BANK OF AMERICA VS. CA, G.R. NO.

120135, MARCH 31, 2003

On May 10, 1993, Eduardo K. Litonjua, Sr. and Aurelio J. Litonjua (Litonjuas, for brevity) filed a Complaint
2 before the Regional Trial Court of Pasig against the Bank of America NT&SA and Bank of America
International, Ltd. (defendant banks for brevity) alleging that: they were engaged in the shipping
business; they owned two vessels: Don Aurelio and El Champion, through their wholly-owned
corporations; they deposited their revenues from said business together with other funds with the
branches of said banks in the United Kingdom and Hongkong up to 1979; with their business doing well,
the defendant banks induced them to increase the number of their ships in operation, offering them
easy loans to acquire said vessels; 3 thereafter, the defendant banks acquired, through their
(Litonjuas') corporations as the borrowers: (a) El Carrier 4 ; (b) El General 5 ; (c) El Challenger 6 ; and
(d) El Conqueror 7 ; the vessels were registered in the names of their corporations; the operation and
the funds derived therefrom were placed under the complete and exclusive control and disposition of
the petitioners; 8 and the possession of the vessels was also placed by defendant banks in the hands
of persons selected and designated by them (defendant banks). 9
The Litonjuas claimed that defendant banks as trustees did not fully render an account of all the
income derived from the operation of the vessels as well as of the proceeds of the subsequent
foreclosure sale; 10 because of the breach of their fiduciary duties and/or negligence of the petitioners
and/or the persons designated by them in the operation of private respondents' six vessels, the revenues
derived from the operation of all the vessels declined drastically; the loans acquired for the purchase of
the four additional vessels then matured and remained unpaid, prompting defendant banks to have all
the six vessels, including the two vessels originally owned by the private respondents, foreclosed and
sold at public auction to answer for the obligations incurred for and in behalf of the operation of the
vessels; they (Litonjuas) lost sizeable amounts of their own personal funds equivalent to ten percent
(10%) of the acquisition cost of the four vessels and were left with the unpaid balance of their loans with
defendant banks. 11 The Litonjuas prayed for the accounting of the revenues derived in the operation
of the six vessels and of the proceeds of the sale thereof at the foreclosure proceedings instituted by
petitioners; damages for breach of trust; exemplary damages and attorney's fees. 12
Defendant banks filed a Motion to Dismiss on grounds of forum non conveniens and lack of cause of
action against them. 13
On December 3, 1993, the trial court issued an Order denying the Motion to Dismiss, thus:
"WHEREFORE, and in view of the foregoing consideration, the Motion to Dismiss is hereby DENIED. The
defendant is therefore, given a period of ten (10) days to file its Answer to the complaint.
"SO ORDERED." 14
Instead of filing an answer the defendant banks went to the Court of Appeals on a "Petition for Review
on Certiorari" 15 which was aptly treated by the appellate court as a petition for certiorari. They assailed
the above-quoted order as well as the subsequent denial of their 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 OF
FORUM 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. CmeoHP
"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. Gilbert 21 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."
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 of an 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."
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 NAVIGATORS 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, JR., and (h) EDUARDO KATIPUNAN
LITONJUA."
and that private respondents' alleged cause of action is already barred by the pendency of another
action or by litis 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 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. . . . Under certain situations,
recourse to certiorari 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. cCaDSA
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
". . . 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.
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 ". . . [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 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 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? EIcSDC
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) 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 defendants 52 , 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:
. . . [T]he petitioners, by simply enumerating the civil actions instituted abroad involving the parties
herein . . ., 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.

Philippine Export and Foreign Loan Guarantee Corporation, G.R. No. 140047, July 13, 2004

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

petitioner Philippine Export and Foreign Loan Guarantee Corporation1 (hereinafter

Philguarantee) sought reimbursement from the respondents of the sum of money it paid to Al
Ahli Bank of Kuwait pursuant to a guarantee it issued for respondent V.P. Eusebio Construction,
Inc. (VPECI).

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

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

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

The SOB required the contractors to submit (1) a performance bond of ID271,808/610
representing 5% of the total contract price and (2) an advance payment bond of ID541,608/901
representing 10% of the advance payment to be released upon signing of the contract.6 To
comply with these requirements, respondents 3-Plex and VPECI applied for the issuance of a
guarantee with petitioner Philguarantee, a government financial institution empowered to issue
guarantees for qualified Filipino contractors to secure the performance of approved service
contracts abroad.7
Petitioner Philguarantee approved respondents' application. Subsequently, letters of guarantee8
were issued by Philguarantee to the Rafidain Bank of Baghdad covering 100% of the
performance and advance payment bonds, but they were not accepted by SOB. What SOB
required was a letter-guarantee from Rafidain Bank, the government bank of Iraq. Rafidain Bank
then issued a performance bond in favor of SOB on the condition that another foreign bank, not
Philguarantee, would issue a counter-guarantee to cover its exposure. Al Ahli Bank of Kuwait
was, therefore, engaged to provide a counter-guarantee to Rafidain Bank, but it required a
similar counter-guarantee in its favor from the petitioner. Thus, three layers of guarantees had to
be arranged.9

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

On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service contract15 for
the construction of the Institute of Physical Therapy – Medical Rehabilitation Center, Phase II, in
Baghdad, Iraq, wherein the joint venture contractor undertook to complete the Project within a
period of 547 days or 18 months. Under the Contract, the Joint Venture would supply manpower
and materials, and SOB would refund to the former 25% of the project cost in Iraqi Dinar and the
75% in US dollars at the exchange rate of 1 Dinar to 3.37777 US Dollars.16

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

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

On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding full
payment of its performance bond counter-guarantee.
Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI requested
Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to recall the telex
call on the performance guarantee for being a drastic action in contravention of its mutual
agreement with the latter that (1) the imposition of penalty would be held in abeyance until the
completion of the project; and (2) the time extension would be open, depending on the
developments on the negotiations for a foreign loan to finance the completion of the project.23
It also wrote SOB protesting the call for lack of factual or legal basis, since the failure to
complete the Project was due to (1) the Iraqi government's lack of foreign exchange with which
to pay its (VPECI's) accomplishments and (2) SOB's noncompliance for the past several years
with the provision in the contract that 75% of the billings would be paid in US dollars.24
Subsequently, or on 19 November 1986, respondent VPECI advised the petitioner not to pay yet
Al Ahli Bank because efforts were being exerted for the amicable settlement of the Project.25

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

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

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

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

The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21 January
1988.30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait US$59,129.83
representing interest and penalty charges demanded by the latter bank.31

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

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

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

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

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

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

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

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

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

II

…PETITIONER CANNOT CLAIM SUBROGATION.

III

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

THE MAIN ISSUE IN THIS CASE IS WHETHER THE PETITIONER IS ENTITLED TO REIMBURSEMENT OF WHAT
IT PAID UNDER LETTER OF GUARANTEE NO. 81-194-F IT ISSUED TO AL AHLI BANK OF KUWAIT BASED
ON THE DEED OF UNDERTAKING AND SURETY BOND FROM THE RESPONDENTS.

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

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

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

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

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

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

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

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

6. Usually, a surety will not be discharged either by the mere indulgence of the creditor to the
principal or by want of notice of the default of the principal, no matter how much he may be
injured thereby. A guarantor is often discharged by the mere indulgence of the creditor to the
principal, and is usually not liable unless notified of the default of the principal. 38
In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81-194-F, which
provides in part as follows:

In consideration of your issuing the above performance guarantee/counter-guarantee, we

hereby unconditionally and irrevocably guarantee, under our Ref. No. LG-81-194 F to pay you on
your first written or telex demand Iraq Dinars Two Hundred Seventy One Thousand Eight Hundred
Eight and fils six hundred ten (ID271,808/610) representing 100% of the performance bond
required of V.P. EUSEBIO for the construction of the Physical Therapy Institute, Phase II, Baghdad,
Iraq, plus interest and other incidental expenses related thereto.

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

Guided by the abovementioned distinctions between a surety and a guaranty, as well as the
factual milieu of this case, we find that the Court of Appeals and the trial court were correct in
ruling that the petitioner is a guarantor and not a surety. That the guarantee issued by the
petitioner is unconditional and irrevocable does not make the petitioner a surety. AS A
GUARANTY, IT IS STILL CHARACTERIZED BY ITS SUBSIDIARY AND CONDITIONAL QUALITY BECAUSE IT
DOES NOT TAKE EFFECT UNTIL THE FULFILLMENT OF THE CONDITION, NAMELY, THAT THE PRINCIPAL
OBLIGOR SHOULD FAIL IN HIS OBLIGATION AT THE TIME AND IN THE FORM HE BOUND HIMSELF.40 IN
OTHER WORDS, AN UNCONDITIONAL GUARANTEE IS STILL SUBJECT TO THE CONDITION THAT THE
PRINCIPAL DEBTOR SHOULD DEFAULT IN HIS OBLIGATION FIRST BEFORE RESORT TO THE GUARANTOR
COULD BE HAD. A conditional guaranty, as opposed to an unconditional guaranty, is one which
depends upon some extraneous event, beyond the mere default of the principal, and generally
upon notice of the principal's default and reasonable diligence in exhausting proper remedies
against the principal.41

It appearing that Letter of Guarantee No. 81-194-F merely stated that in the event of default by
respondent VPECI the petitioner shall pay, the obligation assumed by the petitioner was simply
that of an unconditional guaranty, not conditional guaranty. But as earlier ruled the fact that
petitioner's guaranty is unconditional does not make it a surety. Besides, surety is never
presumed. A party should not be considered a surety where the contract itself stipulates that he
is acting only as a guarantor. It is only when the guarantor binds himself solidarily with the
principal debtor that the contract becomes one of suretyship.42

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

It is a fundamental and settled rule that the findings of fact of the trial court and the Court of
Appeals are binding or conclusive upon this Court unless they are not supported by the
evidence or unless strong and cogent reasons dictate otherwise.43 The factual findings of the
Court of Appeals are normally not reviewable by us under Rule 45 of the Rules of Court except
when they are at variance with those of the trial court. 44 The trial court and the Court of
Appeals were in unison that the respondent contractor cannot be considered to have defaulted
in its obligations because the cause of the delay was not primarily attributable to it.
A COROLLARY ISSUE IS WHAT LAW SHOULD BE APPLIED IN DETERMINING WHETHER THE RESPONDENT
CONTRACTOR HAS DEFAULTED IN THE PERFORMANCE OF ITS OBLIGATIONS UNDER THE SERVICE
CONTRACT. THE QUESTION OF WHETHER THERE IS A BREACH OF AN AGREEMENT, WHICH INCLUDES
DEFAULT OR MORA, PERTAINS TO THE ESSENTIAL OR INTRINSIC VALIDITY OF A CONTRACT.

No conflicts rule on essential validity of contracts is expressly provided for in our laws. The rule
followed by most legal systems, however, is that the intrinsic validity of a contract must be
governed by the lex contractus or "proper law of the contract." This is the law voluntarily agreed
upon by the parties (the lex loci voluntatis) or the law intended by them either expressly or
implicitly (the lex loci intentionis). The law selected may be implied from such factors as
substantial connection with the transaction, or the nationality or domicile of the parties.47
Philippine courts would do well to adopt the first and most basic rule in most legal systems,
namely, to allow the parties to select the law applicable to their contract, subject to the
limitation that it is not against the law, morals, or public policy of the forum and that the chosen
law must bear a substantive relationship to the transaction.

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

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

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

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

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

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

5. SOB is fully aware of the following:

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

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

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

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

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

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

10. Due to the lack of Foreign currency in Iraq for this purpose, and if only to assist the Iraqi
government in completing the PROJECT, the Contractor without any obligation on its part to do
so but with the knowledge and consent of SOB and the Ministry of Housing & Construction of
Iraq, offered to arrange on behalf of SOB, a foreign currency loan, through the facilities of Circle
International S.A., the Contractor's Sub-contractor and SACE MEDIO CREDITO which will act as
the guarantor for this foreign currency loan.
Arrangements were first made with Banco di Roma. Negotiation started in June 1985. SOB is
informed of the developments of this negotiation, attached is a copy of the draft of the loan
Agreement between SOB as the Borrower and Agent. The Several Banks, as Lender, and
counter-guaranteed by Istituto Centrale Per II Credito A Medio Termine (Mediocredito) Sezione
Speciale Per L'Assicurazione Del Credito All'Exportazione (Sace). Negotiations went on and
continued until it suddenly collapsed due to the reported default by Iraq in the payment of its
obligations with Italian government, copy of the news clipping dated June 18, 1986 is hereto
attached as Annex "D" to form an integral part hereof;

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

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

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

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

In order that the debtor may be in default it is necessary that the following requisites be present:
(1) that the obligation be demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the performance because it must appear that
the tolerance or benevolence of the creditor must have ended. 59

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

Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it cannot
be compelled to pay the creditor SOB unless the property of the debtor VPECI has been
exhausted and all legal remedies against the said debtor have been resorted to by the
creditor.62 It could also set up compensation as regards what the creditor SOB may owe the
principal debtor VPECI.63 In this case, however, the petitioner has clearly waived these rights
and remedies by making the payment of an obligation that was yet to be shown to be rightfully
due the creditor and demandable of the principal debtor.

As found by the Court of Appeals, the petitioner fully knew that the joint venture contractor had
collectibles from SOB which could be set off with the amount covered by the performance
guarantee. In February 1987, the OMEAA transmitted to the petitioner a copy of a telex dated
10 February 1987 of the Philippine Ambassador in Baghdad, Iraq, informing it of the note verbale
sent by the Iraqi Ministry of Foreign Affairs stating that the past due obligations of the joint
venture contractor from the petitioner would "be deducted from the dues of the two
contractors."64

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

6.1 Present the following arguments in cancelling the counterguarantee:

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

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

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

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

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

While PHILGUARANTEE is prepared to honor its commitment under the guarantee,

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

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

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

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

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

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

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

****Device for solving problems has been abused and misused to assure scheming litigants of
dubious reliefs.
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 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

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 court