defendant . .
(KUBOTA) is holding its principal place of
CONFLICT OF LAWS (II)
B. Rules on Venue
1. Stipulations as to venue
G.R. No. 119657 February 7, 1997
UNIMASTERS CONGLOMERATION, INC., petitioner,
vs.
COURT OF APPEALS and KUBOTA AGRI MACHINERY
PHILIPPINES, INC., respondents.
NARVASA, C.J.:
The appellate proceeding at bar turns upon the interpretation of a
stipulation in a contract governing venue of actions thereunder arising.
On October 8, 1988 Kubota Agri-Machinery Philippines, Inc. (hereafter,
simply KUBOTA) and Unimasters Conglomeration, Inc. (hereafter,
simply UNIMASTERS) entered into a "Dealership Agreement for Sales
and Services" of the former's products in Samar and Leyte
Provinces. 1 The contract contained, among others:
1) a stipulation reading: ". . . All suits arising out of this Agreement shall
be filed with/in the proper Courts of Quezon City," and
2) a provision binding UNIMASTERS to obtain (as it did in fact obtain) a
credit line with Metropolitan Bank and Trust Co.-Tacloban Branch in the
amount of P2,000,000.00 to answer for its obligations to KUBOTA.
Some five years later, or more precisely on December 24, 1993,
UNIMASTERS filed an action in the Regional Trial Court of Tacloban
City against KUBOTA, a certain Reynaldo Go, and Metropolitan Bank
and Trust Company-Tacloban Branch (hereafter, simply METROBANK)
for damages for breach of contract, and injunction with prayer for
temporary restraining order. The action was docketed as Civil Case No.
93-12-241 and assigned to Branch 6.
On the same day the Trial Court issued a restraining order enjoining
METROBANK from "authorizing or effecting payment of any alleged
obligation of . . (UNIMASTERS) to defendant . . KUBOTA arising out of
or in connection with purchases made by defendant Go against the
credit line caused to be established by . . (UNIMASTERS) for and in the
amount of P2 million covered by defendant METROBANK . . or by way
of charging . . (UNIMASTERS) for any amount paid and released to
defendant . . (KUBOTA) by the Head Office of METROBANK in Makati,
Metro-Manila . . ." The Court also set the application for preliminary
injunction for hearing on January 10, 1994 at 8:30 o'clock in the morning.
On January 4, 1994 KUBOTA filed-two motions. One prayed for
dismissal of the case on the ground of improper venue (said motion
being set for hearing on January 11, 1994). The other prayed for the
transfer of the injunction hearing to January 11, 1994 because its
counsel was not available on January 10 due to a prior commitment
before another court.
KUBOTA claims that notwithstanding that its motion to transfer hearing
had been granted, the Trial Court went ahead with the hearing on the
injunction incident on January 10, 1994 during which it received the
direct testimony of UNIMASTERS' general manager, Wilford Chan; that
KUBOTA's counsel was "shocked" when he learned of this on the
morning of the 11th, but was nonetheless instructed to proceed to cross-
examine the witness; that when said counsel remonstrated that this was
unfair, the Court reset the hearing to the afternoon of that same day, at
which time Wilford Chan was recalled to the stand to repeat his direct
testimony. It appears that cross-examination of Chan was then
undertaken by KUBOTA's lawyer with the "express reservation that . .
(KUBOTA was) not (thereby) waiving and/or abandoning its motion to
dismiss;" and that in the course of the cross-examination, exhibits
(numbered from 1 to 20) were presented by said attorney who
afterwards submitted a memorandum in lieu of testimonial evidence. 2
On January 13, 1994, the Trial Court handed down an Order authorizing
the issuance of the preliminary injunction prayed for, upon a bond of
P2,000,000.00. 3 And on February 3, 1994, the same Court promulgated
an Order denying KUBOTA's motion to dismiss. Said the Court:
The plaintiff UNIMASTERS Conglomeration is holding its
principal place of business in the City of Tacloban while the
business in Quezon City. The proper venue therefore
pursuant to Rules of Court would either be Quezon City or
Tacloban City at the election of the plaintiff. Quezon City and
Manila (sic), as agreed upon by the parties in the Dealership
Agreement, are additional places other than the place stated
in the Rules of Court. The filing, therefore, of this complaint in
the Regional Trial Court in Tacloban City is proper.
Both orders were challenged as having been issued with grave abuse
of discretion by KUBOTA in a special civil action of certiorari and
prohibition filed with the Court of Appeals, docketed as CA-G.R. SP No.
33234. It contended, more particularly, that (1) the RTC had "no
jurisdiction to take cognizance of . . (UNIMASTERS') action considering
that venue was improperly laid," (2) UNIMASTERS had in truth "failed to
prove that it is entitled to the . . writ of preliminary injunction;" and (3) the
RTC gravely erred "in denying the motion to dismiss." 4
The Appellate Court agreed with KUBOTA that in line with the Rules
of Court 5 and this Court's relevant rulings 6 the stipulation respecting
venue in its Dealership Agreement with UNIMASTERS did in truth limit
the venue of all suits arising thereunder only and exclusively to "the
proper courts of Quezon City." 7 The Court also held that the
participation of KUBOTA's counsel at the hearing on the injunction
incident did not in the premises operate as a waiver or abandonment of
its objection to venue; that assuming that KUBOTA's standard printed
invoices provided that the venue of actions thereunder should be laid at
the Court of the City of Manila, this was inconsequential since such
provision would govern "suits or legal actions between petitioner and its
buyers" but not actions under the Dealership Agreement between
KUBOTA and UNIMASTERS, the venue of which was controlled by
paragraph No. 7 thereof; and that no impediment precludes issuance of
a TRO or injunctive writ by the Quezon City RTC against METROBANK-
Tacloban since the same "may be served on the principal office of
METROBANK in Makati and would be binding on and enforceable
against, METROBANK branch in Tacloban."
After its motion for reconsideration of that decision was turned down by
the Court of Appeals, UNIMASTERS appealed to this Court. Here, it
ascribes to the Court of Appeals several errors which it believes warrant
reversal of the verdict, namely: 8
1) "in concluding, contrary to decisions of this . . Court, that the
agreement on venue between petitioner (UNIMASTERS) and private
respondent (KUBOTA) limited to the proper courts of Quezon City the
venue of any complaint filed arising from the dealership agreement
between . . (them);"
2) "in ignoring the rule settled in Philippine Banking Corporation
vs. Tensuan, 9 that 'in the absence of qualifying or restrictive words,
venue stipulations in a contract should be considered merely as
agreement on additional forum, not as limiting venue to the specified
place;" and in concluding, contrariwise, that the agreement in the case
at bar "was the same as the agreement on venue in
the Gesmundo case," and therefore, the Gesmundo case was
controlling; and
3) "in concluding, based solely on the self-serving narration of . .
(KUBOTA that its) participation in the hearing for the issuance of a . .
preliminary injunction did not constitute waiver of its objection to venue."
The issue last mentioned, of whether or not the participation by the
lawyer of KUBOTA at the injunction hearing operated as a waiver of its
objection to venue, need not occupy the Court too long. The record
shows that when KUBOTA's counsel appeared before the Trial Court in
the morning of January 11, 1994 and was then informed that he should
cross-examine UNIMASTERS' witness, who had testified the day
before, said counsel drew attention to the motion to dismiss on the
ground of improper venue and insistently attempted to argue the matter
and have it ruled upon at the time; and when the Court made known its
intention (a) "to (resolve first the) issue (of) the injunction then rule on
the motion to dismiss," and (b) consequently its desire to forthwith
conclude the examination of the witness on the injunction incident, and
for that purpose reset the hearing in the afternoon of that day, the 11th,
so that the matter might be resolved before the lapse of the temporary
restraining order on the 13th, KUBOTA's lawyer told the Court: "Your
Honor, we are not waiving our right to submit the Motion to Dismiss."10 It
is plain that under these circumstances, no waiver or abandonment can
be imputed to KUBOTA.
1
The essential question really is that posed in the first and second
assigned errors, i.e., what construction should be placed on the
stipulation in the Dealership Agreement that" (a)ll suits arising out of this
Agreement shall be filed with/in the proper Courts of Quezon City."
Rule 4 of the Rules of Court sets forth the principles generally governing
the venue of actions, whether real or personal, or involving persons who
neither reside nor are found in the Philippines or otherwise. Agreements
on venue are explicitly allowed. "By written agreement of the parties the
venue of an action may be changed or transferred from one province to
another." 11 Parties may by stipulation waive the legal venue and such
waiver is valid and effective being merely a personal privilege, which is
not contrary to public policy or prejudicial to third persons. It is a general
principle that a person may renounce any right which the law gives
unless such renunciation would be against public policy. 12
Written stipulations as to venue may be restrictive in the sense that the
suit may be filed only in the place agreed upon, or merely permissive in
that the parties may file their suit not only in the place agreed upon but
also in the places fixed by law (Rule 4, specifically). As in any other
agreement, what is essential is the ascertainment of the intention of the
parties respecting the matter.
Since convenience is the raison d'etre of the rules of venue, 13 it is easy
to accept the proposition that normally, venue stipulations should be
deemed permissive merely, and that interpretation should be adopted
which most serves the parties' convenience. In other words, stipulations
designating venues other than those assigned by Rule 4 should be
interpreted as designed to make it more convenient for the parties to
institute actions arising from or in relation to their agreements; that is to
say, as simply adding to or expanding the venues indicated in said Rule
4.
On the other hand, because restrictive stipulations are in derogation of
this general policy, the language of the parties must be so clear and
categorical as to leave no doubt of their intention to limit the place or
places, or to fix places other than those indicated in Rule 4, for their
actions. This is easier said than done, however, as an examination of
precedents involving venue covenants will immediately disclose.
In at least thirteen (13) cases, this Court construed the venue
stipulations involved as merely permissive. These are:
1. Polytrade Corporation v. Blanco, decided in 1969. 14 In this case, the
venue stipulation was as follows:
The parties agree to sue and be sued in the Courts
of Manila.
This Court ruled that such a provision "does not preclude the filing of
suits in the residence of the plaintiff or the defendant. The plain meaning
is that the parties merely consented to be sued in Manila. Qualifying or
restrictive words which would indicate that Manila and Manila alone is
the venue are totally absent therefrom. It simply is permissive. The
parties solely agreed to add the courts of Manila as tribunals to which
they may resort. They did not waive their right to pursue remedy in the
courts specifically mentioned in Section 2(b) of Rule 4."
The Polytrade doctrine was reiterated expressly or implicitly in
subsequent cases, numbering at least ten (10).
2. Nicolas v. Reparations Commission, decided in 1975. 15 In this case,
the stipulation on venue read:
. . . (A)ll legal actions arising out of this contract . .
may be brought in and submitted to the jurisdiction
of the proper courts in the City of Manila.
This Court declared that the stipulation does not clearly show the
intention of the parties to limit the venue of the action to the City of Manila
only. "It must be noted that the venue in personal actions is fixed for the
convenience of the plaintiff and his witnesses and to promote the ends
of justice. We cannot conceive how the interest of justice may be served
by confining the situs of the action to Manila, considering that the
residences or offices of all the parties, including the situs of the acts
sought to be restrained or required to be done, are all within the territorial
jurisdiction of Rizal. . . Such agreements should be construed
reasonably and should not be applied in such a manner that it would
work more to the inconvenience of the parties without promoting the
ends of justice.
3. Lamis Ents. v. Lagamon, decided in 1981. 16 Here, the stipulation in
the promissory note and the chattel mortgage specified Davao City as
the venue.
The Court, again citing Polytrade, stated that the provision "does not
preclude the filing of suits in the residence of plaintiff or defendant under
Section 2(b), Rule 4, Rules of Court, in the absence of qualifying or
restrictive words in the agreement which would indicate that the place
named is the only venue agreed upon by the parties. The stipulation did
not deprive . . (the affected party) of his right to pursue remedy in the
court specifically mentioned in Section 2(b) of Rule 4, Rules of
Court. Renuntiato non praesumitur."
4. Capati v. Ocampo, decided in 1982 17 In this case, the provision of the
contract relative to venue was as follows:
. . . (A)ll actions arising out, or relating to this contract may be
instituted in the Court of First Instance of the City of Naga.
The Court ruled that the parties "did not agree to file their suits solely
and exclusively with the Court of First Instance of Naga;" they "merely
agreed to submit their disputes to the said court without waiving their
right to seek recourse in the court specifically indicated in Section 2 (b),
Rule 4 of the Rules of Court."
5. Western Minolco v. Court of Appeals, decided in 1988. 18 Here, the
provision governing venue read:
The parties stipulate that the venue of the actions referred to
in Section 12.01 shall be in the City of Manila.
The court restated the doctrine that a stipulation in a contract fixing a
definite place for the institution of an action arising in connection
therewith, does not ordinarily supersede the general rules set out in Rule
4, and should be construed merely as an agreement on an additional
forum, not as limiting venue to the specified place.
6. Moles v. Intermediate Appellate Court, decided in 1989. 19 In this
proceeding, the Sales Invoice of a linotype machine stated that the
proper venue should be Iloilo.
This Court held that such an invoice was not the contract of sale of the
linotype machine in question; consequently the printed provisions of the
invoice could not have been intended by the parties to govern the sale
of the machine, especially since said invoice was used for other types
of transactions. This Court said: "It is obvious that a venue stipulation, in
order to bind the parties, must have been intelligently and deliberately
intended by them to exclude their case from the reglementary rules on
venue. Yet, even such intended variance may not necessarily be given
judicial approval, as, for instance, where there are no restrictive or
qualifying words in the agreement indicating that venue cannot be laid
in any place other than that agreed upon by the parties, and in contracts
of adhesion."
7. Hongkong and Shanghai Banking Corp. v. Sherman, decided in
1989. 20 Here the stipulation on venue read:
. . (T)his guarantee and all rights, obligations and liabilities
arising hereunder shall be construed and determined under
and may be enforced in accordance with the laws of the
Republic of Singapore. We hereby agree that the Courts in
Singapore shall have jurisdiction over all disputes arising
under this guarantee. . .
This Court held that due process dictates that the stipulation be liberally
construed. The parties did not thereby stipulate that only the courts of
Singapore, to the exclusion of all the others, had jurisdiction. The clause
in question did not operate to divest Philippine courts of jurisdiction.
8. Nasser v. Court of Appeals, decided in 1990, 21 in which the venue
stipulation in the promissory notes in question read:
. . (A)ny action involving the enforcement of this contract shall
be brought within the City of Manila, Philippines.
The Court's verdict was that such a provision does not as a rule
supersede the general rule set out in Rule 4 of the Rules of Court, and
should be construed merely as an agreement on an additional forum,
not as limiting venue to the specified place.
9. Surigao Century Sawmill Co., Inc. v. Court of Appeals, decided in
1993: 22 In this case, the provision concerning venue was contained in a
contract of lease of a barge, and read as follows:
2
 . . . (A)ny disagreement or dispute arising out of the lease shall
be settled by the parties in the proper court in the province of
Surigao del Norte.
The venue provision was invoked in an action filed in the Regional Trial
Court of Manila to recover damages arising out of marine subrogation
based on a bill of lading. This Court declared that since the action did
not refer to any disagreement or dispute arising out of the contract of
lease of the barge, the venue stipulation in the latter did not apply; but
that even assuming the contract of lease to be applicable, a statement
in a contract as to venue does not preclude the filing of suits at the
election of the plaintiff where no qualifying or restrictive words indicate
that the agreed place alone was the chosen venue.
10. Philippine Banking Corporation, v. Hon. Salvador
Tensuan, etc., Circle Financial Corporation, at al., decided in
1993. 23 Here, the stipulation on venue was contained in promissory
notes and read as follows:
I/We hereby expressly submit to the jurisdiction of the courts
of Valenzuela any legal action which may arise out of this
promissory note.
This Court held the stipulation to be merely permissive since it did not
lay the venue in Valenzuela exclusively or mandatorily. The plain or
ordinary import of the stipulation is the grant of authority or permission
to bring suit in Valenzuela; but there is not the slightest indication of an
intent to bar suit in other competent courts. The Court stated that there
is no necessary or customary connection between the words "any legal
action" and an intent strictly to limit permissible venue to the Valenzuela
courts. Moreover, since the venue stipulations include no qualifying or
exclusionary terms, express reservation of the right to elect venue under
the ordinary rules was unnecessary in the case at bar. The Court made
clear that "to the extent Bautista and Hoechst Philippines are
inconsistent with Polytrade (an en banc decision later in time than
Bautista) and subsequent cases reiteratingPolytrade, Bautista and
Hoechst Philippines have been rendered obsolete by the Polytrade line
of cases."
11. Philippine Banking Corporation v. Hon. Salvador Tensuan, etc.,
Brinell Metal Works Corp., et al., decided in 1994: 24 In this case the
subject promissory notes commonly contained a stipulation reading:
I/we expressly submit to the jurisdiction of the courts of
Manila, any legal action which may arise out of this promissory
note.
the Court restated the rule in Polytrade that venue stipulations
in a contract, absent any qualifying or restrictive words, should
be considered merely as an agreement on additional forum,
not limiting venue to the specified place. They are not
exclusive, but rather, permissive. For to restrict venue only to
that place stipulated in the agreement is a construction purely
based on technicality; on the contrary, the stipulation should
be liberally construed. The Court stated: "The later cases
of Lamis Ents v. Lagamon [108 SCRA 1981], Capati
v. Ocampo [113 SCRA 794 [1982], Western Minolco v. Court
of Appeals [167 SCRA 592 [1988], Moles v. Intermediate
Appellate Court [169 SCRA 777 [1989], Hongkong and
Shanghai Banking Corporation v. Sherman [176 SCRA
331], Nasser v. Court of Appeals [191 SCRA 783 [1990] and
just recently, Surigao Century Sawmill Co. v. Court of
Appeals [218 SCRA 619 [1993], all treaded the path blazed
by Polytrade. The conclusion to be drawn from all these is that
the more recent jurisprudence shall properly be deemed
modificatory of the old ones."
The lone dissent observed: "There is hardly any question that a
stipulation of contracts of adhesion, fixing venue to a specified place
only, is void for, in such cases, there would appear to be no valid and
free waiver of the venue fixed by the Rules of Courts. However, in cases
where both parties freely and voluntarily agree on a specified place to
be the venue of actions, if any, between them, then the only
considerations should be whether the waiver (of the venue fixed by the
Rules of Court) is against public policy and whether the parties would
suffer, by reason of such waiver, undue hardship and inconvenience;
otherwise, such waiver of venue should be upheld as binding on the
parties. The waiver of venue in such cases is sanctioned by the rules on
jurisdiction."
Still other precedents adhered to the same principle.
12. Tantoco v. Court of Appeals, decided in 1977. 25 Here, the parties
agreed in their sales contracts that the courts of Manila shall have
jurisdiction over any legal action arising out of their transaction. This
Court held that the parties agreed merely to add the courts of Manila as
tribunals to which they may resort in the event of suit, to those indicated
by the law: the courts either of Rizal, of which private respondent was a
resident, or of Bulacan, where petitioner resided.
13. Sweet Lines, Inc. v. Teves, promulgated in 1987. 26 In this case, a
similar stipulation on venue, contained in the shipping ticket issued
by Sweet Lines, Inc. (as Condition 14)
. . that any and all actions arising out or the
condition and provisions of this ticket, irrespective
of where it is issued, shall be filed in the competent
courts in the City of Cebu
was declared unenforceable, being subversive of public
policy. The Court explained that the philosophy on transfer of
venue of actions is the convenience of the plaintiffs as well as
his witnesses and to promote the ends of justice; and
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.
On the other hand, in the cases hereunder mentioned,
stipulations on venue were held to be restrictive, or
mandatory.
1. Bautista vs. De Borja, decided in 1966. 27 In this case, the contract
provided that in case of any litigation arising therefrom or in connection
therewith, the venue of the action shall be in the City of Manila. This
Court held that without either party reserving the right to choose the
venue of action as fixed by law, it can reasonably be inferred that the
parties intended to definitely fix the venue of the action, in connection
with the contract sued upon in the proper courts of the City of Manila
only, notwithstanding that neither party is a resident of Manila.
2. Gesmundo v. JRB Realty Corporation, decided in 1994. 28 Here the
lease contract declared that
. . (V)enue for all suits, whether for breach hereof or
damages or any cause between the LESSOR and
LESSEE, and persons claiming under each, . .
(shall be) the courts of appropriate jurisdiction in
Pasay City. . .
This Court held that: "(t)he language used leaves no room for
interpretation. It clearly evinces the parties' intent to limit to the 'courts
of appropriate jurisdiction of Pasay City' the venue for all suits between
the lessor and the lessee and those between parties claiming under
them. This means a waiver of their right to institute action in the courts
provided for in Rule 4, sec. 2(b)."
3. Hoechst Philippines, Inc. v. Torres, 29 decided much earlier, in 1978,
involved a strikingly similar stipulation, which read:
. . (I)n case of any litigation arising out of this
agreement, the venue of any action shall be in the
competent courts of the Province of Rizal.
This Court held: "No further stipulations are necessary to elicit the
thought that both parties agreed that any action by either of them would
be filed only in the competent courts of Rizal province exclusively."
4. Villanueva v. Mosqueda, decided in 1982. 30 In this case, it was
stipulated that if the lessor violated the contract of lease he could be
sued in Manila, while if it was the lessee who violated the contract, the
lessee could be sued in Masantol, Pampanga. This Court held that there
was an agreement concerning venue of action and the parties were
bound by their agreement. "The agreement as to venue was not
permissive but mandatory."
5. Arquero v. Flojo, decided in 1988. 31 The condition respecting venue
that any action against RCPI relative to the transmittal of a telegram
must be brought in the courts of Quezon City alone was printed
clearly in the upper front portion of the form to be filled in by the sender.
This Court held that since neither party reserved the right to choose the
venue of action as fixed by Section 2 [b], Rule 4, as is usually done if the
parties mean to retain the right of election so granted by Rule 4, it can
reasonably be inferred that the parties intended to definitely fix the venue
3
of action, in connection with the written contract sued upon, in the courts
of Quezon City only.
An analysis of these precedents reaffirms and emphasizes the
soundness of the Polytrade principle. Of the essence is the
ascertainment of the parties' intention in their agreement governing the
venue of actions between them. That ascertainment must be done
keeping in mind that convenience is the foundation of venue regulations,
and that construction should be adopted which most conduces thereto.
Hence, the invariable construction placed on venue stipulations is that
they do not negate but merely complement or add to the codal standards
of Rule 4 of the Rules of Court. In other words, unless the parties make
very clear, by employing categorical and suitably limiting language, that
they wish the venue of actions between them to be laid only and
exclusively at a definite place, and to disregard the prescriptions of Rule
4, agreements on venue are not to be regarded as mandatory or
restrictive, but merely permissive, or complementary of said rule. The
fact that in their agreement the parties specify only one of the venues
mentioned in Rule 4, or fix a place for their actions different from those
specified by said rule, does not, without more, suffice to characterize the
agreement as a restrictive one. There must, to repeat, be accompanying
language clearly and categorically expressing their purpose and design
that actions between them be litigated only at the place named by
them, 32 regardless of the general precepts of Rule 4; and any doubt or
uncertainty as to the parties' intentions must be resolved against giving
their agreement a restrictive or mandatory aspect. Any other rule would
permit of individual, subjective judicial interpretations without stable
standards, which could well result in precedents in hopeless
inconsistency.
The record of the case at bar discloses that UNIMASTERS has its
principal place of business in Tacloban City, and KUBOTA, in Quezon
City. Under Rule 4, the venue of any personal action between them is
"where the defendant or any of the defendants resides or may be found,
or where the plaintiff or any of the plaintiffs resides, at the election of the
plaintiff." 33 In other words, Rule 4 gives UNIMASTERS the option to sue
KUBOTA for breach of contract in the Regional Trial Court of either
Tacloban City or Quezon City.
But the contract between them provides that " . . All suits arising out of
this Agreement shall be filed with / in the proper Courts of Quezon City,"
without mention of Tacloban City. The question is whether this
stipulation had the effect of effectively eliminating the latter as an
optional venue and limiting litigation between UNIMASTERS and
KUBOTA only and exclusively to Quezon City.
In light of all the cases above surveyed, and the general postulates
distilled therefrom, the question should receive a negative answer.
Absent additional words and expressions definitely and unmistakably
denoting the parties' desire and intention that actions between them
should be ventilated only at the place selected by them, Quezon City
or other contractual provisions clearly evincing the same desire and
intention the stipulation should be construed, not as confining suits
between the parties only to that one place, Quezon City, but as allowing
suits either in Quezon City or Tacloban City, at the option of the plaintiff
(UNIMASTERS in this case).
One last word, respecting KUBOTA's theory that the Regional Trial
Court had "no jurisdiction to take cognizance of . . (UNIMASTERS')
action considering that venue was improperly laid." This is not an
accurate statement of legal principle. It equates venue with jurisdiction;
but venue has nothing to do with jurisdiction, except in criminal actions.
This is fundamental. 34 The action at bar, for the recovery of damages in
an amount considerably in excess of P20,000,00, is assuredly within the
jurisdiction of a Regional Trial Court. 35 Assuming that venue were
improperly laid in the Court where the action was instituted, the Tacloban
City RTC, that would be a procedural, not a jurisdictional impediment
precluding ventilation of the case before that Court of wrong
venue notwitstanding that the subject matter is within its jurisdiction.
However, if the objection to venue is waived by the failure to set it up in
a motion to dismiss, 36 the RTC would proceed in perfectly regular
fashion if it then tried and decided the action.
This is true also of real actions. Thus, even if a case "affecting title to, or
for recovery of possession, or for partition or condemnation of, or
foreclosure of mortgage on, real property" 37 were commenced in a
province or city other than that "where the property or any part thereof
lies," 38 if no objection is seasonably made in a motion to dismiss, the
objection is deemed waived, and the Regional Trial Court would be
acting entirely within its competence and authority in proceeding to try
and decide the suit. 39
WHEREFORE, the appealed judgment of the Court of Appeals is
REVERSED, the Order of the Regional Trial Court of Tacloban City,
Branch 6, dated February 3, 1994, is REINSTATED and AFFIRMED,
and said Court is DIRECTED to forthwith proceed with Civil Case No.
93-12-241 in due course.
SO ORDERED.
Separate Opinions
REGALADO, J., concurring:
I find no plausible reason to withhold concurrence from the opinion
meticulously crafted by the Chief Justice which provides a taxonomy of
cases for future decisions. It has figuratively parted the jurisprudential
waves, laying on one side a catalogue of holdings on the strict binding
effect of a venue stipulation and, on the other, those rulings on when it
may be disregarded. This concurring opinion merely suggests,
therefore, some parametric qualifications on the applicability of the first
type, that is, the agreement which demands literal compliance by the
parties.
Summarized, the rule is that if the parties to a contract merely agree on
the venue of any case arising therefrom, in addition to or aside from the
legal venue provided therefor by the Rules of Court or the law, that
stipulation is merely permissive and the parties may choose to observe
the same or insist on the alternative venues in the Rules or the law.
If, on the other hand, such venue stipulation contains qualifying,
restrictive, mandatory or exclusionary terms indicating that the additional
forum shall be the unalterable venue of prospective suits ex contractu
between them, then such agreement shall necessarily be observed to
the exclusion of and shall bar resort to another forum which would
otherwise have been the reglementary prescription of venue for the
case.
Of the latter genre are the use of such qualifying words like exclusively,
only, solely, limited to, in no other place, to the exclusion of, or other
terms indicative of a clear and categorical intent to lay the venue at a
specific place and thereby waiving the general provisions of the Rules
or the law on venue or proscribing the filing of suit in any other competent
court.
These guidelines should accordingly be drawn from the decision in this
case, viz.: (1) the agreement on venue shall, in the first instance, be
normally considered as merely permissive; (2) to be restrictive, the
language or terminology employed in the stipulation must be
unequivocal and admit of no contrary or doubtful interpretation; (3) in
case of irreconcilable doubt, the venue provision shall be deemed to be
permissive; and (4) in ascertaining the intent in that provision which
reasonably admits of more than one meaning, the construction should
be adopted which most conduces to the convenience of the parties.
In addition to the foregoing, the writer suggests, by way of caveat, the
matter of adhesion contracts and restrictions of public policy as
qualifying or delimiting the application of the mandatory effect of
restrictive venue stipulations.
Implicit in an agreement on venue, as in any contract or its terms, is the
legal imperative that the consent of the parties thereto were voluntarily,
freely and intelligently given. Now, as explained by a commentator, a
contract of adhesion is one in which a party imposes a ready-made form
of contract which the other party may accept or reject, but which the
latter cannot modify. These are the contracts where all the terms are
fixed by one party and the other has merely "to take it or leave it."
It is there admitted that these contracts usually contain a series of
stipulations which tend to increase the obligations of the adherent, and
to reduce the responsibilities of the offeror. There is such economic
inequality between the parties to these contracts that the independence
of one of them is entirely paralyzed. Yet, although other writers believe
that there is no true contract in such cases because the will of one of the
parties is suppressed, our commentator says that this is not juridically
true, His view is that the one who adheres to the contract is in reality free
to reject it entirely; if he adheres, he gives his consent. 1
This conclusion would not seem to square with what this Court stated
in Qua Chee Gan vs. Law Union and Rock Insurance Co., Ltd 2 It was
there pointed out that by reason of the exclusive control by one party in
4
a contract of adhesion over the terms and phraseology of the contract,
any ambiguity must be held strictly against the one who caused it to be
prepared and liberally in favor of the other party. In fact, this rule has
since become a statutory provision. 3
By analogy, these pronouncements in the aforestated case would
inveigh against a rigid application of an exclusive venue stipulation
where what is involved is a contract of adhesion, to wit:
. . . The courts cannot ignore that nowadays monopolies, cartels and
concentrations of capital, endowed with overwhelming economic power,
manage to impose upon parties dealing with them cunningly prepared
"agreements" that the weaker party may not change one with, his
participation in the "agreement" being reduced to the alternative to take
it or leave it, labelled . . . "contracts by adherence" (contracts
d'adhesion), in contrast to those entered into by parties bargaining on
an equal footing, such contracts . . . obviously call for greater strictness
and vigilance on the part of courts of justice with a view to protecting the
weaker party from abuses and imposition, and prevent their becoming
traps for the unwa(r)y (authorities omitted).
I respectfully submit, therefore, that while the enunciated rule on
restrictive venue stipulations should ordinarily be respected, a greater
caution on case-to-case basis must be adopted by the courts where
such stipulation is contained in a contract of adhesion. Not only should
they consider the disadvantaged position of the adherent but, more
importantly, the fact that the raison d'etre for rules of venue is to afford
due process, greater convenience and more ready access to the court
in favor of the adhering contracting party.
I also submit that the rule on restrictive venue stipulations should not
apply where it would be violative of a settled and important policy of the
State. Thus, for instance, in the cited case of Hongkong and Shanghai
Banking Corporation vs. Sherman, 4 aside from the agreement that the
contract should be determined in accordance with the laws of Singapore,
that contract also contained this provision: "We hereby agree that the
Courts in Singapore shall have jurisdiction over all disputes arising under
this guarantee . . ."
While it is true that in civil cases venue is a procedural, and not a
jurisdictional, matter and the former may be the subject of stipulation,
the quoted portion of the contract not only refers to the venue of
prospective suits but actually trenches on the jurisdiction of our courts.
Of course, in that case this Court did not enforce the quoted portion of
the agreement but on the theory that a literal interpretation shows that
the parties did not thereby stipulate that only the courts of Singapore, to
the exclusion of all others, had jurisdiction. In other words, that
agreement was not enforced because it was not a restrictive or
mandatory provision.
Suppose, however, that stipulation had been couched in an exclusive
and mandatory form? Since the ostensible venue aspect was interlinked
with the jurisdiction of the foreign court, it would oust Philippine courts
of jurisdiction and violate a fundamental national policy. Although in a
different setting and on laws then obtaining but nonetheless upon a
rationale applicable hereto, this Court has long declared as null and void
any agreement which would deprive a court of its jurisdiction. 5 In fact,
the matter of the jurisdiction of courts cannot be the subject of a
compromise. 6 For that matter, the agreement in question, even on the
issue of venue alone, would also greatly inconvenience the Philippine
litigant or even altogether deny him access to the foreign court, for
financial or other valid reasons, as to amount to denial of due process.
Exclusive jurisdiction of foreign courts over causes of action arising in
the Philippines may be the subject of a treaty, international convention,
or a statute permitting and implementing the same. Definitely, however,
such jurisdiction and venue designation cannot and should not be
conferred on a foreign court through a contractual stipulation even if
restrictive in nature.
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.
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?
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
5
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
The courts cannot ignore that nowadays, monopolies, cartels
and concentration of capital endowed with overwhelm
economic power, manage to impose upon parties d with them
y prepared 'agreements' that the weaker party may not
change one whit his participation in the 'agreement' being
reduced to the alternative 'to take it or leave it,' labelled since
Raymond Saleilles 'contracts by adherence' (contracts d'
adhesion) in contrast to those entered into by parties
bargaining on an equal footing. Such contracts (of which
policies of insurance and international bill of lading are prime
examples) obviously cap for greater strictness and vigilance
on the part of the courts of justice with a view to protecting the
weaker party from abuses and imposition, and prevent their
becoming traps for the unwary.
To the same effect and import, and, in recognition of the character of
contracts of this kind, the protection of the disadvantaged is expressly
enjoined by the New Civil Code
In all contractual property or other relations, when one of the
parties is at a disadvantage on account of his moral
dependence, ignorance indigence, mental weakness, tender
age and other handicap, the courts must be vigilant for his
protection. 19
Considered in the light Of the foregoing norms and in the context Of
circumstances Prevailing in the inter-island ship. ping industry in the
country today, We find and hold that Condition No. 14 printed at the back
of the passage tickets should be held as void and unenforceable for the
following reasons first, under circumstances obligation in the inter-island
ship. ping industry, it is not just and fair to bind passengers to the terms
of the conditions printed at the back of the passage tickets, on which
Condition No. 14 is Printed in fine letters, and second, Condition No. 14
subverts the public policy on transfer of venue of proceedings of this
nature, since the same will prejudice rights and interests of innumerable
passengers in different s of the country who, under Condition No. 14,
will have to file suits against petitioner only in the City of Cebu.
1. It is a matter of public knowledge, of which We can take judicial notice,
that there is a dearth of and acute shortage in inter- island vessels plying
between the country's several islands, and the facilities they offer leave
much to be desired. Thus, even under ordinary circumstances, the piers
are congested with passengers and their cargo waiting to be
transported. The conditions are even worse at peak and/or the rainy
seasons, when Passengers literally scramble to whatever
accommodations may be availed of, even through circuitous routes,
and/or at the risk of their safety their immediate concern, for the
moment, being to be able to board vessels with the hope of reaching
their destinations. The schedules are as often as not if not more so
delayed or altered. This was precisely the experience of private
respondents when they were relocated to M/S "Sweet Town" from M/S
"Sweet Hope" and then any to the scorching heat of the sun and the dust
coming from the ship's cargo of corn grits, " because even the latter was
filed to capacity.
Under these circumstances, it is hardly just and proper to expect the
passengers to examine their tickets received from crowded/congested
counters, more often than not during rush hours, for conditions that may
be printed much charge them with having consented to the conditions,
so printed, especially if there are a number of such conditions m fine
print, as in this case. 20
Again, it should be noted that Condition No. 14 was prepared solely at
the ms of the petitioner, respondents had no say in its preparation.
Neither did the latter have the opportunity to take the into account prior
to the purpose chase of their tickets. For, unlike the small print provisions
of contracts the common example of contracts of adherence which
are entered into by the insured in his awareness of said conditions, since
the insured is afforded the op to and co the same, passengers of inter-
island v do not have the same chance, since their alleged adhesion is
presumed only from the fact that they purpose chased the tickets.
It should also be stressed that slapping companies are franchise holders
of certificates of public convenience and therefore, posses a virtual
monopoly over the business of transporting passengers between the
ports covered by their franchise. This being so, shipping companies, like
petitioner, engaged in inter-island shipping, have a virtual monopoly of
the business of transporting passengers and may thus dictate their
terms of passage, leaving passengers with no choice but to buy their
tickets and avail of their vessels and facilities. Finally, judicial notice may
be taken of the fact that the bulk of those who board these inter-island
vested come from the low-income groups and are less literate, and who
have little or no choice but to avail of petitioner's vessels.
2. Condition No. 14 is subversive of public policy on transfers of venue
of actions. For, although venue may be changed or transferred from one
province to another by agreement of the parties in writing t to Rule 4,
Section 3, of the Rules of Court, such an agreement will not be held valid
where it practically negates the action of the claimants, such as the
private respondents herein. The philosophy underlying the provisions on
transfer of venue of actions is the convenience of the plaintiffs as well
as his witnesses and to promote 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
6
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.
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.
2. Special rules on libel suits
G.R. No. L-28882 May 31, 1971
TIME, INC., petitioner,
vs.
HON. ANDRES REYES, as Judge of the Court of First Instance of
Rizal, ELISEO S. ZARI, as Deputy Clerk of Court, Branch VI, Court
of First Instance of Rizal, ANTONIO J. VILLEGAS and JUAN
PONCE ENRILE,respondents.
REYES, J.B.L., J.:
Petition for certiorari and prohibition, with preliminary injunction, to annul
certain orders of the respondent Court of First Instance of Rizal, issued
in its Civil Case No. 10403, entitled "Antonio J. Villegas and Juan Ponce
Enrile vs. Time, Inc., and Time-Life International, Publisher of 'Time'
Magazine (Asia Edition)", and to prohibit the said court from further
proceeding with the said civil case.
Upon petitioner's posting a bond of P1,000.00, this Court, as prayed for,
ordered, on 15 April 1968, the issuance of a writ of preliminary injunction.
The petition alleges that petitioner Time, Inc., 1 is an American
corporation with principal offices at Rocketfeller Center, New York City,
N. Y., and is the publisher of "Time", a weekly news magazine; the
petition, however, does not allege the petitioner's legal capacity to sue
in the courts of the Philippine. 2
In the aforesaid Civil Case No. 10403, therein plaintiffs (herein
respondents) Antonio J. Villegas and Juan Ponce Enrile seek to recover
from the herein petitioner damages upon an alleged libel arising from a
publication of Time (Asia Edition) magazine, in its issue of 18 August
1967, of an essay, entitled "Corruption in Asia", which, in part, reads, as
follows:
The problem of Manila's mayor, ANTONIO VILLEGAS, is a
case in point. When it was discovered last year that the
mayor's coffers contained far more pesos than seemed
reasonable in the light of his income, an investigation was
launched. Witnesses who had helped him out under curious
circumstance were asked to explain in court. One government
official admitted lending Villegas P30,000 pesos ($7,700)
without interest because he was the mayor's compadre. An
assistant declared he had given Villegas loans without
collateral because he regarded the boss as my own son. A
wealthy Manila businessman testified that he had lent
Villegas' wife 15,000 pesos because the mayor was like a
brother to me. With that, Villegas denounced the investigation
as an invasion of his family's privacy. The case was dismissed
on a technicality, and Villegas is still mayor. 3
More specifically, the plaintiffs' complaint alleges, inter alia that:
(4) Defendants, conspiring and confederating, published a
libelous article, publicly, falsely and maliciously imputing to
Plaintiffs the commission of the crimes of graft, corruption and
nepotism; that said publication particularly referred to Plaintiff
Mayor Antonio J. Villegas as a case in point in connection with
graft, corruption and nepotism in Asia; that said publication
without any doubt referred to co-plaintiff Juan Ponce Enrile as
the high government official who helped under curious
circumstances Plaintiff Mayor Antonio J. Villegas in lending
the latter approximately P30,000.00 ($7,700.00) without
interest because he was the Mayor's compadre; that the
purpose of said Publications is to cause the dishonor,
discredit and put in public contempt the Plaintiffs, particularly
Plaintiff Mayor Antonio J. Villegas.
On motion of the respondents-plaintiffs, the respondent judge, on 25
November 1967, granted them leave to take the depositions "of Mr.
Anthony Gonzales, Time-Life international", and "Mr. Cesar B. Enriquez,
Muller & Phipps (Manila) Ltd.", in connection with the activities and
operations in the Philippines of the petitioner, and, on 27 November
1967, issued a writ of attachment on the real and personal estate of
Time, Inc.
Petitioner received the summons and a copy of the complaint at its
offices in New York on 13 December 1967 and, on 27 December 1967,
it filed a motion to dismiss the complaint for lack of jurisdiction and
improper venue, relying upon the provisions of Republic Act 4363.
Private respondents opposed the motion.
In an order dated 26 February 1968, respondent court deferred the
determination of the motion to dismiss until after trial of the case on the
merits, the court having considered that the grounds relied upon in the
motion do not appear to be indubitable.
Petitioner moved for reconsideration of the deferment private
respondents again opposed.
On 30 March 1968, respondent judge issued an order re-affirming the
previous order of deferment for the reason that "the rule laid down under
Republic Act. No. 4363, amending Article 360 of the Revised Penal
Code, is not applicable to actions against non-resident defendants, and
because questions involving harassment and inconvenience, as well as
disruption of public service do not appear indubitable. ..."
Failing in its efforts to discontinue the taking of the depositions,
previously adverted to, and to have action taken, before trial, on its
motion to dismiss, petitioner filed the instant petition for certiorari and
prohibition.
The orders for the taking of the said depositions, for deferring
determination of the motion to dismiss, and for reaffirming the
deferment, and the writ of attachment are sought to be annulled in the
petition..
7
There is no dispute that at the time of the publication of the allegedly
offending essay, private respondents Antonio Villegas and Juan Ponce
Enrile were the Mayor Of the City of Manila and Undersecretary of
Finance and concurrently Acting Commissioner of Customs,
respectively, with offices in the City of Manila. The issues in this case
are:
1. Whether or not, under the provisions of Republic Act No. 4363 the
respondent Court of First Instance of Rizal has jurisdiction to take
cognizance of the civil suit for damages arising from an allegedly libelous
publication, considering that the action was instituted by public officers
whose offices were in the City of Manila at the time of the publication; if
it has no jurisdiction, whether or not its erroneous assumption of
jurisdiction may be challenged by a foreign corporation by writ
of certiorari or prohibition; and
2. Whether or not Republic Act 4363 is applicable to action against a
foreign corporation or non-resident defendant.
Provisions of Republic Act No. 4363, which are relevant to the resolution
of the foregoing issues, read, as follows:
Section 1. Article three hundred sixty of the Revised Penal
Code, as amended by Republic Act Numbered Twelve
hundred and eighty-nine, is further amended to read as
follows:
'ART. 360. Persons responsible. Any person who shall
publish, exhibit, or cause the publication or exhibition of any
defamation in writing or by similar means, shall be responsible
for the same.
The author or editor of a book or pamphlet, or the editor or
business manager of a daily newspaper, magazine or serial
publication, shall be responsible for the defamations
contained therein to the extent as if he were the author
thereof.
The criminal and civil action for damages in cases of written
defamations as provided for in this chapter, shall be filed
simultaneously or separately with the court of first instance of
the province or city where the libelous article is printed and
first published or where any of the offended parties actually
resides at the time of the commission of the
offense; Provided, however, That where one of the offended
parties is a public officer whose office is in the City of Manila
at the time of the commission of the offense, the action shall
be filed in the Court of First Instance of the City of Manila or
of the city or province where the libelous article is printed and
first published, and in case such public officer does not hold
office in the City of Manila, the action shall be filed in the Court
of First Instance of the province or city where he held office at
the time of the commission of the offense or where the libelous
article is printed and first published and in case one of the
offended parties is a private individual, the action shall be filed
in the Court of First Instance of the province or city where he
actually resides at the time of the commission of the offense
or where the libelous matter is printed and first
published; Provided, further, That the civil action shall be filed
in the same court where the criminal action is filed and vice
versa; Provided, furthermore, That the court where the
criminal action or civil action for damages is first filed, shall
acquire jurisdiction to the exclusion of other courts; And
provided finally, That this amendment shall not apply to cases
of written defamations, the civil and/or criminal actions which
have been filed in court at the time of the effectivity of the law
xxx xxx xxx
xxx xxx xxx
Sec. 3. This Act shall take effect only if and when, within thirty
days from its approval, the newspapermen in the Philippines
shall organize, and elect the members of, a Philippine Press
Council, a private agency of the said newspapermen, whose
function shall be to promulgate a Code of Ethics for them and
the Philippine press investigate violations thereof, and
censure any newspaperman or newspaper guilty of any
violation of the said Code, and the fact that such Philippine
Press Council has been organized and its members have
been duly elected in accordance herewith shall be
ascertained and proclaimed by the President of the
Philippines.
Under the first proviso in section 1, the venue of a civil action for
damages in cases of written defamations is localized upon the basis of,
first, whether the offended party or plaintiff is a public officer or a private
individual; and second, if he is a public officer, whether his office is in
Manila or not in Manila, at the time of the commission of the offense. If
the offended party is a public officer in the office in the City of Manila,
the proviso limits him to two (2) choices of venue, namely, in the Court
of First instance of the City of Manila or in the city or province where the
libelous article is printed and first published ..."
The complaint lodged in the court of Rizal by respondents does not
allege that the libelous article was printed and first published in the
province of Rizal and, since the respondents-plaintiffs are public officers
with offices in Manila at the time of the commission of the alleged
offense, it is clear that the only place left for them wherein to file their
action, is the Court of First Instance of Manila.
The limitation of the choices of venue, as introduced into the Penal Code
through its amendments by Republic Act 4363, was intended "to
minimize or limit the filing of out-of-town libel suits" to protect an alleged
offender from "hardships, inconveniences and harassments" and,
furthermore, to protect "the interest of the public service" where one of
the offended parties is a public officer." 4 The intent, of the law is clear:
a libeled public official might sue in the court of the locality where he
holds office, in order that the prosecution of the action should interfere
as little as possible with the discharge of his official duties and labors.
The only alternative allowed him by law is to prosecute those
responsible for the libel in the place where the offending article was
printed and first published. Here, the law tolerates the interference with
the libeled officer's duties only for the sake of avoiding unnecessary
harassment of the accused. Since the offending publication was not
printed in the Philippines, the alternative venue was not open to
respondent Mayor Villegas of Manila and Undersecretary of Finance
Enrile, who were the offended parties.
But respondents-plaintiffs argue that Republic Act No. 4363 is not
applicable where the action is against non-existent defendant, as
petitioner Time, Inc., for several reasons. They urge that, in enacting
Republic Act No. 4363, Congress did not intend to protect non-resident
defendants as shown by Section 3, which provides for the effectivity of
the statute only if and when the "newspapermen in the Philippines" have
organized a "Philippine Press Council" whose function shall be to
promulgate a Code of Ethics for "them" and "the Philippine press"; and
since a non-resident defendant is not in a position to comply with the
conditions imposed for the effectivity of the statute, such defendant may
not invoke its provisions; that a foreign corporation is not inconvenienced
by an out-of-town libel suit; that it would be absurd and incongruous, in
the absence of an extradition treaty, for the law to give to public officers
with office in Manila the second option of filing a criminal case in the
court of the place where the libelous article is printed and first published
if the defendant is a foreign corporation and that, under the "single
publication" rule which originated in the United States and imported into
the Philippines, the rule was understood to mean that publications in
another state are not covered by venue statutes of the forum.
The implication of respondents' argument is that the law would not take
effect as to non-resident defendants or accused. We see nothing in the
text of the law that would sustain such unequal protection to some of
those who may be charged with libel. The official proclamation that a
Philippine Press Council has been organized is made a pre-condition to
the effectivity of the entire Republic Act No. 4363, and no terms are
employed therein to indicate that the law can or will be effective only as
to some, but not all, of those that may be charged with libeling our public
officers.
The assertion that a foreign corporation or a non-resident defendant is
not inconvenienced by an out-of-town suit is irrelevant and untenable,
for venue and jurisdiction are not dependent upon convenience or
inconvenience to a party; and moreover, venue was fixed under
Republic Act No. 4363, pursuant to the basic policy of the law that is, as
previously stated, to protect the interest of the public service when the
offended party is a public officer, by minimizing as much as possible any
interference with the discharge of his duties.
That respondents-plaintiffs could not file a criminal case for libel against
a non-resident defendant does not make Republic Act No. 4363
incongruous of absurd, for such inability to file a criminal case against a
8
non-resident natural person equally exists in crimes other than libel. It is
a fundamental rule of international jurisdiction that no state can by its
laws, and no court which is only a creature of the state, can by its
judgments or decrees, directly bind or affect property or persons beyond
the limits of the state. 5 Not only this, but if the accused is a corporation,
no criminal action can lie against it, 6 whether such corporation or
resident or non-resident. At any rate, the case filed by respondents-
plaintiffs is case for damages.
50 Am. Jur. 2d 659 differentiates the "multiple publication" and "single
publication" rules (invoked by private respondents) to be as follows:
The common law as to causes of action for tort arising out of
a single publication was to the effect that each communication
of written or printed matter was a distinct and separate
publication of a libel contained therein, giving rise to a
separate cause of action. This rule ('multiple publication' rule)
is still followed in several American jurisdictions, and seems
to be favored by the American Law Institute. Other
jurisdictions have adopted the 'single publication' rule which
originated in New York, under which any single integrated
publication, such as one edition of a newspaper, book, or
magazine, or one broadcast, is treated as a unit, giving rise to
only one cause of action, regardless of the number of times it
is exposed to different people. ...
These rules are not pertinent in the present scheme because the
number of causes of action that may be available to the respondents-
plaintiffs is not here in issue. We are here confronted by a specific venue
statute, conferring jurisdiction in cases of libel against Public officials to
specified courts, and no other. The rule is that where a statute creates
a right and provides a remedy for its enforcement, the remedy is
exclusive; and where it confers jurisdiction upon a particular court, that
jurisdiction is likewise exclusive, unless otherwise provided. Hence, the
venue provisions of Republic Act No. 4363 should be deemed
mandatory for the party bringing the action, unless the question of venue
should be waived by the defendant, which was not the case here. Only
thus can the policy of the Act be upheld and maintained. Nor is there
any reason why the inapplicability of one alternative venue should result
in rendering the other alternative, also inapplicable.
The dismissal of the present petition is asked on the ground that the
petitioner foreign corporation failed to allege its capacity to sue in the
courts of the Philippines. Respondents rely on section 69 of the
Corporation law, which provides:
SEC. 69. No foreign corporation or corporations formed,
organized, or existing under any laws other than those of the
Philippines shall be permitted to ... maintain by itself or
assignee any suit for the recovery of any debt, claim, or
demand whatever, unless it shall have the license prescribed
in the section immediately preceding. ..." ...;
They also invoke the ruling in Marshall-Wells Co. vs. Elser & Co.,
Inc. 7 that no foreign corporation may be permitted to maintain any suit
in the local courts unless it shall have the license required by the law,
and the ruling in Atlantic Mutual Ins. Co., Inc. vs. Cebu Stevedoring Co.,
Inc. 8 that "where ... the law denies to a foreign corporation the right to
maintain suit unless it has previously complied with a certain
requirement, then such compliance or the fact that the suing corporation
is exempt therefrom, becomes a necessary averment in the complaint."
We fail to see how these doctrines can be a propos in the case at bar,
since the petitioner is not "maintaining any suit" but is merely defending
one against itself; it did not file any complaint but only a corollary
defensive petition to prohibit the lower court from further proceeding with
a suit that it had no jurisdiction to entertain.
Petitioner's failure to aver its legal capacity to institute the present
petition is not fatal, for ...
A foreign corporation may, by writ of prohibition, seek relief
against the wrongful assumption of jurisdiction. And a foreign
corporation seeking a writ of prohibition against further
maintenance of a suit, on the ground of want of jurisdiction in
which jurisdiction is not bound by the ruling of the court in
which the suit was brought, on a motion to quash service of
summons, that it has jurisdiction. 9
It is also advanced that the present petition is premature, since
respondent court has not definitely ruled on the motion to dismiss, nor
held that it has jurisdiction, but only argument is untenable. The motion
to dismiss was predicated on the respondent court's lack of jurisdiction
to entertain the action; and the rulings of this Court are that writs of
certiorari or prohibition, or both, may issue in case of a denial or
deferment of action on such a motion to dismiss for lack of jurisdiction.
If the question of jurisdiction were not the main ground for this
petition for review by certiorari, it would be premature
because it seeks to have a review of an interlocutory order.
But as it would be useless and futile to go ahead with the
proceedings if the court below had no jurisdiction this petition
was given due course.' (San Beda vs. CIR, 51 O.G. 5636,
5638).
'While it is true that action on a motion to dismiss may be
deferred until the trial and an order to that effect is
interlocutory, still where it clearly appears that the trial judge
or court is proceeding in excess or outside of its jurisdiction,
the remedy of prohibition would lie since it would be useless
and a waste of time to go ahead with the proceedings.
(Philippine International Fair, Inc., et al. vs. Ibaez, et al., 50
Off. Gaz. 1036; Enrique v. Macadaeg, et al., 47 Off. Gaz.
1207; see also San Beda College vs. CIR, 51 Off. Gaz. 5636.)'
(University of Sto. Tomas v. Villanueva, L-13748, 30 October
1959.).
Similarly, in Edward J. Nell Co. vs. Cubacub, L-20843, 23 June 1965,
14 SCRA 419, this Court held:
'.......................................................... It is a settledrule that
the jurisdiction of a court over the subject-matter is determined
by the allegations in the complaint; and when a motion to
dismiss is filed for lack of jurisdiction those allegations are
deemed admitted for purposes of such motion, so that it may
be resolved without waiting for the trial. Thus it has been held
that the consideration thereof may not be postponed in the
hope that the evidence may yield other qualifying or
concurring data which would bring the case under the court's
jurisdiction.'
To the same effect are the rulings in: Ruperto vs. Fernando, 83 Phil.
943; Administrator of Hacienda Luisita Estate vs. Alberto, L-12133, 21
October 1958.
Summing up, We hold:
(1) The under Article 360 of the Revised Penal Code, as amended by
Republic Act No. 4363, actions for damages by public officials for
libelous publications against them can only be filed in the courts of first
instance ofthe city or province where the offended functionary held office
at the time ofthe commission of the offense, in case the libelous article
was first printed or published outside the Philippines.
(2) That the action of a court in refusing to rule, or deferring its ruling, on
a motion to dismiss for lack of jurisdiction over the subject matter, or for
improper venue, is in excess of jurisdiction and correctable by writ of
prohibition or certiorari sued out in the appellate Court, even before trial
on the merits is had.
WHEREFORE, the writs applied for are granted: the respondent Court
of First Instance of Rizal is declared without jurisdiction to take
cognizance of its Civil Case No. 10403; and its orders issued in
connection therewith are hereby annulled and set aside,. Respondent
court is further commanded to desist from further proceedings in Civil
case No. 10403 aforesaid. Costs against private respondents, Antonio
J. Villegas and Juan Ponce Enrile.
The writ of preliminary injunction heretofore issued by this Supreme
Court is made permanent.
3. Rules on Jurisdiction
b. Actions in personam; actions in rem; actions
quasi in rem
G.R. No. 107314 September 17, 1998
PATRICIA S. VILLAREAL, for herself and as guardian of her minor
children, CLAIRE HOPE and TRICIA, both surnamed
VILLAREAL, petitioners,
vs.
9
THE COURT OF APPEALS, ELISEO SEVILLA, and ERNA
SEVILLA, respondents.
MENDOZA, J.:
Petitioners seek a review of the decision, 1 dated December 23, 1991, of
the Court of Appeals nullifying the decision and orders of the Regional
Trial Court in Civil Case No. 16194 and remanding the said case to the
court a quo for further proceedings as well as the resolution of the Court
of Appeals denying reconsideration of its decision.
The complaint in this case was filed by petitioner Patricia Villareal to
recover damages in the total amount of P1,944,000.00 from private
respondents Eliseo and Erna Sevilla and certain John Does for the killing
on June 6, 1986 of petitioner's husband Jose Villareal. The complaint,
docketed as Civil Case No. 16194, was filed with the Regional Trial
Court of Makati, Metro Manila. It was found that prior to the filing of the
complaint on March 2, 1987, the Sevillas had abruptly left the country
(at least two months after the murder) and had started disposing of their
properties in the Philippines. 2
On March 11, 1987, after a hearing, during which witness Deborah
Alamares gave private respondents' address in the United States as
allegedly divulged to her by private respondent Erna Sevilla herself, 3 the
trial court ordered the Sevillas' properties in the Philippines
attached, 4 upon the posting of a bond in the amount of P500,000.00.
Pursuant to this, Deputy Sheriff Eulalio C. Juanson attached private
respondents' personal and real properties on March 17, 18, and 19,
1987. 5
On July 21, 1987, petitioners filed a Motion for Leave for Extraterritorial
Service pursuant to Rule 14, 17 alleging that private respondents were
non-residents. The judge granted the motion 6 and authorized the
service of summons by registered mail at private respondents' address
in California, U.S.A. This mail was received on August 17, 1987 by a
certain "D. Pyle," whose signature appears on the registry return card. 7
Petitioners then moved to declare private respondents in default for
failure to answer notwithstanding service of summons. However,
petitioners' motion was denied 8 on October 12, 1987 by the judge for
the reason that "perhaps the address given by the plaintiff (petitioners
herein) is not the correct address of the defendants (private respondents
herein) or that they have already moved out.
On October 13, 1987, the trial court motu proprio set aside its order of
March 11, 1987 9 on the ground that the attachment of property was
improper because petitioners' claims were unliquidated. Accordingly, all
properties garnished and attached pursuant to the writ of attachment
were ordered released. Petitioners moved for reconsideration of the
court's order. On December 21, 1987, the trial court modified its
order 10 by allowing attachment in the amount of P30,000.00 to answer
for actual damages for the death of Jose Villareal. The amount
represents the value of human life as then fixed by this Court.
On August 39, 1988, petitioners filed a Motion for Leave to Serve
Summons by Publication which was granted by the trial court in an order
dated August 31, 1988. 11
Accordingly, copies of the order, summons, complaint, and the affidavit
of merit were published in the Manila Times on November 29,
December 6, and 13, 1988. 12 In addition, copies of the aforesaid order,
summons, complaint, and affidavit of merit were sent by registered mail
to the last known address of private respondents in the United
States. 13 On January 17, 1989, the mail matter were returned to the
Branch Clerk of Court with a notation which said "Moved, left no
address." 14
Meanwhile, at the instance of petitioner Patricia Villareal, an
Information 15 charging private respondents with murder was filed on
October 10, 1988 with the Regional Trial Court of Makati, where it was
docketed as Criminal Case No. 555.
On March 7, 1989, petitioners filed a Motion to Declare Defendants in
Default for failure to file their Answer within the 60-day period counted
from the last day of publication. Private respondents were declared in
default on April 11, 1989, and petitioners were then allowed to present
evidence
ex-parte. 16
After presenting their evidence, petitioners amended their complaint to
make it conform to the evidence. 17 On the supposition that they had
proven damages in a much bigger amount than that prayed for in the
original complaint, they increased the amount of damages prayed for to
P13,082,888.00 plus 50% of this amount as attorney's fees. In addition,
Patricia Villareal's children were included as plaintiffs.
On August 29, 1989, the trial court admitted the Amended Complaint
and granted petitioners' Motion for Extra-territorial Service of
Summons. 18 Accordingly, summons were published once a week 19 for
three consecutive weeks in the newspaper Abante. Copies of the
Amended Complaint, the summons, and the order were sent by
registered mail to the last known addresses of private respondents at
Paraaque, Metro Manila and the United States. However, the
summons and the accompanying papers mailed were returned to the
court with the notation "MOVED" for the letter addressed to the
Paraaque residence, and "REFUSED TO RECEIVE" for the letter
addressed to the United States residence. 20
On December 27, 1989, Attorney Teresita Marbibi filed a formal request
in court seeking photocopies of all the pleadings and orders pertinent to
the case, including the summons and the Amended Complaint. 21 In her
letter, she stated that she was making the request "for the purpose of
protecting the interest of the defendants whose sister contracted our
services."22
On January 24, 1990, upon motion of the petitioners, the trial court
declared the private respondents in default for the second time 23 for
having failed to file their Answer to the Amended Complaint within 60
days after publication of the summons. It also declared the case
submitted for decision, upon being informed by the petitioners that the
very same evidence earlier presented would be reproduced and
adopted in support of the Amended Complaint. 24
On February 7, 1990, counsel for private respondents. Teresita Marbibi,
filed a Notice of Appearance 25 on their behalf.
On February 14, 1990, again through counsel, private respondents filed
a verified Motion to Lift Order of Default with Motion for
Reconsideration 26 claiming that they were totally unaware of the
existence of the case at bar; that their inability to come forth promptly
with responsive pleading was due to accident, mistake, or excusable
neglect; and, that the allegation of petitioners that they were the killers
of Jose Villareal was not true. Petitioners filed an Opposition to the
Motion, to which private respondents filed a Reply.
On March 27, 1990, the trial court issued an order 27 denying the Motion
to Lift Order of Default with Motion for Reconsideration, on the ground
that private respondents herein failed to comply with the requirements
of Rule 18, 3.
On April 2, 1990, the trial court rendered a decision 28 finding private
respondents liable for the killing of Jose Villareal and ordering them
jointly and severally to pay petitioners more than P10 million in
damages. The trial court found that private respondent Erna Sevilla and
the victim Jose Villareal were lovers; that private respondent Eliseo
Sevilla, Erna's husband, is a very jealous husband who inflicts physical
injuries upon his wife; that apparently, private respondent Eliseo
discovered his wife's infidelity; and, that in conspiracy with several other
persons, including his wife Erna whom he seemed to have threatened,
private respondent Eliseo hatched a plan whereby Erna was to lure Jose
Villareal to a carpark near the latter's office where Eliseo and his
companions were to attack and kill Jose. The trial court found that after
the killing, private respondents lost no time in disposing of their
properties in the Philippines, pulling out their children from school, and
escaping to the United States.
Copies of the order dated March 27, 1990 denying the Motion to Lift
Order of Default with Motion for Reconsideration and the decision dated
April 2, 1990 were received by private respondents on the same day,
April 7, 1990. Private respondents filed a Motion for Reconsideration
with Motion to Set Aside Decision asking the court to reconsider and/or
set aside the decision dated April 2, 1990 and the order of March 27,
1990. 29 On May 17, 1990, they filed a Supplemental Motion for
Reconsideration with Reply of the order dated March 27, 1990 and the
decision dated April 2, 1990, asserting for the first time that the court did
not acquire jurisdiction over their persons. On July 16, 1990, they filed a
Consolidated Memorandum 30 in support of their aforesaid Motion for
Reconsideration with Reply.
On August 10, 1990, the trial court issued an order 31 denying private
respondents' Motion for Reconsideration with Motion to Set Aside
Decision and the Supplemental Motion for Reconsideration with Reply.
The trial court simultaneously granted petitioners' Motion for Execution
10
Pending Appeal. Consequently, on August 14, 1990, a Writ of Execution
Pending Appeal was issued. 23
On August 15, 1990, the Deputy Sheriff of the court served and
registered with the Register of Deeds of Paraaque a Notice of Levy
over the properties said to be owned by private respondents and
covered by TCT Nos. 36350 (now 41338) and 36351 (now 41335) in
their names. 33 On August 16, 1990, the Deputy Sheriff served upon
private respondents' counsel the Notice of Levy with supporting papers,
one of which was a photocopy of the denial order dated August 10,
1990. 34
On August 21, 1990, private respondents' counsel received by mail a
duplicate original copy of the denial order of August 10, 1990. 35 On the
same date, counsel filed a Notice of Appeal of the denial order dated
August 10, 1990 and the decision dated April 2, 1990. 36
Petitioners filed a Motion to Dismiss Notice of Appeal, contending that
the Notice was filed out of time, which private respondents opposed.
Petitioners then filed a Supplemental Comment to Motion to Dismiss
dated October 4, 1990.
On October 2, 1990, the trial court issued an order 37 denying due
course to the Notice of Appeal on the ground that private respondents
had only a day from August 16, 1990 (the day they received a photocopy
of the order denying their Motion for Reconsideration with Motion to Set
Aside Decision and their Supplemental Motion for Reconsideration with
Reply), not from August 21, 1990 (the day on which they received the
duplicate original of the said order) to perfect their appeal. As the Notice
of Appeal was filed only on August 21, 1990, the trial court ruled that it
was late. This order was received by private respondents' counsel on
October 18, 1990.
On October 25, 1990, private respondents, through counsel, filed a
Motion to Set Aside/Reconsider Order Dated October 2, 1990. 38
This was denied by the trial court in its order dated December 17,
1990, 39 a copy of which was received by private respondents' counsel
on January 16, 1991. 40
On January 16, 1991, private respondents then filed a Notice of
Appeal. 41 from the orders dated December 17, 1990 and October 2,
1990 and again from the order dated August 10, 1990.
On January 29, 1991, the trial court issued an Entry of Judgment, 42 a
copy of which was received by counsel for private respondents on
February 13, 1991. On February 15, 1991, the private respondents filed
a Motion for Reconsideration with Motion to Elevate Records to the
Court of Appeals and Motion to Quash Entry of Judgment, 43 but the
motions were denied by the trial court in its order of August 1, 1991. 44
On September 11, 1991, private respondents filed in the Court of
Appeals a petition for certiorari, prohibition, and mandamuswith
preliminary injunction, 45 alleging that the trial court had acted without or
in excess of jurisdiction and with grave abuse of discretion in issuing the
aforesaid orders and decisions and that there was neither appeal nor
any plain, speedy and adequate remedy open to them in the ordinary
course of law. Private respondents contended (1) that the trial court
never acquired jurisdiction over them since they are non-resident
defendants and petitioners' action is purely in personam and (2) that
they were denied due process of law. 46
On December 23, 1991, 47 the Court of Appeals granted the petition,
ruling that the trial court was guilty of grave abuse of discretion. The
dispositive portion of its decision reads:
WHEREFORE, the writs prayed for in the petition
are GRANTED. The orders of default, the
hearingex-parte, the default judgment, the
execution pending appeal, the respective orders
denying the motions for reconsideration, and all
subsequent orders related thereto are hereby
declared null and void and are set aside. The
attachment on the properties of petitioners [private
respondents here] shall remain in force. The trial
court is ordered to require petitioners to file their
answer within fifteen (15) days from notice, and
thence to proceed in the disposition of the case in
accordance with the ordinary civil procedure.
Petitioners moved for a reconsideration, 48 but their motion was
denied 49 by the appellate court in a resolution dated September 30,
1992. Hence, this petition for review.
First. The Court of Appeals nullified the several orders and the decision
rendered by the trial court against private respondents on the ground
that the trial court did not acquire jurisdiction over them. It ruled that the
extraterritorial service of summons did not confer on the trial court
jurisdiction to render and enforce a money judgment against the private
respondents who are non-residents. On the authority of Banco Espaol-
Filipino v. Palanca, 50 it held that the only effect of the conversion of an
action in personam filed against non-resident defendants into
one quasi-in rem by virtue of the attachment of their properties in the
country was to subject such properties to the payment of the demand
which the court might find to be due petitioners, the plaintiffs below.
Otherwise, the trial court could not render a personal judgment against
the private respondents, as it did in this case, and enforce it against
them. The Court of Appeals concluded that in doing so, the trial court
committed grave abuse of discretion. 51
It is true that where the defendant in an action in personam is a non-
resident, as in this case, and refuses to appear and submit to the
jurisdiction of the court, the jurisdiction of the latter is limited to the
property within the country which the court may have ordered attached.
In such a case, the property itself is "the sole thing which is impleaded
and is the responsible object which is the subject of the judicial
power." 52 Accordingly, "the relief must be confined to the res, and the
court cannot lawfully render a personal judgment against him." 53
But this Court also acknowledged in Banco Espaol-Filipino that if
property is attached and later the defendant appears, "the cause
becomes mainly a suit in personam, with the added incident that the
property attached remains liable, under the control of the court, to
answer to any demand which may be established against the defendant
by the final judgment of the court." 54 This rule was affirmed in Mabanag
v. Gallemore 55 in which it was held:
The main action in an attachment or garnishment suit is in
rem until jurisdiction of the defendant is secured. Thereafter,
it is in personam and also in rem, unless jurisdiction of
the res is lost as by dissolution of the attachment. If
jurisdiction of the defendant is acquired but jurisdiction of
the res is lost, it is then purely in personam. . . . a proceeding
against property without jurisdiction of the person of the
defendant is in substance a proceeding in rem; and where
there is jurisdiction of the defendant, but the proceeding
against the property continues, that proceeding is none the
less necessarily in rem, although in form there is but a single
proceeding. (4 Am. Jur., 556-557.)
As the remedy is administered in some states, the theory of
an attachment, whether it is by process against or to subject
the property or effects of a resident or non-resident of the
state, is that it partakes essentially of the nature and character
of a proceeding in personam and not a proceedingin rem. And
if the defendant appears the action proceeds in accordance
with the practice governing proceedings in personam. But
where the defendant fails to appear in the action, the
proceeding is to be considered as one in the nature of a
proceeding in rem. And where the court acts directly on the
property, the title thereof being charged by the court without
the intervention of the party, the proceeding unquestionably is
one in rem in the fullest meaning of the term.
In attachment proceedings against a non-resident defendant
where personal service on him is lacking, it is elementary that
the court must obtain jurisdiction of the property of the
defendant. If no steps have been taken to acquire jurisdiction
of the defendant's person, and he has not appeared and
answered or otherwise submitted himself to the jurisdiction of
the court, the court is without jurisdiction to render judgment
until there has been a lawful seizure of property owned by him
within the jurisdiction of the court. (2 R.C.L., 800-804.) 56
In this case, not only was property in the Philippines of private
respondents attached, but, what is more, private respondents
subsequently appeared in the trial court and submitted to its jurisdiction.
Consequently, the jurisdiction of the trial court to render a judgment in
personam against them is undoubted.
11
Private respondents contend that the claims for which their property was
attached are unliquidated and, therefore, the attachment is totally
invalid. While below they conceded that the attachment was valid at
least to the extent of P30,000.00 (then considered the value of human
life), they now contend that even this amount is unliquidated.
As private respondents thus admit, this point was not raised in the Court
of Appeals by them. It is only now that it is being urged. However, this
point is now largely immaterial inasmuch as the jurisdiction of the trial
court to render a personal judgment against private respondents derived
not so much from the validity of the attachment as from the voluntary
submission of private respondents to its authority.
There can be no question regarding the trial court's acquisition of
jurisdiction over the persons of respondents when the latter's counsel
entered her appearance on their behalf on February 7, 1990. Through
counsel, private respondents voluntarily appeared by filing a Notice of
Appearance without qualification and a Motion to Lift Order of Default
with Motion for Reconsideration, in which they prayed for affirmative
reliefs, thus submitting to the jurisdiction of the court. The following
instances have been considered voluntary submission to the jurisdiction
of the court: the filing by defendant of a motion to admit answer; 57 the
filing of a motion for reconsideration of the judgment by default; 58 and
the filing of a petition to set aside the judgment of default. 59
Not only did private respondents voluntarily submit themselves to the
jurisdiction of the trial court, they never questioned the validity of the
mode of service of summons, that is, by extraterritorial service upon
them. As already stated, private respondents filed a notice of
appearance without qualification.
In Flores v. Zurbito, it was held: 60
He may appear by presenting a motion, for example, and
unless by such appearance he specifically objects to the
jurisdiction of the court, he thereby gives his assent to the
jurisdiction of the court over his person. When the appearance
is by motion objecting to the jurisdiction of the court over his
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. (Handy vs. Insurance Co., 37 Ohio St., 366; Elliott
vs. Lawhead, 43 Ohio St., 171; New Jersey vs. New York, 6
Peters [U.S.], 323 Livingston vs. Gibbons, 4 Johnson's
Chancery [N.Y.], 94; . . . ). An appearance in court, either in
person or by counsel, for any purpose other than to expressly
object to the jurisdiction of the court over the person, waives
want of process and service of notice. Such an appearance
gives the court jurisdiction over the person. (Henderson vs.
Carbondale etc., Co., 140 U.S., 25; Rhode Island vs
Massachusetts, 12 Peters, [U.S.], 657.). . . . His appearance
without objecting to the jurisdiction of the court waives all
objections to the form and manner of service of notice.
(Provident etc. Association v. Ford, 114 U.S., 635, 639.)
In La Naval Drug Corp. v. court of Appeals, 61 it was held:
Jurisdiction over the person must be seasonably raised, i.e.,
that it is pleaded in a motion to dismiss or by way of an
affirmative defense in an answer. Voluntary appearance shall
be deemed a waiver of this defense.
In Boticano v. Chu, Jr., 62 it was stated:
. . . one of the circumstances considered by the Court as
indicative of waiver by the defendant-appellant of any alleged
defect of jurisdiction over his person arising from defective or
even want of process, is his failure to raise the question of
jurisdiction in the Court of First Instance and at the first
opportunity. It has been held that upon general principles,
defects in jurisdiction arising from irregularities in the
commencement of the proceedings, defective process or
even absence of process may be waived by a failure to make
seasonable objections. (Castro v. Cebu Portland Cement Co.,
71 Phil. 481 [1941] citing Machan v. De la Trinidad, 3 Phil.
684; Vergara v. Laciapag, 28 Phil. 439; U.S. v. Inductivo, 40
Phil. 84; Soriano v. Ramirez, 44 Phil. 519).
Private respondents thus waived any defect in service of summons or
even want of process because for the court to validly decide their plea,
it necessarily had to acquire jurisdiction upon their persons. 63
Second. The Court of Appeals found the trial court to have committed
grave abuse of discretion in denying private respondents' Motion to Lift
Order of Default with Motion for Reconsideration for the following
reasons: Private respondents resided in the United States which local
newspapers do not reach and they came to know of the case against
them only on January 5, 1990 from well-meaning friends. These
circumstances, it was held, constituted accident, mistake, or excusable
neglect excusing private respondents' failure to answer the complaint
and justifying the lifting of the default order under Rule 18, 3.
In addition, the appellate court maintains that the trial court's observation
that the Motion contains no specific facts or statements showing
petitioner's meritorious defense is not accurate. It points out that it is
clearly stated in the said Motion that they did not kill petitioner's husband.
Indeed, according to the Court of Appeals, the defense is meritorious
because if proved, such circumstance will defeat petitioner's claim for
damages. 64
Under Rule 18, 3, a motion to lift an order of default must allege with
particularity the facts constituting the fraud, accident, mistake, or
excusable neglect which caused his failure to answer. 65 In this case, the
private respondents' motion merely alleged that private respondents
were residents of the United States which local newspapers do not reach
and that they did not know about the case filed against them until
January 5, 1990 when well-meaning friends informed them about the
matter.66
There are factual considerations in this case which belie private
respondents' allegations of good faith. In his Special Power of
Attorney, 67 which was submitted to the trial court as an annex of private
respondents' Supplemental Motion for Reconsideration with Reply,
private respondent Eliseo Sevilla gave as their residential address in the
United States the same address to which summons had been sent three
times before by the trial court. 68 The last summons sent to private
respondents by registered mail was returned to the court with the
notation "REFUSED TO RECEIVE." This was long before January 5,
1990 when, according to private respondents, they were informed by
friends of the case pending against them. That private respondents
refused to receive the summons is of no moment. As has been held, the
refusal of a defendant (in this case private respondents) to receive
summons is a technicality resorted to by those who attempt to frustrate
the service upon them. 69 The trial court was justified in thinking that
private respondents were trying to deceive it by claiming that they did
not know about the case until they were told about it on January 5, 1990
by well-meaning friends.
Indeed, private respondents did not dispute the trial court's finding of
deception on their part, nor did they ever offer any explanation for this in
any of their numerous pleadings. For as early as December 27, 1989
and thus prior to the second declaration of default, private respondents'
counsel, Atty. Marbibi, made a formal written request to the trial court for
permission to photocopy all pleadings and orders relating to the case
"for the purpose of protecting the interest of the defendants whose sister
contracted our services." Among the papers photocopied were the
Amended Complaint and Summons pursuant thereto. 70 This fact gives
the lie to the allegation in the Motion to Set Aside the Order of Default
that private respondents did not know of the case against them until
January 5, 1990. Private respondents could have at least asked for an
extension of time to file their answer before they were declared in default
for the second time if it was really their intention in good faith to
participate in the case. They cannot claim that the reason they could not
do so was because they had appeared only to question jurisdiction over
their persons because they had already asked for affirmative reliefs prior
to their raising the issue of jurisdiction over their persons.
Private respondents have thus failed to show good faith which is central
to the concept of "excusable neglect" justifying failure to answer.
[W]hat must be shown is that the failure to respond
was attributable to mishap and not indifference or deliberate
disregard of the notice. In the case of ordinary individuals, the
test is in essence one of good faith. 71
In our opinion, the trial court correctly slammed the blatant attempt of
private respondents to foist a falsehood upon it.
12
The motion to lift order of default, aside from the requirements in Rule
18, 3, must show that the defendant has a meritorious defense or that
something would be gained by having the order of default set
aside. 72 Otherwise, and if the motion is not accompanied by affidavits
of merits, it may properly be denied. 73
As regards this requirement, private respondents contented themselves
with just one statement that they "have absolutely no knowledge, much
less any hand, in the incident falsely imputed to them." 74 Such allegation
is a conclusion rather than a statement of facts showing a meritorious
defense. The affidavit must controvert the facts alleged by the
petitioners.
[The term meritorious defense] may imply that the applicant
has the burden of proving such a defense in order to have the
judgment set aside. The cases usually do not require such a
strong showing. The test employed appears to be essentially
the same as used in considering summary
judgment, i.e., whether there is enough evidence to present
an issue for submission to the trier of fact, or a showing that
on the undisputed facts it is not clear that the judgment is
warranted as a matter of law. 75
. . . The defendant must show that she has a meritorious
defense otherwise the grant of her motion will prove to be a
useless exercise. Thus, her motion must be accompanied by
a statement of the evidence which she intends to present if
the motion is granted and which is such as to warrant a
reasonable belief that the result of the case would probably
be otherwise if a new trial is granted. 76
Since private respondents' failure to file an answer or any other
responsive pleading was not due to fraud, accident, mistake, or
excusable neglect and they failed to show they had a valid and
meritorious defense, we think the trial court did not commit an abuse of
discretion in refusing to lift its order of default. "Grave abuse of
discretion," it bears repeating, means capricious, arbitrary, despotic, and
whimsical exercise of judgment and is rightly treated as equivalent to
lack of jurisdiction.77 Here, it cannot justly be said that, in issuing its
disputed order denying private respondents' Motion to Lift the Order of
Default and Motion for Reconsideration, the trial court acted in this
fashion so as to call for the annulment of its orders and its decision. The
Court of Appeals seriously erred in holding otherwise and setting aside
the order of the trial court.
Third. We agree with the Court of Appeals, however, that the trial court
is guilty of grave abuse of discretion in denying due course to private
respondents' appeal. The trial court held that its decision had become
final on the basis of the following facts: 78 that the private respondents
received the judgment by default on April 7, 1990, one day later than the
petitioners; that on April 21, 1990, they filed a Motion for
Reconsideration with Motion to Set Aside Decision through registered
mail; that on August 10, 1990, the trial court issued an order denying
said Motion; that on August 16, 1990, a photocopy of the said order was
served along with the Writ of Execution Pending Appeal (granted upon
Motion for Execution Pending Appeal) and Notice of Levy of Real
Properties by its Sheriff; that on August 21, 1990, the duplicate original
copy of the order of August 10, 1990 sent by registered mail to the
private respondents' counsel was received; and, that on the same day,
August 21, 1990, said counsel filed a Notice of Appeal. On the basis of
these findings, the trial court concluded: 79
. . . While it may be true that they received copy of the August
10 order which was sent to their counsel thru registered mail
on August 13, 1990 only on August 21, 1990 as they claimed
in the opposition to motion to dismiss appeal, however
defendants forgot the fact that on August 16, 1990, the Sheriff
of this Court served upon them, thru counsel, a copy of said
August 10 order, together with the Writ of Execution Pending
Appeal and Notice of Levy. This is certified to by the Sheriff in
his "Report."
When the defendants therefore filed their Notice of Appeal on
August 21, 1990, they were already late and the period to
appeal had expired as the period started to run again on the
17th day of August and it is the last day to perfect appeal.
The question is from which date the period for filing an appeal should be
counted: from August 16, 1990, when private respondents received
a photocopy of the order denying their Motion for Reconsideration of the
decision, or from August 21, 1990, when they received by registered
mail the duplicate original of the same order? It is to be recalled that the
photocopy of the order was given to private respondents by the sheriff
in connection with his service of the Writ of Execution and Notice of Levy
on Real Properties. It was one of the supporting documents attached to
the Notice of Levy on Real Properties.
We hold that the period for filing an appeal commenced to run again
after it had been interrupted by the filing of private respondents' Motion
for Reconsideration of the decision only on August 21, 1990. It cannot
be from August 16, 1990 when private respondents' counsel was given
a mere photocopy of the court's order. Such copy lacks assurance of its
genuineness, considering that photocopies can easily be tampered with,
for the purpose of enabling private respondents to determine whether or
not to appeal and, in the event they choose to do so, what issues to raise
on appeal. It was not in fact intended to be a substitute for the copy of
the order which was served only on August 21, 1990. The trial court,
therefore, should have given due course to private respondents' appeal.
Denied the right to appeal, private respondents perforce had to resort to
a petition for certiorari, prohibition, andmandamus.
Petitioners contend, however, that private respondents' petition
for certiorari in the Court of Appeals was not filed within a reasonable
time and therefore should have been denied. They claim that private
respondents received the trial court's order denying their motion for a
reconsideration of the court's refusal to give due course to the first Notice
of Appeal on January 16, 1991 and that from such date until September
11, 1991 when the petition forcertiorari was filed, almost eight months
had already elapsed, clearly exceeding the benchmark of 90 days
considered as "reasonable time" for filing petitions of this nature.
This contention has no merit. The relevant date for purposes of
determining whether the petition for certiorari was filed within a
reasonable time is August 13, 1991, when private respondents received
the trial court's order denying their motion to quash the entry of judgment
which the trial court had issued earlier. It is to be noted that the trial court
did not act on the second Notice of Appeal. It simply entered judgment
on January 29, 1991. The private respondent had a right to be notified
of the action on their second Notice of Appeal. They were not guilty of
dilatory tactics. Indeed, the moment the trial court entered judgment,
they immediately moved to quash the entry of judgment. When their
Motion to Quash was denied in an order which also commented on their
second Notice of Appeal, they filed the petition for certiorari. From
August 13, 1991 to September 11, 1991 is a period of only 29 days.
It is also important to note that petitioners questioned the timeliness of
private respondents' action (their filing of the petition for certiorari,
prohibition, and mandamus) only after the Court of Appeals had
rendered a decision. They filed a comment on private respondents'
petition, but they did not question the timeliness of its filing by alleging
that the petition was filed more than 90 days then considered to be a
"reasonable time" for filing petitions for certiorari (It is now 60 days under
Rule 65, 4 of the Rules of Civil Procedure). It was only after the Court
of Appeals rendered judgment against them that petitioners raised the
question in their Motion for Reconsideration. Petitioners thus waived
their objection to the timeliness of the filing of the petition in the Court of
Appeals.
To recapitulate, we hold: (1) that the trial court acquired jurisdiction over
the persons of private respondents; (2) that it validly declared them in
default; (3) that consequently, its decision is valid and private
respondents' remedy was to appeal from the decision; (4) that private
respondents' appeal was timely and therefore it was grave abuse of
discretion for the trial court to hold that private respondents' notice of
appeal was filed late and for that reason deny due course to it.
WHEREFORE, the decision of the Court of Appeals is REVERSED
insofar as it nullified and set aside the orders of default, the hearing ex-
parte the default judgment, the execution pending appeal, and all other
orders related thereto issued prior to the order refusing to give due
course to the appeal of private respondents of the Regional Trial Court
of Makati, Branch 132, and AFFIRMED insofar as it set aside the orders
refusing to five due course to private respondents' appeal and ordering
the entry of the judgment by default and insofar as it ordered that the
attachment on the properties of private respondents be maintained. The
Regional Trial Court of Makati, Branch 132, is hereby ORDERED to give
due course to the appeal of private respondents.
SO ORDERED.
13
d. Jurisdictional issues under conflicts of law cases
as a question to due process
INTERNATIONAL SHOE V. STATE OF WASHINGTON, 326 U.S. 310
(1945)
Argued November 14, 1945
Decided December 3, 1945
326 U.S. 310
APPEAL FROM THE SUPREME COURT OF WASHINGTON
Syllabus
Activities within a State of salesmen in the employ of a foreign
corporation, exhibiting samples of merchandise and soliciting orders
from prospective buyers to be accepted or rejected by the corporation
at a point outside the State, were systematic and continuous, and
resulted in a large volume of interstate business. A statute of the State
requires employers to pay into the state unemployment compensation
fund a specified percentage of the wages paid for the services of
employees within the State.
Held:
1. In view of 26 U.S.C. 1606(a) , providing that no person shall be
relieved from compliance with a state law requiring payments to an
unemployment fund on the ground that he is engaged in interstate
commerce, the fact that the corporation is engaged in interstate
commerce does not relieve it from liability for payments to the state
unemployment compensation fund. P. 326 U. S. 315.
2. The activities in behalf of the corporation render it amenable to suit in
courts of the State to recover payments due to the state unemployment
compensation fund. P. 326 U. S. 320.
(a) The activities in question established between the State and the
corporation sufficient contacts or ties to make it reasonable and just, and
in conformity to the due process requirements of the Fourteenth
Amendment, for the State to enforce against the corporation an
obligation arising out of such activities. P. 326 U. S. 320.
(b) In such a suit to recover payments due to the unemployment
compensation fund, service of process upon one of the corporation's
salesmen within the State, and notice sent by registered mail to the
corporation at its home office, satisfies the requirements of due process.
P. 326 U. S. 320.
Page 326 U. S. 311
3. The tax imposed by the state unemployment compensation statute --
construed by the state court, in its application to the corporation, as a
tax on the privilege of employing salesmen within the State -- does not
violate the due process clause of the Fourteenth Amendment. P. 326 U.
S. 321.
22 Wash.2d 146, 154 P.2d 801, affirmed.
APPEAL from a judgment upholding the constitutionality of a state
unemployment compensation statute as applied to the appellant
corporation.
MR. CHIEF JUSTICE STONE delivered the opinion of the Court.
The questions for decision are (1) whether, within the limitations of the
due process clause of the Fourteenth Amendment, appellant, a
Delaware corporation, has, by its activities in the State of Washington,
rendered itself amenable to proceedings in the courts of that state to
recover unpaid contributions to the state unemployment compensation
fund exacted by state statutes, Washington Unemployment
Compensation Act, Washington Revised Statutes, 9998-103a through
9998-123a, 1941 Supp., and (2) whether the state can exact those
contributions consistently with the due process clause of the Fourteenth
Amendment.
The statutes in question set up a comprehensive scheme of
unemployment compensation, the costs of which are defrayed by
contributions required to be made by employers to a state
unemployment compensation fund.
Page 326 U. S. 312
The contributions are a specified percentage of the wages payable
annually by each employer for his employees' services in the state. The
assessment and collection of the contributions and the fund are
administered by appellees. Section 14(c) of the Act (Wash.Rev.Stat.,
1941 Supp., 9998-114c) authorizes appellee Commissioner to issue
an order and notice of assessment of delinquent contributions upon
prescribed personal service of the notice upon the employer if found
within the state, or, if not so found, by mailing the notice to the employer
by registered mail at his last known address. That section also
authorizes the Commissioner to collect the assessment by distraint if it
is not paid within ten days after service of the notice. By 14e and 6b,
the order of assessment may be administratively reviewed by an appeal
tribunal within the office of unemployment upon petition of the employer,
and this determination is, by 6i, made subject to judicial review on
questions of law by the state Superior Court, with further right of appeal
in the state Supreme Court, as in other civil cases.
In this case, notice of assessment for the years in question was
personally served upon a sales solicitor employed by appellant in the
State of Washington, and a copy of the notice was mailed by registered
mail to appellant at its address in St. Louis, Missouri. Appellant appeared
specially before the office of unemployment, and moved to set aside the
order and notice of assessment on the ground that the service upon
appellant's salesman was not proper service upon appellant; that
appellant was not a corporation of the State of Washington, and was not
doing business within the state; that it had no agent within the state upon
whom service could be made; and that appellant is not an employer, and
does not furnish employment within the meaning of the statute.
The motion was heard on evidence and a stipulation of facts by the
appeal tribunal, which denied the motion
Page 326 U. S. 313
and ruled that appellee Commissioner was entitled to recover the unpaid
contributions. That action was affirmed by the Commissioner; both the
Superior Court and the Supreme Court affirmed. 22 Wash.2d 146, 154
P.2d 801. Appellant in each of these courts assailed the statute as
applied, as a violation of the due process clause of the Fourteenth
Amendment, and as imposing a constitutionally prohibited burden on
interstate commerce. The cause comes here on appeal under 237(a)
of the Judicial Code, 28 U.S.C. 344(a), appellant assigning as error
that the challenged statutes, as applied, infringe the due process clause
of the Fourteenth Amendment and the commerce clause.
The facts, as found by the appeal tribunal and accepted by the state
Superior Court and Supreme Court, are not in dispute. Appellant is a
Delaware corporation, having its principal place of business in St. Louis,
Missouri, and is engaged in the manufacture and sale of shoes and other
footwear. It maintains places of business in several states other than
Washington, at which its manufacturing is carried on and from which its
merchandise is distributed interstate through several sales units or
branches located outside the State of Washington.
Appellant has no office in Washington, and makes no contracts either
for sale or purchase of merchandise there. It maintains no stock of
merchandise in that state, and makes there no deliveries of goods in
intrastate commerce. During the years from 1937 to 1940, now in
question, appellant employed eleven to thirteen salesmen under direct
supervision and control of sales managers located in St. Louis. These
salesmen resided in Washington; their principal activities were confined
to that state, and they were compensated by commissions based upon
the amount of their sales. The commissions for each year totaled more
than $31,000. Appellant supplies its salesmen with a line of samples,
each consisting of one shoe of a pair, which
Page 326 U. S. 314
they display to prospective purchasers. On occasion, they rent
permanent sample rooms, for exhibiting samples, in business buildings,
or rent rooms in hotels or business buildings temporarily for that
purpose. The cost of such rentals is reimbursed by appellant.
The authority of the salesmen is limited to exhibiting their samples and
soliciting orders from prospective buyers, at prices and on terms fixed
by appellant. The salesmen transmit the orders to appellant's office in
St. Louis for acceptance or rejection, and, when accepted, the
merchandise for filling the orders is shipped f.o.b. from points outside
Washington to the purchasers within the state. All the merchandise
shipped into Washington is invoiced at the place of shipment, from which
14
collections are made. No salesman has authority to enter into contracts
or to make collections.
The Supreme Court of Washington was of opinion that the regular and
systematic solicitation of orders in the state by appellant's salesmen,
resulting in a continuous flow of appellant's product into the state, was
sufficient to constitute doing business in the state so as to make
appellant amenable to suit in its courts. But it was also of opinion that
there were sufficient additional activities shown to bring the case within
the rule, frequently stated, that solicitation within a state by the agents
of a foreign corporation plus some additional activities there are
sufficient to render the corporation amenable to suit brought in the courts
of the state to enforce an obligation arising out of its activities
there.International Harvester Co. v. Kentucky, 234 U. S. 579, 234 U. S.
587; People's Tobacco Co. v. American Tobacco Co., 246 U. S. 79, 246
U. S. 87; Frene v. Louisville Cement Co.,77 U.S.App.D.C. 129, 134 F.2d
511, 516. The court found such additional activities in the salesmen's
display of samples sometimes in permanent display rooms, and the
salesmen's residence within the state, continued over a period of years,
all resulting in a
Page 326 U. S. 315
substantial volume of merchandise regularly shipped by appellant to
purchasers within the state. The court also held that the statute, as
applied, did not invade the constitutional power of Congress to regulate
interstate commerce, and did not impose a prohibited burden on such
commerce.
Appellant's argument, renewed here, that the statute imposes an
unconstitutional burden on interstate commerce need not detain us. For
53 Stat. 1391, 26 U.S.C. 1606(a) provides that
"No person required under a State law to make payments to an
unemployment fund shall be relieved from compliance therewith on the
ground that he is engaged in interstate or foreign commerce, or that the
State law does not distinguish between employees engaged in interstate
or foreign commerce and those engaged in intrastate commerce."
It is no longer debatable that Congress, in the exercise of the commerce
power, may authorize the states, in specified ways, to regulate interstate
commerce or impose burdens upon it. Kentucky Whip & Collar Co. v.
Illinois Central R. Co., 299 U. S. 334; Perkins v. Pennsylvania, 314 U.S.
586; Standard Dredging Corp. v. Murphy, 319 U. S. 306, 319 U. S.
308; Hooven & Allison Co. v. Evatt, 324 U. S. 652, 324 U. S.
679; Southern Pacific Co. v. Arizona, 325 U. S. 761, 325 U. S. 769.
Appellant also insists that its activities within the state were not sufficient
to manifest its "presence" there, and that, in its absence, the state courts
were without jurisdiction, that, consequently, it was a denial of due
process for the state to subject appellant to suit. It refers to those cases
in which it was said that the mere solicitation of orders for the purchase
of goods within a state, to be accepted without the state and filled by
shipment of the purchased goods interstate, does not render the
corporation seller amenable to suit within the state. See Green v.
Chicago, B. & Q. R. Co., 205 U. S. 530, 205 U. S. 533;International
Harvester Co. v. Kentucky, supra, 234 U. S. 586-587; Philadelphia
Page 326 U. S. 316
& Reading R. Co. v. McKibbin, 243 U. S. 264, 243 U. S. 268; People's
Tobacco Co. v. American Tobacco Co., supra, 246 U. S. 87. And
appellant further argues that, since it was not present within the state, it
is a denial of due process to subject it to taxation or other money
exaction. It thus denies the power of the state to lay the tax or to subject
appellant to a suit for its collection.
Historically, the jurisdiction of courts to render judgment in personam is
grounded on theirde facto power over the defendant's person. Hence,
his presence within the territorial jurisdiction of a court was prerequisite
to its rendition of a judgment personally binding him.Pennoyer v. Neff, 95
U. S. 714, 95 U. S. 733. But now that the capias ad respondendumhas
given way to personal service of summons or other form of notice, due
process requires only that, in order to subject a defendant to a
judgment in personam, if he be not present within the territory of the
forum, he have certain minimum contacts with it such that the
maintenance of the suit does not offend "traditional notions of fair play
and substantial justice." Milliken v. Meyer, 311 U. S. 457, 311 U. S.
463. See Holmes, J., in McDonald v. Mabee, 243 U. S. 90, 243 U. S.
91. Compare Hoopeston Canning Co. v. Cullen, 318 U. S. 313, 318 U.
S. 316, 318 U. S. 319. See Blackmer v. United States, 284 U. S.
421; Hess v. Pawloski, 274 U. S. 352; Young v. Masci, 289 U. S. 253. ,
Since the corporate personality is a fiction, although a fiction intended to
be acted upon as though it were a fact, Klein v. Board of
Supervisors, 282 U. S. 19, 282 U. S. 24, it is clear that, unlike an
individual, its "presence" without, as well as within, the state of its origin
can be manifested only by activities carried on in its behalf by those who
are authorized to act for it. To say that the corporation is so far "present"
there as to satisfy due process requirements, for purposes of taxation or
the maintenance of suits against it in the courts of the state, is to beg the
question to be decided. For the terms "present" or "presence" are
Page 326 U. S. 317
used merely to symbolize those activities of the corporation's agent
within the state which courts will deem to be sufficient to satisfy the
demands of due process. L. Hand, J., inHutchinson v. Chase &
Gilbert, 45 F.2d 139, 141. Those demands may be met by such contacts
of the corporation with the state of the forum as make it reasonable, in
the context of our federal system of government, to require the
corporation to defend the particular suit which is brought there. An
"estimate of the inconveniences" which would result to the corporation
from a trial away from its "home" or principal place of business is relevant
in this connection. Hutchinson v. Chase & Gilbert, supra, 141.
"Presence" in the state in this sense has never been doubted when the
activities of the corporation there have not only been continuous and
systematic, but also give rise to the liabilities sued on, even though no
consent to be sued or authorization to an agent to accept service of
process has been given. St. Clair v. Cox, 106 U. S. 350, 106 U. S.
355;Connecticut Mutual Co. v. Spratley, 172 U. S. 602, 172 U. S. 610-
611; Pennsylvania Lumbermen's Ins. Co. v. Meyer, 197 U. S. 407, 197
U. S. 414-415; Commercial Mutual Co. v. Davis, 213 U. S. 245, 213 U.
S. 255-256; International Harvester Co. v. Kentucky, supra; cf. St. Louis
S.W. R. Co. v. Alexander, 227 U. S. 218. Conversely, it has been
generally recognized that the casual presence of the corporate agent, or
even his conduct of single or isolated items of activities in a state in the
corporation's behalf, are not enough to subject it to suit on causes of
action unconnected with the activities there. St. Clair v. Cox, supra, 106
U. S. 359, 106 U. S. 360; Old Wayne Life Assn. v. McDonough, 204 U.
S. 8, 204 U. S. 21; Frene v. Louisville Cement Co., supra, 515, and
cases cited. To require the corporation in such circumstances to defend
the suit away from its home or other jurisdiction where it carries on more
substantial activities has been thought to lay too great and unreasonable
a burden on the corporation to comport with due process.
Page 326 U. S. 318
While it has been held, in cases on which appellant relies, that
continuous activity of some sorts within a state is not enough to support
the demand that the corporation be amenable to suits unrelated to that
activity, Old Wayne Life Assn. v. McDonough, supra; Green v. Chicago,
B. & Q. R. Co., supra; Simon v. Southern R. Co., 236 U. S. 115; People's
Tobacco Co. v. American Tobacco Co., supra; cf. Davis v. Farmers Co-
operative Co., 262 U. S. 312, 262 U. S. 317, there have been instances
in which the continuous corporate operations within a state were thought
so substantial and of such a nature as to justify suit against it on causes
of action arising from dealings entirely distinct from those activities.See
Missouri, K. & T. R. Co. v. Reynolds, 255 U.S. 565; Tauza v.
Susquehanna Coal Co.,220 N.Y. 259, 115 N.E. 915; cf. St. Louis S.W.
R. Co. v. Alexander, supra.
Finally, although the commission of some single or occasional acts of
the corporate agent in a state sufficient to impose an obligation or liability
on the corporation has not been thought to confer upon the state
authority to enforce it, Rosenberg Bros. & Co. v. Curtis Brown Co., 260
U. S. 516, other such acts, because of their nature and quality and the
circumstances of their commission, may be deemed sufficient to render
the corporation liable to suit. Cf. Kane v. New Jersey, 242 U. S.
160; Hess v. Pawloski, supra; Young v. Masci, supra. True, some of the
decisions holding the corporation amenable to suit have been supported
by resort to the legal fiction that it has given its consent to service and
suit, consent being implied from its presence in the state through the
acts of its authorized agents. Lafayette Insurance Co. v. French, 18
How. 404, 59 U. S. 407; St. Clair v. Cox, supra, 106 U. S.
356; Commercial Mutual Co. v. Davis, supra, 213 U. S.
254; Washington v. Superior Court, 289 U. S. 361, 289 U. S. 364-365.
But, more realistically, it may be said that those authorized acts were of
such a nature as to justify the fiction. Smolik v. Philadelphia &
15
Page 326 U. S. 319
Reading Co., 222 F. 148, 151. Henderson, The Position of Foreign
Corporations in American Constitutional Law, 94-95.
It is evident that the criteria by which we mark the boundary line between
those activities which justify the subjection of a corporation to suit and
those which do not cannot be simply mechanical or quantitative. The
test is not merely, as has sometimes been suggested, whether the
activity, which the corporation has seen fit to procure through its agents
in another state, is a little more or a little less. St. Louis S.W. R. Co. v.
Alexander, supra, 227 U. S. 228; International Harvester Co. v.
Kentucky, supra, 234 U. S. 587. Whether due process is satisfied must
depend, rather, upon the quality and nature of the activity in relation to
the fair and orderly administration of the laws which it was the purpose
of the due process clause to insure. That clause does not contemplate
that a state may make binding a judgment in personam against an
individual or corporate defendant with which the state has no contacts,
ties, or relations. Cf. Pennoyer v. Neff, supra; Minnesota Commercial
Assn. v. Benn, 261 U. S. 140.
But, to the extent that a corporation exercises the privilege of conducting
activities within a state, it enjoys the benefits and protection of the laws
of that state. The exercise of that privilege may give rise to obligations,
and, so far as those obligations arise out of or are connected with the
activities within the state, a procedure which requires the corporation to
respond to a suit brought to enforce them can, in most instances, hardly
be said to be undue. Compare International Harvester Co. v. Kentucky,
supra, with Green v. Chicago, B. & Q. R. Co., supra, and People's
Tobacco Co. v. American Tobacco Co., supra. Compare Connecticut
Mutual Co. v. Spratley, supra, 172 U. S. 619, 172 U. S. 620, and
Commercial Mutual Co. v. Davis, supra, with Old Wayne Life Assn. v.
McDonough, supra. See 29 Columbia Law Review, 187-195.
Page 326 U. S. 320
Applying these standards, the activities carried on in behalf of appellant
in the State of Washington were neither irregular nor casual. They were
systematic and continuous throughout the years in question. They
resulted in a large volume of interstate business, in the course of which
appellant received the benefits and protection of the laws of the state,
including the right to resort to the courts for the enforcement of its rights.
The obligation which is here sued upon arose out of those very activities.
It is evident that these operations establish sufficient contacts or ties with
the state of the forum to make it reasonable and just, according to our
traditional conception of fair play and substantial justice, to permit the
state to enforce the obligations which appellant has incurred there.
Hence, we cannot say that the maintenance of the present suit in the
State of Washington involves an unreasonable or undue procedure.
We are likewise unable to conclude that the service of the process within
the state upon an agent whose activities establish appellant's
"presence" there was not sufficient notice of the suit, or that the suit was
so unrelated to those activities as to make the agent an inappropriate
vehicle for communicating the notice. It is enough that appellant has
established such contacts with the state that the particular form of
substituted service adopted there gives reasonable assurance that the
notice will be actual. Connecticut Mutual Co. v. Spratley, supra, 172 U.
S. 618, 172 U. S. 619; Board of Trade v. Hammond Elevator Co., 198
U. S. 424, 198 U. S. 437-438; Commercial Mutual Co. v. Davis,
supra,213 U. S. 254-255. Cf. Riverside Mills v. Menefee, 237 U. S.
189, 237 U. S. 194, 237 U. S. 195; See Knowles v. Gaslight & Coke
Co., 19 Wall. 58, 86 U. S. 61; McDonald v. Mabee, supra; Milliken v.
Meyer, supra. Nor can we say that the mailing of the notice of suit to
appellant by registered mail at its home office was not reasonably
calculated to apprise appellant of the suit. Compare Hess v. Pawloski,
supra, with McDonald v. Mabee, supra,
Page 326 U. S. 321
243 U. S. 92, and Wuchter v. Pizzutti, 276 U. S. 13, 276 U. S. 19, 276
U. S. 24; cf. Becquet v. MacCarthy, 2 B. & Ad. 951; Maubourquet v.
Wyse, 1 Ir.Rep.C.L. 471. See Washington v. Superior Court, supra, 289
U. S. 365.
Only a word need be said of appellant's liability for the demanded
contributions to the state unemployment fund. The Supreme Court of
Washington, construing and applying the statute, has held that it
imposes a tax on the privilege of employing appellant's salesmen within
the state measured by a percentage of the wages, here, the
commissions payable to the salesmen. This construction we accept for
purposes of determining the constitutional validity of the statute. The
right to employ labor has been deemed an appropriate subject of
taxation in this country and England, both before and since the adoption
of the Constitution.Steward Machine Co. v. Davis, 301 U. S. 548, 301 U.
S. 579, et seq. And such a tax imposed upon the employer for
unemployment benefits is within the constitutional power of the
states. Carmichael v. Southern Coal Co., 301 U. S. 495, 301 U. S.
508, et seq.
Appellant having rendered itself amenable to suit upon obligations
arising out of the activities of its salesmen in Washington, the state may
maintain the present suit in personam to collect the tax laid upon the
exercise of the privilege of employing appellant's salesmen within the
state. For Washington has made one of those activities which, taken
together, establish appellant's "presence" there for purposes of suit the
taxable event by which the state brings appellant within the reach of its
taxing power. The state thus has constitutional power to lay the tax and
to subject appellant to a suit to recover it. The activities which establish
its "presence" subject it alike to taxation by the state and to suit to
recover the tax. Equitable Life Society v. Pennsylvania, 238 U. S.
143, 238 U. S. 146; cf. International Harvester Co. v. Department of
Taxation, 322 U. S. 435, 322 U. S. 442, et seq.; Hoopeston Canning Co.
v. Cullen,
Page 326 U. S. 322
supra, 318 U. S. 316-319; see General Trading Co. v. Tax Comm'n, 322
U. S. 335.
Affirmed.
MR. JUSTICE JACKSON took no part in the consideration or decision
of this case.
MR. JUSTICE BLACK delivered the following opinion.
Congress, pursuant to its constitutional power to regulate commerce,
has expressly provided that a State shall not be prohibited from levying
the kind of unemployment compensation tax here challenged. 26 U.S.C.
1600. We have twice decided that this Congressional consent is an
adequate answer to a claim that imposition of the tax violates the
Commerce Clause. Perkins v. Pennsylvania, 314 U.S.
586, affirming 342 Pa. 529;Standard Dredging Corp. v. Murphy, 319 U.
S. 306, 319 U. S. 308. Two determinations by this Court of an issue so
palpably without merit are sufficient. Consequently, that part of this
appeal which again seeks to raise the question seems so patently
frivolous as to make the case a fit candidate for dismissal. Fay v.
Crozer, 217 U. S. 455. Nor is the further ground advanced on this
appeal, that the State of Washington has denied appellant due process
of law, any less devoid of substance. It is my view, therefore, that we
should dismiss the appeal as unsubstantial, [Footnote 1] Seaboard Air
Line R. Co. v. Watson, 287 U. S. 86, 287 U. S. 90, 287 U. S. 92, and
decline the invitation to formulate broad rules as to the meaning of due
process, which here would amount to deciding a constitutional question
"in advance of the necessity for its decision." Federation of Labor v.
McAdory,325 U. S. 450, 325 U. S. 461.
Page 326 U. S. 323
Certainly appellant cannot, in the light of our past decisions,
meritoriously claim that notice by registered mail and by personal service
on its sales solicitors in Washington did not meet the requirements of
procedural due process. And the due process clause is not brought in
issue any more by appellant's further conceptualistic contention that
Washington could not levy a tax or bring suit against the corporation
because it did not honor that State with its mystical "presence." For it is
unthinkable that the vague due process clause was ever intended to
prohibit a State from regulating or taxing a business carried on within its
boundaries simply because this is done by agents of a corporation
organized and having its headquarters elsewhere. To read this into the
due process clause would, in fact, result in depriving a State's citizens
of due process by taking from the State the power to protect them in
their business dealings within its boundaries with representatives of a
foreign corporation. Nothing could be more irrational, or more designed
to defeat the function of our federative system of government. Certainly
a State, at the very least, has power to tax and sue those dealing with
its citizens within its boundaries, as we have held before.Hoopeston
Canning Co. v. Cullen, 318 U. S. 313. Were the Court to follow this
principle, it would provide a workable standard for cases where, as here,
no other questions are involved. The Court has not chosen to do so, but
instead has engaged in an unnecessary discussion, in the course of
16
which it has announced vague Constitutional criteria applied for the first
time to the issue before us. It has thus introduced uncertain elements
confusing the simple pattern and tending to curtail the exercise of State
powers to an extent not justified by the Constitution.
The criteria adopted, insofar as they can be identified, read as follows:
Due Process does permit State courts to "enforce the obligations which
appellant has incurred" if
Page 326 U. S. 324
it be found "reasonable and just according to our traditional conception
of fair play and substantial justice." And this, in turn, means that we will
"permit" the State to act if, upon
"an 'estimate of the inconveniences' which would result to the
corporation from a trial away from its 'home' or principal place of
business,"
we conclude that it is "reasonable" to subject it to suit in a State where
it is doing business.
It is true that this Court did use the terms "fair play" and "substantial
justice" in explaining the philosophy underlying the holding that it could
not be "due process of law" to render a personal judgment against a
defendant without notice and an opportunity to be heard.Milliken v.
Meyer, 311 U. S. 457. In McDonald v. Mabee, 243 U. S. 90, 243 U. S.
91, cited in the Milliken, case, Mr. Justice Holmes, speaking for the
Court, warned against judicial curtailment of this opportunity to be heard,
and referred to such a curtailment as a denial of "fair play," which even
the common law would have deemed "contrary to natural justice." And
previous cases had indicated that the ancient rule against judgments
without notice had stemmed from "natural justice" concepts. These
cases, while giving additional reasons why notice under particular
circumstances is inadequate, did not mean thereby that all legislative
enactments which this Court might deem to be contrary to natural justice
ought to be held invalid under the due process clause. None of the cases
purport to support or could support a holding that a State can tax and
sue corporations only if its action comports with this Court's notions of
"natural justice." I should have thought the Tenth Amendment settled
that.
I believe that the Federal Constitution leaves to each State, without any
"ifs" or "buts," a power to tax and to open the doors of its courts for its
citizens to sue corporations whose agents do business in those States.
Believing that the Constitution gave the States that power, I think it a
judicial deprivation to condition its exercise upon this
Page 326 U. S. 325
Court's notion of "fair play," however appealing that term may be. Nor
can I stretch the meaning of due process so far as to authorize this Court
to deprive a State of the right to afford judicial protection to its citizens
on the ground that it would be more "convenient" for the corporation to
be sued somewhere else.
There is a strong emotional appeal in the words "fair play," "justice," and
"reasonableness." But they were not chosen by those who wrote the
original Constitution or the Fourteenth Amendment as a measuring rod
for this Court to use in invalidating State or Federal laws passed by
elected legislative representatives. No one, not even those who most
feared a democratic government, ever formally proposed that courts
should be given power to invalidate legislation under any such elastic
standards. Express prohibitions against certain types of legislation are
found in the Constitution, and, under the long-settled practice, courts
invalidate laws found to conflict with them. This requires interpretation,
and interpretation, it is true, may result in extension of the Constitution's
purpose. But that is no reason for reading the due process clause so as
to restrict a State's power to tax and sue those whose activities affect
persons and businesses within the State, provided proper service can
be had. Superimposing the natural justice concept on the Constitution's
specific prohibitions could operate as a drastic abridgment of democratic
safeguards they embody, such as freedom of speech, press and
religion, [Footnote 2] and the right to counsel. This
Page 326 U. S. 326
has already happened. Betts v. Brady, 316 U. S. 455. Compare
Feldman v. United States,322 U. S. 487, 322 U. S. 494-503. For
application of this natural law concept, whether under the terms
"reasonableness," "justice," or "fair play," makes judges the supreme
arbiters of the country's laws and practices. Polk Co. v. Glover, 305 U.
S. 5, 305 U. S. 17-18; Federal Power Commission v. Natural Gas
Pipeline Co., 315 U. S. 575, 315 U. S. 600, n. 4. This result, I believe,
alters the form of government our Constitution provides. I cannot agree.
True, the State's power is here upheld. But the rule announced means
that tomorrow's judgment may strike down a State or Federal enactment
on the ground that it does not conform to this Court's idea of natural
justice. I therefore find myself moved by the same fears that caused Mr.
Justice Holmes to say in 1930:
"I have not yet adequately expressed the more than anxiety that I feel at
the ever-increasing scope given to the Fourteenth Amendment in cutting
down what I believe to be the constitutional rights of the States. As the
decisions now stand, I see hardly any limit but the sky to the invalidating
of those rights if they happen to strike a majority of this Court as for any
reason undesirable."
Baldwin v. Missouri, 281 U. S. 586, 281 U. S. 595.
G.R. No. 112573 February 9, 1995
NORTHWEST ORIENT AIRLINES, INC. petitioner,
vs.
COURT OF APPEALS and C.F. SHARP & COMPANY
INC., respondents.
See Conflicts 1
4. Foreign Corporations
G.R. No. 159586 July 26, 2004
EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and
DELFIN J. WENCESLAO, petitioners,
vs.
INGENIEUBURO BIRKHAHN + NOLTE, Ingeniurgesellschaft mbh
and HEERS & BROCKSTEDT GMBH & CO., respondents.
YNARES-SANTIAGO, J.:
Assailed in this Petition for Review under Rule 45 of the Rules of Court
is the Decision1 of the Court of Appeals dated May 15, 2003, which
sustained the Order of the Regional Trial Court of Angeles City, Branch
61, dated June 28, 2001, and its subsequent Resolution dated August
3, 2003 denying petitioners motion for reconsideration.
European Resources and Technologies Inc. (hereinafter "ERTI"), a
corporation organized and existing under the laws of the Republic of the
Philippines, is joined by Delfin J. Wenceslao as petitioner in this case.
Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers &
Brockstedt Gmbh & Co. are German corporations who are respondents
in this case and shall be collectively referred to as the "German
Consortium".
The German Consortium tendered and submitted its bid to the Clark
Development Corporation ("CDC") to construct, operate and manage
the Integrated Waste Management Center at the Clark Special
Economic Zone ("CSEZ"). CDC accepted the German Consortiums bid
and awarded the contract to it. On October 6, 1999, CDC and the
German Consortium executed the Contract for Services2 which
embodies the terms and conditions of their agreement.
The Contract for Services provides that the German Consortium shall
be empowered to enter into a contract or agreement for the use of the
integrated waste management center by corporations, local government
units, entities, and persons not only within the CSEZ but also outside.
For waste collected within the CSEZ, the German Consortium may
impose a "tipping fee" per ton of waste collected from locators and
residents of the CSEZ, which fees shall be subject to the schedule
agreed upon by the parties and specified in the Contract for Services.
For its operations outside of the CSEZ, the German Consortium shall
pay CDC US$1.50 per ton of non-hazardous solid waste collected.3 The
CDC shall guarantee that nineteen thousand eighteen hundred (19,800)
tons per year of solid waste volume shall be collected from inside and
outside the CSEZ.4 The contract has a term of twenty-five (25)
years,5 during which time the German Consortium shall operate the
waste management center on a day-to-day basis.6
17
Article VIII, Section 7 of the Contract for Services provides that the
German Consortium shall undertake to organize a local corporation as
its representative for this project. On April 18, 2000, the German
Consortium entered into a Joint Venture with D.M. Wenceslao and
Associates, Inc. ("DMWAI") and Ma. Elena B. Villarama (doing business
as LBV and Associates), embodied in a Memorandum of
Understanding7 ("MOU") signed by the parties. Under the MOU, the
parties agreed to jointly form a local corporation to which the German
Consortium shall assign its rights under the Contract for Services.
Pursuant to this agreement, petitioner European Resources and
Technologies, Inc. was incorporated. The parties likewise agreed to
prepare and finalize a Shareholders Agreement within one (1) month
from the execution of the MOU, which shall provide that the German
Consortium shall own fifteen percent (15%) of the equity in the joint
venture corporation, DMWAI shall own seventy percent (70%) and
LBV&A shall own fifteen percent (15%). In the event that the parties fail
to execute the Shareholders Agreement, the MOU shall be considered
null and void.8
On August 1, 2000, without the Shareholders Agreement having been
executed, the German Consortium and petitioner ERTI entered into a
Memorandum of Agreement (MOA)9 whereby the German Consortium
ceded its rights and obligations under the Contract for Services in favor
of ERTI and assigned unto ERTI, among others, "its license from CDC
to engage in the business of providing environmental services needed
in the CSEZ in connection with the waste management within the CSEZ
and other areas."10 Likewise, the parties agreed that should there be a
disagreement between or among them relative to the interpretation or
implementation of the MOA and the collateral documents including but
not limited to the Contract for Services between the German Consortium
and CDC, the dispute shall be referred to a panel of arbitrators.11
On December 11, 2000, ERTI received a letter from BN Consultants
Philippines, Inc., signed by Mr. Holger Holst for and on behalf of the
German Consortium,12 stating that the German Consortiums contract
with DMWAI, LBV&A and ERTI has been terminated or extinguished on
the following grounds: (a) the CDC did not give its approval to the
Consortiums request for the approval of the assignment or transfer by
the German Consortium in favor of ERTI of its rights and interests under
the Contract for Services; (b) the parties failed to prepare and finalize
the Shareholders Agreement pursuant to the provision of the MOU; (c)
there is no more factual or legal basis for the joint venture to continue;
and (d) with the termination of the MOU, the MOA is also deemed
terminated or extinguished.
Attached to the letter was a copy of the letter of the CDC, 13 stating that
the German Consortiums assignment of an eighty-five percent (85%)
majority interest to another party violated its representation to undertake
both the financial and technical aspects of the project. The dilution of the
Consortiums interest in ERTI is a substantial modification of the
Consortiums representations which were used as bases for the award
of the project to it.
On February 20, 2001, petitioner ERTI, through counsel, sent a letter to
CDC requesting for the reconsideration of its disapproval of the
agreement between ERTI and the German Consortium.
Before CDC could act upon petitioner ERTIs letter, the German
Consortium filed a complaint for injunction against herein petitioners
before the Regional Trial Court of Angeles City, Branch 61, docketed as
Civil Case No. 10049. The German Consortium claimed that petitioner
ERTIs continued misrepresentation as to their right to accept solid
wastes from third parties for processing at the waste management
center will cause irreparable damage to the Consortium and its exclusive
right to operate the waste management center at the CSEZ. Moreover,
petitioner ERTIs acts destroy the Consortiums credibility and
undermine customer confidence in it. Hence, the German Consortium
prayed that a writ of temporary restraining order be issued against
petitioner ERTI and, after hearing, a writ of preliminary injunction be
likewise issued ordering petitioner ERTI to cease and desist from
misrepresenting to third parties or the public that it has any right or
interest in the waste management center at CSEZ.14
Petitioners filed their Opposition to the application for preliminary
injunction on February 7, 2001. The following day, February 8, 2001,
petitioners sent respondents, through Mr. Holger Holst, a letter
demanding that the parties proceed to arbitration in accordance with
Section 17 of the MOA. At the hearings on the application for injunction,
petitioners objected to the presentation of evidence on the ground that
the trial court had no jurisdiction over the case since the German
Consortium was composed of foreign corporations doing business in the
country without a license. Moreover, the MOA between the parties
provides that the dispute should be referred to arbitration.
The trial court overruled the objection and proceeded with the hearing.
On June 28, 2001, the trial court issued an Order granting the writ of
preliminary injunction.15 Petitioners filed a motion for reconsideration,
which was denied in a Resolution dated November 21, 2001.
On January 17, 2002, petitioners filed a petition for certiorari and
prohibition under Rule 65 of the Rules of Court before the Court of
Appeals, assailing the trial courts Orders dated June 28, 2001 and
November 21, 2001.
Meanwhile, on February 11, 2002, the temporary restraining order
issued was lifted in view of respondents failure to file sufficient
bond.16 On September 6, 2002, all proceedings in Civil Case No. 10049
were suspended until the petition for certiorari pending before the Court
of Appeals shall have been resolved.17
On May 15, 2003, the Court of Appeals dismissed the petition for
certiorari. Petitioners Motion for Reconsideration was denied in a
Resolution dated August 25, 2003.
Hence, this petition arguing that the Court of Appeals committed
reversible error in:
(a) Ruling that petitioners are estopped from assailing the
capacity of the respondents to institute the suit for injunction
(b) Ruling that respondents are entitled to an injunctive writ.
(c) Not holding that the dispute is covered by the arbitration
clause in the memorandum of agreement.
(d) Issuing the writ of preliminary injunction that is tantamount
to a decision of the case on the merits.18
The petition is partly meritorious.
There is no general rule or governing principle laid down as to what
constitutes "doing" or "engaging in" or "transacting" business in the
Philippines. Thus, it has often been held that a single act or transaction
may be considered as "doing business" when a corporation performs
acts for which it was created or exercises some of the functions for which
it was organized.19 We have held that the act of participating in a bidding
process constitutes "doing business" because it shows the foreign
corporations intention to engage in business in the Philippines. In this
regard, it is the performance by a foreign corporation of the acts for
which it was created, regardless of volume of business, that determines
whether a foreign corporation needs a license or not. 20
Consequently, the German Consortium is doing business in the
Philippines without the appropriate license as required by our laws. By
participating in the bidding conducted by the CDC for the operation of
the waste management center, the German Consortium exhibited its
intent to transact business in the Philippines. Although the Contract for
Services provided for the establishment of a local corporation to serve
as respondents representative, it is clear from the other provisions of
the Contract for Services as well as the letter by the CDC containing the
disapproval that it will be the German Consortium which shall manage
and conduct the operations of the waste management center for at least
twenty-five years. Moreover, the German Consortium was allowed to
transact with other entities outside the CSEZ for solid waste collection.
Thus, it is clear that the local corporation to be established will merely
act as a conduit or extension of the German Consortium.
As a general rule, unlicensed foreign non-resident corporations cannot
file suits in the Philippines. Section 133 of the Corporation Code
specifically provides:
SECTION 133. No foreign corporation transacting business in
the Philippines without a license, or its successors or assigns,
shall be permitted to maintain or intervene in any action, suit
or proceeding in any court or administrative agency of the
Philippines, but such corporation may be sued or proceeded
against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.
A corporation has legal status only within the state or territory in which it
was organized. For this reason, a corporation organized in another
country has no personality to file suits in the Philippines. In order to
subject a foreign corporation doing business in the country to the
18
jurisdiction of our courts, it must acquire a license from the Securities
and Exchange Commission (SEC) and appoint an agent for service of
process. Without such license, it cannot institute a suit in the
Philippines.21
However, there are exceptions to this rule. In a number of cases, 22 we
have declared a party estopped from challenging or questioning the
capacity of an unlicensed foreign corporation from initiating a suit in our
courts. In the case of Communication Materials and Design, Inc. v. Court
of Appeals,23 a foreign corporation instituted an action before our courts
seeking to enjoin a local corporation, with whom it had a "Representative
Agreement", from using its corporate name, letter heads, envelopes,
sign boards and business dealings as well as the foreign corporations
trademark. The case arose when the foreign corporation discovered that
the local corporation has violated certain contractual commitments as
stipulated in their agreement. In said case, we held that a foreign
corporation doing business in the Philippines without license may sue in
Philippine Courts a Philippine citizen or entity that had contracted with
and benefited from it.
Hence, the party is estopped from questioning the capacity of a foreign
corporation to institute an action in our courts where it had obtained
benefits from its dealings with such foreign corporation and thereafter
committed a breach of or sought to renege on its obligations. The rule
relating to estoppel is deeply rooted in the axiom ofcommodum ex injuria
sua non habere debetno person ought to derive any advantage from
his own wrong.
In the case at bar, petitioners have clearly not received any benefit from
its transactions with the German Consortium. In fact, there is no question
that petitioners were the ones who have expended a considerable
amount of money and effort preparatory to the implementation of the
MOA. Neither do petitioners seek to back out from their obligations
under both the MOU and the MOA by challenging respondents capacity
to sue. The reverse could not be any more accurate. Petitioners are
insisting on the full validity and implementation of their agreements with
the German Consortium.
To rule that the German Consortium has the capacity to institute an
action against petitioners even when the latter have not committed any
breach of its obligation would be tantamount to an unlicensed foreign
corporation gaining access to our courts for protection and redress. We
cannot allow this without violating the very rationale for the law
prohibiting a foreign corporation not licensed to do business in the
Philippines from suing or maintaining an action in Philippine courts. The
object of requiring a license is not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring domicile for the
purpose of business without taking the steps necessary to render it
amenable to suits in the local courts.24 In other words, the foreign
corporation is merely prevented from being in a position where it takes
the good without accepting the bad.
On the issue of whether the respondents were entitled to the injunctive
writ, the petitioners claim that respondents right is not in esse but is
rather a future right which is contingent upon a judicial declaration that
the MOA has been validly rescinded. The Court of Appeals, in its
decision, held that the MOA should be deemed subject to a suspensive
condition, that is, that CDCs prior written consent must be obtained for
the validity of the assignment.
This issue must be resolved in a separate proceeding. It must be noted
that the hearing conducted in the trial court was merely a preliminary
hearing relating to the issuance of the injunctive writ. In order to fully
appreciate the facts of this case and the surrounding circumstances
relating to the agreements and contract involved, further proof should be
presented for consideration of the court. Likewise, corollary matters,
such as whether either of the parties is liable for damages and to what
extent, cannot be resolved with absolute certainty, thus rendering any
decision we might make incomplete as to fully dispose of this case.
More importantly, it is evident that CDC must be made a proper party in
any case which seeks to resolve the effectivity or ineffectivity of its
disapproval of the assignment made between petitioners and
respondent German Consortium. Where, as in the instant case, CDC is
not impleaded as a party, any decision of the court which will inevitably
affect or involve CDC cannot be deemed binding on it.
For the same reason, petitioners assertion that the instant case should
be referred to arbitration pursuant to the provision of the MOA is
untenable.
We have ruled in several cases that arbitration agreements are valid,
binding, enforceable and not contrary to public policy such that when
there obtains a written provision for arbitration which is not complied
with, the trial court should suspend the proceedings and order the
parties to proceed to arbitration in accordance with the terms of their
agreement.25 In the case at bar, the MOA between petitioner ERTI and
respondent German Consortium provided:
17. Should there be a disagreement between or among the
Parties relative to the interpretation or implementation of this
Agreement and the collateral documents including but not
limited to the Contract for Services between GERMAN
CONSORTIUM and CDC and the Parties cannot resolve the
same by themselves, the same shall be endorsed to a panel
of arbitrators which shall be convened in accordance with the
process ordained under the Arbitration Law of the Republic of
the Philippines.26
Indeed, to brush aside a contractual agreement calling for arbitration in
case of disagreement between parties would be a step backward. 27 But
there are exceptions to this rule. Even if there is an arbitration clause,
there are instances when referral to arbitration does not appear to be
the most prudent action. The object of arbitration is to allow the
expeditious determination of a dispute. Clearly, the issue before us could
not be speedily and efficiently resolved in its entirety if we allow
simultaneous arbitration proceedings and trial, or suspension of trial
pending arbitration.28
As discussed earlier, the dispute between respondent German
Consortium and petitioners involves the disapproval by the CDC of the
assignment by the German Consortium of its rights under the Contract
for Services to petitioner ERTI. Admittedly, the arbitration clause is
contained in the MOA to which only the German Consortium and
petitioner ERTI were parties. Even if the case is brought before an
arbitration panel, the decision will not be binding upon CDC who is a
non-party to the arbitration agreement. What is more, the arbitration
panel will not be able to completely dispose of all the issues of this case
without including CDC in its proceedings. Accordingly, the interest of
justice would only be served if the trial court hears and adjudicates the
case in a single and complete proceeding.
Lastly, petitioners question the propriety of the issuance of writ of
preliminary injunction claiming that such is already tantamount to
granting the main prayer of respondents complaint without the benefit
of a trial. Petitioners point out that the purpose of a preliminary injunction
is to prevent threatened or continuous irremediable injury to some of the
parties before their claims can be thoroughly studied and decided. It
cannot be used to railroad the main case and seek a judgment without
a full-blown trial as in the instant case.
The Court of Appeals ruled that since petitioners did not raise this issue
during the hearing on the application for preliminary injunction before the
trial court, the same cannot be raised for the first time on appeal and
even in special civil actions for certiorari as in this case.
At the outset, it must be noted that with the finding that the German
Consortium is without any personality to file the petition with the trial
court, the propriety of the injunction writ issued is already moot and
academic. Even assuming for the sake of argument that respondents
have the capacity to file the petition, we find merit in the issue raised by
petitioners against the injunction writ issued.
Before an injunctive writ can be issued, it is essential that the following
requisites are present: (1) there must be a right in esse or the existence
of a right to be protected; and (2) the act against which injunction to be
directed is a violation of such right.29 The onus probandi is on movant to
show that there exists a right to be protected, which is directly threatened
by the act sought to be enjoined. Further, there must be a showing that
the invasion of the right is material and substantial and that there is an
urgent and paramount necessity for the writ to prevent a serious
damage.30
Thus, it is clear that for the issuance of the writ of preliminary injunction
to be proper, it must be shown that the invasion of the right sought to be
protected is material and substantial, that the right of complainant is
clear and unmistakable and that there is an urgent and paramount
necessity for the writ to prevent serious damage. 31 At the time of its
application for an injunctive writ, respondents right to operate and
manage the waste management center, to the exclusion of or without
any participation by petitioner ERTI, cannot be said to be clear and
unmistakable. The MOA executed between respondents and petitioner
19
ERTI has not yet been judicially declared as rescinded when the
complaint was lodged in court.32 Hence, a cloud of doubt exists over
respondent German Consortiums exclusive right relating to the waste
management center.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No.
68923 dated May 15, 2003 is REVERSED and SET ASIDE. The Orders
of the trial court dated June 28, 2001 and November 21, 2001 are
ANNULLED and SET ASIDE and Civil Case No. 10049 is DISMISSED
for lack of legal capacity of respondents to institute the action. Costs
against respondents.
SO ORDERED.
G.R. No. 154618 April 14, 2004
AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner,
vs.
INTEGRATED SILICON TECHNOLOGY PHILIPPINES
CORPORATION, TEOH KIANG HONG, TEOH KIANG SENG,
ANTHONY CHOO, JOANNE KATE M. DELA CRUZ, JEAN KAY M.
DELA CRUZ and ROLANDO T. NACILLA, respondents.
YNARES-SANTIAGO, J.:
This petition for review assails the Decision dated August 12, 2002 of
the Court of Appeals in CA-G.R. SP No. 66574, which dismissed Civil
Case No. 3123-2001-C and annulled and set aside the Order dated
September 4, 2001 issued by the Regional Trial Court of Calamba,
Laguna, Branch 92.
Petitioner Agilent Technologies Singapore (Pte.), Ltd. ("Agilent") is a
foreign corporation, which, by its own admission, is not licensed to do
business in the Philippines.1 Respondent Integrated Silicon Technology
Philippines Corporation ("Integrated Silicon") is a private domestic
corporation, 100% foreign owned, which is engaged in the business of
manufacturing and assembling electronics components. 2 Respondents
Teoh Kiang Hong, Teoh Kiang Seng and Anthony Choo, Malaysian
nationals, are current members of Integrated Silicons board of directors,
while Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and Rolando
T. Nacilla are its former members.3
The juridical relation among the various parties in this case can be
traced to a 5-year Value Added Assembly Services Agreement
("VAASA"), entered into on April 2, 1996 between Integrated Silicon and
the Hewlett-Packard Singapore (Pte.) Ltd., Singapore Components
Operation ("HP-Singapore").4 Under the terms of the VAASA, Integrated
Silicon was to locally manufacture and assemble fiber optics for export
to HP-Singapore. HP-Singapore, for its part, was to consign raw
materials to Integrated Silicon; transport machinery to the plant of
Integrated Silicon; and pay Integrated Silicon the purchase price of the
finished products.5 The VAASA had a five-year term, beginning on April
2, 1996, with a provision for annual renewal by mutual written
consent.6 On September 19, 1999, with the consent of Integrated
Silicon,7 HP-Singapore assigned all its rights and obligations in the
VAASA to Agilent.8
On May 25, 2001, Integrated Silicon filed a complaint for "Specific
Performance and Damages" against Agilent and its officers Tan Bian
Ee, Lim Chin Hong, Tey Boon Teck and Francis Khor, docketed as Civil
Case No. 3110-01-C. It alleged that Agilent breached the parties oral
agreement to extend the VAASA. Integrated Silicon thus prayed that
defendant be ordered to execute a written extension of the VAASA for a
period of five years as earlier assured and promised; to comply with the
extended VAASA; and to pay actual, moral, exemplary damages and
attorneys fees.9
On June 1, 2001, summons and a copy of the complaint were served on
Atty. Ramon Quisumbing, who returned these processes on the claim
that he was not the registered agent of Agilent. Later, he entered a
special appearance to assail the courts jurisdiction over the person of
Agilent.
On July 2, 2001, Agilent filed a separate complaint against Integrated
Silicon, Teoh Kang Seng, Teoh Kiang Gong, Anthony Choo, Joanne
Kate M. dela Cruz, Jean Kay M. dela Cruz and Rolando T. Nacilla,10 for
"Specific Performance, Recovery of Possession, and Sum of Money
with Replevin, Preliminary Mandatory Injunction, and Damages", before
the Regional Trial Court, Calamba, Laguna, Branch 92, docketed as
Civil Case No. 3123-2001-C. Agilent prayed that a writ of replevin or, in
the alternative, a writ of preliminary mandatory injunction, be issued
ordering defendants to immediately return and deliver to plaintiff its
equipment, machineries and the materials to be used for fiber-optic
components which were left in the plant of Integrated Silicon. It further
prayed that defendants be ordered to pay actual and exemplary
damages and attorneys fees.11
Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-
C,12 on the grounds of lack of Agilents legal capacity to sue; 13 litis
pendentia;14 forum shopping;15 and failure to state a cause of action.16
On September 4, 2001, the trial court denied the Motion to Dismiss and
granted petitioner Agilents application for a writ of replevin.17
Without filing a motion for reconsideration, respondents filed a petition
for certiorari with the Court of Appeals.18
In the meantime, upon motion filed by respondents, Judge Antonio S.
Pozas of Branch 92 voluntarily inhibited himself in Civil Case No. 3123-
2001-C. The case was re-raffled and assigned to Branch 35, the same
branch where Civil Case No. 3110-2001-C is pending.
On August 12, 2002, the Court of Appeals granted respondents petition
for certiorari, set aside the assailed Order of the trial court dated
September 4, 2001, and ordered the dismissal of Civil Case No. 3123-
2001-C.
Hence, the instant petition raising the following errors:
I.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
NOT DISMISSING RESPONDENTS PETITION FOR CERTIORARI
FOR RESPONDENTS FAILURE TO FILE A MOTION FOR
RECONSIDERATION BEFORE RESORTING TO THE REMEDY OF
CERTIORARI.
II.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
ANNULLING AND SETTING ASIDE THE TRIAL COURTS ORDER
DATED 4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF
CIVIL CASE NO. 3123-2001-C BELOW ON THE GROUND OF LITIS
PENDENTIA, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE
NO. 3110-2001-C.
III.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
ANNULLING AND SETTING ASIDE THE TRIAL COURTS ORDER
DATED 4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF
CIVIL CASE NO. 3123-2001-C BELOW ON THE GROUND OF FORUM
SHOPPING, ON ACCOUNT OF THE PENDENCY OF CIVIL CASE NO.
3110-2001-C.
IV.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
ORDERING THE DISMISSAL OF CIVIL CASE NO. 323-2001-C
BELOW INSTEAD OF ORDERING IT CONSOLIDATED WITH CIVIL
CASE NO. 3110-2001-C.19
The two primary issues raised in this petition: (1) whether or not the
Court of Appeals committed reversible error in giving due course to
respondents petition, notwithstanding the failure to file a Motion for
Reconsideration of the September 4, 2001 Order; and (2) whether or not
the Court of Appeals committed reversible error in dismissing Civil Case
No. 3123-2001-C.
We find merit in the petition.
The Court of Appeals, citing the case of Malayang Manggagawa sa
ESSO v. ESSO Standard Eastern, Inc.,20 held that the lower court had
no jurisdiction over Civil Case No. 3123-2001-C because of the
pendency of Civil Case No. 3110-2001-C and, therefore, a motion for
reconsideration was not necessary before resort to a petition for
certiorari. This was error.
Jurisdiction is fixed by law. Batas Pambansa Blg. 129 vests jurisdiction
over the subject matter of Civil Case No. 3123-2001-C in the RTC.21
The Court of Appeals ruling that the assailed Order issued by the RTC
of Calamba, Branch 92, was a nullity for lack of jurisdiction due to litis
20
pendentia and forum shopping, has no legal basis. The pendency of
another action does not strip a court of the jurisdiction granted by law.
The Court of Appeals further ruled that a Motion for Reconsideration was
not necessary in view of the urgent necessity in this case. We are not
convinced. In the case of Bache and Co. (Phils.), Inc. v. Ruiz,22 relied on
by the Court of Appeals, it was held that "time is of the essence in view
of the tax assessments sought to be enforced by respondent officers of
the Bureau of Internal Revenue against petitioner corporation, on
account of which immediate and more direct action becomes
necessary." Tax assessments in that case were based on documents
seized by virtue of an illegal search, and the deprivation of the right to
due process tainted the entire proceedings with illegality. Hence, the
urgent necessity of preventing the enforcement of the tax assessments
was patent. Respondents, on the other hand, cite the case of Geronimo
v. Commission on Elections,23 where the urgent necessity of resolving a
disqualification case for a position in local government warranted the
expeditious resort to certiorari. In the case at bar, there is no analogously
urgent circumstance which would necessitate the relaxation of the rule
on a Motion for Reconsideration.
Indeed, none of the exceptions for dispensing with a Motion for
Reconsideration is present here. None of the following cases cited by
respondents serves as adequate basis for their procedural lapse.
In Vigan Electric Light Co., Inc. v. Public Service Commission, 24 the
questioned order was null and void for failure of respondent tribunal to
comply with due process requirements; in Matanguihan v. Tengco,25 the
questioned order was a patent nullity for failure to acquire jurisdiction
over the defendants, which fact the records plainly disclosed; and
in National Electrification Administration v. Court of Appeals,26 the
questioned orders were void for vagueness. No such patent nullity is
evident in the Order issued by the trial court in this case. Finally, while
urgency may be a ground for dispensing with a Motion for
Reconsideration, in the case of Vivo v. Cloribel,27 cited by respondents,
the slow progress of the case would have rendered the issues moot had
a motion for reconsideration been availed of. We find no such urgent
circumstance in the case at bar.
Respondents, therefore, availed of a premature remedy when they
immediately raised the matter to the Court of Appeals on certiorari; and
the appellate court committed reversible error when it took cognizance
of respondents petition instead of dismissing the same outright.
We come now to the substantive issues of the petition.
Litis pendentia is a Latin term which literally means "a pending suit." It is
variously referred to in some decisions as lis pendens and auter action
pendant. While it is normally connected with the control which the court
has on a property involved in a suit during the continuance proceedings,
it is more interposed as a ground for the dismissal of a civil action
pending in court.
Litis pendentia as a ground for the dismissal of a civil action refers to
that situation wherein another action is pending between the same
parties for the same cause of action, such that the second action
becomes unnecessary and vexatious. For litis pendentia to be invoked,
the concurrence of the following requisites is necessary:
(a) identity of parties or at least such as represent the same
interest in both actions;
(b) identity of rights asserted and reliefs prayed for, the reliefs
being founded on the same facts; and
(c) the identity in the two cases should be such that the
judgment that may be rendered in one would, regardless of
which party is successful, amount to res judicata in the
other.28
The Court of Appeals correctly appreciated the identity of parties in Civil
Cases No. 3123-2001-C and 3110-2001-C. Well-settled is the rule
that lis pendens requires only substantial, and not absolute, identity of
parties.29 There is substantial identity of parties when there is a
community of interest between a party in the first case and a party in the
second case, even if the latter was not impleaded in the first case.30 The
parties in these cases are vying over the interests of the two opposing
corporations; the individuals are only incidentally impleaded, being the
natural persons purportedly accused of violating these corporations
rights.
Likewise, the fact that the positions of the parties are reversed, i.e., the
plaintiffs in the first case are the defendants in the second case or vice
versa, does not negate the identity of parties for purposes of determining
whether the case is dismissible on the ground of litis pendentia.31
The identity of parties notwithstanding, litis pendentia does not obtain in
this case because of the absence of the second and third requisites. The
rights asserted in each of the cases involved are separate and distinct;
there are two subjects of controversy presented for adjudication; and
two causes of action are clearly involved. The fact that respondents
instituted a prior action for "Specific Performance and Damages" is not
a ground for defeating the petitioners action for "Specific Performance,
Recovery of Possession, and Sum of Money with Replevin, Preliminary
Mandatory Injunction, and Damages."
In Civil Case No. 3110-2001-C filed by respondents, the issue is whether
or not there was a breach of an oral promise to renew of the VAASA.
The issue in Civil Case No. 3123-2001-C, filed by petitioner, is whether
petitioner has the right to take possession of the subject properties.
Petitioners right of possession is founded on the ownership of the
subject goods, which ownership is not disputed and is not contingent on
the extension or non-extension of the VAASA. Hence, the replevin suit
can validly be tried even while the prior suit is being litigated in the
Regional Trial Court.
Possession of the subject properties is not an issue in Civil Case No.
3110-2001-C. The reliefs sought by respondent Integrated Silicon
therein are as follows: (1) execution of a written extension or renewal of
the VAASA; (2) compliance with the extended VAASA; and (3) payment
of overdue accounts, damages, and attorneys fees. The reliefs sought
by petitioner Agilent in Civil Case No. 3123-2001-C, on the other hand,
are as follows: (1) issuance of a Writ of Replevin or Writ of Preliminary
Mandatory Injunction; (2) recovery of possession of the subject
properties; (3) damages and attorneys fees.
Concededly, some items or pieces of evidence may be admissible in
both actions. It cannot be said, however, thatexactly the same evidence
will support the decisions in both, since the legally significant and
controlling facts in each case are entirely different. Although the VAASA
figures prominently in both suits, Civil Case No. 3110-2001-C is
premised on a purported breach of an oral obligation to extend the
VAASA, and damages arising out of Agilents alleged failure to comply
with such purported extension. Civil Case No. 3123-2001-C, on the other
hand, is premised on a breach of the VAASA itself, and damages arising
to Agilent out of that purported breach.
It necessarily follows that the third requisite for litis pendentia is also
absent. The following are the elements of res judicata:
(a) The former judgment must be final;
(b) The court which rendered judgment must have jurisdiction
over the parties and the subject matter;
(c) It must be a judgment on the merits; and
(d) There must be between the first and second actions
identity of parties, subject matter, and cause of action.32
In this case, any judgment rendered in one of the actions will not amount
to res judicata in the other action. There being different causes of action,
the decision in one case will not constitute res judicata as to the other.
Of course, a decision in one case may, to a certain extent, affect the
other case. This, however, is not the test to determine the identity of the
causes of action. Whatever difficulties or inconvenience may be entailed
if both causes of action are pursued on separate remedies, the proper
solution is not the dismissal order of the Court of Appeals. The possible
consolidation of said cases, as well as stipulations and appropriate
modes of discovery, may well be considered by the court below to
subserve not only procedural expedience but, more important, the ends
of justice.33
We now proceed to the issue of forum shopping.
The test for determining whether a party violated the rule against forum-
shopping was laid down in the case ofBuan v. Lopez.34 Forum shopping
exists where the elements of litis pendentia are present, or where a final
judgment in one case will amount to res judicata in the final other. There
being no litis pendentia in this case, a judgment in the said case will not
amount to res judicata in Civil Case No. 3110-2001-C, and respondents
contention on forum shopping must likewise fail.
21
We are not unmindful of the afflictive consequences that may be
suffered by both petitioner and respondents if replevin is granted by the
trial court in Civil Case No. 3123-2001-C. If respondent Integrated
Silicon eventually wins Civil Case No. 3110-2001-C, and the VAASAs
terms are extended, petitioner corporation will have to comply with its
obligations thereunder, which would include the consignment of
properties similar to those it may recover by way of replevin in Civil Case
No. 3123-2001-C. However, petitioner will also suffer an injustice if
denied the remedy of replevin, resort to which is not only allowed but
encouraged by law.
Respondents argue that since Agilent is an unlicensed foreign
corporation doing business in the Philippines, it lacks the legal capacity
to file suit.35 The assailed acts of petitioner Agilent, purportedly in the
nature of "doing business" in the Philippines, are the following: (1) mere
entering into the VAASA, which is a "service contract";36(2) appointment
of a full-time representative in Integrated Silicon, to "oversee and
supervise the production" of Agilents products;37 (3) the appointment by
Agilent of six full-time staff members, who were permanently stationed
at Integrated Silicons facilities in order to inspect the finished goods for
Agilent;38 and (4) Agilents participation in the management, supervision
and control of Integrated Silicon,39 including instructing Integrated
Silicon to hire more employees to meet Agilents increasing production
needs,40 regularly performing quality audit, evaluation and supervision
of Integrated Silicons employees,41 regularly performing inventory audit
of raw materials to be used by Integrated Silicon, which was also
required to provide weekly inventory updates to Agilent,42 and providing
and dictating Integrated Silicon on the daily production schedule, volume
and models of the products to manufacture and ship for Agilent. 43
A foreign corporation without a license is not ipso facto incapacitated
from bringing an action in Philippine courts. A license is necessary only
if a foreign corporation is "transacting" or "doing business" in the country.
The Corporation Code provides:
Sec. 133. Doing business without a license. No foreign
corporation transacting business in the Philippines without a
license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.
The aforementioned provision prevents an unlicensed foreign
corporation "doing business" in the Philippines from accessing our
courts.
In a number of cases, however, we have held that an unlicensed foreign
corporation doing business in the Philippines may bring suit in Philippine
courts against a Philippine citizen or entity who had contracted with and
benefited from said corporation.44 Such a suit is premised on the
doctrine of estoppel. A party is estopped from challenging the
personality of a corporation after having acknowledged the same by
entering into a contract with it. This doctrine of estoppel to deny
corporate existence and capacity applies to foreign as well as domestic
corporations.45 The application of this principle prevents a person
contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes chiefly in cases where such person has
received the benefits of the contract.46
The principles regarding the right of a foreign corporation to bring suit in
Philippine courts may thus be condensed in four statements: (1) if a
foreign corporation does business in the Philippines without a license, it
cannot sue before the Philippine courts;47 (2) if a foreign corporation
is not doing business in the Philippines, it needs no license to sue before
Philippine courts on an isolated transaction or on a cause of action
entirely independent of any business transaction48; (3) if a foreign
corporation does business in the Philippines without a license, a
Philippine citizen or entity which has contracted with said corporation
may be estopped from challenging the foreign corporations corporate
personality in a suit brought before Philippine courts; 49 and (4) if a
foreign corporation does business in the Philippines with the required
license, it can sue before Philippine courts on any transaction.
The challenge to Agilents legal capacity to file suit hinges on whether or
not it is doing business in the Philippines. However, there is no definitive
rule on what constitutes "doing", "engaging in", or "transacting" business
in the Philippines, as this Court observed in the case of Mentholatum v.
Mangaliman.50 The Corporation Code itself is silent as to what acts
constitute doing or transacting business in the Philippines.
Jurisprudence has it, however, that the term "implies a continuity of
commercial dealings and arrangements, and contemplates, to that
extent, the performance of acts or works or the exercise of some of the
functions normally incident to or in progressive prosecution of the
purpose and subject of its organization."51
In Mentholatum,52 this Court discoursed on the two general tests to
determine whether or not a foreign corporation can be considered as
"doing business" in the Philippines. The first of these is
the substance test, thus:53
The true test [for doing business], however, seems to be
whether the foreign corporation is continuing the body of the
business or enterprise for which it was organized or whether
it has substantially retired from it and turned it over to another.
The second test is the continuity test, expressed thus:54
The term [doing business] implies a continuity of commercial
dealings and arrangements, and contemplates, to that extent,
the performance of acts or works or the exercise of some of
the functions normally incident to, and in the progressive
prosecution of, the purpose and object of its organization.
Although each case must be judged in light of its attendant
circumstances, jurisprudence has evolved several guiding principles for
the application of these tests. For instance, considering that it transacted
with its Philippine counterpart for seven years, engaging in futures
contracts, this Court concluded that the foreign corporation inMerrill
Lynch Futures, Inc. v. Court of Appeals and Spouses Lara,55 was doing
business in the Philippines. InCommissioner of Internal Revenue v.
Japan Airlines ("JAL"),56 the Court held that JAL was doing business in
the Philippines, i.e., its commercial dealings in the country were
continuous despite the fact that no JAL aircraft landed in the country
as it sold tickets in the Philippines through a general sales agent, and
opened a promotions office here as well.
In General Corp. of the Phils. v. Union Insurance Society of Canton and
Firemans Fund Insurance,57 a foreign insurance corporation was held
to be doing business in the Philippines, as it appointed a settling agent
here, and issued 12 marine insurance policies. We held that these
transactions were not isolated or casual, but manifested the continuity
of the foreign corporations conduct and its intent to establish a
continuous business in the country. In Eriks PTE Ltd. v. Court of Appeals
and Enriquez,58 the foreign corporation sold its products to a Filipino
buyer who ordered the goods 16 times within an eight-month period.
Accordingly, this Court ruled that the corporation was doing business in
the Philippines, as there was a clear intention on its part to continue the
body of its business here, despite the relatively short span of time
involved. Communication Materials and Design, Inc., et al. v. Court of
Appeals, ITEC, et al.59 and Top-Weld Manufacturing v. ECED, IRTI, et
al.60 both involved the License and Technical Agreement and Distributor
Agreement of foreign corporations with their respective local
counterparts that were the primary bases for the Courts ruling that the
foreign corporations were doing business in the Philippines. 61 In
particular, the Court cited the highly restrictive nature of certain
provisions in the agreements involved, such that, as stated in
Communication Materials, the Philippine entity is reduced to a mere
extension or instrument of the foreign corporation. For example,
in Communication Materials, the Court deemed the "No Competing
Product" provision of the Representative Agreement therein restrictive.62
The case law definition has evolved into a statutory definition, having
been adopted with some qualifications in various pieces of legislation.
The Foreign Investments Act of 1991 (the "FIA"; Republic Act No. 7042,
as amended), defines "doing business" as follows:
Sec. 3, par. (d). The phrase "doing business" shall include
soliciting orders, service contracts, opening offices, whether
called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or
who in any calendar year stay in the country for a period or
periods totaling one hundred eighty (180) days or more;
participating in the management, supervision or control of any
domestic business, firm, entity, or corporation in the
Philippines; and any other act or acts that imply a continuity
of commercial dealings or arrangements, and contemplate to
that extent the performance of acts or works, or the exercise
22
 of some of the functions normally incident to, and in the
progressive prosecution of, commercial gain or of the purpose
and object of the business organization.
An analysis of the relevant case law, in conjunction with
Section 1 of the Implementing Rules and Regulations of the
FIA (as amended by Republic Act No. 8179), would
demonstrate that the acts enumerated in the VAASA
do not constitute "doing business" in the Philippines.
Section 1 of the Implementing Rules and Regulations of the
FIA (as amended by Republic Act No. 8179) provides that the
following shall not be deemed "doing business":
(1) Mere investment as a shareholder by a foreign entity in
domestic corporations duly registered to do business, and/or
the exercise of rights as such investor;
(2) Having a nominee director or officer to represent its
interest in such corporation;
(3) Appointing a representative or distributor domiciled in the
Philippines which transacts business in the representatives
or distributors own name and account;
(4) The publication of a general advertisement through any
print or broadcast media;
(5) Maintaining a stock of goods in the Philippines solely for
the purpose of having the same processed by another entity
in the Philippines;
(6) Consignment by a foreign entity of equipment with a local
company to be used in the processing of products for export;
(7) Collecting information in the Philippines; and
(8) Performing services auxiliary to an existing isolated
contract of sale which are not on a continuing basis, such as
installing in the Philippines machinery it has manufactured or
exported to the Philippines, servicing the same, training
domestic workers to operate it, and similar incidental services.
By and large, to constitute "doing business", the activity to be
undertaken in the Philippines is one that is for profit-making.63
By the clear terms of the VAASA, Agilents activities in the Philippines
were confined to (1) maintaining a stock of goods in the Philippines
solely for the purpose of having the same processed by Integrated
Silicon; and (2) consignment of equipment with Integrated Silicon to be
used in the processing of products for export. As such, we hold that,
based on the evidence presented thus far, Agilent cannot be deemed to
be "doing business" in the Philippines. Respondents contention that
Agilent lacks the legal capacity to file suit is therefore devoid of merit. As
a foreign corporation not doing business in the Philippines, it needed no
license before it can sue before our courts.
Finally, as to Agilents purported failure to state a cause of action against
the individual respondents, we likewise rule in favor of petitioner. A
Motion to Dismiss hypothetically admits all the allegations in the
Complaint, which plainly alleges that these individual respondents had
committed or permitted the commission of acts prejudicial to Agilent.
Whether or not these individuals had divested themselves of their
interests in Integrated Silicon, or are no longer members of Integrated
Silicons Board of Directors, is a matter of defense best threshed out
during trial.
WHEREFORE, PREMISES CONSIDERED, the petition is GRANTED.
The Decision of the Court of Appeals in CA-G.R. SP No. 66574 dated
August 12, 2002, which dismissed Civil Case No. 3123-2001-C,
is REVERSED and SET ASIDE. The Order dated September 4, 2001
issued by the Regional Trial Court of Calamba, Laguna, Branch 92, in
Civil Case No. 3123-2001-C, is REINSTATED. Agilents application for
a Writ of Replevin is GRANTED.
No pronouncement as to costs.
SO ORDERED.
5. Forum Non Conveniens
G.R. No. 115849 January 24, 1996
FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers
Bank of the Philippines) and MERCURIO RIVERA, petitioners,
vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of
DEMETRIO DEMETRIA, and JOSE JANOLO,respondents.
PANGANIBAN, J.:
In the absence of a formal deed of sale, may commitments given by
bank officers in an exchange of letters and/or in a meeting with the
buyers constitute a perfected and enforceable contract of sale over 101
hectares of land in Sta. Rosa, Laguna? Does the doctrine of "apparent
authority" apply in this case? If so, may the Central Bank-appointed
conservator of Producers Bank (now First Philippine International Bank)
repudiate such "apparent authority" after said contract has been deemed
perfected? During the pendency of a suit for specific performance, does
the filing of a "derivative suit" by the majority shareholders and directors
of the distressed bank to prevent the enforcement or implementation of
the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court
in the instant Petition for review oncertiorari under Rule 45 of the Rules
of Court, to set aside the Decision promulgated January 14, 1994 of the
respondent Court of Appeals1 in CA-G.R CV No. 35756 and the
Resolution promulgated June 14, 1994 denying the motion for
reconsideration. The dispositive portion of the said Decision reads:
WHEREFORE, the decision of the lower court is MODIFIED
by the elimination of the damages awarded under paragraphs
3, 4 and 6 of its dispositive portion and the reduction of the
award in paragraph 5 thereof to P75,000.00, to be assessed
against defendant bank. In all other aspects, said decision is
hereby AFFIRMED.
All references to the original plaintiffs in the decision and its
dispositive portion are deemed, herein and hereafter, to
legally refer to the plaintiff-appellee Carlos C. Ejercito.
Costs against appellant bank.
The dispositive portion of the trial court's2 decision dated July 10, 1991,
on the other hand, is as follows:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiffs and against the defendants
as follows:
1. Declaring the existence of a perfected contract to buy and
sell over the six (6) parcels of land situated at Don Jose, Sta.
Rosa, Laguna with an area of 101 hectares, more or less,
covered by and embraced in Transfer Certificates of Title Nos.
T-106932 to T-106937, inclusive, of the Land Records of
Laguna, between the plaintiffs as buyers and the defendant
Producers Bank for an agreed price of Five and One Half
Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines,
upon finality of this decision and receipt from the plaintiffs the
amount of P5.5 Million, to execute in favor of said plaintiffs a
deed of absolute sale over the aforementioned six (6) parcels
of land, and to immediately deliver to the plaintiffs the owner's
copies of T.C.T. Nos. T-106932 to T- 106937, inclusive, for
purposes of registration of the same deed and transfer of the
six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay
plaintiffs Jose A. Janolo and Demetrio Demetria the sums of
P200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay
plaintiffs the sum of P100,000.00 as exemplary damages ;
5. Ordering the defendants, jointly and severally, to pay the
plaintiffs the amount of P400,000.00 for and by way of
attorney's fees;
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 6. Ordering the defendants to pay the plaintiffs, jointly and
severally, actual and moderate damages in the amount of T-106935 96,768 sq. m.
P20,000.00;
With costs against the defendants. T-106936 187,114 sq. m.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and
reply to sur-rejoinder, the petition was given due course in a Resolution T-106937 481,481 sq. m.
dated January 18, 1995. Thence, the parties filed their respective
memoranda and reply memoranda. The First Division transferred this
case to the Third Division per resolution dated October 23, 1995. After My offer is for PESOS: THREE MILLION FIVE HUNDRED
carefully deliberating on the aforesaid submissions, the Court assigned THOUSAND (P3,500,000.00) PESOS, in cash.
the case to the undersigned ponente for the writing of this Decision. Kindly contact me at Telephone Number 921-1344.
The Parties (3) On September 1, 1987, defendant Rivera made on behalf
Petitioner First Philippine International Bank (formerly Producers Bank of the bank a formal reply by letter which is hereunder quoted
of the Philippines; petitioner Bank, for brevity) is a banking institution (Exh. "C"):
organized and existing under the laws of the Republic of the Philippines.
Petitioner Mercurio Rivera (petitioner Rivera, for brevity) is of legal age September 1, 1987
and was, at all times material to this case, Head-Manager of the Property
Management Department of the petitioner Bank.
JP M-P GUTIERREZ ENTERPRISES
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal 142 Charisma St., Doa Andres II
age and is the assignee of original plaintiffs-appellees Demetrio Rosario, Pasig, Metro Manila
Demetria and Jose Janolo.
Attention: JOSE O. JANOLO
Respondent Court of Appeals is the court which issued the Decision and
Resolution sought to be set aside through this petition. Dear Sir:

The Facts
The facts of this case are summarized in the respondent Court's
Decision3 as follows:
(1) In the course of its banking operations, the defendant
Producer Bank of the Philippines acquired six parcels of land
with a total area of 101 hectares located at Don Jose, Sta.
Rose, Laguna, and covered by Transfer Certificates of Title
Nos. T-106932 to T-106937. The property used to be owned
by BYME Investment and Development Corporation which
had them mortgaged with the bank as collateral for a loan.
The original plaintiffs, Demetrio Demetria and Jose O. Janolo,
wanted to purchase the property and thus initiated
negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the
suggestion of BYME investment's legal counsel, Jose
Fajardo, met with defendant Mercurio Rivera, Manager of the
Property Management Department of the defendant bank.
The meeting was held pursuant to plaintiffs' plan to buy the
property (TSN of Jan. 16, 1990, pp. 7-10). After the meeting,
plaintiff Janolo, following the advice of defendant Rivera,
made a formal purchase offer to the bank through a letter
dated August 30, 1987 (Exh. "B"), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentleman:
I have the honor to submit my formal offer to purchase your
properties covered by titles listed hereunder located at Sta.
Rosa, Laguna, with a total area of 101 hectares, more or less.
TCT NO. AREA
Thank you for your letter-offer to buy our six (6) parcels of
acquired lots at Sta. Rosa, Laguna (formerly owned by Byme
Industrial Corp.). Please be informed however that the bank's
counter-offer is at P5.5 million for more than 101 hectares on
lot basis.
We shall be very glad to hear your position on the on the
matter.
Best regards.
(4) On September 17, 1987, plaintiff Janolo, responding to
Rivera's aforequoted reply, wrote (Exh. "D"):
September 17, 1987
Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your
101-hectare lot located at Sta. Rosa, Laguna, I would like to
amend my previous offer and I now propose to buy the said
lot at P4.250 million in CASH..
Hoping that this proposal meets your satisfaction.
(5) There was no reply to Janolo's foregoing letter of
September 17, 1987. What took place was a meeting on
September 28, 1987 between the plaintiffs and Luis Co, the
Senior Vice-President of defendant bank. Rivera as well as
Fajardo, the BYME lawyer, attended the meeting. Two days
later, or on September 30, 1987, plaintiff Janolo sent to the
bank, through Rivera, the following letter (Exh. "E"):
The Producers Bank of the Philippines
Paseo de Roxas, Makati
Metro Manila
Attention: Mr. Mercurio Rivera

T-106932 113,580 sq. m. Re: 101 Hectares of Land

in Sta. Rosa, Laguna

T-106933 70,899 sq. m. Gentlemen:

Pursuant to our discussion last 28 September 1987, we are
pleased to inform you that we are accepting your offer for us
T-106934 52,246 sq. m.
to purchase the property at Sta. Rosa, Laguna, formerly

24
owned by Byme Investment, for a total price of PESOS: FIVE
MILLION FIVE HUNDRED THOUSAND (P5,500,000.00).
Thank you.
(6) On October 12, 1987, the conservator of the bank (which
has been placed under conservatorship by the Central Bank
since 1984) was replaced by an Acting Conservator in the
person of defendant Leonida T. Encarnacion. On November
4, 1987, defendant Rivera wrote plaintiff Demetria the
following letter (Exh. "F"):
Attention: Atty. Demetrio Demetria
Dear Sir:
Your proposal to buy the properties the bank foreclosed from
Byme investment Corp. located at Sta. Rosa, Laguna is under
study yet as of this time by the newly created committee for
submission to the newly designated Acting Conservator of the
bank.
For your information.
(7) What thereafter transpired was a series of demands by the
plaintiffs for compliance by the bank with what plaintiff
considered as a perfected contract of sale, which demands
were in one form or another refused by the bank. As detailed
by the trial court in its decision, on November 17, 1987,
plaintiffs through a letter to defendant Rivera (Exhibit "G")
tendered payment of the amount of P5.5 million "pursuant to
(our) perfected sale agreement." Defendants refused to
receive both the payment and the letter. Instead, the parcels
of land involved in the transaction were advertised by the bank
for sale to any interested buyer (Exh, "H" and "H-1"). Plaintiffs
demanded the execution by the bank of the documents on
what was considered as a "perfected agreement." Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O.
Janolo, to purchase your 101-hectare lot located in Sta. Rosa,
Laguna, and which are covered by TCT No. T-106932 to
106937.
From the documents at hand, it appears that your counter-
offer dated September 1, 1987 of this same lot in the amount
of P5.5 million was accepted by our client thru a letter dated
September 30, 1987 and was received by you on October 5,
1987.
In view of the above circumstances, we believe that an
agreement has been perfected. We were also informed that
despite repeated follow-up to consummate the purchase, you
now refuse to honor your commitment. Instead, you have
advertised for sale the same lot to others.
In behalf of our client, therefore, we are making this formal
demand upon you to consummate and execute the necessary
actions/documentation within three (3) days from your receipt
hereof. We are ready to remit the agreed amount of P5.5
million at your advice. Otherwise, we shall be constrained to
file the necessary court action to protect the interest of our
client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged
receipt of the foregoing letter and stated, in its communication
of December 2, 1987 (Exh. "I"), that said letter has been
"referred . . . to the office of our Conservator for proper
disposition" However, no response came from the Acting
Conservator. On December 14, 1987, the plaintiffs made a
second tender of payment (Exh. "L" and "L-1"), this time
through the Acting Conservator, defendant Encarnacion.
Plaintiffs' letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION
Central Bank Conservator
We are sending you herewith, in - behalf of our client, Mr.
JOSE O. JANOLO, MBTC Check No. 258387 in the amount
of P5.5 million as our agreed purchase price of the 101-
hectare lot covered by TCT Nos. 106932, 106933, 106934,
106935, 106936 and 106937 and registered under Producers
Bank.
This is in connection with the perfected agreement
consequent from your offer of P5.5 Million as the purchase
price of the said lots. Please inform us of the date of
documentation of the sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four
months. Then, on May 3, 1988, plaintiff, through counsel,
made a final demand for compliance by the bank with its
obligations under the considered perfected contract of sale
(Exhibit "N"). As recounted by the trial court (Original Record,
p. 656), in a reply letter dated May 12, 1988 (Annex "4" of
defendant's answer to amended complaint), the defendants
through Acting Conservator Encarnacion repudiated the
authority of defendant Rivera and claimed that his dealings
with the plaintiffs, particularly his counter-offer of P5.5 Million
are unauthorized or illegal. On that basis, the defendants
justified the refusal of the tenders of payment and the non-
compliance with the obligations under what the plaintiffs
considered to be a perfected contract of sale.
(10) On May 16, 1988, plaintiffs filed a suit for specific
performance with damages against the bank, its Manager
Rivers and Acting Conservator Encarnacion. The basis of the
suit was that the transaction had with the bank resulted in a
perfected contract of sale, The defendants took the position
that there was no such perfected sale because the defendant
Rivera is not authorized to sell the property, and that there
was no meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co),
through counsel Sycip Salazar Hernandez and Gatmaitan,
filed a motion to intervene in the trial court, alleging that as
owner of 80% of the Bank's outstanding shares of stock, he
had a substantial interest in resisting the complaint. On July
8, 1991, the trial court issued an order denying the motion to
intervene on the ground that it was filed after trial had already
been concluded. It also denied a motion for reconsideration
filed thereafter. From the trial court's decision, the Bank,
petitioner Rivera and conservator Encarnacion appealed to
the Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the
denial of his motion for intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito
was substituted in place of Demetria and Janolo, in view of the
assignment of the latters' rights in the matter in litigation to said private
respondent.
On July 11, 1992, during the pendency of the proceedings in the Court
of Appeals, Henry Co and several other stockholders of the Bank,
through counsel Angara Abello Concepcion Regala and Cruz, filed an
action (hereafter, the "Second Case") purportedly a "derivative suit"
with the Regional Trial Court of Makati, Branch 134, docketed as Civil
Case No. 92-1606, against Encarnacion, Demetria and Janolo "to
declare any perfected sale of the property as unenforceable and to stop
Ejercito from enforcing or implementing the sale"4 In his answer, Janolo
argued that the Second Case was barred by litis pendentia by virtue of
the case then pending in the Court of Appeals. During the pre-trial
conference in the Second Case, plaintiffs filed a Motion for Leave of
Court to Dismiss the Case Without Prejudice. "Private respondent
opposed this motion on the ground, among others, that plaintiff's act of
forum shopping justifies the dismissal of both cases, with
prejudice."5 Private respondent, in his memorandum, averred that this
motion is still pending in the Makati RTC.
25
In their Petition6 and Memorandum7, petitioners summarized their
position as follows:
I.
The Court of Appeals erred in declaring that a contract of sale
was perfected between Ejercito (in substitution of Demetria
and Janolo) and the bank.
II.
The Court of Appeals erred in declaring the existence of an
enforceable contract of sale between the parties.
III.
The Court of Appeals erred in declaring that the conservator
does not have the power to overrule or revoke acts of previous
management.
IV.
The findings and conclusions of the Court of Appeals do not
conform to the evidence on record.
On the other hand, petitioners prayed for dismissal of the instant suit on
the ground8 that:
I.
Petitioners have engaged in forum shopping.
II.
The factual findings and conclusions of the Court of Appeals
are supported by the evidence on record and may no longer
be questioned in this case.
III.
The Court of Appeals correctly held that there was a perfected
contract between Demetria and Janolo (substituted by;
respondent Ejercito) and the bank.
IV.
The Court of Appeals has correctly held that the conservator,
apart from being estopped from repudiating the agency and
the contract, has no authority to revoke the contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may
be summed up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?
3) Assuming there was, was the said contract enforceable
under the statute of frauds?
4) Did the bank conservator have the unilateral power to
repudiate the authority of the bank officers and/or to revoke
the said contract?
5) Did the respondent Court commit any reversible error in its
findings of facts?
The First Issue: Was There Forum-Shopping?
In order to prevent the vexations of multiple petitions and actions, the
Supreme Court promulgated Revised Circular No. 28-91 requiring that
a party "must certify under oath . . . [that] (a) he has not (t)heretofore
commenced any other action or proceeding involving the same issues
in the Supreme Court, the Court of Appeals, or any other tribunal or
agency; (b) to the best of his knowledge, no such action or proceeding
is pending" in said courts or agencies. A violation of the said circular
entails sanctions that include the summary dismissal of the multiple
petitions or complaints. To be sure, petitioners have included a
VERIFICATION/CERTIFICATION in their Petition stating "for the
record(,) the pendency of Civil Case No. 92-1606 before the Regional
Trial Court of Makati, Branch 134, involving a derivative suit filed by
stockholders of petitioner Bank against the conservator and other
defendants but which is the subject of a pending Motion to Dismiss
Without Prejudice.9
Private respondent Ejercito vigorously argues that in spite of this
verification, petitioners are guilty of actual forum shopping because the
instant petition pending before this Court involves "identical parties or
interests represented, rights asserted and reliefs sought (as that)
currently pending before the Regional Trial Court, Makati Branch 134 in
the Second Case. In fact, the issues in the two cases are so interwined
that a judgement or resolution in either case will constitute res judicata in
the other." 10
On the other hand, petitioners explain 11 that there is no forum-shopping
because:
1) In the earlier or "First Case" from which this proceeding
arose, the Bank was impleaded as a defendant, whereas in
the "Second Case" (assuming the Bank is the real party in
interest in a derivative suit), it wasplaintiff;
2) "The derivative suit is not properly a suit for and in behalf
of the corporation under the circumstances";
3) Although the CERTIFICATION/VERIFICATION (supra)
signed by the Bank president and attached to the Petition
identifies the action as a "derivative suit," it "does not mean
that it is one" and "(t)hat is a legal question for the courts to
decide";
4) Petitioners did not hide the Second Case at they mentioned
it in the said VERIFICATION/CERTIFICATION.
We rule for private respondent.
To begin with, forum-shopping originated as a concept in private
international law.12, where non-resident litigants are given the option to
choose the forum or place wherein to bring their suit for various reasons
or excuses, including to secure procedural advantages, to annoy and
harass the defendant, to avoid overcrowded dockets, or to select a more
friendly venue. To combat these less than honorable excuses, the
principle of forum non conveniens was developed whereby a court, in
conflicts of law cases, may refuse impositions on its jurisdiction where it
is not the most "convenient" or available forum and the parties are not
precluded from seeking remedies elsewhere.
In this light, Black's Law Dictionary 13 says that forum shopping "occurs
when a party attempts to have his action tried in a particular court or
jurisdiction where he feels he will receive the most favorable judgment
or verdict." Hence, according to Words and Phrases14, "a litigant is open
to the charge of "forum shopping" whenever he chooses a forum with
slight connection to factual circumstances surrounding his suit, and
litigants should be encouraged to attempt to settle their differences
without imposing undue expenses and vexatious situations on the
courts".
In the Philippines, forum shopping has acquired a connotation
encompassing not only a choice of venues, as it was originally
understood in conflicts of laws, but also to a choice of remedies. As to
the first (choice of venues), the Rules of Court, for example, allow a
plaintiff to commence personal actions "where the defendant or any of
the defendants resides or may be found, or where the plaintiff or any of
the plaintiffs resides, at the election of the plaintiff" (Rule 4, Sec, 2 [b]).
As to remedies, aggrieved parties, for example, are given a choice of
pursuing civil liabilities independently of the criminal, arising from the
same set of facts. A passenger of a public utility vehicle involved in a
vehicular accident may sue on culpa contractual, culpa aquiliana or
culpa criminal each remedy being available independently of the
others although he cannot recover more than once.
In either of these situations (choice of venue or choice of
remedy), the litigant actually shops for a forum of his action,
This was the original concept of the term forum shopping.
Eventually, however, instead of actually making a choice of
the forum of their actions, litigants, through the
encouragement of their lawyers, file their actions in all
available courts, or invoke all relevant remedies
simultaneously. This practice had not only resulted to (sic)
conflicting adjudications among different courts and
consequent confusion enimical (sic) to an orderly
administration of justice. It had created extreme
inconvenience to some of the parties to the action.
Thus, "forum shopping" had acquired a different concept
which is unethical professional legal practice. And this
26
 necessitated or had given rise to the formulation of rules and
canons discouraging or altogether prohibiting the practice. 15
What therefore originally started both in conflicts of laws and in our
domestic law as a legitimate device for solving problems has been
abused and mis-used to assure scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the
Supreme Court, as already mentioned, promulgated Circular 28-91. And
even before that, the Court had prescribed it in the Interim Rules and
Guidelines issued on January 11, 1983 and had struck down in several
cases 16 the inveterate use of this insidious malpractice. Forum
shopping as "the filing of repetitious suits in different courts" has been
condemned by Justice Andres R. Narvasa (now Chief Justice)
in Minister of Natural Resources, et al., vs. Heirs of Orval Hughes, et
al.,"as a reprehensible manipulation of court processes and proceedings
. . ." 17 when does forum shopping take place?
There is forum-shopping whenever, as a result of an adverse
opinion in one forum, a party seeks a favorable opinion (other
than by appeal or certiorari) in another. The principle applies
not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an
administrative proceeding is pending, as in this case, in order
to defeat administrative processes and in anticipation of an
unfavorable administrative ruling and a favorable court ruling.
This is specially so, as in this case, where the court in which
the second suit was brought, has no jurisdiction.18
The test for determining whether a party violated the rule against forum
shopping has been laid dawn in the 1986 case of Buan vs. Lopez 19, also
by Chief Justice Narvasa, and that is, forum shopping exists where the
elements of litis pendentia are present or where a final judgment in one
case will amount to res judicata in the other, as follows:
There thus exists between the action before this Court and
RTC Case No. 86-36563 identity of parties, or at least such
parties as represent the same interests in both actions, as well
as identity of rights asserted and relief prayed for, the relief
being founded on the same facts, and the identity on the two
preceding particulars is such that any judgment rendered in
the other action, will, regardless of which party is successful,
amount to res adjudicata in the action under consideration: all
the requisites, in fine, of auter action pendant.
xxx xxx xxx
As already observed, there is between the action at bar and
RTC Case No. 86-36563, an identity as regards parties, or
interests represented, rights asserted and relief sought, as
well as basis thereof, to a degree sufficient to give rise to the
ground for dismissal known as auter action pendant or lis
pendens. That same identity puts into operation the sanction
of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the
controversy which might ensue from attempts to seek
reconsideration of or to appeal from the Order of the Regional
Trial Court in Civil Case No. 86-36563 promulgated on July
15, 1986, which dismissed the petition upon grounds which
appear persuasive.
Consequently, where a litigant (or one representing the same interest or
person) sues the same party against whom another action or actions for
the alleged violation of the same right and the enforcement of the same
relief is/are still pending, the defense of litis pendencia in one case is bar
to the others; and, a final judgment in one would constitute res
judicata and thus would cause the dismissal of the rest. In either case,
forum shopping could be cited by the other party as a ground to ask for
summary dismissal of the two 20 (or more) complaints or petitions, and
for imposition of the other sanctions, which are direct contempt of court,
criminal prosecution, and disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it
with the Second Case, it is obvious that there exist identity of parties or
interests represented, identity of rights or causes and identity of reliefs
sought.
Very simply stated, the original complaint in the court a quo which gave
rise to the instant petition was filed by the buyer (herein private
respondent and his predecessors-in-interest) against the seller (herein
petitioners) to enforce the alleged perfected sale of real estate. On the
other hand, the complaint 21 in the Second Case seeks to declare such
purported sale involving the same real property "as unenforceable as
against the Bank", which is the petitioner herein. In other words, in the
Second Case, the majority stockholders, in representation of the Bank,
are seeking to accomplish what the Bank itself failed to do in the original
case in the trial court. In brief, the objective or the relief being sought,
though worded differently, is the same, namely, to enable the petitioner
Bank to escape from the obligation to sell the property to respondent. In
Danville Maritime, Inc. vs. Commission on Audit. 22, this Court ruled that
the filing by a party of two apparently different actions, but with the same
objective,constituted forum shopping:
In the attempt to make the two actions appear to be different,
petitioner impleaded different respondents therein PNOC
in the case before the lower court and the COA in the case
before this Court and sought what seems to be different
reliefs. Petitioner asks this Court to set aside the questioned
letter-directive of the COA dated October 10, 1988 and to
direct said body to approve the Memorandum of Agreement
entered into by and between the PNOC and petitioner, while
in the complaint before the lower court petitioner seeks to
enjoin the PNOC from conducting a rebidding and from selling
to other parties the vessel "T/T Andres Bonifacio", and for an
extension of time for it to comply with the paragraph 1 of the
memorandum of agreement and damages. One can see that
although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is
the same, that is, approval of the sale of vessel in favor of
petitioner and to overturn the letter-directive of the COA of
October 10, 1988 disapproving the sale. (emphasis supplied).
In an earlier case 23 but with the same logic and vigor, we held:
In other words, the filing by the petitioners of the instant
special civil action for certiorari and prohibition in this Court
despite the pendency of their action in the Makati Regional
Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same
essential facts and circumstances. The petitioners' claim of
absence of identity simply because the PCGG had not been
impleaded in the RTC suit, and the suit did not involve certain
acts which transpired after its commencement, is specious. In
the RTC action, as in the action before this Court, the validity
of the contract to purchase and sell of September 1, 1986, i.e.,
whether or not it had been efficaciously rescinded, and the
propriety of implementing the same (by paying the pledgee
banks the amount of their loans, obtaining the release of the
pledged shares, etc.) were the basic issues. So, too, the relief
was the same: the prevention of such implementation and/or
the restoration of the status quo ante. When the acts sought
to be restrained took place anyway despite the issuance by
the Trial Court of a temporary restraining order, the RTC suit
did not become functus oficio. It remained an effective vehicle
for obtention of relief; and petitioners' remedy in the premises
was plain and patent: the filing of an amended and
supplemental pleading in the RTC suit, so as to include the
PCGG as defendant and seek nullification of the acts sought
to be enjoined but nonetheless done. The remedy was
certainly not the institution of another action in another forum
based on essentially the same facts, The adoption of this latter
recourse renders the petitioners amenable to disciplinary
action and both their actions, in this Court as well as in the
Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least,
of interests represented. Although the plaintiffs in the Second Case
(Henry L. Co. et al.) are not name parties in the First Case, they
represent the same interest and entity, namely, petitioner Bank,
because:
Firstly, they are not suing in their personal capacities, for they have no
direct personal interest in the matter in controversy. They are not
principally or even subsidiarily liable; much less are they direct parties
in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that
the stockholders are bringing a "derivative suit". In the caption itself,
petitioners claim to have brought suit "for and in behalf of the Producers
Bank of the Philippines" 24. Indeed, this is the very essence of a
derivative suit:
27
 An individual stockholder is permitted to institute a derivative
suit on behalf of the corporation wherein he holdsstock in
order to protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the ones to be
sued or hold the control of the corporation. In such actions,
the suing stockholder is regarded as a nominal party, with the
corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; emphasis supplied).
In the face of the damaging admissions taken from the complaint in the
Second Case, petitioners, quite strangely, sought to deny that the
Second Case was a derivative suit, reasoning that it was brought, not by
the minority shareholders, but by Henry Co et al., who not only own, hold
or control over 80% of the outstanding capital stock, but also constitute
the majority in the Board of Directors of petitioner Bank. That being so,
then they really represent the Bank. So, whether they sued "derivatively"
or directly, there is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the
personality Of the Bank is separate and distinct from its shareholders.
But the rulings of this Court are consistent: "When the fiction is urged as
a means of perpetrating a fraud or an illegal act or as a vehicle for the
evasion of an existing obligation, the circumvention of statutes, the
achievement or perfection of a monopoly or generally the perpetration
of knavery or crime, the veil with which the law covers and isolates the
corporation from the members or stockholders who compose it will be
lifted to allow for its consideration merely as an aggregation of
individuals." 25
In addition to the many cases 26 where the corporate fiction has been
disregarded, we now add the instant case, and declare herewith that the
corporate veil cannot be used to shield an otherwise blatant violation of
the prohibition against forum-shopping. Shareholders, whether suing as
the majority in direct actions or as the minority in a derivative suit, cannot
be allowed to trifle with court processes, particularly where, as in this
case, the corporation itself has not been remiss in vigorously
prosecuting or defending corporate causes and in using and applying
remedies available to it. To rule otherwise would be to encourage
corporate litigants to use their shareholders as fronts to circumvent the
stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping,
even assuming arguendo that there is identity of parties, causes of
action and reliefs sought, "because it (the Bank) was the defendant in
the (first) case while it was the plaintiff in the other (Second Case)",citing
as authority Victronics Computers, Inc., vs. Regional Trial Court, Branch
63, Makati, etc. et al., 27 where Court held:
The rule has not been extended to a defendant who, for
reasons known only to him, commences a new action against
the plaintiff instead of filing a responsive pleading in the
other case setting forth therein, as causes of action,
specific denials, special and affirmative defenses or even
counterclaims, Thus, Velhagen's and King's motion to dismiss
Civil Case No. 91-2069 by no means negates the charge of
forum-shopping as such did not exist in the first place.
(emphasis supplied)
Petitioner pointed out that since it was merely the defendant in the
original case, it could not have chosen the forum in said case.
Respondent, on the other hand, replied that there is a difference in
factual setting between Victronics and the present suit. In the former, as
underscored in the above-quoted Court ruling, the defendants did not
file anyresponsive pleading in the first case. In other words, they did not
make any denial or raise any defense or counter-claim therein In the
case before us however, petitioners filed a responsive pleading to the
complaint as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counterclaims
in their responsive pleadings, the petitioners became plaintiffs
themselves in the original case, giving unto themselves the very
remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether
forum-shopping exists or not is the vexation caused the courts and
parties-litigant by a party who asks different courts and/or administrative
agencies to rule on the same or related causes and/or to grant the same
or substantially the same reliefs, in the process creating the possibility
of conflicting decisions being rendered by the different fora upon the
same issue. In this case, this is exactly the problem: a decision
recognizing the perfection and directing the enforcement of the contract
of sale will directly conflict with a possible decision in the Second Case
barring the parties front enforcing or implementing the said sale. Indeed,
a final decision in one would constitute res judicata in the other 28.
The foregoing conclusion finding the existence of forum-shopping
notwithstanding, the only sanction possible now is the dismissal of both
cases with prejudice, as the other sanctions cannot be imposed because
petitioners' present counsel entered their appearance only during the
proceedings in this Court, and the Petition's
VERIFICATION/CERTIFICATION contained sufficient allegations as to
the pendency of the Second Case to show good faith in observing
Circular 28-91. The Lawyers who filed the Second Case are not before
us; thus the rudiments of due process prevent us from motu
propio imposing disciplinary measures against them in this Decision.
However, petitioners themselves (and particularly Henry Co, et al.) as
litigants are admonished to strictly follow the rules against forum-
shopping and not to trifle with court proceedings and processes They
are warned that a repetition of the same will be dealt with more severely.
Having said that, let it be emphasized that this petition should be
dismissed not merely because of forum-shopping but also because of
the substantive issues raised, as will be discussed shortly.
The Second Issue: Was The Contract Perfected?
The respondent Court correctly treated the question of whether or not
there was, on the basis of the facts established, a perfected contract of
sale as the ultimate issue. Holding that a valid contract has been
established, respondent Court stated:
There is no dispute that the object of the transaction is that
property owned by the defendant bank as acquired assets
consisting of six (6) parcels of land specifically identified under
Transfer Certificates of Title Nos. T-106932 to T-106937. It is
likewise beyond cavil that the bank intended to sell the
property. As testified to by the Bank's Deputy Conservator,
Jose Entereso, the bank was looking for buyers of the
property. It is definite that the plaintiffs wanted to purchase the
property and it was precisely for this purpose that they met
with defendant Rivera, Manager of the Property Management
Department of the defendant bank, in early August 1987. The
procedure in the sale of acquired assets as well as the nature
and scope of the authority of Rivera on the matter is clearly
delineated in the testimony of Rivera himself, which testimony
was relied upon by both the bank and by Rivera in their appeal
briefs. Thus (TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets
was turned over to me and then I published it in the
form of an inter-office memorandum distributed to
all branches that these are acquired assets for sale.
I was instructed to advertise acquired assets for
sale so on that basis, I have to entertain offer; to
accept offer, formal offer and upon having been
offered, I present it to the Committee. I provide the
Committee with necessary information about the
property such as original loan of the borrower, bid
price during the foreclosure, total claim of the bank,
the appraised value at the time the property is being
offered for sale and then the information which are
relative to the evaluation of the bank to buy which
the Committee considers and it is the Committee
that evaluate as against the exposure of the bank
and it is also the Committee that submit to the
Conservator for final approval and once approved,
we have to execute the deed of sale and it is the
Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987
regarding their purpose of buying the property, dealt with and
talked to the right person. Necessarily, the agenda was the
price of the property, and plaintiffs were dealing with the bank
official authorized to entertain offers, to accept offers and to
present the offer to the Committee before which the said
official is authorized to discuss information relative to price
determination. Necessarily, too, it being inherent in his
authority, Rivera is the officer from whom official information
regarding the price, as determined by the Committee and
approved by the Conservator, can be had. And Rivera
28
confirmed his authority when he talked with the plaintiff in
August 1987. The testimony of plaintiff Demetria is clear on
this point (TSN of May 31,1990, pp. 27-28):
Q: When you went to the Producers Bank and
talked with Mr. Mercurio Rivera, did you ask him
point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from
him, (W)hen I asked him how long it would take
because he was saying that the matter of pricing
will be passed upon by the committee. And when I
asked him how long it will take for the committee to
decide and he said the committee meets every
week. If I am not mistaken Wednesday and in about
two week's (sic) time, in effect what he was saying
he was not the one who was to decide. But he
would refer it to the committee and he would relay
the decision of the committee to me.
Q Please answer the question.
A He did not say that he had the authority (.) But
he said he would refer the matter to the committee
and he would relay the decision to me and he did
just like that.
"Parenthetically, the Committee referred to was the Past Due
Committee of which Luis Co was the Head, with Jose
Entereso as one of the members.
What transpired after the meeting of early August 1987 are
consistent with the authority and the duties of Rivera and the
bank's internal procedure in the matter of the sale of bank's
assets. As advised by Rivera, the plaintiffs made a formal offer
by a letter dated August 20, 1987 stating that they would buy
at the price of P3.5 Million in cash. The letter was for the
attention of Mercurio Rivera who was tasked to convey and
accept such offers. Considering an aspect of the official duty
of Rivera as some sort of intermediary between the plaintiffs-
buyers with their proposed buying price on one hand, and the
bank Committee, the Conservator and ultimately the bank
itself with the set price on the other, and considering further
the discussion of price at the meeting of August resulting in a
formal offer of P3.5 Million in cash, there can be no other
logical conclusion than that when, on September 1, 1987,
Rivera informed plaintiffs by letter that "the bank's counter-
offer is at P5.5 Million for more than 101 hectares on lot basis,"
such counter-offer price had been determined by the Past
Due Committee and approved by the Conservator after Rivera
had duly presented plaintiffs' offer for discussion by the
Committee of such matters as original loan of borrower, bid
price during foreclosure, total claim of the bank, and market
value. Tersely put, under the established facts, the price of
P5.5 Million was, as clearly worded in Rivera's letter (Exh.
"E"), the official and definitive price at which the bank was
selling the property.
There were averments by defendants below, as well as before
this Court, that the P5.5 Million price was not discussed by the
Committee and that price. As correctly characterized by the
trial court, this is not credible. The testimonies of Luis Co and
Jose Entereso on this point are at best equivocal and
considering the gratuitous and self-serving character of these
declarations, the bank's submission on this point does not
inspire belief. Both Co ad Entereso, as members of the Past
Due Committee of the bank, claim that the offer of the plaintiff
was never discussed by the Committee. In the same vein,
both Co and Entereso openly admit that they seldom attend
the meetings of the Committee. It is important to note that
negotiations on the price had started in early August and the
plaintiffs had already offered an amount as purchase price,
having been made to understand by Rivera, the official in
charge of the negotiation, that the price will be submitted for
approval by the bank and that the bank's decision will be
relayed to plaintiffs. From the facts, the official bank price. At
any rate, the bank placed its official, Rivera, in a position of
authority to accept offers to buy and negotiate the sale by
having the offer officially acted upon by the bank. The bank
cannot turn around and later say, as it now does, that what
Rivera states as the bank's action on the matter is not in fact
so. It is a familiar doctrine, the doctrine of ostensible authority,
that if a corporation knowingly permits one of its officers, or
any other agent, to do acts within the scope of an apparent
authority, and thus holds him out to the public as possessing
power to do those acts, the corporation will, as against any
one who has in good faith dealt with the corporation through
such agent, he estopped from denying his authority
(Francisco v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of
Appeals, 94 SCRA 357, 369-370; Prudential Bank v. Court of
Appeals, G.R. No. 103957, June 14, 1993). 29
Article 1318 of the Civil Code enumerates the requisites of a valid and
perfected contract as follows: "(1) Consent of the contracting parties; (2)
Object certain which is the subject matter of the contract; (3) Cause of
the obligation which is established."
There is no dispute on requisite no. 2. The object of the questioned
contract consists of the six (6) parcels of land in Sta. Rosa, Laguna with
an aggregate area of about 101 hectares, more or less, and covered by
Transfer Certificates of Title Nos. T-106932 to T-106937. There is,
however, a dispute on the first and third requisites.
Petitioners allege that "there is no counter-offer made by the Bank, and
any supposed counter-offer which Rivera (or Co) may have made is
unauthorized. Since there was no counter-offer by the Bank, there was
nothing for Ejercito (in substitution of Demetria and Janolo) to
accept." 30 They disputed the factual basis of the respondent Court's
findings that there was an offer made by Janolo for P3.5 million, to which
the Bank counter-offered P5.5 million. We have perused the evidence
but cannot find fault with the said Court's findings of fact. Verily, in a
petition under Rule 45 such as this, errors of fact if there be any - are,
as a rule, not reviewable. The mere fact that respondent Court (and the
trial court as well) chose to believe the evidence presented by
respondent more than that presented by petitioners is not by itself a
reversible error. In fact, such findings merit serious consideration by this
Court, particularly where, as in this case, said courts carefully and
meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the
Court of Appeals, let us review the question of Rivera's authority to act
and petitioner's allegations that the P5.5 million counter-offer was
extinguished by the P4.25 million revised offer of Janolo. Here, there are
questions of law which could be drawn from the factual findings of the
respondent Court. They also delve into the contractual elements of
consent and cause.
The authority of a corporate officer in dealing with third persons may be
actual or apparent. The doctrine of "apparent authority", with special
reference to banks, was laid out in Prudential Bank vs. Court of
Appeals31, where it was held that:
Conformably, we have declared in countless decisions that
the principal is liable for obligations contracted by the agent.
The agent's apparent representation yields to the principal's
true representation and the contract is considered as entered
into between the principal and the third person (citing National
Food Authority vs. Intermediate Appellate Court, 184 SCRA
166).
A bank is liable for wrongful acts of its officers done
in the interests of the bank or in the course of
dealings of the officers in their representative
capacity but not for acts outside the scape of their
authority (9 C.J.S., p. 417). A bank holding out its
officers and agents as worthy of confidence will not
be permitted to profit by the frauds they may thus
be enabled to perpetrate in the apparent scope of
their employment; nor will it be permitted to shirk its
responsibility for such frauds even though no
benefit may accrue to the bank therefrom (10 Am
Jur 2d, p. 114). Accordingly, a banking corporation
is liable to innocent third persons where the
representation is made in the course of its business
by an agent acting within the general scope of his
authority even though, in the particular case, the
agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal
or some other person, for his own ultimate benefit
29
 (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW
818, 40 ALR 1021).
Application of these principles is especially necessary
because banks have a fiduciary relationship with the public
and their stability depends on the confidence of the people in
their honesty and efficiency. Such faith will be eroded where
banks do not exercise strict care in the selection and
supervision of its employees, resulting in prejudice to their
depositors.
From the evidence found by respondent Court, it is obvious that
petitioner Rivera has apparent or implied authority to act for the Bank in
the matter of selling its acquired assets. This evidence includes the
following:
(a) The petition itself in par. II-i (p. 3) states that Rivera was
"at all times material to this case, Manager of the Property
Management Department of the Bank". By his own admission,
Rivera was already the person in charge of the Bank's
acquired assets (TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely
being sold by the Bank. And during the initial meeting between
the buyers and Rivera, the latter suggested that the buyers'
offer should be no less than P3.3 million (TSN, April 26, 1990,
pp. 16-17);
(c) Rivera received the buyers' letter dated August 30, 1987
offering P3.5 million (TSN, 30 July 1990, p.11);
(d) Rivera signed the letter dated September 1, 1987 offering
to sell the property for P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987
containing the buyers' proposal to buy the property for P4.25
million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the
P5.5 million was the final price of the Bank (TSN, January 16,
1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis
Co on September 28, 1994, during which the Bank's offer of
P5.5 million was confirmed by Rivera (TSN, April 26, 1990,
pp. 34-35). At said meeting, Co, a major shareholder and
officer of the Bank, confirmed Rivera's statement as to the
finality of the Bank's counter-offer of P5.5 million (TSN,
January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the
Bank referred to Rivera as the officer acting for the Bank in
relation to parties interested in buying assets owned/acquired
by the Bank. In fact, Rivera was the officer mentioned in the
Bank's advertisements offering for sale the property in
question (cf. Exhs. "S" and "S-1").
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of
Appeals, et. al.32, the Court, through Justice Jose A. R. Melo, affirmed
the doctrine of apparent authority as it held that the apparent authority
of the officer of the Bank of P.I. in charge of acquired assets is borne out
by similar circumstances surrounding his dealings with buyers.
To be sure, petitioners attempted to repudiate Rivera's apparent
authority through documents and testimony which seek to establish
Rivera's actual authority. These pieces of evidence, however, are
inherently weak as they consist of Rivera's self-serving testimony and
various inter-office memoranda that purport to show his limited actual
authority, of which private respondent cannot be charged with
knowledge. In any event, since the issue is apparent authority, the
existence of which is borne out by the respondent Court's findings, the
evidence of actual authority is immaterial insofar as the liability of a
corporation is concerned 33.
Petitioners also argued that since Demetria and Janolo were
experienced lawyers and their "law firm" had once acted for the Bank in
three criminal cases, they should be charged with actual knowledge of
Rivera's limited authority. But the Court of Appeals in its Decision (p. 12)
had already made a factual finding that the buyers had no notice of
Rivera's actual authority prior to the sale. In fact, the Bank has not shown
that they acted as its counsel in respect to any acquired assets; on the
other hand, respondent has proven that Demetria and Janolo merely
associated with a loose aggrupation of lawyers (not a professional
partnership), one of whose members (Atty. Susana Parker) acted in said
criminal cases.
Petitioners also alleged that Demetria's and Janolo's P4.25 million
counter-offer in the letter dated September 17, 1987 extinguished the
Bank's offer of P5.5 million 34 .They disputed the respondent Court's
finding that "there was a meeting of minds when on 30 September 1987
Demetria and Janolo through Annex "L" (letter dated September 30,
1987) "accepted" Rivera's counter offer of P5.5 million under Annex "J"
(letter dated September 17, 1987)", citing the late Justice Paras35, Art.
1319 of the Civil Code 36 and related Supreme Court rulings starting with
Beaumont vs. Prieto 37.
However, the above-cited authorities and precedents cannot apply in the
instant case because, as found by the respondent Court which reviewed
the testimonies on this point, what was "accepted" by Janolo in his letter
dated September 30, 1987 was the Bank's offer of P5.5 million as
confirmed and reiterated to Demetria and Atty. Jose Fajardo by Rivera
and Co during their meeting on September 28, 1987. Note that the said
letter of September 30, 1987 begins with"(p)ursuant to our discussion
last 28 September 1987 . . .
Petitioners insist that the respondent Court should have believed the
testimonies of Rivera and Co that the September 28, 1987 meeting "was
meant to have the offerors improve on their position of P5.5.
million."38However, both the trial court and the Court of Appeals found
petitioners' testimonial evidence "not credible", and we find no basis for
changing this finding of fact.
Indeed, we see no reason to disturb the lower courts' (both the RTC and
the CA) common finding that private respondents' evidence is more in
keeping with truth and logic that during the meeting on September
28, 1987, Luis Co and Rivera "confirmed that the P5.5 million price has
been passed upon by the Committee and could no longer be lowered
(TSN of April 27, 1990, pp. 34-35)"39. Hence, assuming arguendo that
the counter-offer of P4.25 million extinguished the offer of P5.5 million,
Luis Co's reiteration of the said P5.5 million price during the September
28, 1987 meeting revived the said offer. And by virtue of the September
30, 1987 letter accepting thisrevived offer, there was a meeting of the
minds, as the acceptance in said letter was absolute and unqualified.
We note that the Bank's repudiation, through Conservator Encarnacion,
of Rivera's authority and action, particularly the latter's counter-offer of
P5.5 million, as being "unauthorized and illegal" came only on May 12,
1988 or more than seven (7) months after Janolo' acceptance. Such
delay, and the absence of any circumstance which might have justifiably
prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Bank's
part to get out of a binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an
implied admission on the part of the petitioners that the written offer
made on September 1, 1987 was carried through during the meeting of
September 28, 1987. This is the conclusion consistent with human
experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Bank's offer
of P5.5 million was raised for the first time on appeal and should thus be
disregarded.
This Court in several decisions has repeatedly adhered to the
principle that points of law, theories, issues of fact and
arguments not adequately brought to the attention of the trial
court need not be, and ordinarily will not be, considered by a
reviewing court, as they cannot be raised for the first time on
appeal (Santos vs. IAC, No. 74243, November 14, 1986, 145
SCRA 592).40
. . . It is settled jurisprudence that an issue which was neither
averred in the complaint nor raised during the trial in the court
below cannot be raised for the first time on appeal as it would
be offensive to the basic rules of fair play, justice and due
process (Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo
vs. IAC, 147 SCRA 434 [1987]; Dulos Realty & Development
Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs. IAC, 175
SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30,
1990).41
Since the issue was not raised in the pleadings as an affirmative
defense, private respondent was not given an opportunity in the trial
30
court to controvert the same through opposing evidence. Indeed, this is
a matter of due process. But we passed upon the issue anyway, if only
to avoid deciding the case on purely procedural grounds, and we repeat
that, on the basis of the evidence already in the record and as
appreciated by the lower courts, the inevitable conclusion is simply that
there was a perfected contract of sale.
The Third Issue: Is the Contract Enforceable?
The petition alleged42:
Even assuming that Luis Co or Rivera did relay a verbal offer
to sell at P5.5 million during the meeting of 28 September
1987, and it was this verbal offer that Demetria and Janolo
accepted with their letter of 30 September 1987, the contract
produced thereby would be unenforceable by action there
being no note, memorandum or writing subscribed by the
Bank to evidence such contract. (Please see article 1403[2],
Civil Code.)
Upon the other hand, the respondent Court in its Decision (p, 14) stated:
. . . Of course, the bank's letter of September 1, 1987 on the
official price and the plaintiffs' acceptance of the price on
September 30, 1987, are not, in themselves, formal contracts
of sale. They are however clear embodiments of the fact that
a contract of sale was perfected between the parties, such
contract being binding in whatever form it may have been
entered into (case citations omitted). Stated simply, the banks'
letter of September 1, 1987, taken together with plaintiffs'
letter dated September 30, 1987, constitute in law a sufficient
memorandum of a perfected contract of sale.
The respondent Court could have added that the written
communications commenced not only from September 1, 1987 but from
Janolo's August 20, 1987 letter. We agree that, taken together, these
letters constitute sufficient memoranda since they include the names
of the parties, the terms and conditions of the contract, the price and a
description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting
on September 28, 1987 did constitute a "new" offer which was accepted
by Janolo on September 30, 1987. Still, the statute of frauds will not
apply by reason of the failure of petitioners to object to oral testimony
proving petitioner Bank's counter-offer of P5.5 million. Hence, petitioners
by such utter failure to object are deemed to have waived any
defects of the contract under the statute of frauds, pursuant to Article
1405 of the Civil Code:
Art. 1405. Contracts infringing the Statute of Frauds, referred
to in No. 2 of article 1403, are ratified by the failure to object
to the presentation of oral evidence to prove the same, or by
the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony
on the reaffirmation of the counter-offer of P5.5 million is a plenty and
the silence of petitioners all throughout the presentation makes the
evidence binding on them thus;
A Yes, sir, I think it was September 28, 1987 and I was again
present because Atty. Demetria told me to accompany him we
were able to meet Luis Co at the Bank.
xxx xxx xxx
Q Now, what transpired during this meeting with Luis Co of
the Producers Bank?
A Atty. Demetria asked Mr. Luis Co whether the price could
be reduced, sir.
Q What price?
A The 5.5 million pesos and Mr. Luis Co said that the amount
cited by Mr. Mercurio Rivera is the final price and that is the
price they intends (sic) to have, sir.
Q What do you mean?.
A That is the amount they want, sir.
Q What is the reaction of the plaintiff Demetria to Luis Co's
statement (sic) that the defendant Rivera's counter-offer of 5.5
million was the defendant's bank (sic) final offer?
A He said in a day or two, he will make final acceptance, sir.
Q What is the response of Mr. Luis Co?.
A He said he will wait for the position of Atty. Demetria, sir.
[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp.
18-21.]
Q What transpired during that meeting between you and Mr.
Luis Co of the defendant Bank?
A We went straight to the point because he being a busy
person, I told him if the amount of P5.5 million could still be
reduced and he said that was already passed upon by the
committee. What the bank expects which was contrary to what
Mr. Rivera stated. And he told me that is the final offer of the
bank P5.5 million and we should indicate our position as soon
as possible.
Q What was your response to the answer of Mr. Luis Co?
A I said that we are going to give him our answer in a few days
and he said that was it. Atty. Fajardo and I and Mr. Mercurio
[Rivera] was with us at the time at his office.
Q For the record, your Honor please, will you tell this Court
who was with Mr. Co in his Office in Producers Bank Building
during this meeting?
A Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q By Mr. Co you are referring to?
A Mr. Luis Co.
Q After this meeting with Mr. Luis Co, did you and your partner
accede on (sic) the counter offer by the bank?
A Yes, sir, we did.? Two days thereafter we sent our
acceptance to the bank which offer we accepted, the offer of
the bank which is P5.5 million.
[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]
Q According to Atty. Demetrio Demetria, the amount of P5.5
million was reached by the Committee and it is not within his
power to reduce this amount. What can you say to that
statement that the amount of P5.5 million was reached by the
Committee?
A It was not discussed by the Committee but it was discussed
initially by Luis Co and the group of Atty. Demetrio Demetria
and Atty. Pajardo (sic) in that September 28, 1987 meeting,
sir.
[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]
The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract.
It is not disputed that the petitioner Bank was under a conservator placed
by the Central Bank of the Philippines during the time that the
negotiation and perfection of the contract of sale took place. Petitioners
energetically contended that the conservator has the power to revoke or
overrule actions of the management or the board of directors of a bank,
under Section 28-A of Republic Act No. 265 (otherwise known as the
Central Bank Act) as follows:
Whenever, on the basis of a report submitted by the
appropriate supervising or examining department, the
Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi-banking functions is in a state
of continuing inability or unwillingness to maintain a state of
liquidity deemed adequate to protect the interest of depositors
and creditors, the Monetary Board may appoint a conservator
to take charge of the assets, liabilities, and the management
of that institution, collect all monies and debts due said
institution and exercise all powers necessary to preserve the
assets of the institution, reorganize the management thereof,
and restore its viability. He shall have the power to overrule or
revoke the actions of the previous management and board of
directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to
31
 the contrary notwithstanding, and such other powers as the
Monetary Board shall deem necessary.
In the first place, this issue of the Conservator's alleged authority to
revoke or repudiate the perfected contract of sale was raised for the first
time in this Petition as this was not litigated in the trial court or Court
of Appeals. As already stated earlier, issues not raised and/or ventilated
in the trial court, let alone in the Court of Appeals, "cannot be raised for
the first time on appeal as it would be offensive to the basic rules of fair
play, justice and due process."43
In the second place, there is absolutely no evidence that the
Conservator, at the time the contract was perfected, actually repudiated
or overruled said contract of sale. The Bank's acting conservator at the
time, Rodolfo Romey, never objected to the sale of the property to
Demetria and Janolo. What petitioners are really referring to is the letter
of Conservator Encarnacion, who took over from Romey after the sale
was perfected on September 30, 1987 (Annex V, petition) which
unilaterally repudiated not the contract but the authority of Rivera
to make a binding offer and which unarguably came months after the
perfection of the contract. Said letter dated May 12, 1988 is reproduced
hereunder:
May 12, 1988
Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro-Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of
Attys. Janolo and Demetria regarding the six (6) parcels of
land located at Sta. Rosa, Laguna.
We deny that Producers Bank has ever made a legal counter-
offer to any of your clients nor perfected a "contract to sell and
buy" with any of them for the following reasons.
In the "Inter-Office Memorandum" dated April 25, 1986
addressed to and approved by former Acting Conservator Mr.
Andres I. Rustia, Producers Bank Senior Manager Perfecto
M. Pascua detailed the functions of Property Management
Department (PMD) staff and officers (Annex A.), you will
immediately read that Manager Mr. Mercurio Rivera or any of
his subordinates has no authority, power or right to make any
alleged counter-offer. In short, your lawyer-clients did not deal
with the authorized officers of the bank.
Moreover, under Sec. 23 and 36 of the Corporation Code of
the Philippines (Bates Pambansa Blg. 68.) and Sec. 28-A of
the Central Bank Act (Rep. Act No. 265, as amended), only
the Board of Directors/Conservator may authorize the sale of
any property of the corportion/bank..
Our records do not show that Mr. Rivera was authorized by
the old board or by any of the bank conservators (starting
January, 1984) to sell the aforesaid property to any of your
clients. Apparently, what took place were just preliminary
discussions/consultations between him and your clients,
which everyone knows cannot bind the Bank's Board or
Conservator.
We are, therefore, constrained to refuse any tender of
payment by your clients, as the same is patently violative of
corporate and banking laws. We believe that this is more than
sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your
clients. All our acts are official, legal and in accordance with
law. We also have no personal interest in any of the properties
of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. EDCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and
far-reaching powers to the conservator of a bank, it must be pointed out
that such powers must be related to the "(preservation of) the assets of
the bank, (the reorganization of) the management thereof and (the
restoration of) its viability." Such powers, enormous and extensive as
they are, cannot extend to the post-facto repudiation of perfected
transactions, otherwise they would infringe against the non-impairment
clause of the Constitution 44. If the legislature itself cannot revoke an
existing valid contract, how can it delegate such non-existent powers to
the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power
to revoke contracts that are, under existing law, deemed to be defective
i.e., void, voidable, unenforceable or rescissible. Hence, the
conservator merely takes the place of a bank's board of directors. What
the said board cannot do such as repudiating a contract validly
entered into under the doctrine of implied authority the conservator
cannot do either. Ineluctably, his power is not unilateral and he cannot
simply repudiate valid obligations of the Bank. His authority would be
only to bring court actions to assail such contracts as he has already
done so in the instant case. A contrary understanding of the law would
simply not be permitted by the Constitution. Neither by common sense.
To rule otherwise would be to enable a failing bank to become solvent,
at the expense of third parties, by simply getting the conservator to
unilaterally revoke all previous dealings which had one way or another
or come to be considered unfavorable to the Bank, yielding nothing to
perfected contractual rights nor vested interests of the third parties who
had dealt with the Bank.
The Fifth Issue: Were There Reversible Errors of Facts?
Basic is the doctrine that in petitions for review under Rule 45 of the
Rules of Court, findings of fact by the Court of Appeals are not
reviewable by the Supreme Court. In Andres vs. Manufacturers Hanover
& Trust Corporation, 45, we held:
. . . The rule regarding questions of fact being raised with this
Court in a petition for certiorari under Rule 45 of the Revised
Rules of Court has been stated in Remalante vs. Tibe, G.R.
No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may
be raised in a petition for certiorari under Rule 45 of the
Revised Rules of Court. "The jurisdiction of the Supreme
Court in cases brought to it from the Court of Appeals is limited
to reviewing and revising the errors of law imputed to it, its
findings of the fact being conclusive " [Chan vs. Court of
Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737,
reiterating a long line of decisions]. This Court has
emphatically declared that "it is not the function of the
Supreme Court to analyze or weigh such evidence all over
again, its jurisdiction being limited to reviewing errors of law
that might have been committed by the lower court" (Tiongco
v. De la Merced, G. R. No. L-24426, July 25, 1974, 58 SCRA
89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28,
1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G. R.
No. L-47531, February 20, 1984, 127 SCRA 596). "Barring,
therefore, a showing that the findings complained of are totally
devoid of support in the record, or that they are so glaringly
erroneous as to constitute serious abuse of discretion, such
findings must stand, for this Court is not expected or required
to examine or contrast the oral and documentary evidence
submitted by the parties" [Santa Ana, Jr. vs. Hernandez, G.
R. No. L-16394, December 17, 1966, 18 SCRA 973] [at pp.
144-145.]
Likewise, in Bernardo vs. Court of Appeals 46, we held:
The resolution of this petition invites us to closely scrutinize
the facts of the case, relating to the sufficiency of evidence
and the credibility of witnesses presented. This Court so held
that it is not the function of the Supreme Court to analyze or
weigh such evidence all over again. The Supreme Court's
jurisdiction is limited to reviewing errors of law that may have
been committed by the lower court. The Supreme Court is not
a trier of facts. . . .
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and
Goldrock Construction and Development Corp. 47:
32
 The Court has consistently held that the factual findings of the
trial court, as well as the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. Among the
exceptional circumstances where a reassessment of facts
found by the lower courts is allowed are when the conclusion
is a finding grounded entirely on speculation, surmises or
conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of
discretion in the appreciation of facts; when the judgment is
premised on a misapprehension of facts; when the findings
went beyond the issues of the case and the same are contrary
to the admissions of both appellant and appellee. After a
careful study of the case at bench, we find none of the above
grounds present to justify the re-evaluation of the findings of
fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea
Surety and Insurance Company Inc. vs.Hon. Court of Appeals, et
al. 48 is equally applicable to the present case:
We see no valid reason to discard the factual conclusions of
the appellate court, . . . (I)t is not the function of this Court to
assess and evaluate all over again the evidence, testimonial
and documentary, adduced by the parties, particularly where,
such as here, the findings of both the trial court and the
appellate court on the matter coincide. (emphasis supplied)
Petitioners, however, assailed the respondent Court's Decision as
"fraught with findings and conclusions which were not only contrary to
the evidence on record but have no bases at all," specifically the findings
that (1) the "Bank's counter-offer price of P5.5 million had been
determined by the past due committee and approved by conservator
Romey, after Rivera presented the same for discussion" and (2) "the
meeting with Co was not to scale down the price and start negotiations
anew, but a meeting on the already determined price of P5.5 million"
Hence, citing Philippine National Bank vs. Court of Appeals 49,
petitioners are asking us to review and reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals 50, thus:
There can be no other logical conclusion than that when, on
September 1, 1987, Rivera informed plaintiffs by letter that
"the bank's counter-offer is at P5.5 Million for more than 101
hectares on lot basis, "such counter-offer price had been
determined by the Past Due Committee and approved by the
Conservator after Rivera had duly presented plaintiffs' offer
for discussion by the Committee . . . Tersely put, under the
established fact, the price of P5.5 Million was, as clearly
worded in Rivera's letter (Exh. "E"), the official and definitive
price at which the bank was selling the property. (p. 11, CA
Decision)
xxx xxx xxx
. . . The argument deserves scant consideration. As pointed
out by plaintiff, during the meeting of September 28, 1987
between the plaintiffs, Rivera and Luis Co, the senior vice-
president of the bank, where the topic was the possible
lowering of the price, the bank official refused it and confirmed
that the P5.5 Million price had been passed upon by the
Committee and could no longer be lowered (TSN of April 27,
1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on
this point, characterizing it as "not credible" and "at best equivocal and
considering the gratuitous and self-serving character of these
declarations, the bank's submissions on this point do not inspire belief."
To become credible and unequivocal, petitioners should have presented
then Conservator Rodolfo Romey to testify on their behalf, as he would
have been in the best position to establish their thesis. Under the rules
on evidence 51, such suppression gives rise to the presumption that his
testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but
petitioners' evidence was deemed insufficient by both the trial court and
the respondent Court, and instead, it was respondent's submissions that
were believed and became bases of the conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the
findings of fact by the lower courts are valid and correct. But the
petitioners are now asking this Court to disturb these findings to fit the
conclusion they are espousing, This we cannot do.
To be sure, there are settled exceptions where the Supreme Court may
disregard findings of fact by the Court of Appeals 52. We have studied
both the records and the CA Decision and we find no such exceptions
in this case. On the contrary, the findings of the said Court are supported
by a preponderance of competent and credible evidence. The
inferences and conclusions are seasonably based on evidence duly
identified in the Decision. Indeed, the appellate court patiently traversed
and dissected the issues presented before it, lending credibility and
dependability to its findings. The best that can be said in favor of
petitioners on this point is that the factual findings of respondent Court
did not correspond to petitioners' claims, but were closer to the evidence
as presented in the trial court by private respondent. But this alone is no
reason to reverse or ignore such factual findings, particularly where, as
in this case, the trial court and the appellate court were in common
agreement thereon. Indeed, conclusions of fact of a trial judge as
affirmed by the Court of Appeals are conclusive upon this Court,
absent any serious abuse or evident lack of basis or capriciousness of
any kind, because the trial court is in a better position to observe the
demeanor of the witnesses and their courtroom manner as well as to
examine the real evidence presented.
Epilogue.
In summary, there are two procedural issues involved forum-shopping
and the raising of issues for the first time on appeal [viz., the
extinguishment of the Bank's offer of P5.5 million and the conservator's
powers to repudiate contracts entered into by the Bank's officers]
which per se could justify the dismissal of the present case. We did not
limit ourselves thereto, but delved as well into the substantive issues
the perfection of the contract of sale and its enforceability, which
required the determination of questions of fact. While the Supreme Court
is not a trier of facts and as a rule we are not required to look into the
factual bases of respondent Court's decisions and resolutions, we did
so just the same, if only to find out whether there is reason to disturb any
of its factual findings, for we are only too aware of the depth, magnitude
and vigor by which the parties through their respective eloquent counsel,
argued their positions before this Court.
We are not unmindful of the tenacious plea that the petitioner Bank is
operating abnormally under a government-appointed conservator and
"there is need to rehabilitate the Bank in order to get it back on its feet .
. . as many people depend on (it) for investments, deposits and well as
employment. As of June 1987, the Bank's overdraft with the Central
Bank had already reached P1.023 billion . . . and there were (other)
offers to buy the subject properties for a substantial amount of
money." 53
While we do not deny our sympathy for this distressed bank, at the same
time, the Court cannot emotionally close its eyes to overriding
considerations of substantive and procedural law, like respect for
perfected contracts, non-impairment of obligations and sanctions
against forum-shopping, which must be upheld under the rule of law and
blind justice.
This Court cannot just gloss over private respondent's submission that,
while the subject properties may currently command a much higher
price, it is equally true that at the time of the transaction in 1987, the
price agreed upon of P5.5 million was reasonable, considering that the
Bank acquired these properties at a foreclosure sale for no more than
P3.5 million 54. That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own
advantage, to enable it to escape its binding obligation and to reap the
benefits of the increase in land values. To rule in favor of the Bank simply
because the property in question has algebraically accelerated in price
during the long period of litigation is to reward lawlessness and delays
in the fulfillment of binding contracts. Certainly, the Court cannot stamp
its imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision
and Resolution, the Court hereby DENIES the petition. The assailed
Decision is AFFIRMED. Moreover, petitioner Bank is REPRIMANDED
for engaging in forum-shopping and WARNED that a repetition of the
same or similar acts will be dealt with more severely. Costs against
petitioners.
SO ORDERED.
33
G.R. No. 162894 February 26, 2008
RAYTHEON INTERNATIONAL, INC., petitioner,
vs.
STOCKTON W. ROUZIE, JR., respondent.
TINGA, J.:
Before this Court is a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure which seeks the reversal of the
Decision1 and Resolution2 of the Court of Appeals in CA-G.R. SP No.
67001 and the dismissal of the civil case filed by respondent against
petitioner with the trial court.
As culled from the records of the case, the following antecedents
appear:
Sometime in 1990, Brand Marine Services, Inc. (BMSI), a corporation
duly organized and existing under the laws of the State of Connecticut,
United States of America, and respondent Stockton W. Rouzie, Jr., an
American citizen, entered into a contract whereby BMSI hired
respondent as its representative to negotiate the sale of services in
several government projects in the Philippines for an agreed
remuneration of 10% of the gross receipts. On 11 March 1992,
respondent secured a service contract with the Republic of the
Philippines on behalf of BMSI for the dredging of rivers affected by the
Mt. Pinatubo eruption and mudflows.3
On 16 July 1994, respondent filed before the Arbitration Branch of the
National Labor Relations Commission (NLRC) a suit against BMSI and
Rust International, Inc. (RUST), Rodney C. Gilbert and Walter G.
Browning for alleged nonpayment of commissions, illegal termination
and breach of employment contract.4 On 28 September 1995, Labor
Arbiter Pablo C. Espiritu, Jr. rendered judgment ordering BMSI and
RUST to pay respondents money claims.5 Upon appeal by BMSI, the
NLRC reversed the decision of the Labor Arbiter and dismissed
respondents complaint on the ground of lack of
jurisdiction.6 Respondent elevated the case to this Court but was
dismissed in a Resolution dated 26 November 1997. The Resolution
became final and executory on 09 November 1998.
On 8 January 1999, respondent, then a resident of La Union, instituted
an action for damages before the Regional Trial Court (RTC) of Bauang,
La Union. The Complaint,7 docketed as Civil Case No. 1192-BG, named
as defendants herein petitioner Raytheon International, Inc. as well as
BMSI and RUST, the two corporations impleaded in the earlier labor
case. The complaint essentially reiterated the allegations in the labor
case that BMSI verbally employed respondent to negotiate the sale of
services in government projects and that respondent was not paid the
commissions due him from the Pinatubo dredging project which he
secured on behalf of BMSI. The complaint also averred that BMSI and
RUST as well as petitioner itself had combined and functioned as one
company.
In its Answer,8 petitioner alleged that contrary to respondents claim, it
was a foreign corporation duly licensed to do business in the Philippines
and denied entering into any arrangement with respondent or paying the
latter any sum of money. Petitioner also denied combining with BMSI
and RUST for the purpose of assuming the alleged obligation of the said
companies.9 Petitioner also referred to the NLRC decision which
disclosed that per the written agreement between respondent and BMSI
and RUST, denominated as "Special Sales Representative Agreement,"
the rights and obligations of the parties shall be governed by the laws of
the State of Connecticut.10Petitioner sought the dismissal of the
complaint on grounds of failure to state a cause of action and forum non
conveniens and prayed for damages by way of compulsory
counterclaim.11
On 18 May 1999, petitioner filed an Omnibus Motion for Preliminary
Hearing Based on Affirmative Defenses and for Summary
Judgment12 seeking the dismissal of the complaint on grounds of forum
non conveniens and failure to state a cause of action. Respondent
opposed the same. Pending the resolution of the omnibus motion, the
deposition of Walter Browning was taken before the Philippine
Consulate General in Chicago.13
In an Order14 dated 13 September 2000, the RTC denied petitioners
omnibus motion. The trial court held that the factual allegations in the
complaint, assuming the same to be admitted, were sufficient for the trial
court to render a valid judgment thereon. It also ruled that the principle
of forum non conveniens was inapplicable because the trial court could
enforce judgment on petitioner, it being a foreign corporation licensed to
do business in the Philippines.15
Petitioner filed a Motion for Reconsideration16 of the order, which motion
was opposed by respondent.17 In an Order dated 31 July 2001,18 the trial
court denied petitioners motion. Thus, it filed a Rule 65 Petition19 with
the Court of Appeals praying for the issuance of a writ of certiorari and
a writ of injunction to set aside the twin orders of the trial court dated 13
September 2000 and 31 July 2001 and to enjoin the trial court from
conducting further proceedings.20
On 28 August 2003, the Court of Appeals rendered the assailed
Decision21 denying the petition for certiorari for lack of merit. It also
denied petitioners motion for reconsideration in the assailed Resolution
issued on 10 March 2004.22
The appellate court held that although the trial court should not have
confined itself to the allegations in the complaint and should have also
considered evidence aliunde in resolving petitioners omnibus motion, it
found the evidence presented by petitioner, that is, the deposition of
Walter Browning, insufficient for purposes of determining whether the
complaint failed to state a cause of action. The appellate court also
stated that it could not rule one way or the other on the issue of whether
the corporations, including petitioner, named as defendants in the case
had indeed merged together based solely on the evidence presented by
respondent. Thus, it held that the issue should be threshed out during
trial.23 Moreover, the appellate court deferred to the discretion of the trial
court when the latter decided not to desist from assuming jurisdiction on
the ground of the inapplicability of the principle of forum non conveniens.
Hence, this petition raising the following issues:
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
REFUSING TO DISMISS THE COMPLAINT FOR FAILURE
TO STATE A CAUSE OF ACTION AGAINST RAYTHEON
INTERNATIONAL, INC.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
REFUSING TO DISMISS THE COMPLAINT ON THE
GROUND OF FORUM NON CONVENIENS.24
Incidentally, respondent failed to file a comment despite repeated
notices. The Ceferino Padua Law Office, counsel on record for
respondent, manifested that the lawyer handling the case, Atty. Rogelio
Karagdag, had severed relations with the law firm even before the filing
of the instant petition and that it could no longer find the whereabouts of
Atty. Karagdag or of respondent despite diligent efforts. In a
Resolution25 dated 20 November 2006, the Court resolved to dispense
with the filing of a comment.
The instant petition lacks merit.
Petitioner mainly asserts that the written contract between respondent
and BMSI included a valid choice of law clause, that is, that the contract
shall be governed by the laws of the State of Connecticut. It also
mentions the presence of foreign elements in the dispute namely, the
parties and witnesses involved are American corporations and citizens
and the evidence to be presented is located outside the Philippines
that renders our local courts inconvenient forums. Petitioner theorizes
that the foreign elements of the dispute necessitate the immediate
application of the doctrine of forum non conveniens.
Recently in Hasegawa v. Kitamura,26 the Court outlined three
consecutive phases involved in judicial resolution of conflicts-of-laws
problems, namely: jurisdiction, choice of law, and recognition and
enforcement of judgments. Thus, in the instances27 where the Court held
that the local judicial machinery was adequate to resolve controversies
with a foreign element, the following requisites had to be proved: (1) that
the Philippine Court is one to which the parties may conveniently resort;
(2) that the Philippine Court is in a position to make an intelligent
decision as to the law and the facts; and (3) that the Philippine Court has
or is likely to have the power to enforce its decision. 28
On the matter of jurisdiction over a conflicts-of-laws problem where the
case is filed in a Philippine court and where the court has jurisdiction
over the subject matter, the parties and the res, it may or can proceed
to try the case even if the rules of conflict-of-laws or the convenience of
the parties point to a foreign forum. This is an exercise of sovereign
prerogative of the country where the case is filed. 29
Jurisdiction over the nature and subject matter of an action is conferred
by the Constitution and the law30 and by the material allegations in the
34
complaint, irrespective of whether or not the plaintiff is entitled to recover
all or some of the claims or reliefs sought therein.31 Civil Case No. 1192-
BG is an action for damages arising from an alleged breach of contract.
Undoubtedly, the nature of the action and the amount of damages
prayed are within the jurisdiction of the RTC.
As regards jurisdiction over the parties, the trial court acquired
jurisdiction over herein respondent (as party plaintiff) upon the filing of
the complaint. On the other hand, jurisdiction over the person of
petitioner (as party defendant) was acquired by its voluntary appearance
in court.32
That the subject contract included a stipulation that the same shall be
governed by the laws of the State of Connecticut does not suggest that
the Philippine courts, or any other foreign tribunal for that matter, are
precluded from hearing the civil action. Jurisdiction and choice of law
are two distinct concepts. Jurisdiction considers whether it is fair to
cause a defendant to travel to this state; choice of law asks the further
question whether the application of a substantive law which will
determine the merits of the case is fair to both parties. 33The choice of
law stipulation will become relevant only when the substantive issues of
the instant case develop, that is, after hearing on the merits proceeds
before the trial court.
Under the doctrine of forum non conveniens, a court, in conflicts-of-laws
cases, may refuse impositions on its jurisdiction where it is not the most
"convenient" or available forum and the parties are not precluded from
seeking remedies elsewhere.34 Petitioners averments of the foreign
elements in the instant case are not sufficient to oust the trial court of its
jurisdiction over Civil Case No. No. 1192-BG and the parties involved.
Moreover, the propriety of dismissing a case based on the principle
of forum non conveniens requires a factual determination; hence, it is
more properly considered as a matter of defense. While it is within the
discretion of the trial court to abstain from assuming jurisdiction on this
ground, it should do so only after vital facts are established, to determine
whether special circumstances require the courts desistance.35
Finding no grave abuse of discretion on the trial court, the Court of
Appeals respected its conclusion that it can assume jurisdiction over the
dispute notwithstanding its foreign elements. In the same manner, the
Court defers to the sound discretion of the lower courts because their
findings are binding on this Court.
Petitioner also contends that the complaint in Civil Case No. 1192-BG
failed to state a cause of action against petitioner. Failure to state a
cause of action refers to the insufficiency of allegation in the
pleading.36 As a general rule, the elementary test for failure to state a
cause of action is whether the complaint alleges facts which if true would
justify the relief demanded.37
The complaint alleged that petitioner had combined with BMSI and
RUST to function as one company. Petitioner contends that the
deposition of Walter Browning rebutted this allegation. On this score, the
resolution of the Court of Appeals is instructive, thus:
x x x Our examination of the deposition of Mr. Walter Browning
as well as other documents produced in the hearing shows
that these evidence aliunde are not quite sufficient for us to
mete a ruling that the complaint fails to state a cause of action.
Annexes "A" to "E" by themselves are not substantial,
convincing and conclusive proofs that Raytheon Engineers
and Constructors, Inc. (REC) assumed the warranty
obligations of defendant Rust International in the Makar Port
Project in General Santos City, after Rust International
ceased to exist after being absorbed by REC. Other
documents already submitted in evidence are likewise
meager to preponderantly conclude that Raytheon
International, Inc., Rust International[,] Inc. and Brand Marine
Service, Inc. have combined into one company, so much so
that Raytheon International, Inc., the surviving company (if at
all) may be held liable for the obligation of BMSI to respondent
Rouzie for unpaid commissions. Neither these documents
clearly speak otherwise.38
As correctly pointed out by the Court of Appeals, the question of whether
petitioner, BMSI and RUST merged together requires the presentation
of further evidence, which only a full-blown trial on the merits can afford.
WHEREFORE, the instant petition for review on certiorari
is DENIED. The Decision and Resolution of the Court of Appeals in CA-
G.R. SP No. 67001 are hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 120077 October 13, 2000
THE MANILA HOTEL CORP. AND MANILA HOTEL INTL.
LTD., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, ARBITER
CEFERINA J. DIOSANA AND MARCELO G. SANTOS, respondents.
PARDO, J.:
The case before the Court is a petition for certiorari1 to annul the
following orders of the National Labor Relations Commission
(hereinafter referred to as "NLRC") for having been issued without or
with excess jurisdiction and with grave abuse of discretion: 2
(1) Order of May 31, 1993.3 Reversing and setting aside its
earlier resolution of August 28, 1992.4 The questioned order
declared that the NLRC, not the Philippine Overseas
Employment Administration (hereinafter referred to as
"POEA"), had jurisdiction over private respondent's complaint;
(2) Decision of December 15, 1994.5 Directing petitioners to
jointly and severally pay private respondent twelve thousand
and six hundred dollars (US$ 12,600.00) representing
salaries for the unexpired portion of his contract; three
thousand six hundred dollars (US$3,600.00) as extra four
months salary for the two (2) year period of his contract, three
thousand six hundred dollars (US$3,600.00) as "14th month
pay" or a total of nineteen thousand and eight hundred dollars
(US$19,800.00) or its peso equivalent and attorney's fees
amounting to ten percent (10%) of the total award; and
(3) Order of March 30, 1995.6 Denying the motion for
reconsideration of the petitioners.
In May, 1988, private respondent Marcelo Santos (hereinafter referred
to as "Santos") was an overseas worker employed as a printer at the
Mazoon Printing Press, Sultanate of Oman. Subsequently, in June
1988, he was directly hired by the Palace Hotel, Beijing, People's
Republic of China and later terminated due to retrenchment.
Petitioners are the Manila Hotel Corporation (hereinafter referred to as
"MHC") and the Manila Hotel International Company, Limited
(hereinafter referred to as "MHICL").
When the case was filed in 1990, MHC was still a government-owned
and controlled corporation duly organized and existing under the laws of
the Philippines.
MHICL is a corporation duly organized and existing under the laws of
Hong Kong.7 MHC is an "incorporator" of MHICL, owning 50% of its
capital stock.8
By virtue of a "management agreement"9 with the Palace Hotel (Wang
Fu Company Limited), MHICL10 trained the personnel and staff of the
Palace Hotel at Beijing, China.
Now the facts.
During his employment with the Mazoon Printing Press in the Sultanate
of Oman, respondent Santos received a letter dated May 2, 1988 from
Mr. Gerhard R. Shmidt, General Manager, Palace Hotel, Beijing, China.
Mr. Schmidt informed respondent Santos that he was recommended by
one Nestor Buenio, a friend of his.
Mr. Shmidt offered respondent Santos the same position as printer, but
with a higher monthly salary and increased benefits. The position was
slated to open on October 1, 1988.11
On May 8, 1988, respondent Santos wrote to Mr. Shmidt and signified
his acceptance of the offer.
On May 19, 1988, the Palace Hotel Manager, Mr. Hans J. Henk mailed
a ready to sign employment contract to respondent Santos. Mr. Henk
advised respondent Santos that if the contract was acceptable, to return
35
the same to Mr. Henk in Manila, together with his passport and two
additional pictures for his visa to China.
On May 30, 1988, respondent Santos resigned from the Mazoon Printing
Press, effective June 30, 1988, under the pretext that he was needed at
home to help with the family's piggery and poultry business.
On June 4, 1988, respondent Santos wrote the Palace Hotel and
acknowledged Mr. Henk's letter. Respondent Santos enclosed four (4)
signed copies of the employment contract (dated June 4, 1988) and
notified them that he was going to arrive in Manila during the first week
of July 1988.
The employment contract of June 4, 1988 stated that his employment
would commence September 1, 1988 for a period of two years. 12 It
provided for a monthly salary of nine hundred dollars (US$900.00) net
of taxes, payable fourteen (14) times a year.13
On June 30, 1988, respondent Santos was deemed resigned from the
Mazoon Printing Press.
On July 1, 1988, respondent Santos arrived in Manila.
On November 5, 1988, respondent Santos left for Beijing, China. He
started to work at the Palace Hotel.14
Subsequently, respondent Santos signed an amended "employment
agreement" with the Palace Hotel, effective November 5, 1988. In the
contract, Mr. Shmidt represented the Palace Hotel. The Vice President
(Operations and Development) of petitioner MHICL Miguel D. Cergueda
signed the employment agreement under the word "noted".
From June 8 to 29, 1989, respondent Santos was in the Philippines on
vacation leave. He returned to China and reassumed his post on July
17, 1989.
On July 22, 1989, Mr. Shmidt's Executive Secretary, a certain Joanna
suggested in a handwritten note that respondent Santos be given one
(1) month notice of his release from employment.
On August 10, 1989, the Palace Hotel informed respondent Santos by
letter signed by Mr. Shmidt that his employment at the Palace Hotel print
shop would be terminated due to business reverses brought about by
the political upheaval in China.15 We quote the letter:16
"After the unfortunate happenings in China and especially
Beijing (referring to Tiannamen Square incidents), our
business has been severely affected. To reduce expenses,
we will not open/operate printshop for the time being.
"We sincerely regret that a decision like this has to be made,
but rest assured this does in no way reflect your past
performance which we found up to our expectations."
"Should a turnaround in the business happen, we will contact
you directly and give you priority on future assignment."
On September 5, 1989, the Palace Hotel terminated the employment of
respondent Santos and paid all benefits due him, including his plane fare
back to the Philippines.
On October 3, 1989, respondent Santos was repatriated to the
Philippines.
On October 24, 1989, respondent Santos, through his lawyer, Atty.
Ednave wrote Mr. Shmidt, demanding full compensation pursuant to the
employment agreement.
On November 11, 1989, Mr. Shmidt replied, to wit:17
His service with the Palace Hotel, Beijing was not abruptly
terminated but we followed the one-month notice clause and
Mr. Santos received all benefits due him.
"For your information the Print Shop at the Palace Hotel is still
not operational and with a low business outlook, retrenchment
in various departments of the hotel is going on which is a
normal management practice to control costs.
"When going through the latest performance ratings, please
also be advised that his performance was below average and
a Chinese National who is doing his job now shows a better
approach.
"In closing, when Mr. Santos received the letter of notice, he
hardly showed up for work but still enjoyed free
accommodation/laundry/meals up to the day of his departure."
On February 20, 1990, respondent Santos filed a complaint for illegal
dismissal with the Arbitration Branch, National Capital Region, National
Labor Relations Commission (NLRC). He prayed for an award of
nineteen thousand nine hundred and twenty three dollars
(US$19,923.00) as actual damages, forty thousand pesos (P40,000.00)
as exemplary damages and attorney's fees equivalent to 20% of the
damages prayed for. The complaint named MHC, MHICL, the Palace
Hotel and Mr. Shmidt as respondents.
The Palace Hotel and Mr. Shmidt were not served with summons and
neither participated in the proceedings before the Labor Arbiter.18
On June 27, 1991, Labor Arbiter Ceferina J. Diosana, decided the case
against petitioners, thus:19
"WHEREFORE, judgment is hereby rendered:
"1. directing all the respondents to pay complainant jointly and
severally;
"a) $20,820 US dollars or its equivalent in Philippine
currency as unearned salaries;
"b) P50,000.00 as moral damages;
"c) P40,000.00 as exemplary damages; and
"d) Ten (10) percent of the total award as attorney's
fees.
"SO ORDERED."
On July 23, 1991, petitioners appealed to the NLRC, arguing that the
POEA, not the NLRC had jurisdiction over the case.
On August 28, 1992, the NLRC promulgated a resolution, stating: 20
"WHEREFORE, let the appealed Decision be, as it is hereby,
declared null and void for want of jurisdiction. Complainant is
hereby enjoined to file his complaint with the POEA.
"SO ORDERED."
On September 18, 1992, respondent Santos moved for reconsideration
of the afore-quoted resolution. He argued that the case was not
cognizable by the POEA as he was not an "overseas contract worker."21
On May 31, 1993, the NLRC granted the motion and reversed itself. The
NLRC directed Labor Arbiter Emerson Tumanon to hear the case on the
question of whether private respondent was retrenched or dismissed.22
On January 13, 1994, Labor Arbiter Tumanon completed the
proceedings based on the testimonial and documentary evidence
presented to and heard by him.23
Subsequently, Labor Arbiter Tumanon was re-assigned as trial Arbiter
of the National Capital Region, Arbitration Branch, and the case was
transferred to Labor Arbiter Jose G. de Vera.24
On November 25, 1994, Labor Arbiter de Vera submitted his report.25 He
found that respondent Santos was illegally dismissed from employment
and recommended that he be paid actual damages equivalent to his
salaries for the unexpired portion of his contract.26
On December 15, 1994, the NLRC ruled in favor of private respondent,
to wit:27
"WHEREFORE, finding that the report and recommendations
of Arbiter de Vera are supported by substantial evidence,
judgment is hereby rendered, directing the respondents to
jointly and severally pay complainant the following computed
contractual benefits: (1) US$12,600.00 as salaries for the
unexpired portion of the parties' contract; (2) US$3,600.00 as
extra four (4) months salary for the two (2) years period (sic)
of the parties' contract; (3) US$3,600.00 as "14th month pay"
for the aforesaid two (2) years contract stipulated by the
parties or a total of US$19,800.00 or its peso equivalent, plus
(4) attorney's fees of 10% of complainant's total award.
"SO ORDERED."
36
On February 2, 1995, petitioners filed a motion for reconsideration
arguing that Labor Arbiter de Vera's recommendation had no basis in
law and in fact.28
On March 30, 1995, the NLRC denied the motion for reconsideration.29
Hence, this petition.30
On October 9, 1995, petitioners filed with this Court an urgent motion for
the issuance of a temporary restraining order and/or writ of preliminary
injunction and a motion for the annulment of the entry of judgment of the
NLRC dated July 31, 1995.31
On November 20, 1995, the Court denied petitioner's urgent motion. The
Court required respondents to file their respective comments, without
giving due course to the petition.32
On March 8, 1996, the Solicitor General filed a manifestation stating that
after going over the petition and its annexes, they can not defend and
sustain the position taken by the NLRC in its assailed decision and
orders. The Solicitor General prayed that he be excused from filing a
comment on behalf of the NLRC33
On April 30,1996, private respondent Santos filed his comment. 34
On June 26, 1996, the Court granted the manifestation of the Solicitor
General and required the NLRC to file its own comment to the petition.35
On January 7, 1997, the NLRC filed its comment.
The petition is meritorious.
I. Forum Non-Conveniens
The NLRC was a seriously inconvenient forum.
We note that the main aspects of the case transpired in two foreign
jurisdictions and the case involves purely foreign elements. The only link
that the Philippines has with the case is that respondent Santos is a
Filipino citizen. The Palace Hotel and MHICL are foreign corporations.
Not all cases involving our citizens can be tried here.
The employment contract. Respondent Santos was hired directly by
the Palace Hotel, a foreign employer, through correspondence sent to
the Sultanate of Oman, where respondent Santos was then employed.
He was hired without the intervention of the POEA or any authorized
recruitment agency of the government.36
Under the rule of forum non conveniens, a Philippine court or agency
may assume jurisdiction over the case if it chooses to do so provided:
(1) that the Philippine court is one to which the parties may conveniently
resort to; (2) that the Philippine court is in a position to make an
intelligent decision as to the law and the facts; and (3) that the Philippine
court has or is likely to have power to enforce its decision. 37 The
conditions are unavailing in the case at bar.
Not Convenient. We fail to see how the NLRC is a convenient forum
given that all the incidents of the case from the time of recruitment, to
employment to dismissal occurred outside the Philippines. The
inconvenience is compounded by the fact that the proper defendants,
the Palace Hotel and MHICL are not nationals of the Philippines. Neither
.are they "doing business in the Philippines." Likewise, the main
witnesses, Mr. Shmidt and Mr. Henk are non-residents of the
Philippines.
No power to determine applicable law. Neither can an intelligent
decision be made as to the law governing the employment contract as
such was perfected in foreign soil. This calls to fore the application of
the principle of lex loci contractus (the law of the place where the
contract was made).38
The employment contract was not perfected in the Philippines.
Respondent Santos signified his acceptance by writing a letter while he
was in the Republic of Oman. This letter was sent to the Palace Hotel in
the People's Republic of China.
No power to determine the facts. Neither can the NLRC determine
the facts surrounding the alleged illegal dismissal as all acts complained
of took place in Beijing, People's Republic of China. The NLRC was not
in a position to determine whether the Tiannamen Square incident truly
adversely affected operations of the Palace Hotel as to justify
respondent Santos' retrenchment.
Principle of effectiveness, no power to execute decision. Even
assuming that a proper decision could be reached by the NLRC, such
would not have any binding effect against the employer, the Palace
Hotel. The Palace Hotel is a corporation incorporated under the laws of
China and was not even served with summons. Jurisdiction over its
person was not acquired.
This is not to say that Philippine courts and agencies have no power to
solve controversies involving foreign employers. Neither are we saying
that we do not have power over an employment contract executed in a
foreign country. If Santos were an "overseas contract worker", a
Philippine forum, specifically the POEA, not the NLRC, would protect
him.39 He is not an "overseas contract worker" a fact which he admits
with conviction.40
Even assuming that the NLRC was the proper forum, even on the merits,
the NLRC's decision cannot be sustained.
II. MHC Not Liable
Even if we assume two things: (1) that the NLRC had jurisdiction over
the case, and (2) that MHICL was liable for Santos' retrenchment, still
MHC, as a separate and distinct juridical entity cannot be held liable.
True, MHC is an incorporator of MHICL and owns fifty percent (50%) of
its capital stock. However, this is not enough to pierce the veil of
corporate fiction between MHICL and MHC.
Piercing the veil of corporate entity is an equitable remedy. It is resorted
to when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend a crime. 41 It is done only when a
corporation is a mere alter ego or business conduit of a person or
another corporation.
In Traders Royal Bank v. Court of Appeals,42 we held that "the mere
ownership by a single stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is not of itself a sufficient
reason for disregarding the fiction of separate corporate personalities."
The tests in determining whether the corporate veil may be pierced
are: First, the defendant must have control or complete domination of
the other corporation's finances, policy and business practices with
regard to the transaction attacked. There must be proof that the other
corporation had no separate mind, will or existence with respect the act
complained of. Second, control must be used by the defendant to
commit fraud or wrong. Third, the aforesaid control or breach of duty
must be the proximate cause of the injury or loss complained of. The
absence of any of the elements prevents the piercing of the corporate
veil.43
It is basic that a corporation has a personality separate and distinct from
those composing it as well as from that of any other legal entity to which
it may be related.44 Clear and convincing evidence is needed to pierce
the veil of corporate fiction.45 In this case, we find no evidence to show
that MHICL and MHC are one and the same entity.
III. MHICL not Liable
Respondent Santos predicates MHICL's liability on the fact that MHICL
"signed" his employment contract with the Palace Hotel. This fact fails
to persuade us.
First, we note that the Vice President (Operations and Development) of
MHICL, Miguel D. Cergueda signed the employment contract as a mere
witness. He merely signed under the word "noted".
When one "notes" a contract, one is not expressing his agreement or
approval, as a party would.46 In Sichangco v. Board of Commissioners
of Immigration,47 the Court recognized that the term "noted" means that
the person so noting has merely taken cognizance of the existence of
an act or declaration, without exercising a judicious deliberation or
rendering a decision on the matter.
Mr. Cergueda merely signed the "witnessing part" of the document. The
"witnessing part" of the document is that which, "in a deed or other
formal instrument is that part which comes after the recitals, or where
there are no recitals, after the parties (emphasis ours)."48 As opposed to
a party to a contract, a witness is simply one who, "being present,
personally sees or perceives a thing; a beholder, a spectator, or
eyewitness."49 One who "notes" something just makes a "brief written
statement"50 a memorandum or observation.
37
Second, and more importantly, there was no existing employer-
employee relationship between Santos and MHICL. In determining the
existence of an employer-employee relationship, the following elements
are considered:51
"(1) the selection and engagement of the employee;
"(2) the payment of wages;
"(3) the power to dismiss; and
"(4) the power to control employee's conduct."
MHICL did not have and did not exercise any of the aforementioned
powers. It did not select respondent Santos as an employee for the
Palace Hotel. He was referred to the Palace Hotel by his friend, Nestor
Buenio. MHICL did not engage respondent Santos to work. The terms
of employment were negotiated and finalized through correspondence
between respondent Santos, Mr. Schmidt and Mr. Henk, who were
officers and representatives of the Palace Hotel and not MHICL. Neither
did respondent Santos adduce any proof that MHICL had the power to
control his conduct. Finally, it was the Palace Hotel, through Mr. Schmidt
and not MHICL that terminated respondent Santos' services.
Neither is there evidence to suggest that MHICL was a "labor-only
contractor."52 There is no proof that MHICL "supplied" respondent
Santos or even referred him for employment to the Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL
are one and the same entity. The fact that the Palace Hotel is a member
of the "Manila Hotel Group" is not enough to pierce the corporate veil
between MHICL and the Palace Hotel.
IV. Grave Abuse of Discretion
Considering that the NLRC was forum non-conveniens and considering
further that no employer-employee relationship existed between MHICL,
MHC and respondent Santos, Labor Arbiter Ceferina J. Diosana clearly
had no jurisdiction over respondent's claim in NLRC NCR Case No. 00-
02-01058-90.
Labor Arbiters have exclusive and original jurisdiction only over the
following:53
"1. Unfair labor practice cases;
"2. Termination disputes;
"3. If accompanied with a claim for reinstatement, those cases
that workers may file involving wages, rates of pay, hours of
work and other terms and conditions of employment;
"4. Claims for actual, moral, exemplary and other forms of
damages arising from employer-employee relations;
"5. Cases arising from any violation of Article 264 of this Code,
including questions involving legality of strikes and lockouts;
and
"6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other claims,
arising from employer-employee relations, including those of
persons in domestic or household service, involving an
amount exceeding five thousand pesos (P5,000.00)
regardless of whether accompanied with a claim for
reinstatement."
In all these cases, an employer-employee relationship is an
indispensable jurisdictional requirement.
The jurisdiction of labor arbiters and the NLRC under Article 217 of the
Labor Code is limited to disputes arising from an employer-employee
relationship which can be resolved by reference to the Labor Code, or
other labor statutes, or their collective bargaining agreements.54
"To determine which body has jurisdiction over the present controversy,
we rely on the sound judicial principle that jurisdiction over the subject
matter is conferred by law and is determined by the allegations of the
complaint irrespective of whether the plaintiff is entitled to all or some of
the claims asserted therein."55
The lack of jurisdiction of the Labor Arbiter was obvious from the
allegations of the complaint. His failure to dismiss the case amounts to
grave abuse of discretion.56
V. The Fallo
WHEREFORE, the Court hereby GRANTS the petition for certiorari and
ANNULS the orders and resolutions of the National Labor Relations
Commission dated May 31, 1993, December 15, 1994 and March 30,
1995 in NLRC NCR CA No. 002101-91 (NLRC NCR Case No. 00-02-
01058-90).
No costs.
SO ORDERED.
G.R. No. 102223 August 22, 1996
COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC MULTI-
TRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.) and
FRANCISCO S. AGUIRRE, petitioners,
vs.
THE COURT OF APPEALS, ITEC INTERNATIONAL, INC., and ITEC,
INC., respondents.
TORRES, JR., J.:p
Business Corporations, according to Lord Coke, "have no souls." They
do business peddling goods, wares or even services across national
boundaries in "souless forms" in quest for profits albeit at times,
unwelcomed in these strange lands venturing into uncertain markets
and, the risk of dealing with wily competitors.
This is one of the issues in the case at bar.
Contested in this petition for review on Certiorari is the Decision of the
Court of Appeals on June 7, 1991, sustaining the RTC Order dated
February 22, 1991, denying the petitioners' Motion to Dismiss, and
directing the issuance of a writ of preliminary injunction, and its
companion Resolution of October 9, 1991, denying the petitioners'
Motion for Reconsideration.
Petitioners COMMUNICATION MATERIALS AND DESIGN, INC.,
(CMDI, for brevity) and ASPAC MULTI-TRADE INC., (ASPAC, for
brevity) are both domestic corporations, while petitioner Francisco S.
Aguirre is their President and majority stockholder. Private Respondents
ITEC, INC. and/or ITEC, INTERNATIONAL, INC. (ITEC, for brevity) are
corporations duly organized and existing under the laws of the State of
Alabama, United States of America. There is no dispute that ITEC is a
foreign corporation not licensed to do business in the Philippines.
On August 14, 1987, ITEC entered into a contract with petitioner ASPAC
referred to as "Representative Agreement". 1 Pursuant to the contract,
ITEC engaged ASPAC as its "exclusive representative" in the
Philippines for the sale of ITEC's products, in consideration of which,
ASPAC was paid a stipulated commission. The agreement was signed
by G.A. Clark and Francisco S. Aguirre, presidents of ITEC and ASPAC
respectively, for and in behalf of their companies. 2 The said agreement
was initially for a term of twenty-four months. After the lapse of the
agreed period, the agreement was renewed for another twenty-four
months.
Through a "License Agreement" 3 entered into by the same parties on
November 10, 1988, ASPAC was able to incorporate and use the name
"ITEC" in its own name. Thus , ASPAC Multi-Trade, Inc. became legally
and publicly known as ASPAC-ITEC (Philippines).
By virtue of said contracts, ASPAC sold electronic products, exported by
ITEC, to their sole customer, the Philippine Long Distance Telephone
Company, (PLDT, for brevity).
To facilitate their transactions, ASPAC, dealing under its new
appellation, and PLDT executed a document entitled "PLDT-
ASPAC/ITEC PROTOCOL" 4 which defined the project details for the
supply of ITEC's Interface Equipment in connection with the Fifth
Expansion Program of PLDT.
One year into the second term of the parties' Representative Agreement,
ITEC decided to terminate the same, because petitioner ASPAC
allegedly violated its contractual commitment as stipulated in their
agreements. 5
ITEC charges the petitioners and another Philippine Corporation,
DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL, for brevity), the
38
President of which is likewise petitioner Aguirre, of using knowledge and
information of ITEC's products specifications to develop their own line of
equipment and product support, which are similar, if not identical to
ITEC's own, and offering them to ITEC's former customer.
On January 31, 1991, the complaint 6 in Civil Case No. 91-294, was filed
with the Regional Trial Court of Makati, Branch 134 by ITEC, INC.
Plaintiff sought to enjoin, first, preliminarily and then, after trial,
permanently; (1) defendants DIGITAL, CMDI, and Francisco Aguirre
and their agents and business associates, to cease and desist from
selling or attempting to sell to PLDT and to any other party, products
which have been copied or manufactured "in like manner, similar or
identical to the products, wares and equipment of plaintiff," and (2)
defendant ASPAC, to cease and desist from using in its corporate name,
letter heads, envelopes, sign boards and business dealings, plaintiff's
trademark, internationally known as ITEC; and the recovery from
defendants in solidum, damages of at least P500,000.00, attorney's fees
and litigation expenses.
In due time, defendants filed a motion to dismiss 7 the complaint on the
following grounds:
(1) That plaintiff has no legal capacity to sue as it is a foreign corporation
doing business in the Philippines without the required BOI authority and
SEC license, and (2) that plaintiff is simply engaged in forum shopping
which justifies the application against it of the principle of "forum non
conveniens".
On February 8, 1991, the complaint was amended by virtue of which
ITEC INTERNATIONAL, INC. was substituted as plaintiff instead of
ITEC, INC. 8
In their Supplemental Motion to Dismiss, 9 defendants took note of the
amendment of the complaint and asked the court to consider in toto their
motion to dismiss and their supplemental motion as their answer to the
amended complaint.
After conducting hearings on the prayer for preliminary injunction, the
court a quo on February 22, 1991, issued its Order: 10 (1) denying the
motion to dismiss for being devoid of legal merit with a rejection of both
grounds relied upon by the defendants in their motion to dismiss, and
(2) directing the issuance of a writ of preliminary injunction on the same
day.
From the foregoing order, petitioners elevated the case to the
respondent Court of Appeals on a Petition forCertiorari and
Prohibition 11 under Rule 65 of the Revised Rules of Court, assailing and
seeking the nullification and the setting aside of the Order and the Writ
of Preliminary Injunction issued by the Regional Trial Court.
The respondent appellate court stated, thus:
We find no reason whether in law or from the facts of record,
to disagree with the (lower court's) ruling. We therefore are
unable to find in respondent Judge's issuance of said writ the
grave abuse of discretion ascribed thereto by the petitioners.
In fine, We find that the petition prima facie does not show
that Certiorari lies in the present case and therefore, the
petition does not deserve to be given due course.
WHEREFORE, the present petition should be, as it is hereby,
denied due course and accordingly, is hereby dismissed.
Costs against the petitioners.
SO ORDERED. 12
Petitioners filed a motion for reconsideration 13 on June 7,
1991, which was likewise denied by the respondent court.
WHEREFORE, the present motion for reconsideration should
be, as it is hereby, denied for lack of merit. For the same
reason, the motion to have the motion for reconsideration set
for oral argument likewise should be and is hereby denied.
SO ORDERED. 14
Petitioners are now before us via Petition for Review
on Certiorari 15 under Rule 45 of the Revised Rules of Court.
It is the petitioners' submission that private respondents are
foreign corporations actually doing business in the Philippines
without the requisite authority and license from the Board of
Investments and the Securities and Exchange Commission,
and thus, disqualified from instituting the present action in our
courts. It is their contention that the provisions of the
Representative Agreement, petitioner ASPAC executed with
private respondent ITEC, are similarly "highly restrictive" in
nature as those found in the agreements which confronted the
Court in the case of Top-Weld Manufacturing, Inc. vs. ECED
S.A. et al., 16 as to reduce petitioner ASPAC to a mere conduit
or extension of private respondents in the Philippines.
In that case, we ruled that respondent foreign corporations are
doing business in the Philippines because when the
respondents entered into the disputed contracts with the
petitioner, they were carrying out the purposes for which they
were created, i.e., to manufacture and market welding
products and equipment. The terms and conditions of the
contracts as well as the respondents' conduct indicate that
they established within our country a continuous business,
and not merely one of a temporary character. The
respondents could be exempted from the requirements of
Republic Act 5455 if the petitioner is an independent entity
which buys and distributes products not only of the petitioner,
but also of other manufacturers or transacts business in its
name and for its account and not in the name or for the
account of the foreign principal. A reading of the agreements
between the petitioner and the respondents shows that they
are highly restrictive in nature, thus making the petitioner a
mere conduit or extension of the respondents.
It is alleged that certain provisions of the "Representative
Agreement" executed by the parties are similar to those found
in the License Agreement of the parties in the Top-Weld case
which were considered as "highly restrictive" by this Court.
The provisions in point are:
2.0 Terms and Conditions of Sales.
2.1 Sale of ITEC products shall be at the purchase price set
by ITEC from time to time. Unless otherwise expressly agreed
to in writing by ITEC the purchase price is net to ITEC and
does not include any transportation charges, import charges
or taxes into or within the Territory. All orders from customers
are subject to formal acceptance by ITEC at its Huntsville,
Alabama U.S.A. facility.
xxx xxx xxx
3.0 Duties of Representative
3.1. REPRESENTATIVE SHALL:
3.1.1. Not represent or offer for sale within the Territory any
product which competes with an existing ITEC product or any
product which ITEC has under active development.
3.1.2. Actively solicit all potential customers within the
Territory in a systematic and business like manner.
3.1.3. Inform ITEC of all request for proposals, requests for
bids, invitations to bid and the like within the Territory.
3.1.4. Attain the Annual Sales Goal for the Territory
established by ITEC. The Sales Goals for the first 24 months
is set forth on Attachment two (2) hereto. The Sales Goal for
additional twelve month periods, if any, shall be sent to the
Sales Agent by ITEC at the beginning of each period. These
Sales Goals shall be incorporated into this Agreement and
made a part hereof.
xxx xxx xxx
6.0. Representative as Independent Contractor
xxx xxx xxx
6.2. When acting under this Agreement REPRESENTATIVE
is authorized to solicit sales within the Territory on ITEC's
behalf but is authorized to bind ITEC only in its capacity as
Representative and no other, and then only to specific
customers and on terms and conditions expressly authorized
by ITEC in writing. 17
39
Aside from the abovestated provisions, petitioners point out the following
matters of record, which allegedly bear witness to the respondents'
activities within the Philippines in pursuit of their business dealings:
a. While petitioner ASPAC was the authorized exclusive
representative for three (3) years, it solicited from and closed
several sales for and on behalf of private respondents as to
their products only and no other, to PLDT, worth no less than
US $ 15 Million (p. 20, tsn, Feb. 18, 1991);
b. Contract No. 1 (Exhibit for Petitioners) which covered these
sales and identified by private respondents' sole witness, Mr.
Clarence Long, is not in the name of petitioner ASPAC as
such representative, but in the name of private respondent
ITEC, INC. (p. 20, tsn, Feb. 18, 1991);
c. The document denominated as "PLDT-ASPAC/ITEC
PROTOCOL (Annex C of the original and amended
complaints) which defined the responsibilities of the parties
thereto as to the supply, installation and maintenance of the
ITEC equipment sold under said Contract No. 1 is, as its very
title indicates, in the names jointly of the petitioner ASPAC and
private respondents;
d. To evidence receipt of the purchase price of US $ 15
Million, private respondent ITEC, Inc. issued in its letter head,
a Confirmation of payment dated November 13, 1989 and its
Invoice dated November 22, 1989 (Annexes 1 and 2 of the
Motion to Dismiss and marked as Exhibits 2 and 3 for the
petitioners), both of which were identified by private
respondent's sole witness, Mr. Clarence Long (pp. 25-27, tsn,
Feb. 18, 1991). 18
Petitioners contend that the above acts or activities belie the supposed
independence of petitioner ASPAC from private respondents. "The
unrebutted evidence on record below for the petitioners likewise reveal
the continuous character of doing business in the Philippines by private
respondents based on the standards laid down by this Court in Wang
Laboratories, Inc. vs. Hon. Rafael T . Mendoza, et al. 19 and again in
TOP-WELD. (supra)" It thus appears that as the respondent Court of
Appeals and the trial court's failure to give credence on the grounds
relied upon in support of their Motion to Dismiss that petitioners ascribe
grave abuse of discretion amounting to an excess of jurisdiction of said
courts.
Petitioners likewise argue that since private respondents have no
capacity to bring suit here, the Philippines is not the "most convenient
forum" because the trial court is devoid of any power to enforce its orders
issued or decisions rendered in a case that could not have been
commenced to begin with, such that in insisting to assume and exercise
jurisdiction over the case below, the trial court had gravely abused its
discretion and even actually exceeded its jurisdiction.
As against petitioner's insistence that private respondent is "doing
business" in the Philippines, the latter maintains that it is not.
We can discern from a reading of Section 1 (f) (1) and 1 (f) (2) of the
Rules and Regulations Implementing the Omnibus Investments Code of
1987, the following:
(1) A foreign firm is deemed not engaged in business in the
Philippines if it transacts business through middlemen, acting
in their own names, such as indebtors, commercial bookers
commercial merchants.
(2) A foreign corporation is deemed not "doing business" if its
representative domiciled in the Philippines has an
independent status in that it transacts business in its name
and for its account. 20
Private respondent argues that a scrutiny of its Representative
Agreement with the Petitioners will show that although ASPAC was
named as representative of ITEC., ASPAC actually acted in its own
name and for its own account. The following provisions are particularly
mentioned:
3.1.7.1. In the event that REPRESENTATIVE imports directly
from ITEC, REPRESENTATIVE will pay for its own account;
all customs duties and import fees imposed on any ITEC
products; all import expediting or handling charges and
expenses imposed on ITEC products; and any stamp tax fees
imposed on ITEC.
xxx xxx xxx
4.1. As complete consideration and payment for
acting as representative under this Agreement,
REPRESENTATIVE shall receive a sales
commission equivalent to a per centum of the FOB
value of all ITEC equipment sold to customers
within the territory as a direct result of
REPRESENTATIVE's sales efforts. 21
More importantly, private respondent charges ASPAC of
admitting its independence from ITEC by entering and
ascribing to provision No. 6 of the Representative Agreement.
6.0 Representative as Independent Contractor
6.1. When performing any of its duties under this
Agreement, REPRESENTATIVE shall act as an
independent contractor and not as an employee,
worker, laborer, partner, joint venturer of ITEC as
these terms are defined by the laws, regulations,
decrees or the like of any jurisdiction, including the
jurisdiction of the United States, the state of
Alabama and the Territory. 22
Although it admits that the Representative Agreement contains
provisions which both support and belie the independence of ASPAC,
private respondent echoes the respondent court's finding that the lower
court did not commit grave abuse of discretion nor acted in excess of
jurisdiction when it found that the ground relied upon by the petitioners
in their motion to dismiss does not appear to be indubitable. 23
The issues before us now are whether or not private respondent ITEC
is an unlicensed corporation doing business in the Philippines, and if it
is, whether or not this fact bars it from invoking the injunctive authority
of our courts.
Considering the above, it is necessary to state what is meant by "doing
business" in the Philippines. Section 133 of the Corporation Code,
provides that "No foreign corporation, transacting business in the
Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine Courts
or administrative tribunals on any valid cause of action recognized under
Philippine laws." 24
Generally, a "foreign corporation" has no legal existence within the state
in which it is foreign. This proceeds from the principle that juridical
existence of a corporation is confined within the territory of the state
under whose laws it was incorporated and organized, and it has no legal
status beyond such territory. Such foreign corporation may be excluded
by any other state from doing business within its limits, or conditions may
be imposed on the exercise of such privileges. 25 Before a foreign
corporation can transact business in this country, it must first obtain a
license to transact business in the Philippines, and a certificate from the
appropriate government agency. If it transacts business in the
Philippines without such a license, it shall not be permitted to maintain
or intervene in any action, suit, or proceeding in any court or
administrative agency of the Philippines, but it may be sued on any valid
cause of action recognized under Philippine laws. 26
In a long line of decisions, this Court has not altogether prohibited
foreign corporation not licensed to do business in the Philippines from
suing or maintaining an action in Philippine Courts. What it seeks to
prevent is a foreign corporation doing business in the Philippines without
a licensed from gaining access to Philippine Courts. 27
The purpose of the law in requiring that foreign corporations doing
business in the Philippines be licensed to do so and that they appoint an
agent for service of process is to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object is
not to prevent the foreign corporation from performing single acts, but to
prevent it from acquiring a domicile for the purpose of business without
taking steps necessary to render it amenable to suit in the local
courts. 28 The implication of the law is that it was never the purpose of
the legislature to exclude a foreign corporation which happens to obtain
an isolated order for business from the Philippines, and thus, in effect,
to permit persons to avoid their contracts made with such foreign
corporations. 29
40
There is no exact rule or governing principle as to what constitutes
"doing" or "engaging" or "transacting" business. Indeed, such case must
be judged in the light of its peculiar circumstances, upon its peculiar facts
and upon the language of the statute applicable. The true test, however,
seems to be whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was organized. 30
Article 44 of the Omnibus Investments Code of 1987 defines the phrase
to include:
soliciting orders, purchases, service contracts, opening
offices, whether called "liaison" offices or branches;
appointing representatives or distributors who are domiciled
in the Philippines or who in any calendar year stay in the
Philippines for a period or periods totalling one hundred eighty
(180) days or more; participating in the management,
supervision or control of any domestic business firm, entity or
corporation in the Philippines, and any other act or acts that
imply a continuity or commercial dealings or arrangements
and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business organization.
Thus, a foreign corporation with a settling agent in the Philippines which
issued twelve marine policies covering different shipments to the
Philippines 31 and a foreign corporation which had been collecting
premiums on outstanding policies 32 were regarded as doing business
here.
The same rule was observed relating to a foreign corporation with an
"exclusive distributing agent" in the Philippines, and which has been
selling its products here since 1929, 33 and a foreign corporation
engaged in the business of manufacturing and selling computers
worldwide, and had installed at least 26 different products in several
corporations in the Philippines, and allowed its registered logo and
trademark to be used and made it known that there exists a designated
distributor in the Philippines. 34
In Georg Grotjahn GMBH and Co. vs. Isnani, 35 it was held that the
uninterrupted performance by a foreign corporation of acts pursuant to
its primary purposes and functions as a regional area headquarters for
its home office, qualifies such corporation as one doing business in the
country.
These foregoing instances should be distinguished from a single or
isolated transaction or occasional, incidental, or casual transactions,
which do not come within the meaning of the law, 36 for in such case, the
foreign corporation is deemed not engaged in business in the
Philippines.
Where a single act or transaction, however, is not merely incidental or
casual but indicates the foreign corporation's intention to do other
business in the Philippines, said single act or transaction constitutes
"doing" or "engaging in" or "transacting" business in the Philippines. 37
In determining whether a corporation does business in the Philippines
or not, aside from their activities within the forum, reference may be
made to the contractual agreements entered into by it with other entities
in the country. Thus, in the Top-Weld case (supra), the foreign
corporation's LICENSE AND TECHNICAL AGREEMENT and
DISTRIBUTOR AGREEMENT with their local contacts were made the
basis of their being regarded by this Tribunal as corporations doing
business in the country. Likewise, in Merill Lynch Futures, Inc. vs. Court
of Appeals, etc. 38 the FUTURES CONTRACT entered into by the
petitioner foreign corporation weighed heavily in the court's ruling.
With the abovestated precedents in mind, we are persuaded to conclude
that private respondent had been "engaged in" or "doing business" in
the Philippines for some time now. This is the inevitable result after a
scrutiny of the different contracts and agreements entered into by ITEC
with its various business contacts in the country, particularly ASPAC and
Telephone Equipment Sales and Services, Inc. (TESSI, for brevity). The
latter is a local electronics firm engaged by ITEC to be its local technical
representative, and to create a service center for ITEC products sold
locally. Its arrangements, with these entities indicate convincingly ITEC's
purpose to bring about the situation among its customers and the
general public that they are dealing directly with ITEC, and that ITEC is
actively engaging in business in the country.
In its Master Service Agreement 39 with TESSI, private respondent
required its local technical representative to provide the employees of
the technical and service center with ITEC identification cards and
business cards, and to correspond only on ITEC, Inc., letterhead. TESSI
personnel are instructed to answer the telephone with "ITEC Technical
Assistance Center.", such telephone being listed in the telephone book
under the heading of ITEC Technical Assistance Center, and all calls
being recorded and forwarded to ITEC on a weekly basis.
What is more, TESSI was obliged to provide ITEC with a monthly report
detailing the failure and repair of ITEC products, and to requisition
monthly the materials and components needed to replace stock
consumed in the warranty repairs of the prior month.
A perusal of the agreements between petitioner ASPAC and the
respondents shows that there are provisions which are highly restrictive
in nature, such as to reduce petitioner ASPAC to a mere extension or
instrument of the private respondent.
The "No Competing Product" provision of the Representative
Agreement between ITEC and ASPAC provides: "The Representative
shall not represent or offer for sale within the Territory any product which
competes with an existing ITEC product or any product which ITEC has
under active development." Likewise pertinent is the following provision:
"When acting under this Agreement, REPRESENTATIVE is authorized
to solicit sales within the Territory on ITEC's behalf but is authorized to
bind ITEC only in its capacity as Representative and no other, and then
only to specific customers and on terms and conditions expressly
authorized by ITEC in writing."
When ITEC entered into the disputed contracts with ASPAC and TESSI,
they were carrying out the purposes for which it was created, i.e., to
market electronics and communications products. The terms and
conditions of the contracts as well as ITEC's conduct indicate that they
established within our country a continuous business, and not merely
one of a temporary character. 40
Notwithstanding such finding that ITEC is doing business in the country,
petitioner is nonetheless estopped from raising this fact to bar ITEC from
instituting this injunction case against it.
A foreign corporation doing business in the Philippines may sue in
Philippine Courts although not authorized to do business here against a
Philippine citizen or entity who had contracted with and benefited by said
corporation. 41 To put it in another way, a party is estopped to challenge
the personality of a corporation after having acknowledged the same by
entering into a contract with it. And the doctrine of estoppel to deny
corporate existence applies to a foreign as well as to domestic
corporations. 42 One who has dealt with a corporation of foreign origin as
a corporate entity is estopped to deny its corporate existence and
capacity: The principle will be applied to prevent a person contracting
with a foreign corporation from later taking advantage of its
noncompliance with the statutes chiefly in cases where such person has
received the benefits of the contract. 43
The rule is deeply rooted in the time-honored axiom of Commodum ex
injuria sua non habere debet no person ought to derive any
advantage of his own wrong. This is as it should be for as mandated by
law, "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." 44
Concededly, corporations act through agents, like directors and officers.
Corporate dealings must be characterized by utmost good faith and
fairness. Corporations cannot just feign ignorance of the legal rules as
in most cases, they are manned by sophisticated officers with tried
management skills and legal experts with practiced eye on legal
problems. Each party to a corporate transaction is expected to act with
utmost candor and fairness and, thereby allow a reasonable proportion
between benefits and expected burdens. This is a norm which should
be observed where one or the other is a foreign entity venturing in a
global market.
As observed by this Court in TOP-WELD (supra), viz:
The parties are charged with knowledge of the existing law at the time
they enter into a contract and at the time it is to become operative.
(Twiehaus v. Rosner, 245 SW 2d 107; Hall v. Bucher, 227 SW 2d 98).
Moreover, a person is presumed to be more knowledgeable about his
own state law than his alien or foreign contemporary. In this case, the
record shows that, at least, petitioner had actual knowledge of the
41
applicability of R.A. No. 5455 at the time the contract was executed and
at all times thereafter. This conclusion is compelled by the fact that the
same statute is now being propounded by the petitioner to bolster its
claim. We, therefore sustain the appellate court's view that "it was
incumbent upon TOP-WELD to know whether or not IRTI and ECED
were properly authorized to engage in business in the Philippines when
they entered into the licensing and distributorship agreements." The very
purpose of the law was circumvented and evaded when the petitioner
entered into said agreements despite the prohibition of R.A. No. 5455.
The parties in this case being equally guilty of violating R.A. No. 5455,
they are in pari delicto, in which case it follows as a consequence that
petitioner is not entitled to the relief prayed for in this case.
The doctrine of lack of capacity to sue based on the failure to acquire a
local license is based on considerations of sound public policy. The
license requirement was imposed to subject the foreign corporation
doing business in the Philippines to the jurisdiction of its courts. It was
never intended to favor domestic corporations who enter into solitary
transactions with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do business in
this country. 45
In Antam Consolidated Inc. vs. Court of Appeals, et al. 46 we expressed
our chagrin over this commonly used scheme of defaulting local
companies which are being sued by unlicensed foreign companies not
engaged in business in the Philippines to invoke the lack of capacity to
sue of such foreign companies. Obviously, the same ploy is resorted to
by ASPAC to prevent the injunctive action filed by ITEC to enjoin
petitioner from using knowledge possibly acquired in violation of
fiduciary arrangements between the parties.
By entering into the "Representative Agreement" with ITEC, Petitioner
is charged with knowledge that ITEC was not licensed to engage in
business activities in the country, and is thus estopped from raising in
defense such incapacity of ITEC, having chosen to ignore or even
presumptively take advantage of the same.
In Top-Weld, we ruled that a foreign corporation may be exempted from
the license requirement in order to institute an action in our courts if its
representative in the country maintained an independent status during
the existence of the disputed contract. Petitioner is deemed to have
acceded to such independent character when it entered into the
Representative Agreement with ITEC, particularly, provision 6.2 (supra).
Petitioner's insistence on the dismissal of this action due to the
application, or non application, of the private international law rule of
forum non conveniens defies well-settled rules of fair play. According to
petitioner, the Philippine Court has no venue to apply its discretion
whether to give cognizance or not to the present action, because it has
not acquired jurisdiction over the person of the plaintiff in the case, the
latter allegedly having no personality to sue before Philippine Courts.
This argument is misplaced because the court has already acquired
jurisdiction over the plaintiff in the suit, by virtue of his filing the original
complaint. And as we have already observed, petitioner is not at liberty
to question plaintiff's standing to sue, having already acceded to the
same by virtue of its entry into the Representative Agreement referred
to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine Court,
based on the facts of the case, whether to give due course to the suit or
dismiss it, on the principle of forum non convenience. 47 Hence, the
Philippine Court may refuse to assume jurisdiction in spite of its having
acquired jurisdiction. Conversely, the court may assume jurisdiction over
the case if it chooses to do so; provided, that the following requisites are
met: 1) That the Philippine Court is one to which the parties may
conveniently resort to; 2) That the Philippine Court is in a position to
make an intelligent decision as to the law and the facts; and, 3) That the
Philippine Court has or is likely to have power to enforce its decision. 48
The aforesaid requirements having been met, and in view of the court's
disposition to give due course to the questioned action, the matter of the
present forum not being the "most convenient" as a ground for the suit's
dismissal, deserves scant consideration.
IN VIEW OF THE FOREGOING PREMISES, the instant Petition is
hereby DISMISSED. The decision of the Court of Appeals dated June
7, 1991, upholding the RTC Order dated February 22, 1991, denying the
petitioners' Motion to Dismiss, and ordering the issuance of the Writ of
Preliminary Injunction, is hereby affirmed in toto.
SO ORDERED.
G.R. No. 149177 November 23, 2007
KAZUHIRO HASEGAWA and NIPPON ENGINEERING
CONSULTANTS CO., LTD., Petitioners,
vs.
MINORU KITAMURA, Respondent.
See Conflicts 1
G.R. No. 120135 March 31, 2003
BANK OF AMERICA NT & SA, BANK OF AMERICA
INTERNATIONAL, LTD., petitioners,
vs.
COURT OF APPEALS, HON. MANUEL PADOLINA, EDUARDO
LITONJUA, SR., and AURELIO K. LITONJUA, JR., respondents.
AUSTRIA-MARTINEZ, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the November 29, 1994 decision of the Court of
Appeals1 and the April 28, 1995 resolution denying petitioners' motion
for reconsideration.
The factual background of the case is as follows:
On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua
(Litonjuas, for brevity) filed a Complaint2 before the Regional Trial Court
of Pasig against the Bank of America NT&SA and Bank of America
International, Ltd. (defendant banks for brevity) alleging that: they were
engaged in the shipping business; they owned two vessels: Don Aurelio
and El Champion, through their wholly-owned corporations; they
deposited their revenues from said business together with other funds
with the branches of said banks in the United Kingdom and Hongkong
up to 1979; with their business doing well, the defendant banks induced
them to increase the number of their ships in operation, offering them
easy loans to acquire said vessels;3 thereafter, the defendant banks
acquired, through their (Litonjuas') corporations as the borrowers: (a) El
Carrier4; (b) El General5; (c) El Challenger6; and (d) El Conqueror7; the
vessels were registered in the names of their corporations; the operation
and the funds derived therefrom were placed under the complete and
exclusive control and disposition of the petitioners; 8 and the possession
the vessels was also placed by defendant banks in the hands of persons
selected and designated by them (defendant banks).9
The Litonjuas claimed that defendant banks as trustees did not fully
render an account of all the income derived from the operation of the
vessels as well as of the proceeds of the subsequent foreclosure
sale;10 because of the breach of their fiduciary duties and/or negligence
of the petitioners and/or the persons designated by them in the operation
of private respondents' six vessels, the revenues derived from the
operation of all the vessels declined drastically; the loans acquired for
the purchase of the four additional vessels then matured and remained
unpaid, prompting defendant banks to have all the six vessels, including
the two vessels originally owned by the private respondents, foreclosed
and sold at public auction to answer for the obligations incurred for and
in behalf of the operation of the vessels; they (Litonjuas) lost sizeable
amounts of their own personal funds equivalent to ten percent (10%) of
the acquisition cost of the four vessels and were left with the unpaid
balance of their loans with defendant banks.11 The Litonjuas prayed for
the accounting of the revenues derived in the operation of the six vessels
and of the proceeds of the sale thereof at the foreclosure proceedings
instituted by petitioners; damages for breach of trust; exemplary
damages and attorney's fees.12
Defendant banks filed a Motion to Dismiss on grounds of forum non
conveniens and lack of cause of action against them.13
On December 3, 1993, the trial court issued an Order denying the Motion
to Dismiss, thus:
"WHEREFORE, and in view of the foregoing consideration,
the Motion to Dismiss is hereby DENIED. The defendant is
therefore, given a period of ten (10) days to file its Answer to
the complaint.
"SO ORDERED."14
Instead of filing an answer the defendant banks went to the Court of
Appeals on a "Petition for Review on Certiorari" 15 which was aptly
treated by the appellate court as a petition for certiorari. They assailed
42
the above-quoted order as well as the subsequent denial of their Motion
for Reconsideration.16 The appellate court dismissed the petition and
denied petitioners' Motion for Reconsideration.17
Hence, herein petition anchored on the following grounds:
"1. RESPONDENT COURT OF APPEALS FAILED TO
CONSIDER THE FACT THAT THE SEPARATE
PERSONALITIES OF THE PRIVATE RESPONDENTS
(MERE STOCKHOLDERS) AND THE FOREIGN
CORPORATIONS (THE REAL BORROWERS) CLEARLY
SUPPORT, BEYOND ANY DOUBT, THE PROPOSITION
THAT THE PRIVATE RESPONDENTS HAVE NO
PERSONALITIES TO SUE.
"2. THE RESPONDENT COURT OF APPEALS FAILED TO
REALIZE THAT WHILE THE PRINCIPLE OFFORUM NON
CONVENIENS IS NOT MANDATORY, THERE ARE,
HOWEVER, SOME GUIDELINES TO FOLLOW IN
DETERMINING WHETHER THE CHOICE OF FORUM
SHOULD BE DISTURBED. UNDER THE CIRCUMSTANCES
SURROUNDING THE INSTANT CASE, DISMISSAL OF THE
COMPLAINT ON THE GROUND OF FORUM NON-
CONVENIENS IS MORE APPROPRIATE AND PROPER.
"3. THE PRINCIPLE OF RES JUDICATA IS NOT LIMITED
TO FINAL JUDGMENT IN THE PHILIPPINES. IN FACT, THE
PENDENCY OF FOREIGN ACTION MAY BE THE LEGAL
BASIS FOR THE DISMISSAL OF THE COMPLAINT FILED
BY THE PRIVATE RESPONDENT. COROLLARY TO THIS,
THE RESPONDENT COURT OF APPEALS FAILED TO
CONSIDER THE FACT THAT PRIVATE RESPONDENTS
ARE GUILTY OF FORUM SHOPPING." 18
As to the first assigned error: Petitioners argue that the borrowers and
the registered owners of the vessels are the foreign corporations and
not private respondents Litonjuas who are mere stockholders; and that
the revenues derived from the operations of all the vessels are deposited
in the accounts of the corporations. Hence, petitioners maintain that
these foreign corporations are the legal entities that have the
personalities to sue and not herein private respondents; that private
respondents, being mere shareholders, have no claim on the vessels as
owners since they merely have an inchoate right to whatever may
remain upon the dissolution of the said foreign corporations and after all
creditors have been fully paid and satisfied;19 and that while private
respondents may have allegedly spent amounts equal to 10% of the
acquisition costs of the vessels in question, their 10% however
represents their investments as stockholders in the foreign
corporations.20
Anent the second assigned error, petitioners posit that while the
application of the principle of forum non conveniens is discretionary on
the part of the Court, said discretion is limited by the guidelines
pertaining to the private as well as public interest factors in determining
whether plaintiffs' choice of forum should be disturbed, as elucidated
in Gulf Oil Corp. vs. Gilbert21 and Piper Aircraft Co. vs. Reyno,22 to wit:
"Private interest factors include: (a) the relative ease of
access to sources of proof; (b) the availability of compulsory
process for the attendance of unwilling witnesses; (c) the cost
of obtaining attendance of willing witnesses; or (d) all other
practical problems that make trial of a case easy, expeditious
and inexpensive. Public interest factors include: (a) the
administrative difficulties flowing from court congestion; (b)
the local interest in having localized controversies decided at
home; (c) the avoidance of unnecessary problems in conflict
of laws or in the application of foreign law; or (d) the unfairness
of burdening citizens in an unrelated forum with jury duty."23
In support of their claim that the local court is not the proper forum,
petitioners allege the following:
"i) The Bank of America Branches involved, as clearly
mentioned in the Complaint, are based in Hongkong and
England. As such, the evidence and the witnesses are not
readily available in the Philippines;
"ii) The loan transactions were obtained, perfected,
performed, consummated and partially paid outside the
Philippines;
"iii) The monies were advanced outside the Philippines.
Furthermore, the mortgaged vessels were part ofan offshore
fleet, not based in the Philippines;
"iv) All the loans involved were granted to the Private
Respondents' foreign CORPORATIONS;
"v) The Restructuring Agreements were ALL governed by the
laws of England;
"vi) The subsequent sales of the mortgaged vessels and
the application of the sales proceeds occurred and transpired
outside the Philippines, and the deliveries of the sold
mortgaged vessels were likewise made outside the
Philippines;
"vii) The revenues of the vessels and the proceeds of the
sales of these vessels were ALL deposited to the Accounts of
the foreign CORPORATIONS abroad; and
"viii) Bank of America International Ltd. is not licensed nor
engaged in trade or business in the Philippines."24
Petitioners argue further that the loan agreements, security
documentation and all subsequent restructuring agreements uniformly,
unconditionally and expressly provided that they will be governed by the
laws of England;25 that Philippine Courts would then have to apply
English law in resolving whatever issues may be presented to it in the
event it recognizes and accepts herein case; that it would then be
imposing a significant and unnecessary expense and burden not only
upon the parties to the transaction but also to the local court. Petitioners
insist that the inconvenience and difficulty of applying English law with
respect to a wholly foreign transaction in a case pending in the
Philippines may be avoided by its dismissal on the ground of forum non
conveniens. 26
Finally, petitioners claim that private respondents have already waived
their alleged causes of action in the case at bar for their refusal to contest
the foreign civil cases earlier filed by the petitioners against them in
Hongkong and England, to wit:
"1.) Civil action in England in its High Court of Justice,
Queen's Bench Division Commercial Court (1992-Folio No.
2098) against (a) LIBERIAN TRANSPORT NAVIGATION.
SA.; (b) ESHLEY COMPANIA NAVIERA SA., (c) EL
CHALLENGER SA; (d) ESPRIONA SHIPPING CO. SA; (e)
PACIFIC NAVIGATOS CORP. SA; (f) EDDIE NAVIGATION
CORP. SA; (g) EDUARDO K. LITONJUA & (h) AURELIO K.
LITONJUA.
"2.) Civil action in England in its High Court of Justice,
Queen's Bench Division, Commercial Court (1992-Folio No.
2245) against (a) EL CHALLENGER S.A., (b) ESPRIONA
SHIPPING COMPANY S.A., (c) EDUARDO KATIPUNAN
LITONJUA and (d) AURELIO KATIPUNAN LITONJUA.
"3.) Civil action in the Supreme Court of Hongkong High Court
(Action No. 4039 of 1992), against (a) ESHLEY COMPANIA
NAVIERA S.A., (b) EL CHALLENGER S.A., (c) ESPRIONA
SHIPPING COMPANY S.A., (d) PACIFIC NAVIGATORS
CORPORATION (e) EDDIE NAVIGATION CORPORATION
S.A., (f) LITONJUA CHARTERING (EDYSHIP) CO., INC., (g)
AURELIO KATIPUNAN LITONJUA, JR., and (h) EDUARDO
KATIPUNAN LITONJUA.
"4.) A civil action in the Supreme Court of Hong Kong High
Court (Action No. 4040 of 1992), against (a) ESHLEY
COMPANIA NAVIERA S.A., (b) EL CHALLENGER S.A., (c)
ESPRIONA SHIPPING COMPANY S.A., (d) PACIFIC
NAVIGATORS CORPORATION (e) EDDIE NAVIGATION
CORPORATION S.A., (f) LITONJUA CHARTERING
(EDYSHIP) CO., INC., (g) AURELIO KATIPUNAN
LITONJUA, RJ., and (h) EDUARDO KATIPUNAN
LITONJUA."
and that private respondents' alleged cause of action is already barred
by the pendency of another action or bylitis pendentia as shown above.27
On the other hand, private respondents contend that certain material
facts and pleadings are omitted and/or misrepresented in the present
petition for certiorari; that the prefatory statement failed to state that part
of the security of the foreign loans were mortgages on a 39-hectare
43
piece of real estate located in the Philippines;28 that while the complaint
was filed only by the stockholders of the corporate borrowers, the latter
are wholly-owned by the private respondents who are Filipinos and
therefore under Philippine laws, aside from the said corporate borrowers
being but their alter-egos, they have interests of their own in the
vessels.29 Private respondents also argue that the dismissal by the
Court of Appeals of the petition for certiorari was justified because there
was neither allegation nor any showing whatsoever by the petitioners
that they had no appeal, nor any plain, speedy, and adequate remedy in
the ordinary course of law from the Order of the trial judge denying their
Motion to Dismiss; that the remedy available to the petitioners after their
Motion to Dismiss was denied was to file an Answer to the
complaint;30 that as upheld by the Court of Appeals, the decision of the
trial court in not applying the principle of forum non conveniens is in the
lawful exercise of its discretion.31 Finally, private respondents aver that
the statement of petitioners that the doctrine of res judicata also applies
to foreign judgment is merely an opinion advanced by them and not
based on a categorical ruling of this Court;32 and that herein private
respondents did not actually participate in the proceedings in the foreign
courts.33
We deny the petition for lack of merit.
It is a well-settled rule that the order denying the motion to dismiss
cannot be the subject of petition for certiorari. Petitioners should have
filed an answer to the complaint, proceed to trial and await judgment
before making an appeal. As repeatedly held by this Court:
"An order denying a motion to dismiss is interlocutory and
cannot be the subject of the extraordinary petition for certiorari
or mandamus. The remedy of the aggrieved party is to file an
answer and to interpose as defenses the objections raised in
his motion to dismiss, proceed to trial, and in case of an
adverse decision, to elevate the entire case by appeal in due
course. xxx Under certain situations, recourse tocertiorari or
mandamus is considered appropriate, i.e., (a) when the trial
court issued the order without or in excess of jurisdiction; (b)
where there is patent grave abuse of discretion by the trial
court; or (c) appeal would not prove to be a speedy and
adequate remedy as when an appeal would not promptly
relieve a defendant from the injurious effects of the patently
mistaken order maintaining the plaintiff's baseless action and
compelling the defendant needlessly to go through a
protracted trial and clogging the court dockets by another
futile case."34
Records show that the trial court acted within its jurisdiction when it
issued the assailed Order denying petitioners' motion to dismiss. Does
the denial of the motion to dismiss constitute a patent grave abuse of
discretion? Would appeal, under the circumstances, not prove to be a
speedy and adequate remedy? We will resolve said questions in
conjunction with the issues raised by the parties.
First issue. Did the trial court commit grave abuse of discretion in
refusing to dismiss the complaint on the ground that plaintiffs have no
cause of action against defendants since plaintiffs are merely
stockholders of the corporations which are the registered owners of the
vessels and the borrowers of petitioners?
No. Petitioners' argument that private respondents, being mere
stockholders of the foreign corporations, have no personalities to sue,
and therefore, the complaint should be dismissed, is untenable. A case
is dismissible for lack of personality to sue upon proof that the plaintiff is
not the real party-in-interest. Lack of personality to sue can be used as
a ground for a Motion to Dismiss based on the fact that the complaint,
on the face thereof, evidently states no cause of action.35 In San
Lorenzo Village Association, Inc. vs. Court of Appeals, 36 this Court
clarified that a complaint states a cause of action where it contains three
essential elements of a cause of action, namely: (1) the legal right of the
plaintiff, (2) the correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If these
elements are absent, the complaint becomes vulnerable to a motion to
dismiss on the ground of failure to state a cause of action. 37 To
emphasize, it is not the lack or absence of cause of action that is a
ground for dismissal of the complaint but rather the fact that the
complaint states no cause of action.38 "Failure to state a cause of action"
refers to the insufficiency of allegation in the pleading, unlike "lack of
cause of action" which refers to the insufficiency of factual basis for the
action. "Failure to state a cause of action" may be raised at the earliest
stages of an action through a motion to dismiss the complaint, while
"lack of cause of action" may be raised any time after the questions of
fact have been resolved on the basis of stipulations, admissions or
evidence presented.39
In the case at bar, the complaint contains the three elements of a cause
of action. It alleges that: (1) plaintiffs, herein private respondents, have
the right to demand for an accounting from defendants (herein
petitioners), as trustees by reason of the fiduciary relationship that was
created between the parties involving the vessels in question; (2)
petitioners have the obligation, as trustees, to render such an
accounting; and (3) petitioners failed to do the same.
Petitioners insist that they do not have any obligation to the private
respondents as they are mere stockholders of the corporation; that the
corporate entities have juridical personalities separate and distinct from
those of the private respondents. Private respondents maintain that the
corporations are wholly owned by them and prior to the incorporation of
such entities, they were clients of petitioners which induced them to
acquire loans from said petitioners to invest on the additional ships.
We agree with private respondents. As held in the San Lorenzo case, 40
"xxx assuming that the allegation of facts constituting
plaintiffs' cause of action is not as clear and categorical as
would otherwise be desired, any uncertainty thereby arising
should be so resolved as to enable a full inquiry into the merits
of the action."
As this Court has explained in the San Lorenzo case, such a course,
would preclude multiplicity of suits which the law abhors, and conduce
to the definitive determination and termination of the dispute. To do
otherwise, that is, to abort the action on account of the alleged fatal flaws
of the complaint would obviously be indecisive and would not end the
controversy, since the institution of another action upon a revised
complaint would not be foreclosed.41
Second Issue. Should the complaint be dismissed on the ground
of forum non-conveniens?
No. The doctrine of forum non-conveniens, literally meaning 'the forum
is inconvenient', emerged in private international law to deter the
practice of global forum shopping,42 that is to prevent non-resident
litigants from choosing the forum or place wherein to bring their suit for
malicious reasons, such as to secure procedural advantages, to annoy
and harass the defendant, to avoid overcrowded dockets, or to select a
more friendly venue. Under this doctrine, a court, in conflicts of law
cases, may refuse impositions on its jurisdiction where it is not the most
"convenient" or available forum and the parties are not precluded from
seeking remedies elsewhere.43
Whether a suit should be entertained or dismissed on the basis of said
doctrine depends largely upon the facts of the particular case and is
addressed to the sound discretion of the trial court. 44 In the case
of Communication Materials and Design, Inc. vs. Court of Appeals,45 this
Court held that "xxx [a Philippine Court may assume jurisdiction over the
case if it chooses to do so; provided, that the following requisites are
met: (1) that the Philippine Court is one to which the parties may
conveniently resort to; (2) that the Philippine Court is in a position to
make an intelligent decision as to the law and the facts; and, (3) that the
Philippine Court has or is likely to have power to enforce its
decision."46 Evidently, all these requisites are present in the instant case.
Moreover, this Court enunciated in Philsec. Investment Corporation vs.
Court of Appeals,47 that the doctrine offorum non conveniens should not
be used as a ground for a motion to dismiss because Sec. 1, Rule 16 of
the Rules of Court does not include said doctrine as a ground. This Court
further ruled that while it is within the discretion of the trial court to
abstain from assuming jurisdiction on this ground, it should do so only
after vital facts are established, to determine whether special
circumstances require the court's desistance; and that the propriety of
dismissing a case based on this principle of forum non
conveniens requires a factual determination, hence it is more properly
considered a matter of defense.48
Third issue. Are private respondents guilty of forum shopping because
of the pendency of foreign action?
No. Forum shopping exists where the elements of litis pendentia are
present and where a final judgment in one case will amount to res
judicata in the other.49 Parenthetically, for litis pendentia to be a ground
for the dismissal of an action there must be: (a) identity of the parties or
at least such as to represent the same interest in both actions; (b)
44
identity of rights asserted and relief prayed for, the relief being founded
on the same acts; and (c) the identity in the two cases should be such
that the judgment which may be rendered in one would, regardless of
which party is successful, amount to res judicata in the other.50
In case at bar, not all the requirements for litis pendentia are present.
While there may be identity of parties, notwithstanding the presence of
other respondents,51 as well as the reversal in positions of plaintiffs and
defendants52, still the other requirements necessary for litis
pendentia were not shown by petitioner. It merely mentioned that civil
cases were filed in Hongkong and England without however showing the
identity of rights asserted and the reliefs sought for as well as the
presence of the elements of res judicata should one of the cases be
adjudged.
As the Court of Appeals aptly observed:
"xxx [T]he petitioners, by simply enumerating the civil actions
instituted abroad involving the parties herein xxx, failed to
provide this Court with relevant and clear specifications that
would show the presence of the above-quoted elements or
requisites for res judicata. While it is true that the petitioners
in their motion for reconsideration (CA Rollo, p. 72), after
enumerating the various civil actions instituted abroad, did
aver that "Copies of the foreign judgments are hereto attached
and made integral parts hereof as Annexes 'B', 'C', 'D' and 'E'",
they failed, wittingly or inadvertently, to include a single
foreign judgment in their pleadings submitted to this Court as
annexes to their petition. How then could We have been
expected to rule on this issue even if We were to hold that
foreign judgments could be the basis for the application of the
aforementioned principle of res judicata?"53
Consequently, both courts correctly denied the dismissal of herein
subject complaint.
WHEREFORE, the petition is DENIED for lack of merit.
Costs against petitioners.
SO ORDERED.
G.R. No. 103493 June 19, 1997
PHILSEC INVESTMENT CORPORATION, BPI-INTERNATIONAL
FINANCE LIMITED, and ATHONA HOLDINGS, N.V., petitioners,
vs.
THE HONORABLE COURT OF APPEALS, 1488, INC., DRAGO DAIC,
VENTURA O. DUCAT, PRECIOSO R. PERLAS, and WILLIAM H.
CRAIG, respondents.
MENDOZA, J.:
This case presents for determination the conclusiveness of a foreign
judgment upon the rights of the parties under the same cause of action
asserted in a case in our local court. Petitioners brought this case in the
Regional Trial Court of Makati, Branch 56, which, in view of the
pendency at the time of the foreign action, dismissed Civil Case No.
16563 on the ground of litis pendentia, in addition to forum non
conveniens. On appeal, the Court of Appeals affirmed. Hence this
petition for review on certiorari.
The facts are as follows:
On January 15, 1983, private respondent Ventura O. Ducat obtained
separate loans from petitioners Ayala International Finance Limited
(hereafter called AYALA) 1 and Philsec Investment Corporation
(hereafter called PHILSEC) in the sum of US$2,500,000.00, secured by
shares of stock owned by Ducat with a market value of P14,088,995.00.
In order to facilitate the payment of the loans, private respondent 1488,
Inc., through its president, private respondent Drago Daic, assumed
Ducat's obligation under an Agreement, dated January 27, 1983,
whereby 1488, Inc. executed a Warranty Deed with Vendor's Lien by
which it sold to petitioner Athona Holdings, N.V. (hereafter called
ATHONA) a parcel of land in Harris County, Texas, U.S.A., for
US$2,807,209.02, while PHILSEC and AYALA extended a loan to
ATHONA in the amount of US$2,500,000.00 as initial payment of the
purchase price. The balance of US$307,209.02 was to be paid by
means of a promissory note executed by ATHONA in favor of 1488, Inc.
Subsequently, upon their receipt of the US$2,500,000.00 from 1488,
Inc., PHILSEC and AYALA released Ducat from his indebtedness and
delivered to 1488, Inc. all the shares of stock in their possession
belonging to Ducat.
As ATHONA failed to pay the interest on the balance of US$307,209.02,
the entire amount covered by the note became due and demandable.
Accordingly, on October 17, 1985, private respondent 1488, Inc. sued
petitioners PHILSEC, AYALA, and ATHONA in the United States for
payment of the balance of US$307,209.02 and for damages for breach
of contract and for fraud allegedly perpetrated by petitioners in
misrepresenting the marketability of the shares of stock delivered to
1488, Inc. under the Agreement. Originally instituted in the United States
District Court of Texas, 165th Judicial District, where it was docketed as
Case No. 85-57746, the venue of the action was later transferred to the
United States District Court for the Southern District of Texas, where
1488, Inc. filed an amended complaint, reiterating its allegations in the
original complaint. ATHONA filed an answer with counterclaim,
impleading private respondents herein as counterdefendants, for
allegedly conspiring in selling the property at a price over its market
value. Private respondent Perlas, who had allegedly appraised the
property, was later dropped as counterdefendant. ATHONA sought the
recovery of damages and excess payment allegedly made to 1488, Inc.
and, in the alternative, the rescission of sale of the property. For their
part, PHILSEC and AYALA filed a motion to dismiss on the ground of
lack of jurisdiction over their person, but, as their motion was denied,
they later filed a joint answer with counterclaim against private
respondents and Edgardo V. Guevarra, PHILSEC's own former
president, for the rescission of the sale on the ground that the property
had been overvalued. On March 13, 1990, the United States District
Court for the Southern District of Texas dismissed the counterclaim
against Edgardo V. Guevarra on the ground that it was "frivolous and
[was] brought against him simply to humiliate and embarrass him." For
this reason, the U.S. court imposed so-called Rule 11 sanctions on
PHILSEC and AYALA and ordered them to pay damages to Guevarra.
On April 10, 1987, while Civil Case No. H-86-440 was pending in the
United States, petitioners filed a complaint "For Sum of Money with
Damages and Writ of Preliminary Attachment" against private
respondents in the Regional Trial Court of Makati, where it was docketed
as Civil Case No. 16563. The complaint reiterated the allegation of
petitioners in their respective counterclaims in Civil Action No. H-86-440
of the United States District Court of Southern Texas that private
respondents committed fraud by selling the property at a price 400
percent more than its true value of US$800,000.00. Petitioners claimed
that, as a result of private respondents' fraudulent misrepresentations,
ATHONA, PHILSEC, and AYALA were induced to enter into the
Agreement and to purchase the Houston property. Petitioners prayed
that private respondents be ordered to return to ATHONA the excess
payment of US$1,700,000.00 and to pay damages. On April 20, 1987,
the trial court issued a writ of preliminary attachment against the real and
personal properties of private respondents. 2
Private respondent Ducat moved to dismiss Civil Case No. 16563 on the
grounds of (1) litis pendentia, vis-a-visCivil Action No. H-86-440 filed by
1488, Inc. and Daic in the U.S., (2) forum non conveniens, and (3) failure
of petitioners PHILSEC and BPI-IFL to state a cause of action. Ducat
contended that the alleged overpricing of the property prejudiced only
petitioner ATHONA, as buyer, but not PHILSEC and BPI-IFL which were
not parties to the sale and whose only participation was to extend
financial accommodation to ATHONA under a separate loan agreement.
On the other hand, private respondents 1488, Inc. and its president Daic
filed a joint "Special Appearance and Qualified Motion to Dismiss,"
contending that the action being in personam, extraterritorial service of
summons by publication was ineffectual and did not vest the court with
jurisdiction over 1488, Inc., which is a non-resident foreign corporation,
and Daic, who is a non-resident alien.
On January 26, 1988, the trial court granted Ducat's motion to dismiss,
stating that "the evidentiary requirements of the controversy may be
more suitably tried before the forum of the litis pendentia in the U.S.,
under the principle in private international law of forum non conveniens,"
even as it noted that Ducat was not a party in the U.S. case.
A separate hearing was held with regard to 1488, Inc. and Daic's motion
to dismiss. On March 9, 1988, the trial court 3 granted the motion to
dismiss filed by 1488, Inc. and Daic on the ground of litis
pendentia considering that
the "main factual element" of the cause of action in this case
which is the validity of the sale of real property in the United
States between defendant 1488 and plaintiff ATHONA is the
45
 subject matter of the pending case in the United States District
Court which, under the doctrine of forum non conveniens, is
the better (if not exclusive) forum to litigate matters needed to
determine the assessment and/or fluctuations of the fair
market value of real estate situated in Houston, Texas, U.S.A.
from the date of the transaction in 1983 up to the present and
verily, . . . (emphasis by trial court)
The trial court also held itself without jurisdiction over 1488,
Inc. and Daic because they were non-residents and the action
was not an action in rem or quasi in rem, so that
extraterritorial service of summons was ineffective. The trial
court subsequently lifted the writ of attachment it had earlier
issued against the shares of stocks of 1488, Inc. and Daic.
Petitioners appealed to the Court of Appeals, arguing that the trial court
erred in applying the principle of litis pendentia and forum non
conveniens and in ruling that it had no jurisdiction over the defendants,
despite the previous attachment of shares of stocks belonging to 1488,
Inc. and Daic.
On January 6, 1992, the Court of Appeals 4 affirmed the dismissal of
Civil Case No. 16563 against Ducat, 1488, Inc., and Daic on the ground
of litis pendentia, thus:
The plaintiffs in the U.S. court are 1488 Inc. and/or Drago
Daic, while the defendants are Philsec, the Ayala International
Finance Ltd. (BPI-IFL's former name) and the Athona
Holdings, NV. The case at bar involves the same parties. The
transaction sued upon by the parties, in both cases is the
Warranty Deed executed by and between Athona Holdings
and 1488 Inc. In the U.S. case, breach of contract and the
promissory note are sued upon by 1488 Inc., which likewise
alleges fraud employed by herein appellants, on the
marketability of Ducat's securities given in exchange for the
Texas property. The recovery of a sum of money and
damages, for fraud purportedly committed by appellees, in
overpricing the Texas land, constitute the action before the
Philippine court, which likewise stems from the same
Warranty Deed.
The Court of Appeals also held that Civil Case No. 16563 was
an action in personam for the recovery of a sum of money for
alleged tortious acts, so that service of summons by
publication did not vest the trial court with jurisdiction over
1488, Inc. and Drago Daic. The dismissal of Civil Case No.
16563 on the ground offorum non conveniens was likewise
affirmed by the Court of Appeals on the ground that the case
can be better tried and decided by the U.S. court:
The U.S. case and the case at bar arose from only one main
transaction, and involve foreign elements, to wit: 1) the
property subject matter of the sale is situated in Texas, U.S.A.;
2) the seller, 1488 Inc. is a non-resident foreign corporation;
3) although the buyer, Athona Holdings, a foreign corporation
which does not claim to be doing business in the Philippines,
is wholly owned by Philsec, a domestic corporation, Athona
Holdings is also owned by BPI-IFL, also a foreign corporation;
4) the Warranty Deed was executed in Texas, U.S.A.
In their present appeal, petitioners contend that:
1. THE DOCTRINE OF PENDENCY OF ANOTHER ACTION
BETWEEN THE SAME PARTIES FOR THE SAME CAUSE
(LITIS PENDENTIA) RELIED UPON BY THE COURT OF
APPEALS IN AFFIRMING THE TRIAL COURT'S DISMISSAL
OF THE CIVIL ACTION IS NOT APPLICABLE.
2. THE PRINCIPLE OF FORUM NON CONVENIENS ALSO
RELIED UPON BY THE COURT OF APPEALS IN
AFFIRMING THE DISMISSAL BY THE TRIAL COURT OF
THE CIVIL ACTION IS LIKEWISE NOT APPLICABLE.
3. AS A COROLLARY TO THE FIRST TWO GROUNDS, THE
COURT OF APPEALS ERRED IN NOT HOLDING THAT
PHILIPPINE PUBLIC POLICY REQUIRED THE
ASSUMPTION, NOT THE RELINQUISHMENT, BY THE
TRIAL COURT OF ITS RIGHTFUL JURISDICTION IN THE
CIVIL ACTION FOR THERE IS EVERY REASON TO
PROTECT AND VINDICATE PETITIONERS' RIGHTS FOR
TORTIOUS OR WRONGFUL ACTS OR CONDUCT
PRIVATE RESPONDENTS (WHO ARE MOSTLY NON-
RESIDENT ALIENS) INFLICTED UPON THEM HERE IN
THE PHILIPPINES.
We will deal with these contentions in the order in which they are made.
First. It is important to note in connection with the first point that while
the present case was pending in the Court of Appeals, the United States
District Court for the Southern District of Texas rendered judgment 5 in
the case before it. The judgment, which was in favor of private
respondents, was affirmed on appeal by the Circuit Court of
Appeals.6 Thus, the principal issue to be resolved in this case is whether
Civil Case No. 16536 is barred by the judgment of the U.S. court.
Private respondents contend that for a foreign judgment to be pleaded
as res judicata, a judgment admitting the foreign decision is not
necessary. On the other hand, petitioners argue that the foreign
judgment cannot be given the effect of res judicata without giving them
an opportunity to impeach it on grounds stated in Rule 39, 50 of the
Rules of Court, to wit: "want of jurisdiction, want of notice to the party,
collusion, fraud, or clear mistake of law or fact."
Petitioners' contention is meritorious. While this Court has given the
effect of res judicata to foreign judgments in several cases, 7 it was after
the parties opposed to the judgment had been given ample opportunity
to repel them on grounds allowed under the law. 8 It is not necessary for
this purpose to initiate a separate action or proceeding for enforcement
of the foreign judgment. What is essential is that there is opportunity to
challenge the foreign judgment, in order for the court to properly
determine its efficacy. This is because in this jurisdiction, with respect to
actions in personam, as distinguished from actions in rem, a foreign
judgment merely constitutes prima facie evidence of
the justness of the claim of a party and, as such, is subject to proof to
the contrary. 9 Rule 39, 50 provides:
Sec. 50. Effect of foreign judgments. The effect of a
judgment of a tribunal of a foreign country, having jurisdiction
to pronounce the judgment is as follows:
(a) In case of a judgment upon a specific thing, the judgment
is conclusive upon the title to the thing;
(b) In case of a judgment against a person, the judgment is
presumptive evidence of a right as between the parties and
their successors in interest by a subsequent title; but the
judgment may be repelled by evidence of a want of
jurisdiction, want of notice to the party, collusion, fraud, or
clear mistake of law or fact.
Thus, in the case of General Corporation of the Philippines v. Union
Insurance Society of Canton, Ltd., 10 which private respondents invoke
for claiming conclusive effect for the foreign judgment in their favor, the
foreign judgment was considered res judicata because this Court found
"from the evidence as well as from appellant's own pleadings" 11 that the
foreign court did not make a "clear mistake of law or fact" or that its
judgment was void for want of jurisdiction or because of fraud or
collusion by the defendants. Trial had been previously held in the lower
court and only afterward was a decision rendered, declaring the
judgment of the Supreme Court of the State of Washington to have the
effect of res judicata in the case before the lower court. In the same vein,
in Philippines International Shipping Corp. v. Court of Appeals, 12 this
Court held that the foreign judgment was valid and enforceable in the
Philippines there being no showing that it was vitiated by want of notice
to the party, collusion, fraud or clear mistake of law or fact. The prima
facie presumption under the Rule had not been rebutted.
In the case at bar, it cannot be said that petitioners were given the
opportunity to challenge the judgment of the U.S. court as basis for
declaring it res judicata or conclusive of the rights of private
respondents. The proceedings in the trial court were summary. Neither
the trial court nor the appellate court was even furnished copies of the
pleadings in the U.S. court or apprised of the evidence presented
thereat, to assure a proper determination of whether the issues then
being litigated in the U.S. court were exactly the issues raised in this
case such that the judgment that might be rendered would constitute res
judicata. As the trial court stated in its disputed order dated March 9,
1988.
On the plaintiff's claim in its Opposition that the causes of
action of this case and the pending case in the United States
are not identical, precisely the Order of January 26, 1988
46
 never found that the causes of action of this case and the case
pending before the USA Court, were identical. (emphasis
added)
It was error therefore for the Court of Appeals to summarily
rule that petitioners' action is barred by the principle of res
judicata. Petitioners in fact questioned the jurisdiction of the
U.S. court over their persons, but their claim was brushed
aside by both the trial court and the Court of Appeals. 13
Moreover, the Court notes that on April 22, 1992, 1488, Inc. and Daic
filed a petition for the enforcement of judgment in the Regional Trial
Court of Makati, where it was docketed as Civil Case No. 92-1070 and
assigned to Branch 134, although the proceedings were suspended
because of the pendency of this case. To sustain the appellate court's
ruling that the foreign judgment constitutes res judicata and is a bar to
the claim of petitioners would effectively preclude petitioners from
repelling the judgment in the case for enforcement. An absurdity could
then arise: a foreign judgment is not subject to challenge by the plaintiff
against whom it is invoked, if it is pleaded to resist a claim as in this
case, but it may be opposed by the defendant if the foreign judgment is
sought to be enforced against him in a separate proceeding. This is
plainly untenable. It has been held therefore that:
[A] foreign judgment may not be enforced if it is not recognized
in the jurisdiction where affirmative relief is being sought.
Hence, in the interest of justice, the complaint should be
considered as a petition for the recognition of the Hongkong
judgment under Section 50 (b), Rule 39 of the Rules of Court
in order that the defendant, private respondent herein, may
present evidence of lack of jurisdiction, notice, collusion, fraud
or clear mistake of fact and law, if applicable. 14
Accordingly, to insure the orderly administration of justice, this case and
Civil Case No. 92-1070 should be consolidated. 15 After all, the two have
been filed in the Regional Trial Court of Makati, albeit in different salas,
this case being assigned to Branch 56 (Judge Fernando V. Gorospe),
while Civil Case No. 92-1070 is pending in Branch 134 of Judge Ignacio
Capulong. In such proceedings, petitioners should have the burden of
impeaching the foreign judgment and only in the event they succeed in
doing so may they proceed with their action against private respondents.
Second. Nor is the trial court's refusal to take cognizance of the case
justifiable under the principle of forum non conveniens. First, a motion
to dismiss is limited to the grounds under Rule 16, 1, which does not
include forum non conveniens. 16 The propriety of dismissing a case
based on this principle requires a factual determination, hence, it is more
properly considered a matter of defense. Second, while it is within the
discretion of the trial court to abstain from assuming jurisdiction on this
ground, it should do so only after "vital facts are established, to
determine whether special circumstances" require the court's
desistance. 17
In this case, the trial court abstained from taking jurisdiction solely on
the basis of the pleadings filed by private respondents in connection with
the motion to dismiss. It failed to consider that one of the plaintiffs
(PHILSEC) is a domestic corporation and one of the defendants
(Ventura Ducat) is a Filipino, and that it was the extinguishment of the
latter's debt which was the object of the transaction under litigation. The
trial court arbitrarily dismissed the case even after finding that Ducat was
not a party in the U.S. case.
Third. It was error we think for the Court of Appeals and the trial court to
hold that jurisdiction over 1488, Inc. and Daic could not be obtained
because this is an action in personam and summons were served by
extraterritorial service. Rule 14, 17 on extraterritorial service provides
that service of summons on a non-resident defendant may be effected
out of the Philippines by leave of Court where, among others, "the
property of the defendant has been attached within the Philippines." 18 It
is not disputed that the properties, real and personal, of the private
respondents had been attached prior to service of summons under the
Order of the trial court dated April 20, 1987. 19
Fourth. As for the temporary restraining order issued by the Court on
June 29, 1994, to suspend the proceedings in Civil Case No. 92-1445
filed by Edgardo V. Guevarra to enforce so-called Rule 11 sanctions
imposed on the petitioners by the U.S. court, the Court finds that the
judgment sought to be enforced is severable from the main judgment
under consideration in Civil Case No. 16563. The separability of
Guevara's claim is not only admitted by petitioners, 20 it appears from
the pleadings that petitioners only belatedly impleaded Guevarra as
defendant in Civil Case No. 16563. 21 Hence, the TRO should be lifted
and Civil Case No. 92-1445 allowed to proceed.
WHEREFORE, the decision of the Court of Appeals is REVERSED and
Civil Case No. 16563 is REMANDED to the Regional Trial Court of
Makati for consolidation with Civil Case No. 92-1070 and for further
proceedings in accordance with this decision. The temporary restraining
order issued on June 29, 1994 is hereby LIFTED.
SO ORDERED.
G.R. No. 141536. February 26, 2001
GIL MIGUEL T. PUYAT, petitioner,
vs.
RON ZABARTE, respondent.
PANGANIBAN, J.:
Summary judgment in a litigation is resorted to if there is no genuine
issue as to any material fact, other than the amount of damages. If this
verity is evident from the pleadings and the supporting affidavits,
depositions and admissions on file with the court, the moving party is
entitled to such remedy as a matter of course.
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, challenging the August 31, 1999 Decision 1 of the Court
of Appeals (CA), which affirmed the Regional Trial Court (RTC) of Pasig
City, Branch 67 in Civil Case No. 64107; and the January 20, 2000 CA
Resolution 2 which denied reconsideration.
The assailed CA Decision disposed as follows:
WHEREFORE, finding no error in the judgment appealed from, the
same is AFFIRMED." 3
The Facts
The facts of this case, as narrated by the Court of Appeals, are as
follows: 4
It appears that on 24 January 1994, [Respondent] Ron Zabarte
commenced [an action] to enforce the money judgment rendered by the
Superior Court for the State of California, County of Contra Costa,
U.S.A. On 18 March 1994, [petitioner] filed his Answer with the following
special and affirmative defenses:
xxx xxx xxx
8) The Superior Court for the State of California, County of Contra
Costa[,] did not properly acquire jurisdiction over the subject matter
of and over the persons involved in [C]ase #C21-00265.
9) The Judgment on Stipulations for Entry in Judgment in Case
#C21-00265 dated December 12, 1991 was obtained without the
assistance of counsel for [petitioner] and without sufficient notice to
him and therefore, was rendered in clear violation of [petitioners]
constitutional rights to substantial and procedural due process.
10) The Judgment on Stipulation for Entry in Judgment in Case
#C21-00265 dated December 12, 1991 was procured by means of
fraud or collusion or undue influence and/or based on a clear
mistake of fact and law.
11) The Judgment on Stipulation for Entry in Judgment in Case
#C21-00265 dated December 12, 1991 is contrary to the laws,
public policy and canons of morality obtaining in the Philippines and
the enforcement of such judgment in the Philippines would result
in the unjust enrichment of [respondent] at the expense of
[petitioner] in this case.
12) The Judgment on Stipulation for Entry in Judgment in Case
#C21-00265 dated December 12, 1991 is null and void and
unenforceable in the Philippines.
13) In the transaction, which is the subject matter in Case #C21-
00265, [petitioner] is not in any way liable, in fact and in law, to
[respondent] in this case, as contained in [petitioners] Answer to
Complaint in Case #C21-00265 dated April 1, 1991, Annex B of
[respondents] Complaint dated December 6, 1993.
47
 14) [Respondent] is guilty of misrepresentation or falsification in
the filing of his Complaint in this case dated December 6, 1993.
Worse, [respondent] has no capacity to sue in the Philippines.
15) Venue has been improperly laid in this case.
(Record, pp. 42-44)
On 1 August 1994, [respondent] filed a [M]otion for [S]ummary
[J]udgment under Rule 34 of the Rules of Court alleging that the
[A]nswer filed by [petitioner] failed to tender any genuine issue as
to the material facts. In his [O]pposition to [respondents] motion,
[petitioner] demurred as follows:
2) [Petitioner] begs to disagree[;] in support hereof, [he] wishes to
mention that in his Answer with Special and Affirmative Defenses
dated March 16, 1994 [petitioner] has interposed that the
Judgment on Stipulations for Entry in Judgment is null and void,
fraudulent, illegal and unenforceable, the same having been
obtained by means of fraud, collusion, undue influence and/or clear
mistake of fact and law. In addition, [he] has maintained that said
Judgment on Stipulations for Entry in Judgment was obtained
without the assistance of counsel for [petitioner] and without
sufficient notice to him and therefore, was rendered in violation of
his constitutional rights to substantial and procedural due process.
The [M]otion for [S]ummary [J]udgment was set for hearing on 12
August 1994 during which [respondent] marked and submitted in
evidence the following:
Exhibit A - x x x Judgment on Stipulation For Entry In Judgment of
the Supreme Court of the State of California[,] County of Contra
Costa[,] signed by Hon. Ellen James, Judge of the Superior Court.
Exhibit B - x x x Certificate of Authentication of the [O]rder signed
by the Hon. Ellen James, issued by the Consulate General of the
Republic of the Philippines.
Exhibit C - [R]eturn of the [W]rit of [E]xecution (writ unsatisfied)
issued by the sheriff/marshall, County of Santa Clara, State of
California.
Exhibit D - [W]rit of [E]xecution
Exhibit 'E' [P]roof of [S]ervice of copies of [W]rit of [E]xecution,
[N]otice of [L]evy, [M]emorandum of [G]arnishee, [E]xemptions
from [E]nforcement of [J]udgment.
Exhibit F - Certification issued by the Secretary of State, State of
California that Stephen Weir is the duly elected, qualified and
acting [c]ounty [c]lerk of the County of Contra Costa of the State of
California.
Exhibit G - Certificate of [A]uthentication of the [W]rit of
[E]xecution.
On 6 April 1995, the court a quo issued an [O]rder granting
[respondents] [M]otion for [S]ummary [J]udgment [and] likewise
granting [petitioner] ten (10) days to submit opposing affidavits, after
which the case would be deemed submitted for resolution (Record, pp.
152-153). [Petitioner] filed a [M]otion for [R]econsideration of the
aforesaid [O]rder and [respondent] filed [C]omment. On 30 June 1995,
[petitioner] filed a [M]otion to [D]ismiss on the ground of lack of
jurisdiction over the subject matter of the case and forum-non-
conveniens (Record, pp. 166-170). In his [O]pposition to the [M]otion
(Record, pp. 181-182) [respondent] contended that [petitioner could] no
longer question the jurisdiction of the lower court on the ground that [the
latters] Answer had failed to raise the issue of jurisdiction. [Petitioner]
countered by asserting in his Reply that jurisdiction [could] not be fixed
by agreement of the parties. The lower court dismissed [his] [M]otion for
[R]econsideration and [M]otion [to] [D]ismiss (Record, pp. 196-198), x x
x.
5 6
The RTC eventually rendered its February 21, 1997 Decision, which
disposed as follows:
WHEREFORE, judgment is hereby rendered, ordering [petitioner] to
pay [respondent] the following amounts:
1. The amount of U.S. dollars $241,991.33, with the interest of legal
rate from October 18, 1991, or its peso equivalent, pursuant to the
[J]udgment of [S]tipulation for [E]ntry in [J]udgment dated December 19,
1991;
2. The amount of P30,000.00 as attorneys fees;
3. To pay the costs of suit.
The claim for moral damages, not having been substantiated, it is
hereby denied. 7
Ruling of the Court of Appeals
Affirming the trial court, the Court of Appeals held that petitioner was
estopped from assailing the judgment that had become final and had, in
fact, been partially executed. The CA also ruled that summary judgment
was proper, because petitioner had failed to tender any genuine issue
of fact and was merely maneuvering to delay the full effects of the
judgment.
Citing Ingenohl v. Olsen, 8 the CA also rejected petitioners argument
that the RTC should have dismissed the action for the enforcement of a
foreign judgment, on the ground of forum non conveniens. It reasoned
out that the recognition of the foreign judgment was based on comity,
reciprocity and res judicata.
Hence, this Petition. 9
Issue
In his Memorandum, petitioner submits this lone but all-embracing issue:
Whether or not the Court of Appeals acted in a manner x x x contrary
to law when it affirmed the Order of the trial court granting respondents
Motion for Summary Judgment and rendering judgment against the
petitioner. 10
In his discussion, petitioner contends that the CA erred in ruling in this
wise:
1. That his Answer failed to tender a genuine issue of fact regarding the
following:
(a) the jurisdiction of a foreign court over the subject matter
(b) the validity of the foreign judgment
(c) the judgments conformity to Philippine laws, public policy, canons of
morality, and norms against unjust enrichment
2. That the principle of forum non conveniens was inapplicable to the
instant case.
This Courts Ruling
The Petition has no merit.
First Question: Summary Judgment
Petitioner vehemently insists that summary judgment is inappropriate to
resolve the case at bar, arguing that his Answer allegedly raised genuine
and material factual matters which he should have been allowed to
prove during trial.
On the other hand, respondent argues that the alleged genuine issues
of fact raised by petitioner are mere conclusions of law, or propositions
arrived at not by any process of natural reasoning from a fact or a
combination of facts stated but by the application of the artificial rules of
law to the facts pleaded. 11
The RTC granted respondents Motion for Summary Judgment because
petitioner, in his Answer, admitted the existence of the Judgment on
Stipulation for Entry in Judgment. Besides, he had already paid $5,000
to respondent, as provided in the foreign judgment sought to be
enforced. 12 Hence, the trial court ruled that, there being no genuine
issue as to any material fact, the case should properly be resolved
through summary judgment. The CA affirmed this ruling.
We concur with the lower courts. Summary judgment is a procedural
device for the prompt disposition of actions in which the pleadings raise
only a legal issue, and not a genuine issue as to any material fact. By
genuine issue is meant a question of fact that calls for the presentation
of evidence. It should be distinguished from an issue that is sham,
contrived, set in bad faith and patently unsubstantial. 13
Summary judgment is resorted to in order to avoid long drawn out
litigations and useless delays. When affidavits, depositions and
admissions on file show that there are no genuine issues of fact to be
tried, the Rules allow a party to pierce the allegations in the pleadings
and to obtain immediate relief by way of summary judgment. In short,
48
since the facts are not in dispute, the court is allowed to decide the case
summarily by applying the law to the material facts.
Petitioner contends that by allowing summary judgment, the two
courts a quo prevented him from presenting evidence to substantiate his
claims. We do not agree. Summary judgment is based on facts directly
proven by affidavits, depositions or admissions. 14 In this case, the CA
and the RTC both merely ruled that trial was not necessary to resolve
the case. Additionally and correctly, the RTC specifically ordered
petitioner to submit opposing affidavits to support his contentions that
(1) the Judgment on Stipulation for Entry in Judgment was procured on
the basis of fraud, collusion, undue influence, or a clear mistake of law
or fact; and (2) that it was contrary to public policy or the canons of
morality. 15
Again, in its Order 16 dated November 29, 1995, the trial court clarified
that the opposing affidavits were for [petitioner] to spell out the facts or
circumstances [that] would constitute lack of jurisdiction over the subject
matter of and over the persons involved in Case No. C21-00265, and
that would render the judgment therein null and void. In this light,
petitioners contention that he was not allowed to present evidence to
substantiate his claims is clearly untenable.
For summary judgment to be valid, Rule 34, Section 3 of the Rules of
Court, requires (a) that there must be no genuine issue as to any
material fact, except for the amount of damages; and (b) that the party
presenting the motion for summary judgment must be entitled to a
judgment as a matter of law. 17 As mentioned earlier, petitioner admitted
that a foreign judgment had been rendered against him and in favor of
respondent, and that he had paid $5,000 to the latter in partial
compliance therewith. Hence, respondent, as the party presenting the
Motion for Summary Judgment, was shown to be entitled to the
judgment.
The CA made short shrift of the first requirement. To show that petitioner
had raised no genuine issue, it relied instead on the finality of the foreign
judgment which was, in fact, partially executed. Hence, we shall show in
the following discussion how the defenses presented by petitioner failed
to tender any genuine issue of fact, and why a full-blown trial was not
necessary for the resolution of the issues.
Jurisdiction
Petitioner alleges that jurisdiction over Case No. C21-00265, which
involved partnership interest, was vested in the Securities and
Exchange Commission, not in the Superior Court of California, County
of Contra Costa.
We disagree. In the absence of proof of California law on the jurisdiction
of courts, we presume that such law, if any, is similar to Philippine law.
We base this conclusion on the presumption of identity or similarity, also
known as processual presumption. 18 The Complaint, 19 which
respondent filed with the trial court, was for the enforcement of a foreign
judgment. He alleged therein that the action of the foreign court was for
the collection of a sum of money, breach of promissory notes, and
damages. 20
In our jurisdiction, such a case falls under the jurisdiction of civil courts,
not of the Securities and Exchange Commission (SEC). The jurisdiction
of the latter is exclusively over matters enumerated in Section 5, PD 902-
A, 21prior to its latest amendment. If the foreign court did not really have
jurisdiction over the case, as petitioner claims, it would have been very
easy for him to show this. Since jurisdiction is determined by the
allegations in a complaint, he only had to submit a copy of the complaint
filed with the foreign court. Clearly, this issue did not warrant trial.
Rights to Counsel and to Due Process
Petitioner contends that the foreign judgment, which was in the form of
a Compromise Agreement, cannot be executed without the parties being
assisted by their chosen lawyers. The reason for this, he points out, is
to eliminate collusion, undue influence and/or improper exertion of
ascendancy by one party over the other. He alleges that he discharged
his counsel during the proceedings, because he felt that the latter was
not properly attending to the case. The judge, however, did not allow
him to secure the services of another counsel. Insisting that petitioner
settle the case with respondent, the judge practically imposed the
settlement agreement on him. In his Opposing Affidavit, petitioner
states:
It is true that I was initially represented by a counsel in the proceedings
in #C21-00625. I discharged him because I then felt that he was not
properly attending to my case or was not competent enough to represent
my interest. I asked the Judge for time to secure another counsel but I
was practically discouraged from engaging one as the Judge was
insistent that I settle the case at once with the [respondent]. Being a
foreigner and not a lawyer at that I did not know what to do. I felt helpless
and the Judge and [respondents] lawyer were the ones telling me what
to do. Under ordinary circumstances, their directives should have been
taken with a grain of salt especially so [since respondents] counsel, who
was telling me what to do, had an interest adverse to mine. But
[because] time constraints and undue influence exerted by the Judge
and [respondents] counsel on me disturbed and seriously affected my
freedom to act according to my best judgment and belief. In point of fact,
the terms of the settlement were practically imposed on me by the Judge
seconded all the time by [respondents] counsel. I was then helpless as
I had no counsel to assist me and the collusion between the Judge and
[respondents] counsel was becoming more evident by the way I was
treated in the Superior Court of [t]he State of California. I signed the
Judgment on Stipulation for Entry in Judgment without any lawyer
assisting me at the time and without being fully aware of its terms and
stipulations. 22
The manifestation of petitioner that the judge and the counsel for the
opposing party had pressured him would gain credibility only if he had
not been given sufficient time to engage the services of a new lawyer.
Respondents Affidavit 23 dated May 23, 1994, clarified, however, that
petitioner had sufficient time, but he failed to retain a counsel. Having
dismissed his lawyer as early as June 19, 1991, petitioner directly
handled his own defense and negotiated a settlement with respondent
and his counsel in December 1991. Respondent also stated that
petitioner, ignoring the judges reminder of the importance of having a
lawyer, argued that he would be the one to settle the case and pay
anyway. Eventually, the Compromise Agreement was presented in court
and signed before Judge Ellen James on January 3, 1992. Hence,
petitioners rights to counsel and to due process were not violated.
Unjust Enrichment
Petitioner avers that the Compromise Agreement violated the norm
against unjust enrichment because the judge made him shoulder all the
liabilities in the case, even if there were two other defendants, G.S.P &
Sons, Inc. and the Genesis Group.
We cannot exonerate petitioner from his obligation under the foreign
judgment, even if there are other defendants who are not being held
liable together with him. First, the foreign judgment itself does not
mention these other defendants, their participation or their liability to
respondent. Second, petitioners undated Opposing Affidavit states:
[A]lthough myself and these entities were initially represented by Atty.
Lawrence L. Severson of the Law Firm Kouns, Quinlivan & Severson, x
x x I discharged x x x said lawyer. Subsequently, I assumed the
representation for myself and these firms and this was allowed by the
Superior Court of the State of California without any authorization from
G.G.P. & Sons, Inc. and the Genesis Group. 24 Clearly, it was petitioner
who chose to represent the other defendants; hence, he cannot now be
allowed to impugn a decision based on this ground.
In any event, contrary to petitioners contention, unjust enrichment or
solutio indebiti does not apply to this case. This doctrine contemplates
payment when there is no duty to pay, and the person who receives the
payment has no right to receive it. 25 In this case, petitioner merely
argues that the other two defendants whom he represented were liable
together with him. This is not a case of unjust enrichment.
We do not see, either, how the foreign judgment could be contrary to
law, morals, public policy or the canons of morality obtaining in the
country. Petitioner owed money, and the judgment required him to pay
it. That is the long and the short of this case.
In addition, the maneuverings of petitioner before the trial court reinforce
our belief that his claims are unfounded. Instead of filing opposing
affidavits to support his affirmative defenses, he filed a Motion for
Reconsideration of the Order allowing summary judgment, as well as a
Motion to Dismiss the action on the ground of forum non conveniens. His
opposing affidavits were filed only after the Order of November 29, 1995
had denied both Motions. 26 Such actuation was considered by the trial
court as a dilatory ploy which justified the resolution of the action by
summary judgment. According to the CA, petitioners allegations sought
to delay the full effects of the judgment; hence, summary judgment was
proper. On this point, we concur with both courts.
Second Question: Forum Non Conveniens
49
Petitioner argues that the RTC should have refused to entertain the
Complaint for enforcement of the foreign judgment on the principle
of forum non conveniens. He claims that the trial court had no
jurisdiction, because the case involved partnership interest, and there
was difficulty in ascertaining the applicable law in California. All the
aspects of the transaction took place in a foreign country, and
respondent is not even Filipino.
We disagree. Under the principle of forum non conveniens, even if the
exercise of jurisdiction is authorized by law, courts may nonetheless
refuse to entertain a case for any of the following practical reasons:
1) The belief that the matter can be better tried and decided elsewhere,
either because the main aspects of the case transpired in a foreign
jurisdiction or the material witnesses have their residence there;
2) The belief that the non-resident plaintiff sought the forum[,] a practice
known as forum shopping[,] merely to secure procedural advantages or
to convey or harass the defendant;
3) The unwillingness to extend local judicial facilities to non-residents or
aliens when the docket may already be overcrowded;
4) The inadequacy of the local judicial machinery for effectuating the
right sought to be maintained; and
The difficulty of ascertaining foreign law. 27
None of the aforementioned reasons barred the RTC from exercising its
jurisdiction. In the present action, there was no more need for material
witnesses, no forum shopping or harassment of petitioner, no
inadequacy in the local machinery to enforce the foreign judgment, and
no question raised as to the application of any foreign law.
Authorities agree that the issue of whether a suit should be entertained
or dismissed on the basis of the above-mentioned principle depends
largely upon the facts of each case and on the sound discretion of the
trial court. 28Since the present action lodged in the RTC was for the
enforcement of a foreign judgment, there was no need to ascertain the
rights and the obligations of the parties based on foreign laws or
contracts. The parties needed only to perform their obligations under the
Compromise Agreement they had entered into. 1wphi1.nt
Under Section 48, Rule 39 of the 1997 Rules of Civil Procedure, a
judgment in an action in personam rendered by a foreign tribunal clothed
with jurisdiction is presumptive evidence of a right as between the
parties and their successors-in-interest by a subsequent title. 29
Also, under Section 5(n) of Rule 131, a court -- whether in the Philippines
or elsewhere -- enjoys the presumption that it is acting in the lawful
exercise of its jurisdiction, and that it is regularly performing its official
duty. 30 Its judgment may, however, be assailed if there is evidence of
want of jurisdiction, want of notice to the party, collusion, fraud or clear
mistake of law or fact. But precisely, this possibility signals the need for
a local trial court to exercise jurisdiction. Clearly, the application of forum
non coveniens is not called for.
The grounds relied upon by petitioner are contradictory. On the one
hand, he insists that the RTC take jurisdiction over the enforcement case
in order to invalidate the foreign judgment; yet, he avers that the trial
court should not exercise jurisdiction over the same case on the basis
of forum non conveniens. Not only do these defenses weaken each
other, but they bolster the finding of the lower courts that he was merely
maneuvering to avoid or delay payment of his obligation.
WHEREFORE, the Petition is hereby DENIED and the assailed
Decision and Resolution AFFIRMED. Double costs against petitioner.
SO ORDERED.
G.R. No. 154830 June 8, 2007
PIONEER CONCRETE PHILIPPINES, INC., PIONEER PHILIPPINES
HOLDINGS, and PHILIP J. KLEPZIG,petitioners,
vs.
ANTONIO D. TODARO, respondent.
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari seeking to annul
and set aside the Decision1 of the Court of Appeals (CA) dated October
31, 2000 in CA-G.R. SP No. 54155 and its Resolution2 of August 21,
2002 denying petitioners Motion for Reconsideration.
The factual and procedural antecedents of the case are as follows:
On January 16, 1998, herein respondent Antonio D. Todaro (Todaro)
filed with the Regional Trial Court (RTC) of Makati City, a complaint for
Sum of Money and Damages with Preliminary Attachment against
Pioneer International Limited (PIL), Pioneer Concrete Philippines, Inc.
(PCPI), Pioneer Philippines Holdings, Inc. (PPHI), John G. McDonald
(McDonald) and Philip J. Klepzig (Klepzig).3
In his complaint, Todaro alleged that PIL is a corporation duly organized
and existing under the laws of Australia and is principally engaged in the
ready-mix concrete and concrete aggregates business; PPHI is the
company established by PIL to own and hold the stocks of its operating
company in the Philippines; PCPI is the company established by PIL to
undertake its business of ready-mix concrete, concrete aggregates and
quarrying operations in the Philippines; McDonald is the Chief Executive
of the Hongkong office of PIL; and, Klepzig is the President and
Managing Director of PPHI and PCPI; Todaro has been the managing
director of Betonval Readyconcrete, Inc. (Betonval), a company
engaged in pre-mixed concrete and concrete aggregate production; he
resigned from Betonval in February 1996; in May 1996, PIL contacted
Todaro and asked him if he was available to join them in connection with
their intention to establish a ready-mix concrete plant and other related
operations in the Philippines; Todaro informed PIL of his availability and
interest to join them; subsequently, PIL and Todaro came to an
agreement wherein the former consented to engage the services of the
latter as a consultant for two to three months, after which, he would be
employed as the manager of PIL's ready-mix concrete operations should
the company decide to invest in the Philippines; subsequently, PIL
started its operations in the Philippines; however, it refused to comply
with its undertaking to employ Todaro on a permanent basis. 4
Instead of filing an Answer, PPHI, PCPI and Klepzig separately moved
to dismiss the complaint on the grounds that the complaint states no
cause of action, that the RTC has no jurisdiction over the subject matter
of the complaint, as the same is within the jurisdiction of the NLRC, and
that the complaint should be dismissed on the basis of the doctrine
of forum non conveniens.5
In its Order dated January 4, 1999, the RTC of Makati, Branch 147,
denied herein petitioners' respective motions to dismiss. 6 Herein
petitioners, as defendants, filed an Urgent Omnibus Motion7 for the
reconsideration of the trial court's Order of January 4, 1999 but the trial
court denied it via its Order8 dated June 3, 1999.
On August 3, 1999, herein petitioners filed a Petition for Certiorari with
the CA.9 On October 31, 2000, the CA rendered its presently assailed
Decision denying herein petitioners' Petition for Certiorari. Petitioners
filed a Motion for Reconsideration but the CA denied it in its Resolution
dated August 21, 2002.
Hence, herein Petition for Review on Certiorari based on the following
assignment of errors:
A.
THE COURT OF APPEALS' CONCLUSION THAT THE
COMPLAINT STATES A CAUSE OF ACTION AGAINST
PETITIONERS IS WITHOUT ANY LEGAL BASIS. THE
ANNEXES TO THE COMPLAINT CLEARLY BELIE THE
ALLEGATION OF EXISTENCE OF AN EMPLOYMENT
CONTRACT BETWEEN PRIVATE RESPONDENT AND
PETITIONERS.
B.
THE COURT OF APPEALS DECIDED A QUESTION OF
SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND
WITH APPLICABLE DECISIONS OF THE SUPREME
COURT WHEN IT UPHELD THE JURISDICTION OF THE
TRIAL COURT DESPITE THE FACT THAT THE
COMPLAINT INDUBITABLY SHOWS THAT IT IS AN
ACTION FOR AN ALLEGED BREACH OF EMPLOYMENT
CONTRACT, AND HENCE, FALLS WITHIN THE
EXLCUSIVE JURISDICTION OF THE NATIONAL LABOR
RELATIONS COMMISSION.
C
50
 THE COURT OF APPEALS DISREGARDED AND FAILED
TO CONSIDER THE PRINCIPLE OF "FORUM NON
CONVENIENS" AS A VALID GROUND FOR DISMISSING A
COMPLAINT.10
In their first assigned error, petitioners contend that there was no
perfected employment contract between PIL and herein respondent.
Petitioners assert that the annexes to respondent's complaint show that
PIL's offer was for respondent to be employed as the manager only of
its pre-mixed concrete operations and not as the company's managing
director or CEO. Petitioners argue that when respondent reiterated his
intention to become the manager of PIL's overall business venture in the
Philippines, he, in effect did not accept PIL's offer of employment and
instead made a counter-offer, which, however, was not accepted by PIL.
Petitioners also contend that under Article 1318 of the Civil Code, one
of the requisites for a contract to be perfected is the consent of the
contracting parties; that under Article 1319 of the same Code, consent
is manifested by the meeting of the offer and the acceptance upon the
thing and the cause which are to constitute the contract; that the offer
must be certain and the acceptance absolute; that a qualified
acceptance constitutes a counter-offer. Petitioners assert that since PIL
did not accept respondent's counter-offer, there never was any
employment contract that was perfected between them.
Petitioners further argue that respondent's claim for damages based on
the provisions of Articles 19 and 21 of the Civil Code is baseless
because it was shown that there was no perfected employment contract.
Assuming, for the sake of argument, that PIL may be held liable for
breach of employment contract, petitioners contend that PCPI and
PPHI, may not also be held liable because they are juridical entities with
personalities which are separate and distinct from PIL, even if they are
subsidiary corporations of the latter. Petitioners also aver that the
annexes to respondent's complaint show that the negotiations on the
alleged employment contract took place between respondent and PIL
through its office in Hongkong. In other words, PCPI and PPHI were not
privy to the negotiations between PIL and respondent for the possible
employment of the latter; and under Article 1311 of the Civil Code, a
contract is not binding upon and cannot be enforced against one who
was not a party to it even if he be aware of such contract and has acted
with knowledge thereof.
Petitioners further assert that petitioner Klepzig may not be held liable
because he is simply acting in his capacity as president of PCPI and
PPHI and settled is the rule that an officer of a corporation is not
personally liable for acts done in the performance of his duties and within
the bounds of the authority conferred on him. Furthermore, petitioners
argue that even if PCPI and PPHI are held liable, respondent still has no
cause of action against Klepzig because PCPI and PPHI have
personalities which are separate and distinct from those acting in their
behalf, such as Klepzig.
As to their second assigned error, petitioners contend that since herein
respondent's claims for actual, moral and exemplary damages are solely
premised on the alleged breach of employment contract, the present
case should be considered as falling within the exclusive jurisdiction of
the NLRC.
With respect to the third assigned error, petitioners assert that the
principle of forum non conveniens dictates that even where exercise of
jurisidiction is authorized by law, courts may refuse to entertain a case
involving a foreign element where the matter can be better tried and
decided elsewhere, either because the main aspects of the case
transpired in a foreign jurisdiction or the material witnesses have their
residence there and the plaintiff sought the forum merely to secure
procedural advantage or to annoy or harass the defendant. Petitioners
also argue that one of the factors in determining the most convenient
forum for conflicts problem is the power of the court to enforce its
decision. Petitioners contend that since the majority of the defendants in
the present case are not residents of the Philippines, they are not subject
to compulsory processes of the Philippine court handling the case for
purposes of requiring their attendance during trial. Even assuming that
they can be summoned, their appearance would entail excessive costs.
Petitioners further assert that there is no allegation in the complaint from
which one can conclude that the evidence to be presented during the
trial can be better obtained in the Philippines. Moreover, the events
which led to the present controversy occurred outside the Philippines.
Petitioners conclude that based on the foregoing factual circumstances,
the case should be dismissed under the principle of forum non
conveniens.
In his Comment, respondent extensively quoted the assailed CA
Decision maintaining that the factual allegations in the complaint
determine whether or not the complaint states a cause of action.
As to the question of jurisdiction, respondent contends that the complaint
he filed was not based on a contract of employment. Rather, it was
based on petitioners' unwarranted breach of their contractual obligation
to employ respondent. This breach, respondent argues, gave rise to an
action for damages which is cognizable by the regular courts.
Even assuming that there was an employment contract, respondent
asserts that for the NLRC to acquire jurisdiction, the claim for damages
must have a reasonable causal connection with the employer-employee
relationship of petitioners and respondent.
Respondent further argues that there is a perfected contract between
him and petitioners as they both agreed that the latter shall employ him
to manage and operate their ready-mix concrete operations in the
Philippines. Even assuming that there was no perfected contract,
respondent contends that his complaint alleges an alternative cause of
action which is based on the provisions of Articles 19 and 21 of the Civil
Code.
As to the applicability of the doctrine of forum non conveniens,
respondent avers that the question of whether a suit should be
entertained or dismissed on the basis of the principle of forum non
conveniens depends largely upon the facts of the particular case and is
addressed to the sound discretion of the trial judge, who is in the best
position to determine whether special circumstances require that the
court desist from assuming jurisdiction over the suit.
The petition lacks merit.
Section 2, Rule 2 of the Rules of Court, as amended, defines a cause of
action as the act or omission by which a party violates a right of another.
A cause of action exists if the following elements are present: (1) a right
in favor of the plaintiff by whatever means and under whatever law it
arises or is created; (2) an obligation on the part of the named defendant
to respect or not to violate such right; and, (3) an act or omission on the
part of such defendant violative of the right of the plaintiff or constituting
a breach of the obligation of the defendant to the plaintiff for which the
latter may maintain an action for recovery of damages.11
In Hongkong and Shanghai Banking Corporation Limited v.
Catalan,12 this Court held:
The elementary test for failure to state a cause of action is
whether the complaint alleges facts which if true would justify
the relief demanded. Stated otherwise, may the court render
a valid judgment upon the facts alleged therein? The inquiry
is into the sufficiency, not the veracity of the material
allegations. If the allegations in the complaint furnish sufficient
basis on which it can be maintained, it should not be
dismissed regardless of the defense that may be presented
by the defendants.13
Moreover, the complaint does not have to establish or allege facts
proving the existence of a cause of action at the outset; this will have to
be done at the trial on the merits of the case. 14 To sustain a motion to
dismiss for lack of cause of action, the complaint must show that the
claim for relief does not exist, rather than that a claim has been
defectively stated, or is ambiguous, indefinite or uncertain.15
Hence, in resolving whether or not the Complaint in the present case
states a cause of action, the trial court correctly limited itself to
examining the sufficiency of the allegations in the Complaint as well as
the annexes thereto. It is proscribed from inquiring into the truth of the
allegations in the Complaint or the authenticity of any of the documents
referred or attached to the Complaint, since these are deemed
hypothetically admitted by the respondent.
This Court has reviewed respondents allegations in its Complaint. In a
nutshell, respondent alleged that herein petitioners reneged on their
contractual obligation to employ him on a permanent basis. This
allegation is sufficient to constitute a cause of action for damages.
The issue as to whether or not there was a perfected contract between
petitioners and respondent is a matter which is not ripe for determination
in the present case; rather, this issue must be taken up during trial,
considering that its resolution would necessarily entail an examination
of the veracity of the allegations not only of herein respondent as plaintiff
but also of petitioners as defendants.
51
The Court does not agree with petitioners' contention that they were not
privy to the negotiations for respondent's possible employment. It is
evident from paragraphs 24 to 28 of the Complaint16 that, on various
occasions, Klepzig conducted negotiations with respondent regarding
the latter's possible employment. In fact, Annex "H"17of the complaint
shows that it was Klepzig who informed respondent that his company
was no longer interested in employing respondent. Hence, based on the
allegations in the Complaint and the annexes attached thereto,
respondent has a cause of action against herein petitioners.
As to the question of jurisdiction, this Court has consistently held that
where no employer-employee relationship exists between the parties
and no issue is involved which may be resolved by reference to the
Labor Code, other labor statutes or any collective bargaining agreement,
it is the Regional Trial Court that has jurisdiction. 18 In the present case,
no employer-employee relationship exists between petitioners and
respondent. In fact, in his complaint, private respondent is not seeking
any relief under the Labor Code, but seeks payment of damages on
account of petitioners' alleged breach of their obligation under their
agreement to employ him. It is settled that an action for breach of
contractual obligation is intrinsically a civil dispute.19 In the alternative,
respondent seeks redress on the basis of the provisions of Articles 19
and 21 of the Civil Code. Hence, it is clear that the present action is
within the realm of civil law, and jurisdiction over it belongs to the regular
courts.20
With respect to the applicability of the principle of forum non
conveniens in the present case, this Court's ruling inBank of America NT
& SA v. Court of Appeals21 is instructive, to wit:
The doctrine of forum non conveniens, literally meaning the
forum is inconvenient, emerged in private international law to
deter the practice of global forum shopping, that is to prevent
non-resident litigants from choosing the forum or place
wherein to bring their suit for malicious reasons, such as to
secure procedural advantages, to annoy and harass the
defendant, to avoid overcrowded dockets, or to select a more
friendly venue. Under this doctrine, a court, in conflicts of law
cases, may refuse impositions on its jurisdiction where it is not
the most "convenient" or available forum and the parties are
not precluded from seeking remedies elsewhere.
Whether a suit should be entertained or dismissed on the
basis of said doctrine depends largely upon the facts of the
particular case and is addressed to the sound discretion of the
trial court. In the case ofCommunication Materials and
Design, Inc. vs. Court of Appeals, this Court held that "xxx [a]
Philippine Court may assume jurisdiction over the case if it
chooses to do so; provided, that the following requisites are
met: (1) that the Philippine Court is one to which the parties
may conveniently resort to; (2) that the Philippine Court is in a
position to make an intelligent decision as to the law and the
facts; and, (3) that the Philippine Court has or is likely to have
power to enforce its decision."
Moreover, this Court enunciated in Philsec. Investment
Corporation vs. Court of Appeals, that the doctrine of forum
non conveniens should not be used as a ground for a
motion to dismiss because Sec. 1, Rule 16 of the Rules of
Court does not include said doctrine as a ground. This
Court further ruled that while it is within the discretion of
the trial court to abstain from assuming jurisdiction on
this ground, it should do so only after vital facts are
established, to determine whether special circumstances
require the courts desistance; and that the propriety of
dismissing a case based on this principle of forum non
conveniens requires a factual determination, hence it is
more properly considered a matter of
defense.22 (emphasis supplied)
In the present case, the factual circumstances cited by petitioners which
would allegedly justify the application of the doctrine of forum non
conveniens are matters of defense, the merits of which should properly
be threshed out during trial.
WHEREFORE, the instant petition is DENIED and the assailed Decision
and Resolution of the Court of Appeals are AFFIRMED.
Costs against petitioners.
SO ORDERED.
WING ON COMPANY v. SYYAP, 64 O.G. 8311 (1967)
Research on Lib
In re UNION CARBIDE CORPORATION GAS PLANT DISASTER AT
BHOPAL, INDIA IN DECEMBER, 1984.
The PLAINTIFFS IN ALL CASES WHICH HAVE BEEN
CONSOLIDATED INTO THIS PROCEEDING BY ORDER OF THE
JUDICIAL PANEL ON MULTIDISTRICT LITIGATION dated February
6, 1985, and Order of this Court dated April 25, 1985, together with those
Plaintiffs in all other related actions which may be consolidated
subsequent to the filing of this notice of appeal, including but not limited
to all those cases which are all those tort cases filed in this Court which
the undersigned are aware of, except The Union of India v. Union
Carbide Corporation, No. 85 Civ. 2696 and except those cases
consolidated as shareholders or derivative cases by Executive
Committee Members, Stanley M. Chesley and F. Lee Bailey, and the
Union of India,Plaintiffs-Appellants, Cross-Appellees,
v.
UNION CARBIDE CORPORATION, Defendant-Appellee, Cross-
Appellant.
Nos. 301, 383 and 496, Docket 86-7517, 86-7589 and 86-7637.
Argued Nov. 24, 1986.
Decided Jan. 14, 1987.
PRIOR HISTORY: In re Union Carbide Corp. Gas Plant Disaster at
Bhopal, India in December, 1984, 634 F.Supp. 842, 54 USLW 2586
(S.D.N.Y. May 12, 1986) (No. MISC. 21-38 (JFK))
Order affirmed as modified by: this opinion
SUBSEQUENT HISTORY: Certiorari denied: Executive Committee
Members v. Union of India, 484 U.S. 871 (Oct. 05, 1987) (NO. 86-1719)
And certiorari denied: Union of India v. Union Carbide Corp., 484 U.S.
871 (Oct. 5, 1987) (No. 86-1860)
Distinguished by: Cross Westchester Development Corp. v. Chiulli, 887
F.2d 431 (2nd Cir.(N.Y.) Oct. 11, 1989) (No. 83, 89-7312)
Bhatnagar v. Surrendra Overseas Ltd., 52 F.3d 1220 (3rd Cir.(Pa.) Apr.
17, 1995) (No. 93-2059, 93-2076)
Wiwa v. Royal Dutch Petroleum Co., 226 F.3d 88 (2nd Cir.(N.Y.) Sep.
14, 2000) (No. 99-7223L, 99-7245XAP)
JUDGES: Before MANSFIELD, PRATT and ALTIMARI, Circuit Judges.
OPINION BY: MANSFIELD, Circuit Judge: [FN*]
FN* Judge Mansfield prepared this opinion prior to his death on January
7, 1987. Except for minor nonsubstantive, editorial changes, it reflects
his work, concurred in by the other members of the panel.
This appeal raises the question of whether thousands of claims by
citizens of India and the Government of India arising out of the most
devastating industrial disaster in history--the deaths of over 2,000
persons and injuries of over 200,000 caused by lethal gas known as
methyl isocyanate which was released from a chemical plant operated
by Union Carbide India Limited (UCIL) in Bhopal, India--should be tried
in the United States or in India. The Southern District of New York, John
F. Keenan, Judge, granted the motion of Union Carbide Corporation
(UCC), a defendant in some 145 actions commenced in federal courts
in the United States, to dismiss these actions on grounds of forum non
conveniens so that the claims may be tried in India, subject to certain
conditions. The individual plaintiffs appeal from the order and the
court’s denial of their motion for a fairness hearing on a proposed
settlement. UCC and the Union of India (UOI), a plaintiff, cross-appeal.
We eliminate two of the conditions imposed by the district court and in
all other respects affirm that court’s orders.
The accident occurred on the night of December 2-3, 1984, when winds
blew the deadly gas from the plant operated by UCIL into densely
occupied parts of the city of Bhopal. UCIL is incorporated under the laws
of India. Fifty and nine-tenths percent of its stock is owned by UCC, 22%
52
is owned or controlled by the government of India, and the balance is
held by approximately 23,500 Indian citizens. The stock is publicly
traded on the Bombay Stock Exchange. The company is engaged in the
manufacture of a variety of products, including chemicals, plastics,
fertilizers and insecticides, at 14 plants in India and employs over 9,000
Indian citizens. It is managed and operated entirely by Indians in India.
Four days after the Bhopal accident, on December 7, 1984, the first of
some 145 purported class actions in federal district courts in the United
States was commenced on behalf of victims of the disaster. On January
2, 1985, the Judicial Panel on Multidistrict Litigation assigned the actions
to the Southern District of New York where they became the subject of
a consolidated complaint filed on June 28, 1985.
In the meantime, on March 29, 1985, India enacted the Bhopal Gas Leak
Disaster (Processing of Claims) Act, granting to its government, the UOI,
the exclusive right to represent the victims in India or elsewhere.
Thereupon the UOI, purporting to act in the capacity of parens patriae,
and with retainers executed by many of the victims, on April 8, 1985,
filed a complaint in the Southern District of New York [*198] on behalf
of all victims of the Bhopal disaster, similar to the purported class action
complaints already filed by individuals in the United States. The
UOI’s decision to bring suit in the United States was attributed to
the fact that, although numerous lawsuits (by now, some 6,500) had
been instituted by victims in India against UCIL, the Indian courts did not
have jurisdiction over UCC, the parent company, which is a defendant
in the United States actions. The actions in India asserted claims not
only against UCIL but also against the UOI, the State of Madhya
Pradesh, and the Municipality of Bhopal, and were consolidated in the
District Court of Bhopal.
By order dated April 25, 1985, Judge Keenan appointed a three-person
Executive Committee to represent all plaintiffs in the pre-trial
proceedings. It consisted of two lawyers representing the individual
plaintiffs and one representing the UOI. On July 31, 1985, UCC moved
to dismiss the complaints on grounds of forum non conveniens, the
plaintiffs’ lack of standing to bring the actions in the United States,
and their purported attorneys’ lack of authority to represent them.
After several months of discovery related to forum non conveniens,
[FN1] the individual plaintiffs and the UOI opposed UCC’s motion.
After hearing argument on January 3, 1986, the district court, on May
12, 1986, 634 F.Supp. 842, in a thoroughly reasoned 63-page opinion
granted the motion, dismissing the lawsuits before it on condition that
UCC:
FN1. UCC briefed only the dispositive issue of forum non
conveniens before the district court and suggested that the
other two grounds for its motion need not be considered.
Discovery was therefore limited to the issue of forum non
conveniens; and the district court based its dismissal solely
on that doctrine.
(1) consent to the jurisdiction of the courts of India and
continue to waive defenses based on the statute of
limitations,
(2) agree to satisfy any judgment rendered by an Indian
court against it and upheld on appeal, provided the
judgment and affirmance “comport with the minimal
requirements of due process,” and
(3) be subject to discovery under the Federal Rules of Civil
Procedure of the United States.
On June 12, 1986, UCC accepted these conditions subject to its right to
appeal them; and on June 24, 1986, the district court entered its order
of dismissal. In September 1986 the UOI, acting pursuant to its authority
under the Bhopal Act, brought suit on behalf of all claimants against
UCC and UCIL in the District Court of Bhopal, where many individual
suits by victims of the disaster were then pending.
In its opinion dismissing the actions the district court analyzed the forum
non conveniens issues, applying the standards and weighing the factors
suggested by the Supreme Court in Gulf Oil Corp. v. Gilbert, 330 U.S.
501, 67 S.Ct. 839, 91 L.Ed. 955 (1947), and Piper Aircraft Co. v.
Reyno, 454 U.S. 235, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981). At the
outset Judge Keenan concluded, in accordance with the Court’s
expressed views in Piper that, since the plaintiffs were not residents of
the United States but of a foreign country, their choice of the United
States as a forum would not be given the deference to which it would be
entitled if this country were their home. See Piper, 454 U.S. at 256, 102
S.Ct. at 266. Following the dictates of Piper, the district court declined
to compare the advantages and disadvantages to the respective parties
of American versus Indian Laws or to determine the impact upon
plaintiffs’ claims of the laws of India, where UCC had
acknowledged that it would make itself amenable to process, except to
ascertain whether India provided an adequate alternative forum, as
distinguished from no remedy at all. Judge Keenan reviewed thoroughly
the affidavits of experts on India’s law and legal system, which
described in detail its procedural and substantive aspects, and
concluded that, despite some of the Indian system’s
disadvantages, it afforded an adequate alternative forum for the
enforcement of plaintiffs’ claims.
[*199] The Indian judiciary was found by the court to be a developed,
independent and progressive one, which has demonstrated its capability
of circumventing long delays and backlogs prevalent in the Indian
courts’ handling of ordinary cases by devising special expediting
procedures in extraordinary cases, such as by directing its High Court
to hear them on a daily basis, appointing special tribunals to handle
them, and assigning daily hearing duties to a single judge. He found that
Indian courts have competently dealt with complex technological issues.
Since the Bhopal Act provides that the case may be treated speedily,
effectively and to the best advantage of the claimants, and since the
Union of India represents the claimants, the prosecution of the claims is
expected to be adequately staffed by the Attorney General or Solicitor
General of India.
The tort law of India, which is derived from common law and British
precedent, was found to be suitable for resolution of legal issues arising
in cases involving highly complex technology. Moreover, Indian courts
would be in a superior position to construe and apply applicable Indian
laws and standards than would courts of the United States. Third parties
may be interpleaded under Order 1, Rule 10(2) of the Indian Code of
Civil Procedure, and defendants may seek contribution from third
parties. The absence in India of a class action procedure comparable to
that in federal courts here was found not to deprive the plaintiffs of a
remedy, in view of existing Indian legal authorization for
“representative” suits under Order 1, Rule 8 of the Indian
Code of Civil Procedure, which would permit an Indian court to create
representative classes. Judge Keenan further found that the absence of
juries and contingent fee arrangements in India would not deprive the
claimants of an adequate remedy.
In two areas bearing upon the adequacy of the Indian forum the district
court decided to impose somewhat unusual conditions on the transfer of
the American cases to India. One condition dealt with pre-trial discovery.
Indian courts, following the British pattern, permit parties to have pre-
trial discovery of each other through written interrogatories, liberal
inspection of documents and requests for admissions. Non-party
witnesses can be interviewed and summoned to appear at trial or to
produce documents. See India Code Civ.Proc., Order 16, Rule 6.
Witnesses unable to appear at trial are sometimes permitted to give
evidence by means of affidavits. See id. Order 19. Discovery in India,
however, as in Britain, is limited to evidence that may be admitted at
trial. Litigants are not permitted to engage in wide-ranging discovery of
the type authorized by Fed.R.Civ.P. 26(b), which allows inquiry into any
unprivileged matter that could reasonably lead to the discovery of
admissible evidence.
Judge Keenan, concluding that the Indian system might limit the
victims’ access to sources of proof, directed that dismissal of the
actions on grounds of forum non conveniens must be conditioned on
UCC’s consent to discovery of it in accordance with the Federal
Rules of Civil Procedure after the cases were transferred to India. He
added, “While the Court feels that it would be fair to bind the
plaintiffs to American discovery rules, too, it has no authority to do
so.”
Another condition imposed by the district court upon dismissal on
grounds of forum non conveniens dealt with the enforceability in the
United States of any judgment rendered by an Indian court in the cases.
Judge Keenan, expressing the view that an Indian judgment might
possibly not be enforceable in the United States, provided in his order
that UCC must “agree to satisfy any judgment rendered by an
Indian court, and if applicable, upheld by an appellate court in that
country, where such judgment and affirmance comport with the minimal
requirements of due process.”
53
As the district court found, the record shows that the private interests of
the respective parties weigh heavily in favor of dismissal on grounds of
forum non conveniens. The many witnesses and sources
of [*200] proof are almost entirely located in India, where the accident
occurred, and could not be compelled to appear for trial in the United
States. The Bhopal plant at the time of the accident was operated by
some 193 Indian nationals, including the managers of seven operating
units employed by the Agricultural Products Division of UCIL, who
reported to Indian Works Managers in Bhopal. The plant was maintained
by seven functional departments employing over 200 more Indian
nationals. UCIL kept at the plant daily, weekly and monthly records of
plant operations and records of maintenance as well as records of the
plant’s Quality Control, Purchasing and Stores branches, all
operated by Indian employees. The great majority of documents bearing
on the design, safety, start-up and operation of the plant, as well as the
safety training of the plant’s employees, is located in India. [FN2]
Proof to be offered at trial would be derived from interviews of these
witnesses in India and study of the records located there to determine
whether the accident was caused by negligence on the part of the
management or employees in the operation of the plant, by fault in its
design, or by sabotage. In short, India has greater ease of access to the
proof than does the United States.
FN2. At oral argument UOI’s counsel stated that UCC
refused UOI’s offer to furnish copies of some of the
documents to UCC in the United States. The district court,
on the other hand, found that following the disaster
India’s Central Bureau of Investigation seized, among
other documents, daily, weekly and monthly records of the
Bhopal plant operations. UCC states that of the 78,000
pages of documents seized, some 36,000 are plant
operation records, of which 1,700 pages relate to plant
maintenance in 1983 and 1984.
The plaintiffs seek to prove that the accident was caused by negligence
on the part of UCC in originally contributing to the design of the plant
and its provision for storage of excessive amounts of the gas at the plant.
As Judge Keenan found, however, UCC’s participation was
limited and its involvement in plant operations terminated long before
the accident. Under 1973 agreements negotiated at arm’s-length
with UCIL, UCC did provide a summary “process design
package” for construction of the plant and the services of some of
its technicians to monitor the progress of UCIL in detailing the design
and erecting the plant. However, the UOI controlled the terms of the
agreements and precluded UCC from exercising any authority to
“detail design, erect and commission the plant,” which was
done independently over the period from 1972 to 1980 by UCIL process
design engineers who supervised, among many others, some 55 to 60
Indian engineers employed by the Bombay engineering firm of
Humphreys and Glasgow. The preliminary process design information
furnished by UCC could not have been used to construct the plant.
Construction required the detailed process design and engineering data
prepared by hundreds of Indian engineers, process designers and sub-
contractors. During the ten years spent constructing the plant, its design
and configuration underwent many changes.
The vital parts of the Bhopal plant, including its storage tank, monitoring
instrumentation, and vent gas scrubber, were manufactured by Indians
in India. Although some 40 UCIL employees were given some safety
training at UCC’s plant in West Virginia, they represented a small
fraction of the Bhopal plant’s employees. The vast majority of
plant employees were selected and trained by UCIL in Bhopal. The
manual for start-up of the Bhopal plant was prepared by Indians
employed by UCIL.
In short, the plant has been constructed and managed by Indians in
India. No Americans were employed at the plant at the time of the
accident. In the five years from 1980 to 1984, although more than 1,000
Indians were employed at the plant, only one American was employed
there and he left in 1982. No Americans visited the plant for more than
one year prior to the accident, and during the 5-year period before the
accident the communications between the plant and the United States
were almost non-existent.
[*201] The vast majority of material witnesses and documentary proof
bearing on causation of and liability for the accident is located in India,
not the United States, and would be more accessible to an Indian court
than to a United States court. The records are almost entirely in Hindi or
other Indian languages, understandable to an Indian court without
translation. The witnesses for the most part do not speak English but
Indian languages understood by an Indian court but not by an American
court. These witnesses could be required to appear in an Indian court
but not in a court of the United States. Although witnesses in the United
States could not be subpoenaed to appear in India, they are
comparatively few in number and most are employed by UCC which, as
a party, would produce them in India, with lower overall transportation
costs than if the parties were to attempt to bring hundreds of Indian
witnesses to the United States. Lastly, Judge Keenan properly
concluded that an Indian court would be in a better position to direct and
supervise a viewing of the Bhopal plant, which was sealed after the
accident. Such a viewing could be of help to a court in determining
liability issues.
After a thorough review, the district court concluded that the public
interest concerns, like the private ones, also weigh heavily in favor of
India as the situs for trial and disposition of the cases. The accident and
all relevant events occurred in India. The victims, over 200,000 in
number, are citizens of India and located there. The witnesses are
almost entirely Indian citizens. The Union of India has a greater interest
than does the United States in facilitating the trial and adjudication of the
victims’ claims. Despite the contentions of plaintiffs and amici that
it would be in the public interest to avoid a “double
standard” by requiring an American parent corporation (UCC) to
submit to the jurisdiction of American courts, India has a stronger
countervailing interest in adjudicating the claims in its courts according
to its standards rather than having American values and standards of
care imposed upon it.
India’s interest is increased by the fact that it has for years treated
UCIL as an Indian national, subjecting it to intensive regulations and
governmental supervision of the construction, development and
operation of the Bhopal plant, its emissions, water and air pollution, and
safety precautions. Numerous Indian government officials have
regularly conducted on-site inspections of the plant and approved its
machinery and equipment, including its facilities for storage of the lethal
methyl isocyanate gas that escaped and caused the disaster giving rise
to the claims. Thus India has considered the plant to be an Indian one
and the disaster to be an Indian problem. It therefore has a deep interest
in ensuring compliance with its safety standards. Moreover, plaintiffs
have conceded that in view of India’s strong interest and its
greater contacts with the plant, its operations, its employees, and the
victims of the accident, the law of India, as the place where the tort
occurred, will undoubtedly govern. In contrast, the American interests
are relatively minor. Indeed, a long trial of the 145 cases here would
unduly burden an already overburdened court, involving both jury
hardship and heavy expense. It would face the court with numerous
practical difficulties, including the almost impossible task of attempting
to understand extensive relevant Indian regulations published in a
foreign language and the slow process of receiving testimony of scores
of witnesses through interpreters.
Having made the foregoing findings, Judge Keenan dismissed the
actions against UCC on grounds of forum non conveniens upon the
conditions indicated above, after obtaining UCC’s consent to
those conditions subject to its right to appeal the order. After the plaintiffs
filed their notice of appeal, UCC and the Union of India filed cross
appeals.
Upon these appeals, the plaintiffs continue to oppose the dismissal. The
Union of India, however, has changed its position and now supports the
district court’s order. UCC, as it did in the district court, opposes
as unfair the condition that it submit to discovery pursuant to the Federal
Rules of [*202] Civil Procedure without reciprocally obligating the
plaintiffs and Union of India to be subject to discovery on the same basis
so that both sides might be treated equally, giving each the same access
to the facts in the others’ possession.
Upon argument of the appeal, UCC also took the position that the district
court’s order requiring it to satisfy any Indian court judgment was
unfair unless some method were provided, such as continued availability
of the district court as a forum, to ensure that any denial of due process
by the Indian courts could be remedied promptly by the federal court
here rather than delay resolution of the issue until termination of the
Indian court proceedings and appeal, which might take several years.
UCC’s argument in this respect was based on the sudden
issuance by the Indian court in Bhopal of a temporary order freezing all
of UCC’s assets, which could have caused it irreparable injury if
it had been continued indefinitely, [FN3] and by the conflict of interest
posed by the UOI’s position in the Indian courts where, since the
UOI would appear both as a plaintiff and a defendant, it might as a
54
plaintiff voluntarily dismiss its claims against itself as a defendant or, as
a co-defendant with UCC, be tempted to shed all blame upon UCC even
though the UOI had in fact been responsible for supervision, regulation
and safety of UCIL’s Bhopal plant.
FN3. The Indian court’s temporary restraining order
has since been dissolved upon UCC’s agreement to
maintain sufficient assets to satisfy a judgment rendered
against it in India.
DISCUSSION
The standard to be applied in reviewing the district court’s forum
non conveniens dismissal was clearly expressed by the Supreme Court
in Piper Aircraft Co. v. Reyno, supra, 454 U.S. at 257, 102 S.Ct. at 266,
as follows:
The forum non conveniens determination is committed to the sound
discretion of the trial court. It may be reversed only when there has been
a clear abuse of discretion; where the court has considered all relevant
public and private interest factors, and where its balancing of these
factors is reasonable, its decision deserves substantial deference.
Having reviewed Judge Keenan’s detailed decision, in which he
thoroughly considered the comparative adequacy of the forums and the
public and private interests involved, we are satisfied that there was no
abuse of discretion in his granting dismissal of the action. On the
contrary, it might reasonably be concluded that it would have been an
abuse of discretion to deny a forum non conveniens dismissal.
SeeSchertenleib v. Traum, 589 F.2d 1156, 1164 (2d Cir.1978); De
Oliveira v. Delta Marine Drilling Co., 707 F.2d 843 (5th Cir.1983) (per
curiam). Practically all relevant factors demonstrate that transfer of the
cases to India for trial and adjudication is both fair and just to the parties.
Plaintiffs’ principal contentions in favor of retention of the cases
by the district court are that deference to the plaintiffs’ choice of
forum has been inadequate, that the Indian courts are insufficiently
equipped for the task, that UCC has its principal place of business here,
that the most probative evidence regarding negligence and causation is
to be found here, that federal courts are much better equipped through
experience and procedures to handle such complex actions efficiently
than are Indian courts, and that a transfer of the cases to India will
jeopardize a $350 million settlement being negotiated by
plaintiffs’ counsel. All of these arguments, however, must be
rejected.
Little or no deference can be paid to the plaintiffs’ choice of a
United States forum when all but a few of the 200,000 plaintiffs are
Indian citizens located in India who, according to the UOI, have revoked
the authorizations of American counsel to represent them here and have
substituted the UOI, which now prefers Indian courts. The finding of our
district court, after exhaustive analysis of the evidence, that the Indian
courts provide a reasonably adequate alternative forum cannot be
labelled [*203] clearly erroneous or an abuse of discretion.
The emphasis placed by plaintiffs on UCC’s having its domicile
here, where personal jurisdiction over it exists, is robbed of significance
by its consent to Indian jurisdiction. Plaintiffs’ contention that the
most crucial and probative evidence is located in the United States is
simply not in accord with the record or the district court’s findings.
Although basic design programs were prepared in the United States and
some assistance furnished to UCIL at the outset of the 10-year period
during which the Bhopal plant was constructed, the proof bearing on the
issues to be tried is almost entirely located in India. This includes the
principal witnesses and documents bearing on the development and
construction of the plant, the detailed designs, the implementation of
plans, the operation and regulation of the plant, its safety precautions,
the facts with respect to the accident itself, and the deaths and injuries
attributable to the accident.
Although the plaintiffs’ American counsel may at one time have
been close to reaching a $350 million settlement of the cases, no such
settlement was ever finalized. No draft joint stipulation in writing or
settlement agreement appears to have been prepared, much less
approved by the parties. No petition for certification of a settlement class
under Fed.R.Civ.P. 23 has ever been presented. See Weinberger v.
Kendrick, 698 F.2d 61, 73 (2d Cir.1982), cert. denied, 464 U.S. 818, 104
S.Ct. 77, 78 L.Ed.2d 89 (1983). Most important, the UOI, which is itself
a plaintiff and states that it now represents the Indian plaintiffs formerly
represented by American counsel, is firmly opposed to the $350 million
“settlement” as inadequate. Under these circumstances, to
order a Rule 23 “fairness” hearing would be futile. The
district court’s denial of the American counsels’ motion for
such a hearing must accordingly be affirmed.
The conditions imposed by the district court upon its forum non
conveniens dismissal stand on a different footing. Plaintiffs and the UOI,
however, contend that UCC, having been granted the forum non
conveniens dismissal that it sought and having consented to the district
court’s order, has waived its right to appellate review of these
conditions. We disagree. UCC expressly reserved its right to appeal
Judge Keenan’s order. Moreover, it has made a sufficient
showing of prejudice from the second and third conditions of the
court’s order to entitle it to seek appellate review. UCC’s
position is comparable to that of a prevailing party which, upon being
granted injunctive relief, is permitted to challenge by appeal conditions
attaching to the injunction that are found to be objectionable. United
States v. Bedford Assocs., 618 F.2d 904, 913-16 (2d Cir.1980).
Similarly, conditions imposed by the court upon dismissals without
prejudice under Fed.R.Civ.P. 41(a)(2) may be appealed by the plaintiff
when they prejudice the plaintiff. LeCompte v. Mr. Chip, Inc., 528 F.2d
601 (5th Cir.1976).
All three conditions of the dismissal are reviewable since plaintiffs have
appealed the district court’s order and UCC has cross-appealed
“from each judgment and order appealed in whole or part by any
plaintiff.” We therefore have jurisdiction over the entire case and
may in the interests of justice modify the district court’s order.
Cf. In re Barnett, 124 F.2d 1005, 1009 (2d Cir.1942) (“We are
clear that we have the power to order a reversal as to [parties in interest]
even though they did not appeal.”); Hysell v. Iowa Pub. Serv. Co.,
559 F.2d 468, 476 (8th Cir.1977) (“Once a timely notice of appeal
has been filed from a judgment, it gives us jurisdiction to review the
entire judgment; rules requiring separate appeals by other parties are
rules of practice, which may be waived in the interest of justice where
circumstances so require.”) (citing In re Barnett, supra).
The first condition, that UCC consent to the Indian court’s
personal jurisdiction over it and waive the statute of limitations as a
defense, are not unusual and have been imposed in numerous cases
where the foreign [*204] court would not provide an adequate
alternative in the absence of such a condition. See, e.g., Schertenleib,
supra, 589 F.2d at 1166; Bailey v. Dolphin Int’l, Inc., 697 F.2d
1268, 1280 (5th Cir.1983). The remaining two conditions, however, pose
problems.
In requiring that UCC consent to enforceability of an Indian judgment
against it, the district court proceeded at least in part on the erroneous
assumption that, absent such a requirement, the plaintiffs, if they should
succeed in obtaining an Indian judgment against UCC, might not be able
to enforce it against UCC in the United States. The law, however, is to
the contrary. Under New York law, which governs actions brought in
New York to enforce foreign judgments, see Island Territory of Curacao
v. Solitron Devices, Inc., 489 F.2d 1313, 1318 (2d Cir.1973), cert.
denied, 416 U.S. 986, 94 S.Ct. 2389, 40 L.Ed.2d 763 (1974), a foreign-
country judgment that is final, conclusive and enforceable where
rendered must be recognized and will be enforced as “conclusive
between the parties to the extent that it grants or denies recovery of a
sum of money” except that it is not deemed to be conclusive if:
1. the judgment was rendered under a system which does
not provide impartial tribunals or procedures compatible with
the requirements of due process of law;
2. the foreign court did not have personal jurisdiction over
the defendant.
Art. 53, Recognition of Foreign Country Money Judgments, 7B
N.Y.Civ.Prac.L. & R. 5301-09 (McKinney 1978). Although 5304
further provides that under certain specified conditions a foreign country
judgment need not be recognized, [FN4] none of these conditions would
apply to the present cases except for the possibility of failure to provide
UCC with sufficient notice of proceedings or the existence of fraud in
obtaining the judgment, which do not presently exist but conceivably
could occur in the future. [FN5]
FN4. Section 5304 provides in pertinent part:
(b) Other grounds for non-recognition. A foreign
country judgment need not be recognized if:
55
 1. the foreign court did not have jurisdiction over the
subject matter;
2. the defendant in the proceedings in the foreign
court did not receive notice of the proceedings in
sufficient time to enable him to defend;
3. the judgment was obtained by fraud;
4. the cause of action on which the judgment is based
is repugnant to the public policy of this state;
5. the judgment conflicts with another final and
conclusive judgment;
6. the proceeding in the foreign court was contrary to
an agreement between the parties under which the
dispute in question was to be settled otherwise than
by proceedings in that court; or
7. in the case of jurisdiction based only on personal
service, the foreign court was a seriously inconvenient
forum for the trial of the action.
FN5. New York’s article 53 is based upon the Uniform
Foreign Money-Judgments Recognition Act, see 13 U.L.A.
263 (1962), which has been adopted by 15 states in addition
to New York. In states that have not adopted the Uniform
Foreign Money-Judgments Recognition Act, foreign
judgments may be recognized according to principles of
comity. See Hilton v. Guyot, 159 U.S. 113, 16 S.Ct. 139, 40
L.Ed. 95 (1895).
UCC, as a New York business corporation, would be subject
to personal jurisdiction in a court sitting in New York. An
Indian money judgment could be enforced against UCC in
New York by means of either an action on the judgment or
a motion for summary judgment in lieu of complaint. See 7B
N.Y.Civ.Prac.L. & R. 5303. In either case, once converted
into a New York judgment, the judgment would be
enforceable as a New York judgment, and thus entitled to
the full faith and credit of New York’s sister states.
UCC contends that Indian courts, while providing an adequate
alternative forum, do not observe due process standards that would be
required as a matter of course in this country. As evidence of this
apprehension it points to the haste with which the Indian court in Bhopal
issued a temporary order freezing its assets throughout the world and
the possibility of serious prejudice to it if the UOI is permitted to have the
double and conflicting status of both plaintiff and co-defendant in the
Indian court proceedings. It argues that *205 we should protect it against
such denial of due process by authorizing Judge Keenan to retain the
authority, after forum non conveniens dismissal of the cases here, to
monitor the Indian court proceedings and be available on call to rectify
in some undefined way any abuses of UCC’s right to due process
as they might occur in India.
UCC’s proposed remedy is not only impractical but evidences an
abysmal ignorance of basic jurisdictional principles, so much so that it
borders on the frivolous. The district court’s jurisdiction is limited
to proceedings before it in this country. Once it dismisses those
proceedings on grounds of forum non conveniens it ceases to have any
further jurisdiction over the matter unless and until a proceeding may
some day be brought to enforce here a final and conclusive Indian
money judgment. Nor could we, even if we attempted to retain some sort
of supervisory jurisdiction, impose our due process requirements upon
Indian courts, which are governed by their laws, not ours. The concept
of shared jurisdictions is both illusory and unrealistic. The parties cannot
simultaneously submit to both jurisdictions the resolution of the pre-trial
and trial issues when there is only one consolidated case pending in one
court. Any denial by the Indian courts of due process can be raised by
UCC as a defense to the plaintiffs’ later attempt to enforce a
resulting judgment against UCC in this country.
We are concerned, however, that as it is written the district court’s
requirement that UCC consent to the enforcement of a final Indian
judgment, which was imposed on the erroneous assumption that such a
judgment might not otherwise be enforceable in the United States, may
create misunderstandings and problems of construction. Although the
order’s provision that the judgment “comport with the
minimal requirements of due process” (emphasis supplied)
probably is intended to refer to “due process” as used in the
New York Foreign Country Money Judgments Law and others like it,
there is the risk that it may also be interpreted as providing for a lesser
standard than we would otherwise require. Since the court’s
condition with respect to enforceability of any final Indian judgment is
predicated on an erroneous legal assumption and its “due
process” language is ambiguous, and since the district
court’s purpose is fully served by New York’s statute
providing for recognition of foreign-country money judgments, it was
error to impose this condition upon the parties.
We also believe that the district court erred in requiring UCC to consent
(which UCC did under protest and subject to its right of appeal) to broad
discovery of it by the plaintiffs under the Federal Rules of Civil Procedure
when UCC is confined to the more limited discovery authorized under
Indian law. We recognize that under some circumstances, such as when
a moving defendant unconditionally consents thereto or no
undiscovered evidence of consequence is believed to be under the
control of a plaintiff or co-defendant, it may be appropriate to condition
a forum non conveniens dismissal on the moving defendant’s
submission to discovery under the Federal Rules without requiring
reciprocal discovery by it of the plaintiff. See, e.g., Piper Aircraft v.
Reyno, supra, 454 U.S. at 257 n. 25, 102 S.Ct. at 267 n. 25 (suggesting
that district courts can condition dismissal upon a defendant’s
agreeing to provide all relevant records);Ali v. Offshore Co., 753 F.2d
1327, 1334 n. 16 (5th Cir.1985) (same); Boskoff v. Transportes Aereos
Portugueses, 17 Av. Cas. (CCH) 18,613, at 18,616 (N.D.Ill.1983)
(accepting defendant’s voluntary commitment to provide
discovery in foreign forum according to Federal Rules). Basic justice
dictates that both sides be treated equally, with each having equal
access to the evidence in the possession or under the control of the
other. Application of this fundamental principle in the present case is
especially appropriate since the UOI, as the sovereign government of
India, is expected to be a party to the Indian litigation, possibly on both
sides.
For these reasons we direct that the condition with respect to the
discovery of UCC [*206] under the Federal Rules of Civil Procedure be
deleted without prejudice to the right of the parties to have reciprocal
discovery of each other on equal terms under the Federal Rules, subject
to such approval as may be required of the Indian court in which the
case will be pending. If, for instance, Indian authorities will permit mutual
discovery pursuant to the Federal Rules, the district court’s order,
as modified in accordance with this opinion, should not be construed to
bar such procedure. In the absence of such a court-sanctioned
agreement, however, the parties will be limited by the applicable
discovery rules of the Indian court in which the claims will be pending.
As so modified the district court’s order is affirmed.
PIPER AIRCRAFT CO. V. REYNO, 454 U.S. 235 (1981)
Argued October 14, 1981
Decided December 8, 1981*
454 U.S. 235
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE THIRD CIRCUIT
Syllabus
Respondent, as representative of the estates of several citizens and
residents of Scotland who were killed in an airplane crash in Scotland
during a charter flight, instituted wrongful death litigation in a California
state court against petitioners, which are the company that
manufactured the plane in Pennsylvania and the company that
manufactured the plane's propellers in Ohio. At the time of the crash,
the plane was registered in Great Britain and was owned and operated
by companies organized in the United Kingdom. The pilot and all of the
decedents' heirs and next of kin were Scottish subjects and citizens, and
the investigation of the accident was conducted by British authorities.
Respondent sought to recover from petitioners on the basis of
negligence or strict liability (not recognized by Scottish law), and
admitted that the action was filed in the United States because its laws
regarding liability, capacity to sue, and damages are more favorable to
respondent's position than those of Scotland. On petitioners' motion, the
action was removed to a Federal District Court in California and was
then transferred to the United States District Court for the Middle District
56
of Pennsylvania, pursuant to 28 U.S.C. 1404(a). The District Court
granted petitioners' motion to dismiss the action on the ground offorum
non conveniens. Relying on the test set forth in Gulf Oil Corp. v.
Gilbert, 330 U. S. 501, and analyzing the "private interest factors"
affecting the litigants' convenience and the "public interest factors"
affecting the forum's convenience, as set forth in Gilbert, the District
Court concluded that Scotland was the appropriate forum. However, the
Court of Appeals reversed, holding that the District Court had abused its
discretion in conducting the Gilbertanalysis and that, in any event,
dismissal is automatically barred where
Page 454 U. S. 236
the law of the alternative forum is less favorable to the plaintiff than the
law of the forum chosen by the plaintiff.
Held:
1. Plaintiffs may not defeat a motion to dismiss on the ground of forum
non conveniensmerely by showing that the substantive law that would
be applied in the alternative forum is less favorable to the plaintiffs than
that of the chosen forum. The possibility of a change in substantive law
should ordinarily not be given conclusive or even substantial weight in
theforum non conveniens inquiry. Canada Malting Co. v. Paterson
Steamships, Ltd., 285 U. S. 413. Pp. 454 U. S. 247-255.
(a) Under Gilbert, supra, dismissal will ordinarily be appropriate where
trial in the plaintiff's chosen forum imposes a heavy burden on the
defendant or the court, and where the plaintiff is unable to offer any
specific reasons of convenience supporting his choice. If substantial
weight were given to the possibility of an unfavorable change in law,
however, dismissal might be barred even where trial in the chosen forum
was plainly inconvenient, and the forum non conveniens doctrine would
become virtually useless. Such an approach not only would be
inconsistent with the purpose of the forum non conveniens doctrine, but
also would pose substantial practical problems, requiring that trial courts
determine complex problems in conflict of laws and comparative law,
and increasing the flow into American courts of litigation by foreign
plaintiffs against American manufacturers. Pp. 454 U. S. 248-252.
(b) Nor may an analogy be drawn between forum non
conveniens dismissals and transfers between federal courts pursuant to
28 U.S.C. 1404(a), which was construed in Van Dusen v. Barrack, 376
U. S. 612, as precluding a transfer if it resulted in a change in the
applicable law. The statute was enacted to permit change of venue
between federal courts, and although it was drafted in accordance with
the doctrine of forum non conveniens, it was intended to be a revision,
rather than a codification of the common law. District courts were given
more discretion to transfer under 1404(a) than they had to dismiss on
grounds offorum non conveniens. Van Dusen v. Barrack,
supra, distinguished. Pp. 454 U. S. 253-254.
2. The District Court properly decided that the presumption in favor of
the plaintiff's forum choice applied with less than maximum force when
the plaintiff or (as here) the real parties in interest are foreign. When the
plaintiff has chosen the home forum, it is reasonable to assume that the
choice is convenient; but when the plaintiff or real parties in interest are
foreign, this assumption is much less reasonable, and the plaintiff's
choice deserves less deference. Pp. 454 U. S. 255-256.
Page 454 U. S. 237
3. The forum non conveniens determination is committed to the trial
court's sound discretion, and may be reversed only when there has been
a clear abuse of discretion. Here, the District Court did not abuse its
discretion in weighing the private and public interests under
the Gilbert analysis, and thereby determining that the trial should be
held in Scotland. Pp. 454 U. S. 257-261.
(a) In analyzing the private interest factors, the District Court did not act
unreasonably in concluding that fewer evidentiary problems would be
posed if the trial were held in Scotland, a large proportion of the relevant
evidence being located there. The District Court also correctly
concluded that the problems posed by the petitioners' inability to implead
potential Scottish third-party defendants -- the pilot's estate, the plane's
owners, and the charter company -- supported holding the trial in
Scotland. Pp. 454 U. S. 257-259.
(b) The District Court's review of the factors relating to the public interest
was also reasonable. Even aside from the question whether Scottish law
might be applicable in part, all other public interest factors favor trial in
Scotland, which has a very strong interest in this litigation. The accident
occurred there, all of the decedents were Scottish, and apart from
petitioners, all potential parties are either Scottish or English. As to
respondent's argument that American citizens have an interest in
ensuring that American manufacturers are deterred from producing
defective products and that additional deterrence might be obtained by
trial in the United States where they could be sued on the basis of both
negligence and strict liability, any incremental deterrence from trial in an
American court is likely to be insignificant and is not sufficient to justify
the enormous commitment of judicial time and resources that would be
required. Pp. 454 U. S. 259-261.
630 F.2d 149, reversed.
MARSHALL, J., delivered the opinion of the Court, in which BURGER,
C.J., and BLACKMUN and REHNQUIST, JJ., joined, and in Parts I and
II of which WHITE, J., joined. WHITE J., filed an opinion concurring in
part and dissenting in part, post, p. 454 U. S. 261. STEVENS, J., filed a
dissenting opinion, in which BRENNAN, J., joined, post, p. 454 U. S.
261. POWELL, J., took no part in the decision of the cases. O'CONNOR,
J., took no part in the consideration or decision of the cases.
Page 454 U. S. 238
JUSTICE MARSHALL delivered the opinion of the Court.
These cases arise out of an air crash that took place in Scotland.
Respondent, acting as representative of the estates of several Scottish
citizens killed in the accident, brought wrongful death actions against
petitioners that were ultimately transferred to the United States District
Court for the Middle District of Pennsylvania. Petitioners moved to
dismiss on the ground of forum non conveniens. After noting that an
alternative forum existed in Scotland, the District Court granted their
motions. 479 F.Supp. 727 (1979). The United States Court of Appeals
for the Third Circuit reversed. 630 F.2d 149 (1980). The Court of Appeals
based its decision, at least in part, on the ground that dismissal is
automatically barred where the law of the alternative forum is less
favorable to the plaintiff than the law of the forum chosen by the plaintiff.
Because we conclude that the possibility of an unfavorable change in
law should not, by itself, bar dismissal, and because we conclude that
the District Court did not otherwise abuse its discretion, we reverse.
I
A
In July, 1976, a small commercial aircraft crashed in the Scottish
highlands during the course of a charter flight from
Page 454 U. S. 239
Blackpool to Perth. The pilot and five passengers were killed instantly.
The decedents were all Scottish subjects and residents, as are their
heirs and next of kin. There were no eyewitnesses to the accident. At
the time of the crash, the plane was subject to Scottish air traffic control.
The aircraft, a twin-engine Piper Aztec, was manufactured in
Pennsylvania by petitioner Piper Aircraft Co. (Piper). The propellers
were manufactured in Ohio by petitioner Hartzell Propeller, Inc.
(Hartzell). At the time of the crash, the aircraft was registered in Great
Britain and was owned and maintained by Air Navigation and Trading
Co., Ltd. (Air Navigation). It was operated by McDonald Aviation, Ltd.
(McDonald), a Scottish air taxi service. Both Air Navigation and
McDonald were organized in the United Kingdom. The wreckage of the
plane is now in a hangar in Farnsborough, England.
The British Department of Trade investigated the accident shortly after
it occurred. A preliminary report found that the plane crashed after
developing a spin, and suggested that mechanical failure in the plane or
the propeller was responsible. At Hartzell's request, this report was
reviewed by a three-member Review Board, which held a 9-day
adversary hearing attended by all interested parties. The Review Board
found no evidence of defective equipment and indicated that pilot error
may have contributed to the accident. The pilot, who had obtained his
commercial pilot's license only three months earlier, was flying over high
ground at an altitude considerably lower than the minimum height
required by his company's operations manual.
In July, 1977, a California probate court appointed respondent Gaynell
Reyno administratrix of the estates of the five passengers. Reyno is not
related to and does not know any of the decedents or their survivors;
she was a legal secretary to the attorney who filed this lawsuit. Several
days after her appointment, Reyno commenced separate wrongful
57
Page 454 U. S. 240
death actions against Piper and Hartzell in the Superior Court of
California, claiming negligence and strict liability. [Footnote 1] Air
Navigation, McDonald, and the estate of the pilot are not parties to this
litigation. The survivors of the five passengers whose estates are
represented by Reyno filed a separate action in the United Kingdom
against Air Navigation, McDonald, and the pilot's estate. [Footnote 2]
Reyno candidly admits that the action against Piper and Hartzell was
filed in the United States because its laws regarding liability, capacity to
sue, and damages are more favorable to her position than are those of
Scotland. Scottish law does not recognize strict liability in tort. Moreover,
it permits wrongful death actions only when brought by a decedent's
relatives. The relatives may sue only for "loss of support and society."
[Footnote 3]
On petitioners' motion, the suit was removed to the United States District
Court for the Central District of California. Piper then moved for transfer
to the United States District Court for the Middle District of Pennsylvania,
pursuant to 28 U.S.C. 1404(a). [Footnote 4] Hartzell moved to dismiss
for lack of personal jurisdiction, or in the alternative, to transfer.
[Footnote 5] In December, 1977, the District Court quashed service on
Page 454 U. S. 241
Hartzell and transferred the case to the Middle District of Pennsylvania.
Respondent then properly served process on Hartzell.
B The court also found that the trial would be enormously costly and time-
In May, 1978, after the suit had been transferred, both Hartzell and Piper
moved to dismiss the action on the ground of forum non
conveniens. The District Court granted these motions in October, 1979.
It relied on the balancing test set forth by this Court in Gulf Oil Corp. v.
Gilbert, 330 U. S. 501 (1947), and its companion case, Koster v.
Lumbermens Mut. Cas. Co., 330 U. S. 518 (1947). In those decisions,
the Court stated that a plaintiff's choice of forum should rarely be
disturbed. However, when an alternative forum has jurisdiction to hear
the case, and when trial in the chosen forum would "establish . . .
oppressiveness and vexation to a defendant . . . out of all proportion to
plaintiff's convenience," or when the "chosen forum [is] inappropriate
because of considerations affecting the court's own administrative and
legal problems," the court may, in the exercise of its sound discretion,
dismiss the case. Koster, supra, at 330 U. S. 524. To guide trial court
discretion, the Court provided a list of "private interest factors" affecting
the convenience of the litigants, and a list of "public interest factors"
affecting the convenience of the forum. Gilbert, supra, at 330 U. S. 508-
509. [Footnote 6]
Page 454 U. S. 242
After describing our decisions in Gilbert. and Koster, the District Court
analyzed the facts of these cases. It began by observing that an
alternative forum existed in Scotland; Piper and Hartzell had agreed to
submit to the jurisdiction of the Scottish courts and to waive any statute
of limitations defense that might be available. It then stated that plaintiffs
choice of forum was entitled to little weight. The court recognized that a
plaintiff's choice ordinarily deserves substantial deference. It noted,
however, that Reyno
"is a representative of foreign citizens and residents seeking a forum in
the United States because of the more liberal rules concerning products
liability law,"
and that
"the courts have been less solicitous when the plaintiff is not an
American citizen or resident, and particularly when the foreign citizens
seek to benefit from the more liberal tort rules provided for the protection
of citizens and residents of the United States."
479 F.Supp. at 731.
The District Court next examined several factors relating to the private
interests of the litigants, and determined that these factors strongly
pointed towards Scotland as the appropriate forum. Although evidence
concerning the design, manufacture, and testing of the plane and
propeller is located in the United States, the connections with Scotland
are otherwise "overwhelming." Id. at 732. The real parties in interest are
citizens of Scotland, as were all the decedents. Witnesses who could
testify regarding the maintenance of the aircraft, the training of the pilot,
and the investigation of the accident -- all essential to the defense -- are
in Great Britain. Moreover, all witnesses to damages are located in
Scotland. Trial would be aided by familiarity with Scottish topography,
and by easy access to the wreckage.
The District Court reasoned that, because crucial witnesses and
evidence were beyond the reach of compulsory process, and because
the defendants would not be able to implead potential Scottish third-
party defendants, it would be "unfair to make Piper and Hartzell proceed
to trial in this forum." Id.
Page 454 U. S. 243
at 733. The survivors had brought separate actions in Scotland against
the pilot, McDonald, and Air Navigation. "[I]t would be fairer to all parties
and less costly if the entire case was presented to one jury with available
testimony from all relevant witnesses." Ibid. Although the court
recognized that, if trial were held in the United States, Piper and Hartzell
could file indemnity or contribution actions against the Scottish
defendants, it believed that there was a significant risk of inconsistent
verdicts. [Footnote 7]
The District Court concluded that the relevant public interests also
pointed strongly towards dismissal. The court determined that
Pennsylvania law would apply to Piper and Scottish law to Hartzell if the
case were tried in the Middle District of Pennsylvania. [Footnote 8] As a
result, "trial in this forum would be hopelessly complex and confusing for
a jury." Id. at 734. In addition, the court noted that it was unfamiliar with
Scottish law and thus would have to rely upon experts from that country.
consuming; that it would be unfair to burden citizens with jury duty when
the Middle District
Page 454 U. S. 244
of Pennsylvania has little connection with the controversy; and that
Scotland has a substantial interest in the outcome of the litigation.
In opposing the motions to dismiss, respondent contended that
dismissal would be unfair because Scottish law was less favorable. The
District Court explicitly rejected this claim. It reasoned that the possibility
that dismissal might lead to an unfavorable change in the law did not
deserve significant weight; any deficiency in the foreign law was a
"matter to be dealt with in the foreign forum." Id. at 738.
C
On appeal, the United States Court of Appeals for the Third Circuit
reversed and remanded for trial. The decision to reverse appears to be
based on two alternative grounds. First, the Court held that the District
Court abused its discretion in conducting the Gilbert analysis. Second,
the Court held that dismissal is never appropriate where the law of the
alternative forum is less favorable to the plaintiff.
The Court of Appeals began its review of the District
Court's Gilbert analysis by noting that the plaintiff's choice of forum
deserved substantial weight, even though the real parties in interest are
nonresidents. It then rejected the District Court's balancing of the private
interests. It found that Piper and Hartzell had failed adequately to
support their claim that key witnesses would be unavailable if trial were
held in the United States: they had never specified the witnesses they
would call and the testimony these witnesses would provide. The Court
of Appeals gave little weight to the fact that Piper and Hartzell would not
be able to implead potential Scottish third-party defendants, reasoning
that this difficulty would be "burdensome" but not "unfair," 630 F.2d at
162. [Footnote 9] Finally, the court stated that resolution of the suit
Page 454 U. S. 245
would not be significantly aided by familiarity with Scottish topography,
or by viewing the wreckage.
The Court of Appeals also rejected the District Court's analysis of the
public interest factors. It found that the District Court gave undue
emphasis to the application of Scottish law:
"'the mere fact that the court is called upon to determine and apply
foreign law does not present a legal problem of the sort which would
justify the dismissal of a case otherwise properly before the court.'"
Id. at 163 (quoting Hoffman v. Goberman, 420 F.2d 423, 427 (CA3
1970)). In any event, it believed that Scottish law need not be applied.
After conducting its own choice of law analysis, the Court of Appeals
determined that American law would govern the actions against both
58
Piper and Hartzell. [Footnote 10] The same choice of law analysis
apparently led it to conclude that Pennsylvania and Ohio, rather than
Scotland, are the jurisdictions with the greatest policy interests in the
dispute, and that all other public interest factors favored trial in the
United States. [Footnote 11]
Page 454 U. S. 246
In any event, it appears that the Court of Appeals would have reversed
even if the District Court had properly balanced the public and private
interests. The court stated:
"[I]t is apparent that the dismissal would work a change in the applicable
law so that the plaintiff's strict liability claim would be eliminated from the
case. But . . . a dismissal forforum non conveniens, like a statutory
transfer, 'should not, despite its convenience, result in a change in the
applicable law.' Only when American law is not applicable, or when the
foreign jurisdiction would, as a matter of its own choice of law, give the
plaintiff the benefit of the claim to which she is entitled here, would
dismissal be justified."
630 F.2d at 163-164 (footnote omitted) (quoting DeMateos v. Texaco,
Inc., 562 F.2d 895, 899 (CA3 1977), cert. denied, 435 U.S. 904 (1978)).
In other words, the court decided that dismissal is automatically barred
if it would lead to a change in the applicable law unfavorable to the
plaintiff.
We granted certiorari in these cases to consider the questions they raise
concerning the proper application of the doctrine of forum non
conveniens. 450 U.S. 909 (1981). [Footnote 12]
Page 454 U. S. 247
II
The Court of Appeals erred in holding that plaintiffs may defeat a motion
to dismiss on the ground of forum non conveniens merely by showing
that the substantive law that would be applied in the alternative forum is
less favorable to the plaintiffs than that of the present forum. The
possibility of a change in substantive law should ordinarily not be given
conclusive or even substantial weight in the forum non
conveniens inquiry.
We expressly rejected the position adopted by the Court of Appeals in
our decision inCanada Malting Co. v. Paterson Steamships, Ltd., 285 U.
S. 413 (1932). That case arose out of a collision between two vessels in
American waters. The Canadian owners of cargo lost in the accident
sued the Canadian owners of one of the vessels in Federal District
Court. The cargo owners chose an American court in large part because
the relevant American liability rules were more favorable than the
Canadian rules. The District Court dismissed on grounds of forum non
conveniens. The plaintiffs argued that dismissal was inappropriate
because Canadian laws were less favorable to them. This Court
nonetheless affirmed:
"We have no occasion to enquire by what law the rights of the parties
are governed, as we are of the opinion
Page 454 U. S. 248
that, under any view of that question, it lay within the discretion of the
District Court to decline to assume jurisdiction over the controversy. . . .
'[T]he court will not take cognizance of the case if justice would be as
well done by remitting the parties to their home forum.'"
Id. at 285 U. S. 419-420 (quoting Charter Shipping Co. v. Bowring,
Jones & Tidy, Ltd., 281 U. S. 515, 281 U. S. 517 (1930)). The Court
further stated that "[t]here as no basis for the contention that the District
Court abused its discretion." 285 U.S. at 285 U. S. 423.
It is true that Canada Malting was decided before Gilbert, and that the
doctrine of forum non conveniens was not fully crystallized until our
decision in that case. [Footnote 13] However, Gilbert in no way affects
the validity of Canada Malting. Indeed,
Page 454 U. S. 249
by holding that the central focus of the forum non conveniens inquiry is
convenience,Gilbert implicitly recognized that dismissal may not be
barred solely because of the possibility of an unfavorable change in law.
[Footnote 14] Under Gilbert, dismissal will ordinarily be appropriate
where trial in the plaintiff's chosen forum imposes a heavy burden on the
defendant or the court, and where the plaintiff is unable to offer any
specific reasons of convenience supporting his choice. [Footnote 15] If
substantial weight were given to the possibility of an unfavorable change
in law, however, dismissal might be barred even where trial in the
chosen forum was plainly inconvenient.
The Court of Appeals' decision is inconsistent with this Court's
earlier forum non conveniens decisions in another respect. Those
decisions have repeatedly emphasized the need to retain flexibility.
In Gilbert, the Court refused to identify specific circumstances "which will
justify or require either grant or denial of remedy." 330 U.S. at 330 U. S.
508. Similarly, in Koster, the Court rejected the contention that, where a
trial would involve inquiry into the internal affairs of a foreign corporation,
dismissal was always appropriate. "That is one, but only one, factor
which may show convenience." 330 U.S. at 330 U. S. 527. And
in Williams v. Green Bay & Western R. Co., 326 U. S. 549, 326 U. S.
557 (1946), we stated that we would not lay down a rigid rule to govern
discretion, and that "[e]ach case turns on its facts." If central emphasis
were
Page 454 U. S. 250
placed on any one factor, the forum non conveniens doctrine would lose
much of the very flexibility that makes it so valuable.
In fact, if conclusive or substantial weight were given to the possibility of
a change in law, the forum non conveniens doctrine would become
virtually useless. Jurisdiction and venue requirements are often easily
satisfied. As a result, many plaintiffs are able to choose from among
several forums. Ordinarily, these plaintiffs will select that forum whose
choice of law rules are most advantageous. Thus, if the possibility of an
unfavorable change in substantive law is given substantial weight in
the forum non conveniens inquiry, dismissal would rarely be proper.
Except for the court below, every Federal Court of Appeals that has
considered this question after Gilbert has held that dismissal on grounds
of forum non conveniens may be granted even though the law
applicable in the alternative forum is less favorable to the plaintiff's
chance of recovery. See, e.g., Pain v. United Technologies Corp., 205
U.S.App.D.C. 229, 248-249, 637 F.2d 775, 794-795 (1980); Fitzgerald
v. Texaco, Inc., 521 F.2d 448, 453 (CA2 1975), cert. denied, 423 U.S.
1052 (1976); Anastasiadis v. S.S. Little John, 346 F.2d 281, 283 (CA5
1965), cert. denied, 384 U.S. 920 (1966). [Footnote 16] Several courts
have relied expressly on Canada Malting to hold that the possibility of
an unfavorable change of law should not, by itself, bar dismissal. See
Fitzgerald
Page 454 U. S. 251
v. Texaco, Inc., supra; Anglo-American Grain Co. v. The SIT Mina
D'Amico, 169 F.Supp. 908 (ED Va.1959).
The Court of Appeals' approach is not only inconsistent with the purpose
of the forum non conveniens doctrine, but also poses substantial
practical problems. If the possibility of a change in law were given
substantial weight, deciding motions to dismiss on the ground offorum
non conveniens would become quite difficult. Choice of law analysis
would become extremely important, and the courts would frequently be
required to interpret the law of foreign jurisdictions. First, the trial court
would have to determine what law would apply if the case were tried in
the chosen forum, and what law would apply if the case were tried in the
alternative forum. It would then have to compare the rights, remedies,
and procedures available under the law that would be applied in each
forum. Dismissal would be appropriate only if the court concluded that
the Law applied by the alternative forum is as favorable to the plaintiff
as that of the chosen forum. The doctrine offorum non
conveniens,however, is designed in part to help courts avoid conducting
complex exercises in comparative law. As we stated in Gilbert, the
public interest factors point towards dismissal where the court would be
required to "untangle problems in conflict of laws, and in law foreign to
itself." 330 U.S. at 330 U. S. 509.
Upholding the decision of the Court of Appeals would result in other
practical problems. At least where the foreign plaintiff named an
American manufacturer as defendant, [Footnote 17] a court could not
dismiss the case on grounds of forum non
Page 454 U. S. 252
conveniens where dismissal might lead to an unfavorable change in law.
The American courts, which are already extremely attractive to foreign
plaintiffs, [Footnote 18] would become even more attractive. The flow of
59
litigation into the United States would increase and further congest
already crowded courts. [Footnote 19]
Page 454 U. S. 253
The Court of Appeals based its decision, at least in part, on an analogy
between dismissals on grounds of forum non conveniens and transfers
between federal courts pursuant to 1404(a). In Van Dusen v.
Barrack, 376 U. S. 612 (1964), this Court ruled that a 1404(a) transfer
should not result in a change in the applicable law. Relying on dictum in
an earlier Third Circuit opinion interpreting Van Dusen, the court below
held that that principle is also applicable to a dismissal on forum non
conveniens grounds. 630 F.2d at 164, and n. 51 (citing DeMateos v.
Texaco, Inc., 562 F.2d at 899). However, 1404(a) transfers are
different than dismissals on the ground of forum non conveniens.
Congress enacted 1404(a) to permit change of venue between federal
courts. Although the statute was drafted in accordance with the doctrine
offorum non conveniens, seeRevisor's Note, H.R.Rep. No. 308, 80th
Cong., 1st Sess., A132 (1947); H.R.Rep. No. 2646, 79th Cong., 2d
Sess., A127 (1946), it was intended to be a revision, rather than a
codification of the common law. Norwood v. Kirkpatrick, 349 U. S.
29 (1955). District courts were given more discretion to transfer under
1404(a) than they had to dismiss on grounds of forum non
conveniens. Id. at 349 U. S. 31-32.
The reasoning employed in Van Dusen v. Barrack is simply inapplicable
to dismissals on grounds of forum non conveniens. That case did not
discuss the common law doctrine. Rather, it focused on "the
construction and application" of 1404(a). 376 U.S. at 376 U. S. 613.
[Footnote 20] Emphasizing the remedial
Page 454 U. S. 254
purpose of the statute, Barrack concluded that Congress could not have
intended a transfer to be accompanied by a change in law. Id. at 376 U.
S. 622. The statute was designed as a "federal housekeeping measure,"
allowing easy change of venue within a unified federal system. Id. at 376
U. S. 613. The Court feared that, if a change in venue were
accompanied by a change in law, forum-shopping parties would take
unfair advantage of the relaxed standards for transfer. The rule was
necessary to ensure the just and efficient operation of the statute.
[Footnote 21]
We do not hold that the possibility of an unfavorable change in law
should never be a relevant consideration in a forum non
conveniens inquiry. Of course, if the remedy provided by the alternative
forum is so clearly inadequate or unsatisfactory that it is no remedy at
all, the unfavorable change in law may be given substantial weight; the
district court may conclude that dismissal would not be in the interests
of justice. [Footnote 22] In these cases, however, the remedies that
Page 454 U. S. 255
would be provided by the Scottish courts do not fall within this category.
Although the relatives of the decedents may not be able to rely on a strict
liability theory, and although their potential damages award may be
smaller, there is no danger that they will be deprived of any remedy or
treated unfairly.
III
The Court of Appeals also erred in rejecting the District
Court's Gilbert analysis. The Court of Appeals stated that more weight
should have been given to the plaintiff's choice of forum, and criticized
the District Court's analysis of the private and public interests. However,
the District Court's decision regarding the deference due plaintiff's
choice of forum was appropriate. Furthermore, we do not believe that
the District Court abused its discretion in weighing the private and public
interests.
A owners, or the charter company, they will be relieved of all liability. It is
The District Court acknowledged that there is ordinarily a strong
presumption in favor of the plaintiff's choice of forum, which may be
overcome only when the private and public interest factors clearly point
towards trial in the alternative forum. It held, however, that the
presumption applies with less force when the plaintiff or real parties in
interest are foreign.
The District Court's distinction between resident or citizen plaintiffs and
foreign plaintiffs is fully justified. In Koster, the Court indicated that a
plaintiff's choice of forum is entitled to greater deference when the
plaintiff has chosen the home forum. 330 U.S. at 330 U. S. 524.
[Footnote 23] When the home forum has
Page 454 U. S. 256
been chosen, it is reasonable to assume that this choice is convenient.
When the plaintiff is foreign, however, this assumption is much less
reasonable. Because the central purpose of any forum non
conveniens inquiry is to ensure that the trial is convenient, a foreign
plaintiff's choice deserves less deference. [Footnote 24]
Page 454 U. S. 257
The forum non conveniens determination is committed to the sound
discretion of the trial court. It may be reversed only when there has been
a clear abuse of discretion; where the court has considered all relevant
public and private interest factors, and where its balancing of these
factors is reasonable, its decision deserves substantial
deference. Gilbert, 330 U.S. at 330 U. S. 511-512; Koster, 330 U.S.
at 330 U. S. 531. Here, the Court of Appeals expressly acknowledged
that the standard of review was one of abuse of discretion. In examining
the District Court's analysis of the public and private interests, however,
the Court of Appeals seems to have lost sight of this rule, and substituted
its own judgment for that of the District Court.
(1)
In analyzing the private interest factors, the District Court stated that the
connections with Scotland are "overwhelming." 479 F.Supp. at 732. This
characterization may be somewhat exaggerated. Particularly with
respect to the question of relative ease of access to sources of proof,
the private interests point in both directions. As respondent emphasizes,
records concerning the design, manufacture, and testing of the propeller
and plane are located in the United States. She would have greater
access to sources of proof relevant to her strict liability and negligence
theories if trial were held here. [Footnote 25] However, the District Court
did not act
Page 454 U. S. 258
unreasonably in concluding that fewer evidentiary problems would be
posed if the trial were held in Scotland. A large proportion of the relevant
evidence is located in Great Britain.
The Court of Appeals found that the problems of proof could not be given
any weight because Piper and Hartzell failed to describe with specificity
the evidence they would not be able to obtain if trial were held in the
United States. It suggested that defendants seeking forum non
conveniens dismissal must submit affidavits identifying the witnesses
they would call and the testimony these witnesses would provide if the
trial were held in the alternative forum. Such detail is not necessary.
[Footnote 26] Piper and Hartzell have moved for dismissal precisely
because many crucial witnesses are located beyond the reach of
compulsory process, and thus are difficult to identify or interview.
Requiring extensive investigation would defeat the purpose of their
motion. Of course, defendants must provide enough information to
enable the District Court to balance the parties' interests. Our
examination of the record convinces us that sufficient information
Page 454 U. S. 259
was provided here. Both Piper and Hartzell submitted affidavits
describing the evidentiary problems they would face if the trial were held
in the United States. [Footnote 27]
The District Court correctly concluded that the problems posed by the
inability to implead potential third-party defendants clearly supported
holding the trial in Scotland. Joinder of the pilot's estate, Air Navigation,
and McDonald is crucial to the presentation of petitioners' defense. If
Piper and Hartzell can show that the accident was caused not by a
design defect, but rather by the negligence of the pilot, the plane's
true, of course, that, if Hartzell and Piper were found liable after a trial in
the United States, they could institute an action for indemnity or
contribution against these parties in Scotland. It would be far more
convenient, however, to resolve all claims in one trial. The Court of
Appeals rejected this argument. Forcing petitioners to rely on actions for
indemnity or contributions would be "burdensome," but not "unfair." 630
F.2d at 162. Finding that trial in the plaintiff's chosen forum would be
burdensome, however, is sufficient to support dismissal on grounds
of forum non conveniens. [Footnote 28]
60
(2)
The District Court's review of the factors relating to the public interest
was also reasonable. On the basis of its
Page 454 U. S. 260
choice of law analysis, it concluded that, if the case were tried in the
Middle District of Pennsylvania, Pennsylvania law would apply to Piper
and Scottish law to Hartzell. It stated that a trial involving two sets of
laws would be confusing to the jury. It also noted its own lack of
familiarity with Scottish law. Consideration of these problems was clearly
appropriate under Gilbert; in that case, we explicitly held that the need
to apply foreign law pointed towards dismissal. [Footnote 29]
The Court of Appeals found that the District Court's choice of law
analysis was incorrect, and that American law would apply to both
Hartzell and Piper. Thus, lack of familiarity with foreign law would not be
a problem. Even if the Court of Appeals' conclusion is correct, however,
all other public interest factors favored trial in Scotland.
Scotland has a very strong interest in this litigation. The accident
occurred in its airspace. All of the decedents were Scottish. Apart from
Piper and Hartzell, all potential plaintiffs and defendants are either
Scottish or English. As we stated in Gilbert, there is "a local interest in
having localized controversies decided at home." 330 U.S. at 330 U. S.
509. Respondent argues that American citizens have an interest in
ensuring that American manufacturers are deterred from producing
defective products, and that additional deterrence might be obtained if
Piper and Hartzell were tried in the United States, where they could be
sued on the basis of both negligence and strict liability. However, the
incremental deterrence that would be gained if this trial were held in an
Page 454 U. S. 261
American court is likely to be insignificant. The American interest in this
accident is simply not sufficient to justify the enormous commitment of
judicial time and resources that would inevitably be required if the case
were to be tried here.
IV
The Court of Appeals erred in holding that the possibility of an
unfavorable change in law bars dismissal on the ground of forum non
conveniens. It also erred in rejecting the District Court's Gilbert analysis.
The District Court properly decided that the presumption in favor of the
respondent's forum choice applied with less than maximum force
because the real parties in interest are foreign. It did not act
unreasonably in deciding that the private interests pointed towards trial
in Scotland. Nor did it act unreasonably in deciding that the public
interests favored trial in Scotland. Thus, the judgment of the Court of
Appeals is
Reversed.
JUSTICE POWELL took no part in the decision of these cases.
JUSTICE O'CONNOR took no part in the consideration or decision of
these cases.
* Together with No. 80-883, Hartzell Propeller, Inc. v. Reyno, Personal
Representative of the Estates of Fehilly et al., also on certiorari to the
same court.
[Footnote 1]
Avco-Lycoming, Inc., the manufacturer of the plane's engines, was also
named as a defendant. It was subsequently dismissed from the suit by
stipulation.
[Footnote 2]
The pilot's estate has also filed suit in the United Kingdom against Air
Navigation, McDonald, Piper, and Hartzell.
[Footnote 3]
See Affidavit of Donald Ian Kerr MacLeod, App. A19 (affidavit submitted
to District Court by petitioners describing Scottish law). Suits for
damages are governed by The Damages (Scotland) Act 1976.
[Footnote 4]
Section 1404(a) provides:
"For the convenience of parties and witnesses, in the interest of justice,
a district court may transfer any civil action to any other district or division
where it might have been brought."
[Footnote 5]
The District Court concluded that it could not assert personal jurisdiction
over Hartzell consistent with due process. However, it decided not to
dismiss Hartzell because the corporation would be amenable to process
in Pennsylvania.
[Footnote 6]
The factors pertaining to the private interests of the litigants included the
"relative ease of access to sources of proof; availability of compulsory
process for attendance of unwilling, and the cost of obtaining attendance
of willing, witnesses; possibility of view of premises, if view would be
appropriate to the action; and all other practical problems that make trial
of a case easy, expeditious and inexpensive."
Gilbert, 330 U.S. at 330 U. S. 508. The public factors bearing on the
question included the administrative difficulties flowing from court
congestion; the "local interest in having localized controversies decided
at home"; the interest in having the trial of a diversity case in a forum
that is at home with the law that must govern the action; the avoidance
of unnecessary problems in conflict of laws, or in the application of
foreign law; and the unfairness of burdening citizens in an unrelated
forum with jury duty. Id. at 330 U. S. 509.
[Footnote 7]
The District Court explained that inconsistent verdicts might result if
petitioners were held liable on the basis of strict liability here, and then
required to prove negligence in an indemnity action in Scotland.
Moreover, even if the same standard of liability applied, there was a
danger that different juries would find different facts and produce
inconsistent results.
[Footnote 8]
Under Klaxon v. Stentor Electric Mfg. Co., 313 U. S. 487 (1941), a court
ordinarily must apply the choice of law rules of the State in which it sits.
However, where a case is transferred pursuant to 28 U.S.C. 1404(a),
it must apply the choice of law rules of the State from which the case
was transferred. Van Dusen v. Barrack, 376 U. S. 612 (1946). Relying
on these two cases, the District Court concluded that California choice
of law rules would apply to Piper, and Pennsylvania choice of law rules
would apply to Hartzell. It further concluded that California applied a
"governmental interests" analysis in resolving choice of law problems,
and that Pennsylvania employed a "significant contacts" analysis. The
court used the "governmental interests" analysis to determine that
Pennsylvania liability rules would apply to Piper, and the "significant
contacts" analysis to determine that Scottish liability rules would apply
to Hartzell.
[Footnote 9]
The court claimed that the risk of inconsistent verdicts was slight
because Pennsylvania and Scotland both adhere to principles of res
judicata.
[Footnote 10]
The Court of Appeals agreed with the District Court that California choice
of law rules applied to Piper, and that Pennsylvania choice of law rules
applied to Hartzell, see n 8,supra. It did not agree, however, that
California used a "governmental interests" analysis and that
Pennsylvania used a "significant contacts" analysis. Rather, it believed
that both jurisdictions employed the "false conflicts" test. Applying this
test, it concluded that Ohio and Pennsylvania had a greater policy
interest in the dispute than Scotland, and that American law would apply
to both Piper and Hartzell.
[Footnote 11]
The court's reasoning on this point is somewhat unclear. It states:
"We have held that, under the applicable choice of law rules,
Pennsylvania and Ohio are the jurisdictions with the greatest policy
interest in this dispute. It follows that the other public interest factors that
should be considered under the Supreme Court cases
of Gilbertand Koster favor trial in this country, rather than Scotland."
61
630 F.2d at 171. The Court of Appeals concluded as part of its choice of
law analysis that the United States had the greatest policy interest in the
dispute. See n 10, supra. It apparently believed that this conclusion
necessarily implied that theforum non convenienspublic interest factors
pointed toward trial in the United States.
[Footnote 12]
We granted certiorari in No. 80 848 to consider the question
"[w]hether, in an action in federal district court brought by foreign
plaintiffs against American defendants, the plaintiffs may defeat a
motion to dismiss on the ground of forum non conveniens merely by
showing that the substantive law that would be applied if the case were
litigated in the district court is more favorable to them than the law that
would be applied by the courts of their own nation."
We granted certiorari in No. 80-883 to consider the question whether
"a motion to dismiss on grounds offorum non conveniens [should] be
denied whenever the law of the alternate forum is less favorable to
recovery than that which would be applied by the district court."
In this opinion, we begin by considering whether the Court of Appeals
properly held that the possibility of an unfavorable change in law
automatically bars dismissal. 454 U. S. infra.Since we conclude that the
Court of Appeals erred, we then consider its review of the District
Court's Gilbert analysis to determine whether dismissal was otherwise
appropriate.454 U. S. infra. We believe that it is necessary to discuss
the Gilbert analysis in order to properly dispose of the cases.
The questions on which certiorari was granted are sufficiently broad to
justify our discussion of the District Court's Gilbert analysis. However,
even if the issues we discuss in454 U. S. our consideration of these
issues is not inappropriate. An order limiting the grant of certiorari does
not operate as a jurisdictional bar. We may consider questions outside
the scope of the limited order when resolution of those questions is
necessary for the proper disposition of the case. See Olmstead v. United
States, 277 U. S. 438 (1928);McCandless v. Furlaud, 293 U. S.
67 (1934); Redrup v. New York, 386 U. S. 767 (1967).
[Footnote 13]
The doctrine of forum non conveniens has a long history. It originated in
Scotland, seeBraucher, The Inconvenient Federal Forum, 60
Harv.L.Rev. 908, 909-911 (1947), and became part of the common law
of many States, see id. at 911-912; Blair, The Doctrine of Forum Non
Conveniens in Anglo-American Law, 29 Colum.L.Rev. 1 (1929). The
doctrine was also frequently applied in federal admiralty actions. See,
e.g., Canada Malting Co. v. Paterson Steamships, Ltd.; see also Bickel,
The Doctrine of Forum Non Conveniens As Applied in the Federal
Courts in Matters of Admiralty, 35 Cornell L.Q. 12 (1949). In Williams v.
Green Bay & Western R. Co., 326 U. S. 549 (1946), the Court first
indicated that motions to dismiss on grounds of forum non
conveniens could be made in federal diversity actions. The doctrine
became firmly established when Gilbert and Koster were decided one
year later.
In previous forum non conveniens decisions, the Court has left
unresolved the question whether, under Erie R. Co. v. Tompkins, 304 U.
S. 64 (1938), state or federal law of forum non conveniens applies in a
diversity case. Gilbert, 330 U.S. at 330 U. S. 509; Koster, 330 U.S.
at 330 U. S. 529; Williams v. Green Bay & Western R. Co., supra, at 326
U. S. 551,326 U. S. 558-559. The Court did not decide this issue,
because the same result would have been reached in each case under
federal or state law. The lower courts in these cases reached the same
conclusion: Pennsylvania and California law on forum non
conveniens dismissals are virtually identical to federal law. See 630
F.2d at 158. Thus, here also, we need not resolve the Erie question.
[Footnote 14]
See also Williams v. Green Bay & Western R. Co. at 326 U. S. 555, n. 4
(citing with approval a Scottish case that dismissed an action on the
ground of forum non conveniensdespite the possibility of an unfavorable
change in law).
[Footnote 15]
In other words, Gilbert held that dismissal may be warranted where a
plaintiff choose a particular forum not because it is convenient, but solely
in order to harass the defendant or take advantage of favorable law. This
is precisely the situation in which the Court of Appeals' rule would bar
dismissal.
[Footnote 16]
Cf. Dahl v. United Technologies Corp., 632 F.2d 1027, 1032 (CA3 1980)
(dismissal affirmed where "Norwegian substantive law will predominate
the trial of this case and the mere presence of a count pleaded under
Connecticut law, but which may have little chance of success, does not
warrant a different conclusion"). But see DeMateos v. Texaco, Inc.,562
F.2d 895, 899 (CA3 1977) (dictum) (principle that 1404(a) transfer
should not result in change in law is no less applicable to dismissal on
grounds of forum non conveniens),cert. denied, 435 U.S. 904 (1978).
The court below relied on the dictum in DeMateos in reaching its
decision. See infra at 454 U. S. 253-254.
[Footnote 17]
In fact, the defendant might not even have to be American. A foreign
plaintiff seeking damages for an accident that occurred abroad might be
able to obtain service of process on a foreign defendant who does
business in the United States. Under the Court of Appeals' holding,
dismissal would be barred if the law in the alternative forum were less
favorable to the plaintiff -- even though none of the parties are American,
and even though there is absolutely no nexus between the subject
matter of the litigation and the United States.
[Footnote 18]
First, all but 6 of the 50 American States -- Delaware, Massachusetts,
Michigan, North Carolina, Virginia, and Wyoming -- offer strict liability. 1
CCH Prod.Liability Rep. 4016 (1981). Rules roughly equivalent to
American strict liability are effective in France, Belgium, and
Luxembourg. West Germany and Japan have a strict liability statute for
pharmaceuticals. However, strict liability remains primarily an American
innovation. Second, the tort plaintiff may choose, at least potentially,
from among 50 jurisdictions if he decides to file suit in the United States.
Each of these jurisdictions applies its own set of malleable choice of law
rules. Third, jury trials are almost always available in the United States,
while they are never provided in civil law jurisdictions. G. Gloss,
Comparative Law 12 (1979); J. Merryman, The Civil Law Tradition 121
(1969). Even in the United Kingdom, most civil actions are not tried
before a jury. 1 G. Keeton, The United Kingdom: The Development of
its Laws and Constitutions 309 (1955). Fourth, unlike most foreign
jurisdictions, American courts allow contingent attorney's fees, and do
not tax losing parties with their opponents' attorney's fees. R.
Schlesinger, Comparative Law: Cases, Text, Materials 275-277 (3d
ed.1970); Orban, Product Liability: A Comparative Legal Restatement -
- Foreign National Law and the EEC Directive, 8 Ga.J.Int'l & Comp.L.
342, 393 (1978). Fifth, discovery is more extensive in American than in
foreign courts. R. Schlesinger, supra, at 307, 310, and n. 33.
[Footnote 19]
In holding that the possibility of a change in law unfavorable to the
plaintiff should not be given substantial weight, we also necessarily hold
that the possibility of a change in law favorable to defendant should not
be considered. Respondent suggests that Piper and Hartzell filed the
motion to dismiss not simply because trial in the United States would be
inconvenient, but also because they believe the laws of Scotland are
more favorable. She argues that this should be taken into account in the
analysis of the private interests. We recognize, of course, that Piper and
Hartzell may be engaged in reverse forum-shopping. However, this
possibility ordinarily should not enter into a trial court's analysis of the
private interests. If the defendant is able to overcome the presumption
in favor of plaintiff by showing that trial in the chosen forum would be
unnecessarily burdensome, dismissal is appropriate -- regardless of the
fact that defendant may also be motivated by a desire to obtain a more
favorable forum. Cf. Kloeckner Reederei und Kohlenhandel v. A/S
Hakedal,210 F.2d 754, 757 (CA2) (defendant not entitled to dismissal
on grounds of forum non conveniens solely because the law of the
original forum is less favorable to him than the law of the alternative
forum), cert. dism'd by stipulation, 348 U.S. 801 (1954).
[Footnote 20]
Barrack at least implicitly recognized that the rule it announced for
transfer under 1404(a) was not the common law rule. It cited several
decisions under 1404(a) in which lower courts had been "strongly
inclined to protect plaintiffs against the risk that transfer might be
accompanied by a prejudicial change in applicable state laws." 376 U.S.
62
at 376 U. S. 630, n. 26. These decisions frequently rested on the
assumption that a change in law would have been unavoidable under
common law forum non conveniens, but could be avoided under
1404(a). See, e.g., Greve v. Gibraltar Enterprises, Inc., 85 F.Supp. 410,
414 (NM 1949).
[Footnote 21]
The United States Court of Appeals for the Second Circuit has expressly
rejected the contention that rules governing transfers pursuant to
1404(a) also govern forum non conveniens dismissals. Schertenleib v.
Traum, 589 F.2d 1156 (1978).
[Footnote 22]
At the outset of any forum non conveniens inquiry, the court must
determine whether there exists an alternative forum. Ordinarily, this
requirement will be satisfied when the defendant is "amenable to
process" in the other jurisdiction. Gilbert, 330 U.S. at 330 U. S. 506-507.
In rare circumstances, however, where the remedy offered by the other
forum is clearly unsatisfactory, the other forum may not be an adequate
alternative, and the initial requirement may not be satisfied. Thus, for
example, dismissal would not be appropriate where the alternative
forum does not permit litigation of the subject matter of the dispute.Cf.
Phoenix Canada Oil Co., Ltd. v. Texaco, Inc., 78 F.R.D. 445 (Del.1978)
(court refuses to dismiss, where alternative forum is Ecuador, it is
unclear whether Ecuadorean tribunal will hear the case, and there is no
generally codified Ecuadorean legal remedy for the unjust enrichment
and tort claims asserted).
[Footnote 23]
In Koster, we stated that,
"[i]n any balancing of conveniences, a real showing of convenience by
a plaintiff who has sued in his home forum will normally outweigh the
inconvenience the defendant may have shown."
330 U.S. at 330 U. S. 524. See also Swift & Co. Packers v. Compania
Colombiana del Caribe, 339 U. S. 684, 339 U. S. 697 (1950) ("suit by a
United States citizen against a foreign respondent brings into force
considerations very different from those in suits between
foreigners"); Canada Malting Co. v. Paterson Steamships, Ltd., 285
U.S. at 285 U. S. 421 ("[t]he rule recognizing an unqualified discretion to
decline jurisdiction in suits in admiralty between foreigners appears to
be supported by an unbroken line of decisions in the lower federal
courts").
As the District Court correctly noted in its opinion, 479 F.Supp. at
731; see also n 10,supra, the lower federal courts have routinely given
less weight to a foreign plaintiff's choice of forum. See, e.g., Founding
Church of Scientology v. Verlag, 175 U.S.App.D.C. 402, 408, 536 F.2d
429, 435 (1976); Paper Operations Consultants Int'l, Ltd. v. SS Hong
Kong Amber, 513 F.2d 667, 672 (CA9 1975); Fitzgerald v. Texaco,
Inc., 521 F.2d 448, 451 (CA2 1975), cert. denied, 423 U.S. 1052
(1976); Mobil Tankers Co. v. Mene Grande Oil Co., 363 F.2d 611, 614
(CA3), cert. denied, 385 U.S. 945 (1966); Ionescu v. E. F. Hutton & Co.
(France), 465 F.Supp. 139 (SDNY 1979); Michell v. General Motors
Corp., 439 F.Supp. 24, 27 (ND Ohio 1977).
A citizen's forum choice should not be given dispositive weight,
however. See Pain v. United Technologies Corp., 205 U.S.App.D.C.
229, 252-253, 637 F.2d 775, 796-797 (1980); Mizokami Bros. of
Arizona, Inc. v. Baychem Corp., 556 F.2d 975 (CA9 1977), cert.
denied, 434 U.S. 1035 (1978). Citizens or residents deserve somewhat
more deference than foreign plaintiffs, but dismissal should not be
automatically barred when a plaintiff has filed suit in his home forum. As
always, if the balance of conveniences suggests that trial in the chosen
forum would be unnecessarily burdensome for the defendant or the
court, dismissal is proper.
[Footnote 24]
See Pain v. United Technologies Corp., supra, at 253, 637 F.2d at 797
(citizenship and residence are proxies for convenience); see also Note,
Forum Non Conveniens and American Plaintiffs in the Federal Courts,
47 U. Chi.L.Rev. 373, 382 383 (1980).
Respondent argues that since plaintiffs will ordinarily file suit in the
jurisdiction that offers the most favorable law, establishing a strong
presumption in favor of both home and foreign plaintiffs will ensure that
defendants will always be held to the highest possible standard of
accountability for their purported wrongdoing. However, the deference
accorded a plaintiff's choice of forum has never been intended to
guarantee that the plaintiff will be able to select the law that will govern
the case. See supra at 454 U. S. 247-250.
[Footnote 25]
In the future, where similar problems are presented, district courts might
dismiss subject to the condition that defendant corporations agree to
provide the records relevant to the plaintiff's claims.
[Footnote 26]
The United States Court of Appeals for the Second Circuit has expressly
rejected such a requirement. Fitzgerald v. Texaco, Inc., supra, at 451,
n. 3. In other cases, dismissals have been affirmed despite the failure to
provide detailed affidavits. See Farmanfarmaian v. Gulf Oil Corp., 437
F.Supp. 910, 924 (SDNY 1977), aff'd., 588 F.2d 880 (CA2 1978). And in
a decision handed down two weeks after the decision in this case,
another Third Circuit panel affirmed a dismissal without mentioning such
a requirement. See Dahl v. United Technologies Corp., 632 F.2d 1027
(1980).
The Court of Appeals apparently relied on an analogy to motions to
transfer under 28 U.S.C. 1404(a). 630 F.2d at 160-161. It
cited Marbury-Pattillo Construction Co. v. Bayside Warehouse Co., 490
F.2d 155, 158 (CA5 1974), and Texas Gulf Sulphur Co. v. Ritter, 371
F.2d 145, 148 (CA10 1967), which suggest an affidavit requirement in
the 1404(a) context. As we have explained, however, dismissals on
grounds of forum non conveniens and 1404(a) transfers are not
directly comparable. See supra at 454 U. S. 253-254.
[Footnote 27]
See Affidavit of Ronald C. Scott, App. to Pet. for Cert. of Hartzell
Propeller, Inc., A75; Affidavit of Charles J. McKelvey, App. to Pet. for
Cert. of Piper Aircraft Co. 1f. The affidavit provided to the District Court
by Piper states that it would call the following witnesses: the relatives of
the decedents; the owners and employees of McDonald; the persons
responsible for the training and licensing of the pilot; the persons
responsible for servicing and maintaining the aircraft; and two or three
of its own employees involved in the design and manufacture of the
aircraft.
[Footnote 28]
See Pain v. United Technologies Corp., 205 U.S.App.D.C. at 244, 637
F.2d at 790 (relying on similar argument in approving dismissal of action
arising out of helicopter crash that took place in Norway).
[Footnote 29]
Many forum non conveniens decisions have held that the need to apply
foreign law favors dismissal. See, e.g., Calavo Growers of California v.
Belgium, 632 F.2d 963, 967 (CA2 1980), cert. denied, 449 U.S. 1084
(1981); Schertenleib v. Traum, 589 F.2d at 1165. Of course, this factor
alone is not sufficient to warrant dismissal when a balancing of all
relevant factors shows that the plaintiff's chosen forum is
appropriate. See, e.g., Founding Church of Scientology v. Verlag, 175
U.S.App.D.C. at 409, 536 F.2d at 436; Burt v. Isthmus Development
Co., 218 F.2d 353, 357 (CA5), cert. denied, 349 U.S. 922 (1955).
JUSTICE WHITE, concurring in part and dissenting in part.
I join Parts I and II of the Court's opinion. However, like JUSTICE
BRENNAN and JUSTICE STEVENS, I would not proceed to deal with
the issues addressed in 454 U. S. To that extent, I am in dissent.
JUSTICE STEVENS, with whom JUSTICE BRENNAN joins, dissenting.
In No. 80 848, only one question is presented for review to this Court:
"Whether, in an action in federal district court brought by foreign plaintiffs
against American defendants, the plaintiffs may defeat a motion to
dismiss on the ground of
Page 454 U. S. 262
forum non conveniens merely by showing that the substantive law that
would be applied if the case were litigated in the district court is more
favorable to them than the law that would be applied by the courts of
their own nation."
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Pet. for Cert. in No. 80-848, p. i. In No. 8083, the Court limited its grant
of certiorari, see450 U.S. 909, to the same question:
"Must a motion to dismiss on grounds of forum non conveniens be
denied whenever the law of the alternate forum is less favorable to
recovery than that which would be applied by the district court?"
Pet. for Cert. in No. 80-883, p. i. I agree that this question should be
answered in the negative. Having decided that question, I would simply
remand the case to the Court of Appeals for further consideration of the
question whether the District Court correctly decided that Pennsylvania
was not a convenient forum in which to litigate a claim against a
Pennsylvania company that a plane was defectively designed and
manufactured in Pennsylvania.

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