Page 1 of 72

G.R. No. 140047             July 13, 2004 the POCB.4 However, on 2 May 1981, 3-Plex and VPECI entered into an agreement that
PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE CORPORATION, petitioner, the execution of the Project would be under their joint management. 5
vs.
V.P. EUSEBIO CONSTRUCTION, INC.; 3-PLEX INTERNATIONAL, INC.; VICENTE P. The SOB required the contractors to submit (1) a performance bond of ID271,808/610
EUSEBIO; SOLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA SANTOS; AND representing 5% of the total contract price and (2) an advance payment bond of
FIRST INTEGRATED BONDING AND INSURANCE COMPANY, INC., respondents. 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
SERVICE CONTRACT INVOLVING IRAQI GOVERNMENT: WE USE HERE MOST secure the performance of approved service contracts abroad. 7
SIGNIFICANT CONTACT RULE
Petitioner Philguarantee approved respondents' application. Subsequently, letters of
DAVIDE, JR., C.J.:
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.
This case is an offshoot of a service contract entered into by a Filipino construction firm What SOB required was a letter-guarantee from Rafidain Bank, the government bank of
with the Iraqi Government for the construction of the Institute of Physical Therapy- Iraq. Rafidain Bank then issued a performance bond in favor of SOB on the condition
Medical Center, Phase II, in Baghdad, Iraq, at a time when the Iran-Iraq war was that another foreign bank, not Philguarantee, would issue a counter-guarantee to cover
ongoing. 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
In a complaint filed with the Regional Trial Court of Makati City, docketed as Civil Case the petitioner. Thus, three layers of guarantees had to be arranged. 9
No. 91-1906 and assigned to Branch 58, petitioner Philippine Export and Foreign Loan
Guarantee Corporation1 (hereinafter Philguarantee) sought reimbursement from the Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued
respondents of the sum of money it paid to Al Ahli Bank of Kuwait pursuant to a in favor of Al Ahli Bank of Kuwait Letter of Guarantee No. 81-194-F 10 (Performance Bond
guarantee it issued for respondent V.P. Eusebio Construction, Inc. (VPECI). 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
The factual and procedural antecedents in this case are as follows: 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
On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing and Soledad C. Eusebio, 3-Plex, and Spouses Eduardo E. Santos and Iluminada Santos; and
Construction, Baghdad, Iraq, awarded the construction of the Institute of Physical (2) a surety bond13 issued by respondent First Integrated Bonding and Insurance
Therapy–Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, (hereinafter the Company, Inc. (FIBICI). The Surety Bond was later amended on 23 June 1981 to increase
Project) to Ajyal Trading and Contracting Company (hereinafter Ajyal), a firm duly the amount of coverage from P6.4 million to P6.967 million and to change the bank in
licensed with the Kuwait Chamber of Commerce for a total contract price of whose favor the petitioner's guarantee was issued, from Rafidain Bank to Al Ahli Bank of
ID5,416,089/046 (or about US$18,739,668).2 Kuwait.14

On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service
respondent 3-Plex International, Inc. (hereinafter 3-Plex), a local contractor engaged in contract15 for the construction of the Institute of Physical Therapy – Medical
construction business, entered into a joint venture agreement with Ajyal wherein the Rehabilitation Center, Phase II, in Baghdad, Iraq, wherein the joint venture contractor
former undertook the execution of the entire Project, while the latter would be entitled undertook to complete the Project within a period of 547 days or 18 months. Under the
to a commission of 4% of the contract price. 3 Later, or on 8 April 1981, respondent 3- Contract, the Joint Venture would supply manpower and materials, and SOB would
Plex, not being accredited by or registered with the Philippine Overseas Construction refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at
Board (POCB), assigned and transferred all its rights and interests under the joint the exchange rate of 1 Dinar to 3.37777 US Dollars.16
venture agreement to VPECI, a construction and engineering firm duly registered with
 Page 2 of 72

The construction, which was supposed to start on 2 June 1981, commenced only on the Both petitioner Philguarantee and respondent VPECI sought the assistance of some
last week of August 1981. Because of this delay and the slow progress of the government agencies of the Philippines. On 10 August 1987, VPECI requested the
construction work due to some setbacks and difficulties, the Project was not completed Central Bank to hold in abeyance the payment by the petitioner "to allow the diplomatic
on 15 November 1982 as scheduled. But in October 1982, upon foreseeing the machinery to take its course, for otherwise, the Philippine government , through the
impossibility of meeting the deadline and upon the request of Al Ahli Bank, the joint Philguarantee and the Central Bank, would become instruments of the Iraqi
venture contractor worked for the renewal or extension of the Performance Bond and Government in consummating a clear act of injustice and inequity committed against a
Advance Payment Guarantee. Petitioner's Letters of Guarantee Nos. 81-194-F Filipino contractor."27
(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, On 27 August 1987, the Central Bank authorized the remittance for its account of the
respectively.17 The surety bond was also extended for another period of one year, from amount of US$876,564 (equivalent to ID271, 808/610) to Al Ahli Bank representing full
12 May 1982 to 12 May 1983. 18 The Performance Bond was further extended twelve payment of the performance counter-guarantee for VPECI's project in Iraq. 28
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
On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to
full refund or reimbursement by the joint venture contractor. 20 The surety bond was
Al Ahli Bank, and reiterated the joint and solidary obligation of the respondents to
likewise extended to 8 May 1987.21
reimburse the petitioner for the advances made on its counter-guarantee. 29

As of March 1986, the status of the Project was 51% accomplished, meaning the
The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21
structures were already finished. The remaining 47% consisted in electro-mechanical
January 1988.30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait
works and the 2%, sanitary works, which both required importation of equipment and
US$59,129.83 representing interest and penalty charges demanded by the latter bank. 31
materials.22
On 19 June 1991, the petitioner sent to the respondents separate letters demanding full
On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner demanding
payment of the amount of P47,872,373.98 plus accruing interest, penalty charges, and
full payment of its performance bond counter-guarantee.
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
Upon receiving a copy of that telex message on 27 October 1986, respondent VPECI on 9 July 1991 a civil case for collection of a sum of money against the respondents
requested Iraq Trade and Economic Development Minister Mohammad Fadhi Hussein to before the RTC of Makati City.
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
After due trial, the trial court ruled against Philguarantee and held that the latter had no
would be held in abeyance until the completion of the project; and (2) the time
valid cause of action against the respondents. It opined that at the time the call was
extension would be open, depending on the developments on the negotiations for a
made on the guarantee which was executed for a specific period, the guarantee had
foreign loan to finance the completion of the project. 23 It also wrote SOB protesting the
already lapsed or expired. There was no valid renewal or extension of the guarantee for
call for lack of factual or legal basis, since the failure to complete the Project was due to
failure of the petitioner to secure respondents' express consent thereto. The trial court
(1) the Iraqi government's lack of foreign exchange with which to pay its (VPECI's)
also found that the joint venture contractor incurred no delay in the execution of the
accomplishments and (2) SOB's noncompliance for the past several years with the
Project. Considering the Project owner's violations of the contract which rendered
provision in the contract that 75% of the billings would be paid in US
impossible the joint venture contractor's performance of its undertaking, no valid call on
dollars.24 Subsequently, or on 19 November 1986, respondent VPECI advised the
the guarantee could be made. Furthermore, the trial court held that no valid notice was
petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the
first made by the Project owner SOB to the joint venture contractor before the call on
amicable settlement of the Project.25
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
On 14 April 1987, the petitioner received another telex message from Al Ahli Bank respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex and the Santos
stating that it had already paid to Rafidain Bank the sum of US$876,564 under its letter Spouses, plus costs. 33
of guarantee, and demanding reimbursement by the petitioner of what it paid to the
latter bank plus interest thereon and related expenses. 26
 Page 3 of 72

In its 14 June 1999 Decision,34 the Court of Appeals affirmed the trial court's decision, …RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF UNDERTAKING THEY
ratiocinating as follows: EXECUTED IN FAVOR OF PETITIONER IN CONSIDERATION FOR THE ISSUANCE
OF ITS COUNTER-GUARANTEE AND THAT PETITIONER CANNOT PASS ON TO
First, appellant cannot deny the fact that it was fully aware of the status of RESPONDENTS WHAT IT HAD PAID UNDER THE SAID COUNTER-GUARANTEE.
project implementation as well as the problems besetting the contractors,
between 1982 to 1985, having sent some of its people to Baghdad during that II
period. The successive renewals/extensions of the guarantees in fact, was
prompted by delays, not solely attributable to the contractors, and such …PETITIONER CANNOT CLAIM SUBROGATION.
extension understandably allowed by the SOB (project owner) which had not
anyway complied with its contractual commitment to tender 75% of payment
III
in US Dollars, and which still retained overdue amounts collectible by VPECI.
…IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD RESPONDENTS
…
LIABLE UNDER THEIR DEED OF UNDERTAKING. 36

Second, appellant was very much aware of the violations committed by the
The main issue in this case is whether the petitioner is entitled to reimbursement of
SOB of its contractual undertakings with VPECI, principally, the payment of
what it paid under Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait
foreign currency (US$) for 75% of the total contract price, as well as of the
based on the deed of undertaking and surety bond from the respondents.
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 …. 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.

Third, appellant was fully aware that SOB was in fact still obligated to the Joint
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
Venture and there was still an amount collectible from and still being retained
obligation of the principal debtor in case the latter should fail to do so. If a person binds
by the project owner, which amount can be set-off with the sum covered by
himself solidarily with the principal debtor, the contract is called suretyship. 37
the performance guarantee.
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:
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
1. A surety is usually bound with his principal by the same instrument executed
made representations with the SOB regarding a possible amicable termination
at the same time and on the same consideration. On the other hand, the
of the Project as suggested by VPECI, made a complete turn-around and
contract of guaranty is the guarantor's own separate undertaking often
insisted on acting in favor of the unjustified "call" by the foreign banks. 35
supported by a consideration separate from that supporting the contract of
the principal; the original contract of his principal is not his contract.
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
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
I debtor to pay the obligation.
 Page 4 of 72

3. The obligation of a surety is primary, while that of a guarantor is secondary. and generally upon notice of the principal's default and reasonable diligence in
exhausting proper remedies against the principal.41
4. A surety is an original promissor and debtor from the beginning, while a
guarantor is charged on his own undertaking. 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
5. A surety is, ordinarily, held to know every default of his principal; whereas a petitioner was simply that of an unconditional guaranty, not conditional guaranty. But
guarantor is not bound to take notice of the non-performance of his principal. 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
6. Usually, a surety will not be discharged either by the mere indulgence of the
the guarantor binds himself solidarily with the principal debtor that the contract
creditor to the principal or by want of notice of the default of the principal, no
becomes one of suretyship.42
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 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
In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81-
better addressed by the lower courts, since this Court is not a trier of facts.
194-F, which provides in part as follows:

It is a fundamental and settled rule that the findings of fact of the trial court and the
In consideration of your issuing the above performance guarantee/counter-
Court of Appeals are binding or conclusive upon this Court unless they are not
guarantee, we hereby unconditionally and irrevocably guarantee, under our
supported by the evidence or unless strong and cogent reasons dictate otherwise. 43 The
Ref. No. LG-81-194 F to pay you on your first written or telex demand Iraq
factual findings of the Court of Appeals are normally not reviewable by us under Rule 45
Dinars Two Hundred Seventy One Thousand Eight Hundred Eight and fils six
of the Rules of Court except when they are at variance with those of the trial
hundred ten (ID271,808/610) representing 100% of the performance bond
court. 44 The trial court and the Court of Appeals were in unison that the respondent
required of V.P. EUSEBIO for the construction of the Physical Therapy Institute,
contractor cannot be considered to have defaulted in its obligations because the cause
Phase II, Baghdad, Iraq, plus interest and other incidental expenses related
of the delay was not primarily attributable to it.
thereto.

A corollary issue is what law should be applied in determining whether the respondent
In the event of default by V.P. EUSEBIO, we shall pay you 100% of the
contractor has defaulted in the performance of its obligations under the service
obligation unpaid but in no case shall such amount exceed Iraq Dinars (ID)
contract. The question of whether there is a breach of an agreement, which
271,808/610 plus interest and other incidental expenses…. (Emphasis
includes default or mora,45 pertains to the essential or intrinsic validity of a contract. 46
supplied)39

GENERALLY, MOST JURISDICTIONS FOLLOW LEX LOCI INTENTIONIS No conflicts rule on

Guided by the abovementioned distinctions between a surety and a guaranty, as well as
essential validity of contracts is expressly provided for in our laws. The rule followed by
the factual milieu of this case, we find that the Court of Appeals and the trial court were
most legal systems, however, is that the intrinsic validity of a contract must be governed
correct in ruling that the petitioner is a guarantor and not a surety. That the guarantee
by the lex contractus or "proper law of the contract." This is the law voluntarily agreed
issued by the petitioner is unconditional and irrevocable does not make the petitioner a
upon by the parties (the lex loci voluntatis) or the law intended by them either expressly
surety. As a guaranty, it is still characterized by its subsidiary and conditional quality
or implicitly (the lex loci intentionis). The law selected may be implied from such factors
because it does not take effect until the fulfillment of the condition, namely, that the
as substantial connection with the transaction, or the nationality or domicile of the
principal obligor should fail in his obligation at the time and in the form he bound
parties.47 Philippine courts would do well to adopt the first and most basic rule in most
himself.40 In other words, an unconditional guarantee is still subject to the condition that
legal systems, namely, to allow the parties to select the law applicable to their contract,
the principal debtor should default in his obligation first before resort to the guarantor
subject to the limitation that it is not against the law, morals, or public policy of the
could be had. A conditional guaranty, as opposed to an unconditional guaranty, is one
forum and that the chosen law must bear a substantive relationship to the transaction. 48
which depends upon some extraneous event, beyond the mere default of the principal,
 Page 5 of 72

It must be noted that the service contract between SOB and VPECI contains no express 5. SOB is fully aware of the following:
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 1. IN THE ABSENCE OF CLEAR INTENTION, WE FOLLOW THE "has the most
5.2 That Plaintiff is a foreign contractor in Iraq and as such, would need foreign
significant relationship to the transaction and the parties." 49 Another authority
currency (US$), to finance the purchase of various equipment, materials,
proposed that 2. ALL MATTERS RELATING TO THE TIME, PLACE, AND MANNER OF
supplies, tools and to pay for the cost of project management, supervision and
PERFORMANCE AND VALID EXCUSES FOR NON-PERFORMANCE ARE DETERMINED BY
skilled labor not available in Iraq and therefore have to be imported and or
THE LAW OF THE PLACE OF PERFORMANCE or lex loci solutionis, which is useful because
obtained from the Philippines and other sources outside Iraq.
it is undoubtedly always connected to the contract in a significant way. 50
5.3 That the Ministry of Labor and Employment of the Philippines requires the
IN THIS CASE, THE LAWS OF IRAQ BEAR SUBSTANTIAL CONNECTION TO THE
remittance into the Philippines of 70% of the salaries of Filipino workers
TRANSACTION, since one of the parties is the Iraqi Government and the place of
working abroad in US Dollars;
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 5.5 That the Iraqi Dinar is not a freely convertible currency such that the same
same as ours. BUT YOU STILL NEED TO PLEAD AND PROVE IT THO cannot be used to purchase equipment, materials, supplies, etc. outside of
Iraq;
HENCE, FAILURE TO PLEAD MEANS WE APPLY OUR LAW, Our law, specifically Article
1169, last paragraph, of the Civil Code, provides: "In reciprocal obligations, neither party 5.6 That most of the materials specified by SOB in the CONTRACT are not
incurs in delay if the other party does not comply or is not ready to comply in a proper available in Iraq and therefore have to be imported;
manner with what is incumbent upon him."
5.7 That the government of Iraq prohibits the bringing of local currency (Iraqui
Default or mora on the part of the debtor is the delay in the fulfillment of the prestation Dinars) out of Iraq and hence, imported materials, equipment, etc., cannot be
by reason of a cause imputable to the former. 52 It is the non-fulfillment of an obligation purchased or obtained using Iraqui Dinars as medium of acquisition.
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 8. Following the approved construction program of the CONTRACT, upon
equipment and materials, which were available from foreign suppliers, thus requiring US completion of the civil works portion of the installation of equipment for the
Dollars for their importation. The monthly billings and payments made by SOB 54 reveal building, should immediately follow, however, the CONTRACT specified that
that the agreement between the parties was a periodic payment by the Project owner these equipment which are to be installed and to form part of the PROJECT
to the contractor depending on the percentage of accomplishment within the have to be procured outside Iraq since these are not being locally
period. 55 The payments were, in turn, to be used by the contractor to finance the manufactured. Copy f the relevant portion of the Technical Specification is
subsequent phase of the work. 56 However, as explained by VPECI in its letter to the hereto attached as Annex "C" and made an integral part hereof;
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 10. Due to the lack of Foreign currency in Iraq for this purpose, and if only to
accomplishment billings of the Contractor purely in Iraqi Dinars and which assist the Iraqi government in completing the PROJECT, the Contractor without
payment came only after some delays.
 Page 6 of 72

any obligation on its part to do so but with the knowledge and consent of SOB be a great obstacle. Our performance counterguarantee was called last 26
and the Ministry of Housing & Construction of Iraq, offered to arrange on October 1986 when the negotiations for a foreign currency loan with the
behalf of SOB, a foreign currency loan, through the facilities of Circle Italian government through Banco de Roma bogged down following news
International S.A., the Contractor's Sub-contractor and SACE MEDIO CREDITO report that Iraq has defaulted in its obligation with major European banks.
which will act as the guarantor for this foreign currency loan. 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
Arrangements were first made with Banco di Roma. Negotiation started in
June 1985. SOB is informed of the developments of this negotiation, attached In order that the debtor may be in default it is necessary that the following requisites be
is a copy of the draft of the loan Agreement between SOB as the Borrower and present: (1) that the obligation be demandable and already liquidated; (2) that the
Agent. The Several Banks, as Lender, and counter-guaranteed by Istituto debtor delays performance; and (3) that the creditor requires the performance because
Centrale Per II Credito A Medio Termine (Mediocredito) Sezione Speciale Per it must appear that the tolerance or benevolence of the creditor must have ended. 59
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 As stated earlier, SOB cannot yet demand complete performance from VPECI because it
payment of its obligations with Italian government, copy of the news clipping has not yet itself performed its obligation in a proper manner, particularly the payment
dated June 18, 1986 is hereto attached as Annex "D" to form an integral part of the 75% of the cost of the Project in US Dollars. The VPECI cannot yet be said to have
hereof; 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
15. On September 15, 1986, Contractor received information from Circle creditor, SOB, which could be implied when the latter granted several extensions of time
International S.A. that because of the news report that Iraq defaulted in its to the former. 60 Besides, no demand has yet been made by SOB against the respondent
obligations with European banks, the approval by Banco di Roma of the loan to contractor. Demand is generally necessary even if a period has been fixed in the
SOB shall be deferred indefinitely, a copy of the letter of Circle International obligation. And default generally begins from the moment the creditor demands
together with the news clippings are hereto attached as Annexes "F" and "F-1", judicially or extra-judicially the performance of the obligation. Without such demand,
respectively.57 the effects of default will not arise.61

As found by both the Court of Appeals and the trial court, the delay or the non- Moreover, the petitioner as a guarantor is entitled to the benefit of excussion, that is, it
completion of the Project was caused by factors not imputable to the respondent cannot be compelled to pay the creditor SOB unless the property of the debtor VPECI
contractor. It was rather due mainly to the persistent violations by SOB of the terms and has been exhausted and all legal remedies against the said debtor have been resorted to
conditions of the contract, particularly its failure to pay 75% of the accomplished by the creditor.62 It could also set up compensation as regards what the creditor SOB
work in US Dollars. Indeed, where one of the parties to a contract does not perform in a may owe the principal debtor VPECI. 63 In this case, however, the petitioner has clearly
proper manner the prestation which he is bound to perform under the contract, he is waived these rights and remedies by making the payment of an obligation that was yet
not entitled to demand the performance of the other party. A party does not incur in to be shown to be rightfully due the creditor and demandable of the principal debtor.
delay if the other party fails to perform the obligation incumbent upon him.
As found by the Court of Appeals, the petitioner fully knew that the joint venture
The petitioner, however, maintains that the payments by SOB of the monthly billings in contractor had collectibles from SOB which could be set off with the amount covered by
purely Iraqi Dinars did not render impossible the performance of the Project by VPECI. the performance guarantee. In February 1987, the OMEAA transmitted to the petitioner
Such posture is quite contrary to its previous representations. In his 26 March 1987 a copy of a telex dated 10 February 1987 of the Philippine Ambassador in Baghdad, Iraq,
letter to the Office of the Middle Eastern and African Affairs (OMEAA), DFA, Manila, informing it of the note verbale sent by the Iraqi Ministry of Foreign Affairs stating that
petitioner's Executive Vice-President Jesus M. Tañedo stated that while VPECI had taken the past due obligations of the joint venture contractor from the petitioner would "be
every possible measure to complete the Project, the war situation in Iraq, particularly deducted from the dues of the two contractors."64
the lack of foreign exchange, was proving to be a great obstacle; thus:
Also, in the project situationer attached to the letter to the OMEAA dated 26 March
VPECI has taken every possible measure for the completion of the project but 1987, the petitioner raised as among the arguments to be presented in support of the
the war situation in Iraq particularly the lack of foreign exchange is proving to cancellation of the counter-guarantee the fact that the amount of ID281,414/066
 Page 7 of 72

retained by SOB from the Project was more than enough to cover the counter- This brings us to the next question: May the petitioner as a guarantor secure
guarantee of ID271,808/610; thus: reimbursement from the respondents for what it has paid under Letter of Guarantee
No. 81-194-F?
6.1 Present the following arguments in cancelling the counterguarantee:
As a rule, a guarantor who pays for a debtor should be indemnified by the latter 67 and
· The Iraqi Government does not have the foreign exchange to fulfill would be legally subrogated to the rights which the creditor has against the
its contractual obligations of paying 75% of progress billings in US debtor.68 However, a person who makes payment without the knowledge or against the
dollars. 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
· It could also be argued that the amount of ID281,414/066 retained
From the findings of the Court of Appeals and the trial court, it is clear that the payment
by SOB from the proposed project is more than the amount of the
made by the petitioner guarantor did not in any way benefit the principal debtor, given
outstanding counterguarantee.65
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,
In a nutshell, since the petitioner was aware of the contractor's outstanding receivables which are fully supported by evidence and which have been meritoriously set up against
from SOB, it should have set up compensation as was proposed in its project situationer. 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
Moreover, the petitioner was very much aware of the predicament of the respondents. enforcing the same by reason of the petitioner's undue payment on the guaranty. Rights
In fact, in its 13 May 1987 letter to the OMEAA, DFA, Manila, it stated: 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.
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 The petitioner guarantor should have waited for the natural course of guaranty: the
guarantee has no basis. 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
While PHILGUARANTEE is prepared to honor its commitment under the the debtor does not or cannot pay, in whole or in part, that the guarantor should
guarantee, PHILGUARANTEE does not want to be an instrument in any case of pay.71 When the petitioner guarantor in this case paid against the will of the debtor
inequity committed against a Filipino contractor. It is for this reason that we VPECI, the debtor VPECI may set up against it defenses available against the creditor
are constrained to seek your assistance not only in ascertaining the veracity of SOB at the time of payment. This is the hard lesson that the petitioner must learn.
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 As the government arm in pursuing its objective of providing "the necessary support and
cannot help underscore the urgency of VPECI's bid for government assistance in order to enable … [Filipino exporters and contractors to operate viably
intervention for the amicable termination of the contract and release of the under the prevailing economic and business conditions," 72 the petitioner should have
performance guarantee. 66 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
But surprisingly, though fully cognizant of SOB's violations of the service contract and the Filipino contractor VPECI which had sternly warned against paying the Al Ahli Bank
VPECI's outstanding receivables from SOB, as well as the situation obtaining in the and constantly apprised it of the developments in the Project implementation.
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 WHEREFORE, the petition for review on certiorari is hereby DENIED for lack of merit,
but also interests and penalty charges. and the decision of the Court of appeals in CA-G.R. CV No. 39302 is AFFIRMED.
 Page 8 of 72

No pronouncement as to costs.

SO ORDERED.
 Page 9 of 72

G.R. No. 145587             October 26, 2007 Upon arrival in Riyadh, Gran questioned the discrepancy in his monthly salary—his
EDI-STAFFBUILDERS INTERNATIONAL, INC., petitioner, employment contract stated USD 850.00; while his Philippine Overseas Employment
vs. Agency (POEA) Information Sheet indicated USD 600.00 only. However, through the
NATIONAL LABOR RELATIONS COMMISSION and ELEAZAR S. GRAN, respondents. assistance of the EDI office in Riyadh, OAB agreed to pay Gran USD 850.00 a month. 10
DECISION
VELASCO, JR., J.: After Gran had been working for about five months for OAB, his employment was
terminated through OAB's July 9, 1994 letter, 11 on the following grounds:
MEATY DISCUSSION BUT FOCUS ON QUITCLAIM EXECUTED IN SAUDI. THE EE
CHALLENGED IS VALIDITY BUT THE DEFENSE FAILED TO SHOW SAUDI LAW WHICH
1. Non-compliance to contract requirements by the recruitment agency
SHOULD APPLY. HENCE, WE APPLY THE PH LAW. THE COURT EHNCEFORTH APPLIED
primarily on your salary and contract duration.
THE CONCEPTS OF CONTRACT OF ADHESION HERE
2. Non-compliance to pre-qualification requirements by the recruitment
The Case
agency[,] vide OAB letter ref. F-5751-93, dated October 3, 1993. 12

This Petition for Review on Certiorari 1 seeks to set aside the October 18, 2000
3. Insubordination or disobedience to Top Management Order and/or
Decision2 of the Court of Appeals (CA) in CA-G.R. SP No. 56120 which affirmed the
instructions (non-submittal of daily activity reports despite several
January 15, 1999 Decision3 and September 30, 1999 Resolution 4 rendered by the
instructions).
National Labor Relations Commission (NLRC) (Third Division) in POEA ADJ (L) 94-06-
2194, ordering Expertise Search International (ESI), EDI-Staffbuilders International, Inc.
(EDI), and Omar Ahmed Ali Bin Bechr Est. (OAB) jointly and severally to pay Eleazar S. On July 11, 1994, Gran received from OAB the total amount of SR 2,948.00 representing
Gran (Gran) the amount of USD 16,150.00 as unpaid salaries. his final pay, and on the same day, he executed a Declaration 13 releasing OAB from any
financial obligation or otherwise, towards him.
The Facts
After his arrival in the Philippines, Gran instituted a complaint, on July 21, 1994, against
ESI/EDI, OAB, Country Bankers Insurance Corporation, and Western Guaranty
Petitioner EDI is a corporation engaged in recruitment and placement of Overseas
Corporation with the NLRC, National Capital Region, Quezon City, which was docketed
Filipino Workers (OFWs).5 ESI is another recruitment agency which collaborated with EDI
as POEA ADJ (L) 94-06-2194 for underpayment of wages/salaries and illegal dismissal.
to process the documentation and deployment of private respondent to Saudi Arabia.
The Ruling of the Labor Arbiter
Private respondent Gran was an OFW recruited by EDI, and deployed by ESI to work for
OAB, in Riyadh, Kingdom of Saudi Arabia.6
In his February 10, 1998 Decision, 14 Labor Arbiter Manuel R. Caday, to whom Gran's case
was assigned, ruled that there was neither underpayment nor illegal dismissal.
It appears that OAB asked EDI through its October 3, 1993 letter for curricula vitae of
qualified applicants for the position of "Computer Specialist." 7 In a facsimile
transmission dated November 29, 1993, OAB informed EDI that, from the The Labor Arbiter reasoned that there was no underpayment of salaries since according
applicants' curricula vitae submitted to it for evaluation, it selected Gran for the position to the POEA-Overseas Contract Worker (OCW) Information Sheet, Gran's monthly salary
of "Computer Specialist." The faxed letter also stated that if Gran agrees to the terms was USD 600.00, and in his Confirmation of Appointment as Computer Specialist, his
and conditions of employment contained in it, one of which was a monthly salary of SR monthly basic salary was fixed at SR 2,500.00, which was equivalent to USD 600.00.
(Saudi Riyal) 2,250.00 (USD 600.00), EDI may arrange for Gran's immediate dispatch. 8
Arbiter Caday also cited the Declaration executed by Gran, to justify that Gran had no
After accepting OAB's offer of employment, Gran signed an employment contract  that 9 claim for unpaid salaries or wages against OAB.
granted him a monthly salary of USD 850.00 for a period of two years. Gran was then
deployed to Riyadh, Kingdom of Saudi Arabia on February 7, 1994.
 Page 10 of 72

With regard to the issue of illegal dismissal, the Labor Arbiter found that Gran failed to SO ORDERED.16
refute EDI's allegations; namely, (1) that Gran did not submit a single activity report of
his daily activity as dictated by company policy; (2) that he was not qualified for the job Gran then filed a Motion for Execution of Judgment 17 on March 29, 1999 with the NLRC
as computer specialist due to his insufficient knowledge in programming and lack of and petitioner receiving a copy of this motion on the same date. 18
knowledge in ACAD system; (3) that Gran refused to follow management's instruction
for him to gain more knowledge of the job to prove his worth as computer specialist; (4)
To prevent the execution, petitioner filed an Opposition 19 to Gran's motion arguing that
that Gran's employment contract had never been substituted; (5) and that Gran was
the Writ of Execution cannot issue because it was not notified of the appellate
paid a monthly salary of USD 850.00, and USD 350.00 monthly as food allowance.
proceedings before the NLRC and was not given a copy of the memorandum of appeal
nor any opportunity to participate in the appeal.
Accordingly, the Labor Arbiter decided that Gran was validly dismissed from his work
due to insubordination, disobedience, and his failure to submit daily activity reports.
Seeing that the NLRC did not act on Gran's motion after EDI had filed its Opposition,
petitioner filed, on August 26, 1999, a Motion for Reconsideration of the NLRC Decision
Thus, on February 10, 1998, Arbiter Caday dismissed Gran's complaint for lack of merit. after receiving a copy of the Decision on August 16, 1999.20

Dissatisfied, Gran filed an Appeal 15 on April 6, 1998 with the NLRC, Third Division. The NLRC then issued a Resolution 21 denying petitioner's Motion for Reconsideration,
However, it appears from the records that Gran failed to furnish EDI with a copy of his ratiocinating that the issues and arguments raised in the motion "had already been
Appeal Memorandum. amply discussed, considered, and ruled upon" in the Decision, and that there was "no
cogent reason or patent or palpable error that warrant any disturbance thereof."
The Ruling of the NLRC
Unconvinced of the NLRC's reasoning, EDI filed a Petition for Certiorari before the CA.
The NLRC held that EDI's seemingly harmless transfer of Gran's contract to ESI is actually Petitioner claimed in its petition that the NLRC committed grave abuse of discretion in
"reprocessing," which is a prohibited transaction under Article 34 (b) of the Labor Code. giving due course to the appeal despite Gran's failure to perfect the appeal.
This scheme constituted misrepresentation through the conspiracy between EDI and ESI
in misleading Gran and even POEA of the actual terms and conditions of the OFW's The Ruling of the Court of Appeals
employment. In addition, it was found that Gran did not commit any act that
constituted a legal ground for dismissal. The alleged non-compliance with contractual
The CA subsequently ruled on the procedural and substantive issues of EDI's petition.
stipulations relating to Gran's salary and contract duration, and the absence of pre-
qualification requirements cannot be attributed to Gran but to EDI, which dealt directly
with OAB. In addition, the charge of insubordination was not substantiated, and Gran On the procedural issue, the appellate court held that "Gran's failure to furnish a copy of
was not even afforded the required notice and investigation on his alleged offenses. his appeal memorandum [to EDI was] a mere formal lapse, an excusable neglect and not
a jurisdictional defect which would justify the dismissal of his appeal." 22 The court also
held that petitioner EDI failed to prove that private respondent was terminated for a
Thus, the NLRC reversed the Labor Arbiter's Decision and rendered a new one, the
valid cause and in accordance with due process; and that Gran's Declaration releasing
dispositive portion of which reads:
OAB from any monetary obligation had no force and effect. The appellate court
ratiocinated that EDI had the burden of proving Gran's incompetence; however, other
WHEREFORE, the assailed decision is SET ASIDE. Respondents Expertise Search than the termination letter, no evidence was presented to show how and why Gran was
International, Inc., EDI Staffbuilders Int'l., Inc. and Omar Ahmed Ali Bin Bechr considered to be incompetent. The court held that since the law requires the
Est. (OAB) are hereby ordered jointly and severally liable to pay the recruitment agencies to subject OFWs to trade tests before deployment, Gran must
complainant Eleazar Gran the Philippine peso equivalent at the time of actual have been competent and qualified; otherwise, he would not have been hired and
payment of SIXTEEN THOUSAND ONE HUNDRED FIFTY US DOLLARS deployed abroad.
(US$16,150.00) representing his salaries for the unexpired portion of his
contract.
As for the charge of insubordination and disobedience due to Gran's failure to submit a
"Daily Activity Report," the appellate court found that EDI failed to show that the
 Page 11 of 72

submission of the "Daily Activity Report" was a part of Gran's duty or the company's V. WHETHER GRAN IS ENTITLED TO BACKWAGES FOR THE UNEXPIRED
policy. The court also held that even if Gran was guilty of insubordination, he should PORTION OF HIS CONTRACT.23
have just been suspended or reprimanded, but not dismissed.
The Court's Ruling
The CA also held that Gran was not afforded due process, given that OAB did not abide
by the twin notice requirement. The court found that Gran was terminated on the same The petition lacks merit except with respect to Gran's failure to furnish EDI with his
day he received the termination letter, without having been apprised of the bases of his Appeal Memorandum filed with the NLRC.
dismissal or afforded an opportunity to explain his side.
First Issue: NLRC's Duty is to Require Respondent to Provide Petitioner a Copy of the
Finally, the CA held that the Declaration signed by Gran did not bar him from demanding Appeal
benefits to which he was entitled. The appellate court found that the Declaration was in
the form of a quitclaim, and as such is frowned upon as contrary to public policy
Petitioner EDI claims that Gran's failure to furnish it a copy of the Appeal Memorandum
especially where the monetary consideration given in the Declaration was very much
constitutes a jurisdictional defect and a deprivation of due process that would warrant a
less than what he was legally entitled to—his backwages amounting to USD 16,150.00.
rejection of the appeal.

As a result of these findings, on October 18, 2000, the appellate court denied the
This position is devoid of merit.
petition to set aside the NLRC Decision.
In a catena of cases, it was ruled that failure of appellant to furnish a copy of the
Hence, this instant petition is before the Court.
appeal to the adverse party is not fatal to the appeal.

The Issues
In Estrada v. National Labor Relations Commission,24 this Court set aside the order of the
NLRC which dismissed an appeal on the sole ground that the appellant did not furnish
Petitioner raises the following issues for our consideration: the appellee a memorandum of appeal contrary to the requirements of Article 223 of
the New Labor Code and Section 9, Rule XIII of its Implementing Rules and Regulations.
I. WHETHER THE FAILURE OF GRAN TO FURNISH A COPY OF HIS APPEAL
MEMORANDUM TO PETITIONER EDI WOULD CONSTITUTE A JURISDICTIONAL Also, in J.D. Magpayo Customs Brokerage Corp. v. NLRC, the order of dismissal of an
DEFECT AND A DEPRIVATION OF PETITIONER EDI'S RIGHT TO DUE PROCESS AS appeal to the NLRC based on the ground that "there is no showing whatsoever that a
WOULD JUSTIFY THE DISMISSAL OF GRAN'S APPEAL. copy of the appeal was served by the appellant on the appellee"25 was annulled. The
Court ratiocinated as follows:
II. WHETHER PETITIONER EDI HAS ESTABLISHED BY WAY OF SUBSTANTIAL
EVIDENCE THAT GRAN'S TERMINATION WAS JUSTIFIABLE BY REASON OF The failure to give a copy of the appeal to the adverse party was a mere formal
INCOMPETENCE. COROLLARY HERETO, WHETHER THE PRIETO VS. NLRC lapse, an excusable neglect. Time and again We have acted on petitions to
RULING, AS APPLIED BY THE COURT OF APPEALS, IS APPLICABLE IN THE review decisions of the Court of Appeals even in the absence of proof of
INSTANT CASE. service of a copy thereof to the Court of Appeals as required by Section 1 of
Rule 45, Rules of Court. We act on the petitions and simply require the
III. WHETHER PETITIONER HAS ESTABLISHED BY WAY OF SUBSTANTIAL petitioners to comply with the rule.26 (Emphasis supplied.)
EVIDENCE THAT GRAN'S TERMINATION WAS JUSTIFIABLE BY REASON OF
INSUBORDINATION AND DISOBEDIENCE. The J.D. Magpayo  ruling was reiterated in Carnation Philippines Employees Labor Union-
FFW v. National Labor Relations Commission, 27 Pagdonsalan v. NLRC,28 and in Sunrise
IV. WHETHER GRAN WAS AFFORDED DUE PROCESS PRIOR TO TERMINATION. Manning Agency, Inc. v. NLRC.29
 Page 12 of 72

Thus, the doctrine that evolved from these cases is that failure to furnish the adverse affidavit of the party serving, containing a full statement of the date, place and
party with a copy of the appeal is treated only as a formal lapse, an excusable neglect, manner of service. If the service is by ordinary mail, proof thereof shall consist
and hence, not a jurisdictional defect. Accordingly, in such a situation, the appeal should of an affidavit of the person mailing of facts showing compliance with section 7
not be dismissed; however, it should not be given due course either. As enunciated of this Rule. If service is made by registered mail, proof shall be made by such
in J.D. Magpayo, the duty that is imposed on the NLRC, in such a case, is to require the affidavit and registry receipt issued by the mailing office. The registry return
appellant to comply with the rule that the opposing party should be provided with a card shall be filed immediately upon its receipt by the sender, or in lieu
copy of the appeal memorandum. thereof the unclaimed letter together with the certified or sworn copy of the
notice given by the postmaster to the addressee  (emphasis supplied).
While Gran's failure to furnish EDI with a copy of the Appeal Memorandum is excusable,
the abject failure of the NLRC to order Gran to furnish EDI with the Appeal Based on the foregoing provision, it is obvious that the list submitted by Gran is not
Memorandum constitutes grave abuse of discretion. conclusive proof that he had served a copy of his appeal memorandum to EDI, nor is it
conclusive proof that EDI received its copy of the Appeal Memorandum. He should have
The records reveal that the NLRC discovered that Gran failed to furnish EDI a copy of the submitted an affidavit proving that he mailed the Appeal Memorandum together with
Appeal Memorandum. The NLRC then ordered Gran to present proof of service. In the registry receipt issued by the post office; afterwards, Gran should have immediately
compliance with the order, Gran submitted a copy of Camp Crame Post Office's list of filed the registry return card.
mail/parcels sent on April 7, 1998.30 The post office's list shows that private respondent
Gran sent two pieces of mail on the same date: one addressed to a certain Dan O. de Hence, after seeing that Gran failed to attach the proof of service, the NLRC should not
Guzman of Legaspi Village, Makati; and the other appears to be addressed to Neil B. have simply accepted the post office's list of mail and parcels sent; but it should have
Garcia (or Gran),31 of Ermita, Manila—both of whom are not connected with petitioner. required Gran to properly furnish the opposing parties with copies of his Appeal
Memorandum as prescribed in J.D. Magpayo  and the other cases. The NLRC should
This mailing list, however, is not a conclusive proof that EDI indeed received a copy of not have proceeded with the adjudication of the case, as this constitutes grave abuse of
the Appeal Memorandum. discretion.

Sec. 5 of the NLRC Rules of Procedure (1990) provides for the proof and completeness of The glaring failure of NLRC to ensure that Gran should have furnished petitioner EDI a
service in proceedings before the NLRC: copy of the Appeal Memorandum before rendering judgment reversing the dismissal of
Gran's complaint constitutes an evasion of the pertinent NLRC Rules and established
jurisprudence. Worse, this failure deprived EDI of procedural due process guaranteed by
Section 5.32 Proof and completeness of service.—The return is prima
the Constitution which can serve as basis for the nullification of proceedings in the
facie  proof of the facts indicated therein. Service by registered mail is
appeal before the NLRC. One can only surmise the shock and dismay that OAB, EDI, and
complete upon receipt by the addressee or his agent; but if the addressee
ESI experienced when they thought that the dismissal of Gran's complaint became final,
fails to claim his mail from the post office within five (5) days from the date of
only to receive a copy of Gran's Motion for Execution of Judgment which also informed
first notice of the postmaster, service shall take effect after such time.
them that Gran had obtained a favorable NLRC Decision. This is not level playing field
(Emphasis supplied.)
and absolutely unfair and discriminatory against the employer and the job recruiters.
The rights of the employers to procedural due process cannot be cavalierly disregarded
Hence, if the service is done through registered mail, it is only deemed complete when for they too have rights assured under the Constitution.
the addressee or his agent received the mail or after five (5) days from the date of first
notice of the postmaster. However, the NLRC Rules do not state what would constitute
However, instead of annulling the dispositions of the NLRC and remanding the case for
proper proof of service.
further proceedings we will resolve the petition based on the records before us to avoid
a protracted litigation.33
Sec. 13, Rule 13 of the Rules of Court, provides for proofs of service:
The second and third issues have a common matter—whether there was just cause for
Section 13. Proof of service.—Proof of personal service shall consist of a Gran's dismissal—hence, they will be discussed jointly.
written admission of the party served or the official return of the server, or the
 Page 13 of 72

Second and Third Issues: Whether Gran's dismissal is justifiable by reason of (b) Subject to the constitutional right of workers to security of tenure and their
incompetence, insubordination, and disobedience right to be protected against dismissal except for a just and authorized cause
and without prejudice to the requirement of notice under Article 283 of this
In cases involving OFWs, the rights and obligations among and between the OFW, the Code, the employer shall furnish the worker whose employment is sought to
local recruiter/agent, and the foreign employer/principal are governed by the be terminated a written notice containing a statement of the causes for
employment contract. A contract freely entered into is considered law between the termination and shall afford the latter ample opportunity to be heard and to
parties; and hence, should be respected. In formulating the contract, the parties may defend himself with the assistance of his representative if he so desires in
establish such stipulations, clauses, terms and conditions as they may deem convenient, accordance with company rules and regulations promulgated pursuant to
provided they are not contrary to law, morals, good customs, public order, or public guidelines set by the Department of Labor and Employment. Any decision
policy.34 taken by the employer shall be without prejudice to the right of the workers to
contest the validity or legality of his dismissal by filing a complaint with the
regional branch of the National Labor Relations Commission. The burden of
In the present case, the employment contract signed by Gran specifically states that
proving that the termination was for a valid or authorized cause shall rest on
Saudi Labor Laws will govern matters not provided for in the contract (e.g. specific
the employer. x x x
causes for termination, termination procedures, etc.). Being the law intended by the
parties (lex loci intentiones) to apply to the contract, Saudi Labor Laws should govern all
matters relating to the termination of the employment of Gran. In many cases, it has been held that in termination disputes or illegal dismissal cases,
the employer has the burden of proving that the dismissal is for just and valid causes;
and failure to do so would necessarily mean that the dismissal was not justified and
In international law, the party who wants to have a foreign law applied to a dispute or
therefore illegal.40 Taking into account the character of the charges and the penalty
case has the burden of proving the foreign law. The foreign law is treated as a question
meted to an employee, the employer is bound to adduce clear, accurate, consistent,
of fact to be properly pleaded and proved as the judge or labor arbiter cannot take
and convincing evidence to prove that the dismissal is valid and legal. 41 This is consistent
judicial notice of a foreign law. He is presumed to know only domestic or forum law. 35
with the principle of security of tenure as guaranteed by the Constitution and reinforced
by Article 277 (b) of the Labor Code of the Philippines. 42
Unfortunately for petitioner, it did not prove the pertinent Saudi laws on the matter;
thus, the International Law doctrine of presumed-identity approach or processual
In the instant case, petitioner claims that private respondent Gran was validly dismissed
presumption comes into play.36 Where a foreign law is not pleaded or, even if pleaded, is
for just cause, due to incompetence and insubordination or disobedience. To prove its
not proved, the presumption is that foreign law is the same as ours. 37 Thus, we apply
allegations, EDI submitted two letters as evidence. The first is the July 9, 1994
Philippine labor laws in determining the issues presented before us.
termination letter,43 addressed to Gran, from Andrea E. Nicolaou, Managing Director of
OAB. The second is an unsigned April 11, 1995 letter 44 from OAB addressed to EDI and
Petitioner EDI claims that it had proven that Gran was legally dismissed due to ESI, which outlined the reasons why OAB had terminated Gran's employment.
incompetence and insubordination or disobedience.
Petitioner claims that Gran was incompetent for the Computer Specialist position
This claim has no merit. because he had "insufficient knowledge in programming and zero knowledge of [the]
ACAD system."45 Petitioner also claims that Gran was justifiably dismissed due to
In illegal dismissal cases, it has been established by Philippine law and jurisprudence insubordination or disobedience because he continually failed to submit the required
that the employer should prove that the dismissal of employees or personnel is legal "Daily Activity Reports."46 However, other than the abovementioned letters, no other
and just. evidence was presented to show how and why Gran was considered incompetent,
insubordinate, or disobedient. Petitioner EDI had clearly failed to overcome the burden
Section 33 of Article 277 of the Labor Code38 states that: of proving that Gran was validly dismissed.

ART. 277. MISCELLANEOUS PROVISIONS39 Petitioner's imputation of incompetence on private respondent due to his "insufficient
knowledge in programming and zero knowledge of the ACAD system" based only on the
above mentioned letters, without any other evidence, cannot be given credence.
 Page 14 of 72

An allegation of incompetence should have a factual foundation. Incompetence may be In Prieto, this Court ruled that "[i]t is presumed that before their deployment, the
shown by weighing it against a standard, benchmark, or criterion. However, EDI failed to petitioners were subjected to trade tests required by law to be conducted by the
establish any such bases to show how petitioner found Gran incompetent. recruiting agency to insure employment of only technically qualified workers for the
foreign principal."50 The CA, using the ruling in the said case, ruled that Gran must have
In addition, the elements that must concur for the charge of insubordination or willful passed the test; otherwise, he would not have been hired. Therefore, EDI was at fault
disobedience to prosper were not present. when it deployed Gran who was allegedly "incompetent" for the job.

In Micro Sales Operation Network v. NLRC, we held that: According to petitioner, the Prieto  ruling is not applicable because in the case at hand,
Gran misrepresented himself in his curriculum vitae as a Computer Specialist; thus, he
was not qualified for the job for which he was hired.
For willful disobedience to be a valid cause for dismissal, the following twin
elements must concur: (1) the employee's assailed conduct must have been
willful, that is, characterized by a wrongful and perverse attitude; and (2) the We disagree.
order violated must have been reasonable, lawful, made known to the
employee and must pertain to the duties which he had been engaged to The CA is correct in applying Prieto. The purpose of the required trade test is to weed
discharge.47 out incompetent applicants from the pool of available workers. It is supposed to reveal
applicants with false educational backgrounds, and expose bogus qualifications. Since
EDI failed to discharge the burden of proving Gran's insubordination or willful EDI deployed Gran to Riyadh, it can be presumed that Gran had passed the required
disobedience. As indicated by the second requirement provided for in Micro Sales trade test and that Gran is qualified for the job. Even if there was no objective trade test
Operation Network, in order to justify willful disobedience, we must determine whether done by EDI, it was still EDI's responsibility to subject Gran to a trade test; and its failure
the order violated by the employee is reasonable, lawful, made known to the employee, to do so only weakened its position but should not in any way prejudice Gran. In any
and pertains to the duties which he had been engaged to discharge. In the case at bar, case, the issue is rendered moot and academic because Gran's incompetency is
petitioner failed to show that the order of the company which was violated—the unproved.
submission of "Daily Activity Reports"—was part of Gran's duties as a Computer
Specialist. Before the Labor Arbiter, EDI should have provided a copy of the company Fourth Issue: Gran was not Afforded Due Process
policy, Gran's job description, or any other document that would show that the "Daily
Activity Reports" were required for submission by the employees, more particularly by a As discussed earlier, in the absence of proof of Saudi laws, Philippine Labor laws and
Computer Specialist. regulations shall govern the relationship between Gran and EDI. Thus, our laws and rules
on the requisites of due process relating to termination of employment shall apply.
Even though EDI and/or ESI were merely the local employment or recruitment agencies
and not the foreign employer, they should have adduced additional evidence to Petitioner EDI claims that private respondent Gran was afforded due process, since he
convincingly show that Gran's employment was validly and legally terminated. The was allowed to work and improve his capabilities for five months prior to his
burden devolves not only upon the foreign-based employer but also on the employment termination.51 EDI also claims that the requirements of due process, as enunciated
or recruitment agency for the latter is not only an agent of the former, but is also in Santos, Jr. v. NLRC,52 and Malaya Shipping Services, Inc. v. NLRC,53 cited by the CA in its
solidarily liable with the foreign principal for any claims or liabilities arising from the Decision, were properly observed in the present case.
dismissal of the worker.48
This position is untenable.
Thus, petitioner failed to prove that Gran was justifiably dismissed due to
incompetence, insubordination, or willful disobedience.
In Agabon v. NLRC,54 this Court held that:

Petitioner also raised the issue that Prieto v. NLRC,49 as used by the CA in its Decision, is
Procedurally, (1) if the dismissal is based on a just cause under Article 282, the
not applicable to the present case.
employer must give the employee two written notices and a hearing or
opportunity to be heard if requested by the employee before terminating the
 Page 15 of 72

employment: a notice specifying the grounds for which dismissal is sought a termination of employment is without just, valid or authorized cause as defined by law
hearing or an opportunity to be heard and after hearing or opportunity to be or contract, the worker shall be entitled to the full reimbursement of his placement fee
heard, a notice of the decision to dismiss; and (2) if the dismissal is based on with interest of twelve percent (12%) per annum, plus his salaries for the unexpired
authorized causes under Articles 283 and 284, the employer must give the portion of his employment contract or for three (3) months for every year of the
employee and the Department of Labor and Employment written notices 30 unexpired term whichever is less.60
days prior to the effectivity of his separation.
In the present case, the employment contract provides that the employment contract
Under the twin notice requirement, the employees must be given two (2) notices before shall be valid for a period of two (2) years from the date the employee starts to work
their employment could be terminated: (1) a first notice to apprise the employees of with the employer.61 Gran arrived in Riyadh, Saudi Arabia and started to work on
their fault, and (2) a second notice to communicate to the employees that their February 7, 1994;62 hence, his employment contract is until February 7, 1996. Since he
employment is being terminated. In between the first and second notice, the employees was illegally dismissed on July 9, 1994, before the effectivity of R.A. No. 8042, he is
should be given a hearing or opportunity to defend themselves personally or by counsel therefore entitled to backwages corresponding to the unexpired portion of his contract,
of their choice.55 which was equivalent to USD 16,150.

A careful examination of the records revealed that, indeed, OAB's manner of dismissing Petitioner EDI questions the legality of the award of backwages and mainly relies on the
Gran fell short of the two notice requirement. While it furnished Gran the written notice Declaration which is claimed to have been freely and voluntarily executed by Gran. The
informing him of his dismissal, it failed to furnish Gran the written notice apprising him relevant portions of the Declaration are as follows:
of the charges against him, as prescribed by the Labor Code. 56 Consequently, he was
denied the opportunity to respond to said notice. In addition, OAB did not schedule a I, ELEAZAR GRAN (COMPUTER SPECIALIST) AFTER RECEIVING MY FINAL
hearing or conference with Gran to defend himself and adduce evidence in support of SETTLEMENT ON THIS DATE THE AMOUNT OF:
his defenses. Moreover, the July 9, 1994 termination letter was effective on the same
day. This shows that OAB had already condemned Gran to dismissal, even before Gran
S.R. 2,948.00 (SAUDI RIYALS TWO THOUSAND NINE
was furnished the termination letter. It should also be pointed out that OAB failed to
give Gran the chance to be heard and to defend himself with the assistance of a
representative in accordance with Article 277 of the Labor Code. Clearly, there was no HUNDRED FORTY EIGHT ONLY)
intention to provide Gran with due process. Summing up, Gran was notified and his
employment arbitrarily terminated on the same day, through the same letter, and for REPRESENTING COMPLETE PAYMENT (COMPENSATION) FOR THE SERVICES I
unjustified grounds. Obviously, Gran was not afforded due process. RENDERED TO OAB ESTABLISHMENT.

Pursuant to the doctrine laid down in Agabon,57 an employer is liable to pay nominal I HEREBY DECLARE THAT OAB EST. HAS NO FINANCIAL OBLIGATION IN MY
damages as indemnity for violating the employee's right to statutory due process. Since FAVOUR AFTER RECEIVING THE ABOVE MENTIONED AMOUNT IN CASH.
OAB was in breach of the due process requirements under the Labor Code and its
regulations, OAB, ESI, and EDI, jointly and solidarily, are liable to Gran in the amount of I STATE FURTHER THAT OAB EST. HAS NO OBLIGATION TOWARDS ME IN
PhP 30,000.00 as indemnity. WHATEVER FORM.

Fifth and Last Issue: Gran is Entitled to Backwages I ATTEST TO THE TRUTHFULNESS OF THIS STATEMENT BY AFFIXING MY
SIGNATURE VOLUNTARILY.
We reiterate the rule that with regard to employees hired for a fixed period of
employment, in cases arising before the effectivity of R.A. No. 8042 58 (Migrant Workers SIGNED.
and Overseas Filipinos Act) on August 25, 1995, that when the contract is for a fixed ELEAZAR GRAN
term and the employees are dismissed without just cause, they are entitled to the
payment of their salaries corresponding to the unexpired portion of their contract. 59 On
the other hand, for cases arising after the effectivity of R.A. No. 8042, when the
 Page 16 of 72

Courts must undertake a meticulous and rigorous review of quitclaims or waivers, more amounts and benefits that can possibly be awarded to employees or to be earned for
particularly those executed by employees. This requirement was clearly articulated by the remainder of the contract period since it is a compromise where the employees will
Chief Justice Artemio V. Panganiban in Land and Housing Development Corporation v. have to forfeit a certain portion of the amounts they are claiming in exchange for the
Esquillo: early payment of a compromise amount. The court may however step in when such
amount is unconscionably low or unreasonable although the employee voluntarily
Quitclaims, releases and other waivers of benefits granted by laws or contracts agreed to it. In the case of the Declaration, the amount is unreasonably small compared
in favor of workers should be strictly scrutinized to protect the weak and the to the future wages of Gran.
disadvantaged. The waivers should be carefully examined, in regard not only
to the words and terms used, but also the factual circumstances under which 3. The factual circumstances surrounding the execution of the Declaration would show
they have been executed.63 (Emphasis supplied.) that Gran did not voluntarily and freely execute the document. Consider the following
chronology of events:
This Court had also outlined in Land and Housing Development Corporation,
citing Periquet v. NLRC,64 the parameters for valid compromise agreements, waivers, and a. On July 9, 1994, Gran received a copy of his letter of termination;
quitclaims:
b. On July 10, 1994, Gran was instructed to depart Saudi Arabia and required
Not all waivers and quitclaims are invalid as against public policy. If the to pay his plane ticket;65
agreement was voluntarily entered into and represents a reasonable
settlement, it is binding on the parties and may not later be disowned simply c. On July 11, 1994, he signed the Declaration;
because of a change of mind. It is only where there is clear proof that the
waiver was wangled from an unsuspecting or gullible person, or the terms of
d. On July 12, 1994, Gran departed from Riyadh, Saudi Arabia; and
settlement are unconscionable on its face, that the law will step in to annul the
questionable transaction. But where it is shown that the person making the
waiver did so voluntarily, with full understanding of what he was doing, and e. On July 21, 1994, Gran filed the Complaint before the NLRC.
the consideration for the quitclaim is credible and reasonable, the transaction
must be recognized as a valid and binding undertaking. (Emphasis supplied.) PILIT ANG PAGPIRMA NG OFW SA QUITCLAIM KASI PAG NAGREKLAMO PA SIYA
MAGIGING TNT NA SHA. KAILANGAN NA NIYA UMUWI AGAD KASI The foregoing
Is the waiver and quitclaim labeled a Declaration valid? It is not. events readily reveal that Gran was "forced" to sign the Declaration and constrained to
receive the amount of SR 2,948.00 even if it was against his will—since he was told on
July 10, 1994 to leave Riyadh on July 12, 1994. He had no other choice but to sign the
The Court finds the waiver and quitclaim null and void for the following reasons:
Declaration as he needed the amount of SR 2,948.00 for the payment of his ticket. He
could have entertained some apprehensions as to the status of his stay or safety in
1. The salary paid to Gran upon his termination, in the amount of SR 2,948.00, is Saudi Arabia if he would not sign the quitclaim.
unreasonably low. As correctly pointed out by the court a quo, the payment of SR
2,948.00 is even lower than his monthly salary of SR 3,190.00 (USD 850.00). In addition,
4. The court a quo is correct in its finding that the Declaration is a contract of adhesion
it is also very much less than the USD 16,150.00 which is the amount Gran is legally
which should be construed against the employer, OAB. An adhesion contract is contrary
entitled to get from petitioner EDI as backwages.
to public policy as it leaves the weaker party—the employee—in a "take-it-or-leave-it"
situation. Certainly, the employer is being unjust to the employee as there is no
2. The Declaration reveals that the payment of SR 2,948.00 is actually the payment for meaningful choice on the part of the employee while the terms are unreasonably
Gran's salary for the services he rendered to OAB as Computer Specialist. If the favorable to the employer.66
Declaration is a quitclaim, then the consideration should be much much more than the
monthly salary of SR 3,190.00 (USD 850.00)—although possibly less than the estimated
WE USE THE LAW OF THE PH AS TO THE VALIDITY OF THE QUITCLAIM SINCE HINDI
Gran's salaries for the remaining duration of his contract and other benefits as
NAMAN OFFERED AND LAW NG SAUDI Thus, the Declaration purporting to be a
employee of OAB. A quitclaim will understandably be lower than the sum total of the
 Page 17 of 72

quitclaim and waiver is unenforceable under Philippine laws in the absence of proof of WHEREFORE, the petition is DENIED. The October 18, 2000 Decision in CA-G.R. SP No.
the applicable law of Saudi Arabia. 56120 of the Court of Appeals affirming the January 15, 1999 Decision and September
30, 1999 Resolution of the NLRC
IN ORDER TO PREVENT DISPUTES ON THE VALIDITY AND ENFORCEABILITY OF
QUITCLAIMS AND WAIVERS OF EMPLOYEES UNDER PHILIPPINE LAWS, SAID is AFFIRMED with the MODIFICATION that petitioner EDI-Staffbuilders International,
AGREEMENTS SHOULD CONTAIN THE FOLLOWING: Inc. shall pay the amount of PhP 30,000.00 to respondent Gran as nominal damages for
non-compliance with statutory due process.
1. A fixed amount as full and final compromise settlement;
No costs.
2. The benefits of the employees if possible with the corresponding amounts, which the
employees are giving up in consideration of the fixed compromise amount; SO ORDERED.

3. A statement that the employer has clearly explained to the employee in English,
Filipino, or in the dialect known to the employees—that by signing the waiver or
quitclaim, they are forfeiting or relinquishing their right to receive the benefits which
are due them under the law; and

4. A statement that the employees signed and executed the document voluntarily, and
had fully understood the contents of the document and that their consent was freely
given without any threat, violence, duress, intimidation, or undue influence exerted on
their person.

FURTHER, IT IS ADVISED THAT…It is advisable that the stipulations be made in

English and Tagalog or in the dialect known to the employee. There should be two (2)
witnesses to the execution of the quitclaim who must also sign the quitclaim. The
document should be subscribed and sworn to under oath preferably before any
administering official of the Department of Labor and Employment or its regional office,
the Bureau of Labor Relations, the NLRC or a labor attaché in a foreign country. Such
official shall assist the parties regarding the execution of the quitclaim and waiver. 67 This
compromise settlement becomes final and binding under Article 227 of the Labor Code
which provides that:

[A]ny compromise settlement voluntarily agreed upon with the assistance of

the Bureau of Labor Relations or the regional office of the DOLE, shall be final
and binding upon the parties and the NLRC or any court "shall not assume
jurisdiction over issues involved therein except in case of non-compliance
thereof or if there is prima facie evidence that the settlement was obtained
through fraud, misrepresentation, or coercion.

It is made clear that the foregoing rules on quitclaim or waiver shall apply only to labor
contracts of OFWs in the absence of proof of the laws of the foreign country agreed
upon to govern said contracts. Otherwise, the foreign laws shall apply.
 Page 18 of 72

G.R. Nos. 178382-83, September 23, 2015 On December 20, 1995, Basso received a letter from Mr. Ralph Schulz (Mr. Schulz), who
CONTINENTAL MICRONESIA, INC., Petitioner, v. JOSEPH BASSO, Respondent. was then CMI's Vice President of Marketing and Sales, informing Basso that he has
DECISION agreed to work in CMI as a consultant on an "as needed basis" effective February 1,
1996 to July 31, 1996. The letter also informed Basso that: (1) he will not receive any
CRUX: TERMINATION AT WILL monetary compensation but will continue being covered by the insurance provided by
CMI; (2) he will enjoy travel privileges; and (3) CMI will advance Php1,140,000.00 for the
payment of housing lease for 12 months. 10
CONTENTION HERE WAS THAT THE US LAWS ALLOW TERMINATION AT WILL.
HOWEVER, US LAW WAS NOT APPLIED SINCE BY VIRTUE OF MOST SIGNIFICANT
CONTACT RULE, PH WAS DEEMED THE LAW. On January 11, 1996, Basso wrote a counter-proposal 11 to Mr. Schulz regarding his
employment status in CMI. On March 14, 1996, Basso wrote another letter addressed to
Ms. Marty Woodward (Ms. Woodward) of CMI's Human Resources Department
NOTE: GENERAL – MOST SIGNIFICANT CONTACT; EXN – INTENTION; EXN TO EXN –
inquiring about the status of his employment. 12 On the same day, Ms. Woodward
AGAINST POLICY
responded that pursuant to the employment contract dated February 1, 1991, Basso
could be terminated at will upon a thirty-day notice. This notice was allegedly the letter
JARDELEZA, J.: Basso received from Mr. Schulz on December 20, 1995. Ms. Woodward also reminded
Basso of the telephone conversation between him, Mr. Schulz and Ms. Woodward on
This is a Petition for Review on Certiorari1 under Rule 45 of the levised Rules of Court December 19, 1995, where they informed him of the company's decision to relieve him
assailing the Decision2 dated May 23, 2006 and Resolution3 dated June 19, 2007 of the as General Manager. Basso, instead, was offered the position of consultant to CMI. Ms.
Court of Appeals in the consolidated cases CA-G.R. SP No. 83938 and CA-G.R. SP No. Woodward also informed Basso that CMI rejected his counter-proposal and, thus,
84281. These assailed Decision and Resolution set aside the Decision 4 dated November terminated his employment effective January 31, 1996. CMI offered Basso a severance
28, 2003 of the National Labor Relations Commission (NLRC) declaring Joseph Basso's pay, in consideration of the Php1,140,000.00 housing advance that CMI promised him. 13
(Basso) dismissal illegal, and ordering the payment of separation pay as alternative to
reinstatement and full backwages until the date of the Decision. Basso filed a Complaint for Illegal Dismissal with Moral and Exemplary Damages against
CMI on December 19, 1996. 14 Alleging the presence of foreign elements, CMI filed a
The Facts Motion to Dismiss15 dated February 10, 1997 on the ground of lack of jurisdiction over
the person of CMI and the subject matter of the controversy. In an Order 16 dated August
Petitioner Continental Micronesia, Inc. (CMI) is a foreign corporation organized and 27, 1997, the Labor Arbiter granted the Motion to Dismiss. Applying the doctrine of lex
existing under the laws of and domiciled in the United States of America (US). It is loci contractus, the Labor Arbiter held that the terms and provisions of the employment
licensed to do business in the Philippines. 5 Basso, a US citizen, resided in the Philippines contract show that the parties did not intend to apply our Labor Code (Presidential
prior to his death.6 Decree No. 442). The Labor Arbiter also held that no employer-employee relationship
existed between Basso and the branch office of CMI in the Philippines, but between
During his visit to Manila in 1990, Mr. Keith R. Braden (Mr. Braden), Managing Director- Basso and the foreign corporation itself.
Asia of Continental Airlines, Inc. (Continental), offered Basso the position of General
Manager of the Philippine Branch of Continental. Basso accepted the offer. 7 On appeal, the NLRC remanded the case to the Labor Arbiter for the determination of
certain facts to settle the issue on jurisdiction. NLRC ruled that the issue on whether the
It was not until much later that Mr. Braden, who had since returned to the US, sent principle of lex loci contractus or lex loci celebrationis should apply has to be further
Basso the employment contract8 dated February 1, 1991, which Mr. Braden had already threshed out.17
signed. Basso then signed the employment contract and returned it to Mr. Braden as
instructed. Labor Arbiter's Ruling

On November 7, 1992, CMI took over the Philippine operations of Continental, with Labor Arbiter Madjayran H. Ajan in his Decision 18 dated September 24, 1999 dismissed
Basso retaining his position as General Manager.9 the case for lack of merit and jurisdiction.
 Page 19 of 72

breached the trust of his employer suffices. However, the NLRC found that CMI denied
The Labor Arbiter agreed with CMI that the employment contract was xecuted in the US Basso the required due process notice in his dismissal. 26
"since the letter-offer was under the Texas letterhead and the acceptance of
Complainant was returned there."19 Thus, applying the doctrine of lex loci celebrationis, Both CMI and Basso filed their respective Motions for Reconsideration dated January 15,
US laws apply. Also, applying lex loci contractus, the Labor Arbiter ruled that the parties 200427 and January 8, 2004.28 Both motions were dismissed in separate Resolutions
did not intend to apply Philippine laws, thus: dated March 15, 200429 and February 27, 2004,30 respectively.

Although the contract does not state what law shall apply, it is obvious that Philippine Basso filed a Petition for Certiorari dated April 16, 2004 with the Court of Appeals
laws were not written into it. More specifically, the Philippine law on taxes and the docketed as CA-G.R. SP No. 83938. 31 Basso imputed grave abuse of discretion on the
Labor Code were not intended by the parties to apply, otherwise Par. 7 on the payment part of the NLRC in ruling that he was validiy dismissed. CMI filed its own Petition
by Complainant U.S. Federal and Home State income taxes, and Pars. 22/23 on for Certiorari dated May 13, 2004 docketed as CA-G.R. SP No. 84281, 32 alleging that the
termination by 30-day prior notice, will not be there. The contract was prepared in NLRC gravely abused its discretion when it assumed jurisdiction over the person of CMI
contemplation of Texas or U.S. laws where Par. 7 is required and Pars. 22/23 is and the subject matter of the case.
allowed.20
The Labor Arbiter also ruled that Basso was terminated for a valid cause based on the In its Resolution dated October 7, 2004, the Court of Appeals consolidated the two
allegations of CMI that Basso committed a series of acts that constitute breach of trust cases33 and ordered the parties to file their respective Memoranda.
and loss of confidence.21
The Court of Appeal's Decision
The Labor Arbiter, however, found CMI to have voluntarily submitted to his office's
jurisdiction. CMI participated in the proceedings, submitted evidence on the merits of The Court of Appeals promulgated the now assailed Decision 34 dated May 23, 2006, the
the case, and sought affirmative relief through a motion to dismiss. 22 relevant dispositive portion of which reads:

NLRC's Ruling WHEREFORE, the petition of Continental docketed as CA-G.R. SP No. 84281 is  DENIED
DUE COURSE  and  DISMISSED.
On appeal, the NLRC Third Division promulgated its Decision 23 dated November 28,
2003, the decretal portion of which reads: On the other hand the petition of Basso docketed as CA-G.R. SP No. 83938 is  GIVEN DUE
COURSE  and  GRANTED, and accordingly, the assailed Decision dated November 28,
WHEREFORE, the decision dated 24 September 1999 is VACATED and SET ASIDE. 2003 and Resolution dated February 27, 2004 of the NLRC are  SET ASIDE  and  VACATED.
Respondent CMI is ordered to pay complainant the amount of US$5,416.00 for failure to Instead judgment is rendered hereby declaring the dismissal of Basso illegal and
comply with the due notice requirement. The other claims are dismissed. ordering Continental to pay him separation pay equivalent to one (1) month pay for
every year of service as an alternative to reinstatement. Further, ordering Continental to
SO ORDERED.24 pay Basso his full backwages from the date of his said illegal dismissal until date of this
decision. The claim for moral and exemplary damages as well as attorney's fees are
The NLRC did not agree with the pronouncement of the Labor Arbiter that his office has dismissed.35
no jurisdiction over the controversy. It ruled that the Labor Arbiter acquired jurisdiction
over the case when CMI voluntarily submitted to his office's jurisdiction by presenting The Court of Appeals ruled that the Labor Arbiter and the NLRC had jurisdiction over the
evidence, advancing arguments in support of the legality of its acts, and praying for subject matter of the case and over the parties. The Court of Appeals explained that
reliefs on the merits of the case. jurisdiction over the subject matter of the action is determined by the allegations of the
complaint and the law. Since the case filed by Basso is a termination dispute that is
"undoubtedly cognizable by the labor tribunals", the Labor Arbiter and the NLRC had
On the merits, the NLRC agreed with the Labor Arbiter that Basso was dismissed for just jurisdiction to rule on the merits of the case. On the issue of jurisdiction over he person
and valid causes on the ground of breach of trust and loss of confidence. The NLRC ruled of the parties, who are foreigners, the Court of Appeals ruled that jurisdiction over the
that under the applicable rules on loss of trust and confidence of a managerial person of Basso was acquired when he filed the complaint for illegal dismissal, while
employee, such as Basso, mere existence of a basis for believing that such employee has
 Page 20 of 72

jurisdiction over the person of CMI was acquired through coercive process of service of Where the facts establish the existence of foreign elements, he case presents a conflict-
summons to its agent in the Philippines. The Court of Appeals also agreed that the active of-laws issue.39 The foreign element in a case nay appear in different forms, such as in
participation of CMI in the case rendered moot the issue on jurisdiction. this case, where one of the parties s an alien and the other is domiciled in another state.

On the merits of the case, the Court of Appeals declared that CMI illegally dismissed In Hasegawa v. Kitamura,40 we stated that in the judicial resolution of conflict-of-laws
Basso. The Court of Appeals found that CMI's allegations of loss of trust and confidence problems, three consecutive phases are involved: jurisdiction, choice of law, and
were not established. CMI "failed to prove its claim of the incidents which were its recognition and enforcement of judgments. In resolving the conflicts problem, courts
alleged bases for loss of trust or confidence." 36 While managerial employees can be should ask the following questions:
dismissed for loss of trust and confidence, there must be a basis for such loss, beyond
mere whim or caprice. 1. "Under the law, do I have jurisdiction over the subject matter and the parties to this
case?
After the parties filed their Motions for Reconsideration, 37 the Court of Appeals
promulgated Resolution38 dated June 19, 2007 denying CMI's motion, while partially 2. "If the answer is yes, is this a convenient forum to the parties, in light of the facts?
granting Basso's as to the computation of backwages.
3. "If the answer is yes, what is the conflicts rule for this particular problem?
Hence, this petition, which raises the following issues:
I. 4. "If the conflicts rule points to a foreign law, has said law been properly pleaded and
WHETHER OR NOT THE COURT OF APPEALS ERRED IN REVIEWING THE FACTUAL proved by the one invoking it?
FINDINGS OF THE NLRC INSTEAD OF LIMITING ITS INQUIRY INTO WHETHER OR NOT THE
NLRC COMMITTED GRAVE ABUSE OF DISCRETION. 5. "If so, is the application or enforcement of the foreign law in the forum one of the
basic exceptions to the application of foreign law? In short, is there any strong policy or
II. vital interest of the forum that is at stake in this case and which should preclude the
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT THE LABOR ARBITER application of foreign law?41
AND THE NLRC HAD JURISDICTION TO HEAR AND TRY THE ILLEGAL DISMISSAL CASE.
Jurisdiction is defined as the power and authority of the courts to hear, try and decide
III. cases. Jurisdiction over the subject matter is conferred by the Constitution or by law and
WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT BASSO WAS NOT by the material allegations in the complaint, regardless of whether or not the plaintiff is
VALIDLY DISMISSED ON THE GROUND OF LOSS OF TRUST OR CONFIDENCE. entitled to recover all or some of the claims or reliefs sought therein. 42 It cannot be
acquired through a waiver or enlarged by the omission of the parties or conferred by
We begin with the second issue on the jurisdiction of the Labor Arbiter and the NLRC in the acquiescence of the court.43 That the employment contract of Basso was replete
the illegal dismissal case. The first and third issues will be discussed jointly. with references to US laws, and that it originated from and was returned to the US, do
not automatically preclude our labor tribunals from exercising jurisdiction to hear and
The labor tribunals had jurisdiction over the parties and the subject matter of the case. try this case.

CMI maintains that there is a conflict-of-laws issue that must be settled to determine This case stemmed from an illegal dismissal complaint. The Labor Code, under Article
proper jurisdiction over the parties and the subject matter of the case. It also alleges 217, clearly vests original and exclusive jurisdiction to hear and decide cases involving
that the existence of foreign elements calls or the application of US laws and the termination disputes to the Labor Arbiter. Hence, the Labor Arbiter and the NLRC have
doctrines of lex loci celebrationis (the law of the place of the ceremony), lex loci jurisdiction over the subject matter of the case.
contractus (law of the place where a contract is executed), and lex loci intentionis (the
intention of the parties as to the law that should govern their agreement). CMI also As regards jurisdiction over the parties, we agree with the Court of Appeals that the
invokes the application of the rule of forum non conveniens to determine the propriety Labor Arbiter acquired jurisdiction over the person of Basso, notwithstanding his
of the assumption of jurisdiction by the labor tribunals. citizenship, when he filed his complaint against CMI. On the other hand, jurisdiction
over the person of CMI was acquired through the coercive process of service of
We agree with CMI that there is a conflict-of-laws issue that needs to be resolved first. summons. We note that CMI never denied that it was served with summons. CMI has, in
 Page 21 of 72

fact, voluntarily appeared and participated in the proceedings before the courts. Though chosen legal system regulate the situation. 47 These questions are entirely different from
a foreign corporation, CMI is licensed to do business in the Philippines and has a local the question of jurisdiction that only seeks to answer whether the courts of a state
business address here. The purpose of the law in requiring that foreign corporations where the case is initiated have jurisdiction to enter a judgment. 48 As such, the power to
doing business in the country be licensed to do so, is to subject the foreign corporations exercise jurisdiction does not automatically give a state constitutional authority to apply
to the jurisdiction of our courts. 44 forum law.49

Considering that the Labor Arbiter and the NLRC have jurisdiction over the parties and CMI insists that US law is the applicable choice-of-law under the principles of lex loci
the subject matter of this case, these tribunals may proceed to try the case even if the celebrationis and lex loci contractus. It argues that the contract of employment
rules of conflict-of-laws or the convenience of the parties point to a foreign forum, this originated from and was returned to the US after Basso signed it, and hence, was
being an exercise of sovereign prerogative of the country where the case is filed. 45 perfected there. CMI further claims that the references to US law in the employment
contract show the parties' intention to apply US law and not ours. These references are:
The next question is whether the local forum is the convenient forum in light of the facts
of the case. CMI contends that a Philippine court is an inconvenient forum. a. Foreign station allowance of forty percent (40%) using the "U.S. State
Department Index, the base being Washington, D.C."
We disagree.
b. Tax equalization that made Basso responsible for "federal and any home state
Under the doctrine of forum non conveniens, a Philippine court in a conflict-of-laws case income taxes."
may assume jurisdiction 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; c. Hardship allowance of fifteen percent (15%) of base pay based upon the "U.S.
(2) that the Philippine Court is in a position to make an intelligent decision as to the law Department of State Indexes of living costs abroad."
and the facts; and (3) that the Philippine Court has or is likely to have power to enforce
its decision.46 All these requisites are present here. d. The employment arrangement is "one at will, terminable by either party
without any further liability on thirty days prior written notice." 50
Basso may conveniently resort to our labor tribunals as he and CMI lad physical
presence in the Philippines during the duration of the trial. CMI has a Philippine branch,
CMI asserts that the US law on labor relations particularly, the US Railway Labor Act
while Basso, before his death, was residing here. Thus, it could be reasonably expected
sanctions termination-at-will provisions in an employment contract. Thus, CMI
that no extraordinary measures were needed for the parties to make arrangements in
concludes that if such laws were applied, there would have been no illegal dismissal to
advocating their respective cases.
speak of because the termination-at-will provision in Basso's employment contract
would have been perfectly valid.
The labor tribunals can make an intelligent decision as to the law and facts. The incident
subject of this case (i.e. dismissal of Basso) happened in the Philippines, the surrounding
We disagree.
circumstances of which can be ascertained without having to leave the Philippines. The
acts that allegedly led to loss of trust and confidence and Basso's eventual dismissal
TO DETERMINE CHOICE OF LAW, POINTS OF CONTACT MUST BE ANALYZED FIRST AND
were committed in the Philippines. As to the law, we hold that Philippine law is the
LAID OUT In Saudi Arabian Airlines v. Court of Appeals,51 we emphasized that an
proper law of he forum, as we shall discuss shortly. Also, the labor tribunals have the
essential element of conflict rules is the indication of a "test" or "connecting factor" or
power to enforce their judgments because they acquired jurisdiction over the persons
"point of contact". Choice-of-law rules invariably consist of a factual relationship (such
of both parties.
as property right, contract claim) and a connecting fact or point of contact, such as
the situs of the res, the place of celebration, the place of performance, or the place of
Our labor tribunals being the convenient fora, the next question is what law should
wrongdoing. Pursuant to Saudi Arabian Airlines, we hold that the "test factors," "points
apply in resolving this case.
of contact" or "connecting factors" in this case are the following:
The choice-of-law issue in a conflict-of-laws case seeks to answer the following
(1) The nationality, domicile or residence of Basso;
important questions: (1) What legal system should control a given situation where some
(2) The seat of CMI;
of the significant facts occurred in two or more states; and (2) to what extent should the
 Page 22 of 72

(3) The place where the employment contract has been made, the locus actus; Termination-at-will is anathema to the public policies on labor protection espoused by
(4) The place where the act is intended to come into effect, e.g., the place of our laws and Constitution, which dictates that no worker shall be dismissed except for
performance of contractual duties; just and authorized causes provided by law and after due process having been complied
(5) The intention of the contracting parties as to the law that should govern their with.58 Hence, the US Railway Labor Act, which sanctions termination-at-will, should not
agreement, the lex loci intentionis; and be applied in this case.
(6) The place where judicial or administrative proceedings are instituted or done. 52
Additionally, the rule is that there is no judicial notice of any foreign law. As any other
HENCE, THE POINTS OF CONTACTS HERE ARE: Applying the foregoing in this case, we fact, it must be alleged and proved. 59 If the foreign law is not properly pleaded or
conclude that Philippine law the applicable law. Basso, though a US citizen, proved, the presumption of identity or similarity of the foreign law to our own laws,
 was a resident here from he time he was hired by CMI until his death during otherwise known as processual presumption, applies. Here, US law may have been
the pendency of the case. CMI, while a properly pleaded but it was not proved in the labor tribunals.
 foreign corporation, has a license to do business in the Philippines and
maintains a branch here, where Basso was hired to work. Having disposed of the issue on jurisdiction, we now rule on the first and third issues.
 The contract of employment was negotiated in the Philippines. A purely
consensual contract, it was The Court of Appeals may review the factual findings of the NLRC in a Rule 65 petition.
 also perfected in the Philippines when Basso accepted the terms and
conditions of his employment as offered by CMI. The CMI submits that the Court of Appeals overstepped the boundaries of the limited scope
 place of performance relative to Biasso's contractual duties was in the of its certiorari jurisdiction when instead of ruling on the existence of grave abuse of
Philippines. The alleged discretion, it proceeded to pass upon the legality and propriety of Basso's dismissal.
 prohibited acts of Basso that warranted his dismissal were committed in the Moreover, CMI asserts that it was error on the part of the Court of Appeals to re-
Philippines. evaluate the evidence and circumstances surrounding the dismissal of Basso.

CLEARLY, THE PHILIPPINES IS THE STATE WITH THE MOST SIGNIFICANT RELATIONSHIP We disagree.
TO THE PROBLEM. Thus, we hold that CMI and Basso intended Philippine law to govern,
notwithstanding some references made to US laws and the fact that this intention was The power of the Court of Appeals to review NLRC decisions via a Petition
not expressly stated in the contract. We explained in Philippine Export and Foreign Loan for Certiorari under Rule 65 of the Revised Rules of Court was settled in our decision
Guarantee Corporation v. V. P. Eusebio Construction, Inc. 53 that the law selected may be in St. Martin Funeral Home v. NLRC.60 The general rule is that certiorari does not lie to
implied from such factors as substantial connection with the transaction, or the review errors of judgment of the trial court, as well as that of a quasi-judicial tribunal.
nationality or domicile of the parties. 54 We cautioned, however, that while Philippine In certiorari proceedings, judicial review does not go as far as to examine and assess the
courts would do well to adopt the first and most basic rule in most legal systems, evidence of the parties and to weigh their probative value. 61 However, this rule admits
namely, to allow the parties to select the law applicable to their contract, the selection of exceptions. In Globe Telecom, Inc. v. Florendo-Flores,62 we stated:
is subject to the limitation that it is not against the law, morals, or public policy of the
forum.55 In the review of an NLRC decision through a special civil action for  certiorari, resolution
is confined only to issues of jurisdiction and grave abuse of discretion on the part of the
Similarly, in Bank of America, NT&SA v. American Realty Corporation,56 we ruled that a labor tribunal. Hence, the Court refrains from reviewing factual assessments of lower
foreign law, judgment or contract contrary to a sound and established public policy of courts and agencies exercising adjudicative functions, such as the NLRC. Occasionally,
the forum shall not be applied. Thus: however, the Court is constrained to delve into factual matters where, as in the instant
case, the findings of the NLRC contradict those of the Labor Arbiter.
Moreover, foreign law should not be applied when its application would work
undeniable injustice to the citizens or residents of the forum. To give justice is the most In this instance, the Court in the exercise of its equity jurisdiction may look into the
important function of law; hence, a law, or judgment or contract that is obviously unjust records of the case and re-examine the questioned findings. As a corollary, this Court is
negates the fundamental principles of Conflict of Laws.57 clothed with ample authority to review matters, even if they are not assigned as errors
in their appeal, if it finds that their consideration is necessary to arrive at a just decision
of the case. The same principles are now necessarily adhered to and are applied by the
 Page 23 of 72

Court of Appeals in its expanded jurisdiction over labor cases elevated through a heavily on its judgments.70
petition for certiorari; thus, we see no error on its part when it made anew a factual (2) Basso excessively issued promotional tickets to his friends who had no direct
determination of the matters and on that basis reversed the ruling of the business with CMI.71
NLRC.63 (Citations omitted.) (3) The advertising agency that CMI contracted had to deal directly with Guam because
Basso was hardly available.72 Mr. Schulz discovered that Basso exceeded the
Thus, the Court of Appeals may grant the petition when the factual hidings complained advertising budget by $76,000.00 in 1994 and by $20,000.00 in 1995. 73
of are not supported by the evidence on record; when its necessary to prevent a (4) Basso spent more time and attention to his personal businesses and was reputed to
substantial wrong or to do substantial justice; when the findings of the NLRC contradict own nightclubs in the Philippines.74
those of the Labor Arbiter; and when necessary to arrive at a just decision of the (5) Basso used free tickets and advertising money to promote his personal
case.64 To make these findings, the Court of Appeals necessarily has to look at the business,75 such as a brochure that jointly advertised one of Basso's nightclubs with
evidence and make its own factual determination.65 CMI.

Since the findings of the Labor Arbiter differ with that of the NLRC, we find that the We find that CMI failed to discharge its burden to prove the above acts. CMI merely
Court of Appeals correctly exercised its power to review the evidence and the records of submitted affidavits of its officers, without any other corroborating evidence. Basso, on
the illegal dismissal case. the other hand, had adequately explained his side. On the advertising agency and
budget issues raised by CMI, he explained that these were blatant lies as the advertising
Basso was illegally dismissed. needs of CMI were centralized in its Guam office and the Philippine office was not
authorized to deal with CMI's advertising agency, except on minor issues. 76 Basso
It is of no moment that Basso was a managerial employee of CMI Managerial employees further stated that under CMI's existing policy, ninety percent (90%) of the advertising
enjoy security of tenure and the right of the management to dismiss must be balanced decisions were delegated to the advertising firm of McCann-Ericsson in Japan and only
against the managerial employee's right to security of tenure, which is not one of the ten percent (10%) were left to the Philippine office. 77 Basso also denied the allegations
guaranties he gives up.66 of owning nightclubs and promoting his personal businesses and explained that it was
illegal for foreigners in the Philippines to engage in retail trade in the first place.
In Apo Cement Corporation v. Baptisma,67 we ruled that for an employer to validly
dismiss an employee on the ground of loss of trust and confidence under Article 282 (c)
of the Labor Code, the employer must observe the following guidelines: 1) loss of Apart from these accusations, CMI likewise presented the findings of the audit team
confidence should not be simulated; 2) it should not be used as subterfuge for causes headed by Mr. Stephen D. Goepfert, showing that "for the period of 1995 and 1996,
which are improper, illegal or unjustified; 3) it may not be arbitrarily asserted in the face personal passes for Continental and other airline employees were noted (sic) to be
of overwhelming evidence to the contrary; and 4) it must be genuine, not a mere issued for which no service charge was collected." 78 The audit cited the trip pass log of a
afterthought to justify earlier action taken in bad faith. More importantly, it must be total of 10 months. The trip log does not show, however, that Basso caused all the ticket
based on a willful breach of trust and founded on clearly established facts. issuances. More, half of the trips in the log occurred from March to July of 1996, 79 a
period beyond the tenure of Basso. Basso was terminated effectively on January 31,
We agree with the Court of Appeals that the dismissal of Basso was not founded on 1996 as indicated in the letter of Ms. Woodward. 80
clearly established facts and evidence sufficient to warrant dismissal from employment.
While proof beyond reasonable doubt is not required to establish loss of trust and CMI also accused Basso of making "questionable overseas phone calls". Basso, however,
confidence, substantial evidence is required and on the employer rests the burden to adequately explained in his Reply81 that the phone calls to Italy and Portland, USA were
establish it.68 There must be some basis for the loss of trust, or that the employer has made for the purpose of looking for a technical maintenance personnel with US Federal
reasonable ground to believe that the employee is responsible for misconduct, which Aviation Authority qualifications, which CMI needed at that time. The calls to the US
renders him unworthy of the trust and confidence demanded by his position. 69 were also made in connection with his functions as General Manager, such as inquiries
on his tax returns filed in Nevada. Biasso also explained that the phone lines 82 were
CMI alleges that Basso committed the following: open direct lines that all personnel were free to use to make direct long distance calls. 83

(1) Basso delegated too much responsibility to the General Sales Agent and relied Finally, CMI alleged that Basso approved the disbursement of Php80,000.00 to cover the
transfer fee of the Manila Polo Club share from Mr. Kenneth Glover, the previous
 Page 24 of 72

General Manager, to him. CMI claimed that "nowhere in the said contract was it employees.
likewise indicated that the Manila Polo Club share was part of the compensation
package given by CMI to Basso." 84 CMI's claims are not credible. Basso explained that (2) After serving the first notice, the employers should schedule and conduct
the Manila Polo Club share was offered to him as a bonus to entice him to leave his then a hearing or conference wherein the employees will be given the opportunity to: (1)
employer, United Airlines. A letter from Mr. Paul J. Casey, former president of explain and clarify their defenses to the charge against them; (2) present evidence in
Continental, supports Basso.85 In the letter, Mr. Casey explained: support of their defenses; and (3) rebut the evidence presented against them by the
management. During the hearing or conference, the employees are given the chance to
As a signing bonus, and a perk to attract Mr. Basso to join Continental Airlines, he was defend themselves personally, with the assistance of a representative or counsel of their
given the Manila Polo Club share and authorized to have the share re-issued in his choice. Moreover, this conference or hearing could be used by the parties as an
name. In addition to giving Mr. Basso the Manila Polo Club share, Continental agreed to opportunity to come to an amicable settlement.
pay the dues for a period of three years and this was embodied in his contract with
Continental. This was all clone with my knowledge and approval. 86 (3) After determining that termination of employment is justified, the employers shall
serve the employees a written notice of termination indicating that: (1) all
Clause 14 of the employment contract also states: circumstances involving the charge against the employees have been considered; and
(2) grounds have been established to justify the severance of their employment.
Club Memberships: The Company will locally pay annual dues for membership in a club (Emphasis in original.)
in Manila that your immediate supervisor and I agree is of at least that value to Here, Mr. Schulz's and Ms. Woodward's letters dated December 19, 1995 and March 14,
Continental through you in your role as our General Manager for the Philippines. 87 1996, respectively, are not one of the valid twin notices. Neither identified the alleged
acts that CMI now claims as bases for Basso's termination. Ms. Woodward's letter even
Taken together, the above pieces of evidence suggest that the Manila Polo Club share stressed that the original plan was to remove Basso as General Manager but with an
was part of Basso's compensation package and thus he validly used company funds to offer to make him consultant. It was inconsistent of CMI to declare Basso as unworthy of
pay for the transfer fees. If doubts exist between the evidence presented by the its trust and confidence and, in the same breath, offer him the position of consultant. As
employer and the employee, the scales of justice must be tilted in favor of the latter. 88 the Court of Appeals pointed out:
But mark well that Basso was clearly notified that the sole ground for his dismissal was
Finally, CMI violated procedural due process in terminating Basso. In King of Kings the exercise of the termination at will clause in the employment contract. The alleged
Transport, Inc. v. Mamac89 we detailed the procedural due process steps in termination loss of trust and confidence claimed by Continental appears to be a mere afterthought
of employment: belatedly trotted out to save the day.90

To clarify, the following should be considered in terminating the services of employees: Basso is entitled to separation pay and full backwages.

(1) The first written notice to be served on the employees should contain the specific Under Article 279 of the Labor Code, an employee who is unjustly dismissed from work
causes or grounds for termination against them, and a directive that the employees are shall be entitled to reinstatement without loss of eniority rights and other privileges,
given the opportunity to submit their written explanation within a reasonable period. and to his full backwages, inclusive of allowances and to his other benefits or their
"Reasonable opportunity" under the Omnibus Rules means every kind of assistance that monetary equivalent omputed from the time his compensation was withheld up to the
management must accord to the employees to enable them to prepare adequately for time of actual reinstatement.
their defense. This should be construed as a period of at least five (5) calendar days
from receipt of the notice to give the employees an opportunity to study the accusation Where reinstatement is no longer viable as an option, separation pay equivalent to one
against them, consult a union official or lawyer, gather data and evidence, and decide on (1) month salary for every year of service should be awarded as an alternative. The
the defenses they will raise against the complaint. Moreover, in order to enable the payment of separation pay is in addition to payment of backwages. 91 In the case of
employees to intelligently prepare their explanation and defenses, the notice should Basso, reinstatement is no longer possible since he has already passed away. Thus,
contain a detailed narration of the facts and circumstances that will serve as basis for Basso's separation pay with full backwages shall be paid to his heirs.
the charge against the employees. A general description of the charge will not
suffice. Lastly, the notice should specifically mention which company rules, if any, are As to the computation of backwages, we agree with CMI that Basso was entitled to
violated and/or which among the grounds under Art. 282 is being charged against the
 Page 25 of 72

backwages only up to the time he reached 65 years old, the compulsory retirement age
under the law.92 This is our consistent ruling.93 When Basso was illegally dismissed on
January 31, 1996, he was already 58 years old. 94 He turned 65 years old on October 2,
2002. Since backwages are granted on grounds of equity for earnings lost by an
employee due to his illegal dismissal, 95 Basso was entitled to backwages only for the
period he could have worked had he not been illegally dismissed, i.e. from January 31,
1996 to October 2, 2002.

WHEREFORE, premises considered, the Decision of the Court of Appeals dated May 23,
2006 and Resolution dated June 19, 2007 in the consolidated cases CA-G.R. SP No.
83938 and CA-G.R. SP No. 84281 are AFFIRMED, with MODIFICATION as to the award of
backwages. Petitioner Continental Micronesia, Inc. is hereby ordered to pay Respondent
Joseph Basso's heirs: 1) separation pay equivalent to one (1) month pay for every year
of service, and 2) full backwages from January 31, 1996, the date of his illegal dismissal,
to October 2, 2002, the date of his compulsory retirement age.

SO ORDERED.
 Page 26 of 72

[G.R. No. 72494. August 11, 1989.] the obligation from private respondents, conformably with the provisions of the Joint
and Several Guarantee. Inasmuch as the private respondents still failed to pay,
HONGKONG AND SHANGHAI BANKING CORPORATION, Petitioner, v. JACK ROBERT petitioner BANK filed the abovementioned complaint.
SHERMAN, DEODATO RELOJ AND THE INTERMEDIATE APPELLATE On December 14, 1984, private respondents filed a motion to dismiss (pp. 54-56, Rollo)
COURT, Respondents. which was opposed by petitioner BANK (pp. 58-62, Rollo). Acting on the motion, the trial
court issued an order dated February 28, 1985 (pp. 6465, Rollo), which read as follows:
DECISION
REMEMBER ADR. DAPAT EXPRESSLY EXCLUDED ANG IBANG COURTS FOR THE VENUE "In a Motion to Dismiss filed on December 14, 1984, the defendants seek the dismissal
CLAUSE TO BE EXCLUSIVE. ALSO, IT IS CLEAR THAT DELAYING TACTICS LANG ANG BET of the complaint on two grounds, namely:
NG RESPONDENT. ALAM NAMAN NILANG INCONVENIENT SA KANILA IF SA SG TALAGA
SILA IDEDEMANDA EH. "1. That the court has no jurisdiction over the subject matter of the complaint; and

This is a petition for review on certiorari of the decision of the Intermediate Appellate "2. That the court has no jurisdiction over the persons of the defendants.
Court (now Court of Appeals) dated August 2, 1985, which reversed the order of the
Regional Trial Court dated February 28, 1985 denying the Motion to Dismiss filed by "In the light of the Opposition thereto filed by plaintiff, the Court finds no merit in the
private respondents Jack Robert Sherman and Deodato Reloj. motion.

A complaint for collection of a sum of money (pp. 49-52, Rollo) was filed by petitioner "On the first ground, defendants claim that by virtue of the provision in the Guarantee
Hongkong and Shanghai Banking Corporation (hereinafter referred to as petitioner (the actionable document) which reads —
BANK) against private respondents Jack Robert Sherman and Deodato Reloj, docketed
as Civil Case No. Q-42850 before the Regional Trial Court of Quezon City, Branch 84. "This guarantee and all rights, obligations and liabilities arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws of
It appears that sometime in 1981, Eastern Book Supply Service PTE, Ltd. (hereinafter the Republic of Singapore. We hereby agree that the courts in Singapore shall have
referred to as COMPANY), a company incorporated in Singapore applied with, and was jurisdiction over all disputes arising under this guarantee,’
granted by, the’ Singapore branch of petitioner BANK an overdraft facility in the
maximum amount of Singapore dollars 200,000.00 (which amount was subsequently the Court has no jurisdiction over the subject matter of the case. The Court finds and
increased to Singapore dollar 375,000.00) with interest at 3% over petitioner BANK’s concludes otherwise. There is nothing in the Guarantee which says that the courts of
prime rate, payable monthly, on amounts due under said overdraft facility; as a security Singapore shall have jurisdiction to the exclusion of the courts of other countries or
for the repayment by the COMPANY of sum advanced by petitioner BANK to it through nations. Also, it has long been established in law and jurisprudence that jurisdiction of
the aforesaid overdraft facility, on October 7, 1982, both private respondents and a courts is fixed by law; it cannot be conferred by the will, submission or consent of the
certain Robin de Clive Lowe, all of whom were directors of the COMPANY at such time, parties.
executed a Joint and Several Guarantee (p. 53, Rollo) in favor of petitioner BANK
whereby private respondents and Lowe agreed to pay, jointly and severally, on demand "On the second ground, it is asserted that defendant Robert Sherman is not a citizen nor
all sums owed by the COMPANY to petitioner BANK under the afore-stated overdraft a resident of the Philippines. This argument holds no water. Jurisdiction over the
facility. persons of defendants is acquired by service of summons and copy of the complaint on
them. There has been a valid service of summons on both defendants and in fact the
The Joint and Several Guarantee provides, inter alia, that same is admitted when said defendants filed a ‘Motion for Extension of Time to File
Responsive Pleading’ on December 5, 1984.
"This guarantee and all rights, obligations and liabilities arising hereunder shall be
construed and determined under and may be enforced in accordance with the laws of "WHEREFORE, the Motion to Dismiss is hereby DENIED.
the Republic of Singapore. We hereby agree that the Courts of Singapore shall have
jurisdiction overall disputes arising under this guarantee . . ." (p. 33-A, Rollo). "SO ORDERED."

The COMPANY failed to pay its obligation. Thus, petitioner BANK demanded payment of A motion for reconsideration of the said order was filed by private respondents which
 Page 27 of 72

was, however, denied (p. 66, Rollo). Private respondents then filed before the unmistakable (sic) terms the word ‘shall’ which under statutory construction is
respondent Intermediate Appellate Court (now Court of Appeals) a petition for mandatory.
prohibition with preliminary injunction and/or prayer for a restraining order (pp. 39-48,
Rollo). On August 2, 1985, the respondent Court rendered a decision (p. 37, Rollo), the "Thus, it was ruled that:chanrob1es virtual 1aw library
dispositive portion of which reads:
‘. . . the word ‘shall’ is imperative, operating to impose a duty which may be enforced’
"WHEREFORE, the petition for prohibition with preliminary injunction is hereby (Dizon v. Encarnacion, 9 SCRA 714).
GRANTED. The respondent Court is enjoined a taking from further cognizance of the case
and to dismiss the same for filing with the proper court of Singapore which is the proper "There is nothing more imperative and restrictive than what the agreement
forum. categorically commands that ‘all rights, obligations, and liabilities arising hereunder shall
No costs. be construed and determined under and may be enforced in accordance with the laws
of the Republic of Singapore."
SO ORDERED."
While it is true that "the transaction took place in Singaporean setting" and that the
The motion for reconsideration was denied (p. 38, Rollo),hence, the present petition. Joint and Several Guarantee contains a choice-of-forum clause, the very essence of due
process dictates that the stipulation that THIS IS THE QUESTIONED CLAUSE " [t]his
The main issue is whether or not Philippine courts have jurisdiction over the suit. 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
The controversy stems from the interpretation of a provision in the Joint and Several of Singapore. We hereby agree that the Courts in Singapore shall have jurisdiction over
Guarantee, to wit: all disputes arising under this guarantee" THIS MUST BE LIBERALLY CONSTRUED. One
basic principle underlies all rules of jurisdiction in International Law: a State does not
"(14) This guarantee and all rights, obligations and liabilities arising hereunder shall be have jurisdiction in the absence of some reasonable basis for exercising it, whether the
construed and determined under and may be enforced in accordance with the laws of proceedings are in rem, quasi in rem or in personam. To be reasonable, the jurisdiction
the Republic of Singapore. We hereby agree that the Courts in Singapore shall have must be based on some minimum contacts that will not offend traditional notions of fair
jurisdiction over all disputes arising under this guarantee . . ." (p. 53-A, Rollo) play and substantial justice (J. Salonga, Private International Law, 1981, p. 46). Indeed,
as pointed-out by petitioner BANK at the outset, the instant case presents a very odd
In rendering the decision in favor of private respondents, the Court of Appeals made the situation. In the ordinary habits of life, anyone would be disinclined to litigate before a
following observations (pp. 35-36, Rollo): foreign tribunal, with more reason as a defendant. However, in this case, private
respondents are Philippine residents (a fact which was not disputed by them) who
"There are significant aspects of the case to which our attention is invited. The loan was would rather face a complaint against them before a foreign court and in the process
obtained by Eastern Book Service PTE, Ltd., a company, incorporated in Singapore. The incur considerable expenses, not to mention inconvenience, than to have a Philippine
loan was granted by the Singapore Branch of Hongkong and Shanghai Banking court try and resolve the case. Private respondents’ stance is hardly comprehensible,
Corporation. The Joint and Several Guarantee was also concluded in Singapore. The loan unless their ultimate intent is to evade, or at least delay, the payment of a just
was in Singaporean dollars and the repayment thereof also is the same currency. The obligation.
transaction, to say the least, took place in Singaporean setting in which the law of that
country is the measure by which that relationship of the panties will be governed. The defense of private respondents that the complaint should have been filed in
x              x              x Singapore is based merely on technicality. They did not even claim, much less prove,
that the filing of the action here will cause them any unnecessary trouble, damage, or
expense. On the other hand, there is no showing that petitioner BANK filed the action
"Contrary to the position taken by respondents, the guarantee agreement commands here just to harass private respondents.
that any litigation will be before the courts of Singapore and that the rights and
obligations of the parties shall be constructed and determined in accordance with the In the case of Polytrade Corporation v. Blanco, G.R. No. L-27033, October 31, 1969, 30
laws of the Republic of Singapore. A closer examination of paragraph 14 of the SCRA 187, it was ruled:
Guarantee Agreement upon which the motion to dismiss is based, employs in clear and
 Page 28 of 72

merely an attempt to copy-cat the same word employed in the guarantee agreement
REMEMBER ADR. DAPAT EXPRESSLY EXCLUDED ANG IBANG COURTS FOR THE VENUE but conveys the concept of `venue.’ Brushing aside all technicalities, it would appear
CLAUSE TO BE EXCLUSIVE ". . . An accurate reading, however, of the stipulation, "The that jurisdiction was used loosely as to be synonymous with venue. It is in this spirit that
parties agree to sue and be sued in the Courts of Manila,’ does not preclude the filing of this Court must view the motion to dismiss. . . ." (p. 35, Rollo).
suits in the residence of plaintiff or defendant. The plain meaning is that the parties
merely consented to be sued in Manila. Qualifying or restrictive words which would At any rate, this issue is now of no moment because We hold that venue here was
indicate that Manila and Manila alone is the venue are totally absent therefrom. We properly laid for the same reasons discussed above.
cannot read into that clause that plaintiff and defendant bound themselves to file suits The respondent Court likewise ruled that (pp. 36-37, Rollo):
with respect to the last two transactions in question only or exclusively in Manila. For, ". . .In a convict problem, a court will simply refuse to entertain the case if it is not
that agreement did not change or transfer venue. It simply is permissive. The parties authorized by law to exercise jurisdiction. And even if it is so authorized, it may still
solely agreed to add the courts of Manila as tribunals to which they may resort. They did refuse to entertain the case by applying the principle of forum non conveniens"
not waive their right to pursue remedy in the courts specifically mentioned in Section
2(b) of Rule 4. Renuntiatio non praesumitur." However, whether a suit should be entertained or dismissed on the basis of the
principle of forum non conveniens depends largely upon the facts of the particular case
This ruling was reiterated in the case of Neville Y. Lamis Ents., Et. Al. v. Lagamon, etc., Et and is addressed to the, sound discretion of the trial court (J. Salonga, Private
Al., G.R. No. 57250, October 30, 1981, 108 SCRA 740, where the stipulation was" (i)n International Law, 1981, p. 49). Thus, the respondent Court should not have relied on
case of litigation, jurisdiction shall be vested in the Court of Davao City." We held: such principle.

"Anent the claim that Davao City had been stipulated as the venue, suffice it to say that Although the Joint and Several Guarantee prepared by petitioner BANK is a contract of
a stipulation as to venue does not preclude the filing of suits in the residence of plaintiff adhesion and that consequently, it cannot be permitted to take a stand contrary to the
or defendant under Section 2 (b), Rule 4, Rules of Court, in the absence of qualifying or stipulations of the contract, substantial bases exist for petitioner BANK’s choice of
restrictive word a in the agreement which would indicate that the place named is the forum, as discussed earlier.
only venue agreed upon by the parties."
Lastly, private respondents allege that neither the petitioner based at Hongkong nor its
Applying the foregoing to the case at bar, the parties did not thereby stipulate that only Philippine branch is involved in the transaction sued upon. This is a vain attempt on their
the courts of Singapore, to the exclusion of all the rest, has jurisdiction. Neither did the part to further thwart the proceedings below inasmuch as well-known is the rule that a
clause in question operate to divest Philippine courts of jurisdiction, In International defendant cannot plead any defense that has not been interposed in the court below.
Law, jurisdiction is often defined as the right of a State to exercise authority over
persons and things within its boundaries subject to certain exceptions. Thus, a State ACCORDINGLY, the decision of the respondent Court is hereby REVERSED and the
does not assume jurisdiction over traveling sovereigns, ambassadors and diplomatic decision of the Regional Trial Court is REINSTATED, with costs against private
representatives of other States, and foreign military units stationed in or marching respondents. This decision is immediately executory.
through State territory with the permission of the latter’s authorities. This authority,
which finds its source in the concept of sovereignty, is exclusive within and throughout SO ORDERED.
the domain of the State. A State is competent to take hold of any judicial matter it sees
fit by making its courts and agencies assume jurisdiction over all kinds of cases brought
before them (J. Salonga, Private International Law, 1981, pp. 37-38).

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

"While in the main, the motion to dismiss fails to categorically use with exactitude the
words ‘improper venue’ it can be perceived from the general thrust and context of the
motion that what is meant is improper venue. The use of the word ‘jurisdiction’ was
 Page 29 of 72

G.R. No. 153031             December 14, 2006 branch of the NLRC. In their answer, the latter alleged that Rusel deserted his
PCL SHIPPING PHILIPPINES, INC. and U-MING MARINE TRANSPORT employment by jumping off the vessel.
CORPORATION, petitioners,
vs. On July 21, 1998, the labor arbiter rendered his decision, the dispositive
NATIONAL LABOR RELATIONS COMMISSION and STEVE RUSEL, respondents. portion of which reads as follows:

DECISION
Wherefore, above premises duly considered we find the respondent
liable for unjust repatriation of the complainant.
CONTENTION: NTE AND HEARING ARE NOT NEEDED IN CASES OF TERMINATION IF THE
EE IS OVERSEAS. WRONG. CONSTI AND LABOR CODE PROVIDES OTHERWISE. ALSO THE
Accordingly, the following award is hereby adjudged against the
CONTRACT WAS EXECUTED HERE. ERGO, LEX LOCI CONTRACTUS
respondent:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
1. The amount of $2,625.00 or its peso equivalent at the time of
assailing the Decision1 of the Court of Appeals (CA) dated December 18, 2001 in CA-G.R.
payment representing three (3) months salary of the complainant due
SP No. 59976, which affirmed the Decision of the National Labor Relations Commission
to his illegal dismissal.
(NLRC) dated March 22, 2000 in NLRC NCR CA No. 018120-99; and the Resolution of the
CA dated April 10, 2002, denying petitioners' motion for reconsideration. 2
2. The amount of $1,600.00 or its peso equivalent, representing sick
wage benefits.
The facts of the case, as found by the CA, are as follows:
3. The amount of $550.00 or its peso equivalent, representing living
In April 1996, Rusel was employed as GP/AB seaman by manning agency, PCL
allowance, overtime pay and special allowance for two (2) months.
Shipping Philippines, Inc. (PCL Shipping) for and in behalf of its foreign
principal, U-Ming Marine Transport Corporation (U-Ming Marine). Rusel
thereby joined the vessel MV Cemtex General (MV Cemtex) for the contract 4. The amount of $641.66 or its peso equivalent, representing unpaid
period of twelve (12) months with a basic monthly salary of US$400.00, living wages from August 11 to 22, 1996.
allowance of US$140.00, fixed overtime rate of US$120.00 per month, vacation
leave with pay of US$40.00 per month and special allowance of US$175.00. 5. Attorney's fees equivalent to 10% of the total monetary award.

On July 16, 1996, while Rusel was cleaning the vessel's kitchen, he slipped, and The rest of the claims are dismissed for lack of merit.
as a consequence thereof, he suffered a broken and/or sprained ankle on his
left foot. A request for medical examination was flatly denied by the captain of SO ORDERED.3
the vessel. On August 13, 1996, feeling an unbearable pain in his ankle, Rusel
jumped off the vessel using a life jacket and swam to shore. He was brought to Aggrieved by the Decision of the Labor Arbiter, herein petitioners appealed to the NLRC.
a hospital where he was confined for eight (8) days. In its Decision dated March 22, 2000, the NLRC affirmed the findings of the Labor Arbiter
but modified the appealed Decision, disposing as follows:
On August 22, 1996, a vessel's agent fetched Rusel from the hospital and was
required to board a plane bound for the Philippines. WHEREFORE, premises considered, the assailed decision is as it is hereby
ordered MODIFIED in that the amount representing three months salary of the
On September 26, 1996, Rusel filed a complaint for illegal dismissal, non- complainant due to his illegal dismissal is reduced to US$1,620.00. Further the
payment of wages, overtime pay, claim for medical benefits, sick leave pay and award of sick wage benefit is deleted.
damages against PCL Shipping and U-Ming Marine before the arbitration
All other dispositions are AFFIRMED.
 Page 30 of 72

SO ORDERED.4 As to their second assigned error, petitioners contend that assuming, for the sake of
argument, that Rusel is not guilty of desertion, they invoked the alternative defense that
Petitioners filed a Motion for Reconsideration but the NLRC denied the same in its the termination of his employment was validly made pursuant to petitioners' right to
Decision of May 3, 2000.5 exercise their prerogative to pre-terminate such employment in accordance with
Section 19(C) of the Standard Terms and Conditions Governing the Employment of
Filipino Seafarers On-Board Ocean-Going Vessels, which provision was incorporated in
Petitioners filed a petition for certiorari with the CA.6 In its Decision dated December 18,
Rusel's Contract of Employment with petitioners. Petitioners assert that despite the fact
2001, the CA dismissed the petition and affirmed the NLRC Decision. 7
that this issue was raised before the CA, the appellate court failed to resolve the same.
Petitioners filed a Motion for Reconsideration but it was denied by the CA in its
Anent the last assigned error, petitioners argue that it is error on the part of the CA to
Resolution dated April 10, 2002.8
affirm the award of living allowance, overtime pay, vacation pay and special allowance
for two months because Rusel failed to submit substantial evidence to prove that he is
Hence, the instant petition with the following assignment of errors: entitled to these awards. Petitioners further argue that these money claims, particularly
the claim for living allowance, should not be granted because they partake of the nature
I. The Court of Appeals erred in ruling that private respondent was illegally of earned benefits for services rendered by a seafarer. Petitioners also contend that the
dismissed from employment. balance of Rusel's wages from August 11-22, 1996 should be applied for the payment of
the costs of his repatriation, considering that under Section 19(E) of the Standard Terms
xxxx and Conditions Governing the Employment of Filipino Seafarers On-Board Ocean-Going
Vessels, when a seafarer is discharged for any just cause, the employer shall have the
II. Likewise, the Court of Appeals erred in not upholding petitioners' right to right to recover the costs of his replacement and repatriation from the seafarer's wages
pre-terminate private respondent's employment. and other earnings. Lastly, petitioners argue that the award of attorney's fees should be
deleted because there is nothing in the decision of the Labor Arbiter or the NLRC which
states the reason why attorney's fees are being awarded.
xxxx

In his Comment, private respondent contends that petitioners are raising issues of fact
III. The private respondent is not entitled to other money claims, particularly as
which have already been resolved by the Labor Arbiter, NLRC and the CA. Private
to the award of attorney's fees.9
respondent argues that, aside from the fact that the issues raised were already decided
by three tribunals against petitioners' favor, it is a settled rule that only questions of law
As to their first assigned error, petitioners contend that the CA erred in affirming the may be raised in a petition for review on certiorari under Rule 45 of the Rules of Court.
findings of the NLRC that Rusel's act of jumping ship does not establish any intent on his While there are exceptions to this rule, private respondent contends that the instant
part to abandon his job and never return. Petitioners argue that Rusel's very act of case does not fall under any of these exceptions. Private respondent asserts that
jumping from the vessel and swimming to shore is evidence of highest degree that he petitioners failed to substantiate their claim that the former is guilty of desertion.
has no intention of returning to his job. Petitioners further contend that if Rusel was Private respondent further contends that the right to due process is available to local
indeed suffering from unbearable and unmitigated pain, it is unlikely that he is able to and overseas workers alike, pursuant to the provisions of the Constitution on labor and
swim two (2) nautical miles, which is the distance between their ship and the shore, equal protection as well as the declared policy contained in the Labor Code. Private
considering that he needed to use his limbs in swimming. Petitioners further assert that respondent argues that petitioners' act of invoking the provisions of Section 19(C) of the
it is error on the part of the CA to disregard the entries contained in the logbook and in POEA Contract as an alternative defense is misplaced and is inconsistent with their
the Marine Note Protest evidencing Rusels' offense of desertion because while these primary defense that private respondent was dismissed on the ground of desertion. As
pieces of evidence were belatedly presented, the settled rule is that additional evidence to the award of attorney's fees, private respondent contends that since petitioners' act
may be admitted on appeal in labor cases. Petitioners also contend that Rusel's act of compelled the former to incur expenses to protect his interest and enforce his lawful
desertion is a grave and serious offense and considering the nature and situs of claims, and because petitioners acted in gross and evident bad faith in refusing to satisfy
employment as well as the nationality of the employer, the twin requirements of notice private respondent's lawful claims, it is only proper that attorney's fees be awarded in
and hearing before an employee can be validly terminated may be dispensed with. favor of the latter. Anent the other monetary awards, private respondent argues that
 Page 31 of 72

these awards are all premised on the findings of the Labor Arbiter, NLRC and the CA that It is true that no substantial evidence was presented to prove that the cause of private
private respondent's dismissal was improper and illegal. respondent's confinement in a hospital in Takehara, Japan was his ankle injury. The
Court may not rely on the letter marked as Annex "B" and attached to private
The Court finds the petition without merit. respondent's Position Paper because it was unsigned and it was not established who
executed the same.17 However, the result of the x-ray examination conducted by the
LLN Medical Services, Inc. on August 26, 1996, right after private respondent was
Anent the first assigned error, it is a settled rule that under Rule 45 of the Rules of
repatriated to the Philippines, clearly showed that there is a soft-tissue swelling around
Court, only questions of law may be raised in this Court. 10 Judicial review by this Court
his ankle joint.18 This evidence is consistent with private respondent's claim that he was
does not extend to a re-evaluation of the sufficiency of the evidence upon which the
then suffering from an ankle injury which caused him to jump off the ship.
proper labor tribunal has based its determination. 11 Firm is the doctrine that this Court is
not a trier of facts, and this applies with greater force in labor cases. 12 Factual issues
may be considered and resolved only when the findings of facts and conclusions of law As to petitioners' contention that private respondent could not have traversed the
of the Labor Arbiter are inconsistent with those of the NLRC and the CA. 13 The reason for distance between the ship and the shore if he was indeed suffering from unbearable
this is that the quasi-judicial agencies, like the Arbitration Board and the NLRC, have pain by reason of his ankle injury, suffice it to say that private respondent is an able-
acquired a unique expertise because their jurisdiction are confined to specific bodied seaman and that with the full use of both his arms and the help of a life jacket,
matters.14 In the present case, the question of whether private respondent is guilty of was able to reach the shore.
desertion is factual. The Labor Arbiter, NLRC and the CA are unanimous in their findings
that private respondent is not guilty of desertion and that he has been illegally As correctly defined by petitioners, desertion, in maritime law is:
terminated from his employment. After a review of the records of the instant case, this
Court finds no cogent reason to depart from the findings of these tribunals. The act by which a seaman deserts and abandons a ship or vessel, in which he
had engaged to perform a voyage, before the expiration of his time, and
Petitioners assert that the entries in the logbook of MV Cemtex General15 and in the without leave. By desertion, in maritime law, is meant, not a mere
Marine Note Protest16 which they submitted to the NLRC confirm the fact that private unauthorized absence from the ship, without leave, but an unauthorized
respondent abandoned the vessel in which he was assigned. However, the genuineness absence from the ship with an intention not to return to her service; or as it is
of the Marine Note Protest as well as the entries in the logbook are put in doubt often expressed, animo non revertendi, that is, with an intention to
because aside from the fact that they were presented only during petitioners' Motion desert.19 (emphasis supplied)
for Reconsideration filed with the NLRC, both the Marine Note Protest and the entry in
the logbook which were prepared by the officers of the vessel were neither notarized Hence, for a seaman to be considered as guilty of desertion, it is essential that there be
nor authenticated by the proper authorities. Moreover, a reading of these entries simply evidence to prove that if he leaves the ship or vessel in which he had engaged to
shows that private respondent was presumed to have deserted his post on the sole perform a voyage, he has the clear intention of abandoning his duty and of not
basis that he was found missing while the MV Cemtex General was anchored at the port returning to the ship or vessel. In the present case, however, petitioners failed to
of Takehara, Japan. Hence, without any corroborative evidence, these documents present clear and convincing proof to show that when private respondent jumped ship,
cannot be used as bases for concluding that private respondent was guilty of desertion. he no longer had the intention of returning. The fact alone that he jumped off the ship
where he was stationed, swam to shore and sought medical assistance for the injury he
Petitioners also question the findings and conclusion of the Labor Arbiter and the NLRC sustained is not a sufficient basis for petitioners to conclude that he had the intention of
that what caused private respondent in jumping overboard was the unmitigated pain he deserting his post. Settled is the rule that in termination cases, the burden of proof rests
was suffering which was compounded by the inattention of the vessel's captain to upon the employer to show that the dismissal is for a just and valid cause. 20 The case of
provide him with the necessary treatment inspite of the fact that the ship was moored the employer must stand or fall on its own merits and not on the weakness of the
for about two weeks at the anchorage of Takehara, Japan; and, that private employee's defense.21 In the present case, since petitioners failed to discharge their
respondent's act was a desperate move to protect himself and to seek relief for his burden of proving that private respondent is guilty of desertion, the Court finds no
physical suffering. Petitioners contend that the findings and conclusions of the Labor reason to depart from the conclusion of the Labor Arbiter, NLRC and the CA that private
Arbiter and the NLRC which were affirmed by the CA are based on conjecture because respondent's dismissal is illegal.
there is no evidence to prove that, at the time he jumped ship, private respondent was
really suffering from an ankle injury.
 Page 32 of 72

In their second assigned error, petitioners cite Section 19(C) of POEA Memorandum 6. If the vessel arrives at a convenient port within a period of three (3) months
Circular No. 055-9622 known as the Revised Standard Employment Terms and Conditions before the expiration of the Contract, the master/employer may repatriate the
Governing the Employment of Filipino Seafarers On Board Ocean-Going Vessels as their seaman from such port provided that the seaman shall be paid all his earned
alternative basis in terminating the employment of private respondent. Said Section wages. In addition, the seaman shall also be paid his leave pay for the entire
provides as follows: contract period plus a termination pay equivalent to one (1) month of his basic
pay, provided, however, that this mode of termination may only be exercised
Section 19. REPATRIATION by the master/employer if the original contact period of the seaman is at least
ten (10) months; provided, further, that the conditions for this mode of
termination shall not apply to dismissal for cause.
xxxx

The Court agrees with private respondent's contention that petitioners' arguments are
C. If the vessel arrives at a convenient port within a period of three months
misplaced. Petitioners may not use the above-quoted provision as basis for terminating
before the expiration of his contract, the master/ employer may repatriate the
private respondent's employment because it is incongruent with their primary defense
seafarer from such port provided that the seafarer shall be paid all his earned
that the latter's dismissal from employment was for cause. Petitioners may not claim
wages. In addition, the seafarer shall also be paid his leave pay for the entire
that they ended private respondent's services because he is guilty of desertion and at
contract period plus a termination pay equivalent to one (1) month of his basic
the same time argue that they exercised their option to prematurely terminate his
pay, provided, however, that this mode of termination may only be exercised
employment, even without cause, simply because they have the right to do so under
by the master/employer if the original contract period of the seafarer is at
their contract. These grounds for termination are inconsistent with each other such that
least ten (10) months; provided, further, that the conditions for this mode of
the use of one necessarily negates resort to the other. Besides, it appears from the
termination shall not apply to dismissal for cause.
records that petitioners' alternative defense was pleaded merely as an afterthought
because it was only in their appeal with the NLRC that they raised this defense. The only
The Court is not persuaded. POEA Memorandum Circular No. 055-96 took effect on defense raised by petitioners in their Answer with Counterclaim filed with the office of
January 1, 1997 while the contract of employment entered into by and between private the Labor Arbiter is that private respondent was dismissed from employment by reason
respondent and petitioners was executed on April 10, 1996. Hence, it is wrong for of desertion.23 Under the Rules of Court,24 which is applicable in a suppletory character
petitioners to cite this particular Memorandum because at the time of petitioners' and in labor cases before the Labor Arbiter or the NLRC pursuant to Section 3, Rule I of the
private respondent's execution of their contract of employment Memorandum Circular New Rules of Procedure of the NLRC 25, defenses which are not raised either in a motion
No. 055-96 was not yet effective. to dismiss or in the answer are deemed waived. 26

What was in effect at the time private respondent's Contract of Employment was Granting, for the sake of argument, that petitioners may use Section H (6), Part I of
executed was POEA Memorandum Circular No. 41, Series of 1989. It is clearly provided Memorandum Circular No. 41 or Section 19(C) of Memorandum Circular No. 055-96 as
under the second paragraph of private respondent's Contract of Employment that the basis for terminating private respondent's employment, it is clear that one of the
terms and conditions provided under Memorandum Circular No. 41, Series of 1989 shall conditions before any of these provisions becomes applicable is when the vessel arrives
be strictly and faithfully observed. Hence, it is Memorandum Circular No. 41, Series of at a convenient port within a period of three (3) months before the expiration of the
1989 which governs private respondent's contract of employment. contract of employment. In the present case, private respondent's contract was
executed on April 10, 1996 for a duration of twelve months. He was deployed
Section H (6), Part I of Memorandum Circular No. 41, which has almost identical aboard MV Cemtex General on June 25, 1996 and repatriated to the Philippines on
provisions with Section 19 (C) of Memorandum Circular No. 055-96, provides as follows: August 22, 1996. Hence, it is clear that petitioners did not meet this condition because
private respondent's termination was not within a period of three months before the
SECTION H. TERMINATION OF EMPLOYMENT expiration of his contract of employment.

xxxx Moreover, the Court finds nothing in the records to show that petitioners complied with
the other conditions enumerated therein, such as the payment of all of private
 Page 33 of 72

respondent's earned wages together with his leave pay for the entire contract period as xxxx
well as termination pay equivalent to his one month salary.
2. When the seaman is discharged for disciplinary reasons, the employer shall
Petitioners admit that they did not inform private respondent in writing of the charges have the right to recover the costs of maintenance and repatriation from the
against him and that they failed to conduct a formal investigation to give him seaman's balance of wages and other earnings.
opportunity to air his side. However, PETITIONERS CONTEND THAT THE TWIN
REQUIREMENTS OF NOTICE AND HEARING APPLIES STRICTLY ONLY WHEN THE xxxx
EMPLOYMENT IS WITHIN THE PHILIPPINES AND THAT THESE NEED NOT BE STRICTLY
OBSERVED IN CASES OF INTERNATIONAL MARITIME OR OVERSEAS EMPLOYMENT.
It is clear under the above-quoted provision that the employer shall have the right to
WRONG
recover the cost of repatriation from the seaman's wages and other earnings only if the
concerned seaman is validly discharged for disciplinary measures. In the present case,
The Court does not agree. The provisions of the Constitution as well as the Labor Code since petitioners failed to prove that private respondent was validly terminated from
which afford protection to labor apply to Filipino employees whether working within the employment on the ground of desertion, it only follows that they do not have the right
Philippines or abroad. Moreover, the principle of lex loci contractus (the law of the place to deduct the costs of private respondent's repatriation from his wages and other
where the contract is made) governs in this jurisdiction.27 In the present case, it is not earnings.
disputed that the Contract of Employment entered into by and between petitioners and
private respondent was executed here in the Philippines with the approval of the
Lastly, the Court is not persuaded by petitioners' contention that the private respondent
Philippine Overseas Employment Administration (POEA). Hence, the Labor Code
is not entitled to his money claims representing his living allowance, overtime pay,
together with its implementing rules and regulations and other laws affecting labor
vacation pay and special allowance as well as attorney's fees because he failed to
apply in this case.28 Accordingly, as to the requirement of notice and hearing in the case
present any proof to show that he is entitled to these awards.
of a seafarer, the Court has already ruled in a number of cases that before a seaman can
be dismissed and discharged from the vessel, it is required that he be given a written
notice regarding the charges against him and that he be afforded a formal investigation However, the Court finds that the monetary award representing private respondent's
where he could defend himself personally or through a representative. 29 Hence, the three months salary as well as the award representing his living allowance, overtime
employer should strictly comply with the twin requirements of notice and hearing pay, vacation pay and special allowance should be modified.
without regard to the nature and situs of employment or the nationality of the
employer. Petitioners failed to comply with these twin requirements. The Court finds no basis in the NLRC's act of including private respondent's living
allowance as part of the three months salary to which he is entitled under Section 10 of
Petitioners also contend that the wages of private respondent from August 11-22, 1996 Republic Act (RA) No. 8042, otherwise known as the "Migrant Workers and Overseas
were applied to the costs of his repatriation. Petitioners argue that the off-setting of the Filipinos Act of 1995." The pertinent provisions of the said Act provides:
costs of his repatriation against his wages for the aforementioned period is allowed
under the provisions of Section 19(E) of Memorandum Circular No. 055-96 which Sec. 10. Money Claims –
provides that when the seafarer is discharged for any just cause, the employer shall
have the right to recover the costs of his replacement and repatriation from the xxxx
seafarer's wages and other earnings.
In case of termination of overseas employment without just, valid or
The Court does not agree. Section 19(E) of Memorandum Circular No. 055-96 has its authorized cause as defined by law or contract, the worker shall be entitled to
counterpart provision under Section H (2), Part II of Memorandum Circular No. 41, to the full reimbursement of his placement fee with interest at twelve percent
wit: (12%) per annum, plus his salaries for the unexpired portion of his
employment contract or for three (3) months for every year of the unexpired
SECTION H. REPATRIATION term, whichever is less.

xxxx
 Page 34 of 72

It is clear from the above-quoted provision that what is included in the computation of Art. 111. Attorney's fees. – (a) In cases of unlawful withholding of
the amount due to the overseas worker are only his salaries. Allowances are excluded. wages, the culpable party may be assessed attorney's fees equivalent
In the present case, since private respondent received a basic monthly salary of to ten percent of the amount of wages recovered x x x
US$400.00, he is, therefore, entitled to receive a sum of US$1200.00, representing three
months of said salary. The afore-quoted Article 111 is an exception to the declared policy of strict
construction in the awarding of attorney's fees. Although an express finding
As to the awards of living allowance, overtime pay, vacation pay and special allowance, of facts and law is still necessary to prove the merit of the award, there need
it is clearly provided under private respondent's Contract of Employment that he is not be any showing that the employer acted maliciously or in bad faith when
entitled to these benefits as follows: living allowance of US$140.00/month; vacation it withheld the wages. There need only be a showing that the lawful wages
leave with pay equivalent to US$40.00/month; overtime rate of US$120.00/month; and, were not paid accordingly, as in this case.
special allowance of US$175.00/month.30
In carrying out and interpreting the Labor Code's provisions and its
With respect, however, to the award of overtime pay, the correct criterion in implementing regulations, the employee's welfare should be the primordial
determining whether or not sailors are entitled to overtime pay is not whether they and paramount consideration. This kind of interpretation gives meaning and
were on board and can not leave ship beyond the regular eight working hours a day, but substance to the liberal and compassionate spirit of the law as provided in
whether they actually rendered service in excess of said number of hours. 31 In the Article 4 of the Labor Code which states that "[a]ll doubts in the
present case, the Court finds that private respondent is not entitled to overtime pay implementation and interpretation of the provisions of [the Labor] Code
because he failed to present any evidence to prove that he rendered service in excess of including its implementing rules and regulations, shall be resolved in favor of
the regular eight working hours a day. labor", and Article 1702 of the Civil Code which provides that "[i]n case of
doubt, all labor legislation and all labor contracts shall be construed in favor of
On the basis of the foregoing, the remaining benefits to which the private respondent is the safety and decent living for the laborer."33 (Emphasis supplied)
entitled is the living allowance of US$140.00/month, which was removed in the
computation of private respondent's salary, special allowance of US$175.00/month and In the present case, it is true that the Labor Arbiter and the NLRC failed to state the
vacation leave with pay amounting to US$40.00/month. Since private respondent reasons why attorney's fees are being awarded. However, it is clear that private
rendered service for two months these benefits should be doubled, giving a total of respondent was illegally terminated from his employment and that his wages and other
US$710.00. benefits were withheld from him without any valid and legal basis. As a consequence, he
is compelled to file an action for the recovery of his lawful wages and other benefits
As to the award of attorney's fees, this Court ruled in Reyes v. Court of Appeals,32 as and, in the process, incurred expenses. On these bases, the Court finds that he is
follows: entitled to attorney's fees.

x x x [T]here are two commonly accepted concepts of attorney's fees, the so- WHEREFORE, the petition is PARTLY GRANTED. The Court of Appeals' Decision dated
called ordinary and extraordinary. In its ordinary concept, an attorney's fee is December 18, 2001 and Resolution dated April 10, 2002
the reasonable compensation paid to a lawyer by his client for the legal are AFFIRMED with MODIFICATION to the effect that the award of US$1620.00
services he has rendered to the latter. The basis of this compensation is the representing private respondent's three months salary is reduced to US$1200.00. The
fact of his employment by and his agreement with the client. In its award of US$550.00 representing private respondent's living allowance, overtime pay,
extraordinary concept, attorney's fees are deemed indemnity for damages vacation pay and special allowance for two months is deleted and in lieu thereof, an
ordered by the court to be paid by the losing party in a litigation. The instances award of US$710.00 is granted representing private respondent's living allowance,
where these may be awarded are those enumerated in Article 2208 of the Civil special allowance and vacation leave with pay for the same period.
Code, specifically par. 7 thereof which pertains to actions for recovery of
wages, and is payable not to the lawyer but to the client, unless they have No costs.
agreed that the award shall pertain to the lawyer as additional compensation
or as part thereof. The extraordinary concept of attorney's fees is the one SO ORDERED.
contemplated in Article 111 of the Labor Code, which provides:
Page 35 of 72
 Page 36 of 72

G.R. No. 205703, March 07, 2016

After three months, Arriola received a notice of pre-termination of employment, 9 dated
INDUSTRIAL PERSONNEL & MANAGEMENT SERVICES, INC. (IPAMS), SNC LAVALIN September 9, 2009, from SNC-Lavalin. It stated that his employment would be pre-
ENGINEERS & CONTRACTORS, INC. AND ANGELITO C. HERNANDEZ, Petitioners, v. JOSE terminated effective September 11, 2009 due to diminishing workload in the area of his
G. DE VERA AND ALBERTO B. ARRIOLA, Respondents. expertise and the unavailability of alternative assignments. Consequently, on September
15, 2009, Arriola was repatriated. SNC-Lavalin deposited in Arriola's bank account his
pay amounting to Two Thousand Six Hundred Thirty Six Dollars and Eight Centavos
DECISION
(CA$2,636.80), based on Canadian labor law.
MENDOZA, J.: Aggrieved, Arriola filed a complaint against the petitioners for illegal dismissal and non-
payment of overtime pay, vacation leave and sick leave pay before the Labor Arbiter
When can a foreign law govern an overseas employment contract? This is the fervent (LA). He claimed that SNC-Lavalin still owed him unpaid salaries equivalent to the three-
question that the Court shall resolve, once and for all. month unexpired portion of his contract, amounting to, more or less, One Million Sixty-
Two Thousand Nine Hundred Thirty-Six Pesos (P1,062,936.00). He asserted that SNC-
This petition for review on certiorari seeks to reverse and set aside the January 24, 2013 Lavalin never offered any valid reason for his early termination and that he was not
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 118869, which modified the given sufficient notice regarding the same. Arriola also insisted that the petitioners must
November 30, 2010 Decision2 of the National Labor Relations Commission (NLRC) and its prove the applicability of Canadian law before the same could be applied to his
February 2, 2011 Resolution,3 in NLRC LAC Case No. 08-000572-10/NLRC Case No. NCR employment contract.
09-13563-09, a case for illegal termination of an Overseas Filipino Worker (OFW).
Employer's Position
The Facts
The petitioners denied the charge of illegal dismissal against them. They claimed that
Petitioner Industrial Personnel & Management Services, Inc. (IPAMS) is a local SNC-Lavalin was greatly affected by the global financial crises during the latter part of
placement agency duly organized and existing under Philippine laws, with petitioner 2008. The economy of Madagascar, where SNC-Lavalin had business sites, also slowed
Angelito C. Hernandez as its president and managing director. Petitioner SNC Lavalin down. As proof of its looming financial standing, SNC-Lavalin presented a copy of a news
Engineers & Contractors, Inc. (SNC-Lavalin) is the principal of IPAMS, a Canadian item in the Financial Post,10 dated March 5, 2009, showing the decline of the value of its
company with business interests in several countries. On the other hand, respondent stocks. Thus, it had no choice but to minimize its expenditures and operational
Alberto Arriola (Arriola) is a licensed general surgeon in the Philippines.4 expenses. It re-organized its Health and Safety Department at the Ambatovy Project site
and Arriola was one of those affected.11
Employee's Position
The petitioners also invoked EDI-Staffbuilders International, Inc. v. NLRC12 (EDI-
5
Arriola was offered by SNC-Lavalin, through its letter,  dated May 1, 2008, the position Staffbuilders), pointing out that particular labor laws of a foreign country incorporated
of Safety Officer in its Ambatovy Project site in Madagascar. The position offered had a in a contract freely entered into between an OFW and a foreign employer through the
rate of CA$32.00 per hour for forty (40) hours a week with overtime pay in excess of latter's agent was valid. In the present case, as all of Arriola's employment documents
forty (40) hours. It was for a period of nineteen (19) months starting from June 9, 2008 were processed in Canada, not to mention that SNC-Lavalin's office was in Ontario, the
to December 31, 2009. principle of lex loci celebrationis was applicable. Thus, the petitioners insisted that
Canadian laws governed the contract.
Arriola was then hired by SNC-Lavalin, through its local manning agency, IPAMS, and his
overseas employment contract was processed with the Philippine Overseas The petitioners continued that the pre-termination of Arriola's contract was valid for
Employment Agency (POEA)6 In a letter of understanding,7 dated June 5, 2008, SNC- being consistent with the provisions of both the Expatriate Policy and laws of Canada.
Lavalin confirmed Arriola's assignment in the Ambatovy Project. According to Arriola, he The said foreign law did not require any ground for early termination of employment,
signed the contract of employment in the Philippines. 8 On June 9, 2008, Arriola started and the only requirement was the written notice of termination. Even assuming that
working in Madagascar.
 Page 37 of 72

Philippine laws should apply, Arriola would still be validly dismissed because domestic NLRC decision states:
law recognized retrenchment and redundancy as legal grounds for termination. chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is hereby rendered finding complainant-
In their Rejoinder,13 the petitioners presented a copy of the Employment Standards Act appellant to have been illegally dismissed. Respondents-appellees are hereby ordered to
(ESA) of Ontario, which was duly authenticated by the Canadian authorities and certified pay complainant-appellant the amount of CA$81,920.00, or its Philippine Peso
by the Philippine Embassy. equivalent prevailing at the time of payment. Accordingly, the decision of the Labor
Arbiter dated May 31, 2010 is hereby VACATED and SET ASIDE.
The LA Ruling
SO ORDERED.18ChanRoblesVirtualawlibrary
14
In a Decision,  dated May 31, 2010, the LA dismissed Arriola's complaint for lack of The petitioners moved for reconsideration, but their motion was denied by the NLRC in
merit. The LA ruled that the rights and obligations among and between the OFW, the its resolution, dated February 2, 2011.
local recruiter/agent, and the foreign employer/principal were governed by the
employment contract pursuant to the EDI-Staffbuilders case. Thus, the provisions on Undaunted, the petitioners filed a petition for certiorari before the CA arguing that it
termination of employment found in the ESA, a foreign law which governed Arriola's should be the ESA, or the Ontario labor law, that should be applied in Arriola's
employment contract, were applied. Given that SNC-Lavalin was able to produce the employment contract. No temporary restraining order, however, was issued by the CA.
duly authenticated ESA, the LA opined that there was no other conclusion but to uphold
the validity of Arriola's dismissal based on Canadian law. The fallo of the LA decision The Execution Proceedings
reads:
chanRoblesvirtualLawlibrary In the meantime, execution proceedings were commenced before the LA by Arriola. The
LA granted the motion for execution in the Order, 19 dated August 8, 2011.
WHEREFORE, all the foregoing premises being considered, judgment is hereby rendered
dismissing the complaint for lack of merit. The petitioners appealed the execution order to the NLRC. In its Decision, 20 dated May
31, 2012, the NLRC corrected the decretal portion of its November 30, 2010 decision. It
SO ORDERED.15ChanRoblesVirtualawlibrary decreased the award of backpay in the amount of CA$26,880.00 or equivalent only to
three (3) months and three (3) weeks pay based on 70-hours per week workload. The
Aggrieved, Arriola elevated the LA decision before the NLRC. NLRC found that when Arriola was dismissed on September 9, 2009, he only had three
(3) months and three (3) weeks or until December 31, 2009 remaining under his
The NLRC Ruling employment contract.

In its decision, dated November 30, 2010, the NLRC reversed the LA decision and ruled Still not satisfied with the decreased award, IPAMS filed a separate petition
that Arriola was illegally dismissed by the petitioners. Citing PNB v. Cabansag,16 the for certiorari before the CA. In its decision, dated July 25, 2013, the CA affirmed the
NLRC stated that whether employed locally or overseas, all Filipino workers enjoyed the decrease in Arriola's backpay because the unpaid period in his contract was just three
protective mantle of Philippine labor and social legislation, contract stipulations to the (3) months and three (3) weeks.
contrary notwithstanding. Thus, the Labor Code of the Philippines and Republic Act
(R.A.) No. 8042, or the Migrant Workers Act, as amended, should be applied. Moreover, Unperturbed, IPAMS appealed before the Court and the case was docketed as G.R. No.
the NLRC added that the overseas employment contract of Arriola was processed in the 212031. The appeal, however, was dismissed outright by the Court in its resolution,
POEA. dated August 8, 2014, because it was belatedly filed and it did not comply with Sections
4 and 5 of Rule 7 of the Rules of Court. Hence, it was settled in the execution
Applying the Philippine laws, the NLRC found that there was no substantial evidence proceedings that the award of backpay to Arriola should only amount to three (3)
presented by the petitioners to show any just or authorized cause to terminate Arriola. months and three (3) weeks of his pay.
The ground of financial losses by SNC-Lavalin was not supported by sufficient and
credible evidence. The NLRC concluded that, for being illegally dismissed, Arriola should The CA Ruling
be awarded CA$81,920.00 representing sixteen (16) months of Arriola's purported
unpaid salary, pursuant to the Serrano v. Gallant17 doctrine. The decretal portion of the Returning to the principal case of illegal dismissal, in its assailed January 24, 2013
 Page 38 of 72

decision, the CA affirmed that Arriola was illegally dismissed by the petitioners. The CA
explained that even though an authenticated copy of the ESA was submitted, it did not GRANTING THAT THERE WAS ILLEGAL DISMISSAL, WHETHER OR NOT THE AMOUNT
mean that the said foreign law automatically applied in this case. Although parties were BEING CLAIMED BY RESPONDENTS HAD ALREADY BEEN SATISFIED, OR AT THE VERY
free to establish stipulations in their contracts, the same must remain consistent with LEAST, WHETHER OR NOT THE AMOUNT OF CA$2,636.80 SHOULD BE DEDUCTED FROM
law, morals, good custom, public order or public policy. The appellate court wrote that THE MONETARY AWARD.
the ESA allowed an employer to disregard the required notice of termination by simply The petitioners argue that the rights and obligations of the OFW, the local recruiter, and
giving the employee a severance pay. The ESA could not be made to apply in this case the foreign employer are governed by the employment contract, citing EDI-Staffbuilders;
for being contrary to our Constitution, specifically on the right of due process. Thus, the that the terms and conditions of Arriola's employment are embodied in the Expatriate
CA opined that our labor laws should find application. Policy, Ambatovy Project - Site, Long Term, hence, the laws of Canada must be applied;
that the ESA, or the Ontario labor law, does not require any ground for the early
As the petitioners neither complied with the twin notice-rule nor offered any just or termination of employment and it permits the termination without any notice provided
authorized cause for his termination under the Labor Code, the CA held that Arriola's that a severance pay is given; that the ESA was duly authenticated by the Canadian
dismissal was illegal. Accordingly, it pronounced that Arriola was entitled to his salary authorities and certified by the Philippine Embassy; that the NLRC Sixth Division
for the unexpired portion of his contract which is three (3) months and three (3) weeks exhibited bias and bad faith when it made a wrong computation on the award of
salary. It, however, decreased the award of backpay to Arriola because the NLRC made a backpay; and that, assuming there was illegal dismissal, the CA$2,636.80, earlier paid to
wrong calculation. Based on his employment contract, the backpay of Arriola should Arriola, and his home leaves should be deducted from the award of backpay.
only be computed on a 40-hour per week workload, or in the amount of CA$19,200.00.
The CA disposed the case in this wise: In his Comment,23 Arriola countered that foreign laws could not apply to employment
chanRoblesvirtualLawlibrary contracts if they were contrary to law, morals, good customs, public order or public
WHEREFORE, in view of the foregoing premises, the petition is PARTIALLY GRANTED. policy, invoking Pakistan International Airlines Corporation v. Ople (Pakistan
The assailed Order of the National Labor Relations Commission in NLRC LAC No. 08- International);24 that the ESA was not applicable because it was contrary to his
000572-10/NLRC Case No. NCR 09-13563-09 is MODIFIED in that private respondent is constitutional right to due process; that the petitioners failed to substantiate an
only entitled to a monetary judgment equivalent to his unpaid salaries in the amount of authorized cause to justify his dismissal under Philippine labor law; and that the
CA$19,200.00 or its Philippine Peso equivalent. petitioners could not anymore claim a deduction of CA$2,636.80 from the award of
backpay because it was raised for the first time on appeal.
SO ORDERED.21ChanRoblesVirtualawlibrary
In their Reply,25 the petitioners asserted that R.A. No. 8042 recognized the applicability
Hence, this petition, anchored on the following of foreign laws on labor contracts; that the Pakistan International case was superseded
by EDI-Staffbuilders and other subsequent cases; and that SNC-Lavalin suffering financial
ISSUES losses was an authorized cause to terminate Arriola's employment.

I In his Memorandum,26 Arriola asserted that his employment contract was executed in

the Philippines and that the alleged authorized cause of financial losses by the
WHETHER OR NOT RESPONDENT ARRIOLA WAS VALIDLY DISMISSED PURSUANT TO THE petitioners was not substantiated by evidence.
EMPLOYMENT CONTRACT.
In their Consolidated Memorandum,27 the petitioners reiterated that the ESA was
II applicable in the present case and that recent jurisprudence recognized that the parties
could agree on the applicability of foreign laws in their labor contracts.
GRANTING THAT THERE WAS ILLEGAL DISMISSAL IN THE CASE AT BAR, WHETHER OR
NOT THE SIX-WEEK ON, TWO-WEEK OFF SCHEDULE SHOULD BE USED IN THE The Court's Ruling
COMPUTATION OF ANY MONETARY AWARD.
The petition lacks merit.
III
 Page 39 of 72

"provided they are not contrary to law, morals, good customs, public order or public
Application of foreign laws with labor contracts policy." Thus, counterbalancing the principle of autonomy of contracting parties is the
equally general rule that provisions of applicable law, especially provisions relating to
At present, Filipino laborers, whether skilled or professional, are enticed to depart from matters affected with public policy, are deemed written into the contract. Put a little
the motherland in search of greener pastures. There is a distressing reality that the differently, the governing principle is that parties may not contract away applicable
offers of employment abroad are more lucrative than those found in our own soils. To provisions of law especially peremptory provisions dealing with matters heavily
reap the promises of the foreign dream, our unsung heroes must endure homesickness, impressed with public interest. The law relating to labor and employment is clearly
solitude, discrimination, mental and emotional struggle, at times, physical turmoil, and, such an area and parties are not at liberty to insulate themselves and their
worse, death. On the other side of the table is the growing number of foreign employers relationships from the impact of labor laws and regulations by simply contracting with
attracted in hiring Filipino workers because of their reasonable compensations and each other. x x x31[Emphases Supplied]
globally-competitive skills and qualifications. Between the dominant foreign employers
and the vulnerable and desperate OFWs, however, there is an inescapable truth that the IF THE FOREIGN EE CONTRACT IS AGAINST THE WELFARE OF PINOY, COURT WILL
latter are in need of greater safeguard and protection. APPLY THE PH LAWS. In that case, the Court held that the labor relationship between
OFW and the foreign employer is "much affected with public interest and that the
In order to afford the full protection of labor to our OFWs, the State has vigorously otherwise applicable Philippine laws and regulations cannot be rendered illusory by the
enacted laws, adopted regulations and policies, and established agencies to ensure that parties agreeing upon some other law to govern their relationship."32 Thus, the Court
their needs are satisfied and that they continue to work in a humane living environment applied the Philippine laws, instead of the Pakistan laws. It was also held that the
outside of the country. Despite these efforts, there are still issues left unsolved in the provision in the employment contract, where the employer could terminate the
realm of overseas employment. One existing question is posed before the Court -when employee at any time for any ground and it could even disregard the notice of
should an overseas labor contract be governed by a foreign law? To answer this burning termination, violates the employee's right to security of tenure under Articles 280 and
query, a review of the relevant laws and jurisprudence is warranted. 281 of the Labor Code.

R.A. NO. 8042, OR THE MIGRANT WORKERS ACT, WAS ENACTED TO INSTITUTE THE In EDI-Staffbuilders, the case heavily relied on by the petitioners, it was reiterated that,
POLICIES ON OVERSEAS EMPLOYMENT AND TO ESTABLISH A HIGHER STANDARD OF "[i]n formulating the contract, the parties may establish such stipulations, clauses, terms
PROTECTION AND PROMOTION OF THE WELFARE OF MIGRANT WORKERS.28 It and conditions as they may deem convenient, provided they are not contrary to law,
emphasized that while recognizing the significant contribution of Filipino migrant morals, good customs, public order, or public policy." 33 In that case, the overseas
workers to the national economy through their foreign exchange remittances, the State contract specifically stated that Saudi Labor Laws would govern matters not provided for
does not promote overseas employment as a means to sustain economic growth and in the contract. The employer, however, failed to prove the said foreign law, hence, the
achieve national development.29 Although it acknowledged claims arising out of law or doctrine of processual presumption came into play and the Philippine labor laws were
contract involving Filipino workers, 30 it does not categorically provide that foreign laws applied. Consequently, the Court did not discuss any longer whether the Saudi labor
are absolutely and automatically applicable in overseas employment contracts. laws were contrary to Philippine labor laws.

The issue of applying foreign laws to labor contracts was initially raised before the Court The case of Becmen Service Exporter and Promotion, Inc. v. Spouses Cuaresma,34 though
in Pakistan International. It was stated in the labor contract therein (1) that it would be not an illegal termination case, elucidated on the effect of foreign laws on employment.
governed by the laws of Pakistan, (2) that the employer have the right to terminate the It involved a complaint for insurance benefits and damages arising from the death of a
employee at any time, and (3) that the one-month advance notice in terminating the Filipina nurse from Saudi Arabia. It was initially found therein that there was no law in
employment could be dispensed with by paying the employee an equivalent one-month Saudi Arabia that provided for insurance arising from labor accidents. Nevertheless, the
salary. Therein, the Court elaborated on the parties' right to stipulate in labor contracts, Court concluded that the employer and the recruiter in that case abandoned their legal,
to wit: moral and social obligation to assist the victim's family in obtaining justice for her death,
and so her family was awarded P5,000,000.00 for moral and exemplary damages.
A contract freely entered into should, of course, be respected, as PIA argues, since a
contract is the law between the parties. The principle of party autonomy in contracts is In ATCI Overseas Corporation v. Echin35 (ATCI Overseas), the private recruitment agency
not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that the invoked the defense that the foreign employer was immune from suit and that it did not
contracting parties may establish such stipulations as they may deem convenient, sign any document agreeing to be held jointly and solidarily liable. Such defense,
 Page 40 of 72

however, was rejected because R.A. No. 8042 precisely afforded the OFWs with a 2. That the foreign law invoked must be proven before the courts pursuant to the
recourse against the local agency and the foreign employer to assure them of an Philippine rules on evidence;
immediate and sufficient payment of what was due. Similar to EDI-Staffbuilders, the
local agency therein failed to prove the Kuwaiti law specified in the labor contract, 3. That the foreign law stipulated in the overseas employment contract must not
pursuant to Sections 24 and 25 of Rule 132 of the Revised Rules of Court. be contrary to law, morals, good customs, public order, or public policy of the
Philippines; and
Also, in the recent case of Sameer Overseas Placement Agency, Inc. v. Cabiles 36 (Sameer
Overseas), it was declared that the security of tenure for labor was guaranteed by our 4. That the overseas employment contract must be processed through the POEA.
Constitution and employees were not stripped of the same when they moved to work in
other jurisdictions. Citing PCL Shipping Phils., Inc. v. NLRC 37 (PCL Shipping), the Court The Court is of the view that these four (4) requisites must be complied with before the
held that the principle of lex loci contractus (the law of the place where the contract is employer could invoke the applicability of a foreign law to an overseas employment
made) governed in this jurisdiction. As it was established therein that the overseas labor contract. With these requisites, the State would be able to abide by its constitutional
contract was executed in the Philippines, the Labor Code and the fundamental obligation to ensure that the rights and well-being of our OFWs are fully protected.
procedural rights were observed. It must be noted that no foreign law was specified in These conditions would also invigorate the policy under R.A. No. 8042 that the State
the employment contracts in both cases. shall, at all times, uphold the dignity of its citizens whether in country or overseas, in
general, and the Filipino migrant workers, in particular. 40 Further, these strict terms are
Lastly, in Saudi Arabian Airlines (Saudia) v. Rebesencio 38, the employer therein asserted pursuant to the jurisprudential doctrine that "parties may not contract away applicable
the doctrine of forum non conveniens because the overseas employment contracts provisions of law especially peremptory provisions dealing with matters heavily
required the application of the laws of Saudi Arabia, and so, the Philippine courts were impressed with public interest," 41 such as laws relating to labor. At the same time,
not in a position to hear the case. In striking down such argument, the Court held that foreign employers are not at all helpless to apply their own laws to overseas
while a Philippine tribunal was called upon to respect the parties' choice of governing employment contracts provided that they faithfully comply with these requisites.
law, such respect must not be so permissive as to lose sight of considerations of law,
morals, good customs, public order, or public policy that underlie the contract central to If the first requisite is absent, or that no foreign law was expressly stipulated in the
the controversy. As the dispute in that case related to the illegal termination of the employment contract which was executed in the Philippines, then the domestic labor
employees due to their pregnancy, then it involved a matter of public interest and public laws shall apply in accordance with the principle of lex loci contractus. This is based on
policy. Thus, it was ruled that Philippine laws properly found application and that the cases of Sameer Overseas and PCL Shipping.
Philippine tribunals could assume jurisdiction.
If the second requisite is lacking, or that the foreign law was not proven pursuant to
DOCTRINE: Based on the foregoing, THE GENERAL RULE IS THAT PHILIPPINE LAWS Sections 24 and 25 of Rule 132 of the Revised Rules of Court, then the international law
APPLY EVEN TO OVERSEAS EMPLOYMENT CONTRACTS. This rule is rooted in the doctrine of processual presumption operates. The said doctrine declares that "[w]here a
constitutional provision of Section 3, Article XIII that the State shall afford full protection foreign law is not pleaded or, even if pleaded, is not proved, the presumption is that
to labor, whether local or overseas. Hence, even if the OFW has his employment abroad, foreign law is the same as ours." 42 This was observed in the cases of EDI-
it does not strip him of his rights to security of tenure, humane conditions of work and a Staffbuilders and ATCI Overseas.
living wage under our Constitution. 39
If the third requisite is not met, or that the foreign law stipulated is contrary to law,
REQUISITES PARA MAGING VALID ANG STIPULATION NG FOREIGN CONTRACT TO morals, good customs, public order or public policy, then Philippine laws govern. This
CONSTITUTE EXCEPTION TO THE RULE: As an exception, the parties may agree that a finds legal bases in the Civil Code, specifically: (1) Article 17, which provides that laws
foreign law shall govern the employment contract. A synthesis of the existing laws and which have, for their object, public order, public policy and good customs shall not be
jurisprudence reveals that this exception is subject to the following requisites: rendered ineffective by laws of a foreign country; and (2) Article 1306, which states that
the stipulations, clauses, terms and conditions in a contract must not be contrary to law,
1. That it is expressly stipulated in the overseas employment contract that a morals, good customs, public order, or public policy. The said doctrine was applied in
specific foreign law shall govern; the case of Pakistan International.
 Page 41 of 72

contract, which provides that said policy would be governed and construed with the
Finally, if the fourth requisite is missing, or that the overseas employment contract was laws of the country where the applicable SNC-Lavalin, Inc. office was located. 46 Because
not processed through the POEA, then Article 18 of the Labor Code is violated. Article 18 of this provision, the petitioners insisted that the laws of Canada, not of Madagascar or
provides that no employer may hire a Filipino worker for overseas employment except the Philippines, should apply. Then, they finally referred to the ESA.
through the boards and entities authorized by the Secretary of Labor. In relation
thereto, Section 4 of R.A. No. 8042, as amended, declares that the State shall only allow It is apparent that the petitioners were simply attempting to stretch the overseas
the deployment of overseas Filipino workers in countries where the rights of Filipino employment contract of Arriola, by implication, in order that the alleged foreign law
migrant workers are protected. Thus, the POEA, through the assistance of the would apply. To sustain such argument would allow any foreign employer to improperly
Department of Foreign Affairs, reviews and checks whether the countries have existing invoke a foreign law even if it is not anymore reasonably contemplated by the parties to
labor and social laws protecting the rights of workers, including migrant control the overseas employment. The OFW, who is susceptible by his desire and
workers.43 Unless processed through the POEA, the State has no effective means of desperation to work abroad, would blindly sign the labor contract even though it is not
assessing the suitability of the foreign laws to our migrant workers. Thus, an overseas clearly established on its face which state law shall apply. Thus, a better rule would be to
employment contract that was not scrutinized by the POEA definitely cannot be invoked obligate the foreign employer to expressly declare at the onset of the labor contract
as it is an unexamined foreign law. that a foreign law shall govern it. In that manner, the OFW would be informed of the
applicable law before signing the contract.
In other words, lacking any one of the four requisites would invalidate the application of
the foreign law, and the Philippine law shall govern the overseas employment contract. Further, it was shown that the overseas labor contract was executed by Arriola at his
residence in Batangas and it was processed at the POEA on May 26, 2008. 47 Considering
As the requisites of the applicability of foreign laws in overseas labor contract have been that no foreign law was specified in the contract and the same was executed in the
settled, the Court can now discuss the merits of the case at bench. Philippines, the doctrine of lex loci celebrationis applies and the Philippine laws shall
govern the overseas employment of Arriola.
A judicious scrutiny of the records of the case demonstrates that the petitioners were
able to observe the second requisite, or that the foreign law must be proven before the The foreign law invoked is contrary to the Constitution and the Labor Code
court pursuant to the Philippine rules on evidence. The petitioners were able to present
the ESA, duly authenticated by the Canadian authorities and certified by the Philippine Granting arguendo that the labor contract expressly stipulated the applicability of
Embassy, before the LA. The fourth requisite was also followed because Arriola's Canadian law, still, Arriola's employment cannot be governed by such foreign law
employment contract was processed through the POEA.44 because the third requisite is not satisfied. A perusal of the ESA will show that some of
its provisions are contrary to the Constitution and the labor laws of the Philippines.
Unfortunately for the petitioners, those were the only requisites that they complied
with. As correctly held by the CA, even though an authenticated copy of the ESA was First, the ESA does not require any ground for the early termination of
submitted, it did not mean that said foreign law could be automatically applied to this employment.48 Article 54 thereof only provides that no employer should terminate the
case. The petitioners miserably failed to adhere to the two other requisites, which shall employment of an employee unless a written notice had been given in
be discussed in seratim. advance.49 Necessarily, the employer can dismiss any employee for any ground it so
desired. At its own pleasure, the foreign employer is endowed with the absolute power
The foreign law was not expressly specified in the employment contract to end the employment of an employee even on the most whimsical grounds.

The petitioners failed to comply with the first requisite because no foreign law was Second, the ESA allows the employer to dispense with the prior notice of termination to
expressly stipulated in the overseas employment contract with Arriola. In its pleadings, an employee. Article 65(4) thereof indicated that the employer could terminate the
the petitioners did not directly cite any specific provision or stipulation in the said labor employment without notice by simply paying the employee a severance pay computed
contract which indicated the applicability of the Canadian labor laws or the ESA. They on the basis of the period within which the notice should have been given. 50 The
failed to show on the face of the contract that a foreign law was agreed upon by the employee under the ESA could be immediately dismissed without giving him the
parties. Rather, they simply asserted that the terms and conditions of Arriola's opportunity to explain and defend himself.
employment were embodied in the Expatriate Policy, Ambatovy Project - Site, Long
Term.45 Then, they emphasized provision 8.20 therein, regarding interpretation of the The provisions of the ESA are patently inconsistent with the right to security of tenure.
 Page 42 of 72

Both the Constitution51 and the Labor Code52 provide that this right is available to any The Court finds that Arriola was not validly dismissed. The petitioners simply argued that
employee. In a host of cases, the Court has upheld the employee's right to security of they were suffering from financial losses and Arriola had to be dismissed. It was not
tenure in the face of oppressive management behavior and management prerogative. even clear what specific authorized cause, whether retrenchment or redundancy, was
Security of tenure is a right which cannot be denied on mere speculation of any unclear used to justify Arriola's dismissal. Worse, the petitioners did not even present a single
and nebulous basis.53 credible evidence to support their claim of financial loss. They simply offered an
unreliable news article which deserves scant consideration as it is undoubtedly hearsay.
Not only do these provisions collide with the right to security of tenure, but they also Time and again the Court has ruled that in illegal dismissal cases like the present one,
deprive the employee of his constitutional right to due process by denying him of any the onus of proving that the employee was dismissed and that the dismissal was not
notice of termination and the opportunity to be heard. 54 Glaringly, these illegal rests on the employer, and failure to discharge the same would mean that the
disadvantageous provisions under the ESA produce the same evils which the Court dismissal is not justified and, therefore, illegal.
vigorously sought to prevent in the cases of Pakistan International and Sameer
Overseas. Thus, the Court concurs with the CA that the ESA is not applicable in this case As to the amount of backpay awarded, the Court finds that the computation of the CA
as it is against our fundamental and statutory laws. was valid and proper based on the employment contract of Arriola. Also, the issue of
In fine, as the petitioners failed to meet all the four (4) requisites on the applicability of whether the petitioners had made partial payments on the backpay is a matter best
a foreign law, then the Philippine labor laws must govern the overseas employment addressed during the execution process.chanrobleslaw
contract of Arriola.
WHEREFORE, the petition is DENIED. The January 24, 2013 Decision of the Court of
No authorized cause for dismissal was proven Appeals in CA-G.R. SP No. 118869 is AFFIRMED in toto.

SO ORDERED.
Article 279 of our Labor Code has construed security of tenure to mean that the
employer shall not terminate the services of an employee except for a just cause or
when authorized by law.55 Concomitant to the employer's right to freely select and
engage an employee is the employer's right to discharge the employee for just and/or
authorized causes. To validly effect terminations of employment, the discharge must be
for a valid cause in the manner required by law. The purpose of these two-pronged
qualifications is to protect the working class from the employer's arbitrary and
unreasonable exercise of its right to dismiss. 56

Some of the authorized causes to terminate employment under the Labor Code would
be installation of labor-saving devices, redundancy, retrenchment to prevent losses and
the closing or cessation of operation of the establishment or undertaking. 57 Each
authorized cause has specific requisites that must be proven by the employer with
substantial evidence before a dismissal may be considered valid.

Here, the petitioners assert that the economy of Madagascar weakened due to the
global financial crisis. Consequently, SNC-Lavalin's business also slowed down. To prove
its sagging financial standing, SNC-Lavalin presented a copy of a news item in the
Financial Post, dated March 5, 2009. They insist that SNC-Lavalin had no choice but to
minimize its expenditures and operational expenses. 58 In addition, the petitioners
argued that the government of Madagascar prioritized the employment of its citizens,
and not foreigners. Thus, Arriola was terminated because there was no more job
available for him.59
 Page 43 of 72

are delivered, actually or constructively, to the consignee or to the person who has a
[G.R. No. L-15671. November 29, 1960.] right to receive them (Article 1736, Idem.) It can only be exempt therefrom for causes
enumerated in Article 1734.
AMERICAN PRESIDENT LINES, LTD., Petitioner, v. RICHARD A. KLEPPER, ET
AL., Respondents. But, while petitioner does not dispute its liability as common carrier, it however
contends that the same cannot exceed $500.00 invoking in its favor the bill of lading
DECISION Exhibit A and Section 4(5) of the Carriage of Goods by Sea Act (Commonwealth Act No.
BAUTISTA ANGELO, J.: 65).

Richard A. Klepper brought this action before the Court of First Instance of Manila to The pertinent provision of the bill of lading alluded to is clause 17 which in part
recover the sum of P6,729.50 as damages allegedly sustained by his goods contained in provides:
a lift van which fell to the ground while being unloaded from a ship owned and operated
by the American President Lines, Ltd. to the pier, plus the sum of P2,000.00 as "17. In case of any loss or damage to or in connection with goods exceeding in actual
sentimental value of the damaged goods and attorney’s fees. value $500 lawful money of the United States, per package, . . . the value of the goods
shall be deemed to be $500 per package . . . on which basis the freight is adjusted and
It appears that on February 17, 1955, Klepper shipped on board the S.S. President the Carrier’s liability, if any, shall be determined on the basis of a value of $500 per
Cleveland at Yokohama, Japan one life van under bill of lading No, 82, containing package . . . or pro rata in case of partial loss or damage, unless the nature of the goods
personal and household effects. The ship arrived in the port of Manila on February 22, and a valuation higher than $500 shall have been declared in writing by the shipper
1995 and while the lift van was being unloaded by the Gantry crane operated by upon delivery to the Carrier and inserted in this bill of lading and extra freight paid if
Delgado Brothers, Inc., it fell on the pier and its contents were spilled and scattered. A required and in such case if the actual value of the goods per package . . . shall exceed
survey was made and the result was that Klepper suffered damages totalling P6,729.50 such declared value, the value shall nevertheless be deemed to be the declared value
arising out of the breakage, denting and smashing of the goods. and the Carrier’s liability, if any, shall not exceed the declared value and any partial loss
or damage shall be adjusted pro rata on the basis of such declared value."cralaw
The trial court, on November 5, 1957, rendered decision ordering the shipping company virtua1aw library
to pay plaintiff the sum of P6,729.50, value of the goods damaged, plus P500.00 as their
sentimental value, with legal interest from the filing of the complaint, and the sum of While it is apparent from the above that the carrier has expressly agreed that in case of
P1,000.00 as attorney’s fees. The court ordered that, once the judgment is satisfied, co- any loss or damage to the goods in question exceeding the sum of $500.00 per package
defendant Delgado Brothers, Inc. should pay the shipping company the same amounts the extent of its liability shall be deemed to be merely $500.00 per package, and not
by way of reimbursement. Both defendants appealed to the Court of Appeals which more, the Court of Appeals ruled out the above stipulation, holding that the same is not
affirmed in toto the decision of the trial court. The shipping company interposed the binding upon the shipper. Its reasoning follows: "Neither plaintiff nor any agent of his
present petition for review. signed the bill of lading; neither has agreed to the two clauses just recited. In fact,
plaintiff received the bill of lading only after he had arrived at Manila. In this posture and
Anent the liability of petitioner relative to the damage caused to the goods in question, lifting from the decision of the Supreme Court in Mirasol v. Robert Dollar Co., 53 Phil.,
the Court of Appeals made the following comment: "At the outset, it may be well to 124, 128, we hold that plaintiff ‘was not legally bound by the clause which purports to
state that the party primarily liable to plaintiff is appellant American President Lines, limit defendants’ liability’." Petitioner now assigns this finding as an error.
Ltd., the carrier whose duty it was to deliver the cargo in good order to the consignee.
Articles 1734, 1736, Civil code; Articles 355, 363, Code of Commerce. This appellant does We are inclined to agree to this contention. Firstly, we cannot but take note of the
not question the finding below that the damage to plaintiff’s goods was due to following clause printed in red ink that appears on the very face of the bill of lading: "IN
negligence." ACCEPTING THIS BILL OF LADING the shipper, consignee and owner of the goods agree
to be bound by all its stipulations, exceptions, and conditions whether written, printed,
To this we agree. And we may add that, regardless of its negligence, the shipping or stamped on the front or back hereof, any local customs or privileges to the contrary
company’s liability would attach because being a common carrier its responsibility is notwithstanding." This clause is very revealing. It says that a shipper or consignee who
extraordinary and lasts from the time the goods are placed in its possession until they accepts the bill of lading becomes bound by all stipulations contained therein whether
on the front or back thereof. Respondent cannot elude its provisions simply because
 Page 44 of 72

they prejudice him and take advantage of those that are beneficial. Secondly, the fact and inserted in the bill of lading, said section is merely suppletory to the provisions of
that respondent shipped his goods on board the ship of petitioner and paid the the Civil Code. In this respect, we agree to the opinion of the Court of Appeals.
corresponding freight thereon shows that he impliedly accepted the bill of lading which
was issued in connection with the shipment in question, and so it may be said that the On the strength of the opinion we have above expressed, we are constrained to rule
same is binding upon him as if it has been actually signed by him or by any other person that the liability of the carrier with regard to the damage of the goods should only be
in his behalf. This is more so where respondent is both the shipper and the consignee of limited to $500.00 contrary to the conclusion reached by the Court of Appeals.
the goods in question. These circumstances take this case out of our ruling in the
Mirasol case (invoked by the Court of Appeals) and places it within our doctrine in the Wherefore, with the modification that petitioner shipping company should only pay to
case of Mendoza v. Philippines Air Lines, Inc., (90 Phil., 836), where we said: respondent the sum of $500.00 as value of the goods damaged, the decision appealed
from should be affirmed in all other respects, without pronouncement as to costs.
". . . Later, as already said, he says that he was never a party to the contract of
transportation and was a complete stranger to it, and that he is now suing on a tort or a
violation of his rights as a stranger (culpa aquiliana). If he does not invoke the contract
of carriage entered into with the defendant company, then he would hardly have any
leg to stand on. His right to prompt delivery of the can of film at the Pili Air Port stems
and is derived from the contract of carriage under which contract, the PAL undertook to
carry the can of film safely and to deliver it to him promptly. Take away or ignore that
contract and the obligation to carry and to deliver the right to prompt delivery
disappear. Common carriers are not obligated by law to carry and to deliver
merchandise, and persons are not vested with the right to prompt delivery, unless such
common carriers previously assume the obligation. Said rights and obligations are
created by a specific contract entered into by the parties.

x              x              x

"Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier
contains the stipulations of delivery to Mendoza as consignee. His demand for the
delivery of the can of film to him at the Pili Air Port may be regarded as a notice of his
acceptance of the stipulation of the delivery in his favor contained in the contract of
carriage, such demand being one for the fulfillment of the contract of carriage and
delivery. In this case he also made himself a party to the contract, or at least has come
to court to enforce it. His cause of action must necessarily be founded on its breach."

With regard to the contention that the Carriage of Goods by Sea Act should also control
this case, the same is of no moment. Article 1753 1 provides that the law of the country
to which the goods are to be transported shall govern the liability of the common carrier
in case of loss, destruction or deterioration. This means the law of the Philippines, or our
new Civil Code. Under Article 1766, "In all matters not regulated by this Code, the rights
and obligations of common carriers shall be governed by the Code of Commerce and by
special laws," and here we have provisions that govern said rights and obligations
(Articles 1736, 1737, and 1738). Therefore, although Section 4(5) of the Carriage of
Goods by Sea Act states that the carrier shall not be liable in an amount exceeding
$500.00 per package unless the value of the goods had been declared by the shipper
 Page 45 of 72

3. the court where it has a place of business through which the

G.R. No. 101538 June 23, 1992 contract had been made;
AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian,
Augusto Benedicto Santos, petitioner, 4. the court of the place of destination.
vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.
The private respondent contended that the Philippines was not its domicile nor was this
its principal place of business. Neither was the petitioner's ticket issued in this country
CRUZ, J.: nor was his destination Manila but San Francisco in the United States.

This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention, On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The
reading as follows: petitioner appealed to the Court of Appeals, which affirmed the decision of the lower
court. 3 On June 26, 1991, the petitioner filed a motion for reconsideration, but the
Art. 28. (1) An action for damage must be brought at the option of same was denied. 4 The petitioner then came to this Court, raising substantially the
the plaintiff, in the territory of one of the High Contracting Parties, same issues it submitted in the Court of Appeals.
either before the court of the domicile of the carrier or of his
principal place of business, or where he has a place of business The assignment of errors may be grouped into two major issues, viz:
through which the contract has been made, or before the court at the
place of destination.
(1) the constitutionality of Article 28(1) of the Warsaw Convention; and

The petitioner is a minor and a resident of the Philippines. Private respondent

(2) the jurisdiction of Philippine courts over the case.
Northwest Orient Airlines (NOA) is a foreign corporation with principal office in
Minnesota, U.S.A. and licensed to do business and maintain a branch office in the
Philippines. The petitioner also invokes Article 24 of the Civil Code on the protection of minors.

On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San I
Francisco. U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The
scheduled departure date from Tokyo was December 20, 1986. No date was specified THE ISSUE OF CONSTITUTIONALITY
for his return to San Francisco. 1
A. The petitioner claims that the lower court erred in not ruling that
On December 19, 1986, the petitioner checked in at the NOA counter in the San Article 28(1) of the Warsaw Convention violates the constitutional
Francisco airport for his scheduled departure to Manila. Despite a previous confirmation guarantees of due process and equal protection.
and re-confirmation, he was informed that he had no reservation for his flight from
Tokyo to Manila. He therefore had to be wait-listed. The Republic of the Philippines is a party to the Convention for the Unification of Certain
Rules Relating to International Transportation by Air, otherwise known as the Warsaw
On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of Convention. It took effect on February 13, 1933. The Convention was concurred in by
Makati. On April 13, 1987, NOA moved to dismiss the complaint on the ground of lack of the Senate, through its Resolution No. 19, on May 16, 1950. The Philippine instrument
jurisdiction. Citing the above-quoted article, it contended that the complaint could be of accession was signed by President Elpidio Quirino on October 13, 1950, and was
instituted only in the territory of one of the High Contracting Parties, before: deposited with the Polish government on November 9, 1950. The Convention became
applicable to the Philippines on February 9, 1951. On September 23, 1955, President
1. the court of the domicile of the carrier; Ramon Magsaysay issued Proclamation No. 201, declaring our formal adherence
thereto. "to the end that the same and every article and clause thereof may be
2. the court of its principal place of business;
 Page 46 of 72

observed and fulfilled in good faith by the Republic of the Philippines and the citizens airline industry through the years, the treaty has become irrelevant. Hence, to the
thereof." 5 extent that it has lost its basis for approval, it has become unconstitutional.

The Convention is thus a treaty commitment voluntarily assumed by the Philippine The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this
government and, as such, has the force and effect of law in this country. doctrine constitutes an attempt to formulate a legal principle which would justify non-
performance of a treaty obligation if the conditions with relation to which the parties
The petitioner contends that Article 28(1) cannot be applied in the present case because contracted have changed so materially and so unexpectedly as to create a situation in
it is unconstitutional. He argues that there is no substantial distinction between a which the exaction of performance would be unreasonable." 7 The key element of this
person who purchases a ticket in Manila and a person who purchases his ticket in San doctrine is the vital change in the condition of the contracting parties that they could
Francisco. The classification of the places in which actions for damages may be brought not have foreseen at the time the treaty was concluded.
is arbitrary and irrational and thus violates the due process and equal protection
clauses. The Court notes in this connection the following observation made in Day v. Trans
World Airlines, Inc.: 8
It is well-settled that courts will assume jurisdiction over a constitutional question only if
it is shown that the essential requisites of a judicial inquiry into such a question are first The Warsaw drafters wished to create a system of liability rules that
satisfied. Thus, there must be an actual case or controversy involving a conflict of legal would cover all the hazards of air travel . . . The Warsaw delegates
rights susceptible of judicial determination; the constitutional question must have been knew that, in the years to come, civil aviation would change in ways
opportunely raised by the proper party; and the resolution of the question is that they could not foresee. They wished to design a system of air law
unavoidably necessary to the decision of the case itself. 6 that would be both durable and flexible enough to keep pace with
these changes . . . The ever-changing needs of the system of civil
Courts generally avoid having to decide a constitutional question. This attitude is based aviation can be served within the framework they created.
on the doctrine of separation of powers, which enjoins upon the departments of the
government a becoming respect for each other's acts. It is true that at the time the Warsaw Convention was drafted, the airline industry was
still in its infancy. However, that circumstance alone is not sufficient justification for the
The treaty which is the subject matter of this petition was a joint legislative-executive rejection of the treaty at this time. The changes recited by the petitioner were,
act. The presumption is that it was first carefully studied and determined to be realistically, not entirely unforeseen although they were expected in a general sense
constitutional before it was adopted and given the force of law in this country. only. In fact, the Convention itself, anticipating such developments, contains the
following significant provision:
The petitioner's allegations are not convincing enough to overcome this presumption.
Apparently, the Convention considered the four places designated in Article 28 the most Article 41. Any High Contracting Party shall be entitled not earlier
convenient forums for the litigation of any claim that may arise between the airline and than two years after the coming into force of this convention to call
its passenger, as distinguished from all other places. At any rate, we agree with the for the assembling of a new international conference in order to
respondent court that this case can be decided on other grounds without the necessity consider any improvements which may be made in this convention.
of resolving the constitutional issue. To this end, it will communicate with the Government of the French
Republic which will take the necessary measures to make
preparations for such conference.
B. The petitioner claims that the lower court erred in not ruling that
Art. 28(1) of the Warsaw Convention is inapplicable because of a
fundamental change in the circumstances that served as its basis. But the more important consideration is that the treaty has not been rejected by the
Philippine government. The doctrine of rebus sic stantibus does not operate
automatically to render the treaty inoperative. There is a necessity for a formal act of
The petitioner goes at great lengths to show that the provisions in the Convention were
rejection, usually made by the head of State, with a statement of the reasons why
intended to protect airline companies under "the conditions prevailing then and which
compliance with the treaty is no longer required.
have long ceased to exist." He argues that in view of the significant developments in the
 Page 47 of 72

In lieu thereof, the treaty may be denounced even without an expressed justification for was waived by defendant when it did not move to dismiss on the
this action. Such denunciation is authorized under its Article 39, viz: ground of improper venue.

Article 39. (1) Any one of the High Contracting Parties may denounce By its own terms, the Convention applies to all international transportation of persons
this convention by a notification addressed to the Government of the performed by aircraft for hire.
Republic of Poland, which shall at once inform the Government of
each of the High Contracting Parties. International transportation is defined in paragraph (2) of Article 1 as follows:

(2) Denunciation shall take effect six months after the notification of (2) For the purposes of this convention, the expression "international
denunciation, and shall operate only as regards the party which shall transportation" shall mean any transportation in which, according to
have proceeded to denunciation. the contract made by the parties, the place of departure and the
place of destination, whether or not there be a break in the
Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or transportation or a transshipment, are situated [either] within the
pursuant to Article 39, is not a function of the courts but of the other branches of territories of two High Contracting Parties . . .
government. This is a political act. The conclusion and renunciation of treaties is the
prerogative of the political departments and may not be usurped by the judiciary. The Whether the transportation is "international" is determined by the contract of the
courts are concerned only with the interpretation and application of laws and treaties in parties, which in the case of passengers is the ticket. When the contract of carriage
force and not with their wisdom or efficacy. provides for the transportation of the passenger between certain designated terminals
"within the territories of two High Contracting Parties," the provisions of the Convention
C. The petitioner claims that the lower court erred in ruling that the automatically apply and exclusively govern the rights and liabilities of the airline and its
plaintiff must sue in the United States, because this would deny him passenger.
the right to access to our courts.
Since the flight involved in the case at bar is international, the same being from the
The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the United States to the Philippines and back to the United States, it is subject to the
United States would constitute a constructive denial of his right to access to our courts provisions of the Warsaw Convention, including Article 28(1), which enumerates the
for the protection of his rights. He would consequently be deprived of this vital guaranty four places where an action for damages may be brought.
as embodied in the Bill of Rights.
Whether Article 28(1) refers to jurisdiction or only to venue is a question over which
Obviously, the constitutional guaranty of access to courts refers only to courts with authorities are sharply divided. While the petitioner cites several cases holding that
appropriate jurisdiction as defined by law. It does not mean that a person can go Article 28(1) refers to venue rather than jurisdiction, 9 there are later cases cited by the
to any  court for redress of his grievances regardless of the nature or value of his claim. private respondent supporting the conclusion that the provision is jurisdictional. 10
If the petitioner is barred from filing his complaint before our courts, it is because they
are not vested with the appropriate jurisdiction under the Warsaw Convention, which is Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by
part of the law of our land. consent or waiver upon d court which otherwise would have no jurisdiction over the
subject-matter of an action; but the venue of an action as fixed by statute may be
II changed by the consent of the parties and an objection that the plaintiff brought his suit
in the wrong county may be waived by the failure of the defendant to make a timely
THE ISSUE OF JURISDICTION. objection. In either case, the court may render a valid judgment. Rules as to jurisdiction
can never be left to the consent or agreement of the parties, whether or not a
prohibition exists against their alteration. 11
A. The petitioner claims that the lower court erred in not ruling that
Article 28(1) of the Warsaw Convention is a rule merely of venue and
 Page 48 of 72

A number of reasons tends to support the characterization of Article 28(1) as a to jurisdiction, shall be null and void. Nevertheless for the
jurisdiction and not a venue provision. First, the wording of Article 32, which indicates transportation of goods, arbitration clauses shall be allowed, subject
the places where the action for damages "must" be brought, underscores the to this convention, if the arbitration is to take place within one of the
mandatory nature of Article 28(1). Second, this characterization is consistent with one of jurisdictions referred to in the first paragraph of Article 28.
the objectives of the Convention, which is to "regulate in a uniform manner the
conditions of international transportation by air." Third, the Convention does not His point is that since the requirements of Article 28(1) can be waived "after the
contain any provision prescribing rules of jurisdiction other than Article 28(1), which damages (shall have) occurred," the article should be regarded as possessing the
means that the phrase "rules as to jurisdiction" used in Article 32 must refer only to character of a "venue" and not of a "jurisdiction" provision. Hence, in moving to dismiss
Article 28(1). In fact, the last sentence of Article 32 specifically deals with the exclusive on the ground of lack of jurisdiction, the private respondent has waived improper venue
enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the will as a ground to dismiss.
of the parties regardless of the time when the damage occurred.
The foregoing examination of Article 28(1) in relation to Article 32 does not support this
This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways, conclusion. In any event, we agree that even granting arguendo  that Article 28(1) is a
Ltd., 12 where it was held: venue and not a jurisdictional provision, dismissal of the case was still in order. The
respondent court was correct in affirming the ruling of the trial court on this matter,
. . . Of more, but still incomplete, assistance is the wording of Article thus:
28(2), especially when considered in the light of Article 32. Article
28(2) provides that "questions of  procedure shall be governed by the Santos' claim that NOA waived venue as a ground of its motion to
law of the court to which the case is submitted" (Emphasis supplied). dismiss is not correct. True it is that NOA averred in its MOTION TO
Section (2) thus may be read to leave for domestic decision questions DISMISS that the ground thereof is "the Court has no subject matter
regarding the suitability and location of a particular Warsaw jurisdiction to entertain the Complaint" which SANTOS considers as
Convention case. equivalent to "lack of jurisdiction over the subject matter . . ."
However, the gist of NOA's argument in its motion is that the
In other words, where the matter is governed by the Warsaw Convention, jurisdiction Philippines is not the proper place where SANTOS could file the
takes on a dual concept. Jurisdiction in the international sense must be established in action — meaning that the venue of the action is improperly laid.
accordance with Article 28(1) of the Warsaw Convention, following which the Even assuming then that the specified ground of the motion is
jurisdiction of a particular court must be established pursuant to the applicable erroneous, the fact is the proper ground of the motion — improper
domestic law. Only after the question of which court has jurisdiction is determined will venue — has been discussed therein.
the issue of venue be taken up. This second question shall be governed by the law of the
court to which the case is submitted. Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-
waiver if there are special circumstances justifying this conclusion, as in the petition at
The petitioner submits that since Article 32 states that the parties are precluded "before bar. As we observed in Javier vs. Intermediate Court of Appeals: 13
the damages occurred" from amending the rules of Article 28(1) as to the place where
the action may be brought, it would follow that the Warsaw Convention was not Legally, of course, the lack of proper venue was deemed waived by
intended to preclude them from doing so "after the damages occurred." the petitioners when they failed to invoke it in their original motion
to dismiss. Even so, the motivation of the private respondent should
Article 32 provides: have been taken into account by both the trial judge and the
respondent court in arriving at their decisions.
Art. 32. Any clause contained in the contract and all special
agreements entered into before the damage occurred by which the The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of
parties purport to infringe the rules laid down by this convention, Appeals, where it was held that Article 28(1) is a venue provision. However, the private
whether by deciding the law to be applied, or by altering the rules as respondent avers that this was in effect reversed by the case of Aranas v. United
 Page 49 of 72

Airlines,  15 where the same court held that Article 28(1) is a jurisdictional provision. The Petitioner avers that the present case falls squarely under the above ruling because
Neither of these cases is binding on this Court, of course, nor was either of them the date and time of his return flight to San Francisco were, as in the Aanestad case, also
appealed to us. Nevertheless, we here express our own preference for the later case of left open. Consequently, Manila and not San Francisco should be considered the
Aranas insofar as its pronouncements on jurisdiction conform to the judgment we now petitioner's destination.
make in this petition.
The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where
B. The petitioner claims that the lower court erred in not ruling that the United States District Court (Eastern District of Pennsylvania) said:
under Article 28(1) of the Warsaw Convention, this case was properly
filed in the Philippines, because Manila was the destination of the . . . Although the authorities which addressed this precise issue are
plaintiff. not extensive, both the cases and the commentators are almost
unanimous in concluding that the "place of destination" referred to in
The Petitioner contends that the facts of this case are analogous to those in Aanestad v. the Warsaw Convention "in a trip consisting of several parts . . . is
Air Canada. 16 In that case, Mrs. Silverberg purchased a round-trip ticket from Montreal the  ultimate destination that is accorded treaty jurisdiction." . . .
to Los Angeles and back to Montreal. The date and time of departure were specified but
not of the return flight. The plane crashed while on route from Montreal to Los Angeles, But apart from that distinguishing feature, I cannot agree with the
killing Mrs. Silverberg. Her administratrix filed an action for damages against Air Canada Court's analysis in Aanestad; whether the return portion of the ticket
in the U.S. District Court of California. The defendant moved to dismiss for lack of is characterized as an option or a contract, the carrier was legally
jurisdiction but the motion was denied thus: bound to transport the passenger back to the place of origin within
the prescribed time and. the passenger for her part agreed to pay the
. . . It is evident that the contract entered into between Air Canada fare and, in fact, did pay the fare. Thus there was mutuality of
and Mrs. Silverberg as evidenced by the ticket booklets and the Flight obligation and a binding contract of carriage, The fact that the
Coupon No. 1, was a contract for Air Canada to carry Mrs. Silverberg passenger could forego her rights under the contract does not make
to Los Angeles on a certain flight, a certain time and a certain class, it any less a binding contract. Certainly, if the parties did not
but that the time for her to return remained completely in her power. contemplate the return leg of the journey, the passenger would not
Coupon No. 2 was only a continuing offer by Air Canada to give her a have paid for it and the carrier would not have issued a round trip
ticket to return to Montreal between certain dates. . . . ticket.

The only conclusion that can be reached then, is that "the place of We agree with the latter case. The place of destination, within the meaning of the
destination" as used in the Warsaw Convention is considered by both Warsaw Convention, is determined by the terms of the contract of carriage or,
the Canadian C.T.C. and the United States C.A.B. to describe at least specifically in this case, the ticket between the passenger and the carrier. Examination
two "places of destination,"  viz., the "place of destination" of of the petitioner's ticket shows that his ultimate destination is San Francisco. Although
a particular flight either an "outward destination" from the "point of the date of the return flight was left open, the contract of carriage between the parties
origin" or from the "outward point of destination" to any place in indicates that NOA was bound to transport the petitioner to San Francisco from Manila.
Canada. Manila should therefore be considered merely an agreed stopping place and not the
destination.
Thus the place of destination under Art. 28 and Art. 1 of the Warsaw
Convention of the flight on which Mrs. Silverberg was killed, was Los The petitioner submits that the Butz case could not have overruled the Aanestad case
Angeles according to the ticket, which was the contract between the because these decisions are from different jurisdictions. But that is neither here nor
parties and the suit is properly filed in this Court which has there. In fact, neither of these cases is controlling on this Court. If we have preferred the
jurisdiction. Butz case, it is because, exercising our own freedom of choice, we have decided that it
represents the better, and correct, interpretation of Article 28(1).
 Page 50 of 72

Article 1(2) also draws a distinction between a "destination" and an "agreed stopping plaintiffs' theory would at a minimum blur these carefully drawn
place." It is the "destination" and not an "agreed stopping place" that controls for distinctions by creating a third intermediate category. It would
purposes of ascertaining jurisdiction under the Convention. obviously introduce uncertainty into litigation under the article
because of the necessity of having to determine, and without
The contract is a single undivided operation, beginning with the place of departure and standards or criteria, whether the amount of business done by a
ending with the ultimate destination. The use of the singular in this expression indicates carrier in a particular country was "regular" and "substantial." The
the understanding of the parties to the Convention that every contract of carriage has plaintiff's request to adopt this basis of jurisdiction is in effect a
one place of departure and one place of destination. An intermediate place where the request to create a new jurisdictional standard for the Convention.
carriage may be broken is not regarded as a "place of destination."
Furthermore, it was argued in another case 20 that:
C. The petitioner claims that the lower court erred in not ruling that
under Art. 28(1) of the Warsaw Convention, this case was properly . . . In arriving at an interpretation of a treaty whose sole official
filed in the Philippines because the defendant has its domicile in the language is French, are we bound to apply French law? . . . We think
Philippines. this question and the underlying choice of law issue warrant some
discussion
The petitioner argues that the Warsaw Convention was originally written in French and . . . We do not think this statement can be regarded as a conclusion
that in interpreting its provisions, American courts have taken the broad view that the that internal French law is to be "applied" in the choice of law sense,
French legal meaning must govern. 18 In French, he says, the "domicile" of the carrier to determine the meaning and scope of the Convention's terms. Of
means every place where it has a branch office. course, French legal usage must be considered in arriving at an
accurate English translation of the French. But when an accurate
English translation is made and agreed upon, as here, the inquiry into
The private respondent notes, however, that in Compagnie Nationale Air France vs.
meaning does not then revert to a quest for a past or present French
Giliberto, 19 it was held:
law to be "applied" for revelation of the proper scope of the terms. It
does not follow from the fact that the treaty is written in French that
The plaintiffs' first contention is that Air France is domiciled in the in interpreting it, we are forever chained to French law, either as it
United States. They say that the domicile of a corporation includes existed when the treaty was written or in its present state of
any country where the airline carries on its business on "a regular and development. There is no suggestion in the treaty that French law
substantial basis," and that the United States qualifies under such was intended to govern the meaning of Warsaw's terms, nor have we
definition. The meaning of domicile cannot, however, be so found any indication to this effect in its legislative history or from our
extended. The domicile of a corporation is customarily regarded as study of its application and interpretation by other courts. Indeed,
the place where it is incorporated, and the courts have given the analysis of the cases indicates that the courts, in interpreting and
meaning to the term as it is used in article 28(1) of the Convention. applying the Warsaw Convention, have, not considered themselves
(See  Smith v. Canadian Pacific Airways, Ltd. (2d Cir. 1971), 452 F2d bound to apply French law simply because the Convention is written
798, 802; Nudo v. Societe Anonyme Belge d' Exploitation de la in French. . . .
Navigation Aerienne Sabena Belgian World Airlines (E.D. pa. 1962).
207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air France
We agree with these rulings.
(S.D.N.Y. 1977), 427 F. Suppl. 971, 974). Moreover, the structure of
article 28(1), viewed as a whole, is also incompatible with the
plaintiffs' claim. The article, in stating that places of business are Notably, the domicile of the carrier is only one of the places where the complaint is
among the bases of the jurisdiction, sets out two places where an allowed to be filed under Article 28(1). By specifying the three other places, to wit, the
action for damages may be brought; the country where the carrier's principal place of business of the carrier, its place of business where the contract was
principal place of business is located, and the country in which it has made, and the place of destination, the article clearly meant that these three other
a place of business through which the particular contract in question places were not comprehended in the term "domicile."
was made, that is, where the ticket was bought, Adopting the
 Page 51 of 72

D. The petitioner claims that the lower court erred in not ruling that Art. 25 (1). The carrier shall not be entitled to avail himself of the
Art. 28(1) of the Warsaw Convention does not apply to actions based provisions of this Convention which exclude or limit his liability. if the
on tort. damage is caused by his willful misconduct or by such default on his
part as, in accordance with the law of the court to which the case is
The petitioner alleges that the gravamen of the complaint is that private respondent submitted, is considered to be equivalent to willful misconduct.
acted arbitrarily and in bad faith, discriminated against the petitioner, and committed a
willful misconduct because it canceled his confirmed reservation and gave his reserved It is understood under this article that the court called upon to determine the
seat to someone who had no better right to it. In short. the private respondent applicability of the limitation provision must first be vested with the appropriate
committed a tort. jurisdiction. Article 28(1) is the provision in the Convention which defines that
jurisdiction. Article 22 23 merely fixes the monetary ceiling for the liability of the carrier
Such allegation, he submits, removes the present case from the coverage of the Warsaw in cases covered by the Convention. If the carrier is indeed guilty of willful misconduct, it
Convention. He argues that in at least two American cases, 21 it was held that Article can avail itself of the limitations set forth in this article. But this can be done only if the
28(1) of the Warsaw Convention does not apply if the action is based on tort. action has first been commenced properly under the rules on jurisdiction set forth in
Article 28(1).
This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article
in question was interpreted thus: III

. . . Assuming for the present that plaintiff's claim is "covered" by THE ISSUE OF PROTECTION TO MINORS
Article 17, Article 24 clearly excludes any relief not provided for in the
Convention as modified by the Montreal Agreement. It does not, The petitioner calls our attention to Article 24 of the Civil Code, which states:
however, limit the kind of cause of action on which the relief may be
founded; rather it provides that any action based on the injuries Art. 24. In all contractual property or other relations, when one of the
specified in Article 17 "however founded," i.e., regardless of the type parties is at a disadvantage on account of his moral dependence,
of action on which relief is founded, can only be brought subject to ignorance, indigence, mental weakness, tender age or other
the conditions and limitations established by the Warsaw System. handicap, the courts must be vigilant for his protection.
Presumably, the reason for the use of the phrase "however founded,"
in two-fold: to accommodate all of the multifarious bases on which a
Application of this article to the present case is misplaced. The above provision assumes
claim might be founded in different countries, whether under code
that the court is vested with jurisdiction to rule in favor of the disadvantaged minor, As
law or common law, whether under contract or tort, etc.; and to
already explained, such jurisdiction is absent in the case at bar.
include all bases on which a claim seeking relief for an injury might be
founded in any one country. In other words, if the injury occurs as
described in Article 17, any relief available is subject to the conditions CONCLUSION
and limitations established by the Warsaw System, regardless of the
particular cause of action which forms the basis on which a plaintiff A number of countries have signified their concern over the problem of citizens being
could seek denied access to their own courts because of the restrictive provision of Article 28(1) of
relief . . . the Warsaw Convention. Among these is the United States, which has proposed an
amendment that would enable the passenger to sue in his own domicile if the carrier
The private respondent correctly contends that the allegation of willful misconduct does business in that jurisdiction. The reason for this proposal is explained thus:
resulting in a tort is insufficient to exclude the case from the comprehension of the
Warsaw Convention. The petitioner has apparently misconstrued the import of Article In the event a US citizen temporarily residing abroad purchases a
25(l) of the Convention, which reads as follows: Rome to New York to Rome ticket on a foreign air carrier which is
generally subject to the jurisdiction of the US, Article 28 would
prevent that person from suing the carrier in the US in a "Warsaw
 Page 52 of 72

Case" even though such a suit could be brought in the absence of the
Convention.

The proposal was incorporated in the Guatemala Protocol amending the Warsaw
Convention, which was adopted at Guatemala City on March 8,
1971. 24 But it is still ineffective because it has not yet been ratified by the required
minimum number of contracting parties. Pending such ratification, the petitioner will
still have to file his complaint only in any of the four places designated by Article 28(1) of
the Warsaw Convention.

The proposed amendment bolsters the ruling of this Court that a citizen does not
necessarily have the right to sue in his own courts simply because the defendant airline
has a place of business in his country.

The Court can only sympathize with the petitioner, who must prosecute his claims in the
United States rather than in his own country at least inconvenience. But we are unable
to grant him the relief he seeks because we are limited by the provisions of the Warsaw
Convention which continues to bind us. It may not be amiss to observe at this point that
the mere fact that he will have to litigate in the American courts does not necessarily
mean he will litigate in vain. The judicial system of that country in known for its sense of
fairness and, generally, its strict adherence to the rule of law.

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.
 Page 53 of 72

G.R. No. 61594 September 28, 1990 the jurisdiction to consider any matter arising out of or under this
agreement.
PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,
vs Respondents then commenced training in Pakistan. After their training period, they
HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., began discharging their job functions as flight attendants, with base station in Manila
in his capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA MOONYEEN and flying assignments to different parts of the Middle East and Europe.
MAMASIG, respondents.
On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of
FELICIANO, J.: the contracts of employment, PIA through Mr. Oscar Benares, counsel for and official of
the local branch of PIA, sent separate letters both dated 1 August 1980 to private
On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a respondents Farrales and Mamasig advising both that their services as flight
foreign corporation licensed to do business in the Philippines, executed in Manila two stewardesses would be terminated "effective 1 September 1980, conformably to clause
(2) separate contracts of employment, one with private respondent Ethelynne B. 6 (b) of the employment agreement [they had) executed with [PIA]." 2
Farrales and the other with private respondent Ma. M.C. Mamasig. 1 The contracts,
which became effective on 9 January 1979, provided in pertinent portion as follows: On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a
complaint, docketed as NCR-STF-95151-80, for illegal dismissal and non-payment of
5. DURATION OF EMPLOYMENT AND PENALTY company benefits and bonuses, against PIA with the then Ministry of Labor and
Employment ("MOLE"). After several unfruitful attempts at conciliation, the MOLE
hearing officer Atty. Jose M. Pascual ordered the parties to submit their position papers
This agreement is for a period of three (3) years, but can be extended
and evidence supporting their respective positions. The PIA submitted its position
by the mutual consent of the parties.
paper, 3 but no evidence, and there claimed that both private respondents were
habitual absentees; that both were in the habit of bringing in from abroad sizeable
xxx xxx xxx quantities of "personal effects"; and that PIA personnel at the Manila International
Airport had been discreetly warned by customs officials to advise private respondents to
6. TERMINATION discontinue that practice. PIA further claimed that the services of both private
respondents were terminated pursuant to the provisions of the employment contract.
xxx xxx xxx
In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the
Notwithstanding anything to contrary as herein provided, PIA reinstatement of private respondents with full backwages or, in the alternative, the
reserves the right to terminate this agreement at any time by giving payment to them of the amounts equivalent to their salaries for the remainder of the
the EMPLOYEE notice in writing in advance one month before the fixed three-year period of their employment contracts; the payment to private
intended termination or in lieu thereof, by paying the EMPLOYEE respondent Mamasig of an amount equivalent to the value of a round trip ticket Manila-
wages equivalent to one month's salary. USA Manila; and payment of a bonus to each of the private respondents equivalent to
their one-month salary. 4 The Order stated that private respondents had attained the
xxx xxx xxx status of regular employees after they had rendered more than a year of continued
service; that the stipulation limiting the period of the employment contract to three (3)
years was null and void as violative of the provisions of the Labor Code and its
10. APPLICABLE LAW:
implementing rules and regulations on regular and casual employment; and that the
dismissal, having been carried out without the requisite clearance from the MOLE, was
This agreement shall be construed and governed under and by the illegal and entitled private respondents to reinstatement with full backwages.
laws of Pakistan, and only the Courts of Karachi, Pakistan shall have
 Page 54 of 72

On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Sec. 2. Shutdown or dismissal without clearance. — Any shutdown or
Minister, MOLE, adopted the findings of fact and conclusions of the Regional Director dismissal without prior clearance shall be conclusively presumed to
and affirmed the latter's award save for the portion thereof giving PIA the option, in lieu be termination of employment without a just cause. The Regional
of reinstatement, "to pay each of the complainants [private respondents] their salaries Director shall, in such case order the immediate reinstatement of the
corresponding to the unexpired portion of the contract[s] [of employment] . . .". 5 employee and the payment of his wages from the time of the
shutdown or dismissal until the time of reinstatement. (emphasis
In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional supplied)
Director and the Order of the Deputy Minister as having been rendered without
jurisdiction; for having been rendered without support in the evidence of record since, Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976,
allegedly, no hearing was conducted by the hearing officer, Atty. Jose M. Pascual; and was similarly very explicit about the jurisdiction of the Regional Director over
for having been issued in disregard and in violation of petitioner's rights under the termination of employment cases:
employment contracts with private respondents.
Under PD 850, termination cases — with or without CBA — are now
1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction placed under the original jurisdiction of the Regional Director.
over the subject matter of the complaint initiated by private respondents for illegal Preventive suspension cases, now made cognizable for the first time,
dismissal, jurisdiction over the same being lodged in the Arbitration Branch of the are also placed under the Regional Director. Before PD 850,
National Labor Relations Commission ("NLRC") It appears to us beyond dispute, termination cases where there was a CBA were under the jurisdiction
however, that both at the time the complaint was initiated in September 1980 and at of the grievance machinery and voluntary arbitration, while
the time the Orders assailed were rendered on January 1981 (by Regional Director termination cases where there was no CBA were under the
Francisco L. Estrella) and August 1982 (by Deputy Minister Vicente Leogardo, Jr.), the jurisdiction of the Conciliation Section.
Regional Director had jurisdiction over termination cases.
In more details, the major innovations introduced by PD 850 and its
Art. 278 of the Labor Code, as it then existed, forbade the termination of the services of implementing rules and regulations with respect to termination and
employees with at least one (1) year of service without prior clearance from the preventive suspension cases are:
Department of Labor and Employment:
1. The Regional Director is now required to rule on every application
Art. 278. Miscellaneous Provisions —  . . . for clearance, whether there is opposition or not, within ten days
from receipt thereof.
(b) With or without a collective agreement, no employer may shut
down his establishment or dismiss or terminate the employment of xxx xxx xxx
employees with at least one year of service during the last two (2)
years, whether such service is continuous or broken, without prior (Emphasis supplied)
written authority issued in accordance with such rules and
regulations as the Secretary may promulgate . . . (emphasis supplied)
2. The second contention of petitioner PIA is that, even if the Regional Director had
jurisdiction, still his order was null and void because it had been issued in violation of
Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor petitioner's right to procedural due process . 6 This claim, however, cannot be given
Code, made clear that in case of a termination without the necessary serious consideration. Petitioner was ordered by the Regional Director to submit not
clearance, the Regional Director was authorized to order the reinstatement of only its position paper but also such evidence in its favor as it might have. Petitioner
the employee concerned and the payment of backwages; necessarily, opted to rely solely upon its position paper; we must assume it had no evidence to
therefore, the Regional Director must have been given jurisdiction over such sustain its assertions. Thus, even if no formal or oral hearing was conducted, petitioner
termination cases: had ample opportunity to explain its side. Moreover, petitioner PIA was able to appeal
his case to the Ministry of Labor and Employment. 7
 Page 55 of 72

There is another reason why petitioner's claim of denial of due process must be invoked by petitioner PIA in terms of their consistency with applicable Philippine law
rejected. At the time the complaint was filed by private respondents on 21 September and regulations.
1980 and at the time the Regional Director issued his questioned order on 22 January
1981, applicable regulation, as noted above, specified that a "dismissal without prior As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held
clearance shall be conclusively  presumed to be termination of employment without a that paragraph 5 of that employment contract was inconsistent with Articles 280 and
cause", and the Regional Director was required in such case to" order the immediate 281 of the Labor Code as they existed at the time the contract of employment was
reinstatement of the employee and the payment of his wages from the time of the entered into, and hence refused to give effect to said paragraph 5. These Articles read as
shutdown or dismiss until . . . reinstatement." In other words, under the then applicable follows:
rule, the Regional Director did not even have to require submission of position papers
by the parties in view of the conclusive (juris et de jure) character of the presumption
Art. 280. Security of Tenure. — In cases of regular employment, the
created by such applicable law and regulation. In Cebu Institute of Technology v.
employer shall not terminate the services of an employee except for
Minister of Labor and Employment, 8 the Court pointed out that "under Rule 14, Section
a just cause or when authorized by this Title An employee who is
2, of the Implementing Rules and Regulations, the termination of [an employee] which
unjustly dismissed from work shall be entitled to reinstatement
was without previous clearance from the Ministry of Labor is conclusively presumed to
without loss of seniority rights and to his backwages computed from
be without [just] cause . . . [a presumption which] cannot be overturned by any contrary
the time his compensation was withheld from him up to the time his
proof however strong."
reinstatement.

3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of
Art. 281. Regular and Casual Employment. The provisions of written
employment with private respondents Farrales and Mamasig, arguing that its
agreement to the contrary notwithstanding and regardless of the oral
relationship with them was governed by the provisions of its contract rather than by the
agreements of the parties, an employment shall be deemed to be
general provisions of the Labor Code. 9
regular where the employee has been engaged to perform activities
which are usually necessary or desirable in the usual business or
Paragraph 5 of that contract set a term of three (3) years for that relationship, trade of the employer, except where the employment has been fixed
extendible by agreement between the parties; while paragraph 6 provided that, for a specific project or undertaking the completion or termination of
notwithstanding any other provision in the Contract, PIA had the right to terminate the which has been determined at the time of the engagement of the
employment agreement at any time by giving one-month's notice to the employee or, in employee or where the work or services to be performed is seasonal
lieu of such notice, one-months salary. in nature and the employment is for the duration of the season.

A contract freely entered into should, of course, be respected, as PIA argues, since a An employment shall be deemed to be casual if it is not covered by
contract is the law between the parties. 10 The principle of party autonomy in contracts the preceding paragraph: provided, that, any employee who has
is not, however, an absolute principle. The rule in Article 1306, of our Civil Code is that rendered at least one year of service, whether such service is
the contracting parties may establish such stipulations as they may deem continuous or broken, shall be considered as regular employee with
convenient, "provided they are not contrary to law, morals, good customs, public order respect to the activity in which he is employed and his employment
or public policy." Thus, counter-balancing the principle of autonomy of contracting shall continue while such actually exists. (Emphasis supplied)
parties is the equally general rule that provisions of applicable law, especially provisions
relating to matters affected with public policy, are deemed written into the
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al.,  12 the Court had occasion to
contract. 11 Put a little differently, the governing principle is that parties may not
examine in detail the question of whether employment for a fixed term has been
contract away applicable provisions of law especially peremptory provisions dealing
outlawed under the above quoted provisions of the Labor Code. After an extensive
with matters heavily impressed with public interest. The law relating to labor and
examination of the history and development of Articles 280 and 281, the Court reached
employment is clearly such an area and parties are not at liberty to insulate themselves
the conclusion that a contract providing for employment with a fixed period was not
and their relationships from the impact of labor laws and regulations by simply
necessarily unlawful:
contracting with each other. It is thus necessary to appraise the contractual provisions
 Page 56 of 72

There can of course be no quarrel with the proposition that where force, duress or improper pressure being brought to bear upon the
from the circumstances it is apparent that periods have been imposed employee and absent any other circumstances vitiating his consent,
to preclude acquisition of tenurial security by the employee, they or where it satisfactorily appears that the employer and employee
should be struck down or disregarded as contrary to public policy, dealt with each other on more or less equal terms with no moral
morals, etc. But where no such intent to circumvent the law is shown, dominance whatever being exercised by the former over the
or stated otherwise, where the reason for the law does not exist e.g. latter. Unless thus limited in its purview, the law would be made to
where it is indeed the employee himself who insists upon a period or apply to purposes other than those explicitly stated by its framers; it
where the nature of the engagement is such that, without being thus becomes pointless and arbitrary, unjust in its effects and apt to
seasonal or for a specific project, a definite date of termination is lead to absurd and unintended consequences. (emphasis supplied)
a sine qua non  would an agreement fixing a period be essentially evil
or illicit, therefore anathema Would such an agreement come within It is apparent from Brent School that the critical consideration is the presence
the scope of Article 280 which admittedly was enacted "to prevent or absence of a substantial indication that the period specified in an
the circumvention of the right of the employee to be secured in . . . employment agreement was designed to circumvent the security of tenure of
(his) employment?" regular employees which is provided for in Articles 280 and 281 of the Labor
Code. This indication must ordinarily rest upon some aspect of the agreement
As it is evident from even only the three examples already given other than the mere specification of a fixed term of the ernployment
that Article 280 of the Labor Code, under a narrow and literal agreement, or upon evidence aliunde of the intent to evade.
interpretation, not only fails to exhaust the gamut of employment
contracts to which the lack of a fixed period would be an anomaly, Examining the provisions of paragraphs 5 and 6 of the employment agreement between
but would also appear to restrict, without reasonable distinctions, the petitioner PIA and private respondents, we consider that those provisions must be read
right of an employee to freely stipulate with his employer the together and when so read, the fixed period of three (3) years specified in paragraph 5
duration of his engagement, it logically follows that such a literal will be seen to have been effectively neutralized by the provisions of paragraph 6 of that
interpretation should be eschewed or avoided. The law must be given agreement. Paragraph 6 in effect took back from the employee the fixed three (3)-year
reasonable interpretation, to preclude absurdity in its application. period ostensibly granted by paragraph 5 by rendering such period in effect a facultative
Outlawing the whole concept of term employment and subverting to one at the option of the employer PIA. For petitioner PIA claims to be authorized to
boot the principle of freedom of contract to remedy the evil of shorten that term, at any time and for any cause satisfactory to itself, to a one-month
employers" using it as a means to prevent their employees from period, or even less by simply paying the employee a month's salary. Because the net
obtaining security of tenure is like cutting off the nose to spite the effect of paragraphs 5 and 6 of the agreement here involved is to render the
face or, more relevantly, curing a headache by lopping off the head. employment of private respondents Farrales and Mamasig basically employment at the
pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to
xxx xxx xxx prevent any security of tenure from accruing in favor of private respondents even
during the limited period of three (3) years,13 and thus to escape completely the thrust of
Accordingly, and since the entire purpose behind the development of Articles 280 and 281 of the Labor Code.
legislation culminating in the present Article 280 of the Labor Code
clearly appears to have been, as already observed, to prevent Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which
circumvention of the employee's right to be secure in his tenure, the specifies, firstly, the law of Pakistan as the applicable law of the agreement and,
clause in said article indiscriminately and completely ruling out all secondly, lays the venue for settlement of any dispute arising out of or in connection
written or oral agreements conflicting with the concept of regular with the agreement "only [in] courts of Karachi Pakistan". The first clause of paragraph
employment as defined therein should be construed to refer to the 10 cannot be invoked to prevent the application of Philippine labor laws and regulations
substantive evil that the Code itself has singled out: agreements to the subject matter of this case, i.e., the employer-employee relationship between
entered into precisely to circumvent security of tenure. It should have petitioner PIA and private respondents. We have already pointed out that the
no application to instances where a fixed period of employment was relationship is much affected with public interest and that the otherwise applicable
agreed upon knowingly and voluntarily by the parties, without any Philippine laws and regulations cannot be rendered illusory by the parties agreeing upon
 Page 57 of 72

some other law to govern their relationship. Neither may petitioner invoke the second
clause of paragraph 10, specifying the Karachi courts as the sole venue for the
settlement of dispute; between the contracting parties. Even a cursory scrutiny of the
relevant circumstances of this case will show the multiple and substantive contacts
between Philippine law and Philippine courts, on the one hand, and the relationship
between the parties, upon the other: the contract was not only executed in the
Philippines, it was also performed here, at least partially; private respondents are
Philippine citizens and respondents, while petitioner, although a foreign corporation, is
licensed to do business (and actually doing business) and hence resident in the
Philippines; lastly, private respondents were based in the Philippines in between their
assigned flights to the Middle East and Europe. All the above contacts point to the
Philippine courts and administrative agencies as a proper forum for the resolution of
contractual disputes between the parties. Under these circumstances, paragraph 10 of
the employment agreement cannot be given effect so as to oust Philippine agencies and
courts of the jurisdiction vested upon them by Philippine law. Finally, and in any event,
the petitioner PIA did not undertake to plead and prove the contents of Pakistan law on
the matter; it must therefore be presumed that the applicable provisions of the law of
Pakistan are the same as the applicable provisions of Philippine law. 14

We conclude that private respondents Farrales and Mamasig were illegally dismissed
and that public respondent Deputy Minister, MOLE, had not committed any grave abuse
of discretion nor any act without or in excess of jurisdiction in ordering their
reinstatement with backwages. Private respondents are entitled to three (3) years
backwages without qualification or deduction. Should their reinstatement to their
former or other substantially equivalent positions not be feasible in view of the length
of time which has gone by since their services were unlawfully terminated, petitioner
should be required to pay separation pay to private respondents amounting to one (1)
month's salary for every year of service rendered by them, including the three (3) years
service putatively rendered.

ACCORDINGLY, the Petition for certiorari  is hereby DISMISSED for lack of merit, and the
Order dated 12 August 1982 of public respondent is hereby AFFIRMED, except that (1)
private respondents are entitled to three (3) years backwages, without deduction or
qualification; and (2) should reinstatement of private respondents to their former
positions or to substantially equivalent positions not be feasible, then petitioner shall, in
lieu thereof, pay to private respondents separation pay amounting to one (1)-month's
salary for every year of service actually rendered by them and for the three (3) years
putative service by private respondents. The Temporary Restraining Order issued on 13
September 1982 is hereby LIFTED. Costs against petitioner.

SO ORDERED.
 Page 58 of 72

G.R. No. 122191 October 8, 1998 Eventually, they were again put in service by defendant SAUDI (sic). In September 1990,
defendant SAUDIA transferred plaintiff to Manila.
SAUDI ARABIAN AIRLINES, Petitioner, vs. COURT OF APPEALS, MILAGROS P. MORADA
and HON. RODOLFO A. ORTIZ, in his capacity as Presiding Judge of Branch 89, Regional On January 14, 1992, just when plaintiff thought that the Jakarta incident was already
Trial Court of Quezon City, Respondents. behind her, her superiors requested her to see Mr. Ali Meniewy, Chief Legal Officer of
SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he brought her to the police
 QUISUMBING, J.: station where the police took her passport and questioned her about the Jakarta
incident. Miniewy simply stood by as the police put pressure on her to make a
statement dropping the case against Thamer and Allah. Not until she agreed to do so did
This petition for  certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and
the police return her passport and allowed her to catch the afternoon flight out of
set aside the Resolution 1 dated September 27, 1995 and the Decision  2 dated April 10,
Jeddah.
1996 of the Court of Appeals 3 in CA-G.R. SP No. 36533, 4 and the Orders 5 dated August
29, 1994 6 and February 2, 1995  7 that were issued by the trial court in Civil Case No. Q-
93-18394. 8 One year and a half later or on lune 16, 1993, in Riyadh, Saudi Arabia, a few minutes
before the departure of her flight to Manila, plaintiff was not allowed to board the plane
and instead ordered to take a later flight to Jeddah to see Mr. Miniewy, the Chief Legal
The pertinent antecedent facts which gave rise to the instant petition, as stated in the
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA office brought her to a
questioned Decision 9, are as follows:
Saudi court where she was asked to sign a document written in Arabic. They told her
that this was necessary to close the case against Thamer and Allah. As it turned out,
On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight Attendant for its plaintiff signed a notice to her to appear before the court on June 27, 1993. Plaintiff
airlines based in Jeddah, Saudi Arabia. . . . then returned to Manila.

On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went to a disco Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once
dance with fellow crew members Thamer Al-Gazzawi and Allah Al-Gazzawi, both Saudi again and see Miniewy on June 27, 1993 for further investigation. Plaintiff did so after
nationals. Because it was almost morning when they returned to their hotels, they receiving assurance from SAUDIA's Manila manager, Aslam Saleemi, that the
agreed to have breakfast together at the room of Thamer. When they were in te ( sic) investigation was routinary and that it posed no danger to her.
room, Allah left on some pretext. Shortly after he did, Thamer attempted to rape
plaintiff. Fortunately, a roomboy and several security personnel heard her cries for help
In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27,
and rescued her. Later, the Indonesian police came and arrested Thamer and Allah Al-
1993. Nothing happened then but on June 28, 1993, a Saudi judge interrogated plaintiff
Gazzawi, the latter as an accomplice.
through an interpreter about the Jakarta incident. After one hour of interrogation, they
let her go. At the airport, however, just as her plane was about to take off, a SAUDIA
When plaintiff returned to Jeddah a few days later, several SAUDIA officials interrogated officer told her that the airline had forbidden her to take flight. At the Inflight Service
her about the Jakarta incident. They then requested her to go back to Jakarta to help Office where she was told to go, the secretary of Mr. Yahya Saddick took away her
arrange the release of Thamer and Allah. In Jakarta, SAUDIA Legal Officer Sirah Akkad passport and told her to remain in Jeddah, at the crew quarters, until further orders.
and base manager Baharini negotiated with the police for the immediate release of the
detained crew members but did not succeed because plaintiff refused to cooperate. She
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where
was afraid that she might be tricked into something she did not want because of her
the judge, to her astonishment and shock, rendered a decision, translated to her in
inability to understand the local dialect. She also declined to sign a blank paper and a
English, sentencing her to five months imprisonment and to 286 lashes. Only then did
document written in the local dialect. Eventually, SAUDIA allowed plaintiff to return to
she realize that the Saudi court had tried her, together with Thamer and Allah, for what
Jeddah but barred her from the Jakarta flights.
happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco,
dancing and listening to the music in violation of Islamic laws; and (3) socializing with
Plaintiff learned that, through the intercession of the Saudi Arabian government, the the male crew, in contravention of Islamic tradition. 10
Indonesian authorities agreed to deport Thamer and Allah after two weeks of detention.
 Page 59 of 72

Facing conviction, private respondent sought the help of her employer, petitioner interest in the prosecution of the instant case, and hence, without jurisdiction to
SAUDIA. Unfortunately, she was denied any assistance. She then asked the Philippine adjudicate the same.
Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to pay for her
upkeep, she worked on the domestic flight of SAUDIA, while Thamer and Allah Respondent Judge subsequently issued another Order 24 dated February 2, 1995,
continued to serve in the international denying SAUDIA's Motion for Reconsideration. The pertinent portion of the assailed
flights. 11 Order reads as follows:

Because she was wrongfully convicted, the Prince of Makkah dismissed the case against Acting on the Motion for Reconsideration of defendant Saudi Arabian Airlines filed, thru
her and allowed her to leave Saudi Arabia. Shortly before her return to Manila,  12 she counsel, on September 20, 1994, and the Opposition thereto of the plaintiff filed, thru
was terminated from the service by SAUDIA, without her being informed of the cause. counsel, on October 14, 1994, as well as the Reply therewith of defendant Saudi Arabian
Airlines filed, thru counsel, on October 24, 1994, considering that a perusal of the
On November 23, 1993, Morada filed a Complaint 13 for damages against SAUDIA, and plaintiffs Amended Complaint, which is one for the recovery of actual, moral and
Khaled Al-Balawi ("Al-Balawi"), its country manager. exemplary damages plus attorney's fees, upon the basis of the applicable Philippine law,
Article 21 of the New Civil Code of the Philippines, is, clearly, within the jurisdiction of
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised the this Court as regards the subject matter, and there being nothing new of substance
following grounds, to wit: (1) that the Complaint states no cause of action against which might cause the reversal or modification of the order sought to be reconsidered,
Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that the claim or the motion for reconsideration of the defendant, is DENIED.
demand set forth in the Complaint has been waived, abandoned or otherwise
extinguished; and (4) that the trial court has no jurisdiction to try the case. SO ORDERED. 25

On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) 15. Saudia Consequently, on February 20, 1995, SAUDIA filed its Petition for  Certiorari and
filed a reply 16 thereto on March 3, 1994. Prohibition with Prayer for Issuance of Writ of Preliminary Injunction and/or Temporary
Restraining Order 26 with the Court of Appeals.
On June 23, 1994, Morada filed an Amended Complaint 17 wherein Al-Balawi was
dropped as party defendant. On August 11, 1994, Saudia filed its Manifestation and Respondent Court of Appeals promulgated a Resolution with Temporary Restraining
Motion to Dismiss Amended Complaint 18. Order 27 dated February 23, 1995, prohibiting the respondent Judge from further
conducting any proceeding, unless otherwise directed, in the interim.
The trial court issued an Order 19 dated August 29, 1994 denying the Motion to Dismiss
Amended Complaint filed by Saudia. In another Resolution 28 promulgated on September 27, 1995, now assailed, the
appellate court denied SAUDIA's Petition for the Issuance of a Writ of Preliminary
From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA filed on Injunction dated February 18, 1995, to wit:
September 20, 1994, its Motion for Reconsideration 21 of the Order dated August 29,
1994. It alleged that the trial court has no jurisdiction to hear and try the case on the The Petition for the Issuance of a Writ of Preliminary Injunction is hereby DENIED, after
basis of Article 21 of the Civil Code, since the proper law applicable is the law of the considering the Answer, with Prayer to Deny Writ of Preliminary Injunction (Rollo, p.
Kingdom of Saudi Arabia. On October 14, 1994, Morada filed her Opposition 22 (To 135) the Reply and Rejoinder, it appearing that herein petitioner is not clearly entitled
Defendant's Motion for Reconsideration). thereto (Unciano Paramedical College, et. Al., v. Court of Appeals, et. Al., 100335, April
7, 1993, Second Division).
In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that since
its Motion for Reconsideration raised lack of jurisdiction as its cause of action, the SO ORDERED.
Omnibus Motion Rule does not apply, even if that ground is raised for the first time on
appeal. Additionally, SAUDIA alleged that the Philippines does not have any substantial On October 20, 1995, SAUDIA filed with this Honorable Court the instant Petition 29 for
Review with Prayer for Temporary Restraining Order dated October 13, 1995.
 Page 60 of 72

However, during the pendency of the instant Petition, respondent Court of Appeals From the foregoing factual and procedural antecedents, the following issues emerge for
rendered the Decision 30 dated April 10, 1996, now also assailed. It ruled that the our resolution:
Philippines is an appropriate forum considering that the Amended Complaint's basis for
recovery of damages is Article 21 of the Civil Code, and thus, clearly within the I.
jurisdiction of respondent Court. It further held that  certiorari is not the proper remedy
in a denial of a Motion to Dismiss, inasmuch as the petitioner should have proceeded to
WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THE REGIONAL
trial, and in case of an adverse ruling, find recourse in an appeal.
TRIAL COURT OF QUEZON CITY HAS JURISDICTION TO HEAR AND TRY CIVIL CASE NO. Q-
93-18394 ENTITLED "MILAGROS P. MORADA V. SAUDI ARABIAN AIRLINES".
On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for
Temporary Restraining Order 31 dated April 30, 1996, given due course by this Court.
II.
After both parties submitted their Memoranda, 32 the instant case is now deemed
submitted for decision.
WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING THAT IN THIS CASE
PHILIPPINE LAW SHOULD GOVERN.
Petitioner SAUDIA raised the following issues:
Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at the
I
outset. It maintains that private respondent's claim for alleged abuse of rights occurred
in the Kingdom of Saudi Arabia. It alleges that the existence of a foreign element
The trial court has no jurisdiction to hear and try Civil Case No. Q-93-18394 based on qualifies the instant case for the application of the law of the Kingdom of Saudi Arabia,
Article 21 of the New Civil Code since the proper law applicable is the law of the by virtue of the  lex loci delicti commissi rule. 34
Kingdom of Saudi Arabia inasmuch as this case involves what is known in private
international law as a "conflicts problem". Otherwise, the Republic of the Philippines will
On the other hand, private respondent contends that since her Amended Complaint is
sit in judgment of the acts done by another sovereign state which is abhorred.
based on Articles 19 35 and 21 36 of the Civil Code, then the instant case is properly a
matter of domestic law. 37
II
Under the factual antecedents obtaining in this case, there is no dispute that the
Leave of court before filing a supplemental pleading is not a jurisdictional requirement. interplay of events occurred in two states, the Philippines and Saudi Arabia.
Besides, the matter as to absence of leave of court is now moot and academic when this
Honorable Court required the respondents to comment on petitioner's April 30, 1996
As stated by private respondent in her Amended Complaint 38 dated June 23, 1994:
Supplemental Petition For Review With Prayer For A Temporary Restraining Order
Within Ten (10) Days From Notice Thereof. Further, the Revised Rules of Court should
be construed with liberality pursuant to Section 2, Rule 1 thereof. 2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines corporation doing
business in the Philippines. It may be served with summons and other court processes at
Travel Wide Associated Sales (Phils.). Inc., 3rd Floor, Cougar Building, 114 Valero St.,
III
Salcedo Village, Makati, Metro Manila.

Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-G.R. SP NO. 36533
xxx xxx xxx
entitled "Saudi Arabian Airlines v. Hon. Rodolfo A. Ortiz, et al." and filed its April 30,
1996 Supplemental Petition For Review With Prayer For A Temporary Restraining Order
on May 7, 1996 at 10:29 a.m. or within the 15-day reglementary period as provided for 6. Plaintiff learned that, through the intercession of the Saudi Arabian government, the
under Section 1, Rule 45 of the Revised Rules of Court. Therefore, the decision in CA- Indonesian authorities agreed to deport Thamer and Allah after two weeks of detention.
G.R. SP NO. 36533 has not yet become final and executory and this Honorable Court can Eventually, they were again put in service by defendant SAUDIA. In September 1990,
take cognizance of this case. 33 defendant SAUDIA transferred plaintiff to Manila.
 Page 61 of 72

7. On January 14, 1992, just when plaintiff thought that the Jakarta incident was already defendant SAUDIA while, ironically, Thamer and Allah freely served the international
behind her, her superiors reauested her to see MR. Ali Meniewy, Chief Legal Officer of flights. 39
SAUDIA in Jeddah, Saudi Arabia. When she saw him, he brought her to the police station
where the police took her passport and questioned her about the Jakarta incident. Where the factual antecedents satisfactorily establish the existence of a foreign
Miniewy simply stood by as the police put pressure on her to make a statement element, we agree with petitioner that the problem herein could present a "conflicts"
dropping the case against Thamer and Allah. Not until she agreed to do so did the police case.
return her passport and allowed her to catch the afternoon flight out of Jeddah.
A factual situation that cuts across territorial lines and is affected by the diverse laws of
8. One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few minutes two or more states is said to contain a "foreign element". The presence of a foreign
before the departure of her flight to Manila, plaintiff was not allowed to board the plane element is inevitable since social and economic affairs of individuals and associations
and instead ordered to take a later flight to Jeddah to see Mr. Meniewy, the Chief Legal are rarely confined to the geographic limits of their birth or conception. 40
Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA office brought her to a
Saudi court where she was asked to sigh a document written in Arabic. They told her
The forms in which this foreign element may appear are many. 41 The foreign element
that this was necessary to close the case against Thamer and Allah. As it turned out,
may simply consist in the fact that one of the parties to a contract is an alien or has a
plaintiff signed a notice to her to appear before the court on June 27, 1993. Plaintiff
foreign domicile, or that a contract between nationals of one State involves properties
then returned to Manila.
situated in another State. In other cases, the foreign element may assume a complex
form. 42
9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once
again and see Miniewy on June 27, 1993 for further investigation. Plaintiff did so after
In the instant case, the foreign element consisted in the fact that private respondent
receiving assurance from SAUDIA's Manila manger, Aslam Saleemi, that the
Morada is a resident Philippine national, and that petitioner SAUDIA is a resident foreign
investigation was routinary and that it posed no danger to her.
corporation. Also, by virtue of the employment of Morada with the petitioner Saudia as
a flight stewardess, events did transpire during her many occasions of travel across
10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June national borders, particularly from Manila, Philippines to Jeddah, Saudi Arabia, and vice
27, 1993. Nothing happened then but on June 28, 1993, a Saudi judge interrogated versa, that caused a "conflicts" situation to arise.
plaintiff through an interpreter about the Jakarta incident. After one hour of
interrogation, they let her go. At the airport, however, just as her plane was about to
We thus find private respondent's assertion that the case is purely domestic, imprecise.
take off, a SAUDIA officer told her that the airline had forbidden her to take that flight.
A  conflicts problem presents itself here, and the question of jurisdiction 43 confronts the
At the Inflight Service Office where she was told to go, the secretary of Mr. Yahya
court  a quo.
Saddick took away her passport and told her to remain in Jeddah, at the crew quarters,
until further orders.
After a careful study of the private respondent's Amended Complaint, 44 and the
Comment thereon, we note that she aptly predicated her cause of action on Articles 19
11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court
and 21 of the New Civil Code.
where the judge, to her astonishment and shock, rendered a decision, translated to her
in English, sentencing her to five months imprisonment and to 286 lashes. Only then did
she realize that the Saudi court had tried her, together with Thamer and Allah, for what On one hand, Article 19 of the New Civil Code provides:
happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco,
dancing, and listening to the music in violation of Islamic laws; (3) socializing with the Art. 19. Every person must, in the exercise of his rights and in the performance of his
male crew, in contravention of Islamic tradition. duties, act with justice give everyone his due and observe honesty and good faith.

12. Because SAUDIA refused to lend her a hand in the case, plaintiff sought the help of On the other hand, Article 21 of the New Civil Code provides:
the Philippines Embassy in Jeddah. The latter helped her pursue an appeal from the
decision of the court. To pay for her upkeep, she worked on the domestic flights of
 Page 62 of 72

Art. 21. Any person who willfully causes loss or injury to another in a manner that is (a) xxx xxx xxx
contrary to morals, good customs or public policy shall compensate the latter for
damages. (b) Personal actions. - All other actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the plaintiff or
Thus, in Philippine National Bank (PNB) vs. Court of Appeals, 45 this Court held that: any of the plaintiff resides, at the election of the plaintiff.

The aforecited provisions on human relations were intended to expand the concept of Pragmatic considerations, including the convenience of the parties, also weigh heavily in
torts in this jurisdiction by granting adequate legal remedy for the untold number of favor of the RTC Quezon City assuming jurisdiction. Paramount is the private interest of
moral wrongs which is impossible for human foresight to specifically provide in the the litigant. Enforceability of a judgment if one is obtained is quite obvious. Relative
statutes. advantages and obstacles to a fair trial are equally important. Plaintiff may not, by
choice of an inconvenient forum, "vex", "harass", or "oppress" the defendant, e.g.  by
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its inflicting upon him needless expense or disturbance. But unless the balance is strongly
provisions. Thus, we agree with private respondent's assertion that violations of Articles in favor of the defendant, the plaintiffs choice of forum should rarely be disturbed. 49
19 and 21 are actionable, with judicially enforceable remedies in the municipal forum.
Weighing the relative claims of the parties, the court  a quo found it best to hear the
46
Based on the allegations   in the Amended Complaint, read in the light of the Rules of case in the Philippines. Had it refused to take cognizance of the case, it would be forcing
Court on jurisdiction 47 we find that the Regional Trial Court (RTC) of Quezon City plaintiff (private respondent now) to seek remedial action elsewhere,  i.e. in the
possesses jurisdiction over the subject matter of the suit. 48 Its authority to try and hear Kingdom of Saudi Arabia where she no longer maintains substantial connections. That
the case is provided for under Section 1 of Republic Act No. 7691, to wit: would have caused a fundamental unfairness to her.

Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the "Judiciary Moreover, by hearing the case in the Philippines no unnecessary difficulties and
Reorganization Act of 1980", is hereby amended to read as follows: inconvenience have been shown by either of the parties. The choice of forum of the
plaintiff (now private respondent) should be upheld.
Sec. 19. Jurisdiction in Civil Cases. - Regional Trial Courts shall exercise exclusive
jurisdiction: Similarly, the trial court also possesses jurisdiction over the persons of the parties
herein. By filing her Complaint and Amended Complaint with the trial court, private
respondent has voluntary submitted herself to the jurisdiction of the court.
xxx xxx xxx

The records show that petitioner SAUDIA has filed several motions 50 praying for the
(8) In all other cases in which demand, exclusive of interest, damages of whatever kind,
dismissal of Morada's Amended Complaint. SAUDIA also filed an Answer In   Ex
attorney's fees, litigation expenses, and cots or the value of the property in controversy
Abundante Cautelam dated February 20, 1995. What is very patent and explicit from the
exceeds One hundred thousand pesos (P100,000.00) or, in such other cases in Metro
motions filed, is that SAUDIA prayed for other reliefs under the premises. Undeniably,
Manila, where the demand, exclusive of the above-mentioned items exceeds Two
petitioner SAUDIA has effectively submitted to the trial court's jurisdiction by praying for
hundred Thousand pesos (P200,000.00). (Emphasis ours)
the dismissal of the Amended Complaint on grounds other than lack of jurisdiction.
xxx xxx xxx
As held by this Court in  Republic vs. Ker and Company, Ltd.: 51
And following Section 2 (b), Rule 4 of the Revised Rules of Court - the venue, Quezon
We observe that the motion to dismiss filed on April 14, 1962, aside from disputing the
City, is appropriate:
lower court's jurisdiction over defendant's person, prayed for dismissal of the complaint
on the ground that plaintiff's cause of action has prescribed. By interposing such second
Sec. 2 Venue in Courts of First Instance. - [Now Regional Trial Court] ground in its motion to dismiss, Ker and Co., Ltd. availed of an affirmative defense on
the basis of which it prayed the court to resolve controversy in its favor. For the court to
 Page 63 of 72

validly decide the said plea of defendant Ker & Co., Ltd., it necessarily had to acquire point of contact, such as the  situs of the  res, the place of celebration, the place of
jurisdiction upon the latter's person, who, being the proponent of the affirmative performance, or the place of wrongdoing. 58
defense, should be deemed to have abandoned its special appearance and voluntarily
submitted itself to the jurisdiction of the court. Note that one or more circumstances may be present to serve as the possible test for
the determination of the applicable law. 59 These "test factors" or "points of contact" or
Similarly, the case of  De Midgely vs. Ferandos, held that; "connecting factors" could be any of the following:

When the appearance is by motion for the purpose of objecting to the jurisdiction of the (1) The nationality of a person, his domicile, his residence, his place of sojourn, or his
court over the person, it must be for the sole and separate purpose of objecting to the origin;
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 (2) the seat of a legal or juridical person, such as a corporation;
of the court. A special appearance by motion made for the purpose of objecting to the
jurisdiction of the court over the person will be held to be a general appearance, if the
(3) the situs of a thing, that is, the place where a thing is, or is deemed to be situated. In
party in said motion should, for example, ask for a dismissal of the action upon the
particular, the  lex situs is decisive when real rights are involved;
further ground that the court had no jurisdiction over the subject matter. 52
(4) the place where an act has been done, the locus actus, such as the place where a
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of
contract has been made, a marriage celebrated, a will signed or a tort committed. The
Quezon City. Thus, we find that the trial court has jurisdiction over the case and that its
lex loci actus is particularly important in contracts and torts;
exercise thereof, justified.
(5) the place where an act is intended to come into effect, e.g., the place of
As to the choice of applicable law, we note that choice-of-law problems seek to answer
performance of contractual duties, or the place where a power of attorney is to be
two important questions: (1) What legal system should control a given situation where
exercised;
some of the significant facts occurred in two or more states; and (2) to what extent
should the chosen legal system regulate the situation. 53
(6) the intention of the contracting parties as to the law that should govern their
agreement, the  lex loci intentionis;
Several theories have been propounded in order to identify the legal system that should
ultimately control. Although ideally, all choice-of-law theories should intrinsically
advance both notions of justice and predictability, they do not always do so. The forum (7) the place where judicial or administrative proceedings are instituted or done.
is then faced with the problem of deciding which of these two important values should The  lex fori  - the law of the forum - is particularly important because, as we have seen
be stressed. 54 earlier, matters of "procedure" not going to the substance of the claim involved are
governed by it; and because the  lex fori applies whenever the content of the otherwise
applicable foreign law is excluded from application in a given case for the reason that it
Before a choice can be made, it is necessary for us to determine under what category a
falls under one of the exceptions to the applications of foreign law; and
certain set of facts or rules fall. This process is known as "characterization", or the
"doctrine of qualification". It is the "process of deciding whether or not the facts relate
to the kind of question specified in a conflicts rule." 55 The purpose of "characterization" (8) the flag of a ship, which in many cases is decisive of practically all legal relationships
is to enable the forum to select the proper law. 56 of the ship and of its master or owner as such. It also covers contractual relationships
particularly contracts of affreightment. 60 (Emphasis ours.)
Our starting point of analysis here is not a legal relation, but a factual situation, event, or
operative fact. 57 An essential element of conflict rules is the indication of a "test" or After a careful study of the pleadings on record, including allegations in the Amended
"connecting factor" or "point of contact". Choice-of-law rules invariably consist of a Complaint deemed admitted for purposes of the motion to dismiss, we are convinced
factual relationship (such as property right, contract claim) and a connecting factor or that there is reasonable basis for private respondent's assertion that although she was
already working in Manila, petitioner brought her to Jeddah on the pretense that she
would merely testify in an investigation of the charges she made against the two
 Page 64 of 72

SAUDIA crew members for the attack on her person while they were in Jakarta. As it the parties, and (d) the place where the relationship, if any, between the parties is
turned out, she was the one made to face trial for very serious charges, including centered. 62
adultery and violation of Islamic laws and tradition.
As already discussed, there is basis for the claim that over-all injury occurred and lodged
There is likewise logical basis on record for the claim that the "handing over" or "turning in the Philippines. There is likewise no question that private respondent is a resident
over" of the person of private respondent to Jeddah officials, petitioner may have acted Filipina national, working with petitioner, a resident foreign corporation engaged here in
beyond its duties as employer. Petitioner's purported act contributed to and amplified the business of international air carriage. Thus, the "relationship" between the parties
or even proximately caused additional humiliation, misery and suffering of private was centered here, although it should be stressed that this suit is not based on mere
respondent. Petitioner thereby allegedly facilitated the arrest, detention and labor law violations. From the record, the claim that the Philippines has the most
prosecution of private respondent under the guise of petitioner's authority as employer, significant contact with the matter in this dispute, 63 raised by private respondent as
taking advantage of the trust, confidence and faith she reposed upon it. As purportedly plaintiff below against defendant (herein petitioner), in our view, has been properly
found by the Prince of Makkah, the alleged conviction and imprisonment of private established.
respondent was wrongful. But these capped the injury or harm allegedly inflicted upon
her person and reputation, for which petitioner could be liable as claimed, to provide Prescinding from this premise that the Philippines is the situs of the tort complained of
compensation or redress for the wrongs done, once duly proven. and the place "having the most interest in the problem", we find, by way of
recapitulation, that the Philippine law on tort liability should have paramount
Considering that the complaint in the court  a quo is one involving torts, the "connecting application to and control in the resolution of the legal issues arising out of this case.
factor" or "point of contact" could be the place or places where the tortious conduct Further, we hold that the respondent Regional Trial Court has jurisdiction over the
or  lex loci actus occurred. And applying the torts principle in a conflicts case, we find parties and the subject matter of the complaint; the appropriate venue is in Quezon
that the Philippines could be said as a situs of the tort (the place where the alleged City, which could properly apply Philippine law. Moreover, we find untenable
tortious conduct took place). This is because it is in the Philippines where petitioner petitioner's insistence that "[s]ince private respondent instituted this suit, she has the
allegedly deceived private respondent, a Filipina residing and working here. According burden of pleading and proving the applicable Saudi law on the matter." 64 As aptly said
to her, she had honestly believed that petitioner would, in the exercise of its rights and by private respondent, she has "no obligation to plead and prove the law of the
in the performance of its duties, "act with justice, give her due and observe honesty and Kingdom of Saudi Arabia since her cause of action is based on Articles 19 and 21" of the
good faith." Instead, petitioner failed to protect her, she claimed. That certain acts or Civil Code of the Philippines. In her Amended Complaint and subsequent pleadings, she
parts of the injury allegedly occurred in another country is of no moment. For in our never alleged that Saudi law should govern this case. 65 And as correctly held by the
view what is important here is the place where the over-all harm or the totality of the respondent appellate court, "considering that it was the petitioner who was invoking
alleged injury to the person, reputation, social standing and human rights of the applicability of the law of Saudi Arabia, then the burden was on it [petitioner] to
complainant, had lodged, according to the plaintiff below (herein private respondent). plead and to establish what the law of Saudi Arabia is". 66
All told, it is not without basis to identify the Philippines as the situs of the alleged tort.
Lastly, no error could be imputed to the respondent appellate court in upholding the
Moreover, with the widespread criticism of the traditional rule of  lex loci delicti trial court's denial of defendant's (herein petitioner's) motion to dismiss the case. Not
commissi, modern theories and rules on tort liability 61 have been advanced to offer only was jurisdiction in order and venue properly laid, but appeal after trial was
fresh judicial approaches to arrive at just results. In keeping abreast with the modern obviously available, and expeditious trial itself indicated by the nature of the case at
theories on tort liability, we find here an occasion to apply the "State of the most hand. Indubitably, the Philippines is the state intimately concerned with the ultimate
significant relationship" rule, which in our view should be appropriate to apply now, outcome of the case below, not just for the benefit of all the litigants, but also for the
given the factual context of this case. vindication of the country's system of law and justice in a transnational setting. With
these guidelines in mind, the trial court must proceed to try and adjudge the case in the
In applying said principle to determine the State which has the most significant light of relevant Philippine law, with due consideration of the foreign element or
relationship, the following contacts are to be taken into account and evaluated elements involved. Nothing said herein, of course, should be construed as prejudging
according to their relative importance with respect to the particular issue: (a) the place the results of the case in any manner whatsoever.
where the injury occurred; (b) the place where the conduct causing the injury occurred;
(c) the domicile, residence, nationality, place of incorporation and place of business of
 Page 65 of 72

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

SO ORDERED.
 Page 66 of 72

G.R. No. 155014; November 11, 2005 petitioner Crescent for the US$101,400.00 worth of the bunker fuels. Petitioner
CRESCENT PETROLEUM, LTD., Petitioner, Crescent issued a check for the same amount in favor of Marine Petrobulk, which check
- versus - was duly encashed.
M/V 'LOK MAHESHWARI, THE SHIPPING CORPORATION OF INDIA, and PORTSERV
LIMITED and/or TRANSMAR SHIPPING, INC., Respondents. ' x - - - - - - - - - x Having paid Marine Petrobulk, petitioner Crescent issued a revised invoice dated
November 21, 1995 to 'Portserv Limited, and/or the Master, and/or Owners, and/or
DECISION Operators, and/or Charterers of M/V 'Lok Maheshwari in the amount of US$103,544.00
with instruction to remit the amount on or before December 1, 1995. The period lapsed
 PUNO, J.: and several demands were made but no payment was received. Also, the checks issued
to petitioner Crescent as security for the payment of the bunker fuels were dishonored
for insufficiency of funds. As a consequence, petitioner Crescent incurred additional
This petition for review on certiorari under Rule 45 seeks the (a) reversal of the
expenses of US$8,572.61 for interest, tracking fees, and legal fees.
November 28, 2001 Decision of the Court of Appeals in CA-G.R. No. CV-54920,  [1] which
dismissed for 'want of jurisdiction the instant case, and the September 3, 2002
Resolution of the same appellate court, [2] which denied petitioner's motion for On May 2, 1996, while the Vessel was docked at the port of Cebu City, petitioner
reconsideration, and (b) reinstatement of the July 25, 1996 Decision [3] of the Regional Crescent instituted before the RTC of Cebu City an action 'for a sum of money with
Trial Court (RTC) in Civil Case No. CEB-18679, which held that respondents were prayer for temporary restraining order and writ of preliminary attachment against
solidarily liable to pay petitioner the sum prayed for in the complaint. respondents Vessel and SCI, Portserv and/or Transmar. The case was raffled to Branch
10 and docketed as Civil Case No. CEB-18679.
The facts are as follows: Respondent M/V 'Lok Maheshwari (Vessel) is an oceangoing
vessel of Indian registry that is owned by respondent Shipping Corporation of India (SCI), On May 3, 1996, the trial court issued a writ of attachment against the Vessel with bond
a corporation organized and existing under the laws of India and principally owned by at P2,710,000.00. Petitioner Crescent withdrew its prayer for a temporary restraining
the Government of India. It was time-chartered by respondent SCI to Halla Merchant order and posted the required bond. '
Marine Co. Ltd. (Halla), a South Korean company. Halla, in turn, sub-chartered the
Vessel through a time charter to Transmar Shipping, Inc. (Transmar). Transmar further On May 18, 1996, summonses were served to respondents Vessel and SCI, and Portserv
sub-chartered the Vessel to Portserv Limited (Portserv). Both Transmar and Portserv are and/or Transmar through the Master of the Vessel. On May 28, 1996, respondents
corporations organized and existing under the laws of Canada. Vessel and SCI, through Pioneer Insurance and Surety Corporation (Pioneer), filed an
urgent ex-parte motion to approve Pioneer's letter of undertaking, to consider it as
On or about November 1, 1995, Portserv requested petitioner Crescent Petroleum, Ltd. counter-bond and to discharge the attachment. 'On May 29, 1996, the trial court
(Crescent), a corporation organized and existing under the laws of Canada that is granted the motion; thus, the letter of undertaking was approved as counter-bond to
engaged in the business of selling petroleum and oil products for the use and operation discharge the attachment.
of oceangoing vessels, to deliver marine fuel oils (bunker fuels) to the Vessel. Petitioner
Crescent granted and confirmed the request through an advice via facsimile dated For failing to file their respective answers and upon motion of petitioner Crescent, the
November 2, 1995. As security for the payment of the bunker fuels and related services, trial court declared respondents Vessel and SCI, Portserv and/or Transmar in default.
petitioner Crescent received two (2) checks in the amounts of US$100,000.00 and Petitioner Crescent was allowed to present its evidence ex-parte.
US$200,000.00. Thus, petitioner Crescent contracted with its supplier, Marine Petrobulk
Limited (Marine Petrobulk), another Canadian corporation, for the physical delivery of On July 25, 1996, the trial court rendered its decision in favor of petitioner Crescent,
the bunker fuels to the Vessel. thus:

On or about November 4, 1995, Marine Petrobulk delivered the bunker fuels amounting WHEREFORE, premises considered, judgment is hereby rendered in
to US$103,544 inclusive of barging and demurrage charges to the Vessel at the port of favor of plaintiff [Crescent] and against the defendants [Vessel, SCI, Portserv
Pioneer Grain, Vancouver, Canada. The Chief Engineer Officer of the Vessel duly and/or Transmar].
acknowledged and received the delivery receipt. 'Marine Petrobulk issued an invoice to
 Page 67 of 72

  The appellate court denied petitioner Crescent's motion for reconsideration explaining
that it 'dismissed the instant action primarily on the ground of forum non
Consequently, the latter are hereby ordered to pay plaintiff jointly conveniens considering that the parties are foreign corporations which are not doing
and solidarily, the following: business in the Philippines.

  Hence, this petition submitting the following issues for resolution, viz:

(a) the sum of US$103,544.00, representing the

1.                  Philippine courts have jurisdiction over a foreign vessel
outstanding obligation;
found inside Philippine waters for the enforcement of a
maritime lien against said vessel and/or its owners and
(b) interest of US$10,978.50 as of July 3, 1996, plus
operators;
additional interest at 18% per annum for the
 
period thereafter, until the principal account is
2.                  The principle of forum non conveniens is inapplicable to
fully paid;
the instant case;
(c) attorney's fees of P300,000.00; and
 
(d) P200,000.00 as litigation expenses.
3.                  The trial court acquired jurisdiction over the subject
  matter of the instant case, as well as over the res and over
the persons of the parties;
SO ORDERED.  
4.                  The enforcement of a maritime lien on the subject
On August 19, 1996, respondents Vessel and SCI appealed to the Court of vessel is expressly granted by law. The Ship Mortgage Acts
Appeals. They attached copies of the charter parties between respondent SCI and Halla, as well as the Code of Commerce provides for relief to
between Halla and Transmar, and between Transmar and Portserv. They pointed out petitioner for its unpaid claim;
that Portserv was a time charterer and that there is a clause in the time charters
between respondent SCI and Halla, and between Halla and Transmar, which states that  
'the Charterers shall provide and pay for all the fuel except as otherwise agreed. They
submitted a copy of Part II of the Bunker Fuel Agreement between petitioner Crescent 5.                  The arbitration clause in the contract was not rigid or
and Portserv containing a stipulation that New York law governs the 'construction, inflexible but expressly allowed petitioner to enforce its
validity and performance of the contract. They likewise submitted certified copies of maritime lien in Philippine courts provided the vessel was
the Commercial Instruments and Maritime Lien Act of the United States (U.S.), some in the Philippines;
U.S. cases, and some Canadian cases to support their defense.  
6.                  The law of the state of New York is inapplicable to the
On November 28, 2001, the Court of Appeals issued its assailed Decision, which present controversy as the same has not been properly
reversed that of the trial court, viz: pleaded and proved;
 
WHEREFORE, premises considered, the Decision dated July 7.                  Petitioner has legal capacity to sue before Philippine
25, 1996, issued by the Regional Trial Court of Cebu City, Branch 10, courts as it is suing upon an isolated business transaction;
is hereby REVERSED and SET ASIDE, and a new one is entered  
DISMISSING the instant case for want of jurisdiction. 8.                  Respondents were duly served summons although
  service of summons upon respondents is not a
 Page 68 of 72

jurisdictional requirement, the action being a suit quasi in Article 580 of the Code of Commerce. The procedural law is to be
rem; found in Article 584 of the same Code. The result is, therefore, that
  in the Philippines any vessel ' even though it be a foreign vessel '
9.                  The trial court's decision has factual and legal bases; found in any port of this Archipelago may be attached and sold
and, under the substantive law which defines the right, and the
  procedural law contained in the Code of Commerce by which this
10.              The respondents should be held jointly and solidarily right is to be enforced. [9] x x x. But where neither the law nor the
liable. contract between the parties creates any lien or charge upon the
  vessel, the only way in which it can be seized before judgment is by
pursuing the remedy relating to attachment under Rule 59 [now
In a nutshell, this case is for the satisfaction of unpaid supplies furnished by a Rule 57] of the Rules of Court. [10]
foreign supplier in a foreign port to a vessel of foreign registry that is owned, chartered
and sub-chartered by foreign entities.  

Under Batas Pambansa Bilang 129, as amended by Republic Act No. 7691, RTCs exercise But, is petitioner Crescent entitled to a maritime lien under our laws? Petitioner
exclusive original jurisdiction '(i)n all actions in admiralty and maritime where the Crescent bases its claim of a maritime lien on Sections 21, 22 and 23 of Presidential
demand or claim exceeds two hundred thousand pesos (P200,000) or in Metro Manila, Decree No. 1521 (P.D. No. 1521), also known as the Ship Mortgage Decree of 1978, viz:
where such demand or claim exceeds four hundred thousand pesos (P400,000). Two (2)
tests have been used to determine whether a case involving a contract comes within the Sec. 21. Maritime Lien for Necessaries; persons entitled to
admiralty and maritime jurisdiction of a court - the locational test and the subject such lien. - Any person furnishing repairs, supplies, towage, use of
matter test. The English rule follows the locational test wherein maritime and admiralty dry dock or maritime railway, or other necessaries, to any vessel,
jurisdiction, with a few exceptions, is exercised only on contracts made upon the sea whether foreign or domestic, upon the order of the owner of such
and to be executed thereon. This is totally rejected under the American rule where the vessel, or of a person authorized by the owner, shall have a
criterion in determining whether a contract is maritime depends on the nature and maritime lien on the vessel, which may be enforced by suit in rem,
subject matter of the contract, having reference to maritime service and and it shall be necessary to allege or prove that credit was given to
transactions. [4] In International Harvester Company of the Philippines v. the vessel.
Aragon, [5] we adopted the American rule and held that '(w)hether or not a contract is  
maritime depends not on the place where the contract is made and is to be executed, Sec. 22. Persons Authorized to Procure Repairs, Supplies
making the locality the test, but on the subject matter of the contract, making the true and Necessaries. - The following persons shall be presumed to have
criterion a maritime service or a maritime transaction. authority from the owner to procure repairs, supplies, towage, use
of dry dock or marine railway, and other necessaries for the vessel:
A contract for furnishing supplies like the one involved in this case is maritime and The managing owner, ship's husband, master or any person to
within the jurisdiction of admiralty. [6] It may be invoked before our courts through an whom the management of the vessel at the port of supply is
action in rem  or quasi in rem  or an action in personam. Thus: [7] entrusted. No person tortuously or unlawfully in possession or
charge of a vessel shall have authority to bind the vessel.
 
xxx
Sec. 23. Notice to Person Furnishing Repairs, Supplies and
Necessaries. - The officers and agents of a vessel specified in Section
Articles 579 and 584 [of the Code of Commerce] provide a method
22 of this Decree shall be taken to include such officers and agents
of collecting or enforcing not only the liens created under Section
when appointed by a charterer, by an owner pro hac vice, or by an
580 but also for the collection of any kind of lien whatsoever. [8] In
agreed purchaser in possession of the vessel; but nothing in this
the Philippines, we have a complete legislation, both substantive
Decree shall be construed to confer a lien when the furnisher knew,
and adjective, under which to bring an action in rem against a vessel
or by exercise of reasonable diligence could have ascertained, that
for the purpose of enforcing liens. The substantive law is found in
because of the terms of a charter party, agreement for sale of the
 Page 69 of 72

vessel, or for any other reason, the person ordering the repairs, Two. The Lauritzen-Romero-Rhoditis trilogy of cases, which replaced such single-factor
supplies, or other necessaries was without authority to bind the methodologies as the law of the place of supply. [20]
vessel therefor.
  In Lauritzen v. Larsen, [21] a Danish seaman, while temporarily in New York, joined the
crew of a ship of Danish flag and registry that is owned by a Danish citizen. He signed
Petitioner Crescent submits that these provisions apply to both domestic and foreign the ship's articles providing that the rights of the crew members would be governed by
vessels, as well as domestic and foreign suppliers of necessaries. It contends that the Danish law and by the employer's contract with the Danish Seamen's Union, of which he
use of the term 'any person in Section 21 implies that the law is not restricted to was a member. While in Havana and in the course of his employment, he was
domestic suppliers but also includes all persons who supply provisions and necessaries negligently injured. He sued the shipowner in a federal district court in New York for
to a vessel, whether foreign or domestic. It points out further that the law does not damages under the Jones Act. In holding that Danish law and not the Jones Act was
indicate that the supplies or necessaries must be furnished in the Philippines in order to applicable, the Supreme Court adopted a multiple-contact test to determine, in the
give petitioner the right to seek enforcement of the lien with a Philippine court. [11] absence of a specific Congressional directive as to the statute's reach, which
jurisdiction's law should be applied. The following factors were considered: (1) place of
Respondents Vessel and SCI, on the other hand, maintain that Section 21 of the P.D. No. the wrongful act; (2) law of the flag; (3) allegiance or domicile of the injured; (4)
1521 or the Ship Mortgage Decree of 1978 does not apply to a foreign supplier like allegiance of the defendant shipowner; (5) place of contract; (6) inaccessibility of
petitioner Crescent as the provision refers only to a situation where the person foreign forum; and (7) law of the forum.
furnishing the supplies is situated inside the territory of the Philippines and not where
the necessaries were furnished in a foreign jurisdiction like Canada. [12] Several years after Lauritzen, the U.S. Supreme Court in the case of Romero v.
International Terminal Operating Co. [22] again considered a foreign seaman's personal
We find against petitioner Crescent. injury claim under both the Jones Act and the general maritime law. The Court held that
the factors first announced in the case of Lauritzen were applicable not only to
I. personal injury claims arising under the Jones Act but to all matters arising under
maritime law in general. [23]
P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted 'to accelerate the
growth and development of the shipping industry and to extend the benefits accorded Hellenic Lines, Ltd. v. Rhoditis [24] was also a suit under the Jones Act by a Greek
to overseas shipping under Presidential Decree No. 214 to domestic shipping. [13] It is seaman injured aboard a ship of Greek registry while in American waters. The ship was
patterned closely from the U.S. Ship Mortgage Act of 1920 and the Liberian Maritime operated by a Greek corporation which has its largest office in New York and another
Law relating to preferred mortgages. [14] Notably, Sections 21, 22 and 23 of P.D. No. office in New Orleans and whose stock is more than 95% owned by a U.S. domiciliary
1521 or the Ship Mortgage Decree of 1978 are identical to Subsections P, Q, and R, who is also a Greek citizen. The ship was engaged in regularly scheduled runs between
respectively, of the U.S. Ship Mortgage Act of 1920, which is part of the Federal various ports of the U.S. and the Middle East, Pakistan, and India, with its entire income
Maritime Lien Act. Hence, U.S. jurisprudence finds relevance to determining whether coming from either originating or terminating in the U.S. The contract of employment
P.D. No. 1521 or the Ship Mortgage Decree of 1978 applies in the present case. provided that Greek law and a Greek collective bargaining agreement would apply
between the employer and the seaman and that all claims arising out of the
employment contract were to be adjudicated by a Greek court. The U.S. Supreme Court
The various tests used in the U.S. to determine whether a maritime lien exists are the
observed that of the seven factors listed in the Lauritzen test, four were in favor of the
following:
shipowner and against jurisdiction. 'In arriving at the conclusion that the Jones Act
applies, it ruled that the application of the Lauritzen test is not a mechanical one. It
One. 'In a suit to establish and enforce a maritime lien for supplies furnished to a vessel stated thus: '[t]he significance of one or more factors must be considered in light of the
in a foreign port, whether such lien exists, or whether the court has or will exercise national interest served by the assertion of Jones Act jurisdiction. (footnote omitted)
jurisdiction, depends on the law of the country where the supplies were furnished, Moreover, the list of seven factors in Lauritzen was not intended to be exhaustive. x x x
which must be pleaded and proved. [15] This principle was laid down in the 1888 case [T]he shipowner's base of operations is another factor of importance in determining
of The Scotia, [16] reiterated in The Kaiser Wilhelm II [17] (1916), 'in The whether the Jones Act is applicable; and there well may be others.
Woudrichem [18] (1921) and in The City of Atlanta [19] (1924).
 Page 70 of 72

The principles enunciated in these maritime tort cases have been extended to cases ports. In this case, a Swedish company supplied radio equipment in a Spanish port to
involving unpaid supplies and necessaries such as the refurbish a Panamanian vessel damaged by fire. Some of the contract negotiations
cases of Forsythe International U.K., Ltd. v. M/V Ruth Venture, [25] and Comoco occurred in Spain and the agreement for supplies between the parties indicated
Marine Services v. M/V El Centroamericano. [26] Swedish company's willingness to submit to Swedish law. The ship was later sold under
a contract of purchase providing for the application of New York law and was arrested in
Three. The factors provided in Restatement (Second) of Conflicts of Law have also the U.S. The U.S. Court of Appeals also held that while the contacts-based framework
been applied, especially in resolving cases brought under the Federal Maritime Lien Act. set forth in Lauritzen was useful in the analysis of all maritime choice of law situations,
Their application suggests that in the absence of an effective choice of law by the the factors were geared towards a seaman's injury claim. As in Gulf Trading, the lien
parties, the forum contacts to be considered include: (a) the place of contracting; (b) the arose by operation of law because the ship's owner was not a party to the contract
place of negotiation of the contract; (c) the place of performance; (d) the location of the under which the goods were supplied. As a result, the court found it more appropriate
subject matter of the contract; and (e) the domicile, residence, nationality, place of to consider the factors contained in Section 6 of the Restatement (Second) of Conflicts
incorporation and place of business of the parties. [27] of Law. The U.S. Court held that the primary concern of the Federal Maritime Lien Act is
the protection of American suppliers of goods and services.
In Gulf Trading and Transportation Co. v. The Vessel Hoegh Shield, [28] an admiralty
action in rem was brought by an American supplier against a vessel of Norwegian flag The same factors were applied in the case of Ocean Ship Supply, Ltd. v. M/V Leah. [30]
owned by a Norwegian Company and chartered by a London time charterer for unpaid
fuel oil and marine diesel oil delivered while the vessel was in U.S. territory. The II.
contract was executed in London. It was held that because the bunker fuel was
delivered to a foreign flag vessel within the jurisdiction of the U.S., and because the Finding guidance from the foregoing decisions, the Court cannot sustain petitioner
invoice specified payment in the U.S., the admiralty and maritime law of the U.S. Crescent's insistence on the application of P.D. No. 1521 or the Ship Mortgage Decree of
applied. The U.S. Court of Appeals recognized the modern approach to maritime conflict 1978 and hold that a maritime lien exists.
of law problems introduced in the Lauritzen case. However, it observed that Lauritzen
involved a torts claim under the Jones Act while the present claim involves an alleged
First. Out of the seven basic factors listed in the case of Lauritzen, Philippine law only
maritime lien arising from unpaid supplies. It made a disclaimer that its conclusion is
falls under one ' the law of the forum. All other elements are foreign ' Canada is the
limited to the unique circumstances surrounding a maritime lien as well as the statutory
place of the wrongful act, of the allegiance or domicile of the injured and the place of
directives found in the Maritime Lien Statute and that the initial choice of law
contract; India is the law of the flag and the allegiance of the defendant shipowner.
determination is significantly affected by the statutory policies surrounding a maritime
Balancing these basic interests, it is inconceivable that the Philippine court has any
lien. It ruled that the facts in the case call for the application of the Restatement
interest in the case that outweighs the interests of Canada or India for that matter.
(Second) of Conflicts of Law. The U.S. Court gave much significance to the congressional
intent in enacting the Maritime Lien Statute to protect the interests of American
supplier of goods, services or necessaries by making maritime liens available where Second. P.D. No. 1521 or the Ship Mortgage Decree of 1978 is inapplicable following the
traditional services are routinely rendered. It concluded that the Maritime Lien Statute factors under Restatement (Second) of Conflict of Laws. Like the Federal Maritime Lien
represents a relevant policy of the forum that serves the needs of the international legal Act of the U.S., P.D. No. 1521 or the Ship Mortgage Decree of 1978 was enacted
system as well as the basic policies underlying maritime law. The court also gave equal primarily to protect Filipino suppliers and was not intended to create a lien from a
importance to the predictability of result and protection of justified expectations in a contract for supplies between foreign entities delivered in a foreign port.
particular field of law. In the maritime realm, it is expected that when necessaries are
furnished to a vessel in an American port by an American supplier, the American Lien Third. Applying P.D. No. 1521 or the Ship Mortgage Decree of 1978 and rule that a
Statute will apply to protect that supplier regardless of the place where the contract was maritime lien exists would not promote the public policy behind the enactment of the
formed or the nationality of the vessel. law to develop the domestic shipping industry. Opening up our courts to foreign
suppliers by granting them a maritime lien under our laws even if they are not entitled
The same principle was applied in the case of Swedish Telecom Radio v. M/V Discovery to a maritime lien under their laws will encourage forum shopping.
I [29] where the American court refused to apply the Federal Maritime Lien Act to
create a maritime lien for goods and services supplied by foreign companies in foreign
 Page 71 of 72

Finally. The submission of petitioner is not in keeping with the reasonable expectation Even if we apply the doctrine of processual presumption, the result will still be the
of the parties to the contract. Indeed, when the parties entered into a contract for same. Under P.D. No. 1521 or the Ship Mortgage Decree of 1978, the following are the
supplies in Canada, they could not have intended the laws of a remote country like the requisites for maritime liens on necessaries to exist: (1) the 'necessaries' must have
Philippines to determine the creation of a lien by the mere accident of the Vessel's being been furnished to and for the benefit of the vessel; (2) the 'necessaries' must have been
in Philippine territory. necessary for the continuation of the voyage of the vessel; (3) the credit must have been
extended to the vessel; (4) there must be necessity for the extension of the credit; and
III. (5) the necessaries must be ordered by persons authorized to contract on behalf of the
vessel. [34] These do not avail in the instant case.
But under which law should petitioner Crescent prove the existence of its maritime lien?
First. It was not established that benefit was extended to the vessel. While this is
presumed when the master of the ship is the one who placed the order, it is not
In light of the interests of the various foreign elements involved, it is clear that Canada
disputed that in this case it was the sub-charterer Portserv which placed the orders to
has the most significant interest in this dispute. The injured party is a Canadian
petitioner Crescent. [35] Hence, the presumption does not arise and it is incumbent
corporation, the sub-charterer which placed the orders for the supplies is also Canadian,
upon petitioner Crescent to prove that benefit was extended to the vessel. Petitioner
the entity which physically delivered the bunker fuels is in Canada, the place of
did not.
contracting and negotiation is in Canada, and the supplies were delivered in Canada.

Second. Petitioner Crescent did not show any proof that the marine products were
The arbitration clause contained in the Bunker Fuel Agreement which states that New
necessary for the continuation of the vessel.
York law governs the 'construction, validity and performance of the contract is only a
factor that may be considered in the choice-of-law analysis but is not conclusive. As in
the cases of Gulf Trading and Swedish Telecom, the lien that is the subject matter of Third. It was not established that credit was extended to the vessel. It is presumed that
this case arose by operation of law and not by contract because the shipowner was not 'in the absence of fraud or collusion, where advances are made to a captain in a foreign
a party to the contract under which the goods were supplied. port, upon his request, to pay for necessary repairs or supplies to enable his vessel to
prosecute her voyage, or to pay harbor dues, or for pilotage, towage and like services
rendered to the vessel, that they are made upon the credit of the vessel as well as upon
It is worthy to note that petitioner Crescent never alleged and proved Canadian law as
that of her owners. [36] In this case, it was the sub-charterer Portserv which requested
basis for the existence of a maritime lien. To the end, it insisted on its theory that
for the delivery of the bunker fuels. The issuance of two checks amounting to
Philippine law applies. Petitioner contends that even if foreign law applies, since the
US$300,000 in favor of petitioner Crescent prior to the delivery of the bunkers as
same was not properly pleaded and proved, such foreign law must be presumed to be
security for the payment of the obligation weakens petitioner Crescent's contention
the same as Philippine law pursuant to the doctrine of processual presumption.
that credit was extended to the Vessel.

Thus, we are left with two choices: (1) dismiss the case for petitioner's failure to We also note that when copies of the charter parties were submitted by respondents in
establish a cause of action [31] or (2) presume that Canadian law is the same as the Court of Appeals, the time charters between respondent SCI and Halla and between
Philippine law. In either case, the case has to be dismissed. Halla and Transmar were shown to contain a clause which states that the Charterers
shall provide and pay for all the fuel except as otherwise agreed. This militates against
It is well-settled that a party whose cause of action or defense depends upon a foreign petitioner Crescent's position that Portserv is authorized by the shipowner to contract
law has the burden of proving the foreign law. Such foreign law is treated as a question for supplies upon the credit of the vessel.
of fact to be properly pleaded and proved. [32] Petitioner Crescent's insistence on
enforcing a maritime lien before our courts depended on the existence of a maritime Fourth. There was no proof of necessity of credit. A necessity of credit will be presumed
lien under the proper law. By erroneously claiming a maritime lien under Philippine law where it appears that the repairs and supplies were necessary for the ship and that they
instead of proving that a maritime lien exists under Canadian law, petitioner Crescent were ordered by the master. This presumption does not arise in this case since the fuels
failed to establish a cause of action. [33] were not ordered by the master and there was no proof of necessity for the supplies.
 Page 72 of 72

Finally. The necessaries were not ordered by persons authorized to contract in behalf of
the vessel as provided under Section 22 of P.D. No. 1521 or the Ship Mortgage Decree
of 1978 - the managing owner, the ship's husband, master or any person with whom
the management of the vessel at the port of supply is entrusted. Clearly, Portserv, a
sub-charterer under a time charter, is not someone to whom the management of the
vessel has been entrusted. A time charter is a contract for the use of a vessel for a
specified period of time or for the duration of one or more specified voyages wherein
the owner of the time-chartered vessel retains possession and control through the
master and crew who remain his employees. [37] Not enjoying the presumption of
authority, petitioner Crescent should have proved that Portserv was authorized by the
shipowner to contract for supplies. Petitioner failed.

A discussion on the principle of forum non conveniens  is unnecessary.

IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. No. CV 54920, dated
November 28, 2001, and its subsequent Resolution of September 3, 2002 are
AFFIRMED. The instant petition for review on certiorari is DENIED for lack of merit. Cost
against petitioner.

SO ORDERED.