDENT COURT OF APPEALS GRAVELY
belief as to the truth of an averment and giving such
ERRED IN RULING THAT PRIVATE
answer the effect of a denial, does not apply where the
RESPONDENTS FAILURE TO CHECK-IN WILL
fact as to which want of knowledge is asserted is so
NOT DEFEAT HIS CLAIMS BECAUSE THE
plainly and necessarily within the defendant's
DENIED BOARDING RULES WERE NOT
knowledge that his averment of ignorance must be
COMPLIED WITH.
palpably untrue.[22] Whether or not private respondents
checked in at petitioner's designated counter at the
III airport at 9:45 a.m. on May 5, 1989 must necessarily be
within petitioner's knowledge.
RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN RULING THAT PRIVATE While there was no specific denial as to the fact of
RESPONDENT IS ENTITLED TO MORAL compliance with the check-in requirement by private
DAMAGES OF P200, 000. respondents, petitioner presented evidence to support
its contention that there indeed was no compliance.
IV Private respondents then are said to have waived
the rule on admission. It not only presented evidence to
RESPONDENT COURT OF APPEALS GRAVELY support its contention that there was compliance with
ERRED IN RULING THAT PRIVATE the check-in requirement, it even allowed petitioner to
RESPONDENT IS ENTITLED TO EXEMPLARY present rebuttal evidence. In the case of Yu Chuck
DAMAGES OF P200,000. vs. "Kong Li Po," we ruled that:

V The object of the rule is to relieve a party of the trouble

RESPONDENT COURT OF APPEALS GRAVELY
ERRED IN RULING THAT PRIVATE
RESPONDENT IS ENTITLED TO ATTORNEYS
FEES OF P50, 000.[17]
On the first issue raised by the petitioner, the
respondent Court of Appeals ruled that when Rule 9,
Section 1 of the Rules of Court,[18] there was an implied
admission in petitioner's answer in the allegations in the
complaint that private respondent and his son observed
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 bad faith on the part of the petitioner in not
allowing the Fontanillas to board United Airlines Flight
1108.
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 a better
position to examine real evidence and at a vantage point
to observe the actuation and the demeanor of the
witnesses.[26] While 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 the 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 Zalamea 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 Boarding 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 tariffs but who have been
denied boarding for lack of space, a compensation at
the rate of: xx
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 Zalamea 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 v. 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 expect that he would fly on that flight and on that
date. If he does not, then the carrier opens itself to a suit
for breach of contract of carriage. Where an airline
had deliberately overbooked, it took the risk of having
to deprive some passengers of their seats in case all of
them would show up for 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 attorney's 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 hereby REVERSED 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.
HUTCHISON PORTS VS. SBMA G.R. NO. 131367
YNARES-SANTIAGO, J.:
On February 12, 1996, the Subic Bay Metropolitan
Authority (or SBMA) advertised in leading national daily
newspapers and in one international publication,[1] an
invitation offering to the private sector the opportunity to
develop and operate a modern marine container
terminal within the Subic Bay Freeport Zone. Out of
seven bidders who responded to the published
invitation, three were declared by the SBMA as qualified
bidders after passing the pre-qualification evaluation
conducted by the SBMAs Technical Evaluation
Committee (or SBMA-TEC).These are: (1) International
Container Terminal Services, Inc. (or ICTSI); (2) a
consortium consisting of Royal Port Services, Inc. and
HPC Hamburg Port Consulting GMBH (or RPSI); and
(3) Hutchison Ports Philippines Limited (or HPPL),
representing a consortium composed of HPPL, Guoco
Holdings (Phils.), Inc. and Unicol Management Services,
Inc. All three qualified bidders were required to submit
their respective formal bid package on or before July 1,
1996 by the SBMAs Pre-qualification, Bids and Awards
Committee (or SBMA-PBAC).
Thereafter, the services of three (3) international
consultants[2] recommended by the World Bank for their
expertise were hired by SBMA to evaluate the business
plans submitted by each of the bidders, and to ensure
that there would be a transparent and comprehensive
review of the submitted bids. The SBMA also hired the
firm of Davis, Langdon and Seah Philippines, Inc. to
assist in the evaluation of the bids and in the negotiation
process after the winning bidder is chosen. All the
consultants, after such review and evaluation
unanimously concluded that HPPLs Business Plan was
far superior to that of the two other bidders.[3]
However, even before the sealed envelopes
containing the bidders proposed royalty fees could be
opened at the appointed time and place, RPSI formally
protested that ICTSI is legally barred from operating a
second port in the Philippines based on Executive Order
No. 212 and Department of Transportation and
Communication (DOTC) Order 95-863. RPSI thus
requested that the financial bid of ICTSI should be set
aside.[4]
Nevertheless, the opening of the sealed financial
bids proceeded under advisement relative to the protest
signified by RPSI. The financial bids, more particularly
the proposed royalty fee of each bidder, was as follows:
ICTSI ------------US$57.80 TEU
HPPL ------------US$20.50 TEU
RPSI -------------US$15.08 TEU
The SBMA-PBAC decided to suspend the
announcement of the winning bid, however, and instead
gave ICTSI seven (7) days within which to respond to
the letter-protest lodged by RPSI.The HPPL joined in
RPSIs protest, stating that ICTSI should be disqualified
because it was already operating the Manila
International Container Port (or MICP), which would give
rise to inevitable conflict of interest between the MICP
and the Subic Bay Container Terminal facility.[5]
On August 15, 1996, the SBMA-PBAC issued a
resolution rejecting the bid of ICTSI because said bid
does not comply with the requirements of the tender
documents and the laws of the Philippines. The said
resolution also declared that:
RESOLVED FURTHER, that the winning bid be
awarded to HUTCHISON PORTS PHILIPPINES
LIMITED (HPPL) and that negotiations commence
immediately with HPPL (HUTCHISON) with a view to
concluding an acceptable agreement within 45 days of
this date failing which negotiations with RPSI (ROYAL)
will commence with a view to concluding an acceptable
agreement within 45 days thereafter failing which there
will be declared a failure of bids.[6] (Underscoring
supplied)
The following day, ICTSI filed a letter-appeal with
SBMAs Board of Directors requesting the nullification
and reversal of the above-quoted resolution rejecting
ICTSIs bid while awarding the same to HPPL. But even
before the SBMA Board could act on the appeal, ICTSI
filed a similar appeal before the Office of the
President.[7] On August 30, 1996, then Chief Presidential
Legal Counsel (CPLC) Renato L. Cayetano submitted a
memorandum to then President Fidel V. Ramos,
containing the following recommendations:
We therefore suggest that the President direct SBMA
Chairman Gordon to consider option number 4 that is to
re-evaluate the financial bids submitted by the parties,
taking into consideration all the following factors:
1. Reinstate ICTSIs bid;
2. Disregard all arguments relating to monopoly;
3. The re-evaluation must be limited to the parties
financial bids.
3.1 Considering that the parties business
have been accepted (passed), strictly
follow the criteria for bid evaluation
provided for in pars. (c) and (d), Part B
(1) of the Tender Document.
4. In the re-evaluation, the COA should actively
participate to determine which of the financial bids is
more advantageous.
5. In addition, all the parties should be given ample
opportunity to elucidate or clarify the
components/justification for their respective financial
bids in order to ensure fair play and transparency in the
proceedings.
6. The Presidents authority to review the final award
shall remain.[8] (Underscoring supplied)
The recommendation of CPLC Cayetano was
approved by President Ramos, and a copy of President
Ramos handwritten approval was sent to the SBMA
Board of Directors.Accordingly, the SBMA Board, with
the concurrence of representatives of the Commission
on Audit, agreed to focus the reevaluation of the bids in
accordance with the evaluation criteria and the detailed
components contained in the Tender Document,
including all relevant information gleaned from the
bidding documents, as well as the reports of the three
international experts and the consultancy firm hired by
the SBMA.
On September 19, 1996, the SBMA Board issued a
Resolution, declaring:
NOW, THEREFORE, IT IS HEREBY RESOLVED that
the bid that conforms to the Invitation to Tender, that
has a realistic Business Plan offering the greatest
financial return to SBMA, the best possible offer and the
most advantageous to the government is that of HPPL
and HPPL is accordingly selected as the winning
bidder and is hereby awarded the concession for the
operation and development of the Subic Bay Container
Terminal.[9] (Underscoring supplied)
In a letter dated September 24, 1996, the SBMA
Board of Directors submitted to the Office of the
President the results of the re-evaluation of the bid
proposals, to wit:
SBMA, through the unanimous vote of all the Board
Members, excluding the Chairman of the Board who
voluntarily inhibited himself from participating in the re-
evaluation, selected the HPPL bid as the winning bid,
being: the conforming bid with a realistic Business Plan
offering the greatest financial return to the SBMA; the
best possible offer in the market, and the most
advantageous to the government in accordance with the
Tender Document.[10]
Notwithstanding the SBMA Boards
recommendations and action awarding the project to
HPPL, then Executive Secretary Ruben Torres
submitted a memorandum to the Office of the President
recommending that another rebidding be
conducted.[11] Consequently, the Office of the President
issued a Memorandum directing the SBMA Board of
Directors to refrain from signing the Concession
Contract with HPPL and to conduct a rebidding of the
project.[12]
In the meantime, the Resident Ombudsman for the
DOTC filed a complaint against members of the SBMA-
PBAC before the Office of the Ombudsman for alleged
violation of Section 3(e) of Republic Act No. 3019 for
awarding the contract to HPPL. On April 16, 1997, the
Evaluation and Preliminary Investigation Bureau of the
Office of the Ombudsman issued a Resolution absolving
the members of the SBMA-PBAC of any liability and
dismissing the complaint against them, ruling thus:
After an assiduous study of the respective contentions
of both parties, we are inclined to hold, as it is hereby
held, that there is no proof on record pinpointing
respondents to have acted in excess of their discretion
when they awarded the bid to HPPL. Records revealed
that respondents, in the exercise of their discretion in
determining the financial packages offered by the
applicants, were guided by the expert report of Davis,
Langdon and Seah (DLS) that fairly evaluated which of
the bidders tender the greatest financial return to the
government. There is no showing that respondents had
abused their prerogatives. As succinctly set forth in the
DLS report it stated, among others, that, in assessing
the full financial return to SBMA offered by the bidders, it
is necessary to consider the following critical matters:
1. Royalty fees
2. Volume of TEUs as affected by:
a. Tariff rates;
b. Marketing strategy;
c. Port facilities; and
d. Efficient reliable services.
With the preceding parameters for the evaluation of
bidders business plan, the respondents were fairly
guided by, as they aligned their judgment in congruence
with, the opinion of the panel of experts and the SBMAs
Technical Evaluation Committee to the effect that
HPPLs business is superior while that of ICTSIs
appeared to be unrealistically high which may eventually
hinder the competitiveness of the SBMA port with the
rest of the world. Respondents averred that the panel of
World Bank experts noted that ICTSIs high tariff rates at
U.S. $119.00 per TEU is already higher by 37% through
HPPL, which could further increase by 20% in the first
two (2) years and by 5% hike thereafter. In short, high
tariffs would discourage potential customers which may
be translated into low cargo volume that will eventually
reduce financial return to SBMA. Respondents asserted
that HPPLs business plan offers the greatest financial
return which could be equated that over the five years,
HPPL offers 1.25 billion pesos while ICTSI offers P0.859
billion, and RPSI offers P.420 billion. Over the first ten
years HPPL gives P2.430 billion, ICTSI tenders P2.197
billion and RPSI has P1.632 billion.
Viewed from this perspective alongside with the
evidence on record, the undersigned panel does not find
respondents to have exceeded their discretion in
awarding the bid to HPPL.Consequently, it could not be
said that respondents act had placed the government at
a grossly disadvantageous plight that could have
jeopardized the interest of the Republic of the
Philippines.[13]
On July 7, 1997, the HPPL, feeling aggrieved by
the SBMAs failure and refusal to commence
negotiations and to execute the Concession Agreement
despite its earlier pronouncements that HPPL was the
winning bidder, filed a complaint[14] against SBMA
before the Regional Trial Court (RTC) of Olongapo City,
Branch 75, for specific performance, mandatory
injunction and damages. In due time, ICTSI, RPSI and
the Office of the President filed separate Answers-in-
Intervention[15] to the complaint opposing the reliefs
sought by complainant HPPL.
Complainant HPPL alleged and argued therein that
a binding and legally enforceable contract had been
established between HPPL and defendant SBMA under
Article 1305 of the Civil Code, considering that SBMA
had repeatedly declared and confirmed that HPPL was
the winning bidder. Having accepted HPPLs offer to
operate and develop the proposed container terminal,
defendant SBMA is duty-bound to comply with its
obligation by commencing negotiations and drawing up
a Concession Agreement with plaintiff HPPL. HPPL also
pointed out that the bidding procedure followed by the
SBMA faithfully complied with existing laws and rules
established by SBMA itself; thus, when HPPL was
declared the winning bidder it acquired the exclusive
right to negotiate with the SBMA. Consequently, plaintiff
HPPL posited that SBMA should be: (1) barred from
conducting a re-bidding of the proposed project and/or
performing any such acts relating thereto; and (2)
prohibited from negotiating with any party other than
plaintiff HPPL until negotiations between HPPL and
SBMA have been concluded or in the event that no
acceptable agreement could be arrived at. Plaintiff
HPPL also alleged that SBMAs continued refusal to
negotiate the Concession Contract is a substantial
infringement of its proprietary rights, and caused
damage and prejudice to plaintiff HPPL.
Hence, HPPL prayed that:
(1) Upon the filing of this complaint, hearings be
scheduled to determine the propriety of plaintiffs
mandatory injunction application which seeks to order
defendant or any of its appropriate officers or
committees to forthwith specify the date as well as to
perform any and all such acts (e.g. laying the ground
rules for discussion) for the commencement of
negotiations with plaintiff with the view to signing at the
earliest possible time a Concession Agreement for the
development and operation of the Subic Bay Container
Terminal.
(2) Thereafter, judgment be rendered in favor of plaintiff
and against defendant:
2.1. Making permanent the preliminary mandatory
injunction it had issued;
2.2. Ordering defendant to implement the Concession
Agreement it had executed with plaintiff in respect of the
development and operation of the proposed Subic Bay
Container Terminal;
2.3. Ordering defendant to pay for the cost of plaintiffs
attorneys fees in the amount of P500,000.00, or as
otherwise proven during the trial.
Plaintiff prays for other equitable reliefs.[16]
 During the pre-trial hearing, one of the issues
raised and submitted for resolution was whether or not
the Office of the President can set aside the award
made by SBMA in favor of plaintiff HPPL and if so, can
the Office of the President direct the SBMA to conduct a
re-bidding of the proposed project.
While the case before the trial court was pending
litigation, on August 4, 1997, the SBMA sent notices to
plaintiff HPPL, ICTSI and RPSI requesting them to
declare their interest in participating in a rebidding of the
proposed project.[17] On October 20, 1997, plaintiff
HPPL received a copy of the minutes of the pre-bid
conference which stated that the winning bidder would
be announced on December 5, 1997.[18] Then on
November 4, 1997, plaintiff HPPL learned that the
SBMA had accepted the bids of ICTSI and RPSI who
were the only bidders who qualified.
In order to enjoin the rebidding while the case was
still pending, plaintiff HPPL filed a motion for
maintenance of the status quo[19] on October 28,
1997. The said motion was denied by the court a quo in
an Order dated November 3, 1997, to wit:
Plaintiff maintains that by voluntarily participating in this
proceedings, the defendant and the intervenors have
unqualifiedly agreed to submit the issue of the propriety,
legality and validity of the Office of the Presidents
directive that the SBMA effect a rebidding of its
concession contract or the operation of the Subic Bay
Container Terminal. As such, the status quo must be
maintained in order not to thwart the courts ability to
resolve the issues presented. Further, the ethics of the
profession require that counsel should discontinue any
act which tends to render the issues academic.
The Opposition is anchored on lack of jurisdiction since
the issuance of a cease-and-desist order would be
tantamount to the issuance of a Temporary Restraining
Order or a Writ of Injunction which this Court cannot do
in light of the provision of Section 21 of R.A. 7227 which
states:
Section 21. Injunction and Restraining Order. The
implementation of the projects for the conversion into
alternative productive uses of the military reservations
are urgent and necessary and shall not be restrained or
enjoined except by an order issued by the Supreme
Court of the Philippines.
During the hearing on October 30, 1997, SBMAs
counsel revealed that there is no law or administrative
rule or regulation which requires that a bidding be
accomplished within a definite time frame.
Truly, the matter of the deferment of the re-bidding on
November 4, 1997 rests on the sound discretion of the
SBMA. For this Court to issue a cease-and-desist order
would be tantamount to an issuance of a Temporary
Restraining Order or a Writ of Preliminary
Injunction. (Prado v. Veridiano II, G.R. No. 98118,
December 6, 1991).
The Court notes that the Office of the President has not
been heard fully on the issues. Moreover, one of the
intervenors is of the view that the issue of jurisdiction
must be resolved first, ahead of all the other issues.
WHEREFORE, and viewed from the foregoing
considerations, plaintiffs motion is DENIED.
SO ORDERED.[20] (Underscoring supplied)
Hence, this petition filed by petitioner (plaintiff
below) HPPL against respondents SBMA, ICTSI, RPSI
and the Executive Secretary seeking to obtain a
prohibitory injunction. The grounds relied upon by
petitioner HPPL to justify the filing of the instant petition
are summed up as follows:
29. It is respectfully submitted that to allow or for this
Honorable Court to otherwise refrain from restraining
SBMA, during the pendency of this suit, from committing
the aforementioned act(s) which will certainly occur on 5
December 1997 such action (or inaction) will work an
injustice upon petitioner which has validly been
announced as the winning bidder for the operation of the
Subic Bay Container Terminal.
30. To allow or for this Honorable Court to otherwise
refrain from restraining SBMA, during the pendency of
this suit, from committing the aforementioned threatened
acts would be in violation of petitioners rights in respect
of the action it had filed before the RTC of Olongapo
City in Civil Case No. 243-O-97, and could render any
judgment which may be reached by said Court moot and
ineffectual. As stated, the legal issues raised by the
parties in that proceedings are of far reaching
importance to the national pride and prestige, and they
impact on the integrity of government agencies engaged
in international bidding of privatization projects. Its
resolution on the merits by the trial court below and,
thereafter, any further action to be taken by the parties
before the appellate courts will certainly benefit
respondents and the entire Filipino people.[21]
WHEREFORE, petitioner HPPL sought relief
praying that:
a) Upon the filing of this petition, the same be given due
course and a temporary restraining order and/or writ of
preliminary injunction be issued ex parte, restraining
SBMA or any of its committees, or other persons acting
under its control or direction or upon its instruction, from
declaring any winner on 5 December 1997 or at any
other date thereafter, in connection with the rebidding
for the privatization of the Subic Bay Container Terminal
and/or for any, some or all of the respondents to perform
any such act(s) in pursuance thereof, until further orders
from this Honorable Court;
b) After appropriate proceedings, judgment be rendered
in favor of petitioner and against respondents --
(1) Ordering SBMA to desist from conducting any
rebidding or in declaring the winner of any such
rebidding in respect of the development and operation of
the Subic Bay Container Terminal until the judgment
which the RTC of Olongapo City may render in Civil
Case No. 243-O-97 is resolved with finality;
(2) Declaring null and void any award which SBMA may
announce or issue on 5 December 1997; and
(3) Ordering respondents to pay for the cost of suit.
Petitioner prays for other equitable reliefs.[22]
The instant petition seeks the issuance of an
injunctive writ for the sole purpose of holding in
abeyance the conduct by respondent SBMA of a
rebidding of the proposed SBICT project until the case
for specific performance is resolved by the trial court. In
other words, petitioner HPPL prays that the status
quo be preserved until the issues raised in the main
case are litigated and finally determined. Petitioner was
constrained to invoke this Courts exclusive jurisdiction
and authority by virtue of the above-quoted Republic Act
7227, Section 21.
On December 3, 1997, this Court granted petitioner
HPPLs application for a temporary restraining order
enjoining the respondent SBMA or any of its
committees, or other persons acting under its control or
direction or upon its instruction, from declaring any
winner on December 5, 1997 or at any other date
thereafter, in connection with the rebidding for the
privatization of the Subic Bay Container Terminal and/or
for any, some or all of the respondents to perform any
such act or acts in pursuance thereof.[23]
There is no doubt that since this controversy arose,
precious time has been lost and a vital infrastructure
project has in essense been mothballed to the detriment
of all parties involved, not the least of which is the
Philippine Government, through its officials and
agencies, who serve the interest of the nation. It is,
therefore, imperative that the issues raised herein and in
the court a quo be resolved without further delay so as
not to exacerbate an already untenable situation.
At the outset, the application for the injunctive writ
is only a provisional remedy, a mere adjunct to the main
suit.[24] Thus, it is not uncommon that the issues in the
main action are closely intertwined, if not identical, to the
allegations and counter allegations propounded by the
opposing parties in support of their contrary positions
concerning the propriety or impropriety of the injunctive
writ. While it is not our intention to preempt the trial
courts determination of the issues in the main action for
specific performance, this Court has a bounden duty to
perform; that is, to resolve the matters before this Court
in a manner that gives essence to justice, equity and
good conscience.
While our pronouncements are for the purpose only
of determining whether or not the circumstances warrant
the issuance of the writ of injunction, it is inevitable that
it may have some impact on the main action pending
before the trial court. Nevertheless, without delving into
the merits of the main case, our findings herein shall be
confined to the necessary issues attendant to the
application for an injunctive writ.
For an injunctive writ to be issued, the following
requisites must be proven:
First. That the petitioner/applicant must have a clear and
unmistakable right.
Second. That there is a material and substantial
invasion of such right.
Third. That there is an urgent and permanent necessity
for the writ to prevent serious damage.[25]
To our mind, petitioner HPPL has not sufficiently
shown that it has a clear and unmistakable right to be
declared the winning bidder with finality, such that the
SBMA can be compelled to negotiate a Concession
Contract. Though the SBMA Board of Directors, by
resolution, may have declared HPPL as the winning
bidder, said award cannot be said to be final and
unassailable. The SBMA Board of Directors and other
officers are subject to the control and supervision of the
Office of the President. All projects undertaken by
SBMA require the approval of the President of the
Philippines under Letter of Instruction No. 620, which
places the SBMA under its ambit as an instrumentality,
defined in Section 10 thereof as an agency of the
national government, not integrated within the
department framework, vested with special functions or
jurisdiction by law, endowed with some if not all
corporate powers, administering special funds, and
enjoying operational autonomy, usually through a
charter. This term includes regulatory agencies,
chartered institutions and government owned and
controlled corporations.[26] (Underscoring supplied)
As a chartered institution, the SBMA is always
under the direct control of the Office of the President,
particularly when contracts and/or projects undertaken
by the SBMA entail substantial amounts of
money. Specifically, Letter of Instruction No. 620 dated
October 27, 1997 mandates that the approval of the
President is required in all contracts of the national
government offices, agencies and instrumentalities,
including government-owned or controlled corporations
involving two million pesos (P2,000,000.00) and above,
awarded through public bidding or negotiation. The
President may, within his authority, overturn or reverse
any award made by the SBMA Board of Directors for
justifiable reasons. It is well-established that the
discretion to accept or reject any bid, or even recall the
award thereof, is of such wide latitude that the courts will
not generally interfere with the exercise thereof by the
executive department, unless it is apparent that such
exercise of discretion is used to shield unfairness or
injustice. When the President issued the memorandum
setting aside the award previously declared by the
SBMA in favor of HPPL and directing that a rebidding be
conducted, the same was, within the authority of the
President and was a valid exercise of his
prerogative.Consequently, petitioner HPPL acquired no
clear and unmistakable right as the award announced
by the SBMA prior to the Presidents revocation thereof
was not final and binding.
There being no clear and unmistakable right on the
part of petitioner HPPL, the rebidding of the proposed
project can no longer be enjoined as there is no material
and substantial invasion to speak of. Thus, there is no
longer any urgent or permanent necessity for the writ to
prevent any perceived serious damage. In fine, since
the requisites for the issuance of the writ of injunction
are not present in the instant case, petitioners
application must be denied for lack of merit.[27]
 Finally, we focus on the matter of whether or not a foreign corporation doing business in the Philippines
petitioner HPPL has the legal capacity to even seek without the requisite license.
redress from this Court. Admittedly, petitioner HPPL is a
foreign corporation, organized and existing under the WHEREFORE, in view of all the foregoing, the
laws of the British Virgin Islands. While the actual bidder instant petition is hereby DISMISSED for lack of
was a consortium composed of petitioner, and two other merit. Further, the temporary restraining order issued on
corporations, namely, Guoco Holdings (Phils.) Inc. and December 3, 1997 is LIFTED and SET ASIDE. No
Unicol Management Servises, Inc., it is only petitioner costs.
HPPL that has brought the controversy before the Court, SO ORDERED.
arguing that it is suing only on an isolated transaction to
evade the legal requirement that foreign corporations
must be licensed to do business in the Philippines to be
able to file and prosecute an action before Philippines
courts.
The maelstrom of this issue is whether participating
in the bidding is a mere isolated transaction, or did it
constitute engaging in or transacting business in the
Philippines such that petitioner HPPL needed a license
to do business in the Philippines before it could come to
court.
There is no general rule or governing principle laid
down as to what constitutes doing or engaging in or
transacting business in the Philippines. Each case must
be judged in the light of its peculiar
circumstances.[28] Thus, it has often been held that a
single act or transaction may be considered as doing
business when a corporation performs acts for which it
was created or exercises some of the functions for
which it was organized. The amount or volume of the
business is of no moment, for even a singular act cannot
be merely incidental or casual if it indicates the foreign
corporations intention to do business.[29]
Participating in the bidding process constitutes
doing business because it shows the foreign
corporations intention to engage in business here. The
bidding for the concession contract is but an exercise of
the corporations reason for creation or existence. Thus,
it has been held that a foreign company invited to bid for
IBRD and ADB international projects in the Philippines
will be considered as doing business in the Philippines
for which a license is required. In this regard, it is the
performance by a foreign corporation of the acts for
which it was created, regardless of volume of business,
that determines whether a foreign corporation needs a
license or not.[30]
The primary purpose of the license requirement is
to compel a foreign corporation desiring to do business
within the Philippines to submit itself to the jurisdiction of
the courts of the state and to enable the government to
exercise jurisdiction over them for the regulation of their
activities in this country.[31] If a foreign corporation
operates a business in the Philippines without a license,
and thus does not submit itself to Philippine laws, it is
only just that said foreign corporation be not allowed to
invoke them in our courts when the need arises. While
foreign investors are always welcome in this land to
collaborate with us for our mutual benefit, they must be
prepared as an indispensable condition to respect and
be bound by Philippine law in proper cases, as in the
one at bar.[32] The requirement of a license is not
intended to put foreign corporations at a disadvantage,
for the doctrine of lack of capacity to sue is based on
considerations of sound public policy.[33] Accordingly,
petitioner HPPL must be held to be incapacitated to
bring this petition for injunction before this Court for it is