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Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 120135 March 31, 2003 BANK OF AMERICA NT & SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners, vs. COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., and AURELIO K. LITONJUA, JR., respondents. AUSTRIA-MARTINEZ, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the November 29, 1994 decision of the Court of Appeals 1 and the April 28, 1995 resolution denying petitioners' motion for reconsideration. The factual background of the case is as follows: On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a Complaint 2 before the Regional Trial Court of Pasig against the Bank of America NT&SA and Bank of America International, Ltd. (defendant banks for brevity) alleging that: they were engaged in the shipping business; they owned two vessels: Don Aurelio and El Champion, through their wholly-owned corporations; they deposited their revenues from said business together with other funds with the branches of said banks in the United Kingdom and Hongkong up to 1979; with their business doing well, the defendant banks induced them to increase the number of their ships in operation, offering them easy loans to acquire said vessels; 3 thereafter, the defendant banks acquired, through their (Litonjuas') corporations as the borrowers: (a) El Carrier 4 ; (b) El General 5 ; (c) El Challenger 6 ; and (d) El Conqueror 7 ; the vessels were registered in the names of their corporations; the operation and the funds derived therefrom were placed under the complete and exclusive control and disposition of the petitioners; 8 and the possession the vessels was also placed by defendant banks in the hands of persons selected and designated by them (defendant banks). 9 The Litonjuas claimed that defendant banks as trustees did not fully render an account of all the income derived from the operation of the vessels as well as of the proceeds of the subsequent foreclosure sale; 10 because of the breach of their fiduciary duties and/or negligence of the petitioners and/or the persons designated by them in the operation of private respondents' six vessels, the revenues derived from the operation of all the vessels declined drastically; the loans acquired for the purchase of the four additional vessels then matured and remained unpaid, prompting defendant banks to have all the six vessels, including the two vessels originally owned by the private respondents, foreclosed and sold at public auction to answer for the obligations incurred for and in behalf of the operation of the vessels; they (Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten percent (10%) of the acquisition cost of the four vessels and were left with the unpaid balance of their loans with defendant banks. 11 The Litonjuas prayed for the accounting of the revenues derived in the operation of the six vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted by petitioners; damages for breach of trust; exemplary damages and attorney's fees. 12 Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of action against them. 13 On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus: "WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby DENIED. The defendant is therefore, given a period of ten (10) days to file its Answer to the complaint. "SO ORDERED." 14 Instead of filing an answer the defendant banks went to the Court of Appeals on a "Petition for Review on Certiorari" 15 which was aptly treated by the appellate court as a petition for certiorari. They assailed the above-quoted order as well as the subsequent denial of their

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Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 120135 March 31, 2003

BANK OF AMERICA NT & SA, BANK OF AMERICA INTERNATIONAL, LTD., petitioners,vs.COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO LITONJUA, SR., andAURELIO K. LITONJUA, JR., respondents.

AUSTRIA-MARTINEZ, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court assailing theNovember 29, 1994 decision of the Court of Appeals1 and the April 28, 1995 resolution denyingpetitioners' motion for reconsideration.

The factual background of the case is as follows:

On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed aComplaint2before the Regional Trial Court of Pasig against the Bank of America NT&SA andBank of America International, Ltd. (defendant banks for brevity) alleging that: they wereengaged in the shipping business; they owned two vessels: Don Aurelio and El Champion,through their wholly-owned corporations; they deposited their revenues from said businesstogether with other funds with the branches of said banks in the United Kingdom and Hongkongup to 1979; with their business doing well, the defendant banks induced them to increase thenumber of their ships in operation, offering them easy loans to acquire saidvessels;3 thereafter, the defendant banks acquired, through their (Litonjuas') corporations asthe borrowers: (a) El Carrier4; (b) El General5; (c) El Challenger6; and (d) El Conqueror7; thevessels were registered in the names of their corporations; the operation and the funds derivedtherefrom were placed under the complete and exclusive control and disposition of thepetitioners;8 and the possession the vessels was also placed by defendant banks in the hands ofpersons selected and designated by them (defendant banks).9

The Litonjuas claimed that defendant banks as trustees did not fully render an account of all theincome derived from the operation of the vessels as well as of the proceeds of the subsequentforeclosure sale;10 because of the breach of their fiduciary duties and/or negligence of thepetitioners and/or the persons designated by them in the operation of private respondents' sixvessels, the revenues derived from the operation of all the vessels declined drastically; theloans acquired for the purchase of the four additional vessels then matured and remainedunpaid, prompting defendant banks to have all the six vessels, including the two vesselsoriginally owned by the private respondents, foreclosed and sold at public auction to answer forthe obligations incurred for and in behalf of the operation of the vessels; they (Litonjuas) lostsizeable amounts of their own personal funds equivalent to ten percent (10%) of the acquisitioncost of the four vessels and were left with the unpaid balance of their loans with defendantbanks.11 The Litonjuas prayed for the accounting of the revenues derived in the operation of thesix vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted bypetitioners; damages for breach of trust; exemplary damages and attorney's fees.12

Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack ofcause of action against them.13

On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:

"WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss ishereby DENIED. The defendant is therefore, given a period of ten (10) days to file itsAnswer to the complaint.

"SO ORDERED."14

Instead of filing an answer the defendant banks went to the Court of Appeals on a "Petition forReview on Certiorari"15 which was aptly treated by the appellate court as a petition forcertiorari. They assailed the above-quoted order as well as the subsequent denial of their

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Motion for Reconsideration.16 The appellate court dismissed the petition and denied petitioners'Motion for Reconsideration.17

Hence, herein petition anchored on the following grounds:

"1. RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THE FACT THAT THESEPARATE PERSONALITIES OF THE PRIVATE RESPONDENTS (MERE STOCKHOLDERS)AND THE FOREIGNCORPORATIONS (THE REAL BORROWERS) CLEARLY SUPPORT,BEYOND ANY DOUBT, THE PROPOSITION THAT THE PRIVATE RESPONDENTS HAVE NOPERSONALITIES TO SUE.

"2. THE RESPONDENT COURT OF APPEALS FAILED TO REALIZE THAT WHILE THEPRINCIPLE OFFORUM NON CONVENIENS IS NOT MANDATORY, THERE ARE, HOWEVER,SOME GUIDELINES TO FOLLOW IN DETERMINING WHETHER THE CHOICE OF FORUMSHOULD BE DISTURBED. UNDER THE CIRCUMSTANCES SURROUNDING THE INSTANTCASE, DISMISSAL OF THE COMPLAINT ON THE GROUND OF FORUM NON-CONVENIENS IS MORE APPROPRIATE AND PROPER.

"3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED TO FINAL JUDGMENT IN THEPHILIPPINES. IN FACT, THE PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL BASISFOR THE DISMISSAL OF THE COMPLAINT FILED BY THE PRIVATE RESPONDENT.COROLLARY TO THIS, THE RESPONDENT COURT OF APPEALS FAILED TO CONSIDER THEFACT THAT PRIVATE RESPONDENTS ARE GUILTY OF FORUM SHOPPING." 18

As to the first assigned error: Petitioners argue that the borrowers and the registered owners ofthe vessels are the foreign corporations and not private respondents Litonjuas who are merestockholders; and that the revenues derived from the operations of all the vessels are depositedin the accounts of the corporations. Hence, petitioners maintain that these foreign corporationsare the legal entities that have the personalities to sue and not herein private respondents; thatprivate respondents, being mere shareholders, have no claim on the vessels as owners sincethey merely have an inchoate right to whatever may remain upon the dissolution of the saidforeign corporations and after all creditors have been fully paid and satisfied;19 and that whileprivate respondents may have allegedly spent amounts equal to 10% of the acquisition costs ofthe vessels in question, their 10% however represents their investments as stockholders in theforeign corporations.20

Anent the second assigned error, petitioners posit that while the application of the principleof forum non conveniens is discretionary on the part of the Court, said discretion is limited bythe guidelines pertaining to the private as well as public interest factors in determining whetherplaintiffs' choice of forum should be disturbed, as elucidated in Gulf Oil Corp. vs.Gilbert21 and Piper Aircraft Co. vs. Reyno,22 to wit:

"Private interest factors include: (a) the relative ease of access to sources of proof; (b)the availability of compulsory process for the attendance of unwilling witnesses; (c) thecost of obtaining attendance of willing witnesses; or (d) all other practical problems thatmake trial of a case easy, expeditious and inexpensive. Public interest factors include:(a) the administrative difficulties flowing from court congestion; (b) the local interest inhaving localized controversies decided at home; (c) the avoidance of unnecessaryproblems in conflict of laws or in the application of foreign law; or (d) the unfairness ofburdening citizens in an unrelated forum with jury duty."23

In support of their claim that the local court is not the proper forum, petitioners allege thefollowing:

"i) The Bank of America Branches involved, as clearly mentioned in the Complaint, arebased in Hongkong and England. As such, the evidence and the witnesses are notreadily available in the Philippines;

"ii) The loan transactions were obtained, perfected, performed, consummated andpartially paid outside the Philippines;

"iii) The monies were advanced outside the Philippines. Furthermore, the mortgagedvessels were part ofan offshore fleet, not based in the Philippines;

"iv) All the loans involved were granted to the Private Respondents'foreign CORPORATIONS;

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

"vi) The subsequent sales of the mortgaged vessels and the application of the salesproceeds occurred and transpired outside the Philippines, and the deliveries of the soldmortgaged vessels were likewise made outside the Philippines;

"vii) The revenues of the vessels and the proceeds of the sales of these vesselswere ALL deposited to the Accounts of the foreign CORPORATIONS abroad; and

"viii) Bank of America International Ltd. is not licensed nor engaged in trade or businessin the Philippines."24

Petitioners argue further that the loan agreements, security documentation and all subsequentrestructuring agreements uniformly, unconditionally and expressly provided that they will begoverned by the laws of England;25 that Philippine Courts would then have to apply English lawin resolving whatever issues may be presented to it in the event it recognizes and acceptsherein case; that it would then be imposing a significant and unnecessary expense and burdennot only upon the parties to the transaction but also to the local court. Petitioners insist that theinconvenience and difficulty of applying English law with respect to a wholly foreign transactionin a case pending in the Philippines may be avoided by its dismissal on the ground of forum nonconveniens. 26

Finally, petitioners claim that private respondents have already waived their alleged causes ofaction in the case at bar for their refusal to contest the foreign civil cases earlier filed by thepetitioners against them in Hongkong and England, to wit:

"1.) Civil action in England in its High Court of Justice, Queen's Bench DivisionCommercial Court (1992-Folio No. 2098) against (a) LIBERIAN TRANSPORTNAVIGATION. SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL CHALLENGER SA; (d)ESPRIONA SHIPPING CO. SA; (e) PACIFIC NAVIGATOS CORP. SA; (f) EDDIENAVIGATION CORP. SA; (g) EDUARDO K. LITONJUA & (h) AURELIO K. LITONJUA.

"2.) Civil action in England in its High Court of Justice, Queen's Bench Division,Commercial Court (1992-Folio No. 2245) against (a) EL CHALLENGER S.A., (b)ESPRIONA SHIPPING COMPANY S.A., (c) EDUARDO KATIPUNAN LITONJUA and (d)AURELIO KATIPUNAN LITONJUA.

"3.) Civil action in the Supreme Court of Hongkong High Court (Action No. 4039 of1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c)ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e)EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO.,INC., (g) AURELIO KATIPUNAN LITONJUA, JR., and (h) EDUARDO KATIPUNANLITONJUA.

"4.) A civil action in the Supreme Court of Hong Kong High Court (Action No. 4040 of1992), against (a) ESHLEY COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c)ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS CORPORATION (e)EDDIE NAVIGATION CORPORATION S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO.,INC., (g) AURELIO KATIPUNAN LITONJUA, RJ., and (h) EDUARDO KATIPUNANLITONJUA."

and that private respondents' alleged cause of action is already barred by the pendency ofanother action or bylitis pendentia as shown above.27

On the other hand, private respondents contend that certain material facts and pleadings areomitted and/or misrepresented in the present petition for certiorari; that the prefatorystatement failed to state that part of the security of the foreign loans were mortgages on a 39-hectare piece of real estate located in the Philippines;28that while the complaint was filed onlyby the stockholders of the corporate borrowers, the latter are wholly-owned by the privaterespondents who are Filipinos and therefore under Philippine laws, aside from the saidcorporate borrowers being but their alter-egos, they have interests of their own in thevessels.29 Private respondents also argue that the dismissal by the Court of Appeals of thepetition for certiorari was justified because there was neither allegation nor any showingwhatsoever by the petitioners that they had no appeal, nor any plain, speedy, and adequateremedy in the ordinary course of law from the Order of the trial judge denying their Motion toDismiss; that the remedy available to the petitioners after their Motion to Dismiss was denied

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was to file an Answer to the complaint;30 that as upheld by the Court of Appeals, the decision ofthe trial court in not applying the principle of forum non conveniens is in the lawful exercise ofits discretion.31 Finally, private respondents aver that the statement of petitioners that thedoctrine of res judicata also applies to foreign judgment is merely an opinion advanced by themand not based on a categorical ruling of this Court;32 and that herein private respondents didnot actually participate in the proceedings in the foreign courts.33

We deny the petition for lack of merit.

It is a well-settled rule that the order denying the motion to dismiss cannot be the subject ofpetition for certiorari. Petitioners should have filed an answer to the complaint, proceed to trialand await judgment before making an appeal. As repeatedly held by this Court:

"An order denying a motion to dismiss is interlocutory and cannot be the subject of theextraordinary petition for certiorari or mandamus. The remedy of the aggrieved party isto file an answer and to interpose as defenses the objections raised in his motion todismiss, proceed to trial, and in case of an adverse decision, to elevate the entire caseby appeal in due course. xxx Under certain situations, recourse tocertiorari ormandamus is considered appropriate, i.e., (a) when the trial court issued the orderwithout or in excess of jurisdiction; (b) where there is patent grave abuse of discretionby the trial court; or (c) appeal would not prove to be a speedy and adequate remedy aswhen an appeal would not promptly relieve a defendant from the injurious effects of thepatently mistaken order maintaining the plaintiff's baseless action and compelling thedefendant needlessly to go through a protracted trial and clogging the court dockets byanother futile case."34

Records show that the trial court acted within its jurisdiction when it issued the assailed Orderdenying petitioners' motion to dismiss. Does the denial of the motion to dismiss constitute apatent grave abuse of discretion? Would appeal, under the circumstances, not prove to be aspeedy and adequate remedy? We will resolve said questions in conjunction with the issuesraised by the parties.

First issue. Did the trial court commit grave abuse of discretion in refusing to dismiss thecomplaint on the ground that plaintiffs have no cause of action against defendants sinceplaintiffs are merely stockholders of the corporations which are the registered owners of thevessels and the borrowers of petitioners?

No. Petitioners' argument that private respondents, being mere stockholders of the foreigncorporations, have no personalities to sue, and therefore, the complaint should be dismissed, isuntenable. A case is dismissible for lack of personality to sue upon proof that the plaintiff is notthe real party-in-interest. Lack of personality to sue can be used as a ground for a Motion toDismiss based on the fact that the complaint, on the face thereof, evidently states no cause ofaction.35 In San Lorenzo Village Association, Inc. vs. Court of Appeals,36 this Court clarified thata complaint states a cause of action where it contains three essential elements of a cause ofaction, namely: (1) the legal right of the plaintiff, (2) the correlative obligation of thedefendant, and (3) the act or omission of the defendant in violation of said legal right. If theseelements are absent, the complaint becomes vulnerable to a motion to dismiss on the ground offailure to state a cause of action.37 To emphasize, it is not the lack or absence of cause of actionthat is a ground for dismissal of the complaint but rather the fact that the complaint states nocause of action.38 "Failure to state a cause of action" refers to the insufficiency of allegation inthe pleading, unlike "lack of cause of action" which refers to the insufficiency of factual basis forthe action. "Failure to state a cause of action" may be raised at the earliest stages of an actionthrough a motion to dismiss the complaint, while "lack of cause of action" may be raised anytime after the questions of fact have been resolved on the basis of stipulations, admissions orevidence presented.39

In the case at bar, the complaint contains the three elements of a cause of action. It allegesthat: (1) plaintiffs, herein private respondents, have the right to demand for an accountingfrom defendants (herein petitioners), as trustees by reason of the fiduciary relationship thatwas created between the parties involving the vessels in question; (2) petitioners have theobligation, as trustees, to render such an accounting; and (3) petitioners failed to do the same.

Petitioners insist that they do not have any obligation to the private respondents as they aremere stockholders of the corporation; that the corporate entities have juridical personalitiesseparate and distinct from those of the private respondents. Private respondents maintain thatthe corporations are wholly owned by them and prior to the incorporation of such entities, they

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were clients of petitioners which induced them to acquire loans from said petitioners to investon the additional ships.

We agree with private respondents. As held in the San Lorenzo case,40

"xxx assuming that the allegation of facts constituting plaintiffs' cause of action is not asclear and categorical as would otherwise be desired, any uncertainty thereby arisingshould be so resolved as to enable a full inquiry into the merits of the action."

As this Court has explained in the San Lorenzo case, such a course, would preclude multiplicityof suits which the law abhors, and conduce to the definitive determination and termination ofthe dispute. To do otherwise, that is, to abort the action on account of the alleged fatal flaws ofthe complaint would obviously be indecisive and would not end the controversy, since theinstitution of another action upon a revised complaint would not be foreclosed.41

Second Issue. Should the complaint be dismissed on the ground of forum non-conveniens?

No. The doctrine of forum non-conveniens, literally meaning 'the forum is inconvenient',emerged in private international law to deter the practice of global forum shopping,42 that is toprevent non-resident litigants from choosing the forum or place wherein to bring their suit formalicious reasons, such as to secure procedural advantages, to annoy and harass thedefendant, to avoid overcrowded dockets, or to select a more friendly venue. Under thisdoctrine, a court, in conflicts of law cases, may refuse impositions on its jurisdiction where it isnot the most "convenient" or available forum and the parties are not precluded from seekingremedies elsewhere.43

Whether a suit should be entertained or dismissed on the basis of said doctrine depends largelyupon the facts of the particular case and is addressed to the sound discretion of the trialcourt.44 In the case of Communication Materials and Design, Inc. vs. Court of Appeals,45 thisCourt held that "xxx [a Philippine Court may assume jurisdiction over the case if it chooses todo so; provided, that the following requisites are met: (1) that the Philippine Court is one towhich the parties may conveniently resort to; (2) that the Philippine Court is in a position tomake an intelligent decision as to the law and the facts; and, (3) that the Philippine Court hasor is likely to have power to enforce its decision."46 Evidently, all these requisites are present inthe instant case.

Moreover, this Court enunciated in Philsec. Investment Corporation vs. Court of Appeals,47 thatthe doctrine offorum non conveniens should not be used as a ground for a motion to dismissbecause Sec. 1, Rule 16 of the Rules of Court does not include said doctrine as a ground. ThisCourt further ruled that while it is within the discretion of the trial court to abstain fromassuming jurisdiction on this ground, it should do so only after vital facts are established, todetermine whether special circumstances require the court's desistance; and that the proprietyof dismissing a case based on this principle of forum non conveniens requires a factualdetermination, hence it is more properly considered a matter of defense.48

Third issue. Are private respondents guilty of forum shopping because of the pendency offoreign action?

No. Forum shopping exists where the elements of litis pendentia are present and where a finaljudgment in one case will amount to res judicata in the other.49 Parenthetically, for litispendentia to be a ground for the dismissal of an action there must be: (a) identity of theparties or at least such as to represent the same interest in both actions; (b) identity of rightsasserted and relief prayed for, the relief being founded on the same acts; and (c) the identity inthe two cases should be such that the judgment which may be rendered in one would,regardless of which party is successful, amount to res judicata in the other.50

In case at bar, not all the requirements for litis pendentia are present. While there may beidentity of parties, notwithstanding the presence of other respondents,51 as well as the reversalin positions of plaintiffs and defendants52, still the other requirements necessary for litispendentia were not shown by petitioner. It merely mentioned that civil cases were filed inHongkong and England without however showing the identity of rights asserted and the reliefssought for as well as the presence of the elements of res judicata should one of the cases beadjudged.

As the Court of Appeals aptly observed:

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"xxx [T]he petitioners, by simply enumerating the civil actions instituted abroadinvolving the parties herein xxx, failed to provide this Court with relevant and clearspecifications that would show the presence of the above-quoted elements or requisitesfor res judicata. While it is true that the petitioners in their motion for reconsideration(CA Rollo, p. 72), after enumerating the various civil actions instituted abroad, did averthat "Copies of the foreign judgments are hereto attached and made integral partshereof as Annexes 'B', 'C', 'D' and 'E'", they failed, wittingly or inadvertently, to include asingle foreign judgment in their pleadings submitted to this Court as annexes to theirpetition. How then could We have been expected to rule on this issue even if We were tohold that foreign judgments could be the basis for the application of the aforementionedprinciple of res judicata?"53

Consequently, both courts correctly denied the dismissal of herein subject complaint.

WHEREFORE, the petition is DENIED for lack of merit.

Costs against petitioners.

SO ORDERED.

Bellosillo, (Chairman), Mendoza, Quisumbing and Callejo, Sr., JJ., concur.

Footnotes

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

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

3 Id., at pp. 54-56.

4 Panamanian flag, registered owners Espriona Shipping Co., S.A.

5 Liberian flag, registered owners Liberia Transport Navigation S.A.

6 Panamanian flag, registered owners El Challenger S.A.

7 Panamanian flag, registered owners Eshley Compania Naviera S.A.

8 Rollo, p. 57.

9 Id., at 58.

10 Id., at p. 59.

11 Id., at p. 60.

12 Rollo, pp. 62-63.

13 Id., at p. 38.

14 Id., at pp. 24-25.

15 Rollo, pp. 71-98

16 Rollo, at p. 71-98.

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17 Id., at pp. 48-50.

18 Rollo, p. 18.

19 Id., at p. 20.

20 Id., at p. 21.

21 330 US 501, 508 (1947), cited on page 14, Petition for Review.

22 454 US 235, 241 (1981), cited on page 14, Petition for Review.

23 Petition for Review, p. 14; Rollo, p. 24.

24 Rollo, pp. 24-25.

25 Rollo, p. 26, Petition for Review, 16.

26 Rollo, pp. 25-26.

27 Id., p. 248

28 Rollo, pp. 103-104.

29 Id., at pp. 104-105.

30 Id., at pp. 108-109.

31 Id., at p. 117.

32 Id., at p. 120.

33 Id., at p. 121.

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

35 Columbia Pictures Inc. vs. Court of Appeals, 261 SCRA 144, 162 (1996).

36 San Lorenzo Village Association, Inc. vs. Court of Appeals, 288 SCRA 115 (1998).

37 Id. at p. 128.

38 Ibid.

39 Dabuco et al., vs. Court of Appeals, (January 20, 2002).

40 Supra, at p. 128.

41 Ibid, at p. 128 (1998).

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

43 First Philippine International Bank vs. Court of Appeals, 252 SCRA 259, 281 (1996).

44 Hongkong and Shanghai Banking Corp. vs. Sherman, 176 SCRA 331, 339 (1989).

45 260 SCRA 673 (1996).

46 Id. at p. 695.

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

48 Id. at p. 113.

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

50 Ibid.

51 Dasmarinas Vill.Assn. Inc., et al., vs. CA, 299 SCRA 598, 605 (1998).

52 Cokaliong Shipping Lines, Inc. vs. Amin, 260 SCRA 122, 125 (1996).

53 Rollo, p. 47; CA Decision, p. 14.

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Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 122191 October 8, 1998

SAUDI ARABIAN AIRLINES, petitioner,vs.COURT OF APPEALS, MILAGROS P. MORADA and HON. RODOLFO A. ORTIZ, in hiscapacity as Presiding Judge of Branch 89, Regional Trial Court of QuezonCity, respondents.

QUISUMBING, J.:

This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and setaside the Resolution 1dated September 27, 1995 and the Decision 2 dated April 10, 1996 of theCourt of Appeals 3 in CA-G.R. SP No. 36533, 4 and the Orders 5 dated August 29, 1994 6 andFebruary 2, 1995 7 that were issued by the trial court inCivil Case No. Q-93-18394. 8

The pertinent antecedent facts which gave rise to the instant petition, as stated in thequestioned Decision 9, are as follows:

On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight Attendant forits airlines based in Jeddah, Saudi Arabia. . . .

On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went to adisco dance with fellow crew members Thamer Al-Gazzawi and Allah Al-Gazzawi,both Saudi nationals. Because it was almost morning when they returned to theirhotels, they agreed to have breakfast together at the room of Thamer. Whenthey were in te (sic) room, Allah left on some pretext. Shortly after he did,Thamer attempted to rape plaintiff. Fortunately, a roomboy and several securitypersonnel heard her cries for help and rescued her. Later, the Indonesian policecame and arrested Thamer and Allah Al-Gazzawi, the latter as an accomplice.

When plaintiff returned to Jeddah a few days later, several SAUDIA officialsinterrogated her about the Jakarta incident. They then requested her to go backto Jakarta to help arrange the release of Thamer and Allah. In Jakarta, SAUDIALegal Officer Sirah Akkad and base manager Baharini negotiated with the policefor the immediate release of the detained crew members but did not succeedbecause plaintiff refused to cooperate. She was afraid that she might be trickedinto something she did not want because of her inability to understand the localdialect. She also declined to sign a blank paper and a document written in thelocal dialect. Eventually, SAUDIA allowed plaintiff to return to Jeddah but barredher 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 ofdetention. 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 wasalready behind her, her superiors requested her to see Mr. Ali Meniewy, ChiefLegal Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he broughther to the police station where the police took her passport and questioned herabout the Jakarta incident. Miniewy simply stood by as the police put pressure onher to make a statement dropping the case against Thamer and Allah. Not untilshe agreed to do so did the police return her passport and allowed her to catchthe afternoon flight out of Jeddah.

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One year and a half later or on lune 16, 1993, in Riyadh, Saudi Arabia, a fewminutes before the departure of her flight to Manila, plaintiff was not allowed toboard the plane and instead ordered to take a later flight to Jeddah to see Mr.Miniewy, the Chief Legal Officer of SAUDIA. When she did, acertain Khalid of theSAUDIA office brought her to a Saudi court where she was asked to sign adocument written in Arabic. They told her that this was necessary to close thecase against Thamer and Allah. As it turned out, plaintiff signed a notice to her toappear before the court on June 27, 1993. Plaintiff then returned to Manila.

Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddahonce again and see Miniewy on June 27, 1993 for further investigation. Plaintiffdid 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 onJune 27, 1993. Nothing happened then but on June 28, 1993, a Saudi judgeinterrogated plaintiff through an interpreter about the Jakarta incident. After onehour of interrogation, they let her go. At the airport, however, just as her planewas about to take off, a SAUDIA officer told her that the airline had forbidden herto take flight. At the Inflight Service Office where she was told to go, thesecretary of Mr. Yahya Saddick took away her passport and told her to remain inJeddah, at the crew quarters, until further orders.

On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same courtwhere the judge, to her astonishment and shock, rendered a decision, translatedto 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 withThamer and Allah, for what happened in Jakarta. The court found plaintiff guiltyof (1) adultery; (2) going to a disco, dancing and listening to the music inviolation of Islamic laws; and (3) socializing with the male crew, in contraventionof 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 inJeddah to help her while her case is on appeal. Meanwhile, to pay for her upkeep, she workedon the domestic flight of SAUDIA, while Thamer and Allah continued to serve in theinternationalflights. 11

Because she was wrongfully convicted, the Prince of Makkah dismissed the case against her andallowed her to leave Saudi Arabia. Shortly before her return to Manila, 12 she was terminatedfrom 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 KhaledAl-Balawi ("Al-Balawi"), its country manager.

On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised the followinggrounds, to wit: (1) that the Complaint states no cause of action against Saudia; (2) thatdefendant Al-Balawi is not a real party in interest; (3) that the claim or demand set forth in theComplaint has been waived, abandoned or otherwise extinguished; and (4) that the trial courthas no jurisdiction to try the case.

On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) 15. Saudia filed areply 16 thereto on March 3, 1994.

On June 23, 1994, Morada filed an Amended Complaint 17 wherein Al-Balawi was dropped asparty defendant. On August 11, 1994, Saudia filed its Manifestation and Motion to DismissAmended Complaint 18.

The trial court issued an Order 19 dated August 29, 1994 denying the Motion to DismissAmended Complaint filed by Saudia.

From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA filed onSeptember 20, 1994, its Motion for Reconsideration 21 of the Order dated August 29, 1994. Italleged that the trial court has no jurisdiction to hear and try the case on the basis of Article 21

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of the Civil Code, since the proper law applicable is the law of the Kingdom of Saudi Arabia. OnOctober 14, 1994, Morada filed her Opposition 22 (To Defendant's Motion for Reconsideration).

In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that since itsMotion for Reconsideration raised lack of jurisdiction as its cause of action, the Omnibus MotionRule 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 ofthe instant case, and hence, without jurisdiction to adjudicate the same.

Respondent Judge subsequently issued another Order 24 dated February 2, 1995, denyingSAUDIA's Motion for Reconsideration. The pertinent portion of the assailed Order reads asfollows:

Acting on the Motion for Reconsideration of defendant Saudi Arabian Airlinesfiled, thru counsel, on September 20, 1994, and the Opposition thereto of theplaintiff filed, thru counsel, on October 14, 1994, as well as the Reply therewithof defendant Saudi Arabian Airlines filed, thru counsel, on October 24, 1994,considering that a perusal of the plaintiffs Amended Complaint, which is one forthe recovery of actual, moral and exemplary damages plus attorney's fees, uponthe basis of the applicable Philippine law, Article 21 of the New Civil Code of thePhilippines, is, clearly, within the jurisdiction of this Court as regards the subjectmatter, and there being nothing new of substance which might cause the reversalor modification of the order sought to be reconsidered, the motion forreconsideration of the defendant, is DENIED.

SO ORDERED. 25

Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and Prohibition withPrayer for Issuance of Writ of Preliminary Injunction and/or Temporary RestrainingOrder 26 with the Court of Appeals.

Respondent Court of Appeals promulgated a Resolution with Temporary RestrainingOrder 27 dated February 23, 1995, prohibiting the respondent Judge from further conductingany proceeding, unless otherwise directed, in the interim.

In another Resolution 28 promulgated on September 27, 1995, now assailed, the appellate courtdenied 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 herebyDENIED, after considering the Answer, with Prayer to Deny Writ of PreliminaryInjunction (Rollo, p. 135) the Reply and Rejoinder, it appearing that hereinpetitioner 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 Reviewwith Prayer for Temporary Restraining Order dated October 13, 1995.

However, during the pendency of the instant Petition, respondent Court of Appeals rendered theDecision 30dated April 10, 1996, now also assailed. It ruled that the Philippines is anappropriate forum considering that the Amended Complaint's basis for recovery of damages isArticle 21 of the Civil Code, and thus, clearly within the jurisdiction of respondent Court. Itfurther 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, findrecourse in an appeal.

On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for TemporaryRestraining Order31 dated April 30, 1996, given due course by this Court. After both partiessubmitted their Memoranda, 32 the instant case is now deemed submitted for decision.

Petitioner SAUDIA raised the following issues:

I

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The trial court has no jurisdiction to hear and try Civil Case No. Q-93-18394based on Article 21 of the New Civil Code since the proper law applicable is thelaw of the Kingdom of Saudi Arabia inasmuch as this case involves what is knownin private international law as a "conflicts problem". Otherwise, the Republic ofthe Philippines will sit in judgment of the acts done by another sovereign statewhich is abhorred.

II

Leave of court before filing a supplemental pleading is not a jurisdictionalrequirement. Besides, the matter as to absence of leave of court is now moot andacademic when this Honorable Court required the respondents to comment onpetitioner's April 30, 1996 Supplemental Petition For Review With Prayer For ATemporary Restraining Order Within Ten (10) Days From Notice Thereof. Further,the Revised Rules of Court should be construed with liberality pursuant to Section2, Rule 1 thereof.

III

Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-G.R. SPNO. 36533 entitled "Saudi Arabian Airlines v. Hon. Rodolfo A. Ortiz, et al." andfiled its April 30, 1996 Supplemental Petition For Review With Prayer For ATemporary Restraining Order on May 7, 1996 at 10:29 a.m. or within the 15-dayreglementary period as provided for under Section 1, Rule 45 of the RevisedRules of Court. Therefore, the decision in CA-G.R. SP NO. 36533 has not yetbecome final and executory and this Honorable Court can take cognizance of thiscase. 33

From the foregoing factual and procedural antecedents, the following issues emerge for ourresolution:

I.

WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THEREGIONAL TRIAL COURT OF QUEZON CITY HAS JURISDICTION TO HEAR ANDTRY CIVIL CASE NO. Q-93-18394 ENTITLED "MILAGROS P. MORADA V. SAUDIARABIAN AIRLINES".

II.

WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING THAT IN THISCASE 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 Kingdomof Saudi Arabia. It alleges that the existence of a foreign element qualifies the instant case forthe application of the law of the Kingdom of Saudi Arabia, by virtue of the lex loci delicticommissi rule. 34

On the other hand, private respondent contends that since her Amended Complaint is based onArticles 19 35and 21 36 of the Civil Code, then the instant case is properly a matter of domesticlaw. 37

Under the factual antecedents obtaining in this case, there is no dispute that the interplay ofevents 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 airlinescorporation doing business in the Philippines. It may be served with summonsand other court processes at Travel Wide Associated Sales (Phils.). Inc., 3rdFloor, Cougar Building, 114 Valero St., Salcedo Village, Makati, Metro Manila.

xxx xxx xxx

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6. Plaintiff learned that, through the intercession of the Saudi Arabiangovernment, the Indonesian authorities agreed to deport Thamer and Allah aftertwo weeks of detention. Eventually, they were again put in service by defendantSAUDIA. In September 1990, defendant SAUDIA transferred plaintiff to Manila.

7. On January 14, 1992, just when plaintiff thought that the Jakarta incident wasalready behind her, her superiors reauested her to see MR. Ali Meniewy, ChiefLegal Officer of SAUDIA in Jeddah, Saudi Arabia. When she saw him, he broughther to the police station where the police took her passport and questioned herabout the Jakarta incident. Miniewy simply stood by as the police put pressure onher to make a statement dropping the case against Thamer and Allah. Not untilshe agreed to do so did the police return her passport and allowed her to catchthe afternoon flight out of Jeddah.

8. One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a fewminutes before the departure of her flight to Manila, plaintiff was not allowed toboard 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 theSAUDIA office brought her to a Saudi court where she was asked to sigh adocument written in Arabic. They told her that this was necessary to close thecase against Thamer and Allah. As it turned out, plaintiff signed a notice to her toappear before the court on June 27, 1993. Plaintiff then returned to Manila.

9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddahonce again and see Miniewy on June 27, 1993 for further investigation. Plaintiffdid 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 onJune 27, 1993. Nothing happened then but on June 28, 1993, a Saudi judgeinterrogated plaintiff through an interpreter about the Jakarta incident. After onehour of interrogation, they let her go. At the airport, however, just as her planewas about to take off, a SAUDIA officer told her that the airline had forbidden herto take that flight. At the Inflight Service Office where she was told to go, thesecretary of Mr. Yahya Saddick took away her passport and told her to remain inJeddah, at the crew quarters, until further orders.

11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the samecourt where the judge, to her astonishment and shock, rendered a decision,translated to her in English, sentencing her to five months imprisonment and to286 lashes. Only then did she realize that the Saudi court had tried her, togetherwith Thamer and Allah, for what happened in Jakarta. The court found plaintiffguilty of (1) adultery; (2) going to a disco, dancing, and listening to the music inviolation of Islamic laws; (3) socializing with the male crew, in contravention ofIslamic tradition.

12. Because SAUDIA refused to lend her a hand in the case, plaintiff sought thehelp of the Philippines Embassy in Jeddah. The latter helped her pursue an appealfrom the decision of the court. To pay for her upkeep, she worked on thedomestic flights of defendant SAUDIA while, ironically, Thamer and Allah freelyserved the international flights.39

Where the factual antecedents satisfactorily establish the existence of a foreign element, weagree 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 ormore states is said to contain a "foreign element". The presence of a foreign element isinevitable since social and economic affairs of individuals and associations are rarely confined tothe geographic limits of their birth or conception. 40

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

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In the instant case, the foreign element consisted in the fact that private respondent Morada isa 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, eventsdid transpire during her many occasions of travel across national borders, particularly fromManila, Philippines to Jeddah, Saudi Arabia, and vice versa, that caused a "conflicts" situation toarise.

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 aquo.

After a careful study of the private respondent's Amended Complaint, 44 and the Commentthereon, we note that she aptly predicated her cause of action on Articles 19 and 21 of the NewCivil 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 performanceof his duties, act with justice give everyone his due and observe honesty andgood 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 mannerthat is contrary to morals, good customs or public policy shall compensate thelatter 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 theconcept of torts in this jurisdiction by granting adequate legal remedy for theuntold number of moral wrongs which is impossible for human foresight tospecifically 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 areactionable, 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 onjurisdiction 47 we find that the Regional Trial Court (RTC) of Quezon City possesses jurisdictionover the subject matter of the suit.48 Its authority to try and hear the case is provided forunder 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 exerciseexclusive jurisdiction:

xxx xxx xxx

(8) In all other cases in which demand, exclusive of interest,damages of whatever kind, attorney's fees, litigation expenses, andcots or the value of the property in controversy exceeds Onehundred thousand pesos (P100,000.00) or, in such other cases inMetro 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, isappropriate:

Sec. 2 Venue in Courts of First Instance. — [Now Regional Trial Court]

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(a) xxx xxx xxx

(b) Personal actions. — All other actions may be commenced and tried where thedefendant or any of the defendants resides or may be found, or where theplaintiff or any of the plaintiff resides, at the election of the plaintiff.

Pragmatic considerations, including the convenience of the parties, also weigh heavily in favorof 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 andobstacles to a fair trial are equally important. Plaintiff may not, by choice of an inconvenientforum, "vex", "harass", or "oppress" the defendant, e.g. by inflicting upon him needlessexpense or disturbance. But unless the balance is strongly in favor of the defendant, theplaintiffs 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 thePhilippines. Had it refused to take cognizance of the case, it would be forcing plaintiff (privaterespondent now) to seek remedial action elsewhere, i.e. in the Kingdom of Saudi Arabia whereshe no longer maintains substantial connections. That would have caused a fundamentalunfairness to her.

Moreover, by hearing the case in the Philippines no unnecessary difficulties and inconveniencehave been shown by either of the parties. The choice of forum of the plaintiff (now privaterespondent) should be upheld.

Similarly, the trial court also possesses jurisdiction over the persons of the parties herein. Byfiling her Complaint and Amended Complaint with the trial court, private respondent hasvoluntary submitted herself to the jurisdiction of the court.

The records show that petitioner SAUDIA has filed several motions 50 praying for the dismissalof Morada's Amended Complaint. SAUDIA also filed an Answer In Ex Abundante Cautelam datedFebruary 20, 1995. What is very patent and explicit from the motions filed, is that SAUDIAprayed for other reliefs under the premises. Undeniably, petitioner SAUDIA has effectivelysubmitted to the trial court's jurisdiction by praying for the dismissal of the Amended Complainton 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 fromdisputing the lower court's jurisdiction over defendant's person, prayed fordismissal of the complaint on the ground that plaintiff's cause of action hasprescribed. By interposing such second ground in its motion to dismiss, Ker andCo., Ltd. availed of an affirmative defense on the basis of which it prayed thecourt to resolve controversy in its favor. For the court to validly decide the saidplea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction uponthe latter's person, who, being the proponent of the affirmative defense, shouldbe deemed to have abandoned its special appearance and voluntarily submitteditself 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 jurisdictionof the court over the person, it must be for the sole and separate purpose ofobjecting to the jurisdiction of the court. If his motion is for any other purposethan to object to the jurisdiction of the court over his person, he thereby submitshimself to the jurisdiction of the court. A special appearance by motion made forthe purpose of objecting to the jurisdiction of the court over the person will beheld 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 nojurisdiction 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 twoimportant questions: (1) What legal system should control a given situation where some of the

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significant facts occurred in two or more states; and (2) to what extent should the chosen legalsystem regulate the situation. 53

Several theories have been propounded in order to identify the legal system that shouldultimately control. Although ideally, all choice-of-law theories should intrinsically advance bothnotions of justice and predictability, they do not always do so. The forum is then faced with theproblem 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 certainset of facts or rules fall. This process is known as "characterization", or the "doctrine ofqualification". It is the "process of deciding whether or not the facts relate to the kind ofquestion specified in a conflicts rule." 55 The purpose of "characterization" is to enable theforum to select the proper law. 56

Our starting point of analysis here is not a legal relation, but a factual situation, event, oroperative 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 factualrelationship (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 ofwrongdoing. 58

Note that one or more circumstances may be present to serve as the possible test for thedetermination of the applicable law. 59 These "test factors" or "points of contact" or "connectingfactors" 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 besituated. 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 placewhere a contract has been made, a marriage celebrated, a will signed or a tortcommitted. 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 ofperformance of contractual duties, or the place where a power of attorney is tobe exercised;

(6) the intention of the contracting parties as to the law that should govern theiragreement, 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 wehave seen earlier, matters of "procedure" not going to the substance of the claiminvolved are governed by it; and because the lex fori applies whenever thecontent of the otherwise applicable foreign law is excluded from application in agiven case for the reason that it falls under one of the exceptions to theapplications of foreign law; and

(8) the flag of a ship, which in many cases is decisive of practically all legalrelationships of the ship and of its master or owner as such. It also coverscontractual relationships particularly contracts of affreightment. 60 (Emphasisours.)

After a careful study of the pleadings on record, including allegations in the Amended Complaintdeemed admitted for purposes of the motion to dismiss, we are convinced that there isreasonable basis for private respondent's assertion that although she was already working inManila, petitioner brought her to Jeddah on the pretense that she would merely testify in aninvestigation of the charges she made against the two SAUDIA crew members for the attack onher person while they were in Jakarta. As it turned out, she was the one made to face trial forvery serious charges, including adultery and violation of Islamic laws and tradition.

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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 itsduties as employer. Petitioner's purported act contributed to and amplified or even proximatelycaused additional humiliation, misery and suffering of private respondent. Petitioner therebyallegedly facilitated the arrest, detention and prosecution of private respondent under the guiseof petitioner's authority as employer, taking advantage of the trust, confidence and faith shereposed upon it. As purportedly found by the Prince of Makkah, the alleged conviction andimprisonment of private respondent was wrongful. But these capped the injury or harmallegedly inflicted upon her person and reputation, for which petitioner could be liable asclaimed, 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 lociactus occurred. And applying the torts principle in a conflicts case, we find that the Philippinescould 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, aFilipina residing and working here. According to her, she had honestly believed that petitionerwould, in the exercise of its rights and in the performance of its duties, "act with justice, giveher due and observe honesty and good faith." Instead, petitioner failed to protect her, sheclaimed. That certain acts or parts of the injury allegedly occurred in another country is of nomoment. For in our view what is important here is the place where the over-all harm or thetotality of the alleged injury to the person, reputation, social standing and human rights ofcomplainant, had lodged, according to the plaintiff below (herein private respondent). All told, itis 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 judicialapproaches to arrive at just results. In keeping abreast with the modern theories on tortliability, 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, thefollowing contacts are to be taken into account and evaluated according to their relativeimportance with respect to the particular issue: (a) the place where the injury occurred; (b) theplace 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 therelationship, 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 thePhilippines. 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 ofinternational 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 therecord, the claim that the Philippines has the most significant contact with the matter in thisdispute, 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 theplace "having the most interest in the problem", we find, by way of recapitulation, that thePhilippine law on tort liability should have paramount application to and control in the resolutionof the legal issues arising out of this case. Further, we hold that the respondent Regional TrialCourt has jurisdiction over the parties and the subject matter of the complaint; the appropriatevenue is in Quezon City, which could properly apply Philippine law. Moreover, we find untenablepetitioner's insistence that "[s]ince private respondent instituted this suit, she has the burden ofpleading and proving the applicable Saudi law on the matter." 64 As aptly said by privaterespondent, she has "no obligation to plead and prove the law of the Kingdom of Saudi Arabiasince her cause of action is based on Articles 19 and 21" of the Civil Code of the Philippines. Inher Amended Complaint and subsequent pleadings, she never alleged that Saudi law shouldgovern this case. 65 And as correctly held by the respondent appellate court, "considering that itwas the petitioner who was invoking the applicability of the law of Saudi Arabia, then theburden 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'sdenial of defendant's (herein petitioner's) motion to dismiss the case. Not only was jurisdictionin order and venue properly laid, but appeal after trial was obviously available, and expeditioustrial itself indicated by the nature of the case at hand. Indubitably, the Philippines is the stateintimately concerned with the ultimate outcome of the case below, not just for the benefit of all

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the litigants, but also for the vindication of the country's system of law and justice in atransnational setting. With these guidelines in mind, the trial court must proceed to try andadjudge the case in the light of relevant Philippine law, with due consideration of the foreignelement or elements involved. Nothing said herein, of course, should be construed asprejudging 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 RegionalTrial Court of Quezon City, Branch 89 for further proceedings.

SO ORDERED.

Davide, Jr., Bellosillo, Vitug and Panganiban, JJ., concur.

Footnotes

1 Annex "A", PETITION, October 13, 1995; rollo, p. 36.

2 Annex "A", SUPPLEMENTAL PETITION, April 30, 1996; rollo, pp. 88-102.

3 Penned by Associate Justice Bernardo Ll. Salas, and concurred in by AssociateJustice Jorge S. Imperial and Associate Justice Pacita Cañizares-Nye.

4 Entitled "Saudi Arabian Airlines vs. Hon. Judge Rodolfo A. Ortiz, in his capacityas Presiding Judge of Branch 89 of the Regional Trial Court of Quezon City andMilagros P. Morada".

5 Issued by respondent Judge Hon. Rodolfo A. Ortiz of Branch 89, Regional TrialCourt of Quezon City.

6 Annex "B", PETITION, October 13, 1995; rollo, pp. 37-39.

7 Annex "B", PETITION, October 13, 1995; rollo, p. 40.

8 Entitled "Milagros P. Morada vs. Saudi Arabian Airlines".

9 Supra, note 2.

10 Decision, pp. 2-4; see rollo, pp. 89-91.

11 Private respondent's Comment; rollo, p. 50.

12 Ibid., pp. 50-51.

13 Dated November 19, 1993, and docketed as Civil Case No. Q-93-18394,Branch 89, Regional Trial Court of Quezon City.

14 Dated January 14, 1994.

15 Dated February 4, 1994.

16 Reply dated March 1, 1994.

17 Records, pp. 65-84.

18 Rollo, p. 65.

19 Supra, note 6.

20 Hon. Rodolfo A. Ortiz.

21 Dated September 19, 1994.

22 Records, pp. 108-116.

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23 Records, pp. 117-128.

24 Supra, note 7.

25 Ibid.

26 Dated February 18, 1995; see supra, note 4.

27 Supra, note 7.

28 Records, p. 180.

29 Rollo, pp. 1-44.

30 Supra, note 2.

31 Rollo, pp. 80-86.

32 Memorandum for Petitioner dated October 9, 1996, rollo, pp. 149-180; andMemorandum for Private Respondent, October 30, 1996, rollo, pp. 182-210.

33 Rollo, pp. 157-159. All caps in the original.

34 Memorandum for Petitioner, p. 14, rollo, p. 162.

35 Art. 19. Every person must, in the exercise of his rights and in theperformance of his duties, act with justice, give everyone his due, and observehonesty and good faith.

36 Art 21. Any person who wilfully causes loss or injury to another in a mannerthat is contrary to morals, good customs or public policy shall compensate thelatter for the damages.

37 Memorandum for Private Respondent, p. 9, rollo, p. 190.

38 Records, pp. 65-71.

39 Supra, note 17, pp. 65-68.

40 Salonga, Private International Law, 1995 edition, p. 3.

41 Ibid., citing Cheshire and North, Private International Law, p. 5 by P.M. Northand J.J. Faucett (Butterworths; London, 1992).

42 Ibid.

43 Paras, Philippine Conflict of Laws, sixth edition (1984), p. 24, citing Leflar, TheLaw of Conflict of Laws, pp. 5-6.

44 Supra, note 17.

45 83 SCRA 237, 247.

46 Supra, note at 17, at p. 6. Morada prays that judgment be rendered againstSaudia, ordering it to pay: (1) not less than P250,000.00 as actual damages; (2)P4 million in moral damages; (3) P500,000.00 in exemplary damages, and (4)P500,000.00 in attorney's fees.

47 Baguioro v. Barrios, 77 Phil. 120.

48 Jurisdiction over the subject matter is conferred by law and is defined as theauthority of a court to hear and decide cases of the general class to which theproceedings in question belong. (Reyes v. Diaz, 73 Phil. 484, 487)

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49 Supra, note 37, p. 58, citing Gulf Oil Corporation v. Gilbert, 350 U.S. 501, 67Sup. Ct. 839 (1947).

50 Omnibus Motion to Dismiss dated January 14, 1994; Reply (to Plaintiff'sOpposition) dated February 19, 1994; Comment (to Plaintiffs Motion to AdmitAmended Complaint dated June 23, 1994) dated July 20, 1993; Manifestationand Motion to Dismiss Amended Complaint dated June 23, 1994 under dateAugust 11, 1994; and Motion for Reconsideration dated September 19, 1994.

51 18 SCRA 207, 213-214.

52 64 SCRA 23, 31.

53 Coquia and Pangalangan. Conflict of Laws, 1995 edition p. 65, citing VonMehren, Recent Trends in Choice-of-Law Methodology, 60 Cornell L. Rev. 927(1975).

54 Ibid.

55 Supra, note 40 at p. 94, citing Falconbridge, Essays on the Conflict of Laws, p.50.

56 Ibid.

57 Supra, note 37, at p. 136; cf. Mussbaum, Principle of Private InternationalLaw, p. 173; and Rabel, The Conflict of Laws: A Comparative Study, pp. 51-52.

58 Supra, note 37, p. 137.

59 Ibid.

60 Supra, note 37, at pp. 138-139.

61 Includes the (1) German rule of elective concurrence; (2) "State of the mostsignificant relationship" rule (the Second Restatement of 1969); (3) State —interest analysis; and (4) Caver's Principle of Preference.

62 Supra, note 37, p. 396.

63 Supra, note 59, p. 79, citing Ruben v. Irving Trust Co., 305 N.Y. 288, 305,113 N.E. 2d 424, 431.

64 Memorandum for Petitioner, p. 22; rollo, p. 170.

65 Memorandum for Private Respondent, pp. 21-22; rollo, pp. 202-203.

66 CA Decision, p. 10; rollo, p. 97.

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FIRST DIVISION

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

PAULA T. LLORENTE, petitioner, vs. COURT OF APPEALS and ALICIA F.LLORENTE, respondents.

D E C I S I O N

PARDO, J.:

The Case

The case raises a conflict of laws issue.

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

The Facts

The deceased Lorenzo N. Llorente was an enlisted serviceman of the United States Navyfrom March 10, 1927 to September 30, 1957.[3]

On February 22, 1937, Lorenzo and petitioner Paula Llorente (hereinafter referred to as“Paula”) were married before a parish priest, Roman Catholic Church, in Nabua, CamarinesSur.[4]

Before the outbreak of the Pacific War, Lorenzo departed for the United States and Paulastayed in the conjugal home in barrio Antipolo, Nabua, Camarines Sur.[5]

On November 30, 1943, Lorenzo was admitted to United States citizenship and Certificateof Naturalization No. 5579816 was issued in his favor by the United States District Court,Southern District of New York.[6]

Upon the liberation of the Philippines by the American Forces in 1945, Lorenzo wasgranted an accrued leave by the U. S. Navy, to visit his wife and he visited the Philippines.[7] Hediscovered that his wife Paula was pregnant and was “living in” and having an adulterousrelationship with his brother, Ceferino Llorente.[8]

On December 4, 1945, Paula gave birth to a boy registered in the Office of the Registrar ofNabua as “Crisologo Llorente,” with the certificate stating that the child was not legitimate andthe line for the father’s name was left blank.[9]

Lorenzo refused to forgive Paula and live with her. In fact, on February 2, 1946, the coupledrew a written agreement to the effect that (1) all the family allowances allotted by the UnitedStates Navy as part of Lorenzo’s salary and all other obligations for Paula’s daily maintenanceand support would be suspended; (2) they would dissolve their marital union in accordancewith judicial proceedings; (3) they would make a separate agreement regarding their conjugalproperty acquired during their marital life; and (4) Lorenzo would not prosecute Paula for heradulterous act since she voluntarily admitted her fault and agreed to separate from Lorenzopeacefully. The agreement was signed by both Lorenzo and Paula and was witnessed by Paula’sfather and stepmother. The agreement was notarized by Notary Public Pedro Osabel.[10]

Lorenzo returned to the United States and on November 16, 1951 filed fordivorce with the Superior Court of the State of California in and for the County of SanDiego. Paula was represented by counsel, John Riley, and actively participated in theproceedings. On November 27, 1951, the Superior Court of the State of California, for theCounty of San Diego found all factual allegations to be true and issued an interlocutoryjudgment of divorce.[11]

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On December 4, 1952, the divorce decree became final.[12]

In the meantime, Lorenzo returned to the Philippines.

On January 16, 1958, Lorenzo married Alicia F. Llorente in Manila.[13] Apparently, Alicia hadno knowledge of the first marriage even if they resided in the same town as Paula, who did notoppose the marriage or cohabitation.[14]

From 1958 to 1985, Lorenzo and Alicia lived together as husband and wife.[15] Theirtwenty-five (25) year union produced three children, Raul, Luz and Beverly, all surnamedLlorente.[16]

On March 13, 1981, Lorenzo executed a Last Will and Testament. The will was notarizedby Notary Public Salvador M. Occiano, duly signed by Lorenzo with attesting witnessesFrancisco Hugo, Francisco Neibres and Tito Trajano. In the will, Lorenzo bequeathed all hisproperty to Alicia and their three children, to wit:

“(1) I give and bequeath to my wife ALICIA R. FORTUNO exclusively my residential house andlot, located at San Francisco, Nabua, Camarines Sur, Philippines, including ALL the personalproperties and other movables or belongings that may be found or existing therein;

“(2) I give and bequeath exclusively to my wife Alicia R. Fortuno and to my children, Raul F.Llorente, Luz F. Llorente and Beverly F. Llorente, in equal shares, all my real propertieswhatsoever and wheresoever located, specifically my real properties located at Barangay Aro-Aldao, Nabua, Camarines Sur; Barangay Paloyon, Nabua, Camarines Sur; Barangay Baras, SitioPuga, Nabua, Camarines Sur; and Barangay Paloyon, Sitio Nalilidong, Nabua, Camarines Sur;

“(3) I likewise give and bequeath exclusively unto my wife Alicia R. Fortuno and unto mychildren, Raul F. Llorente, Luz F. Llorente and Beverly F. Llorente, in equal shares, my realproperties located in Quezon City Philippines, and covered by Transfer Certificate of Title No.188652; and my lands in Antipolo, Rizal, Philippines, covered by Transfer Certificate of TitleNos. 124196 and 165188, both of the Registry of Deeds of the province of Rizal, Philippines;

“(4) That their respective shares in the above-mentioned properties, whether real or personalproperties, shall not be disposed of, ceded, sold and conveyed to any other persons, but couldonly be sold, ceded, conveyed and disposed of by and among themselves;

“(5) I designate my wife ALICIA R. FORTUNO to be the sole executor of this my Last Will andTestament, and in her default or incapacity of the latter to act, any of my children in the orderof age, if of age;

“(6) I hereby direct that the executor named herein or her lawful substitute should served (sic)without bond;

“(7) I hereby revoke any and all my other wills, codicils, or testamentary dispositionsheretofore executed, signed, or published, by me;

“(8) It is my final wish and desire that if I die, no relatives of mine in any degree in theLlorente’s Side should ever bother and disturb in any manner whatsoever my wife Alicia R.Fortunato and my children with respect to any real or personal properties I gave andbequeathed respectively to each one of them by virtue of this Last Will and Testament.”[17]

On December 14, 1983, Lorenzo filed with the Regional Trial Court, Iriga, Camarines Sur, apetition for the probate and allowance of his last will and testament wherein Lorenzo movedthat Alicia be appointed Special Administratrix of his estate.[18]

On January 18, 1984, the trial court denied the motion for the reason that the testatorLorenzo was still alive.[19]

On January 24, 1984, finding that the will was duly executed, the trial court admitted thewill to probate.[20]

On June 11, 1985, before the proceedings could be terminated, Lorenzo died.[21]

On September 4, 1985, Paula filed with the same court a petition[22] for letters ofadministration over Lorenzo’s estate in her favor. Paula contended (1) that she was Lorenzo’ssurviving spouse, (2) that the various property were acquired during their marriage, (3) thatLorenzo’s will disposed of all his property in favor of Alicia and her children, encroaching on herlegitime and 1/2 share in the conjugal property.[23]

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On December 13, 1985, Alicia filed in the testate proceeding (Sp. Proc. No. IR-755), apetition for the issuance of letters testamentary.[24]

On October 14, 1985, without terminating the testate proceedings, the trial court gave duecourse to Paula’s petition in Sp. Proc. No. IR-888.[25]

On November 6, 13 and 20, 1985, the order was published in the newspaper “BicolStar”.[26]

On May 18, 1987, the Regional Trial Court issued a joint decision, thus:

“Wherefore, considering that this court has so found that the divorce decree granted to the lateLorenzo Llorente is void and inapplicable in the Philippines, therefore the marriage hecontracted with Alicia Fortunato on January 16, 1958 at Manila is likewise void. This being sothe petition of Alicia F. Llorente for the issuance of letters testamentary is denied. Likewise,she is not entitled to receive any share from the estate even if the will especially said so herrelationship with Lorenzo having gained the status of paramour which is under Art. 739 (1).

“On the other hand, the court finds the petition of Paula Titular Llorente, meritorious, and sodeclares the intrinsic disposition of the will of Lorenzo Llorente dated March 13, 1981 as voidand declares her entitled as conjugal partner and entitled to one-half of their conjugalproperties, and as primary compulsory heir, Paula T. Llorente is also entitled to one-third of theestate and then one-third should go to the illegitimate children, Raul, Luz and Beverly, allsurname (sic) Llorente, for them to partition in equal shares and also entitled to the remainingfree portion in equal shares.

“Petitioner, Paula Llorente is appointed legal administrator of the estate of the deceased,Lorenzo Llorente. As such let the corresponding letters of administration issue in her favorupon her filing a bond in the amount (sic) of P100,000.00 conditioned for her to make a returnto the court within three (3) months a true and complete inventory of all goods, chattels,rights, and credits, and estate which shall at any time come to her possession or to thepossession of any other person for her, and from the proceeds to pay and discharge all debts,legacies and charges on the same, or such dividends thereon as shall be decreed or required bythis court; to render a true and just account of her administration to the court within one (1)year, and at any other time when required by the court and to perform all orders of this courtby her to be performed.

“On the other matters prayed for in respective petitions for want of evidence could not begranted.

“SO ORDERED.”[27]

In time, Alicia filed with the trial court a motion for reconsideration of the aforequoteddecision.[28]

On September 14, 1987, the trial court denied Alicia’s motion for reconsideration butmodified its earlier decision, stating that Raul and Luz Llorente are not children “legitimate orotherwise” of Lorenzo since they were not legally adopted by him.[29] Amending its decision ofMay 18, 1987, the trial court declared Beverly Llorente as the only illegitimate child of Lorenzo,entitling her to one-third (1/3) of the estate and one-third (1/3) of the free portion of theestate.[30]

On September 28, 1987, respondent appealed to the Court of Appeals.[31]

On July 31, 1995, the Court of Appeals promulgated its decision, affirming withmodification the decision of the trial court in this wise:

“WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION thatAlicia is declared as co-owner of whatever properties she and the deceased may have acquiredduring the twenty-five (25) years of cohabitation.

“SO ORDERED.”[32]

On August 25, 1995, petitioner filed with the Court of Appeals a motion for reconsiderationof the decision.[33]

On March 21, 1996, the Court of Appeals,[34] denied the motion for lack of merit.

Hence, this petition.[35]

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The Issue

Stripping the petition of its legalese and sorting through the various argumentsraised,[36] the issue is simple. Who are entitled to inherit from the late Lorenzo N. Llorente?

We do not agree with the decision of the Court of Appeals. We remand the case to the trialcourt for ruling on the intrinsic validity of the will of the deceased.

The Applicable Law

The fact that the late Lorenzo N. Llorente became an American citizen long before and atthe time of: (1) his divorce from Paula; (2) marriage to Alicia; (3) execution of his will; and (4)death, is duly established, admitted and undisputed.

Thus, as a rule, issues arising from these incidents are necessarily governed by foreign law.

The Civil Code clearly provides:

“Art. 15. Laws relating to family rights and duties, or to the status, condition and legal capacityof persons are binding upon citizens of the Philippines, even though living abroad.

“Art. 16. Real property as well as personal property is subject to the law of the country whereit is situated.

“However, intestate and testamentary succession, both with respect to the order of successionand to the amount of successional rights and to the intrinsic validity of testamentaryprovisions, shall be regulated by the national law of the person whose succession isunder consideration, whatever may be the nature of the property and regardless of thecountry wherein said property may be found.” (emphasis ours)

True, foreign laws do not prove themselves in our jurisdiction and our courts are notauthorized to take judicial notice of them. Like any other fact, they must be alleged andproved.[37]

While the substance of the foreign law was pleaded, the Court of Appeals did not admit theforeign law. The Court of Appeals and the trial court called to the fore the renvoi doctrine,where the case was “referred back” to the law of the decedent’s domicile, in this case,Philippine law.

We note that while the trial court stated that the law of New York was not sufficientlyproven, in the same breath it made the categorical, albeit equally unproven statement that“American law follows the ‘domiciliary theory’ hence, Philippine law applies when determiningthe validity of Lorenzo’s will.[38]

First, there is no such thing as one American law. The "national law" indicated in Article16 of the Civil Code cannot possibly apply to general American law. There is no such lawgoverning the validity of testamentary provisions in the United States. Each State of the unionhas its own law applicable to its citizens and in force only within the State. It can thereforerefer to no other than the law of the State of which the decedent was a resident.[39] Second,there is no showing that the application of the renvoi doctrine is called for or required by NewYork State law.

The trial court held that the will was intrinsically invalid since it contained dispositions infavor of Alice, who in the trial court’s opinion was a mere paramour. The trial court threw thewill out, leaving Alice, and her two children, Raul and Luz, with nothing.

The Court of Appeals also disregarded the will. It declared Alice entitled to one half (1/2)of whatever property she and Lorenzo acquired during their cohabitation, applying Article 144of the Civil Code of the Philippines.

The hasty application of Philippine law and the complete disregard of the will, alreadyprobated as duly executed in accordance with the formalities of Philippine law, isfatal, especially in light of the factual and legal circumstances here obtaining.

Validity of the Foreign Divorce

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In Van Dorn v. Romillo, Jr.[40] we held that owing to the nationality principle embodied inArticle 15 of the Civil Code, only Philippine nationals are covered by the policy against absolutedivorces, the same being considered contrary to our concept of public policy and morality. Inthe same case, the Court ruled that aliens may obtain divorces abroad, provided they are validaccording to their national law.

Citing this landmark case, the Court held in Quita v. Court of Appeals,[41] that once proventhat respondent was no longer a Filipino citizen when he obtained the divorce from petitioner,the ruling in Van Dorn would become applicable and petitioner could “very well lose her right toinherit” from him.

In Pilapil v. Ibay-Somera,[42] we recognized the divorce obtained by the respondent in hiscountry, the Federal Republic of Germany. There, we stated that divorce and its legal effectsmay be recognized in the Philippines insofar as respondent is concerned in view of thenationality principle in our civil law on the status of persons.

For failing to apply these doctrines, the decision of the Court of Appeals must bereversed.[43] We hold that the divorce obtained by Lorenzo H. Llorente from his first wife Paulawas valid and recognized in this jurisdiction as a matter of comity. Now, the effects of thisdivorce (as to the succession to the estate of the decedent) are matters best left to thedetermination of the trial court.

Validity of the Will

The Civil Code provides:

“Art. 17. The forms and solemnities of contracts, wills, and other public instruments shall begoverned by the laws of the country in which they are executed.

“When the acts referred to are executed before the diplomatic or consular officials of theRepublic of the Philippines in a foreign country, the solemnities established by Philippine lawsshall be observed in their execution.” (underscoring ours)

The clear intent of Lorenzo to bequeath his property to his second wife and children by heris glaringly shown in the will he executed. We do not wish to frustrate his wishes, since he wasa foreigner, not covered by our laws on “family rights and duties, status, condition and legalcapacity.”[44]

Whether the will is intrinsically valid and who shall inherit from Lorenzo are issues bestproved by foreign law which must be pleaded and proved. Whether the will was executed inaccordance with the formalities required is answered by referring to Philippine law. In fact, thewill was duly probated.

As a guide however, the trial court should note that whatever public policy or good customsmay be involved in our system of legitimes, Congress did not intend to extend the same to thesuccession of foreign nationals. Congress specifically left the amount of successional rights tothe decedent's national law.[45]

Having thus ruled, we find it unnecessary to pass upon the other issues raised.

The Fallo

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G. R.SP No. 17446 promulgated on July 31, 1995 is SET ASIDE.

In lieu thereof, the Court REVERSES the decision of the Regional Trial Court andRECOGNIZES as VALID the decree of divorce granted in favor of the deceased Lorenzo N.Llorente by the Superior Court of the State of California in and for the County of San Diego,made final on December 4, 1952.

Further, the Court REMANDS the cases to the court of origin for determination of theintrinsic validity of Lorenzo N. Llorente’s will and determination of the parties’ successionalrights allowing proof of foreign law with instructions that the trial court shall proceed with alldeliberate dispatch to settle the estate of the deceased within the framework of the Rules ofCourt.

No costs.

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SO ORDERED.

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

[1] In CA-G. R. SP. No. 17446, promulgated on July 31, 1995, Lipana-Reyes+, J., ponente,Torres, Jr. and Hofilena, JJ., concurring.[2] In Spec. Proc. No. IR-755 (In the Matter of the Probate and Allowance of the Last Will andTestament of Lorenzo N. Llorente, Lorenzo N. Llorente, Petitioner) and Spec. Proc. No. IR-888 (Petition for the Grant of Letters of Administration for the Estate of Lorenzo N. Llorente,Paula T. Llorente, Petitioner), dated May 18, 1987, Judge Esteban B. Abonal, presiding.[3] Decision, Court of Appeals, Rollo, p. 51.[4] Exh. “B”, Trial Court Folder of Exhibits, p. 61.[5] Ibid.[6] This was issued pursuant to Lorenzo’s petition, Petition No. 4708849, filed with the U.S.Court. Exhs.“H” and “H-3” Trial Court Folder of Exhibits, p. 157, 159.[7] Decision, Court of Appeals, Rollo, p. 51; Exh. “B”, Trial Court Folder of Exhibits, p. 61.[8] Ibid.[9] Exh. “A”, Trial Court Folder of Exhibits, p. 60.[10] Exh. “B-1” Trial Court Folder of Exhibits, p. 62.[11] Exh. “D”, Trial Court Folder of Exhibits, pp. 63-64.[12] Exh. “E”, Trial Court Folder of Exhibits, p. 69.[13] Exh. “F”, Trial Court Folder of Exhibits, p. 148.[14] Decision, Court of Appeals, Rollo, p. 52.[15] Comment, Rollo, p. 147.[16] Decision, Court of Appeals, Rollo, p. 52.[17] Exh. “A”, Trial Court Folder of Exhibits, pp. 3-4; Decision, Court of Appeals, Rollo, p. 52.[18] Docketed as Spec. Proc. No. IR-755.[19] Decision, RTC, Rollo, p. 37.[20] Ibid.[21] Ibid.[22] Docketed as Spec. Proc. No. IR-888.[23] Decision, RTC, Rollo, p. 38.[24] Decision, Court of Appeals, Rollo, p. 52.[25] Ibid., pp. 52-53.[26] Ibid., p. 53.[27] RTC Decision, Rollo, p. 37.[28] Order, Regional Trial Court in Spec. Proc. Nos. IR-755 and 888, Rollo, p. 46.[29] Citing Article 335 of the Civil Code, which states, “The following cannot adopt: xxx

(3) a married person, without the consent of the other spouse; xxx”, the trial court reasonedthat since the divorce obtained by Lorenzo did not dissolve his first marriage with Paula, thenthe adoption of Raul and Luz was void, as Paula did not give her consent to it.[30] Order, Regional Trial Court, Rollo, p. 47.[31] Docketed as CA-G. R. SP No. 17446.[32] Decision, Court of Appeals, Rollo, p. 56.[33] On August 31, 1995, petitioner also filed with this Court a verified complaint against themembers of the Special Thirteenth Division, Court of Appeals, Associate Justices Justo P.

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Torres, Jr., Celia Lipana-Reyes + and Hector Hofilena for “gross ignorance of thelaw, manifest incompetence and extreme bias (Rollo, p. 15).”[34] Again with Associate Justice Celia Lipana-Reyes+, ponente, concurred in by AssociateJustices Justo P. Torres, Jr. and Hector Hofilena (Former Special Thirteenth Division).[35] Filed on May 10, 1996, Rollo, pp. 9-36.[36] Petitioner alleges (1) That the Court of Appeals lost its jurisdiction over the case when itissued the resolution denying the motion for reconsideration; (2) That Art. 144 of the Civil Casehas been repealed by Arts. 253 and 147 of the Family Code and (3) That Alicia and her childrennot are entitled to any share in the estate of the deceased (Rollo, p. 19).[37] Collector of Internal Revenue v. Fisher, 110 Phil. 686 (1961).[38] Joint Record on Appeal, p. 255; Rollo, p. 40.[39] In Re: Estate of Edward Christensen, Aznar v. Helen Garcia, 117 Phil. 96 (1963).[40] 139 SCRA 139 (1985).[41] 300 SCRA 406 (1998).[42] 174 SCRA 653 (1989).[43] The ruling in the case of Tenchavez v. Escano (122 Phil. 752 [1965]) that provides that “aforeign divorce between Filipino citizens sought and decreed after the effectivity of the presentcivil code is not entitled to recognition as valid in this jurisdiction” is NOT applicable in the caseat bar as Lorenzo was no longer a Filipino citizen when he obtained the divorce.[44] Article 15, Civil Code provides “Laws relating to family rights and duties, or to the status,condition and legal capacity of persons are binding upon citizens of the Philippines, even thoughliving abroad.” (Underscoring ours)[45] Bellis v. Bellis, 126 Phil. 726 (1967).

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Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 140047 July 13, 2004

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

D E C I S I O N

DAVIDE, JR., C.J.:

This case is an offshoot of a service contract entered into by a Filipino construction firm with theIraqi Government for the construction of the Institute of Physical Therapy-Medical Center,Phase II, in Baghdad, Iraq, at a time when the Iran-Iraq war was ongoing.

In a complaint filed with the Regional Trial Court of Makati City, docketed as Civil Case No. 91-1906 and assigned to Branch 58, petitioner Philippine Export and Foreign Loan GuaranteeCorporation1 (hereinafter Philguarantee) sought reimbursement from the respondents of thesum of money it paid to Al Ahli Bank of Kuwait pursuant to a guarantee it issued for respondentV.P. Eusebio Construction, Inc. (VPECI).

The factual and procedural antecedents in this case are as follows:

On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing andConstruction, Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy–Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the Project) to AjyalTrading and Contracting Company (hereinafter Ajyal), a firm duly licensed with the KuwaitChamber of Commerce for a total contract price of ID5,416,089/046 (or aboutUS$18,739,668).2

On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of respondent3-Plex International, Inc. (hereinafter 3-Plex), a local contractor engaged in constructionbusiness, entered into a joint venture agreement with Ajyal wherein the former undertookthe execution of the entire Project, while the latter would be entitled to a commission of 4% ofthe contract price.3 Later, or on 8 April 1981, respondent 3-Plex, not being accredited by orregistered with the Philippine Overseas Construction Board (POCB), assigned and transferred allits rights and interests under the joint venture agreement to VPECI, a construction andengineering firm duly registered with the POCB.4 However, on 2 May 1981, 3-Plex and VPECIentered into an agreement that the execution of the Project would be under their jointmanagement.5

The SOB required the contractors to submit (1) a performance bond of ID271,808/610representing 5% of the total contract price and (2) an advance payment bond ofID541,608/901 representing 10% of the advance payment to be released upon signing of thecontract.6 To comply with these requirements, respondents 3-Plex and VPECI applied for theissuance of a guarantee with petitioner Philguarantee, a government financial institutionempowered to issue guarantees for qualified Filipino contractors to secure the performance ofapproved service contracts abroad.7

Petitioner Philguarantee approved respondents' application. Subsequently, letters ofguarantee8 were issued by Philguarantee to the Rafidain Bank of Baghdad covering 100% of theperformance and advance payment bonds, but they were not accepted by SOB. What SOBrequired was a letter-guarantee from Rafidain Bank, the government bank of Iraq. Rafidain

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Bank then issued a performance bond in favor of SOB on the condition that another foreignbank, not Philguarantee, would issue a counter-guarantee to cover its exposure. Al Ahli Bank ofKuwait was, therefore, engaged to provide a counter-guarantee to Rafidain Bank, but itrequired a similar counter-guarantee in its favor from the petitioner. Thus, three layers ofguarantees had to be arranged.9

Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued in favorof Al Ahli Bank of Kuwait Letter of Guarantee No. 81-194-F 10 (Performance Bond Guarantee) inthe amount of ID271,808/610 and Letter of Guarantee No. 81-195-F11 (Advance PaymentGuarantee) in the amount of ID541,608/901, both for a term of eighteen months from 25 May1981. These letters of guarantee were secured by (1) a Deed of Undertaking12 executed byrespondents VPECI, Spouses Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and SpousesEduardo E. Santos and Iluminada Santos; and (2) a surety bond13 issued by respondent FirstIntegrated Bonding and Insurance Company, Inc. (FIBICI). The Surety Bond was later amendedon 23 June 1981 to increase the amount of coverage from P6.4 million to P6.967 million and tochange the bank in whose favor the petitioner's guarantee was issued, from Rafidain Bank to AlAhli Bank of Kuwait.14

On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the servicecontract15 for the construction of the Institute of Physical Therapy – Medical RehabilitationCenter, Phase II, in Baghdad, Iraq, wherein the joint venture contractor undertook to completethe Project within a period of 547 days or 18 months. Under the Contract, the Joint Venturewould supply manpower and materials, and SOB would refund to the former 25% of the projectcost in Iraqi Dinar and the 75% in US dollars at the exchange rate of 1 Dinar to 3.37777 USDollars.16

The construction, which was supposed to start on 2 June 1981, commenced only on the lastweek of August 1981. Because of this delay and the slow progress of the construction work dueto some setbacks and difficulties, the Project was not completed on 15 November 1982 asscheduled. But in October 1982, upon foreseeing the impossibility of meeting the deadline andupon the request of Al Ahli Bank, the joint venture contractor worked for the renewal orextension of the Performance Bond and Advance Payment Guarantee. Petitioner's Letters ofGuarantee Nos. 81-194-F (Performance Bond) and 81-195-F (Advance Payment Bond) withexpiry date of 25 November 1982 were then renewed or extended to 9 February 1983 and 9March 1983, respectively.17 The surety bond was also extended for another period of one year,from 12 May 1982 to 12 May 1983.18 The Performance Bond was further extended twelve timeswith validity of up to 8 December 1986,19 while the Advance Payment Guarantee was extendedthree times more up to 24 May 1984 when the latter was cancelled after full refund orreimbursement by the joint venture contractor.20 The surety bond was likewise extended to 8May 1987.21

As of March 1986, the status of the Project was 51% accomplished, meaning the structureswere already finished. The remaining 47% consisted in electro-mechanical works and the 2%,sanitary works, which both required importation of equipment and materials.22

On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding fullpayment of its performance bond counter-guarantee.

Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requestedIraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telexcall on the performance guarantee for being a drastic action in contravention of its mutualagreement with the latter that (1) the imposition of penalty would be held in abeyance until thecompletion of the project; and (2) the time extension would be open, depending on thedevelopments on the negotiations for a foreign loan to finance the completion of theproject.23 It also wrote SOB protesting the call for lack of factual or legal basis, since the failureto complete the Project was due to (1) the Iraqi government's lack of foreign exchange withwhich to pay its (VPECI's) accomplishments and (2) SOB's noncompliance for the past severalyears with the provision in the contract that 75% of the billings would be paid in USdollars.24 Subsequently, or on 19 November 1986, respondent VPECI advised the petitioner notto pay yet Al Ahli Bank because efforts were being exerted for the amicable settlement of theProject.25

On 14 April 1987, the petitioner received another telex message from Al Ahli Bank stating thatit had already paid to Rafidain Bank the sum of US$876,564 under its letter of guarantee, anddemanding reimbursement by the petitioner of what it paid to the latter bank plus interestthereon and related expenses.26

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Both petitioner Philguarantee and respondent VPECI sought the assistance of some governmentagencies of the Philippines. On 10 August 1987, VPECI requested the Central Bank to hold inabeyance the payment by the petitioner "to allow the diplomatic machinery to take its course,for otherwise, the Philippine government , through the Philguarantee and the Central Bank,would become instruments of the Iraqi Government in consummating a clear act of injusticeand inequity committed against a Filipino contractor."27

On 27 August 1987, the Central Bank authorized the remittance for its account of the amountof US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing full payment of theperformance counter-guarantee for VPECI's project in Iraq. 28

On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to Al AhliBank, and reiterated the joint and solidary obligation of the respondents to reimburse thepetitioner for the advances made on its counter-guarantee.29

The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21 January1988.30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83representing interest and penalty charges demanded by the latter bank.31

On 19 June 1991, the petitioner sent to the respondents separate letters demanding fullpayment of the amount of P47,872,373.98 plus accruing interest, penalty charges, and 10%attorney's fees pursuant to their joint and solidary obligations under the deed of undertakingand surety bond.32 When the respondents failed to pay, the petitioner filed on 9 July 1991a civil case for collection of a sum of money against the respondents before the RTC of MakatiCity.

After due trial, the trial court ruled against Philguarantee and held that the latter had no validcause of action against the respondents. It opined that at the time the call was made on theguarantee which was executed for a specific period, the guarantee had already lapsed orexpired. There was no valid renewal or extension of the guarantee for failure of the petitioner tosecure respondents' express consent thereto. The trial court also found that the joint venturecontractor incurred no delay in the execution of the Project. Considering the Project owner'sviolations of the contract which rendered impossible the joint venture contractor's performanceof its undertaking, no valid call on the guarantee could be made. Furthermore, the trial courtheld that no valid notice was first made by the Project owner SOB to the joint venturecontractor before the call on the guarantee. Accordingly, it dismissed the complaint, as well asthe counterclaims and cross-claim, and ordered the petitioner to pay attorney's feesof P100,000 to respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex and the SantosSpouses, plus costs. 33

In its 14 June 1999 Decision,34 the Court of Appeals affirmed the trial court's decision,ratiocinating as follows:

First, appellant cannot deny the fact that it was fully aware of the status of projectimplementation as well as the problems besetting the contractors, between 1982 to1985, having sent some of its people to Baghdad during that period. The successiverenewals/extensions of the guarantees in fact, was prompted by delays, not solelyattributable to the contractors, and such extension understandably allowed by the SOB(project owner) which had not anyway complied with its contractual commitment totender 75% of payment in US Dollars, and which still retained overdue amountscollectible by VPECI.

Second, appellant was very much aware of the violations committed by the SOB of itscontractual undertakings with VPECI, principally, the payment of foreign currency (US$)for 75% of the total contract price, as well as of the complications and injustice that willresult from its payment of the full amount of the performance guarantee, as evident inPHILGUARANTEE's letter dated 13 May 1987 ….

Third, appellant was fully aware that SOB was in fact still obligated to the Joint Ventureand there was still an amount collectible from and still being retained by the projectowner, which amount can be set-off with the sum covered by the performanceguarantee.

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Fourth, well-apprised of the above conditions obtaining at the Project site and cognizantof the war situation at the time in Iraq, appellant, though earlier has maderepresentations with the SOB regarding a possible amicable termination of the Project assuggested by VPECI, made a complete turn-around and insisted on acting in favor of theunjustified "call" by the foreign banks.35

The petitioner then came to this Court via Rule 45 of the Rules of Court claiming that the Courtof Appeals erred in affirming the trial court's ruling that

I

…RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF UNDERTAKING THEY EXECUTEDIN FAVOR OF PETITIONER IN CONSIDERATION FOR THE ISSUANCE OF ITS COUNTER-GUARANTEE AND THAT PETITIONER CANNOT PASS ON TO RESPONDENTS WHAT IT HADPAID UNDER THE SAID COUNTER-GUARANTEE.

II

…PETITIONER CANNOT CLAIM SUBROGATION.

III

…IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD RESPONDENTS LIABLEUNDER THEIR DEED OF UNDERTAKING.36

The main issue in this case is whether the petitioner is entitled to reimbursement of what it paidunder Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait based on the deed ofundertaking and surety bond from the respondents.

The petitioner asserts that since the guarantee it issued was absolute, unconditional, andirrevocable the nature and extent of its liability are analogous to those of suretyship. Its liabilityaccrued upon the failure of the respondents to finish the construction of the Institute of PhysicalTherapy Buildings in Baghdad.

By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligationof the principal debtor in case the latter should fail to do so. If a person binds himself solidarilywith the principal debtor, the contract is called suretyship. 37

Strictly speaking, guaranty and surety are nearly related, and many of the principles arecommon to both. In both contracts, there is a promise to answer for the debt or default ofanother. However, in this jurisdiction, they may be distinguished thus:

1. A surety is usually bound with his principal by the same instrument executed at thesame time and on the same consideration. On the other hand, the contract of guarantyis the guarantor's own separate undertaking often supported by a consideration separatefrom that supporting the contract of the principal; the original contract of his principal isnot his contract.

2. A surety assumes liability as a regular party to the undertaking; while the liability of aguarantor is conditional depending on the failure of the primary debtor to pay theobligation.

3. The obligation of a surety is primary, while that of a guarantor is secondary.

4. A surety is an original promissor and debtor from the beginning, while a guarantor ischarged on his own undertaking.

5. A surety is, ordinarily, held to know every default of his principal; whereas aguarantor is not bound to take notice of the non-performance of his principal.

6. Usually, a surety will not be discharged either by the mere indulgence of the creditorto the principal or by want of notice of the default of the principal, no matter how muchhe may be injured thereby. A guarantor is often discharged by the mere indulgence of

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the creditor to the principal, and is usually not liable unless notified of the default of theprincipal. 38

In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81-194-F,which provides in part as follows:

In consideration of your issuing the above performance guarantee/counter-guarantee,we hereby unconditionally and irrevocably guarantee, under our Ref. No. LG-81-194 F topay you on your first written or telex demand Iraq Dinars Two Hundred Seventy OneThousand Eight Hundred Eight and fils six hundred ten (ID271,808/610) representing100% of the performance bond required of V.P. EUSEBIO for the construction of thePhysical Therapy Institute, Phase II, Baghdad, Iraq, plus interest and other incidentalexpenses related thereto.

In the event of default by V.P. EUSEBIO, we shall pay you 100% of theobligation unpaid but in no case shall such amount exceed Iraq Dinars (ID)271,808/610 plus interest and other incidental expenses…. (Emphasis supplied)39

Guided by the abovementioned distinctions between a surety and a guaranty, as well as thefactual milieu of this case, we find that the Court of Appeals and the trial court were correct inruling that the petitioner is a guarantor and not a surety. That the guarantee issued by thepetitioner is unconditional and irrevocable does not make the petitioner a surety. As aguaranty, it is still characterized by its subsidiary and conditional quality because it does nottake effect until the fulfillment of the condition, namely, that the principal obligor should fail inhis obligation at the time and in the form he bound himself.40 In other words, an unconditionalguarantee is still subject to the condition that the principal debtor should default in hisobligation first before resort to the guarantor could be had. A conditional guaranty, as opposedto an unconditional guaranty, is one which depends upon some extraneous event, beyond themere default of the principal, and generally upon notice of the principal's default and reasonablediligence in exhausting proper remedies against the principal.41

It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default byrespondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simplythat of an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact thatpetitioner's guaranty is unconditional does not make it a surety. Besides, surety is neverpresumed. A party should not be considered a surety where the contract itself stipulates that heis acting only as a guarantor. It is only when the guarantor binds himself solidarily with theprincipal debtor that the contract becomes one of suretyship.42

Having determined petitioner's liability as guarantor, the next question we have to grapple withis whether the respondent contractor has defaulted in its obligations that would justify resortto the guaranty. This is a mixed question of fact and law that is better addressed by the lowercourts, since this Court is not a trier of facts.

It is a fundamental and settled rule that the findings of fact of the trial court and the Court ofAppeals are binding or conclusive upon this Court unless they are not supported by theevidence or unless strong and cogent reasons dictate otherwise.43 The factual findings of theCourt of Appeals are normally not reviewable by us under Rule 45 of the Rules of Court exceptwhen they are at variance with those of the trial court. 44 The trial court and the Court ofAppeals were in unison that the respondent contractor cannot be considered to have defaultedin its obligations because the cause of the delay was not primarily attributable to it.

A corollary issue is what law should be applied in determining whether the respondentcontractor has defaultedin the performance of its obligations under the service contract. Thequestion of whether there is a breach of an agreement, whichincludes default or mora,45 pertains to the essential or intrinsic validity of a contract. 46

No conflicts rule on essential validity of contracts is expressly provided for in our laws. The rulefollowed by most legal systems, however, is that the intrinsic validity of a contract must begoverned by the lex contractus or "proper law of the contract." This is the law voluntarilyagreed upon by the parties (the lex loci voluntatis) or the law intended by them eitherexpressly or implicitly (the lex loci intentionis). The law selected may be implied from suchfactors as substantial connection with the transaction, or the nationality or domicile of theparties.47Philippine courts would do well to adopt the first and most basic rule in most legalsystems, namely, to allow the parties to select the law applicable to their contract, subject to

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the limitation that it is not against the law, morals, or public policy of the forum and that thechosen law must bear a substantive relationship to the transaction. 48

It must be noted that the service contract between SOB and VPECI contains no express choiceof the law that would govern it. In the United States and Europe, the two rules that now seemto have emerged as "kings of the hill" are (1) the parties may choose the governing law; and(2) in the absence of such a choice, the applicable law is that of the State that "has the mostsignificant relationship to the transaction and the parties."49 Another authority proposed that allmatters relating to the time, place, and manner of performance and valid excuses for non-performance are determined by the law of the place of performance or lex loci solutionis, whichis useful because it is undoubtedly always connected to the contract in a significant way.50

In this case, the laws of Iraq bear substantial connection to the transaction, since one of theparties is the Iraqi Government and the place of performance is in Iraq. Hence, the issue ofwhether respondent VPECI defaulted in its obligations may be determined by the laws of Iraq.However, since that foreign law was not properly pleaded or proved, the presumption ofidentity or similarity, otherwise known as the processual presumption, comes into play. Whereforeign law is not pleaded or, even if pleaded, is not proved, the presumption is that foreign lawis the same as ours.51

Our law, specifically Article 1169, last paragraph, of the Civil Code, provides: "In reciprocalobligations, neither party incurs in delay if the other party does not comply or is not ready tocomply in a proper manner with what is incumbent upon him."

Default or mora on the part of the debtor is the delay in the fulfillment of the prestation byreason of a cause imputable to the former. 52 It is the non-fulfillment of an obligation withrespect to time.53

It is undisputed that only 51.7% of the total work had been accomplished. The 48.3%unfinished portion consisted in the purchase and installation of electro-mechanical equipmentand materials, which were available from foreign suppliers, thus requiring US Dollars for theirimportation. The monthly billings and payments made by SOB54 reveal that the agreementbetween the parties was a periodic payment by the Project owner to the contractor dependingon the percentage of accomplishment within the period. 55 The payments were, in turn, to beused by the contractor to finance the subsequent phase of the work. 56 However, as explainedby VPECI in its letter to the Department of Foreign Affairs (DFA), the payment by SOB purely inDinars adversely affected the completion of the project; thus:

4. Despite protests from the plaintiff, SOB continued paying the accomplishment billingsof the Contractor purely in Iraqi Dinars and which payment came only after somedelays.

5. SOB is fully aware of the following:

5.2 That Plaintiff is a foreign contractor in Iraq and as such, would need foreign currency(US$), to finance the purchase of various equipment, materials, supplies, tools and topay for the cost of project management, supervision and skilled labor not available inIraq and therefore have to be imported and or obtained from the Philippines and othersources outside Iraq.

5.3 That the Ministry of Labor and Employment of the Philippines requires the remittanceinto the Philippines of 70% of the salaries of Filipino workers working abroad in USDollars;

5.5 That the Iraqi Dinar is not a freely convertible currency such that the same cannotbe used to purchase equipment, materials, supplies, etc. outside of Iraq;

5.6 That most of the materials specified by SOB in the CONTRACT are not available inIraq and therefore have to be imported;

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5.7 That the government of Iraq prohibits the bringing of local currency (Iraqui Dinars)out of Iraq and hence, imported materials, equipment, etc., cannot be purchased orobtained using Iraqui Dinars as medium of acquisition.

8. Following the approved construction program of the CONTRACT, upon completion ofthe civil works portion of the installation of equipment for the building, shouldimmediately follow, however, the CONTRACT specified that these equipment which areto be installed and to form part of the PROJECT have to be procured outside Iraq sincethese are not being locally manufactured. Copy f the relevant portion of the TechnicalSpecification is hereto attached as Annex "C" and made an integral part hereof;

10. Due to the lack of Foreign currency in Iraq for this purpose, and if only to assist theIraqi government in completing the PROJECT, the Contractor without any obligation onits part to do so but with the knowledge and consent of SOB and the Ministry of Housing& Construction of Iraq, offered to arrange on behalf of SOB, a foreign currency loan,through the facilities of Circle International S.A., the Contractor's Sub-contractor andSACE MEDIO CREDITO which will act as the guarantor for this foreign currency loan.

Arrangements were first made with Banco di Roma. Negotiation started in June 1985.SOB is informed of the developments of this negotiation, attached is a copy of the draftof the loan Agreement between SOB as the Borrower and Agent. The Several Banks, asLender, and counter-guaranteed by Istituto Centrale Per II Credito A Medio Termine(Mediocredito) Sezione Speciale Per L'Assicurazione Del Credito All'Exportazione (Sace).Negotiations went on and continued until it suddenly collapsed due to the reporteddefault by Iraq in the payment of its obligations with Italian government, copy of thenews clipping dated June 18, 1986 is hereto attached as Annex "D" to form an integralpart hereof;

15. On September 15, 1986, Contractor received information from Circle InternationalS.A. that because of the news report that Iraq defaulted in its obligations with Europeanbanks, the approval by Banco di Roma of the loan to SOB shall be deferred indefinitely,a copy of the letter of Circle International together with the news clippings are heretoattached as Annexes "F" and "F-1", respectively.57

As found by both the Court of Appeals and the trial court, the delay or the non-completion ofthe Project was caused by factors not imputable to the respondent contractor. It was rather duemainly to the persistent violations by SOB of the terms and conditions of the contract,particularly its failure to pay 75% of the accomplished work in US Dollars. Indeed, where oneof the parties to a contract does not perform in a proper manner the prestation which he isbound to perform under the contract, he is not entitled to demand the performance of the otherparty. A party does not incur in delay if the other party fails to perform the obligationincumbent upon him.

The petitioner, however, maintains that the payments by SOB of the monthly billings in purelyIraqi Dinars did not render impossible the performance of the Project by VPECI. Such posture isquite contrary to its previous representations. In his 26 March 1987 letter to the Office of theMiddle Eastern and African Affairs (OMEAA), DFA, Manila, petitioner's Executive Vice-PresidentJesus M. Tañedo stated that while VPECI had taken every possible measure to complete theProject, the war situation in Iraq, particularly the lack of foreign exchange, was proving to be agreat obstacle; thus:

VPECI has taken every possible measure for the completion of the project but the warsituation in Iraq particularly the lack of foreign exchange is proving to be a greatobstacle. Our performance counterguarantee was called last 26 October 1986 when thenegotiations for a foreign currency loan with the Italian government through Banco deRoma bogged down following news report that Iraq has defaulted in its obligation withmajor European banks. Unless the situation in Iraq is improved as to allay the bank'sapprehension, there is no assurance that the project will ever be completed. 58

In order that the debtor may be in default it is necessary that the following requisites bepresent: (1) that the obligation be demandable and already liquidated; (2) that the debtor

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delays performance; and (3) that the creditor requires the performance because it must appearthat the tolerance or benevolence of the creditor must have ended. 59

As stated earlier, SOB cannot yet demand complete performance from VPECI because it has notyet itself performed its obligation in a proper manner, particularly the payment of the 75% ofthe cost of the Project in US Dollars. The VPECI cannot yet be said to have incurred in delay.Even assuming that there was delay and that the delay was attributable to VPECI, still theeffects of that delay ceased upon the renunciation by the creditor, SOB, which could be impliedwhen the latter granted several extensions of time to the former. 60 Besides, no demand hasyet been made by SOB against the respondent contractor. Demand is generally necessary evenif a period has been fixed in the obligation. And default generally begins from the moment thecreditor demands judicially or extra-judicially the performance of the obligation. Without suchdemand, the effects of default will not arise.61

Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannotbe compelled to pay the creditor SOB unless the property of the debtor VPECI has beenexhausted and all legal remedies against the said debtor have been resorted to by thecreditor.62 It could also set up compensation as regards what the creditor SOB may owe theprincipal debtor VPECI.63 In this case, however, the petitioner has clearly waived these rightsand remedies by making the payment of an obligation that was yet to be shown to be rightfullydue the creditor and demandable of the principal debtor.

As found by the Court of Appeals, the petitioner fully knew that the joint venture contractor hadcollectibles from SOB which could be set off with the amount covered by the performanceguarantee. In February 1987, the OMEAA transmitted to the petitioner a copy of a telex dated10 February 1987 of the Philippine Ambassador in Baghdad, Iraq, informing it of the noteverbale sent by the Iraqi Ministry of Foreign Affairs stating that the past due obligations of thejoint venture contractor from the petitioner would "be deducted from the dues of the twocontractors."64

Also, in the project situationer attached to the letter to the OMEAA dated 26 March 1987, thepetitioner raised as among the arguments to be presented in support of the cancellation of thecounter-guarantee the fact that the amount of ID281,414/066 retained by SOB from the Projectwas more than enough to cover the counter-guarantee of ID271,808/610; thus:

6.1 Present the following arguments in cancelling the counterguarantee:

· The Iraqi Government does not have the foreign exchange to fulfill itscontractual obligations of paying 75% of progress billings in US dollars.

· It could also be argued that the amount of ID281,414/066 retained by SOBfrom the proposed project is more than the amount of the outstandingcounterguarantee.65

In a nutshell, since the petitioner was aware of the contractor's outstanding receivables fromSOB, it should have set up compensation as was proposed in its project situationer.

Moreover, the petitioner was very much aware of the predicament of the respondents. In fact,in its 13 May 1987 letter to the OMEAA, DFA, Manila, it stated:

VPECI also maintains that the delay in the completion of the project was mainly due toSOB's violation of contract terms and as such, call on the guarantee has no basis.

While PHILGUARANTEE is prepared to honor its commitment under the guarantee,PHILGUARANTEE does not want to be an instrument in any case of inequity committedagainst a Filipino contractor. It is for this reason that we are constrained to seek yourassistance not only in ascertaining the veracity of Al Ahli Bank's claim that it has paidRafidain Bank but possibly averting such an event. As any payment effected by thebanks will complicate matters, we cannot help underscore the urgency of VPECI's bid forgovernment intervention for the amicable termination of the contract and release of theperformance guarantee. 66

But surprisingly, though fully cognizant of SOB's violations of the service contract and VPECI'soutstanding receivables from SOB, as well as the situation obtaining in the Project site

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compounded by the Iran-Iraq war, the petitioner opted to pay the second layer guarantor notonly the full amount of the performance bond counter-guarantee but also interests and penaltycharges.

This brings us to the next question: May the petitioner as a guarantor secure reimbursementfrom the respondents for what it has paid under Letter of Guarantee No. 81-194-F?

As a rule, a guarantor who pays for a debtor should be indemnified by the latter67 and would belegally subrogated to the rights which the creditor has against the debtor.68 However, a personwho makes payment without the knowledge or against the will of the debtor has the right torecover only insofar as the payment has been beneficial to the debtor.69 If the obligation wassubject to defenses on the part of the debtor, the same defenses which could have been set upagainst the creditor can be set up against the paying guarantor.70

From the findings of the Court of Appeals and the trial court, it is clear that the payment madeby the petitioner guarantor did not in any way benefit the principal debtor, given the projectstatus and the conditions obtaining at the Project site at that time. Moreover, the respondentcontractor was found to have valid defenses against SOB, which are fully supported by evidenceand which have been meritoriously set up against the paying guarantor, the petitioner in thiscase. And even if the deed of undertaking and the surety bond secured petitioner's guaranty,the petitioner is precluded from enforcing the same by reason of the petitioner's unduepayment on the guaranty. Rights under the deed of undertaking and the surety bond do notarise because these contracts depend on the validity of the enforcement of the guaranty.

The petitioner guarantor should have waited for the natural course of guaranty: the debtorVPECI should have, in the first place, defaulted in its obligation and that the creditor SOBshould have first made a demand from the principal debtor. It is only when the debtor does notor cannot pay, in whole or in part, that the guarantor should pay.71 When the petitionerguarantor in this case paid against the will of the debtor VPECI, the debtor VPECI may set upagainst it defenses available against the creditor SOB at the time of payment. This is the hardlesson that the petitioner must learn.

As the government arm in pursuing its objective of providing "the necessary support andassistance in order to enable … [Filipino exporters and contractors to operate viably under theprevailing economic and business conditions,"72 the petitioner should have exercised prudenceand caution under the circumstances. As aptly put by the Court of Appeals, it would be theheight of inequity to allow the petitioner to pass on its losses to the Filipino contractor VPECIwhich had sternly warned against paying the Al Ahli Bank and constantly apprised it of thedevelopments in the Project implementation.

WHEREFORE, the petition for review on certiorari is hereby DENIED for lack of merit, and thedecision of the Court of appeals in CA-G.R. CV No. 39302 is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Panganiban, Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Footnotes

1 Now known as the Trade Investment Development Corporation of the Philippines.

2 Exhibit "V" and "2-3," Original Record, vol. III (hereinafter OR III), 395.

3 Exh.12-E," OR III, 433.

4 Exh.12-E," OR III, 433.

5 Exh."9-A," OR III, 416.

6 Exh."12-G," OR III, 435.

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7 Exh."V," OR III, 395.

8 Exh."13-V," OR III, 447.

9 CA Decision, 3.

10 Exh."A," OR III, 49.

11 Exh."B," OR III, 64.

12 Exh."11," OR III, 421.

13 Exh."12," OR III, 81.

14 Exh."E-1," OR III, 83.

15 Exh."1," OR III, 276.

16 Exh."1-J," OR III, 282.

17 Exh."A-1," OR III, 51.

18 Exh."E-2," OR III, 84.

19 Exhs. "A-2" to "A-13," OR III, 51-63.

20 Exhs. "B-2" to "B-4," OR III, 67-69.

21 Exhs."E" to "E-12," OR III, 84.

22 TSN, 10 April 1992, 41-44.

23 Exh. "22," OR III, 344-345.

24 Exh."40," OR III, 366.

25 Exh."16," OR III, 220.

26 Exh."G-12-a," OR III, 207.

27 Exh.7-A," OR III, 306.

28 Exh."G-12-g," OR III, 213.

29 Exh."I," OR III, 230.

30 Exh."G-12-h," OR III, 214.

31 Exhs."G-13-d" to "G-13-f," OR III, 220-222; Exh."G-12-h," OR III, 214.

32 Exhs. "Q" to "T," OR III, 254-263.

33 Per Judge Zosimo Z. Angeles. Rollo, 72-79.

34 Per Associate Justice Martin S. Villarama, Jr. with Associate Justices AngelinaSandoval-Gutierrez (now Supreme Court Associate Justice) and Romeo A. Brawnerconcurring. Rollo, 48-71.

35 Rollo, 61-68.

36 Id., 293-294.

37 Article 2047, Civil Code.

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

39 Exh. "A," OR III, 49-50.

40 VI Padilla 494.

41 Black's Law Dictionary 635 (5th ed. 1979).

42 Art.2047, Civil Code.

43 Alba v. Court of Appeals, G.R. No. 120066, 9 September 1999, 314 SCRA 36.

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

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

46 Jovito R. Salonga, Private International Law 350 (1995 ed.) (hereinafter Salonga).

47 Edgardo L. PAras, Philippine Conflict of Laws 414 (6th ed. 1984).

48 Salonga, 356.

49 Id., 355.

50 Jorge R. Coquia & Elizabeth A. Pangalangan, Conflict of Laws 418 (1995 ed.).

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

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

53 Jurado, 50.

54 Exhs. "16" to "16-O,"OR III, 454-469.

55 See Court of Appeals' Decision, 19, Rollo, 66; RTC's Decision, 22, Rollo, 93.

56 RTC's Decision, 22; Rollo, 93.

57 Exhs. "4-A" to "4-D," OR III, 296-298.

58 Exh."25," OR III, 352.

59 IV Tolentino 110.

60 Id.,102.

61 Id.,110.

62 Art.2058, Civil Code.

63 Art.1280, Civil Code.

64 Exh. "23," OR III, 348-349.

65 Exh."25-E," OR III, 355.

66 Exh. "5," OR III, 303-304.

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67 Art.2066, Civil Code.

68 Arts.1302(3) and 2067, Civil Code.

69 Art.1236, second par., Civil Code.

70 VI Padilla, 545.

71 V Tolentino, 521.

72 4th Whereas Clause of Executive Order No. 185, which took effect on 5 June 1987.

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Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 149177 November 23, 2007

KAZUHIRO HASEGAWA and NIPPON ENGINEERING CONSULTANTS CO.,LTD., Petitioners,vs.MINORU KITAMURA, Respondent.

D E C I S I O N

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Courtassailing the April 18, 2001 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 60827,and the July 25, 2001 Resolution2denying the motion for reconsideration thereof.

On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd. (Nippon), a Japaneseconsultancy firm providing technical and management support in the infrastructure projects offoreign governments,3 entered into an Independent Contractor Agreement (ICA) withrespondent Minoru Kitamura, a Japanese national permanently residing in the Philippines.4 Theagreement provides that respondent was to extend professional services to Nippon for a yearstarting on April 1, 1999.5 Nippon then assigned respondent to work as the project manager ofthe Southern Tagalog Access Road (STAR) Project in the Philippines, following the company'sconsultancy contract with the Philippine Government.6

When the STAR Project was near completion, the Department of Public Works and Highways(DPWH) engaged the consultancy services of Nippon, on January 28, 2000, this time for thedetailed engineering and construction supervision of the Bongabon-Baler Road Improvement(BBRI) Project.7 Respondent was named as the project manager in the contract's Appendix3.1.8

On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's general manager for itsInternational Division, informed respondent that the company had no more intention ofautomatically renewing his ICA. His services would be engaged by the company only up to thesubstantial completion of the STAR Project on March 31, 2000, just in time for the ICA'sexpiry.9

Threatened with impending unemployment, respondent, through his lawyer, requesteda negotiation conferenceand demanded that he be assigned to the BBRI project. Nippon insistedthat respondent’s contract was for a fixed term that had already expired, and refused tonegotiate for the renewal of the ICA.10

As he was not able to generate a positive response from the petitioners, respondentconsequently initiated on June 1, 2000 Civil Case No. 00-0264 for specific performance anddamages with the Regional Trial Court of Lipa City.11

For their part, petitioners, contending that the ICA had been perfected in Japan and executedby and between Japanese nationals, moved to dismiss the complaint for lack of jurisdiction.They asserted that the claim forimproper pre-termination of respondent's ICA could only beheard and ventilated in the proper courts of Japan following the principles of lex locicelebrationis and lex contractus.12

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

On June 29, 2000, the RTC, invoking our ruling in Insular Government v. Frank14 that mattersconnected with the performance of contracts are regulated by the law prevailing at the place ofperformance,15 denied the motion to dismiss.16 The trial court subsequently denied petitioners'motion for reconsideration,17 prompting them to file with the appellate court, on August 14,2000, their first Petition for Certiorari under Rule 65 [docketed as CA-G.R. SP No. 60205].18 OnAugust 23, 2000, the CA resolved to dismiss the petition on procedural grounds—for lack of

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statement of material dates and for insufficient verification and certification against forumshopping.19 An Entry of Judgment was later issued by the appellate court on September 20,2000.20

Aggrieved by this development, petitioners filed with the CA, on September 19, 2000, stillwithin the reglementary period, a second Petition for Certiorari under Rule 65 already statingtherein the material dates and attaching thereto the proper verification and certification. Thissecond petition, which substantially raised the same issues as those in the first, was docketedas CA-G.R. SP No. 60827.21

Ruling on the merits of the second petition, the appellate court rendered the assailed April 18,2001 Decision22finding no grave abuse of discretion in the trial court's denial of the motion todismiss. The CA ruled, among others, that the principle of lex loci celebrationis was notapplicable to the case, because nowhere in the pleadings was the validity of the writtenagreement put in issue. The CA thus declared that the trial court was correct in applyinginstead the principle of lex loci solutionis.23

Petitioners' motion for reconsideration was subsequently denied by the CA in the assailed July25, 2001 Resolution.24

Remaining steadfast in their stance despite the series of denials, petitioners instituted theinstant Petition for Review on Certiorari25 imputing the following errors to the appellate court:

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

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

The pivotal question that this Court is called upon to resolve is whether the subject matterjurisdiction of Philippine courts in civil cases for specific performance and damages involvingcontracts executed outside the country by foreign nationals may be assailed on the principlesof 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 bythe respondent.

Kitamura contends that the finality of the appellate court's decision in CA-G.R. SP No. 60205has 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 forreview thereof.

We do not agree. When the CA dismissed CA-G.R. SP No. 60205 on account of the petition'sdefective certification of non-forum shopping, it was a dismissal without prejudice.27 The sameholds true in the CA's dismissal of the said case due to defects in the formal requirement ofverification28 and in the other requirement in Rule 46 of the Rules of Court on the statement ofthe 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 certification—as they,in fact did—and stating therein the material dates, within the prescribed period30 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 andleaves the parties free to litigate the matter in a subsequent action as though the dismissedaction had not been commenced. In other words, the termination of a case not on the meritsdoes not bar another action involving the same parties, on the same subject matter andtheory.32

Necessarily, because the said dismissal is without prejudice and has no res judicata effect, andeven if petitioners still indicated in the verification and certification of thesecond certiorari petition that the first had already been dismissed on proceduralgrounds,33 petitioners are no longer required by the Rules to indicate in their certification of

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non-forum shopping in the instant petition for review of the second certiorari petition, thestatus of the aforesaid first petition before the CA. In any case, an omission in the certificate ofnon-forum shopping about any event that will not constitute res judicata and litis pendentia, asin the present case, is not a fatal defect. It will not warrant the dismissal and nullification of theentire proceedings, considering that the evils sought to be prevented by the said certificate areno longer present.34

The Court also finds no merit in respondent's contention that petitioner Hasegawa is onlyauthorized to verify and certify, on behalf of Nippon, the certiorari petition filed with the CA andnot the instant petition. True, the Authorization35 dated September 4, 2000, which is attachedto the second certiorari petition and which is also attached to the instant petition for review, islimited in scope—its wordings indicate that Hasegawa is given the authority to sign for and acton behalf of the company only in the petition filed with the appellate court, and that authoritycannot extend to the instant petition for review.36 In a plethora of cases, however, this Courthas liberally applied the Rules or even suspended its application whenever a satisfactoryexplanation and a subsequent fulfillment of the requirements have been made.37 Given thatpetitioners herein sufficiently explained their misgivings on this point and appended to theirReply38 an updated Authorization39 for Hasegawa to act on behalf of the company in the instantpetition, 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 verificationand certification. As respondent pointed out, and to which we agree, Hasegawa is truly notauthorized to act on behalf of Nippon in this case. The aforesaid September 4, 2000Authorization and even the subsequent August 17, 2001 Authorization were issued only byNippon's president and chief executive officer, not by the company's board of directors. In not afew 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 theboard.40Considering that Hasegawa verified and certified the petition only on his behalf and noton behalf of the other petitioner, the petition has to be denied pursuant to Loquias v. Office ofthe Ombudsman.41 Substantial compliance will not suffice in a matter that demands strictobservance of the Rules.42 While technical rules of procedure are designed not to frustrate theends of justice, nonetheless, they are intended to effect the proper and orderly disposition ofcases and effectively prevent the clogging of court dockets.43

Further, the Court has observed that petitioners incorrectly filed a Rule 65 petition to questionthe trial court's denial of their motion to dismiss. It is a well-established rule that an orderdenying a motion to dismiss is interlocutory, and cannot be the subject of the extraordinarypetition for certiorari or mandamus. The appropriate recourse is to file an answer and tointerpose as defenses the objections raised in the motion, to proceed to trial, and, in case of anadverse decision, to elevate the entire case by appeal in due course.44 While there arerecognized 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 jurisdictionto 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 Japanesenationals, and written wholly in the Japanese language. Thus, petitioners posit that local courtshave no substantial relationship to the parties46following the [state of the] most significantrelationship rule in Private International Law.47

The Court notes that petitioners adopted an additional but different theory when they elevatedthe case to the appellate court. In the Motion to Dismiss48 filed with the trial court, petitionersnever contended that the RTC is an inconvenient forum. They merely argued that the applicablelaw 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 thisstance in their petition before the appellate court, petitioners on certiorari significantly invokedthe defense of forum non conveniens.50 On petition for review before this Court, petitionersdropped their other arguments, maintained the forum non conveniens defense, and introducedtheir new argument that the applicable principle is the [state of the] most significantrelationship rule.51

Be that as it may, this Court is not inclined to deny this petition merely on the basis of thechange in theory, as explained in Philippine Ports Authority v. City of Iloilo.52 We only pointedout petitioners' inconstancy in their arguments to emphasize their incorrect assertion of conflictof laws principles.

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To elucidate, in the judicial resolution of conflicts problems, three consecutive phases areinvolved: jurisdiction, choice of law, and recognition and enforcement of judgments.Corresponding to these phases are the following questions: (1) Where can or should litigationbe initiated? (2) Which law will the court apply? and (3) Where can the resulting judgment beenforced?53

Analytically, jurisdiction and choice of law are two distinct concepts.54 Jurisdiction considerswhether it is fair to cause a defendant to travel to this state; choice of law asks the furtherquestion whether the application of a substantive law which will determine the merits of thecase is fair to both parties. The power to exercise jurisdiction does not automatically give astate constitutional authority to apply forum law. While jurisdiction and the choice of the lexfori 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 appliedto a transaction is different from the question of whether the courts of that state havejurisdiction to enter a judgment.56

In this case, only the first phase is at issue—jurisdiction.1âwphi1 Jurisdiction, however, hasvarious aspects. For a court to validly exercise its power to adjudicate a controversy, it musthave jurisdiction over the plaintiff or the petitioner, over the defendant or the respondent, overthe subject matter, over the issues of the case and, in cases involving property, over the res orthe 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 sovereignauthority which establishes and organizes the court. It is given only by law and in the mannerprescribed by law.58 It is further determined by the allegations of the complaint irrespective ofwhether the plaintiff is entitled to all or some of the claims asserted therein.59 To succeed in itsmotion for the dismissal of an action for lack of jurisdiction over the subject matter of theclaim,60 the movant must show that the court or tribunal cannot act on the matter submitted toit 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 isnot properly vested by law with jurisdiction to hear the subject controversy for, indeed, CivilCase No. 00-0264 for specific performance and damages is one not capable of pecuniaryestimation and is properly cognizable by the RTC of Lipa City.62What they rather raise asgrounds to question subject matter jurisdiction are the principles of lex loci celebrationis and lexcontractus, 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 placewhere a contract is made.64 The doctrine of lex contractus or lex loci contractus means the "lawof the place where a contract is executed or to be performed."65 It controls the nature,construction, and validity of the contract66 and it may pertain to the law voluntarily agreed uponby the parties or the law intended by them either expressly or implicitly.67 Under the "state ofthe most significant relationship rule," to ascertain what state law to apply to a dispute, thecourt should determine which state has the most substantial connection to the occurrence andthe parties. In a case involving a contract, the court should consider where the contract wasmade, was negotiated, was to be performed, and the domicile, place of business, or place ofincorporation of the parties.68 This rule takes into account several contacts and evaluates themaccording 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'slaw is to be applied in resolving the substantive issues of a conflicts problem.71 Necessarily, asthe only issue in this case is that of jurisdiction, choice-of-law rules are not only inapplicablebut also not yet called for.

Further, petitioners' premature invocation of choice-of-law rules is exposed by the fact thatthey have not yet pointed out any conflict between the laws of Japan and ours. Beforedetermining which law should apply, first there should exist a conflict of laws situation requiringthe application of the conflict of laws rules.72 Also, when the law of a foreign country is invokedto provide the proper rules for the solution of a case, the existence of such law must be pleadedand proved.73

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It should be noted that when a conflicts case, one involving a foreign element, is broughtbefore a court or administrative agency, there are three alternatives open to the latter indisposing of it: (1) dismiss the case, either because of lack of jurisdiction or refusal to assumejurisdiction over the case; (2) assume jurisdiction over the case and apply the internal law ofthe forum; or (3) assume jurisdiction over the case and take into account or apply the law ofsome other State or States.74 The court’s power to hear cases and controversies is derived fromthe Constitution and the laws. While it may choose to recognize laws of foreign nations, thecourt is not limited by foreign sovereign law short of treaties or other formal agreements, evenin matters regarding rights provided by foreign sovereigns.75

Neither can the other ground raised, forum non conveniens,76 be used to deprive the trial courtof 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 shouldbe entertained or dismissed on the basis of the said doctrine depends largely upon the facts ofthe particular case and is addressed to the sound discretion of the trial court.78 In this case, theRTC decided to assume jurisdiction. Third, the propriety of dismissing a case based on thisprinciple requires a factual determination; hence, this conflicts principle is more properlyconsidered a matter of defense.79

Accordingly, since the RTC is vested by law with the power to entertain and hear the civil casefiled by respondent and the grounds raised by petitioners to assail that jurisdiction areinappropriate, the trial and appellate courts correctly denied the petitioners’ motion to dismiss.

WHEREFORE, premises considered, the petition for review on certiorari is DENIED.

SO ORDERED.

ANTONIO EDUARDO B. NACHURAAssociate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGOAssociate Justice

Chairperson

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

MINITA V. CHICO-NAZARIOAssociate Justice

RUBEN T. REYESAssociate Justice

A T T E S T A T I O N

I attest that the conclusions in the above Decision were reached in consultation before the casewas assigned to the writer of the opinion of the Court’s Division.

CONSUELO YNARES-SANTIAGOAssociate JusticeChairperson, Third Division

C E R T I F I C A T I O N

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson'sAttestation, I certify that the conclusions in the above Decision had been reached inconsultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

Footnotes

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

2 Id. at 46-47.

3 CA rollo (CA-G.R. SP No. 60827), p. 84.

4 Id. at 116-120.

5 Id. at 32-36.

6 Id. at 85.

7 Id. at 121-148.

8 Id. at 166-171.

9 Id. at 38.

10 Id. at 39-41.

11 Id. at 109.

12 Id. at 53-57.

13 Id. at 42-43.

14 13 Phil. 236 (1909).

15 Insular Government v. Frank, id. at 240.

16 CA rollo (CA-G.R. SP No. 60827), pp. 25-26.

17 Id. at 27-28.

18 CA rollo (CA-G.R. SP No. 60205), pp. 2-42.

19 Id. at 44. The August 23, 2000 Resolution penned by Associate Justice DelilahVidallon-Magtolis (retired), with the concurrence of Associate Justices Eloy R. Bello, Jr.(retired) and Elvi John S. Asuncion (dismissed) pertinently provides as follows:

"A cursory reading of the petition indicates no statement as to the date when thepetitioners filed their motion for reconsideration and when they received theorder of denial thereof, as required in Section 3, paragraph 2, Rule 46 of the1997 Rules of Civil Procedure as amended by Circular No. 39-98 dated August18, 1998 of the Supreme Court. Moreover, the verification and certification ofnon-forum shopping was executed by petitioner Kazuhiro Hasegawa for bothpetitioners without any indication that the latter had authorized him to file thesame.

"WHEREFORE, the [petition] is DENIED due course and DISMISSED outright.

"SO ORDERED."

20 Id. at 45.

21 CA rollo (CA-G.R. SP No. 60827), pp. 2-24.

22 Supra note 1.

23 Id. at 222.

24 Supra note 2.

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25 Rollo, pp. 3-35.

26 Id. at 15.

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

28 See Torres v. Specialized Packaging Development Corporation, G.R. No. 149634, July6, 2004, 433 SCRA 455, 463-464, in which the Court made the pronouncement that therequirement of verification is simply a condition affecting the form of pleadings, andnoncompliance therewith does not necessarily render it fatally defective.

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

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

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

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

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

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

35 Rollo, p. 33; CA rollo (CA-G.R. SP No. 60827), p. 23. The Authorization datedSeptember 4, 2000 pertinently reads:

"I, KEN TAKAGI, President and Chief Executive Officer of NIPPON ENGINEERINGCONSULTANTS CO., LTD., a corporation duly organized and existing inaccordance with the corporation laws of Japan, with principal address at 3-23-1Komagome, Toshima-ku Tokyo, Japan, hereby authorize its International DivisionGeneral Manager, Mr. Kazuhiro Hasegawa, to sign and act for and in behalf ofNippon Engineering Consultants Co., Ltd., for purposes of filing a Petition forCertiorari before the proper tribunal in the case entitled: "Kazuhiro Hasegawa andNippon Engineering Consultants Co., Ltd. vs. Minoru Kitamura and Hon. AvelinoC. Demetria of the Regional Trial Court, Fourth Judicial Region-Branch 85, LipaCity," and to do such other things, acts and deals which may be necessary andproper for the attainment of the said objectives" [Underscoring ours].

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

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37 Barcenas v. Tomas, G.R. No. 150321, March 31, 2005, 454 SCRA 593, 604.

38 Dated October 11, 2001; rollo, pp. 192-203.

39 Dated August 17, 2001, id. at 202.

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

41 392 Phil. 596, 603-604 (2000).

42 Loquias v. Office of the Ombudsman, id.at 604.

43 Santos v. Court of Appeals, 413 Phil. 41, 54 (2001).

44 Yutingco v. Court of Appeals, 435 Phil. 83, 92 (2002).

45 Bank of America NT & SA v. Court of Appeals, 448 Phil. 181, 193 (2003). As statedherein, under certain situations resort to certiorari is considered appropriate when: (1)the trial court issued the order without or in excess of jurisdiction; (2) there is patentgrave abuse of discretion by the trial court; or (3) appeal would not prove to be aspeedy and adequate remedy as when an appeal would not promptly relieve a defendantfrom the injurious effects of the patently mistaken order maintaining the plaintiff’sbaseless action and compelling the defendants needlessly to go through a protractedtrial and clogging the court dockets with another futile case.

46 Rollo, p. 228.

47 Id. at 234-245.

48 Dated June 5, 2000; CA rollo (CA-G.R. SP No. 60827), pp. 53-57.

49 Id. at 55.

50 Id. at 14.

51 Rollo, pp. 19-28.

52 453 Phil. 927, 934 (2003).

53 Scoles, Hay, Borchers, Symeonides, Conflict of Laws, 3rd ed. (2000), p. 3.

54 Coquia and Aguiling-Pangalangan, Conflict of Laws, 1995 ed., p. 64.

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

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

57 See Regalado, Remedial Law Compendium, Vol. 1, 8th Revised Ed., pp. 7-8.

58 U.S. v. De La Santa, 9 Phil. 22, 25-26 (1907).

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

60 See RULES OF COURT, Rule 16, Sec. 1.

61 See In Re: Calloway, 1 Phil. 11, 12 (1901).

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

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

64 <http://web2.westlaw.com/search/default.wl?rs=WLW7.10&action=Search&fn=_top&sv=Split&method=TNC&query=CA(+lex+loci+celebrationis+)&db=DIBLACK&utid=%7bD0AE3BEE-91BC-4B2B-B788-3FB4D963677B%7d&vr=2.0&rp=%2fsearch%2fdefault.wl&mt=WLIGeneralSubscription> (visited October 22, 2007).

65 <http://web2.westlaw.com/search/default.wl?rs=WLW7.10&action=Search&fn=_top&sv=Split&method=TNC&query=CA(+lex+loci+contractus+)&db=DIBLACK&utid=%7bD0AE3BEE-91BC-4B2B-B788-3FB4D963677B%7d&vr=2.0&rp=%2fsearch%2fdefault.wl&mt=WLIGeneralSubscription>(visited October 22, 2007).

66 Id.

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

68 <http://web2.westlaw.com/search/default.wl?rs=WLW7.10&action=Search&fn=_top&sv=Split&method=TNC&query=CA(+most+significant+relationship+)&db=DIBLACK&utid=%7bD0AE3BEE-91BC-4B2B-B788-3FB4D963677B%7d&vr=2.0&rp=%2fsearch%2fdefault.wl&mt=WLIGeneralSubscription> (visited October 22, 2007).

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

70 See Auten v. Auten, 308 N.Y 155, 159-160 (1954).

71 Supra note 53, at 117-118; supra note 54, at 64-65.

72 Laurel v. Garcia, G.R. Nos. 92013 and 92047, July 25, 1990, 187 SCRA 797, 810-811.

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

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

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

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

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

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

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

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Republic of the PhilippinesSUPREME COURT

SECOND DIVISION

G.R. No. 155014 November 11, 2005

CRESCENT PETROLEUM, LTD., Petitioner,vs.M/V "LOK MAHESHWARI," THE SHIPPING CORPORATION OF INDIA, and PORTSERVLIMITED and/or TRANSMAR SHIPPING, INC., Respondents.

D E C I S I O N

PUNO, J.:

This petition for review on certiorari under Rule 45 seeks the (a) reversal of the November 28,2001 Decision of the Court of Appeals in CA-G.R. No. CV-54920,1 which dismissed for "want ofjurisdiction" the instant case, and the September 3, 2002 Resolution of the same appellatecourt,2 which denied petitioner’s motion for reconsideration, and (b) reinstatement of the July25, 1996 Decision3 of the Regional Trial Court (RTC) in Civil Case No. CEB-18679, which heldthat respondents were solidarily liable to pay petitioner the sum prayed for in the complaint.

The facts are as follows: Respondent M/V "Lok Maheshwari" (Vessel) is an oceangoing vessel ofIndian registry that is owned by respondent Shipping Corporation of India (SCI), a corporationorganized and existing under the laws of India and principally owned by the Government ofIndia. It was time-chartered by respondent SCI to Halla Merchant Marine Co. Ltd. (Halla), aSouth Korean company. Halla, in turn, sub-chartered the Vessel through a time charter toTransmar Shipping, Inc. (Transmar). Transmar further sub-chartered the Vessel to PortservLimited (Portserv). Both Transmar and Portserv are corporations organized and existing underthe laws of Canada.

On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd.(Crescent), a corporation organized and existing under the laws of Canada that is engaged inthe business of selling petroleum and oil products for the use and operation of oceangoingvessels, to deliver marine fuel oils (bunker fuels) to the Vessel. Petitioner Crescent granted andconfirmed the request through an advice via facsimile dated November 2, 1995. As security forthe payment of the bunker fuels and related services, petitioner Crescent received two (2)checks in the amounts of US$100,000.00 and US$200,000.00. Thus, petitioner Crescentcontracted with its supplier, Marine Petrobulk Limited (Marine Petrobulk), another Canadiancorporation, for the physical delivery of the bunker fuels to the Vessel.

On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting toUS$103,544 inclusive of barging and demurrage charges to the Vessel at the port of PioneerGrain, Vancouver, Canada. The Chief Engineer Officer of the Vessel duly acknowledged andreceived the delivery receipt. Marine Petrobulk issued an invoice to petitioner Crescent for theUS$101,400.00 worth of the bunker fuels. Petitioner Crescent issued a check for the sameamount in favor of Marine Petrobulk, which check was duly encashed.

Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated November 21,1995 to "Portserv Limited, and/or the Master, and/or Owners, and/or Operators, and/orCharterers of M/V ‘Lok Maheshwari’" in the amount of US$103,544.00 with instruction to remitthe amount on or before December 1, 1995. The period lapsed and several demands weremade but no payment was received. Also, the checks issued to petitioner Crescent as securityfor the payment of the bunker fuels were dishonored for insufficiency of funds.As aconsequence, petitioner Crescent incurred additional expenses of US$8,572.61 for interest,tracking fees, and legal fees.

On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner Crescentinstituted before the RTC of Cebu City an action "for a sum of money with prayer for temporaryrestraining order and writ of preliminary attachment" against respondents Vessel and SCI,Portserv and/or Transmar. The case was raffled to Branch 10 and docketed as Civil Case No.CEB-18679.

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On May 3, 1996, the trial court issued a writ of attachment against the Vessel with bondat P2,710,000.00. Petitioner Crescent withdrew its prayer for a temporary restraining order andposted the required bond.

On May 18, 1996, summonses were served to respondents Vessel and SCI, and Portserv and/orTransmar through the Master of the Vessel. On May 28, 1996, respondents Vessel and SCI,through Pioneer Insurance and Surety Corporation (Pioneer), filed an urgent ex-parte motion toapprove Pioneer’s letter of undertaking, to consider it as counter-bond and to discharge theattachment. On May 29, 1996, the trial court granted the motion; thus, the letter ofundertaking was approved as counter-bond to discharge the attachment.

For failing to file their respective answers and upon motion of petitioner Crescent, the trial courtdeclared respondents Vessel and SCI, Portserv and/or Transmar in default. Petitioner Crescentwas allowed to present its evidence ex-parte.

On July 25, 1996, the trial court rendered its decision in favor of petitioner Crescent, thus:

WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff [Crescent]and against the defendants [Vessel, SCI, Portserv and/or Transmar].

Consequently, the latter are hereby ordered to pay plaintiff jointly and solidarily, the following:

(a) the sum of US$103,544.00, representing the outstanding obligation;

(b) interest of US$10,978.50 as of July 3, 1996, plus additional interest at 18% per annum forthe period thereafter, until the principal account is fully paid;

(c) attorney’s fees of P300,000.00; and

(d) P200,000.00 as litigation expenses.

SO ORDERED.

On August 19, 1996, respondents Vessel and SCI appealed to the Court of Appeals. Theyattached copies of the charter parties between respondent SCI and Halla, between Halla andTransmar, and between Transmar and Portserv. They pointed out that Portserv was a timecharterer and that there is a clause in the time charters between respondent SCI and Halla, andbetween Halla and Transmar, which states that "the Charterers shall provide and pay for all thefuel except as otherwise agreed." They submitted a copy of Part II of the Bunker FuelAgreement between petitioner Crescent and Portserv containing a stipulation that New York lawgoverns the "construction, validity and performance" of the contract. They likewise submittedcertified copies of the Commercial Instruments and Maritime Lien Act of the United States(U.S.), some U.S. cases, and some Canadian cases to support their defense.

On November 28, 2001, the Court of Appeals issued its assailed Decision, which reversed thatof the trial court,viz:

WHEREFORE, premises considered, the Decision dated July 25, 1996, issued by the RegionalTrial Court of Cebu City, Branch 10, is hereby REVERSED and SET ASIDE, and a new one isentered DISMISSING the instant case for want of jurisdiction.

The appellate court denied petitioner Crescent’s motion for reconsideration explaining that it"dismissed the instant action primarily on the ground of forum non conveniens considering thatthe parties are foreign corporations which are not doing business in the Philippines."

Hence, this petition submitting the following issues for resolution, viz:

1. Philippine courts have jurisdiction over a foreign vessel found inside Philippine waters for theenforcement of a maritime lien against said vessel and/or its owners and operators;

2. The principle of forum non conveniens is inapplicable to the instant case;

3. The trial court acquired jurisdiction over the subject matter of the instant case, as well asover the res and over the persons of the parties;

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4. The enforcement of a maritime lien on the subject vessel is expressly granted by law. TheShip Mortgage Acts as well as the Code of Commerce provides for relief to petitioner for itsunpaid claim;

5. The arbitration clause in the contract was not rigid or inflexible but expressly allowedpetitioner to enforce its maritime lien in Philippine courts provided the vessel was in thePhilippines;

6. The law of the state of New York is inapplicable to the present controversy as the same hasnot been properly pleaded and proved;

7. Petitioner has legal capacity to sue before Philippine courts as it is suing upon an isolatedbusiness transaction;

8. Respondents were duly served summons although service of summons upon respondents isnot a jurisdictional requirement, the action being a suit quasi in rem;

9. The trial court’s decision has factual and legal bases; and,

10. The respondents should be held jointly and solidarily liable.

In a nutshell, this case is for the satisfaction of unpaid supplies furnished by a foreign supplierin a foreign port to a vessel of foreign registry that is owned, chartered and sub-chartered byforeign entities.

Under Batas Pambansa Bilang 129, as amended by Republic Act No. 7691, RTCs exerciseexclusive original jurisdiction "(i)n all actions in admiralty and maritime where the demand orclaim exceeds two hundred thousand pesos (P200,000) or in Metro Manila, where such demandor claim exceeds four hundred thousand pesos (P400,000)." Two (2) tests have been used todetermine whether a case involving a contract comes within the admiralty and maritimejurisdiction of a court - the locational test and the subject matter test. The English rulefollows the locational test wherein maritime and admiralty jurisdiction, with a few exceptions, isexercised only on contracts made upon the sea and to be executed thereon. This is totallyrejected under the American rule where the criterion in determining whether a contract ismaritime depends on the nature and subject matter of the contract, having reference tomaritime service and transactions.4 In International Harvester Company of thePhilippines v. Aragon,5 we adopted the American rule and held that "(w)hether or not acontract is maritime depends not on the place where the contract is made and is to beexecuted, making the locality the test, but on the subject matter of the contract, making thetrue criterion a maritime service or a maritime transaction."

A contract for furnishing supplies like the one involved in this case is maritime and within thejurisdiction of admiralty.6 It may be invoked before our courts through an action in rem or quasiin rem or an action in personam. Thus: 7

x x x

"Articles 579 and 584 [of the Code of Commerce] provide a method of collecting or enforcingnot only the liens created under Section 580 but also for the collection of any kind of lienwhatsoever."8 In the Philippines, we have a complete legislation, both substantive andadjective, under which to bring an action in rem against a vessel for the purpose of enforcingliens. The substantive law is found in Article 580 of the Code of Commerce. The procedural lawis to be found in Article 584 of the same Code. The result is, therefore, that in the Philippinesany vessel – even though it be a foreign vessel – found in any port of this Archipelago may beattached and sold under the substantive law which defines the right, and the procedural lawcontained in the Code of Commerce by which this right is to be enforced.9 x x x. But whereneither the law nor the contract between the parties creates any lien or charge upon the vessel,the only way in which it can be seized before judgment is by pursuing the remedy relating toattachment under Rule 59 [now Rule 57] of the Rules of Court.10

But, is petitioner Crescent entitled to a maritime lien under our laws? Petitioner Crescent basesits claim of a maritime lien on Sections 21, 22 and 23 of Presidential Decree No.1521 (P.D. No. 1521), also known as theShip Mortgage Decree of 1978, viz:

Sec. 21. Maritime Lien for Necessaries; persons entitled to such lien. - Any person furnishingrepairs, supplies, towage, use of dry dock or maritime railway, or other necessaries, to any

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vessel, whether foreign or domestic, upon the order of the owner of such vessel, or of a personauthorized by the owner, shall have a maritime lien on the vessel, which may be enforced bysuit in rem, and it shall be necessary to allege or prove that credit was given to the vessel.

Sec. 22. Persons Authorized to Procure Repairs, Supplies and Necessaries. - The followingpersons shall be presumed to have authority from the owner to procure repairs, supplies,towage, use of dry dock or marine railway, and other necessaries for the vessel: The managingowner, ship’s husband, master or any person to whom the management of the vessel at theport of supply is entrusted. No person tortuously or unlawfully in possession or charge of avessel shall have authority to bind the vessel.

Sec. 23. Notice to Person Furnishing Repairs, Supplies and Necessaries. - The officers andagents of a vessel specified in Section 22 of this Decree shall be taken to include such officersand agents when appointed by a charterer, by an owner pro hac vice, or by an agreedpurchaser in possession of the vessel; but nothing in this Decree shall be construed to confer alien when the furnisher knew, or by exercise of reasonable diligence could have ascertained,that because of the terms of a charter party, agreement for sale of the vessel, or for any otherreason, the person ordering the repairs, supplies, or other necessaries was without authority tobind the vessel therefor.

Petitioner Crescent submits that these provisions apply to both domestic and foreign vessels, aswell as domestic and foreign suppliers of necessaries. It contends that the use of the term "anyperson" in Section 21 implies that the law is not restricted to domestic suppliers but alsoincludes all persons who supply provisions and necessaries to a vessel, whether foreign ordomestic. It points out further that the law does not indicate that the supplies or necessariesmust be furnished in the Philippines in order to give petitioner the right to seek enforcement ofthe lien with a Philippine court.11

Respondents Vessel and SCI, on the other hand, maintain that Section 21 of the P.D. No. 1521or the Ship Mortgage Decree of 1978 does not apply to a foreign supplier like petitionerCrescent as the provision refers only to a situation where the person furnishing the supplies issituated inside the territory of the Philippines and not where the necessaries were furnished in aforeign jurisdiction like Canada.12

We find against petitioner Crescent.

I.

P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted "to accelerate the growth anddevelopment of the shipping industry" and "to extend the benefits accorded to overseasshipping under Presidential Decree No. 214 to domestic shipping."13 It is patterned closely fromthe U.S. Ship Mortgage Act of 1920 and the Liberian Maritime Law relating to preferredmortgages.14 Notably, Sections 21, 22 and 23 of P.D. No. 1521 or the Ship Mortgage Decree of1978 are identical to Subsections P, Q, and R, respectively, of the U.S. Ship Mortgage Act of1920, which is part of the Federal Maritime Lien Act. Hence, U.S. jurisprudence finds relevanceto determining whether P.D. No. 1521 or the Ship Mortgage Decree of 1978 applies in thepresent case.

The various tests used in the U.S. to determine whether a maritime lien exists are thefollowing:

One. "In a suit to establish and enforce a maritime lien for supplies furnished to a vessel in aforeign port, whether such lien exists, or whether the court has or will exercise jurisdiction,depends on the law of the country where the supplies were furnished, which must bepleaded and proved."15 This principle was laid down in the 1888 case of TheScotia,16 reiterated in The Kaiser Wilhelm II17 (1916), in The Woudrichem18(1921) andin The City of Atlanta19 (1924).

Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factormethodologies as the law of the place of supply.20

In Lauritzen v. Larsen,21 a Danish seaman, while temporarily in New York, joined the crew ofa ship of Danish flag and registry that is owned by a Danish citizen. He signed the ship’s articlesproviding that the rights of the crew members would be governed by Danish law and by theemployer’s contract with the Danish Seamen’s Union, of which he was a member. While inHavana and in the course of his employment, he was negligently injured. He sued the

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shipowner in a federal district court in New York for damages under the Jones Act. In holdingthat Danish law and not the Jones Act was applicable, the Supreme Court adopted a multiple-contact test to determine, in the absence of a specific Congressional directive as to thestatute’s reach, which jurisdiction’s law should be applied. The following factors wereconsidered: (1) place of the wrongful act; (2) law of the flag; (3) allegiance or domicileof the injured; (4) allegiance of the defendant shipowner; (5) place of contract; (6)inaccessibility of foreign forum; and (7) law of the forum.

Several years after Lauritzen, the U.S. Supreme Court in the case of Romero v. InternationalTerminal Operating Co.22 again considered a foreign seaman’s personal injury claim underboth the Jones Act and the general maritime law. The Court held that the factors firstannounced in the case of Lauritzen were applicable not only to personal injury claimsarising under the Jones Act but to all matters arising under maritime law in general.23

Hellenic Lines, Ltd. v. Rhoditis24 was also a suit under the Jones Act by a Greek seamaninjured aboard a ship of Greek registry while in American waters. The ship was operated by aGreek corporation which has its largest office in New York and another office in New Orleansand whose stock is more than 95% owned by a U.S. domiciliary who is also a Greek citizen. Theship was engaged in regularly scheduled runs between various ports of the U.S. and the MiddleEast, Pakistan, and India, with its entire income coming from either originating or terminatingin the U.S. The contract of employment provided that Greek law and a Greek collectivebargaining agreement would apply between the employer and the seaman and that all claimsarising out of the employment contract were to be adjudicated by a Greek court. The U.S.Supreme Court observed that of the seven factors listed in the Lauritzen test, four werein favor of the shipowner and against jurisdiction. In arriving at the conclusion that theJones Act applies, it ruled that the application of the Lauritzen test is not a mechanical one. Itstated thus: "[t]he significance of one or more factors must be considered in light of thenational interest served by the assertion of Jones Act jurisdiction. (footnote omitted) Moreover,the list of seven factors in Lauritzen was not intended to be exhaustive. x x x [T]he shipowner’sbase of operations is another factor of importance in determining whether the Jones Act isapplicable; and there well may be others."

The principles enunciated in these maritime tort cases have been extended to cases involvingunpaid supplies and necessaries such as thecases of Forsythe International U.K., Ltd. v. M/V Ruth Venture,25 and Comoco MarineServices v. M/V El Centroamericano.26

Three. The factors provided in Restatement (Second) of Conflicts of Law have also beenapplied, especially in resolving cases brought under the Federal Maritime Lien Act. Theirapplication suggests that in the absence of an effective choice of law by the parties, the forumcontacts to be considered include: (a) the place of contracting; (b) the place of negotiation ofthe contract; (c) the place of performance; (d) the location of the subject matter of thecontract; and (e) the domicile, residence, nationality, place of incorporation and place ofbusiness of the parties.27

In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield,28 an admiraltyaction in rem was brought by an American supplier against a vessel of Norwegian flag owned bya Norwegian Company and chartered by a London time charterer for unpaid fuel oil and marinediesel oil delivered while the vessel was in U.S. territory. The contract was executed in London.It was held that because the bunker fuel was delivered to a foreign flag vessel within thejurisdiction of the U.S., and because the invoice specified payment in the U.S., the admiraltyand maritime law of the U.S. applied. The U.S. Court of Appeals recognized the modernapproach to maritime conflict of law problems introduced in the Lauritzen case. However, itobserved that Lauritzen involved a torts claim under the Jones Act while the present claiminvolves an alleged maritime lien arising from unpaid supplies. It made a disclaimer that itsconclusion is limited to the unique circumstances surrounding a maritime lien as well as thestatutory directives found in the Maritime Lien Statute and that the initial choice of lawdetermination is significantly affected by the statutory policies surrounding amaritime lien. It ruled that the facts in the case call for the application of the Restatement(Second) of Conflicts of Law. The U.S. Court gave much significance to the congressional intentin enacting the Maritime Lien Statute to protect the interests of American supplier of goods,services or necessaries by making maritime liens available where traditional services areroutinely rendered. It concluded that the Maritime Lien Statute represents a relevant policy ofthe forum that serves the needs of the international legal system as well as the basic policiesunderlying maritime law. The court also gave equal importance to the predictability of resultand protection of justified expectations in a particular field of law. In the maritime realm, it isexpected that when necessaries are furnished to a vessel in an American port by an American

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supplier, the American Lien Statute will apply to protect that supplier regardless of the placewhere the contract was formed or the nationality of the vessel.

The same principle was applied in the case of Swedish Telecom Radio v. M/V DiscoveryI29 where the American court refused to apply the Federal Maritime Lien Act to create amaritime lien for goods and services supplied by foreign companies in foreign ports. In thiscase, a Swedish company supplied radio equipment in a Spanish port to refurbish aPanamanian vessel damaged by fire. Some of the contract negotiations occurred in Spain andthe agreement for supplies between the parties indicated Swedish company’s willingness tosubmit to Swedish law. The ship was later sold under a contract of purchase providing for theapplication of New York law and was arrested in the U.S. The U.S. Court of Appeals also heldthat while the contacts-based framework set forth in Lauritzen was useful in the analysis of allmaritime choice of law situations, the factors were geared towards a seaman’s injury claim. Asin Gulf Trading, the lien arose by operation of law because the ship’s owner was not a party tothe contract under which the goods were supplied. As a result, the court found it moreappropriate to consider the factors contained in Section 6 of the Restatement (Second) ofConflicts of Law. The U.S. Court held that the primary concern of the Federal Maritime Lien Actis the protection of American suppliers of goods and services.

The same factors were applied in the case of Ocean Ship Supply, Ltd. v. M/V Leah.30

II.

Finding guidance from the foregoing decisions, the Court cannot sustain petitioner Crescent’sinsistence on the application of P.D. No. 1521 or the Ship Mortgage Decree of 1978 and holdthat a maritime lien exists.

First. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only fallsunder one – the law of the forum. All other elements are foreign – Canada is the place of thewrongful act, of the allegiance or domicile of the injured and the place of contract; India is thelaw of the flag and the allegiance of the defendant shipowner. Balancing these basic interests, itis inconceivable that the Philippine court has any interest in the case that outweighs theinterests of Canada or India for that matter.

Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following thefactors under Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien Act ofthe U.S., P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted primarily to protectFilipino suppliers and was not intended to create a lien from a contract for supplies betweenforeign entities delivered in a foreign port.

Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of 1978 and rule that a maritimelien exists would not promote the public policy behind the enactment of the law to develop thedomestic shipping industry. Opening up our courts to foreign suppliers by granting them amaritime lien under our laws even if they are not entitled to a maritime lien under their lawswill encourage forum shopping.

Finally. The submission of petitioner is not in keeping with the reasonable expectation of theparties to the contract. Indeed, when the parties entered into a contract for supplies in Canada,they could not have intended the laws of a remote country like the Philippines to determine thecreation of a lien by the mere accident of the Vessel’s being in Philippine territory.

III.

But under which law should petitioner Crescent prove the existence of its maritime lien?

In light of the interests of the various foreign elements involved, it is clear that Canada has themost significant interest in this dispute. The injured party is a Canadian corporation, the sub-charterer which placed the orders for the supplies is also Canadian, the entity which physicallydelivered the bunker fuels is in Canada, the place of contracting and negotiation is in Canada,and the supplies were delivered in Canada.

The arbitration clause contained in the Bunker Fuel Agreement which states that New York lawgoverns the "construction, validity and performance" of the contract is only a factor that maybe considered in the choice-of-law analysis but is not conclusive. As in the cases of GulfTrading and Swedish Telecom, the lien that is the subject matter of this case arose by

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operation of law and not by contract because the shipowner was not a party to the contractunder which the goods were supplied.

It is worthy to note that petitioner Crescent never alleged and proved Canadian law as basis forthe existence of a maritime lien. To the end, it insisted on its theory that Philippine law applies.Petitioner contends that even if foreign law applies, since the same was not properly pleadedand proved, such foreign law must be presumed to be the same as Philippine law pursuant tothe doctrine of processual presumption.

Thus, we are left with two choices: (1) dismiss the case for petitioner’s failure to establish acause of action31 or (2) presume that Canadian law is the same as Philippine law. In eithercase, the case has to be dismissed.

It is well-settled that a party whose cause of action or defense depends upon a foreign law hasthe burden of proving the foreign law. Such foreign law is treated as a question of fact to beproperly pleaded and proved.32Petitioner Crescent’s insistence on enforcing a maritime lienbefore our courts depended on the existence of a maritime lien under the proper law. Byerroneously claiming a maritime lien under Philippine law instead of proving that a maritime lienexists under Canadian law, petitioner Crescent failed to establish a cause of action.33

Even if we apply the doctrine of processual presumption, the result will still be the same. UnderP.D. No. 1521 or the Ship Mortgage Decree of 1978, the following are the requisites formaritime liens on necessaries to exist: (1) the "necessaries" must have been furnished to andfor the benefit of the vessel; (2) the "necessaries" must have been necessary for thecontinuation of the voyage of the vessel; (3) the credit must have been extended to the vessel;(4) there must be necessity for the extension of the credit; and (5) the necessaries must beordered by persons authorized to contract on behalf of the vessel.34 These do not avail in theinstant case.

First. It was not established that benefit was extended to the vessel. While this is presumedwhen the master of the ship is the one who placed the order, it is not disputed that in this caseit was the sub-charterer Portserv which placed the orders to petitioner Crescent.35 Hence, thepresumption does not arise and it is incumbent upon petitioner Crescent to prove that benefitwas extended to the vessel. Petitioner did not.

Second. Petitioner Crescent did not show any proof that the marine products were necessaryfor the continuation of the vessel.

Third. It was not established that credit was extended to the vessel. It is presumed that "in theabsence of fraud or collusion, where advances are made to a captain in a foreign port, upon hisrequest, to pay for necessary repairs or supplies to enable his vessel to prosecute her voyage,or to pay harbor dues, or for pilotage, towage and like services rendered to the vessel, thatthey are made upon the credit of the vessel as well as upon that of her owners."36 In this case,it was the sub-charterer Portserv which requested for the delivery of the bunker fuels. Theissuance of two checks amounting to US$300,000 in favor of petitioner Crescent prior to thedelivery of the bunkers as security for the payment of the obligation weakens petitionerCrescent’s contention that credit was extended to the Vessel.

We also note that when copies of the charter parties were submitted by respondents in theCourt of Appeals, the time charters between respondent SCI and Halla and between Halla andTransmar were shown to contain a clause which states that "the Charterers shall provide andpay for all the fuel except as otherwise agreed." This militates against petitioner Crescent’sposition that Portserv is authorized by the shipowner to contract for supplies upon the credit ofthe vessel.

Fourth. There was no proof of necessity of credit. A necessity of credit will be presumed whereit appears that the repairs and supplies were necessary for the ship and that they were orderedby the master. This presumption does not arise in this case since the fuels were not ordered bythe master and there was no proof of necessity for the supplies.

Finally. The necessaries were not ordered by persons authorized to contract in behalf of thevessel as provided under Section 22 of P.D. No. 1521 or the Ship Mortgage Decree of 1978 -the managing owner, the ship’s husband, master or any person with whom the management ofthe vessel at the port of supply is entrusted. Clearly, Portserv, a sub-charterer under a timecharter, is not someone to whom the management of the vessel has been entrusted. A timecharter is a contract for the use of a vessel for a specified period of time or for the duration of

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one or more specified voyages wherein the owner of the time-chartered vessel retainspossession and control through the master and crew who remain his employees.37 Not enjoyingthe presumption of authority, petitioner Crescent should have proved that Portserv wasauthorized by the shipowner to contract for supplies. Petitioner failed.

A discussion on the principle of forum non conveniens is unnecessary.

IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. No. CV 54920, datedNovember 28, 2001, and its subsequent Resolution of September 3, 2002 are AFFIRMED. Theinstant petition for review on certiorari is DENIED for lack of merit. Cost against petitioner.

SO ORDERED.

REYNATO S. PUNO

Associate Justice

WE CONCUR:

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

ROMEO J. CALLEJO, SR. DANTE O. TINGAAssociate Justice Associate Justice

(on leave)

MINITA V. CHICO-NAZARIO

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusionsin the above Decision were reached in consultation before the case was assigned to the writerof the opinion of the Court’s Division.

REYNATO S. PUNO

Acting Chief Justice

Footnotes

* On leave.

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

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

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

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

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

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6 2 C.J.S. Section 39, p. 100.

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

8 Mcmicking v. Banco Español-Filipino, id.

9 Ivancich vs. Odlin & Pacific Lumber Co., supra.

10 Heather vs. Steamer "San Nicholas," supra.

11 Rollo, p. 315.

12 Id., p. 469.

13 1st and 4th Whereas Clauses, P.D. No. 1521.

14 See note 4, p. 133.

15 The Woudrichem, 278 F. 568.

16 35 F. 907.

17 230 F. 717.

18 278 F. 568.

19 17 F.2d 308.

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

21 345 U.S. 571 (1953).

22 358 U.S. 354, 1959 AMC 832 (1959).

23 See Dougherty, p. 82.

24 398 U.S. 306, 1970 AMC 994 (1970).

25 633 F.Supp.74 (1985). A British corporation based in London brought an in rem actionagainst the vessel M/V Ruth Venture to enforce a maritime lien. A Liberian sub-charterercontracted for the supply of bunkers in London with Forsythe as its broker. The bunkerswere furnished to the vessel at Richards Bay, South Africa but was not paid. The vesselwas arrested in Portland, Oregon. In ruling that English law applies, it held that theLauritzen/Rhoditis factors should be applied in a balancing analysis. "[T]hechoice of law questions involving maritime liens is to be resolved by weighing andevaluating the points of contract between the transaction and the sovereign legalsystems touched and affected by it… The interests of competing sovereigns may betaken into account without rejecting altogether the contacts the bar and the maritimeindustry are accustomed to weigh in making the initial determination of governing law."Because English law disallows a lien for bunkers, the court held there was no lien.

26 1983 WL 602 (D.Or.) (1983). This involves a suit by a Singaporean corporationagainst a Panamanian vessel that is owned by Costa Ricans for supplies furnished inSingapore. The court, applying the Lauritzen factors, held that U.S. law did not apply todetermine whether there exists a maritime lien. The case was dismissed under thedoctrine of forum non conveniens. (See Tetley, William, Maritime Liens, Mortgages andConflict of Laws, University of San Francisco Maritime Law Journal [Fall, 1993], p. 17.)

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

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28 Id.

29 712 F.Supp 1542 (1988).

30 729 F.2d 971 (1984).

31 Coquia, J. R. and Aguiling-Pangalangan, E., Conflict of Laws (2000), p. 129.

32 Id., p. 121, citing Beale, The Conflict of Laws, Section 621.2 (1935).

33 See note 31.

34 Agbayani, p. 631.

35 TSN, p. 6.

36 Agbayani, p. 631, citing 70 Am Jur 2d, 479.

37 Litonjua Shipping Inc. v. National Seamen Board, G.R. No. 51910, August 10, 1989.

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Republic of the PhilippinesSUPREME COURT

Manila

SECOND DIVISION

G.R. No. 162894 February 26, 2008

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

D E C I S I O N

TINGA, J.:

Before this Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of CivilProcedure which seeks the reversal of the Decision1 and Resolution2 of the Court of Appeals inCA-G.R. SP No. 67001 and the dismissal of the civil case filed by respondent against petitionerwith 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 andexisting under the laws of the State of Connecticut, United States of America, and respondentStockton W. Rouzie, Jr., an American citizen, entered into a contract whereby BMSI hiredrespondent as its representative to negotiate the sale of services in several governmentprojects in the Philippines for an agreed remuneration of 10% of the gross receipts. On 11March 1992, respondent secured a service contract with the Republic of the Philippines onbehalf 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 RelationsCommission (NLRC) a suit against BMSI and Rust International, Inc. (RUST), Rodney C. Gilbertand Walter G. Browning for alleged nonpayment of commissions, illegal termination and breachof employment contract.4 On 28 September 1995, Labor Arbiter Pablo C. Espiritu, Jr. renderedjudgment ordering BMSI and RUST to pay respondent’s money claims.5 Upon appeal by BMSI,the NLRC reversed the decision of the Labor Arbiter and dismissed respondent’s complaint onthe ground of lack of jurisdiction.6 Respondent elevated the case to this Court but wasdismissed in a Resolution dated 26 November 1997. The Resolution became final and executoryon 09 November 1998.

On 8 January 1999, respondent, then a resident of La Union, instituted an action for damagesbefore the Regional Trial Court (RTC) of Bauang, La Union. The Complaint,7 docketed as CivilCase No. 1192-BG, named as defendants herein petitioner Raytheon International, Inc. as wellas BMSI and RUST, the two corporations impleaded in the earlier labor case. The complaintessentially reiterated the allegations in the labor case that BMSI verbally employed respondentto negotiate the sale of services in government projects and that respondent was not paid thecommissions 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 andfunctioned as one company.

In its Answer,8 petitioner alleged that contrary to respondent’s claim, it was a foreigncorporation duly licensed to do business in the Philippines and denied entering into anyarrangement with respondent or paying the latter any sum of money. Petitioner also deniedcombining with BMSI and RUST for the purpose of assuming the alleged obligation of the saidcompanies.9 Petitioner also referred to the NLRC decision which disclosed that per the writtenagreement between respondent and BMSI and RUST, denominated as "Special SalesRepresentative Agreement," the rights and obligations of the parties shall be governed by thelaws of the State of Connecticut.10Petitioner sought the dismissal of the complaint on grounds offailure to state a cause of action and forum non conveniens and prayed for damages by way ofcompulsory counterclaim.11

On 18 May 1999, petitioner filed an Omnibus Motion for Preliminary Hearing Based onAffirmative Defenses and for Summary Judgment12 seeking the dismissal of the complaint ongrounds of forum non conveniens and failure to state a cause of action. Respondent opposed

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the same. Pending the resolution of the omnibus motion, the deposition of Walter Browning wastaken before the Philippine Consulate General in Chicago.13

In an Order14 dated 13 September 2000, the RTC denied petitioner’s omnibus motion. The trialcourt 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 theprinciple of forum non conveniens was inapplicable because the trial court could enforcejudgment on petitioner, it being a foreign corporation licensed to do business in thePhilippines.15

Petitioner filed a Motion for Reconsideration16 of the order, which motion was opposed byrespondent.17 In an Order dated 31 July 2001,18 the trial court denied petitioner’s motion. Thus,it filed a Rule 65 Petition19 with the Court of Appeals praying for the issuance of a writ ofcertiorari and a writ of injunction to set aside the twin orders of the trial court dated 13September 2000 and 31 July 2001 and to enjoin the trial court from conducting furtherproceedings.20

On 28 August 2003, the Court of Appeals rendered the assailed Decision21 denying the petitionfor certiorari for lack of merit. It also denied petitioner’s motion for reconsideration in theassailed Resolution issued on 10 March 2004.22

The appellate court held that although the trial court should not have confined itself to theallegations in the complaint and should have also considered evidence aliunde in resolvingpetitioner’s omnibus motion, it found the evidence presented by petitioner, that is, thedeposition of Walter Browning, insufficient for purposes of determining whether the complaintfailed to state a cause of action. The appellate court also stated that it could not rule one wayor the other on the issue of whether the corporations, including petitioner, named asdefendants in the case had indeed merged together based solely on the evidence presented byrespondent. Thus, it held that the issue should be threshed out during trial.23 Moreover, theappellate court deferred to the discretion of the trial court when the latter decided not to desistfrom assuming jurisdiction on the ground of the inapplicability of the principle of forum nonconveniens.

Hence, this petition raising the following issues:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO DISMISSTHE COMPLAINTFOR FAILURE TO STATE A CAUSE OF ACTION AGAINST RAYTHEONINTERNATIONAL, INC.

WHETHER OR NOT THE COURT OF APPEALS ERRED IN REFUSING TO DISMISS THECOMPLAINT ON THE GROUND OF FORUM NON CONVENIENS.24

Incidentally, respondent failed to file a comment despite repeated notices. The Ceferino PaduaLaw 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 theinstant petition and that it could no longer find the whereabouts of Atty. Karagdag or ofrespondent despite diligent efforts. In a Resolution25 dated 20 November 2006, the Courtresolved 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 avalid choice of law clause, that is, that the contract shall be governed by the laws of the Stateof Connecticut. It also mentions the presence of foreign elements in the dispute – namely, theparties and witnesses involved are American corporations and citizens and the evidence to bepresented is located outside the Philippines – that renders our local courts inconvenient forums.Petitioner theorizes that the foreign elements of the dispute necessitate the immediateapplication of the doctrine of forum non conveniens.

Recently in Hasegawa v. Kitamura,26 the Court outlined three consecutive phases involved injudicial resolution of conflicts-of-laws problems, namely: jurisdiction, choice of law, andrecognition and enforcement of judgments. Thus, in the instances27 where the Court held thatthe local judicial machinery was adequate to resolve controversies with a foreign element, thefollowing requisites had to be proved: (1) that the Philippine Court is one to which the partiesmay conveniently resort; (2) that the Philippine Court is in a position to make an intelligent

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decision as to the law and the facts; and (3) that the Philippine Court has or is likely to havethe power to enforce its decision.28

On the matter of jurisdiction over a conflicts-of-laws problem where the case is filed in aPhilippine court and where the court has jurisdiction over the subject matter, the parties andthe res, it may or can proceed to try the case even if the rules of conflict-of-laws or theconvenience of the parties point to a foreign forum. This is an exercise of sovereign prerogativeof the country where the case is filed.29

Jurisdiction over the nature and subject matter of an action is conferred by the Constitution andthe law30 and by the material allegations in the complaint, irrespective of whether or not theplaintiff 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, thenature 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 hereinrespondent (as party plaintiff) upon the filing of the complaint. On the other hand, jurisdictionover the person of petitioner (as party defendant) was acquired by its voluntary appearance incourt.32

That the subject contract included a stipulation that the same shall be governed by the laws ofthe State of Connecticut does not suggest that the Philippine courts, or any other foreigntribunal for that matter, are precluded from hearing the civil action. Jurisdiction and choice oflaw are two distinct concepts. Jurisdiction considers whether it is fair to cause a defendant totravel to this state; choice of law asks the further question whether the application of asubstantive law which will determine the merits of the case is fair to both parties.33The choiceof law stipulation will become relevant only when the substantive issues of the instant casedevelop, 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 refuseimpositions on its jurisdiction where it is not the most "convenient" or available forum and theparties are not precluded from seeking remedies elsewhere.34 Petitioner’s averments of theforeign elements in the instant case are not sufficient to oust the trial court of its jurisdictionover Civil Case No. No. 1192-BG and the parties involved.

Moreover, the propriety of dismissing a case based on the principle of forum nonconveniens requires a factual determination; hence, it is more properly considered as a matterof defense. While it is within the discretion of the trial court to abstain from assumingjurisdiction on this ground, it should do so only after vital facts are established, to determinewhether special circumstances require the court’s desistance.35

Finding no grave abuse of discretion on the trial court, the Court of Appeals respected itsconclusion 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 theirfindings are binding on this Court.

Petitioner also contends that the complaint in Civil Case No. 1192-BG failed to state a cause ofaction against petitioner. Failure to state a cause of action refers to the insufficiency ofallegation in the pleading.36 As a general rule, the elementary test for failure to state a cause ofaction 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 onecompany. 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 otherdocuments produced in the hearing shows that these evidence aliunde are not quitesufficient 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 proofsthat Raytheon Engineers and Constructors, Inc. (REC) assumed the warranty obligationsof defendant Rust International in the Makar Port Project in General Santos City, afterRust International ceased to exist after being absorbed by REC. Other documentsalready submitted in evidence are likewise meager to preponderantly conclude thatRaytheon International, Inc., Rust International[,] Inc. and Brand Marine Service, Inc.have combined into one company, so much so that Raytheon International, Inc., the

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surviving company (if at all) may be held liable for the obligation of BMSI to respondentRouzie 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 andRUST merged together requires the presentation of further evidence, which only a full-blowntrial on the merits can afford.

WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision andResolution of the Court of Appeals in CA-G.R. SP No. 67001 are hereby AFFIRMED. Costsagainst petitioner.

SO ORDERED.

DANTE O. TINGAAssociate Justice

WE CONCUR:

*ANTONIO T. CARPIOAssociate Justice

Acting Chairperson

**ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

CONCHITA CARPIO MORALESAssociate Justice

PRESBITERO J. VELASCO, JR.Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before thecase was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIOAssociate Justice

Acting Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’sAttestation, it is hereby certified that the conclusions in the above Decision had been reached inconsultation before the case was assigned to the writer of the opinion of the Court’s Division.

REYNATO S. PUNOChief Justice

Footnotes

* Acting Chairperson.

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

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

2 Id. at 47.Dated 10 March 2004.

3 Id. at 48-49.

4 Id. at 61-62.

5 Id. at 63-74.

6 Id. at 75-90.

7 Id. at 48-54.

8 Id. at 91-99.

9 Id. at 94.

10 Id. at 96.

11 Id. at 97-98.

12 Id. at 100-111.

13 Records, Vol. I, pp. 180-238.

14 Rollo, pp. 127-131.

15 Id. at 130.

16 Id. at 132-149.

17 Id. at 150-151.

18 Id. at 162.

19 Id. at 163-192.

20 Id. at 191.

21 Supra note 1.

22 Supra note 2.

23 Id. at 44.

24 Id. at 18.

25 Id. at 318.

26 G.R. No. 149177, 23 November 2007.

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

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

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

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

31 Laresma v. Abellana, G.R. No. 140973, 11 November 2004, 442 SCRA 156, 168.

32 See Arcelona v. CA, 345 Phil. 250, 267 (1997).

33 Hasegawa v. Kitamura, supra note 26.

34 Bank of America NT & SA v. Court of Appeals, supra note 27.

35 Philsec Investment Corporation v. Court of Appeals, supra note 27 at 113.

36 Bank of America NT & SA v. Court of Appeals, supra note 27 at 194.

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

38 Rollo, p. 44.

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Facts: On February 22, 1937, Lorenzo and petitioner Paula were married before a parish priestin Nabua, Camarines Sur.

On November 30, 1943, Lorenzo was admitted to United States citizenship and Certificateof Naturalization No. 5579816 was issued in his favor by the United States District Court,Southern District of New York.

Upon the liberation of the Philippines by the American Forces in 1945, Lorenzo was granted anaccrued leave by the U. S. Navy, to visit his wife and he visited the Philippines. He discoveredthat his wife Paula was pregnant and was “living in” and having an adulterous relationship withhis brother, Ceferino Llorente.

Lorenzo refused to forgive Paula and live with her . He then returned to the United States andon November 16, 1951 filed for divorce with the Superior Court of the State of California in andfor the County of San Diego. Paula was represented by counsel, John Riley, and activelyparticipated in the proceedings. On November 27, 1951, theSuperior Court of the State ofCalifornia, for the County of San Diego found all factual allegations to be true and issued aninterlocutory judgment of divorce.

On December 4, 1952, the divorce decree became final.

Lorenzo went back to the Philippines and on January 16, 1958 married Alicia F. Llorente inManila.

From 1958 to 1985, Lorenzo and Alicia lived together as husband and wife.Their twenty-five(25) year union produced three children, Raul, Luz and Beverly, all surnamed Llorente.

On March 13, 1981, Lorenzo executed a Last Will and Testament. The will was notarized byNotary Public Salvador M. Occiano, duly signed by Lorenzo with attesting witnesses FranciscoHugo, Francisco Neibres and Tito Trajano. In the will, Lorenzo bequeathed all his property toAlicia and their three children.

On December 14, 1983, Lorenzo filed with the Regional Trial Court, Iriga, Camarines Sur, apetition for the probate and allowance of hislast will and testament wherein Lorenzo moved thatAlicia be appointed Special Administratrix of his estate.

On January 24, 1984, finding that the will was duly executed, the trial court admitted the willto probate but before the proceedings could be terminated , Lorenzo died.

Paula filed with the same court a petition for letters of administrationover Lorenzo’s estate inher favor contending that she was Lorenzo’s surviving spouse, that such properties wereacquired during their marriage and that Lorenzo’s will would encroach her legitime.

Alicia filed in the testate proceeding , a petition for the issuance ofletters testamentary.

On October 14, 1985, without terminating the testate proceedings, the trial court gave duecourse to Paula’s petition.

The Regional Trial Court found that the divorce decree granted to the late Lorenzo Llorente isvoid and inapplicable in the Philippines, therefore the marriage he contracted with AliciaFortunato on January 16, 1958 at Manila is likewise void. This being so the petition of Alicia F.Llorente for the issuance of letters testamentary is denied. Likewise, she is not entitled toreceive any share from the estate even if the will especially said so her relationship withLorenzo having gained the status of paramour which is under Art. 739 (1).

“Petitioner, Paula Llorente is appointed legal administrator of the estate of the deceased,Lorenzo Llorente.Issue: Who are entitled to inherit from the late Lorenzo N. Llorente?

Held: The trial court held that the will was intrinsically invalid since it contained dispositions infavor of Alice, who in the trial court’s opinion was a mere paramour. The trial court threw thewill out, leaving Alice, and her two children, Raul and Luz, with nothing.

The Court of Appeals also disregarded the will. It declared Alice entitled to one half (1/2) ofwhatever property she and Lorenzo acquired during their cohabitation, applying Article 144 ofthe Civil Code of the Philippines.

The hasty application of Philippine law and the complete disregard of the will, already probated

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as duly executed in accordance with the formalities of Philippine law, is fatal, especially in lightof the factual and legal circumstances here obtaining.

Lorenzo N. Llorente became an American citizen long before and at the time of: (1)his divorce from Paula; (2) marriage to Alicia; (3) execution of his will; and (4) death, is dulyestablished, admitted and undisputed.

Thus, as a rule, issues arising from these incidents are necessarily governed by foreign law. “

Art. 16. Real property as well as personal property is subject to the law of the country where itis situated.

“However, intestate and testamentary succession, both with respect to the order of successionand to the amount of successional rights and to the intrinsic validity of testamentary provisions,shall be regulated by the national law of the person whose succession is under consideration,whatever may be the nature of the property and regardless of the country wherein saidproperty may be found.”

But the hasty disregard of both the RTC and CA of Lorenzo’s Will by calling to the fore theRENVOI doctrine, claiming that American law follows domiciliary rule is unjustified. There is nosuch thing as American law for the whole nation of the US, for the country comprises of a groupof States, each State having its own applicable law, enforceable only within that state.

As to the validity of the foreign divorce , jurisprudence reiterates that once it is proven that anindividual is no longer a Filipino, thus an alien, when he obtains a divorce abroad, its effectsshall be recognized in the Philippines.

The Supreme Court held that the divorce obtained by Lorenzo H. Llorente from his first wifePaula was valid and recognized in this jurisdiction as a matter of comity.

Now, the effects of this divorce (as to the succession to the estate of the decedent) are mattersbest left to the determination of the trial court.

Whether the will is intrinsically valid and who shall inherit from Lorenzo are issues best provedby foreign law which must be pleaded and proved. Whether the will was executed in accordancewith the formalities required is answered by referring to Philippine law. In fact, the will was dulyprobated.

The decision of the CA is set aside and that of the RTC is reversed. Court REMANDS the casesto the court of origin for determination of the intrinsic validity of Lorenzo N. Llorente’s will anddetermination of the parties’ successional rights allowing proof of foreign lawwithinstructions that the trial court shall proceed with all deliberate dispatch to settle the estateof the deceased within the framework of the Rules of Court.

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LLORENTE vs. CA, G.R. No. 124371. November 23, 2000PAULA T. LLORENTE, petitioner, VS. COURT OF APPEALS and ALICIA F. LLORENTE,respondentsNovember 23, 2000

FACTS:Lorenzo Llorente and petitioner Paula Llorente were married in 1937 in the Philippines. Lorenzowas an enlisted serviceman of the US Navy. Soon after, he left for the US where throughnaturalization, he became a US Citizen. Upon his visitation of his wife, he discovered that shewas living with his brother and a child was born. The child was registered as legitimate but thename of the father was left blank. Llorente filed a divorce in California, which later on becamefinal. He married Alicia and they lived together for 25 years bringing 3 children. He made hislast will and testament stating that all his properties will be given to his second marriage. Hefiled a petition of probate that made or appointed Alicia his special administrator of his estate.Before theproceeding could be terminated, Lorenzo died. Paula filed a letter of administration overLlorente’s estate. The trial granted the letter and denied the motion for reconsideration. Anappeal was made to the Court of Appeals, which affirmed and modified the judgment of theTrial Court that she be declared co-owner of whatever properties, she and the deceased, mayhave acquired during their 25 years of cohabitation.

ISSUE:Whether or not the National Law shall apply.

RULING:Lorenzo Llorente was already an American citizen when he divorced Paula. Such was also thesituation when he married Alicia and executed his will. As stated in Article 15 of the civil code,aliens may obtain divorces abroad, provided that they are validly required in their National Law.Thus the divorce obtained by Llorente is valid because the law that governs him is notPhilippine Law but his National Law since the divorce was contracted after he became anAmerican citizen. Furthermore, his National Law allowed divorce.The case was remanded to the court of origin for determination of the intrinsic validity ofLorenzo Llorente’s will and determination of the parties’ successional rights allowing proof offoreign law.