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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.
DECISION
QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court
seeks to annul and set aside the Resolution[1] dated September 27, 1995
and the Decision[2] dated April 10, 1996 of the Court of Appeals [3] in CAG.R. SP No. 36533,[4] and the Orders[5] dated August 29, 1994[6] and
February 2, 1995[7] that were issued by the trial court in Civil Case No. Q93-18394.[8]
The pertinent antecedent facts which gave rise to the instant petition,
as stated in the questioned Decision[9], are as follows:
On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight
Attendant for its airlines based in Jeddah, Saudi Arabia. x x x
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 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. 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,

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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 SAUDIAs Manila manager, Aslam Saleemi, that the
investigation was routinary and that it posed no danger to her.
In Jeddah, a SAUDIA legal officer brought plaintiff to the same
Saudi court on June 27, 1993. Nothing happened then but on
June 28, 1993, a Saudi judge interrogated plaintiff through an
interpreter about the Jakarta incident. After one hour of
interrogation, they let her go. At the airport, however, just as her
plane was about to take off, a SAUDIA officer told her that the
airline had forbidden her to take flight. At the Inflight Service Office
where she was told to go, the secretary of Mr. Yahya Saddick took
away her passport and told her to remain in Jeddah, at the crew
quarters, until further orders.
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to
the same court where the judge, to her astonishment and shock,
rendered a decision, translated to her in English, sentencing her
to five months imprisonment and to 286 lashes. Only then did she
realize that the Saudi court had tried her, together with Thamer
and Allah, for what happened in Jakarta. The court found plaintiff
guilty of (1) adultery; (2) going to a disco, dancing and listening to
the music in violation of Islamic laws; and (3) socializing with the
male crew, in contravention of Islamic tradition.[10]
Facing conviction, private respondent sought the help of her employer,
petitioner SAUDIA. Unfortunately, she was denied any assistance. She
then asked the Philippine Embassy in Jeddah to help her while her case is
on appeal. Meanwhile, to pay for her upkeep, she worked on the domestic
flight of SAUDIA, while Thamer and Allah continued to serve in the
international flights.[11]

Because she was wrongfully convicted, the Prince of Makkah


dismissed the case against her and allowed her to leave Saudi
Arabia. Shortly before her return to Manila,[12] she was terminated from the
service by SAUDIA, without her being informed of the cause.
On November 23, 1993, Morada filed a Complaint [13] for damages
against SAUDIA, and Khaled Al-Balawi (Al- Balawi), its country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To
Dismiss[14] which raised the following grounds, to wit: (1) that the Complaint
states no cause of action against Saudia; (2) that defendant Al-Balawi is
not a real party in interest; (3) that the claim or demand set forth in the
Complaint has been waived, abandoned or otherwise extinguished; and
(4) that the trial court has no jurisdiction to try the case.
On February 10, 1994, Morada filed her Opposition (To Motion to
Dismiss)[15] Saudia filed a reply[16] thereto on March 3, 1994.
On June 23, 1994, Morada filed an Amended Complaint [17] wherein AlBalawi 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
Defendants 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

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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.

In another Resolution[28] promulgated on September 27, 1995, now


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

Respondent Judge subsequently issued another Order[24] dated


February 2, 1995, denying SAUDIAs Motion for Reconsideration. The
pertinent portion of the assailed Order reads as follows:

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).

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 attorneys 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.

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 Complaints basis for recovery of damages is Article 21
of the Civil Code, and thus, clearly within the jurisdiction of respondent
Court. It further held that certiorari is not the proper remedy in a denial of a
Motion to Dismiss, inasmuch as the petitioner should have proceeded to
trial, and in case of an adverse ruling, find recourse in an appeal.
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review
with Prayer for Temporary Restraining Order[31] dated April 30, 1996, given
due course by this Court. After both parties submitted their Memoranda,
[32]
the instant case is now deemed submitted for decision.
Petitioner SAUDIA raised the following issues:
I
The trial court has no jurisdiction to hear and try Civil Case No. Q-9318394 based on Article 21 of the New Civil Code since the proper law

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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.
WHETHER RESPONDENT APPELLATE COURT ERRED IN
RULING THAT IN THE CASE PHILIPPINE LAW SHOULD
GOVERN.

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 petitioners 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 CAG.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:

Petitioner SAUDIA claims that before us is a conflict of laws that must


be settled at the outset. It maintains that private respondents 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.

I.
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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.

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.

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7. 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.
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 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.
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 SAUDIAs Manila manager, 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 Philippine 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]

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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 respondents assertion that the case is purely
domestic, imprecise. A conflicts problem presents itself here, and the
question of jurisdiction[43] confronts the court a quo.
After a careful study of the private respondents 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.

Although Article 19 merely declares a principle of law, Article 21 gives


flesh to its provisions. Thus, we agree with private respondents 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:
Section 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:

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.

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(8) In all other cases in which demand, exclusive of interest, damages of
whatever kind, attorneys fees, litigation expenses, and costs 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)
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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.

And following Section 2 (b), Rule 4 of the Revised Rules of Courtthe


venue, Quezon City, is appropriate:
SEC. 2 Venue in Courts of First Instance. [Now Regional Trial Court]
(a) x x x x x x x x x

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(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.

petitioner SAUDIA has effectively submitted to the trial courts 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]

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
Moradas
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,

We observe that the motion to dismiss filed on April 14, 1962,


aside from disputing the lower courts jurisdiction over defendants
person, prayed for dismissal of the complaint on the ground that
plaintiffs 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 latters 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.

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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. Choiceof-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 situsof 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 forithe law of the forumis particularly
important because, as we have seen earlier, matters of
procedure not going to the substance of the claim involved are
governed by it; and because the lex fori applies whenever the
content of the otherwise applicable foreign law is excluded from
application in a given case for the reason that it falls under one of
the exceptions to the applications of foreign law; and
(8) the flag of a ship, which in many cases is decisive of
practically all legal relationships of the ship and of its master or
owner as such. It also covers contractual relationships
particularly contracts of affreightment.[60] (Underscoring ours.)
After a careful study of the pleadings on record, including allegations
in the Amended Complaint deemed submitted for purposes of the motion
to dismiss, we are convinced that there is reasonable basis for private
respondents 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

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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. Petitioners
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 petitioners
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 actusoccurred. 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 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
fatality 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 complaint 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 petitioners
insistence that [s]ince private respondent instituted this suit, she has the

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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, thus 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 courts denial of defendants (herein petitioners) motion
to dismiss the case. Not only was jurisdiction in order and venue properly
laid, but appeal after trial was obviously available, and the 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 countrys 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., (Chairman), Bellosillo, Vitug, and Panganiban, JJ., concur.

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G.R. No. 92013 July 25, 1990


SALVADOR H. LAUREL, petitioner,
vs.
RAMON GARCIA, as head of the Asset Privatization Trust, RAUL
MANGLAPUS, as Secretary of Foreign Affairs, and CATALINO
MACARAIG, as Executive Secretary, respondents.
G.R. No. 92047 July 25, 1990
DIONISIO S. OJEDA, petitioner,
vs.
EXECUTIVE SECRETARY MACARAIG, JR., ASSETS PRIVATIZATION
TRUST CHAIRMAN RAMON T. GARCIA, AMBASSADOR RAMON DEL
ROSARIO, et al., as members of the PRINCIPAL AND BIDDING
COMMITTEES ON THE UTILIZATION/DISPOSITION PETITION OF
PHILIPPINE GOVERNMENT PROPERTIES IN JAPAN,respondents.

Macaraig, et al. was filed, the respondents were required to file a comment
by the Court's resolution dated February 22, 1990. The two petitions were
consolidated on March 27, 1990 when the memoranda of the parties in
the Laurel case were deliberated upon.
The Court could not act on these cases immediately because the
respondents filed a motion for an extension of thirty (30) days to file
comment in G.R. No. 92047, followed by a second motion for an extension
of another thirty (30) days which we granted on May 8, 1990, a third
motion for extension of time granted on May 24, 1990 and a fourth motion
for extension of time which we granted on June 5, 1990 but calling the
attention of the respondents to the length of time the petitions have been
pending. After the comment was filed, the petitioner in G.R. No. 92047
asked for thirty (30) days to file a reply. We noted his motion and resolved
to decide the two (2) cases.
I

Arturo M. Tolentino for petitioner in 92013.

The subject property in this case is one of the four (4) properties in Japan
acquired by the Philippine government under the Reparations Agreement
entered into with Japan on May 9, 1956, the other lots being:

GUTIERREZ, JR., J.:

(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku, Tokyo


which has an area of approximately 2,489.96 square meters, and is at
present the site of the Philippine Embassy Chancery;

These are two petitions for prohibition seeking to enjoin respondents, their
representatives and agents from proceeding with the bidding for the sale of
the 3,179 square meters of land at 306 Roppongi, 5-Chome Minato-ku
Tokyo, Japan scheduled on February 21, 1990. We granted the prayer for
a temporary restraining order effective February 20, 1990. One of the
petitioners (in G.R. No. 92047) likewise prayes for a writ of mandamus to
compel the respondents to fully disclose to the public the basis of their
decision to push through with the sale of the Roppongi property inspire of
strong public opposition and to explain the proceedings which effectively
prevent the participation of Filipino citizens and entities in the bidding
process.
The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard
by the Court on March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary

(2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area


of around 764.72 square meters and categorized as a commercial lot now
being used as a warehouse and parking lot for the consulate staff; and
(3) The Kobe Residential Property at 1-980-2 Obanoyama-cho, Shinohara,
Nada-ku, Kobe, a residential lot which is now vacant.
The properties and the capital goods and services procured from the
Japanese government for national development projects are part of the
indemnification to the Filipino people for their losses in life and property
and their suffering during World War II.

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The Reparations Agreement provides that reparations valued at $550


million would be payable in twenty (20) years in accordance with annual
schedules of procurements to be fixed by the Philippine and Japanese
governments (Article 2, Reparations Agreement). Rep. Act No. 1789, the
Reparations Law, prescribes the national policy on procurement and
utilization of reparations and development loans. The procurements are
divided into those for use by the government sector and those for private
parties in projects as the then National Economic Council shall determine.
Those intended for the private sector shall be made available by sale to
Filipino citizens or to one hundred (100%) percent Filipino-owned entities
in national development projects.
The Roppongi property was acquired from the Japanese government
under the Second Year Schedule and listed under the heading
"Government Sector", through Reparations Contract No. 300 dated June
27, 1958. The Roppongi property consists of the land and building "for the
Chancery of the Philippine Embassy" (Annex M-D to Memorandum for
Petitioner, p. 503). As intended, it became the site of the Philippine
Embassy until the latter was transferred to Nampeidai on July 22, 1976
when the Roppongi building needed major repairs. Due to the failure of our
government to provide necessary funds, the Roppongi property has
remained undeveloped since that time.
A proposal was presented to President Corazon C. Aquino by former
Philippine Ambassador to Japan, Carlos J. Valdez, to make the property
the subject of a lease agreement with a Japanese firm - Kajima
Corporation which shall construct two (2) buildings in Roppongi and one
(1) building in Nampeidai and renovate the present Philippine Chancery in
Nampeidai. The consideration of the construction would be the lease to the
foreign corporation of one (1) of the buildings to be constructed in
Roppongi and the two (2) buildings in Nampeidai. The other building in
Roppongi shall then be used as the Philippine Embassy Chancery. At the
end of the lease period, all the three leased buildings shall be occupied
and used by the Philippine government. No change of ownership or title
shall occur. (See Annex "B" to Reply to Comment) The Philippine
government retains the title all throughout the lease period and thereafter.
However, the government has not acted favorably on this proposal which
is pending approval and ratification between the parties. Instead, on
August 11, 1986, President Aquino created a committee to study the

disposition/utilization of Philippine government properties in Tokyo and


Kobe, Japan through Administrative Order No. 3, followed by
Administrative Orders Numbered 3-A, B, C and D.
On July 25, 1987, the President issued Executive Order No. 296 entitling
non-Filipino citizens or entities to avail of separations' capital goods and
services in the event of sale, lease or disposition. The four properties in
Japan including the Roppongi were specifically mentioned in the first
"Whereas" clause.
Amidst opposition by various sectors, the Executive branch of the
government has been pushing, with great vigor, its decision to sell the
reparations properties starting with the Roppongi lot. The property has
twice been set for bidding at a minimum floor price of $225 million. The
first bidding was a failure since only one bidder qualified. The second one,
after postponements, has not yet materialized. The last scheduled bidding
on February 21, 1990 was restrained by his Court. Later, the rules on
bidding were changed such that the $225 million floor price became
merely a suggested floor price.
The Court finds that each of the herein petitions raises distinct issues. The
petitioner in G.R. No. 92013 objects to the alienation of the Roppongi
property to anyone while the petitioner in G.R. No. 92047 adds as a
principal objection the alleged unjustified bias of the Philippine government
in favor of selling the property to non-Filipino citizens and entities. These
petitions have been consolidated and are resolved at the same time for the
objective is the same - to stop the sale of the Roppongi property.
The petitioner in G.R. No. 92013 raises the following issues:
(1) Can the Roppongi property and others of its kind be alienated by the
Philippine Government?; and
(2) Does the Chief Executive, her officers and agents, have the authority
and jurisdiction, to sell the Roppongi property?
Petitioner Dionisio Ojeda in G.R. No. 92047, apart from questioning the
authority of the government to alienate the Roppongi property assails the
constitutionality of Executive Order No. 296 in making the property

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available for sale to non-Filipino citizens and entities. He also questions


the bidding procedures of the Committee on the Utilization or Disposition
of Philippine Government Properties in Japan for being discriminatory
against Filipino citizens and Filipino-owned entities by denying them the
right to be informed about the bidding requirements.
II
In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property
and the related lots were acquired as part of the reparations from the
Japanese government for diplomatic and consular use by the Philippine
government. Vice-President Laurel states that the Roppongi property is
classified as one of public dominion, and not of private ownership under
Article 420 of the Civil Code (See infra).
The petitioner submits that the Roppongi property comes under "property
intended for public service" in paragraph 2 of the above provision. He
states that being one of public dominion, no ownership by any one can
attach to it, not even by the State. The Roppongi and related properties
were acquired for "sites for chancery, diplomatic, and consular quarters,
buildings and other improvements" (Second Year Reparations Schedule).
The petitioner states that they continue to be intended for a necessary
service. They are held by the State in anticipation of an opportune use.
(Citing 3 Manresa 65-66). Hence, it cannot be appropriated, is outside the
commerce of man, or to put it in more simple terms, it cannot be alienated
nor be the subject matter of contracts (Citing Municipality of Cavite v.
Rojas, 30 Phil. 20 [1915]). Noting the non-use of the Roppongi property at
the moment, the petitioner avers that the same remains property of public
dominion so long as the government has not used it for other purposes nor
adopted any measure constituting a removal of its original purpose or use.
The respondents, for their part, refute the petitioner's contention by saying
that the subject property is not governed by our Civil Code but by the laws
of Japan where the property is located. They rely upon the rule of lex
situs which is used in determining the applicable law regarding the
acquisition, transfer and devolution of the title to a property. They also
invoke Opinion No. 21, Series of 1988, dated January 27, 1988 of the
Secretary of Justice which used the lex situs in explaining the
inapplicability of Philippine law regarding a property situated in Japan.

The respondents add that even assuming for the sake of argument that the
Civil Code is applicable, the Roppongi property has ceased to become
property of public dominion. It has become patrimonial property because it
has not been used for public service or for diplomatic purposes for over
thirteen (13) years now (Citing Article 422, Civil Code) and because
the intention by the Executive Department and the Congress to convert it
to private use has been manifested by overt acts, such as, among others:
(1) the transfer of the Philippine Embassy to Nampeidai (2) the issuance of
administrative orders for the possibility of alienating the four government
properties in Japan; (3) the issuance of Executive Order No. 296; (4) the
enactment by the Congress of Rep. Act No. 6657 [the Comprehensive
Agrarian Reform Law] on June 10, 1988 which contains a provision stating
that funds may be taken from the sale of Philippine properties in foreign
countries; (5) the holding of the public bidding of the Roppongi property but
which failed; (6) the deferment by the Senate in Resolution No. 55 of the
bidding to a future date; thus an acknowledgment by the Senate of the
government's intention to remove the Roppongi property from the public
service purpose; and (7) the resolution of this Court dismissing the petition
in Ojeda v. Bidding Committee, et al., G.R. No. 87478 which sought to
enjoin the second bidding of the Roppongi property scheduled on March
30, 1989.
III
In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on
the constitutionality of Executive Order No. 296. He had earlier filed a
petition in G.R. No. 87478 which the Court dismissed on August 1, 1989.
He now avers that the executive order contravenes the constitutional
mandate to conserve and develop the national patrimony stated in the
Preamble of the 1987 Constitution. It also allegedly violates:
(1) The reservation of the ownership and acquisition of alienable lands of
the public domain to Filipino citizens. (Sections 2 and 3, Article XII,
Constitution; Sections 22 and 23 of Commonwealth Act 141).itc-asl
(2) The preference for Filipino citizens in the grant of rights, privileges and
concessions covering the national economy and patrimony (Section 10,
Article VI, Constitution);

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(3) The protection given to Filipino enterprises against unfair competition


and trade practices;
(4) The guarantee of the right of the people to information on all matters of
public concern (Section 7, Article III, Constitution);
(5) The prohibition against the sale to non-Filipino citizens or entities not
wholly owned by Filipino citizens of capital goods received by the
Philippines under the Reparations Act (Sections 2 and 12 of Rep. Act No.
1789); and
(6) The declaration of the state policy of full public disclosure of all
transactions involving public interest (Section 28, Article III, Constitution).
Petitioner Ojeda warns that the use of public funds in the execution of an
unconstitutional executive order is a misapplication of public funds He
states that since the details of the bidding for the Roppongi property
were never publicly disclosed until February 15, 1990 (or a few days
before the scheduled bidding), the bidding guidelines are available only in
Tokyo, and the accomplishment of requirements and the selection of
qualified bidders should be done in Tokyo, interested Filipino citizens or
entities owned by them did not have the chance to comply with Purchase
Offer Requirements on the Roppongi. Worse, the Roppongi shall be sold
for a minimum price of $225 million from which price capital gains tax
under Japanese law of about 50 to 70% of the floor price would still be
deducted.
IV
The petitioners and respondents in both cases do not dispute the fact that
the Roppongi site and the three related properties were through
reparations agreements, that these were assigned to the government
sector and that the Roppongi property itself was specifically designated
under the Reparations Agreement to house the Philippine Embassy.
The nature of the Roppongi lot as property for public service is expressly
spelled out. It is dictated by the terms of the Reparations Agreement and
the corresponding contract of procurement which bind both the Philippine
government and the Japanese government.

There can be no doubt that it is of public dominion unless it is convincingly


shown that the property has become patrimonial. This, the respondents
have failed to do.
As property of public dominion, the Roppongi lot is outside the commerce
of man. It cannot be alienated. Its ownership is a special collective
ownership for general use and enjoyment, an application to the satisfaction
of collective needs, and resides in the social group. The purpose is not to
serve the State as a juridical person, but the citizens; it is intended for the
common and public welfare and cannot be the object of appropration.
(Taken from 3 Manresa, 66-69; cited in Tolentino, Commentaries on the
Civil Code of the Philippines, 1963 Edition, Vol. II, p. 26).
The applicable provisions of the Civil Code are:
ART. 419. Property is either of public dominion or of private
ownership.
ART. 420. The following things are property of public
dominion
(1) Those intended for public use, such as roads, canals,
rivers, torrents, ports and bridges constructed by the State,
banks shores roadsteads, and others of similar character;
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth.
ART. 421. All other property of the State, which is not of the
character stated in the preceding article, is patrimonial
property.
The Roppongi property is correctly classified under paragraph 2 of Article
420 of the Civil Code as property belonging to the State and intended for
some public service.

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Has the intention of the government regarding the use of the property been
changed because the lot has been Idle for some years? Has it become
patrimonial?
The fact that the Roppongi site has not been used for a long time for actual
Embassy service does not automatically convert it to patrimonial property.
Any such conversion happens only if the property is withdrawn from public
use (Cebu Oxygen and Acetylene Co. v. Bercilles, 66 SCRA 481 [1975]). A
property continues to be part of the public domain, not available for private
appropriation or ownership until there is a formal declaration on the part of
the government to withdraw it from being such (Ignacio v. Director of
Lands, 108 Phil. 335 [1960]).
The respondents enumerate various pronouncements by concerned public
officials insinuating a change of intention. We emphasize, however, that an
abandonment of the intention to use the Roppongi property for public
service and to make it patrimonial property under Article 422 of the Civil
Code must be definite Abandonment cannot be inferred from the non-use
alone specially if the non-use was attributable not to the government's own
deliberate and indubitable will but to a lack of financial support to repair
and improve the property (See Heirs of Felino Santiago v. Lazaro, 166
SCRA 368 [1988]). Abandonment must be a certain and positive act based
on correct legal premises.
A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not
relinquishment of the Roppongi property's original purpose. Even the
failure by the government to repair the building in Roppongi is not
abandonment since as earlier stated, there simply was a shortage of
government funds. The recent Administrative Orders authorizing a study of
the status and conditions of government properties in Japan were merely
directives for investigation but did not in any way signify a clear intention to
dispose of the properties.
Executive Order No. 296, though its title declares an "authority to sell",
does not have a provision in its text expressly authorizing the sale of the
four properties procured from Japan for the government sector. The
executive order does not declare that the properties lost their public
character. It merely intends to make the properties available to foreigners
and not to Filipinos alone in case of a sale, lease or other disposition. It

merely eliminates the restriction under Rep. Act No. 1789 that reparations
goods may be sold only to Filipino citizens and one hundred (100%)
percent Filipino-owned entities. The text of Executive Order No. 296
provides:
Section 1. The provisions of Republic Act No. 1789, as
amended, and of other laws to the contrary notwithstanding,
the above-mentioned properties can be made available for
sale, lease or any other manner of disposition to nonFilipino citizens or to entities owned by non-Filipino citizens.
Executive Order No. 296 is based on the wrong premise or assumption
that the Roppongi and the three other properties were earlier converted
into alienable real properties. As earlier stated, Rep. Act No. 1789
differentiates the procurements for the government sector and the private
sector (Sections 2 and 12, Rep. Act No. 1789). Only the private sector
properties can be sold to end-users who must be Filipinos or entities
owned by Filipinos. It is this nationality provision which was amended by
Executive Order No. 296.
Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as
one of the sources of funds for its implementation, the proceeds of the
disposition of the properties of the Government in foreign countries, did not
withdraw the Roppongi property from being classified as one of public
dominion when it mentions Philippine properties abroad. Section 63 (c)
refers to properties which are alienable and not to those reserved for
public use or service. Rep Act No. 6657, therefore, does not authorize the
Executive Department to sell the Roppongi property. It merely enumerates
possible sources of future funding to augment (as and when needed) the
Agrarian Reform Fund created under Executive Order No. 299. Obviously
any property outside of the commerce of man cannot be tapped as a
source of funds.
The respondents try to get around the public dominion character of the
Roppongi property by insisting that Japanese law and not our Civil Code
should apply.
It is exceedingly strange why our top government officials, of all people,
should be the ones to insist that in the sale of extremely valuable

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government property, Japanese law and not Philippine law should prevail.
The Japanese law - its coverage and effects, when enacted, and
exceptions to its provision is not presented to the Court It is simply
asserted that the lex loci rei sitae or Japanese law should apply without
stating what that law provides. It is a ed on faith that Japanese law would
allow the sale.
We see no reason why a conflict of law rule should apply when no conflict
of law situation exists. A conflict of law situation arises only when: (1)
There is a dispute over the title or ownership of an immovable, such that
the capacity to take and transfer immovables, the formalities of
conveyance, the essential validity and effect of the transfer, or the
interpretation and effect of a conveyance, are to be determined (See
Salonga, Private International Law, 1981 ed., pp. 377-383); and (2) A
foreign law on land ownership and its conveyance is asserted to conflict
with a domestic law on the same matters. Hence, the need to determine
which law should apply.
In the instant case, none of the above elements exists.
The issues are not concerned with validity of ownership or title. There is no
question that the property belongs to the Philippines. The issue is the
authority of the respondent officials to validly dispose of property belonging
to the State. And the validity of the procedures adopted to effect its sale.
This is governed by Philippine Law. The rule of lex situs does not apply.
The assertion that the opinion of the Secretary of Justice sheds light on the
relevance of the lex situsrule is misplaced. The opinion does not tackle
the alienability of the real properties procured through reparations nor the
existence in what body of the authority to sell them. In discussing who are
capableof acquiring the lots, the Secretary merely explains that it is the
foreign law which should determine who can acquire the properties so that
the constitutional limitation on acquisition of lands of the public domain to
Filipino citizens and entities wholly owned by Filipinos is inapplicable. We
see no point in belaboring whether or not this opinion is correct. Why
should we discuss who can acquire the Roppongi lot when there is no
showing that it can be sold?

The subsequent approval on October 4, 1988 by President Aquino of the


recommendation by the investigating committee to sell the Roppongi
property was premature or, at the very least, conditioned on a valid change
in the public character of the Roppongi property. Moreover, the approval
does not have the force and effect of law since the President already lost
her legislative powers. The Congress had already convened for more than
a year.
Assuming for the sake of argument, however, that the Roppongi property
is no longer of public dominion, there is another obstacle to its sale by the
respondents.
There is no law authorizing its conveyance.
Section 79 (f) of the Revised Administrative Code of 1917 provides
Section 79 (f ) Conveyances and contracts to which the
Government is a party. In cases in which the
Government of the Republic of the Philippines is a party to
any deed or other instrument conveying the title to real
estate or to any other property the value of which is in
excess of one hundred thousand pesos, the respective
Department Secretary shall prepare the necessary papers
which, together with the proper recommendations, shall be
submitted to the Congress of the Philippines for approval by
the same. Such deed, instrument, or contract shall be
executed and signed by the President of the Philippines on
behalf of the Government of the Philippines unless the
Government of the Philippines unless the authority therefor
be expressly vested by law in another officer. (Emphasis
supplied)
The requirement has been retained in Section 48, Book I of the
Administrative Code of 1987 (Executive Order No. 292).
SEC. 48. Official Authorized to Convey Real Property.
Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:

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(1) For property belonging to and titled in the name of the


Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another
officer.
(2) For property belonging to the Republic of the Philippines
but titled in the name of any political subdivision or of any
corporate agency or instrumentality, by the executive head
of the agency or instrumentality. (Emphasis supplied)
It is not for the President to convey valuable real property of the
government on his or her own sole will. Any such conveyance must be
authorized and approved by a law enacted by the Congress. It requires
executive and legislative concurrence.
Resolution No. 55 of the Senate dated June 8, 1989, asking for the
deferment of the sale of the Roppongi property does not withdraw the
property from public domain much less authorize its sale. It is a mere
resolution; it is not a formal declaration abandoning the public character of
the Roppongi property. In fact, the Senate Committee on Foreign Relations
is conducting hearings on Senate Resolution No. 734 which raises serious
policy considerations and calls for a fact-finding investigation of the
circumstances behind the decision to sell the Philippine government
properties in Japan.
The resolution of this Court in Ojeda v. Bidding Committee, et al.,
supra, did not pass upon the constitutionality of Executive Order No. 296.
Contrary to respondents' assertion, we did not uphold the authority of the
President to sell the Roppongi property. The Court stated that the
constitutionality of the executive order was not the real issue and that
resolving the constitutional question was "neither necessary nor finally
determinative of the case." The Court noted that "[W]hat petitioner
ultimately questions is the use of the proceeds of the disposition of the
Roppongi property." In emphasizing that "the decision of the Executive to
dispose of the Roppongi property to finance the CARP ... cannot be
questioned" in view of Section 63 (c) of Rep. Act No. 6657, the Court did
not acknowledge the fact that the property became alienable nor did it
indicate that the President was authorized to dispose of the Roppongi
property. The resolution should be read to mean that in case the Roppongi

property is re-classified to be patrimonial and alienable by authority of law,


the proceeds of a sale may be used for national economic development
projects including the CARP.
Moreover, the sale in 1989 did not materialize. The petitions before us
question the proposed 1990 sale of the Roppongi property. We are
resolving the issues raised in these petitions, not the issues raised in 1989.
Having declared a need for a law or formal declaration to withdraw the
Roppongi property from public domain to make it alienable and a need for
legislative authority to allow the sale of the property, we see no compelling
reason to tackle the constitutional issues raised by petitioner Ojeda.
The Court does not ordinarily pass upon constitutional questions unless
these questions are properly raised in appropriate cases and their
resolution is necessary for the determination of the case (People v. Vera,
65 Phil. 56 [1937]). The Court will not pass upon a constitutional question
although properly presented by the record if the case can be disposed of
on some other ground such as the application of a statute or general law
(Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad
Commission v. Pullman Co., 312 U.S. 496 [1941]).
The petitioner in G.R. No. 92013 states why the Roppongi property should
not be sold:
The Roppongi property is not just like any piece of property.
It was given to the Filipino people in reparation for the lives
and blood of Filipinos who died and suffered during the
Japanese military occupation, for the suffering of widows
and orphans who lost their loved ones and kindred, for the
homes and other properties lost by countless Filipinos
during the war. The Tokyo properties are a monument to the
bravery and sacrifice of the Filipino people in the face of an
invader; like the monuments of Rizal, Quezon, and other
Filipino heroes, we do not expect economic or financial
benefits from them. But who would think of selling these
monuments? Filipino honor and national dignity dictate that
we keep our properties in Japan as memorials to the
countless Filipinos who died and suffered. Even if we

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should become paupers we should not think of selling them.


For it would be as if we sold the lives and blood and tears of
our countrymen. (Rollo- G.R. No. 92013, p.147)
The petitioner in G.R. No. 92047 also states:

Separate Opinions

Roppongi is no ordinary property. It is one ceded by the


Japanese government in atonement for its past belligerence
for the valiant sacrifice of life and limb and for deaths,
physical dislocation and economic devastation the whole
Filipino people endured in World War II.
It is for what it stands for, and for what it could never bring
back to life, that its significance today remains undimmed,
inspire of the lapse of 45 years since the war ended, inspire
of the passage of 32 years since the property passed on to
the Philippine government.
Roppongi is a reminder that cannot should not be
dissipated ... (Rollo-92047, p. 9)
It is indeed true that the Roppongi property is valuable not so much
because of the inflated prices fetched by real property in Tokyo but more
so because of its symbolic value to all Filipinos veterans and civilians
alike. Whether or not the Roppongi and related properties will eventually
be sold is a policy determination where both the President and Congress
must concur. Considering the properties' importance and value, the laws
on conversion and disposition of property of public dominion must be
faithfully followed.
WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are
GRANTED. A writ of prohibition is issued enjoining the respondents from
proceeding with the sale of the Roppongi property in Tokyo, Japan. The
February 20, 1990 Temporary Restraining Order is made PERMANENT.
SO ORDERED.

CRUZ, J., concurring:


I concur completely with the excellent ponencia of Mr. Justice Gutierrez
and will add the following observations only for emphasis.
It is clear that the respondents have failed to show the President's legal
authority to sell the Roppongi property. When asked to do so at the
hearing on these petitions, the Solicitor General was at best ambiguous,
although I must add in fairness that this was not his fault. The fact is that
there is -no such authority. Legal expertise alone cannot conjure that
statutory permission out of thin air.
Exec. Order No. 296, which reads like so much legislative, double talk,
does not contain such authority. Neither does Rep. Act No. 6657, which
simply allows the proceeds of the sale of our properties abroad to be used
for the comprehensive agrarian reform program. Senate Res. No. 55 was
a mere request for the deferment of the scheduled sale of tile Roppongi
property, possibly to stop the transaction altogether; and ill any case it is
not a law. The sale of the said property may be authorized only by
Congress through a duly enacted statute, and there is no such law.
Once again, we have affirmed the principle that ours is a government of
laws and not of men, where every public official, from the lowest to the
highest, can act only by virtue of a valid authorization. I am happy to note
that in the several cases where this Court has ruled against her, the
President of the Philippines has submitted to this principle with becoming
grace.

Melencio-Herrera, Paras, Bidin, Grio-Aquino and Regalado, JJ., concur.


PADILLA, J., concurring:
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I concur in the decision penned by Mr. Justice Gutierrez, Jr., I only wish to
make a few observations which could help in further clarifying the issues.
Under our tripartite system of government ordained by the Constitution, it
is Congress that lays down or determines policies. The President executes
such policies. The policies determined by Congress are embodied in
legislative enactments that have to be approved by the President to
become law. The President, of course, recommends to Congress the
approval of policies but, in the final analysis, it is Congress that is the
policy - determining branch of government.
The judiciary interprets the laws and, in appropriate cases, determines
whether the laws enacted by Congress and approved by the President,
and presidential acts implementing such laws, are in accordance with the
Constitution.
The Roppongi property was acquired by the Philippine government
pursuant to the reparations agreement between the Philippine and
Japanese governments. Under such agreement, this property was
acquired by the Philippine government for a specific purpose, namely, to
serve as the site of the Philippine Embassy in Tokyo, Japan.
Consequently, Roppongi is a property of public dominion and intended for
public service, squarely falling within that class of property under Art. 420
of the Civil Code, which provides:
Art. 420. The following things are property of public
dominion :
(1) ...
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth. (339a)
Public dominion property intended for public service cannot be alienated
unless the property is first transformed into private property of the state
otherwise known as patrimonial property of the state. 1 The transformation
of public dominion property to state patrimonial property involves, to my
mind, a policy decision. It is a policy decision because the treatment of the

property varies according to its classification. Consequently, it is Congress


which can decide and declare the conversion of Roppongi from a public
dominion property to a state patrimonial property. Congress has made no
such decision or declaration.
Moreover, the sale of public property (once converted from public dominion
to state patrimonial property) must be approved by Congress, for this
again is a matter of policy (i.e. to keep or dispose of the property). Sec. 48,
Book 1 of the Administrative Code of 1987 provides:
SEC. 48. Official Authorized to Convey Real Property.
Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) For property belonging to and titled in the
name of the Republic of the Philippines, by
the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of
the Philippines but titled in the name of any
political subdivision or of any corporate
agency or instrumentality, by the executive
head of the agency or instrumentality.
(Emphasis supplied)
But the record is bare of any congressional decision or approval to sell
Roppongi. The record is likewise bare of any congressional authority
extended to the President to sell Roppongi thru public bidding or
otherwise.
It is therefore, clear that the President cannot sell or order the sale of
Roppongi thru public bidding or otherwise without a prior congressional
approval, first, converting Roppongi from a public dominion property to a
state patrimonial property, and, second, authorizing the President to sell
the same.

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ACCORDINGLY, my vote is to GRANT the petition and to make


PERMANENT the temporary restraining order earlier issued by this Court.

SARMIENTO, J., concurring:


The central question, as I see it, is whether or not the so-called "Roppongi
property' has lost its nature as property of public dominion, and hence, has
become patrimonial property of the State. I understand that the parties are
agreed that it was property intended for "public service" within the
contemplation of paragraph (2), of Article 430, of the Civil Code, and
accordingly, land of State dominion, and beyond human commerce. The
lone issue is, in the light of supervening developments, that is non-user
thereof by the National Government (for diplomatic purposes) for the last
thirteen years; the issuance of Executive Order No. 296 making it available
for sale to any interested buyer; the promulgation of Republic Act No.
6657, the Comprehensive Agrarian Reform Law, making available for the
program's financing, State assets sold; the approval by the President of
the recommendation of the investigating committee formed to study the
property's utilization; and the issuance of Resolution No. 55 of the
Philippine Senate requesting for the deferment of its disposition it,
"Roppongi", is still property of the public dominion, and if it is not, how it
lost that character.
When land of the public dominion ceases to be one, or when the change
takes place, is a question our courts have debated early. In a 1906
decision, 1 it was held that property of the public dominion, a public plaza
in this instance, becomes patrimonial upon use thereof for purposes other
than a plaza. In a later case, 2 this ruling was reiterated. Likewise, it has
been held that land, originally private property, has become of public
dominion upon its donation to the town and its conversion and use as a
public plaza. 3 It is notable that under these three cases, the character of
the property, and any change occurring therein, depends on the actual use
to which it is dedicated. 4
Much later, however, the Court held that "until a formal declaration on the
part of the Government, through the executive department or the
Legislative, to the effect that the land . . . is no longer needed for [public]

service- for public use or for special industries, [it] continue[s] to be part of
the public [dominion], not available for private expropriation or
ownership." 5 So also, it was ruled that a political subdivision (the City of
Cebu in this case) alone may declare (under its charter) a city road
abandoned and thereafter, to dispose of it. 6
In holding that there is "a need for a law or formal declaration to withdraw
the Roppongi property from public domain to make it alienable and a land
for legislative authority to allow the sale of the property" 7the majority lays
stress to the fact that: (1) An affirmative act executive or legislative is
necessary to reclassify property of the public dominion, and (2) a
legislative decree is required to make it alienable. It also clears the
uncertainties brought about by earlier interpretations that the nature of
property-whether public or patrimonial is predicated on the manner it is
actually used, or not used, and in the same breath, repudiates the
Government's position that the continuous non-use of "Roppongi", among
other arguments, for "diplomatic purposes", has turned it into State
patrimonial property.
I feel that this view corresponds to existing pronouncements of this Court,
among other things, that: (1) Property is presumed to be State property in
the absence of any showing to the contrary; 8 (2) With respect to forest
lands, the same continue to be lands of the public dominion unless and
until reclassified by the Executive Branch of the Government; 9 and (3) All
natural resources, under the Constitution, and subject to exceptional
cases, belong to the State. 10
I am elated that the Court has banished previous uncertainties.

FELICIANO, J., dissenting


With regret, I find myself unable to share the conclusions reached by Mr.
Justice Hugo E. Gutierrez, Jr.
For purposes of this separate opinion, I assume that the piece of land
located in 306 Roppongi, 5-Chome, Minato-ku Tokyo, Japan (hereinafter

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referred to as the "Roppongi property") may be characterized as property


of public dominion, within the meaning of Article 420 (2) of the Civil Code:
[Property] which belong[s] to the State, without being for
public use, and are intended for some public service -.
It might not be amiss however, to note that the appropriateness of trying to
bring within the confines of the simple threefold classification found in
Article 420 of the Civil Code ("property for public use property "intended for
some public service" and property intended "for the development of the
national wealth") all property owned by the Republic of the Philippines
whether found within the territorial boundaries of the Republic or located
within the territory of another sovereign State, is not self-evident. The first
item of the classification property intended for public use can scarcely
be properly applied to property belonging to the Republic but found within
the territory of another State. The third item of the classification property
intended for the development of the national wealth is illustrated, in Article
339 of the Spanish Civil Code of 1889, by mines or mineral properties.
Again, mineral lands owned by a sovereign State are rarely, if ever, found
within the territorial base of another sovereign State. The task of
examining in detail the applicability of the classification set out in Article
420 of our Civil Code to property that the Philippines happens to own
outside its own boundaries must, however, be left to academicians.
For present purposes, too, I agree that there is no question of conflict of
laws that is, at the present time, before this Court. The issues before us
relate essentially to authority to sell the Roppongi property so far as
Philippine law is concerned.
The majority opinion raises two (2) issues: (a) whether or not the Roppongi
property has been converted into patrimonial property or property of the
private domain of the State; and (b) assuming an affirmative answer to (a),
whether or not there is legal authority to dispose of the Roppongi property.
I
Addressing the first issue of conversion of property of public dominion
intended for some public service, into property of the private domain of the
Republic, it should be noted that the Civil Code does not address the

question of who has authority to effect such conversion. Neither does the
Civil Code set out or refer to any procedure for such conversion.
Our case law, however, contains some fairly explicit pronouncements on
this point, as Justice Sarmiento has pointed out in his concurring opinion.
In Ignacio v. Director of Lands (108 Phils. 335 [1960]), petitioner Ignacio
argued that if the land in question formed part of the public domain, the
trial court should have declared the same no longer necessary for public
use or public purposes and which would, therefore, have become
disposable and available for private ownership. Mr. Justice Montemayor,
speaking for the Court, said:
Article 4 of the Law of Waters of 1866 provides that when a
portion of the shore is no longer washed by the waters of
the sea and is not necessary for purposes of public utility, or
for the establishment of special industries, or for coastguard service, the government shall declare it to be the
property of the owners of the estates adjacent thereto and
as an increment thereof. We believe that only the executive
and possibly the legislative departments have the authority
and the power to make the declaration that any land so
gained by the sea, is not necessary for purposes of public
utility, or for the establishment of special industries, or for
coast-guard service. If no such declaration has been made
by said departments, the lot in question forms part of the
public domain. (Natividad v. Director of Lands, supra.)
The reason for this pronouncement, according to this
Tribunal in the case of Vicente Joven y Monteverde v.
Director of Lands, 93 Phil., 134 (cited in Velayo's Digest,
Vol. 1, p. 52).
... is undoubtedly that the courts are neither primarily called
upon, nor indeed in a position to determine whether any
public land are to be used for the purposes specified in
Article 4 of the Law of Waters. Consequently, until a formal
declaration on the part of the Government, through the
executive department or the Legislature, to the effect that
the land in question is no longer needed for coast-guard

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service, for public use or for special industries, they


continue to be part of the public domain not available for
private appropriation or ownership.(108 Phil. at 338-339;
emphasis supplied)
Thus, under Ignacio, either the Executive Department or the Legislative
Department may convert property of the State of public dominion into
patrimonial property of the State. No particular formula or procedure of
conversion is specified either in statute law or in case law. Article 422 of
the Civil Code simply states that: "Property of public dominion, when no
longer intended for public use or for public service, shall form part of the
patrimonial property of the State". I respectfully submit, therefore, that the
only requirement which is legitimately imposable is that the intent to
convert must be reasonably clear from a consideration of the acts or acts
of the Executive Department or of the Legislative Department which are
said to have effected such conversion.
The same legal situation exists in respect of conversion of property of
public dominion belonging to municipal corporations, i.e., local
governmental units, into patrimonial property of such entities.
In CebuOxygen Acetylene v. Bercilles (66 SCRA 481 [1975]), the City
Council of Cebu by resolution declared a certain portion of an existing
street as an abandoned road, "the same not being included in the city
development plan". Subsequently, by another resolution, the City Council
of Cebu authorized the acting City Mayor to sell the land through public
bidding. Although there was no formal and explicit declaration of
conversion of property for public use into patrimonial property, the
Supreme Court said:
xxx xxx xxx
(2) Since that portion of the city street subject of petitioner's
application for registration of title was withdrawn from public
use, it follows that such withdrawn portion becomes
patrimonial property which can be the object of an ordinary
contract.
Article 422 of the Civil Code expressly provides that
"Property of public dominion, when no longer intended for

public use of for public service, shall form part of the


patrimonial property of the State."
Besides, the Revised Charter of the City of Cebu heretofore
quoted, in very clear and unequivocal terms, states that
"Property thus withdrawn from public servitude may be
used or conveyed for any purpose for which other real
property belonging to the City may be lawfully used or
conveyed."
Accordingly, the withdrawal of the property in question from
public use and its subsequent sale to the petitioner is
valid. Hence, the petitioner has a registrable title over the lot
in question. (66 SCRA at 484-; emphasis supplied)
Thus, again as pointed out by Sarmiento J., in his separate opinion, in the
case of property owned by municipal corporations simple non-use or the
actual dedication of public property to some use other than "public use" or
some "public service", was sufficient legally to convert such property into
patrimonial property (Municipality of Oas v. Roa, 7 Phil. 20 [1906]Municipality of Hinunganan v. Director of Lands 24 Phil. 124 [1913];
Province of Zamboanga del Norte v. City of Zamboanga, 22 SCRA 1334
(1968).
I would also add that such was the case not only in respect of' property of
municipal corporations but also in respect of property of the State itself.
Manresa in commenting on Article 341 of the 1889 Spanish Civil Code
which has been carried over verbatim into our Civil Code by Article 422
thereof, wrote:
La dificultad mayor en todo esto estriba, naturalmente, en
fijar el momento en que los bienes de dominio publico dejan
de serlo. Si la Administracion o la autoridad competente
legislative realizan qun acto en virtud del cual cesa el
destino o uso publico de los bienes de que se trata
naturalmente la dificultad queda desde el primer momento
resuelta. Hay un punto de partida cierto para iniciar las
relaciones juridicas a que pudiera haber lugar Pero puede
ocurrir que no haya taldeclaracion expresa, legislativa or

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administrativa, y, sin embargo, cesar de hecho el destino


publico de los bienes; ahora bien, en este caso, y para los
efectos juridicos que resultan de entrar la cosa en el
comercio de los hombres,' se entedera que se ha verificado
la conversion de los bienes patrimoniales?
El citado tratadista Ricci opina, respecto del antiguo Codigo
italiano, por la afirmativa, y por nuestra parte creemos que
tal debe ser la soluciion. El destino de las cosas no
depende tanto de una declaracion expresa como del uso
publico de las mismas, y cuanda el uso publico cese con
respecto de determinados bienes, cesa tambien su
situacion en el dominio publico. Si una fortaleza en ruina se
abandona y no se repara, si un trozo de la via publica se
abandona tambien por constituir otro nuevo an mejores
condiciones....ambos bienes cesan de estar Codigo, y leyes
especiales mas o memos administrativas. (3 Manresa,
Comentarios al Codigo Civil Espanol, p. 128 [7a ed.; 1952)
(Emphasis supplied)
The majority opinion says that none of the executive acts pointed to by the
Government purported, expressly or definitely, to convert the Roppongi
property into patrimonial property of the Republic. Assuming that to be
the case, it is respectfully submitted that cumulative effect of the executive
acts here involved was to convert property originally intended for and
devoted to public service into patrimonial property of the State, that is,
property susceptible of disposition to and appropration by private persons.
These executive acts, in their totality if not each individual act, make
crystal clear the intent of the Executive Department to effect such
conversion. These executive acts include:
(a) Administrative Order No. 3 dated 11 August 1985, which created a
Committee to study the disposition/utilization of the Government's property
in Japan, The Committee was composed of officials of the Executive
Department: the Executive Secretary; the Philippine Ambassador to Japan;
and representatives of the Department of Foreign Affairs and the Asset
Privatization Trust. On 19 September 1988, the Committee recommended
to the President the sale of one of the lots (the lot specifically in Roppongi)

through public bidding. On 4 October 1988, the President approved the


recommendation of the Committee.
On 14 December 1988, the Philippine Government by diplomatic note
informed the Japanese Ministry of Foreign Affairs of the Republic's
intention to dispose of the property in Roppongi. The Japanese
Government through its Ministry of Foreign Affairs replied that it interposed
no objection to such disposition by the Republic. Subsequently, the
President and the Committee informed the leaders of the House of
Representatives and of the Senate of the Philippines of the proposed
disposition of the Roppongi property.
(b) Executive Order No. 296, which was issued by the President on 25 July
1987. Assuming that the majority opinion is right in saying that Executive
Order No. 296 is insufficient to authorize the sale of the Roppongi property,
it is here submitted with respect that Executive Order No. 296 is more than
sufficient to indicate an intention to convert the property previously devoted
to public service into patrimonial property that is capable of being sold or
otherwise disposed of
(c) Non-use of the Roppongi lot for fourteen (14) years for diplomatic or for
any other public purposes. Assuming (but only arguendo) that non-use
does not, by itself, automatically convert the property into patrimonial
property. I respectfully urge that prolonged non-use, conjoined with the
other factors here listed, was legally effective to convert the lot in
Roppongi into patrimonial property of the State. Actually, as already
pointed out, case law involving property of municipal corporations is to the
effect that simple non-use or the actual dedication of public property to
some use other than public use or public service, was sufficient to convert
such property into patrimonial property of the local governmental entity
concerned. Also as pointed out above, Manresa reached the same
conclusion in respect of conversion of property of the public domain of the
State into property of the private domain of the State.
The majority opinion states that "abandonment cannot be inferred from the
non-use alone especially if the non-use was attributable not to the
Government's own deliberate and indubitable will but to lack of financial
support to repair and improve the property" (Majority Opinion, p. 13). With
respect, it may be stressed that there is no abandonment involved here,

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certainly no abandonment of property or of property rights. What is


involved is the charge of the classification of the property from property of
the public domain into property of the private domain of the State.
Moreover, if for fourteen (14) years, the Government did not see fit to
appropriate whatever funds were necessary to maintain the property in
Roppongi in a condition suitable for diplomatic representation purposes,
such circumstance may, with equal logic, be construed as a manifestation
of the crystalizing intent to change the character of the property.

shall be executed and signed by the President of the


Philippines on behalf of the Government of the Philippines
unless the authority therefor be expressly vested by law in
another officer. (Emphasis supplied)
The majority opinion then goes on to state that: "[T]he requirement has
been retained in Section 4, Book I of the Administrative Code of 1987
(Executive Order No. 292)" which reads:

(d) On 30 March 1989, a public bidding was in fact held by the Executive
Department for the sale of the lot in Roppongi. The circumstance that this
bidding was not successful certainly does not argue against an intent to
convert the property involved into property that is disposable by bidding.

SEC. 48. Official Authorized to Convey Real Property.


Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:

The above set of events and circumstances makes no sense at all if it


does not, as a whole, show at least the intent on the part of the Executive
Department (with the knowledge of the Legislative Department) to convert
the property involved into patrimonial property that is susceptible of being
sold.

(1) For property belonging to and titled in the name of the


Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another
officer.

II
Having reached an affirmative answer in respect of the first issue, it is
necessary to address the second issue of whether or not there exists legal
authority for the sale or disposition of the Roppongi property.
The majority opinion refers to Section 79(f) of the Revised Administrative
Code of 1917 which reads as follows:
SEC. 79 (f). Conveyances and contracts to which the
Government is a party. In cases in which the
Government of the Republic of the Philippines is a party to
any deed or other instrument conveying the title to real
estate or to any other property the value of which is in
excess of one hundred thousand pesos, the respective
Department Secretary shall prepare the necessary papers
which, together with the proper recommendations, shall
be submitted to the Congress of the Philippines for
approval by the same. Such deed, instrument, or contract

(2) For property belonging to the Republic of the Philippines


but titled in the name of any political subdivision or of any
corporate agency or instrumentality, by the executive head
of the agency or instrumentality. (Emphasis supplied)
Two points need to be made in this connection. Firstly, the requirement of
obtaining specific approval of Congress when the price of the real
property being disposed of is in excess of One Hundred Thousand Pesos
(P100,000.00) under the Revised Administrative Code of 1917, has
been deleted from Section 48 of the 1987 Administrative Code. What
Section 48 of the present Administrative Code refers to isauthorization by
law for the conveyance. Section 48 does not purport to be itself a source of
legal authority for conveyance of real property of the Government. For
Section 48 merely specifies the official authorized to execute and sign on
behalf of the Government the deed of conveyance in case of such a
conveyance.
Secondly, examination of our statute books shows that authorization by
law for disposition of real property of the private domain of the
Government, has been granted by Congress both in the form of (a) a

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general, standing authorization for disposition of patrimonial property of the


Government; and (b) specific legislation authorizing the disposition of
particular pieces of the Government's patrimonial property.
Standing legislative authority for the disposition of land of the private
domain of the Philippines is provided by Act No. 3038, entitled "An Act
Authorizing the Secretary of Agriculture and Natural Resources to Sell or
Lease Land of the Private Domain of the Government of the Philippine
Islands (now Republic of the Philippines)", enacted on 9 March 1922. The
full text of this statute is as follows:
Be it enacted by the Senate and House of Representatives
of the Philippines in Legislature assembled and by the
authority of the same:
SECTION 1. The Secretary of Agriculture and Natural
Resources (now Secretary of the Environment and Natural
Resources) is hereby authorized to sell or lease land of the
private domain of the Government of the Philippine Islands,
or any part thereof, to such persons, corporations or
associations as are, under the provisions of Act Numbered
Twenty-eight hundred and seventy-four, (now
Commonwealth Act No. 141, as amended) known as the
Public Land Act, entitled to apply for the purchase or lease
or agricultural public land.
SECTION 2. The sale of the land referred to in the
preceding section shall, if such land is agricultural, be made
in the manner and subject to the limitations prescribed in
chapters five and six, respectively, of said Public Land Act,
and if it be classified differently, in conformity with the
provisions of chapter nine of said Act: Provided, however,
That the land necessary for the public service shall be
exempt from the provisions of this Act.
SECTION 3. This Act shall take effect on its approval.
Approved, March 9, 1922. (Emphasis supplied)

Lest it be assumed that Act No. 3038 refers only to agricultural lands of the
private domain of the State, it must be noted that Chapter 9 of the old
Public Land Act (Act No. 2874) is now Chapter 9 of the present Public
Land Act (Commonwealth Act No. 141, as amended) and that both
statutes refer to: "any tract of land of the public domain which being neither
timber nor mineral land, is intended to be used forresidential purposes or
for commercial or industrial purposes other than agricultural" (Emphasis
supplied).itc-asl In other words, the statute covers the sale or lease or
residential, commercial or industrial land of the private domain of the State.
Implementing regulations have been issued for the carrying out of the
provisions of Act No. 3038. On 21 December 1954, the then Secretary of
Agriculture and Natural Resources promulgated Lands Administrative
Orders Nos. 7-6 and 7-7 which were entitled, respectively: "Supplementary
Regulations Governing the Sale of the Lands of the Private Domain of the
Republic of the Philippines"; and "Supplementary Regulations Governing
the Lease of Lands of Private Domain of the Republic of the Philippines"
(text in 51 O.G. 28-29 [1955]).
It is perhaps well to add that Act No. 3038, although now sixty-eight (68)
years old, is still in effect and has not been repealed. 1
Specific legislative authorization for disposition of particular patrimonial
properties of the State is illustrated by certain earlier statutes. The first of
these was Act No. 1120, enacted on 26 April 1904, which provided for the
disposition of the friar lands, purchased by the Government from the
Roman Catholic Church, to bona fide settlers and occupants thereof or to
other persons. In Jacinto v. Director of Lands(49 Phil. 853 [1926]), these
friar lands were held to be private and patrimonial properties of the State.
Act No. 2360, enacted on -28 February 1914, authorized the sale of
the San Lazaro Estate located in the City of Manila, which had also been
purchased by the Government from the Roman Catholic Church. In
January 1916, Act No. 2555 amended Act No. 2360 by including therein all
lands and buildings owned by the Hospital and the Foundation of San
Lazaro theretofor leased by private persons, and which were also acquired
by the Philippine Government.
After the enactment in 1922 of Act No. 3038, there appears, to my
knowledge, to be only one statute authorizing the President to dispose of a

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specific piece of property. This statute is Republic Act No. 905, enacted on
20 June 1953, which authorized the
President to sell an Identified parcel of land of the private domain of the
National Government to the National Press Club of the Philippines, and to
other recognized national associations of professionals with academic
standing, for the nominal price of P1.00. It appears relevant to note that
Republic Act No. 905 was not an outright disposition in perpetuity of the
property involved- it provided for reversion of the property to the National
Government in case the National Press Club stopped using it for its
headquarters. What Republic Act No. 905 authorized was really
a donation, and not a sale.
The basic submission here made is that Act No. 3038 provides standing
legislative authorization for disposition of the Roppongi property which, in
my view, has been converted into patrimonial property of the Republic. 2
To some, the submission that Act No. 3038 applies not only to lands of the
private domain of the State located in the Philippines but also to
patrimonial property found outside the Philippines, may appear strange or
unusual. I respectfully submit that such position is not any more unusual or
strange than the assumption that Article 420 of the Civil Code applies not
only to property of the Republic located within Philippine territory but also
to property found outside the boundaries of the Republic.
It remains to note that under the well-settled doctrine that heads of
Executive Departments are alter egosof the President (Villena v. Secretary
of the Interior, 67 Phil. 451 [1939]), and in view of the constitutional power
of control exercised by the President over department heads (Article VII,
Section 17,1987 Constitution), the President herself may carry out the
function or duty that is specifically lodged in the Secretary of the
Department of Environment and Natural Resources (Araneta v.
Gatmaitan 101 Phil. 328 [1957]). At the very least, the President retains
the power to approve or disapprove the exercise of that function or duty
when done by the Secretary of Environment and Natural Resources.
It is hardly necessary to add that the foregoing analyses and submissions
relate only to the austere question of existence of legal power or authority.
They have nothing to do with much debated questions of wisdom or

propriety or relative desirability either of the proposed disposition itself or


of the proposed utilization of the anticipated proceeds of the property
involved. These latter types of considerations He within the sphere of
responsibility of the political departments of government the Executive and
the Legislative authorities.
For all the foregoing, I vote to dismiss the Petitions for Prohibition in both
G.R. Nos. 92013 and 92047.
Fernan, C.J., Narvasa, Gancayco, Cortes and Medialdea, JJ., concurring.

Separate Opinions
CRUZ, J., concurring:
I concur completely with the excellent ponencia of Mr. Justice Gutierrez
and will add the following observations only for emphasis.
It is clear that the respondents have failed to show the President's legal
authority to sell the Roppongi property. When asked to do so at the
hearing on these petitions, the Solicitor General was at best ambiguous,
although I must add in fairness that this was not his fault. The fact is that
there is -no such authority. Legal expertise alone cannot conjure that
statutory permission out of thin air.
Exec. Order No. 296, which reads like so much legislative, double talk,
does not contain such authority. Neither does Rep. Act No. 6657, which
simply allows the proceeds of the sale of our properties abroad to be used
for the comprehensive agrarian reform program. Senate Res. No. 55 was
a mere request for the deferment of the scheduled sale of tile Roppongi
property, possibly to stop the transaction altogether; and ill any case it is
not a law. The sale of the said property may be authorized only by
Congress through a duly enacted statute, and there is no such law.

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Once again, we have affirmed the principle that ours is a government of


laws and not of men, where every public official, from the lowest to the
highest, can act only by virtue of a valid authorization. I am happy to note
that in the several cases where this Court has ruled against her, the
President of the Philippines has submitted to this principle with becoming
grace.

PADILLA, J., concurring:


I concur in the decision penned by Mr. Justice Gutierrez, Jr., I only wish to
make a few observations which could help in further clarifying the issues.
Under our tripartite system of government ordained by the Constitution, it
is Congress that lays down or determines policies. The President executes
such policies. The policies determined by Congress are embodied in
legislative enactments that have to be approved by the President to
become law. The President, of course, recommends to Congress the
approval of policies but, in the final analysis, it is Congress that is the
policy - determining branch of government.
The judiciary interprets the laws and, in appropriate cases, determines
whether the laws enacted by Congress and approved by the President,
and presidential acts implementing such laws, are in accordance with the
Constitution.
The Roppongi property was acquired by the Philippine government
pursuant to the reparations agreement between the Philippine and
Japanese governments. Under such agreement, this property was
acquired by the Philippine government for a specific purpose, namely, to
serve as the site of the Philippine Embassy in Tokyo, Japan.
Consequently, Roppongi is a property of public dominion and intended for
public service, squarely falling within that class of property under Art. 420
of the Civil Code, which provides:
Art. 420. The following things are property of public
dominion :

(1) ...
(2) Those which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth. (339a)
Public dominion property intended for public service cannot be alienated
unless the property is first transformed into private property of the state
otherwise known as patrimonial property of the state. 1 The transformation
of public dominion property to state patrimonial property involves, to my
mind, a policy decision. It is a policy decision because the treatment of the
property varies according to its classification. Consequently, it is Congress
which can decide and declare the conversion of Roppongi from a public
dominion property to a state patrimonial property. Congress has made no
such decision or declaration.
Moreover, the sale of public property (once converted from public dominion
to state patrimonial property) must be approved by Congress, for this
again is a matter of policy (i.e. to keep or dispose of the property). Sec. 48,
Book 1 of the Administrative Code of 1987 provides:
SEC. 48. Official Authorized to Convey Real Property.
Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:
(1) For property belonging to and titled in the
name of the Republic of the Philippines, by
the President, unless the authority therefor is
expressly vested by law in another officer.
(2) For property belonging to the Republic of
the Philippines but titled in the name of any
political subdivision or of any corporate
agency or instrumentality, by the executive
head of the agency or instrumentality.
(Emphasis supplied)

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But the record is bare of any congressional decision or approval to sell


Roppongi. The record is likewise bare of any congressional authority
extended to the President to sell Roppongi thru public bidding or
otherwise.
It is therefore, clear that the President cannot sell or order the sale of
Roppongi thru public bidding or otherwise without a prior congressional
approval, first, converting Roppongi from a public dominion property to a
state patrimonial property, and, second, authorizing the President to sell
the same.
ACCORDINGLY, my vote is to GRANT the petition and to make
PERMANENT the temporary restraining order earlier issued by this Court.

SARMIENTO, J., concurring:


The central question, as I see it, is whether or not the so-called "Roppongi
property' has lost its nature as property of public dominion, and hence, has
become patrimonial property of the State. I understand that the parties are
agreed that it was property intended for "public service" within the
contemplation of paragraph (2), of Article 430, of the Civil Code, and
accordingly, land of State dominion, and beyond human commerce. The
lone issue is, in the light of supervening developments, that is non-user
thereof by the National Government (for diplomatic purposes) for the last
thirteen years; the issuance of Executive Order No. 296 making it available
for sale to any interested buyer; the promulgation of Republic Act No.
6657, the Comprehensive Agrarian Reform Law, making available for the
program's financing, State assets sold; the approval by the President of
the recommendation of the investigating committee formed to study the
property's utilization; and the issuance of Resolution No. 55 of the
Philippine Senate requesting for the deferment of its disposition it,
"Roppongi", is still property of the public dominion, and if it is not, how it
lost that character.
When land of the public dominion ceases to be one, or when the change
takes place, is a question our courts have debated early. In a 1906
decision, 1 it was held that property of the public dominion, a public plaza

in this instance, becomes patrimonial upon use thereof for purposes other
than a plaza. In a later case, 2 this ruling was reiterated. Likewise, it has
been held that land, originally private property, has become of public
dominion upon its donation to the town and its conversion and use as a
public plaza. 3 It is notable that under these three cases, the character of
the property, and any change occurring therein, depends on the actual use
to which it is dedicated. 4
Much later, however, the Court held that "until a formal declaration on the
part of the Government, through the executive department or the
Legislative, to the effect that the land . . . is no longer needed for [public]
service- for public use or for special industries, [it] continue[s] to be part of
the public [dominion], not available for private expropriation or
ownership." 5 So also, it was ruled that a political subdivision (the City of
Cebu in this case) alone may declare (under its charter) a city road
abandoned and thereafter, to dispose of it. 6
In holding that there is "a need for a law or formal declaration to withdraw
the Roppongi property from public domain to make it alienable and a land
for legislative authority to allow the sale of the property" 7the majority lays
stress to the fact that: (1) An affirmative act executive or legislative is
necessary to reclassify property of the public dominion, and (2) a
legislative decree is required to make it alienable. It also clears the
uncertainties brought about by earlier interpretations that the nature of
property-whether public or patrimonial is predicated on the manner it is
actually used, or not used, and in the same breath, repudiates the
Government's position that the continuous non-use of "Roppongi", among
other arguments, for "diplomatic purposes", has turned it into State
patrimonial property.
I feel that this view corresponds to existing pronouncements of this Court,
among other things, that: (1) Property is presumed to be State property in
the absence of any showing to the contrary; 8 (2) With respect to forest
lands, the same continue to be lands of the public dominion unless and
until reclassified by the Executive Branch of the Government; 9 and (3) All
natural resources, under the Constitution, and subject to exceptional
cases, belong to the State. 10
I am elated that the Court has banished previous uncertainties.

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The majority opinion raises two (2) issues: (a) whether or not the Roppongi
property has been converted into patrimonial property or property of the
private domain of the State; and (b) assuming an affirmative answer to (a),
whether or not there is legal authority to dispose of the Roppongi property.

FELICIANO, J., dissenting


With regret, I find myself unable to share the conclusions reached by Mr.
Justice Hugo E. Gutierrez, Jr.

For purposes of this separate opinion, I assume that the piece of land
located in 306 Roppongi, 5-Chome, Minato-ku Tokyo, Japan (hereinafter
referred to as the "Roppongi property") may be characterized as property
of public dominion, within the meaning of Article 420 (2) of the Civil Code:

Addressing the first issue of conversion of property of public dominion


intended for some public service, into property of the private domain of the
Republic, it should be noted that the Civil Code does not address the
question of who has authority to effect such conversion. Neither does the
Civil Code set out or refer to any procedure for such conversion.

[Property] which belong[s] to the State, without being for


public use, and are intended for some public service -.
It might not be amiss however, to note that the appropriateness of trying to
bring within the confines of the simple threefold classification found in
Article 420 of the Civil Code ("property for public use property "intended for
some public service" and property intended "for the development of the
national wealth") all property owned by the Republic of the Philippines
whether found within the territorial boundaries of the Republic or located
within the territory of another sovereign State, is not self-evident. The first
item of the classification property intended for public use can scarcely
be properly applied to property belonging to the Republic but found within
the territory of another State. The third item of the classification property
intended for the development of the national wealth is illustrated, in Article
339 of the Spanish Civil Code of 1889, by mines or mineral properties.
Again, mineral lands owned by a sovereign State are rarely, if ever, found
within the territorial base of another sovereign State. The task of
examining in detail the applicability of the classification set out in Article
420 of our Civil Code to property that the Philippines happens to own
outside its own boundaries must, however, be left to academicians.
For present purposes, too, I agree that there is no question of conflict of
laws that is, at the present time, before this Court. The issues before us
relate essentially to authority to sell the Roppongi property so far as
Philippine law is concerned.

Our case law, however, contains some fairly explicit pronouncements on


this point, as Justice Sarmiento has pointed out in his concurring opinion.
In Ignacio v. Director of Lands (108 Phils. 335 [1960]), petitioner Ignacio
argued that if the land in question formed part of the public domain, the
trial court should have declared the same no longer necessary for public
use or public purposes and which would, therefore, have become
disposable and available for private ownership. Mr. Justice Montemayor,
speaking for the Court, said:
Article 4 of the Law of Waters of 1866 provides that when a
portion of the shore is no longer washed by the waters of
the sea and is not necessary for purposes of public utility, or
for the establishment of special industries, or for coastguard service, the government shall declare it to be the
property of the owners of the estates adjacent thereto and
as an increment thereof. We believe that only the executive
and possibly the legislative departments have the authority
and the power to make the declaration that any land so
gained by the sea, is not necessary for purposes of public
utility, or for the establishment of special industries, or for
coast-guard service. If no such declaration has been made
by said departments, the lot in question forms part of the
public domain. (Natividad v. Director of Lands, supra.)
The reason for this pronouncement, according to this
Tribunal in the case of Vicente Joven y Monteverde v.

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Director of Lands, 93 Phil., 134 (cited in Velayo's Digest,


Vol. 1, p. 52).
... is undoubtedly that the courts are neither primarily called
upon, nor indeed in a position to determine whether any
public land are to be used for the purposes specified in
Article 4 of the Law of Waters. Consequently, until a formal
declaration on the part of the Government, through the
executive department or the Legislature, to the effect that
the land in question is no longer needed for coast-guard
service, for public use or for special industries, they
continue to be part of the public domain not available for
private appropriation or ownership.(108 Phil. at 338-339;
emphasis supplied)
Thus, under Ignacio, either the Executive Department or the Legislative
Department may convert property of the State of public dominion into
patrimonial property of the State. No particular formula or procedure of
conversion is specified either in statute law or in case law. Article 422 of
the Civil Code simply states that: "Property of public dominion, when no
longer intended for public use or for public service, shall form part of the
patrimonial property of the State". I respectfully submit, therefore, that the
only requirement which is legitimately imposable is that the intent to
convert must be reasonably clear from a consideration of the acts or acts
of the Executive Department or of the Legislative Department which are
said to have effected such conversion.
The same legal situation exists in respect of conversion of property of
public dominion belonging to municipal corporations, i.e., local
governmental units, into patrimonial property of such entities.
In CebuOxygen Acetylene v. Bercilles (66 SCRA 481 [1975]), the City
Council of Cebu by resolution declared a certain portion of an existing
street as an abandoned road, "the same not being included in the city
development plan". Subsequently, by another resolution, the City Council
of Cebu authorized the acting City Mayor to sell the land through public
bidding. Although there was no formal and explicit declaration of
conversion of property for public use into patrimonial property, the
Supreme Court said:

xxx xxx xxx


(2) Since that portion of the city street subject of petitioner's
application for registration of title was withdrawn from public
use, it follows that such withdrawn portion becomes
patrimonial property which can be the object of an ordinary
contract.
Article 422 of the Civil Code expressly provides that
"Property of public dominion, when no longer intended for
public use of for public service, shall form part of the
patrimonial property of the State."
Besides, the Revised Charter of the City of Cebu heretofore
quoted, in very clear and unequivocal terms, states that
"Property thus withdrawn from public servitude may be
used or conveyed for any purpose for which other real
property belonging to the City may be lawfully used or
conveyed."
Accordingly, the withdrawal of the property in question from
public use and its subsequent sale to the petitioner is
valid. Hence, the petitioner has a registrable title over the lot
in question. (66 SCRA at 484-; emphasis supplied)
Thus, again as pointed out by Sarmiento J., in his separate opinion, in the
case of property owned by municipal corporations simple non-use or the
actual dedication of public property to some use other than "public use" or
some "public service", was sufficient legally to convert such property into
patrimonial property (Municipality of Oas v. Roa, 7 Phil. 20 [1906]Municipality of Hinunganan v. Director of Lands 24 Phil. 124 [1913];
Province of Zamboanga del Norte v. City of Zamboanga, 22 SCRA 1334
(1968).
I would also add that such was the case not only in respect of' property of
municipal corporations but also in respect of property of the State itself.
Manresa in commenting on Article 341 of the 1889 Spanish Civil Code
which has been carried over verbatim into our Civil Code by Article 422
thereof, wrote:

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La dificultad mayor en todo esto estriba, naturalmente, en


fijar el momento en que los bienes de dominio publico dejan
de serlo. Si la Administracion o la autoridad competente
legislative realizan qun acto en virtud del cual cesa el
destino o uso publico de los bienes de que se trata
naturalmente la dificultad queda desde el primer momento
resuelta. Hay un punto de partida cierto para iniciar las
relaciones juridicas a que pudiera haber lugar Pero puede
ocurrir que no haya taldeclaracion expresa, legislativa or
administrativa, y, sin embargo, cesar de hecho el destino
publico de los bienes; ahora bien, en este caso, y para los
efectos juridicos que resultan de entrar la cosa en el
comercio de los hombres,' se entedera que se ha verificado
la conversion de los bienes patrimoniales?
El citado tratadista Ricci opina, respecto del antiguo Codigo
italiano, por la afirmativa, y por nuestra parte creemos que
tal debe ser la soluciion. El destino de las cosas no
depende tanto de una declaracion expresa como del uso
publico de las mismas, y cuanda el uso publico cese con
respecto de determinados bienes, cesa tambien su
situacion en el dominio publico. Si una fortaleza en ruina se
abandona y no se repara, si un trozo de la via publica se
abandona tambien por constituir otro nuevo an mejores
condiciones....ambos bienes cesan de estar Codigo, y leyes
especiales mas o memos administrativas. (3 Manresa,
Comentarios al Codigo Civil Espanol, p. 128 [7a ed.; 1952)
(Emphasis supplied)
The majority opinion says that none of the executive acts pointed to by the
Government purported, expressly or definitely, to convert the Roppongi
property into patrimonial property of the Republic. Assuming that to be
the case, it is respectfully submitted that cumulative effect of the executive
acts here involved was to convert property originally intended for and
devoted to public service into patrimonial property of the State, that is,
property susceptible of disposition to and appropration by private persons.
These executive acts, in their totality if not each individual act, make
crystal clear the intent of the Executive Department to effect such
conversion. These executive acts include:

(a) Administrative Order No. 3 dated 11 August 1985, which created a


Committee to study the disposition/utilization of the Government's property
in Japan, The Committee was composed of officials of the Executive
Department: the Executive Secretary; the Philippine Ambassador to Japan;
and representatives of the Department of Foreign Affairs and the Asset
Privatization Trust. On 19 September 1988, the Committee recommended
to the President the sale of one of the lots (the lot specifically in Roppongi)
through public bidding. On 4 October 1988, the President approved the
recommendation of the Committee.
On 14 December 1988, the Philippine Government by diplomatic note
informed the Japanese Ministry of Foreign Affairs of the Republic's
intention to dispose of the property in Roppongi. The Japanese
Government through its Ministry of Foreign Affairs replied that it interposed
no objection to such disposition by the Republic. Subsequently, the
President and the Committee informed the leaders of the House of
Representatives and of the Senate of the Philippines of the proposed
disposition of the Roppongi property.
(b) Executive Order No. 296, which was issued by the President on 25 July
1987. Assuming that the majority opinion is right in saying that Executive
Order No. 296 is insufficient to authorize the sale of the Roppongi property,
it is here submitted with respect that Executive Order No. 296 is more than
sufficient to indicate an intention to convert the property previously devoted
to public service into patrimonial property that is capable of being sold or
otherwise disposed of
(c) Non-use of the Roppongi lot for fourteen (14) years for diplomatic or for
any other public purposes. Assuming (but only arguendo) that non-use
does not, by itself, automatically convert the property into patrimonial
property. I respectfully urge that prolonged non-use, conjoined with the
other factors here listed, was legally effective to convert the lot in
Roppongi into patrimonial property of the State. Actually, as already
pointed out, case law involving property of municipal corporations is to the
effect that simple non-use or the actual dedication of public property to
some use other than public use or public service, was sufficient to convert
such property into patrimonial property of the local governmental entity
concerned. Also as pointed out above, Manresa reached the same

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conclusion in respect of conversion of property of the public domain of the


State into property of the private domain of the State.
The majority opinion states that "abandonment cannot be inferred from the
non-use alone especially if the non-use was attributable not to the
Government's own deliberate and indubitable will but to lack of financial
support to repair and improve the property" (Majority Opinion, p. 13). With
respect, it may be stressed that there is no abandonment involved here,
certainly no abandonment of property or of property rights. What is
involved is the charge of the classification of the property from property of
the public domain into property of the private domain of the State.
Moreover, if for fourteen (14) years, the Government did not see fit to
appropriate whatever funds were necessary to maintain the property in
Roppongi in a condition suitable for diplomatic representation purposes,
such circumstance may, with equal logic, be construed as a manifestation
of the crystalizing intent to change the character of the property.

Government of the Republic of the Philippines is a party to


any deed or other instrument conveying the title to real
estate or to any other property the value of which is in
excess of one hundred thousand pesos, the respective
Department Secretary shall prepare the necessary papers
which, together with the proper recommendations, shall
be submitted to the Congress of the Philippines for
approval by the same. Such deed, instrument, or contract
shall be executed and signed by the President of the
Philippines on behalf of the Government of the Philippines
unless the authority therefor be expressly vested by law in
another officer. (Emphasis supplied)
The majority opinion then goes on to state that: "[T]he requirement has
been retained in Section 4, Book I of the Administrative Code of 1987
(Executive Order No. 292)" which reads:

(d) On 30 March 1989, a public bidding was in fact held by the Executive
Department for the sale of the lot in Roppongi. The circumstance that this
bidding was not successful certainly does not argue against an intent to
convert the property involved into property that is disposable by bidding.

SEC. 48. Official Authorized to Convey Real Property.


Whenever real property of the Government is authorized by
law to be conveyed, the deed of conveyance shall be
executed in behalf of the government by the following:

The above set of events and circumstances makes no sense at all if it


does not, as a whole, show at least the intent on the part of the Executive
Department (with the knowledge of the Legislative Department) to convert
the property involved into patrimonial property that is susceptible of being
sold.

(1) For property belonging to and titled in the name of the


Republic of the Philippines, by the President, unless the
authority therefor is expressly vested by law in another
officer.

II
Having reached an affirmative answer in respect of the first issue, it is
necessary to address the second issue of whether or not there exists legal
authority for the sale or disposition of the Roppongi property.
The majority opinion refers to Section 79(f) of the Revised Administrative
Code of 1917 which reads as follows:
SEC. 79 (f). Conveyances and contracts to which the
Government is a party. In cases in which the

(2) For property belonging to the Republic of the Philippines


but titled in the name of any political subdivision or of any
corporate agency or instrumentality, by the executive head
of the agency or instrumentality. (Emphasis supplied)
Two points need to be made in this connection. Firstly, the requirement of
obtaining specific approval of Congress when the price of the real
property being disposed of is in excess of One Hundred Thousand Pesos
(P100,000.00) under the Revised Administrative Code of 1917, has
been deleted from Section 48 of the 1987 Administrative Code. What
Section 48 of the present Administrative Code refers to isauthorization by
law for the conveyance. Section 48 does not purport to be itself a source of

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legal authority for conveyance of real property of the Government. For


Section 48 merely specifies the official authorized to execute and sign on
behalf of the Government the deed of conveyance in case of such a
conveyance.

provisions of chapter nine of said Act: Provided, however,


That the land necessary for the public service shall be
exempt from the provisions of this Act.
SECTION 3. This Act shall take effect on its approval.

Secondly, examination of our statute books shows that authorization by


law for disposition of real property of the private domain of the
Government, has been granted by Congress both in the form of (a) a
general, standing authorization for disposition of patrimonial property of the
Government; and (b) specific legislation authorizing the disposition of
particular pieces of the Government's patrimonial property.
Standing legislative authority for the disposition of land of the private
domain of the Philippines is provided by Act No. 3038, entitled "An Act
Authorizing the Secretary of Agriculture and Natural Resources to Sell or
Lease Land of the Private Domain of the Government of the Philippine
Islands (now Republic of the Philippines)", enacted on 9 March 1922. The
full text of this statute is as follows:
Be it enacted by the Senate and House of Representatives
of the Philippines in Legislature assembled and by the
authority of the same:
SECTION 1. The Secretary of Agriculture and Natural
Resources (now Secretary of the Environment and Natural
Resources) is hereby authorized to sell or lease land of the
private domain of the Government of the Philippine Islands,
or any part thereof, to such persons, corporations or
associations as are, under the provisions of Act Numbered
Twenty-eight hundred and seventy-four, (now
Commonwealth Act No. 141, as amended) known as the
Public Land Act, entitled to apply for the purchase or lease
or agricultural public land.
SECTION 2. The sale of the land referred to in the
preceding section shall, if such land is agricultural, be made
in the manner and subject to the limitations prescribed in
chapters five and six, respectively, of said Public Land Act,
and if it be classified differently, in conformity with the

Approved, March 9, 1922. (Emphasis supplied)


Lest it be assumed that Act No. 3038 refers only to agricultural lands of the
private domain of the State, it must be noted that Chapter 9 of the old
Public Land Act (Act No. 2874) is now Chapter 9 of the present Public
Land Act (Commonwealth Act No. 141, as amended) and that both
statutes refer to: "any tract of land of the public domain which being neither
timber nor mineral land, is intended to be used forresidential purposes or
for commercial or industrial purposes other than agricultural" (Emphasis
supplied). In other words, the statute covers the sale or lease or
residential, commercial or industrial land of the private domain of the State.
Implementing regulations have been issued for the carrying out of the
provisions of Act No. 3038. On 21 December 1954, the then Secretary of
Agriculture and Natural Resources promulgated Lands Administrative
Orders Nos. 7-6 and 7-7 which were entitled, respectively: "Supplementary
Regulations Governing the Sale of the Lands of the Private Domain of the
Republic of the Philippines"; and "Supplementary Regulations Governing
the Lease of Lands of Private Domain of the Republic of the Philippines"
(text in 51 O.G. 28-29 [1955]).
It is perhaps well to add that Act No. 3038, although now sixty-eight (68)
years old, is still in effect and has not been repealed. 1
Specific legislative authorization for disposition of particular patrimonial
properties of the State is illustrated by certain earlier statutes. The first of
these was Act No. 1120, enacted on 26 April 1904, which provided for the
disposition of the friar lands, purchased by the Government from the
Roman Catholic Church, to bona fide settlers and occupants thereof or to
other persons. In Jacinto v. Director of Lands(49 Phil. 853 [1926]), these
friar lands were held to be private and patrimonial properties of the State.
Act No. 2360, enacted on -28 February 1914, authorized the sale of
the San Lazaro Estate located in the City of Manila, which had also been

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purchased by the Government from the Roman Catholic Church. In


January 1916, Act No. 2555 amended Act No. 2360 by including therein all
lands and buildings owned by the Hospital and the Foundation of San
Lazaro theretofor leased by private persons, and which were also acquired
by the Philippine Government.
After the enactment in 1922 of Act No. 3038, there appears, to my
knowledge, to be only one statute authorizing the President to dispose of a
specific piece of property. This statute is Republic Act No. 905, enacted on
20 June 1953, which authorized the
President to sell an Identified parcel of land of the private domain of the
National Government to the National Press Club of the Philippines, and to
other recognized national associations of professionals with academic
standing, for the nominal price of P1.00. It appears relevant to note that
Republic Act No. 905 was not an outright disposition in perpetuity of the
property involved- it provided for reversion of the property to the National
Government in case the National Press Club stopped using it for its
headquarters. What Republic Act No. 905 authorized was really
a donation, and not a sale.

Department of Environment and Natural Resources (Araneta v.


Gatmaitan 101 Phil. 328 [1957]). At the very least, the President retains
the power to approve or disapprove the exercise of that function or duty
when done by the Secretary of Environment and Natural Resources.
It is hardly necessary to add that the foregoing analyses and submissions
relate only to the austere question of existence of legal power or authority.
They have nothing to do with much debated questions of wisdom or
propriety or relative desirability either of the proposed disposition itself or
of the proposed utilization of the anticipated proceeds of the property
involved. These latter types of considerations He within the sphere of
responsibility of the political departments of government the Executive and
the Legislative authorities.
For all the foregoing, I vote to dismiss the Petitions for Prohibition in both
G.R. Nos. 92013 and 92047.
Fernan, C.J., Narvasa, Gancayco, Cortes and Medialdea, JJ., concurring.

The basic submission here made is that Act No. 3038 provides standing
legislative authorization for disposition of the Roppongi property which, in
my view, has been converted into patrimonial property of the Republic. 2
To some, the submission that Act No. 3038 applies not only to lands of the
private domain of the State located in the Philippines but also to
patrimonial property found outside the Philippines, may appear strange or
unusual. I respectfully submit that such position is not any more unusual or
strange than the assumption that Article 420 of the Civil Code applies not
only to property of the Republic located within Philippine territory but also
to property found outside the boundaries of the Republic.
It remains to note that under the well-settled doctrine that heads of
Executive Departments are alter egosof the President (Villena v. Secretary
of the Interior, 67 Phil. 451 [1939]), and in view of the constitutional power
of control exercised by the President over department heads (Article VII,
Section 17,1987 Constitution), the President herself may carry out the
function or duty that is specifically lodged in the Secretary of the
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KAZUHIRO HASEGAWA and NIPPON


ENGINEERING CONSULTANTS CO., LTD.,

G.R. No. 149177

Petitioners,
Present:

Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the April 18, 2001 Decision [1] of the Court of
Appeals (CA) in CA-G.R. SP No. 60827, and the July 25, 2001
Resolution[2] denying the motion for reconsideration thereof.

YNARES-SANTIAGO,
- versus -

On March 30, 1999, petitioner Nippon Engineering Consultants Co., Ltd.


(Nippon), a Japanese consultancy firm providing technical and
AUSTRIA-MARTINEZ,management support in the infrastructure projects of foreign governments,
[3]
entered into an Independent Contractor Agreement (ICA) with
CHICO-NAZARIO,
respondent Minoru Kitamura, a Japanese national permanently residing in
the Philippines.[4] The agreement provides that respondent was to extend
NACHURA, and
professional services to Nippon for a year starting on April 1, 1999.
[5]
REYES, JJ.
Nippon then assigned respondent to work as the project manager of the
Southern Tagalog Access Road (STAR) Project in the Philippines,
following the company's consultancy contract with the Philippine
Government.[6]
Promulgated:
Chairperson,

MINORU KITAMURA,
Respondent.

November 23, 2007 When the STAR Project was near completion, the Department of Public
Works and Highways (DPWH) engaged the consultancy services
of Nippon, on January 28, 2000, this time for the detailed engineering and
construction supervision of the Bongabon-Baler Road Improvement (BBRI)
x------------------------------------------------------------------------------------x
Project.[7] Respondent was named as the project manager in the contract's
Appendix 3.1.[8]

DECISION

NACHURA, J.:

On February 28, 2000, petitioner Kazuhiro Hasegawa, Nippon's general


manager for its International Division, informed respondent that the
company had no more intention of automatically renewing his ICA. His
services would be engaged by the company only up to the substantial
completion of the STAR Project on March 31, 2000, just in time for
the ICA's expiry.[9]

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Threatened with impending unemployment, respondent, through his


lawyer, requested a negotiation conference and demanded that he be
assigned to the BBRI project. Nipponinsisted that respondents contract
was for a fixed term that had already expired, and refused to negotiate for
the renewal of the ICA.[10]

As he was not able to generate a positive response from the petitioners,


respondent consequently initiated on June 1, 2000 Civil Case No. 00-0264
for
specific
performance
and
damages
with
the Regional Trial Court of Lipa City.[11]

For their part, petitioners, contending that the ICA had been perfected
in Japan and executed by and between Japanese nationals, moved to
dismiss the complaint for lack of jurisdiction. They asserted that the claim
for improper pre-termination of respondent's ICA could only be heard and
ventilated in the proper courts of Japan following the principles of lex loci
celebrationis and lex contractus.[12]

Aggrieved by this development, petitioners filed with the CA,


on September 19, 2000, still within the reglementary period,
a second Petition for Certiorari under Rule 65 already stating therein the
material dates and attaching thereto the proper verification and
certification. This second petition, which substantially raised the same
issues as those in the first, was docketed as CA-G.R. SP No. 60827.[21]

Ruling on the merits of the second petition, the appellate court rendered
the assailed April 18, 2001 Decision[22] finding no grave abuse of discretion
in the trial court's denial of the motion to dismiss. The CA ruled, among
others, that the principle of lex loci celebrationis was not applicable to the
case, because nowhere in the pleadings was the validity of the written
agreement put in issue. The CA thus declared that the trial court was
correct in applying instead the principle of lex loci solutionis.[23]

Petitioners' motion for reconsideration was subsequently denied by the CA


in the assailed July 25, 2001 Resolution.[24]

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

Remaining steadfast in their stance despite the series of denials,


petitioners
instituted
the
instant
Petition
for
Review
on Certiorari[25] imputing the following errors to the appellate court:

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

A. THE HONORABLE COURT OF APPEALS GRAVELY


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

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B. THE HONORABLE COURT OF APPEALS GRAVELY


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

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

However, before ruling on this issue, we must first dispose of the


procedural matters raised by the respondent.

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

We do not agree. When the CA dismissed CA-G.R. SP No. 60205 on


account of the petition's defective certification of non-forum shopping, it
was a dismissal without prejudice.[27] The same holds true in the CA's
dismissal of the said case due to defects in the formal requirement of
verification[28] and in the other requirement in Rule 46 of the Rules of Court
on the statement of the material dates. [29] The dismissal being without
prejudice, petitioners can re-file the petition, or file a second petition
attaching thereto the appropriate verification and certificationas they, in
fact didand stating therein the material dates, within the prescribed
period[30] in Section 4, Rule 65 of the said Rules.[31]

The dismissal of a case without prejudice signifies the absence of a


decision on the merits and leaves the parties free to litigate the matter in a
subsequent action as though the dismissed action had not been
commenced. In other words, the termination of a case not on the merits
does not bar another action involving the same parties, on the same
subject matter and theory.[32]

Necessarily, because the said dismissal is without prejudice and has


no res judicata effect, and even if petitioners still indicated in the
verification and certification of the secondcertiorari petition that the first
had already been dismissed on procedural grounds, [33] petitioners are no
longer required by the Rules to indicate in their certification of non-forum
shopping in the instant petition for review of the second certiorari petition,
the status of the aforesaid first petition before the CA. In any case, an
omission in the certificate of non-forum shopping about any event that will
not constitute res judicata and litis pendentia, as in the present case, is not
a fatal defect. It will not warrant the dismissal and nullification of the entire
proceedings, considering that the evils sought to be prevented by the said
certificate are no longer present.[34]

The Court also finds no merit in respondent's contention that petitioner


Hasegawa is only authorized to verify and certify, on behalf of Nippon,
the certiorari petition filed with the CA and not the instant petition. True, the
Authorization[35] dated September 4, 2000, which is attached to the
second certiorari petition and which is also attached to the instant petition
for review, is limited in scopeits wordings indicate that Hasegawa is given
the authority to sign for and act on behalf of the company only in the
petition filed with the appellate court, and that authority cannot extend to
the instant petition for review.[36] In a plethora of cases, however, this Court
has liberally applied the Rules or even suspended its application whenever

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a satisfactory explanation and a subsequent fulfillment of the requirements


have been made.[37] Given that petitioners herein sufficiently explained
their misgivings on this point and appended to their Reply [38] an updated
Authorization[39] for Hasegawa to act on behalf of the company in the
instant petition, the Court finds the same as sufficient compliance with the
Rules.

damus. The appropriate recourse is to file an answer and to interpose as


defenses the objections raised in the motion, to proceed to trial, and, in
case of an adverse decision, to elevate the entire case by appeal in due
course.[44] While there are recognized exceptions to this rule, [45] petitioners'
case does not fall among them.

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


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

Further, the Court has observed that petitioners incorrectly filed a Rule 65
petition to question the trial court's denial of their motion to dismiss. It is a
well-established rule that an order denying a motion to dismiss is
interlocutory,
and cannot be the subject of the extraordinary petition for certiorari or man

Asserting that the RTC of Lipa City is an inconvenient forum, petitioners


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

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

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conveniens defense, and introduced their new argument that the


applicable principle is the [state of the] most significant relationship rule.[51]

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

To elucidate, in the judicial resolution of conflicts problems, three


consecutive phases are involved: jurisdiction, choice of law, and
recognition and enforcement of judgments. Corresponding to these phases
are the following questions: (1) Where can or should litigation be initiated?
(2) Which law will the court apply? and (3) Where can the resulting
judgment be enforced?[53]

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


[54]
Jurisdiction considers whether it is fair to cause a defendant to travel to
this state; choice of law asks the further question whether the application
of a substantive law which will determine the merits of the case is fair to
both parties. The power to exercise jurisdiction does not automatically give
a state constitutional authority to apply forum law. While jurisdiction and
the choice of the lex fori will often coincide, the minimum contacts for one
do not always provide the necessary significant contacts for the other.
[55]
The question of whether the law of a state can be applied to a
transaction is different from the question of whether the courts of that state
have jurisdiction to enter a judgment.[56]

In this case, only the first phase is at issuejurisdiction. Jurisdiction,


however, has various aspects. For a court to validly exercise its power to
adjudicate a controversy, it must have jurisdiction over the plaintiff or the
petitioner, over the defendant or the respondent, over the subject matter,
over the issues of the case and, in cases involving property, over theres or
the thing which is the subject of the litigation. [57] In assailing the trial court's
jurisdiction herein, petitioners are actually referring to subject matter
jurisdiction.

Jurisdiction over the subject matter in a judicial proceeding is conferred by


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

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

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should exist a conflict of laws situation requiring the application of the


conflict of laws rules.[72] Also, when the law of a foreign country is invoked
to provide the proper rules for the solution of a case, the existence of such
law must be pleaded and proved.[73]

The Court finds the invocation of these grounds unsound.


Lex loci celebrationis relates to the law of the place of the ceremony [63] or
the law of the place where a contract is made. [64] The doctrine of lex
contractus or lex loci contractusmeans the law of the place where a
contract is executed or to be performed.[65] It controls the nature,
construction, and validity of the contract[66] and it may pertain to the law
voluntarily agreed upon by the parties or the law intended by them either
expressly or implicitly.[67] Under the state of the most significant relationship
rule, to ascertain what state law to apply to a dispute, the court should
determine which state has the most substantial connection to the
occurrence and the parties. In a case involving a contract, the court should
consider where the contract was made, was negotiated, was to be
performed, and the domicile, place of business, or place of incorporation of
the parties.[68] This rule takes into account several contacts and evaluates
them according to their relative importance with respect to the particular
issue to be resolved.[69]

Since these three principles in conflict of laws make reference to the law
applicable to a dispute, they are rules proper for the second phase, the
choice of law.[70] They determine which state's law is to be applied in
resolving the substantive issues of a conflicts problem. [71] Necessarily, as
the only issue in this case is that of jurisdiction, choice-of-law rules are not
only inapplicable but also not yet called for.

Further, petitioners' premature invocation of choice-of-law rules is exposed


by the fact that they have not yet pointed out any conflict between the laws
of Japan and ours. Before determining which law should apply, first there

It should be noted that when a conflicts case, one involving a foreign


element, is brought before a court or administrative agency, there are three
alternatives open to the latter in disposing of it: (1) dismiss the case, either
because of lack of jurisdiction or refusal to assume jurisdiction over the
case; (2) assume jurisdiction over the case and apply the internal law of
the forum; or (3) assume jurisdiction over the case and take into account
or apply the law of some other State or States. [74] The courts power to hear
cases and controversies is derived from the Constitution and the laws.
While it may choose to recognize laws of foreign nations, the court is not
limited by foreign sovereign law short of treaties or other formal
agreements, even in matters regarding rights provided by foreign
sovereigns.[75]

Neither can the other ground raised, forum non conveniens,[76] be


used to deprive the trial court of its jurisdiction herein. First, it is not a
proper basis for a motion to dismiss because Section 1, Rule 16 of the
Rules of Court does not include it as a ground. [77] Second, whether a suit
should be entertained or dismissed on the basis of the said doctrine
depends largely upon the facts of the particular case and is addressed to
the sound discretion of the trial court. [78] In this case, the RTC decided to
assume jurisdiction. Third, the propriety of dismissing a case based on this

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principle requires a factual determination; hence, this conflicts principle is


more properly considered a matter of defense.[79]

Accordingly, since the RTC is vested by law with the power to entertain
and hear the civil case filed by respondent and the grounds raised by
petitioners to assail that jurisdiction are inappropriate, the trial and
appellate courts correctly denied the petitioners motion to dismiss.
WHEREFORE, premises considered, the petition for review
on certiorari is DENIED.

SO ORDERED.

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INTERNATIONAL SCHOOL ALLIANCE OF EDUCATORS


(ISAE), petitioner, vs. HON. LEONARDO A. QUISUMBING in his capacity
as the Secretary of Labor and Employment; HON. CRESENCIANO B.
TRAJANO in his capacity as the Acting Secretary of Labor and
Employment; DR. BRIAN MACCAULEY in his capacity as the
Superintendent of International School-Manila; and INTERNATIONAL
SCHOOL, INC., respondents.
DECISION
KAPUNAN, J.:
Receiving salaries less than their counterparts hired abroad, the local-hires
of private respondent School, mostly Filipinos, cry discrimination. We
agree. That the local-hires are paid more than their colleagues in other
schools is, of course, beside the point. The point is that employees should
be given equal pay for work of equal value. That is a principle long
honored in this jurisdiction. That is a principle that rests on fundamental
notions of justice. That is the principle we uphold today.
Private respondent International School, Inc. (the School, for short),
pursuant to Presidential Decree 732, is a domestic educational institution
established primarily for dependents of foreign diplomatic personnel and
other temporary residents.[1] To enable the School to continue carrying out
its educational program and improve its standard of instruction, Section
2(c) of the same decree authorizes the School to
employ its own teaching and management personnel
selected by it either locally or abroad, from Philippine or
other nationalities, such personnel being exempt from
otherwise applicable laws and regulations attending their
employment, except laws that have been or will be enacted
for the protection of employees.
Accordingly, the School hires both foreign and local teachers as members
of its faculty, classifying the same into two: (1) foreign-hires and (2) localhires. The School employs four tests to determine whether a faculty
member should be classified as a foreign-hire or a local hire:

a.....What is one's domicile?


b.....Where is one's home economy?
c.....To which country does one owe economic allegiance?
d.....Was the individual hired abroad specifically to work in
the School and was the School responsible for bringing that
individual to the Philippines?[2]
Should the answer to any of these queries point to the Philippines, the
faculty member is classified as a local hire; otherwise, he or she is deemed
a foreign-hire.
The School grants foreign-hires certain benefits not accorded local-hires.
These include housing, transportation, shipping costs, taxes, and home
leave travel allowance. Foreign-hires are also paid a salary rate twenty-five
percent (25%) more than local-hires. The School justifies the difference on
two "significant economic disadvantages" foreign-hires have to endure,
namely: (a) the "dislocation factor" and (b) limited tenure. The School
explains:
A foreign-hire would necessarily have to uproot himself from
his home country, leave his family and friends, and take the
risk of deviating from a promising career path-all for the
purpose of pursuing his profession as an educator, but this
time in a foreign land. The new foreign hire is faced with
economic realities: decent abode for oneself and/or for
one's family, effective means of transportation, allowance
for the education of one's children, adequate insurance
against illness and death, and of course the primary benefit
of a basic salary/retirement compensation.
Because of a limited tenure, the foreign hire is confronted
again with the same economic reality after his term: that he
will eventually and inevitably return to his home country
where he will have to confront the uncertainty of obtaining
suitable employment after a long period in a foreign land.

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The compensation scheme is simply the School's adaptive


measure to remain competitive on an international level in
terms of attracting competent professionals in the field of
international education.[3]
When negotiations for a new collective bargaining agreement were held on
June 1995, petitioner International School Alliance of Educators, "a
legitimate labor union and the collective bargaining representative of all
faculty members"[4] of the School, contested the difference in salary rates
between foreign and local-hires. This issue, as well as the question of
whether foreign-hires should be included in the appropriate bargaining
unit, eventually caused a deadlock between the parties.
On September 7, 1995, petitioner filed a notice of strike. The failure of the
National Conciliation and Mediation Board to bring the parties to a
compromise prompted the Department of Labor and Employment (DOLE)
to assume jurisdiction over the dispute. On June 10, 1996, the DOLE
Acting Secretary, Crescenciano B. Trajano, issued an Order resolving the
parity and representation issues in favor of the School. Then DOLE
Secretary Leonardo A. Quisumbing subsequently denied petitioner's
motion for reconsideration in an Order dated March 19, 1997. Petitioner
now seeks relief in this Court.
Petitioner claims that the point-of-hire classification employed by the
School is discriminatory to Filipinos and that the grant of higher salaries to
foreign-hires constitutes racial discrimination.
The School disputes these claims and gives a breakdown of its faculty
members, numbering 38 in all, with nationalities other than Filipino, who
have been hired locally and classified as local hires.[5]The Acting Secretary
of Labor found that these non-Filipino local-hires received the same
benefits as the Filipino local-hires:
The compensation package given to local-hires has been shown to apply
to all, regardless of race. Truth to tell, there are foreigners who have been
hired locally and who are paid equally as Filipino local hires.[6]
The Acting Secretary upheld the point-of-hire classification for the
distinction in salary rates:

The principle "equal pay for equal work" does not find
application in the present case. The international character
of the School requires the hiring of foreign personnel to deal
with different nationalities and different cultures, among the
student population.
We also take cognizance of the existence of a system of
salaries and benefits accorded to foreign hired personnel
which system is universally recognized. We agree that
certain amenities have to be provided to these people in
order to entice them to render their services in the
Philippines and in the process remain competitive in the
international market.
Furthermore, we took note of the fact that foreign hires have
limited contract of employment unlike the local hires who
enjoy security of tenure. To apply parity therefore, in wages
and other benefits would also require parity in other terms
and conditions of employment which include the
employment contract.
A perusal of the parties' 1992-1995 CBA points us to the
conditions and provisions for salary and professional
compensation wherein the parties agree as follows:
All members of the bargaining unit shall be
compensated only in accordance with
Appendix C hereof provided that the
Superintendent of the School has the
discretion to recruit and hire expatriate
teachers from abroad, under terms and
conditions that are consistent with accepted
international practice.
Appendix C of said CBA further provides:
The new salary schedule is deemed at equity
with the Overseas Recruited Staff (OSRS)
salary schedule. The 25% differential is

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reflective of the agreed value of system


displacement and contracted status of the
OSRS as differentiated from the tenured
status of Locally Recruited Staff (LRS).
To our mind, these provisions demonstrate the parties'
recognition of the difference in the status of two types of
employees, hence, the difference in their salaries.
The Union cannot also invoke the equal protection clause to
justify its claim of parity. It is an established principle of
constitutional law that the guarantee of equal protection of
the laws is not violated by legislation or private covenants
based on reasonable classification. A classification is
reasonable if it is based on substantial distinctions and
apply to all members of the same class. Verily, there is a
substantial distinction between foreign hires and local hires,
the former enjoying only a limited tenure, having no
amenities of their own in the Philippines and have to be
given a good compensation package in order to attract
them to join the teaching faculty of the School.[7]
We cannot agree.
That public policy abhors inequality and discrimination is beyond
contention. Our Constitution and laws reflect the policy against these evils.
The Constitution[8] in the Article on Social Justice and Human Rights
exhorts Congress to "give highest priority to the enactment of measures
that protect and enhance the right of all people to human dignity, reduce
social, economic, and political inequalities." The very broad Article 19 of
the Civil Code requires every person, "in the exercise of his rights and in
the performance of his duties, [to] act with justice, give everyone his due,
and observe honesty and good faith."
International law, which springs from general principles of law,[9] likewise
proscribes discrimination. General principles of law include principles of
equity,[10] i.e., the general principles of fairness and justice, based on the
test of what is reasonable.[11] The Universal Declaration of Human Rights,
[12]
the International Covenant on Economic, Social, and Cultural Rights,

[13]

the International Convention on the Elimination of All Forms of Racial


Discrimination,[14] the Convention against Discrimination in Education,
[15]
the Convention (No. 111) Concerning Discrimination in Respect of
Employment and Occupation[16] - all embody the general principle against
discrimination, the very antithesis of fairness and justice. The Philippines,
through its Constitution, has incorporated this principle as part of its
national laws.
In the workplace, where the relations between capital and labor are often
skewed in favor of capital, inequality and discrimination by the employer
are all the more reprehensible.
The Constitution[17] specifically provides that labor is entitled to "humane
conditions of work." These conditions are not restricted to the physical
workplace - the factory, the office or the field - but include as well the
manner by which employers treat their employees.
The Constitution[18] also directs the State to promote "equality of
employment opportunities for all." Similarly, the Labor Code[19] provides
that the State shall "ensure equal work opportunities regardless of sex,
race or creed." It would be an affront to both the spirit and letter of these
provisions if the State, in spite of its primordial obligation to promote and
ensure equal employment opportunities, closes its eyes to unequal and
discriminatory terms and conditions of employment.[20]
Discrimination, particularly in terms of wages, is frowned upon by the
Labor Code. Article 135, for example, prohibits and penalizes[21] the
payment of lesser compensation to a female employee as against a male
employee for work of equal value. Article 248 declares it an unfair labor
practice for an employer to discriminate in regard to wages in order to
encourage or discourage membership in any labor organization.
Notably, the International Covenant on Economic, Social, and Cultural
Rights, supra, in Article 7 thereof, provides:
The States Parties to the present Covenant recognize the
right of everyone to the enjoyment of just and favourable
conditions of work, which ensure, in particular:

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a.....Remuneration which provides all workers, as a


minimum, with:
i.....Fair wages and equal remuneration for
work of equal value without distinction of any
kind, in particular women being guaranteed
conditions of work not inferior to those
enjoyed by men, with equal pay for equal
work;
x x x.
The foregoing provisions impregnably institutionalize in this jurisdiction the
long honored legal truism of "equal pay for equal work." Persons who work
with substantially equal qualifications, skill, effort and responsibility, under
similar conditions, should be paid similar salaries.[22] This rule applies to
the School, its "international character" notwithstanding.
The School contends that petitioner has not adduced evidence that localhires perform work equal to that of foreign-hires.[23] The Court finds this
argument a little cavalier. If an employer accords employees the same
position and rank, the presumption is that these employees perform equal
work. This presumption is borne by logic and human experience. If the
employer pays one employee less than the rest, it is not for that employee
to explain why he receives less or why the others receive more. That
would be adding insult to injury. The employer has discriminated against
that employee; it is for the employer to explain why the employee is treated
unfairly.
The employer in this case has failed to discharge this burden. There is no
evidence here that foreign-hires perform 25% more efficiently or effectively
than the local-hires. Both groups have similar functions and
responsibilities, which they perform under similar working conditions.
The School cannot invoke the need to entice foreign-hires to leave their
domicile to rationalize the distinction in salary rates without violating the
principle of equal work for equal pay.

"Salary" is defined in Black's Law Dictionary (5th ed.) as "a reward or


recompense for services performed." Similarly, the Philippine Legal
Encyclopedia states that "salary" is the "[c]onsideration paid at regular
intervals for the rendering of services." In Songco v. National Labor
Relations Commission,[24] we said that:
"salary" means a recompense or consideration made to a
person for his pains or industry in another man's business.
Whether it be derived from "salarium," or more fancifully
from "sal," the pay of the Roman soldier, it carries with it the
fundamental idea of compensation for services
rendered. (Emphasis supplied.)
While we recognize the need of the School to attract foreign-hires, salaries
should not be used as an enticement to the prejudice of local-hires. The
local-hires perform the same services as foreign-hires and they ought to
be paid the same salaries as the latter. For the same reason, the
"dislocation factor" and the foreign-hires' limited tenure also cannot serve
as valid bases for the distinction in salary rates. The dislocation factor and
limited tenure affecting foreign-hires are adequately compensated by
certain benefits accorded them which are not enjoyed by local-hires, such
as housing, transportation, shipping costs, taxes and home leave travel
allowances.
The Constitution enjoins the State to "protect the rights of workers and
promote their welfare,"[25] "to afford labor full protection."[26] The State,
therefore, has the right and duty to regulate the relations between labor
and capital.[27] These relations are not merely contractual but are so
impressed with public interest that labor contracts, collective bargaining
agreements included, must yield to the common good.[28] Should such
contracts contain stipulations that are contrary to public policy, courts will
not hesitate to strike down these stipulations.
In this case, we find the point-of-hire classification employed by
respondent School to justify the distinction in the salary rates of foreignhires and local hires to be an invalid classification. There is no reasonable
distinction between the services rendered by foreign-hires and local-hires.
The practice of the School of according higher salaries to foreign-hires

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contravenes public policy and, certainly, does not deserve the sympathy of
this Court.

SO ORDERED.
Puno, and Pardo, JJ., concur.

We agree, however, that foreign-hires do not belong to the same


bargaining unit as the local-hires.
A bargaining unit is "a group of employees of a given employer, comprised
of all or less than all of the entire body of employees, consistent with equity
to the employer indicate to be the best suited to serve the reciprocal rights
and duties of the parties under the collective bargaining provisions of the
law."[29] The factors in determining the appropriate collective bargaining unit
are (1) the will of the employees (Globe Doctrine); (2) affinity and unity of
the employees' interest, such as substantial similarity of work and duties,
or similarity of compensation and working conditions (Substantial Mutual
Interests Rule); (3) prior collective bargaining history; and (4) similarity of
employment status.[30] The basic test of an asserted bargaining unit's
acceptability is whether or not it is fundamentally the combination which
will best assure to all employees the exercise of their collective bargaining
rights.[31]

Davide, Jr., C.J., (Chairman), on official leave.


Ynares-Santiago, J., on leave.

It does not appear that foreign-hires have indicated their intention to be


grouped together with local-hires for purposes of collective bargaining. The
collective bargaining history in the School also shows that these groups
were always treated separately. Foreign-hires have limited tenure; localhires enjoy security of tenure. Although foreign-hires perform similar
functions under the same working conditions as the local-hires, foreignhires are accorded certain benefits not granted to local-hires. These
benefits, such as housing, transportation, shipping costs, taxes, and home
leave travel allowance, are reasonably related to their status as foreignhires, and justify the exclusion of the former from the latter. To include
foreign-hires in a bargaining unit with local-hires would not assure either
group the exercise of their respective collective bargaining rights.
WHEREFORE, the petition is GIVEN DUE COURSE. The petition is
hereby GRANTED IN PART. The Orders of the Secretary of Labor and
Employment dated June 10, 1996 and March 19, 1997, are hereby
REVERSED and SET ASIDE insofar as they uphold the practice of
respondent School of according foreign-hires higher salaries than localhires.
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In International School Alliance of Educators v. Quisumbing,5 the Court


invalidated as discriminatory the practice of International School, Inc. of
according foreign hires higher salaries than local hires. The Court found
that, among other things, there was a general principle against
discrimination evidenced by a number of international conventions
proscribing it, which had been incorporated as part of national laws
through the Constitution.
The Court thus subsumes within the rubric of "generally accepted
principles of international law" both "international custom" and "general
principles of law," two distinct sources of international law recognized by
the ICJ Statute.

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G.R. No. L-11759

March 16, 1917

CAYETANO LIM and MARCIANO LIM, petitioners-appellants,


vs.
THE INSULAR COLLECTOR OF CUSTOMS, respondent-appellee.
Williams, Ferrier and SyCip for appellants.
Attorney-General Avancea for appellee.
CARSON, J.:
The real question raised on this appeal is whether the Insular Collector of
Customs may lawfully deny entry into the Philippine Islands to two children
aged 8 and 14 years, respectively, under and by authority of the Chinese
Immigration, Laws, it appearing that the children arrived at the Port of
Manila accompanied by and in the custody of their mother, a Filipino
woman; that they were born in China, out of lawful wedlock; and that their
father was a Chinese person.
It is contended, on behalf of the Insular Collector of Customs, that these
children being Chinese persons are denied the right of entrance into the
Philippine Islands under the express terms of the Chinese immigration
laws. On the other hand, it is urged on behalf of the children that they are
entitled to enter, regardless of the provisions of the Chinese immigration
laws, since the admitted facts, as it is said, disclose that they are citizens
of the Philippine Islands; and for the further reason, that their mother, who
is entitled to their custody and charged with their maintenance and
education, is clearly entitled to take up her residence in the Philippine
Islands and should not be required, to that end, to abandon her minor
children.
Without discussing or deciding any of the contentions of the parties as to
the rights of citizenship of these children, actual or inchoate, we are of
opinion that by analogous reasoning to that upon which the Supreme
Court of the United States held that the wives and minor children of
Chinese merchants domiciled in the United States may enter that country
without certificates, these children must be held to be entitled to enter the
Philippine Islands with their mother, for the purpose of taking up their

residence here with her, it appearing that she is natural guardian, entitled
to their custody and charged with their maintenance and education. (U.
S. vs. Gue Lim, 176 U. S. 459.)
In the case just cited the court said:
While the literal construction of the section would require a
certificate, as therein stated, from every Chinese person, other than
a laborer, who should come into the country, yet such a
construction leads to what we think an absurd result, for it requires
a certificate for a wife of a merchant, among others, in regard to
whom its would be impossible to give the particulars which the
statute requires shall be stated in such certificate.
"Nothing is better settled," says the present Chief Justice, in Lau
Ow Bew vs. United States (144 U. S., 59) "than that statutes
should receive a sensible construction, such as will effectuate the
legislative intention, and, if possible, so as to avoid and unjust or an
absurd conclusion.
The purposes of the sixth section, requiring the certificate, was not
to prevent the persons named in the second article of the treaty
from coming into the country, but to prevent Chinese laborers from
entering under the guise of being one of the classes permitted by
the treaty. It is the coming of Chinese laborers that the act is aimed
against.
It was said in the opinion in the Lau Ow Bew case, in speaking of
the provisions that the sole evidence permissible should be the
certificate: "This rule of evidence was evidently prescribed by the
amendment as a means of effectually preventing the violation or
evasion of the prohibition against the coming of Chinese laborers. It
was designed as a safeguard to prevent the unlawful entry of such
laborers, under the pretense that they belong to the merchant class
or to some other of the admitted classes."
It was also held in that case that although the literal wording of the
statute of 1884, section six, would require a certificate in the case

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of a merchant already domiciled in the United States and who had


left the country for temporary purposes, animo revertendi, yet its
true and proper construction did not include his case, and the
general terms used in the act were limited to those persons to
whom Congress manifestly intended to apply them, which would be
those who were about to come to the United States for the first
time, and not to those Chinese merchants already domiciled in the
United States who had gone to China for temporary purposes only,
with the intention of returning. The case of Wan Shing vs. United
States (140 U. S., 24), was referred to, and attention called to the
fact that the appellant therein was not a merchant but a laborer,
who had acquired no commercial domicile in this county, and was
clearly within the exception requiring him to procure and produce
the certificate specified in the act. The rule was approved, and the
differences in the two cases pointed out by the Chief Justice.
To hold that a certificate is required in this case is to decide that the
woman cannot come into this country at all, for it is not possible for
her to comply with the act, because she cannot in any event
procure the certificate even by returning to China. She must come
in as the wife of her domiciled husband or not at all. The act was
never meant to accomplish the result of permanently excluding the
wife under the circumstances of this case, and we think that,
properly and reasonably construed, it does not do so. If we hold
that she is entitled to come in as the wife, because the true
construction of the treaty and the act permits it, there is no
provision which makes the certificate the only proof of the fact that
she is such wife.
In the case of the minor children, the same result must follow as in
that of the wife. All the reasons which favor the construction of the
statute as exempting the wife from the necessity of procuring a
certificate apply with equal force to the case of minor children of a
member or members of the admitted classes. They come in by
reason of their relationship to the father, and whether they
accompany or follow him, a certificate is not necessary in either
case. When the fact is established to the satisfaction of the
authorities that the person claiming to enter, either as wife or minor
child, is in fact the wife or minor child of one of the members of the

class mentioned in the treaty as entitled to enter, them that person


in entitled to admission without the certificate.
We are not advised of any provision of Chinese law which differentiates
the status of infant children, born out of lawful wedlock, from that of similar
children under the laws in force in the Philippine Islands. We assume,
therefore, that in China as well as in the Philippine Islands such children
have the right to look to their mother for their maintenance and education,
and that she is entitled to their custody and control in fulfilling the
obligations towards them which are imposed upon her, not only by the
natural impulses of love and affection, but also by the express mandate of
the law. And it having been held on the highest authority that the general
terms of the Act were limited to those to whom Congress manifestly
intended to apply them as set forth in the foregoing opinion, and that
"nothing is better settled than that statutes should receive a sensible
construction, such as will effectuate the legislative intention, and, if
possible, so as to avoid an unjust or an absurd conclusion," we are of
opinion that the Chinese Immigration Laws should not be construed so as
to exclude infant children of a Filipino mother, born out of lawful wedlock,
seeking entrance to the Philippine Islands for the purpose of taking up their
residence with her in her native land.
It has been suggested that such a ruling opens the door to fraud and
evasion, but we are not much impressed with the force of this suggestion,
knowing as we do that the immigration authorities have been furnished by
the law with peculiarly effective machinery for its enforcement, well
calculated to defeat any attempt to make an unauthorized or improper use
of so manifestly reasonable an exception from the literal construction and
application of its general provisions.
Some confusion seems to have arisen in the court below as to the precise
nature and effect of the somewhat inartificial pleadings upon which these
proceedings were submitted. The case appears to have been submitted
upon an answer to an order to show cause why a writ of habeas
corpus should not issue upon the petition filed on behalf of the infant
children. In the form in which the answer is couched, there is much in the
contention of the appellee that the trial court should have treated the
answer as in substance and effect a demurrer to the petition, admitting the
truth of the facts alleged therein, but praying judgment as to whether it sets

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forth facts sufficient to constitute a cause of action and to justify the


issuance of the writ. We are inclined to think, however, that the
understanding of the parties and of the court below was that the answer
should be treated rather as in the nature of a return to a writ of habeas
corpus, accepting as true the allegations of the petition but maintaining the
legality of the detention upon the facts thus submitted. Without considering
at this time whether in habeas corpus proceedings the respondent may,
without consent of court, demur to, instead of answering an order to show
cause why the writ should not issue, and without considering or deciding
the course which should be pursued where a respondent attempts to file a
demurrer to a petition for a writ of habeas corpus in lieu of the return
prescribed by the statute to the writ when actually issued; we treat the
answer to the order to show cause in the case at bar as we think the
parties and the court below understood it should be treated, that is to say,
as in substance and effect the return which the Insular Collector desired to
make to the writ of habeas corpus issued or assumed to have been issued
in response to the petition on behalf of the children held in custody by him.
We conclude, therefore, that, it appearing that the respondent Collector of
Customs is detaining the petitioners under an erroneous construction of
the immigration laws, and it appearing from the facts disclosed by the
administrative proceedings that these children are entitled to admission
into the Philippine Islands, the order entered in the court below should be
reversed, and in lieu thereof an order should be entered directing the
discharge of these children from the custody of the Insular Collector of
Customs, with the costs in both instances,de officio. So ordered.
Torres, Moreland, Trent and Araullo, JJ., concur.

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Carnival Cruise Lines, Inc. v. Shute


499 U.S. 585 (1991)
Syllabus

forum has the salutary effect of dispelling confusion as to where suits may be
brought and defended, thereby sparing litigants time and expense and
conserving judicial resources. Furthermore, it is likely that passengers
purchasing tickets

After the respondents Shute, a Washington State couple, purchased


Page 499 U. S. 586
passage on a ship owned by petitioner, a Florida-based cruise line, petitioner
sent them tickets containing a clause designating courts in Florida as the agreedcontaining a forum clause like the one here at issue benefit in the form of
upon fora for the resolution of disputes. The Shutes boarded the ship in Los
reduced fares reflecting the savings that the cruise line enjoys by limiting the fora
Angeles, and, while in international waters off the Mexican coast, Mrs. Shute
in which it may be sued. Pp. 499 U. S. 590-594.
suffered injuries when she slipped on a deck mat. The Shutes filed suit in a
Washington Federal District Court, which granted summary judgment for
(b) The Court of Appeals' conclusion that the clause here at issue should
petitioner. The Court of Appeals reversed, holding, inter alia, that the forumnot be enforced because the Shutes are incapable of pursuing this litigation in
selection clause should not be enforced under The Bremen v. Zapata Off-Shore
Florida is not justified by The Bremen Court's statement that
Co., 407 U. S. 1, because it was not "freely bargained for," and because its
enforcement would operate to deprive the Shutes of their day in court in light of
"the serious inconvenience of the contractual forum to one or both of the
evidence indicating that they were physically and financially incapable of
parties might carry greater weight in determining the reasonableness of the
pursuing the litigation in Florida.
forum clause."
Held: The Court of Appeals erred in refusing to enforce the forum-selection
Id. at 407 U. S. 17. That statement was made in the context of a
clause. Pp. 499 U. S. 590-597.
hypothetical "agreement between two Americans to resolve their essentially local
disputes in a remote alien forum." Ibid. Here, in contrast, Florida is not such a
(a) The Bremen Court's statement that a freely negotiated forum-selection
forum, nor -- given the location of Mrs. Shute's accident -- is this dispute an
clause, such as the one there at issue, should be given full effect, 407 U.S.
essentially local one inherently more suited to resolution in Washington than in
at 407 U. S. 12-13, does not support the Court of Appeals' determination that a
Florida. In light of these distinctions, and because the Shutes do not claim lack of
non-negotiated forum clause in a passage contract is never enforceable simply
notice of the forum clause, they have not satisfied the "heavy burden of
because it is not the subject of bargaining. Whereas it was entirely reasonable
proof," ibid. required to set aside the clause on grounds of inconvenience.
for The Bremen Court to have expected the parties to have negotiated with care
499 U. S. 594-595.
in selecting a forum for the resolution of disputes arising from their complicated
international agreement, it would be entirely unreasonable to assume that a
(c) Although forum selection clauses contained in form passage contracts
cruise passenger would or could negotiate the terms of a forum clause in a
are subject to judicial scrutiny for fundamental fairness, there is no indication that
routine commercial cruise ticket form. Nevertheless, including a reasonable
petitioner selected Florida to discourage cruise passengers from pursuing
forum clause in such a form contract well may be permissible for several
legitimate claims or obtained the Shutes' accession to the forum clause by fraud
reasons. Because it is not unlikely that a mishap in a cruise could subject a
or overreaching. P. 499 U. S. 595.
cruise line to litigation in several different fora, the line has a special interest in
limiting such fora. Moreover, a clause establishing ex ante the dispute resolution
C o n f l i c t o f L a w s | C a s e s | A t t y . R e c t o | Page 51 of 101

(d) By its plain language, the forum selection clause at issue does not
****
violate 46 U.S.C. App. 183c, which, inter alia,prohibits a vessel owner from
inserting in any contract a provision depriving a claimant of a trial "by court of
"3. (a) The acceptance of this ticket by the person or persons named
competent jurisdiction" for loss of life or personal injury resulting from negligence.
hereon as passengers shall be deemed to be an acceptance and agreement by
Pp. 499 U. S. 595-597.
each of them of all of the terms and conditions of this Passage Contract Ticket."
897 F.2d 377 (CA9 1990), reversed.

****

BLACKMUN, J., delivered the opinion of the Court, in which REHNQUIST,


"8. It is agreed by and between the passenger and the Carrier that all
C.J., and WHITE, O'CONNOR, SCALIA, KENNEDY, and SOUTER, JJ., joined.disputes and matters whatsoever arising under, in connection with or incident to
STEVENS, J., filed a dissenting opinion, in which MARSHALL, J.,
this Contract
joined, post, p. 499 U. S. 597.
Page 499 U. S. 588
Page 499 U. S. 587
shall be litigated, if at all, in and before a Court located in the State of
JUSTICE BLACKMUN delivered the opinion of the Court.
Florida, U.S.A. to the exclusion of the Courts of any other state or country."
In this admiralty case we primarily consider whether the United States
Court of Appeals for the Ninth Circuit correctly refused to enforce a forum
selection clause contained in tickets issued by petitioner Carnival Cruise Lines,
Inc., to respondents Eulala and Russel Shute.

Id. at 16.
The last quoted paragraph is the forum selection clause at issue.

II
Respondents boarded the TROPICALE in Los Angeles, Cal. The ship
I
The Shutes, through an Arlington, Wash., travel agent, purchased passage
sailed to Puerto Vallarta, Mexico, and then returned to Los Angeles. While the
for a 7-day cruise on petitioner's ship, the TROPICALE. Respondents paid theship was in international waters off the Mexican coast, respondent Eulala Shute
fare to the agent, who forwarded the payment to petitioner's headquarters in was injured when she slipped on a deck mat during a guided tour of the ship's
Miami, Fla. Petitioner then prepared the tickets and sent them to respondents galley.
in
Respondents filed suit against petitioner in the United States District Court
the State of Washington. The face of each ticket, at its left-hand lower corner, for the Western District of Washington, claiming that Mrs. Shute's injuries had
contained this admonition:
been caused by the negligence of Carnival Cruise Lines and its employees. Id. at
"SUBJECT TO CONDITIONS OF CONTRACT ON LAST PAGES
[bb]IMPORTANT![eb] PLEASE READ CONTRACT -- ON LAST PAGES 1, 2, 3"
Petitioner moved for summary judgment, contending that the forum clause
in respondents' tickets required the Shutes to bring their suit against petitioner in
App. 15. The following appeared on "contract page 1" of each ticket: a court in the State of Florida. Petitioner contended, alternatively, that the District
Court lacked personal jurisdiction over petitioner because petitioner's contacts
"TERMS AND CONDITIONS OF PASSAGE CONTRACT TICKET"
with the State of Washington were insubstantial. The District Court granted the
motion, holding that petitioner's contacts with Washington were constitutionally
C o n f l i c t o f L a w s | C a s e s | A t t y . R e c t o | Page 52 of 101

insufficient to support the exercise of personal jurisdiction. See App. to Pet. for
absolutely necessary to a decision of the case,'" quoting Burton v. United
Cert. 60a.
States, 196 U. S. 283, 196 U. S. 295 (1905)).
The Court of Appeals reversed. Reasoning that, "but for" petitioner's
III
We begin by noting the boundaries of our inquiry. First, this is a case in
solicitation of business in Washington, respondents would not have taken the
cruise and Mrs. Shute would not have been injured, the court concluded that admiralty, and federal law governs the enforceability of the forum selection
petitioner had sufficient contacts with Washington to justify the District Court's clause we scrutinize. See Archawski v. Nanioti, 350 U. S. 532, 350 U. S.
(1956); The Moses Taylor, 4 Wall. 411, 71 U. S. 427 (1867); Tr. of Oral Arg.
exercise of personal jurisdiction. 897 F.2d 377, 385-386 (CA9 1990). *
36-37, 12, 47-48. Cf. Stewart Organization, Inc. v. Ricoh Corp.,487 U. S. 22, 487
U. S. 28-29 (1988). Second, we do not address the question whether
Page 499 U. S. 589
respondents had sufficient notice of the forum clause before entering the contract
for passage. Respondents essentially have conceded that they had notice of the
Turning to the forum selection clause, the Court of Appeals acknowledged
that a court concerned with the enforceability of such a clause must begin its forum selection provision. Brief for Respondent 26 ("The respondents do not
analysis with The Bremen v. Zapata Off-Shore Co., 407 U. S. 1 (1972), where contest the incorporation of the provisions nor [sic] that the forum selection
clause was reasonably communicated to the respondents, as much as three
this Court held that forum selection clauses, although not "historically . . .
pages of fine print can be communicated."). Additionally, the Court of Appeals
favored," are "prima facie valid." Id. at 407 U. S. 9-10. See 897 F.2d at 388. The
evaluated the enforceability of the forum clause under the assumption, although
appellate court concluded that the forum clause should not be enforced because
it "was not freely bargained for." Id. at 389. As an "independent justification" for"doubtful," that respondents could be deemed to have had knowledge of the
clause. See 897 F.2d at 389 and n. 11.
refusing to enforce the clause, the Court of Appeals noted that there was
evidence in the record to indicate that "the Shutes are physically and financially
Within this context, respondents urge that the forum clause should not be
incapable of pursuing this litigation in Florida," and that the enforcement of the
enforced because, contrary to this Court's teachings in The Bremen, the clause
clause would operate to deprive them of their day in court, and thereby
was not the product of negotiation, and enforcement effectively would deprive
contravene this Court's holding in The Bremen. 897 F.2d at 389.
respondents of their day in court. Additionally, respondents contend that the
clause violates the Limitation of Vessel Owner's Liability Act, 46 U.S.C. App.
We granted certiorari to address the question whether the Court of
Appeals was correct in holding that the District Court should hear respondents'183c. We consider these arguments in turn.
tort claim against petitioner. 498 U.S. 807-808 (1990). Because we find the forum
IV
selection clause to be dispositive of this question, we need not consider
A
petitioner's constitutional argument as to personal jurisdiction. See Ashwander v.
TVA, 297 U. S. 288, 297 U. S. 347 (1936) (Brandeis, J., concurring) ("
Both petitioner and respondents argue vigorously that the Court's opinion
The Bremen governs this case, and each side purports to find ample support
I
for its position in that
t is not the habit of the Court to decide questions of a constitutional nature
unless
Page 499 U. S. 591
Page 499 U. S. 590

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opinion's broad-ranging language. This seeming paradox derives in large


that, presumably, would be pertinent in any determination whether to
part from key factual differences between this case and The Bremen, differences
enforce a similar clause.
that preclude an automatic and simple application of The Bremen's general
principles to the facts here.
In this respect, the Court noted that there was
In The Bremen, this Court addressed the enforceability of a forum
"strong evidence that the forum clause was a vital part of the agreement,
selection clause in a contract between two business corporations. An American
and [that] it would be unrealistic to think that the parties did not conduct their
corporation, Zapata, made a contract with Unterweser, a German corporation,negotiations,
for
including fixing the monetary terms, with the consequences of the
the towage of Zapata's ocean-going drilling rig from Louisiana to a point in theforum clause figuring prominently in their calculations."
Adriatic Sea off the coast of Italy. The agreement provided that any dispute
arising under the contract was to be resolved in the London Court of Justice.
Id. at 407 U. S. 14 (footnote omitted). Further, the Court observed that it
After a storm in the Gulf of Mexico seriously damaged the rig, Zapata ordered was not "dealing with an agreement between two Americans to resolve their
Unterweser's ship to tow the rig to Tampa, Fla., the nearest point of refuge. essentially local disputes in a remote alien forum," and that, in such a case,
Thereafter, Zapata sued Unterweser in admiralty in federal court at Tampa. Citing
the forum clause, Unterweser moved to dismiss. The District Court denied
"the serious inconvenience of the contractual forum to one or both of the
Unterweser's motion, and the Court of Appeals for the Fifth Circuit, sitting en parties might carry greater weight in determining the reasonableness of the
banc on rehearing, and by a sharply divided vote, affirmed. 446 F.2d 907 (1971).
forum clause."
This Court vacated and remanded, stating that, in general,

Id. at 407 U. S. 17. The Court stated that, even where the forum clause
establishes a remote forum for resolution of conflicts, "the party claiming
"a freely negotiated private international agreement, unaffected by fraud,
[unfairness] should bear a heavy burden of proof." Ibid.
undue influence, or overweening bargaining power, such as that involved here,
should be given full effect."
In applying The Bremen, the Court of Appeals in the present litigation took
note of the foregoing "reasonableness" factors and rather automatically decided
407 U.S. at 407 U. S. 12-13 (footnote omitted). The Court further
that the forum selection clause was unenforceable because, unlike the parties
generalized that,
The Bremen, respondents are not business persons, and did not negotiate the
terms of the clause with petitioner. Alternatively, the Court of Appeals ruled that
"in the light of present-day commercial realities and expanding
the clause should not be enforced because enforcement effectively would
international trade, we conclude that the forum clause should control absent adeprive respondents of an opportunity to litigate their claim against petitioner.
strong showing that it should be set aside."
The Bremen concerned a
Id. at 407 U. S. 16. The Court did not define precisely the circumstances
that would make it unreasonable for a court to enforce a forum clause. Instead,
"far from routine transaction between companies of two different nations
the Court discussed a number of factors that made it reasonable to enforce thecontemplating the tow of an extremely costly piece of equipment from Louisiana
clause at issue in The Bremen and
across the Gulf of Mexico and the Atlantic Ocean, through the Mediterranean
Sea to its final destination in the Adriatic Sea."
Page 499 U. S. 592
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407 U.S. at 407 U. S. 13. These facts suggest that, even apart from the
Page 499 U. S. 594
evidence of negotiation regarding the forum clause, it was entirely reasonable for
the Court in The
effect of dispelling any confusion about where suits arising from the
contract must be brought and defended, sparing litigants the time and expense of
Page 499 U. S. 593
pretrial motions to determine the correct forum, and conserving judicial resources
that otherwise would be devoted to deciding those motions. See Stewart
Organization, 487 U.S. at 487 U. S. 33 (concurring opinion). Finally, it stands to
Bremen to have expected Unterweser and Zapata to have negotiated with
care in selecting a forum for the resolution of disputes arising from their specialreason that passengers who purchase tickets containing a forum clause like that
at issue in this case benefit in the form of reduced fares reflecting the savings
towing contract.
that the cruise line enjoys by limiting the fora in which it may be sued. Cf.
Northwestern Nat. Ins. Co. v. Donovan, 916 F.2d 372, 378 (CA7 1990).
In contrast, respondents' passage contract was purely routine, and
doubtless nearly identical to every commercial passage contract issued by
We also do not accept the Court of Appeals' "independent justification" for
petitioner and most other cruise lines. See, e.g., Hodes v. S.N.C. Achille Lauro
ed Altri-Gestione,858 F.2d 905, 910 (CA3 1988), cert. dism'd, 490 U.S. 1001 its conclusion that The Bremen dictates that the clause should not be enforced
(1989). In this context, it would be entirely unreasonable for us to assume thatbecause "[t]here is evidence in the record to indicate that the Shutes are
respondents -- or any other cruise passenger -- would negotiate with petitionerphysically and financially incapable of pursuing this litigation in Florida." 897 F.2d,
the terms of a forum-selection clause in an ordinary commercial cruise ticket. at 389. We do not defer to the Court of Appeals' findings of fact. In dismissing the
case for lack of personal jurisdiction over petitioner, the District Court made no
Common sense dictates that a ticket of this kind will be a form contract the terms
of which are not subject to negotiation, and that an individual purchasing the finding regarding the physical and financial impediments to the Shutes' pursuing
ticket will not have bargaining parity with the cruise line. But by ignoring the their case in Florida. The Court of Appeals' conclusory reference to the record
crucial differences in the business contexts in which the respective contracts provides no basis for this Court to validate the finding of inconvenience.
were executed, the Court of Appeals' analysis seems to us to have distorted Furthermore, the Court of Appeals did not place in proper context this Court's
statement in The Bremen that
somewhat this Court's holding in The Bremen.
"the serious inconvenience of the contractual forum to one or both of the
In evaluating the reasonableness of the forum clause at issue in this case,
we must refine the analysis of The Bremen to account for the realities of form parties might carry greater weight in determining the reasonableness of the
passage contracts. As an initial matter, we do not adopt the Court of Appeals' forum clause."
determination that a nonnegotiated forum selection clause in a form ticket
contract is never enforceable simply because it is not the subject of bargaining.
407 U.S. at 407 U. S. 17. The Court made this statement in evaluating a
Including a reasonable forum clause in a form contract of this kind well may behypothetical "agreement between two Americans to resolve their essentially local
permissible for several reasons: first, a cruise line has a special interest in
disputes in a remote alien forum." Ibid. In the present case, Florida is not a
limiting the fora in which it potentially could be subject to suit. Because a cruise
"remote alien forum," nor -- given the fact that Mrs. Shute's accident occurred off
ship typically carries passengers from many locales, it is not unlikely that a the coast of Mexico -- is this dispute an essentially local one inherently more
mishap on a cruise could subject the cruise line to litigation in several differentsuited to resolution in the State of Washington than in Florida. In
fora. See The Bremen, 407 U.S. at 407 U. S. 13 and n. 15. Additionally, a clause
establishing ex ante the forum for dispute resolution has the salutary
Page 499 U. S. 595
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light of these distinctions, and because respondents do not claim lack ofsuch rule, regulation, contract, or agreement are declared to be against public
notice of the forum clause, we conclude that they have not satisfied the "heavypolicy and shall be null and void and of no effect."
burden of proof," ibid. required to set aside the clause on grounds of
inconvenience.
By its plain language, the forum selection clause before us does not take
away respondents' right to "a trial by [a] court of competent jurisdiction," and
It bears emphasis that forum selection clauses contained in form passage
thereby contravene the explicit proscription of 183c. Instead, the clause states
contracts are subject to judicial scrutiny for fundamental fairness. In this case, specifically that actions arising out of the passage contract shall be brought "if at
there is no indication that petitioner set Florida as the forum in which disputes all," in a court "located in the State of Florida," which, plainly, is a "court of
were to be resolved as a means of discouraging cruise passengers from
competent jurisdiction" within the meaning of the statute.
pursuing legitimate claims. Any suggestion of such a bad faith motive is belied by
two facts: petitioner has its principal place of business in Florida, and many of its
Respondents appear to acknowledge this by asserting that, although the
cruises depart from and return to Florida ports. Similarly, there is no evidence forum clause does not directly prevent the determination of claims against the
that petitioner obtained respondents' accession to the forum clause by fraud orcruise line, it causes plaintiffs unreasonable hardship in asserting their rights, and
overreaching. Finally, respondents have conceded that they were given noticetherefore
of
violates Congress' intended goal in enacting 183c. Significantly,
the forum provision and, therefore, presumably retained the option of rejectinghowever, respondents cite no authority for their contention that Congress' intent
the contract with impunity. In the case before us, therefore, we conclude that the
in enacting 183c was to avoid having a plaintiff travel to a distant forum in order
Court of Appeals erred in refusing to enforce the forum selection clause.
to litigate. The legislative history of 183c suggests, instead, that this provision
was enacted in response to passenger ticket conditions purporting to limit the
B
shipowner's liability for negligence or to remove the issue of liability from the
scrutiny of any court by means of a clause providing that "the question of liability
and the measure of damages shall be determined by arbitration." See S.Rep. No.
Respondents also contend that the forum selection clause at issue violates
2061, 74th Cong., 2d Sess. 6 (1936); H.R.Rep. No. 2517, 74th Cong., 2d Sess.,
46 U.S.C. App. 183c. That statute, enacted in 1936, see 49 Stat. 1480,
6 (1936). See also Safety of Life and Property at Sea: Hearings Before the
provides:
Committee on Merchant Marine and Fisheries, 74th Cong., 2d Sess., pt. 4, pp.
20, 36-37, 57, 109-110, 119 (1936). There was no prohibition of a forum selection
"It shall be unlawful for the . . . owner of any vessel transporting
Because the clause before us allows for judicial resolution of claims
passengers between ports of the United States or between any such port and clause.
a
against petitioner and does
foreign port to insert in any rule, regulation, contract, or agreement any provision
or limitation (1) purporting, in the event of loss of life or bodily injury arising from
Page 499 U. S. 597
the negligence or fault of such owner or his servants, to relieve such owner . . .
from liability, or from liability beyond any stipulated amount, for such loss or
injury, or (2) purporting in such event to lessen, weaken, or avoid the right of any
not purport to limit petitioner's liability for negligence, it does not violate
claimant to a trial by court of competent
183c.
Page 499 U. S. 596

V
The judgment of the Court of Appeals is reversed.

jurisdiction on the question of liability for such loss or injury, or the


measure of damages therefor. All such provisions or limitations contained in any

It is so ordered

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* The Court of Appeals had filed an earlier opinion also reversing the insurance premiums, by forcing this choice on its passengers does not, in my
District Court and ruling that the District Court had personal jurisdiction over the
opinion, suffice to render the
cruise line, and that the forum selection clause in the tickets was unreasonable,
and was not to be enforced. 863 F.2d 1437 (CA9 1988). That opinion, however,
Page 499 U. S. 598
was withdrawn when the court certified to the Supreme Court of Washington the
question whether the Washington long-arm statute, Wash.Rev.Code 4.28.185
provision reasonable. Cf. Steven v. Fidelity Casualty Co. of New York, 58
(1988), conferred personal jurisdiction over Carnival Cruise Lines for the claimCal.2d 862, 883, 27 Cal.Rptr. 172, 186, 377 P.2d 284, 298 (1962) (refusing to
asserted by the Shutes. See 872 F.2d 930 (CA9 1989). The Washington
enforce limitation on liability in insurance policy because insured "must purchase
Supreme Court answered the certified question in the affirmative on the ground
the policy before he even knows its provisions").
that the Shutes' claim "arose from" petitioner's advertisement in Washington and
the promotion of its cruises there. 113 Wash.2d 763, 783 P.2d 78 (1989). The
Even if passengers received prominent notice of the forum selection
Court of Appeals then "refiled" its opinion "as modified herein." See 897 F.2d atclause before they committed the cost of the cruise, I would remain persuaded
380, n. 1.
that the clause was unenforceable under traditional principles of federal admiralty
law, and is "null and void" under the terms of Limited Liability Act, 49 Stat. 1480,
JUSTICE STEVENS, with whom JUSTICE MARSHALL joins, dissenting.
as amended, 46 U.S.C. App. 183c, which was enacted in 1936 to invalidate
expressly stipulations limiting shipowners' liability for negligence.
The Court prefaces its legal analysis with a factual statement that implies
that a purchaser of a Carnival Cruise Lines passenger ticket is fully and fairly
Exculpatory clauses in passenger tickets have been around for a long
notified about the existence of the choice of forum clause in the fine print on the
time. These clauses are typically the product of disparate bargaining power
back of the ticket. See ante at 499 U. S. 587-588. Even if this implication werebetween the carrier and the passenger, and they undermine the strong public
accurate, I would disagree with the Court's analysis. But, given the Court's
interest in deterring negligent conduct. For these reasons, courts long before the
preface, I begin my dissent by noting that only the most meticulous passengerturn
is of the century consistently held such clauses unenforceable under federal
likely to become aware of the forum selection provision. I have therefore
admiralty law. Thus, in a case involving a ticket provision purporting to limit the
appended to this opinion a facsimile [omitted] of the relevant text, using the type
shipowner's liability for the negligent handling of baggage, this Court wrote:
size that actually appears in the ticket itself. A careful reader will find the forum
selection clause in the eighth of the twenty-five numbered paragraphs.
"It is settled in the courts of the United States that exemptions limiting
carriers from responsibility for the negligence of themselves or their servants are
Of course, many passengers, like the respondents in this case, see
both unjust and unreasonable, and will be deemed as wanting in the element of
ante at 499 U. S. 587, will not have an opportunity to read paragraph 8 until they
voluntary assent; and, besides, that such conditions are in conflict with public
have actually purchased their tickets. By this point, the passengers will alreadypolicy. This doctrine was announced so long ago, and has been so frequently
have accepted the condition set forth in paragraph 16(a), which provides that reiterated, that it is elementary. We content ourselves with referring to the cases
"[t]he Carrier shall not be liable to make any refund to passengers in respect ofof. theBaltimore
.
& Ohio &c. Railway v. Voigt, 176 U. S. 498, 176 U. S. 505, 176 U.
. tickets wholly or partly not used by a passenger." Not knowing whether or notS. 507, and Knott v. Botany Mills, 179 U. S. 69, 179 U. S. 71 [(1900)], where the
that provision is legally enforceable, I assume that the average passenger would
previously adjudged cases are referred to and the principles
accept the risk of having to file suit in Florida in the event of an injury, rather than
canceling -- without a refund -- a planned vacation at the last minute. The fact
Page 499 U. S. 599
that the cruise line can reduce its litigation costs, and therefore its liability
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by them expounded are restated."

"Ordinarily, one who signs an agreement without full knowledge of its


terms might be held to assume the risk that he has entered a one-sided bargain.
But when a party of little bargaining power, and hence little real choice, signs a
The Kensington, 183 U. S. 263, 183 U. S. 268 (1902).
commercially unreasonable contract with little or no knowledge of its terms, it is
Clauses limiting a carrier's liability or weakening the passenger's right tohardly likely that his consent, or even an objective manifestation of his consent,
recover for the negligence of the carrier's employees come in a variety of forms.
Page 499 U. S. 601
Complete exemptions from liability for negligence or limitations on the amount of
the potential damage recovery, [Footnote 1] requirements that notice of claims be
filed within an unreasonably short period of time, [Footnote 2] provisions
was ever given to all of the terms. In such a case, the usual rule that the
mandating a choice of law that is favorable to the defendant in negligence cases,
terms of the agreement are not to be questioned should be abandoned and the
[Footnote 3] and forum selection clauses are all similarly designed to put a thumb
court should consider whether the terms of the contract are so unfair that
on the carrier's side of the scale of justice. [Footnote 4]
enforcement should be withheld."
Page 499 U. S. 600

See also Steven, 58 Cal.2d at 879-883, 27 Cal.Rptr. at 183-185, 377 P.2d


at 295-297; Henningsen v. Bloomfield Motors, Inc.,32 N.J. 358, 161 A.2d 69
Forum selection clauses in passenger tickets involve the intersection of (1960).
two strands of traditional contract law that qualify the general rule that courts will
enforce the terms of a contract as written. Pursuant to the first strand, courts
The second doctrinal principle implicated by forum selection clauses is the
traditionally have reviewed with heightened scrutiny the terms of contracts of traditional rule that "contractual provisions, which seek to limit the place or court
adhesion, form contracts offered on a take-or-leave basis by a party with stronger
in which an action may . . . be brought, are invalid as contrary to public
bargaining power to a party with weaker power. Some commentators have
policy." SeeDougherty, Validity of Contractual Provision Limiting Place or Court in
questioned whether contracts of adhesion can justifiably be enforced at all under
Which Action May Be Brought, 31 A.L.R.4th 404, 409, 3 (1984). See
traditional contract theory because the adhering party generally enters into them
also Home Insurance Co. v. Morse, 20 Wall. 445, 87 U. S. 451 (1874). Although
without manifesting knowing and voluntary consent to all their terms. See,
adherence to this general rule has declined in recent years, particularly following
e.g., Rakoff, Contracts of Adhesion: An Essay in Reconstruction, 96 Harv.L.Rev.
our decision in The Bremen v. Zapata Off-Shore Co., 407 U. S. 1(1972), the
1173, 1179-1180 (1983); Slawson, Mass Contracts: Lawful Fraud in California,prevailing
48
rule is still that forum selection clauses are not enforceable if they were
S.Cal.L.Rev. 1, 1213 (1974); K. Llewellyn, The Common Law Tradition 370-371
not freely bargained for, create additional expense for one party, or deny one
(1960).
party a remedy. See 31 A.L.R.4th, at 409-438 (citing cases). A forum selection
clause in a standardized passenger ticket would clearly have been unenforceable
The common law, recognizing that standardized form contracts accountunder
for the common law before our decision in The Bremen, see 407 U.S. at 407
a significant portion of all commercial agreements, has taken a less extreme U. S. 9, and n. 10, and, in my opinion, remains unenforceable under the
position, and instead subjects terms in contracts of adhesion to scrutiny for prevailing rule today.
reasonableness. Judge J. Skelly Wright set out the state of the law succinctly
in Williams v. Walker-Thomas Furniture Co.,121 U.S.App.D.C. 315, 319-320, 350 The Bremen, which the Court effectively treats as controlling this case, had
F.2d 445, 449-450 (1965) (footnotes omitted):
nothing to say about stipulations printed on the back of passenger tickets. That
case involved the enforceability of a forum selection clause in a freely negotiated
international agreement between two large corporations providing for the towage
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of a vessel from the Gulf of Mexico to the Adriatic Sea. The Court recognized that
arising from the negligence or fault of such owner or his servants, to relieve such
such towage agreements had generally been held unenforceable in American owner, master, or agent from liability, or from liability beyond any stipulated
amount, for such loss or injury, or (2) purporting in such event to lessen, weaken,
or avoid the right of any claimant to a trial by court of competent jurisdiction on
Page 499 U. S. 602
the question of liability for such loss or injury, or the measure of damages
therefor. All such provisions or limitations contained in any such rule, regulation,
courts, [Footnote 5] but held that the doctrine of those cases did not
extend to commercial arrangements between parties with equal bargaining contract, or agreement are declared to be against public policy and shall be null
and void and of no effect."
power. The federal statute that should control the disposition of the case before
us today was enacted in 1936, when the general rule denying enforcement of
46 U.S.C. App. 183c (emphasis added).
forum selection clauses was indisputably widely accepted. The principal subject
of the statute concerned the limitation of shipowner liability, but, as the following
excerpt from the House Report explains, the section that is relevant to this case
The stipulation in the ticket that Carnival Cruise sold to respondents
was added as a direct response to shipowners' ticketing practices.
certainly lessens or weakens their ability to recover for the slip and fall incident
that occurred off the west coast of Mexico during the cruise that originated and
"During the course of the hearings on the bill (H.R. 9969) there was alsoterminated in Los Angeles, California. It is safe to assume that the witnesses -brought to the attention of the committee a practice of providing on the reversewhether other passengers or members of the crew -- can be assembled with less
side of steamship tickets that, in the event of damage or injury caused by the expense and inconvenience at a west coast forum than in a Florida court several
thousand miles from the scene of the accident.
negligence or fault of the owner or his servants, the liability of the owner shall be
limited to a stipulated amount, in some cases $5,000, and in others substantially
lower amounts, or that in such event the question of liability and the measure of
A liberal reading of the 1936 statute is supported by both its remedial
damages shall be determined by arbitration. The amendment to chapter 6 of title
purpose and by the legislative history's general condemnation of "all such
48 of the Revised Statutes proposed to be made by section 2 of the committeepractices." Although the statute does not specifically mention forum selection
amendment is intended to, and in the opinion of the committee will, put a stop clauses,
to
its language is broad enough to encompass them. The absence of a
all such practices and practices of a like character."
Page 499 U. S. 604
H.R.Rep. No. 2517, 74th Cong., 2d Sess., 6-7 (1936) (emphasis
added); see also S.Rep. No. 2061, 74th Cong., 2d Sess., 6-7 (1936).
specific reference is adequately explained by the fact that such clauses
were already unenforceable under common law, and would not often have been
Page 499 U. S. 603
used by carriers, which were relying on stipulations that purported to exonerate
them from liability entirely. Cf. Moskal v. United States, 498 U. S. 103, 498 U. S.
-113 (1990).
The intent to "put a stop to all such practices and practices of a like
character" was effectuated in the second clause of the statute. It reads:
The Courts of Appeals, construing an analogous provision of the Carriage
of Goods by Sea Act, 46 U.S.C. App. 1300 et seq., have unanimously held
"It shall be unlawful for the manager, agent, master, or owner of any vessel
invalid as limitations on liability forum selection clauses requiring suit in foreign
transporting passengers between ports of the United States or between any such
port and a foreign port to insert in any rule, regulation, contract, or agreement jurisdictions.See, e.g., Hughes Drilling Fluids v. M/V Luo Fu Shan, 852 F.2d 840
(CA5 1988), cert. denied, 489 U.S. 1033 (1989); Union Ins. Soc. of Canton, Ltd.
any provision or limitation (1) purporting, in the event of loss of life or bodily injury
C o n f l i c t o f L a w s | C a s e s | A t t y . R e c t o | Page 59 of 101

v. S.S. Elikon, 642 F.2d 721, 724-25 (CA4 1981); Indussa Corp. v. S.S.
[Footnote 2]
Ranborg, 377 F.2d 200, 203-204 (CA2 1967). Commentators have also endorsed
this view. See, e.g., G. Gilmore & C. Black, The Law of Admiralty 145, and n. 23
See 46 U.S.C. App. 183b(a):
(2nd ed.1975); Mendelsohn, Liberalism, Choice of Forum Clauses and the
Hague Rules, 2 J. of Maritime Law & Comm. 661, 663-666 (1971). The forum
"It shall be unlawful for the manager, agent, master, or owner of any seaselection clause here does not mandate suit in a foreign jurisdiction, and
going vessel (other than tugs, barges, fishing vessels and their tenders)
therefore arguably might have less of an impact on a plaintiff's ability to
transporting passengers or merchandise or property from or between ports of the
recover. See Fireman's Fund American Ins. Cos. v. Puerto Rican Forwarding United States and foreign ports to provide by rule, contract, regulation, or
Co., 492 F.2d 1294 (CA1 1974). However, the plaintiffs in this case are not large
otherwise a shorter period for giving notice of, or filing claims for loss of life or
corporations, but individuals, and the added burden on them of conducting a trial
bodily injury, than six months, and for the institution of suits on such claims, than
at the opposite end of the country is likely proportional to the additional cost toone
a year, such period for institution of suits to be computed from the day when
large corporation of conducting a trial overseas. [Footnote 6]
the death or injury occurred."
Under these circumstances, the general prohibition against stipulations
See also 49 U.S.C. 11707(e) ("A carrier or freight forwarder may not
purporting "to lessen, weaken, or avoid" the passenger's right to a trial certainly
provide by rule, contract, or otherwise, a period of less than 9 months for filing a
should be construed to apply to the manifestly unreasonable stipulation in these
claim against it under this section and a period of less than 2 years for bringing a
passengers'
civil action against it under this section").
Page 499 U. S. 605

[Footnote 3]

tickets. Even without the benefit of the statute, I would continue to apply
See, e.g., The Kensington, 183 U. S. 263, 183 U. S. 269 (1902) (refusing
the general rule that prevailed prior to our decision in The Bremen to forum to enforce clause requiring that all disputes under contract for passage be
selection clauses in passenger tickets.
governed by Belgian law because such law would have favored the shipowner in
violation of United States public policy).
I respectfully dissent.
[Footnote 4]
[Footnote 1]
All these clauses will provide passengers who purchase tickets containing
See 46 U.S.C. App. 183c:
them with a "benefit in the form of reduced fares reflecting the savings that the
cruise line enjoys by limiting [its exposure to liability]." See ante at 499 U. S. 594.
"It shall be unlawful for the . . . owner of any vessel transporting
Under the Court's reasoning, all these clauses, including a complete waiver of
passengers between ports of the United States or between any such port and liability,
a
would be enforceable, a result at odds with longstanding jurisprudence.
foreign port to insert in any rule, regulation, contract, or agreement any provision
or limitation (1) purporting, in the event of loss of life or bodily injury arising from
[Footnote 5]
the negligence or fault of such owner or his servants, to relieve such owner . . .
from liability, or from liability beyond any stipulated amount, for such loss or
"In [Carbon Black Export, Inc. v. The Monrosa, 254 F.2d 297 (CA5
injury. . . ."
1958), cert. dismissed, 359 U. S. 180 (1959),] the Court of Appeals had held a
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forum selection clause unenforceable, reiterating the traditional view of many


American courts that 'agreements in advance of controversy whose object is to
oust the jurisdiction of the courts are contrary to public policy, and will not be
enforced.' 254 F.2d at 300-301."
The Bremen v. Zapata Off-Shore Co., 407 U. S. 1, 407 U. S. 6 (1972).
[Footnote 6]
The Court does not make clear whether the result in this case would also
apply if the clause required Carnival passengers to sue in Panama, the country in
which Carnival is incorporated.

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The Bremen v. Zapata Off-Shore Co.

Argued March 21, 1972

BURGER, C. J., delivered the opinion of the Court, in which BRENNAN,


STEWART, WHITE, MARSHALL, BLACKMUN, POWELL, and
REHNQUIST, JJ., joined. WHITE, J., filed a concurring statement, post,
p. 407 U. S. 20. DOUGLAS, J., filed a dissenting opinion, post, p. 407 U.
S. 20.

Decided June 12, 1972

Page 407 U. S. 2

407 U.S. 1

MR. CHIEF JUSTICE BURGER delivered the opinion of the Court.

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

We granted certiorari to review a judgment of the United States Court of


Appeals for the Fifth Circuit declining to enforce a forum selection clause
governing disputes arising under an international towage contract between
petitioners and respondent. The circuits have differed in their approach to
such clauses. [Footnote 1] For the reasons stated hereafter, we vacate the
judgment of the Court of Appeals.

No. 71-322

FOR THE FIFTH CIRCUIT


Syllabus
Petitioner Unterweser made an agreement to tow respondent's drilling rig
from Louisiana to Italy. The contract contained a forum-selection clause
providing for the litigation of any dispute in the High Court of Justice in
London. When the rig under tow was damaged in a storm, respondent
instructed Unterweser to tow the rig to Tampa, the nearest port of refuge.
There, respondent brought suit in admiralty against petitioners. Unterweser
invoked the forum clause in moving for dismissal for want of jurisdiction
and brought suit in the English court, which ruled that it had jurisdiction
under the contractual forum provision. The District Court, relying
on Carbon Black Export, Inc. v. The Monrosa, 254 F. 2d 297, held the
forum-selection clause unenforceable, and refused to decline jurisdiction
on the basis of forum non conveniens. The Court of Appeals affirmed.
Held: The forum-selection clause, which was a vital part of the towing
contract, is binding on the parties unless respondent can meet the heavy
burden of showing that its enforcement would be unreasonable, unfair, or
unjust. Pp.407 U. S. 8-20
428 F. 2d 888 and 446 F. 2d 907, vacated and remanded.

In November, 1967, respondent Zapata, a Houston-based American


corporation, contracted with petitioner Unterweser, a German corporation,
to tow Zapata's ocean-going, self-elevating drilling rig Chaparral from
Louisiana to a point off Ravenna, Italy, in the Adriatic Sea, where Zapata
had agreed to drill certain wells.
Zapata had solicited bids for the towage, and several companies, including
Unterweser, had responded. Unterweser was the low bidder and Zapata
requested it to submit a contract, which it did. The contract submitted by
Unterweser contained the following provision, which is at issue in this
case:
"Any dispute arising must be treated before the London Court of Justice. "
Page 407 U. S. 3
In addition, the contract contained two clauses purporting to exculpate
Unterweser from liability for damages to the towed barge. [Footnote 2]

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After reviewing the contract and making several changes, but without any
alteration in the forum selection or exculpatory clauses, a Zapata vicepresident executed the contract and forwarded it to Unterweser in
Germany, where Unterweser accepted the changes, and the contract
became effective.
On January 5, 1968, Unterweser's deep sea tug Bremen departed Venice,
Louisiana, with the Chaparral in tow bound for Italy. On January 9, while
the flotilla was in international waters in the middle of the Gulf of Mexico, a
severe storm arose. The sharp roll of the Chaparral in Gulf waters caused
its elevator legs, which had been raised for the voyage, to break off and
fall into the sea, seriously damaging the Chaparral. In this emergency
situation, Zapata instructed the Bremen to tow its damaged rig to Tampa,
Florida, the nearest port of refuge.
On January 12, Zapata, ignoring its contract promise to litigate "any
dispute arising" in the English courts, commenced a suit in admiralty in the
United States
Page 407 U. S. 4
District Court at Tampa, seeking $3,500,000 damages against
Unterweser in personam and the Bremen in rem, alleging negligent
towage and breach of contract. [Footnote 3] Unterweser responded by
invoking the forum clause of the towage contract, and moved to dismiss for
lack of jurisdiction or on forum non conveniens grounds, or, in the
alternative, to stay the action pending submission of the dispute to the
"London Court of Justice." Shortly thereafter, in February, before the
District Court had ruled on its motion to stay or dismiss the United States
action, Unterweser commenced an action against Zapata seeking
damages for breach of the towage contract in the High Court of Justice in
London, as the contract provided; Zapata appeared in that court to contest
jurisdiction, but its challenge was rejected, the English courts holding that
the contractual forum provision conferred jurisdiction. [Footnote 4]

In the meantime, Unterweser was faced with a dilemma in the pending


action in the United States court at Tampa. The six-month period for filing
action to limit its liability to Zapata and other potential claimants was about
to expire, [Footnote 5] but the United States District Court in Tampa had
not yet ruled on Unterweser's motion to dismiss or stay Zapata's action.
On July 2, 1968, confronted with difficult alternatives, Unterweser filed an
action to limit its liability in the District Court in Tampa. That court entered
the customary injunction against proceedings outside the limitation court,
and Zapata refiled its initial claim in the limitation action. [Footnote 6]
Page 407 U. S. 6
It was only at this juncture, on July 29, after the six-month period for filing
the limitation action had run, that the District Court denied Unterweser's
January motion to dismiss or stay Zapata's initial action. In denying the
motion, that court relied on the prior decision of the Court of Appeals
in Carbon Black Export, Inc. v. The Monrosa, 254 F.2d 297 (CA5
1958),cert. dismissed, 359 U. S. 180 (1959). In that case, the Court of
Appeals had held a forum selection clause unenforceable, reiterating the
traditional view of many American courts that
"agreements in advance of controversy whose object is to oust the
jurisdiction of the courts are contrary to public policy, and will not be
enforced."
254 F.2d at 300-301. [Footnote 7] Apparently concluding that it was bound
by the Carbon Black case, the District Court gave the forum selection
clause little, if any, weight. Instead, the court treated the motion to dismiss
under normal forum non conveniens doctrine applicable in the absence of
such a clause, citing Gulf Oil Corp. v. Gilbert, 330 U. S. 501 (1947). Under
that doctrine "unless the balance is strongly in favor of the defendant, the
plaintiff's choice of forum should rarely be disturbed." Id. at 330 U. S. 508.
The District Court concluded: "The balance of conveniences here is not
strongly in favor of [Unterweser] and [Zapata's] choice of forum should not
be disturbed."

Page 407 U. S. 5
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Thereafter, on January 21, 1969, the District Court denied another motion
by Unterweser to stay the limitation action pending determination of the
controversy in the High Court of Justice in London, and granted Zapata's
motion to restrain Unterweser from litigating
Page 407 U. S. 7
further in the London court. The District Judge ruled that, having taken
jurisdiction in the limitation proceeding, he had jurisdiction to determine all
matters relating to the controversy. He ruled that Unterweser should be
required to "do equity" by refraining from also litigating the controversy in
the London court, not only for the reasons he had previously stated for
denying Unterweser's first motion to stay Zapata's action, but also because
Unterweser had invoked the United States court's jurisdiction to obtain the
benefit of the Limitation Act.
On appeal, a divided panel of the Court of Appeals affirmed, and, on
rehearing en banc, the panel opinion was adopted, with six of the 14 en
banc judges dissenting. As had the District Court, the majority rested on
the Carbon Black decision, concluding that, "at the very least,'" that case
stood for the proposition that a forum selection clause "`will not be
enforced unless the selected state would provide a more convenient forum
than the state in which suit is brought.'" From that premise, the Court of
Appeals proceeded to conclude that, apart from the forum selection
clause, the District Court did not abuse its discretion in refusing to decline
jurisdiction on the basis of forum non conveniens. It noted that (1) the
flotilla never "escaped the Fifth Circuit's mare nostrum, and the casualty
occurred in close proximity to the district court"; (2) a considerable number
of potential witnesses, including Zapata crewmen, resided in the Gulf
Coast area; (3) preparation for the voyage and inspection and repair work
had been performed in the Gulf area; (4) the testimony of
the Bremen crew was available by way of deposition; (5) England had no
interest in or contact with the controversy other than the forum selection
clause. The Court of Appeals majority further noted that Zapata was a
United States citizen and "[t]he discretion

of the district court to remand the case to a foreign forum was


consequently limited" -- especially since it appeared likely that the English
courts would enforce the exculpatory clauses. [Footnote 8] In the Court of
Appeals' view, enforcement of such clauses would be contrary to public
policy in American courts under Bisso v. Inland Waterways Corp., 349 U.
S. 85(1955), and Dixilyn Drilling Corp. v. Crescent Towing & Salvage
Co., 372 U. S. 697 (1963). Therefore,
"[t]he district court was entitled to consider that remanding Zapata to a
foreign forum, with no practical contact with the controversy, could raise a
bar to recovery by a United States citizen which its own convenient courts
would not countenance. [Footnote 9]"
We hold, with the six dissenting members of the Court of Appeals, that far
too little weight and effect were given to the forum clause in resolving this
controversy. For at least two decades, we have witnessed an expansion of
overseas commercial activities by business enterprises based in the
United States. The barrier of distance that, once tended to confine a
business concern to a modest territory no longer does so. Here we see an
American
Page 407 U. S. 9
company with special expertise contracting with a foreign company to tow
a complex machine thousands of miles across seas and oceans. The
expansion of American business and industry will hardly be encouraged if,
notwithstanding solemn contracts, we insist on a parochial concept that all
disputes must be resolved under our laws and in our courts. Absent a
contract forum, the considerations relied on by the Court of Appeals would
be persuasive reasons for holding an American forum convenient in the
traditional sense, but in an era of expanding world trade and commerce,
the absolute aspects of the doctrine of the Carbon Black case have little
place, and would be a heavy hand indeed on the future development of
international commercial dealings by Americans. We cannot have trade
and commerce in world markets and international waters exclusively on
our terms, governed by our laws, and resolved in our courts.

Page 407 U. S. 8
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Forum selection clauses have historically not been favored by American


courts. Many courts, federal and state, have declined to enforce such
clauses on the ground that they were "contrary to public policy," or that
their effect was to "oust the jurisdiction" of the court. [Footnote 10]
Although
Page 407 U. S. 10
this view apparently still has considerable acceptance, other courts are
tending to adopt a more hospitable attitude toward forum selection
clauses. This view, advanced in the well reasoned dissenting opinion in the
instant case, is that such clauses are prima facie valid, and should be
enforced unless enforcement is shown by the resisting party to be
"unreasonable" under the circumstances. [Footnote 11] We believe this is
the correct doctrine to be followed by federal district courts sitting in
admiralty. It is merely the other side of the proposition recognized by this
Court in National Equipment Rental, Ltd. v. Szukhent, 375 U. S.
311 (1964), holding that in federal courts a party may validly consent to be
sued in a jurisdiction
Page 407 U. S. 11
where he cannot be found for service of process through contractual
designation of an "agent" for receipt of process in that jurisdiction. In so
holding, the Court stated:
"[I]t is settled . . . that parties to a contract may agree in advance to submit
to the jurisdiction of a given court, to permit notice to be served by the
opposing party, or even to waive notice altogether."
Id. at 375 U. S. 315-316. This approach is substantially that followed in
other common law countries, including England. [Footnote 12] It is the
view advanced by noted scholars, and that adopted by the Restatement of
the Conflict of Laws. [Footnote 13] It accords with ancient concepts of
freedom of contract, and reflects an appreciation of the expanding
horizons of American contractors who seek business in all parts of the
world. Not surprisingly, foreign businessmen prefer, as do we, to

Page 407 U. S. 12
have disputes resolved in their own courts, but, if that choice is not
available, then in a neutral forum with expertise in the subject matter.
Plainly, the courts of England meet the standards of neutrality and long
experience in admiralty litigation. The choice of that forum was made in an
arm's length negotiation by experienced and sophisticated businessmen,
and, absent some compelling and countervailing reason, it should be
honored by the parties and enforced by the courts.
The argument that such clauses are improper because they tend to "oust"
a court of jurisdiction is hardly more than a vestigial legal fiction. It appears
to rest at core on historical judicial resistance to any attempt to reduce the
power and business of a particular court, and has little place in an era
when all courts are overloaded and when businesses, once essentially
local, now operate in world markets. It reflects something of a provincial
attitude regarding the fairness of other tribunals. No one seriously
contends in this case that the forum selection clause "ousted" the District
Court of jurisdiction over Zapata's action. The threshold question is
whether that court should have exercised its jurisdiction to do more than
give effect to the legitimate expectations of the parties, manifested in their
freely negotiated agreement, by specifically enforcing the forum clause.
There are compelling reasons why a freely negotiated private international
agreement, unaffected by fraud, undue influence, or overweening
bargaining power, [Footnote 14] such
Page 407 U. S. 13
as that involved here, should be given full effect. In this case, for example,
we are concerned with a far from routine transaction between companies
of two different nations contemplating the tow of an extremely costly piece
of equipment from Louisiana across the Gulf of Mexico and the Atlantic
Ocean, through the Mediterranean Sea to its final destination in the
Adriatic Sea. In the course of its voyage, it was to traverse the waters of
many jurisdictions. The Chaparral could have been damaged at any point
along the route, and there were countless possible ports of refuge. That

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the accident occurred in the Gulf of Mexico and the barge was towed to
Tampa in an emergency were mere fortuities. It cannot be doubted for a
moment that the parties sought to provide for a neutral forum for the
resolution of any disputes arising during the tow. Manifestly, much
uncertainty and possibly great inconvenience to both parties could arise if
a suit could be maintained in any jurisdiction in which an accident might
occur or if jurisdiction were left to any place where the Bremen or
Unterweser might happen to be found. [Footnote 15] The elimination of all
such uncertainties by agreeing in advance on a forum acceptable to both
parties is an indispensable element in international trade,
Page 407 U. S. 14
commerce, and contracting. There is strong evidence that the forum
clause was a vital part of the agreement, [Footnote 16] and it would be
unrealistic to think that the parties did not conduct their negotiations,
including fixing the monetary terms, with the consequences of the forum
clause figuring prominently in their calculations. Under these
circumstances, as Justice Karminski reasoned in sustaining jurisdiction
over Zapata in the High Court of Justice, "[t]he force of an agreement for
litigation in this country, freely entered into between two competent parties,
seems to me to be very powerful."
Page 407 U. S. 15
Thus, in the light of present-day commercial realities and expanding
international trade, we conclude that the forum clause should control
absent a strong showing that it should be set aside. Although their opinions
are not altogether explicit, it seems reasonably clear that the District Court
and the Court of Appeals placed the burden on Unterweser to show that
London would be a more convenient forum than Tampa, although the
contract expressly resolved that issue. The correct approach would have
been to enforce the forum clause specifically unless Zapata could clearly
show that enforcement would be unreasonable and unjust, or that the
clause was invalid for such reasons as fraud or overreaching. Accordingly,
the case must be remanded for reconsideration.

We note, however, that there is nothing in the record presently before us


that would support a refusal to enforce the forum clause. The Court of
Appeals suggested that enforcement would be contrary to the public policy
of the forum under Bisso v. Inland Waterways Corp., 349 U. S. 85 (1955),
because of the prospect that the English courts would enforce the clauses
of the towage contract purporting to exculpate Unterweser from liability for
damages to the Chaparral. A contractual choice of forum clause should be
held unenforceable if enforcement would contravene a strong public policy
of the forum in which suit is brought, whether declared by statute or by
judicial decision. See, e.g., Boyd v. Grand Trunk W. R. Co., 338 U. S.
263 (1949). It is clear, however, that whatever the proper scope of the
policy expressed in Bisso, [Footnote 17] it does not reach this
case. Bisso rested on considerations with respect to the towage business
strictly in
Page 407 U. S. 16
American waters, and those considerations are not controlling in an
international commercial agreement. Speaking for the dissenting judges in
the Court of Appeals, Judge Wisdom pointed out:
"[W]e should be careful not to over-emphasize the strength of the [Bisso]
policy. . . . [T]wo concerns underlie the rejection of exculpatory
agreements: that they may be produced by overweening bargaining
power; and that they do not sufficiently discourage negligence. . . . Here,
the conduct in question is that of a foreign party occurring in international
waters outside our jurisdiction. The evidence disputes any notion of
overreaching in the contractual agreement. And, for all we know, the
uncertainties and dangers in the new field of transoceanic towage of oil
rigs were so great that the tower was unwilling to take financial
responsibility for the risks, and the parties thus allocated responsibility for
the voyage to the tow. It is equally possible that the contract price took this
factor into account. I conclude that we should not invalidate the forum
selection clause here unless we are firmly convinced that we would
thereby significantly encourage negligent conduct within the boundaries of
the United States."

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428 F.2d at 907-908. (Footnotes omitted.)


Courts have also suggested that a forum clause, even though it is freely
bargained for and contravenes no important public policy of the forum,
may nevertheless be "unreasonable" and unenforceable if the chosen
forum is seriously inconvenient for the trial of the action. Of course, where
it can be said with reasonable assurance that, at the time they entered the
contract, the parties to a freely negotiated private international commercial
agreement contemplated the claimed inconvenience, it is difficult to see
why any such claim of inconvenience should be heard to render the forum
clause unenforceable.
Page 407 U. S. 17
We are not here dealing with an agreement between two Americans to
resolve their essentially local disputes in a remote alien forum. In such a
case, the serious inconvenience of the contractual forum to one or both of
the parties might carry greater weight in determining the reasonableness
of the forum clause. The remoteness of the forum might suggest that the
agreement was an adhesive one, or that the parties did not have the
particular controversy in mind when they made their agreement; yet even
there, the party claiming should bear a heavy burden of proof. [Footnote
18] Similarly, selection of a remote forum to apply differing foreign law to
an essentially American controversy might contravene an important public
policy of the forum. For example, so long as Bisso governs American
courts with respect to the towage business in American waters, it would
quite arguably be improper to permit an American tower to avoid that
policy by providing a foreign forum for resolution of his disputes with an
American towee.

This case, however, involves a freely negotiated international commercial


transaction between a German and an American corporation for towage of
a vessel from the Gulf of Mexico to the Adriatic Sea. As noted, selection of
a London forum was clearly a reasonable effort to bring vital certainty to
this international transaction, and to provide a neutral forum experienced
and capable in the resolution of admiralty litigation. Whatever
"inconvenience" Zapata would suffer by being forced to litigate in the
contractual forum as it agreed to do was clearly
Page 407 U. S. 18
foreseeable at the time of contracting. In such circumstances, it should be
incumbent on the party seeking to escape his contract to show that trial in
the contractual forum will be so gravely difficult and inconvenient that he
will, for all practical purposes, be deprived of his day in court. Absent that,
there is no basis for concluding that it would be unfair, unjust, or
unreasonable to hold that party to his bargain.
In the course of its ruling on Unterweser's second motion to stay the
proceedings in Tampa, the District Court did make a conclusory finding
that the balance of convenience was "strongly" in favor of litigation in
Tampa. However, as previously noted, in making that finding, the court
erroneously placed the burden of proof on Unterweser to show that the
balance of convenience was strongly in its favor. [Footnote 19] Moreover,
the finding falls far short of a conclusion that Zapata would be effectively
deprived of its day in court should it be
Page 407 U. S. 19
forced to litigate in London. Indeed, it cannot even be assumed that it
would be placed to the expense of transporting its witnesses to London. It
is not unusual for important issues in international admiralty cases to be
dealt with by deposition. Both the District Court and the Court of Appeals
majority appeared satisfied that Unterweser could receive a fair hearing in
Tampa by using deposition testimony of its witnesses from distant places,
and there is no reason to conclude that Zapata could not use deposition
testimony to equal advantage if forced to litigate in London, as it bound

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itself to do. Nevertheless, to allow Zapata opportunity to carry its heavy


burden of showing not only that the balance of convenience is strongly in
favor of trial in Tampa (that is, that it will be far more inconvenient for
Zapata to litigate in London than it will be for Unterweser to litigate in
Tampa), but also that a London trial will be so manifestly and gravely
inconvenient to Zapata that it will be effectively deprived of a meaningful
day in court, we remand for further proceedings.

[Footnote 1]

Zapata's remaining contentions do not require extended treatment. It is


clear that Unterweser's action in filing its limitation complaint in the District
Court in Tampa was, so far as Zapata was concerned, solely a defensive
measure made necessary as a response to Zapata's breach of the forum
clause of the contract. When the six-month statutory period for filing an
action to limit its liability had almost run without the District Court's having
ruled on Unterweser's initial motion to dismiss or stay Zapata's action
pursuant to the forum clause, Unterweser had no other prudent alternative
but to protect itself by filing for limitation of its liability. [Footnote 20] Its
action in so doing was a direct consequence

[Footnote 2]

Compare, e.g., Central Contraction Co. v. Maryland Casualty Co., 367 F.2d
341 (CA3 1966), and Wm. H. Muller & Co. v. Swedish American Line
Ltd., 224 F.2d 806 (CA2) cert. denied, 350 U.S. 903 (1955), with Carbon
Black Export, Inc. v. The Monrosa, 254 F.2d 297 (CA5 1958), cert.
dismissed, 359 U. S. 180 (1959).

The General Towage Conditions of the contract included the following:


"1. . . . [Unterweser and its] masters and crews are not responsible for
defaults and/or errors in the navigation of the tow."
"2. . . ."
"b) Damages suffered by the towed object are in any case for account of
its Owners."

Page 407 U. S. 20
of Zapata's failure to abide by the forum clause of the towage contract.
There is no basis on which to conclude that this purely necessary
defensive action by Unterweser should preclude it from relying on the
forum clause it bargained for.
For the first time in this litigation, Zapata has suggested to this Court that
the forum clause should not be construed to provide for an exclusive forum
or to include in rem actions. However, the language of the clause is clearly
mandatory and all-encompassing; the language of the clause in the Cabon
Black case was far different. [Footnote 21]
The judgment of the Court of Appeals is vacated, and the case is
remanded for further proceedings consistent with this opinion.
Vacated and remanded.

In addition, the contract provided that any insurance of the Chaparral was
to be "for account of" Zapata. Unterweser's initial telegraphic bid had also
offered to "arrange insurance covering towage risk for rig if desired." As
Zapata had chosen to be self-insured on all its rigs, the loss in this case
was not compensated by insurance.
[Footnote 3]
The Bremen was arrested by a United States marshal acting pursuant to
Zapata's complaint immediately upon her arrival in Tampa. The tug was
subsequently released when Unterweser furnished security in the amount
of $3,500;000.
[Footnote 4]
Zapata appeared specially and moved to set aside service of process
outside the country. Justice Karminski of the High Court of Justice denied

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the motion on the ground the contractual choice of forum provision


conferred jurisdiction, and would be enforced absent a factual showing it
would not be "fair and right" to do so. He did not believe Zapata had made
such a showing, and held that it should be required to "stick to [its]
bargain." App. 206, 211, 213. The Court of Appeal dismissed an appeal on
the ground that Justice Karminski had properly applied the English rule.
Lord Justice Willmer stated that rule as follows:
"The law on the subject, I think, is not open to doubt. . . . It is always open
to parties to stipulate . . . that a particular Court shall have jurisdiction over
any dispute arising out of their contract. Here, the parties chose to
stipulate that disputes were to be referred to the 'London Court,' which I
take as meaning the High Court in this country. Prima facie, it is the policy
of the Court to hold parties to the bargain into which they have entered. . . .
But that is not an inflexible rule, as was shown, for instance, by the case
of The Fehmarn, [1957] 1 Lloyd's Rep. 511; (C.A.) [1957] 2 Lloyd's Rep.
551. . . ."

the High Court of Justice was the proper forum for determining the entire
controversy, including its own right to limited liability, in accord with the
contractual forum clause. Unterweser later counterclaimed, setting forth
the same contractual cause of action as in its English action and a further
cause of action for salvage arising out of the Bremen's services following
the casualty. In its counterclaim, Unterweser again asserted that the High
Court of Justice in London was the proper forum for determining all
aspects of the controversy, including its counterclaim.
[Footnote 7]
The Carbon Black court went on to say that it was, in any event,
unnecessary for it to reject the more liberal position taken in Wm. H. Muller
& Co. v. Swedish American Line Ltd., 224 F.2d 806 (CA2), cert.
denied, 350 U.S. 903 (1955), because the case before it had a greater
nexus with the United States than that in Muller.
[Footnote 8]

"I approach the matter, therefore, in this way, that the Court has a
discretion, but it is a discretion which, in the ordinary way and in the
absence of strong reason to the contrary, will be exercised in favour of
holding parties to their bargain. The question is whether sufficient
circumstances have been shown to exist in this case to make it desirable,
on the grounds of balance of convenience, that proceedings should not
take place in this country. . . ."

The record contains an undisputed affidavit of a British solicitor stating an


opinion that the exculpatory clauses of the contract would be held "prima
facie valid and enforceable" against Zapata in any action maintained in
England in which Zapata alleged that defaults or errors in Unterweser's
tow caused the casualty and damage to the Chaparral.

[1968] 2 Lloyd's Rep. 158, 162-163.

In addition, it is not disputed that, while the limitation fund in the District
Court in Tampa amounts to $1,390,000, the limitation fund in England
would be only slightly in excess of $80,000 under English law.

[Footnote 5]
[Footnote 9]
46 U.S.C. 183, 185. See generally G. Gilmore & C. Black, Admiralty
115 (1957).
[Footnote 6]
In its limitation complaint, Unterweser stated it "reserve[d] all rights" under
its previous motion to dismiss or stay Zapata's action, and reasserted that

The Court of Appeals also indicated in passing that, even if it took the view
that choice of forum clauses were enforceable unless "unreasonable," it
was "doubtful" that enforcement would be proper here, because the
exculpatory clauses would deny Zapata relief to which it was "entitled,"
and because England was "seriously inconvenient" for trial of the action.

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[Footnote 10]
Many decisions reflecting this view are collected in Annot. 56 A.L.R.2d
300, 306-320 (1957), and Later Case Service (1967).
For leading early cases, see, e.g., Nute v. Hamilton Mutual Ins. Co., 72
Mass. (6 Gray) 174 (1856); Nashua River Paper Co. v. Hammermill Paper
Co., 223 Mass. 8, 111 N.E. 678 (1916); Benson v. Eastern Bldg. & Loan
Assn., 174 N.Y. 83, 66 N.E. 627 (1903).
The early admiralty cases were in accord. See, e.g., Wood & Selick, Inc. v.
Compagnie Generale Transatlantique, 43 F.2d 941 (CA2 1930); The
Ciano, 58 F.Supp. 65 (ED Pa.1944); Kuhnhold v. Compagnie Generale
Transatlantique, 251 F. 387 (SDNY 1918); Prince Steam-Shipping Co. v.
Lehman, 39 F. 704 (SDNY 1889).

E.g., Central Contracting Co. v. Maryland Casualty Co., 367 F.2d 341 (CA3
1966); Anastasiadis U.S.S. Little John, 346 F.2d 281 (CA5 1965) (by
implication); Wm. H. Muller & Co. v. Swedish American Line Ltd., 24 F.2d
806 (CA2), cert. denied;. 350 U.S. 903 (1955); Cerro de Pasco Copper
Corp. v. Knut Knutsen, O.A.S., 187 F.2d 990 (CA2 1951); Central
Contracting Co. v. C. E. Youngdahl & Co., 418 Pa. 122, 209 A.2d 810
(1965).
The Muller case was overruled in Indussa Corp. U.S.S. Ranborg, 377 F.2d
200 (CA2 1967), insofar as it held that the forum clause was not
inconsistent with the "lessening of liability" provision of the Carriage of
Goods by Sea Act, 46 U.S.C. 1303(8), which was applicable to the
transactions in Muller, Indussa, and Carbon Black. That Act is not
applicable in this case.
[Footnote 12]

In Insurance Co. v. Morse, 20 Wall. 445 (1874), this Court broadly stated
that "agreements in advance to oust the courts of the jurisdiction conferred
by law are illegal and void." Id. at 87 U. S. 451. But the holding of that case
was only that the State of Wisconsin could not by statute force a foreign
corporation to "agree" to surrender its federal statutory right to remove a
state court action to the federal courts as a condition of doing business in
Wisconsin. Thus, the case is properly understood as one in which a state
statutory requirement was viewed as imposing an unconstitutional
condition on the exercise of the federal right of removal. See, e.g.,
Wisconsin v. Philadelphia & Reading Coal Co., 241 U. S. 329 (1916).
As Judge Hand noted in Krenger v. Pennsylvania R. Co., 174 F.2d 556
(CA2 1949), even at that date, there was, in fact, no "absolute taboo"
against such clauses. See, e.g., Mittenthal v. Mascagni, 183 Mass.19, 66
N.E. 425 (1903); Daley v. People's Bldg., Loan & Sav. Assn., 178 Mass.
13, 59 N.E. 452 (1901) (Holmes, J.). See also Cerro de Pasco Copper
Corp. v. Knut Knutsen, O.A.S., 187 F.2d 990 (CA2 1951).
[Footnote 11]

In addition to the decision of the Court of Appeal in the instant


case, Unterweser Reederei G.m.b.H. v. Zapata Off-Shore Co. [The
Chaparral], [1968] 2 Lloyd's Rep. 158 (C.A.), see e.g., Mackender v. Feldia
A.G., [1967] 2 Q.B. 590 (C.A.); The Fehmarn,[1958] 1 W.L.R. 159
(C.A.); Law v. Garrett, [1878] 8 Ch.D. 26 (C.A.); The Eleftheria, [1970] P.
94. As indicated by tho clear statements in The Eleftheria and of Lord
Justice Willmer in this case, supra, n 4, the decision of the trial court calls
for an exercise of discretion. See generally A. Dicey & J. Morris, The
Conflict of Laws 979-980, 1087-1088 (8th ed.1967); Cowen & Mendes da
Costa, The Contractual Forum: Situation in England and the British
Commonwealth, 13 Am.J.Comp.Law 179 (1964); Reese, The Contractual
Forum: Situation in the United States, id. at 187, 190 n. 13; Graupner,
Contractual Stipulations Conferring Exclusive Jurisdiction Upon Foreign
Courts in the Law of England and Scotland, 59 L.Q.Rev. 227 (1943).
[Footnote 13]
Restatement (Second) of the Conflict of Laws 80 (1971); Reese, The
Contractual Forum: Situation in the United States, 13 Am.J.Comp.Law 187
(1964); A. Ehrenzweig, Conflict of Laws 41 (1962). See also Model

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Choice of Forum Act (National Conference of Commissioners on Uniform


State Laws 1968).

Comm. 363, 365-370 and n. 7 (1971). It is therefore reasonable to


conclude that the forum clause was also an effort to obtain certainty as to
the applicable substantive law.

[Footnote 14]
The record here refutes any notion of overweening bargaining power.
Judge Wisdom, dissenting in the Court of Appeals, noted:
"Zapata has neither presented evidence of nor alleged fraud or undue
bargaining power in the agreement. Unterweser was only one of several
companies bidding on the project. No evidence contradicts its Managing
Director's affidavit that it specified English courts 'in an effort to meet
Zapata Off-Shore Company half way.' Zapata's Vice President has
declared by affidavit that no specific negotiations concerning the forum
clause took place. But this was not simply a form contract with boilerplate
language that Zapata had no power to alter. The towing of an oil rig across
the Atlantic was a new business. Zapata did make alterations to the
contract submitted by Unterweser. The forum clause could hardly be
ignored. It is the final sentence of the agreement, immediately preceding
the date and the parties' signatures. . . ."
428 F.2d 888, 907.
[Footnote 15]
At the very least, the clause was an effort to eliminate all uncertainty as to
the nature, location, and outlook of the forum in which these companies of
differing nationalities might find themselves. Moreover, while the contract
here did not specifically provide that the substantive law of England should
be applied, it is the general rule in English courts that the parties are
assumed, absent contrary indication, to have designated the forum with
the view that it should apply its own law. See, e.g., Tzortzis v. Monark Line
A/B, [1968] 1 W.L.R. 406 (C.A.); see generally 1 T. Carver, Carriage by
Sea 496-497 (12th ed.1971); G. Cheshire, Private International Law 193
(7th ed.1965); A. Dicey & J. Morris, The Conflict of Laws 705, 1046 (8th
ed.1967); Collins, Arbitration Clauses and Forum Selecting Clauses in the
Conflict of Laws: Some Recent Developments in England, 2 J.Mar.L. &

The record contains an affidavit of a Managing Director of Unterweser


stating that Unterweser considered the choice of forum provision to be of
"overriding importance" to the transaction. He stated that Unterweser
towage contracts ordinarily provide for exclusive German jurisdiction and
application of German law, but that, "[i]n this instance, in an effort to meet
[Zapata] half-way, [Unterweser] proposed the London Court of Justice.
Had this provision not been accepted by [Zapata], [Unterweser] would not
have entered into the towage contract. . . ."
He also stated that the parties intended, by designating the London forum,
that English law would be applied. A responsive affidavit by Hoyt Taylor, a
vice-president of Zapata, denied that there were any discussions between
Zapata and Unterweser concerning the forum clause or the question of the
applicable law.
[Footnote 16]
See nn. 14-15 supra. Zapata has denied specifically discussing the forum
clause with Unterweser, but, as Judge Wisdom pointed out, Zapata made
numerous changes in the contract without altering the forum clause, which
could hardly have escaped its attention. Zapata is clearly not
unsophisticated in such matters. The contract of its wholly owned
subsidiary with an Italian corporation covering the contemplated drilling
operations in the Adriatic Sea provided that all disputes were to be settled
by arbitration in London under English law, and contained broad
exculpatory clauses. App. 306-311.
[Footnote 17]
Dixilyn Drilling Corp. v. Crescent Towing & Salvage Co., 372 U. S.
697 (1963) (per curiam), merely followed Bisso and declined to subject its
rule governing towage contracts in American waters to "indeterminate

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exceptions" based on delicate analysis of the facts of each case. See 372
U.S. at 372 U. S. 698 (Harlan, J., concurring).

App. 212. It should also be noted that, if the exculpatory clause is enforced
in the English courts, many of Zapata's witnesses on the questions of
negligence and damage may be completely unnecessary.

[Footnote 18]
[Footnote 20]
See, e.g., Model Choice of Forum Act 3(3), supra, n 13, comment:
"On rare occasions, the state of the forum may be a substantially more
convenient place for the trial of a particular controversy than the chosen
state. If so, the present clause would permit the action to proceed. This
result will presumably be in accord with the desires of the parties. It can be
assumed that they did not have the particular controversy in mind when
they made the choice of forum agreement, since they would not
consciously have agreed to have the action brought in an inconvenient
place."

Zapata has suggested that Unterweser was not in any way required to file
its "affirmative" limitation complaint, because it could just as easily have
pleaded limitation of liability by way of defense in Zapata's initial action,
either before or after the six-month period. That course of action was not
without risk, however, that Unterweser's attempt to limit its liability by
answer would be held invalid. See G. Gilmore & C. Black, Admiralty 115
(1957). We do not believe this hazardous option in any way deprived
Unterweser's limitation complaint of its essentially defensive character so
far as Zapata was concerned.

[Footnote 19]

[Footnote 21]

Applying the proper burden of proof, Justice Karminski, in the High Court
of Justice at London, made the following findings, which appear to have
substantial support in the record:

See 359 U.S. at 359 U. S. 182.

"[Zapata] pointed out that in this case the balance of convenience so far as
witnesses were concerned pointed in the direction of having the case
heard and tried in the United States District Court at Tampa in Florida
because the probability is that most, but not necessarily all, of the
witnesses will be American. The answer, as it seems to me, is that a
substantial minority, at least, of witnesses are likely to be German. The tug
was a German vessel, and was, as far as I know, manned by a German
crew. . . . Where they all are now or are likely to be when this matter is
litigated I do not know, because the experience of the Admiralty Court here
strongly points out that maritime witnesses, in the course of their duties,
move about freely. The homes of the German crew presumably are in
Germany. There is probably a balance of numbers in favour of the
Americans, but not, as I am inclined to think, a very heavy balance."

I concur in the opinion and judgment of the Court except insofar as the
opinion comments on the issues which are remanded to the District Court.
In my view, these issues are best left for consideration by the District Court
in the first instance.

MR. JUSTICE WHITE, concurring.

MR. JUSTICE DOUGLAS, dissenting.


Petitioner Unterweser contracted with respondent to tow respondent's
drilling barge from Louisiana to Italy. The towage contract contained a
"forum selection clause"
Page 407 U. S. 21
providing that any dispute must be litigated before the High Court of
Justice in London, England. While the barge was being towed in the Gulf

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of Mexico, a casualty was suffered. The tow made for Tampa Bay, he
nearest port, where respondent brought suit for damages in the District
Court.
Petitioners sued respondent in the High Court of Justice in London, which
denied respondent's motion to dismiss.

knowledge of the ship owner, and by the fault or neglect of the master or
other persons on board; that the origin of this proceeding for limitation of
liability is to be found in the general maritime law, differing from the English
maritime law; and that such a proceeding is entirely within the
constitutional grant of power to Congress to establish courts of admiralty
and maritime jurisdiction."

Petitioners, having previously moved the District Court to dismiss, filed a


complaint in that court seeking exoneration or limitation of liability as
provided in 46 U.S.C. 185. Respondent filed its claim in the limitation
proceedings, asserting the same cause of action as in its original action.
Petitioners then filed objections to respondent's claim and counterclaimed
against respondent, alleging the same claims embodied in its English
action, plus an additional salvage claim.

Chief Justice Taft went on to describe how the owner of a vessel who, in
case the vessel is found at fault, may limit his liability to the value of the
vessel and may bring all claimants "into concourse in the proceeding, by
monition," and they may be enjoined from suing the owner and the vessel
on such claims in any other court. Id. at 273 U. S. 215.

Respondent moved for an injunction against petitioners' litigating further in


the English case, and the District Court granted the injunction pending
determination of the limitation action. Petitioners moved to stay their own
limitation proceeding pending a resolution of the suit in the English court.
That motion was denied. 296 F.Supp. 733.

"[T]his Court has, by its rules and decisions, given the statute a very broad
and equitable construction for the purpose of carrying out its purpose and
for facilitating a settlement of the whole controversy over such losses as
are comprehended within it, and that all the ease with which rights can be
adjusted in equity is intended to be given to the proceeding. It is the
administration of equity in an admiralty court. . . . The proceeding partakes
in a way of the features of a bill to enjoin a multiplicity of suits, a bill in the
nature of an interpleader, and a creditor's bill. It looks to a complete and
just disposition of a many-cornered controversy, and is applicable to
proceedings in rem against the ship, as well as to proceedings in
personam against the owner, the limitation extending to the owner's
property as well as to his person."

That was the posture of the case as it reached the Court of Appeals,
petitioners appealing from the last two orders. The Court of Appeals
affirmed. 428 F.2d 888, 446 F.2d 907.
Chief Justice Taft, in Hartford Accident Co. v. Southern Pacific, 273 U. S.
207, 273 U. S. 214, in discussing the Limitation of Liability Act, said that
"the great object of the statute was to encourage shipbuilding, and to
induce the investment of money in this branch of industry, by limiting the
venture of those who build the ship to the loss of the ship itself or her
freight then pending, in cases of damage or wrong, happening without the
privity or

Chief Justice Taft concluded:

Id. at 273 U. S. 215-216.


The Limitation Court is a court of equity, and, traditionally, an equity court
may enjoin litigation in another court where equitable considerations
indicate that the other litigation might prejudice the proceedings in the
Limitation Court. Petitioners' petition for limitation

Page 407 U. S. 22
Page 407 U. S. 23
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subjects them to the full equitable powers of the Limitation Court.


Respondent is a citizen of this country. Moreover, if it were remitted to the
English court, its substantive rights would be adversely affected.
Exculpatory provisions in the towage control provide (1) that petitioners,
the masters and the crews "are not responsible for defaults and/or errors
in the navigation of the tow" and (2) that "[d]amages suffered by the towed
object are in any case for account of its Owners."
Under our decision in Dixilyn Drilling Corp v. Crescent Towing & Salvage
Co., 372 U. S. 697, 372 U. S. 698, "a contract which exempts the tower
from liability for its own negligence" is not enforceable, though there is
evidence in the present record that it is enforceable in England. That policy
was first announced in Bisso v. Inland Waterways Corp., 349 U. S. 85, and
followed in Boston Metals Co. v. The Winding Gulf, 349 U. S. 122; Dixilyn,
supra; Gray v. Johanesson, 287 F.2d 852 (CA5);California Co. v.
Jumonville, 327 F.2d 988 (CA5); American S.S. Co. v. Great Lakes Towing
Co., 333 F.2d 426 (CA7); D. R. Kincaid, Ltd. v. Trans-Pacific Towing,
Inc., 367 F.2d 857 (CA9); A. L. Mechling Barge Lines, Inc. v. Derby
Co., 399 F.2d 304 (CA5). Cf. United States v. Seckinger, 397 U. S. 203.
Although the casualty occurred on the high seas, the Bisso doctrine is
nonetheless applicable. The Scotland, 105 U. S. 24; The Belgenland, 114
U. S. 355; The Gylfe v. The Trujillo, 209 F.2d 386 (CA2).
Moreover, the casualty occurred close to the District Court, a number of
potential witnesses, including respondent's crewmen, reside in that area,
and the inspection and repair work were done there. The testimony of the
tower's crewmen, residing in Germany, is already available by way of
depositions taken in the proceedings.
Page 407 U. S. 24
All in all, the District Court judge exercised his discretion wisely in
enjoining petitioners from pursuing the litigation in England. *
I would affirm the judgment below.

* It is said that, because these parties specifically agreed to litigate their


disputes before the London Court of Justice, the District Court, absent
"unreasonable" circumstances, should have honored that choice by
declining to exercise its jurisdiction. The forum selection clause, however,
is part and parcel of the exculpatory provision in the towing agreement
which, as mentioned in the text, is not enforceable in American courts. For
only by avoiding litigation in the United States could petitioners hope to
evade the Bisso doctrine.
Judges in this country have traditionally been hostile to attempts to
circumvent the public policy against exculpatory agreements. For example,
clauses specifying that the law of a foreign place (which favors such
releases) should control have regularly been ignored. Thus, in The
Kensington, 183 U. S. 263, 183 U. S. 276, the Court held void an
exemption from liability despite the fact that the contract provided that it
should be construed under Belgian law, which was more tolerant. And see
E. Gerli & Co. v. Cunard S.S. Co., 48 F.2d 115, 117 (CA2);Oceanic Steam
Nav. Co. v. Corcoran, 9 F.2d 724, 731 (CA2); In re Lea Fabrics, Inc., 226
F.Supp. 232, 237 (NJ); F. A. Straus & Co. v. Canadian P. R. Co., 254 N.Y.
407, 173 N.E. 564; Siegelman v. Cunard White Star, 221 F.2d 189, 199
(CA2) (Frank, J., dissenting). 6A A. Corbin on Contracts 1446 (1962).
The instant stratagem of specifying a foreign forum is essentially the same
as invoking a foreign law of construction, except that the present
circumvention also requires the American party to travel across an ocean
to seek relief. Unless we are prepared to overrule Bisso, we should not
countenance devices designed solely for the purpose of evading its
prohibition.
It is argued, however, that one of the rationales of the Bisso doctrine, "to
protect those in need of goods or services from being overreached by
others who have power to drive hard bargains" (349 U.S. at 349 U. S. 91),
does not apply here, because these parties may have been of equal
bargaining stature. Yet we have often adopted prophylactic rules rather
than attempt to sort the core cases from the marginal ones. In any event,
the other objective of the Bisso doctrine, to "discourage negligence by

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making wrongdoers pay damages" (ibid.) applies here and in every case,
regardless of the relative bargaining strengths of the parties.

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JUSTICE COLWELL delivered the opinion of the court:


Defendants, Yasuda Fire & Marine Insurance Company, Ltd. (Yasuda
Fire), and The Yasuda Claims Service, Inc. (Yasuda Claims) (collectively,
defendants), appeal from an order of the circuit court of Kane County
granting summary judgment in favor of plaintiffs, Yamada Corporation
(Yamada) and Yamada America, Inc. (Yamada America) (collectively,
plaintiffs), on count I of plaintiffs' first amended complaint. On appeal,
defendants contend that the trial court erroneously refused to enforce a
forum-selection clause, a choice-of-law clause, and a pollution exclusion
clause and erroneously struck portions of two of defendants' affidavits. We
reverse and remand with directions based on the forum-selection clause.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
On October 25, 1994, an air-operated diaphragm pump, manufactured by
Yamada and purchased by CWC Fluids, Inc., d/b/a Culligan Water
Conditioning (CWC), to pump acid and caustic solutions from two separate
tanks to regenerate spent water purification systems, failed. The pump's
failure resulted in the release of acid and caustic solutions that destroyed
the metallic parts of the regeneration system enclosed within a concrete
retention wall. In addition, the release produced an acid vapor that traveled
through the interior of CWC's building, damaging electrical, mechanical,
metallic, and other structures. When the retention wall developed a crack,
the acid also spilled onto the main plant floor and into the drain to the city
sewer system.
On October 1, 1996, CWC filed a complaint in the circuit court of Cook
County against plaintiffs, among others, alleging strict product liability,
breach of the implied warranty of merchantability, and negligence. CWC
sought damages for property damage and business interruption.
Plaintiffs tendered their defense to Yasuda Fire pursuant to a general
liability claims-made policy covering the period from January 5, 1995, to
January 5, 1996, issued by Yasuda Fire to Yamada. Yasuda Fire rejected
the tender.

Yamada was the named insured under the policy, and Yamada America, a
distributor of Yamada's pumps, was listed as an additional insured. In
addition, the policy included more than 200 other distributors as additional
insureds, including distributors in 38 of the states in the United States,
Puerto Rico, Canada, Mexico, Central America, South America, Europe,
Australia, New Zealand, Asia, and the Pacific Rim.
An endorsement to the policy specifically covered the pump at issue in
addition to 11 other air-operated diaphragm pumps. In addition,
endorsement No. 10 to the policy contained a forum-selection clause,
entitled "Jurisdiction Clause," that provided: "It is agreed that coverage
disputes arising out of this insurance shall be subject to Japanese law and
forum." The print size on endorsement No. 10 was the same size as the
print size in the rest of the endorsements.
The policy was negotiated, underwritten, executed, and delivered in Japan,
and Yamada made premium payments in yen to Yasuda Fire in Japan.
Yamada America's president admitted in his deposition that he had never
purchased any general liability or products liability insurance on behalf of
Yamada America, although he had purchased other types of insurance on
Yamada America's behalf. Instead, Yamada purchased general liability and
products liability insurance for Yamada America.
Yamada was a Japanese corporation with its principal place of business in
Tokyo, Japan. Yamada America was a subsidiary of Yamada and an Illinois
corporation with its principal place of business in Elgin, Illinois. Yasuda Fire
was a Japanese insurance company with its principal place of business in
Tokyo, Japan. Yasuda Claims was Yasuda Fire's wholly owned subsidiary
incorporated in California, and its principal place of business was in Los
Angeles, California. Yasuda Claims handled claims for Yasuda Fire in the
United States.
On December 12, 1996, plaintiffs filed a complaint for declaratory
judgment and other relief against defendants, and defendants filed a
section 2--619 (735 ILCS 5/2--619 (West 1996)) motion to dismiss, relying
primarily on the forum-selection clause. Defendants also subsequently
filed a declaratory judgment action against plaintiffs in the Tokyo District

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Court in Japan. The Tokyo District Court accepted jurisdiction over the
parties and the subject matter of the suit.

Fraud and Deceptive Business Practices Act (Consumer Fraud Act) (815
ILCS 505/1 et seq. (West 1996)) in counts V and VI.

Plaintiffs then filed a motion to enjoin defendants from proceeding further


in Japan, and Judge Melvin Dunn granted the motion, stating that
defendants were "enjoined temporarily from proceeding in Tokyo, Japan
with their declaratory judgment action pending further order and
proceedings" in the circuit court of Kane County. Defendants later filed an
interlocutory appeal (see 166 Ill. 2d R. 307(a)(1)). We affirmed the trial
court's grant of a preliminary injunction. See Yamada Corp. v. Yasuda Fire
& Marine Insurance, Ltd., No. 2--97--0506 (1997) (unpublished order under
Supreme Court Rule 23).

Thereafter, defendants filed a motion to reconsider the trial court's June


25, 1997, and July 21, 1997, orders and alternatively sought certification to
appeal. Judge Dunn denied the motion.

While the preliminary injunction was pending on appeal, Judge Dunn


granted defendants' section 2--619 motion to dismiss pursuant to the
forum-selection clause. In response, plaintiffs filed a motion to reconsider.
On June 25, 1997, Judge Dunn granted plaintiffs' motion to reconsider.
Defendants subsequently filed a motion to clarify the trial court's order. On
July 21, 1997, Judge Dunn entered an order stating the basis for his ruling:
"2. Enforcement of the forum selection clause would require the plaintiffs to
proceed in Japan and under Japanese law which would thereby create
enormous inconvenience and expense for the plaintiffs.
3. Illinois public policy requires that forum selection clause [sic] be deemed
unenforceable in that persons and entities living and doing business in
Illinois would be required to proceed in Japan and under Japanese law
where costs and attorney fees incurred would not be compensable.
4. Illinois is an appropriate forum for resolving all disputes between the
parties regarding coverage under the Policy of Insurance."
The trial court also granted plaintiffs leave to file a first amended
complaint. In their first amended complaint, plaintiffs sought a
determination regarding defendants' duty to defend and duty to indemnify
in counts I and II. Plaintiffs also brought causes of action for breach of
contract in counts III and IV and causes of action under section 155 of the
Illinois Insurance Code (215 ILCS 5/155 (West 1996)) and the Consumer

Defendants then filed their answers and affirmative defenses to plaintiffs'


first amended complaint. Plaintiffs later filed a motion for summary
judgment on count I of their first amended complaint, and defendants
sought summary judgment on all counts of the first amended complaint.
On March 4, 1998, Judge Dixon requested that the parties further brief the
forum-selection clause issue. After the parties briefed the issue, this court
denied a petition for leave to appeal the forum-selection clause issue, and
Judge Dixon indicated that he would consider the issue as part of the
motions for summary judgment. Judge Dixon then granted plaintiffs'
motion. Regarding the forum-selection clause, Judge Dixon stated that
Judge Dunn had previously ruled that the clause was unenforceable and
that this court had declined to review the issue on an interlocutory basis.
Defendants appealed.
STANDARD OF REVIEW
The disposition of a summary judgment motion is not discretionary and the
standard of review is de novo. Flint v. Court Appointed Special Advocates
of Du Page County, Inc., 285 Ill. App. 3d 152, 162 (1996). In addition, an
appeal from a final judgment draws into issue all prior nonfinal orders that
produced the final judgment. United States Fire Insurance Co. v. Aetna
Life & Casualty, 291 Ill. App. 3d 991, 996 (1997).
ANALYSIS
A forum-selection clause in a contract is prima facie valid and should be
enforced unless the opposing party shows that enforcement would
contravene the strong public policy of the state in which the case is
brought (Maher & Associates, Inc. v. Quality Cabinets, 267 Ill. App. 3d 69,
74 (1994)), or that the chosen forum would be so seriously inconvenient
for trial that the opposing party would be deprived of his or her day in

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court. M.S. Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 15, 18, 32 L.
Ed. 513, 520, 523, 525, 92 S. Ct. 1907, 1913, 1916, 1917 (1972); Calanca
v. D & S Manufacturing Co., 157 Ill. App. 3d 85, 87-88 (1987).
I. MANDATORY FORUM-SELECTION CLAUSE
The first issue is whether the clause is mandatory or permissive. The
clause at issue provides that "coverage disputes arising out of this
insurance shall be subject to Japanese law and forum." The word "shall"
indicates that Japan is the exclusive forum. See Calanca, 157 Ill. App. 3d
at 85 (stating that word "shall" in forum-selection clause means the stated
forum is exclusive).
II. INCONVENIENCE
A party to the contract may not successfully argue inconvenience as a
reason for rendering a forum-selection clause unenforceable if both parties
freely entered into the agreement contemplating such inconvenience
should there be a dispute. Maher, 267 Ill. App. 3d at 74-75; see also M.S.
Bremen, 407 U.S. at 16-18, 32 L. Ed. at 524-25, 92 S. Ct. at 191617; Calanca, 157 Ill. App. 3d at 88. Furthermore, a forum-selection clause
made during an arms-length negotiation between experienced and
sophisticated businesspeople should be honored and enforced absent
some "compelling and countervailing reason" otherwise. Maher, 267 Ill.
App. 3d at 75; see also M.S. Bremen, 407 U.S. at 12, 32 L. Ed. at 521, 92
S. Ct. at 1914; Calanca, 157 Ill. App. 3d at 88.
Neither Judge Dunn nor Judge Dixon ruled that plaintiffs would be so
seriously inconvenienced that they would be deprived of their day in court
if this action proceeded in Japan. Judge Dunn, however, apparently
believed that Japan would be inconvenient when he ruled that
"[e]nforcement of the forum selection clause would require the plaintiffs to
proceed in Japan and under Japanese law which would thereby create
enormous inconvenience and expense for the plaintiffs."
To determine whether a forum-selection clause is unreasonable, this court
should consider the following factors: (1) which law governs the formation
and construction of the contract; (2) the residency of the parties involved;
(3) the place of execution and/or performance of the contract; (4) the

location of the parties and witnesses participating in the litigation; (5) the
inconvenience to the parties of any particular location; and (6) whether the
clause was equally bargained for. Calanca, 157 Ill. App. 3d at 88. By
applying these six factors to the present case, it is apparent that plaintiffs
did not meet their burden of proving that the forum-selection clause was so
seriously unreasonable that they would be deprived of their day in court.
1. Formation and Construction
The policy contains an express choice-of-law provision designating
Japanese law as the controlling law. In addition, absent an express choiceof-law provision, insurance policy provisions are generally " 'governed by
the location of the subject matter, the place of delivery of the contract, the
domicile of the insured or of the insurer, the place of the last act to give
rise to a valid contract, the place of performance, or other place bearing a
rational relationship to the general contract.' " Lapham-Hickey Steel Corp.
v. Protection Mutual Insurance Co., 166 Ill. 2d 520, 526-27 (1995),
quoting Hofeld v. Nationwide Life Insurance Co., 59 Ill. 2d 522, 528 (1975).
In the present case, the policy covered air-powered diaphragm pumps
distributed around the world. The policy was negotiated, executed,
delivered, and paid for in Japan. The insurer, Yasuda Fire, was a Japanese
corporation, and Yamada, the named insured, was a Japanese
corporation. The policy, however, also covered more than 200 additional
insureds around the world. Illinois' only connection to the policy is the fact
that 3 of the more than 200 additional insureds, including Yamada
America, were located in Illinois, and the pump at issue in the CWC
complaint allegedly failed in Illinois. As a result, we believe that Japanese
law should govern the formation and construction of the contract to "obtain
a consistent interpretation" of the policies (see Lapham-Hickey, 166 Ill. 2d
at 527). A contrary result would open up these policies to possibly
hundreds of different views of the law, depending on the site of the risk.
2. Residency
A corporation is a resident of the state or country under whose laws it was
organized. LeBlanc v. G.D. Searle & Co., 178 Ill. App. 3d 236, 238 (1988).
Consequently, Yamada is a resident of Japan, Yamada America is a
resident of Illinois, Yasuda Fire is a resident of Japan, and Yasuda Claims

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is a resident of California. Again, Illinois' only tie is through Yamada


America, an additional insured under the policy.
3. Execution and Performance
The policy was executed in Japan. Performance, on the other hand, was to
occur all over the world.
4. Location of Parties and Witnesses
Two of the parties participating in the litigation are located in Japan, one is
located in California, and one is located in Illinois. In addition, no witnesses
are necessary.
The entire complaint rests on count I regarding defendants' duty to defend.
Without a duty to defend, there is no duty to indemnify. Crum & Forster
Managers Corp. v. Resolution Trust Corp., 156 Ill. 2d 384, 398 (1993).
Similarly, without a duty to defend, there can be no breach of contract or
violation of the Consumer Fraud Act or section 155 of the Illinois Insurance
Code.
To determine whether an insurer has a duty to defend an insured, the court
must compare the allegations of the underlying complaint to the policy
language, and if the court determines that these allegations fall within or
potentially within the policy's coverage, the insurer has a duty to
defend. Cincinnati Cos. v. West American Insurance Co., 183 Ill. 2d 317,
323 (1998). Thus, the determination of the duty to defend in this case is a
legal question that requires no witnesses.
5. Inconvenience of Location

Regarding inconvenience, Illinois is inconvenient for Yasuda Fire. Japan,


however, is not inconvenient to Yamada, Yasuda Fire, or Yasuda Claims.
Additionally, Yamada America's directors reside in Japan and hold
meetings at Yamada's headquarters in Japan. Moreover, Yamada America
was not responsible for purchasing general liability insurance; rather,
Yamada purchased the general liability insurance policy on Yamada
America's behalf. Furthermore, the clause provides Yamada with the
assurance that its products distributed around the world will be covered
under one uniform law leading to certainty, consistency, and convenience.
6. Bargaining Power
There is no evidence in the record that the policy was not equally
bargained for. Based on the number of products covered, the complexity of
those products, the number of additional insureds, and the location of
distributors worldwide, it is safe to presume that Yamada is a sophisticated
insured.
Based on the factors enumerated in Calanca, there is little evidence that
enforcement of the forum-selection clause would be unreasonable.
Furthermore, there is no evidence in the record that would demonstrate
that plaintiffs would be denied their day in court.
III. PUBLIC POLICY
Plaintiffs also argue that the forum-selection clause violates Illinois public
policy. According to plaintiffs, "[t]he fundamental public policy at stake in
the present action is to protect insureds and injured third parties in an
effort to make sure that there is coverage available for a given claim,"
citing DC Electronics, Inc. v. Employers Modern Life Co., 90 Ill. App. 3d
342 (1980), and Walrus Manufacturing Co. v. New Amsterdam Casualty
Co., 184 F. Supp. 214 (S. D. Ill. 1960).
DC Electronics, however, does not stand for this proposition. The only
reference to public policy in DC Electronics is the following: "Any attempt
by [the insurance company] to dilute or diminish statutory provisions
applicable to its contract of insurance is contrary to public policy, and any
conflict between statutory and policy provisions will be resolved in favor of
the statutory provisions." DC Electronics, 90 Ill. App. 3d at 348. Plaintiffs in

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the present case do not argue that Yasuda Fire's policy provisions dilute or
diminish any statutory provisions in the Illinois Insurance Code. In contrast,
in DC Electronics, the insurance company argued that the policy language
requiring a renewal premium to have been paid within 31 days of an
expiration date applied even though the applicable section of the Illinois
Insurance Code extended the period of payment to six months. DC
Electronics, 90 Ill. App. 3d at 348.
Likewise, Walrus Manufacturing does not stand for the above-stated
proposition. Besides the pronouncement that "[t]he public policy of Illinois
places domestic corporations and foreign corporations on the same basis"
(Walrus Manufacturing, 184 F. Supp. at 224), the Walrus
Manufacturing court did not address Illinois public policy. That case,
however, does contain a quote from American Central Insurance Co. v.
Simpson, 43 Ill. App. 98 (1890), regarding an unidentified statute in which
the court stated:
" 'The object and purpose of that legislation is that persons in this State
holding insurance by foreign companies shall not be compelled to resort to
other jurisdictions and travel long distances from the place where the fire
occurs, and be at expense in procuring his witnesses to travel long
distances; that the protection of a citizen in this State ought not to be
destroyed by implication; and the same reason, that a party cannot be
compelled to go away from the State to be subjected to an examination,
should preclude the company from requiring that one insured should go
out of the State for the purpose of arbitration and to submit his proofs. A
clause in a policy that required such an act as a condition precedent to a
right of recovery would be against public policy and void.' "Walrus
Manufacturing, 184 F. Supp. at 219, quoting American Central, 43 Ill. App.
at 104.
This quotation, however, does not address the alleged public policy of
protecting insureds and injured third parties to ensure insurance coverage.
In fact, there is no public policy in Illinois ensuring that there is insurance
coverage for insureds and injured third parties. Admittedly, Illinois courts
liberally construe the insurance policy and the underlying complaint in
favor of the insured when determining the duty to defend. Federated
Mutual Insurance Co. v. State Farm Mutual Automobile Insurance Co., 282

Ill. App. 3d 716, 725 (1996). Similarly, Illinois courts liberally construe any
doubts as to coverage in favor of the insured, especially when the insurer
seeks to avoid coverage based on an exclusion in the policy. Oakley
Transport, Inc. v. Zurich Insurance Co., 271 Ill. App. 3d 716, 722 (1995).
Conversely, courts should not torture the language of a policy to find
coverage where none clearly exists. Cohen Furniture Co. v. St. Paul
Insurance Co. of Illinois, 214 Ill. App. 3d 408, 411 (1991). An Illinois court
simply cannot find insurance coverage where no insurance coverage
exists; as a result, there is no public policy in Illinois ensuring insurance
coverage.
Additionally, there is no public policy in Illinois disfavoring forum-selection
clauses. See Dace International, Inc. v. Apple Computer, Inc., 275 Ill. App.
3d 234, 239 (1995). Likewise, there is no public policy in Illinois against the
pollution exclusion in insurance policies.
Plaintiffs further argue that the enforcement of the forum-selection clause
would violate public policy because no Japanese court has ever
interpreted a pollution exclusion clause. Plaintiffs cite no authority for the
proposition that a public policy exists in Illinois to ensure that insurance
contract provisions are interpreted by courts experienced in construing the
clause at issue. Arguments without citation to authority do not merit
consideration on appeal. People ex rel. Aldworth v. Dutkanych, 112 Ill. 2d
505, 511 (1986). In addition, Illinois does not have a public policy that
dictates that only courts with experience may rule upon issues of law. In
fact, Illinois courts address issues of first impression all the time.
Plaintiffs also argue that "the protection of insureds is a fundamental
Illinois public policy [] manifest[ed] in caselaw [sic] and statute" and state
that "Illinois[] has a comprehensive statutory scheme for insurers under the
Illinois Insurance Code," citing Emerson v. American Bankers Insurance
Co., 223 Ill. App. 3d 929 (1992). Emerson, however, does not even
mention Illinois public policy. Additionally,Emerson does not contain the
statement of law contained in plaintiffs' brief. The only
connection Emerson has to the Illinois Insurance Code is the fact that the
plaintiffs therein sought damages under section 155 of the Code.
See Emerson, 223 Ill. App. 3d at 932.

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Plaintiffs additionally state that "the Illinois common law has a strong public
policy to protect insureds and injured parties, who have claims for which
coverage had been intended." Plaintiffs cite no authority in support of this
statement. As we previously stated, arguments without citation to authority
do not merit consideration on appeal. People ex rel. Aldworth, 112 Ill. 2d at
511.
Finally, plaintiffs assert that the forum-selection clause should not be
enforced because Japanese law allegedly does not provide for certain
remedies found under Illinois law. For instance, Japanese law allegedly
does not provide for fees, costs, and exemplary damages as provided for
under section 155 of the Illinois Insurance Code. In addition, Japanese law
allegedly does not have remedies similar to the statutory remedies
available to consumers under the Consumer Fraud Act. Plaintiffs then
argue that, as a result, Japanese law does not afford the same protections
to plaintiffs as Illinois' law. On July 21, 1997, Judge Dunn agreed with this
argument when he ruled that "Illinois public policy requires that forum
selection clause [sic] be deemed unenforceable in that persons and
entities living and doing business in Illinois would be required to proceed in
Japan and under Japanese law where costs and attorney fees incurred
would not be compensable."
The fact that an international transaction may be subject to laws and
remedies different from or less favorable than those of the United States is
not alone a valid basis to deny the enforcement of forum-selection
clauses. Bonny v. Society of Lloyd's, 3 F.3d 156, 162 (7th Cir. 1993). The
seventh circuit also stated:
" 'It defies reason to suggest that a plaintiff may circumvent forum selection
... merely by stating claims under laws not recognized by the forum
selected in the agreement. A plaintiff would simply have to allege violations
of his country's tort law or his country's statutory law or his country's
property law in order to render nugatory any forum selection clause that
implicitly or explicitly required the application of the law of another
jurisdiction. We refuse to allow a party's solemn promise to be defeated by
artful pleading.' " (Emphasis omitted.) Hugel v. Corporation of Lloyd's, 999
F.2d 206, 211 (7th Cir. 1993), quoting Roby v. Corporation of Lloyd's, 996
F.2d 1353, 1360 (2d Cir. 1993).

In Hoes of America, Inc. v. Hoes, 493 F. Supp. 1205 (C.D. Ill. 1979), the
United States District Court for the Central District of Illinois found that the
plaintiff in that action, an Illinois corporation that filed suit in the federal
court in Illinois, accepted a trial without a jury and no punitive damages in
Germany when it entered into a contract that contained a forum-selection
clause designating Bremen, Germany, as the forum. Based on the
foregoing, we find that the enforcement of the forum-selection clause in
this case would not violate Illinois public policy.
We also reject plaintiffs' reliance on Maher and Associates, Inc. v. Quality
Cabinets, 267 Ill. App. 3d 69 (1994), to argue that we may void the forumselection clause if it violated fundamental Illinois public policy. While we
agree that plaintiffs' statement is a correct statement of the law, we
find Maher distinguishable. In Maher, the plaintiff relied on the Sales
Representative Act (820 ILCS 120/0.01 et seq. (West 1992)), and section
2 of that act provided that "[a]ny provision in any contract between a sales
representative and principal purporting to waive any of the provisions of
this Act shall be void" (820 ILCS 120/2(West 1992)). Based on this
provision, the court found that the legislature was announcing fundamental
public policy protecting sales representatives. In the present case, plaintiffs
do not direct us to a similar provision in the Illinois Insurance Code, and we
were unable to locate a similar provision ourselves.
We note that plaintiffs also argue that defendants' reliance on federal case
law is inappropriate because the cited federal cases follow the strictly
federal common-law test for applying forum-selection clauses, a test that
plaintiffs describe as a more onerous standard. One of the cases plaintiffs
cite for this proposition is the M.S. Bremen case. Illinois courts, however,
adopted the analysis in that case long ago and have since relied on federal
case law when interpreting forum-selection clauses. See, e.g.,
Calanca, 157 Ill. App. 3d 85. Thus, we reject plaintiffs' argument that the
defendants' reliance on federal case law is inappropriate.
Plaintiffs further argue that defendants should be estopped from relying on
the forum-selection clause because defendants allegedly failed to reserve
their rights or seek a declaratory judgment. Where a complaint presents a
case of potential coverage, the insurer must defend under a reservation of
right or seek a declaratory judgment. John Burns Construction Co. v.
Indiana Insurance Co., 299 Ill. App. 3d 169, 175 (1998). An insurer that

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fails to exercise either of these two options will be estopped from later
raising any policy defenses. John Burns Construction Co., 299 Ill. App. 3d
at 175. The forum-selection clause, however, is not a policy defense. As a
result, we reject this argument.
Based upon the foregoing, we reverse the judgment of the circuit court of
Kane County granting summary judgment in plaintiffs' favor on count I of
the first amended complaint and remand this matter to the circuit court with
directions to dismiss this matter pursuant to the forum-selection clause.
Reversed and remanded with directions.
GEIGER and THOMAS, JJ., concur.

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FRABELLE FISHING CORPORATION,


Petitioner,

G.R. No. 158560

Philam Properties Corporation, Philippine American Life Insurance


Company, and PERF Realty Corporation, herein respondents, are all
corporations duly organized and existing under Philippine laws.

Present:
-

The facts are:

versus -

PUNO, C.J., Chairperson

THE PHILIPPINE AMERICAN LIFE


INSURANCE
COMPANY,
PHILAM
PROPERTIES CORPORATION and PERF
REALTY CORPORATION,

On May 8, 1996, respondents entered into a Memorandum of


SANDOVAL-GUTIERREZ
Agreement (1996 MOA)[2] whereby each agreed to contribute cash,
property, and services for the construction and development of Philamlife
CORONA,
Tower, a 45-storey office condominium along Paseo de Roxas, Makati City.
AZCUNA, and
GARCIA, JJ.

Respondents.
Promulgated:

August 17, 2007

x --------------------------------------------------------------------------------------x
DECISION

On December 6, 1996, respondents executed a Deed of Assignment (1996


DOA)[3] wherein they assigned to Frabelle Properties Corporation
(Frabelle) their rights and obligations under the 1996 MOA with respect to
the construction, development, and subsequent ownership of Unit No. 38B located at the 38th floor of Philamlife Tower. The parties also stipulated
that the assignee shall be deemed as a co-developer of the construction
project with respect to Unit No. 38-B.[4]

Frabelle, in turn, assigned to Frabelle Fishing Corporation (Frabelle


Fishing), petitioner herein, its rights, obligations and interests over Unit No.
38-B.

SANDOVAL-GUTIERREZ, J.:
On March 9, 1998, petitioner Frabelle Fishing and respondents executed a
Memorandum of Agreement (1998 MOA)[5] to fund the construction of
designated office floors inPhilamlife Tower.
Before us is the instant Petition for Review on Certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended, assailing the
Decision[1] and Resolution of the Court of Appeals dated December 2,
2002 and May 30, 2003, respectively, in CA-G.R. SP No. 71389.

The dispute between the parties started when petitioner found material
concealment on the part of respondents regarding certain details in the
1996 DOA and 1998 MOA and their gross violation of their contractual
obligations as condominium developers. These violations are: (a) the non-

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construction of a partition wall between Unit No. 38-B and the rest of the
floor area; and (b) the reduction of the net usable floor area from four
hundred sixty eight (468) square meters to only three hundred fifteen (315)
square meters.

and/or writ of preliminary injunction,[10] docketed as CA-G.R. SP No.


71389. Petitioner claimed, among others, that the HLURB has no
jurisdiction over the subject matter of the controversy and that the
contracts between the parties provide for compulsory arbitration.

Dissatisfied with its existing arrangement with respondents,


petitioner, on October 22, 2001, referred the matter to the Philippine
Dispute Resolution Center, Inc. (PDRCI) for arbitration. [6] However, in a
letter[7] dated November 7, 2001, respondents manifested their refusal to
submit to PDRCIs jurisdiction.

On December 2, 2002, the Court of Appeals rendered its


Decision[11] granting the petition, thus:

On February 11, 2002, petitioner filed with the Housing and Land
Use Regulatory Board (HLURB), Expanded National Capital Region Field
Office a complaint[8] for reformation of instrument, specific performance
and damages against respondents, docketed as HLURB Case No. REM021102-11791. Petitioner alleged, among others, that the contracts do not
reflect the true intention of the parties; and that it is a mere buyer and not
co-developer and/or co-owner of the condominium unit.

After considering their respective memoranda, HLURB Arbiter Atty.


Dunstan T. San Vicente, with the approval of HLURB Regional Director
Jesse A. Obligacion, issued an Order[9] dated May 14, 2002, the dispositive
portion of which reads:

Accordingly, respondents plea for the outright


dismissal of the present case is denied. Set the initial
preliminary hearing of this case on June 25, 2002 at 10:00
A.M.

WHEREFORE, premises considered, the petition is


GRANTED. Public respondents Atty. Dunstan San Vicente
and Jesse A. Obligacion of the Housing and Land Use
Regulatory Board, Expanded National Capital Region Field
Office are hereby permanently ENJOINED and
PROHIBITED from further proceeding with and acting on
HLURB Case No. REM-021102-11791.The order of May 14,
2002 is hereby SET ASIDE and the complaint is
DISMISSED.
SO ORDERED.
In dismissing petitioners complaint, the Court of Appeals held that
the HLURB has no jurisdiction over an action for reformation of
contracts. The jurisdiction lies with the Regional Trial Court.

Forthwith, petitioner filed a motion for reconsideration [12] but it was


denied by the appellate court in its Resolution[13] dated May 30, 2003.

Hence, the instant petition for review on certiorari.

IT IS SO ORDERED.

Respondents then filed with the Court of Appeals a petition for


prohibition with prayer for the issuance of a temporary restraining order

The issues for our resolution are: (1) whether the HLURB has
jurisdiction over the complaint for reformation of instruments, specific
performance and damages; and (2) whether the parties should initially
resort to arbitration.

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The petition lacks merit.

Court to determine any question of construction or validity


arising, and for a declaration of his rights or duties
thereunder.

As the records show, the complaint filed by petitioner with the


HLURB is one for reformation of instruments. Petitioner claimed that the
terms of the contract are not clear and prayed that they should be
reformed to reflect the true stipulations of the parties. Petitioner prayed:

WHEREFORE, in view of all the foregoing, it is


respectfully prayed of this Honorable Office that after due
notice and hearing, a judgment be please rendered:

1. Declaring that the instruments executed by the


complainant FRABELLE and respondent PHILAM to have
been in fact a Contract to Sell. The parties are thereby
governed by the provisions of P.D. 957 entitled, Regulating
the Sale of Subdivision Lots and Condominiums, Providing
Penalties for Violations Thereof as buyer and developer,
respectively, of a condominium unit and not as co-developer
and/or co-owner of the same;

An action for the reformation of an instrument, to


quiet title to real property or remove clouds therefrom, or to
consolidate ownership under Article 1607 of the Civil Code,
may be brought under this Rule. (Emphasis ours)

As correctly held by the Court of Appeals, any disagreement as to


the nature of the parties relationship which would require first an
amendment or reformation of their contract is an issue which the courts
may and can resolve without the need of the expertise and specialized
knowledge of the HLURB.

With regard to the second and last issue, paragraph 4.2 of the
1998 MOA mandates that any dispute between or among the parties shall
finally be settled by arbitration conducted in accordance with the Rules of
Conciliation and Arbitration of the International Chamber of Commerce.
[14]
Petitioner referred the dispute to the PDRCI but respondents refused to
submit to its jurisdiction.

x x x (Emphasis supplied)

We hold that being an action for reformation of


instruments, petitioners complaint necessarily falls under the jurisdiction of
the Regional Trial Court pursuant to Section 1, Rule 63 of the 1997 Rules
of Civil Procedure, as amended, which provides:
SECTION 1. Who may file petition. Any person
interested under a deed, will, contract or other written
instrument, whose rights are affected by a statute,
executive order or regulation, ordinance, or any other
governmental regulation may, before breach or violation
thereof, bring an action in the appropriate Regional Trial

It bears stressing that such arbitration agreement is the law


between the parties. They are, therefore, expected to abide by it in good
faith.[15]

This Court has previously held that arbitration is one of the


alternative methods of dispute resolution that is now rightfully vaunted as
the wave of the future in international relations, and is recognized
worldwide. To brush aside a contractual agreement calling for arbitration in
case of disagreement between the parties would therefore be a step
backward.[16]

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WHEREFORE, we DENY the petition. The challenged Decision


and Resolution of the Court of Appeals in CA-G.R. SP No. 71389
are AFFIRMED.

Costs against petitioner.

SO ORDERED.

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JORGE GONZALES and G.R. No. 161957


PANEL OF ARBITRATORS,
Petitioners, Present:
PUNO, C. J.,
Chairperson,
versus AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
NAZARIO, JJ.
CLIMAX MINING LTD.,
CLIMAX-ARIMCO MINING CORP.,
and AUSTRALASIAN PHILIPPINES Promulgated:
MINING INC.,
Respondents. January 22, 2007
x--------------------------------------------------------------------------------- x
JORGE GONZALES, G.R. No. 167994
Petitioner,
-

versus

HON. OSCAR B. PIMENTEL, in his


capacity as PRESIDING JUDGE of BR. 148
of the REGIONAL TRIAL COURT of
MAKATI CITY, and CLIMAX-ARIMCO
MINING CORPORATION,
Respondents.
x-------------------------- --------------------------------------------------- x

R E S O L U T I ON
TINGA, J.:

This is a consolidation of two petitions rooted in the same disputed


Addendum Contract entered into by the parties. In G.R. No. 161957, the
Court in its Decision of 28 February 2005[1] denied the Rule 45 petition of
petitioner Jorge Gonzales (Gonzales). It held that the DENR Panel of
Arbitrators had no jurisdiction over the complaint for the annulment of the
Addendum Contract on grounds of fraud and violation of the Constitution
and that the action should have been brought before the regular courts as
it involved judicial issues. Both parties filed separate motions for
reconsideration. Gonzales avers in his Motion for Reconsideration [2] that
the Court erred in holding that the DENR Panel of Arbitrators was bereft of
jurisdiction, reiterating its argument that the case involves a mining dispute
that properly falls within the ambit of the Panels authority. Gonzales adds
that the Court failed to rule on other issues he raised relating to the
sufficiency of his complaint before the DENR Panel of Arbitrators and the
timeliness of its filing.
Respondents Climax Mining Ltd., et al., (respondents) filed their Motion for
Partial Reconsideration and/or Clarification[3] seeking reconsideration of
that part of the Decision holding that the case should not be brought for
arbitration under Republic Act (R.A.) No. 876, also known as the Arbitration
Law.[4] Respondents, citing American jurisprudence[5] and the UNCITRAL
Model Law,[6] argue that the arbitration clause in the Addendum Contract
should be treated as an agreement independent of the other terms of the
contract, and that a claimed rescission of the main contract does not avoid
the duty to arbitrate. Respondents add that Gonzaless argument relating to
the alleged invalidity of the Addendum Contract still has to be proven and
adjudicated on in a proper proceeding; that is, an action separate from the
motion to compel arbitration. Pending judgment in such separate action,
the Addendum Contract remains valid and binding and so does the
arbitration clause therein. Respondents add that the holding in the
Decision that the case should not be brought under the ambit of the
Arbitration Law appears to be premised on Gonzaless having impugn[ed]
the existence or validity of the addendum contract. If so, it supposedly
conveys the idea that Gonzaless unilateral repudiation of the contract or
mere allegation of its invalidity is all it takes to avoid arbitration. Hence,
respondents submit that the courts holding that the case should not be
brought under the ambit of the Arbitration Law be understood or clarified
as operative only where the challenge to the arbitration agreement has
been sustained by final judgment.

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Both parties were required to file their respective comments to the other
partys motion for reconsideration/clarification.[7] Respondents filed their
Comment on 17 August 2005,[8] while Gonzales filed his only on 25 July
2006.[9]
On the other hand, G.R. No. 167994 is a Rule 65 petition filed on 6 May
2005, or while the motions for reconsideration in G.R. No. 161957[10] were
pending, wherein Gonzales challenged the orders of the Regional Trial
Court (RTC) requiring him to proceed with the arbitration proceedings as
sought by Climax-Arimco Mining Corporation (Climax-Arimco).
On 5 June 2006, the two cases, G.R. Nos. 161957 and 167994, were
consolidated upon the recommendation of the Assistant Division Clerk of
Court since the cases are rooted in the same Addendum Contract.

On 18 May 2000, the RTC issued an order declaring Gonzaless motion to


dismiss moot and academic in view of the filing of his Answer with
Counterclaim.[13]
On 31 May 2000, Gonzales asked the RTC to set the case for pre-trial.
[14]
This the RTC denied on 16 June 2000, holding that the petition for
arbitration is a special proceeding that is summary in nature. [15] However,
on 7 July 2000, the RTC granted Gonzaless motion for reconsideration of
the 16 June 2000 Order and set the case for pre-trial on 10 August 2000, it
being of the view that Gonzales had raised in his answer the issue of the
making of the arbitration agreement.[16]
Climax-Arimco then filed a motion to resolve its pending motion to compel
arbitration. The RTC denied the same in its 24 July 2000 order.

We first tackle the more recent case which is G.R. No. 167994. It stemmed
from the petition to compel arbitration filed by respondent Climax-Arimco
before the RTC of Makati City on 31 March 2000 while the complaint for
the nullification of the Addendum Contract was pending before the DENR
Panel of Arbitrators. On 23 March 2000, Climax-Arimco had sent Gonzales
a Demand for Arbitration pursuant to Clause 19.1 [11] of the Addendum
Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition
for arbitration was subsequently filed and Climax-Arimco sought an order
to compel the parties to arbitrate pursuant to the said arbitration
clause. The case, docketed as Civil Case No. 00-444, was initially raffled
to Br. 132 of the RTC of Makati City, with Judge Herminio I. Benito as
Presiding Judge. Respondent Climax-Arimco filed on 5 April 2000 a motion
to set the application to compel arbitration for hearing.

On 28 July 2000, Climax-Arimco filed a Motion to Inhibit Judge Herminio I.


Benito for not possessing the cold neutrality of an impartial judge. [17] On 5
August 2000, Judge Benito issued an Order granting the Motion to Inhibit
and ordered the re-raffling of the petition for arbitration. [18] The case was
raffled to the sala of public respondent Judge Oscar B. Pimentel of Branch
148.

On 14 April 2000, Gonzales filed a motion to dismiss which he however


failed to set for hearing. On 15 May 2000, he filed an Answer with
Counterclaim,[12] questioning the validity of the Addendum Contract
containing the arbitration clause. Gonzales alleged that the Addendum
Contract containing the arbitration clause is void in view of Climax-Arimcos
acts of fraud, oppression and violation of the Constitution. Thus, the
arbitration clause, Clause 19.1, contained in the Addendum Contract is
also null and void ab initioand legally inexistent.

Gonzales moved for reconsideration on 20 March 2001 but this was


denied in the Order dated 7 March 2005.[21]

On 23 August 2000, Climax-Arimco filed a motion for reconsideration of


the 24 July 2000 Order.[19] Climax-Arimco argued that R.A. No. 876 does
not authorize a pre-trial or trial for a motion to compel arbitration but directs
the court to hear the motion summarily and resolve it within ten days from
hearing. Judge Pimentel granted the motion and directed the parties to
arbitration. On 13 February 2001, Judge Pimentel issued the first assailed
order requiring Gonzales to proceed with arbitration proceedings and
appointing retired CA Justice Jorge Coquia as sole arbitrator.[20]

Gonzales thus filed the Rule 65 petition assailing the Orders


dated 13 February 2001 and 7 March 2005 of Judge Pimentel. Gonzales
contends that public respondent Judge Pimentel acted with grave abuse of
discretion in immediately ordering the parties to proceed with arbitration
despite the proper, valid, and timely raised argument in his Answer with
Counterclaim that the Addendum Contract, containing the arbitration

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clause, is null and void. Gonzales has also sought a temporary restraining
order to prevent the enforcement of the assailed orders directing the
parties to arbitrate, and to direct Judge Pimentel to hold a pre-trial
conference and the necessary hearings on the determination of the nullity
of the Addendum Contract.
In support of his argument, Gonzales invokes Sec. 6 of R.A. No.
876:
SEC. 6. Hearing by court.A party aggrieved by the
failure, neglect or refusal of another to perform under an
agreement in writing providing for arbitration may petition
the court for an order directing that such arbitration
proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of
such application shall be served either personally or by
registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making
of the agreement or such failure to comply therewith is not
in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in
issue the court shall proceed to summarily hear such
issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing
the parties to proceed with the arbitration in accordance
with the terms thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act, within
ten (10) days after such motions, petitions, or applications
have been heard by it.

SEC. 24. Referral to Arbitration.A court before


which an action is brought in a matter which is the subject
matter of an arbitration agreement shall, if at least one
party so requests not later than the pre-trial conference, or
upon the request of both parties thereafter, refer the
parties to arbitration unless it finds that the arbitration
agreement is null and void, inoperative or incapable of
being performed.
According to Gonzales, the above-quoted provisions of law outline the
procedure to be followed in petitions to compel arbitration, which the RTC
did not follow. Thus, referral of the parties to arbitration by Judge Pimentel
despite the timely and properly raised issue of nullity of the Addendum
Contract was misplaced and without legal basis. Both R.A. No. 876 and
R.A. No. 9285 mandate that any issue as to the nullity, inoperativeness, or
incapability of performance of the arbitration clause/agreement raised by
one of the parties to the alleged arbitration agreement must be determined
by the court prior to referring them to arbitration. They require that the trial
court first determine or resolve the issue of nullity, and there is no other
venue for this determination other than a pre-trial and hearing on the issue
by the trial court which has jurisdiction over the case. Gonzales adds that
the assailed 13 February 2001 Order also violated his right to procedural
due process when the trial court erroneously ruled on the existence of the
arbitration agreement despite the absence of a hearing for the
presentation of evidence on the nullity of the Addendum Contract.
Respondent Climax-Arimco, on the other hand, assails the mode of review
availed of by Gonzales. Climax-Arimco cites Sec. 29 of R.A. No. 876:
SEC. 29. Appeals.An appeal may be taken from an order
made in a proceeding under this Act, or from a judgment
entered upon an award through certiorari proceedings, but
such appeals shall be limited to questions of law. The
proceedings upon such an appeal, including the judgment
thereon shall be governed by the Rules of Court in so far
as they are applicable.

Gonzales also cites Sec. 24 of R.A. No. 9285 or the Alternative


Dispute Resolution Act of 2004:
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Climax-Arimco mentions that the special civil action for certiorari employed
by Gonzales is available only where there is no appeal or any plain,
speedy, and adequate remedy in the ordinary course of law against the
challenged orders or acts. Climax-Arimco then points out that R.A. No. 876
provides for an appeal from such orders, which, under the Rules of Court,
must be filed within 15 days from notice of the final order or resolution
appealed from or of the denial of the motion for reconsideration filed in due
time.Gonzales has not denied that the relevant 15-day period for an
appeal had elapsed long before he filed this petition for certiorari. He
cannot use the special civil action of certiorari as a remedy for a lost
appeal.
Climax-Arimco adds that an application to compel arbitration under Sec. 6
of R.A. No. 876 confers on the trial court only a limited and special
jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the
parties have a written contract to arbitrate, and (b) if the defendant has
failed to comply with that contract. Respondent cites La Naval Drug
Corporation v. Court of Appeals,[22] which holds that in a proceeding to
compel arbitration, [t]he arbitration law explicitly confines the courts
authority only to pass upon the issue of whether there is or there is no
agreement in writing providing for arbitration, and [i]n the affirmative, the
statute ordains that the court shall issue an order summarily directing the
parties to proceed with the arbitration in accordance with the terms thereof.
[23]
Climax-Arimco argues that R.A. No. 876 gives no room for any other
issue to be dealt with in such a proceeding, and that the court presented
with an application to compel arbitration may order arbitration or dismiss
the same, depending solely on its finding as to those two limited issues. If
either of these matters is disputed, the court is required to conduct a
summary hearing on it. Gonzaless proposition contradicts both the trial
courts limited jurisdiction and the summary nature of the proceeding itself.
Climax-Arimco further notes that Gonzaless attack on or repudiation of the
Addendum Contract also is not a ground to deny effect to the arbitration
clause in the Contract. The arbitration agreement is separate and
severable from the contract evidencing the parties commercial or
economic transaction, it stresses. Hence, the alleged defect or failure of
the main contract is not a ground to deny enforcement of the parties
arbitration agreement. Even the party who has repudiated the main
contract is not prevented from enforcing its arbitration provision. R.A. No.
876 itself treats the arbitration clause or agreement as a contract separate

from the commercial, economic or other transaction to be arbitrated. The


statute, in particular paragraph 1 of Sec. 2 thereof, considers the
arbitration stipulation an independent contract in its own right whose
enforcement may be prevented only on grounds which legally make the
arbitration agreement itself revocable, thus:
SEC. 2. Persons and matters subject to arbitration.Two or
more persons or parties may submit to the arbitration of
one or more arbitrators any controversy existing, between
them at the time of the submission and which may be the
subject of an action, or the parties to any contract may in
such contract agree to settle by arbitration a controversy
thereafter arising between them.Such submission or
contract shall be valid, enforceable and irrevocable, save
upon such grounds as exist at law for the revocation of
any contract.
xxxx
The grounds Gonzales invokes for the revocation of the Addendum
Contractfraud and oppression in the execution thereofare also not grounds
for the revocation of the arbitration clause in the Contract, Climax-Arimco
notes. Such grounds may only be raised by way of defense in the
arbitration itself and cannot be used to frustrate or delay the conduct of
arbitration proceedings. Instead, these should be raised in a separate
action for rescission, it continues.
Climax-Arimco emphasizes that the summary proceeding to compel
arbitration under Sec. 6 of R.A. No. 876 should not be confused with the
procedure in Sec. 24 of R.A. No. 9285. Sec. 6 of R.A. No. 876 refers to an
application to compel arbitration where the courts authority is limited to
resolving the issue of whether there is or there is no agreement in writing
providing for arbitration, while Sec. 24 of R.A. No. 9285 refers to an
ordinary action which covers a matter that appears to be arbitrable or
subject to arbitration under the arbitration agreement. In the latter case,
the statute is clear that the court, instead of trying the case, may, on
request of either or both parties, refer the parties to arbitration, unless it
finds that the arbitration agreement is null and void, inoperative or
incapable of being performed. Arbitration may even be ordered in the

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same suit brought upon a matter covered by an arbitration agreement


even without waiting for the outcome of the issue of the validity of the
arbitration agreement. Art. 8 of the UNCITRAL Model Law[24]states that
where a court before which an action is brought in a matter which is
subject of an arbitration agreement refers the parties to arbitration, the
arbitral proceedings may proceed even while the action is pending.
Thus, the main issue raised in the Petition for Certiorari is whether it was
proper for the RTC, in the proceeding to compel arbitration under R.A. No.
876, to order the parties to arbitrate even though the defendant therein has
raised the twin issues of validity and nullity of the Addendum Contract and,
consequently, of the arbitration clause therein as well.The resolution of
both Climax-Arimcos Motion for Partial Reconsideration and/or
Clarification in G.R. No. 161957 and Gonzaless Petition for Certiorari in
G.R. No. 167994 essentially turns on whether the question of validity of the
Addendum Contract bears upon the applicability or enforceability of the
arbitration clause contained therein. The two pending matters shall thus be
jointly resolved.
We address the Rule 65 petition in G.R. No. 167994 first from the
remedial law perspective. It deserves to be dismissed on procedural
grounds, as it was filed in lieu of appeal which is the prescribed remedy
and at that far beyond the reglementary period. It is elementary in remedial
law that the use of an erroneous mode of appeal is cause for dismissal of
the petition for certiorari and it has been repeatedly stressed that a petition
for certiorari is not a substitute for a lost appeal. As its nature, a petition for
certiorari lies only where there is no appeal, and no plain, speedy and
adequate remedy in the ordinary course of law.[25] The Arbitration Law
specifically provides for an appeal by certiorari,i.e., a petition for review
under certiorari under Rule 45 of the Rules of Court that raises pure
questions of law.[26] There is no merit to Gonzaless argument that the use
of the permissive term may in Sec. 29, R.A. No. 876 in the filing of appeals
does not prohibit nor discount the filing of a petition for certiorari under
Rule 65.[27] Proper interpretation of the aforesaid provision of law shows
that the term may refers only to the filing of an appeal, not to the mode of
review to be employed. Indeed, the use of may merely reiterates the
principle that the right to appeal is not part of due process of law but is a
mere statutory privilege to be exercised only in the manner and in
accordance with law.

Neither can BF Corporation v. Court of Appeals[28] cited by


Gonzales support his theory. Gonzales argues that said case recognized
and allowed a petition for certiorari under Rule 65 appealing the order of
the Regional Trial Court disregarding the arbitration agreement as an
acceptable remedy.[29] The BF Corporation case had its origins in a
complaint for collection of sum of money filed by therein petitioner BF
Corporation against Shangri-la Properties, Inc. (SPI). SPI moved to
suspend the proceedings alleging that the construction agreement or the
Articles of Agreement between the parties contained a clause requiring
prior resort to arbitration before judicial intervention. The trial court found
that an arbitration clause was incorporated in the Conditions of Contract
appended to and deemed an integral part of the Articles of
Agreement. Still, the trial court denied the motion to suspend proceedings
upon a finding that the Conditions of Contract were not duly executed and
signed by the parties. The trial court also found that SPI had failed to file
any written notice of demand for arbitration within the period specified in
the arbitration clause. The trial court denied SPI's motion for
reconsideration and ordered it to file its responsive pleading. Instead of
filing an answer, SPI filed a petition for certiorari under Rule 65, which the
Court of Appeals, favorably acted upon. In a petition for review before this
Court, BF Corporation alleged, among others, that the Court of Appeals
should have dismissed the petition for certiorari since the order of the trial
court denying the motion to suspend proceedings is a resolution of an
incident on the merits and upon the continuation of the proceedings, the
trial court would eventually render a decision on the merits, which decision
could then be elevated to a higher court in an ordinary appeal.[30]
The Court did not uphold BF Corporations argument. The issue
raised before the Court was whether SPI had taken the proper mode of
appeal before the Court of Appeals.The question before the Court of
Appeals was whether the trial court had prematurely assumed jurisdiction
over the controversy. The question of jurisdiction in turn depended on the
question of existence of the arbitration clause which is one of fact. While
on its face the question of existence of the arbitration clause is a question
of fact that is not proper in a petition for certiorari, yet since the
determination of the question obliged the Court of Appeals as it did to
interpret the contract documents in accordance with R.A. No. 876 and
existing jurisprudence, the question is likewise a question of law which
may be properly taken cognizance of in a petition for certiorari under Rule
65, so the Court held.[31]

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one or more arbitrators any controversy existing, between


them at the time of the submission and which may be the
subject of an action, or the parties to any contract may in
such contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission or
contract shall be valid, enforceable and irrevocable, save
upon such grounds as exist at law for the revocation of
any contract.

The situation in B.F. Corporation is not availing in the present


petition. The disquisition in B.F. Corporation led to the conclusion that in
order that the question of jurisdiction may be resolved, the appellate court
had to deal first with a question of law which could be addressed in a
certiorari proceeding. In the present case, Gonzaless petition raises a
question of law, but not a question of jurisdiction. Judge Pimentel acted in
accordance with the procedure prescribed in R.A. No. 876 when he
ordered Gonzales to proceed with arbitration and appointed a sole
arbitrator after making the determination that there was indeed an
arbitration agreement. It has been held that as long as a court acts within
its jurisdiction and does not gravely abuse its discretion in the exercise
thereof, any supposed error committed by it will amount to nothing more
than an error of judgment reviewable by a timely appeal and not assailable
by a special civil action of certiorari.[32] Even if we overlook the employment
of the wrong remedy in the broader interests of justice, the petition would
nevertheless be dismissed for failure of Gonzalez to show grave abuse of
discretion.

Such submission or contract may include question arising


out of valuations, appraisals or other controversies which
may be collateral, incidental, precedent or subsequent to
any issue between the parties.
A controversy cannot be arbitrated where one of the
parties to the controversy is an infant, or a person
judicially declared to be incompetent, unless the
appropriate court having jurisdiction approve a petition for
permission to submit such controversy to arbitration made
by the general guardian or guardian ad litem of the infant
or of the incompetent. [Emphasis added.]

Arbitration, as an alternative mode of settling disputes, has long been


recognized and accepted in our jurisdiction. The Civil Code is explicit on
the matter.[33] R.A. No. 876 also expressly authorizes arbitration of
domestic disputes. Foreign arbitration, as a system of settling commercial
disputes of an international character, was likewise recognized when the
Philippines adhered to the United Nations "Convention on the Recognition
and the Enforcement of Foreign Arbitral Awards of 1958," under the 10
May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal
recognition and allowing enforcement of international arbitration
agreements between parties of different nationalities within a contracting
state.[34] The enactment of R.A. No. 9285 on 2 April 2004 further
institutionalized the use of alternative dispute resolution systems, including
arbitration, in the settlement of disputes.

[35]

Disputes do not go to arbitration unless and until the parties have agreed
to abide by the arbitrators decision. Necessarily, a contract is required for
arbitration to take place and to be binding. R.A. No. 876 recognizes the
contractual nature of the arbitration agreement, thus:

The special proceeding under Sec. 6 of R.A. No. 876 recognizes


the contractual nature of arbitration clauses or agreements. It provides:

SEC. 2. Persons and matters subject to arbitration.Two or


more persons or parties may submit to the arbitration of

Thus, we held in Manila Electric Co. v. Pasay Transportation Co.


that a submission to arbitration is a contract. A clause in a contract
providing that all matters in dispute between the parties shall be referred to
arbitration is a contract,[36] and in Del Monte Corporation-USA v. Court of
Appeals[37] that [t]he provision to submit to arbitration any dispute arising
therefrom and the relationship of the parties is part of that contract and is
itself a contract. As a rule, contracts are respected as the law between the
contracting parties and produce effect as between them, their assigns and
heirs.[38]

SEC. 6. Hearing by court.A party aggrieved by the


failure, neglect or refusal of another to perform under
an agreement in writing providing for arbitration may

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petition the court for an order directing that such


arbitration proceed in the manner provided for in such
agreement. Five days notice in writing of the hearing of
such application shall be served either personally or by
registered mail upon the party in default. The court shall
hear the parties, and upon being satisfied that the making
of the agreement or such failure to comply therewith is not
in issue, shall make an order directing the parties to
proceed to arbitration in accordance with the terms of the
agreement. If the making of the agreement or default be in
issue the court shall proceed to summarily hear such
issue. If the finding be that no agreement in writing
providing for arbitration was made, or that there is no
default in the proceeding thereunder, the proceeding shall
be dismissed. If the finding be that a written provision for
arbitration was made and there is a default in proceeding
thereunder, an order shall be made summarily directing
the parties to proceed with the arbitration in accordance
with the terms thereof.
The court shall decide all motions, petitions or
applications filed under the provisions of this Act, within
ten days after such motions, petitions, or applications
have been heard by it.[Emphasis added.]
This special proceeding is the procedural mechanism for the enforcement
of the contract to arbitrate. The jurisdiction of the courts in relation to Sec.
6 of R.A. No. 876 as well as the nature of the proceedings therein was
expounded upon in La Naval Drug Corporation v. Court of Appeals.
[39]
There it was held that R.A. No. 876 explicitly confines the court's
authority only to the determination of whether or not there is an agreement
in writing providing for arbitration. In the affirmative, the statute ordains that
the court shall issue an order "summarily directing the parties to proceed
with the arbitration in accordance with the terms thereof." If the court, upon
the other hand, finds that no such agreement exists, "the proceeding shall
be dismissed."[40] The cited case also stressed that the proceedings are
summary in nature.[41] The same thrust was made in the earlier case
of Mindanao Portland Cement Corp. v. McDonough Construction Co. of
Florida[42] which held, thus:

Since there obtains herein a written provision for


arbitration as well as failure on respondent's part to
comply therewith, the court a quo rightly ordered the
parties to proceed to arbitration in accordance with the
terms of their agreement (Sec. 6, Republic Act 876).
Respondent's arguments touching upon the merits of the
dispute are improperly raised herein. They should be
addressed to the arbitrators. This proceeding is merely a
summary remedy to enforce the agreement to arbitrate.
The duty of the court in this case is not to resolve the
merits of the parties' claims but only to determine if they
should proceed to arbitration or not. x x x x[43]
Implicit in the summary nature of the judicial proceedings is the
separable or independent character of the arbitration clause or
agreement. This was highlighted in the cases of Manila Electric Co.
v. Pasay Trans. Co.[44] and Del Monte Corporation-USA v. Court of
Appeals.[45]
The doctrine of separability, or severability as other writers call
it, enunciates that an arbitration agreement is independent of the main
contract. The arbitration agreement is to be treated as a separate
agreement and the arbitration agreement does not automatically terminate
when the contract of which it is part comes to an end.[46]
The separability of the arbitration agreement is especially
significant to the determination of whether the invalidity of the main
contract also nullifies the arbitration clause.Indeed, the doctrine denotes
that the invalidity of the main contract, also referred to as the container
contract,
does not affect
the
validity
of
the
arbitration
agreement. Irrespective of the fact that the main contract is invalid, the
arbitration clause/agreement still remains valid and enforceable.[47]
The separability of the arbitration clause is confirmed in Art. 16(1)
of the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration
Rules.[48]

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The separability doctrine was dwelt upon at length in the U.S. case
of Prima Paint Corp. v. Flood & Conklin Manufacturing Co. [49] In that case,
Prima Paint and Flood and Conklin (F & C) entered into a consulting
agreement whereby F & C undertook to act as consultant to Prima Paint
for six years, sold to Prima Paint a list of its customers and promised not to
sell paint to these customers during the same period. The consulting
agreement contained an arbitration clause. Prima Paint did not make
payments as provided in the consulting agreement, contending that F & C
had fraudulently misrepresented that it was solvent and able for perform its
contract when in fact it was not and had even intended to file for
bankruptcy after executing the consultancy agreement. Thus, F & C
served Prima Paint with a notice of intention to arbitrate. Prima Paint sued
in court for rescission of the consulting agreement on the ground of
fraudulent misrepresentation and asked for the issuance of an order
enjoining F & C from proceeding with arbitration. F & C moved to stay the
suit pending arbitration. The trial court granted F & Cs motion, and the
U.S. Supreme Court affirmed.
The U.S. Supreme Court did not address Prima Paints argument
that it had been fraudulently induced by F & C to sign the consulting
agreement and held that no court should address this argument. Relying
on Sec. 4 of the Federal Arbitration Actwhich provides that if a party
[claims to be] aggrieved by the alleged failure x x x of another to arbitrate x
x x, [t]he court shall hear the parties, and upon being satisfied that the
making of the agreement for arbitration or the failure to comply therewith is
not in issue, the court shall make an order directing the parties
to proceed to arbitration x x x. If the making of the arbitration agreement or
the failure, neglect, or refusal to perform the same be in issue, the court
shall proceed summarily to the trial thereofthe U.S. High Court held that
the court should not order the parties to arbitrate if the making of the
arbitration agreement is in issue. The parties should be ordered to
arbitration if, and only if, they have contracted to submit to
arbitration. Prima Paint was not entitled to trial on the question of whether
an arbitration agreement was made because its allegations of fraudulent
inducement were not directed to the arbitration clause itself, but only to the
consulting agreement which contained the arbitration agreement. [50] Prima
Paint held that arbitration clauses are separable from the contracts in
which they are embedded, and that where no claim is made that fraud was
directed to the arbitration clause itself, a broad arbitration clause will be

held to encompass arbitration of the claim that the contract itself was
induced by fraud.[51]
There is reason, therefore, to rule against Gonzales when he
alleges that Judge Pimentel acted with grave abuse of discretion in
ordering the parties to proceed with arbitration. Gonzaless argument that
the Addendum Contract is null and void and, therefore the arbitration
clause therein is void as well, is not tenable. First, the proceeding in a
petition for arbitration under R.A. No. 876 is limited only to the resolution of
the question of whether the arbitration agreement exists. Second, the
separability of the arbitration clause from the Addendum Contract means
that validity or invalidity of the Addendum Contract will not affect the
enforceability of the agreement to arbitrate. Thus, Gonzaless petition for
certiorari should be dismissed.
This brings us back to G.R. No. 161957. The adjudication of the
petition in G.R. No. 167994 effectively modifies part of the Decision
dated 28 February 2005 in G.R. No. 161957. Hence, we now hold that the
validity of the contract containing the agreement to submit to arbitration
does not affect the applicability of the arbitration clause itself. A contrary
ruling would suggest that a partys mere repudiation of the main contract is
sufficient to avoid arbitration. That is exactly the situation that the
separability doctrine, as well as jurisprudence applying it, seeks to
avoid. We add that when it was declared in G.R. No. 161957 that the case
should not be brought for arbitration, it should be clarified that the case
referred to is the case actually filed by Gonzales before the DENR Panel of
Arbitrators, which was for the nullification of the main contract on the
ground of fraud, as it had already been determined that the case should
have been brought before the regular courts involving as it did judicial
issues.
The Motion for Reconsideration of Gonzales in G.R. No. 161957
should also be denied. In the motion, Gonzales raises the same question
of jurisdiction, more particularly that the complaint for nullification of the
Addendum Contract pertained to the DENR Panel of Arbitrators, not the
regular courts. He insists that the subject of his complaint is a mining
dispute since it involves a dispute concerning rights to mining areas, the
Financial and Technical Assistance Agreement (FTAA) between the
parties, and it also involves claimowners. He adds that the Court failed to
rule on other issues he raised, such as whether he had ceded his claims

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over the mineral deposits located within the Addendum Area of Influence;
whether the complaint filed before the DENR Panel of Arbitrators alleged
ultimate facts of fraud; and whether the action to declare the nullity of the
Addendum Contract on the ground of fraud has prescribed.

These are the same issues that Gonzales raised in his Rule 45
petition in G.R. No. 161957 which were resolved against him in the
Decision of 28 February 2005. Gonzales does not raise any new argument
that would sway the Court even a bit to alter its holding that the complaint
filed before the DENR Panel of Arbitrators involves judicial issues which
should properly be resolved by the regular courts. He alleged fraud or
misrepresentation in the execution of the Addendum Contract which is a
ground for the annulment of a voidable contract. Clearly, such allegations
entail legal questions which are within the jurisdiction of the courts.
The question of whether Gonzales had ceded his claims over the
mineral deposits in the Addendum Area of Influence is a factual question
which is not proper for determination before this Court. At all events,
moreover, the question is irrelevant to the issue of jurisdiction of the DENR
Panel of Arbitrators. It should be pointed out that the DENR Panel of
Arbitrators made a factual finding in its Order dated 18 October 2001,
which it reiterated in its Order dated 25 June 2002, that Gonzales had,
through the various agreements, assigned his interest over the mineral
claims all in favor of [Climax-Arimco] as well as that without the
complainant [Gonzales] assigning his interest over the mineral claims in
favor of [Climax-Arimco], there would be no FTAA to speak of. [52] This
finding was affirmed by the Court of Appeals in its Decision dated 30 July
2003resolving the petition for certiorari filed by Climax-Arimco in regard to
the 18 October 2001 Order of the DENR Panel.[53]

Sec. 5, Rule 8 of the Rules of Court specifically provides that in all


averments of fraud, the circumstances constituting fraud must be stated
with particularity. This is to enable the opposing party to controvert the
particular facts allegedly constituting the same. Perusal of the complaint
indeed shows that it failed to state with particularity the ultimate facts and
circumstances constituting the alleged fraud. It does not state what
particulars about Climax-Arimcos financial or technical capability were
misrepresented, or how the misrepresentation was done. Incorporated in
the body of the complaint are verbatim reproductions of the contracts,
correspondence and government issuances that reportedly explain the
allegations of fraud and misrepresentation, but these are, at best,
evidentiary matters that should not be included in the pleading.
As to the issue of prescription, Gonzaless claims of fraud and
misrepresentation attending the execution of the Addendum Contract are
grounds for the annulment of a voidable contract under the Civil Code.
[55]
Under Art. 1391 of the Code, an action for annulment shall be brought
within four years, in the case of fraud, beginning from the time of the
discovery of the same. However, the time of the discovery of the alleged
fraud is not clear from the allegations of Gonzaless complaint. That being
the situation coupled with the fact that this Court is not a trier of facts, any
ruling on the issue of prescription would be uncalled for or even
unnecessary.
WHEREFORE, the Petition for Certiorari in G.R. No. 167994 is
DISMISSED. Such dismissal effectively renders superfluous formal action
on the Motion for Partial Reconsideration and/or Clarification filed by
Climax Mining Ltd., et al. in G.R. No. 161957.
The Motion for Reconsideration filed by Jorge Gonzales in G.R.
No. 161957 is DENIED WITH FINALITY.
SO ORDERED.

The Court of Appeals likewise found that Gonzaless complaint


alleged fraud but did not provide any particulars to substantiate it. The
complaint repeatedly mentioned fraud, oppression, violation of the
Constitution and similar conclusions but nowhere did it give any ultimate
facts or particulars relative to the allegations.[54]

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


SWEET LINES, INC., petitioner,
vs.
HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental
Branch VII, LEOVIGILDO TANDOG, JR., and ROGELIO
TIRO, respondents.
Filiberto Leonardo, Abelardo C. Almario & Samuel B. Abadiano for
petitioner.
Leovigildo Vallar for private respondents.

SANTOS, J.:
This is an original action for Prohibition with Pre Injunction filed October 3,
1973 to restrain respondent Judge from proceeding further with Civil Case
No. 4091, entitled Leovigildo D. Tandog, Jr. and Rogelio Tiro v. Sweet
Lines, Inc." after he denied petitioner's Motion to Dismiss the complaint,
and the Motion for Reconsideration of said order. 1
Briefly, the facts of record follow. Private respondents Atty. Leovigildo
Tandog and Rogelio Tiro, a contractor by professions, bought tickets Nos.
0011736 and 011737 for Voyage 90 on December 31, 1971 at the branch
office of petitioner, a shipping company transporting inter-island
passengers and cargoes, at Cagayan de Oro City. Respondents were to
board petitioner's vessel, M/S "Sweet Hope" bound for Tagbilaran City via
the port of Cebu. Upon learning that the vessel was not proceeding to
Bohol, since many passengers were bound for Surigao, private
respondents per advice, went to the branch office for proper relocation to
M/S "Sweet Town". Because the said vessel was already filled to capacity,
they were forced to agree "to hide at the cargo section to avoid inspection
of the officers of the Philippine Coastguard." Private respondents alleged
that they were, during the trip," "exposed to the scorching heat of the sun
and the dust coming from the ship's cargo of corn grits," and that the
tickets they bought at Cagayan de Oro City for Tagbilaran were not

honored and they were constrained to pay for other tickets. In view thereof,
private respondents sued petitioner for damages and for breach of contract
of carriage in the alleged sum of P10,000.00 before respondents Court of
First Instance of Misamis Oriental. 2
Petitioner moved to dismiss the complaint on the ground of improper
venue. This motion was premised on the condition printed at the back of
the tickets, i.e., Condition No. 14, which reads:
14. It is hereby agreed and understood that any and all
actions arising out of the conditions and provisions of this
ticket, irrespective of where it is issued, shall be filed in the
competent courts in the City of Cebu. 3
The motion was denied by the trial court. 4 Petitioner moved to reconnsider
the order of denial, but no avail. 5 Hence, this instant petition for prohibition
for preliminary injunction, 'alleging that the respondent judge has departed
from the accepted and usual course of judicial preoceeding" and "had
acted without or in excess or in error of his jurisdicton or in gross abuse of
discretion. 6
In Our resolution of November 20, 1973, We restrained respondent Judge
from proceeding further with the case and required respondent to
comment. 7 On January 18, 1974, We gave due course to the petition and
required respondent to answer. 8 Thereafter, the parties submitted their
respesctive memoranda in support of their respective contentions. 9
Presented thus for Our resolution is a question is aquestion which, to all
appearances, is one of first impression, to wit Is Condition No. 14
printed at the back of the petitioner's passage tickets purchased by private
respondents, which limits the venue of actions arising from the contract of
carriage to theCourt of First Instance of Cebu, valid and enforceable?
Otherwise stated, may a common carrier engaged in inter-island shipping
stipulate thru condition printed at the back of passage tickets to its vessels
that any and all actions arising out of the ocntract of carriage should be
filed only in a particular province or city, in this case the City of Cebu, to
the exclusion of all others?

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Petitioner contends thaty Condition No. 14 is valid and enforceable, since


private respndents acceded to tit when they purchased passage tickets at
its Cagayan de Oro branch office and took its vessel M/S "Sweet Town" for
passage to Tagbilaran, Bohol that the condition of the venue of actions
in the City of Cebu is proper since venue may be validly waived, citing
cases; 10 that is an effective waiver of venue, valid and binding as such,
since it is printed in bold and capital letters and not in fine print and merely
assigns the place where the action sing from the contract is institution
likewise citing cases; 11 and that condition No. 14 is unequivocal and
mandatory, the words and phrases "any and all", "irrespective of where it is
issued," and "shag" leave no doubt that the intention of Condition No. 14 is
to fix the venue in the City of Cebu, to the exclusion of other places; that
the orders of the respondent Judge are an unwarranted departure from
established jurisprudence governing the case; and that he acted without or
in excess of his jurisdiction in is the orders complained of. 12
On the other hand, private respondents claim that Condition No. 14 is not
valid, that the same is not an essential element of the contract of carriage,
being in itself a different agreement which requires the mutual consent of
the parties to it; that they had no say in its preparation, the existence of
which they could not refuse, hence, they had no choice but to pay for the
tickets and to avail of petitioner's shipping facilities out of necessity; that
the carrier "has been exacting too much from the public by inserting
impositions in the passage tickets too burdensome to bear," that the
condition which was printed in fine letters is an imposition on the riding
public and does not bind respondents, citing cases; 13 that while venue 6f
actions may be transferred from one province to another, such
arrangement requires the "written agreement of the parties", not to be
imposed unilaterally; and that assuming that the condition is valid, it is not
exclusive and does not, therefore, exclude the filing of the action in
Misamis Oriental, 14
There is no question that there was a valid contract of carriage entered
into by petitioner and private respondents and that the passage tickets,
upon which the latter based their complaint, are the best evidence thereof.
All the essential elements of a valid contract, i.e., consent, cause or
consideration and object, are present. As held inPeralta de Guerrero, et al.
v. Madrigal Shipping Co., Inc., 15

It is a matter of common knowledge that whenever a


passenger boards a ship for transportation from one place
to another he is issued a ticket by the shipper which has all
the elements of a written contract, Namely: (1) the consent
of the contracting parties manifested by the fact that the
passenger boards the ship and the shipper consents or
accepts him in the ship for transportation; (2) cause or
consideration which is the fare paid by the passenger as
stated in the ticket; (3) object, which is the transportation of
the passenger from the place of departure to the place of
destination which are stated in the ticket.
It should be borne in mind, however, that with respect to the fourteen (14)
conditions one of which is "Condition No. 14" which is in issue in this
case printed at the back of the passage tickets, these are commonly
known as "contracts of adhesion," the validity and/or enforceability of
which will have to be determined by the peculiar circumstances obtaining
in each case and the nature of the conditions or terms sought to be
enforced. For, "(W)hile generally, stipulations in a contract come about
after deliberate drafting by the parties thereto, ... there are certain
contracts almost all the provisions of which have been drafted only by one
party, usually a corporation. Such contracts are called contracts of
adhesion, because the only participation of the party is the signing of his
signature or his 'adhesion' thereto. Insurance contracts, bills of lading,
contracts of make of lots on the installment plan fall into this category" 16
By the peculiar circumstances under which contracts of adhesion are
entered into namely, that it is drafted only by one party, usually the
corporation, and is sought to be accepted or adhered to by the other party,
in this instance the passengers, private respondents, who cannot change
the same and who are thus made to adhere thereto on the "take it or leave
it" basis certain guidelines in the determination of their validity and/or
enforceability have been formulated in order to that justice and fan play
characterize the relationship of the contracting parties. Thus, this Court
speaking through Justice J.B.L. Reyes in Qua Chee Gan v. Law Union and
Rock Insurance Co., 17 and later through Justice Fernando in Fieldman
Insurance v. Vargas, 18 held

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The courts cannot ignore that nowadays, monopolies,


cartels and concentration of capital endowed with
overwhelm economic power, manage to impose upon
parties d with them y prepared 'agreements' that the weaker
party may not change one whit his participation in the
'agreement' being reduced to the alternative 'to take it or
leave it,' labelled since Raymond Saleilles 'contracts by
adherence' (contracts d' adhesion) in contrast to those
entered into by parties bargaining on an equal footing. Such
contracts (of which policies of insurance and international
bill of lading are prime examples) obviously cap for greater
strictness and vigilance on the part of the courts of justice
with a view to protecting the weaker party from abuses and
imposition, and prevent their becoming traps for the unwary.
To the same effect and import, and, in recognition of the character of
contracts of this kind, the protection of the disadvantaged is expressly
enjoined by the New Civil Code
In all contractual property or other relations, when one of
the parties is at a disadvantage on account of his moral
dependence, ignorance indigence, mental weakness,
tender age and other handicap, the courts must be vigilant
for his
protection. 19
Considered in the light Of the foregoing norms and in the context Of
circumstances Prevailing in the inter-island ship. ping industry in the
country today, We find and hold that Condition No. 14 printed at the back
of the passage tickets should be held as void and unenforceable for the
following reasons first, under circumstances obligation in the inter-island
ship. ping industry, it is not just and fair to bind passengers to the terms of
the conditions printed at the back of the passage tickets, on which
Condition No. 14 is Printed in fine letters, and second, Condition No. 14
subverts the public policy on transfer of venue of proceedings of this
nature, since the same will prejudice rights and interests of innumerable
passengers in different s of the country who, under Condition No. 14, will
have to file suits against petitioner only in the City of Cebu.

1. It is a matter of public knowledge, of which We can take judicial notice,


that there is a dearth of and acute shortage in inter- island vessels plying
between the country's several islands, and the facilities they offer leave
much to be desired. Thus, even under ordinary circumstances, the piers
are congested with passengers and their cargo waiting to be transported.
The conditions are even worse at peak and/or the rainy seasons, when
Passengers literally scramble to whatever accommodations may be
availed of, even through circuitous routes, and/or at the risk of their safety
their immediate concern, for the moment, being to be able to board
vessels with the hope of reaching their destinations. The schedules are
as often as not if not more so delayed or altered. This was precisely the
experience of private respondents when they were relocated to M/S
"Sweet Town" from M/S "Sweet Hope" and then any to the scorching heat
of the sun and the dust coming from the ship's cargo of corn grits, "
because even the latter was filed to capacity.
Under these circumstances, it is hardly just and proper to expect the
passengers to examine their tickets received from crowded/congested
counters, more often than not during rush hours, for conditions that may be
printed much charge them with having consented to the conditions, so
printed, especially if there are a number of such conditions m fine print, as
in this case. 20
Again, it should be noted that Condition No. 14 was prepared solely at the
ms of the petitioner, respondents had no say in its preparation. Neither did
the latter have the opportunity to take the into account prior to the purpose
chase of their tickets. For, unlike the small print provisions of contracts
the common example of contracts of adherence which are entered into
by the insured in his awareness of said conditions, since the insured is
afforded the op to and co the same, passengers of inter-island v do not
have the same chance, since their alleged adhesion is presumed only from
the fact that they purpose chased the tickets.
It should also be stressed that slapping companies are franchise holders of
certificates of public convenience and therefore, posses a virtual monopoly
over the business of transporting passengers between the ports covered
by their franchise. This being so, shipping companies, like petitioner,
engaged in inter-island shipping, have a virtual monopoly of the business
of transporting passengers and may thus dictate their terms of passage,

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leaving passengers with no choice but to buy their tickets and avail of their
vessels and facilities. Finally, judicial notice may be taken of the fact that
the bulk of those who board these inter-island vested come from the lowincome groups and are less literate, and who have little or no choice but to
avail of petitioner's vessels.
2. Condition No. 14 is subversive of public policy on transfers of venue of
actions. For, although venue may be changed or transferred from one
province to another by agreement of the parties in writing t to Rule 4,
Section 3, of the Rules of Court, such an agreement will not be held valid
where it practically negates the action of the claimants, such as the private
respondents herein. The philosophy underlying the provisions on transfer
of venue of actions is the convenience of the plaintiffs as well as his
witnesses and to promote 21 the ends of justice. Considering the expense
and trouble a passenger residing outside of Cebu City would incur to
prosecute a claim in the City of Cebu, he would most probably decide not
to file the action at all. The condition will thus defeat, instead of enhance,
the ends of justice. Upon the other hand, petitioner has branches or offices
in the respective ports of call of its vessels and can afford to litigate in any
of these places. Hence, the filing of the suit in the CFI of Misamis Oriental,
as was done in the instant case, will not cause inconvenience to, much
less prejudice, petitioner.
Public policy is ". . . that principle of the law which holds that no subject or
citizen can lawfully do that which has a tendency to be injurious to the
public or against the public good ... 22 Under this principle" ... freedom of
contract or private dealing is restricted by law for the good of the
public. 23 Clearly, Condition No. 14, if enforced, will be subversive of the
public good or interest, since it will frustrate in meritorious cases, actions of
passenger cants outside of Cebu City, thus placing petitioner company at a
decided advantage over said persons, who may have perfectly legitimate
claims against it. The said condition should, therefore, be declared void
and unenforceable, as contrary to public policy to make the courts
accessible to all who may have need of their services.
WHEREFORE, the petition for prohibition is DISMISS. ED. The restraining
order issued on November 20, 1973, is hereby LIFTED and SET ASIDE.
Costs against petitioner.

Fernando (Chairman), Aquino, Concepcion, Jr., JJ., concur.


Antonio, J., reserves his vote.

Separate Opinions

BARREDO, J., concurring:


I concur in the dismissal of the instant petition.
Only a few days ago, in Hoechst Philippines, Inc. vs. Francisco Torres, et
al., G. R. No. L-44351, promulgated May 18, 1978, We made it clear that
although generally, agreements regarding change of venue are
enforceable, there may be instances where for equitable considerations
and in the better interest of justice, a court may justify the laying of, the
venue in the place fixed by the rules instead of following written stipulation
of the parties.
In the particular case at bar, there is actually no written agreement as to
venue between the parties in the sense contemplated in Section 3 of Rule
4, which governs the matter. I take it that the importance that a stipulation
regarding change of the venue fixed by law entails is such that nothing
less than mutually conscious agreement as to it must be what the rule
means. In the instant case, as well pointed out in the main opinion, the
ticket issued to private respondents by petitioner constitutes at best a
"contract of adhesion". In other words, it is not that kind of a contract
where the parties sit down to deliberate, discuss and agree specifically on
all its terms, but rather, one which respondents took no part at all in
preparing, since it was just imposed upon them when they paid for the fare
for the freight they wanted to ship. It is common knowledge that individuals
who avail of common carriers hardly read the fine prints on such tickets to
note anything more than the price thereof and the destination designated
therein.

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Under these circumstances, it would seem that, since this case is already
in respondent court and there is no showing that, with its more or less
known resources as owner of several inter-island vessels plying between
the different ports of the Philippines for sometime already, petitioner would
be greatly inconvenienced by submitting to the jurisdiction of said
respondent court, it is best to allow the proceedings therein to continue. I
cannot conceive of any juridical injury such a step can cause to anyone
concerned. I vote to dismiss the petition.

Separate Opinions
BARREDO, J., concurring:
I concur in the dismissal of the instant petition.
Only a few days ago, in Hoechst Philippines, Inc. vs. Francisco Torres, et
al., G. R. No. L-44351, promulgated May 18, 1978, We made it clear that
although generally, agreements regarding change of venue are
enforceable, there may be instances where for equitable considerations
and in the better interest of justice, a court may justify the laying of, the
venue in the place fixed by the rules instead of following written stipulation
of the parties.

In the particular case at bar, there is actually no written agreement as to


venue between the parties in the sense contemplated in Section 3 of Rule
4, which governs the matter. I take it that the importance that a stipulation
regarding change of the venue fixed by law entails is such that nothing
less than mutually conscious agreement as to it must be what the rule
means. In the instant case, as well pointed out in the main opinion, the
ticket issued to private respondents by petitioner constitutes at best a
"contract of adhesion". In other words, it is not that kind of a contract
where the parties sit down to deliberate, discuss and agree specifically on
all its terms, but rather, one which respondents took no part at all in
preparing, since it was just imposed upon them when they paid for the fare
for the freight they wanted to ship. It is common knowledge that individuals
who avail of common carriers hardly read the fine prints on such tickets to
note anything more than the price thereof and the destination designated
therein.
Under these circumstances, it would seem that, since this case is already
in respondent court and there is no showing that, with its more or less
known resources as owner of several inter-island vessels plying between
the different ports of the Philippines for sometime already, petitioner would
be greatly inconvenienced by submitting to the jurisdiction of said
respondent court, it is best to allow the proceedings therein to continue. I
cannot conceive of any juridical injury such a step can cause to anyone
concerned. I vote to dismiss the petition.

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