Saudi Arabian Airlines v.

CA - Case Digest

Facts:

Saudi Arabian Airlines (SAUDIA) hired Milagros Morada as a Flight Attendant for its
airlines based in Jeddah, Saudi Arabia. While on a lay-over in Jakarta, Morada went to
a disco with fellow crew members Thamer & Allah, both Saudi nationals. Because it was
almost morning when they returned to their hotels, they agreed to have breakfast
together at the room of Thamer. In which Allah left on some pretext. Thamer attempted
to rape Morada but she was rescued by hotel personnel when they heard her cries for
help. Indonesian police came and arrested Thamer and Allah, the latter as an
accomplice.

Morada refused to cooperate when SAUDIA’s Legal Officer and its base manager tried
to negotiate the immediate release of the detained crew members with Jakarta police.

Through the intercession of Saudi Arabian government, Thamer and Allah were
deported and, eventually, again put in service by SAUDIA. But Morada was transferred
to Manila.

One year and a half year later, Morada was again ordered to see SAUDIA’s Chief Legal
Officer. Instead, she was brought to a Saudi court where she was asked to sign a blank
document, which turned out to be a notice to her to appear in court. Monada returned to
Manila.

The next time she was escorted by SAUDIA’s legal officer to court, the judge rendered a
decision against her sentencing her to five months imprisonment and to 286 lashes.
Apparently, she was tried by the court which found her guilty of (1) adultery; (2) going to
a disco, dancing and listening to the music in violation of Islamic laws; and (3)
socializing with the male crew, in contravention of Islamic tradition.

After denial by SAUDIA, Morada sought help from Philippine Embassy during the
appeal. Prince of Makkah dismissed the case against her. SAUDIA fired her without
notice.
Morada filed a complaint for damages against SAUDIA, with the RTC of QC. SAUDIA
filed Omnibus Motion to Dismiss which raised the ground that the court has no
jurisdiction, among others which was denied

ISSUE: Whether RTC of QC has jurisdiction to hear and try the case

HELD:

YES. The RTC of QC has jurisdiction and Philippine law should govern.Its jurisdiction
has basis on Sec. 1 of RA 7691 and Rules of Court on venue. Pragmatic
considerations, including the convenience of the parties, also weigh heavily in favor of
the RTC QC assuming jurisdiction. Paramount is the private interest of the
litigant. Weighing the relative claims of the parties, the court a quo found it best to hear
the case in the Philippines. Had it refused to take cognizance of the case, it would be
forcing Morada to seek remedial action elsewhere, iU.e. in the Kingdom of Saudi Arabia
where she no longer maintains substantial connections. That would have caused a
fundamental unfairness to her.

By filing a complaint, Morada has voluntarily submitted to the jurisdiction of the court. By
filing several motions and praying for reliefs (such as dismissal), SAUDIA has effectively
submitted to the trial court’s jurisdiction.
 Republic of the Philippines
SUPREME 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
his capacity as Presiding Judge of Branch 89, Regional Trial Court of Quezon
City, respondents.

QUISUMBING, J.:

This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and
set aside the Resolution1 dated September 27, 1995 and the Decision2 dated April
10, 1996 of the Court of Appeals3 in CA-G.R. SP No. 36533,4 and the Orders5 dated
August 29, 1994 6 and February 2, 19957 that were issued by the trial court in Civil
Case No. Q-93-18394.8

The pertinent antecedent facts which gave rise to the instant petition, as stated in
the questioned Decision9, are as follows:

On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight

Attendant for its airlines based in Jeddah, Saudi Arabia. . . .

On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff

went to a disco dance with fellow crew members Thamer Al-Gazzawi
and Allah Al-Gazzawi, both Saudi nationals. Because it was almost
morning when they returned to their hotels, they agreed to have
breakfast together at the room of Thamer. When they were in te (sic)
room, Allah left on some pretext. Shortly after he did, Thamer
attempted to rape plaintiff. Fortunately, a roomboy and several
security personnel heard her cries for help and rescued her. Later,
the Indonesian police came and arrested Thamer and Allah Al-
Gazzawi, the latter as an accomplice.

When plaintiff returned to Jeddah a few days later, several SAUDIA

officials interrogated her about the Jakarta incident. They then
requested her to go back to Jakarta to help arrange the release of
Thamer and Allah. In Jakarta, SAUDIA Legal Officer Sirah Akkad and
base manager Baharini negotiated with the police for the immediate
release of the detained crew members but did not succeed because
plaintiff refused to cooperate. She was afraid that she might be
tricked into something she did not want because of her inability to
understand the local dialect. She also declined to sign a blank paper
and a document written in the local dialect. Eventually, SAUDIA
allowed plaintiff to return to Jeddah but barred her from the Jakarta
flights.

Plaintiff learned that, through the intercession of the Saudi Arabian

government, the Indonesian authorities agreed to deport Thamer and
Allah after two weeks of detention. Eventually, they were again put in
service by defendant SAUDI (sic). In September 1990, defendant
SAUDIA transferred plaintiff to Manila.

On January 14, 1992, just when plaintiff thought that the Jakarta
incident was already behind her, her superiors requested her to see
Mr. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi
Arabia. When she saw him, he brought her to the police station
where the police took her passport and questioned her about the
Jakarta incident. Miniewy simply stood by as the police put pressure
on her to make a statement dropping the case against Thamer and
Allah. Not until she agreed to do so did the police return her
passport and allowed her to catch the afternoon flight out of Jeddah.

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

Shortly afterwards, defendant SAUDIA summoned plaintiff to report

to Jeddah once again and see Miniewy on June 27, 1993 for further
investigation. Plaintiff did so after receiving assurance from
SAUDIA's Manila manager, Aslam Saleemi, that the investigation was
routinary and that it posed no danger to her.

In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi

court on June 27, 1993. Nothing happened then but on June 28, 1993,
a Saudi judge interrogated plaintiff through an interpreter about the
Jakarta incident. After one hour of interrogation, they let her go. At
the airport, however, just as her plane was about to take off, a
SAUDIA officer told her that the airline had forbidden her to take
flight. At the Inflight Service Office where she was told to go, the
 secretary of Mr. Yahya Saddick took away her passport and told her
to remain in Jeddah, at the crew quarters, until further orders.

On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the

same court where the judge, to her astonishment and shock,
rendered a decision, translated to her in English, sentencing her to
five months imprisonment and to 286 lashes. Only then did she
realize that the Saudi court had tried her, together with Thamer and
Allah, for what happened in Jakarta. The court found plaintiff guilty
of (1) adultery; (2) going to a disco, dancing and listening to the
music in violation of Islamic laws; and (3) socializing with the male
crew, in contravention of Islamic tradition. 10

Facing conviction, private respondent sought the help of her employer, petitioner
SAUDIA. Unfortunately, she was denied any assistance. She then asked the
Philippine Embassy in Jeddah to help her while her case is on appeal. Meanwhile,
to pay for her upkeep, she worked on the domestic flight of SAUDIA, while
Thamer and Allah continued to serve in the international
flights. 11

Because she was wrongfully convicted, the Prince of Makkah dismissed the case
against her and allowed her to leave Saudi Arabia. Shortly before her return to
Manila, 12 she was terminated from the service by SAUDIA, without her being
informed of the cause.

On November 23, 1993, Morada filed a Complaint 13 for damages against SAUDIA,
and Khaled Al-Balawi ("Al-Balawi"), its country manager.

On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised
the following grounds, to wit: (1) that the Complaint states no cause of action
against Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that
the claim or demand set forth in the Complaint has been waived, abandoned or
otherwise extinguished; and (4) that the trial court has no jurisdiction to try the
case.
15
On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) .
Saudia filed a reply 16 thereto on March 3, 1994.

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

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

From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA
filed on September 20, 1994, its Motion for Reconsideration 21 of the Order dated
August 29, 1994. It alleged that the trial court has no jurisdiction to hear and try
the case on the basis of Article 21 of the Civil Code, since the proper law
applicable is the law of the Kingdom of Saudi Arabia. On October 14, 1994,
Morada filed her Opposition 22 (To Defendant's Motion for Reconsideration).

In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that
since its Motion for Reconsideration raised lack of jurisdiction as its cause of
action, the Omnibus Motion Rule does not apply, even if that ground is raised for
the first time on appeal. Additionally, SAUDIA alleged that the Philippines does
not have any substantial interest in the prosecution of the instant case, and
hence, without jurisdiction to adjudicate the same.

Respondent Judge subsequently issued another Order 24 dated February 2, 1995,

denying SAUDIA's Motion for Reconsideration. The pertinent portion of the
assailed Order reads as follows:

Acting on the Motion for Reconsideration of defendant Saudi Arabian

Airlines filed, thru counsel, on September 20, 1994, and the
Opposition thereto of the plaintiff filed, thru counsel, on October 14,
1994, as well as the Reply therewith of defendant Saudi Arabian
Airlines filed, thru counsel, on October 24, 1994, considering that a
perusal of the plaintiffs Amended Complaint, which is one for the
recovery of actual, moral and exemplary damages plus attorney's
fees, upon the basis of the applicable Philippine law, Article 21 of the
New Civil Code of the Philippines, is, clearly, within the jurisdiction
of this Court as regards the subject matter, and there being nothing
new of substance which might cause the reversal or modification of
the order sought to be reconsidered, the motion for reconsideration
of the defendant, is DENIED.

SO ORDERED. 25

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

Respondent Court of Appeals promulgated a Resolution with Temporary

Restraining Order 27 dated February 23, 1995, prohibiting the respondent Judge
from further conducting any proceeding, unless otherwise directed, in the
interim.

In another Resolution 28 promulgated on September 27, 1995, now assailed, the

appellate court denied SAUDIA's Petition for the Issuance of a Writ of Preliminary
Injunction dated February 18, 1995, to wit:

The Petition for the Issuance of a Writ of Preliminary Injunction is

hereby DENIED, after considering the Answer, with Prayer to Deny
Writ of Preliminary Injunction (Rollo, p. 135) the Reply and Rejoinder,
it appearing that herein petitioner is not clearly entitled thereto
(Unciano Paramedical College, et. Al., v. Court of Appeals,
et. Al., 100335, April 7, 1993, Second Division).
 SO ORDERED.

On October 20, 1995, SAUDIA filed with this Honorable Court the instant
Petition 29 for Review with Prayer for Temporary Restraining Order dated October
13, 1995.

However, during the pendency of the instant Petition, respondent Court of

Appeals rendered the Decision 30 dated April 10, 1996, now also assailed. It ruled
that the Philippines is an appropriate forum considering that the Amended
Complaint's basis for recovery of damages is Article 21 of the Civil Code, and
thus, clearly within the jurisdiction of respondent Court. It further held
that certiorari is not the proper remedy in a denial of a Motion to Dismiss,
inasmuch as the petitioner should have proceeded to trial, and in case of an
adverse ruling, find recourse in an appeal.

On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order 31 dated April 30, 1996, given due course by this
Court. After both parties submitted their Memoranda, 32 the instant case is now
deemed submitted for decision.

Petitioner SAUDIA raised the following issues:

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

II

Leave of court before filing a supplemental pleading is not a

jurisdictional requirement. Besides, the matter as to absence of leave
of court is now moot and academic when this Honorable Court
required the respondents to comment on petitioner's April 30, 1996
Supplemental Petition For Review With Prayer For A Temporary
Restraining Order Within Ten (10) Days From Notice Thereof.
Further, the Revised Rules of Court should be construed with
liberality pursuant to Section 2, Rule 1 thereof.

III

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

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

I.

WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING

THAT THE REGIONAL TRIAL COURT OF QUEZON CITY HAS
JURISDICTION TO HEAR AND TRY CIVIL CASE NO. Q-93-18394
ENTITLED "MILAGROS P. MORADA V. SAUDI ARABIAN AIRLINES".

II.

WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING

THAT IN THIS CASE PHILIPPINE LAW SHOULD GOVERN.

Petitioner SAUDIA claims that before us is a conflict of laws that must be settled
at the outset. It maintains that private respondent's claim for alleged abuse of
rights occurred in the Kingdom of Saudi Arabia. It alleges that the existence of a
foreign element qualifies the instant case for the application of the law of the
Kingdom of Saudi Arabia, by virtue of the lex loci delicti commissi rule. 34

The lex loci delicti commissi is the Latin term for "law of the place
where the delict [tort] was committed"[1] in the conflict of laws. Conflict
of laws is the branch of law regulating all lawsuits involving a "foreign"
law element where a difference in result will occur depending on which
laws are applied.
On the other hand, private respondent contends that since her Amended
Complaint is based on Articles 19 35 and 21 36 of the Civil Code, then the instant
case is properly a matter of domestic law. 37

Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith.

Article 21. Any person who wilfully causes loss or injury to another in manner that is contrary to morals,
good customs or public policy shall compensate the latter for the damage.

Under the factual antecedents obtaining in this case, there is no dispute that the
interplay of events occurred in two states, the Philippines and Saudi Arabia.
 38
As stated by private respondent in her Amended Complaint dated June 23,
1994:

2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign

airlines corporation doing business in the Philippines. It may be
served with summons and other court processes at Travel Wide
Associated Sales (Phils.). Inc., 3rd Floor, Cougar Building, 114 Valero
St., Salcedo Village, Makati, Metro Manila.

xxx xxx xxx

6. Plaintiff learned that, through the intercession of the Saudi

Arabian government, the Indonesian authorities agreed to deport
Thamer and Allah after two weeks of detention. Eventually, they were
again put in service by defendant SAUDIA. In September 1990,
defendant SAUDIA transferred plaintiff to Manila.

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

8. One year and a half later or on June 16, 1993, in Riyadh, Saudi
Arabia, a few minutes before the departure of her flight to Manila,
plaintiff was not allowed to board the plane and instead ordered to
take a later flight to Jeddah to see Mr. Meniewy, the Chief Legal
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA
office brought her to a Saudi court where she was asked to sigh a
document written in Arabic. They told her that this was necessary to
close the case against Thamer and Allah. As it turned out, plaintiff
signed a notice to her to appear before the court on June 27,
1993. Plaintiff then returned to Manila.

9. Shortly afterwards, defendant SAUDIA summoned plaintiff to

report to Jeddah once again and see Miniewy on June 27, 1993 for
further investigation. Plaintiff did so after receiving assurance from
SAUDIA's Manila manger, Aslam Saleemi, that the investigation was
routinary and that it posed no danger to her.

10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same

Saudi court on June 27, 1993. Nothing happened then but on June
28, 1993, a Saudi judge interrogated plaintiff through an interpreter
about the Jakarta incident. After one hour of interrogation, they let
her go. At the airport, however, just as her plane was about to take
 off, a SAUDIA officer told her that the airline had forbidden her to
take that flight. At the Inflight Service Office where she was told to
go, the secretary of Mr. Yahya Saddick took away her passport and
told her to remain in Jeddah, at the crew quarters, until further
orders.

11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to

the same court where the judge, to her astonishment and shock,
rendered a decision, translated to her in English, sentencing her to
five months imprisonment and to 286 lashes. Only then did she
realize that the Saudi court had tried her, together with Thamer and
Allah, for what happened in Jakarta. The court found plaintiff guilty
of (1) adultery; (2) going to a disco, dancing, and listening to the
music in violation of Islamic laws; (3) socializing with the male crew,
in contravention of Islamic tradition.

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

Where the factual antecedents satisfactorily establish the existence of a foreign

element, we agree with petitioner that the problem herein could present a
"conflicts" case.

A factual situation that cuts across territorial lines and is affected by the diverse
laws of two or more states is said to contain a "foreign element". The presence of
a foreign element is inevitable since social and economic affairs of individuals
and associations are rarely confined to the geographic limits of their birth or
conception. 40

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

In the instant case, the foreign element consisted in the fact that private
respondent Morada is a resident Philippine national, and that petitioner SAUDIA
is a resident foreign corporation. Also, by virtue of the employment of Morada
with the petitioner Saudia as a flight stewardess, events did transpire during her
many occasions of travel across national borders, particularly from Manila,
Philippines to Jeddah, Saudi Arabia, and vice versa, that caused a "conflicts"
situation to arise.
We thus find private respondent's assertion that the case is purely domestic,
imprecise. A conflicts problem presents itself here, and the question of
jurisdiction 43 confronts the court a quo.

After a careful study of the private respondent's Amended Complaint, 44 and the
Comment thereon, we note that she aptly predicated her cause of action on
Articles 19 and 21 of the New Civil Code.

On one hand, Article 19 of the New Civil Code provides:

Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice give everyone his due and
observe honesty and good faith.

On the other hand, Article 21 of the New Civil Code provides:

Art. 21. Any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy
shall compensate the latter for damages.

Thus, in Philippine National Bank (PNB) vs. Court of Appeals, 45 this Court held
that:

The aforecited provisions on human relations were intended to

expand the concept of torts in this jurisdiction by granting adequate
legal remedy for the untold number of moral wrongs which is
impossible for human foresight to specifically provide in the
statutes.

Although Article 19 merely declares a principle of law, Article 21 gives flesh to its
provisions. Thus, we agree with private respondent's assertion that violations of
Articles 19 and 21 are actionable, with judicially enforceable remedies in the
municipal forum.

Based on the allegations 46 in the Amended Complaint, read in the light of the
Rules of Court on jurisdiction 47 we find that the Regional Trial Court (RTC) of
Quezon City possesses jurisdiction over the subject matter of the suit. 48 Its
authority to try and hear the case is provided for under Section 1 of Republic Act
No. 7691, to wit:

Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as

the "Judiciary Reorganization Act of 1980", is hereby amended to
read as follows:

Sec. 19. Jurisdiction in Civil Cases. — Regional Trial Courts shall

exercise exclusive jurisdiction:

xxx xxx xxx

 (8) In all other cases in which demand, exclusive of
interest, damages of whatever kind, attorney's fees,
litigation expenses, and cots or the value of the property
in controversy exceeds One hundred thousand pesos
(P100,000.00) or, in such other cases in Metro Manila,
where the demand, exclusive of the above-mentioned
items exceeds Two hundred Thousand pesos
(P200,000.00). (Emphasis ours)

xxx xxx xxx

And following Section 2 (b), Rule 4 of the Revised Rules of Court — the venue,
Quezon City, is appropriate:

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

Court]

(a) xxx xxx xxx

(b) Personal actions. — All other actions may be commenced and

tried where the defendant or any of the defendants resides or may be
found, or where the plaintiff or any of the plaintiff resides, at the
election of the plaintiff.

Pragmatic considerations, including the convenience of the parties, also weigh

heavily in favor of the RTC Quezon City assuming jurisdiction. Paramount is the
private interest of the litigant. Enforceability of a judgment if one is obtained is
quite obvious. Relative advantages and obstacles to a fair trial are equally
important. Plaintiff may not, by choice of an inconvenient forum, "vex", "harass",
or "oppress" the defendant, e.g. by inflicting upon him needless expense or
disturbance. But unless the balance is strongly in favor of the defendant, the
plaintiffs choice of forum should rarely be disturbed. 49

Weighing the relative claims of the parties, the court a quo found it best to hear
the case in the Philippines. Had it refused to take cognizance of the case, it would
be forcing plaintiff (private respondent now) to seek remedial action
elsewhere, i.e. in the Kingdom of Saudi Arabia where she no longer maintains
substantial connections. That would have caused a fundamental unfairness to
her.

Moreover, by hearing the case in the Philippines no unnecessary difficulties and

inconvenience have been shown by either of the parties. The choice of forum of
the plaintiff (now private respondent) should be upheld.

Similarly, the trial court also possesses jurisdiction over the persons of the
parties herein. By filing her Complaint and Amended Complaint with the trial
court, private respondent has voluntary submitted herself to the jurisdiction of
the court.
The records show that petitioner SAUDIA has filed several motions 50 praying for
the dismissal of Morada's Amended Complaint. SAUDIA also filed an Answer
In Ex Abundante Cautelam dated February 20, 1995. What is very patent and
explicit from the motions filed, is that SAUDIA prayed for other reliefs under the
premises. Undeniably, petitioner SAUDIA has effectively submitted to the trial
court's jurisdiction by praying for the dismissal of the Amended Complaint on
grounds other than lack of jurisdiction.

As held by this Court in Republic vs. Ker and Company, Ltd.: 51

We observe that the motion to dismiss filed on April 14, 1962, aside
from disputing the lower court's jurisdiction over defendant's
person, prayed for dismissal of the complaint on the ground that
plaintiff's cause of action has prescribed. By interposing such
second ground in its motion to dismiss, Ker and Co., Ltd. availed of
an affirmative defense on the basis of which it prayed the court to
resolve controversy in its favor. For the court to validly decide the
said plea of defendant Ker & Co., Ltd., it necessarily had to acquire
jurisdiction upon the latter's person, who, being the proponent of the
affirmative defense, should be deemed to have abandoned its special
appearance and voluntarily submitted itself to the jurisdiction of the
court.

Similarly, the case of De Midgely vs. Ferandos, held that;

When the appearance is by motion for the purpose of objecting to

the jurisdiction of the court over the person, it must be for the sole
and separate purpose of objecting to the jurisdiction of the court. If
his motion is for any other purpose than to object to the jurisdiction
of the court over his person, he thereby submits himself to the
jurisdiction of the court. A special appearance by motion made for
the purpose of objecting to the jurisdiction of the court over the
person will be held to be a general appearance, if the party in said
motion should, for example, ask for a dismissal of the action upon
the further ground that the court had no jurisdiction over the subject
matter. 52

Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of
Quezon City. Thus, we find that the trial court has jurisdiction over the case and
that its exercise thereof, justified.

As to the choice of applicable law, we note that choice-of-law problems seek to

answer two important questions: (1) What legal system should control a given
situation where some of the significant facts occurred in two or more states; and
(2) to what extent should the chosen legal system regulate the situation. 53

Several theories have been propounded in order to identify the legal system that
should ultimately control. Although ideally, all choice-of-law theories should
intrinsically advance both notions of justice and predictability, they do not always
do so. The forum is then faced with the problem of deciding which of these two
important values should be stressed. 54

Before a choice can be made, it is necessary for us to determine under what

category a certain set of facts or rules fall. This process is known as
"characterization", or the "doctrine of qualification". It is the "process of deciding
whether or not the facts relate to the kind of question specified in a conflicts
rule." 55 The purpose of "characterization" is to enable the forum to select the
proper law. 56

Our starting point of analysis here is not a legal relation, but a factual situation,
event, or operative fact. 57 An essential element of conflict rules is the indication
of a "test" or "connecting factor" or "point of contact". Choice-of-law rules
invariably consist of a factual relationship (such as property right, contract claim)
and a connecting factor or point of contact, such as the situs of the res, the place
of celebration, the place of performance, or the place of wrongdoing. 58

Note that one or more circumstances may be present to serve as the possible test
for the determination of the applicable law. 59 These "test factors" or "points of
contact" or "connecting factors" could be any of the following:

(1) The nationality of a person, his domicile, his residence, his place
of sojourn, or his origin;

(2) the seat of a legal or juridical person, such as a corporation;

(3) the situs of a thing, that is, the place where a thing is, or is
deemed to be situated. In particular, the lex situs is decisive when
real rights are involved;

(4) the place where an act has been done, the locus actus, such as
the place where a contract has been made, a marriage celebrated, a
will signed or a tort committed. The lex loci actus is particularly
important in contracts and torts;

(5) the place where an act is intended to come into effect, e.g., the
place of performance of contractual duties, or the place where a
power of attorney is to be exercised;

(6) the intention of the contracting parties as to the law that should
govern their agreement, the lex loci intentionis;

(7) the place where judicial or administrative proceedings are

instituted or done. The lex fori — the law of the forum — is
particularly important because, as we have seen earlier, matters of
"procedure" not going to the substance of the claim involved are
governed by it; and because the lex fori applies whenever the
content of the otherwise applicable foreign law is excluded from
 application in a given case for the reason that it falls under one of
the exceptions to the applications of foreign law; and

(8) the flag of a ship, which in many cases is decisive of practically

all legal relationships of the ship and of its master or owner as such.
It also covers contractual relationships particularly contracts of
affreightment. 60 (Emphasis ours.)

After a careful study of the pleadings on record, including allegations in the

Amended Complaint deemed admitted for purposes of the motion to dismiss, we
are convinced that there is reasonable basis for private respondent's assertion
that although she was already working in Manila, petitioner brought her to Jeddah
on the pretense that she would merely testify in an investigation of the charges
she made against the two SAUDIA crew members for the attack on her person
while they were in Jakarta. As it turned out, she was the one made to face trial for
very serious charges, including adultery and violation of Islamic laws and
tradition.

There is likewise logical basis on record for the claim that the "handing over" or
"turning over" of the person of private respondent to Jeddah officials, petitioner
may have acted beyond its duties as employer. Petitioner's purported act
contributed to and amplified or even proximately caused additional humiliation,
misery and suffering of private respondent. Petitioner thereby allegedly facilitated
the arrest, detention and prosecution of private respondent under the guise of
petitioner's authority as employer, taking advantage of the trust, confidence and
faith she reposed upon it. As purportedly found by the Prince of Makkah, the
alleged conviction and imprisonment of private respondent was wrongful. But
these capped the injury or harm allegedly inflicted upon her person and
reputation, for which petitioner could be liable as claimed, to provide
compensation or redress for the wrongs done, once duly proven.

Considering that the complaint in the court a quo is one involving torts, the
"connecting factor" or "point of contact" could be the place or places where the
tortious conduct or lex loci actus occurred. And applying the torts principle in a
conflicts case, we find that the Philippines could be said as a situs of the tort (the
place where the alleged tortious conduct took place). This is because it is in the
Philippines where petitioner allegedly deceived private respondent, a Filipina
residing and working here. According to her, she had honestly believed that
petitioner would, in the exercise of its rights and in the performance of its duties,
"act with justice, give her due and observe honesty and good faith." Instead,
petitioner failed to protect her, she claimed. That certain acts or parts of the injury
allegedly occurred in another country is of no moment. For in our view what is
important here is the place where the over-all harm or the totality of the alleged
injury to the person, reputation, social standing and human rights of complainant,
had lodged, according to the plaintiff below (herein private respondent). All told,
it is not without basis to identify the Philippines as the situs of the alleged tort.

Moreover, with the widespread criticism of the traditional rule of lex loci delicti
commissi, modern theories and rules on tort liability 61 have been advanced to
offer fresh judicial approaches to arrive at just results. In keeping abreast with the
modern theories on tort liability, we find here an occasion to apply the "State of
the most significant relationship" rule, which in our view should be appropriate to
apply now, given the factual context of this case.

In applying said principle to determine the State which has the most significant
relationship, the following contacts are to be taken into account and evaluated
according to their relative importance with respect to the particular issue: (a) the
place where the injury occurred; (b) the place where the conduct causing the
injury occurred; (c) the domicile, residence, nationality, place of incorporation
and place of business of the parties, and (d) the place where the relationship, if
any, between the parties is centered. 62

As already discussed, there is basis for the claim that over-all injury occurred and
lodged in the Philippines. There is likewise no question that private respondent is
a resident Filipina national, working with petitioner, a resident foreign corporation
engaged here in the business of international air carriage. Thus, the
"relationship" between the parties was centered here, although it should be
stressed that this suit is not based on mere labor law violations. From the record,
the claim that the Philippines has the most significant contact with the matter in
this dispute, 63 raised by private respondent as plaintiff below against defendant
(herein petitioner), in our view, has been properly established.

Prescinding from this premise that the Philippines is the situs of the tort
complained of and the place "having the most interest in the problem", we find,
by way of recapitulation, that the Philippine law on tort liability should have
paramount application to and control in the resolution of the legal issues arising
out of this case. Further, we hold that the respondent Regional Trial Court has
jurisdiction over the parties and the subject matter of the complaint; the
appropriate venue is in Quezon City, which could properly apply Philippine law.
Moreover, we find untenable petitioner's insistence that "[s]ince private
respondent instituted this suit, she has the burden of pleading and proving the
applicable Saudi law on the matter." 64 As aptly said by private respondent, she
has "no obligation to plead and prove the law of the Kingdom of Saudi Arabia
since her cause of action is based on Articles 19 and 21" of the Civil Code of the
Philippines. In her Amended Complaint and subsequent pleadings, she never
alleged that Saudi law should govern this case. 65 And as correctly held by the
respondent appellate court, "considering that it was the petitioner who was
invoking the applicability of the law of Saudi Arabia, then the burden was on it
[petitioner] to plead and to establish what the law of Saudi Arabia is". 66

Lastly, no error could be imputed to the respondent appellate court in upholding

the trial court's denial of defendant's (herein petitioner's) motion to dismiss the
case. Not only was jurisdiction in order and venue properly laid, but appeal after
trial was obviously available, and expeditious trial itself indicated by the nature of
the case at hand. Indubitably, the Philippines is the state intimately concerned
with the ultimate outcome of the case below, not just for the benefit of all the
litigants, but also for the vindication of the country's system of law and justice in
a transnational setting. With these guidelines in mind, the trial court must
proceed to try and adjudge the case in the light of relevant Philippine law, with
due consideration of the foreign element or elements involved. Nothing said
herein, of course, should be construed as prejudging the results of the case in
any manner whatsoever.

WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case
No. Q-93-18394 entitled "Milagros P. Morada vs. Saudi Arabia Airlines" is hereby
REMANDED to Regional Trial Court of Quezon City, Branch 89 for further
proceedings.

SO ORDERED.

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

Footnotes
KAZUHIRO HASEGAWA and NIPPON ENGINEERING CONSULTANTS CO., LTD.,

vs MINORU KITAMURA
G.R. No. 149177

November 23, 2007

FACTS:

 Nippon Engineering Consultants (Nippon), a Japanese consultancy firm

providing technical and management support in the infrastructure projects
national permanently residing in the Philippines.

 The agreement provides that Kitamaru was to extend professional services

to Nippon for a year. Nippon assigned Kitamaru to work as the project
manager of the Southern Tagalog Access Road (STAR) project.

 When the STAR project was near completion, DPWH engaged

the consultancy services of Nippon, this time for the detailed engineering &
construction supervision of the Bongabon-Baler Road Improvement (BBRI)
Project.

 Kitamaru was named as the project manager in the contract.

 Hasegawa, Nippon’s general manager for its International Division,

informed Kitamaru that the company had no more intention
of automatically renewing his ICA. His services would be engaged by the
company only up to the substantial completion of the STAR Project.

 Kitamaru demanded that he be assigned to the BBRI project. Nippon

insisted that Kitamaru’s contract was for a fixed term that had expired.
Kitamaru then filed for specific performance & damages w/ the RTC of Lipa
City. Nippon filed a MTD.

Nippon’s contention: The ICA had been perfected in Japan & executed by &
between Japanese nationals. Thus, the RTC of Lipa City has no jurisdiction. The
claim for improper pre-termination of Kitamaru’s ICA could only be heard &
ventilated in the proper courts of Japan following the principles of lex loci
celebrationis & lex contractus.
The RTC denied the motion to dismiss. The CA ruled that the principle of lex loci
celebrationis was not applicable to the case, because nowhere in the pleadings
was the validity of the written agreement put in issue. It held that the RTC was
correct in applying the principle of lex loci solutionis.

ISSUE:

Whether or not the subject matter jurisdiction of Philippine courts in civil cases for
specific performance & damages involving contracts executed outside the country
by foreign nationals may be assailed on the principles of lex loci celebrationis, lex
contractus, “the state of the most significant relationship rule,” or forum non
conveniens.

HELD:

NO. In the judicial resolution of conflicts problems, 3 consecutive phases are

involved: jurisdiction, choice of law, and recognition and enforcement of
judgments. Jurisdiction & choice of law are 2 distinct concepts.

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

choice of law asks the further question whether the application of a substantive
law w/c will determine the merits of the case is fair to both parties.

The power to exercise jurisdiction does not automatically give a

state constitutional authority to apply forum law.

While jurisdiction and the choice of the lex fori will often coincide, the “minimum
contacts” for one do not always provide the necessary “significant contacts” for
the other. The question of whether the law of a state can be applied to a
transaction is different from the question of whether the courts of that state have
jurisdiction to enter a judgment.

In this case, only the 1 st phase is at issue—jurisdiction. Jurisdiction, however, has

various aspects. For a court to validly exercise its power to adjudicate a
controversy, it must have jurisdiction over the plaintiff/petitioner, over the
defendant/respondent, over the subject matter, over the issues of the case and,
in cases involving property, over the res or the thing w/c is the subject of the
litigation.

In assailing the trial court's jurisdiction herein, Nippon is actually referring to

subject matter jurisdiction.
Jurisdiction over the subject matter in a judicial proceeding is conferred by the
sovereign authority w/c establishes and organizes the court. It is given only by
law and in the manner prescribed by law. It is further determined by the
allegations of the complaint irrespective of whether the plaintiff is entitled to all or
some of the claims asserted therein. To succeed in its motion for the dismissal of
an action for lack of jurisdiction over the subject matter of the claim, the movant
must show that the court or tribunal cannot act on the matter submitted to it
because no law grants it the power to adjudicate the claims.

In the instant case, Nippon, in its MTD, does not claim that the RTC is not properly
vested by law w/ jurisdiction to hear the subject controversy for a civil case for
specific performance & damages is one not capable of pecuniary estimation & is
properly cognizable by the RTC of Lipa City. What they rather raise as grounds to
question subject matter jurisdiction are the principles of lex loci
celebrationis and lex contractus, and the “state of the most significant relationship
rule.” The Court finds the invocation of these grounds unsound.

Lex loci celebrationis relates to the “law of the place of the ceremony” or the law
of the place where a contract is made. The doctrine of lex contractus or lex loci
contractusmeans the “law of the place where a contract is executed or to be
performed.” It controls the nature, construction, and validity of the contract and it
may pertain to the law voluntarily agreed upon by the parties or the law intended
by them either expressly or implicitly. Under the “state of the most significant
relationship rule,” to ascertain what state law to apply to a dispute, the court
should determine which state has the most substantial connection to the
occurrence and the parties. In a case involving a contract, the court
should consider where the contract was made, was negotiated, was to be
performed, and the domicile, place of business, or place of incorporation of the
parties. This rule takes into account several contacts and evaluates them
according to their relative importance with respect to the particular issue to be
resolved.

Since these 3 principles in conflict of laws make reference to the law applicable to
a dispute, they are rules proper for the 2nd phase, the choice of law.
They determine which state's law is to be applied in resolving the substantive
issues of a conflicts problem. Necessarily, as the only issue in this case is that of
jurisdiction, choice-of-law rules are not only inapplicable but also not yet called
for.

Further, Nippon’s premature invocation of choice-of-law rules is exposed by the

fact that they have not yet pointed out any conflict between the laws of Japan and
ours. Before determining which law should apply, 1 st there should exist a conflict
of laws situation requiring the application of the conflict of laws rules. Also, when
the law of a foreign country is invoked to provide the proper rules for the solution
of a case, the existence of such law must be pleaded and proved.

It should be noted that when a conflicts case, one involving a foreign element, is
brought before a court or administrative agency, there are 3 alternatives open to
the latter in disposing of it:

(1) dismiss the case, either because of lack of jurisdiction or refusal to assume
jurisdiction over the case;

(2) assume jurisdiction over the case and apply the internal law of the forum; or

(3) assume jurisdiction over the case and take into account or apply the law of
some other State or States.

The court’s power to hear cases and controversies is derived from the Constitution
and the laws. While it may choose to recognize laws of foreign nations, the court
is not limited by foreign sovereign law short of treaties or other formal
agreements, even in matters regarding rights provided by foreign sovereigns.

Neither can the other ground raised, forum non conveniens, be used to deprive the
RTC of its jurisdiction. 1st, it is not a proper basis for a motion to dismiss because
Sec. 1, Rule 16 of the Rules of Court does not include it as a ground . 2nd, whether
a suit should be entertained or dismissed on the basis of the said doctrine depends
largely upon the facts of the particular case and is addressed to the sound
discretion of the RTC. In this case, the RTC decided to assume jurisdiction. 3rd, the
propriety of dismissing a case based on this principle requires a factual
determination; hence, this conflicts principle is more properly considered a matter
of defense.

RULE 16 Motion to Dismiss Section 1. Grounds. — Within the time for but before filing the answer to
the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following
grounds: (a) That the court has no jurisdiction over the person of the defending party; (b) That the court
 has no jurisdiction over the subject matter of the claim; (c) That venue is improperly laid; (d) That the
plaintiff has no legal capacity to sue; (e) That there is another action pending between the same parties
for the same cause; (f) That the cause of action is barred by a prior judgment or by the statute of
limitations; (g) That the pleading asserting the claim states no cause of action; (h) That the claim or
demand set forth in the plaintiff's pleading has been paid, waived, abandoned, or otherwise
extinguished; (i) That the claim on which the action is founded is enforceable under the provisions of the
statute of frauds; and (j) That a condition precedent for filing the claim has not been complied with. (1a)

Doctrine:

Jurisdiction over the subject matter in a judicial proceeding is

conferred by the sovereign authority which establishes and organizes
the court. It is given only by law and in the manner prescribed by law.
It is further determined by the allegations of the complaint irrespective
of whether the plaintiff is entitled to all or some of the claims asserted
therein. In the judicial resolution of conflicts problems, three
consecutive phases are involved: jurisdiction, choice of law, and
recognition and enforcement of judgments. Corresponding to these
phases are the following questions:

1. Where can or should litigation be initiated? (Jurisdiction)

2. Which law will the court apply? (Choice of Law?
3. Where can the resulting judgment be enforced? (Enforcement)
 Republic of the Philippines
SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 149177 November 23, 2007

KAZUHIRO HASEGAWA and NIPPON ENGINEERING CONSULTANTS CO., LTD., Petitioners,

vs.
MINORU KITAMURA, Respondent.

DECISION

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing
the April 18, 2001 Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 60827, and the July 25,
2001 Resolution2 denying the motion for reconsideration thereof.

 On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd. (Nippon), a
Japanese consultancy firm providing technical and management support in the infrastructure
projects of foreign governments,3 entered into an Independent Contractor Agreement (ICA)
with respondent Minoru Kitamura, a Japanese national permanently residing in the
Philippines.

 4
The agreement provides that respondent was to extend professional services to Nippon for
a year starting on April 1, 1999.5 Nippon then assigned respondent to work as the project
manager of the Southern Tagalog Access Road (STAR) Project in the Philippines, following
the company's consultancy contract with the Philippine Government.6

 When the STAR Project was near completion, the Department of Public Works and
Highways (DPWH) engaged the consultancy services of Nippon, on January 28, 2000, this
time for the detailed engineering and construction supervision of the Bongabon-Baler Road
Improvement (BBRI) Project.7 Respondent was named as the project manager in the
contract's Appendix 3.1.8

 On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's general manager for its
International Division, informed respondent that the company had no more intention of
automatically renewing his ICA.

 His services would be engaged by the company only up to the substantial completion of the
STAR Project on March 31, 2000, just in time for the ICA's expiry.9

 Threatened with impending unemployment, respondent, through his lawyer, requested a

negotiation conference and demanded that he be assigned to the BBRI project. Nippon
insisted that respondent’s contract was for a fixed term that had already expired, and refused
to negotiate for the renewal of the ICA.10

 As he was not able to generate a positive response from the petitioners, respondent
consequently initiated on June 1, 2000 Civil Case No. 00-0264 for specific performance and
damages with the Regional Trial Court of Lipa City.11
For their part, petitioners, contending that the ICA had been perfected in Japan and executed
by and between Japanese nationals, moved to dismiss the complaint for lack of jurisdiction.
They asserted that the claim for improper pre-termination of respondent's ICA could only be heard
and ventilated in the proper courts of Japan following the principles of lex loci celebrationis and lex
contractus.12

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

On June 29, 2000, the RTC, invoking our ruling in Insular Government v. Frank14 that matters
connected with the performance of contracts are regulated by the law prevailing at the place of
performance,15 denied the motion to dismiss.16 The trial court subsequently denied petitioners'
motion for reconsideration,17 prompting them to file with the appellate court, on August 14, 2000,
their first Petition for Certiorari under Rule 65 [docketed as CA-G.R. SP No. 60205 ].18 On
August 23, 2000, the CA resolved to dismiss the petition on procedural grounds—for lack of
statement of material dates and for insufficient verification and certification against forum
shopping.19 An Entry of Judgment was later issued by the appellate court on September 20,
2000.20

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

Ruling on the merits of the second petition, the appellate court rendered the assailed April 18, 2001
Decision22 finding no grave abuse of discretion in the trial court's denial of the motion to dismiss. The
CA ruled, among others, that the principle of lex loci celebrationis was not applicable to the
case, because nowhere in the pleadings was the validity of the written agreement put in issue. The
CA thus declared that the trial court was correct in applying instead the principle of lex loci
solutionis.23

Petitioners' motion for reconsideration was subsequently denied by the CA in the assailed July 25,
2001 Resolution.24

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

A. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

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

B. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN OVERLOOKING THE

NEED TO REVIEW OUR ADHERENCE TO THE PRINCIPLE OF LEX LOCI
SOLUTIONIS IN THE LIGHT OF RECENT DEVELOPMENT[S] IN PRIVATE
INTERNATIONAL LAWS.26

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

Kitamura contends that the finality of the appellate court's decision in CA-G.R. SP No. 60205
has already barred the filing of the second petition docketed as CA-G.R. SP No. 60827
(fundamentally raising the same issues as those in the first one) and the instant petition for review
thereof.

We do not agree. When the CA dismissed CA-G.R. SP No. 60205 on account of the petition's
defective certification of non-forum shopping, it was a dismissal without prejudice. 27 The same holds
true in the CA's dismissal of the said case due to defects in the formal requirement of
verification28 and in the other requirement in Rule 46 of the Rules of Court on the statement of the
material dates.29 The dismissal being without prejudice, petitioners can re-file the petition, or file a
second petition attaching thereto the appropriate verification and certification—as they, in fact did—
and stating therein the material dates, within the prescribed period 30 in Section 4, Rule 65 of the said
Rules.31

The dismissal of a case without prejudice signifies the absence of a decision on the merits and
leaves the parties free to litigate the matter in a subsequent action as though the dismissed action
had not been commenced. In other words, the termination of a case not on the merits does not
bar another action involving the same parties, on the same subject matter and theory. 32

Necessarily, because the said dismissal is without prejudice and has no res judicata effect, and
even if petitioners still indicated in the verification and certification of the second certiorari petition
that the first had already been dismissed on procedural grounds, 33 petitioners are no longer required
by the Rules to indicate in their certification of non-forum shopping in the instant petition for review of
the second certiorari petition, the status of the aforesaid first petition before the CA. In any case, an
omission in the certificate of non-forum shopping about any event that will not constitute res
judicata (as been adjudicated by a competent court and may not be pursued further by the same
parties.) and litis pendentia ( situation where two actions are pending between the same parties
for the same cause of action, so that one of them becomes unnecessary and vexatious.), as in
the present case, is not a fatal defect . It will not warrant the dismissal and nullification of the entire
proceedings, considering that the evils sought to be prevented by the said certificate are no longer
present.34

The Court also finds no merit in respondent's contention that petitioner Hasegawa is only authorized
to verify and certify, on behalf of Nippon, the certiorari petition filed with the CA and not the instant
petition. True, the Authorization35 dated September 4, 2000, which is attached to the
second certiorari petition and which is also attached to the instant petition for review, is limited in
scope—its wordings indicate that Hasegawa is given the authority to sign for and act on behalf of
the company only in the petition filed with the appellate court, and that authority cannot extend to the
instant petition for review.36 In a plethora of cases, however, this Court has liberally applied the
Rules or even suspended its application whenever a satisfactory explanation and a subsequent
fulfillment of the requirements have been made. 37 Given that petitioners herein sufficiently explained
their misgivings on this point and appended to their Reply 38 an updated Authorization39 for Hasegawa
to act on behalf of the company in the instant petition, the Court finds the same as sufficient
compliance with the Rules.

However, the Court cannot extend the same liberal treatment to the defect in the verification and
certification. As respondent pointed out, and to which we agree, Hasegawa is truly not authorized to
act on behalf of Nippon in this case. The aforesaid September 4, 2000 Authorization and even the
subsequent August 17, 2001 Authorization were issued only by Nippon's president and chief
executive officer, not by the company's board of directors. In not a few cases, we have ruled
that corporate powers are exercised by the board of directors; thus, no person, not even its
officers, can bind the corporation, in the absence of authority from the board. 40 Considering
that Hasegawa verified and certified the petition only on his behalf and not on behalf of the other
petitioner, the petition has to be denied pursuant to Loquias v. Office of the
Ombudsman.41 Substantial compliance will not suffice in a matter that demands strict observance of
the Rules.42 While technical rules of procedure are designed not to frustrate the ends of justice,
nonetheless, they are intended to effect the proper and orderly disposition of cases and effectively
prevent the clogging of court dockets.43 (Substantial compliance compliance with the substantial or
essential requirements of something (as a statute or contract) that satisfies its purpose or
objective even though its formal requirements are not complied with.)

Further, the Court has observed that petitioners incorrectly filed a Rule 65 petition to question the
trial court's denial of their motion to dismiss. It is a well-established rule that an order denying a
motion to dismiss is interlocutory, and cannot be the subject of the extraordinary petition
for certiorari or mandamus. The appropriate recourse is to file an answer and to interpose as
defenses the objections raised in the motion, to proceed to trial, and, in case of an adverse decision,
to elevate the entire case by appeal in due course. 44 While there are recognized exceptions to this
rule,45 petitioners' case does not fall among them.

This brings us to the discussion of the substantive issue of the case.

Asserting that the RTC of Lipa City is an inconvenient forum, petitioners question its jurisdiction to
hear and resolve the civil case for specific performance and damages filed by the respondent. The
ICA subject of the litigation was entered into and perfected in Tokyo, Japan, by Japanese nationals,
and written wholly in the Japanese language. Thus, petitioners speculate that local courts have no
substantial relationship to the parties 46 following the [state of the] most significant relationship rule in
Private International Law.47

The Court notes that petitioners adopted an additional but different theory when they elevated the
case to the appellate court. In the Motion to Dismiss 48 filed with the trial court, petitioners never
contended that the RTC is an inconvenient forum. They merely argued that the applicable law
which will determine the validity or invalidity of respondent's claim is that of Japan, following the
principles of lex loci celebrationis and lex contractus.49 While not abandoning this stance in their
petition before the appellate court, petitioners on certiorari significantly invoked the defense
of forum non conveniens.50 On petition for review before this Court, petitioners dropped their other
arguments, maintained the forum non conveniens defense, and introduced their new argument that
the applicable principle is the [state of the] most significant relationship rule.51

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

To elucidate, in the judicial resolution of conflicts problems, three consecutive phases are
involved: jurisdiction, choice of law, and recognition and enforcement of judgments. Corresponding
to these phases are the following questions:

(1) Where can or should litigation be initiated?

(2) Which law will the court apply? and

(3) Where can the resulting judgment be enforced? 53

Analytically, jurisdiction and choice of law are two distinct concepts.54

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

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

Substantive law is that part of the law which creates, defines and regulates rights, or which
regulates the right and duties which give rise to a cause of action; that part of the law which
courts are established to administer;

The power to exercise jurisdiction does not automatically give a state constitutional
authority to apply forum law. While jurisdiction and the choice of the lex fori will often coincide, the
"minimum contacts" for one do not always provide the necessary "significant contacts" for the
other.55

The question of whether the law of a state can be applied to a transaction is different from the
question of whether the courts of that state have jurisdiction to enter a judgment. 56

In this case, only the first phase is at issue—jurisdiction. Jurisdiction, however, has various aspects.
1âwphi1

For a court to validly exercise its power to adjudicate a controversy, it must have jurisdiction over the
plaintiff or the petitioner, over the defendant or the respondent, over the subject matter, over the
issues of the case and, in cases involving property, over the res or the thing which is the subject of
the litigation.57

In assailing the trial court's jurisdiction herein, petitioners are actually referring to subject matter
jurisdiction.

Jurisdiction over the subject matter in a judicial proceeding is conferred by the sovereign authority
which establishes and organizes the court. It is given only by law and in the manner prescribed by
law.58 It is further determined by the allegations of the complaint irrespective of whether the plaintiff is
entitled to all or some of the claims asserted therein.59 To succeed in its motion for the dismissal
of an action for lack of jurisdiction over the subject matter of the claim,60 the movant must
show that the court or tribunal cannot act on the matter submitted to it because no law grants it the
power to adjudicate the claims.61

In the instant case, petitioners, in their motion to dismiss, do not claim that the trial court is not
properly vested by law with jurisdiction to hear the subject controversy for, indeed, Civil Case No.
00-0264 for specific performance and damages is one not capable of pecuniary estimation
and is properly cognizable by the RTC of Lipa City. 62 What they rather raise as grounds to
question subject matter jurisdiction are the principles of lex loci celebrationis and lex
contractus, and the "state of the most significant relationship rule."

The Court finds the invocation of these grounds unsound.

Lex loci celebrationis relates to the "law of the place of the ceremony" 63 or the law of the place
where a contract is made.64 The doctrine of lex contractus or lex loci contractus means the "law of
the place where a contract is executed or to be performed." 65 It controls the nature, construction,
and validity of the contract66 and it may pertain to the law voluntarily agreed upon by the parties or
the law intended by them either expressly or implicitly. 67 Under the "state of the most significant
relationship rule," to ascertain what state law to apply to a dispute, the court should determine
which state has the most substantial connection to the occurrence and the parties.

In a case involving a contract, the court should consider where the contract was made, was
negotiated, was to be performed, and the domicile, place of business, or place of incorporation of the
parties.68 This rule takes into account several contacts and evaluates them according to their relative
importance with respect to the particular issue to be resolved.69
Since these three principles in conflict of laws make reference to the law applicable to a dispute,
they are rules proper for the second phase, the choice of law.70 They determine which state's law is
to be applied in resolving the substantive issues of a conflicts problem. 71 Necessarily, as the only
issue in this case is that of jurisdiction, choice-of-law rules are not only inapplicable but also not yet
called for.

Further, petitioners' premature invocation of choice-of-law rules is exposed by the fact that they
have not yet pointed out any conflict between the laws of Japan and ours.

Before determining which law should apply,

first there should exist a conflict of laws situation requiring the application of the conflict of
laws rules.72 Also, when the law of a foreign country is invoked to provide the proper rules for
the solution of a case, the existence of such law must be pleaded and proved. 73

It should be noted that when a conflicts case, one involving a foreign element, is brought
before a court or administrative agency, there are three alternatives open to the latter in
disposing of it:

(1) dismiss the case, either because of lack of jurisdiction or refusal to assume jurisdiction over the
case;

(2) assume jurisdiction over the case and apply the internal law of the forum; or

(3) assume jurisdiction over the case and take into account or apply the law of some other State or
States.74

The court’s power to hear cases and controversies is derived from the Constitution and the laws.
While it may choose to recognize laws of foreign nations, the court is not limited by foreign sovereign
law short of treaties or other formal agreements, even in matters regarding rights provided by foreign
sovereigns.75

Neither can the other ground raised, forum non conveniens,76 be used to deprive the trial court of its
jurisdiction herein.

First, it is not a proper basis for a motion to dismiss because Section 1, Rule 16 of the Rules
of Court does not include it as a ground. 77

Second, whether a suit should be entertained or dismissed on the basis of the said doctrine
depends largely upon the facts of the particular case and is addressed to the sound
discretion of the trial court.78

In this case, the RTC decided to assume jurisdiction.

Third, the propriety of dismissing a case based on this principle requires a factual
determination; hence, this conflicts principle is more properly considered a matter of
defense.79

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

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

 SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ MINITA V. CHICO-NAZARIO

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

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

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

CERTIFICATION

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

REYNATO S. PUNO
Chief Justice

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

19
Id. at 44. The August 23, 2000 Resolution penned by Associate Justice Delilah Vidallon-
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 the
petitioners filed their motion for reconsideration and when they received the order of
denial thereof, as required in Section 3, paragraph 2, Rule 46 of the 1997 Rules of
Civil Procedure as amended by Circular No. 39-98 dated August 18, 1998 of the
Supreme Court. Moreover, the verification and certification of non-forum shopping
was executed by petitioner Kazuhiro Hasegawa for both petitioners without any
indication that the latter had authorized him to file the same.

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

"SO ORDERED."
Philippine Export and Foreign Loan Guarantee Corporation vs. V.P. Eusebio
Construction (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; AND
FIRST INTEGRATED BONDING AND INSURANCE COMPANY, INC., respondents.

G.R. No. 140047, July 13, 2004, First Division Decision, Chief Justice Davide, Jr.

Article 1169, last paragraph, of the Civil Code, provides: “In reciprocal obligations, neither party
incurs in delay if the other party does not comply or is not ready to comply in a proper manner
with what is incumbent upon him.”

The delay or the non-completion of the Project was caused by factors not imputable to the
respondent contractor.

It was rather due mainly to the persistent violations by SOB of the terms and conditions of the
contract. Where one of the parties to a contract does not perform in a proper manner
the prestation –( It is the object of the obligation. It is what the obligation is all about either to
give, to do, not to do, or a combination.)which he is bound to perform under the contract, he is
not entitled to demand the performance of the other party.

A party does not incur in delay if the other party fails to perform the obligation incumbent upon
him. SOB cannot yet demand complete performance from VPECI because it has not yet itself
performed its obligation in a proper manner. The VPECI cannot yet be said to have incurred in
delay.

FACTS:

 State Organization of Buildings (SOB) of Iraq awarded the construction of the Institute of
physical Therapy-Medical Rehabilitation Center in Iraq to Ayjal Trading and Contracting
Company.

 3-Plex International, Inc., a local contractor engaged in the construction business,

entered into a joint
venture agreement with Ayjal where the former would undertook the execution of the
entire project, while Ayjal would be entitled to 4% commission.
 Since 3-Plex was not accredited by the Phil. Overseas Construction Board (POCB), it
assigned and transferred all its rights to V.P. Eusebio Const. Inc (VPECI).

 The SOB then required the submission of a performance bond. To comply with this
requirement, 3-Plex and VPECI applied for a guarantee with Philguarantee, a
government financial institution empowered to issue guarantee for qualified Filipino
contractors.

 VPECI and the Ayjal Trading and Contracting Co. (joint venture) entered into a service
contract with the SOB for the construction of the Institute of Physical Therapy Medical
Center Phase 2 to be completed within a period of 18 months.

 Under the contract, the joint venture would supply manpower and materials, and SOB
would refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US
dollars at the exchange rate of 1 Dinar to 3.37777 US Dollars.

 The construction delayed in commencing due to some setbacks and difficulties. Upon
foreseeing the impossibility of meeting the deadline, the joint venture contractor worked
for the renewal of the Performance Bond up to December 1986.

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

 On October 1986, Al Ahli Bank of Kuwait Sent a telex to Philguarantee demanding full
payment of its performance counter-guarantee. Upon receipt, VPECI requested Iraqi
government to recall the telex for being in contravention of its mutual agreement that the
penalty will be held in abeyance until completion of the project. It also wrote a protest to
the SOB since the Iraqi government lacks foreign exchange to pay VPECI and the non-
compliance with the 75% billings in US dollars.

 Philguarantee received another telex from Al Ahli stating that it already paid to Rafidian
Bank. The Central Bank then authorized the remittance to Al Ahli Bank representing the
full payment of the performance counter-guarantee for VPECI’s project. Philguarantee
then sent letters to VPECI
demanding the full payment of the amount it paid pursuant to Al Ahli pursuant to their
joint and solidary obligation under the deed of undertaking and surety bond. VPECI
failed to pay prompting Philguarantee to file the case.

 The RTC ruled against Philguarantee and held that it had no valid cause of action
against VPECI. Also, the joint venture contractor incurred no delay in the execution of
the Project. Considering the Project owner’s violations of the contract which rendered
impossible the joint venture contractor’s
performance of its undertaking, no valid call on the guarantee could be made.
 Furthermore, the trial court held that no valid notice was first made by the Project owner
SOB to the joint venture contractor before the call on the guarantee.

 The CA affirmed the RTC’s decision.

ISSUE:

Whether or not VPECI defaulted in its obligation that would justify resort to guaranty.

RULING:

No, VPECI is not in default of its obligation that would justify resort to guaranty.

Article 1169, last paragraph, of the Civil Code, provides: “In reciprocal obligations, neither party
incurs in delay if the other party does not comply or is not ready to comply 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 by reason of a cause imputable to the former. It is the non-fulfillment
of an obligation with respect to time.

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 equipment and
materials, which were available from foreign suppliers, thus requiring US Dollars for their
importation.

As found by lower courts, the delay or the non-completion of the Project was caused by factors
not imputable to the respondent contractor. It was rather due mainly 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 one of the parties to a contract does not perform in a proper manner the
prestation which he is bound to perform under the contract, he is not entitled to demand the
performance of the other party. A party does not incur in delay if the other party fails to perform
the obligation incumbent upon him.

SOB cannot yet demand complete performance from VPECI because it has not yet itself
performed its obligation in a proper manner, particularly the payment of the 75% of the 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 the effects of
that delay ceased upon the renunciation by the creditor, SOB, which could be implied when the
latter granted several extensions of time to the former. Besides, no demand has yet been made
by SOB against the respondent contractor. Demand is generally necessary even if a period has
been fixed in the obligation. And default generally begins from the moment the creditor
demands judicially or extra-judicially the performance of the obligation. Without such demand,
the effects of default will not arise.
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; AND FIRST
INTEGRATED BONDING AND INSURANCE COMPANY, INC., respondents.

DECISION

DAVIDE, JR., C.J.:

This case is an offshoot of a service contract entered into by a Filipino construction firm with
the Iraqi 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 Guarantee
Corporation (hereinafter Philguarantee) sought reimbursement from the respondents of the sum of
1

money it paid to Al Ahli Bank of Kuwait pursuant to a guarantee it issued for respondent V.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 and
Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical Therapy–Medical
Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the Project) to Ajyal Trading and
Contracting Company (hereinafter Ajyal), a firm duly licensed with the Kuwait Chamber of
Commerce for a total contract price of ID5,416,089/046 (or about US$18,739,668). 2

On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of respondent 3-
Plex International, Inc. (hereinafter 3-Plex), a local contractor engaged in construction business,
entered into a joint venture agreement with Ajyal wherein the former undertook the execution of the
entire Project, while the latter would be entitled to a commission of 4% of the contract price.
3

Later, or on 8 April 1981, respondent 3-Plex, not being accredited by or registered with the Philippine
Overseas Construction Board (POCB), assigned and transferred all its rights and interests
under the joint venture agreement A joint venture (JV) is a business arrangement in which two
or more parties agree to pool their resources for the purpose of accomplishing a specific task . to
VPECI, a construction and engineering firm duly registered with the POCB. 4

However, on 2 May 1981, 3-Plex and VPECI entered into an agreement that the execution of the
Project would be under their joint management. 5

The SOB required the contractors to submit

(1) a performance bond of ID 271,808/610 representing 5% of the total contract price and

(2) an advance payment bond of IRAQ DINAR ID 541,608/901 representing 10% of the advance
payment to be released upon signing of the contract. 6

To comply with these requirements, respondents 3-Plex and VPECI applied for the issuance of a
guarantee with petitioner Philguarantee, a government financial institution empowered to issue
guarantees for qualified Filipino contractors to secure the performance of approved service
contracts abroad. 7

Petitioner Philguarantee approved respondents' application.

Subsequently, letters of guarantee were issued by Philguarantee to the Rafidain Bank of Baghdad
8

covering 100% of the performance and advance payment bonds, but they were not accepted by
SOB.

What SOB required was a letter-guarantee from Rafidain Bank, the government bank of Iraq.

Rafidain Bank then issued a performance bond in favor of SOB on the condition that another foreign
bank, not Philguarantee, would issue a counter-guarantee to cover its exposure.

Al Ahli Bank of Kuwait was, therefore, engaged to provide a counter-guarantee to Rafidain Bank, but
it required a similar counter-guarantee in its favor from the petitioner. Thus, three layers of
guarantees had to be arranged. 9

Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued in favor of Al
Ahli Bank of Kuwait Letter of Guarantee No. 81-194-F (Performance Bond Guarantee) in the
10

amount of ID271,808/610

and Letter of Guarantee No. 81-195-F (Advance Payment Guarantee) in the amount of
11

ID541,608/901, both for a term of eighteen months from 25 May 1981.

These letters of guarantee were secured by

(1) a Deed of Undertaking executed by respondents VPECI, Spouses Vicente P. Eusebio and
12

Soledad C. Eusebio, 3-Plex, and Spouses Eduardo E. Santos and Iluminada Santos; and

(2) a surety bond issued by respondent First Integrated Bonding and Insurance Company, Inc.
13

(FIBICI).

The Surety Bond was later amended on 23 June 1981 to increase the amount of coverage from P6.4
million to P6.967 million and to change the bank in whose favor the petitioner's guarantee was
issued, from Rafidain Bank to Al Ahli Bank of Kuwait. 14

On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service contract for the15

construction of the Institute of Physical Therapy – Medical Rehabilitation Center, Phase II, in
Baghdad, Iraq, wherein the joint venture contractor undertook to complete the Project within a period
of 547 days or 18 months.

Under the Contract, the Joint Venture would supply manpower and materials, and SOB would refund
to the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at the exchange rate of
1 Dinar to 3.37777 US Dollars. 16

The construction, which was supposed to start on 2 June 1981, commenced only on the last week of
August 1981.

Because of this delay and the slow progress of the construction work due to some setbacks and
difficulties, the Project was not completed on 15 November 1982 as scheduled.

But in October 1982, upon foreseeing the impossibility of meeting the deadline and upon the request
of Al Ahli Bank, the joint venture contractor worked for the renewal or extension of the Performance
Bond and Advance Payment Guarantee.

Petitioner's Letters of Guarantee Nos. 81-194-F (Performance Bond) and 81-195-F (Advance
Payment Bond) with expiry date of 25 November 1982 were then renewed or extended to 9
February 1983 and 9 March 1983, respectively. 17

The surety bond was also extended for another period of one year, from 12 May 1982 to 12 May
1983. The Performance Bond was further extended twelve times with validity of up to 8 December
18

1986, while the Advance Payment Guarantee was extended three times more up to 24 May 1984
19

when the latter was cancelled after full refund or reimbursement by the joint venture contractor. The20

surety bond was likewise extended to 8 May 1987. 21

As of March 1986, the status of the Project was 51% accomplished, meaning the structures were
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 full
payment of its performance bond counter-guarantee.

Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requested Iraq
Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex call on the
performance guarantee for being a drastic action in contravention of its mutual agreement with the
latter that

(1) the imposition of penalty would be held in abeyance until the completion of the project; and

(2) the time extension would be open, depending on the developments on the negotiations for a
foreign loan to finance the completion of the project. It also wrote SOB protesting the call for lack of
23

factual or legal basis, since the failure to complete the Project was due to

(1) the Iraqi government's lack of foreign exchange with which to pay its (VPECI's)
accomplishments and
 (2) SOB's noncompliance for the past several years with the provision in the contract that 75% of
the billings would be paid in US dollars. Subsequently, or on 19 November 1986, respondent VPECI
24

advised the petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the
amicable settlement of the Project.25

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

Both petitioner Philguarantee and respondent VPECI sought the assistance of some government
agencies of the Philippines.

On 10 August 1987, VPECI requested the Central Bank to hold in abeyance 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 injustice and inequity
committed against a Filipino contractor." 27

On 27 August 1987, the Central Bank authorized the remittance for its account of the amount of
US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing full payment of the
performance 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 Ahli
Bank, and reiterated the joint and solidary obligation of the respondents to reimburse the petitioner
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 January
1988. Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83
30

representing interest and penalty charges demanded by the latter bank. 31

On 19 June 1991, the petitioner sent to the respondents separate letters demanding full payment 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 undertaking and surety bond.

When the respondents failed to pay, the petitioner filed on 9 July 1991 a civil case for collection of a
sum of money against the respondents before the RTC of Makati City.

After due trial, the trial court ruled against Philguarantee and held that the latter had no valid cause
of action against the respondents. It opined that at the time the call was made on the guarantee
which was executed for a specific period, the guarantee had already lapsed or expired.

There was no valid renewal or extension of the guarantee for failure of the petitioner to secure
respondents' express consent thereto.

The trial court also found that the joint venture contractor incurred no delay in the execution of the
Project.

Considering the Project owner's violations of the contract which rendered impossible the joint
venture contractor's performance of its undertaking, no valid call on the guarantee could be made.
Furthermore, the trial court held that no valid notice was first made by the Project owner SOB to the
joint venture contractor before the call on the guarantee. Accordingly, it dismissed the complaint,
as well as the counterclaims and cross-claim, and ordered the petitioner to pay attorney's
fees of P100,000 to respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex and the
Santos Spouses, plus costs. 33

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

follows:

First, appellant cannot deny the fact that it was fully aware of the status of project
implementation as well as the problems besetting the contractors, between 1982 to
1985, having sent some of its people to Baghdad during that period. The successive
renewals/extensions of the guarantees in fact, was prompted by delays, not solely
attributable to the contractors, and such extension understandably allowed by the
SOB (project owner) which had not anyway complied with its contractual commitment
to tender 75% of payment in US Dollars, and which still retained overdue amounts
collectible by VPECI.

Second, appellant was very much aware of the violations committed by the SOB of
its contractual 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 will result from its payment of the full amount of the performance guarantee, as
evident in PHILGUARANTEE's letter dated 13 May 1987 ….

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

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

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

…RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF UNDERTAKING

THEY EXECUTED IN FAVOR OF PETITIONER IN CONSIDERATION FOR THE
ISSUANCE OF ITS COUNTER-GUARANTEE AND THAT PETITIONER CANNOT
PASS ON TO RESPONDENTS WHAT IT HAD PAID UNDER THE SAID COUNTER-
GUARANTEE.

II

…PETITIONER CANNOT CLAIM SUBROGATION.

 III

…IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD RESPONDENTS

LIABLE UNDER THEIR DEED OF UNDERTAKING. 36

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

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

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

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

1. A surety is usually bound with his principal by the same instrument executed at the
same time and on the same consideration. On the other hand, the contract of
guaranty is the guarantor's own separate undertaking often supported by a
consideration separate from that supporting the contract of the principal; the original
contract of his principal is not his contract.

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

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
is charged on his own undertaking.

5. A surety is, ordinarily, held to know every default of his principal; whereas a
guarantor 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
creditor to the principal or by want of notice of the default of the principal, no matter
how much he may be injured thereby. A guarantor is often discharged by the mere
indulgence of the creditor to the principal, and is usually not liable unless notified of
the default of the principal.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 to pay you on your first written or telex demand Iraq Dinars Two
Hundred Seventy One Thousand Eight Hundred Eight and fils six hundred ten
 (ID271,808/610) representing 100% of the performance bond required of V.P.
EUSEBIO for the construction of the Physical Therapy Institute, Phase II, Baghdad,
Iraq, plus interest and other incidental expenses related thereto.

In the event of default by V.P. EUSEBIO, we shall pay you 100% of the
obligation 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 the factual
milieu of this case, we find that the Court of Appeals and the trial court were correct in ruling that the
petitioner is a guarantor and not a surety. That the guarantee issued by the petitioner is
unconditional and irrevocable does not make the petitioner a surety. As a guaranty, it is still
characterized by its subsidiary and conditional quality because it does not take effect until the
fulfillment of the condition, namely, that the principal obligor should fail in his obligation at the time
and in the form he bound himself. In other words, an unconditional guarantee is still subject to the
40

condition that the principal debtor should default in his obligation first before resort to the guarantor
could be had. A conditional guaranty, as opposed to an unconditional guaranty, is one which
depends upon some extraneous event, beyond the mere default of the principal, and generally upon
notice of the principal's default and reasonable diligence 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 by
respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply that
of an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact that petitioner's
guaranty is unconditional does not make it a surety. Besides, surety is never presumed. A party
should not be considered a surety where the contract itself stipulates that he is acting only as a
guarantor. It is only when the guarantor binds himself solidarily with the principal debtor that the
contract becomes one of suretyship. 42

Having determined petitioner's liability as guarantor, the next question we have to grapple with is
whether the respondent contractor has defaulted in its obligations that would justify resort to the
guaranty. This is a mixed question of fact and law that is better addressed by the lower courts, 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 of Appeals
are binding or conclusive upon this Court unless they are not supported by the evidence or unless
strong and cogent reasons dictate otherwise. The factual findings of the Court of Appeals are
43

normally not reviewable by us under Rule 45 of the Rules of Court except when they are at variance
with those of the trial court. The trial court and the Court of Appeals were in unison that the
44

respondent contractor cannot be considered to have defaulted in 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 respondent contractor
has defaulted in the performance of its obligations under the service contract. The question of
whether there is a breach of an agreement, which includes default or mora, pertains to the
45

essential or intrinsic validity of a contract.46

No conflicts rule on essential validity of contracts is expressly provided for in our laws. The rule
followed by most legal systems, however, is that the intrinsic validity of a contract must be governed
by the lex contractus or "proper law of the contract." This is the law voluntarily agreed upon by the
parties (the lex loci voluntatis) or the law intended by them either expressly or implicitly (the lex loci
intentionis). The law selected may be implied from such factors as substantial connection with the
transaction, or the nationality or domicile of the parties. Philippine courts would do well to adopt the
47

first and most basic rule in most legal systems, namely, to allow the parties to select the law
applicable to their contract, subject to the limitation that it is not against the law, morals, or public
policy of the forum and that the chosen 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 choice of
the law that would govern it. In the United States and Europe, the two rules that now seem to 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 most significant
relationship to the transaction and the parties." Another authority proposed that all matters relating
49

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, which is 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 the parties
is the Iraqi Government and the place of performance is in Iraq. Hence, the issue of whether
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 of identity or similarity,
otherwise known as the processual presumption, comes into play. Where foreign law is not pleaded
or, even if pleaded, is not proved, the presumption is that foreign law is the same as ours. 51

Our law, specifically Article 1169, last paragraph, of the Civil Code, provides: "In reciprocal
obligations, neither party incurs in delay if the other party does not comply or is not ready to comply
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 by reason of a
cause imputable to the former. It is the non-fulfillment of an obligation with respect to time.
52 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 equipment and materials,
which were available from foreign suppliers, thus requiring US Dollars for their importation. The
monthly billings and payments made by SOB reveal that the agreement between the parties was a
54

periodic payment by the Project owner to the contractor depending on the percentage of
accomplishment within the period. The payments were, in turn, to be used by the contractor to
55

finance the subsequent phase of the work. However, as explained by VPECI in its letter to the
56

Department of Foreign Affairs (DFA), the payment by SOB purely in Dinars adversely affected the
completion of the project; thus:

4. Despite protests from the plaintiff, SOB continued paying the accomplishment
billings of the Contractor purely in Iraqi Dinars and which payment came only after
some delays.

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 to pay for the cost of project management, supervision and skilled labor not
available in Iraq and therefore have to be imported and or obtained from the
Philippines and other sources outside Iraq.

5.3 That the Ministry of Labor and Employment of the Philippines requires the
remittance into the Philippines of 70% of the salaries of Filipino workers working
abroad in US Dollars;
 …

5.5 That the Iraqi Dinar is not a freely convertible currency such that the same cannot
be 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
in Iraq and therefore have to be imported;

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 or obtained using Iraqui Dinars as medium of acquisition.

8. Following the approved construction program of the CONTRACT, upon completion

of the civil works portion of the installation of equipment for the building, should
immediately follow, however, the CONTRACT specified that these equipment which
are to be installed and to form part of the PROJECT have to be procured outside Iraq
since these are not being locally manufactured. Copy f the relevant portion of the
Technical Specification 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
the Iraqi government in completing the PROJECT, the Contractor without any
obligation on its 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 and SACE 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 draft of the loan Agreement between SOB as the Borrower and Agent. The
Several Banks, as Lender, 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 reported default by Iraq in the payment of its obligations with
Italian government, copy of the news clipping dated June 18, 1986 is hereto attached
as Annex "D" to form an integral part hereof;

15. On September 15, 1986, Contractor received information from Circle

International S.A. that because of the news report that Iraq defaulted in its
obligations with European banks, 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 hereto attached 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 of the
Project was caused by factors not imputable to the respondent contractor. It was rather due mainly
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 one of the parties to a contract
does not perform in a proper manner the prestation which he is bound to perform under the contract,
he is not entitled to demand the performance of the other party. A party does not incur in delay if the
other party fails to perform the obligation incumbent upon him.

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

VPECI has taken every possible measure for the completion of the project but the
war situation in Iraq particularly the lack of foreign exchange is proving to be a great
obstacle. Our performance counterguarantee was called last 26 October 1986 when
the negotiations for a foreign currency loan with the Italian government through
Banco de Roma bogged down following news report that Iraq has defaulted in its
obligation with major European banks. Unless the situation in Iraq is improved as to
allay the bank's apprehension, 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 be present:

(1) that the obligation be demandable and already liquidated;

(2) that the debtor delays performance; and

(3) that the creditor requires the performance because it must appear that 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 not yet
itself performed its obligation in a proper manner, particularly the payment of the 75% of the 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 the effects of that delay
ceased upon the renunciation by the creditor, SOB, which could be implied when the latter granted
several extensions of time to the former. Besides, no demand has yet been made by SOB against
60

the respondent contractor. Demand is generally necessary even if a period has been fixed in the
obligation. And default generally begins from the moment the creditor demands judicially or extra-
judicially the performance of the obligation. Without such demand, the effects of default will not
arise.
61

Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot be
compelled to pay the creditor SOB unless the property of the debtor VPECI has been exhausted and
all legal remedies against the said debtor have been resorted to by the creditor. It could also set up
62

compensation as regards what the creditor SOB may owe the principal debtor VPECI. In this case,
63

however, the petitioner has clearly waived these rights and remedies by making the payment of an
obligation that was yet to be shown to be rightfully due the creditor and demandable of the principal
debtor.

As found by the Court of Appeals, the petitioner fully knew that the joint venture contractor had
collectibles from SOB which could be set off with the amount covered by the performance
guarantee. In February 1987, the OMEAA transmitted to the petitioner a copy of a telex dated 10
February 1987 of the Philippine Ambassador in Baghdad, Iraq, informing it of the note verbale sent
by the Iraqi Ministry of Foreign Affairs stating that the past due obligations of the joint venture
contractor from the petitioner would "be deducted from the dues of the two contractors." 64
Also, in the project situationer attached to the letter to the OMEAA dated 26 March 1987, the
petitioner raised as among the arguments to be presented in support of the cancellation of the
counter-guarantee the fact that the amount of ID281,414/066 retained by SOB from the Project was
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 its
contractual obligations of paying 75% of progress billings in US dollars.

· It could also be argued that the amount of ID281,414/066 retained by SOB

from the proposed project is more than the amount of the outstanding
counterguarantee. 65

In a nutshell, since the petitioner was aware of the contractor's outstanding receivables from SOB, 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
to SOB'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
committed against a Filipino contractor. It is for this reason that we are constrained to
seek your assistance not only in ascertaining the veracity of Al Ahli Bank's claim that
it has paid Rafidain Bank but possibly averting such an event. As any payment
effected by the banks will complicate matters, we cannot help underscore the
urgency of VPECI's bid for government intervention for the amicable termination of
the contract and release of the performance guarantee. 66

But surprisingly, though fully cognizant of SOB's violations of the service contract and VPECI's
outstanding receivables from SOB, as well as the situation obtaining in the Project site compounded
by the Iran-Iraq war, the petitioner opted to pay the second layer guarantor not only the full amount
of the performance bond counter-guarantee but also interests and penalty charges.

This brings us to the next question: May the petitioner as a guarantor secure reimbursement from
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 latter and would be
67

legally subrogated to the rights which the creditor has against the debtor. However, a person who
68

makes payment without the knowledge or against the will of the debtor has the right to recover only
insofar as the payment has been beneficial to the debtor. If the obligation was subject to defenses
69

on the part of the debtor, the same defenses which could have been set up against 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 made by the
petitioner guarantor did not in any way benefit the principal debtor, given the project status and the
conditions obtaining at the Project site at that time. Moreover, the respondent contractor was found
to have valid defenses against SOB, which are fully supported by evidence and which have been
meritoriously set up against the paying guarantor, the petitioner in this case. 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 undue payment on the guaranty. Rights under the
deed of undertaking and the surety bond do not arise 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 debtor VPECI
should have, in the first place, defaulted in its obligation and that the creditor SOB should have first
made a demand from the principal debtor. It is only when the debtor does not or cannot pay, in
whole or in part, that the guarantor should pay. When the petitioner guarantor in this case paid
71

against the will of the debtor VPECI, the debtor VPECI may set up against it defenses available
against the creditor SOB at the time of payment. This is the hard lesson that the petitioner must
learn.

As the government arm in pursuing its objective of providing "the necessary support and assistance
in order to enable … [Filipino exporters and contractors to operate viably under the prevailing
economic and business conditions," the petitioner should have exercised prudence and caution
72

under the circumstances. As aptly put by the Court of Appeals, it would be the height of inequity to
allow the petitioner to pass on its losses to the Filipino contractor VPECI which had sternly warned
against paying the Al Ahli Bank and constantly apprised it of the developments in the Project
implementation.

WHEREFORE, the petition for review on certiorari is hereby DENIED for lack of merit, and the
decision 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.

NORTHWEST ORIENT AIRLINES, INC. vs. CA Digest

FACTS: Northwest Airlines and Sharp, through its Japan branch, entered into an
International Passenger Sales Agency Agreement, whereby the former authorized the
latter to sell its air transportation tickets. Unable to remit the proceeds of the ticket sales
made by defendant on behalf of the plaintiff under the said agreement, plaintiff sued
defendant in Tokyo, Japan, for collection of the unremitted proceeds of the ticket sales,
with claim for damages.

After the two attempts of service were unsuccessful, the judge of the Tokyo District
Court decided to have the complaint and the writs of summons served at the head office
of the defendant in Manila.

The Director of the Tokyo District Court requested the Supreme Court of Japan to
serve the summons through diplomatic channels upon the defendant’s head office in
Manila.

On August 28, 1980, defendant received from Deputy Balingit the writ of summons.
Despite receipt of the same, defendant failed to appear at the scheduled hearing. Thus,
the Tokyo Court proceeded to hear the plaintiff’s complaint and, rendered judgment
ordering the defendant to pay the plaintiff the sum of 83,158,195 Yen and damages for
delay. Defendant received from Deputy Sheriff Balingit copy of the judgment.
Defendant not having appealed the judgment, the same became final and executory.

Plaintiff was unable to execute the decision in Japan, hence, a suit for enforcement of
the judgment was filed by plaintiff before the Regional Trial Court of Manila Branch 54.
Defendant filed its answer averring that the judgment of the Japanese Court:

(1) the foreign judgment sought to be enforced is null and void for want of jurisdiction
and

(2) the said judgment is contrary to Philippine law and public policy and rendered
without due process of law.

ISSUE: Whether a Japanese court can acquire jurisdiction over a Philippine Corporation
doing business in Japan by serving summons through diplomatic channels on the
Philippine corporation at its principal office in Manila after prior attempts to serve
summons in Japan had failed.

HELD: YES
A foreign judgment is presumed to be valid and binding in the country from which it
comes, until the contrary is shown. It is also proper to presume the regularity of the
proceedings and the giving of due notice therein.

The judgment may, however, be assailed by evidence of want of jurisdiction, want of

notice to the party, collusion, fraud, or clear mistake of law or fact.

Being the party challenging the judgment rendered by the Japanese court, SHARP had
the duty to demonstrate the invalidity of such judgment. It was then incumbent upon
SHARP to present evidence as to what that Japanese procedural law is and to show
that under it, the assailed extraterritorial service is invalid. It did not. Accordingly, the
presumption of validity and regularity of the service of summons and the decision
thereafter rendered by the Japanese court must stand.

Section 14, Rule 14 of the Rules of Court provides that if the defendant is a foreign
corporation doing business in the Philippines, service may be made:

(1) on its resident agent designated in accordance with law for that purpose, or,

(2) if there is no such resident agent, on the government official designated by law to
that effect; or

(3) on any of its officers or agents within the Philippines.

Where the corporation has no such agent, service shall be made on the
government official designated by law, to wit:
(a) the Insurance Commissioner in the case of a foreign insurance company;

(b) the Superintendent of Banks, in the case of a foreign banking corporation; and

(c) the Securities and Exchange Commission, in the case of other foreign corporations
duly licensed to do business in the Philippines.

Nowhere in its pleadings did SHARP profess to having had a resident agent authorized
to receive court processes in Japan.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 112573 February 9, 1995

NORTHWEST ORIENT AIRLINES, INC. petitioner,

vs.
COURT OF APPEALS and C.F. SHARP & COMPANY INC., respondents.

PADILLA, JR., J.:

This petition for review on certiorari seeks to set aside the decision of the Court of Appeals affirming
the dismissal of the petitioner's complaint to enforce the judgment of a Japanese court. The principal
issue here is whether a Japanese court can acquire jurisdiction over a Philippine corporation doing
business in Japan by serving summons through diplomatic channels on the Philippine corporation at
its principal office in Manila after prior attempts to serve summons in Japan had failed.

Petitioner Northwest Orient Airlines, Inc. (hereinafter NORTHWEST), a corporation organized under
the laws of the State of Minnesota, U.S.A., sought to enforce in Civil Case No. 83-17637 of the
Regional Trial Court (RTC), Branch 54, Manila, a judgment rendered in its favor by a Japanese court
against private respondent C.F. Sharp & Company, Inc., (hereinafter SHARP), a corporation
incorporated under Philippine laws.

As found by the Court of Appeals in the challenged decision of 10 November 1993, the following
1

are the factual and procedural antecedents of this controversy:

On May 9, 1974, plaintiff Northwest Airlines and defendant C.F. Sharp & Company,
through its Japan branch, entered into an International Passenger Sales Agency
Agreement, whereby the former authorized the latter to sell its air transportation
tickets. Unable to remit the proceeds of the ticket sales made by defendant on behalf
of the plaintiff under the said agreement, plaintiff on March 25, 1980 sued defendant
in Tokyo, Japan, for collection of the unremitted proceeds of the ticket sales, with
claim for damages.

On April 11, 1980, a writ of summons was issued by the 36th Civil Department,
Tokyo District Court of Japan against defendant at its office at the Taiheiyo Building,
3rd floor, 132, Yamashita-cho, Naka-ku, Yokohoma, Kanagawa Prefecture. The
attempt to serve the summons was unsuccessful because the bailiff was advised by
a person in the office that Mr. Dinozo, the person believed to be authorized to receive
court processes was in Manila and would be back on April 24, 1980.

On April 24, 1980, bailiff returned to the defendant's office to serve the summons. Mr.
Dinozo refused to accept the same claiming that he was no longer an employee of
the defendant.

After the two attempts of service were unsuccessful, the judge of the Tokyo District
Court decided to have the complaint and the writs of summons served at the head
office of the defendant in Manila. On July 11, 1980, the Director of the Tokyo District
Court requested the Supreme Court of Japan to serve the summons through
diplomatic channels upon the defendant's head office in Manila.

On August 28, 1980, defendant received from Deputy Sheriff Rolando Balingit the
writ of summons (p. 276, Records). Despite receipt of the same, defendant failed to
appear at the scheduled hearing. Thus, the Tokyo Court proceeded to hear the
plaintiff's complaint and on [January 29, 1981], rendered judgment ordering the
defendant to pay the plaintiff the sum of 83,158,195 Yen and damages for delay at
the rate of 6% per annum from August 28, 1980 up to and until payment is completed
(pp. 12-14, Records).

On March 24, 1981, defendant received from Deputy Sheriff Balingit copy of the
judgment. Defendant not having appealed the judgment, the same became final and
executory.

Plaintiff was unable to execute the decision in Japan, hence, on May 20, 1983, a suit
for enforcement of the judgment was filed by plaintiff before the Regional Trial Court
of Manila Branch 54. 2

On July 16, 1983, defendant filed its answer averring that the judgment of the
Japanese Court sought to be enforced is null and void and unenforceable in this
jurisdiction having been rendered without due and proper notice to the defendant
and/or with collusion or fraud and/or upon a clear mistake of law and fact (pp. 41-45,
Rec.).

Unable to settle the case amicably, the case was tried on the merits. After the plaintiff
rested its case, defendant on April 21, 1989, filed a Motion for Judgment on a
Demurrer to Evidence based on two grounds:
(1) the foreign judgment sought to be enforced is null and void for want of jurisdiction
and (2) the said judgment is contrary to Philippine law and public policy and rendered
without due process of law. Plaintiff filed its opposition after which the court a
quo rendered the now assailed decision dated June 21, 1989 granting the demurrer
 motion and dismissing the complaint (Decision, pp. 376-378, Records). In granting
the demurrer motion, the trial court held that:

The foreign judgment in the Japanese Court sought in this action is

null and void for want of jurisdiction over the person of the defendant
considering that this is an action in personam; the Japanese Court
did not acquire jurisdiction over the person of the defendant because
jurisprudence requires that the defendant be served with summons in
Japan in order for the Japanese Court to acquire jurisdiction over it,
the process of the Court in Japan sent to the Philippines which is
outside Japanese jurisdiction cannot confer jurisdiction over the
defendant in the case before the Japanese Court of the case at
bar. Boudard versus Tait 67 Phil. 170. The plaintiff contends that the
Japanese Court acquired jurisdiction because the defendant is a
resident of Japan, having four (4) branches doing business therein
and in fact had a permit from the Japanese government to conduct
business in Japan (citing the exhibits presented by the plaintiff); if this
is so then service of summons should have been made upon the
defendant in Japan in any of these alleged four branches; as
admitted by the plaintiff the service of the summons issued by the
Japanese Court was made in the Philippines thru a Philippine Sheriff.
This Court agrees that if the defendant in a foreign court is a resident
in the court of that foreign court such court could acquire jurisdiction
over the person of the defendant but it must be served upon the
defendant in the territorial jurisdiction of the foreign court. Such is not
the case here because the defendant was served with summons in
the Philippines and not in Japan.

Unable to accept the said decision, plaintiff on July 11, 1989 moved for
reconsideration of the decision, filing at the same time a conditional Notice of Appeal,
asking the court to treat the said notice of appeal "as in effect after and upon
issuance of the court's denial of the motion for reconsideration."

Defendant opposed the motion for reconsideration to which a Reply dated August 28,
1989 was filed by the plaintiff.

On October 16, 1989, the lower court disregarded the Motion for Reconsideration
and gave due course to the plaintiff's Notice of Appeal. 3

In its decision, the Court of Appeals sustained the trial court. It agreed with the latter in its reliance
upon Boudard vs. Tait wherein it was held that "the process of the court has no extraterritorial effect
4

and no jurisdiction is acquired over the person of the defendant by serving him beyond the
boundaries of the state." To support its position, the Court of Appeals further stated:

In an action strictly in personam, such as the instant case, personal service of

summons within the forum is required for the court to acquire jurisdiction over the
defendant (Magdalena Estate Inc. vs. Nieto, 125 SCRA 230). To confer jurisdiction
on the court, personal or substituted service of summons on the defendant not
extraterritorial service is necessary (Dial Corp vs. Soriano, 161 SCRA 739).

But while plaintiff-appellant concedes that the collection suit filed is an action in
personam, it is its theory that a distinction must be made between an action in
personam against a resident defendant and an action in personam against a non-
resident defendant. Jurisdiction is acquired over a non-resident defendant only if he
is served personally within the jurisdiction of the court and over a resident defendant
if by personal, substituted or constructive service conformably to statutory
authorization. Plaintiff-appellant argues that since the defendant-appellee maintains
branches in Japan it is considered a resident defendant. Corollarily, personal,
substituted or constructive service of summons when made in compliance with the
procedural rules is sufficient to give the court jurisdiction to render judgment in
personam.

DISTINCTION UNDER NEW RULES OF COURT AS TO MANNER OF SERVICE

BETWEEN A RESIDENT AND A NON-RESIDENT DEFENDANT. — Under the new
Rules of Court (Rule 7) a distinction is made between a resident and a nonresident
defendant; as to the former, service of summons by publication may be made even in
a personal action (recovery of personal property); but as to the latter, the action
must be one in rem or quasi in rem in order that service of summons by publication
may be authorized.

Quasi in rem is a Latin term meaning “as if against a thing.” It refers to a

type of civil action which (similar to in rem) is directed against property; but
instead of applying to everyone, it only applies to those named in the
action.

Such an argument does not persuade.

It is a general rule that processes of the court cannot lawfully be served outside the
territorial limits of the jurisdiction of the court from which it issues (Carter vs. Carter;
41 S.E. 2d 532, 201) and this is regardless of the residence or citizenship of the party
thus served (Iowa-Rahr vs. Rahr, 129 NW 494, 150 Iowa 511, 35 LRC, NS, 292, Am.
Case 1912 D680). There must be actual service within the proper territorial limits on
defendant or someone authorized to accept service for him. Thus, a defendant,
whether a resident or not in the forum where the action is filed, must be served
with summons within that forum.

But even assuming a distinction between a resident defendant and non-resident

defendant were to be adopted, such distinction applies only to natural persons and
not in the corporations. This finds support in the concept that "a corporation has no
home or residence in the sense in which those terms are applied to natural
persons" (Claude Neon Lights vs. Phil. Advertising Corp., 57 Phil. 607). Thus, as
cited by the defendant-appellee in its brief:

Residence is said to be an attribute of a natural person, and can be predicated on an

artificial being only by more or less imperfect analogy. Strictly speaking, therefore, a
corporation can have no local residence or habitation. It has been said that a
corporation is a mere ideal existence, subsisting only in contemplation of law — an
invisible being which can have, in fact, no locality and can occupy no space,
and therefore cannot have a dwelling place. (18 Am. Jur. 2d, p. 693 citing
Kimmerle v. Topeka, 88 370, 128 p. 367; Wood v. Hartfold F. Ins. Co., 13 Conn 202)

Jurisprudence so holds that the foreign or domestic character of a corporation is to

be determined by the place of its origin where its charter was granted and not by the
location of its business activities (Jennings v. Idaho Rail Light & P. Co., 26 Idaho
703, 146 p. 101), A corporation is a "resident" and an inhabitant of the state in which
it is incorporated and no other (36 Am. Jur. 2d, p. 49).
 Defendant-appellee is a Philippine Corporation duly organized under the Philippine
laws. Clearly, its residence is the Philippines, the place of its incorporation, and
not Japan. While defendant-appellee maintains branches in Japan, this will not
make it a resident of Japan. A corporation does not become a resident of another by
engaging in business there even though licensed by that state and in terms given all
the rights and privileges of a domestic corporation (Galveston H. & S.A.R. Co. vs.
Gonzales, 151 US 496, 38 L ed. 248, 4 S Ct. 401).

On this premise, defendant appellee is a non-resident corporation. As such, court

processes must be served upon it at a place within the state in which the action is
brought and not elsewhere (St. Clair vs. Cox, 106 US 350, 27 L ed. 222, 1 S. Ct.
354). 5

It then concluded that the service of summons effected in Manila or beyond the territorial boundaries
of Japan was null and did not confer jurisdiction upon the Tokyo District Court over the person of
SHARP; hence, its decision was void.

Unable to obtain a reconsideration of the decision, NORTHWEST elevated the case to this Court
contending that the respondent court erred in holding that SHARP was not a resident of Japan and
that summons on SHARP could only be validly served within that country.

A foreign judgment is presumed to be valid and binding in the country from which it comes, until the
contrary is shown. It is also proper to presume the regularity of the proceedings and the giving of
due notice therein. 6

Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of
a foreign country having jurisdiction to pronounce the same is presumptive evidence of a right as
between the parties and their successors-in-interest by a subsequent title.

The judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the
party, collusion, fraud, or clear mistake of law or fact. Also, under Section 3 of Rule 131, a court,
whether of the Philippines or elsewhere, enjoys the presumption that it was acting in the lawful
exercise of jurisdiction and has regularly performed its official duty.

Consequently, the party attacking a foreign judgment has the burden of overcoming the presumption
of its validity. Being the party challenging the judgment rendered by the Japanese court, SHARP
7

had the duty to demonstrate the invalidity of such judgment. In an attempt to discharge that burden,
it contends that the extraterritorial service of summons effected at its home office in the Philippines
was not only ineffectual but also void, and the Japanese Court did not, therefore acquire jurisdiction
over it.

It is settled that matters of remedy and procedure such as those relating to the service of process
upon a defendant are governed by the lex fori or the internal law of the forum. In this case, it is the
8

procedural law of Japan where the judgment was rendered that determines the validity of the
extraterritorial service of process on SHARP. As to what this law is is a question of fact, not of law. It
may not be taken judicial notice of and must be pleaded and proved like any other fact. Sections 24
9

and 25, Rule 132 of the Rules of Court provide that it may be evidenced by an official
publication or by a duly attested or authenticated copy thereof. It was then incumbent upon
SHARP to present evidence as to what that Japanese procedural law is and to show that under it,
the assailed extraterritorial service is invalid. It did not. Accordingly, the presumption of validity and
regularity of the service of summons and the decision thereafter rendered by the Japanese court
must stand.

Alternatively in the light of the absence of proof regarding Japanese

law, the presumption of identity or similarity or the so-called processual presumption may be 10
invoked. Applying it, the Japanese law on the matter is presumed to be similar with the Philippine
law on service of summons on a private foreign corporation doing business in the Philippines.
Section 14, Rule 14 of the Rules of Court provides that if the defendant is a foreign corporation doing
business in the Philippines, service may be made: (1) on its resident agent designated in
accordance with law for that purpose, or, (2) if there is no such resident agent, on the
government official designated by law to that effect; or (3) on any of its officers or agents
within the Philippines.

If the foreign corporation has designated an agent to receive summons, the designation is exclusive,
and service of summons is without force and gives the court no jurisdiction unless made upon him. 11

Where the corporation has no such agent, service shall be made on the government official
designated by law, to wit: (a) the Insurance Commissioner in the case of a foreign insurance
company; (b) the Superintendent of Banks, in the case of a foreign banking corporation; and (c) the
Securities and Exchange Commission, in the case of other foreign corporations duly licensed to do
business in the Philippines. Whenever service of process is so made, the government office or
official served shall transmit by mail a copy of the summons or other legal proccess to the
corporation at its home or principal office. The sending of such copy is a necessary part of the
service. 12

SHARP contends that the laws authorizing service of process upon the Securities and Exchange
Commission, the Superintendent of Banks, and the Insurance Commissioner, as the case may be,
presuppose a situation wherein the foreign corporation doing business in the country no longer has
any branches or offices within the Philippines. Such contention is contradicted by the pertinent
provisions of the said laws. Thus, Section 128 of the Corporation Code and Section 190 of the
13

Insurance Code clearly contemplate two situations:

14

(1) if the corporation had left the Philippines or had ceased to transact business therein, and

(2) if the corporation has no designated agent. Section 17 of the General Banking Act 15
does not
even speak a corporation which had ceased to transact business in the Philippines.

Nowhere in its pleadings did SHARP profess to having had a resident agent authorized to receive
court processes in Japan. This silence could only mean, or least create an impression, that it had
none. Hence, service on the designated government official or on any of SHARP's officers or agents
in Japan could be availed of. The respondent, however, insists that only service of any of its officers
or employees in its branches in Japan could be resorted to.

We do not agree. As found by the respondent court, two attempts at service were made at SHARP's
Yokohama branch. Both were unsuccessful. On the first attempt, Mr. Dinozo, who was believed to
be the person authorized to accept court process, was in Manila. On the second, Mr. Dinozo was
present, but to accept the summons because, according to him, he was no longer an employee of
SHARP. While it may be true that service could have been made upon any of the officers or agents
of SHARP at its three other branches in Japan, the availability of such a recourse would not preclude
service upon the proper government official, as stated above.

As found by the Court of Appeals, it was the Tokyo District Court which ordered that summons for
SHARP be served at its head office in the Philippine's after the two attempts of service had
failed. The Tokyo District Court requested the Supreme Court of Japan to cause the delivery of the
16

summons and other legal documents to the Philippines. Acting on that request, the Supreme Court
of Japan sent the summons together with the other legal documents to the Ministry of Foreign Affairs
of Japan which, in turn, forwarded the same to the Japanese Embassy in Manila . Thereafter, the
court processes were delivered to the Ministry (now Department) of Foreign Affairs of the
Philippines, then to the Executive Judge of the Court of First Instance (now Regional Trial Court) of
Manila, who forthwith ordered Deputy Sheriff Rolando Balingit to serve the same on SHARP at its
principal office in Manila. This service is equivalent to service on the proper government official
under Section 14, Rule 14 of the Rules of Court, in relation to Section 128 of the Corporation
Code. Hence, SHARP's contention that such manner of service is not valid under Philippine laws
holds no water.17

In deciding against the petitioner, the respondent court sustained the trial court's reliance
on Boudard vs. Tait where this Court held:
18

The fundamental rule is that jurisdiction in personam over nonresidents, so as to

sustain a money judgment, must be based upon personal service within the state
which renders the judgment.

xxx xxx xxx

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

over the person of the defendant by serving him beyond the boundaries of the state.
Nor has a judgment of a court of a foreign country against a resident of this country
having no property in such foreign country based on process served here, any effect
here against either the defendant personally or his property situated here.

Process issuing from the courts of one state or country cannot run into another, and
although a nonresident defendant may have been personally served with such
process in the state or country of his domicile, it will not give such jurisdiction as to
authorize a personal judgment against him.

It further availed of the ruling in Magdalena Estate, Inc. vs. Nieto and Dial Corp. vs. Soriano, as
19 20

well as the principle laid down by the Iowa Supreme Court in the 1911 case of Raher vs. Raher. 21

The first three cases are, however, inapplicable. Boudard involved the enforcement of a judgment of
the civil division of the Court of First Instance of Hanoi, French Indo-China. The trial court
dismissed the case because the Hanoi court never acquired jurisdiction over the person of
the defendant considering that "[t]he, evidence adduced at the trial conclusively proves that
neither the appellee [the defendant] nor his agent or employees were ever in Hanoi, French
Indo-China; and that the deceased Marie Theodore Jerome Boudard had never, at any time, been
his employee." In Magdalena Estate, what was declared invalid resulting in the failure of the court to
acquire jurisdiction over the person of the defendants in an action in personam was the service of
summons through publication against non-appearing resident defendants. It was claimed that the
latter concealed themselves to avoid personal service of summons upon them. In Dial, the
defendants were foreign corporations which were not, domiciled and licensed to engage in business
in the Philippines and which did not have officers or agents, places of business, or properties here.
On the other hand, in the instant case, SHARP was doing business in Japan and was maintaining
four branches therein.

Insofar as to the Philippines is concerned, Raher is a thing of the past. In that case, a divided
Supreme Court of Iowa declared that the principle that there can be no jurisdiction in a court of a
territory to render a personal judgment against anyone upon service made outside its limits was
applicable alike to cases of residents and non-residents. The principle was put at rest by the United
States Supreme Court when it ruled in the 1940 case of Milliken vs. Meyer that domicile in the state
22

is alone sufficient to bring an absent defendant within the reach of the state's jurisdiction for
purposes of a personal judgment by means of appropriate substituted service or personal service
without the state. This principle is embodied in section 18, Rule 14 of the Rules of Court which
allows service of summons on residents temporarily out of the Philippines to be made out of the
country. The rationale for this rule was explained in Milliken as follows:
 [T]he authority of a state over one of its citizens is not terminated by the mere fact of
his absence from the state. The state which accords him privileges and affords
protection to him and his property by virtue of his domicile may also exact reciprocal
duties. "Enjoyment of the privileges of residence within the state, and the attendant
right to invoke the protection of its laws, are inseparable" from the various incidences
of state citizenship. The responsibilities of that citizenship arise out of the relationship
to the state which domicile creates. That relationship is not dissolved by mere
absence from the state. The attendant duties, like the rights and privileges incident to
domicile, are not dependent on continuous presence in the state. One such incident
of domicile is amenability to suit within the state even during sojourns without the
state, where the state has provided and employed a reasonable method for apprising
such an absent party of the proceedings against him. 23

The domicile of a corporation belongs to the state where it was incorporated. In a strict technical
24

sense, such domicile as a corporation may have is single in its essence and a corporation can have
only one domicile which is the state of its creation. 25

Nonetheless, a corporation formed in one-state may, for certain purposes, be regarded a resident in
another state in which it has offices and transacts business. This is the rule in our jurisdiction
and apropos thereto, it may be necessery to quote what we stated in State Investment House,
Inc, vs. Citibank, N.A., to wit:
26

The issue is whether these Philippine branches or units may be considered

"residents of the Philippine Islands" as that term is used in Section 20 of the
Insolvency Law . . . or residents of the state under the laws of which they were
respectively incorporated. The answer cannot be found in the Insolvency Law itself,
which contains no definition of the term, resident, or any clear indication of its
meaning. There are however other statutes, although of subsequent enactment and
effectivity, from which enlightening notions of the term may be derived.

The National Internal Revenue Code declares that the term "'resident foreign
corporation' applies to a foreign corporation engaged in trade or business within the
Philippines," as distinguished from a "'non-resident foreign corporation' . . . (which is
one) not engaged in trade or bussiness within the Philippines." [Sec. 20, pars. (h)
and (i)].

The Offshore Banking Law, Presidential Decree No. 1034, states "that branches,
subsidiaries, affiliation, extension offices or any other units of corporation or juridical
person organized under the laws of any foreign country operating in the Philippines
shall be considered residents of the Philippines. [Sec. 1(e)].

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

. . . Our laws and jurisprudence indicate a purpose to assimilate

foreign corporations, duly licensed to do business here, to the status
of domestic corporations. (Cf. Section 73, Act No. 1459, and Marshall
Wells Co. vs. Henry W. Elser & Co., 46 Phil. 70, 76; Yu Cong Eng vs.
Trinidad, 47 Phil. 385, 411) We think it would be entirely out of line
with this policy should we make a discrimination against a foreign
corporation, like the petitioner, and subject its property to the harsh
writ of seizure by attachment when it has complied not only with
every requirement of law made specially of foreign corporations, but
in addition with every requirement of law made of domestic
corporations. . . .

Obviously, the assimilation of foreign corporations authorized to do business in the

Philippines "to the status of domestic corporations, subsumes their being found and
operating as corporations, hence, residing, in the country.

The same principle is recognized in American law: that the residence of a

corporation, if it can be said to have a residence, is necessarily where it exercises
corporate functions . . .;" that it is considered as dwelling "in the place where its
business is done . . .," as being "located where its franchises are exercised . . .," and
as being "present where it is engaged in the prosecution of the corporate enterprise;"
that a "foreign corporation licensed to do business in a state is a resident of any
country where it maintains an office or agent for transaction of its usual and
customary business for venue purposes;" and that the "necessary element in its
signification is locality of existence." [Words and Phrases, Permanent Ed., vol. 37,
pp. 394, 412, 493].

In as much as SHARP was admittedly doing business in Japan through its four duly registered
branches at the time the collection suit against it was filed, then in the light of the processual
presumption, SHARP may be deemed a resident of Japan, and, as such, was amenable to the
jurisdiction of the courts therein and may be deemed to have assented to the said courts'
lawful methods of serving process. 27

Accordingly, the extraterritorial service of summons on it by the Japanese Court was valid not only
under the processual presumption but also because of the presumption of regularity of performance
of official duty.

We find NORTHWEST's claim for attorney's fees, litigation expenses, and exemplary damages to be
without merit. We find no evidence that would justify an award for attorney's fees and litigation
expenses under Article 2208 of the Civil Code of the Philippines. Nor is an award for exemplary
damages warranted. Under Article 2234 of the Civil Code, before the court may consider the
question of whether or not exemplary damages should be awarded, the plaintiff must show that he is
entitled to moral, temperate, or compensatory damaged. There being no such proof presented by
NORTHWEST, no exemplary damages may be adjudged in its favor.

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

Costs against the private respondent.

SO ORDERED.

Padilla, Bellosillo, Quaison and Kapunan, JJ., concur.

Sec. 128. Resident Agent; service of process. — . . . Any such foreign corporation
shall likewise execute and file with the Securities end Exchange Commission an
agreement or stipulation, executed by the proper authorities of said corporation, in
form and substance as follows:

. . . if at any time said corporation shall cease to transact business in

the Philippines, or shall be without any resident agent in the
Philippines on whom any summons or other legal processes may be
served, then in any action or proceeding arising out of any business
or transaction which occurred in the Philippines, service of any
summons or other legal process may be made upon the Securities
and Exchange Commission and that such service shall have the
same force and effect as if made upon the duly-authorized officers
of .the corporation at its home office. (Emphasis supplied).

14 It reads:

Sec. 190. . . . Any such foreign corporation shall, as further condition precedent to
the transaction of insurance business in the Philippines, make and file with the
Commissioner an agreement or stipulation, executed by the proper authorities of said
company in form and substance as follows:

. . . if at any time said company shall leave the Philippines, or cease

to transact business therein, or shall be without any agent in the
Philippines on whom any notice, proof of loss, summons, or legal
process may be served, then in any action or proceeding out of any
business or transaction which occurred in the Philippines, service of
any notice provided by law, or insurance policy, proof of loss,
summons or other legal process may be made upon the Insurance
Commissioner, and that such service upon the Insurance
Commissioner shall have the same force and effect as if made upon
the company. (Emphasis supplied).

15 It provides:
 Sec. 17. . . .

xxx xxx xxx

Should there be no person authorized by the corporation upon whom service of

summons, processes, and all legal notices may be made, service of summons,
processes, and legal notices may be made upon the Superintendent of Banks and
such service shall be as effective as if made upon the corporation or upon its duly
authorized agent. (Emphasis supplied).

CADALIN vs POEA ADMINISTRATOR 238 SCRA 721

“Borrowing Statute” –

Ex: Sec. 48, Rule on Civil Procedure – “if by the laws of the State or country where the cause of action
arose the action is barred, it is also barred in the Philippines.”
Facts:

Cadalin et al. are Filipino workers recruited by Asia Int’l Builders Co. (AIBC), a domestic recruitment
corporation, for employment in Bahrain to work for Brown & Root Int’l Inc. (BRII) which is a foreign
corporation with headquarters in Texas. Plaintiff instituted a class suit with the POEA for money claims
arising from the unexpired portion of their employment contract which was prematurely terminated.
They worked in Bahrain for BRII and they filed the suit after 1 yr. from the termination of their
employment contract.

As provided by Art. 156 of the Amiri Decree aka as the Labor Law of the Private Sector of Bahrain: “a
claim arising out of a contract of employment shall not be actionable after the lapse of 1 year from the
date of the expiry of the contract,” it appears that their suit has prescribed.

Plaintiff contends that the prescription period should be 10 years as provided by Art. 1144 of the Civil
Code as their claim arise from a violation of a contract.

The POEA Administrator holds that the 10 year period of prescription should be applied but the NLRC
provides a different view asserting that Art 291 of the Labor Code of the Phils with a 3 years prescription
period should be applied. The Solicitor General expressed his personal point of view that the 1 yr period
provided by the Amiri Decree should be applied.

Ruling:

The Supreme Court held that as a general rule a foreign procedural law will not be applied in our country
as we must adopt our own procedural laws.

EXCEPTION:
Philippines may adopt foreign procedural law under the Borrowing Statute such as Sec. 48 of the Civil
Procedure Rule stating “if by the laws of the State or country where the cause of action arose the action
is barred, it is also barred in the Philippines.” Thus, Bahrain law must be applied. However, the court
contends that Bahrain’s law on prescription cannot be applied because the court will not enforce any
foreign claim that is obnoxious to the forum’s public policy and the 1 yr. rule on prescription is against
public policy on labor as enshrined in the Phils. Constitution.

The court ruled that the prescription period applicable to the case should be Art 291 of the Labor Code
of the Phils with a 3 years prescription period since the claim arose from labor employment.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-104776 December 5, 1994

BIENVENIDO M. CADALIN, ROLANDO M. AMUL, DONATO B. EVANGELISTA, and the rest of

1,767 NAMED-COMPLAINANTS, thru and by their Attorney-in-fact, Atty. GERARDO A. DEL
MUNDO, petitioners,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION'S ADMINISTRATOR, NATIONAL
LABOR RELATIONS COMMISSION, BROWN & ROOT INTERNATIONAL, INC. AND/OR ASIA
INTERNATIONAL BUILDERS CORPORATION, respondents.
G.R. Nos. 104911-14 December 5, 1994

BIENVENIDO M. CADALIN, ET AL., petitioners,

vs.
HON. NATIONAL LABOR RELATIONS COMMISSION, BROWN & ROOT INTERNATIONAL, INC.
and/or ASIA INTERNATIONAL BUILDERS CORPORATION, respondents.

G.R. Nos. 105029-32 December 5, 1994

ASIA INTERNATIONAL BUILDER CORPORATION and BROWN & ROOT INTERNATIONAL,

INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, BIENVENIDO M. CADALIN, ROLANDO M.
AMUL, DONATO B. EVANGELISTA, ROMEO PATAG, RIZALINO REYES, IGNACIO DE VERA,
SOLOMON B. REYES, JOSE M. ABAN, EMIGDIO N. ABARQUEZ, ANTONIO ACUPAN, ROMEO
ACUPAN, BENJAMIN ALEJANDRE, WILFREDO D. ALIGADO, MARTIN AMISTAD, JR.,
ROLANDO B. AMUL, AMORSOLO ANADING, ANTONIO T. ANGLO, VICENTE ARLITA,
HERBERT AYO, SILVERIO BALATAZO, ALFREDO BALOBO, FALCONERO BANAAG, RAMON
BARBOSA, FELIX BARCENA, FERNANDO BAS, MARIO BATACLAN, ROBERTO S. BATICA,
ENRICO BELEN, ARISTEO BICOL, LARRY C. BICOL, PETRONILLO BISCOCHO, FELIX M.
BOBIER, DIONISIO BOBONGO, BAYANI S. BRACAMANTE, PABLITO BUSTILLO, GUILLERMO
CABEZAS, BIENVENIDO CADALIN, RODOLFO CAGATAN, AMANTE CAILAO, IRENEO
CANDOR, JOSE CASTILLO, MANUEL CASTILLO, REMAR CASTROJERES, REYNALDO
CAYAS, ROMEO CECILIO, TEODULO CREUS, BAYANI DAYRIT, RICARDO DAYRIT, ERNESTO
T. DELA CRUZ, FRANCISCO DE GUZMAN, ONOFRE DE RAMA, IGNACIO DE VERA,
MODESTO DIZON, REYNALDO DIZON, ANTONIO S. DOMINGUEZ, GILBERT EBRADA,
RICARDO EBRADA, ANTONIO EJERCITO, JR., EDUARTE ERIDAO, ELADIO ESCOTOTO,
JOHN ESGUERRA, EDUARDO ESPIRITU, ERNESTO ESPIRITU, RODOLFO ESPIRITU,
NESTOR M. ESTEVA, BENJAMIN ESTRADA, VALERIO EVANGELISTA, OLIGARIO
FRANCISCO, JESUS GABAWAN, ROLANDO GARCIA, ANGEL GUDA, PACITO HERNANDEZ,
ANTONIO HILARIO, HENRY L. JACOB, HONESTO JARDINIANO, ANTONIO JOCSON,
GERARDO LACSAMANA, EFREN U. LIRIO LORETO LONTOC, ISRAEL LORENZO,
ALEJANDRO LORINO, JOSE MABALAY, HERMIE MARANAN, LEOVIGILDO MARCIAL, NOEL
MARTINEZ, DANTE MATREO, LUCIANO MELENDEZ, RENATO MELO, FRANCIS MEDIODIA,
JOSE C. MILANES, RAYMUNDO C. MILAY, CRESENCIANO MIRANDA, ILDEFONSO C.
MOLINA, ARMANDO B. MONDEJAR RESURRECCION D. NAZARENO, JUAN OLINDO,
FRANCISCO R. OLIVARES, PEDRO ORBISTA, JR., RICARDO ORDONEZ, ERNIE PANCHO,
JOSE PANCHO, GORGONIO P. PARALA, MODESTO PINPIN, JUANITO PAREA, ROMEO I.
PATAG, FRANCISCO PINPIN, LEONARDO POBLETE, JAIME POLLOS, DOMINGO PONDALIS,
EUGENIO RAMIREZ, LUCIEN M. RESPALL, GAUDENCIO RETANAN, JR., TOMAS B.
RETENER, ALVIN C. REYES, RIZALINO REYES, SOLOMON B. REYES, VIRGILIO G. RICAZA,
RODELIO RIETA, JR., BENITO RIVERA, JR., BERNARDO J. ROBILLOS, PABLO A. ROBLES,
JOSE ROBLEZA, QUIRINO RONQUILLO, AVELINO M. ROQUE, MENANDRO L. SABINO,
PEDRO SALGATAR, EDGARDO SALONGA, NUMERIANO SAN MATEO, FELIZARDO DE LOS
SANTOS, JR., GABRIEL SANTOS, JUANITO SANTOS, PAQUITO SOLANTE, CONRADO A.
SOLIS, JR., RODOLFO SULTAN, ISAIAS TALACTAC, WILLIAM TARUC, MENANDRO
TEMPROSA, BIENVENIDO S. TOLENTINO, BENEDICTO TORRES, MAXIMIANO TORRES,
FRANCISCO G. TRIAS, SERGIO A. URSOLINO, ROGELIO VALDEZ, LEGORIO E. VERGARA,
DELFIN VICTORIA, GILBERT VICTORIA, HERNANE VICTORIANO, FRANCISCO
VILLAFLORES, DOMINGO VILLAHERMOSA, ROLANDO VILLALOBOS, ANTONIO VILLAUZ,
DANILO VILLANUEVA, ROGELIO VILLANUEVA, ANGEL VILLARBA, JUANITO VILLARINO,
FRANCISCO ZARA, ROGELIO AALAGOS, NICANOR B. ABAD, ANDRES ABANES, REYNALDO
ABANES, EDUARDO ABANTE, JOSE ABARRO, JOSEFINO ABARRO, CELSO S. ABELANIO,
HERMINIO ABELLA, MIGUEL ABESTANO, RODRIGO G. ABUBO, JOSE B. ABUSTAN, DANTE
ACERES, REYNALDO S. ACOJIDO, LEOWILIN ACTA, EUGENIO C. ACUEZA, EDUARDO
ACUPAN, REYNALDO ACUPAN, SOLANO ACUPAN, MANUEL P. ADANA, FLORENTINO R.
AGNE, QUITERIO R. AGUDO, MANUEL P. AGUINALDO, DANTE AGUIRRE, HERMINIO
AGUIRRE, GONZALO ALBERTO, JR., CONRADO ALCANTARA, LAMBERTO Q. ALCANTARA,
MARIANITO J. ALCANTARA, BENCIO ALDOVER, EULALIO V. ALEJANDRO, BENJAMIN
ALEJANDRO, EDUARDO L. ALEJANDRO, MAXIMINO ALEJANDRO, ALBERTO ALMENAR,
ARNALDO ALONZO, AMADO ALORIA, CAMILO ALVAREZ, MANUEL C. ALVAREZ, BENJAMIN
R. AMBROCIO, CARLOS AMORES, BERNARD P. ANCHETA, TIMOTEO O. ANCHETA,
JEOFREY ANI, ELINO P. ANTILLON, ARMANDRO B. ANTIPONO, LARRY T. ANTONIO,
ANTONIO APILADO, ARTURO P. APILADO, FRANCISCO APOLINARIO, BARTOLOME M.
AQUINO, ISIDRO AQUINO, PASTOR AQUINO, ROSENDO M. AQUINO, ROBERTO
ARANGORIN, BENJAMIN O. ARATEA, ARTURO V. ARAULLO, PRUDENCIO ARAULLO,
ALEXANDER ARCAIRA, FRANCISCO ARCIAGA, JOSE AREVALO, JUANTO AREVALO,
RAMON AREVALO, RODOLFO AREVALO, EULALIO ARGUELLES, WILFREDO P. ARICA,
JOSE M. ADESILLO, ANTONIO ASUNCION, ARTEMIO M. ASUNCION, EDGARDO ASUNCION,
REXY M. ASUNCION, VICENTE AURELIO, ANGEL AUSTRIA, RICARDO P. AVERILLA, JR.,
VIRGILIO AVILA, BARTOLOME AXALAN, ALFREDO BABILONIA, FELIMON BACAL, JOSE L.
BACANI, ROMULO R. BALBIERAN, VICENTE BALBIERAN, RODOLFO BALITBIT, TEODORO
Y. BALOBO, DANILO O. BARBA, BERNARDO BARRO, JUAN A. BASILAN, CEFERINO
BATITIS, VIVENCIO C. BAUAN, GAUDENCIO S. BAUTISTA, LEONARDO BAUTISTA, JOSE D.
BAUTISTA, ROSTICO BAUTISTA, RUPERTO B. BAUTISTA, TEODORO S. BAUTISTA,
VIRGILIO BAUTISTA, JESUS R. BAYA, WINIEFREDO BAYACAL, WINIEFREDO BEBIT, BEN G.
BELIR, ERIC B. BELTRAN, EMELIANO BENALES, JR., RAUL BENITEZ, PERFECTO BENSAN,
IRENEO BERGONIO, ISABELO BERMUDEZ, ROLANDO I. BERMUDEZ, DANILO BERON,
BENJAMIN BERSAMIN, ANGELITO BICOL, ANSELMO BICOL, CELESTINO BICOL, JR.,
FRANCISCO BICOL, ROGELIO BICOL, ROMULO L. BICOL, ROGELIO BILLIONES, TEOFILO N.
BITO, FERNANDO BLANCO, AUGUSTO BONDOC, DOMINGO BONDOC, PEPE S. BOOC,
JAMES R. BORJA, WILFREDO BRACEROS, ANGELES C. BRECINO, EURECLYDON G.
BRIONES, AMADO BRUGE, PABLITO BUDILLO, ARCHIMEDES BUENAVENTURA, BASILIO
BUENAVENTURA, GUILLERMO BUENCONSEJO, ALEXANDER BUSTAMANTE, VIRGILIO
BUTIONG, JR., HONESTO P. CABALLA, DELFIN CABALLERO, BENEDICTO CABANIGAN,
MOISES CABATAY, HERMANELI CABRERA, PEDRO CAGATAN, JOVEN C. CAGAYAT,
ROGELIO L. CALAGOS, REYNALDO V. CALDEJON, OSCAR C. CALDERON, NESTOR D.
CALLEJA, RENATO R. CALMA, NELSON T. CAMACHO, SANTOS T. CAMACHO, ROBERTO
CAMANA, FLORANTE C. CAMANAG EDGARDO M. CANDA, SEVERINO CANTOS, EPIFANIO
A. CAPONPON, ELIAS D. CARILLO, JR., ARMANDO CARREON, MENANDRO M. CASTAÑEDA,
BENIGNO A. CASTILLO, CORNELIO L. CASTILLO, JOSEPH B. CASTILLO, ANSELMO
CASTILLO, JOAQUIN CASTILLO, PABLO L. CASTILLO, ROMEO P. CASTILLO, SESINANDO
CATIBOG, DANILO CASTRO, PRUDENCIO A. CASTRO, RAMO CASTRO, JR., ROMEO A. DE
CASTRO, JAIME B. CATLI, DURANA D. CEFERINO, RODOLFO B. CELIS, HERMINIGILDO
CEREZO, VICTORIANO CELESTINO, BENJAMIN CHAN, ANTONIO C. CHUA, VIVENCIO B.
CIABAL, RODRIGO CLARETE, AUGUSTO COLOMA, TURIANO CONCEPCION, TERESITO
CONSTANTINO, ARMANDO CORALES, RENATO C. CORCUERA, APOLINAR CORONADO,
ABELARDO CORONEL, FELIX CORONEL, JR., LEONARDO CORPUZ, JESUS M. CORRALES,
CESAR CORTEMPRATO, FRANCISCO O. CORVERA, FRANCISCO COSTALES, SR.,
CELEDONIO CREDITO, ALBERTO A. CREUS, ANACLETO V. CRUZ, DOMINGO DELA CRUZ,
AMELIANO DELA CRUZ, JR., PANCHITO CRUZ, REYNALDO B. DELA CRUZ, ROBERTO P.
CRUZ, TEODORO S. CRUZ, ZOSIMO DELA CRUZ, DIONISIO A. CUARESMA, FELIMON
CUIZON, FERMIN DAGONDON, RICHARD DAGUINSIN, CRISANTO A. DATAY, NICASIO
DANTINGUINOO, JOSE DATOON, EDUARDO DAVID, ENRICO T. DAVID, FAVIO DAVID,
VICTORIANO S. DAVID, EDGARDO N. DAYACAP, JOSELITO T. DELOSO, CELERINO DE
GUZMAN, ROMULO DE GUZMAN, LIBERATO DE GUZMAN, JOSE DE LEON, JOSELITO L. DE
LUMBAN, NAPOLEON S. DE LUNA, RICARDO DE RAMA, GENEROSO DEL ROSARIO,
ALBERTO DELA CRUZ, JOSE DELA CRUZ, LEONARDO DELOS REYES, ERNESTO F. DIATA,
EDUARDO A. DIAZ, FELIX DIAZ, MELCHOR DIAZ, NICANOR S. DIAZ, GERARDO C. DIGA,
CLEMENTE DIMATULAC, ROLANDO DIONISIO, PHILIPP G. DISMAYA, BENJAMIN
DOCTOLERO, ALBERTO STO. DOMINGO, BENJAMIN E. DOZA, BENJAMIN DUPA, DANILO C.
DURAN, GREGORIO D. DURAN, RENATO A. EDUARTE, GODOFREDO E. EISMA, ARDON B.
ELLO, UBED B. ELLO, JOSEFINO ENANO, REYNALDO ENCARNACION, EDGARDO
ENGUANCIO, ELIAS EQUIPANO, FELIZARDO ESCARMOSA, MIGUEL ESCARMOSA,
ARMANDO ESCOBAR, ROMEO T. ESCUYOS, ANGELITO ESPIRITU, EDUARDO S. ESPIRITU,
REYNALDO ESPIRITU, ROLANDO ESPIRITU, JULIAN ESPREGANTE, IGMIDIO ESTANISLAO,
ERNESTO M. ESTEBAN, MELANIO R. ESTRO, ERNESTO M. ESTEVA, CONRADO ESTUAR,
CLYDE ESTUYE, ELISEO FAJARDO, PORFIRIO FALQUEZA, WILFREDO P. FAUSTINO,
EMILIO E. FERNANDEZ, ARTEMIO FERRER, MISAEL M. FIGURACION, ARMANDO F. FLORES,
BENJAMIN FLORES, EDGARDO C. FLORES, BUENAVENTURA FRANCISCO, MANUEL S.
FRANCISCO, ROLANDO FRANCISCO, VALERIANO FRANCISCO, RODOLFO GABAWAN,
ESMERALDO GAHUTAN, CESAR C. GALANG, SANTIAGO N. GALOSO, GABRIEL GAMBOA,
BERNARDO GANDAMON, JUAN GANZON, ANDRES GARCIA, JR., ARMANDO M. GARCIA,
EUGENIO GARCIA, MARCELO L. GARCIA, PATRICIO L. GARCIA, JR., PONCIANO G. GARCIA,
PONCIANO G. GARCIA, JR., RAFAEL P. GARCIA, ROBERTO S. GARCIA, OSIAS G. GAROFIL,
RAYMUNDO C. GARON, ROLANDO G. GATELA, AVELINO GAYETA, RAYMUNDO GERON,
PLACIDO GONZALES, RUPERTO H. GONZALES, ROGELIO D. GUANIO, MARTIN V.
GUERRERO, JR., ALEXIS GUNO, RICARDO L. GUNO, FRANCISCO GUPIT, DENNIS J.
GUTIERREZ, IGNACIO B. GUTIERREZ, ANGELITO DE GUZMAN, JR., CESAR H. HABANA,
RAUL G. HERNANDEZ, REYNALDO HERNANDEZ, JOVENIANO D. HILADO, JUSTO HILAPO,
ROSTITO HINAHON, FELICISIMO HINGADA, EDUARDO HIPOLITO, RAUL L. IGNACIO,
MANUEL L. ILAGAN, RENATO L. ILAGAN, CONRADO A. INSIONG, GRACIANO G. ISLA,
ARNEL L. JACOB, OSCAR J. JAPITENGA, CIRILO HICBAN, MAXIMIANO HONRADES,
GENEROSO IGNACIO, FELIPE ILAGAN, EXPEDITO N. JACOB, MARIO JASMIN, BIENVENIDO
JAVIER, ROMEO M. JAVIER, PRIMO DE JESUS, REYNALDO DE JESUS, CARLOS A.
JIMENEZ, DANILO E. JIMENEZ, PEDRO C. JOAQUIN, FELIPE W. JOCSON, FELINO M.
JOCSON, PEDRO N. JOCSON, VALENTINO S. JOCSON, PEDRO B. JOLOYA, ESTEBAN P.
JOSE, JR., RAUL JOSE, RICARDO SAN JOSE, GERTRUDO KABIGTING, EDUARDO S.
KOLIMLIM, SR., LAURO J. LABAY, EMMANUEL C. LABELLA, EDGARDO B. LACERONA,
JOSE B. LACSON, MARIO J. LADINES, RUFINO LAGAC, RODRIGO LAGANAPAN, EFREN M.
LAMADRID, GUADENCIO LATANAN, VIRGILIO LATAYAN, EMILIANO LATOJA, WENCESLAO
LAUREL, ALFREDO LAXAMANA, DANIEL R. LAZARO, ANTONIO C. LEANO, ARTURO S.
LEGASPI, BENITO DE LEMOS, JR., PEDRO G. DE LEON, MANOLITO C. LILOC, GERARDO
LIMUACO, ERNESTO S. LISING, RENATO LISING, WILFREDO S. LISING, CRISPULO LONTOC,
PEDRO M. LOPERA, ROGELIO LOPERA, CARLITO M. LOPEZ, CLODY LOPEZ, GARLITO
LOPEZ, GEORGE F. LOPEZ, VIRGILIO M. LOPEZ, BERNARDITO G. LOREJA, DOMINGO B.
LORICO, DOMINGO LOYOLA, DANTE LUAGE, ANTONIO M. LUALHATI, EMMANUEL
LUALHATI, JR., LEONIDEZ C. LUALHATI, SEBASTIAN LUALHATI, FRANCISCO LUBAT,
ARMANDO LUCERO, JOSELITO L. DE LUMBAN, THOMAS VICENTE O. LUNA, NOLI
MACALADLAD, ALFREDO MACALINO, RICARDO MACALINO, ARTURO V. MACARAIG,
ERNESTO V. MACARAIG, RODOLFO V. MACARAIG, BENJAMIN MACATANGAY,
HERMOGENES MACATANGAY, RODEL MACATANGAY, ROMULO MACATANGAY, OSIAS Q.
MADLANGBAYAN, NICOLAS P. MADRID, EDELBERTO G. MAGAT, EFREN C. MAGBANUA,
BENJAMIN MAGBUHAT, ALFREDO C. MAGCALENG, ANTONIO MAGNAYE, ALFONSO
MAGPANTAY, RICARDO C. MAGPANTAY, SIMEON M. MAGPANTAY, ARMANDO M.
MAGSINO, MACARIO S. MAGSINO, ANTONIO MAGTIBAY, VICTOR V. MAGTIBAY, GERONIMO
MAHILUM, MANUEL MALONZO, RICARDO MAMADIS, RODOLFO MANA, BERNARDO A.
MANALILI, MANUEL MANALILI, ANGELO MANALO, AGUILES L. MANALO, LEOPOLDO
MANGAHAS, BAYANI MANIGBAS, ROLANDO C. MANIMTIM, DANIEL MANONSON, ERNESTO
F. MANUEL, EDUARDO MANZANO, RICARDO N. MAPA, RAMON MAPILE, ROBERTO C.
MARANA, NEMESIO MARASIGAN, WENCESLAO MARASIGAN, LEONARDO MARCELO,
HENRY F. MARIANO, JOEL MARIDABLE, SANTOS E. MARINO, NARCISO A. MARQUEZ,
RICARDO MARTINEZ, DIEGO MASICAMPO, AURELIO MATABERDE, RENATO MATILLA,
VICTORIANO MATILLA, VIRGILIO MEDEL, LOLITO M. MELECIO, BENIGNO MELENDEZ,
RENER J. MEMIJE, REYNALDO F. MEMIJE, RODEL MEMIJE, AVELINO MENDOZA, JR.,
CLARO MENDOZA, TIMOTEO MENDOZA, GREGORIO MERCADO, ERNANI DELA MERCED,
RICARDO MERCENA, NEMESIO METRELLO, RODEL MEMIJE, GASPAR MINIMO, BENJAMIN
MIRANDA, FELIXBERTO D. MISA, CLAUDIO A. MODESTO, JR., OSCAR MONDEDO,
GENEROSO MONTON, RENATO MORADA, RICARDO MORADA, RODOLFO MORADA,
ROLANDO M. MORALES, FEDERICO M. MORENO, VICTORINO A. MORTEL, JR., ESPIRITU A.
MUNOZ, IGNACIO MUNOZ, ILDEFONSO MUNOZ, ROGELIO MUNOZ, ERNESTO NAPALAN,
MARCELO A. NARCIZO, REYNALDO NATALIA, FERNANDO C. NAVARETTE, PACIFICO D.
NAVARRO, FLORANTE NAZARENO, RIZAL B. NAZARIO, JOSUE NEGRITE, ALFREDO
NEPUMUCENO, HERBERT G. NG, FLORENCIO NICOLAS, ERNESTO C. NINON, AVELINO
NUQUI, NEMESIO D. OBA, DANILO OCAMPO, EDGARDO OCAMPO, RODRIGO E. OCAMPO,
ANTONIO B. OCCIANO, REYNALDO P. OCSON, BENJAMIN ODESA, ANGEL OLASO,
FRANCISCO OLIGARIO, ZOSIMO OLIMBO, BENJAMIN V. ORALLO, ROMEO S. ORIGINES,
DANILO R. ORTANEZ, WILFREDO OSIAS, VIRGILIO PA-A, DAVID PAALAN, JESUS N.
PACHECO, ALFONSO L. PADILLA, DANILO PAGSANJAN, NUMERIANO PAGSISIHAN,
RICARDO T. PAGUIO, EMILIO PAKINGAN, LEANDRO PALABRICA, QUINCIANO PALO, JOSE
PAMATIAN, GONZALO PAN, PORFIRIO PAN, BIENVENIDO PANGAN, ERNESTO PANGAN,
FRANCISCO V. PASIA, EDILBERTO PASIMIO, JR., JOSE V. PASION, ANGELITO M. PENA,
DIONISIO PENDRAS, HERMINIO PERALTA, REYNALDO M. PERALTA, ANTONIO PEREZ,
ANTOLIANO E. PEREZ, JUAN PEREZ, LEON PEREZ, ROMEO E. PEREZ, ROMULO PEREZ,
WILLIAM PEREZ, FERNANDO G. PERINO, FLORENTINO DEL PILAR, DELMAR F. PINEDA,
SALVADOR PINEDA, ELIZALDE PINPIN, WILFREDO PINPIN, ARTURO POBLETE,
DOMINADOR R. PRIELA, BUENAVENTURA PRUDENTE, CARMELITO PRUDENTE, DANTE
PUEYO, REYNALDO Q. PUEYO, RODOLFO O. PULIDO, ALEJANDRO PUNIO, FEDERICO
QUIMAN, ALFREDO L. QUINTO, ROMEO QUINTOS, EDUARDO W. RACABO, RICARDO C. DE
RAMA, RICARDO L. DE RAMA, ROLANDO DE RAMA, FERNANDO A. RAMIREZ, LITO S.
RAMIREZ, RICARDO G. RAMIREZ, RODOLFO V. RAMIREZ, ALBERTO RAMOS, ANSELMO C.
RAMOS, TOBIAS RAMOS, WILLARFREDO RAYMUNDO, REYNALDO RAQUEDAN, MANUEL F.
RAVELAS, WILFREDO D. RAYMUNDO, ERNESTO E. RECOLASO, ALBERTO REDAZA,
ARTHUR REJUSO, TORIBIO M. RELLAMA, JAIME RELLOSA, EUGENIO A. REMOQUILLO,
GERARDO RENTOZA, REDENTOR C. REY, ALFREDO S. REYES, AMABLE S. REYES,
BENEDICTO R. REYES, GREGORIO B. REYES, JOSE A. REYES, JOSE C. REYES, ROMULO M.
REYES, SERGIO REYES, ERNESTO F. RICO, FERNANDO M. RICO, EMMANUEL RIETA,
RICARDO RIETA, LEO B. ROBLES, RUBEN ROBLES, RODOLFO ROBLEZA, RODRIGO
ROBLEZA, EDUARDO ROCABO, ANTONIO R. RODRIGUEZ, BERNARDO RODRIGUEZ, ELIGIO
RODRIGUEZ, ALMONTE ROMEO, ELIAS RONQUILLO, ELISE RONQUILLO, LUIS VAL B.
RONQUILLO, REYNOSO P. RONQUILLO, RODOLFO RONQUILLO, ANGEL ROSALES, RAMON
ROSALES, ALBERTO DEL ROSARIO, GENEROSO DEL ROSARIO, TEODORICO DEL
ROSARIO, VIRGILIO L. ROSARIO, CARLITO SALVADOR, JOSE SAMPARADA, ERNESTO SAN
PEDRO, ADRIANO V. SANCHA, GERONIMO M. SANCHA, ARTEMIO B. SANCHEZ, NICASIO
SANCHEZ, APOLONIO P. SANTIAGO, JOSELITO S. SANTIAGO, SERGIO SANTIAGO,
EDILBERTO C. SANTOS, EFREN S. SANTOS, RENATO D. SANTOS, MIGUEL SAPUYOT, ALEX
S. SERQUINA, DOMINADOR P. SERRA, ROMEO SIDRO, AMADO M. SILANG, FAUSTINO D.
SILANG, RODOLFO B. DE SILOS, ANICETO G. SILVA, EDGARDO M. SILVA, ROLANDO C.
SILVERTO, ARTHUR B. SIMBAHON, DOMINGO SOLANO, JOSELITO C. SOLANTE, CARLITO
SOLIS, CONRADO SOLIS, III, EDGARDO SOLIS, ERNESTO SOLIS, ISAGANI M. SOLIS,
EDUARDO L. SOTTO, ERNESTO G. STA. MARIA, VICENTE G. STELLA, FELIMON SUPANG,
PETER TANGUINOO, MAXIMINO TALIBSAO, FELICISMO P. TALUSIK, FERMIN TARUC, JR.,
LEVY S. TEMPLO, RODOLFO S. TIAMSON, LEONILO TIPOSO, ARNEL TOLENTINO, MARIO M.
TOLENTINO, FELIPE TORRALBA, JOVITO V. TORRES, LEONARDO DE TORRES, GAVINO U.
TUAZON, AUGUSTO B. TUNGUIA, FRANCISCO UMALI, SIMPLICIO UNIDA, WILFREDO V.
UNTALAN, ANTONIO VALDERAMA, RAMON VALDERAMA, NILO VALENCIANO, EDGARDO C.
VASQUEZ, ELPIDIO VELASQUEZ, NESTOR DE VERA, WILFREDO D. VERA, BIENVENIDO
VERGARA, ALFREDO VERGARA, RAMON R. VERZOSA, FELICITO P. VICMUNDO, ALFREDO
VICTORIANO, TEOFILO P. VIDALLO, SABINO N. VIERNEZ, JESUS J. VILLA, JOVEN
VILLABLANCO, EDGARDO G. VILLAFLORES, CEFERINO VILLAGERA, ALEX
VILLAHERMOZA, DANILO A. VILLANUEVA, ELITO VILLANUEVA, LEONARDO M.
VILLANUEVA, MANUEL R. VILLANUEVA, NEPTHALI VILLAR, JOSE V. VILLAREAL,
FELICISIMO VILLARINO, RAFAEL VILLAROMAN, CARLOS VILLENA, FERDINAND VIVO,
ROBERTO YABUT, VICENTE YNGENTE, AND ORO C. ZUNIGA, respondents.
Gerardo A. Del Mundo and Associates for petitioners.

Romulo, Mabanta, Sayoc, Buenaventura, De los Angeles Law Offices for BRII/AIBC.

Florante M. De Castro for private respondents in 105029-32.

QUIASON, J.:

The petition in G.R. No. 104776, entitled "Bienvenido M. Cadalin, et. al. v. Philippine Overseas
Employment Administration's Administrator, et. al.," was filed under Rule 65 of the Revised Rules of
Court:

(1) to modify the Resolution dated September 2, 1991 of the National Labor
Relations Commission (NLRC) in POEA Cases Nos.
L-84-06-555, L-85-10-777, L-85-10-779 and L-86-05-460; (2) to render a new
decision: (i) declaring private respondents as in default; (ii) declaring the said labor
cases as a class suit; (iii) ordering Asia International Builders Corporation (AIBC) and
Brown and Root International Inc. (BRII) to pay the claims of the 1,767 claimants in
said labor cases; (iv) declaring Atty. Florante M. de Castro guilty of forum-shopping;
and (v) dismissing POEA Case No. L-86-05-460; and

(3) to reverse the Resolution dated March 24, 1992 of NLRC, denying the motion for
reconsideration of its Resolution dated September 2, 1991 (Rollo, pp. 8-288).

The petition in G.R. Nos. 104911-14, entitled "Bienvenido M. Cadalin, et. al., v. Hon. National Labor
Relations Commission, et. al.," was filed under Rule 65 of the Revised Rules of Court:

(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA Cases
Nos. L-84-06-555, L-85-10-777, L-85-10-799 and
L-86-05-460 insofar as it: (i) applied the three-year prescriptive period under the
Labor Code of the Philippines instead of the ten-year prescriptive period under the
Civil Code of the Philippines; and (ii) denied the
"three-hour daily average" formula in the computation of petitioners' overtime pay;
and

(2) to reverse the Resolution dated March 24, 1992 of NLRC, denying the motion for
reconsideration of its Resolution dated September 2, 1991 (Rollo, pp. 8-25; 26-220).

The petition in G.R. Nos. 105029-32, entitled "Asia International Builders Corporation, et. al., v.
National Labor Relations Commission, et. al." was filed under Rule 65 of the Revised Rules of Court:

(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA Cases
Nos. L-84-06-555, L-85-10-777, L-85-10-779 and
L-86-05-460, insofar as it granted the claims of 149 claimants; and

(2) to reverse the Resolution dated March 21, 1992 of NLRC insofar as it denied the
motions for reconsideration of AIBC and BRII (Rollo, pp. 2-59; 61-230).

The Resolution dated September 2, 1991 of NLRC, which modified the decision of POEA in four
labor cases: (1) awarded monetary benefits only to 149 claimants and (2) directed Labor Arbiter
Fatima J. Franco to conduct hearings and to receive evidence on the claims dismissed by the POEA
for lack of substantial evidence or proof of employment.
 Consolidation of Cases

G.R. Nos. 104776 and 105029-32 were originally raffled to the Third Division while G.R. Nos.
104911-14 were raffled to the Second Division. In the Resolution dated July 26, 1993, the Second
Division referred G.R. Nos. 104911-14 to the Third Division (G.R. Nos. 104911-14, Rollo, p. 895).

In the Resolution dated September 29, 1993, the Third Division granted the motion filed in G.R. Nos.
104911-14 for the consolidation of said cases with G.R. Nos. 104776 and 105029-32, which were
assigned to the First Division (G.R. Nos. 104911-14, Rollo, pp. 986-1,107; G.R. Nos. 105029-
30, Rollo, pp. 369-377, 426-432). In the Resolution dated October 27, 1993, the First Division
granted the motion to consolidate G.R. Nos. 104911-14 with G.R. No. 104776 (G.R. Nos. 104911-
14, Rollo, p. 1109; G.R. Nos. 105029-32, Rollo, p. 1562).

On June 6, 1984, Bienvenido M.. Cadalin, Rolando M. Amul and Donato B. Evangelista, in their own
behalf and on behalf of 728 other overseas contract workers (OCWs) instituted a class suit by filing
an "Amended Complaint" with the Philippine Overseas Employment Administration (POEA) for
money claims arising from their recruitment by AIBC and employment by BRII (POEA Case No. L-
84-06-555). The claimants were represented by Atty. Gerardo del Mundo.

BRII is a foreign corporation with headquarters in Houston, Texas, and is engaged in construction;
while AIBC is a domestic corporation licensed as a service contractor to recruit, mobilize and deploy
Filipino workers for overseas employment on behalf of its foreign principals.

The amended complaint principally sought the payment of the unexpired portion of the employment
contracts, which was terminated prematurely, and secondarily, the payment of the interest of the
earnings of the Travel and Reserved Fund, interest on all the unpaid benefits; area wage and salary
differential pay; fringe benefits; refund of SSS and premium not remitted to the SSS; refund of
withholding tax not remitted to the BIR; penalties for committing prohibited practices; as well as the
suspension of the license of AIBC and the accreditation of BRII (G.R. No. 104776, Rollo, pp. 13-14).

At the hearing on June 25, 1984, AIBC was furnished a copy of the complaint and was given,
together with BRII, up to July 5, 1984 to file its answer.

On July 3, 1984, POEA Administrator, upon motion of AIBC and BRII, ordered the claimants to file a
bill of particulars within ten days from receipt of the order and the movants to file their answers within
ten days from receipt of the bill of particulars. The POEA Administrator also scheduled a pre-trial
conference on July 25, 1984.

On July 13, 1984, the claimants submitted their "Compliance and Manifestation." On July 23, 1984,
AIBC filed a "Motion to Strike Out of the Records", the "Complaint" and the "Compliance and
Manifestation." On July 25, 1984, the claimants filed their "Rejoinder and Comments," averring,
among other matters, the failure of AIBC and BRII to file their answers and to attend the pre-trial
conference on July 25, 1984. The claimants alleged that AIBC and BRII had waived their right to
present evidence and had defaulted by failing to file their answers and to attend the pre-trial
conference.

On October 2, 1984, the POEA Administrator denied the "Motion to Strike Out of the Records" filed
by AIBC but required the claimants to correct the deficiencies in the complaint pointed out in the
order.

On October 10, 1984, claimants asked for time within which to comply with the Order of October 2,
1984 and filed an "Urgent Manifestation," praying that the POEA Administrator direct the parties to
submit simultaneously their position papers, after which the case should be deemed submitted for
decision. On the same day, Atty. Florante de Castro filed another complaint for the same money
claims and benefits in behalf of several claimants, some of whom were also claimants in POEA
Case No. L-84-06-555 (POEA Case No. 85-10-779).

On October 19, 1984, claimants filed their "Compliance" with the Order dated October 2, 1984 and
an "Urgent Manifestation," praying that the POEA direct the parties to submit simultaneously their
position papers after which the case would be deemed submitted for decision. On the same day,
AIBC asked for time to file its comment on the "Compliance" and "Urgent Manifestation" of
claimants. On November 6, 1984, it filed a second motion for extension of time to file the comment.

On November 8, 1984, the POEA Administrator informed AIBC that its motion for extension of time
was granted.

On November 14, 1984, claimants filed an opposition to the motions for extension of time and asked
that AIBC and BRII be declared in default for failure to file their answers.

On November 20, 1984, AIBC and BRII filed a "Comment" praying, among other reliefs, that
claimants should be ordered to amend their complaint.

On December 27, 1984, the POEA Administrator issued an order directing AIBC and BRII to file their
answers within ten days from receipt of the order.

On February 27, 1985, AIBC and BRII appealed to NLRC seeking the reversal of the said order of
the POEA Administrator. Claimants opposed the appeal, claiming that it was dilatory and praying
that AIBC and BRII be declared in default.

On April 2, 1985, the original claimants filed an "Amended Complaint and/or Position Paper" dated
March 24, 1985, adding new demands: namely, the payment of overtime pay, extra night work pay,
annual leave differential pay, leave indemnity pay, retirement and savings benefits and their share of
forfeitures (G.R. No. 104776, Rollo, pp. 14-16). On April 15, 1985, the POEA Administrator directed
AIBC to file its answer to the amended complaint (G.R. No. 104776, Rollo, p. 20).

On May 28, 1985, claimants filed an "Urgent Motion for Summary Judgment." On the same day, the
POEA issued an order directing AIBC and BRII to file their answers to the "Amended Complaint,"
otherwise, they would be deemed to have waived their right to present evidence and the case would
be resolved on the basis of complainant's evidence.

On June 5, 1985, AIBC countered with a "Motion to Dismiss as Improper Class Suit and Motion for
Bill of Particulars Re: Amended Complaint dated March 24, 1985." Claimants opposed the motions.

On September 4, 1985, the POEA Administrator reiterated his directive to AIBC and BRII to file their
answers in POEA Case No. L-84-06-555.

On September 18, 1985, AIBC filed its second appeal to the NLRC, together with a petition for the
issuance of a writ of injunction. On September 19, 1985, NLRC enjoined the POEA Administrator
from hearing the labor cases and suspended the period for the filing of the answers of AIBC and
BRII.

On September 19, 1985, claimants asked the POEA Administrator to include additional claimants in
the case and to investigate alleged wrongdoings of BRII, AIBC and their respective lawyers.

On October 10, 1985, Romeo Patag and two co-claimants filed a complaint (POEA Case No. L-85-
10-777) against AIBC and BRII with the POEA, demanding monetary claims similar to those subject
of POEA Case No. L-84-06-555. In the same month, Solomon Reyes also filed his own complaint
(POEA Case No. L-85-10-779) against AIBC and BRII.

On October 17, 1985, the law firm of Florante M. de Castro & Associates asked for the substitution
of the original counsel of record and the cancellation of the special powers of attorney given the
original counsel.

On December 12, 1985, Atty. Del Mundo filed in NLRC a notice of the claim to enforce attorney's
lien.

On May 29, 1986, Atty. De Castro filed a complaint for money claims (POEA Case No. 86-05-460) in
behalf of 11 claimants including Bienvenido Cadalin, a claimant in POEA Case No. 84-06-555.

On December 12, 1986, the NLRC dismissed the two appeals filed on February 27, 1985 and
September 18, 1985 by AIBC and BRII.

In narrating the proceedings of the labor cases before the POEA Administrator, it is not amiss to
mention that two cases were filed in the Supreme Court by the claimants, namely — G.R. No. 72132
on September 26, 1985 and Administrative Case No. 2858 on March 18, 1986. On May 13, 1987,
the Supreme Court issued a resolution in Administrative Case No. 2858 directing the POEA
Administrator to resolve the issues raised in the motions and oppositions filed in POEA Cases Nos.
L-84-06-555 and L-86-05-460 and to decide the labor cases with deliberate dispatch.

AIBC also filed a petition in the Supreme Court (G.R. No. 78489), questioning the Order dated
September 4, 1985 of the POEA Administrator. Said order required BRII and AIBC to answer the
amended complaint in POEA Case No. L-84-06-555. In a resolution dated November 9, 1987, we
dismissed the petition by informing AIBC that all its technical objections may properly be resolved in
the hearings before the POEA.

Complaints were also filed before the Ombudsman. The first was filed on September 22, 1988 by
claimant Hermie Arguelles and 18 co-claimants against the POEA Administrator and several NLRC
Commissioners. The Ombudsman merely referred the complaint to the Secretary of Labor and
Employment with a request for the early disposition of POEA Case No. L-84-06-555. The second
was filed on April 28, 1989 by claimants Emigdio P. Bautista and Rolando R. Lobeta charging AIBC
and BRII for violation of labor and social legislations. The third was filed by Jose R. Santos,
Maximino N. Talibsao and Amado B. Bruce denouncing AIBC and BRII of violations of labor laws.

On January 13, 1987, AIBC filed a motion for reconsideration of the NLRC Resolution dated
December 12, 1986.

On January 14, 1987, AIBC reiterated before the POEA Administrator its motion for suspension of
the period for filing an answer or motion for extension of time to file the same until the resolution of
its motion for reconsideration of the order of the NLRC dismissing the two appeals. On April 28,
1987, NLRC en banc denied the motion for reconsideration.

At the hearing on June 19, 1987, AIBC submitted its answer to the complaint. At the same hearing,
the parties were given a period of 15 days from said date within which to submit their respective
position papers. On June 24, 1987 claimants filed their "Urgent Motion to Strike Out Answer,"
alleging that the answer was filed out of time. On June 29, 1987, claimants filed their "Supplement to
Urgent Manifestational Motion" to comply with the POEA Order of June 19, 1987. On February 24,
1988, AIBC and BRII submitted their position paper. On March 4, 1988, claimants filed their "Ex-
Parte Motion to Expunge from the Records" the position paper of AIBC and BRII, claiming that it was
filed out of time.
On September 1, 1988, the claimants represented by Atty. De Castro filed their memorandum in
POEA Case No. L-86-05-460. On September 6, 1988, AIBC and BRII submitted their Supplemental
Memorandum. On September 12, 1988, BRII filed its "Reply to Complainant's Memorandum." On
October 26, 1988, claimants submitted their "Ex-Parte Manifestational Motion and Counter-
Supplemental Motion," together with 446 individual contracts of employments and service records.
On October 27, 1988, AIBC and BRII filed a "Consolidated Reply."

On January 30, 1989, the POEA Administrator rendered his decision in POEA Case No. L-84-06-
555 and the other consolidated cases, which awarded the amount of $824,652.44 in favor of only
324 complainants.

On February 10, 1989, claimants submitted their "Appeal Memorandum For Partial Appeal" from the
decision of the POEA. On the same day, AIBC also filed its motion for reconsideration and/or appeal
in addition to the "Notice of Appeal" filed earlier on February 6, 1989 by another counsel for AIBC.

On February 17, 1989, claimants filed their "Answer to Appeal," praying for the dismissal of the
appeal of AIBC and BRII.

On March 15, 1989, claimants filed their "Supplement to Complainants' Appeal Memorandum,"
together with their "newly discovered evidence" consisting of payroll records.

On April 5, 1989, AIBC and BRII submitted to NLRC their "Manifestation," stating among other
matters that there were only 728 named claimants. On April 20, 1989, the claimants filed their
"Counter-Manifestation," alleging that there were 1,767 of them.

On July 27, 1989, claimants filed their "Urgent Motion for Execution" of the Decision dated January
30, 1989 on the grounds that BRII had failed to appeal on time and AIBC had not posted the
supersedeas bond in the amount of $824,652.44.

On December 23, 1989, claimants filed another motion to resolve the labor cases.

On August 21, 1990, claimants filed their "Manifestational Motion," praying that all the 1,767
claimants be awarded their monetary claims for failure of private respondents to file their answers
within the reglamentary period required by law.

On September 2, 1991, NLRC promulgated its Resolution, disposing as follows:

WHEREFORE, premises considered, the Decision of the POEA in these

consolidated cases is modified to the extent and in accordance with the following
dispositions:

1. The claims of the 94 complainants identified and listed in Annex

"A" hereof are dismissed for having prescribed;

2. Respondents AIBC and Brown & Root are hereby ordered, jointly
and severally, to pay the 149 complainants, identified and listed in
Annex "B" hereof, the peso equivalent, at the time of payment, of the
total amount in US dollars indicated opposite their respective names;

3. The awards given by the POEA to the 19 complainants classified

and listed in Annex "C" hereof, who appear to have worked
elsewhere than in Bahrain are hereby set aside.
 4. All claims other than those indicated in Annex "B", including those
for overtime work and favorably granted by the POEA, are hereby
dismissed for lack of substantial evidence in support thereof or are
beyond the competence of this Commission to pass upon.

In addition, this Commission, in the exercise of its powers and authority under Article
218(c) of the Labor Code, as amended by R.A. 6715, hereby directs Labor Arbiter
Fatima J. Franco of this Commission to summon parties, conduct hearings and
receive evidence, as expeditiously as possible, and thereafter submit a written report
to this Commission (First Division) of the proceedings taken, regarding the claims of
the following:

(a) complainants identified and listed in Annex "D" attached and

made an integral part of this Resolution, whose claims were
dismissed by the POEA for lack of proof of employment in Bahrain
(these complainants numbering 683, are listed in pages 13 to 23 of
the decision of POEA, subject of the appeals) and,

(b) complainants identified and listed in Annex "E" attached and

made an integral part of this Resolution, whose awards decreed by
the POEA, to Our mind, are not supported by substantial evidence"
(G.R. No. 104776; Rollo, pp. 113-115; G.R. Nos. 104911-14, pp. 85-
87; G.R. Nos. 105029-31, pp. 120-122).

On November 27, 1991, claimant Amado S. Tolentino and 12

co-claimants, who were former clients of Atty. Del Mundo, filed a petition for certiorari with the
Supreme Court (G.R. Nos. 120741-44). The petition was dismissed in a resolution dated January 27,
1992.

Three motions for reconsideration of the September 2, 1991 Resolution of the NLRC were filed. The
first, by the claimants represented by Atty. Del Mundo; the second, by the claimants represented by
Atty. De Castro; and the third, by AIBC and BRII.

In its Resolution dated March 24, 1992, NLRC denied all the motions for reconsideration.

Hence, these petitions filed by the claimants represented by Atty. Del Mundo (G.R. No. 104776), the
claimants represented by Atty. De Castro (G.R. Nos. 104911-14) and by AIBC and BRII (G.R. Nos.
105029-32).

II

Compromise Agreements

Before this Court, the claimants represented by Atty. De Castro and AIBC and BRII have submitted,
from time to time, compromise agreements for our approval and jointly moved for the dismissal of
their respective petitions insofar as the claimants-parties to the compromise agreements were
concerned (See Annex A for list of claimants who signed quitclaims).

Thus the following manifestations that the parties had arrived at a compromise agreement and the
corresponding motions for the approval of the agreements were filed by the parties and approved by
the Court:

1) Joint Manifestation and Motion involving claimant Emigdio Abarquez and 47 co-
claimants dated September 2, 1992 (G.R. Nos. 104911-14, Rollo, pp. 263-406; G.R.
Nos. 105029-32, Rollo, pp.
470-615);

2) Joint Manifestation and Motion involving petitioner Bienvenido Cadalin and 82 co-
petitioners dated September 3, 1992 (G.R. No. 104776, Rollo, pp. 364-507);

3) Joint Manifestation and Motion involving claimant Jose

M. Aban and 36 co-claimants dated September 17, 1992 (G.R. Nos. 105029-
32, Rollo, pp. 613-722; G.R. No. 104776, Rollo, pp. 518-626; G.R. Nos. 104911-
14, Rollo, pp. 407-516);

4) Joint Manifestation and Motion involving claimant Antonio T. Anglo and 17 co-
claimants dated October 14, 1992 (G.R. Nos.
105029-32, Rollo, pp. 778-843; G.R. No. 104776, Rollo, pp. 650-713; G.R. Nos.
104911-14, Rollo, pp. 530-590);

5) Joint Manifestation and Motion involving claimant Dionisio Bobongo and 6 co-
claimants dated January 15, 1993 (G.R. No. 104776, Rollo, pp. 813-836; G.R. Nos.
104911-14, Rollo, pp. 629-652);

6) Joint Manifestation and Motion involving claimant Valerio A. Evangelista and 4 co-
claimants dated March 10, 1993 (G.R. Nos. 104911-14, Rollo, pp. 731-746; G.R. No.
104776, Rollo, pp. 1815-1829);

7) Joint Manifestation and Motion involving claimants Palconeri Banaag and 5 co-
claimants dated March 17, 1993 (G.R. No. 104776, Rollo, pp. 1657-1703; G.R. Nos.
104911-14, Rollo, pp. 655-675);

8) Joint Manifestation and Motion involving claimant Benjamin Ambrosio and 15

other co-claimants dated May 4, 1993 (G.R. Nos. 105029-32, Rollo, pp. 906-956;
G.R. Nos. 104911-14, Rollo, pp. 679-729; G.R. No. 104776, Rollo, pp. 1773-1814);

9) Joint Manifestation and Motion involving Valerio Evangelista and 3 co-claimants

dated May 10, 1993 (G.R. No. 104776, Rollo, pp. 1815-1829);

10) Joint Manifestation and Motion involving petitioner Quiterio R. Agudo and 36 co-
claimants dated June 14, 1993 (G.R. Nos. 105029-32, Rollo, pp. 974-1190; G.R.
Nos. 104911-14, Rollo, pp. 748-864; G.R. No. 104776, Rollo, pp. 1066-1183);

11) Joint Manifestation and Motion involving claimant Arnaldo J. Alonzo and 19 co-
claimants dated July 22, 1993 (G.R. No. 104776, Rollo, pp. 1173-1235; G.R. Nos.
105029-32, Rollo, pp. 1193-1256; G.R. Nos. 104911-14, Rollo, pp. 896-959);

12) Joint Manifestation and Motion involving claimant Ricardo C. Dayrit and 2 co-
claimants dated September 7, 1993 (G.R. Nos.
105029-32, Rollo, pp. 1266-1278; G.R. No. 104776, Rollo, pp. 1243-1254; G.R. Nos.
104911-14, Rollo, pp. 972-984);

13) Joint Manifestation and Motion involving claimant Dante C. Aceres and 37 co-
claimants dated September 8, 1993 (G.R. No. 104776, Rollo, pp. 1257-1375; G.R.
Nos. 104911-14, Rollo, pp. 987-1105; G.R. Nos. 105029-32, Rollo, pp. 1280-1397);

14) Joint Manifestation and Motion involving Vivencio V. Abella and 27 co-claimants
dated January 10, 1994 (G.R. Nos. 105029-32, Rollo, Vol. II);
 15) Joint Manifestation and Motion involving Domingo B. Solano and six co-claimants
dated August 25, 1994 (G.R. Nos. 105029-32; G.R. No. 104776; G.R. Nos. 104911-
14).

III

The facts as found by the NLRC are as follows:

We have taken painstaking efforts to sift over the more than fifty volumes now
comprising the records of these cases. From the records, it appears that the
complainants-appellants allege that they were recruited by respondent-appellant
AIBC for its accredited foreign principal, Brown & Root, on various dates from 1975
to 1983. They were all deployed at various projects undertaken by Brown & Root in
several countries in the Middle East, such as Saudi Arabia, Libya, United Arab
Emirates and Bahrain, as well as in Southeast Asia, in Indonesia and Malaysia.

Having been officially processed as overseas contract workers by the Philippine

Government, all the individual complainants signed standard overseas employment
contracts (Records, Vols. 25-32. Hereafter, reference to the records would be
sparingly made, considering their chaotic arrangement) with AIBC before their
departure from the Philippines. These overseas employment contracts invariably
contained the following relevant terms and conditions.

PART B —

(1) Employment Position Classification :—————————

(Code) :—————————

(2) Company Employment Status :—————————

(3) Date of Employment to Commence on :—————————
(4) Basic Working Hours Per Week :—————————
(5) Basic Working Hours Per Month :—————————
(6) Basic Hourly Rate :—————————
(7) Overtime Rate Per Hour :—————————
(8) Projected Period of Service
(Subject to C(1) of this [sic]) :—————————
Months and/or
Job Completion

xxx xxx xxx

3. HOURS OF WORK AND COMPENSATION

a) The Employee is employed at the hourly rate and overtime rate as set out in Part
B of this Document.

b) The hours of work shall be those set forth by the Employer, and Employer may, at
his sole option, change or adjust such hours as maybe deemed necessary from time
to time.

4. TERMINATION

a) Notwithstanding any other terms and conditions of this agreement, the Employer
may, at his sole discretion, terminate employee's service with cause, under this
agreement at any time. If the Employer terminates the services of the Employee
under this Agreement because of the completion or termination, or suspension of the
work on which the Employee's services were being utilized, or because of a
reduction in force due to a decrease in scope of such work, or by change in the type
of construction of such work. The Employer will be responsible for his return
transportation to his country of origin. Normally on the most expeditious air route,
economy class accommodation.

xxx xxx xxx

10. VACATION/SICK LEAVE BENEFITS

a) After one (1) year of continuous service and/or satisfactory completion of contract,
employee shall be entitled to 12-days vacation leave with pay. This shall be
computed at the basic wage rate. Fractions of a year's service will be computed on
a pro-rata basis.

b) Sick leave of 15-days shall be granted to the employee for every year of service
for non-work connected injuries or illness. If the employee failed to avail of such
leave benefits, the same shall be forfeited at the end of the year in which said sick
leave is granted.

11. BONUS

A bonus of 20% (for offshore work) of gross income will be accrued and payable only
upon satisfactory completion of this contract.

12. OFFDAY PAY

The seventh day of the week shall be observed as a day of rest with 8 hours regular
pay. If work is performed on this day, all hours work shall be paid at the premium
rate. However, this offday pay provision is applicable only when the laws of the Host
Country require payments for rest day.

In the State of Bahrain, where some of the individual complainants were deployed,
His Majesty Isa Bin Salman Al Kaifa, Amir of Bahrain, issued his Amiri Decree No. 23
on June 16, 1976, otherwise known as the Labour Law for the Private Sector
(Records, Vol. 18). This decree took effect on August 16, 1976. Some of the
provisions of Amiri Decree No. 23 that are relevant to the claims of the complainants-
appellants are as follows (italics supplied only for emphasis):

Art. 79: . . . A worker shall receive payment for each extra hour
equivalent to his wage entitlement increased by a minimum of twenty-
five per centum thereof for hours worked during the day; and by a
minimum of fifty per centum thereof for hours worked during the
night which shall be deemed to being from seven o'clock in the
evening until seven o'clock in the morning. . . .

Art. 80: Friday shall be deemed to be a weekly day of rest on full pay.

. . . an employer may require a worker, with his consent, to work on

his weekly day of rest if circumstances so require and in respect of
which an additional sum equivalent to 150% of his normal wage shall
be paid to him. . . .
 Art. 81: . . . When conditions of work require the worker to work on
any official holiday, he shall be paid an additional sum equivalent to
150% of his normal wage.

Art. 84: Every worker who has completed one year's continuous
service with his employer shall be entitled to leave on full pay for a
period of not less than 21 days for each year increased to a period
not less than 28 days after five continuous years of service.

A worker shall be entitled to such leave upon a quantum meruit in

respect of the proportion of his service in that year.

Art. 107: A contract of employment made for a period of indefinite

duration may be terminated by either party thereto after giving the
other party thirty days' prior notice before such termination, in writing,
in respect of monthly paid workers and fifteen days' notice in respect
of other workers. The party terminating a contract without giving the
required notice shall pay to the other party compensation equivalent
to the amount of wages payable to the worker for the period of such
notice or the unexpired portion thereof.

Art. 111: . . . the employer concerned shall pay to such worker, upon
termination of employment, a leaving indemnity for the period of his
employment calculated on the basis of fifteen days' wages for each
year of the first three years of service and of one month's wages for
each year of service thereafter. Such worker shall be entitled to
payment of leaving indemnity upon a quantum meruit in proportion to
the period of his service completed within a year.

All the individual complainants-appellants have already been

repatriated to the Philippines at the time of the filing of these cases
(R.R. No. 104776, Rollo, pp. 59-65).

IV

The issues raised before and resolved by the NLRC were:

First: — Whether or not complainants are entitled to the benefits provided by Amiri
Decree No. 23 of Bahrain;

(a) Whether or not the complainants who have worked in Bahrain are
entitled to the above-mentioned benefits.

(b) Whether or not Art. 44 of the same Decree (allegedly prescribing

a more favorable treatment of alien employees) bars complainants
from enjoying its benefits.

Second: — Assuming that Amiri Decree No. 23 of Bahrain is applicable in these

cases, whether or not complainants' claim for the benefits provided therein have
prescribed.

Third: — Whether or not the instant cases qualify as a class suit.

Fourth: — Whether or not the proceedings conducted by the POEA, as well as the
decision that is the subject of these appeals, conformed with the requirements of due
process;

(a) Whether or not the respondent-appellant was denied its right to

due process;

(b) Whether or not the admission of evidence by the POEA after

these cases were submitted for decision was valid;

(c) Whether or not the POEA acquired jurisdiction over Brown & Root
International, Inc.;

(d) Whether or not the judgment awards are supported by substantial

evidence;

(e) Whether or not the awards based on the averages and formula
presented by the complainants-appellants are supported by
substantial evidence;

(f) Whether or not the POEA awarded sums beyond what the
complainants-appellants prayed for; and, if so, whether or not these
awards are valid.

Fifth: — Whether or not the POEA erred in holding respondents AIBC and Brown &
Root jointly are severally liable for the judgment awards despite the alleged finding
that the former was the employer of the complainants;

(a) Whether or not the POEA has acquired jurisdiction over Brown &
Root;

(b) Whether or not the undisputed fact that AIBC was a licensed
construction contractor precludes a finding that Brown & Root is liable
for complainants claims.

Sixth: — Whether or not the POEA Administrator's failure to hold respondents in

default constitutes a reversible error.

Seventh: — Whether or not the POEA Administrator erred in dismissing the following
claims:

a. Unexpired portion of contract;

b. Interest earnings of Travel and Reserve Fund;

c. Retirement and Savings Plan benefits;

d. War Zone bonus or premium pay of at least 100% of basic pay;

e. Area Differential Pay;

f. Accrued interests on all the unpaid benefits;

 g. Salary differential pay;

h. Wage differential pay;

i. Refund of SSS premiums not remitted to SSS;

j. Refund of withholding tax not remitted to BIR;

k. Fringe benefits under B & R's "A Summary of Employee Benefits"

(Annex "Q" of Amended Complaint);

l. Moral and exemplary damages;

m. Attorney's fees of at least ten percent of the judgment award;

n. Other reliefs, like suspending and/or cancelling the license to

recruit of AIBC and the accreditation of B & R issued by POEA;

o. Penalty for violations of Article 34 (prohibited practices), not

excluding reportorial requirements thereof.

Eighth: — Whether or not the POEA Administrator erred in not dismissing POEA
Case No. (L) 86-65-460 on the ground of multiplicity of suits (G.R. Nos. 104911-
14, Rollo, pp. 25-29, 51-55).

Anent the first issue, NLRC set aside Section 1, Rule 129 of the 1989 Revised Rules on Evidence
governing the pleading and proof of a foreign law and admitted in evidence a simple copy of the
Bahrain's Amiri Decree No. 23 of 1976 (Labour Law for the Private Sector). NLRC invoked Article
221 of the Labor Code of the Philippines, vesting on the Commission ample discretion to use every
and all reasonable means to ascertain the facts in each case without regard to the technicalities of
law or procedure. NLRC agreed with the POEA Administrator that the Amiri Decree No. 23, being
more favorable and beneficial to the workers, should form part of the overseas employment contract
of the complainants.

NLRC, however, held that the Amiri Decree No. 23 applied only to the claimants, who worked in
Bahrain, and set aside awards of the POEA Administrator in favor of the claimants, who worked
elsewhere.

On the second issue, NLRC ruled that the prescriptive period for the filing of the claims of the
complainants was three years, as provided in Article 291 of the Labor Code of the Philippines, and
not ten years as provided in Article 1144 of the Civil Code of the Philippines nor one year as
provided in the Amiri Decree No. 23 of 1976.

On the third issue, NLRC agreed with the POEA Administrator that the labor cases cannot be treated
as a class suit for the simple reason that not all the complainants worked in Bahrain and therefore,
the subject matter of the action, the claims arising from the Bahrain law, is not of common or general
interest to all the complainants.

On the fourth issue, NLRC found at least three infractions of the cardinal rules of administrative due
process: namely, (1) the failure of the POEA Administrator to consider the evidence presented by
AIBC and BRII; (2) some findings of fact were not supported by substantial evidence; and (3) some
of the evidence upon which the decision was based were not disclosed to AIBC and BRII during the
hearing.
On the fifth issue, NLRC sustained the ruling of the POEA Administrator that BRII and AIBC are
solidarily liable for the claims of the complainants and held that BRII was the actual employer of the
complainants, or at the very least, the indirect employer, with AIBC as the labor contractor.

NLRC also held that jurisdiction over BRII was acquired by the POEA Administrator through the
summons served on AIBC, its local agent.

On the sixth issue, NLRC held that the POEA Administrator was correct in denying the Motion to
Declare AIBC in default.

On the seventh issue, which involved other money claims not based on the Amiri Decree No. 23,
NLRC ruled:

(1) that the POEA Administrator has no jurisdiction over the claims for refund of the
SSS premiums and refund of withholding taxes and the claimants should file their
claims for said refund with the appropriate government agencies;

(2) the claimants failed to establish that they are entitled to the claims which are not
based on the overseas employment contracts nor the Amiri Decree No. 23 of 1976;

(3) that the POEA Administrator has no jurisdiction over claims for moral and
exemplary damages and nonetheless, the basis for granting said damages was not
established;

(4) that the claims for salaries corresponding to the unexpired portion of their contract
may be allowed if filed within the three-year prescriptive period;

(5) that the allegation that complainants were prematurely repatriated prior to the
expiration of their overseas contract was not established; and

(6) that the POEA Administrator has no jurisdiction over the complaint for the
suspension or cancellation of the AIBC's recruitment license and the cancellation of
the accreditation of BRII.

NLRC passed sub silencio the last issue, the claim that POEA Case No. (L) 86-65-460 should have
been dismissed on the ground that the claimants in said case were also claimants in POEA Case
No. (L) 84-06-555. Instead of dismissing POEA Case No. (L) 86-65-460, the POEA just resolved the
corresponding claims in POEA Case No. (L) 84-06-555. In other words, the POEA did not pass upon
the same claims twice.

G.R. No. 104776

Claimants in G.R. No. 104776 based their petition for certiorari on the following grounds:

(1) that they were deprived by NLRC and the POEA of their right to a speedy
disposition of their cases as guaranteed by Section 16, Article III of the 1987
Constitution. The POEA Administrator allowed private respondents to file their
answers in two years (on June 19, 1987) after the filing of the original complaint (on
April 2, 1985) and NLRC, in total disregard of its own rules, affirmed the action of the
POEA Administrator;
 (2) that NLRC and the POEA Administrator should have declared AIBC and BRII in
default and should have rendered summary judgment on the basis of the pleadings
and evidence submitted by claimants;

(3) the NLRC and POEA Administrator erred in not holding that the labor cases filed
by AIBC and BRII cannot be considered a class suit;

(4) that the prescriptive period for the filing of the claims is ten years; and

(5) that NLRC and the POEA Administrator should have dismissed POEA Case No.
L-86-05-460, the case filed by Atty. Florante de Castro (Rollo, pp. 31-40).

AIBC and BRII, commenting on the petition in G.R. No. 104776, argued:

(1) that they were not responsible for the delay in the disposition of the labor cases,
considering the great difficulty of getting all the records of the more than 1,500
claimants, the piece-meal filing of the complaints and the addition of hundreds of new
claimants by petitioners;

(2) that considering the number of complaints and claimants, it was impossible to
prepare the answers within the ten-day period provided in the NLRC Rules, that
when the motion to declare AIBC in default was filed on July 19, 1987, said party had
already filed its answer, and that considering the staggering amount of the claims
(more than US$50,000,000.00) and the complicated issues raised by the parties, the
ten-day rule to answer was not fair and reasonable;

(3) that the claimants failed to refute NLRC's finding that

there was no common or general interest in the subject matter of the controversy —
which was the applicability of the Amiri Decree No. 23. Likewise, the nature of the
claims varied, some being based on salaries pertaining to the unexpired portion of
the contracts while others being for pure money claims. Each claimant demanded
separate claims peculiar only to himself and depending upon the particular
circumstances obtaining in his case;

(4) that the prescriptive period for filing the claims is that prescribed by Article 291 of
the Labor Code of the Philippines (three years) and not the one prescribed by Article
1144 of the Civil Code of the Philippines (ten years); and

(5) that they are not concerned with the issue of whether POEA Case No. L-86-05-
460 should be dismissed, this being a private quarrel between the two labor lawyers
(Rollo, pp. 292-305).

Attorney's Lien

On November 12, 1992, Atty. Gerardo A. del Mundo moved to strike out the joint manifestations and
motions of AIBC and BRII dated September 2 and 11, 1992, claiming that all the claimants who
entered into the compromise agreements subject of said manifestations and motions were his clients
and that Atty. Florante M. de Castro had no right to represent them in said agreements. He also
claimed that the claimants were paid less than the award given them by NLRC; that Atty. De Castro
collected additional attorney's fees on top of the 25% which he was entitled to receive; and that the
consent of the claimants to the compromise agreements and quitclaims were procured by fraud
(G.R. No. 104776, Rollo, pp. 838-810). In the Resolution dated November 23, 1992, the Court
denied the motion to strike out the Joint Manifestations and Motions dated September 2 and 11,
1992 (G.R. Nos. 104911-14, Rollo, pp. 608-609).
On December 14, 1992, Atty. Del Mundo filed a "Notice and Claim to Enforce Attorney's Lien,"
alleging that the claimants who entered into compromise agreements with AIBC and BRII with the
assistance of Atty. De Castro, had all signed a retainer agreement with his law firm (G.R. No.
104776, Rollo, pp. 623-624; 838-1535).

Contempt of Court

On February 18, 1993, an omnibus motion was filed by Atty. Del Mundo to cite Atty. De Castro and
Atty. Katz Tierra for contempt of court and for violation of Canons 1, 15 and 16 of the Code of
Professional Responsibility. The said lawyers allegedly misled this Court, by making it appear that
the claimants who entered into the compromise agreements were represented by Atty. De Castro,
when in fact they were represented by Atty. Del Mundo (G.R. No. 104776, Rollo, pp. 1560-1614).

On September 23, 1994, Atty. Del Mundo reiterated his charges against Atty. De Castro for unethical
practices and moved for the voiding of the quitclaims submitted by some of the claimants.

G.R. Nos. 104911-14

The claimants in G.R. Nos. 104911-14 based their petition for certiorari on the grounds that NLRC
gravely abused its discretion when it: (1) applied the three-year prescriptive period under the Labor
Code of the Philippines; and (2) it denied the claimant's formula based on an average overtime pay
of three hours a day (Rollo, pp. 18-22).

The claimants argue that said method was proposed by BRII itself during the negotiation for an
amicable settlement of their money claims in Bahrain as shown in the Memorandum dated April 16,
1983 of the Ministry of Labor of Bahrain (Rollo, pp. 21-22).

BRII and AIBC, in their Comment, reiterated their contention in G.R. No. 104776 that the prescriptive
period in the Labor Code of the Philippines, a special law, prevails over that provided in the Civil
Code of the Philippines, a general law.

As to the memorandum of the Ministry of Labor of Bahrain on the method of computing the overtime
pay, BRII and AIBC claimed that they were not bound by what appeared therein, because such
memorandum was proposed by a subordinate Bahrain official and there was no showing that it was
approved by the Bahrain Minister of Labor. Likewise, they claimed that the averaging method was
discussed in the course of the negotiation for the amicable settlement of the dispute and any offer
made by a party therein could not be used as an admission by him (Rollo, pp. 228-236).

G.R. Nos. 105029-32

In G.R. Nos. 105029-32, BRII and AIBC claim that NLRC gravely abused its discretion when it: (1)
enforced the provisions of the Amiri Decree No. 23 of 1976 and not the terms of the employment
contracts; (2) granted claims for holiday, overtime and leave indemnity pay and other benefits, on
evidence admitted in contravention of petitioner's constitutional right to due process; and (3) ordered
the POEA Administrator to hold new hearings for the 683 claimants whose claims had been
dismissed for lack of proof by the POEA Administrator or NLRC itself. Lastly, they allege that
assuming that the Amiri Decree No. 23 of 1976 was applicable, NLRC erred when it did not apply
the one-year prescription provided in said law (Rollo, pp. 29-30).

VI

G.R. No. 104776; G.R. Nos. 104911-14; G.R. Nos. 105029-32

All the petitions raise the common issue of prescription although they disagreed as to the time that
should be embraced within the prescriptive period.

To the POEA Administrator, the prescriptive period was ten years, applying Article 1144 of the Civil
Code of the Philippines. NLRC believed otherwise, fixing the prescriptive period at three years as
provided in Article 291 of the Labor Code of the Philippines.

The claimants in G.R. No. 104776 and G.R. Nos. 104911-14, invoking different grounds, insisted
that NLRC erred in ruling that the prescriptive period applicable to the claims was three years,
instead of ten years, as found by the POEA Administrator.

The Solicitor General expressed his personal view that the prescriptive period was one year as
prescribed by the Amiri Decree No. 23 of 1976 but he deferred to the ruling of NLRC that Article 291
of the Labor Code of the Philippines was the operative law.

The POEA Administrator held the view that:

These money claims (under Article 291 of the Labor Code) refer to those arising from
the employer's violation of the employee's right as provided by the Labor Code.

In the instant case, what the respondents violated are not the rights of the workers as
provided by the Labor Code, but the provisions of the Amiri Decree No. 23 issued in
Bahrain, which ipso facto amended the worker's contracts of employment.
Respondents consciously failed to conform to these provisions which specifically
provide for the increase of the worker's rate. It was only after June 30, 1983, four
months after the brown builders brought a suit against B & R in Bahrain for this same
claim, when respondent AIBC's contracts have undergone amendments in Bahrain
for the new hires/renewals (Respondent's Exhibit 7).

Hence, premises considered, the applicable law of prescription to this instant case is
Article 1144 of the Civil Code of the Philippines, which provides:

Art. 1144. The following actions may be brought within ten years from
the time the cause of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

Thus, herein money claims of the complainants against the respondents shall
prescribe in ten years from August 16, 1976. Inasmuch as all claims were filed within
the ten-year prescriptive period, no claim suffered the infirmity of being prescribed
(G.R. No. 104776, Rollo, 89-90).

In overruling the POEA Administrator, and holding that the prescriptive period is three years as
provided in Article 291 of the Labor Code of the Philippines, the NLRC argued as follows:

The Labor Code provides that "all money claims arising from employer-employee
relations . . . shall be filed within three years from the time the cause of action
accrued; otherwise they shall be forever barred" (Art. 291, Labor Code, as
amended). This three-year prescriptive period shall be the one applied here and
which should be reckoned from the date of repatriation of each individual
complainant, considering the fact that the case is having (sic) filed in this country. We
do not agree with the POEA Administrator that this three-year prescriptive period
 applies only to money claims specifically recoverable under the Philippine Labor
Code. Article 291 gives no such indication. Likewise, We can not consider
complainants' cause/s of action to have accrued from a violation of their employment
contracts. There was no violation; the claims arise from the benefits of the law of the
country where they worked. (G.R. No. 104776, Rollo, pp.
90-91).

Anent the applicability of the one-year prescriptive period as provided by the Amiri Decree No. 23 of
1976, NLRC opined that the applicability of said law was one of characterization, i.e., whether to
characterize the foreign law on prescription or statute of limitation as "substantive" or "procedural."
NLRC cited the decision in Bournias v. Atlantic Maritime Company (220 F. 2d. 152, 2d Cir. [1955],
where the issue was the applicability of the Panama Labor Code in a case filed in the State of New
York for claims arising from said Code. In said case, the claims would have prescribed under the
Panamanian Law but not under the Statute of Limitations of New York. The U.S. Circuit Court of
Appeals held that the Panamanian Law was procedural as it was not "specifically intended to be
substantive," hence, the prescriptive period provided in the law of the forum should apply. The Court
observed:

. . . And where, as here, we are dealing with a statute of limitations of a foreign

country, and it is not clear on the face of the statute that its purpose was to limit the
enforceability, outside as well as within the foreign country concerned, of the
substantive rights to which the statute pertains, we think that as a yardstick for
determining whether that was the purpose this test is the most satisfactory one. It
does not lead American courts into the necessity of examining into the unfamiliar
peculiarities and refinements of different foreign legal systems. . .

The court further noted:

xxx xxx xxx

Applying that test here it appears to us that the libelant is entitled to succeed, for the
respondents have failed to satisfy us that the Panamanian period of limitation in
question was specifically aimed against the particular rights which the libelant seeks
to enforce. The Panama Labor Code is a statute having broad objectives, viz: "The
present Code regulates the relations between capital and labor, placing them on a
basis of social justice, so that, without injuring any of the parties, there may be
guaranteed for labor the necessary conditions for a normal life and to capital an
equitable return to its investment." In pursuance of these objectives the Code gives
laborers various rights against their employers. Article 623 establishes the period of
limitation for all such rights, except certain ones which are enumerated in Article 621.
And there is nothing in the record to indicate that the Panamanian legislature gave
special consideration to the impact of Article 623 upon the particular rights sought to
be enforced here, as distinguished from the other rights to which that Article is also
applicable. Were we confronted with the question of whether the limitation period of
Article 621 (which carves out particular rights to be governed by a shorter limitation
period) is to be regarded as "substantive" or "procedural" under the rule of "specifity"
we might have a different case; but here on the surface of things we appear to be
dealing with a "broad," and not a "specific," statute of limitations (G.R. No.
104776, Rollo, pp.
92-94).

Claimants in G.R. Nos. 104911-14 are of the view that Article 291 of the Labor Code of the
Philippines, which was applied by NLRC, refers only to claims "arising from the employer's violation
of the employee's right as provided by the Labor Code." They assert that their claims are based on
the violation of their employment contracts, as amended by the Amiri Decree No. 23 of 1976 and
therefore the claims may be brought within ten years as provided by Article 1144 of the Civil Code of
the Philippines (Rollo, G.R. Nos. 104911-14, pp.
18-21). To bolster their contention, they cite PALEA v. Philippine Airlines, Inc., 70 SCRA 244 (1976).

AIBC and BRII, insisting that the actions on the claims have prescribed under the Amiri Decree No.
23 of 1976, argue that there is in force in the Philippines a "borrowing law," which is Section 48 of
the Code of Civil Procedure and that where such kind of law exists, it takes precedence over the
common-law conflicts rule (G.R. No. 104776, Rollo, pp. 45-46).

First to be determined is whether it is the Bahrain law on prescription of action based on the Amiri
Decree No. 23 of 1976 or a Philippine law on prescription that shall be the governing law.

Article 156 of the Amiri Decree No. 23 of 1976 provides:

A claim arising out of a contract of employment shall not be actionable after the lapse
of one year from the date of the expiry of the contract. (G.R. Nos. 105029-31, Rollo,
p. 226).

As a general rule, a foreign procedural law will not be applied in the forum. Procedural matters, such
as service of process, joinder of actions, period and requisites for appeal, and so forth, are governed
by the laws of the forum. This is true even if the action is based upon a foreign substantive law
(Restatement of the Conflict of Laws, Sec. 685; Salonga, Private International Law, 131 [1979]).

A law on prescription of actions is sui generis in Conflict of Laws in the sense that it may be viewed
either as procedural or substantive, depending on the characterization given such a law.

Thus in Bournias v. Atlantic Maritime Company, supra, the American court applied the statute of
limitations of New York, instead of the Panamanian law, after finding that there was no showing that
the Panamanian law on prescription was intended to be substantive. Being considered merely a
procedural law even in Panama, it has to give way to the law of the forum on prescription of actions.

However, the characterization of a statute into a procedural or substantive law becomes irrelevant
when the country of the forum has a "borrowing statute." Said statute has the practical effect of
treating the foreign statute of limitation as one of substance (Goodrich, Conflict of Laws 152-153
[1938]). A "borrowing statute" directs the state of the forum to apply the foreign statute of limitations
to the pending claims based on a foreign law (Siegel, Conflicts, 183 [1975]). While there are several
kinds of "borrowing statutes," one form provides that an action barred by the laws of the place where
it accrued, will not be enforced in the forum even though the local statute has not run against it
(Goodrich and Scoles, Conflict of Laws, 152-153 [1938]). Section 48 of our Code of Civil Procedure
is of this kind. Said Section provides:

If by the laws of the state or country where the cause of action arose, the action is
barred, it is also barred in the Philippines Islands.

Section 48 has not been repealed or amended by the Civil Code of the Philippines. Article 2270 of
said Code repealed only those provisions of the Code of Civil Procedures as to which were
inconsistent with it. There is no provision in the Civil Code of the Philippines, which is inconsistent
with or contradictory to Section 48 of the Code of Civil Procedure (Paras, Philippine Conflict of Laws
104 [7th ed.]).

In the light of the 1987 Constitution, however, Section 48 cannot be enforced ex proprio
vigore insofar as it ordains the application in this jurisdiction of Section 156 of the Amiri Decree No.
23 of 1976.
The courts of the forum will not enforce any foreign claim obnoxious to the forum's public policy
(Canadian Northern Railway Co. v. Eggen, 252 U.S. 553, 40 S. Ct. 402, 64 L. ed. 713 [1920]). To
enforce the one-year prescriptive period of the Amiri Decree No. 23 of 1976 as regards the claims in
question would contravene the public policy on the protection to labor.

In the Declaration of Principles and State Policies, the 1987 Constitution emphasized that:

The state shall promote social justice in all phases of national development. (Sec.
10).

The state affirms labor as a primary social economic force. It shall protect the rights
of workers and promote their welfare (Sec. 18).

In article XIII on Social Justice and Human Rights, the 1987 Constitution provides:

Sec. 3. The State shall afford full protection to labor, local and overseas, organized
and unorganized, and promote full employment and equality of employment
opportunities for all.

Having determined that the applicable law on prescription is the Philippine law, the next question is
whether the prescriptive period governing the filing of the claims is three years, as provided by the
Labor Code or ten years, as provided by the Civil Code of the Philippines.

The claimants are of the view that the applicable provision is Article 1144 of the Civil Code of the
Philippines, which provides:

The following actions must be brought within ten years from the time the right of
action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

NLRC, on the other hand, believes that the applicable provision is Article 291 of the Labor Code of
the Philippines, which in pertinent part provides:

Money claims-all money claims arising from employer-employee relations accruing

during the effectivity of this Code shall be filed within three (3) years from the time
the cause of action accrued, otherwise they shall be forever barred.

xxx xxx xxx

The case of Philippine Air Lines Employees Association v. Philippine Air Lines, Inc., 70 SCRA 244
(1976) invoked by the claimants in G.R. Nos. 104911-14 is inapplicable to the cases at bench (Rollo,
p. 21). The said case involved the correct computation of overtime pay as provided in the collective
bargaining agreements and not the Eight-Hour Labor Law.

As noted by the Court: "That is precisely why petitioners did not make any reference as to the
computation for overtime work under the Eight-Hour Labor Law (Secs. 3 and 4, CA No. 494) and
instead insisted that work computation provided in the collective bargaining agreements between the
parties be observed. Since the claim for pay differentials is primarily anchored on the written
contracts between the litigants, the ten-year prescriptive period provided by Art. 1144(1) of the New
Civil Code should govern."

Section 7-a of the Eight-Hour Labor Law (CA No. 444 as amended by R.A. No. 19933) provides:

Any action to enforce any cause of action under this Act shall be commenced within
three years after the cause of action accrued otherwise such action shall be forever
barred, . . . .

The court further explained:

The three-year prescriptive period fixed in the Eight-Hour Labor Law (CA No. 444 as
amended) will apply, if the claim for differentials for overtime work is solely based on
said law, and not on a collective bargaining agreement or any other contract. In the
instant case, the claim for overtime compensation is not so much because of
Commonwealth Act No. 444, as amended but because the claim is demandable right
of the employees, by reason of the above-mentioned collective bargaining
agreement.

Section 7-a of the Eight-Hour Labor Law provides the prescriptive period for filing "actions to enforce
any cause of action under said law." On the other hand, Article 291 of the Labor Code of the
Philippines provides the prescriptive period for filing "money claims arising from employer-employee
relations." The claims in the cases at bench all arose from the employer-employee relations, which is
broader in scope than claims arising from a specific law or from the collective bargaining agreement.

The contention of the POEA Administrator, that the three-year prescriptive period under Article 291
of the Labor Code of the Philippines applies only to money claims specifically recoverable under said
Code, does not find support in the plain language of the provision. Neither is the contention of the
claimants in G.R. Nos. 104911-14 that said Article refers only to claims "arising from the employer's
violation of the employee's right," as provided by the Labor Code supported by the facial reading of
the provision.

VII

G.R. No. 104776

A. As to the first two grounds for the petition in G.R. No. 104776, claimants aver: (1) that while their
complaints were filed on June 6, 1984 with POEA, the case was decided only on January 30, 1989,
a clear denial of their right to a speedy disposition of the case; and (2) that NLRC and the POEA
Administrator should have declared AIBC and BRII in default (Rollo, pp.
31-35).

Claimants invoke a new provision incorporated in the 1987 Constitution, which provides:

Sec. 16. All persons shall have the right to a speedy disposition of their cases before
all judicial, quasi-judicial, or administrative bodies.

It is true that the constitutional right to "a speedy disposition of cases" is not limited to the accused in
criminal proceedings but extends to all parties in all cases, including civil and administrative cases,
and in all proceedings, including judicial and quasi-judicial hearings. Hence, under the Constitution,
any party to a case may demand expeditious action on all officials who are tasked with the
administration of justice.
However, as held in Caballero v. Alfonso, Jr., 153 SCRA 153 (1987), "speedy disposition of cases" is
a relative term. Just like the constitutional guarantee of "speedy trial" accorded to the accused in all
criminal proceedings, "speedy disposition of cases" is a flexible concept. It is consistent with delays
and depends upon the circumstances of each case. What the Constitution prohibits are
unreasonable, arbitrary and oppressive delays which render rights nugatory.

Caballero laid down the factors that may be taken into consideration in determining whether or not
the right to a "speedy disposition of cases" has been violated, thus:

In the determination of whether or not the right to a "speedy trial" has been violated,
certain factors may be considered and balanced against each other. These are
length of delay, reason for the delay, assertion of the right or failure to assert it, and
prejudice caused by the delay. The same factors may also be considered in
answering judicial inquiry whether or not a person officially charged with the
administration of justice has violated the speedy disposition of cases.

Likewise, in Gonzales v. Sandiganbayan, 199 SCRA 298, (1991), we held:

It must be here emphasized that the right to a speedy disposition of a case, like the
right to speedy trial, is deemed violated only when the proceeding is attended by
vexatious, capricious, and oppressive delays; or when unjustified postponements of
the trial are asked for and secured, or when without cause or justified motive a long
period of time is allowed to elapse without the party having his case tried.

Since July 25, 1984 or a month after AIBC and BRII were served with a copy of the amended
complaint, claimants had been asking that AIBC and BRII be declared in default for failure to file
their answers within the ten-day period provided in Section 1, Rule III of Book VI of the Rules and
Regulations of the POEA. At that time, there was a pending motion of AIBC and BRII to strike out of
the records the amended complaint and the "Compliance" of claimants to the order of the POEA,
requiring them to submit a bill of particulars.

The cases at bench are not of the run-of-the-mill variety, such that their final disposition in the
administrative level after seven years from their inception, cannot be said to be attended by
unreasonable, arbitrary and oppressive delays as to violate the constitutional rights to a speedy
disposition of the cases of complainants.

The amended complaint filed on June 6, 1984 involved a total of 1,767 claimants. Said complaint
had undergone several amendments, the first being on April 3, 1985.

The claimants were hired on various dates from 1975 to 1983. They were deployed in different
areas, one group in and the other groups outside of, Bahrain. The monetary claims totalling more
than US$65 million according to Atty. Del Mundo, included:

1. Unexpired portion of contract;

2. Interest earnings of Travel and Fund;

3. Retirement and Savings Plan benefit;

4. War Zone bonus or premium pay of at least 100% of basic pay;

5. Area Differential pay;

6. Accrued Interest of all the unpaid benefits;

 7. Salary differential pay;

8. Wage Differential pay;

9. Refund of SSS premiums not remitted to Social Security System;

10. Refund of Withholding Tax not remitted to Bureau of Internal Revenue (B.I.R.);

11. Fringe Benefits under Brown & Root's "A Summary of Employees Benefits
consisting of 43 pages (Annex "Q" of Amended Complaint);

12. Moral and Exemplary Damages;

13. Attorney's fees of at least ten percent of amounts;

14. Other reliefs, like suspending and/or cancelling the license to recruit of AIBC and
issued by the POEA; and

15. Penalty for violation of Article 34 (Prohibited practices) not excluding reportorial
requirements thereof (NLRC Resolution, September 2, 1991, pp. 18-19; G.R. No.
104776, Rollo, pp. 73-74).

Inasmuch as the complaint did not allege with sufficient definiteness and clarity of some facts, the
claimants were ordered to comply with the motion of AIBC for a bill of particulars. When claimants
filed their "Compliance and Manifestation," AIBC moved to strike out the complaint from the records
for failure of claimants to submit a proper bill of particulars. While the POEA Administrator denied the
motion to strike out the complaint, he ordered the claimants "to correct the deficiencies" pointed out
by AIBC.

Before an intelligent answer could be filed in response to the complaint, the records of employment
of the more than 1,700 claimants had to be retrieved from various countries in the Middle East.
Some of the records dated as far back as 1975.

The hearings on the merits of the claims before the POEA Administrator were interrupted several
times by the various appeals, first to NLRC and then to the Supreme Court.

Aside from the inclusion of additional claimants, two new cases were filed against AIBC and BRII on
October 10, 1985 (POEA Cases Nos.
L-85-10-777 and L-85-10-779). Another complaint was filed on May 29, 1986 (POEA Case No. L-86-
05-460). NLRC, in exasperation, noted that the exact number of claimants had never been
completely established (Resolution, Sept. 2, 1991, G.R. No. 104776, Rollo, p. 57). All the three new
cases were consolidated with POEA Case No. L-84-06-555.

NLRC blamed the parties and their lawyers for the delay in terminating the proceedings, thus:

These cases could have been spared the long and arduous route towards resolution
had the parties and their counsel been more interested in pursuing the truth and the
merits of the claims rather than exhibiting a fanatical reliance on technicalities.
Parties and counsel have made these cases a litigation of emotion. The
intransigence of parties and counsel is remarkable. As late as last month, this
Commission made a last and final attempt to bring the counsel of all the parties (this
Commission issued a special order directing respondent Brown & Root's resident
agent/s to appear) to come to a more conciliatory stance. Even this failed (Rollo,
p. 58).
The squabble between the lawyers of claimants added to the delay in the disposition of the cases, to
the lament of NLRC, which complained:

It is very evident from the records that the protagonists in these consolidated cases
appear to be not only the individual complainants, on the one hand, and AIBC and
Brown & Root, on the other hand. The two lawyers for the complainants, Atty.
Gerardo Del Mundo and Atty. Florante De Castro, have yet to settle the right of
representation, each one persistently claiming to appear in behalf of most of the
complainants. As a result, there are two appeals by the complainants. Attempts by
this Commission to resolve counsels' conflicting claims of their respective authority to
represent the complainants prove futile. The bickerings by these two counsels are
reflected in their pleadings. In the charges and countercharges of falsification of
documents and signatures, and in the disbarment proceedings by one against the
other. All these have, to a large extent, abetted in confounding the issues raised in
these cases, jumble the presentation of evidence, and even derailed the prospects of
an amicable settlement. It would not be far-fetched to imagine that both counsel,
unwittingly, perhaps, painted a rainbow for the complainants, with the proverbial pot
of gold at its end containing more than US$100 million, the aggregate of the claims in
these cases. It is, likewise, not improbable that their misplaced zeal and exuberance
caused them to throw all caution to the wind in the matter of elementary rules of
procedure and evidence (Rollo, pp. 58-59).

Adding to the confusion in the proceedings before NLRC, is the listing of some of the complainants
in both petitions filed by the two lawyers. As noted by NLRC, "the problem created by this situation is
that if one of the two petitions is dismissed, then the parties and the public respondents would not
know which claim of which petitioner was dismissed and which was not."

B. Claimants insist that all their claims could properly be consolidated in a "class suit" because "all
the named complainants have similar money claims and similar rights sought irrespective of whether
they worked in Bahrain, United Arab Emirates or in Abu Dhabi, Libya or in any part of the Middle
East" (Rollo, pp. 35-38).

A class suit is proper where the subject matter of the controversy is one of common or general
interest to many and the parties are so numerous that it is impracticable to bring them all before the
court (Revised Rules of Court, Rule 3, Sec. 12).

While all the claims are for benefits granted under the Bahrain Law, many of the claimants worked
outside Bahrain. Some of the claimants were deployed in Indonesia and Malaysia under different
terms and conditions of employment.

NLRC and the POEA Administrator are correct in their stance that inasmuch as the first requirement
of a class suit is not present (common or general interest based on the Amiri Decree of the State of
Bahrain), it is only logical that only those who worked in Bahrain shall be entitled to file their claims in
a class suit.

While there are common defendants (AIBC and BRII) and the nature of the claims is the same (for
employee's benefits), there is no common question of law or fact. While some claims are based on
the Amiri Law of Bahrain, many of the claimants never worked in that country, but were deployed
elsewhere. Thus, each claimant is interested only in his own demand and not in the claims of the
other employees of defendants. The named claimants have a special or particular interest in specific
benefits completely different from the benefits in which the other named claimants and those
included as members of a "class" are claiming (Berses v. Villanueva, 25 Phil. 473 [1913]). It appears
that each claimant is only interested in collecting his own claims. A claimants has no concern in
protecting the interests of the other claimants as shown by the fact, that hundreds of them have
abandoned their co-claimants and have entered into separate compromise settlements of their
respective claims. A principle basic to the concept of "class suit" is that plaintiffs brought on the
record must fairly represent and protect the interests of the others (Dimayuga v. Court of Industrial
Relations, 101 Phil. 590 [1957]). For this matter, the claimants who worked in Bahrain can not be
allowed to sue in a class suit in a judicial proceeding. The most that can be accorded to them under
the Rules of Court is to be allowed to join as plaintiffs in one complaint (Revised Rules of Court, Rule
3, Sec. 6).

The Court is extra-cautious in allowing class suits because they are the exceptions to the
condition sine qua non, requiring the joinder of all indispensable parties.

In an improperly instituted class suit, there would be no problem if the decision secured is favorable
to the plaintiffs. The problem arises when the decision is adverse to them, in which case the others
who were impleaded by their self-appointed representatives, would surely claim denial of due
process.

C. The claimants in G.R. No. 104776 also urged that the POEA Administrator and NLRC should
have declared Atty. Florante De Castro guilty of "forum shopping, ambulance chasing activities,
falsification, duplicity and other unprofessional activities" and his appearances as counsel for some
of the claimants as illegal (Rollo, pp. 38-40).

The Anti-Forum Shopping Rule (Revised Circular No. 28-91) is intended to put a stop to the practice
of some parties of filing multiple petitions and complaints involving the same issues, with the result
that the courts or agencies have to resolve the same issues. Said Rule, however, applies only to
petitions filed with the Supreme Court and the Court of Appeals. It is entitled "Additional
Requirements For Petitions Filed with the Supreme Court and the Court of Appeals To Prevent
Forum Shopping or Multiple Filing of Petitioners and Complainants." The first sentence of the circular
expressly states that said circular applies to an governs the filing of petitions in the Supreme Court
and the Court of Appeals.

While Administrative Circular No. 04-94 extended the application of the anti-forum shopping rule to
the lower courts and administrative agencies, said circular took effect only on April 1, 1994.

POEA and NLRC could not have entertained the complaint for unethical conduct against Atty. De
Castro because NLRC and POEA have no jurisdiction to investigate charges of unethical conduct of
lawyers.

Attorney's Lien

The "Notice and Claim to Enforce Attorney's Lien" dated December 14, 1992 was filed by Atty.
Gerardo A. Del Mundo to protect his claim for attorney's fees for legal services rendered in favor of
the claimants (G.R. No. 104776, Rollo, pp. 841-844).

A statement of a claim for a charging lien shall be filed with the court or administrative agency which
renders and executes the money judgment secured by the lawyer for his clients. The lawyer shall
cause written notice thereof to be delivered to his clients and to the adverse party (Revised Rules of
Court, Rule 138, Sec. 37). The statement of the claim for the charging lien of Atty. Del Mundo should
have been filed with the administrative agency that rendered and executed the judgment.

Contempt of Court

The complaint of Atty. Gerardo A. Del Mundo to cite Atty. Florante De Castro and Atty. Katz Tierra
for violation of the Code of Professional Responsibility should be filed in a separate and appropriate
proceeding.
 G.R. No. 104911-14

Claimants charge NLRC with grave abuse of discretion in not accepting their formula of "Three
Hours Average Daily Overtime" in computing the overtime payments. They claim that it was BRII
itself which proposed the formula during the negotiations for the settlement of their claims in Bahrain
and therefore it is in estoppel to disclaim said offer (Rollo, pp. 21-22).

Claimants presented a Memorandum of the Ministry of Labor of Bahrain dated April 16, 1983, which
in pertinent part states:

After the perusal of the memorandum of the Vice President and the Area Manager,
Middle East, of Brown & Root Co. and the Summary of the compensation offered by
the Company to the employees in respect of the difference of pay of the wages of the
overtime and the difference of vacation leave and the perusal of the documents
attached thereto i.e., minutes of the meetings between the Representative of the
employees and the management of the Company, the complaint filed by the
employees on 14/2/83 where they have claimed as hereinabove stated, sample of
the Service Contract executed between one of the employees and the company
through its agent in (sic) Philippines, Asia International Builders Corporation where it
has been provided for 48 hours of work per week and an annual leave of 12 days
and an overtime wage of 1 & 1/4 of the normal hourly wage.

xxx xxx xxx

The Company in its computation reached the following averages:

A. 1. The average duration of the actual service of the employee is 35 months for the
Philippino (sic) employees . . . .

2. The average wage per hour for the Philippino (sic) employee is US$2.69 . . . .

3. The average hours for the overtime is 3 hours plus in all public holidays and
weekends.

4. Payment of US$8.72 per months (sic) of service as compensation for the

difference of the wages of the overtime done for each Philippino (sic) employee . . .
(Rollo, p.22).

BRII and AIBC countered: (1) that the Memorandum was not prepared by them but by a subordinate
official in the Bahrain Department of Labor; (2) that there was no showing that the Bahrain Minister
of Labor had approved said memorandum; and (3) that the offer was made in the course of the
negotiation for an amicable settlement of the claims and therefore it was not admissible in evidence
to prove that anything is due to the claimants.

While said document was presented to the POEA without observing the rule on presenting official
documents of a foreign government as provided in Section 24, Rule 132 of the 1989 Revised Rules
on Evidence, it can be admitted in evidence in proceedings before an administrative body. The
opposing parties have a copy of the said memorandum, and they could easily verify its authenticity
and accuracy.

The admissibility of the offer of compromise made by BRII as contained in the memorandum is
another matter. Under Section 27, Rule 130 of the 1989 Revised Rules on Evidence, an offer to
settle a claim is not an admission that anything is due.
Said Rule provides:

Offer of compromise not admissible. — In civil cases, an offer of compromise is not

an admission of any liability, and is not admissible in evidence against the offeror.

This Rule is not only a rule of procedure to avoid the cluttering of the record with unwanted evidence
but a statement of public policy. There is great public interest in having the protagonists settle their
differences amicable before these ripen into litigation. Every effort must be taken to encourage them
to arrive at a settlement. The submission of offers and counter-offers in the negotiation table is a
step in the right direction. But to bind a party to his offers, as what claimants would make this Court
do, would defeat the salutary purpose of the Rule.

G.R. Nos. 105029-32

A. NLRC applied the Amiri Decree No. 23 of 1976, which provides for greater benefits than those
stipulated in the overseas-employment contracts of the claimants. It was of the belief that "where the
laws of the host country are more favorable and beneficial to the workers, then the laws of the host
country shall form part of the overseas employment contract." It quoted with approval the
observation of the POEA Administrator that ". . . in labor proceedings, all doubts in the
implementation of the provisions of the Labor Code and its implementing regulations shall be
resolved in favor of labor" (Rollo, pp. 90-94).

AIBC and BRII claim that NLRC acted capriciously and whimsically when it refused to enforce the
overseas-employment contracts, which became the law of the parties. They contend that the
principle that a law is deemed to be a part of a contract applies only to provisions of Philippine law in
relation to contracts executed in the Philippines.

The overseas-employment contracts, which were prepared by AIBC and BRII themselves, provided
that the laws of the host country became applicable to said contracts if they offer terms and
conditions more favorable that those stipulated therein. It was stipulated in said contracts that:

The Employee agrees that while in the employ of the Employer, he will not engage in
any other business or occupation, nor seek employment with anyone other than the
Employer; that he shall devote his entire time and attention and his best energies,
and abilities to the performance of such duties as may be assigned to him by the
Employer; that he shall at all times be subject to the direction and control of the
Employer; and that the benefits provided to Employee hereunder are substituted for
and in lieu of all other benefits provided by any applicable law, provided of course,
that total remuneration and benefits do not fall below that of the host country
regulation or custom, it being understood that should applicable laws establish that
fringe benefits, or other such benefits additional to the compensation herein agreed
cannot be waived, Employee agrees that such compensation will be adjusted
downward so that the total compensation hereunder, plus the non-waivable benefits
shall be equivalent to the compensation herein agreed (Rollo, pp. 352-353).

The overseas-employment contracts could have been drafted more felicitously. While a part thereof
provides that the compensation to the employee may be "adjusted downward so that the total
computation (thereunder) plus the non-waivable benefits shall be equivalent to the compensation"
therein agreed, another part of the same provision categorically states "that total remuneration and
benefits do not fall below that of the host country regulation and custom."

Any ambiguity in the overseas-employment contracts should be interpreted against AIBC and BRII,
the parties that drafted it (Eastern Shipping Lines, Inc. v. Margarine-Verkaufs-Union, 93 SCRA 257
[1979]).
Article 1377 of the Civil Code of the Philippines provides:

The interpretation of obscure words or stipulations in a contract shall not favor the
party who caused the obscurity.

Said rule of interpretation is applicable to contracts of adhesion where there is already a prepared
form containing the stipulations of the employment contract and the employees merely "take it or
leave it." The presumption is that there was an imposition by one party against the other and that the
employees signed the contracts out of necessity that reduced their bargaining power (Fieldmen's
Insurance Co., Inc. v. Songco, 25 SCRA 70 [1968]).

Applying the said legal precepts, we read the overseas-employment contracts in question as
adopting the provisions of the Amiri Decree No. 23 of 1976 as part and parcel thereof.

The parties to a contract may select the law by which it is to be governed (Cheshire, Private
International Law, 187 [7th ed.]). In such a case, the foreign law is adopted as a "system" to regulate
the relations of the parties, including questions of their capacity to enter into the contract, the
formalities to be observed by them, matters of performance, and so forth (16 Am Jur 2d,
150-161).

Instead of adopting the entire mass of the foreign law, the parties may just agree that specific
provisions of a foreign statute shall be deemed incorporated into their contract "as a set of terms."
By such reference to the provisions of the foreign law, the contract does not become a foreign
contract to be governed by the foreign law. The said law does not operate as a statute but as a set
of contractual terms deemed written in the contract (Anton, Private International Law, 197 [1967];
Dicey and Morris, The Conflict of Laws, 702-703, [8th ed.]).

A basic policy of contract is to protect the expectation of the parties (Reese, Choice of Law in Torts
and Contracts, 16 Columbia Journal of Transnational Law 1, 21 [1977]). Such party expectation is
protected by giving effect to the parties' own choice of the applicable law (Fricke v. Isbrandtsen Co.,
Inc., 151 F. Supp. 465, 467 [1957]). The choice of law must, however, bear some relationship to the
parties or their transaction (Scoles and Hayes, Conflict of Law 644-647 [1982]). There is no question
that the contracts sought to be enforced by claimants have a direct connection with the Bahrain law
because the services were rendered in that country.

In Norse Management Co. (PTE) v. National Seamen Board, 117 SCRA 486 (1982), the
"Employment Agreement," between Norse Management Co. and the late husband of the private
respondent, expressly provided that in the event of illness or injury to the employee arising out of
and in the course of his employment and not due to his own misconduct, "compensation shall be
paid to employee in accordance with and subject to the limitation of the Workmen's Compensation
Act of the Republic of the Philippines or the Worker's Insurance Act of registry of the vessel,
whichever is greater." Since the laws of Singapore, the place of registry of the vessel in which the
late husband of private respondent served at the time of his death, granted a better compensation
package, we applied said foreign law in preference to the terms of the contract.

The case of Bagong Filipinas Overseas Corporation v. National Labor Relations Commission, 135
SCRA 278 (1985), relied upon by AIBC and BRII is inapposite to the facts of the cases at bench.
The issue in that case was whether the amount of the death compensation of a Filipino seaman
should be determined under the shipboard employment contract executed in the Philippines or the
Hongkong law. Holding that the shipboard employment contract was controlling, the court
differentiated said case from Norse Management Co. in that in the latter case there was an express
stipulation in the employment contract that the foreign law would be applicable if it afforded greater
compensation.
B. AIBC and BRII claim that they were denied by NLRC of their right to due process when said
administrative agency granted Friday-pay differential, holiday-pay differential, annual-leave
differential and leave indemnity pay to the claimants listed in Annex B of the Resolution. At first,
NLRC reversed the resolution of the POEA Administrator granting these benefits on a finding that
the POEA Administrator failed to consider the evidence presented by AIBC and BRII, that some
findings of fact of the POEA Administrator were not supported by the evidence, and that some of the
evidence were not disclosed to AIBC and BRII (Rollo, pp. 35-36; 106-107). But instead of remanding
the case to the POEA Administrator for a new hearing, which means further delay in the termination
of the case, NLRC decided to pass upon the validity of the claims itself. It is this procedure that AIBC
and BRII complain of as being irregular and a "reversible error."

They pointed out that NLRC took into consideration evidence submitted on appeal, the same
evidence which NLRC found to have been "unilaterally submitted by the claimants and not disclosed
to the adverse parties" (Rollo, pp. 37-39).

NLRC noted that so many pieces of evidentiary matters were submitted to the POEA administrator
by the claimants after the cases were deemed submitted for resolution and which were taken
cognizance of by the POEA Administrator in resolving the cases. While AIBC and BRII had no
opportunity to refute said evidence of the claimants before the POEA Administrator, they had all the
opportunity to rebut said evidence and to present their
counter-evidence before NLRC. As a matter of fact, AIBC and BRII themselves were able to present
before NLRC additional evidence which they failed to present before the POEA Administrator.

Under Article 221 of the Labor Code of the Philippines, NLRC is enjoined to "use every and all
reasonable means to ascertain the facts in each case speedily and objectively and without regard to
technicalities of law or procedure, all in the interest of due process."

In deciding to resolve the validity of certain claims on the basis of the evidence of both parties
submitted before the POEA Administrator and NLRC, the latter considered that it was not expedient
to remand the cases to the POEA Administrator for that would only prolong the already protracted
legal controversies.

Even the Supreme Court has decided appealed cases on the merits instead of remanding them to
the trial court for the reception of evidence, where the same can be readily determined from the
uncontroverted facts on record (Development Bank of the Philippines v. Intermediate Appellate
Court, 190 SCRA 653 [1990]; Pagdonsalan v. National Labor Relations Commission, 127 SCRA 463
[1984]).

C. AIBC and BRII charge NLRC with grave abuse of discretion when it ordered the POEA
Administrator to hold new hearings for 683 claimants listed in Annex D of the Resolution dated
September 2, 1991 whose claims had been denied by the POEA Administrator "for lack of proof"
and for 69 claimants listed in Annex E of the same Resolution, whose claims had been found by
NLRC itself as not "supported by evidence" (Rollo, pp. 41-45).

NLRC based its ruling on Article 218(c) of the Labor Code of the Philippines, which empowers it "[to]
conduct investigation for the determination of a question, matter or controversy, within its jurisdiction,
. . . ."

It is the posture of AIBC and BRII that NLRC has no authority under Article 218(c) to remand a case
involving claims which had already been dismissed because such provision contemplates only
situations where there is still a question or controversy to be resolved (Rollo, pp. 41-42).

A principle well embedded in Administrative Law is that the technical rules of procedure and
evidence do not apply to the proceedings conducted by administrative agencies (First Asian
Transport & Shipping Agency, Inc. v. Ople, 142 SCRA 542 [1986]; Asiaworld Publishing House, Inc.
v. Ople, 152 SCRA 219 [1987]). This principle is enshrined in Article 221 of the Labor Code of the
Philippines and is now the bedrock of proceedings before NLRC.

Notwithstanding the non-applicability of technical rules of procedure and evidence in administrative

proceedings, there are cardinal rules which must be observed by the hearing officers in order to
comply with the due process requirements of the Constitution. These cardinal rules are collated
in Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).

VIII

The three petitions were filed under Rule 65 of the Revised Rules of Court on the grounds that
NLRC had committed grave abuse of discretion amounting to lack of jurisdiction in issuing the
questioned orders. We find no such abuse of discretion.

WHEREFORE, all the three petitions are DISMISSED.

SO ORDERED.

Carnival Cruise Lines, Inc. vs. Shute, 499 U.S. 585 (1991) Decided:
April 17, 1991

Brief Fact Summary.

Plaintiff Carnival Cruise Lines, Inc. opposes a suit by a passenger injured on one of their cruise
ships, because the cruise tickets contained an agreement that all matters relating to the cruise
would be litigated before a Florida court.

Synopsis of Rule of Law.

Forum-selection clauses forcing individuals to agree to submit to jurisdiction in a particular place
are enforceable so long as they pass the test for judicial fairness.
Facts.
Defendant Shute purchased passage for a seven day cruise on the Tropicale, a ship owned by
Plaintiff, through a Washington travel agent. The face of each ticket contained terms and
conditions of passage, which included an agreement that all matters disputed or litigated subject
to the travel agreement, would be before a Florida court. Defendant boarded the ship in
California, which then sailed to Puerto Vallarta, Mexico before returning to Los Angeles. While
the ship was in international waters, Defendant Eulala Shute was injured from slipping on a
deck mat. Defendants filed suit in Federal District Court in Washington. Defendant filed a motion
for summary judgment, alleging that the clause in the tickets required Defendants to bring their
suit in Florida.

Issue.
Whether the court should enforce a forum-selection clause forcing individuals to submit to
jurisdiction in a particular state.

Held.
Yes. The Supreme Court of the United States held that the Court of Appeals erred in refusing to
enforce the forum-selection clause. Forum-selection clauses contained in form passage
contracts are subject to judicial scrutiny for fundamental fairness, but where they are not lacking
in fairness, they will be enforced.

Dissent.
Justice Stevens dissented, in which he was joined by Justice Marshall. Essentially Justice
Stevens feels that adhesion contracts, particularly forum-selection clauses, are void as contrary
to public policy if they were not freely bargained for, create additional expense for one party, or
deny one party a remedy.

Discussion.
In reaching its decision, the court noted that there is no evidence that Plaintiff set Florida as the
forum as a means of discouraging cruise passengers from pursuing their claims. Such a
suggestion is negated by the fact that Plaintiff has its headquarters in Florida, and many of its
cruises depart from Florida.

Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985)

Argued:January 8, 1985

Decided:May 20, 1985

PRIMARY HOLDING

While the existence of a contract by itself cannot establish minimum contacts with a
jurisdiction, a court may find that the defendant purposefully established minimum
contacts after considering the prior negotiations between the parties, the contemplated
future consequences of entering into the contract, the contract terms, and the course of
dealing between the parties.

FACTS

Burger King's contracts with its franchisees required that these business relationships
were established in Miami and governed by Florida law. Burger King was a Florida
corporation headquartered in Miami, and its Miami office resolved any major problems
with the franchisees and received payment of their fees. However, many different
officers at Burger King shared responsibility for regularly monitoring the franchises,
which were subject to substantial regulations and supervisory control under the contract
terms.

When Rudzewicz and MacShara applied for a franchise through the Burger King
regional office in Michigan, their application was forwarded to the Miami headquarters.
They were assigned an existing facility in Drayton Plains, Michigan, and they bought
equipment for their restaurant from Burger King in Miami. MacShara also attended a
required training course in Miami. Both men negotiated with both the Michigan and the
Miami offices. During the course of a 20-year franchise relationship, Rudzewicz became
liable for over $1 million in payments. Burger King eventually terminated the franchise
after lengthy negotiations with the two men produced no results. Rudzewicz remained
on the location and continued to operate the restaurant as a Burger King.

Filing a claim in Florida federal court, Burger King pointed out that the Florida long-arm
statute provided personal jurisdiction over residents of other states who breached
contracts that were formed in Florida. However, Rudzewicz and MacShara argued that
the claim did not arise within Florida. The court agreed with Burger King and entered
judgment in its favor, but the appellate court reversed on the grounds that the
defendants had not received proper notice that they might be involved in litigation in
Florida.

OPINIONS

Majority

 William Joseph Brennan, Jr. (Author)

 Warren Earl Burger
 Thurgood Marshall
 Harry Andrew Blackmun
 William Hubbs Rehnquist
 Sandra Day O'Connor

The standard to apply in these situations is whether the non-resident purposefully

availed himself of the benefits and privileges of transacting business within the forum
state. This is comprised of a minimum contacts inquiry as well as an evaluation of
whether asserting jurisdiction meets notions of fundamental fairness and substantial
justice. While the existence of the contract itself is not enough to find jurisdiction, the
defendants had regular and long-lasting interactions with the plaintiff within the forum
state during the negotiations over the contract and the ensuing business relationship.
The defendants' actions caused foreseeable harm to the plaintiff, a resident of the forum
state, and there was no evidence that the defendants were under duress or lacked
experience in business matters. No argument was raised that the Florida long-arm
statute was unconstitutional. However, the choice of law provision in the contract should
not be interpreted as a forum-selection clause.

Dissent

 John Paul Stevens (Author)

 Byron Raymond White

The defendants were unprepared for the possibility of litigation in Florida, since they did
not conduct business outside Michigan and communicated largely with the regional
Michigan office. They were financially disadvantaged by being forced into litigation
outside the state, and the unequal bargaining position between the parties should make
the court particularly reluctant to assert personal jurisdiction.

Recused

 Lewis Franklin Powell, Jr. (Author)

CASE COMMENTARY

There may be a distinction between a choice of law provision and a choice of forum
provision that is provided in these contracts, although the court did not provide guidance
on this issue.

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

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

TOPIC: IN ADHESION CONTRACTS, STIPULATION VOID IF CONTRARY TO PUBLIC

POLICY
NATURE OF THE CASE: This case was elevated to the SC to restrain the CFI of Misamis
Oriental to proceed in the complaint filed by Tandog and Tiro against Sweet Lines on the ground
that the venue was improperly laid.

FACTS:

Sweet Lines is a shipping company which transports inter-island passengers and

cargoes at Cagayan de Oro City. Rogelio Tiro, a contractor, and Atty. Leovigildo Tandog bought
tickets from Sweet Lines and were bound to Bohol. When they were about to board M/S “Sweet
Hope” which was bound for Tagbilaran City via the port of Cebu, they were informed that the
vessel will not proceed to Bohol because most of the passengers were bound to Surigao. They
were advised to relocate and board to M/S “Sweet Town”. However, the said vessel was already
full and they were forced to agree “ to hide at the cargo section to avoid inspection of the
officers of the Philippine Coastguard." Private respondents alleged that they were, during the
trip," "exposed to the scorching heat of the sun and the dust coming from the ship's cargo of
corn grits.” Further, the tickets they bought at Cagayan de Oro City for Tagbilaran were not
honored and they were constrained to pay for other tickets. Thus, Tandog and Tiro filed a
complaint against Sweet Lines for damages and breach of contract of carriage in the CFI of
Misamis Oriental (Cagayan de Oro is the capital of Misamis Oriental).

SWEET LINES: It moved to dismiss the complaint on the ground of improper venue. This was
based on the condition printed at the back of the tickets purchased by Tandog and Tiro which
reads:

14. It is hereby agreed and understood that any and all actions arising out of the conditions and
provisions of this ticket, irrespective of where it is issued, shall be filed in the competent courts in the City
of Cebu.

CFI: Denied the motion to dismiss.

Sweet Lines: Motion for Reconsideration.

CFI: Denied the motion for reconsideration.

---Hence, this petition.

ISSUE: WON a common carrier engaged in inter-island shipping may stipulate thru condition printed at
the back of passage tickets to its vessels that any and all actions arising out of the contract of carriage
should be filed only in a particular province or city, in this case the City of Cebu, to the exclusion of all
others.

WON the venue of the action should be in the City of Cebu as stipulated by the condition in the ticket
bought by Tandog and Tiro.

SWEET LINES: The condition is valid and enforceable since Tandog and Tiro acceded to it when they
purchased the tickets at its Cagayan de Oro branch office and took its vessel M/S "Sweet Town" for
passage to Tagbilaran, Bohol. Moreover, venue may be validly waived and it is clear that the ticket
stipulates that the condition had fixed the venue in the City of Cebu. Thus, the orders of the CFI Judge
are an unwarranted departure from established jurisprudence governing the case; and that he acted
without or in excess of his jurisdiction in is the orders complained of.

TANDOG AND TIRO: The condition in the ticket is not valid as it is not an essential element of the
contract of carriage, being in itself a different agreement which requires the mutual consent of the parties
to it. Tandog and Tiro had no say in its preparation, the existence of which they could not refuse, hence,
they had no choice but to pay for the tickets and to avail of petitioner's shipping facilities out of necessity.
Further, the carrier "has been exacting too much from the public by inserting impositions in the passage
tickets too burdensome to bear," and the condition which was printed in fine letters is an imposition on the
riding public and does not bind respondents. Lastly, while venue of actions may be transferred from one
province to another, such arrangement requires the "written agreement of the parties", not to be imposed
unilaterally; and that assuming that the condition is valid, it is not exclusive and does not, therefore,
exclude the filing of the action in Misamis Oriental.

HELD: No, the actuations of Sweet Lines (putting a condition at the back of its tickets fixing the venue for
any complaints filed against them in the City of Cebu) is contrary to public policy. Thus, the venue was not
improperly laid in the CFI of Misamis Oriental.

There is no question that there was a valid contract of carriage entered into by petitioner and
private respondents and that the passage tickets, upon which the latter based their complaint, are the
best evidence thereof. All the essential elements of a valid contract, i.e., consent, cause or consideration
and object, are present.

However, with respect to the condition which is in issue in this case — printed at the back of the
passage tickets, these are commonly known as "contracts of adhesion," the validity and/or enforceability
of which will have to be determined by the peculiar circumstances obtaining in each case and the nature
of the conditions or terms sought to be enforced. For, "(W)hile generally, stipulations in a contract come
about after deliberate drafting by the parties thereto, ... there are certain contracts almost all the
provisions of which have been drafted only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of the party is the signing of his signature or
his 'adhesion' thereto. Insurance contracts, bills of lading, contracts of make of lots on the installment plan
fall into this category"

By the peculiar circumstances under which contracts of adhesion are entered into — namely, that
it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the
other party, in this instance the passengers, private respondents, who cannot change the same and who
are thus made to adhere thereto on the "take it or leave it" basis — certain guidelines in the determination
of their validity and/or enforceability have been formulated in order to that justice and fair play
characterize the relationship of the contracting parties.

To the same effect and import, and, in recognition of the character of contracts of this kind, the
protection of the disadvantaged is expressly enjoined in Art. 24 of the New Civil Code —

In all contractual property or other relations, when one of the parties is at a disadvantage on account of
his moral dependence, ignorance indigence, mental weakness, tender age and other handicap, the courts
must be vigilant for his
protection.

Considered in the light Of the foregoing norms and in the context of circumstances prevailing in
the inter-island shipping industry in the country today, the SC declared the condition at the back of the
passage to be void and unenforceable. First, under circumstances obligation in the inter-island shipping
industry, it is not just and fair to bind passengers to the terms of the conditions printed at the back of the
passage tickets. Second, the condition subverts the public policy on transfer of venue of proceedings of
this nature, since the same will prejudice rights and interests of innumerable passengers in different s of
the country who, under the said condition, will have to file suits against petitioner only in the City of Cebu.

Moreover, it is hardly just and proper to expect the passengers to examine their tickets received
from crowded/congested counters, more often than not during rush hours, for conditions that may be
printed much charge them with having consented to the conditions, so printed, especially if there are a
number of such conditions m fine print, as in this case. Thus, passengers cannot be expected to read all
the conditions much less consider the public policies that the conditions therein violate.

Additionally, although venue may be changed or transferred from one province to another by
agreement of the parties in writing t to Rule 4, Section 3, of the Rules of Court, such an agreement will not
be held valid where it practically negates the action of the claimants, such as the private respondents
herein. The philosophy underlying the provisions on transfer of venue of actions is the convenience of the
plaintiffs as well as his witnesses and to promote the ends of justice. Considering the expense and trouble
a passenger residing outside of Cebu City would incur to prosecute a claim in the City of Cebu, he would
most probably decide not to file the action at all. The condition will thus defeat, instead of enhance, the
ends of justice. Upon the other hand, petitioner has branches or offices in the respective ports of call of its
vessels and can afford to litigate in any of these places. Hence, the filing of the suit in the CFI of Misamis
Oriental, as was done in the instant case, will not cause inconvenience to, much less prejudice, petitioner.

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

Thus, PETITION IS DENIED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

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

SWEET LINES, INC., petitioner,

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

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

Leovigildo Vallar for private respondents.

SANTOS, J.:

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

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

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

14. It is hereby agreed and understood that any and all actions arising out of the
conditions and provisions of this ticket, irrespective of where it is issued, shall be filed
in the competent courts in the City of Cebu. 3

The motion was denied by the trial court. Petitioner moved to reconnsider the order of denial, but
4

no avail. Hence, this instant petition for prohibition for preliminary injunction, 'alleging that the
5

respondent judge has departed from the accepted and usual course of judicial preoceeding" and
"had acted without or in excess or in error of his jurisdicton or in gross abuse of discretion. 6

In Our resolution of November 20, 1973, We restrained respondent Judge from proceeding further
with the case and required respondent to comment. On January 18, 1974, We gave due course to
7

the petition and required respondent to answer. Thereafter, the parties submitted their respesctive
8

memoranda in support of their respective contentions. 9

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

Petitioner contends thaty Condition No. 14 is valid and enforceable, since private respndents
acceded to tit when they purchased passage tickets at its Cagayan de Oro branch office and took its
vessel M/S "Sweet Town" for passage to Tagbilaran, Bohol — that the condition of the venue of
actions in the City of Cebu is proper since venue may be validly waived, citing cases; that is an
10

effective waiver of venue, valid and binding as such, since it is printed in bold and capital letters and
not in fine print and merely assigns the place where the action sing from the contract is institution
likewise citing cases; and that condition No. 14 is unequivocal and mandatory, the words and
11

phrases "any and all", "irrespective of where it is issued," and "shag" leave no doubt that the
intention of Condition No. 14 is to fix the venue in the City of Cebu, to the exclusion of other places;
that the orders of the respondent Judge are an unwarranted departure from established
jurisprudence governing the case; and that he acted without or in excess of his jurisdiction in is the
orders complained of. 12

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

arrangement requires the "written agreement of the parties", not to be imposed unilaterally; and that
assuming that the condition is valid, it is not exclusive and does not, therefore, exclude the filing of
the action in Misamis Oriental, 14

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

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

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

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

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

Justice Fernando in Fieldman Insurance v. Vargas, held —

18

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

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

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

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

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

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

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

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

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

2. Condition No. 14 is subversive of public policy on transfers of venue of actions. For, although
venue may be changed or transferred from one province to another by agreement of the parties in
writing t to Rule 4, Section 3, of the Rules of Court, such an agreement will not be held valid where it
practically negates the action of the claimants, such as the private respondents herein. The
philosophy underlying the provisions on transfer of venue of actions is the convenience of the
plaintiffs as well as his witnesses and to promote the ends of justice. Considering the expense and
21

trouble a passenger residing outside of Cebu City would incur to prosecute a claim in the City of
Cebu, he would most probably decide not to file the action at all. The condition will thus defeat,
instead of enhance, the ends of justice. Upon the other hand, petitioner has branches or offices in
the respective ports of call of its vessels and can afford to litigate in any of these places. Hence, the
filing of the suit in the CFI of Misamis Oriental, as was done in the instant case, will not cause
inconvenience to, much less prejudice, petitioner.

Public policy is ". . . that principle of the law which holds that no subject or citizen can lawfully do that
which has a tendency to be injurious to the public or against the public good ... Under this principle"
22

... freedom of contract or private dealing is restricted by law for the good of the public. Clearly,
23

Condition No. 14, if enforced, will be subversive of the public good or interest, since it will frustrate in
meritorious cases, actions of passenger cants outside of Cebu City, thus placing petitioner company
at a decided advantage over said persons, who may have perfectly legitimate claims against it. The
said condition should, therefore, be declared void and unenforceable, as contrary to public policy —
to make the courts accessible to all who may have need of their services.

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

Fernando (Chairman), Aquino, Concepcion, Jr., JJ., concur.

Antonio, J., reserves his vote.

Separate Opinions

BARREDO, J., concurring:

I concur in the dismissal of the instant petition.

Only a few days ago, in Hoechst Philippines, Inc. vs. Francisco Torres, et al., G. R. No. L-44351,
promulgated May 18, 1978, We made it clear that although generally, agreements regarding change
of venue are enforceable, there may be instances where for equitable considerations and in the
better interest of justice, a court may justify the laying of, the venue in the place fixed by the rules
instead of following written stipulation of the parties.

In the particular case at bar, there is actually no written agreement as to venue between the parties
in the sense contemplated in Section 3 of Rule 4, which governs the matter. I take it that the
importance that a stipulation regarding change of the venue fixed by law entails is such that nothing
less than mutually conscious agreement as to it must be what the rule means. In the instant case, as
well pointed out in the main opinion, the ticket issued to private respondents by petitioner constitutes
at best a "contract of adhesion". In other words, it is not that kind of a contract where the parties sit
down to deliberate, discuss and agree specifically on all its terms, but rather, one which respondents
took no part at all in preparing, since it was just imposed upon them when they paid for the fare for
the freight they wanted to ship. It is common knowledge that individuals who avail of common
carriers hardly read the fine prints on such tickets to note anything more than the price thereof and
the destination designated therein.

Under these circumstances, it would seem that, since this case is already in respondent court and
there is no showing that, with its more or less known resources as owner of several inter-island
vessels plying between the different ports of the Philippines for sometime already, petitioner would
be greatly inconvenienced by submitting to the jurisdiction of said respondent court, it is best to allow
the proceedings therein to continue. I cannot conceive of any juridical injury such a step can cause
to anyone concerned. I vote to dismiss the petition.

Separate Opinions

BARREDO, J., concurring:

I concur in the dismissal of the instant petition.

Only a few days ago, in Hoechst Philippines, Inc. vs. Francisco Torres, et al., G. R. No. L-44351,
promulgated May 18, 1978, We made it clear that although generally, agreements regarding change
of venue are enforceable, there may be instances where for equitable considerations and in the
better interest of justice, a court may justify the laying of, the venue in the place fixed by the rules
instead of following written stipulation of the parties.

In the particular case at bar, there is actually no written agreement as to venue between the parties
in the sense contemplated in Section 3 of Rule 4, which governs the matter. I take it that the
importance that a stipulation regarding change of the venue fixed by law entails is such that nothing
less than mutually conscious agreement as to it must be what the rule means. In the instant case, as
well pointed out in the main opinion, the ticket issued to private respondents by petitioner constitutes
at best a "contract of adhesion". In other words, it is not that kind of a contract where the parties sit
down to deliberate, discuss and agree specifically on all its terms, but rather, one which respondents
took no part at all in preparing, since it was just imposed upon them when they paid for the fare for
the freight they wanted to ship. It is common knowledge that individuals who avail of common
carriers hardly read the fine prints on such tickets to note anything more than the price thereof and
the destination designated therein.

Under these circumstances, it would seem that, since this case is already in respondent court and
there is no showing that, with its more or less known resources as owner of several inter-island
vessels plying between the different ports of the Philippines for sometime already, petitioner would
be greatly inconvenienced by submitting to the jurisdiction of said respondent court, it is best to allow
the proceedings therein to continue. I cannot conceive of any juridical injury such a step can cause
to anyone concerned. I vote to dismiss the petition.