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Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-34382

July 20, 1983

THE HOME INSURANCE COMPANY, petitioner,


vs.
EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION, INC. and HON. A. MELENCIOHERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents.

G.R. No. L-34383

July 20, 1983

THE HOME INSURANCE COMPANY, petitioner,


vs.
N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or GUACODS, INC., and HON. A.
MELENCIO-HERRERA, Presiding Judge of the Manila Court of First Instance, Branch XVII, respondents.

No. L-34382.

Zapa Law Office for petitioner.

Bito, Misa & Lozada Law Office for respondents.

No. L-34383.

Zapa Law Office for petitioner.

Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents.

GUTIERREZ, JR., J.:

Questioned in these consolidated petitions for review on certiorari are the decisions of the Court of First
Instance of Manila, Branch XVII, dismissing the complaints in Civil Case No. 71923 and in Civil Case No.
71694, on the ground that plaintiff therein, now appellant, had failed to prove its capacity to sue.

There is no dispute over the facts of these cases for recovery of maritime damages. In L-34382, the facts
are found in the decision of the respondent court which stated:

On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas Consolidated Mining & Development
Corporation, shipped on board the SS "Eastern Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot
Rolled Copper Wire Rods." The said VESSEL is owned and operated by defendant Eastern Shipping Lines
(CARRIER). The shipment was covered by Bill of Lading No. O-MA-9, with arrival notice to Phelps Dodge
Copper Products Corporation of the Philippines (CONSIGNEE) at Manila. The shipment was insured with
plaintiff against all risks in the amount of P1,580,105.06 under its Insurance Policy No. AS-73633.

xxx xxx xxx

The coils discharged from the VESSEL numbered 2,361, of which 53 were in bad order. What the
CONSIGNEE ultimately received at its warehouse was the same number of 2,361 coils with 73 coils loose
and partly cut, and 28 coils entangled, partly cut, and which had to be considered as scrap. Upon
weighing at CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos as against

its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15 kilos, according to Exhibit "A", or
1,209,56 lbs., according to the claims presented by the consignee against the plaintiff (Exhibit "D-1"), the
CARRIER (Exhibit "J-1"), and the TRANSPORTATION COMPANY (Exhibit "K- l").

For the loss/damage suffered by the cargo, plaintiff paid the consignee under its insurance policy the
amount of P3,260.44, by virtue of which plaintiff became subrogated to the rights and actions of the
CONSIGNEE. Plaintiff made demands for payment against the CARRIER and the TRANSPORTATION
COMPANY for reimbursement of the aforesaid amount but each refused to pay the same. ...

The facts of L-34383 are found in the decision of the lower court as follows:

On or about December 22, 1966, the Hansa Transport Kontor shipped from Bremen, Germany, 30
packages of Service Parts of Farm Equipment and Implements on board the VESSEL, SS "NEDER RIJN"
owned by the defendant, N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the
defendant Columbian Philippines, Inc. (CARRIER). The shipment was covered by Bill of Lading No. 22 for
transportation to, and delivery at, Manila, in favor of the consignee, international Harvester Macleod,
Inc. (CONSIGNEE). The shipment was insured with plaintiff company under its Cargo Policy No. AS-73735
"with average terms" for P98,567.79.

xxx

xxx

xxx

The packages discharged from the VESSEL numbered 29, of which seven packages were found to be in
bad order. What the CONSIGNEE ultimately received at its warehouse was the same number of 29
packages with 9 packages in bad order. Out of these 9 packages, 1 package was accepted by the
CONSIGNEE in good order due to the negligible damages sustained. Upon inspection at the consignee's
warehouse, the contents of 3 out of the 8 cases were also found to be complete and intact, leaving 5
cases in bad order. The contents of these 5 packages showed several items missing in the total amount
of $131.14; while the contents of the undelivered 1 package were valued at $394.66, or a total of
$525.80 or P2,426.98.

For the short-delivery of 1 package and the missing items in 5 other packages, plaintiff paid the
CONSIGNEE under its Insurance Cargo Policy the amount of P2,426.98, by virtue of which plaintiff
became subrogated to the rights and actions of the CONSIGNEE. Demands were made on defendants
CARRIER and CONSIGNEE for reimbursement thereof but they failed and refused to pay the same.

In both cases, the petitioner-appellant made the following averment regarding its capacity to sue:

The plaintiff is a foreign insurance company duly authorized to do business in the Philippines through its
agent, Mr. VICTOR H. BELLO, of legal age and with office address at Oledan Building, Ayala Avenue,
Makati, Rizal.

In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its answer and alleged that it:

Denies the allegations of Paragraph I which refer to plaintiff's capacity to sue for lack of knowledge or
information sufficient to form a belief as to the truth thereof.

Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its answer admitting the allegations
of the complaint, regarding the capacity of plaintiff-appellant. The pertinent paragraph of this answer
reads as follows:

Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of the heading Parties.

In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian Philippines, Inc. and Guacods,
Inc., filed their answers. They denied the petitioner-appellant's capacity to sue for lack of knowledge or
information sufficient to form a belief as to the truth thereof.

As earlier stated, the respondent court dismissed the complaints in the two cases on the same ground,
that the plaintiff failed to prove its capacity to sue. The court reasoned as follows:

In the opinion of the Court, if plaintiff had the capacity to sue, the Court should hold that a) defendant
Eastern Shipping Lines should pay plaintiff the sum of P1,630.22 with interest at the legal rate from
January 5, 1968, the date of the institution of the Complaint, until fully paid; b) defendant Angel Jose
Transportation, Inc. should pay plaintiff the sum of P1,630.22 also with interest at the legal rate from
January 5, 1968 until fully paid; c) the counterclaim of defendant Angel Jose transportation, Inc. should
be ordered dismissed; and d) each defendant to pay one-half of the costs.

The Court is of the opinion that Section 68 of the Corporation Law reflects a policy designed to protect
the public interest. Hence, although defendants have not raised the question of plaintiff's compliance
with that provision of law, the Court has resolved to take the matter into account.

A suing foreign corporation, like plaintiff, has to plead affirmatively and prove either that the transaction
upon which it bases its complaint is an isolated one, or that it is licensed to transact business in this
country, failing which, it will be deemed that it has no valid cause of action (Atlantic Mutual Ins. Co. vs.
Cebu Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of cases filed by plaintiff before this
Court, of which judicial cognizance can be taken, and under the ruling in Far East International Import
and Export Corporation vs. Hankai Koayo Co., 6 SCRA 725, it has to be held that plaintiff is doing
business in the Philippines. Consequently, it must have a license under Section 68 of the Corporation
Law before it can be allowed to sue.

The situation of plaintiff under said Section 68 has been described as follows in Civil Case No. 71923 of
this Court, entitled 'Home Insurance Co. vs. N. V. Nedlloyd Lijnen, of which judicial cognizance can also
be taken:

Exhibit "R",presented by plaintiff is a certified copy of a license, dated July 1, 1967, issued by the Office
of the Insurance Commissioner authorizing plaintiff to transact insurance business in this country. By
virtue of Section 176 of the Insurance Law, it has to be presumed that a license to transact business
under Section 68 of the Corporation Law had previously been issued to plaintiff. No copy thereof,
however, was submitted for a reason unknown. The date of that license must not have been much
anterior to July 1, 1967. The preponderance of the evidence would therefore call for the finding that the
insurance contract involved in this case, which was executed at Makati, Rizal, on February 8, 1967, was
contracted before plaintiff was licensed to transact business in the Philippines.

This Court views Section 68 of the Corporation Law as reflective of a basic public policy. Hence, it is of
the opinion that, in the eyes of Philippine law, the insurance contract involved in this case must be held
void under the provisions of Article 1409 (1) of the Civil Code, and could not be validated by subsequent
procurement of the license. That view of the Court finds support in the following citation:

According to many authorities, a constitutional or statutory prohibition against a foreign corporation


doing business in the state, unless such corporation has complied with conditions prescribed, is effective

to make the contracts of such corporation void, or at least unenforceable, and prevents the
maintenance by the corporation of any action on such contracts. Although the usual construction is to
the contrary, and to the effect that only the remedy for enforcement is affected thereby, a statute
prohibiting a non-complying corporation from suing in the state courts on any contract has been held by
some courts to render the contract void and unenforceable by the corporation, even after its has
complied with the statute." (36 Am. Jur. 2d 299-300).

xxx xxx xxx

The said Civil Case No. 71923 was dismissed by this Court. As the insurance contract involved herein was
executed on January 20, 1967, the instant case should also be dismissed.

We resolved to consolidate the two cases when we gave due course to the petition.

The petitioner raised the following assignments of errors:

First Assignment of Error

THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN ISSUE THE LEGAL EXISTENCE OR
CAPACITY OF PLAINTIFF-APPELLANT.

Second Assignment of Error

THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE COMPLAINT ON THE FINDING THAT
PLAINTIFF-APPELLANT HAS NO CAPACITY TO SUE.

On the basis of factual and equitable considerations, there is no question that the private respondents
should pay the obligations found by the trial court as owing to the petitioner. Only the question of
validity of the contracts in relation to lack of capacity to sue stands in the way of the petitioner being
given the affirmative relief it seeks. Whether or not the petitioner was engaged in single acts or solitary

transactions and not engaged in business is likewise not in issue. The petitioner was engaged in business
without a license. The private respondents' obligation to pay under the terms of the contracts has been
proved.

When the complaints in these two cases were filed, the petitioner had already secured the necessary
license to conduct its insurance business in the Philippines. It could already filed suits.

Petitioner was, therefore, telling the truth when it averred in its complaints that it was a foreign
insurance company duly authorized to do business in the Philippines through its agent Mr. Victor H.
Bello. However, when the insurance contracts which formed the basis of these cases were executed, the
petitioner had not yet secured the necessary licenses and authority. The lower court, therefore,
declared that pursuant to the basic public policy reflected in the Corporation Law, the insurance
contracts executed before a license was secured must be held null and void. The court ruled that the
contracts could not be validated by the subsequent procurement of the license.

The applicable provisions of the old Corporation Law, Act 1459, as amended are:

Sec. 68. No foreign corporation or corporations formed, organized, or existing under any laws other than
those of the Philippine Islands shall be permitted to transact business in the Philippine Islands until after
it shall have obtained a license for that purpose from the chief of the Mercantile Register of the Bureau
of Commerce and Industry, (Now Securities and Exchange Commission. See RA 5455) upon order of the
Secretary of Finance (Now Monetary Board) in case of banks, savings, and loan banks, trust
corporations, and banking institutions of all kinds, and upon order of the Secretary of Commerce and
Communications (Now Secretary of Trade. See 5455, section 4 for other requirements) in case of all
other foreign corporations. ...

xxx xxx xxx

Sec. 69. No foreign corporation or corporation formed, organized, or existing under any laws other than
those of the Philippine Islands shall be permitted to transact business in the Philippine Islands or
maintain by itself or assignee any suit for the recovery of any debt, claim, or demand whatever, unless it
shall have the license prescribed in the section immediately preceding. Any officer, director, or agent of
the corporation or any person transacting business for any foreign corporation not having the license
prescribed shag be punished by imprisonment for not less than six months nor more than two years or

by a fine of not less than two hundred pesos nor more than one thousand pesos, or by both such
imprisonment and fine, in the discretion of the court.

As early as 1924, this Court ruled in the leading case of Marshall Wells Co. v. Henry W. Elser & Co. (46
Phil. 70) that the object of Sections 68 and 69 of the Corporation Law was to subject the foreign
corporation doing business in the Philippines to the jurisdiction of our courts. The Marshall Wells Co.
decision referred to a litigation over an isolated act for the unpaid balance on a bill of goods but the
philosophy behind the law applies to the factual circumstances of these cases. The Court stated:

xxx xxx xxx

Defendant isolates a portion of one sentence of section 69 of the Corporation Law and asks the court to
give it a literal meaning Counsel would have the law read thus: "No foreign corporation shall be
permitted to maintain by itself or assignee any suit for the recovery of any debt, claim, or demand
whatever, unless it shall have the license prescribed in section 68 of the law." Plaintiff, on the contrary,
desires for the court to consider the particular point under discussion with reference to all the law, and
thereafter to give the law a common sense interpretation.

The object of the statute was to subject the foreign corporation doing business in the Philippines to the
jurisdiction of its courts. The object of the statute was not to prevent the foreign corporation from
performing single acts, but to prevent it from acquiring a domicile for the purpose of business without
taking the steps necessary to render it amenable to suit in the local courts. The implication of the law is
that it was never the purpose of the Legislature to exclude a foreign corporation which happens to
obtain an isolated order for business from the Philippines, from securing redress in the Philippine courts,
and thus, in effect, to permit persons to avoid their contracts made with such foreign corporations. The
effect of the statute preventing foreign corporations from doing business and from bringing actions in
the local courts, except on compliance with elaborate requirements, must not be unduly extended or
improperly applied. It should not be construed to extend beyond the plain meaning of its terms,
considered in connection with its object, and in connection with the spirit of the entire law. (State vs.
American Book Co. [1904], 69 Kan, 1; American De Forest Wireless Telegraph Co. vs. Superior Court of
City & Country of San Francisco and Hebbard [1908], 153 Cal., 533; 5 Thompson on Corporations, 2d ed.,
chap. 184.)

Confronted with the option of giving to the Corporation Law a harsh interpretation, which would
disastrously embarrass trade, or of giving to the law a reasonable interpretation, which would markedly

help in the development of trade; confronted with the option of barring from the courts foreign litigants
with good causes of action or of assuming jurisdiction of their cases; confronted with the option of
construing the law to mean that any corporation in the United States, which might want to sell to a
person in the Philippines must send some representative to the Islands before the sale, and go through
the complicated formulae provided by the Corporation Law with regard to the obtaining of the license,
before the sale was made, in order to avoid being swindled by Philippine citizens, or of construing the
law to mean that no foreign corporation doing business in the Philippines can maintain any suit until it
shall possess the necessary license;-confronted with these options, can anyone doubt what our decision
will be? The law simply means that no foreign corporation shall be permitted "to transact business in
the Philippine Islands," as this phrase is known in corporation law, unless it shall have the license
required by law, and, until it complies with the law, shall not be permitted to maintain any suit in the
local courts. A contrary holding would bring the law to the verge of unconstitutionality, a result which
should be and can be easily avoided. (Sioux Remedy Co. vs. Cope and Cope, supra; Perkins, Philippine
Business Law, p. 264.)

To repeat, the objective of the law was to subject the foreign corporation to the jurisdiction of our
courts. The Corporation Law must be given a reasonable, not an unduly harsh, interpretation which does
not hamper the development of trade relations and which fosters friendly commercial intercourse
among countries.

The objectives enunciated in the 1924 decision are even more relevant today when we view commercial
relations in terms of a world economy, when the tendency is to re-examine the political boundaries
separating one nation from another insofar as they define business requirements or restrict marketing
conditions.

We distinguish between the denial of a right to take remedial action and the penal sanction for nonregistration.

Insofar as transacting business without a license is concerned, Section 69 of the Corporation Law
imposed a penal sanction-imprisonment for not less than six months nor more than two years or
payment of a fine not less than P200.00 nor more than P1,000.00 or both in the discretion of the court.
There is a penalty for transacting business without registration.

And insofar as litigation is concerned, the foreign corporation or its assignee may not maintain any suit
for the recovery of any debt, claim, or demand whatever. The Corporation Law is silent on whether or
not the contract executed by a foreign corporation with no capacity to sue is null and void ab initio.

We are not unaware of the conflicting schools of thought both here and abroad which are divided on
whether such contracts are void or merely voidable. Professor Sulpicio Guevarra in his book Corporation
Law (Philippine Jurisprudence Series, U.P. Law Center, pp. 233-234) cites an Illinois decision which holds
the contracts void and a Michigan statute and decision declaring them merely voidable:

xxx xxx xxx

Where a contract which is entered into by a foreign corporation without complying with the local
requirements of doing business is rendered void either by the express terms of a statute or by statutory
construction, a subsequent compliance with the statute by the corporation will not enable it to maintain
an action on the contract. (Perkins Mfg. Co. v. Clinton Const. Co., 295 P. 1 [1930]. See also Diamond Glue
Co. v. U.S. Glue Co., supra see note 18.) But where the statute merely prohibits the maintenance of a
suit on such contract (without expressly declaring the contract "void"), it was held that a failure to
comply with the statute rendered the contract voidable and not void, and compliance at any time before
suit was sufficient. (Perkins Mfg. Co. v. Clinton Const. Co., supra.) Notwithstanding the above decision,
the Illinois statute provides, among other things that a foreign corporation that fails to comply with the
conditions of doing business in that state cannot maintain a suit or action, etc. The court said: 'The
contract upon which this suit was brought, having been entered into in this state when appellant was
not permitted to transact business in this state, is in violation of the plain provisions of the statute, and
is therefore null and void, and no action can be maintained thereon at any time, even if the corporation
shall, at some time after the making of the contract, qualify itself to transact business in this state by a
compliance with our laws in reference to foreign corporations that desire to engage in business here.
(United Lead Co. v. J.M. Ready Elevator Mfg. Co., 222 Ill. 199, 73 N.N. 567 [1906].)

A Michigan statute provides: "No foreign corporation subject to the provisions of this Act, shall maintain
any action in this state upon any contract made by it in this state after the taking effect of this Act, until
it shall have fully complied with the requirement of this Act, and procured a certificate to that effect
from the Secretary of State," It was held that the above statute does not render contracts of a foreign
corporation that fails to comply with the statute void, but they may be enforced only after compliance
therewith. (Hastings Industrial Co. v. Moral, 143 Mich. 679,107 N.E. 706 [1906]; Kuennan v. U.S. Fidelity
& G. Co., Mich. 122; 123 N.W. 799 [1909]; Despres, Bridges & Noel v. Zierleyn, 163 Mich. 399, 128 N.W.
769 [1910]).

It has also been held that where the law provided that a corporation which has not complied with the
statutory requirements "shall not maintain an action until such compliance". "At the commencement of
this action the plaintiff had not filed the certified copy with the country clerk of Madera County, but it
did file with the officer several months before the defendant filed his amended answer, setting up this
defense, as that at the time this defense was pleaded by the defendant the plaintiff had complied with
the statute. The defense pleaded by the defendant was therefore unavailable to him to prevent the
plaintiff from thereafter maintaining the action. Section 299 does not declare that the plaintiff shall not
commence an action in any county unless it has filed a certified copy in the office of the county clerk,
but merely declares that it shall not maintain an action until it has filled it. To maintain an action is not
the same as to commence an action, but implies that the action has already been commenced." (See
also Kendrick & Roberts Inc. v. Warren Bros. Co., 110 Md. 47, 72 A. 461 [1909]).

In another case, the court said: "The very fact that the prohibition against maintaining an action in the
courts of the state was inserted in the statute ought to be conclusive proof that the legislature did not
intend or understand that contracts made without compliance with the law were void. The statute does
not fix any time within which foreign corporations shall comply with the Act. If such contracts were void,
no suits could be prosecuted on them in any court. ... The primary purpose of our statute is to compel a
foreign corporation desiring to do business within the state to submit itself to the jurisdiction of the
courts of this state. The statute was not intended to exclude foreign corporations from the state. It does
not, in terms, render invalid contracts made in this state by non-complying corporations. The better
reason, the wiser and fairer policy, and the greater weight lie with those decisions which hold that
where, as here, there is a prohibition with a penalty, with no express or implied declarations respecting
the validity of enforceability of contracts made by qualified foreign corporations, the contracts ... are
enforceable ... upon compliance with the law." (Peter & Burghard Stone Co. v. Carper, 172 N.E. 319
[1930].)

Our jurisprudence leans towards the later view. Apart from the objectives earlier cited from Marshall
Wells Co. v. Henry W. Elser & Co (supra), it has long been the rule that a foreign corporation actually
doing business in the Philippines without license to do so may be sued in our courts. The defendant
American corporation in General Corporation of the Philippines v. Union Insurance Society of Canton Ltd
et al. (87 Phil. 313) entered into insurance contracts without the necessary license or authority. When
summons was served on the agent, the defendant had not yet been registered and authorized to do
business. The registration and authority came a little less than two months later. This Court ruled:

Counsel for appellant contends that at the time of the service of summons, the appellant had not yet
been authorized to do business. But, as already stated, section 14, Rule 7 of the Rules of Court makes no

distinction as to corporations with or without authority to do business in the Philippines. The test is
whether a foreign corporation was actually doing business here. Otherwise, a foreign corporation
illegally doing business here because of its refusal or neglect to obtain the corresponding license and
authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid
service and thereby impugn the jurisdiction of the local courts. It would indeed be anomalous and quite
prejudicial, even disastrous, to the citizens in this jurisdiction who in all good faith and in the regular
course of business accept and pay for shipments of goods from America, relying for their protection on
duly executed foreign marine insurance policies made payable in Manila and duly endorsed and
delivered to them, that when they go to court to enforce said policies, the insurer who all along has
been engaging in this business of issuing similar marine policies, serenely pleads immunity to local
jurisdiction because of its refusal or neglect to obtain the corresponding license to do business here
thereby compelling the consignees or purchasers of the goods insured to go to America and sue in its
courts for redress.

There is no question that the contracts are enforceable. The requirement of registration affects only the
remedy.

Significantly, Batas Pambansa Blg. 68, the Corporation Code of the Philippines has corrected the
ambiguity caused by the wording of Section 69 of the old Corporation Law.

Section 133 of the present Corporation Code provides:

SEC. 133. Doing business without a license.-No foreign corporation transacting business in the
Philippines without a license, or its successors or assigns, shag be permitted to maintain or intervene in
any action, suit or proceeding in any court or administrative agency in the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or administrative tribunals on
any valid cause of action recognized under Philippine laws.

The old Section 69 has been reworded in terms of non-access to courts and administrative agencies in
order to maintain or intervene in any action or proceeding.

The prohibition against doing business without first securing a license is now given penal sanction which
is also applicable to other violations of the Corporation Code under the general provisions of Section 144
of the Code.

It is, therefore, not necessary to declare the contract nun and void even as against the erring foreign
corporation. The penal sanction for the violation and the denial of access to our courts and
administrative bodies are sufficient from the viewpoint of legislative policy.

Our ruling that the lack of capacity at the time of the execution of the contracts was cured by the
subsequent registration is also strengthened by the procedural aspects of these cases.

The petitioner averred in its complaints that it is a foreign insurance company, that it is authorized to do
business in the Philippines, that its agent is Mr. Victor H. Bello, and that its office address is the Oledan
Building at Ayala Avenue, Makati. These are all the averments required by Section 4, Rule 8 of the Rules
of Court. The petitioner sufficiently alleged its capacity to sue. The private respondents countered either
with an admission of the plaintiff's jurisdictional averments or with a general denial based on lack of
knowledge or information sufficient to form a belief as to the truth of the averments.

We find the general denials inadequate to attack the foreign corporations lack of capacity to sue in the
light of its positive averment that it is authorized to do so. Section 4, Rule 8 requires that "a party
desiring to raise an issue as to the legal existence of any party or the capacity of any party to sue or be
sued in a representative capacity shall do so by specific denial, which shag include such supporting
particulars as are particularly within the pleader's knowledge. At the very least, the private respondents
should have stated particulars in their answers upon which a specific denial of the petitioner's capacity
to sue could have been based or which could have supported its denial for lack of knowledge. And yet,
even if the plaintiff's lack of capacity to sue was not properly raised as an issue by the answers, the
petitioner introduced documentary evidence that it had the authority to engage in the insurance
business at the time it filed the complaints.

WHEREFORE, the petitions are hereby granted. The decisions of the respondent court are reversed and
set aside.

In L-34382, respondent Eastern Shipping Lines is ordered to pay the petitioner the sum of P1,630.22
with interest at the legal rate from January 5, 1968 until fully paid and respondent Angel Jose
Transportation Inc. is ordered to pay the petitioner the sum of P1,630.22 also with interest at the legal
rate from January 5, 1968 until fully paid. Each respondent shall pay one-half of the costs. The
counterclaim of Angel Jose Transportation Inc. is dismissed.

In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil. Inc. is ordered to pay the
petitioner the sum of P2,426.98 with interest at the legal rate from February 1, 1968 until fully paid, the
sum of P500.00 attorney's fees, and costs, The complaint against Guacods, Inc. is dismissed.

SO ORDERED.

Teehankee (Chairman), Plana, Escolin and Relova, JJ., concur.

Melencio-Herrera and Vasquez, JJ., are on leave.

[Synopsis/Syllabi]

THIRD DIVISION

[G.R. No. 115849. January 24, 1996]

FIRST PHILIPPINE INTERNATIONAL BANK (Formerly Producers Bank


of the Philippines) and MERCURIO RIVERA, petitioners, vs.
COURT OF APPEALS, CARLOS EJERCITO, in substitution of
DEMETRIO DEMETRIA, and JOSE JANOLO, respondents.
DECISION
PANGANIBAN, J.:

In the absence of a formal deed of sale, may commitments given by bank officers in
an exchange of letters and/or in a meeting with the buyers constitute a perfected and
enforceable contract of sale over 101 hectares of land in Sta. Rosa, Laguna? Does the
doctrine of apparent authority apply in this case? If so, may the Central Bank-appointed
conservator of Producers Bank (now First Philippine International Bank) repudiate such
apparent authority after said contract has been deemed perfected? During the
pendency of a suit for specific performance, does the filing of a derivative suit by
the majority shareholders and directors of the distressed bank to prevent the
enforcement or implementation of the sale violate the ban against forum-shopping?
Simply stated, these are the major questions brought before this Court in the instant
Petition for review on certiorari under Rule 45 of the Rules of Court, to set aside the
Decision promulgated January 14, 1994 of the respondent Court of Appeals[1] in CAG.R. CV No. 35756 and the Resolution promulgated June 14, 1994 denying the motion
for reconsideration. The dispositive portion of the said Decision reads:

WHEREFORE, the decision of the lower court is MODIFIED by the elimination of


the damages awarded under paragraphs 3, 4 and 6 of its dispositive portion and the
reduction of the award in paragraph 5 thereof to P75,000.00, to be assessed against
defendant bank. In all other aspects, said decision is hereby AFFIRMED.
All references to the original plaintiffs in the decision and its dispositive portion are
deemed, herein and hereafter, to legally refer to the plaintiff-appellee Carlos C.
Ejercito.
Costs against appellant bank.

The dispositive portion of the trial courts [2] decision dated July 10, 1991, on the other
hand, is as follows:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the


plaintiffs and against the defendants as follows:
1. Declaring the existence of a perfected contract to buy and sell over the six (6)
parcels of land situated at Don Jose, Sta. Rosa, Laguna with an area of 101 hectares,
more or less, covered by and embraced in Transfer Certificates of Title Nos. T106932 to T-106937, inclusive, of the Land Records of Laguna, between the plaintiffs
as buyers and the defendant Producers Bank for an agreed price of Five and One Half
Million (P5,500,000.00) Pesos;
2. Ordering defendant Producers Bank of the Philippines, upon finality of this
decision and receipt from the plaintiffs the amount of P5.5 Million, to execute in favor
of said plaintiffs a deed of absolute sale over the aforementioned six (6) parcels of
land, and to immediately deliver to the plaintiffs the owners copies of T.C.T. Nos. T106932 to T-106937, inclusive, for purposes of registration of the same deed and
transfer of the six (6) titles in the names of the plaintiffs;
3. Ordering the defendants, jointly and severally, to pay plaintiffs Jose A. Janolo and
Demetrio Demetria the sums of P 200,000.00 each in moral damages;
4. Ordering the defendants, jointly and severally, to pay plaintiffs the sum of P
100,000.00 as exemplary damages;
5. Ordering the defendants, jointly and severally, to pay the plaintiffs the amount of
P400,000.00 for and by way of attorneys fees;
6. Ordering the defendants to pay the plaintiffs, jointly and severally, actual and
moderate damages in the amount of P20,000.00;
With costs against the defendants.
After the parties filed their comment, reply, rejoinder, sur-rejoinder and reply to surrejoinder, the petition was given due course in a Resolution dated January 18, 1995.
Thence, the parties filed their respective memoranda and reply memoranda. The First
Division transferred this case to the Third Division per resolution dated October 23,
1995. After carefully deliberating on the aforesaid submissions, the Court assigned the
case to the undersigned ponente for the writing of this Decision.

The Parties

Petitioner First Philippine International Bank (formerly Producers Bank of


the Philippines; petitioner Bank, for brevity) is a banking institution organized and
existing under the laws of the Republic of the Philippines. Petitioner Mercurio Rivera
(petitioner Rivera, for brevity) is of legal age and was, at all times material to this case,
Head Manager of the Property Management Department of the petitioner Bank.
Respondent Carlos Ejercito (respondent Ejercito, for brevity) is of legal age and is
the assignee of original plaintiffs-appellees Demetrio Demetria and Jose Janolo.
Respondent Court of Appeals is the court which issued the Decision and Resolution
sought to be set aside through this petition.

The Facts
The facts of this case are summarized in the respondent Courts Decision, [3] as
follows:

(1) In the course of its banking operations, the defendant Producer Bank of the
Philippines acquired six parcels of land with a total area of 101 hectares located at
Don Jose, Sta. Rosa, Laguna, and covered by Transfer Certificates of Title Nos. T106932 to T-106937. The property used to be owned by BYME Investment and
Development Corporation which had them mortgaged with the bank as collateral fora
loan. The original plaintiffs, Demetrio Demetria and Jose O. Janolo, wanted to
purchase the property and thus initiated negotiations for that purpose.
(2) In the early part of August 1987 said plaintiffs, upon the suggestion of BYME
Investments legal counsel, Jose Fajardo, met with defendant Mercurio Rivera,
Manager of the Property Management Department of the defendant bank. The
meeting was held pursuant to plaintiffs plan to buy the property (TSN of Jan. 16,
1990, pp. 7-10). After the meeting, plaintiff Janolo, following the advice of defendant
Rivera, made a formal purchase offer to the bank through a letter dated August 30,
1987 (Exh. B), as follows:
August 30, 1987
The Producers Bank of the Philippines
Makati, Metro Manila
Attn. Mr. Mercurio Q. Rivera
Manager, Property Management Dept.
Gentlemen:

I have the honor to submit my formal offer to purchase your properties covered by
titles listed hereunder located at Sta. Rosa, Laguna, with a total area of 101 hectares,
more or less.
TCT NO. AREA
T-106932 113,580 sq.m.
T-106933 70,899 sq.m.
T-106934 52,246 sq.m.
T-106935 96,768 sq.m.
T-106936 187,114 sq.m.
T-106937 481,481 sq.m.
My offer is for PESOS: THREE MILLION FIVE HUNDRED THOUSAND
(P3,500,000.00) PESOS, in cash.
Kindly contact me at Telephone Number 921-1344.
(3) On September 1, 1987, defendant Rivera made on behalf of the bank a formal
reply by letter which is hereunder quoted (Exh. C):
September 1, 1987
J-P M-P GUTIERREZ ENTERPRISES
142 Charisma St., Doa Andres II
Rosario, Pasig, Metro Manila
Attention: JOSE O. JANOLO Dear Sir:
Dear Sir:
Thank you for your letter-offer to buy our six (6) parcels of acquired lots at Sta. Rosa,
Laguna (formerly owned by Byme industrial Corp.). Please be informed however that
the banks counter-offer is at P5.5 million for more than 101 hectares on lot basis.
We shall be very glad to hear your position on the matter.
Best regards.
(4)On September 17, 1987, plaintiff Janolo, responding to Riveras aforequoted reply,
wrote (Exh.
September 17, 1987

Producers Bank
Paseo de Roxas
Makati, Metro Manila
Attention: Mr. Mercurio Rivera
Gentlemen:
In reply to your letter regarding my proposal to purchase your 101-hectare lot
located at Sta. Rosa Laguna, I would like to amend my previous offer and I now
propose to buy the said lot at P4.250 million in CASH.
Hoping that this proposal meets your satisfaction.
(5) There was no reply to Janolos foregoing letter of September 17, 1987. What took
place was a meeting on September 28, 1987 between the plaintiffs and Luis Co, the
Senior Vice-President of defendant bank. Rivera as well as Fajardo, the BYME
lawyer, attended the meeting. Two days later, or on September 30, 1987, plaintiff
Janolo sent to the bank, through Rivera, the following letter (Exh. E):
The Producers Bank of the Philippines
Paseo de Roxas, Makati
Metro Manila
Attention: Mr. Mercurio Rivera
Re: 101 Hectares of Land in Sta. Rosa, Laguna
Gentlemen:
Pursuant to our discussion last 28 September 1987, we are pleased to inform you that
we are accepting your offer for us to purchase the property at Sta. Rosa, Laguna,
formerly owned by Byme In-vestment, for a total price of PESOS: FIVE MILLION
FIVE HUNDRED THOUSAND (P5,500,000.00).
Thank you.
(6) On October 12, 1987, the conservator of the bank (which has been placed under
conservatorship by the Central Bank since 1984) was replaced by an Acting
Conservator in the person of defendant Leonida T. Encarnacion. On November 4,
1987, defendant Rivera wrote plaintiff Demetria the following letter (Exh. F):
Attention: Atty. Demetrio Demetria

Dear Sir:
Your proposal to buy the properties the bank foreclosed from Byme Investment Corp.
located at Sta. Rosa, Laguna is under study yet as of this time by the newly created
committee for submission to the newly designated Acting Conservator of the bank.
For your information.
(7) What thereafter transpired was a series of demands by the plaintiffs for
compliance by the bank with what plaintiff considered as a perfected contract of sale,
which demands were in one form or another refused by the bank. As detailed by the
trial court in its decision, on November 17, 1987, plaintiffs through a letter to
defendant Rivera (Exhibit G) tendered payment of the amount of P5.5 million
pursuant to (our) perfected sale agreement. Defendants refused to receive both the
payment and the letter. Instead, the parcels of land involved in the transaction were
advertised by the bank for sale to any interested buyer (Exhs. H and H-1). Plaintiffs
demanded the execution by the bank of the documents on what was considered as a
perfected agreement. Thus:
Mr. Mercurio Rivera
Manager, Producers Bank
Paseo de Roxas, Makati
Metro Manila
Dear Mr. Rivera:
This is in connection with the offer of our client, Mr. Jose O. Janolo, to purchase your
101-hectare lot located in Sta. Rosa, Laguna, and which are covered by TCT No. T106932 to 106937.
From the documents at hand, it appears that your counter-offer dated September 1,
1987 of this same lot in the amount of P5.5 million was accepted by our client thru a
letter dated September 30, 1987 and was received by you on October 5, 1987.
In view of the above circumstances, we believe that an agreement has been perfected.
We were also informed that despite repeated follow-up to consummate the purchase,
you now refuse to honor your commitment. Instead, you have advertised for sale the
same lot to others.
In behalf of our client, therefore, we are making this formal demand upon you to
consummate and execute the necessary actions/documentation within three (3) days
from your receipt hereof We are ready to remit the agreed amount of P5.5 million at

your advice. Otherwise, we shall be constrained to file the necessary court action to
protect the interest of our client.
We trust that you will be guided accordingly.
(8) Defendant bank, through defendant Rivera, acknowledged receipt of the foregoing
letter and stated, in its communication of December 2, 1987 (Exh. I), that said letter
has been referred x x x to the office of our Conservator for proper disposition.
However, no response came from the Acting Conservator. On December 14, 1987, the
plaintiffs made a second tender of payment (Exhs. L and L-1), this time through the
Acting Conservator, defendant Encarnacion. Plaintiffs letter reads:
PRODUCERS BANK OF
THE PHILIPPINES
Paseo de Roxas,
Makati, Metro Manila
Attn.: Atty. NIDA ENCARNACION Central Bank Conservator
Gentlemen:
We are sending you herewith, in-behalf of our client, Mr. JOSE O. JANOLO, MBTC
Check No. 258387 in the amount of P5.5 million as our agreed purchase price of the
101-hectare lot covered by TCT Nos. 106932, 106933, 106934, 106935, 106936 and
106937 and registered under Producers Bank.
This is in connection with the perfected agreement consequent from your offer of P5.5
Million as the purchase price of the said lots. Please inform us of the date of
documentation of the sale immediately.
Kindly acknowledge receipt of our payment.
(9) The foregoing letter drew no response for more than four months. Then, on May 3,
1988, plaintiff, through counsel, made a final demand for compliance by the bank
with its obligations under the considered perfected contract of sale (Exhibit N). As
recounted by the trial court (Original Record, p. 656), in a reply letter dated May 12,
1988 (Annex 4 of defendants answer to amended complaint), the defendants through
Acting Conservator Encarnacion repudiated the authority of defendant Rivera and
claimed that his dealings with the plaintiffs, particularly his counter-offer of P5.5
Million are unauthorized or illegal. On that basis, the defendants justified the refusal
of the tenders of payment and the non-compliance with the obligations under what the
plaintiffs considered to be a perfected contract of sale.

(10) On May 16, 1988, plaintiffs filed a suit for specific performance with damages
against the bank, its Manager Rivera and Acting Conservator Encarnacion. The basis
of the suit was that the transaction had with the bank resulted in a perfected contract
of sale. The defendants took the position that there was no such perfected sale because
the defendant Rivera is not authorized to sell the property, and that there was no
meeting of the minds as to the price.
On March 14, 1991, Henry L. Co (the brother of Luis Co), through counsel Sycip
Salazar Hernandez and Gatmaitan, filed a motion to intervene in the trial court,
alleging that as owner of 80% of the Banks outstanding shares of stock, he had a
substantial interest in resisting the complaint. On July 8, 1991, the trial court issued an
order denying the motion to intervene on the ground that it was filed after trial had
already been concluded. It also denied a motion for reconsideration filed thereafter.
From the trial courts decision, the Bank, petitioner Rivera and conservator
Encarnacion appealed to the Court of Appeals which subsequently affirmed with
modification the said judgment. Henry Co did not appeal the denial of his motion for
intervention.
In the course of the proceedings in the respondent Court, Carlos Ejercito was
substituted in place of Demetria and Janolo, in view of the assignment of the latters
rights in the matter in litigation to said private respondent.
On July 11, 1992, during the pendency of the proceedings in the Court of Appeals,
Henry Co and several other stockholders of the Bank, through counsel Angara Abello
Concepcion Regala and Cruz, filed an action (hereafter, the Second Case) -purportedly
a derivative suit - with the Regional Trial Court of Makati, Branch 134, docketed as Civil
Case No. 92-1606, against Encarnacion, Demetria and Janolo to declare any perfected
sale of the property as unenforceable and to stop Ejercito from enforcing or
implementing the sale.[4] In his answer, Janolo argued that the Second Case was barred
by litis pendentia by virtue of the case then pending in the Court of Appeals. During the
pre-trial conference in the Second Case, plaintiffs filed a Motion for Leave of Court to
Dismiss the Case Without Prejudice. Private respondent opposed this motion on the
ground, among others, that plaintiffs act of forum shopping justifies the dismissal of both
cases, with prejudice.[5] Private respondent, in his memorandum, averred that this
motion is still pending in the Makati RTC.
In their Petition[6] and Memorandum,[7] petitioners summarized their position as
follows:
I.

The Court of Appeals erred in declaring that a contract of sale was perfected between
Ejercito (in substitution of Demetria and Janolo) and the bank.
II.

The Court of Appeals erred in declaring the existence of an enforceable contract of


sale between the parties.
III.

The Court of Appeals erred in declaring that the conservator does not have the power
to overrule or revoke acts of previous management.
IV.

The findings and conclusions of the Court of Appeals do not conform to the evidence
on record.
On the other hand, private respondents prayed for dismissal of the instant suit on
the ground[8] that:
I.

Petitioners have engaged in forum shopping.


II.

The factual findings and conclusions of the Court of Appeals are supported by the
evidence on record and may no longer be questioned in this case.
III.

The Court of Appeals correctly held that there was a perfected contract between
Demetria and Janolo (substituted by respondent Ejercito) and the bank.
IV.

The Court of Appeals has correctly held that the conservator, apart from being
estopped from repudiating the agency and the contract, has no authority to revoke the
contract of sale.
The Issues
From the foregoing positions of the parties, the issues in this case may be summed
up as follows:
1) Was there forum-shopping on the part of petitioner Bank?
2) Was there a perfected contract of sale between the parties?

3) Assuming there was, was the said contract enforceable under the statute of
frauds?
4) Did the bank conservator have the unilateral power to repudiate the authority of
the bank officers and/or to revoke the said contract?
5) Did the respondent Court commit any reversible error in its findings of facts?

The First Issue: Was There Forum-Shopping?


In order to prevent the vexations of multiple petitions and actions, the Supreme
Court promulgated Revised Circular No. 28-91 requiring that a party must certify under
oath x x x [that] (a) he has not (t)heretofore commenced any other action or proceeding
involving the same issues in the Supreme Court, the Court of Appeals, or any other
tribunal or agency; (b) to the best of his knowledge, no such action or proceeding is
pending in said courts or agencies. A violation of the said circular entails sanctions that
include the summary dismissal of the multiple petitions or complaints. To be sure,
petitioners have included a VERIFICATION/CERTIFICATION in their Petition stating for
the record(,) the pendency of Civil Case No. 92-1606 before the Regional Trial Court of
Makati, Branch 134, involving a derivative suit filed by stockholders of petitioner Bank
against the conservator and other defendants but which is the subject of a pending
Motion to Dismiss Without Prejudice.[9]
Private respondent Ejercito vigorously argues that in spite of this verification,
petitioners are guilty of actual forum shopping because the instant petition pending
before this Court involves identical parties or interests represented, rights asserted and
reliefs sought (as that) currently pending before the Regional Trial Court, Makati Branch
134 in the Second Case. In fact, the issues in the two cases are so intertwined that a
judgment or resolution in either case will constitute res judicata in the other.[10]
On the other hand, petitioners explain [11] that there is no forum-shopping because:

1) In the earlier or First Case from which this proceeding arose, the Bank was
impleaded as a defendant, whereas in the Second Case (assuming the Bank is the real
party in interest in a derivative suit), it was the plaintiff;
2) The derivative suit is not properly a suit for and in behalf of the corporation under
the circumstances;
3) Although the CERTIFICATION/VERIFICATION (supra) signed by the Bank
president and attached to the Petition identifies the action as a derivative suit, it does
not mean that it is one and (t)hat is a legal question for the courts to decide;
4) Petitioners did not hide the Second Case as they mentioned it in the said
VERIFICATION/CERTIFICATION.

We rule for private respondent.


To begin with, forum-shopping originated as a concept in private international
law, where non-resident litigants are given the option to choose the forum or place
wherein to bring their suit for various reasons or excuses, including to secure procedural
advantages, to annoy and harass the defendant, to avoid overcrowded dockets, or to
select a more friendly venue. To combat these less than honorable excuses, the
principle of forum non convenienswas developed whereby a court, in conflicts of law
cases, may refuse impositions on its jurisdiction where it is not the most convenient or
available forum and the parties are not precluded from seeking remedies elsewhere.
[12]

In this light, Blacks Law Dictionary[13] says that forum-shopping occurs when a party
attempts to have his action tried in a particular court or jurisdiction where he feels he will
receive the most favorable judgment or verdict. Hence, according to Words and
Phrases,[14] a litigant is open to the charge of forum shopping whenever he chooses a
forum with slight connection to factual circumstances surrounding his suit, and litigants
should be encouraged to attempt to settle their differences without imposing undue
expense and vexatious situations on the courts.
In the Philippines, forum-shopping has acquired a connotation encompassing not
only a choice of venues, as it was originally understood in conflicts of laws, but also to a
choice of remedies. As to the first (choice of venues), the Rules of Court, for example,
allow a plaintiff to commence personal actions where the defendant or any of the
defendants resides or may be found, or where the plaintiff or any of the plaintiffs
resides, at the election of the plaintiff (Rule 4, Sec. 2 [b]). As to remedies, aggrieved
parties, for example, are given a choice of pursuing civil liabilities independently of the
criminal, arising from the same set of facts. A passenger of a public utility vehicle
involved in a vehicular accident may sue on culpa contractual, culpa aquiliana or culpa
criminal - each remedy being available independently of the others - although he cannot
recover more than once.

In either of these situations (choice of venue or choice of remedy), the litigant actually
shops for a forum of his action. This was the original concept of the term forum
shopping.
Eventually, however, instead of actually making a choice of the forum of their actions,
litigants, through the encouragement of their lawyers, file their actions in all available
courts, or invoke all relevant remedies simultaneously. This practice had not only
resulted to (sic) conflicting adjudications among different courts and consequent
confusion enimical (sic) to an orderly administration of justice. It had created extreme
inconvenience to some of the parties to the action.
Thus, forum-shopping had acquired a different concept - which is unethical
professional legal practice. And this necessitated or had given rise to the formulation
of rules and canons discouraging or altogether prohibiting the practice.
[15]

What therefore originally started both in conflicts of laws and in our domestic law as
a legitimate device for solving problems has been abused and misused to assure
scheming litigants of dubious reliefs.
To avoid or minimize this unethical practice of subverting justice, the Supreme
Court, as already mentioned, promulgated Circular 28-91. And even before that, the
Court had proscribed it in the Interim Rules and Guidelines issued on January 11,
1983 and had struck down in several cases[16] the inveterate use of this insidious
malpractice. Forum-shopping as the filing of repetitious suits in different courts has been
condemned by Justice Andres R. Narvasa (now Chief Justice) in Minister of Natural
Resources, et al. vs. Heirs of Orval Hughes, et al., as a reprehensible manipulation of
court processes and proceedings x x x.[17] When does forum-shopping take place?

There is forum-shopping whenever, as a result of an adverse opinion in one forum, a


party seeks a favorable opinion (other than by appeal or certiorari) in another. The
principle applies not only with respect to suits filed in the courts but also in
connection with litigations commenced in the courts while an administrative
proceeding is pending, as in this case, in order to defeat administrative processes and
in anticipation of an unfavorable administrative ruling and a favorable court ruling.
This is specially so, as in this case, where the court in which the second suit was
brought, has no jurisdiction
[18]

The test for determining whether a party violated the rule against forum-shopping
has been laid down in the 1986 case of Buan vs. Lopez, [19] also by Chief Justice
Narvasa, and that is, forum-shopping exists where the elements of litis pendentia are
present or where a final judgment in one case will amount to res judicata in the other, as
follows:

There thus exists between the action before this Court and RTC Case No. 86-36563
identity of parties, or at least such parties as represent the same interests in both
actions, as well as identity of rights asserted and relief prayed for, the relief being
founded on the same facts, and the identity on the two preceding particulars is such
that any judgment rendered in the other action, will, regardless of which party is
successful, amount to res adjudicata in the action under consideration: all the
requisites, in fine, ofauter action pendant.
xxx xxx xxx

As already observed, there is between the action at bar and RTC Case No. 86-36563,
an identity as regards parties, or interests represented, rights asserted and relief
sought, as well as basis thereof, to a degree sufficient to give rise to the ground for
dismissal known as auter action pendant or lis pendens. That same identity puts into
operation the sanction of twin dismissals just mentioned. The application of this
sanction will prevent any further delay in the settlement of the controversy which

might ensue from attempts to seek reconsideration of or to appeal from the Order of
the Regional Trial Court in Civil Case No. 86-36563 promulgated on July 15, 1986,
which dismissed the petition upon grounds which appear persuasive.
Consequently, where a litigant (or one representing the same interest or person)
sues the same party against whom another action or actions for the alleged violation of
the same right and the enforcement of the same relief is/are still pending, the defense of
litis pendencia in one case is a bar to the others; and, a final judgment in one would
constitute res judicata and thus would cause the dismissal of the rest. In either case,
forum shopping could be cited by the other party as a ground to ask for summary
dismissal of the two[20] (or more) complaints or petitions, and for the imposition of the
other sanctions, which are direct contempt of court, criminal prosecution, and
disciplinary action against the erring lawyer.
Applying the foregoing principles in the case before us and comparing it with the
Second Case, it is obvious that there exist identity of parties or interests represented,
identity of rights or causes and identity of reliefs sought.
Very simply stated, the original complaint in the court a quo which gave rise to the
instant petition was filed by the buyer (herein private respondent and his predecessorsin-interest) against the seller (herein petitioners) to enforce the alleged perfected sale of
real estate. On the other hand, the complaint [21] in the Second Case seeks to declare
such purported sale involving the same real property as unenforceable as against the
Bank, which is the petitioner herein. In other words, in the Second Case, the majority
stockholders, in representation of the Bank, are seeking to accomplish what the Bank
itself failed to do in the original case in the trial court. In brief, the objective or the relief
being sought, though worded differently, is the same, namely, to enable the petitioner
Bank to escape from the obligation to sell the property to respondent. In Danville
Maritime, Inc. vs. Commission on Audit,[22] this Court ruled that the filing by a party of two
apparently different actions, but with the same objective, constituted forum shopping:

In the attempt to make the two actions appear to be different, petitioner impleaded
different respondents therein - PNOC in the case before the lower court and the COA
in the case before this Court and sought what seems to be different reliefs. Petitioner
asks this Court to set aside the questioned letter-directive of the COA dated October
10, 1988 and to direct said body to approve the Memorandum of Agreement entered
into by and between the PNOC and petitioner, while in the complaint before the lower
court petitioner seeks to enjoin the PNOC from conducting a rebidding and from
selling to other parties the vessel T/T Andres Bonifacio, and for an extension of time
for it to comply with the paragraph 1 of the memorandum of agreement and
damages.One can see that although the relief prayed for in the two (2) actions are
ostensibly different, the ultimate objective in both actions is the same, that is, the
approval of the sale of vessel in favor of petitioner, and to overturn the letter-directive
of the COA ofOctober 10, 1988 disapproving the sale. (italics supplied)

In an earlier case,[23] but with the same logic and vigor, we held:

In other words, the filing by the petitioners of the instant special civil action
for certiorari and prohibition in this Court despite the pendency of their action in the
Makati Regional Trial Court, is a species of forum-shopping. Both actions
unquestionably involve the same transactions, the same essential facts and
circumstances. The petitioners claim of absence of identity simply because the PCGG
had not been impleaded in the RTC suit, and the suit did not involve certain acts
which transpired after its commencement, is specious. In the RTC action, as in the
action before this Court, the validity of the contract to purchase and sell of September
1, 1986, i.e., whether or not it had been efficaciously rescinded, and the propriety of
implementing the same (by paying the pledgee banks the amount of their loans,
obtaining the release of the pledged shares, etc.) were the basic issues. So, too, the
relief was the same: the prevention of such implementation and/or the restoration of
the status quo ante. When the acts sought to be restrained took place anyway despite
the issuance by the Trial Court of a temporary restraining order, the RTC suit did not
become functus oflcio. It remained an effective vehicle for obtention of relief; and
petitioners remedy in the premises was plain and patent: the filing of an amended and
supplemental pleading in the RTC suit, so as to include the PCGG as defendant and
seek nullification of the acts sought to be enjoined but nonetheless done. The remedy
was certainly not the institution of another action in another forum based on
essentially the same facts. The adoption of this latter recourse renders the petitioners
amenable to disciplinary action and both their actions, in this Court as well as in the
Court a quo, dismissible.
In the instant case before us, there is also identity of parties, or at least, of interests
represented. Although the plaintiffs in the Second Case (Henry L. Co. et al.) are not
name parties in the First Case, they represent the same interest and entity, namely,
petitioner Bank, because:

Firstly, they are not suing in their personal capacities, for they have no direct personal
interest in the matter in controversy. They are not principally or even subsidiarily
liable; much less are they direct parties in the assailed contract of sale; and
Secondly, the allegations of the complaint in the Second Case show that the
stockholders are bringing a derivative suit. In the caption itself, petitioners claim to
have brought suit for and in behalf of the Producers Bank of the Philippines. Indeed,
this is the very essence of a derivative suit:
[24]

An individual stockholder is permitted to institute a derivative suit on behalf of the


corporation wherein he holds stock in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or

hold the control of the corporation. In such actions, the suing stockholder is regarded
as a nominal party, with the corporation as the real party in interest. (Gamboa v.
Victoriano, 90 SCRA 40, 47 [1979]; italics supplied).
In the face of the damaging admissions taken from the complaint in the Second
Case, petitioners, quite strangely, sought to deny that the Second Case was a
derivative suit, reasoning that it was brought, not by the minority shareholders, but by
Henry Co et al., who not only own, hold or control over 80% of the outstanding capital
stock, but also constitute the majority in the Board of Directors of petitioner Bank. That
being so, then they really represent the Bank. So, whether they sued derivatively or
directly, there is undeniably an identity of interests/entity represented.
Petitioner also tried to seek refuge in the corporate fiction that the personality of the
Bank is separate and distinct from its shareholders. But the rulings of this Court are
consistent: When the fiction is urged as a means of perpetrating a fraud or an illegal act
or as a vehicle for the evasion of an existing obligation, the circumvention of statutes,
the achievement or perfection of a monopoly or generally the perpetration of knavery or
crime, the veil with which the law covers and isolates the corporation from the members
or stockholders who compose it will be lifted to allow for its consideration merely as an
aggregation of individuals.[25]
In addition to the many cases[26] where the corporate fiction has been disregarded,
we now add the instant case, and declare herewith that the corporate veil cannot be
used to shield an otherwise blatant violation of the prohibition against forum-shopping.
Shareholders, whether suing as the majority in direct actions or as the minority in a
derivative suit, cannot be allowed to trifle with court processes, particularly where, as in
this case, the corporation itself has not been remiss in vigorously prosecuting or
defending corporate causes and in using and applying remedies available to it. To rule
otherwise would be to encourage corporate litigants to use their shareholders as fronts
to circumvent the stringent rules against forum shopping.
Finally, petitioner Bank argued that there cannot be any forum shopping, even
assuming arguendo that there is identity of parties, causes of action and reliefs sought,
because it (the Bank) was the defendant in the (first) case while it was the plaintiff in the
other (Second Case), citing as authority Victronics Computers, Inc. vs. Regional Trial
Court, Branch 63, Makati, etc. et al.,[27] where the Court held:

The rule has not been extended to a defendant who, for reasons known only to him,
commences a new action against the plaintiff - instead of filing a responsive pleading
in the other case - setting forth therein, as causes of action, specific denials, special
and affirmative defenses or even counterclaims. Thus, Velhagens and Kings motion to
dismiss Civil Case No. 91-2069 by no means negates the charge of forum-shopping as
such did not exist in the first place. (italics supplied)
Petitioner pointed out that since it was merely the defendant in the original case, it
could not have chosen the forum in said case.

Respondent, on the other hand, replied that there is a difference in factual setting
between Victronics and the present suit. In the former, as underscored in the abovequoted Court ruling, the defendants did not file any responsive pleading in the first case.
In other words, they did not make any denial or raise any defense or counter-claim
therein. In the case before us however, petitioners filed a responsive pleading to the
complaint - as a result of which, the issues were joined.
Indeed, by praying for affirmative reliefs and interposing counter-claims in their
responsive pleadings, the petitioners became plaintiffs themselves in the original case,
giving unto themselves the very remedies they repeated in the Second Case.
Ultimately, what is truly important to consider in determining whether forumshopping exists or not is the vexation caused the courts and parties-litigant by a party
who asks different courts and/or administrative agencies to rule on the same or related
causes and/or to grant the same or substantially the same reliefs, in the process
creating the possibility of conflicting decisions being rendered by the different fora upon
the same issue. In this case, this is exactly the problem: a decision recognizing the
perfection and directing the enforcement of the contract of sale will directly conflict with
a possible decision in the Second Case barring the parties from enforcing or
implementing the said sale. Indeed, a final decision in one would constitute res
judicata in the other.[28]
The foregoing conclusion finding the existence of forum-shopping notwithstanding,
the only sanction possible now is the dismissal of both cases with prejudice, as the
other sanctions cannot be imposed because petitioners present counsel entered their
appearance only during the proceedings in this Court, and the Petitions
VERIFICATION/CERTIFICATION contained sufficient allegations as to the pendency of
the Second Case to show good faith in observing Circular 28-91. The lawyers who filed
the Second Case are not before us; thus the rudiments of due process prevent us
from motu propio imposing disciplinary measures against them in this Decision.
However, petitioners themselves (and particularly Henry Co, et al.) as litigants are
admonished to strictly follow the rules against forum-shopping and not to trifle with court
proceedings and processes. They are warned that a repetition of the same will be dealt
with more severely.
Having said that, let it be emphasized that this petition should be dismissed not
merely because of forum-shopping but also because of the substantive issues raised,
as will be discussed shortly.

The Second Issue: Was The Contract Perfected?


The respondent Court correctly treated the question of whether or not there was, on
the basis of the facts established, a perfected contract of sale as the ultimate issue.
Holding that a valid contract has been established, respondent Court stated:

There is no dispute that the object of the transaction is that property owned by the
defendant bank as acquired assets consisting of six (6) parcels of land specifically
identified under Transfer Certificates of Title Nos. T-106932 to T-106937. It is
likewise beyond cavil that the bank intended to sell the property. As testified to by the
Banks Deputy Conservator, Jose Entereso, the bank was looking for buyers of the
property. It is definite that the plaintiffs wanted to purchase the property and it was
precisely for this purpose that they met with defendant Rivera, Manager of the
Property Management Department of the defendant bank, in early August 1987. The
procedure in the sale of acquired assets as well as the nature and scope of the authority
of Rivera on the matter is clearly delineated in the testimony of Rivera himself, which
testimony was relied upon by both the bank and by Rivera in their appeal briefs. Thus
(TSN of July 30, 1990. pp. 19-20):
A: The procedure runs this way: Acquired assets was turned over to me and then I
published it in the form of an inter-office memorandum distributed to all branches that
these are acquired assets for sale. I was instructed to advertise acquired assets for sale
so on that basis, I have to entertain offer; to accept offer, formal offer and upon having
been offered, I present it to the Committee. I provide the Committee with necessary
information about the property such as original loan of the borrower, bid price during
the foreclosure, total claim of the bank, the appraised value at the time the property is
being offered for sale and then the information which are relative to the evaluation of
the bank to buy which the Committee considers and it is the Committee that evaluate
as against the exposure of the bank and it is also the Committee that submit to the
Conservator for final approval and once approved, we have to execute the deed of sale
and it is the Conservator that sign the deed of sale, sir.
The plaintiffs, therefore, at that meeting of August 1987 regarding their purpose of
buying the property, dealt with and talked to the right person. Necessarily, the agenda
was the price of the property, and plaintiffs were dealing with the bank official
authorized to entertain offers, to accept offers and to present the offer to the
Committee before which the said official is authorized to discuss information relative
to price determination. Necessarily, too, it being inherent in his authority, Rivera is
the officer from whom official information regarding the price, as determined by the
Committee and approved by the Conservator, can be had. And Rivera confirmed his
authority when he talked with the plaintiff in August 1987. The testimony of plaintiff
Demetria is clear on this point (TSN of May 31, 1990, pp. 27-28):
Q: When you went to the Producers Bank and talked with Mr. Mercurio Rivera, did you
ask him point-blank his authority to sell any property?
A: No, sir. Not point blank although it came from him. (W)hen I asked him how long it
would take because he was saying that the matter of pricing will be passed upon
by the committee. And when I asked him how long it will take for the committee to

decide and he said the committee meets every week. If I am not mistaken
Wednesday and in about two weeks (sic) time, in effect what he was saying he
was not the one who was to decide. But he would refer it to the committee and he
would relay the decision of the committee to me.
Q: Please answer the question.
A: He did not say that he had the authority(.) But he said he would refer the matter to
the committee and he would relay the decision to me and he did just like that.

Parenthetically, the Committee referred to was the Past Due Committee of which Luis
Co was the Head, with Jose Entereso as one of the members.
What transpired after the meeting of early August 1987 are consistent with the
authority and the duties of Rivera and the banks internal procedure in the matter of the
sale of banks assets. As advised by Rivera, the plaintiffs made a formal offer by a
letter dated August 20, 1987 stating that they would buy at the price of P3.5 Million in
cash. The letter was for the attention of Mercurio Rivera who was tasked to convey
and accept such offers. Considering an aspect of the official duty of Rivera as some
sort of intermediary between the plaintiffs-buyers with their proposed buying price on
one hand, and the bank Committee, the Conservator and ultimately the bank itself
with the set price on the other, and considering further the discussion of price at the
meeting of August resulting in a formal offer of P3.5 Million in cash, there can be no
other logical conclusion than that when, on September 1, 1987, Rivera informed
plaintiffs by letter that the banks counter-offer is at P5.5 Million for more than 101
hectares on lot basis, such counter-offer price had been determined by the Past Due
Committee and approved by the Conservator after Rivera had duly presented plaintiffs
offer for discussion by the Committee of such matters as original loan of borrower,
bid price during foreclosure, total claim of the bank, and market value. Tersely put,
under the established facts, the price of P5.5 Million was, as clearly worded in Riveras
letter (Exh. E), the official and definitive price at which the bank was selling the
property.
There were averments by defendants below, as well as before this Court, that the P5.5
Million price was not discussed by the Committee and that it was merely quoted to
start negotiations regarding the price. As correctly characterized by the trial court, this
is not credible. The testimonies of Luis Co and Jose Entereso on this point are at best
equivocal and considering the gratuitous and self-serving character of these
declarations, the banks submission on this point does not inspire belief. Both Co and
Entereso, as members of the Past Due Committee of the bank, claim that the offer of
the plaintiff was never discussed by the Committee. In the same vein, both Co and
Entereso openly admit that they seldom attend the meetings of the Committee. It is
important to note that negotiations on the price had started in early August and the
plaintiffs had already offered an amount as purchase price, having been made to

understand by Rivera, the official in charge of the negotiation, that the price will be
submitted for approval by the bank and that the banks decision will be relayed to
plaintiffs. From the facts, the amount of P5.5 Million has a definite significance. It is
the official bank price. At any rate, the bank placed its official, Rivera, in a position of
authority to accept offers to buy and negotiate the sale by having the offer officially
acted upon by the bank. The bank cannot turn around and later say, as it now does,
that what Rivera states as the banks action on the matter is not in fact so. It is a
familiar doctrine, the doctrine of ostensible authority, that if a corporation knowingly
permits one of its officers, or any other agent, to do acts within the scope of an
apparent authority, and thus holds him out to the public as possessing power to do
those acts, the corporation will, as against any one who has in good faith dealt with
the corporation through such agent, he estopped from denying his authority (Francisco
v. GSIS, 7 SCRA 577, 583-584; PNB v. Court of Appeals, 94 SCRA 357, 369-370;
Prudential Bank v. Court of Appeals, G.R. No. 103957, June 14, 1993).
[29]

Article 1318 of the Civil Code enumerates the requisites of a valid and perfected
contract as follows: (1) Consent of the contracting parties; (2) Object certain which is the
subject matter of the contract; (3) Cause of the obligation which is established.
There is no dispute on requisite no. 2. The object of the questioned contract
consists of the six (6) parcels of land in Sta. Rosa, Laguna with an aggregate area of
about 101 hectares, more or less, and covered by Transfer Certificates of Title Nos. T106932 to T-106937. There is, however, a dispute on the first and third requisites.
Petitioners allege that there is no counter-offer made by the Bank, and any
supposed counter-offer which Rivera (or Co) may have made is unauthorized. Since
there was no counter-offer by the Bank, there was nothing for Ejercito (in substitution of
Demetria and Janolo) to accept.[30] They disputed the factual basis of the respondent
Courts findings that there was an offer made by Janolo for P3.5 million, to which the
Bank counter-offered P5.5 million. We have perused the evidence but cannot find fault
with the said Courts findings of fact. Verily, in a petition under Rule 45 such as this,
errors of fact -if there be any - are, as a rule, not reviewable. The mere fact that
respondent Court (and the trial court as well) chose to believe the evidence presented
by respondent more than that presented by petitioners is not by itself a reversible error.
in fact, such findings merit serious consideration by this Court, particularly where, as in
this case, said courts carefully and meticulously discussed their findings. This is basic.
Be that as it may, and in addition to the foregoing disquisitions by the Court of
Appeals, let us review the question of Riveras authority to act and petitioners allegations
that the P5.5 million counter-offer was extinguished by the P4.25 million revised offer of
Janolo. Here, there are questions of law which could be drawn from the factual findings
of the respondent Court. They also delve into the contractual elements of consent and
cause.
The authority of a corporate officer in dealing with third persons may be actual or
apparent. The doctrine of apparent authority, with special reference to banks, was laid
out in Prudential Bank vs. Court of Appeals, [31] where it was held that:

Conformably, we have declared in countless decisions that the principal is liable for
obligations contracted by the agent. The agents apparent representation yields to the
principals true representation and the contract is considered as entered into between
the principal and the third person (citing National Food Authority vs. Intermediate
Appellate Court, 184 SCRA 166).
A bank is liable for wrongful acts of its officers done in the interests of the bank or in
the course of dealings of the officers in their representative capacity but not for acts
outside the scope of their authority (9 C.J.S., p. 417). A bank holding out its officers
and agents as worthy of confidence will not be permitted to profit by the frauds they
may thus be enabled to perpetrate in the apparent scope of their employment; nor will
it be permitted to shirk its responsibility for such frauds, even though no benefit may
accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking
corporation is liable to innocent third persons where the representation is made in the
course of its business by an agent acting within the general scope of his authority even
though, in the particular case, the agent is secretly abusing his authority and
attempting to perpetrate a fraud upon his principal or some other person, for his own
ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR
1021).
Application of these principles is especially necessary because banks have a fiduciary
relationship with the public and their stability depends on the confidence of the people
in their honesty and efficiency. Such faith will be eroded where banks do not exercise
strict care in the selection and supervision of its employees, resulting in prejudice to
their depositors.
From the evidence found by respondent Court, it is obvious that petitioner Rivera
has apparent or implied authority to act for the Bank in the matter of selling its acquired
assets. This evidence includes the following:

(a) The petition itself in par. II-1 (p. 3) states that Rivera was at all times material to
this case, Manager of the Property Management Department of the Bank. By his own
admission, Rivera was already the person in charge of the Banks acquired assets
(TSN, August 6, 1990, pp. 8-9);
(b) As observed by respondent Court, the land was definitely being sold by the Bank.
And during the initial meeting between the buyers and Rivera, the latter suggested that
the buyers offer should be no less than P3.3 million (TSN, April 26, 1990, pp. 16-17);
(c) Rivera received the buyers letter dated August 30, 1987 offering P3.5 million
(TSN, 30 July 1990, p. 11);

(d) Rivera signed the letter dated September 1, 1987 offering to sell the property for
P5.5 million (TSN, July 30, p. 11);
(e) Rivera received the letter dated September 17, 1987 containing the buyers
proposal to buy the property for P4.25 million (TSN, July 30, 1990, p. 12);
(f) Rivera, in a telephone conversation, confirmed that the P5.5 million was the final
price of the Bank (TSN, January 16, 1990, p. 18);
(g) Rivera arranged the meeting between the buyers and Luis Co on September 28,
1987, during which the Banks offer of P5.5 million was confirmed by Rivera (TSN,
April 26, 1990, pp. 34-35). At said meeting, Co, a major shareholder and officer of the
Bank, confirmed Riveras statement as to the finality of the Banks counter-offer of
P5.5 million (TSN, January 16, 1990, p. 21; TSN, April 26, 1990, p. 35);
(h) In its newspaper advertisements and announcements, the Bank referred to Rivera
as the officer acting for the Bank in relation to parties interested in buying assets
owned/acquired by the Bank. In fact, Rivera was the officer mentioned in the Banks
advertisements offering for sale the property in question (cf. Exhs. S and S-I).
In the very recent case of Limketkai Sons Milling, Inc. vs. Court of Appeals, et
al.,[32] the Court, through Justice Jose A. R. Melo, affirmed the doctrine of apparent
authority as it held that the apparent authority of the officer of the Bank of P.I. in charge
of acquired assets is borne out by similar circumstances surrounding his dealings with
buyers.
To be sure, petitioners attempted to repudiate Riveras apparent authority through
documents and testimony which seek to establish Riveras actual authority. These
pieces of evidence, however, are inherently weak as they consist of Riveras self-serving
testimony and various inter-office memoranda that purport to show his limited actual
authority, of which private respondent cannot be charged with knowledge. In any event,
since the issue is apparent authority, the existence of which is borne out by the
respondent Courts findings, the evidence of actual authority is immaterial insofar as the
liability of a corporation is concerned.[33]
Petitioners also argued that since Demetria and Janolo were experienced lawyers
and their law firm had once acted for the Bank in three criminal cases, they should be
charged with actual knowledge of Riveras limited authority. But the Court of Appeals in
its Decision (p. 12) had already made a factual finding that the buyers had no notice of
Riveras actual authority prior to the sale. In fact, the Bank has not shown that they acted
as its counsel in respect to any acquired assets; on the other hand, respondent has
proven that Demetria and Janolo merely associated with a loose aggrupation of lawyers
(not a professional partnership), one of whose members (Atty. Susana Parker) acted in
said criminal cases.

Petitioners also alleged that Demetrias and Janolos P4.25 million counter-offer in
the letter dated September 17, 1987 extinguished the Banks offer of P5.5 million. [34] They
disputed the respondent Courts finding that there was a meeting of minds when on 30
September 1987 Demetria and Janolo through Annex L (letter dated September 30,
1987) accepted Riveras counter offer of P5.5 million under Annex J (letter dated
September 17, 1987), citing the late Justice Paras, [35] Art. 1319 of the Civil Code[36] and
related Supreme Court rulings starting with Beaumont vs. Prieto.[37]
However, the above-cited authorities and precedents cannot apply in the instant
case because, as found by the respondent Court which reviewed the testimonies on this
point, what was accepted by Janolo in his letter dated September 30, 1987 was the
Banks offer of P5.5 million as confirmed and reiterated to Demetria and Atty. Jose
Fajardo by Rivera and Co during their meeting on September 28, 1987. Note that the
said letter of September 30, 1987begins with (p)ursuant to our discussion last 28
September 1987 x x x.
Petitioners insist that the respondent Court should have believed the testimonies of
Rivera and Co that the September 28, 1987 meeting was meant to have the offerors
improve on their position of P5.5 million.[38] However, both the trial court and the Court of
Appeals found petitioners testimonial evidence not credible, and we find no basis for
changing this finding of fact.
Indeed, we see no reason to disturb the lower courts (both the RTC and the CA)
common finding that private respondents evidence is more in keeping with truth and
logic - that during the meeting on September 28, 1987, Luis Co and Rivera confirmed
that the P5.5 million price has been passed upon by the Committee and could no longer
be lowered (TSN of April 27, 1990, pp. 34-35).[39] Hence, assuming arguendo that the
counter-offer of P4.25 million extinguished the offer of P5.5 million, Luis Cos reiteration
of the said P5.5 million price during the September 28, 1987 meeting revived the said
offer. And by virtue of the September 30, 1987 letter accepting this revived offer, there
was a meeting of the minds, as the acceptance in said letter was absolute and
unqualified.
We note that the Banks repudiation, through Conservator Encarnacion, of Riveras
authority and action, particularly the latters counter-offer of P5.5 million, as being
unauthorized and illegal came only on May 12, 1988 or more than seven (7) months
after Janolos acceptance. Such delay, and the absence of any circumstance which
might have justifiably prevented the Bank from acting earlier, clearly characterizes the
repudiation as nothing more than a last-minute attempt on the Banks part to get out of a
binding contractual obligation.
Taken together, the factual findings of the respondent Court point to an implied
admission on the part of the petitioners that the written offer made on September 1,
1987 was carried through during the meeting of September 28, 1987. This is the
conclusion consistent with human experience, truth and good faith.
It also bears noting that this issue of extinguishment of the Banks offer of P5.5
million was raised for the first time on appeal and should thus be disregarded.

This Court in several decisions has repeatedly adhered to the principle that points of
law, theories, issues of fact and arguments not adequately brought to the attention of
the trial court need not be, and ordinarily will not be, considered by a reviewing court,
as they cannot be raised for the first time on appeal (Santos vs. IAC, No. 74243,
November 14, 1986, 145 SCRA 592).
[40]

xxx It is settled jurisprudence that an issue which was neither averred in the complaint
nor raised during the trial in the court below cannot be raised for the first time on
appeal as it would be offensive to the basic rules of fair play, justice and due process
(Dihiansan vs. CA, 153 SCRA 713 [1987]; Anchuelo vs. IAC, 147 SCRA 434
[1987]; Dulos Realty & Development Corp. vs. CA, 157 SCRA 425 [1988]; Ramos vs.
IAC, 175 SCRA 70 [1989]; Gevero vs. IAC, G.R. 77029, August 30, 1990).
[41]

Since the issue was not raised in the pleadings as an affirmative defense, private
respondent was not given an opportunity in the trial court to controvert the same
through opposing evidence. Indeed, this is a matter of due process. But we passed
upon the issue anyway, if only to avoid deciding the case on purely procedural grounds,
and we repeat that, on the basis of the evidence already in the record and as
appreciated by the lower courts, the inevitable conclusion is simply that there was a
perfected contract of sale.

The Third Issue: Is the Contract Enforceable?


The petition alleged:[42]

Even assuming that Luis Co or Rivera did relay a verbal offer to sell at P5.5 million
during the meeting of 28 September 1987, and it was this verbal offer that Demetria
and Janolo accepted with their letter of 30 September 1987, the contract produced
thereby would be unenforceable by action - there being no note, memorandum or
writing subscribed by the Bank to evidence such contract. (Please see Article 1403[2],
Civil Code.)
Upon the other hand, the respondent Court in its Decision (p. 14) stated:

x x x Of course, the banks letter of September 1, 1987 on the official price and the
plaintiffs acceptance of the price on September 30, 1987, are not, in themselves,
formal contracts of sale. They are however clear embodiments of the fact that a
contract of sale was perfected between the parties, such contract being binding in
whatever form it may have been entered into (case citations omitted). Stated simply,
the banks letter of September 1, 1987, taken together with plaintiffs letter
dated September 30, 1987, constitute in law a sufficient memorandum of a perfected
contract of sale.

The respondent Court could have added that the written communications
commenced not only from September 1, 1987 but from Janolos August 20, 1987 letter.
We agree that, taken together, these letters constitute sufficient memoranda - since
they include the names of the parties, the terms and conditions of the contract, the price
and a description of the property as the object of the contract.
But let it be assumed arguendo that the counter-offer during the meeting
on September 28, 1987 did constitute a new offer which was accepted by Janolo
on September 30, 1987. Still, the statute of frauds will not apply by reason of the failure
of petitioners to object to oral testimony proving petitioner Banks counter-offer of P5.5
million. Hence, petitioners - by such utter failure to object - are deemed to have waived
any defects of the contract under the statute of frauds, pursuant to Article 1405 of the
Civil Code:

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article
1403, are ratified by the failure to object to the presentation of oral evidence to prove
the same, or by the acceptance of benefits under them.
As private respondent pointed out in his Memorandum, oral testimony on the
reaffirmation of the counter-offer of P5.5 million is aplenty -and the silence of petitioners
all throughout the presentation makes the evidence binding on them thus:
A - Yes, sir. I think it was September 28, 1987 and I was again present because Atty.
Demetria told me to accompany him and we were able to meet Luis Co at the
Bank.

xxx xxx xxx


Q - Now, what transpired during this meeting with Luis Co of the Producers Bank?
A - Atty. Demetria asked Mr. Luis Co whether the price could be reduced, sir.
Q - What price?
A - The 5.5 million pesos and Mr. Luis Co said that the amount cited by Mr. Mercurio
Rivera is the final price and that is the price they intends (sic) to have, sir.
Q - What do you mean?
A - That is the amount they want, sir.
Q - What is the reaction of the plaintiff Demetria to Luis Cos statment (sic) that the
defendant Riveras counter-offer of 5.5 million was the defendants bank (sic) final
offer?
A - He said in a day or two, he will make final acceptance, sir.
Q - What is the response of Mr. Luis Co?
A - He said he will wait for the position of Atty. Demetria, sir.

[Direct testimony of Atty. Jose Fajardo, TSN, January 16, 1990, at pp. 18-21.]

----0---Q - What transpired during that meeting between you and Mr. Luis Co of the defendant
Bank?
A - We went straight to the point because he being a busy person, I told him if the
amount of P5.5 million could still be reduced and he said that was already passed
upon by the committee. What the bank expects which was contrary to what Mr.
Rivera stated. And he told me that is the final offer of the bank P5.5 million and we
should indicate our position as soon as possible.
Q - What was your response to the answer of Mr. Luis Co?
A - I said that we are going to give him our answer in a few days and he said that was
it. Atty. Fajardo and I and Mr. Mercurio [Rivera] was with us at the time at his
office.
Q - For the record, your Honor please, will you tell this Court who was with Mr. Co in
his Office in Producers Bank Building during this meeting?
A - Mr. Co himself, Mr. Rivera, Atty. Fajardo and I.
Q - By Mr. Co you are referring to?
A - Mr. Luis Co.
Q - After this meeting with Mr. Luis Co, did you and your partner accede on (sic) the
counter offer by the bank?
A - Yes, sir, we did. Two days thereafter we sent our acceptance to the bank which
offer we accepted, the offer of the bank which is P5.5 million.

[Direct testimony of Atty. Demetria, TSN, 26 April 1990, at pp. 34-36.]


---- 0 ---Q - According to Atty. Demetrio Demetria, the amount of P5.5 million was reached by
the Committee and it is not within his power to reduce this amount. What can you
say to that statement that the amount of P5.5 million was reached by the
Committee?
A - It was not discussed by the Committee but it was discussed initially by Luis Co and
the group of Atty. Demetrio Demetria and Atty. Pajardo (sic), in that September 28,
1987 meeting, sir.

[Direct testimony of Mercurio Rivera, TSN, 30 July 1990, pp. 14-15.]


The Fourth Issue: May the Conservator Revoke
the Perfected and Enforceable Contract?
It is not disputed that the petitioner Bank was under a conservator placed by the
Central Bank of the Philippines during the time that the negotiation and perfection of the
contract of sale took place. Petitioners energetically contended that the conservator has
the power to revoke or overrule actions of the management or the board of directors of

a bank, under Section 28-A of Republic Act No. 265 (otherwise known as the Central
Bank Act) as follows:

Whenever, on the basis of a report submitted by the appropriate supervising or


examining department, the Monetary Board finds that a bank or a non-bank financial
intermediary performing quasi - banking functions is in a state of continuing inability
or unwillingness to maintain a state of liquidity deemed adequate to protect the
interest of depositors and creditors, the Monetary Board may appoint a conservator to
take charge of the assets, liabilities, and the management of that institution, collect all
monies and debts due said institution and exercise all powers necessary to preserve
the assets of the institution, reorganize the management thereof, and restore its
viability. He shall have the power to overrule or revoke the actions of the previous
management and board of directors of the bank or non-bank financial intermediary
performing quasi-banking functions, any provision of law to the contrary
notwithstanding, and such other powers as the Monetary Board shall deem necessary.
In the first place, this issue of the Conservators alleged authority to revoke or
repudiate the perfected contract of sale was raised for the first time in this Petition - as
this was not litigated in the trial court or Court of Appeals. As already stated earlier,
issues not raised and/or ventilated in the trial court, let alone in the Court of Appeals,
cannot be raised for the first time on appeal as it would be offensive to the basic rules of
fair play, justice and due process.[43]
In the second place, there is absolutely no evidence that the Conservator, at the
time the contract was perfected, actually repudiated or overruled said contract of sale.
The Banks acting conservator at the time, Rodolfo Romey, never objected to the sale of
the property to Demetria and Janolo. What petitioners are really referring to is the letter
of Conservator Encarnacion, who took over from Romey after the sale was perfected
on September 30, 1987(Annex V, petition) which unilaterally repudiated - not the
contract - but the authority of Rivera to make a binding offer - and which unarguably
came months after the perfection of the contract. Said letter dated May 12, 1988 is
reproduced hereunder:

May 12, 1988


Atty. Noe C. Zarate
Zarate Carandang Perlas & Ass.
Suite 323 Rufino Building
Ayala Avenue, Makati, Metro Manila
Dear Atty. Zarate:
This pertains to your letter dated May 5, 1988 on behalf of Attys. Janolo and
Demetria regarding the six (6) parcels of land located at Sta. Rosa, Laguna.

We deny that Producers Bank has ever made a legal counter-offer to any of your
clients nor perfected a contract to sell and buy with any of them for the following
reasons.
In the Inter-Office Memorandum dated April 25, 1986 addressed to and approved by
former Acting Conservator Mr. Andres I. Rustia, Producers Bank Senior Manager
Perfecto M. Pascua detailed the functions of Property Management Department
(PMD) staff and officers (Annex A), you will immediately read that Manager Mr.
Mercurio Rivera or any of his subordinates has no authority, power or right to make
any alleged counter-offer. In short, your lawyer-clients did not deal with the
authorized officers of the bank.
Moreover, under Secs. 23 and 36 of the Corporation Code of the Philippines (Batas
Pambansa Blg. 68) and Sec. 28-A of the Central Bank Act (Rep. Act No. 265, as
amended), only the Board of Directors/Conservator may authorize the sale of any
property of the corporation/bank.
Our records do not show that Mr. Rivera was authorized by the old board or by any of
the bank conservators (starting January, 1984) to sell the aforesaid property to any of
your clients. Apparently, what took place were just preliminary discussions/
consultations between him and your clients, which everyone knows cannot bind the
Banks Board or Conservator.
We are, therefore, constrained to refuse any tender of payment by your clients, as the
same is patently violative of corporate and banking laws. We believe that this is more
than sufficient legal justification for refusing said alleged tender.
Rest assured that we have nothing personal against your clients. All our acts are
official, legal and in accordance with law. We also have no personal interest in any of
the properties of the Bank.
Please be advised accordingly.
Very truly yours,
(Sgd.) Leonida T. Encarnacion
LEONIDA T. ENCARNACION
Acting Conservator
In the third place, while admittedly, the Central Bank law gives vast and far-reaching
powers to the conservator of a bank, it must be pointed out that such powers must be
related to the (preservation of) the assets of the bank, (the reorganization of) the
management thereof and (the restoration of) its viability. Such powers, enormous and

extensive as they are, cannot extend to the post-facto repudiation of perfected


transactions, otherwise they would infringe against the non-impairment clause of the
Constitution.[44] If the legislature itself cannot revoke an existing valid contract, how can it
delegate such non-existent powers to the conservator under Section 28-A of said law?
Obviously, therefore, Section 28-A merely gives the conservator power to revoke
contracts that are, under existing law, deemed to be defective - i.e., void, voidable,
unenforceable or rescissible. Hence, the conservator merely takes the place of a banks
board of directors. What the said board cannot do - such as repudiating a contract
validly entered into under the doctrine of implied authority - the conservator cannot do
either. Ineluctably, his power is not unilateral and he cannot simply repudiate valid
obligations of the Bank. His authority would be only to bring court actions to assail such
contracts - as he has already done so in the instant case. A contrary understanding of
the law would simply not be permitted by the Constitution. Neither by common sense.
To rule otherwise would be to enable a failing bank to become solvent, at the expense
of third parties, by simply getting the conservator to unilaterally revoke all previous
dealings which had one way or another come to be considered unfavorable to the Bank,
yielding nothing to perfected contractual rights nor vested interests of the third parties
who had dealt with the Bank.

The Fifth Issue: Were There Reversible Errors of Fact?


Basic is the doctrine that in petitions for review under Rule 45 of the Rules of Court,
findings of fact by the Court of Appeals are not reviewable by the Supreme Court. In
Andres vs. Manufacturers Hanover & Trust Corporation, [45]we held:

x x x. The rule regarding questions of fact being raised with this Court in a petition for
certiorari under Rule 45 of the Revised Rules of Court has been stated in Remalante
vs. Tibe, G.R. No. 59514, February 25, 1988, 158 SCRA 138, thus:
The rule in this jurisdiction is that only questions of law may be raised in a petition
for certiorari under Rule 45 of the Revised Rules of Court. The jurisdiction of the
Supreme Court in cases brought to it from the Court of Appeals is limited to reviewing
and revising the errors of law imputed to it, its findings of the fact being conclusive
[Chan vs. Court of Appeals, G.R. No. L-27488, June 30, 1970, 33 SCRA 737,
reiterating a long line of decisions]. This Court has emphatically declared that it is
not the function of the Supreme Court to analyze or weigh such evidence all
over again, its jurisdiction being limited to reviewing errors of law that might have
been committed by the lower court (Tiongco v. De la Merced, G.R. No. L-24426, July
25, 1974, 58 SCRA 89; Corona vs. Court of Appeals, G.R. No. L-62482, April 28,
1983, 121 SCRA 865; Baniqued vs. Court of Appeals, G.R. No. L-47531, February 20,
1984, 127 SCRA 596). Barring, therefore, a showing that the findings complained of
are totally devoid of support in the record, or that they are so glaringly erroneous as

to constitute serious abuse of discretion, such findings must stand, for this Court is
not expected or required to examine or contrast the oral and documentary evidence
submitted by the parties [Santa Ana, Jr. vs. Hernandez, G.R. No. L-16394, December
17, 1966, 18 SCRA 973] [at pp. 144-145.]
Likewise, in Bernardo vs. Court of Appeals, [46] we held:

The resolution of this petition invites us to closely scrutinize the facts of the case,
relating to the sufficiency of evidence and the credibility of witnesses presented. This
Court so held that it is not the function of the Supreme Court to analyze or weigh such
evidence all over again. The Supreme Courts jurisdiction is limited to reviewing
errors of law that may have been committed by the lower court. The Supreme Court is
not a trier of facts. x x x
As held in the recent case of Chua Tiong Tay vs. Court of Appeals and Goldrock
Construction and Development Corp.:[47]

The Court has consistently held that the factual findings of the trial court, as well as
the Court of Appeals, are final and conclusive and may not be reviewed on appeal.
Among the exceptional circumstances where a reassessment of facts found by the
lower courts is allowed are when the conclusion is a finding grounded entirely on
speculation, surmises or conjectures; when the inference made is manifestly absurd,
mistaken or impossible; when there is grave abuse of discretion in the appreciation of
facts; when the judgment is premised on a misapprehension of facts; when the
findings went beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee. After a careful study of the case at bench,
we find none of the above grounds present to justify the re-evaluation of the findings
of fact made by the courts below.
In the same vein, the ruling of this Court in the recent case of South Sea Surety and
Insurance Company, Inc. vs. Hon. Court of Appeals, et al.[48] is equally applicable to the
present case:

We see no valid reason to discard the factual conclusions of the appellate court. x x x
(I)t is not the function of this Court to assess and evaluate all over again the evidence,
testimonial and documentary, adduced by the parties, particularly where, such as here,
the findings of both the trial court and the appellate court on the matter coincide.
(italics supplied)
Petitioners, however, assailed the respondent Courts Decision as fraught with
findings and conclusions which were not only contrary to the evidence on record but
have no bases at all, specifically the findings that (1) the Banks counter-offer price of
P5.5 million had been determined by the past due committee and approved by

conservator Romey, after Rivera presented the same for discussion and (2) the meeting
with Co was not to scale down the price and start negotiations anew, but a meeting on
the already determined price of P5.5 million. Hence, citing Philippine National Bank vs.
Court of Appeals,[49] petitioners are asking us to review and reverse such factual findings.
The first point was clearly passed upon by the Court of Appeals, [50] thus:

There can be no other logical conclusion than that when, on September 1, 1987,
Rivera informed plaintiffs by letter that the banks counter-offer is at P5.5 Million for
more than 101 hectares on lot basis, such counter-offer price had been determined by
the Past Due Committee and approved by the Conservator after Rivera had duly
presented plaintiffs offer for discussion by the Committee x x x. Tersely put, under the
established fact, the price of P5.5 Million was, as clearly worded in Riveras letter
(Exh. E), the official and definitive price at which the bank was selling the property.
(p. 11, CA Decision)
xxx xxx xxx
xxx. The argument deserves scant consideration. As pointed out by plaintiff, during
the meeting of September 28, 1987 between the plaintiffs, Rivera and Luis Co, the
senior vice-president of the bank, where the topic was the possible lowering of the
price, the bank official refused it and confirmed that the P5.5 Million price had been
passed upon by the Committee and could no longer be lowered (TSN of April 27,
1990, pp. 34-35) (p. 15, CA Decision).
The respondent Court did not believe the evidence of the petitioners on this point,
characterizing it as not credible and at best equivocal, and considering the gratuitous
and self-serving character of these declarations, the banks submissions on this point do
not inspire belief.
To become credible and unequivocal, petitioners should have presented then
Conservator Rodolfo Romey to testify on their behalf, as he would have been in the best
position to establish their thesis. Under the rules on evidence, [51] such suppression gives
rise to the presumption that his testimony would have been adverse, if produced.
The second point was squarely raised in the Court of Appeals, but petitioners
evidence was deemed insufficient by both the trial court and the respondent Court, and
instead, it was respondents submissions that were believed and became bases of the
conclusions arrived at.
In fine, it is quite evident that the legal conclusions arrived at from the findings of
fact by the lower courts are valid and correct. But the petitioners are now asking this
Court to disturb these findings to fit the conclusion they are espousing. This we cannot
do.
To be sure, there are settled exceptions where the Supreme Court may disregard
findings of fact by the Court of Appeals. [52] We have studied both the records and the CA

Decision and we find no such exceptions in this case. On the contrary, the findings of
the said Court are supported by a preponderance of competent and credible evidence.
The inferences and conclusions are reasonably based on evidence duly identified in the
Decision. Indeed, the appellate court patiently traversed and dissected the issues
presented before it, lending credibility and dependability to its findings. The best that
can be said in favor of petitioners on this point is that the factual findings of respondent
Court did not correspond to petitioners claims, but were closer to the evidence as
presented in the trial court by private respondent. But this alone is no reason to reverse
or ignore such factual findings, particularly where, as in this case, the trial court and the
appellate court were in common agreement thereon. Indeed, conclusions of fact of a
trial judge - as affirmed by the Court of Appeals - are conclusive upon this Court, absent
any serious abuse or evident lack of basis or capriciousness of any kind, because the
trial court is in a better position to observe the demeanor of the witnesses and their
courtroom manner as well as to examine the real evidence presented.

Epilogue
In summary, there are two procedural issues involved - forum-shopping and the
raising of issues for the first time on appeal [viz., the extinguishment of the Banks offer
of P5.5 million and the conservators powers to repudiate contracts entered into by the
Banks officers] - which per se could justify the dismissal of the present case. We did not
limit ourselves thereto, but delved as well into the substantive issues - the perfection of
the contract of sale and its enforceability, which required the determination of questions
of fact. While the Supreme Court is not a trier of facts and as a rule we are not required
to look into the factual bases of respondent Courts decisions and resolutions, we did so
just the same, if only to find out whether there is reason to disturb any of its factual
findings, for we are only too aware of the depth, magnitude and vigor by which the
parties, through their respective eloquent counsel, argued their positions before this
Court.
We are not unmindful of the tenacious plea that the petitioner Bank is operating
abnormally under a government-appointed conservator and there is need to rehabilitate
the Bank in order to get it back on its feet x x x as many people depend on (it) for
investments, deposits and well as employment. As of June 1987, the Banks overdraft
with the Central Bank had already reached P1.023 billion x x x and there were (other)
offers to buy the subject properties for a substantial amount of money. [53]
While we do not deny our sympathy for this distressed bank, at the same time, the
Court cannot emotionally close its eyes to overriding considerations of substantive and
procedural law, like respect for perfected contracts, non-impairment of obligations and
sanctions against forum-shopping, which must be upheld under the rule of law and blind
justice.
This Court cannot just gloss over private respondents submission that, while the
subject properties may currently command a much higher price, it is equally true that at
the time of the transaction in 1987, the price agreed upon of P5.5 million was

reasonable, considering that the Bank acquired these properties at a foreclosure sale
for no more than P 3.5 million.[54] That the Bank procrastinated and refused to honor its
commitment to sell cannot now be used by it to promote its own advantage, to enable it
to escape its binding obligation and to reap the benefits of the increase in land values.
To rule in favor of the Bank simply because the property in question has algebraically
accelerated in price during the long period of litigation is to reward lawlessness and
delays in the fulfillment of binding contracts. Certainly, the Court cannot stamp its
imprimatur on such outrageous proposition.
WHEREFORE, finding no reversible error in the questioned Decision and
Resolution, the Court hereby DENIES the petition. The assailed Decision is AFFIRMED.
Moreover, petitioner Bank is REPRIMANDED for engaging in forum-shopping and
WARNED that a repetition of the same or similar acts will be dealt with more severely.
Costs against petitioners.
SO ORDERED.
Narvasa, C.J. (Chairman), Davide, Jr., Melo, and Francisco, JJ., concur.

355 U.S. 220 (78 S.Ct. 199, 2 L.Ed.2d 223)

Lulu B. McGEE, Petitioner, v. INTERNATIONAL LIFE INSURANCE COMPANY.

No. 50.

Argued: Nov. 20, 1957.

Decided: Dec. 16, 1957.

Mr. Arthur J. Mandell, Houston, Tex., for the petitioner.

Mr. Stanley Hornsby, Austin, for the respondent.

Opinion of the Court by Mr. Justice BLACK, announced by Mr. Justice DOUGLAS.

Petitioner, Lulu B. McGee, recovered a judgment in a California state court against respondent,
International Life Insurance Company, on a contract of insurance. Respondent was not served with
process in California but by registered mail at its principal place of business in Texas. The California court
based its jurisdiction on a state statute which subjects foreign corporations to suit in California on
insurance contracts with residents of that State even though such corporations cannot be served with
process within its borders. 1

Unable to collect the judgment in California petitioner went to Texas where she filed suit on the
judgment in a Texas court. But the Texas courts refused to enforce her judgment holding it was void
under the Fourteenth Amendment because service of process outside California could not give the
courts of that State jurisdiction over respondent. 288 S.W.2d 579. Since the case raised important
questions, not only to California but to other States which have similar laws, we granted certiorari. 352
U.S. 924, 77 S.Ct. 239, 1 L.Ed.2d 160. It is not controverted that if the California court properly exercised

jurisdiction over respondent the Texas courts erred in refusing to give its judgment full faith and credit.
28 U.S.C. 1738, 28 U.S.C.A. 1738.

The material facts are relatively simple. In 1944, Lowell Franklin, a resident of California, purchased a life
insurance policy from the Empire Mutual Insurance Company, an Arizona corporation. In 1948 the
respondent agreed with Empire Mutual to assume its insurance obligations. Respondent then mailed a
reinsurance certificate to Franklin in California offering to insure him in accordance with the terms of the
policy he held with Empire Mutual. He accepted this offer and from that time until his death in 1950
paid premiums by mail from his California home to respondent's Texas office. Petitioner Franklin's
mother, was the beneficiary under the policy. She sent proofs of his death to the respondent but it
refused to pay claiming that he had committed suicide. It appears that neither Empire Mutual nor
respondent has ever had any office or agent in California. And so far as the record before us shows,
respondent has never solicited or done any insurance business in California apart from the policy
involved here.

Since Pennoyer v. Neff, 95 U.S. 714, 24 L.Ed. 565, this Court has held that the Due Process Clause of the
Fourteenth Amendment places some limit on the power of state courts to enter binding judgments
against persons not served with process within their boundaries. But just where this line of limitation
falls has been the subject of prolific controversy, particularly with respect to foreign corporations. In a
continuing process of evolution this Court accepted and then abandoned 'consent,' 'doing business,' and
'presence' as the standard for measuring the extent of state judicial power over such corporations. See
Henderson, The Position of Foreign Corporations in American Constitutional Law, c. V. More recently in
International Shoe Co. v. State of Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95, the Court decided
that 'due process requires only that in order to subject a defendant to a judgment in personam, if he be
not present within the territory of the forum, he have certain minimum contacts with it such that the
maintenance of the suit does not offend 'traditional notions of fair play and substantial justice." Id., 326
U.S. at page 316, 66 S.Ct. at page 158.

Looking back over this long history of litigation a trend is clearly discernible toward expanding the
permissible scope of state jurisdiction over foreign corporations and other nonresidents. In part this is
attributable to the fundamental transformation of our national economy over the years. Today many
commercial transactions touch two or more States and may involve parties separated by the full
continent. With this increasing nationalization of commerce has come a great increase in the amount of
business conducted by mail across state lines. At the same time modern transportation and
communication have made it much less burdensome for a party sued to defend himself in a State where
he engages in economic activity.

Turning to this case we think it apparent that the Due Process Clause did not preclude the California
court from entering a judgment binding on respondent. It is sufficient for purposes of due process that
the suit was based on a contract which had substantial connection with that State. Cf. Hess v. Pawloski,
274 U.S. 352, 47 S.Ct. 632, 71 L.Ed. 1091; Henry L. Doherty & Co. v. Goodman, 294 U.S. 623, 55 S.Ct. 553,
79 L.Ed. 1097; Pennoyer v. Neff, 95 U.S. 714, 735, 24 L.Ed. 565. 2 The contract was delivered in
California, the premiums were mailed from there and the insured was a resident of that State when he
died. It cannot be denied that California has a manifest interest in providing effective means of redress
for its residents when their insurers refuse to pay claims. These residents would be at a severe
disadvantage if they were forced to follow the insurance company to a distant State in order to hold it
legally accountable. When claims were small or moderate individual claimants freguently could not
afford the cost of bringing an action in a foreign forumthus in effect making the company judgment
proof. Often the crucial witnessesas here on the company's defense of suicidewill be found in the
insured's locality. Of course there may be inconvenience to the insurer if it is held amenable to suit in
California where it had this contract but certainly nothing which amounts to a denial of due process. Cf.
Travelers Health Ass'n v. Commonwealth of Virginia ex rel. State Corporation Comm., 339 U.S. 643, 70
S.Ct. 927, 94 L.Ed. 1154. There is no contention that respondent did not have adequate notice of the suit
or sufficient time to prepare its defenses and appear.

The California statute became law in 1949, after respondent had entered into the agreement with
Franklin to assume Empire Mutual's obligation to him. Respondent contends that application of the
statute to this existing contract improperly impairs the obligation of the contract. We believe that
contention is devoid of merit. The statute was remedial, in the purest sense of that term, and neither
enlarged nor impaired respondent's substantive rights or obligations under the contract. It did nothing
more than to provide petitioner with a California forum to enforce whatever substantive rights she
might have against respondent. At the same time respondent was given a reasonable time to appear
and defend on the merits after being notified of the suit. Under such circumstances it had no vested
right not to be sued in California. Cf. Bernheimer v. Converse, 206 U.S. 516, 27 S.Ct. 755, 51 L.Ed. 1163;
National Surety Co. v. Architectural Decorating Co., 226 U.S. 276, 33 S.Ct. 17, 57 L.Ed. 221; Funkhouser v.
J. B. Preston Co., Inc., 290 U.S. 163, 54 S.Ct. 134, 78 L.Ed. 243.

The judgment is reversed and the cause is remanded to the Court of Civil Appeals of the State of Texas,
First Supreme Judicial District, for further proceedings not inconsistent with this opinion.

It is so ordered.

Judgment reversed and cause remanded with directions.

The CHIEF JUSTICE took no part in the consideration or decision of this case.

CC | Transformed by Public.Resource.Org

Cal.Insurance Code, West's Anno. 16101620.

And see Ace Grain Co. v. American Eagle Fire Ins. Co., D.C., 95 F.Supp. 784; Storey v. United Ins. Co., D.C.,
64 F.Supp. 896; S. Howes Co., Inc. v. W.P. Milling Co., Okl., 277 P.2d 655; Compania de Astral, S.A. v.
Boston Metals Co., 205 Md. 237, 107 A.2d 357, 108 A.2d 372, 49 A.L.R.2d 646, certiorari denied 348 U.S.
943, 75 S.Ct. 365, 99 L.Ed. 738; Zacharakis v. Bunker Hill Mut. Ins. Co., 281 App.Div. 487, 120 N.Y.S.2d
418; Smyth v. Twin State Improvement Co., 116 Vt. 569, 80 A.2d 664, 25 A.L.R.2d 1193.