U.S.

Supreme Court

Hilton v. Guyot, 159 U.S. 113 (1895)

Hilton v. Guyot

Nos. 130, 34

Argued April 10, 1894

Decided June 3, 1895

159 U.S. 113

Syllabus

A citizen and resident of this country who has his principal place of business here but has an
agent in a foreign country and is accustomed to purchase and store large quantities of goods
there, and, in a suit brought against him by a citizen and in a court of that country, appears and
defends with the sole object of preventing his property within the jurisdiction, but not in the
custody of that court, from being taken in satisfaction of any judgment that may be recovered
against him there cannot, in an action brought against him in this country upon such a judgment,
impeach it for want of jurisdiction of his person.

The admission at the trial in a court of a foreign country, according to its law and practice, of
testimony not under oath and without opportunity of cross-examination, and of documents with
which the defendant had no connection and which by our law would not be admissible against
him, is not of itself a sufficient ground for impeaching the judgment of that court in an action
brought upon it in this country.

When an action is brought in a court of this country by a citizen of a foreign country against one
of our own citizens to recover a sum of money adjudged by a court of that country to be due
from the defendant to the plaintiff, and the foreign judgment appears to have been rendered by a
competent court, having jurisdiction of the cause and of the parties, and upon due allegations and
proofs and opportunity to defend against them, and its proceedings are according to the course of
a civilized jurisprudence, and are stated in a clear and formal record, the judgment is prima
facie evidence, at least, of the truth of the matter adjudged, and the judgment is conclusive upon
the merits tried in the foreign court unless some special ground is shown for impeaching it, as by
showing that it was affected by fraud or prejudice or that, by the principles of international law
and by the comity of our own country, it is not entitled to full credit and credit.

A judgment for a sum of money, rendered by a court of a foreign country, having jurisdiction of
the cause and of the parties, in a suit brought by 

Page 159 U. S. 114

one of its citizens against one of ours, is prima facie evidence only, and not conclusive of the
merits of the claim in an action brought here upon the judgment if by the law of the foreign
country, as in France, judgments of our own courts are not recognized as conclusive.

The first of these two cases was an action at law, brought December 18, 1885, in the Circuit
Court of the United States for the Southern District of New York, by Gustave Bertin Guyot, as
official liquidator of the firm of Charles Fortin & Co., and by the surviving members of that firm,
all aliens and citizens of the Republic of France, against Henry Hilton and William Libbey,
citizens of the United States and of the State of New York and trading as copartners in the cities
of New York and Paris and elsewhere under the firm name of A. T. Stewart & Co. The action
was upon a judgment recovered in a French court at Paris, in the Republic of France, by the firm
of Charles Fortin & Co., all of whose members were French citizens, against Hilton & Libbey,
trading as copartners, as aforesaid, and citizens of the United States and of the State of New
York.

The complaint alleged that in 1886 and since, during the time of all the transactions included in
the judgment sued on, Hilton and Libbey, as successors to Alexander T. Stewart and Libbey,
under the firm name of A. T. Stewart & Co., carried on a general business as merchants in the
Cities of New York and Paris and elsewhere, and maintained a regular store and place of
business at Paris; that during the same time, Charles Fortin & Co. carried on the manufacture and
sale of gloves at Paris, and the two firms had there large dealings in that business, and
controversies arose in the adjustment of accounts between them.

The complaint further alleged that between March 1, 1879, and December 1, 1882, five suits
were brought by Fortin & Co. against Stewart & Co. for sums alleged to be due, and three suits
by Stewart & Co. against Fortin & Co., in the Tribunal of Commerce of the Department of the
Seine, a judicial tribunal or court organized and existing under the laws of France, sitting at Paris
and having jurisdiction of suits and controversies between merchants or traders growing out of
commercial dealings between them; that Stewart & Co. appeared by their authorized attorneys in
all those suits, and that, after full hearing before an arbitrator appointed by that court and before
the court itself, and after all the suits had been consolidated by the court, final judgment was
rendered on January 20, 1883, that Fortin & Co. recover of Stewart & Co. various sums, arising
out of the dealings between them, amounting to 660,847 francs, with interest, and dismissed part
of Fortin & Co.'s claim.

The complaint further alleged that appeals were taken by both parties from that judgment to the
Court of Appeal of Paris, Third Section, an appellate court of record organized and existing
under the laws of the Republic of France and having jurisdiction of appeals from the final
judgments of the Tribunal of Commerce of the Department of the Seine, where the amount in
dispute exceeded the sum of 1,500 francs, and that the said Court of Appeal, by a final judgment
rendered March 19, 1884, and remaining of record in the office of its clerk at Paris, after hearing
the several parties by their counsel, and upon full consideration of the merits, dismissed the
appeal of the defendants, confirmed the judgment of the lower court in favor of the plaintiffs, and
ordered, upon the plaintiffs' appeal, that they recover the additional sum of 152,528 francs, with
182,849 francs for interest on all the claims allowed, and 12,559 francs for costs and expenses.
The complaint further alleged that Guyot had been duly appointed by the Tribunal of Commerce
of the Department of the Seine official liquidator of the firm of Forth & Co., with full powers,
according to law and commercial usage, for the verification and realization of its property, both
real and personal, and to collect and cause to be executed the judgments aforesaid.

The complaint further alleged that the judgment of the Court of Appeals of Paris, and the
judgment of the Tribunal of Commerce, as modified by the judgment of the appellate court, still
remain in full force and effect;

"that the said courts respectively had jurisdiction of the subject matter of the controversies so
submitted to them, and of the parties, the 

Page 159 U. S. 116

said defendants having intervened, by their attorneys and counsel, and applied for affirmative
relief in both courts; that the plaintiffs have hitherto been unable to collect the said judgments or
any part thereof, by reason of the absence of the said defendants, they having given up their
business in Paris prior to the recovery of the said judgment on appeal, and having left no
property within the jurisdiction of the Republic of France out of which the said judgments might
be made;"

and that there are still justly due and owing from the defendants to the plaintiffs upon those said
judgments certain sums, specified in the complaint, and amounting in all to 1,008,783 francs in
the currency of the Republic of France, equivalent to $195,122.47.

The defendants, in their answer, set forth in detail the original contracts and transactions in
France between the parties and the subsequent dealings between them modifying those contracts,
and alleged that the plaintiffs had no just claim against the defendants, but that, on the contrary,
the defendants, upon a just settlement of the accounts, were entitled to recover large sums from
the plaintiffs.

The answer admitted the proceedings and judgments in the French courts and that the defendants
gave up their business in France before the judgment on appeal, and had no property within the
jurisdiction of France out of which that judgment could be collected.

The answer further alleged that the Tribunal of Commerce of the Department of the Seine was a
tribunal whose judges were merchants, ship captains, stockbrokers, and persons engaged in
commercial pursuits, and of which Charles Fortin had been a member until shortly before the
commencement of the litigation.

The answer further alleged that in the original suits brought against the defendants by Fortin &
Co., the citations were left at their storehouse in Paris; that they were then residents and citizens
of the State of New York, and neither of them at that time, or within four years before, had been
within, or resident or domiciled within, the jurisdiction of that tribunal or owed any allegiance to
France, but that 
Page 159 U. S. 117

they were the owners of property situated in that country which would by the law of France have
been liable to seizure if they did not appear in that tribunal, and that they unwillingly, and solely
for the purpose of protecting that property, authorized and caused an agent to appear for them in
those proceedings, and that the suits brought by them against Fortin & Co. were brought for the
same purpose, and in order to make a proper defense, and to establish counterclaims arising out
of the transactions between the parties, and to compel the production and inspection of Fortin &
Co.'s books, and that they sought no other affirmative relief in that tribunal.

The answer further alleged that, pending that litigation, the defendants discovered gross frauds in
the accounts of Fourtin & Co., that the arbitrator and the tribunal declined to compel Fortin &
Co. to produce their books and papers for inspection, and that, if they had been produced, the
judgment would not have been obtained against the defendants.

The answer further alleged that without any fault or negligence on the part of the defendants,
there was not a full and fair trial of the controversies before the arbitrator, in that no witness was
sworn or affirmed; in that Charles Fortin was permitted to make, and did make, statements not
under oath containing many falsehoods; in that the privilege of cross-examination of Fortin and
other persons who made statements before the arbitrator was denied to the defendants, and in that
extracts from printed newspapers, the knowledge of which was not brought home to the
defendants, and letters and other communications in writing between Fortin & Co. and third
persons, to which the defendants were neither privy nor party, were received by the arbitrator;
that without such improper evidence, the judgment would not have been obtained, and that the
arbitrator was deceived and misled by the false and fraudulent accounts introduced by Fortin &
Co. and by the hearsay testimony given, without the solemnity of an oath and without cross-
examination, and by the fraudulent suppression of the books and papers.

The answer further alleged that Fortin & Co. made up their statements and accounts falsely and
fraudulently, and with 

Page 159 U. S. 118

intent to deceive the defendants and the arbitrator and the said courts of France, and those courts
were deceived and misled thereby; that owing to the fraudulent suppression of the books and
papers of Fortin & Co. upon the trial and the false statements of Fortin regarding matters
involved in the controversy, the arbitrator and the courts of France

"were deceived and misled in regard to the merits of the controversies pending before them, and
wrongfully decided against said Stewart & Co., as hereinbefore stated; that said judgment,
hereinbefore mentioned, is fraudulent, and based upon false and fraudulent accounts and
statements, and is erroneous in fact and in law, and is void; that the trial hereinbefore mentioned
was not conducted according to the usages and practice of the common law, and the allegations
and proofs given by said Fortin & Co., upon which said judgment is founded, would not be
competent or admissible in any court or tribunal of the United States, in any suit between the
same parties involving the same subject matter, and it is contrary to natural justice and public
policy that the said judgment should be enforced against a citizen of the United States, and that,
if there had been a full and fair trial upon the merits of the controversies so pending before said
tribunals, no judgment would have been obtained against said Stewart & Co."

"Defendants, further answering, allege that it is contrary to natural justice that the judgment
hereinbefore mentioned should be enforced without an examination of the merits thereof; that by
the laws of the Republic of France, to-wit, article 181 [121] of the Royal Ordinance of June 15,
1629, it is provided namely:"

"Judgments rendered, contracts or obligations recognized, in foreign kingdoms and

sovereignties, for any cause whatever shall give rise to no lien or execution in our Kingdom.
Thus, the contracts shall stand for simple promises, and, notwithstanding such judgments, our
subjects against whom they have been rendered may contest their rights anew before our own
judges."

"And it is further provided by the laws of France, by article 546 of the Code de Procedure Civile,
as follows:"

" Judgments rendered by foreign tribunals shall be capable of execution 

Page 159 U. S. 119

in France only in the manner and in the cases set forth by articles 2123 and 2128 of the Civil
Code."

"And it is further provided by the laws of France, by article 2128 [2123] of the Code de
Procedure Civile [Civil Code]:"

" A lien cannot, in like manner, arise from judgments rendered in any foreign country, save only
as they have been declared in force by a French tribunal, without prejudice, however, to
provisions to the contrary, contained in public laws and treaties."

"[And by article 2128 of that Code: 'Contracts entered into in a foreign country cannot give a lien
upon property in France if there are no provisions contrary to this principle in public laws or in
treaties.']"

"That the construction given to said statutes by the judicial tribunals of France is such that no
comity is displayed towards the judgments of tribunals of foreign countries against the citizens of
France, when sued upon in said courts of France, and the merits of the controversies upon which
the said judgments are based are examined anew, unless a treaty to the contrary effect exists
between the said Republic of France and the country in which such judgment is obtained. That
no treaty exists between the said Republic of France and the United States, by the terms or effect
of which the judgments of either country are prevented from being examined anew upon the
merits, when sued upon in the courts of the country other than that in which it is obtained. That
the tribunals of the Republic of France give no force and effect, within the jurisdiction of the said
country, to the duly rendered judgments of courts of competent jurisdiction of the United States
against citizens of France, after proper personal service of the process of said courts is made
thereon in this country."

The answer further set up, by way of counterclaim and in detail, various matters arising out of
the dealings between the parties, and alleged that none of the plaintiffs had since 1881 been
residents of the State of New York, or within the jurisdiction of that state, but the defendants
were, and always had been, residents of that state.

The answer concluded by demanding that the plaintiffs' 

Page 159 U. S. 120

complaint be dismissed, and that the defendants have judgment against them upon the
counterclaims, amounting to $102,942.91.

The plaintiffs filed a replication to so much of the answer as made counterclaims, denying its
allegations and setting up in bar thereof the judgment sued on.

The defendants, on June 22, 1888, filed a bill in equity against the plaintiffs setting forth the
same matters as in their answer to the action at law and praying for a discovery and for an
injunction against the prosecution of the action. To that bill a plea was filed setting up the French
judgments, and upon a hearing, the bill was dismissed. 42 F. 249. From the decree dismissing the
bill an appeal was taken, which is the second case now before this Court.

The action at law afterwards came on for trial by a jury, and the plaintiffs put in the records of
the proceedings and judgments in the French courts, and evidence that the jurisdiction of those
courts was as alleged in the complaint and that the practice followed and the method of
examining the witnesses were according to the French law, and also proved the title of Guyot as
liquidator.

It was admitted by both parties that for several years prior to 1876, the firm of Alexander T.
Stewart & Co., composed of Stewart and Libbey, conducted their business as merchants in the
City of New York, with branches in other cities of America and Europe; that both partners were
citizens and residents of the City and State of New York during the entire period mentioned in
the complaint, and that in April, 1876, Stewart died, and Hilton and Libbey formed a partnership
to continue the business under the same firm name, and became the owners of all the property
and rights of the old firm.

The defendants made numerous offers of evidence in support of all the specific allegations of
fact in their answer, including the allegations as to the law and comity of France. The plaintiffs,
in their brief filed in this Court, admitted that most of these offers

"were offers to prove matters in support of the defenses and counterclaims set up by the
defendants in the cases tried before the French courts, and which, or most 

Page 159 U. S. 121

of which, would have been relevant and competent if the plaintiffs in error are not concluded by
the result of those litigations, and have now the right to try those issues, either on the ground that
the French judgments are only prima facie evidence of the correctness of those judgments, or on
the ground that the case is within the exception of a judgment obtained by fraud."

The defendants, in order to show that they should not be concluded by having appeared and
litigated in the suits brought against them by the plaintiffs in the French courts, offered to prove
that they were residents and citizens of the State of New York, and neither of them had been,
within four years prior to the commencement of those suits, domiciled or resident within the
jurisdiction of those courts; that they had a purchasing agent and a storehouse in Paris, but only
as a means or facility to aid in the transaction of their principal business, which was in New
York, and they were never otherwise engaged in business in France; that neither of them owed
allegiance to France, but they were the owners of property there which would, according to the
laws of France, have been liable to seizure if they had not appeared to answer in those suits; that
they unwillingly, and solely for the purpose of protecting their property within the jurisdiction of
the French tribunal, authorized an agent to appear, and he did appear in the proceedings before it,
and that their motion to compel an inspection of the plaintiffs' books, as well as the suits brought
by the defendants in France, were necessary by way of defense or counterclaim to the suits there
brought by the plaintiffs against them.

Among the matters which the defendants alleged and offered to prove in order to show that the
French judgments were procured by fraud were that Fortin & Co., with intent to deceive and
defraud the defendants, and the arbitrator and the courts of France, entered in their books, and
presented to the defendants, and to the French courts, accounts bearing upon the transactions in
controversy which were false and fraudulent, and contained excessive and fraudulent charges
against the defendants in various particulars, specified; that the 

Page 159 U. S. 122

defendants made due application to the Tribunal of Commerce to compel Fortin & Co. to allow
their account books and letter books to be inspected by the defendants, and the application was
opposed by Fortin & Co., and denied by the tribunal; that the discovery and inspection of those
books were necessary to determine the truth of the controversies between the parties; that before
the Tribunal of Commerce, Charles Fortin was permitted to and did give in evidence statements
not under oath relating to the merits of the controversies there pending, and falsely represented
that a certain written contract made in 1873 between Stewart & Co. and Fortin & Co. concerning
their dealings was not intended by the parties to be operative according to its terms, and in
support of that false representation made statements as to admissions by Stewart in a private
conversation with him, and that the defendants could not deny those statements, because Stewart
was dead, and they were not protected from the effect of Fortin's statements by the privilege of
cross-examining him under oath, and that the French judgments were based upon false and
fraudulent accounts presented and statements made by Fortin & Co. before the Tribunal of
Commerce during the trial before it.

The records of the judgments of the French courts, put in evidence by the plaintiffs, showed that
all the matters now relied on to show fraud were contested in and considered by those courts.
The plaintiffs objected to all the evidence offered by the defendants on the grounds that the
matters offered to be proved were irrelevant, immaterial, and incompetent; that in respect to them
the defendants were concluded by the judgment sued on and given in evidence, and that none of
those matters, if proved, would be a defense to this action upon that judgment.

The court declined to admit any of the evidence so offered by the defendants, and directed a
verdict for the plaintiffs in the sum of $277,775.44, being the amount of the French judgment
and interest. The defendants, having duly excepted to the rulings and direction of the court, sued
out a writ of error. 

Page 159 U. S. 123

The writ of error in the action at law and the appeal in the suit in equity were argued together in
this Court in January, 1894, and, by direction of the Court, were reargued in April, 1894, before
a full Bench. 

Page 159 U. S. 162

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
Corporation1 (hereinafter Philguarantee) sought reimbursement from the respondents of the sum
of 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 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 ID271,808/610
representing 5% of the total contract price and (2) an advance payment bond of ID541,608/901
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

guarantee8 were issued by Philguarantee to the Rafidain Bank of Baghdad 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 10 (Performance Bond Guarantee)
in the amount of ID271,808/610 and Letter of Guarantee No. 81-195-F11 (Advance Payment
Guarantee) in the amount of 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 12 executed by
respondents VPECI, Spouses Vicente P. Eusebio and Soledad C. Eusebio, 3-Plex, and Spouses
Eduardo E. Santos and Iluminada Santos; and (2) a surety bond13 issued by respondent First
Integrated Bonding and Insurance Company, Inc. (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 15 for
the 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 1983.18 The Performance Bond was further extended twelve times
with validity of up to 8 December 1986, 19 while the Advance Payment Guarantee was extended
three times more up to 24 May 1984 when the latter was cancelled after full refund or
reimbursement by the joint venture contractor.20 The 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. 23 It
also wrote SOB protesting the call for lack of 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. 24 Subsequently, or
on 19 November 1986, respondent VPECI 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
1988.30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83
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.32 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,34 the Court of Appeals affirmed the trial court's decision,
ratiocinating as follows:

First, appellant cannot deny the fact that it was fully aware of the status of 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. 40 In other words, an unconditional
guarantee is still subject to the 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. 43 The factual findings of the Court of
Appeals are 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. 44 The trial court and the Court of Appeals were
in unison that the 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 defaultedin 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,45 pertains to the
essential or intrinsic validity of a contract. 46 

No conflicts rule on essential validity of contracts is expressly provided for in our laws. The 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.47 Philippine courts would do well to adopt the 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."49 Another authority proposed that all matters
relating to the time, place, and manner of performance and valid excuses for non-performance
are determined by the law of the place of performance or lex loci solutionis, 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. 52 It is the non-fulfillment of an obligation with respect
to time.53 

It is undisputed that only 51.7% of the total work had been accomplished. The 48.3% unfinished
portion consisted in the purchase and installation of electro-mechanical equipment and materials,
which were available from foreign suppliers, thus requiring US Dollars for their importation. The
monthly billings and payments made by SOB 54 reveal that the agreement between the parties was
a periodic payment by the Project owner to the contractor depending on the percentage of
accomplishment within the period. 55 The payments were, in turn, to be used by the contractor to
finance the subsequent phase of the work. 56 However, as explained by VPECI in its letter to the
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. 60 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.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. 62 It could also
set up compensation as regards what the creditor SOB may owe the principal debtor VPECI. 63 In
this case, 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 67 and would be
legally subrogated to the rights which the creditor has against the debtor. 68 However, a person
who 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. 69 If the obligation was
subject to defenses 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.71 When the petitioner guarantor in this case
paid 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,"72 the petitioner should have exercised prudence
and caution 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.

G.R. No. 112573 February 9, 1995

NORTHWEST ORIENT AIRLINES, INC. petitioner, 

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

PADILLA, JR., J.:

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

Petitioner Northwest Orient Airlines, Inc. (hereinafter NORTHWEST), a corporation organized

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

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

following are the factual and procedural antecedents of this controversy:

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

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

On April 24, 1980, bailiff returned to the defendant's office to serve the summons.
Mr. Dinozo refused to accept the same claiming that he was no longer an
employee of the defendant.
After the two attempts of service were unsuccessful, the judge of the Tokyo
District Court decided to have the complaint and the writs of summons served at
the head office of the defendant in Manila. On July 11, 1980, the Director of the
Tokyo District Court requested the Supreme Court of Japan to serve the summons
through diplomatic channels upon the defendant's head office in Manila.

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

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

Plaintiff was unable to execute the decision in Japan, hence, on May 20, 1983, a
suit for enforcement of the judgment was filed by plaintiff before the Regional
Trial Court of Manila Branch 54.2

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

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

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

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

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

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

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

In its decision, the Court of Appeals sustained the trial court. It agreed with the latter in its
reliance upon Boudard vs. Tait  4 wherein it was held that "the process of the court has no
extraterritorial effect and no jurisdiction is acquired over the person of the defendant by serving
him beyond the boundaries of the state." To support its position, the Court of Appeals further
stated:

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

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

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

Such an argument does not persuade.

It is a general rule that processes of the court cannot lawfully be served outside
the territorial limits of the jurisdiction of the court from which it issues (Carter vs.
Carter; 41 S.E. 2d 532, 201) and this 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.7 Being the party challenging the judgment rendered by the Japanese
court, SHARP had the duty to demonstrate the invalidity of such judgment. In an attempt to
discharge that burden, it contends that the extraterritorial service of summons effected at its
home office in the Philippines was not only ineffectual but also void, and the Japanese Court did
not, therefore acquire jurisdiction over it.

It is settled that matters of remedy and procedure such as those relating to the service of process
upon a defendant are governed by the lex fori or the internal law of the forum.8 In this case, it is
the procedural law of Japan where the judgment was rendered that determines the validity of the
extraterritorial service of process on SHARP. As to what this law is is a question of fact, not of
law. It may not be taken judicial notice of and must be pleaded and proved like any other
fact.9 Sections 24 and 25, Rule 132 of the Rules of Court provide that it may be evidenced by an
official publication or by a duly attested or authenticated copy thereof. It was then incumbent
upon SHARP to present evidence as to what that Japanese procedural law is and to show that
under it, the assailed extraterritorial service is invalid. It did not. Accordingly, the presumption of
validity and regularity of the service of summons and the decision thereafter rendered by the
Japanese court must stand.

Alternatively in the light of the absence of proof regarding Japanese 

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

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

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

SHARP contends that the laws authorizing service of process upon the Securities and Exchange
Commission, the Superintendent of Banks, and the Insurance Commissioner, as the case may be,
presuppose a situation wherein the foreign corporation doing business in the country no longer
has any branches or offices within the Philippines. Such contention is belied by the pertinent
provisions of the said laws. Thus, Section 128 of the Corporation Code 13 and Section 190 of the
Insurance Code 14 clearly contemplate two situations: (1) if the corporation had left the
Philippines or had ceased to transact business therein, and (2) if the corporation has no
designated agent. Section 17 of the General Banking Act 15 does not even speak a corporation
which had ceased to transact business in the Philippines.

Nowhere in its pleadings did SHARP profess to having had a resident agent authorized to receive
court processes in Japan. This silence could only mean, or least create an impression, that it had
none. Hence, service on the designated government official or on any of SHARP's officers or
agents in Japan could be availed of. The respondent, however, insists that only service of any of
its officers or employees in its branches in Japan could be resorted to. We do not agree. As found
by the respondent court, two attempts at service were made at SHARP's Yokohama branch. Both
were unsuccessful. On the first attempt, Mr. Dinozo, who was believed to be the person
authorized to accept court process, was in Manila. On the second, Mr. Dinozo was present, but to
accept the summons because, according to him, he was no longer an employee of SHARP. While
it may be true that service could have been made upon any of the officers or agents of SHARP at
its three other branches in Japan, the availability of such a recourse would not preclude service
upon the proper government official, as stated above.

As found by the Court of Appeals, it was the Tokyo District Court which ordered that summons
for SHARP be served at its head office in the Philippine's after the two attempts of service had
failed. 16 The Tokyo District Court requested the Supreme Court of Japan to cause the delivery of
the summons and other legal documents to the Philippines. Acting on that request, the Supreme
Court of Japan sent the summons together with the other legal documents to the Ministry of
Foreign Affairs of Japan which, in turn, forwarded the same to the Japanese Embassy in Manila .
Thereafter, the court processes were delivered to the Ministry (now Department) of Foreign
Affairs of the Philippines, then to the Executive Judge of the Court of First Instance (now
Regional Trial Court) of Manila, who forthwith ordered Deputy Sheriff Rolando Balingit to
serve the same on SHARP at its principal office in Manila. This service is equivalent to service
on the proper government official under Section 14, Rule 14 of the Rules of Court, in relation to
Section 128 of the Corporation Code. Hence, SHARP's contention that such manner of service is
not valid under Philippine laws holds no water.17

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

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

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

xxx xxx xxx

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

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

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

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

Corp. vs. Soriano, 20 as well as the principle laid down by the Iowa Supreme Court in the 1911
case of Raher vs. Raher. 21

The first three cases are, however, inapplicable. Boudard involved the enforcement of a

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

Insofar as to the Philippines is concerned, Raher is a thing of the past. In that case, a divided
Supreme Court of Iowa declared that the principle that there can be no jurisdiction in a court of a
territory to render a personal judgment against anyone upon service made outside its limits was
applicable alike to cases of residents and non-residents. The principle was put at rest by the
United States Supreme Court when it ruled in the 1940 case of Milliken vs. Meyer  22 that
domicile in the state is alone sufficient to bring an absent defendant within the reach of the state's
jurisdiction for purposes of a personal judgment by means of appropriate substituted service or
personal service without the state. This principle is embodied in section 18, Rule 14 of the Rules
of Court which allows service of summons on residents temporarily out of the Philippines to be
made out of the country. The rationale for this rule was explained in Milliken as follows:

[T]he authority of a state over one of its citizens is not terminated by the mere fact
of his absence from the state. The state which accords him privileges and affords
protection to him and his property by virtue of his domicile may also exact
reciprocal duties. "Enjoyment of the privileges of residence within the state, and
the attendant right to invoke the protection of its laws, are inseparable" from the
various incidences of state citizenship. The responsibilities of that citizenship
arise out of the relationship to the state which domicile creates. That relationship
is not dissolved by mere absence from the state. The attendant duties, like the
rights and privileges incident to domicile, are not dependent on continuous
presence in the state. One such incident of domicile is amenability to suit within
the state even during sojourns without the state, where the state has provided and
employed a reasonable method for apprising such an absent party of the
proceedings against him. 23

The domicile of a corporation belongs to the state where it was incorporated. 24 In a strict
technical sense, such domicile as a corporation may have is single in its essence and a
corporation can have only one domicile which is the state of its creation. 25

Nonetheless, a corporation formed in one-state may, for certain purposes, be regarded a resident
in another state in which it has offices and transacts business. This is the rule in our jurisdiction
and apropos thereto, it may be necessery to quote what we stated in State Investment House,
Inc, vs. Citibank, N.A., 26 to wit:
The issue is whether these Philippine branches or units may be considered
"residents of the Philippine Islands" as that term is used in Section 20 of the
Insolvency Law . . . or residents of the state under the laws of which they were
respectively incorporated. The answer cannot be found in the Insolvency Law
itself, which contains no definition of the term, resident, or any clear indication of
its meaning. There are however other statutes, albeit of subsequent enactment and
effectivity, from which enlightening notions of the term may be derived.

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

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

The General Banking Act, Republic Act No. 337, places "branches and agencies
in the Philippines of foreign banks . . . (which are) called Philippine branches," in
the same category as "commercial banks, savings associations, mortgage banks,
development banks, rural banks, stock savings and loan associations" (which have
been formed and organized under Philippine laws), making no distinction
between the former and the latter in so far as the terms "banking institutions" and
"bank" are used in the Act [Sec. 2], declaring on the contrary that in "all matters
not specifically covered by special provisions applicable only to foreign banks, or
their branches and agencies in the Philippines, said foreign banks or their
branches and agencies lawfully doing business in the Philippines "shall be bound
by all laws, rules, and regulations applicable to domestic banking corporations of
the same class, except such laws, rules and regulations as provided for the
creation, formation, organization, or dissolution of corporations or as fix the
relation, liabilities, responsibilities, or duties of members, stockholders or officers
of corporation. [Sec. 18].

This court itself has already had occasion to hold [Claude Neon Lights, Fed. Inc.
vs. Philippine Advertising Corp., 57 Phil. 607] that a foreign corporation licitly
doing business in the Philippines, which is a defendant in a civil suit, may not be
considered a non-resident within the scope of the legal provision authorizing
attachment against a defendant not residing in the Philippine Islands; [Sec. 424,
in relation to Sec. 412 of Act No. 190, the Code of Civil Procedure; Sec. 1(f),
Rule 59 of the Rules of 1940, Sec. 1(f), Rule 57, Rules of 1964] in other words, a
preliminary attachment may not be applied for and granted solely on the asserted
fact that the defendant is a foreign corporation authorized to do business in the
Philippines — and is consequently and necessarily, "a party who resides out of
the Philippines." Parenthetically, if it may not be considered as a party not
 residing in the Philippines, or as a party who resides out of the country, then,
logically, it must be considered a party who does reside in the Philippines, who is
a resident of the country. Be this as it may, this Court pointed out that:

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

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

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

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

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

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

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

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

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

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

Costs against the private respondent.

SO ORDERED.

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

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 Resolution1dated September 27, 1995 and the Decision 2 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.

On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) 15. Saudia filed
a reply 16thereto 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

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

Under the factual antecedents obtaining in this case, there is no dispute that the interplay
of events occurred in two states, the Philippines and Saudi Arabia.

As stated by private respondent in her Amended Complaint 38 dated June 23, 1994:

2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines

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

x x x           x x x          x x x

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 conflictsproblem 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:

x x x           x x x          x x x

(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)

x x x           x x x          x x x

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.   (Emphasis ours.)
60

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.

G.R. No. L-41518 June 30, 1976

GUERRERO'S TRANSPORT SERVICES, INC., petitioner, 

vs.
BLAYLOCK TRANSPORTATION SERVICES EMPLOYEES ASSOCIATION-
KILUSAN (BTEA-KILUSAN), LABOR ARBITER FRANCISCO M. DE LOS REYES and
JOSE CRUZ, respondents.

Eladio B. Samson petitioner. 

Francisco Angeles for private respondents. 

ANTONIO, J.:

Certiorari and prohibition with preliminary injunction to annul the Orders of the National Labor
Relations Commission, of March 26, June 20 and September 25, 1975, as well as the Writ of
Execution of September 26, 1975, issued in NLRC Case No. 214, and to restrain respondent
Deputy Sheriff of Manila from implementing said writ. 

On June 1, 1972, the United states Naval Base authorities at Subic, Zambales, conducted a public
bidding for a five-year contract for the right to operate and/or manage the transportation services
inside the naval base. This bidding was won by Santiago Guerrero, owner- operator of Guerrero's
Transport Services, Inc., herein petitioner, over Concepcion F. Blaylock, the then incumbent
concessionaire doing business under the name of "Blaylock Transport Services", whose 395
employees are members of respondent union BTEA-KILUSAN. When petitioner, after the
commencement of its operation on January 1, 1973, refused to employ the members of the
respondent union, the latter. On January, 12, 1975, filed a complaint 1 with the National Labor
Relations Commission 2docketed as NLRC Case No. 214, against Guerrero's Transport Services,
Inc. and Santiago Guerrero, to compel them to employ its members pursuant to Article 1, Section
2 of the RP-US Base Agreement dated May 27, 1968. 3 This case was dismissed by the National
Labor Relations Commission on March 13, 1973, upon petitioner's motion to dismiss on
jurisdictional grounds, there being no employer-employee relationship between the 
parties. 4

Respondent union then appealed said Order on March 26,1973 to the Secretary of the
Department of Labor, who, instead of deciding the appeal, remanded the case for review to the
NLRC which, subsequently, summoned both parties to a series of conferences. Thereafter, or on
October .11, 1973, the NLRC issue a Resolution 5ordering petitioner, among others, "to absorb
all the complainants who filed their applications on or before the deadline" set by petitioner "on
15 November 1972 except those who may have derogatory records with the U.S. Naval
Authorities in Subic, Zambales" and directing the Officer-in-charge of the provincial office of
the Department of Labor in Olongapo City to "oversee the preparation of the list of those
qualified for absorption in accordance with this resolution." 

Petitioner appealed to Secretary of Labor Blas F. Ople who, in turn, rendered a Decision on
December 27, 1973, affirming said Resolution. 6 On January 22, 1974, Santiago A. Guerrero)
appealed the decision to the President of the Philippines, 7 but on July 9, 1974, the President,
through Assistant Executive Secretary Ronaldo B. Zamora, returned the case to the Secretary of
Labor for appropriate action on the appeal, it appearing, that the same does not involve national
interest. 8

In the meantime, the Provincial Director of the Labor Office in Zambales furnished, on August 2,
1974, petitioner 9 a list of forty-six (46) members of respondent union BTEA-KILUSAN and
former drivers of the Blaylock Transport Service, 10 who are within the coverage of the decision
of the Secretary of Labor, and requesting petitioner to report its action on the matter directly to
the Chairman, NLRC, Manila. Subsequently, Santiago A. Guerrero received a letter dated
September 24, 1974 11 from Col. Levi L. Basilla, PC (GSC) Camp Olivas, San Fernando,
Pampanga, requesting compliance with the Order dated July 19, 1974 of the NLRC in NLRC
Case No. 214. In his reply letter dated October 4, 1974, Guerrero informed Col. Basilia that he
had substantially complied with the decision of the Secretary of Labor affirming the NLRC
Resolution of October 31, 1974 in NLRC Case No. 214, and that any apparent non-compliance
therewith was attributable to the individual complainants who failed to submit themselves for
processing and examination as requested by the authorities of the U.S. Naval Base in Subic,
Zambales, preparatory to their absorption by petitioner.

On January 18, 1975, Acting Executive Secretary Roberto V. Reyes, pursuant to Section 10 of
Presidential Decree No. 21, directed the Chief of Constabulary to arrest the executive officers of
petitioner. 12 On February 20, 1975, petitioner informed Secretary Reyes that it has substantially
complied with the NLRC Resolution of October 31, 1975 as out of those listed by the Regional
Labor Director, only a few passed the examination given and some of those who passed failed to
comply with the final requirements of the U.S. Naval Base Authority; that only those who passed
and complied with the requirements of the U.S. Naval Base Authority were extended
appointments as early as December 16, 1974, but none of them, for evident lack of interest, has
reported for work. 13 In his 1st endorsement dated March 26, 1975, Secretary Zamora required
the Secretary of Labor to verify petitioner's allegations. 14 On the same date, respondent Labor
Arbiter Francisco M. de los Reyes, upon a motion for execution filed by respondent union,
issued an Order stating that "upon the finality thereof and by way of implementing any writ of
execution that might be issued in this case, further hearings shall be held to determine the
members of respondent union who are entitled to reinstatement in accordance with the basic
guidelines finally determined in this case." 15

On June 20, 1975, respondent Labor Arbiter De los Reyes ordered the reinstatement of 129
individuals "to their former or substantially equivalent positions without loss of seniority and
other rights and privileges". 16

On July 16,1975, respondent BTEA-KILUSAN filed a Motion for Issuance of Writ of Execution
with respondent Labor Arbiter, 17 but this was objected to by petitioner contending that the Labor
Arbiter has no jurisdiction over NLRC Case No. 214 and, therefore, his proceedings and orders
resulting therefrom are null and void. 18

On September 1, 1975, the Provincial Director of the Zambales Labor Office, pursuant to the
directive of the Secretary of Labor, 19 and the NLRC Resolution dated October 21,
1975 20 submitted a detailed information to the Assistant Secretary of the Department of Labor
on petitioner's compliance, "to enable the Department of Labor to formally close" NLRC Case
No. 214. 21

On September 25, 1975, respondent Labor Arbiter, acting on the motion for execution filed by
respondent union BTEA-KILUSAN, and finding that both the Orders, dated March 26 and June
20, 1975, have not been appealed pursuant to Article 223 of the Labor Code, declared said
Orders final and executory and directed petitioner Guerrero's Transport Services, Inc. to reinstate
the 129 complainants and to pay them the amount of P4,290.00 each, or a total of P592,110.00 as
back wages covering the period from August 22, 1974 to September 20, 1975. 22

On September 26, 1975, respondent Labor Arbiter issued a writ directing the respondent Deputy
Sheriff of Manila levy on the moneys and/or properties of petitioner, 23 and on the same date
respondent Sheriff immediately serve said writ on petitioner who was given a period of five (5)
days within which to comply therewith.

It was on this factual environment that petitioner instituted the present petition for certiorari and
prohibition with preliminary injunction on October 6, 1975. Petitioner asserts that the afore-
mentioned Orders were issued by respondent Labor Arbiter without jurisdiction.

As prayed for, this Court, on October 6, 1975, issued a temporary restraining order and required
the respondents to file an answer within ten (10) days from notice.

On October 11, 1975, respondent Labor Arbiter De los Reyes and Sheriff Jose Cruz filed their
Comment by way of answer to the petition, explaining the legal justifications of their action on
the premises.

Upon motion filed on October 11, 1975 by respondent union BTEA-KILUSAN for
reconsideration and to lift the temporary restraining order of October 6, 1975, this Court, on
October 15, 1975, lifted said restraining order and set the case for hearing on Monday, October
20, 1975 at 3:00 p.m.

At the hearing of this case on October 20, 1975, a Compromise Agreement was arrived at by the
parties wherein they agreed to submit to the Office of t he Secretary of Labor the determination
of members of the respondent union BTEA-KILUSAN who shall be reinstated or absorbed by
the herein petitioner in the transportation service inside the naval base, which determination shall
be considered final. This Court approved this agreement and enjoined "all the parties to strictly
observe the terms thereof." This agreement is deemed to have superseded the Resolution of the
National Labor Relations Commission of October 31, 1973, as affirmed by the Secretary of
Labor on December 27, 1973.
Pursuant to this agreement which was embodied in the Resolution of this Court of October 24,
1975, Secretary of Labor Blas F. Ople issued an Order dated November 13, 1975, the pertinent
portion of which reads as follows:

The issue submitted for resolution hinges on the credibility of the alleged
applications. Considering that the employees are economically dependent on their
jobs, they have all the reasons and zealousness to pursue their jobs within the
legitimate framework of our laws. The applicant are no strangers to the pains and
difficulties of unemployment. Because of these factors we cannot ignore the
affidavits of proof presented by the employees concerned as against the
declaration of the herein respondent. Firmly entrenched is the rule in this
jurisdiction that doubts arising from labor disputes must be construed and
interpreted in favor of the workers.

RESPONSIVE TO THE FOREGOING, the National Labor Relations

Commission through Arbiter Francisco delos Reyes is hereby directed to
implement the absorption of the 175 members of the Blaylock Transport
Employees Association (BTEA-KILUSAN) into the Guerrero Transport Services,
subject to the following terms and conditions:

1) that they were bona fide employees of the Blaybock Transportation Service at

the time its concession expired:

2) that the appellants shall pass final screening and approval by the appropriate
authorities of the U.S. Base concerned.

The applicants to be processed for absorption shall be those in the list of 46

submitted by OIC Liberator (Carino on 2 August 1974, and the list of 129
determined by Arbiter de los Reyes as embodied in the Writ of Execution issued
on 25 September 1975.

The Regional Director of Regional Office No. II, San Fernando, Pampanga, shall
make available to the parties the facilities of that Office in the implementation of
the aforesaid absorption process. 24

On November 24, 1975, in compliance with the aforesaid directive of the Secretary of Labor,
Labor Arbiter Francisco M. delos Reyes conducted a hearing to receive evidence as to who were
the bona fide employees of the former concessionaire at the "time of its concession expire".
Thereafter, Labor Arbiter De los Reyes issued an Order, dated November 25, 1975, listing in
Annex "A" thereof, 174 employees who were bona fide employees of the private respondent, and
transmitting a copy of said Order to the Base Commander, U.S. Naval Base, Olongapo City, with
the request for the immediate screening and approval of their applications in accordance with
applicable rules of said command. The pertinent portion of said Order reads as follows: 

As far as this Labor Arbiter is concerned, his only participation in this case refers
to that portion of the Secretary of Labor's Order directing him to implement "* * *
 the absorption of the 175 members of the Blaylock Transport Employees
Association (BTEA-KILUSAN) into the Guerrero Transport Services," subject to
certain terms and conditions. Hence, any question of "prematurity" as espoused by
respondent's counsel may not he entertained by this Labor Arbiter. 

Going now to the applicants who should be entitled to absorption, the Honorable
Secretary of Labor specified that the same should be composed of the 46
submitted by OIC Liberator Carino on 2 August 1974 and the 129 applicants
determined by this Labor Arbiter. Of the latter, only 128 will be named. A perusal
of said list show that the name "Renato Carriaga" has been doubly listed. For
convenience, these two listings have now been consolidated and alphabetically
arranged and as an integral part of this Order has been made as Annex "A" (pp 1
to 6). 

For purposes of implementation, the initial step to be undertaken is for the

submission of the name of the applicants to the U.S. Navy authorities concerned,
which means the U. S. Naval Base at Olongapo City for the screening and
approval by the appropriate authorities. 

Regarding the determination of whether the applicants are bona fide employees of

the Blaylock Transportation Service at the time its concession expired, the parties
appear to be in agreement that the records of this case will eventually show
whether the applicants are such employees. Further, we feel that such
employment will likewise appear in the records of the U. S. Naval Base at
Olongapo City since persons connected with the Base like the applicants, have to
undergo processing by naval authority. 

WHEREFORE, in view of the foregoing considerations, copies of this Order

together with Annex "A" hereof are hereby transmitted to the Base Commander,
U. S. Naval Base , Olongapo City with the request for the immediate screening
and approval of said applicants, in accordance with applicable rules of that
command. 25

Pursuant to Section 6 of Article I of the Philippine-U S. Labor Agreement of May 27, 1968, the
United States Armed Forces undertook, consistent with military requirements, "to provide
security for employment, and, in the event certain services are contracted out, the United States
Armed Forces shall require the contractor or concessioner to give priority consideration to
affected employees for employment. (Emphasis supplied.) 

A treaty has two (2) aspects — as an international agreement between states, and as municipal
law for the people of each state to observe. As part of the municipal law, the aforesaid provision
of the treaty enters into and forms part of the contract between petitioner and the U.S. Naval
Base authorities. In view of said stipulation, the new contractor is, therefore, bound to give
"priority" to the employment of the qualified employees of the previous contractor. It is
obviously in recognition of such obligation that petitioner entered into the afore-mentioned
Compromise Agreement. 
As above indicated, under the Compromise Agreement as embodied in the Resolution of this
Court dated October 24, 1975, the parties agreed to submit to the Secretary of Labor the
determination as to who of the members of the respondent union BTEA-KILUSAN shall be
absorbed or employed by the herein petitioner Guerrero's Transport Services, Inc., and that such
determination shall be considered as final. In connection therewith, the Secretary of Labor issued
an Order dated November 13, 1975, directing the National Labor Relations Commission, through
Labor Arbiter Francisco de los Reyes, to implement the absorption of the 175 members 26 into
the Guerrero's Transport Services, subject to the following conditions, viz.: (a) that they
were bona fide employees of the Blaylock Transport Service at the time its concession expired;
and (b) that they should pass final screening and approval by the appropriate authorities of the
U.S. Naval Base concerned. According to private respondent, however, Commander Vertplaetse
of the U.S. Navy Exchange declined to implement the order of the Labor Arbiter, as it is the
petitioner who should request for the screening and approval of the applicants. 

Considering that the afore-mentioned Compromise-Agreement of the parties, as approved by this

Court, is more than a mere contract and has the force and effect of any other judgment, it is,
therefore, conclusive upon the [parties and their privies. 27 For it is settled that a compromise has,
upon the parties, the effect and authority of res judicata and is enforceable by execution upon
approval by the court. 28 Since the resolution of the NLRC of October 31, 1973 required the
absorption of the applicants subject to the conditions therein contained, and there being no
showing that such conditions were complied with, the Labor Arbiter exceeded his authority in
awarding back wages to the 129 complainants.

ACCORDINGLY, judgment is hereby rendered ordering petitioner to employ members of

respondent labor union BTEA-KILUSAN referred to in the Order of the Secretary of Labor
dated November 13, 1975 who satisfy the criteria enunciated viz.: (a) those who were bona
fide employees of the Blaylock Transport Services at the time its concession expired; and (b)
those who pass the final screening and approval by the appropriate authorities of the U.S. Naval
Base. For this purpose, petitioner is hereby ordered to submit to and secure from the appropriate
authorities of the U.S. naval Base at Subic, Zambales the requisite screening and approval, the
names of the afore-mentioned members of respondent union.

The Order dated September 25, 1975 of respondent Labor Arbiter Francisco M. de los Reyes,
awarding back wages to the 129 complainants in the total amount of P592,110.00, is hereby set
aside. No pronouncement as to costs.

Barredo, Aquino and Martin, JJ., concur.

Separate Opinions

FERNANDO, J.,  concurring:
The opinion of the Court penned by Justice Antonio in his usual comprehensive and lucid
manner manifests fealty to the mandates of the law. It is entitled to full concurrence. The parties,
duly represented by counsel, entered on a compromise. Its terms are thus binding on them. They
should be adhered to. Accordingly, there must be compliance with what was ordained by the
Secretary of Labor in his order of November 13, 1975. So it has been decided by us. We have no
choice on the matter. Unfortunately for respondent Labor Union, no provision was made for
backpay. That was an omission that ought to have been remedied before the compromise was
entered into. This Court, however sympathetic it may be to the claims of labor, cannot go further
than what was assented to by the parties themselves. So the law prescribes. 

Nontheless, the writer is impelled to write this brief concurrence because of his belief that while
this Court is precluded from granting additional relief to the members of respondent Labor Union
who, in the meanwhile, had been laid off, still their situation is not necessarily devoid of any
hope for improvement. The present Labor Code stresses administrative rather than judicial
redress. It has the advantage of greater flexibility, of more discretion on the part of the Secretary
of Labor. That could be utilized on their behalf. Certainly, from what appears of record, the
course of conduct pursued by petitioner left much to be desired, and not only from their
standpoint. It yields the impression, to me at least, that there was no fidelity to the basic policy
on labor as prescribed by the present Constitution. Petitioner commenced its operation on
January 1, 1973. It refused to employ the members of respondent Union, prompting the latter to
file a complaint with the National Labor Relations Court against it and one Santiago Guerrero to
compel them to employ its members pursuant to Article 1, Section 2 of the RP-US Bases
Agreement dated May 27, 1968. Five days thereafter, or on January 17, 1973, the present
Constitution came into effect. Time and time again, this Court has correctly stressed how far the
present Constitution has gone in seeing to it that the welfare of the economically underprivileged
receive full attention. All that has to be done is to refer to the expanded scope of social
justice 1 and the specific guarantees intended to vitalize the rights of labor. 2 Security of tenure is
one of the basic features. Had that provision been lived up to, the members of respondent Labor
Union would not be in the sad plight they are in at present. 

It is to be admitted that what complicated matters is that the service to be rendered is inside the
U.S. Naval Base of Olongapo City. Accordingly, the intervention of the authorities therein
cannot be avoided. That is quite understandable. At the same time, in line with what was held
in Reagan v. Commissioner of Internal Revenue 3and People v. Gozo, 4 the jurisdiction vested in
this government over every inch of soil of its territory compels the conclusion that its laws are
operative even inside a military base or naval reservation except as limited by the Military Bases
Agreement. Moreover, the interpretation of such a provision should be most restrictive to assure
that there be the least derogation of the rights of the territorial sovereign. 5 The thought cannot be
entertained that the naval authorities concerned would be insensible to the fundamental public
policy of according the utmost consideration to the claims of labor. This observation is made
with the hope that if paid attention to, respondent Labor Union, through the efforts of the
administrative officials, could still reasonably hope that the financial burden long sustained by its
members could be eased — all in accordance with law. 

 
 

Separate Opinions

FERNANDO, J.,  concurring:

The opinion of the Court penned by Justice Antonio in his usual comprehensive and lucid
manner manifests fealty to the mandates of the law. It is entitled to full concurrence. The parties,
duly represented by counsel, entered on a compromise. Its terms are thus binding on them. They
should be adhered to. Accordingly, there must be compliance with what was ordained by the
Secretary of Labor in his order of November 13, 1975. So it has been decided by us. We have no
choice on the matter. Unfortunately for respondent Labor Union, no provision was made for
backpay. That was an omission that ought to have been remedied before the compromise was
entered into. This Court, however sympathetic it may be to the claims of labor, cannot go further
than what was assented to by the parties themselves. So the law prescribes. 

Nontheless, the writer is impelled to write this brief concurrence because of his belief that while
this Court is precluded from granting additional relief to the members of respondent Labor Union
who, in the meanwhile, had been laid off, still their situation is not necessarily devoid of any
hope for improvement. The present Labor Code stresses administrative rather than judicial
redress. It has the advantage of greater flexibility, of more discretion on the part of the Secretary
of Labor. That could be utilized on their behalf. Certainly, from what appears of record, the
course of conduct pursued by petitioner left much to be desired, and not only from their
standpoint. It yields the impression, to me at least, that there was no fidelity to the basic policy
on labor as prescribed by the present Constitution. Petitioner commenced its operation on
January 1, 1973. It refused to employ the members of respondent Union, prompting the latter to
file a complaint with the National Labor Relations Court against it and one Santiago Guerrero to
compel them to employ its members pursuant to Article 1, Section 2 of the RP-US Bases
Agreement dated May 27, 1968. Five days thereafter, or on January 17, 1973, the present
Constitution came into effect. Time and time again, this Court has correctly stressed how far the
present Constitution has gone in seeing to it that the welfare of the economically underprivileged
receive full attention. All that has to be done is to refer to the expanded scope of social
justice 1 and the specific guarantees intended to vitalize the rights of labor. 2 Security of tenure is
one of the basic features. Had that provision been lived up to, the members of respondent Labor
Union would not be in the sad plight they are in at present. 

It is to be admitted that what complicated matters is that the service to be rendered is inside the
U.S. Naval Base of Olongapo City. Accordingly, the intervention of the authorities therein
cannot be avoided. That is quite understandable. At the same time, in line with what was held
in Reagan v. Commissioner of nternal Revenue 3and People v. Gozo, 4 the jurisdiction vested in
this government over every inch of soil of its territory compels the conclusion that its laws are
operative even inside a military base or naval reservation except as limited by the Military Bases
Agreement. Moreover, the interpretation of such a provision should be most restrictive to assure
that there be the least derogation of the rights of the territorial sovereign. 5 The thought cannot be
entertained that the naval authorities concerned would be insensible to the fundamental public
policy of according the utmost consideration to the claims of labor. This observation is made
with the hope that if paid attention to, respondent Labor Union, through the efforts of the
administrative officials, could still reasonably hope that the financial burden long sustained by its
members could be eased — all in accordance with law.
U.S. Supreme Court

Northern Pacific R. Co. v. Babcock, 154 U.S. 190 (1894)

Northern Pacific R. Co. v. Babcock

No. 328

Submitted March 28, 1894

Decided May 28, 1894

154 U.S. 190

Syllabus

In an action by the representatives of a railroad employee against the company to recover

damages for the death of the employs caused by an accident while in its employ, which is tried in
a different state from that in which the contract of employment was made and in which the
accident took place, the right to recover and the limit of the amount of the judgment are governed
by the lex loci, and not by the lex fori.

A railroad company is bound to furnish sound machinery for the use of its employee, and if one
of them is killed in an accident caused by a defective snow-plough, the right of his representative
to recover damages therefor is not affected by the fact that, some two weeks before he was sent
out with the defective machinery, he had discovered the defect, and had notified the master
mechanic of it, and the latter had undertaken to have it repaired.

Some alleged errors in the charge of the court below are examined and held to have no merit.

The plaintiff below, who was the administrator of the estate of Hugh M. Munro, sued in the
District Court of the fourth Judicial District of Minnesota to recover $25,000 damages for the
killing of Munro on the 10th day of January, 1888 at or near a station known as Gray Cliff, on
the Northern Pacific Railway, in the Territory of Montana. The complaint contained the
following allegations: 

Page 154 U. S. 191

"That on the said 10th day of January, 1888, the said Hugh M. Munro, now deceased, was in the
employ of the said defendant corporation within the Territory of Montana in the capacity of
locomotive engineer, for hire and reward by the said defendant paid, and that the duty of running
a locomotive engine upon said defendant's line of railway within said territory was by said
defendant assigned to said Hugh M. Munro on the said 10th day of January, 1888, and the
defendant directed and ordered the said Hugh M. Munro to run a certain locomotive engine, the
property of said defendant, known as engine 'No. 161,' over and upon its said railway in said
territory; that prior to and at the time the said orders were so presented to said Munro, there had
been, and then was, a severe snowstorm in progress, and defendant's line of railway over and
upon which said Munro was so ordered to run said engine was covered with drifting snow
theretofore accumulated thereon, and then fast accumulating, notwithstanding which the said
defendant corporation did willfully, improperly, negligently, and carelessly refuse and neglect to
send a snow plow ahead of said engine No. 161 to clear the snow and ice from said defendant's
said track, which had accumulated and was accumulating thereon by reason of said storm, so as
to render the passage of said engine No. 161 safe and proper."

"That there was attached to the forward part of said engine No. 161 a certain attachment known
as a 'pilot plow,' an appliance constructed thereon for the purpose of clearing the railway of snow
and ice accumulated thereon and render safe the passage of the engine to which said plow was
attached over and upon said railway of defendant."

"That on the said 10th day of January, 1888, the said defendant corporation knowingly, willfully,
negligently, and carelessly allowed to be and remain upon said engine No. 161, attached thereto
as aforesaid, a certain pilot plow the iron braces, bolts, and rods of which were broken,
imperfect, and insufficient, by reason of which condition the said plow was loose and
insufficiently secured to the pilot of said engine, allowing the said pilot to raise up and ride over
obstructing 

Page 154 U. S. 192

snow and ice instead of cutting through the same, as was the intention of its construction,
rendering the running of said engine upon said railway dangerous, and that the said defendant
well knew of the broken, defective, and dangerous condition of said engine No. 161 at the time
the said Hugh M. Munro was so ordered to run the same upon and over said railway,
notwithstanding which the said defendant corporation did negligently and carelessly furnish to
said Hugh M. Munro said engine, with the said broken and imperfect pilot plow attached thereto,
to run over and upon its said line of railway."

"That while said Hugh M. Munro was running said engine in performance of his duty as such
engineer and pursuant to the orders of said defendant corporation, and before daylight on said
10th day of January, 1888, near Gray Cliff, in said Territory of Montana, the said engine struck
an accumulation of snow and ice which said defendant had carelessly and negligently allowed to
accumulate upon its said railway track, and the pilot plow of said engine, by reason of its broken,
loose, and imperfect condition aforesaid, did ride upon said accumulation of snow and ice,
thereby derailing said engine and throwing the same from said railway track, whereby the said
Hugh M. Munro was instantly killed."

"* * * *"

"That the law of the Territory of Montana governing actions for recovery of damages for causing
death was on the 10th day of January, 1888, and now is, sections 13 and 14 of title 2 of said
chapter 1 of the first division of Code of Civil Procedure of the Territory of Montana, which said
sections of said law of said territory are in the words and figures following, viz.:"
"SEC. 13. A father, or, in case of his death or desertion of his family, the mother, may maintain
an action for the injury or death of a child, or a guardian for the injury or death of his ward."

"SEC. 14. Where the death of a person not being a minor is caused by the wrongful act or neglect
of another, his heirs or personal representatives may maintain an action for 

Page 154 U. S. 193

damages against the person causing the death, or if such person be employed by another person
who is responsible for his action, then also against such other person. In every action under this
and the preceding section, such damages may be given as under all the circumstances of the case
may be just."

The case was removed to the Circuit Court of the United States for the District of Minnesota,
where an answer was filed by the defendant denying the averments of the complaint and alleging
that the death of Munro was caused solely by his negligence and carelessness, and not by the
negligence of the defendant or any of its servants or employees.

There was a verdict and judgment below in favor of the plaintiff for $10,000. To review that
judgment, this writ of error is sued out. The errors assigned are as follows:

"First. The court erred in charging the jury as follows:"

" Did it fail to discharge any duty which the law imposed upon it for the safety of its employee,
the plaintiff's intestate? If it did, and if such negligence was the cause of the death of the
engineer, Munro, then the plaintiff is entitled to recover."

"Second. The court erred further in charging the jury as follows:"

" The charge in this complaint is that this death was caused by the derailment of the engine,
which took place because the plow was out of repair as described, or at least that the defendant
had not used reasonable care in clearing its track, and that when the engineer, in that condition,
arrived at this cut, two miles from Gray Cliff, the snow had accumulated to such an extent that
the engine was thereby derailed, and that it was this negligence which caused the death."

"Third. The court erred further in charging the jury as follows:"

"Many states have different laws. The law in this state until recently was that only $5,000 could
be given in a case of death. It has lately been increased to $10,000."

"Fourth. The court erred further in charging the jury as follows:"

"If you believe from all the evidence in the case that the plaintiff is entitled to recovery, then it is
for you to determine what compensation you will give for the death of the plaintiff's intestate.
The law of Montana limits it to such an amount as you think would be proper under all
circumstances 
Page 154 U. S. 194

of the case, and that is the law which will govern in this case."

"Fifth. The court erred further in refusing to give to the jury the following request tendered by
defendant's counsel: 'You, the jury, are instructed to find a verdict for the defendant.'"

"Sixth. The court erred further in refusing to give to the jury the following request, tendered by
defendant's counsel: 'The laws of Minnesota limit the amount of damages to be recovered in this
case to five thousand dollars.'"

"Seventh. The court erred further in refusing to give to the jury the following request, tendered
by defendant's counsel:"

" The court instructs the jury that unless they find that it was customary for defendant company
to send a snow plow in advance of the trains running east from Livingston during storms of this
character, and that unless, further, the accident occurred by reason of the negligent and careless
failure of the defendant to send such snow plow in advance, they will find for the defendant."

"Eighth. The court erred further in refusing to give to the jury the following request, tendered by
defendant's counsel:"

" The court instructs the jury that unless they find that the defendant carelessly and negligently
furnished to the deceased engineer a plow attached to his engine the iron bolts and rods of which
were broken, imperfect, and insufficient, and that by reason of which condition the said plow
was loose and insufficiently secured to the pilot of said engine, and that when the said engine
struck the snow at the cut, as testified to, the pilot plow of said engine, by reason of its said
broken, loose, and imperfect condition, did ride upon the accumulated snow and ice at said cut,
and that thereby the said engine was thrown from the track, the jury will find for the defendant. "

Page 154 U. S. 196

G.R. No. 72494 August 11, 1989

HONGKONG AND SHANGHAI BANKING CORPORATION, petitioner, 

vs.
JACK ROBERT SHERMAN, DEODATO RELOJ and THE INTERMEDIATE
APPELLATE COURT, respondents.

Quiason, Makalintal, Barot & Torres for petitioner.

Alejandro, Aranzaso & Associates for private respondents. 

MEDIALDEA, J.:

This is a petition for review on certiorari of the decision of the Intermediate Appellate Court
(now Court of Appeals) dated August 2, 1985, which reversed the order of the Regional Trial
Court dated February 28,1985 denying the Motion to Dismiss filed by private respondents Jack
Robert Sherman and Deodato Reloj. 

A complaint for collection of a sum of money (pp. 49-52, Rollo) was filed by petitioner
Hongkong and Shanghai Banking Corporation (hereinafter referred to as petitioner BANK)
against private respondents Jack Robert Sherman and Deodato Reloj, docketed as Civil Case No.
Q-42850 before the Regional Trial Court of Quezon City, Branch 84. 

It appears that sometime in 1981, Eastern Book Supply Service PTE, Ltd. (hereinafter referred to
as COMPANY), a company incorporated in Singapore applied with, and was granted by, the
Singapore branch of petitioner BANK an overdraft facility in the maximum amount of Singapore
dollars 200,000.00 (which amount was subsequently increased to Singapore dollars 375,000.00)
with interest at 3% over petitioner BANK prime rate, payable monthly, on amounts due under
said overdraft facility; as a security for the repayment by the COMPANY of sums advanced by
petitioner BANK to it through the aforesaid overdraft facility, on October 7, 1982, both private
respondents and a certain Robin de Clive Lowe, all of whom were directors of the COMPANY
at such time, executed a Joint and Several Guarantee (p. 53,  Rollo) in favor of petitioner BANK
whereby private respondents and Lowe agreed to pay, jointly and severally, on demand all sums
owed by the COMPANY to petitioner BANK under the aforestated overdraft facility. 

The Joint and Several Guarantee provides, inter alia, that: 

This guarantee and all rights, obligations and liabilities arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws
of the Republic of Singapore. We hereby agree that the Courts of Singapore shall
have jurisdiction over all disputes arising under this guarantee. ... (p. 33-
A, Rollo). 
The COMPANY failed to pay its obligation. Thus, petitioner BANK demanded payment of the
obligation from private respondents, conformably with the provisions of the Joint and Several
Guarantee. Inasmuch as the private respondents still failed to pay, petitioner BANK filed the
above-mentioned complaint.

On December 14,1984, private respondents filed a motion to dismiss (pp 54-56, Rollo) which
was opposed by petitioner BANK (pp. 58-62, Rollo). Acting on the motion, the trial court issued
an order dated February 28, 1985 (pp, 64-65, Rollo), which read as follows: 

In a Motion to Dismiss filed on December 14, 1984, the defendants seek the
dismissal of the complaint on two grounds, namely: 

1. That the court has no jurisdiction over the subject matter of the complaint; and 

2. That the court has no jurisdiction over the persons of the defendants. 

In the light of the Opposition thereto filed by plaintiff, the Court finds no merit in
the motion. "On the first ground, defendants claim that by virtue of the provision
in the Guarantee (the actionable document) which reads — 

This guarantee and all rights, obligations and liabilities arising

hereunder shall be construed and determined under and may be
enforced in accordance with the laws of the Republic of Singapore.
We hereby agree that the courts in Singapore shall have
jurisdiction over all disputes arising under this guarantee, 

the Court has no jurisdiction over the subject matter of the case. The Court finds
and concludes otherwise. There is nothing in the Guarantee which says that the
courts of Singapore shall have jurisdiction to the exclusion of the courts of other
countries or nations. Also, it has long been established in law and jurisprudence
that jurisdiction of courts is fixed by law; it cannot be conferred by the will,
submission or consent of the parties. 

On the second ground, it is asserted that defendant Robert' , Sherman is not a

citizen nor a resident of the Philippines. This argument holds no water.
Jurisdiction over the persons of defendants is acquired by service of summons and
copy of the complaint on them. There has been a valid service of summons on
both defendants and in fact the same is admitted when said defendants filed a
'Motion for Extension of Time to File Responsive Pleading on December 5,
1984. 

WHEREFORE, the Motion to Dismiss is hereby DENIED. 

SO ORDERED.
A motion for reconsideration of the said order was filed by private respondents which was,
however, denied (p. 66, Rollo). 

Private respondents then filed before the respondent Intermediate Appellate Court (now Court of
Appeals) a petition for prohibition with preliminary injunction and/or prayer for a restraining
order (pp. 39-48, Rollo). On August 2, 1985, the respondent Court rendered a decision (p.
37, Rollo), the dispositive portion of which reads: 

WHEREFORE, the petition for prohibition with preliminary injuction is hereby

GRANTED. The respondent Court is enjoined from taking further cognizance of
the case and to dismiss the same for filing with the proper court of Singapore
which is the proper forum. No costs. 

SO ORDERED. 

The motion for reconsideration was denied (p. 38, Rollo), hence, the present petition. 

The main issue is whether or not Philippine courts have jurisdiction over the suit. 

The controversy stems from the interpretation of a provision in the Joint and Several Guarantee,
to wit: 

(14) This guarantee and all rights, obligations and liabilites arising hereunder shall
be construed and determined under and may be enforced in accordance with the
laws of the Republic of Singapore. We hereby agree that the Courts in Singapore
shall have jurisdiction over all disputes arising under this guarantee. ... (p. 53-
A, Rollo) 

In rendering the decision in favor of private respondents, the Court of Appeals made, the
following observations (pp. 35-36, Rollo): 

There are significant aspects of the case to which our attention is invited. The loan
was obtained by Eastern Book Service PTE, Ltd., a company incorporated
in Singapore. The loan was granted by the Singapore Branch of Hongkong and
Shanghai Banking Corporation. The Joint and Several Guarantee was also
concluded in Singapore. The loan was in Singaporean dollars and the repayment
thereof also in the same currency. The transaction, to say the least, took place in
Singporean setting in which the law of that country is the measure by which that
relationship of the parties will be governed. 

xxx xxx xxx 

Contrary to the position taken by respondents, the guarantee agreement

compliance that any litigation will be before the courts of Singapore and that the
rights and obligations of the parties shall be construed and determined in
accordance with the laws of the Republic of Singapore. A closer examination of
 paragraph 14 of the Guarantee Agreement upon which the motion to dismiss is
based, employs in clear and unmistakeable (sic) terms the word 'shall' which
under statutory construction is mandatory. 

Thus it was ruled that: 

... the word 'shall' is imperative, operating to impose a duty which may be
enforced (Dizon vs. Encarnacion, 9 SCRA 714).lâwphî1.ñèt 

There is nothing more imperative and restrictive than what the agreement
categorically commands that 'all rights, obligations, and liabilities arising
hereunder shall be construed and determined under and may be enforced in
accordance with the laws of the Republic of Singapore.' 

While it is true that "the transaction took place in Singaporean setting" and that the Joint and
Several Guarantee contains a choice-of-forum clause, the very essence of due process dictates
that the stipulation that "[t]his guarantee and all rights, obligations and liabilities arising
hereunder shall be construed and determined under and may be enforced in accordance with the
laws of the Republic of Singapore. We hereby agree that the Courts in Singapore shall have
jurisdiction over all disputes arising under this guarantee" be liberally construed. One basic
principle underlies all rules of jurisdiction in International Law: a State does not have jurisdiction
in the absence of some reasonable basis for exercising it, whether the proceedings are in
rem quasi in rem  or in personam. To be reasonable, the jurisdiction must be based on some
minimum contacts that will not offend traditional notions of fair play and substantial justice (J.
Salonga, Private International Law, 1981, p. 46). Indeed, as pointed-out by petitioner BANK at
the outset, the instant case presents a very odd situation. In the ordinary habits of life, anyone
would be disinclined to litigate before a foreign tribunal, with more reason as a defendant.
However, in this case, private respondents are Philippine residents (a fact which was not disputed
by them) who would rather face a complaint against them before a foreign court and in the
process incur considerable expenses, not to mention inconvenience, than to have a Philippine
court try and resolve the case. Private respondents' stance is hardly comprehensible, unless their
ultimate intent is to evade, or at least delay, the payment of a just obligation. 

The defense of private respondents that the complaint should have been filed in Singapore is
based merely on technicality. They did not even claim, much less prove, that the filing of the
action here will cause them any unnecessary trouble, damage, or expense. On the other hand,
there is no showing that petitioner BANK filed the action here just to harass private respondents. 

In the case of Polytrade Corporation vs. Blanco, G.R. No. L-27033, October 31, 1969, 30 SCRA
187, it was ruled: 

... An accurate reading, however, of the stipulation, 'The parties agree to sue and
be sued in the Courts of Manila,' does not preclude the filing of suits in the
residence of plaintiff or defendant. The plain meaning is that the parties merely
consented to be sued in Manila. Qualifying or restrictive words which would
indicate that Manila and Manila alone is the venue are totally absent therefrom.
 We cannot read into that clause that plaintiff and defendant bound themselves to
file suits with respect to the last two transactions in question only or exclusively
in Manila. For, that agreement did not change or transfer venue. It simply is
permissive. The parties solely agreed to add the courts of Manila as tribunals to
which they may resort. They did not waive their right to pursue remedy in the
courts specifically mentioned in Section 2(b) of Rule 4. Renuntiatio non
praesumitur. 

This ruling was reiterated in the case of Neville Y. Lamis Ents., et al. v. Lagamon, etc., et al.,
G.R. No. 57250, October 30, 1981, 108 SCRA 740, where the stipulation was "[i]n case of
litigation, jurisdiction shall be vested in the Court of Davao City." We held: 

Anent the claim that Davao City had been stipulated as the venue, suffice it to say
that a stipulation as to venue does not preclude the filing of suits in the residence
of plaintiff or defendant under Section 2 (b), Rule 4, Rules of Court, in the
absence of qualifying or restrictive words in the agreement which would indicate
that the place named is the only venue agreed upon by the parties. 

Applying the foregoing to the case at bar, the parties did not thereby stipulate that only the courts
of Singapore, to the exclusion of all the rest, has jurisdiction. Neither did the clause in question
operate to divest Philippine courts of jurisdiction. In International Law, jurisdiction is often
defined as the light of a State to exercise authority over persons and things within its boundaries
subject to certain exceptions. Thus, a State does not assume jurisdiction over travelling
sovereigns, ambassadors and diplomatic representatives of other States, and foreign military
units stationed in or marching through State territory with the permission of the latter's
authorities. This authority, which finds its source in the concept of sovereignty, is exclusive
within and throughout the domain of the State. A State is competent to take hold of any judicial
matter it sees fit by making its courts and agencies assume jurisdiction over all kinds of cases
brought before them (J. Salonga, Private International Law, 1981, pp. 37-38).lâwphî1.ñèt 

As regards the issue on improper venue, petitioner BANK avers that the objection to improper
venue has been waived. However, We agree with the ruling of the respondent Court that: 

While in the main, the motion to dismiss fails to categorically use with exactitude
the words 'improper venue' it can be perceived from the general thrust and context
of the motion that what is meant is improper venue, The use of the word
'jurisdiction' was merely an attempt to copy-cat the same word employed in the
guarantee agreement but conveys the concept of venue. Brushing aside all
technicalities, it would appear that jurisdiction was used loosely as to be
synonymous with venue. It is in this spirit that this Court must view the motion to
dismiss. ... (p. 35, Rollo). 

At any rate, this issue is now of no moment because We hold that venue here was properly laid
for the same reasons discussed above. 

The respondent Court likewise ruled that (pp. 36-37, Rollo): 

 ... In a conflict problem, a court will simply refuse to entertain the case if it is not
authorized by law to exercise jurisdiction. And even if it is so authorized, it may
still refuse to entertain the case by applying the principle of forum non
conveniens. ... 

However, whether a suit should be entertained or dismissed on the basis of the principle
of forum non conveniens depends largely upon the facts of the particular case and is addressed to
the sound discretion of the trial court (J. Salonga, Private International Law, 1981, p.
49).lâwphî1.ñèt Thus, the respondent Court should not have relied on such principle.

Although the Joint and Several Guarantee prepared by petitioner BANK is a contract of adhesion
and that consequently, it cannot be permitted to take a stand contrary to the stipulations of the
contract, substantial bases exist for petitioner Bank's choice of forum, as discussed earlier. 

Lastly, private respondents allege that neither the petitioner based at Hongkong nor its Philippine
branch is involved in the transaction sued upon. This is a vain attempt on their part to further
thwart the proceedings below inasmuch as well-known is the rule that a defendant cannot plead
any defense that has not been interposed in the court below. 

ACCORDINGLY, the decision of the respondent Court is hereby REVERSED and the decision
of the Regional Trial Court is REINSTATED, with costs against private respondents. This
decision is immediately executory. 

SO ORDERED. 

Narvasa, Cruz, Gancayco and Griñ;o-Aquino, JJ., concur.