IV.

Dissolution of Marriage

(1) Annulment
(2) Absolute Divorce

Cases:

ROEHR VS RODRIGUEZ

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 142820 June 20, 2003

WOLFGANG O. ROEHR, petitioner,

vs.
MARIA CARMEN D. RODRIGUEZ, HON. JUDGE JOSEFINA GUEVARA-SALONGA,
Presiding Judge of Makati RTC, Branch 149, respondents.

QUISUMBING, J.:

At the core of the present controversy are issues of (a) grave abuse of discretion allegedly
committed by public respondent and (b) lack of jurisdiction of the regional trial court, in matters
that spring from a divorce decree obtained abroad by petitioner.

In this special civil action for certiorari, petitioner assails (a) the order 1 dated September 30,
1999 of public respondent Judge Josefina Guevara-Salonga, Presiding Judge of Makati
Regional Trial Court,2 Branch 149, in Civil Case No. 96-1389 for declaration of nullity of
marriage, and (b) the order3 dated March 31, 2000 denying his motion for reconsideration. The
assailed orders partially set aside the trial court‘s order dismissing Civil Case No. 96-1389, for
the purpose of resolving issues relating to the property settlement of the spouses and the
custody of their children.

Petitioner Wolfgang O. Roehr, a German citizen and resident of Germany, married private
respondent Carmen Rodriguez, a Filipina, on December 11, 1980 in Hamburg, Germany. Their
marriage was subsequently ratified on February 14, 1981 in Tayasan, Negros Oriental. 4 Out of
their union were born Carolynne and Alexandra Kristine on November 18, 1981 and October 25,
1987, respectively.

On August 28, 1996, private respondent filed a petition 5 for declaration of nullity of marriage
before the Regional Trial Court (RTC) of Makati City. On February 6, 1997, petitioner filed a
motion to dismiss,6 but it was denied by the trial court in its order7 dated May 28, 1997.
On June 5, 1997, petitioner filed a motion for reconsideration, but was also denied in an
order8 dated August 13, 1997. On September 5, 1997, petitioner filed a petition for certiorari with
the Court of Appeals. On November 27, 1998, the appellate court denied the petition and
remanded the case to the RTC.

Meanwhile, petitioner obtained a decree of divorce from the Court of First Instance of Hamburg-
Blankenese, promulgated on December 16, 1997.

The decree provides in part:

[T]he Court of First Instance, Hamburg-Blankenese, Branch 513, has ruled through
Judge van Buiren of the Court of First Instance on the basis of the oral proceedings held
on 4 Nov. 1997:

The marriage of the Parties contracted on 11 December 1980 before the Civil Registrar
of Hamburg-Altona is hereby dissolved.

The parental custody for the children

Carolynne Roehr, born 18 November 1981

Alexandra Kristine Roehr, born on 25 October 1987

is granted to the father.

The litigation expenses shall be assumed by the Parties. 9

In view of said decree, petitioner filed a Second Motion to Dismiss on May 20, 1999 on the
ground that the trial court had no jurisdiction over the subject matter of the action or suit as a
decree of divorce had already been promulgated dissolving the marriage of petitioner and
private respondent.

On July 14, 1999, Judge Guevara-Salonga issued an order granting petitioner‘s motion to
dismiss. Private respondent filed a Motion for Partial Reconsideration, with a prayer that the
case proceed for the purpose of determining the issues of custody of children and the
distribution of the properties between petitioner and private respondent.

On August 18, 1999, an Opposition to the Motion for Partial Reconsideration was filed by the
petitioner on the ground that there is nothing to be done anymore in the instant case as the
marital tie between petitioner Wolfgang Roehr and respondent Ma. Carmen D. Rodriguez had
already been severed by the decree of divorce promulgated by the Court of First Instance of
Hamburg, Germany on December 16, 1997 and in view of the fact that said decree of divorce
had already been recognized by the RTC in its order of July 14, 1999, through the
implementation of the mandate of Article 26 of the Family Code,10 endowing the petitioner with
the capacity to remarry under the Philippine law.

On September 30, 1999, respondent judge issued the assailed order partially setting aside her
order dated July 14, 1999 for the purpose of tackling the issues of property relations of the
spouses as well as support and custody of their children. The pertinent portion of said order
provides:

Acting on the Motion for Partial Reconsideration of the Order dated July 14, 1999 filed by
petitioner thru counsel which was opposed by respondent and considering that the
second paragraph of Article 26 of the Family Code was included as an amendment thru
Executive Order 227, to avoid the absurd situation of a Filipino as being still married to
his or her alien spouse though the latter is no longer married to the Filipino spouse
because he/she had obtained a divorce abroad which is recognized by his/her national
law, and considering further the effects of the termination of the marriage under Article
43 in relation to Article 50 and 52 of the same Code, which include the dissolution of the
property relations of the spouses, and the support and custody of their children, the
Order dismissing this case is partially set aside with respect to these matters which may
be ventilated in this Court.

SO ORDERED.11 (Emphasis supplied.)

Petitioner filed a timely motion for reconsideration on October 19, 1999, which was denied by
respondent judge in an order dated March 31, 2000. 12

Petitioner ascribes lack of jurisdiction of the trial court and grave abuse of discretion on the part
of respondent judge. He cites as grounds for his petition the following:

1. Partially setting aside the order dated July 14, 1999 dismissing the instant case is not
allowed by 1997 Rules of Civil Procedure. 13

2. Respondent Maria Carmen Rodriguez by her motion for Partial Reconsideration had
recognized and admitted the Divorce Decision obtained by her ex-husband in Hamburg,
Germany.14

3. There is nothing left to be tackled by the Honorable Court as there are no conjugal
assets alleged in the Petition for Annulment of Marriage and in the Divorce petition, and
the custody of the children had already been awarded to Petitioner Wolfgang Roehr. 15

Pertinent in this case before us are the following issues:

1. Whether or not respondent judge gravely abused her discretion in issuing her order
dated September 30, 1999, which partially modified her order dated July 14, 1999; and

2. Whether or not respondent judge gravely abused her discretion when she assumed
and retained jurisdiction over the present case despite the fact that petitioner has
already obtained a divorce decree from a German court.

On the first issue, petitioner asserts that the assailed order of respondent judge is completely
inconsistent with her previous order and is contrary to Section 3, Rule 16, Rules of Civil
Procedure, which provides:

Sec. 3. Resolution of motion - After the hearing, the court may dismiss the action or
claim, deny the motion, or order the amendment of the pleading.
 The court shall not defer the resolution of the motion for the reason that the ground
relied upon is not indubitable.

In every case, the resolution shall state clearly and distinctly the reasons therefor.
(Emphasis supplied.)

Petitioner avers that a court‘s action on a motion is limited to dismissing the action or claim,
denying the motion, or ordering the amendment of the pleading.

Private respondent, on her part, argues that the RTC can validly reconsider its order dated July
14, 1999 because it had not yet attained finality, given the timely filing of respondent‘s motion
for reconsideration.

Pertinent to this issue is Section 3 in relation to Section 7, Rule 37 of the 1997 Rules of Civil
Procedure, which provides:

Sec. 3. Action upon motion for new trial or reconsideration.—The trial court may set
aside the judgment or final order and grant a new trial, upon such terms as may be just,
or may deny the motion. If the court finds that excessive damages have been
awarded or that the judgment or final order is contrary to the evidence or law, it may
amend such judgment or final order accordingly.

Sec. 7. Partial new trial or reconsideration.—If the grounds for a motion under this Rule
appear to the court to affect the issues as to only a part, or less than all of the matters in
controversy, or only one, or less than all, of the parties to it, the court may order a new
trial or grant reconsideration as to such issues if severable without interfering with the
judgment or final order upon the rest. (Emphasis supplied.)

It is clear from the foregoing rules that a judge can order a partial reconsideration of a case that
has not yet attained finality. Considering that private respondent filed a motion for
reconsideration within the reglementary period, the trial court's decision of July 14, 1999 can still
be modified. Moreover, in Sañado v. Court of Appeals,16we held that the court could modify or
alter a judgment even after the same has become executory whenever circumstances transpire
rendering its decision unjust and inequitable, as where certain facts and circumstances justifying
or requiring such modification or alteration transpired after the judgment has become final and
executory17 and when it becomes imperative in the higher interest of justice or when
supervening events warrant it.18 In our view, there are even more compelling reasons to do so
when, as in this case, judgment has not yet attained finality.

Anent the second issue, petitioner claims that respondent judge committed grave abuse of
discretion when she partially set aside her order dated July 14, 1999, despite the fact that
petitioner has already obtained a divorce decree from the Court of First Instance of Hamburg,
Germany.

In Garcia v. Recio,19 Van Dorn v. Romillo, Jr.,20 and Llorente v. Court of Appeals,21 we
consistently held that a divorce obtained abroad by an alien may be recognized in our
jurisdiction, provided such decree is valid according to the national law of the foreigner.
Relevant to the present case is Pilapil v. Ibay-Somera,22 where this Court specifically
recognized the validity of a divorce obtained by a German citizen in his country, the Federal
Republic of Germany. We held in Pilapil that a foreign divorce and its legal effects may be
recognized in the Philippines insofar as respondent is concerned in view of the nationality
principle in our civil law on the status of persons.

In this case, the divorce decree issued by the German court dated December 16, 1997 has not
been challenged by either of the parties. In fact, save for the issue of parental custody, even the
trial court recognized said decree to be valid and binding, thereby endowing private respondent
the capacity to remarry. Thus, the present controversy mainly relates to the award of the
custody of their two children, Carolynne and Alexandra Kristine, to petitioner.

As a general rule, divorce decrees obtained by foreigners in other countries are recognizable in
our jurisdiction, but the legal effects thereof, e.g. on custody, care and support of the children,
must still be determined by our courts. 23 Before our courts can give the effect of res judicata to a
foreign judgment, such as the award of custody to petitioner by the German court, it must be
shown that the parties opposed to the judgment had been given ample opportunity to do so on
grounds allowed under Rule 39, Section 50 of the Rules of Court (now Rule 39, Section 48,
1997 Rules of Civil Procedure), to wit:

SEC. 50. Effect of foreign judgments. - The effect of a judgment of a tribunal of a foreign
country, having jurisdiction to pronounce the judgment is as follows:

(a) In case of a judgment upon a specific thing, the judgment is conclusive upon the title
to the thing;

(b) In case of a judgment against a person, the judgment is presumptive evidence of a

right as between the parties and their successors in interest by a subsequent title; but
the judgment may be repelled by evidence of a want of jurisdiction, want of notice to the
party, collusion, fraud, or clear mistake of law or fact.

It is essential that there should be an opportunity to challenge the foreign judgment, in order for
the court in this jurisdiction to properly determine its efficacy. In this jurisdiction, our Rules of
Court clearly provide that with respect to actions in personam, as distinguished from actions in
rem, a foreign judgment merely constitutes prima facieevidence of the justness of the claim of a
party and, as such, is subject to proof to the contrary. 24

In the present case, it cannot be said that private respondent was given the opportunity to
challenge the judgment of the German court so that there is basis for declaring that judgment
as res judicata with regard to the rights of petitioner to have parental custody of their two
children. The proceedings in the German court were summary. As to what was the extent of
private respondent‘s participation in the proceedings in the German court, the records remain
unclear. The divorce decree itself states that neither has she commented on the
proceedings25 nor has she given her opinion to the Social Services Office. 26 Unlike petitioner
who was represented by two lawyers, private respondent had no counsel to assist her in said
proceedings.27 More importantly, the divorce judgment was issued to petitioner by virtue of the
German Civil Code provision to the effect that when a couple lived separately for three years,
the marriage is deemed irrefutably dissolved. The decree did not touch on the issue as to who
the offending spouse was. Absent any finding that private respondent is unfit to obtain custody
of the children, the trial court was correct in setting the issue for hearing to determine the issue
of parental custody, care, support and education mindful of the best interests of the children.
This is in consonance with the provision in the Child and Youth Welfare Code that the child‘s
welfare is always the paramount consideration in all questions concerning his care and
custody. 28

On the matter of property relations, petitioner asserts that public respondent exceeded the
bounds of her jurisdiction when she claimed cognizance of the issue concerning property
relations between petitioner and private respondent. Private respondent herself has admitted in
Par. 14 of her petition for declaration of nullity of marriage dated August 26, 1996 filed with the
RTC of Makati, subject of this case, that: "[p]etitioner and respondent have not acquired any
conjugal or community property nor have they incurred any debts during their
marriage."29Herein petitioner did not contest this averment. Basic is the rule that a court shall
grant relief warranted by the allegations and the proof.30 Given the factual admission by the
parties in their pleadings that there is no property to be accounted for, respondent judge has no
basis to assert jurisdiction in this case to resolve a matter no longer deemed in controversy.

In sum, we find that respondent judge may proceed to determine the issue regarding the
custody of the two children born of the union between petitioner and private respondent. Private
respondent erred, however, in claiming cognizance to settle the matter of property relations of
the parties, which is not at issue.

WHEREFORE, the orders of the Regional Trial Court of Makati, Branch 149, issued on
September 30, 1999 and March 31, 2000 are AFFIRMED with MODIFICATION. We hereby
declare that the trial court has jurisdiction over the issue between the parties as to who has
parental custody, including the care, support and education of the children, namely Carolynne
and Alexandra Kristine Roehr. Let the records of this case be remanded promptly to the trial
court for continuation of appropriate proceedings. No pronouncement as to costs.

SO ORDERED.

Bellosillo, (Chairman), and Callejo, Sr., JJ., concur.

Austria-Martinez, J., on official leave.

Footnotes
1
Rollo, p. 15.
2
Judge Josefina Guevara-Salonga signed as Executive Judge.
3
Rollo, p. 16.
4
Records, pp. 5-6.
5
Id. at 1-4.
6
Id. at 19-28.
7
Id. at 147.
8
Id. at 165.
9
Rollo, p. 33.
10
Art. 26. All marriages solemnized outside the Philippines, in accordance with the laws
in force in the country where they were solemnized, and valid there as such, shall also
be valid in this country, except those prohibited under Articles 35 (1), (4), (5) and (6), 36,
37 and 38.

Where a marriage between a Filipino citizen and a foreigner is validly celebrated

and a divorce is thereafter validly obtained abroad by the alien spouse
capacitating him or her to remarry, the Filipino spouse shall likewise have
capacity to remarry under Philippine law. (As amended by E. O. No. 227, dated
July 17, 1987.)
11
Supra, note 1.
12
Supra, note 3.
13
Rollo, p. 6.
14
Id. at 8.
15
Ibid.
16
G.R. No. 108338, 17 April 2001, 356 SCRA 546, 561.
17
David v. Court of Appeals, G.R. No. 115821, 13 October 1999, 316 SCRA 710, 719.
18
People v. Gallo, G.R. No. 124736, 29 September 1999, 315 SCRA 461, 463.
19
G.R. No. 138322, 2 October 2001, 366 SCRA 437, 447.
20
No. L-68470, 8 October 1985, 139 SCRA 139, 143.
21
G.R. No. 124371, 23 November 2000, 345 SCRA 592, 601.
22
G.R. No. 80116, 30 June 1989, 174 SCRA 653, 663.
23
Llorente v. Court of Appeals, supra at 602.
24
Philsec Investment Corporation v. Court of Appeals, G.R. No. 103493, 19 June 1997,
274 SCRA 102, 110.
25
Rollo, p. 57.
26
Ibid.
27
Id. at 55-56.
 28
Sagala-Eslao v. Court of Appeals, G.R. No. 116773, 16 January 1997, 266 SCRA
317, 321, citing Art. 8, P.D. No. 603, The Child and Youth Welfare Code-

Art. 8. Child‘s Welfare Paramount. - In all questions regarding the care, custody,
education and property of the child, his welfare shall be the paramount
consideration.
29
Rollo, p. 19.
30
JG Summit Holdings, Inc. v. Court of Appeals, G.R. No. 124293, 20 November 2000,
345 SCRA 143, 154.

RECTO VS HARDEN

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-22174 July 21, 1967

ESPERANZA P. DE HARDEN, plaintiff,

vs.
FRED M. HARDEN, ET AL., defendants.

AURORA R. DE RECTO, Administratrix of the Estate of Claro M. Recto, claimant-appellee,

vs.
JOSE SALUMBIDES, oppositor-appellant.

Rodegelio M. Jalandoni for oppositor-appellant.

Recto Law Offices for claimant-appellee.

BENGZON, J.P., J.:

Fred Harden, an American citizen, and Esperanza Perez were married in the Philippines on
December 14, 1917. They lived together, acquiring considerable conjugal properties, until 1938
when they separated. In July 1941, Mrs. Harden hired the late Claro M. Recto as her counsel in
the suit she was contemplating to file against her husband. In their contract, she agreed, inter
alia, to pay Recto 20% of her share in the conjugal partnership. On July 12, 1941, Mrs. Harden,
thru Recto, filed her complaint for administration and/or accounting of the conjugal properties
against Mr. Harden, and Jose Salumbides, herein oppositor-appellant, as his attorney-in-fact.
The war suspended the proceedings. After liberation, the records of the case were reconstituted
and on November 20, 1946, the conjugal properties of the Harden spouses were placed under
receivership. On October 31, 1949, the lower court rendered judgment for Mrs. Harden. Mr.
Harden appealed to this Court1 and then left the Philippines. Mrs. Harden must have followed
her husband for in January 29, 1952, an amicable settlement was effected between them in
Canada. As a consequence thereof, Recto was instructed by Mrs. Harden to discontinue the
proceedings.

On February 20, 1952, Recto filed a motion in the Supreme Court to establish his attorney's
charging lien. The Hardens opposed. This Court, by resolution dated July 22, 1952, remanded
the case to the trial court to determine the amount of Recto's attorney's fees. But all the ancillary
writs and processes issued in the case were dissolved except the receivership on the conjugal
properties, which was maintained. Subsequently, the lower court, after hearing, held that Recto
was entitled to P384,110.97 as counsel fees. Mrs. Harden appealed to this Court 2 which upheld
Recto but modified the amount of P304,110.97 only.

On January 22, 1957, Recto moved for execution of the judgment. The lower court having
granted the motion, the Hardens went on certiorari3 to this Court. We dismissed the petition on
August 2, 1957 for lack of merit. Recto was then able to secure an alias writ of execution. Again
this was questioned on certiorari4 by the Hardens in this Court. On February 10, 1958, We
upheld Recto once more. This finally enabled the latter to levy upon the stocks and other
properties of the Hardens, the public sales of which realized P100,805.00. A balance of
P203,305.97 thus remained in Recto's favor.1äwphï1.ñët

On July 2, 1958, Recto moved ex parte to levy on other shares of stock owned by the Hardens
but registered in the name of Salumbides, including the 410,638 shares in the Surigao
Consolidated Mining Co. Upon being notified that the 410,638 Surigao shares, inter alia, were to
be sold a t public auction, Salumbides filed an opposition claiming that he owned said shares,
the same being registered in his name. This was denied. His motion to reconsider the denial
also met the same fate, the lower court holding that Salumbides did not own the said Surigao
shares of stock. Whereupon, Salumbides appealed to this Court. 5 We dismissed the same on
December 22, 1958 for being frivolous. The motion to reconsider subsequently filed failed to
save the appeal. On April 21, 1959, the said 410,638 shares were sold at public auction for
P147,679.97 [sic] leaving an unsatisfied judgment balance of P55,624.00 in Recto's favor.

The next incident concerns the return to the receiver of the P20,581.90 cash dividends from
December 14, 1955 to December 14, 1956, received by Salumbides on the same 410,638
Surigao shares. As early as April 4, 1957, Recto had already moved that Salumbides be
ordered to deliver to the receiver all the dividends from the said shares which were under
receivership. On July 1, 1957, the lower, court issued an order requiring Salumbides to "turn
over to the receiver x x x all the dividends he has already received from the Surigao Mining
Company, Inc." Salumbides' motion to reconsider this order was denied.

On February 10, 1958, Recto moved for a writ of execution to implement the order of July 1,
1957. This was approved on February 21, 1958. Salumbides filed a motion to reconsider,
claiming that he owned the dividends pertaining to the 410,638 shares. On July 30, 1959, the
lower court ordered Salumbides to comply with the order of July 1, 1957 by depositing
P20,531.90 in the Commercial Bank & Trust Co. The latter moved for reconsideration
alleging, inter alia, that he had spent P45,900.99 as expenses for the Hardens from 1955 to
1957 and for which he must be reimbursed. When this was denied, a second motion to
reconsider was filed, Salumbides claiming that the P20,531.90 cash dividends had already been
disbursed for the benefit of the Harden family. On August 29, 1961, the lower court, after
hearing and presentation of evidence, denied the second motion to reconsider, holding that the
alleged incurring of expenses by Salumbides was a mere afterthought concocted by him.
Preliminary steps were taken by Salumbides to appeal this order. Meanwhile, on October 2,
1960, Recto died and his wife, as his administratrix, was substituted as claimant. On October 7,
1961, the lower court required Salumbides to submit a P25,000.00 supersedeas bond to
prevent execution pending appeal. This compelled Salumbides to abandon the intended appeal.
On October 23, 1961, he deposited P20,531.90 in the bank in compliance with the order of
August 29, 1961. On November 21, 1961, Mrs. Recto, with court approval, withdrew P25,000.00
from the Harden funds under receivership in the bank, thus reducing the judgment balance to
P30,624.00.

On November 27, 1961, Mrs. Recto moved for full compliance with the order of July 1, 1957 to
satisfy the remaining judgment balance, relying upon a statements 6 issued by the Surigao
Consolidated that from April 15, 1950 to July 2, 1955, Salumbides had received all the cash
dividends on the 410,638 shares, amounting to P60,797.29. Resolving the motion and
opposition interposed by Salumbides, the lower court on December 11, 1962 ordered
Salumbides to deposit P30,624.00 in the Commercial Bank and Trust Company for final
satisfaction of the judgment balance in Recto's favor. This is the incident under the present
appeal, first taken to the Court of Appeals but subsequently certified to Us.

Appellant Salumbides first submits that the order of July 1, 1957 which is sought to be fully
enforced did not include the cash dividends received by him before December 14, 1955 since
Recto's motion of April 4, 1957 was limited to those dividends received after said date. This is
without merit. The dispositive portion of the order of July 1, 1957, which reads:

Finding the said petition to be well founded this Court hereby orders Jose Salumbides to
turn over to the Receiver, Atty. Juan S. Ong all the dividends that he has already
received from the Surigao Consolidated Mining Company, Inc.

clearly includes all dividends received as of then by Salumbides. The Surigao Consolidated
statement dated April 5, 1957 shows that the cash dividends on the 410,638 shares from April
15, 1950 to July 1955 had also been delivered to and already received by Salumbides. And the
lower court found, in its order of August 29, 1961, that Salumbides never appealed the order of
July 1, 1957. Hence, the same can no longer be questioned now.

Salumbides would also argue that those dividends had already been disbursed by him for the
benefit of the Harden family. This question, however, had already been raised and
argued twice before the lower court which tried and decided it adversely in the order of August
29, 1961. Although Salumbides filed his notice of appeal and appeal bond, the appeal was
never really pursued. In fact, on October 23, 1961, he manifested to the lower court that he had
already complied with the order of August 29, 1961, thus making the same final and conclusive
as against him.

The defenses of (a) bar by prior judgments, (b) prescription, extinctive and acquisitive, (c)
laches, and (d) waiver, set up by Salumbides, are without merit. For the first, he would rely upon
the lower court's orders of December 7, 1953 and January 24, 1956, which declared that the
receivership did not include future dividends on the shares of stock. But the more recent order
of August 29, 1961 expressly declared these orders erroneous and already superseded and
reversed by the later court orders of December 14, 1955, July 1, 1957 and February 21, 1958.

There could be no prescription, extinctive or acquisitive. Even if the period for bringing the
action be five years as appellant suggests, still the same has not yet lapsed. The dividends
being litigated were declared from April 15, 1950 to July 2, 1955. But the receiver's letter of May
9, 19537 asking for the dividends and claimant's motions of November 4, 1953, December 15,
1955, April 4, 1957, February 10, 1958 and November 27, 1961, to the same effect, seasonably
interrupted the prescriptive period. These extra-judicial and judicial demands also negative
laches on claimant's part.

Salumbides could not acquire the dividends in question by prescription since he possessed
them, not in concept of owner, adverse to the Hardens, but rather as attorney-in-fact of Mr.
Harden. He first claimed ownership only in his omnibus opposition dated July 1, 1957. But two
years later, or on August 24, 1959, in his motion to reconsider, Salumbides admitted that these
dividends belonged to the Hardens.

Neither is Recto's demand for the P20,531.00 cash dividends which were declared from
December 14, 1955 to December 14, 1956, a waiver of the previous dividends. He merely
wanted to satisfy his judgment credit from among any of the Harden assets available. Since the
later dividends failed to fully satisfy the judgment, Recto could still enforce his valid claim
against the previous dividends. As to the cash dividend of October 3, 1955, the order of
December 14, 1955 is very clear that it "shall not constitute a precedent with respect to the
disposition of all dividends whether already declared or to be hereinafter declared." The defense
of waiver, therefore, fails.

Lastly, appellant would insist that upon the death of Mr. Harden in Canada on May 1, 1959, or
during the pendency of the proceedings, Recto's claim should have been forthwith dismissed
and filed in the administration proceedings of Mr. Harden's estate. But appellant erroneously
assumes that Recto's claim is a "money claim" under the Rules 8 when it is neither a claim nor a
judgment for money directed against the decedent, Mr. Harden. Recto's claim is founded on a
personal obligation of Mr. Harden. But granting that Recto's claim is a money claim against Mr.
Harden, that would not help appellant any. We have already ruled9 that a charging lien
established on the property in litigation to secure payment of attorney's fees partakes of the
nature of a collateral security or of a lien on real or personal property, the enforcement of which
need not be made in the administration proceedings.

Wherefore, the order appealed from is hereby affirmed. Costs against oppositor-appellant. So
ordered.

Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.
Concepcion, C.J. and Dizon, J., are on leave.

Footnotes
1
Harden v. Harden, L-3687.
2
In the Matter of the Claim for Attorney's Fees — Recto v. Harden, L-6897, Nov. 29,
1956.
3
Harden v. Bayona, L-12611.
4
Harden v. Bayona, L-13386.
5
Harden v. Harden, Recto v. Salumbides, L-14751.
 6
Record on Appeal, pp. 466-467.
7
Record on Appeal, pp. 28-29.
8
Sec. 5, Rule 86, Rev. Rules of Court.
9
Olave V. Canlas, L-12707, Feb. 28, 1962.

GONZALEZ VS GONZALES

TENCHAVEZ VS ESCANO

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-19671 November 29, 1965

PASTOR B. TENCHAVEZ, plaintiff-appellant,

vs.
VICENTA F. ESCAÑO, ET AL., defendants-appellees.

I. V. Binamira & F. B. Barria for plaintiff-appellant.

Jalandoni & Jarnir for defendants-appellees.

REYES, J.B.L., J.:

Direct appeal, on factual and legal questions, from the judgment of the Court of First Instance of
Cebu, in its Civil Case No. R-4177, denying the claim of the plaintiff-appellant, Pastor B.
Tenchavez, for legal separation and one million pesos in damages against his wife and parents-
in-law, the defendants-appellees, Vicente, Mamerto and Mena, 1 all surnamed "Escaño,"
respectively.2

The facts, supported by the evidence of record, are the following:

Missing her late afternoon classes on 24 February 1948 in the University of San Carlos, Cebu
City, where she was then enrolled as a second year student of commerce, Vicenta Escaño, 27
years of age (scion of a well-to-do and socially prominent Filipino family of Spanish ancestry
and a "sheltered colegiala"), exchanged marriage vows with Pastor Tenchavez, 32 years of age,
an engineer, ex-army officer and of undistinguished stock, without the knowledge of her parents,
before a Catholic chaplain, Lt. Moises Lavares, in the house of one Juan Alburo in the said city.
The marriage was the culmination of a previous love affair and was duly registered with the local
civil register.
Vicenta's letters to Pastor, and his to her, before the marriage, indicate that the couple were
deeply in love. Together with a friend, Pacita Noel, their matchmaker and go-between, they had
planned out their marital future whereby Pacita would be the governess of their first-born; they
started saving money in a piggy bank. A few weeks before their secret marriage, their
engagement was broken; Vicenta returned the engagement ring and accepted another suitor,
Joseling Lao. Her love for Pastor beckoned; she pleaded for his return, and they reconciled.
This time they planned to get married and then elope. To facilitate the elopement, Vicenta had
brought some of her clothes to the room of Pacita Noel in St. Mary's Hall, which was their usual
trysting place.

Although planned for the midnight following their marriage, the elopement did not, however,
materialize because when Vicente went back to her classes after the marriage, her mother, who
got wind of the intended nuptials, was already waiting for her at the college. Vicenta was taken
home where she admitted that she had already married Pastor. Mamerto and Mena Escaño
were surprised, because Pastor never asked for the hand of Vicente, and were disgusted
because of the great scandal that the clandestine marriage would provoke (t.s.n., vol. III, pp.
1105-06). The following morning, the Escaño spouses sought priestly advice. Father Reynes
suggested a recelebration to validate what he believed to be an invalid marriage, from the
standpoint of the Church, due to the lack of authority from the Archbishop or the parish priest for
the officiating chaplain to celebrate the marriage. The recelebration did not take place, because
on 26 February 1948 Mamerto Escaño was handed by a maid, whose name he claims he does
not remember, a letter purportedly coming from San Carlos college students and disclosing an
amorous relationship between Pastor Tenchavez and Pacita Noel; Vicenta translated the letter
to her father, and thereafter would not agree to a new marriage. Vicenta and Pastor met that
day in the house of Mrs. Pilar Mendezona. Thereafter, Vicenta continued living with her parents
while Pastor returned to his job in Manila. Her letter of 22 March 1948 (Exh. "M"), while still
solicitous of her husband's welfare, was not as endearing as her previous letters when their love
was aflame.

Vicenta was bred in Catholic ways but is of a changeable disposition, and Pastor knew it. She
fondly accepted her being called a "jellyfish." She was not prevented by her parents from
communicating with Pastor (Exh. "1-Escaño"), but her letters became less frequent as the days
passed. As of June, 1948 the newlyweds were already estranged (Exh. "2-Escaño"). Vicenta
had gone to Jimenez, Misamis Occidental, to escape from the scandal that her marriage stirred
in Cebu society. There, a lawyer filed for her a petition, drafted by then Senator Emmanuel
Pelaez, to annul her marriage. She did not sign the petition (Exh. "B-5"). The case was
dismissed without prejudice because of her non-appearance at the hearing (Exh. "B-4").

On 24 June 1950, without informing her husband, she applied for a passport, indicating in her
application that she was single, that her purpose was to study, and she was domiciled in Cebu
City, and that she intended to return after two years. The application was approved, and she left
for the United States. On 22 August 1950, she filed a verified complaint for divorce against the
herein plaintiff in the Second Judicial District Court of the State of Nevada in and for the County
of Washoe, on the ground of "extreme cruelty, entirely mental in character." On 21 October
1950, a decree of divorce, "final and absolute", was issued in open court by the said tribunal.

In 1951 Mamerto and Mena Escaño filed a petition with the Archbishop of Cebu to annul their
daughter's marriage to Pastor (Exh. "D"). On 10 September 1954, Vicenta sought papal
dispensation of her marriage (Exh. "D"-2).
On 13 September 1954, Vicenta married an American, Russell Leo Moran, in Nevada. She now
lives with him in California, and, by him, has begotten children. She acquired American
citizenship on 8 August 1958.

But on 30 July 1955, Tenchavez had initiated the proceedings at bar by a complaint in the Court
of First Instance of Cebu, and amended on 31 May 1956, against Vicenta F. Escaño, her
parents, Mamerto and Mena Escaño, whom he charged with having dissuaded and discouraged
Vicenta from joining her husband, and alienating her affections, and against the Roman Catholic
Church, for having, through its Diocesan Tribunal, decreed the annulment of the marriage, and
asked for legal separation and one million pesos in damages. Vicenta claimed a valid divorce
from plaintiff and an equally valid marriage to her present husband, Russell Leo Moran; while
her parents denied that they had in any way influenced their daughter's acts, and
counterclaimed for moral damages.

The appealed judgment did not decree a legal separation, but freed the plaintiff from supporting
his wife and to acquire property to the exclusion of his wife. It allowed the counterclaim of
Mamerto Escaño and Mena Escaño for moral and exemplary damages and attorney's fees
against the plaintiff-appellant, to the extent of P45,000.00, and plaintiff resorted directly to this
Court.

The appellant ascribes, as errors of the trial court, the following:

1. In not declaring legal separation; in not holding defendant Vicenta F. Escaño liable for
damages and in dismissing the complaint;.

2. In not holding the defendant parents Mamerto Escano and the heirs of Doña Mena
Escaño liable for damages;.

3 In holding the plaintiff liable for and requiring him to pay the damages to the defendant
parents on their counterclaims; and.

4. In dismissing the complaint and in denying the relief sought by the plaintiff.

That on 24 February 1948 the plaintiff-appellant, Pastor Tenchavez, and the defendant-
appellee, Vicenta Escaño, were validly married to each other, from the standpoint of our civil
law, is clearly established by the record before us. Both parties were then above the age of
majority, and otherwise qualified; and both consented to the marriage, which was performed by
a Catholic priest (army chaplain Lavares) in the presence of competent witnesses. It is nowhere
shown that said priest was not duly authorized under civil law to solemnize marriages.

The chaplain's alleged lack of ecclesiastical authorization from the parish priest and the
Ordinary, as required by Canon law, is irrelevant in our civil law, not only because of the
separation of Church and State but also because Act 3613 of the Philippine Legislature (which
was the marriage law in force at the time) expressly provided that —

SEC. 1. Essential requisites. Essential requisites for marriage are the legal capacity of
the contracting parties and consent. (Emphasis supplied)
The actual authority of the solemnizing officer was thus only a formal requirement, and,
therefore, not essential to give the marriage civil effects, 3 and this is emphasized by section 27
of said marriage act, which provided the following:

SEC. 27. Failure to comply with formal requirements. No marriage shall be declared
invalid because of the absence of one or several of the formal requirements of this Act if,
when it was performed, the spouses or one of them believed in good faith that the
person who solemnized the marriage was actually empowered to do so, and that the
marriage was perfectly legal.

The good faith of all the parties to the marriage (and hence the validity of their marriage) will be
presumed until the contrary is positively proved (Lao vs. Dee Tim, 45 Phil. 739, 745; Francisco
vs. Jason, 60 Phil. 442, 448). It is well to note here that in the case at bar, doubts as to the
authority of the solemnizing priest arose only after the marriage, when Vicenta's parents
consulted Father Reynes and the archbishop of Cebu. Moreover, the very act of Vicenta in
abandoning her original action for annulment and subsequently suing for divorce implies an
admission that her marriage to plaintiff was valid and binding.

Defendant Vicenta Escaño argues that when she contracted the marriage she was under the
undue influence of Pacita Noel, whom she charges to have been in conspiracy with appellant
Tenchavez. Even granting, for argument's sake, the truth of that contention, and assuming that
Vicenta's consent was vitiated by fraud and undue influence, such vices did not render her
marriage ab initio void, but merely voidable, and the marriage remained valid until annulled by a
competent civil court. This was never done, and admittedly, Vicenta's suit for annulment in the
Court of First Instance of Misamis was dismissed for non-prosecution.

It is equally clear from the record that the valid marriage between Pastor Tenchavez and
Vicenta Escaño remained subsisting and undissolved under Philippine law, notwithstanding the
decree of absolute divorce that the wife sought and obtained on 21 October 1950 from the
Second Judicial District Court of Washoe County, State of Nevada, on grounds of "extreme
cruelty, entirely mental in character." At the time the divorce decree was issued, Vicenta
Escaño, like her husband, was still a Filipino citizen. 4 She was then subject to Philippine law,
and Article 15 of the Civil Code of the Philippines (Rep. Act No. 386), already in force at the
time, expressly provided:

Laws relating to family rights and duties or to the status, condition and legal capacity of
persons are binding upon the citizens of the Philippines, even though living abroad.

The Civil Code of the Philippines, now in force, does not admit absolute divorce, quo ad vinculo
matrimonii; and in fact does not even use that term, to further emphasize its restrictive policy on
the matter, in contrast to the preceding legislation that admitted absolute divorce on grounds of
adultery of the wife or concubinage of the husband (Act 2710). Instead of divorce, the present
Civil Code only provides for legal separation (Title IV, Book 1, Arts. 97 to 108), and, even in that
case, it expressly prescribes that "the marriage bonds shall not be severed" (Art. 106, subpar.
1).

For the Philippine courts to recognize and give recognition or effect to a foreign decree of
absolute divorce betiveen Filipino citizens could be a patent violation of the declared public
policy of the state, specially in view of the third paragraph of Article 17 of the Civil Code that
prescribes the following:
 Prohibitive laws concerning persons, their acts or property, and those which have for
their object public order, policy and good customs, shall not be rendered ineffective by
laws or judgments promulgated, or by determinations or conventions agreed upon in a
foreign country.

Even more, the grant of effectivity in this jurisdiction to such foreign divorce decrees would, in
effect, give rise to an irritating and scandalous discrimination in favor of wealthy citizens, to the
detriment of those members of our polity whose means do not permit them to sojourn abroad
and obtain absolute divorces outside the Philippines.

From this point of view, it is irrelevant that appellant Pastor Tenchavez should have appeared in
the Nevada divorce court. Primarily because the policy of our law cannot be nullified by acts of
private parties (Civil Code,Art. 17, jam quot.); and additionally, because the mere appearance of
a non-resident consort cannot confer jurisdiction where the court originally had none (Area vs.
Javier, 95 Phil. 579).

From the preceding facts and considerations, there flows as a necessary consequence that in
this jurisdiction Vicenta Escaño's divorce and second marriage are not entitled to recognition as
valid; for her previous union to plaintiff Tenchavez must be declared to be existent and
undissolved. It follows, likewise, that her refusal to perform her wifely duties, and her denial
of consortium and her desertion of her husband constitute in law a wrong caused through her
fault, for which the husband is entitled to the corresponding indemnity (Civil Code, Art. 2176).
Neither an unsubstantiated charge of deceit nor an anonymous letter charging immorality
against the husband constitute, contrary to her claim, adequate excuse. Wherefore, her
marriage and cohabitation with Russell Leo Moran is technically "intercourse with a person not
her husband" from the standpoint of Philippine Law, and entitles plaintiff-appellant Tenchavez to
a decree of "legal separation under our law, on the basis of adultery" (Revised Penal Code, Art.
333).

The foregoing conclusions as to the untoward effect of a marriage after an invalid divorce are in
accord with the previous doctrines and rulings of this court on the subject, particularly those that
were rendered under our laws prior to the approval of the absolute divorce act (Act 2710 of the
Philippine Legislature). As a matter of legal history, our statutes did not recognize divorces a
vinculo before 1917, when Act 2710 became effective; and the present Civil Code of the
Philippines, in disregarding absolute divorces, in effect merely reverted to the policies on the
subject prevailing before Act 2710. The rulings, therefore, under the Civil Code of 1889, prior to
the Act above-mentioned, are now, fully applicable. Of these, the decision in Ramirez vs. Gmur,
42 Phil. 855, is of particular interest. Said this Court in that case:

As the divorce granted by the French Court must be ignored, it results that the marriage
of Dr. Mory and Leona Castro, celebrated in London in 1905, could not legalize their
relations; and the circumstance that they afterwards passed for husband and wife in
Switzerland until her death is wholly without legal significance. The claims of the very
children to participate in the estate of Samuel Bishop must therefore be rejected. The
right to inherit is limited to legitimate, legitimated and acknowledged natural children.
The children of adulterous relations are wholly excluded. The word "descendants" as
used in Article 941 of the Civil Code cannot be interpreted to include illegitimates born
of adulterous relations. (Emphasis supplied)
Except for the fact that the successional rights of the children, begotten from Vicenta's marriage
to Leo Moran after the invalid divorce, are not involved in the case at bar, the Gmur case is
authority for the proposition that such union is adulterous in this jurisdiction, and, therefore,
justifies an action for legal separation on the part of the innocent consort of the first marriage,
that stands undissolved in Philippine law. In not so declaring, the trial court committed error.

True it is that our ruling gives rise to anomalous situations where the status of a person
(whether divorced or not) would depend on the territory where the question arises. Anomalies of
this kind are not new in the Philippines, and the answer to them was given in Barretto vs.
Gonzales, 58 Phil. 667:

The hardship of the existing divorce laws in the Philippine Islands are well known to the
members of the Legislature. It is the duty of the Courts to enforce the laws of divorce as
written by Legislature if they are constitutional. Courts have no right to say that such
laws are too strict or too liberal. (p. 72)

The appellant's first assignment of error is, therefore, sustained.

However, the plaintiff-appellant's charge that his wife's parents, Dr. Mamerto Escaño and his
wife, the late Doña Mena Escaño, alienated the affections of their daughter and influenced her
conduct toward her husband are not supported by credible evidence. The testimony of Pastor
Tenchavez about the Escaño's animosity toward him strikes us to be merely conjecture and
exaggeration, and are belied by Pastor's own letters written before this suit was begun (Exh. "2-
Escaño" and "Vicenta," Rec. on App., pp. 270-274). In these letters he expressly apologized to
the defendants for "misjudging them" and for the "great unhappiness" caused by his "impulsive
blunders" and "sinful pride," "effrontery and audacity" [sic]. Plaintiff was admitted to the Escaño
house to visit and court Vicenta, and the record shows nothing to prove that he would not have
been accepted to marry Vicente had he openly asked for her hand, as good manners and
breeding demanded. Even after learning of the clandestine marriage, and despite their shock at
such unexpected event, the parents of Vicenta proposed and arranged that the marriage be
recelebrated in strict conformity with the canons of their religion upon advice that the previous
one was canonically defective. If no recelebration of the marriage ceremony was had it was not
due to defendants Mamerto Escaño and his wife, but to the refusal of Vicenta to proceed with it.
That the spouses Escaño did not seek to compel or induce their daughter to assent to the
recelebration but respected her decision, or that they abided by her resolve, does not constitute
in law an alienation of affections. Neither does the fact that Vicenta's parents sent her money
while she was in the United States; for it was natural that they should not wish their daughter to
live in penury even if they did not concur in her decision to divorce Tenchavez (27 Am. Jur. 130-
132).

There is no evidence that the parents of Vicenta, out of improper motives, aided and abetted her
original suit for annulment, or her subsequent divorce; she appears to have acted
independently, and being of age, she was entitled to judge what was best for her and ask that
her decisions be respected. Her parents, in so doing, certainly cannot be charged with
alienation of affections in the absence of malice or unworthy motives, which have not been
shown, good faith being always presumed until the contrary is proved.

SEC. 529. Liability of Parents, Guardians or Kin. — The law distinguishes between the
right of a parent to interest himself in the marital affairs of his child and the absence of
rights in a stranger to intermeddle in such affairs. However, such distinction between the
 liability of parents and that of strangers is only in regard to what will justify interference.
A parent isliable for alienation of affections resulting from his own malicious conduct, as
where he wrongfully entices his son or daughter to leave his or her spouse, but he is not
liable unless he acts maliciously, without justification and from unworthy motives. He is
not liable where he acts and advises his child in good faith with respect to his child's
marital relations in the interest of his child as he sees it, the marriage of his child not
terminating his right and liberty to interest himself in, and be extremely solicitous for, his
child's welfare and happiness, even where his conduct and advice suggest or result in
the separation of the spouses or the obtaining of a divorce or annulment, or where he
acts under mistake or misinformation, or where his advice or interference are indiscreet
or unfortunate, although it has been held that the parent is liable for consequences
resulting from recklessness. He may in good faith take his child into his home and afford
him or her protection and support, so long as he has not maliciously enticed his child
away, or does not maliciously entice or cause him or her to stay away, from his or her
spouse. This rule has more frequently been applied in the case of advice given to a
married daughter, but it is equally applicable in the case of advice given to a son.

Plaintiff Tenchavez, in falsely charging Vicenta's aged parents with racial or social discrimination
and with having exerted efforts and pressured her to seek annulment and divorce,
unquestionably caused them unrest and anxiety, entitling them to recover damages. While this
suit may not have been impelled by actual malice, the charges were certainly reckless in the
face of the proven facts and circumstances. Court actions are not established for parties to give
vent to their prejudices or spleen.

In the assessment of the moral damages recoverable by appellant Pastor Tenchavez from
defendant Vicente Escaño, it is proper to take into account, against his patently unreasonable
claim for a million pesos in damages, that (a) the marriage was celebrated in secret, and its
failure was not characterized by publicity or undue humiliation on appellant's part; (b) that the
parties never lived together; and (c) that there is evidence that appellant had originally agreed to
the annulment of the marriage, although such a promise was legally invalid, being against public
policy (cf. Art. 88, Civ. Code). While appellant is unable to remarry under our law, this fact is a
consequence of the indissoluble character of the union that appellant entered into voluntarily
and with open eyes rather than of her divorce and her second marriage. All told, we are of the
opinion that appellant should recover P25,000 only by way of moral damages and attorney's
fees.

With regard to the P45,000 damages awarded to the defendants, Dr. Mamerto Escaño and
Mena Escaño, by the court below, we opine that the same are excessive. While the filing of this
unfounded suit must have wounded said defendants' feelings and caused them anxiety, the
same could in no way have seriously injured their reputation, or otherwise prejudiced them,
lawsuits having become a common occurrence in present society. What is important, and has
been correctly established in the decision of the court below, is that said defendants were not
guilty of any improper conduct in the whole deplorable affair. This Court, therefore, reduces the
damages awarded to P5,000 only.

Summing up, the Court rules:

(1) That a foreign divorce between Filipino citizens, sought and decreed after the effectivity of
the present Civil Code (Rep. Act 386), is not entitled to recognition as valid in this jurisdiction;
and neither is the marriage contracted with another party by the divorced consort, subsequently
to the foreign decree of divorce, entitled to validity in the country;

(2) That the remarriage of divorced wife and her co-habitation with a person other than the
lawful husband entitle the latter to a decree of legal separation conformably to Philippine law;

(3) That the desertion and securing of an invalid divorce decree by one consort entitles the other
to recover damages;

(4) That an action for alienation of affections against the parents of one consort does not lie in
the absence of proof of malice or unworthy motives on their part.

WHEREFORE, the decision under appeal is hereby modified as follows;

(1) Adjudging plaintiff-appellant Pastor Tenchavez entitled to a decree of legal separation from
defendant Vicenta F. Escaño;

(2) Sentencing defendant-appellee Vicenta Escaño to pay plaintiff-appellant Tenchavez the

amount of P25,000 for damages and attorneys' fees;

(3) Sentencing appellant Pastor Tenchavez to pay the appellee, Mamerto Escaño and the
estate of his wife, the deceased Mena Escaño, P5,000 by way of damages and attorneys' fees.

Neither party to recover costs.

Bengzon, C.J., Bautista Angelo, Concepcion, Dizon, Regala, Makalintal, Bengzon, J.P. and
Zaldivar, JJ., concur.

Footnotes
1
The latter was substituted by her heirs when she died during the pendency of the case
in the trial court.
2
The original complaint included the Roman Catholic Church as a defendant, sought to
be enjoined from acting on a petition for the ecclesiastical annulment of the marriage
between Pastor Tenchavez and Vicenta Escaño; the case against the defendant Church
was dismissed on a joint motion.
3
In the present Civil Code the contrary rule obtains (Art. 53).
4
She was naturalized as an American citizen only on 8 August 1958.

SIKAT VS CANSON
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-45152 April 10, 1939

HILARIA SIKAT, plaintiff-appellant,

vs.
JOHN CANSON, defendant-appellee.

Vicente Sotto for appellant.

Barrera and Reyes for appellee.

LAUREL, J.:

On February 15, 1904, Hilaria Sikat and John Canson contracted marriage in the town of
Bayambang, Pangasinan. They lived together as husband and wife until 1911 when they
separated. During the same year the wife commenced divorce proceedings against her
spouses, but on January 16, 1912, upon petition of both parties, the case was dismissed without
the court passing upon the merits thereof. At the time of their marriage in 1904, John Canson
was an Italian citizen but on February 27, 1922, he became a naturalized Filipino citizen. In
1929, he went to Reno, Nevada, United States of America, and on October 8, of that year, he
obtained an absolute decree of divorce on the ground of desertion. Hilaria Sikat, however, did
not accompany her husband but remained in the Philippines. Subsequently, in 1933, the plaintiff
filed another action, civil case No. 5398 of the Court of First Instance of Rizal, wherein she
sought to compel the defendant to pay her a monthly pension of P500 as alimony or support. To
this complaint, the defendant Canson interposed three defenses: (1) adultery on the part of the
plaintiff: (2) absolute divorce obtained by the defendant as decreed by the court in Reno,
Nevada, United States of America; and (3) that the defendant did not have the means to pay the
allowance sought. The lower court dismissed the complaint in a decision rendered on November
27, 1933. In this decision the court declined to accord validity to the divorce obtained in Reno
but found that Hilaria Sikat had forfeited her right to support because she had committed
adultery. This judgment was not appealed and it became final.

On June 1, 1934, the present action was instituted by the plaintiff-appellant to obtain the
liquidation of the conjugal partnership. The action is predicated on the existence of a final
decree of absolute divorce rendered by the court of Reno, Nevada, since 1929. The court below
dismissed the action. The reasons for this dismissal are given in the following excerpt from its
decision:

(translated from Spanish through GT)

For the Court all the controversy revolves around the

validity Renodivorce decreed in 1929, because if this divorce is invalid in thisjurisdiction,
the applicant may require the liquidation of the conjugalsociety.

However, absolute divorce, and dissolution of the conjugal bond, it touches so close to
the morale and morality can not be less than as an institution of Interest and public order, and
for this reason notbe regarded as valid or deeming in this jurisdiction, a divorcegranted on
grounds not recognized or legalized by the laws of the
Philippines, especially considering that the respondent had already
been naturalized filipino when asked for the divorcequestion.
Ignore the restrictive spirit of our Divorce Act would violate Article11, paragraph
three, the Civil Code which provides that "the (laws)that are intended to public
order and decency, not cease to have effect by
laws or judgments Or by rules or conventions agreed upon in a foreign country. "

Not being dissolved the marriage and not having been tested, orsought to prove any of the
other reasons, according to article 1433of Civil Code,
justifies a judicial separation of property of thespouses (or civil interdiction declared
absence), no terms skillful todeclare the dissolution of the conjugal partnership between
theparties and proceed with liquidation.From this judgement of the lower court the present
appeal was taken to this court in the usual manner and plaintiff assigns the following principal
error:

Erro lower court by stating that "it is not reputed to

be worthconsidering in this jurisdiction, a divorce granted on grounds not recognized
or authorized by the laws of the Philippines, especiallyconsidering that the defendant had
already been naturalizedfilipino when asked for divorce question.

Counsel for plaintiff-appellant contends that twelve days prior to the issuance of the decree of
divorce, defendant-appellee became a naturalized American citizen and argues that the Nevada
court had thereby acquired jurisdiction over him to issue a divorce decree. It is not, however, the
citizenship of the plaintiff for divorce which confers jurisdiction upon a court, but his legal
residence within the State (Cousins Hix vs. Fluemer, 55 Phil., 851). And assuming that John
Canson acquired legal residence in the State of Nevada through the approval of his citizenship
papers, this did not confer jurisdiction on the Nevada court to grant a divorce that would be valid
in this jurisdiction nor jurisdiction that could determine their matrimonial status, because the wife
was still domiciled in the Philippines. The Nevada court never acquired jurisdiction over her
person. (Gorayeb vs. Hashim, 50 Phil., 26, and Cousins Hix vs. Fluemer, supra.) This was not a
proceeding in rem to justify a court in entering a decree as to theres or marriage relation entitled
to be enforced outside of the territorial jurisdiction of the court. (Haddock vs.Haddock, 201 U.S.,
562.) In Barretto Gonzalez vs. Gonzalez (58 Phil., 67), we observed:

. . . While the decisions of this court heretofore in refusing to recognize the validity of
foreign divorce has usually been expressed in the negative and have been based upon
lack of matrimonial domicile or fraud or collusion we have not overlooked the provisions
of the Civil Code now enforced in these Islands. Article 9 therefore reads as follows:

"The laws relating to family rights and duties, or to the status, condition, and legal
capacity of persons, are binding upon Spaniards even though they reside in a foreign
country."

And article 11, the last part of which reads:

 ". . . prohibitive laws concerning persons, their acts and their property, and those
intended to promote public order and good morals shall not be rendered without effect
by any foreign laws or judgments or by anything done or any agreements entered into a
foreign country."

It is therefore a serious question whether any foreign divorce, relating to citizens of the
Philippine Island, will be recognized in this jurisdiction, except it be for a cause, and
under conditions for which the courts of the Philippine Islands would grant a divorce.

The courts in the Philippines can grant a divorce only on the ground of "adultery on the part of
the wife or concubinage on the part of the husband" as provided for under section 1 of Act No.
2710. The divorce decree in question was granted on the ground of desertion, clearly not a
cause for divorce under our laws. That our divorce law, Act No. 2710, is too strict or too liberal is
not for this court to decide. (Barretto Gonzalez vs. Gonzalez, supra.) The allotment of powers
between the different governmental agencies restricts the judiciary within the confines of
interpretation, not of legislation. The legislative policy on the matter of divorce in this jurisdiction
is clearly set forth in Act No. 2710 and has been upheld by this court (Goitia vs. Campos Rueda,
35 Phil., 252; Garcia Valdez vs.Soteraña Tuason, 40 Phil., 943-952; Ramirez vs. Gmur, 42 Phil.,
855; Chereau vs. Fuentebella, 43 Phil., 216; Fernandez vs. De Castro, 48 Phil., 123;
Gorayeb vs. Hashim, supra; Francisco vs. Tayao, 50 Phil., 42; Alkuino Lim Pang vs. Uy Pian Ng
Shun and Lim Tingco, 52 Phil., 571; Cousins Hix vs. Fluemer, supra; and Barretto
Gonzalezvs. Gonzales, supra.)

We observe that plaintiff-appellant had made her choice of two inconsistent remedies afforded
her by law: (1) to impugn the divorce and file an action for support, or (2) uphold the validity of
the divorce and sue for a liquidation of conjugal partnership. She chose the first remedy when
she filed her action for support. She lost the case and should take the consequences.

The decision appealed from is hereby affirmed, with costs against the appellant. So ordered.

Avanceña, C.J., Villa-Real, Imperial, Diaz, Concepcion and Moran, JJ., concur.

ARCA VS JAVIER

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-6768 July 31, 1954

SALUD R. ARCA and ALFREDO JAVIER JR., plaintiffs-appellees,

vs.
ALFREDO JAVIER, defendant-appellant.

David F. Barrera for appellant.

Jose P. Santillan for appellees.
BAUTISTA ANGELO, J.:

Dissatisfied with the decision of the Court of First Instance of Cavite ordering him to give a
monthly allowance of P60 to plaintiffs beginning March 31, 1953, and to pay them attorney's
fees in the amount of P150 defendant took the case directly to this Court attributing five errors to
the court below. This implies that the facts are not disputed.

The important facts which need to be considered in relation to the errors assigned appear well
narrated in the decision of the court below which, for purposes of this appeal, are quoted
hereunder:

On November 19, 1937, plaintiff Salud R. Arca and defendant Alfredo Javier had their
marriage solemnized by Judge Mariano Nable of the Municipal Court of Manila. At the
time of their marriage, they had already begotten a son named Alfredo Javier, Junior
who was born on December 2, 1931. Sometime in 1938, defendant Alfredo Javier left for
the United States on board a ship of the United States Navy, for it appears that he had
joined the United States Navy since 1927, such that at time of his marriage with plaintiff
Salud R. Arca, defendant Alfredo Javier was already an enlisted man in the United
States Navy. Because of defendant Alfredo Javier's departure for the United States in
1938, his wife, Salud R. Arca, who is from (Maragondon), Cavite, chose to live with
defendant's parents at Naic, Cavite. But for certain incompatibility of character (frictions
having occurred between plaintiff Salud R. Arca's and defendant's folks) plaintiff Salud
R. Arca had found it necessary to leave defendant's parents' abode and transfer her
residence to (Maragondon), Cavite — her native place Since then the relation between
plaintiff Salud R. Arca and defendant Alfredo Javier became strained such that on
August 13, 1940 defendant Alfredo Javier brought an action for divorce against Salud R.
Arca before the Circuit Court of Mobile County, State of Alabama, USA, docketed as civil
case No. 14313 of that court and marked as Exhibit 2(c) in this case. Having received a
copy of the complaint for divorce on September 23, 1940, plaintiff Salud R. Arca —
answering the complaint — alleged in her answer that she received copy of the
complaint on September 23, 1940 although she was directed to file her answer thereto
on or before September 13, 1940. In that answer she filed, plaintiff Salud R. Arca
averred among other things that defendant Alfredo Javier was not a resident of Mobile
County, State of Alabama, for the period of twelve months preceding the institution of the
complaint, but that he was a resident of Naic, Cavite, Philippines. Another averment of
interest, which is essential to relate here, is that under paragraph 5 of her answer to the
complaint for divorce, Salud R. Arca alleged that it was not true that the cause of their
separation was desertion on her part but that if defendant Alfredo Javier was in the
United States at that time and she was not with him then it was because he was in active
duty as an enlisted man of the United States Navy, as a consequence of which he had to
leave for the United States without her. She further alleged that since his departure from
the Philippines for the United States, he had always supported her and her co-plaintiff
Alfredo Javier Junior through allotments made by the Navy Department of the United
States Government. She denied, furthermore, the allegation that she had abandoned
defendant's home at Naic, Cavite, and their separation was due to physical impossibility
for they were separated by about 10,000 miles from each other. At this juncture, under
the old Civil Code the wife is not bound to live with her husband if the latter has gone to
ultra-marine colonies. Plaintiff Salud R. Arca, in her answer to the complaint for divorce
by defendant Alfredo Javier, prayed that the complaint for divorce be dismissed.
However, notwithstanding Salud R. Arca's averments in her answer, contesting the
 jurisdiction of the Circuit Court of Mobile County, State of Alabama, to take cognizance
of the divorce proceeding filed by defendant Alfredo Javier, as shown by her answer
marked Exhibit 2(d), nevertheless the Circuit Court of Mobile County rendered judgment
decreeing dissolution of the marriage of Salud R. Arca and Alfredo Javier, and granting
the latter a decree of divorce dated April 9, 1941, a certified copy of which is marked
Exhibit 2(f). Thereupon, the evidence discloses that some time in 1946 defendant
Alfredo Javier returned to the Philippines but went back to the United States.

In July, 1941 — that is after securing a divorce from plaintiff Salud R. Arca on April 9,
1941 — defendant Alfredo Javier married Thelma Francis, an American citizen, and
bought a house and lot at 248 Brooklyn, New York City. In 1949, Thelma Francis,
defendant's American wife, obtained a divorce from him for reasons not disclosed by the
evidence, and, later on, having retired from the United States Navy, defendant Alfredo
Javier returned to the Philippines, arriving here on February 13, 1950. After his arrival in
the Philippines, armed with two decrees of divorce — one against his first wife Salud R.
Arca and the other against him by his second wife Thelma Francis — issued by the
Circuit Court of Mobile County, State of Alabama, USA, defendant Alfredo Javier married
Maria Odvina before Judge Natividad Almeda-Lopez of the Municipal Court of Manila on
April 19, 1950, marked Exhibit 2(b).

At the instance of plaintiff Salud R. Arca an information for bigamy was filed by the City
Fiscal of Manila on July 25, 1950 against defendant Alfredo Javier with the Court of First
Instance of Manila, docketed as Criminal Case No. 13310 and marked Exhibit 2(a).
However, defendant Alfredo Javier was acquitted of the charge of Bigamy in a decision
rendered by the Court of First Instance of Manila through Judge Alejandro J. Panlilio,
dated August 10, 1951, predicated on the proposition that the marriage of defendant
Alfredo Javier with Maria Odvina was made in all good faith and in the honest belief that
his marriage with plaintiff Salud R. Arca had been legally dissolved by the decree of
divorce obtained by him from the Circuit Court of Mobile County, State of Alabama, USA
which had the legal effect of dissolving the marital ties between defendant Alfredo Javier
and plaintiff Salud R. Arca. At this juncture, again, it is this court's opinion that defendant
Alfredo Javier's acquittal in that Criminal Case No. 13310 of the Court of First Instance of
Manila by Judge Panlilio was due to the fact that the accused had no criminal intent in
contracting a second or subsequent marriage while his first marriage was still subsisting.

Appellant was a native born citizen of the Philippines who, in 1937, married Salud R. Arca,
another Filipino citizen. Before their marriage they had already a child, Alfredo Javier, Jr., who
thereby became legitimated. In 1927 appellant enlisted in the U.S. Navy and in 1938 sailed for
the United States aboard a navy ship in connection with his service leaving behind his wife and
child, and on August 13, 1940, he filed an action for divorce in the Circuit Court of Mobile
County, Alabama, U.S.A., alleging as ground abandonment by his wife. Having received a copy
of the complaint, Salud R. Arca filed an answer alleging, among other things, that appellant was
not a resident of Mobile County, but of Naic, Cavite, Philippines, and that it was not true that the
cause of their separation was abandonment on her part but that appellant was in the United
States, without her, because he was then enlisted in the U.S. Navy. Nevertheless, the Circuit
Court of Mobile County rendered judgment granting appellant a decree of divorce on April 9,
1941.

The issue now to be determined is: Does this decree have a valid effect in this jurisdiction?
The issue is not new. This court has had already occasion to pass upon questions of similar
nature in a number of cases and its ruling has invariably been to deny validity to the decree. In
essence, it was held that one of the essential conditions for the validity of a decree of divorce is
that the court must have jurisdiction over the subject matter and in order that this may be
acquired, plaintiff must be domiciled in good faith in the State in which it is granted (Cousins
Hix vs. Fluemer, 55 Phil., 851, 856). Most recent of such cases is Sikat vs. Canson, 67 Phil.,
207, which involves a case of divorce also based on the ground of desertion. In that case, John
Canson claimed not only that he had legal residence in the State of Nevada, where the action
was brought, but he was an American citizen, although it was proven that his wife never
accompanied him there but has always remained in the Philippines, and so it has been held that
"it is not ... the citizenship of the plaintiff for divorce which confers jurisdiction upon a court, but
his legal residence within the State." The court further said: "And assuming that John Canson
acquired legal residence in the State of Nevada through the approval of his citizenship papers,
this would not confer jurisdiction on the Nevada court to grant divorce that would be valid in this
jurisdiction, nor jurisdiction that could determine their matrimonial status, because the wife was
still domiciled in the Philippines. The Nevada court never acquired jurisdiction over her person."

It is true that Salud R. Arca filed an answer in the divorce case instituted at the Mobile County in
view of the summons served upon her in this jurisdiction, but this action cannot be interpreted
as placing her under the jurisdiction of the court because its only purpose was to impugn the
claim of appellant that his domicile or legal residence at that time was Mobile County, and to
show that the ground of desertion imputed to her was baseless and false. Such answer should
be considered as a special appearance the purpose of which is to impugn the jurisdiction of the
court over the case.

In deciding the Canson case, this court did not overlook the other cases previously decided on
the matter, but precisely took good note of them. Among the cases invoked are Ramirez vs.
Gmur, 42 Phil. 855; Cousins Hix vs. Fluemer, 55 Phil., 851, and Barretto Gonzales vs.
Gonzales, 58 Phil., 67. In the cases just mentioned, this court laid down the following doctrines:

It is established by the great weight of authority that the court of a country in which
neither of the spouses is domiciled and to which one or both of them may resort merely
for the purpose of obtaining a divorce has no jurisdiction to determine their matrimonial
status; and a divorce granted by such a court is not entitled to recognition elsewhere.
(See Note to Succession of Benton, 59 L. R. A., 143) The voluntary appearance of the
defendant before such a tribunal does not invest the court with jurisdiction. (Andrews vs.
Andrews, 188 U. S., 14; 47 L. ed., 366.)

It follows that, to give a court jurisdiction on the ground of the plaintiff's residence in the
State or country of the judicial forum, his residence must be bona fide. If a spouse
leaves the family domicile and goes to another State for the sole purpose of obtaining a
divorce, and with no intention of remaining, his residence there is not sufficient to confer
jurisdiction on the courts of the State. This is especially true where the cause of divorce
is one not recognized by the laws of the State of his own domicile. (14 Cyc. 817, 181.)"
(Ramirezvs. Gmur, 82 Phil., 855.)

But even if his residence had been taken up is good faith, and the court had acquired
jurisdiction to take cognizance of the divorce suit, the decree issued in his favor is not
binding upon the appellant; for the matrimonial domicile of the spouses being the City of
Manila, and no new domicile having been acquired in West Virginia, the summons made
 by publication, she not having entered an appearance in the case, either personally or
by counsel, did not confer jurisdiction upon said court over her person. (Cousins
Hix vs.Fluemer, 55 Phil., 851.)

At all times the matrimonial domicile of this couple has been within the Philippine Islands
and the residence acquired in the State of Nevada by the husband for the purpose of
securing a divorce was not a bona fide residence and did not confer jurisdiction upon the
court of the State to dissolve the bonds of matrimony in which he had entered in 1919.
(Barretto Gonzales vs. Gonzales, 58 Phil., 67.)

In the light of the foregoing authorities, it cannot therefore be said that the Mobile County Court
of Alabama had acquired jurisdiction over the case for the simple reason that at the time it was
filed appellant's legal residence was then in the Philippines. He could not have acquired legal
residence or domicile at Mobile County when he moved to that place in 1938 because at that
time he was still in the service of the U.S. Navy and merely rented a room where he used to
stay during his occasional shore leave for shift duty. That he never intended to live there
permanently is shown by the fact that after his marriage to Thelma Francis in 1941, he moved to
New York where he bought a house and a lot, and after his divorce from Thelma in 1949 and his
retirement from the U.S. Navy, he returned to the Philippines and married Maria Odvina of Naic,
Cavite, where he lived ever since. It may therefore be said that appellant went to Mobile County,
not with the intention of permanently residing there, or of considering that place as his
permanent abode, but for the sole purpose of obtaining divorce from his wife. Such residence is
not sufficient to confer jurisdiction on the court.

It is claimed that the Canson case cannot be invoked as authority or precedent in the present
case for the reason that the Haddeck case which was cited by the court in the course of the
decision was reversed by the Supreme Court of the United States in the case of Williams vs.
North Carolina, 317 U.S. 287. This claim is not quite correct, for the Haddeck case was merely
cited as authority for the statement that a divorce case is not a proceeding in rem, and the
reversal did not necessarily overrule the ruling laid down therein that before a court may acquire
jurisdiction over a divorce case, it is necessary that plaintiff be domiciled in the State in which it
is filed. (Cousins Hix vs. Fluemer, supra.) At any rate, the applicability of the ruling in the
Canson case may be justified on another ground: The courts in the Philippines can grant
divorce only on the ground of adultery on the part of the wife or concubinage on the part of the
husband, and if the decree is predicated on another ground, that decree cannot be enforced in
this jurisdiction. Said the Court in the Canson case:

. . . In Barretto Gonzales vs. Gonzales (55 Phil., 67), we observed:

. . . While the decisions of this court heretofore in refusing to recognize the validity of
foreign divorce has usually been expressed in the negative and have been based upon
lack of matrimonial domicile or fraud or collusion, we have not overlooked the provisions
of the Civil Code now enforced in these Islands. Article 9 thereof reads as follows:

"The laws relating to family rights and duties, or to the status, condition, and legal
capacity of persons, are binding upon Spaniards even though they reside in a foreign
country."

"And Article 11, the last part of which reads

 ". . . prohibitive laws concerning persons, their acts and their property, and those
intended to promote public order and good morals shall not be rendered without effect
by any foreign laws or judgments or by anything done or any agreements entered into a
foreign country."

"It is therefore a serious question whether any foreign divorce, relating to citizens of the
Philippine Islands, will be recognized in this jurisdiction, except it be for a cause, and
under conditions for which the courts of the Philippine Islands would grant a divorce."

The courts in the Philippines can grant a divorce only on the ground of "adultery on the
part of the wife or concubinage on the part of the husband" as provided for under section
1 of Act No. 2710. The divorce decree in question was granted on the ground of
desertion, clearly not a cause for divorce under our laws. That our divorce law, Act No.
2710, is too strict or too liberal is not for this court decide. (Barretto Gonzalesvs.
Gonzales, supra). The allotment of powers between the different governmental agencies
restricts the judiciary within the confines of interpretation, not of legislation. The
legislative policy on the matter of divorce in this jurisdiction is clearly set forth in Act No.
2710 and has been upheld by this court (Goitia vs. Campos Rueda, 35 Phil., 252; Garcia
Valdez vs. Soterana Tuazon, 40 Phil., 943-952; Ramirez vs. Gmur, 42 Phil., 855;
Chereau vs. Fuentebella, 43 Phil., 216; Fernandez vs. De Castro, 48 Phil., 123;
Gorayeb vs. Hashim,supra; Francisco vs. Tayao, 50 Phil., 42; Alkuino Lim Pang vs. Uy
Pian Ng Shun and Lim Tingco, 52 Phil., 571; Cousins Hix vs. Fluemer, supra; and
Barretto Gonzales vs. Gonzales, supra).

The above pronouncement is sound as it is in keeping with the well known principle of Private
International Law which prohibits the extension of a foreign judgment, or the law affecting the
same, if it is contrary to the law or fundamental policy of the State of the forum. (Minor, Conflict
of Laws, pp. 8-14). It is also in keeping with our concept or moral values which has always
looked upon marriage as an institution. And such concept has actually crystallized in a more
tangible manner when in the new Civil Code our people, through Congress, decided to eliminate
altogether our law relative to divorce. Because of such concept we cannot but react adversely to
any attempt to extend here the effect of a decree which is not in consonance with our customs,
morals, and traditions. (Article 11, old Civil Code; Articles 15 and 17, new Civil Code;
Gonzales vs. Gonzales, 58 Phil., 67.)

With regard to the plea of appellant that Salud R. Arca had accused him of the crime of bigamy
and consequently she forfeited her right to support, and that her child Alfredo Javier, Jr. is not
also entitled to support because he has already reached his age of majority, we do not need to
consider it here, it appearing that these questions have already been passed upon in G. R. No.
L-6706.1 These questions were resolved against the pretense of appellant.

Wherefore, the decision appealed from is affirmed, with costs.

Paras, C.J., Pablo, Bengzon, Padilla, Montemayor, Reyes, A., Jugo, Labrador, Concepcion and
Reyes, J.B.L., JJ.,concur.

Footnotes
 1
Javier vs. Lucero, et al., 94 Phil., 634.

RAMIREZ VS GMUR

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-11796 August 5, 1918

In the matter of estate of Samuel Bischoff Werthmuller. ANA M. RAMIREZ, executrix-

appellant,
vs.
OTTO GMUR, as guardian of the minors Esther Renate Mory, Carmen Maria Mory, and
Leontina Elizabeth, claimant-appellant.

C. Lozano for executrix-appellant.

Thos. D. Aitken for claimant-appellant.

STREET, J.:

Samuel Bischoff Werthmuller, native of the Republic of Switzerland, but for many years a
resident of the Philippine Islands, died in the city of Iloilo on June 29, 1913, leaving a valuable
estate of which he disposed by will. A few days after his demise the will was offered for probate
in the Court of First Instance of Iloilo and, upon publication of notice, was duly allowed and
established by the court. His widow, Doña Ana M. Ramirez, was named as executrix in the will,
and to her accordingly letters testamentary were issued. By the will everything was given to the
widow, with the exception of a piece of real property located in the City of Thun, Switzerland,
which was devised to the testator's brothers and sisters.

The first cause of the will contains a statement to the effect that inasmuch as the testator had no
children from his marriage with Ana M. Ramirez he was therefore devoid of forced heirs. In
making this statement the testator ignored the possible claims of two sets of children, born to his
natural daughter, Leona Castro.

The pertinent biographical facts concerning Leona Castro are these: As appears from the
original baptismal entry made in the church record of Bacolod, she was born in that pueblo on
April 11, 1875, her mother being Felisa Castro, and father "unknown." Upon the margin of this
record there is written in Spanish an additional annotation of the following tenor: "According to a
public document (escritura) which was exhibited, she was recognized by Samuel Bischoff on
June 22, 1877." This annotation as well as the original entry is authenticated by the signature of
Father Ferrero, whose deposition was taken in this case. He testifies that the work "escritura" in
this entry means a public document; and he says that such document was exhibited to him
when the marginal note which has been quoted was added to the baptismal record and supplied
the basis for the annotation in question.
As the years passed Leona Castro was taken into the family of Samuel Bischoff and brought up
by him and his wife a a member of the family; and it is sufficiently shown by the evidence
adduced in this case that Samuel Bischoff tacitly recognized Leona a his daughter and treated
her as such. In the year 1895 Leona Castro was married to Frederick von Kauffman, a British
subject, born in Hong Kong, who had come to live in the city of Iloilo. Three children were born
of this marriage, namely, Elena, Federico, and Ernesto, the youngest having been born on
November 10, 1898. In the month of April 1899, Leona Castro was taken by her husband from
Iloilo to the City of Thun, Switzerland, for the purpose of recuperating her health. She was there
placed in a sanitarium, and on August 20th the husband departed for the Philippine Islands,
where he arrived on October 10, 1899.

Leona Castro continued to remain in Switzerland, and a few years later informed her husband,
whom she had not seen again, that she desired to remain free and would not resume life in
common with him. As a consequence, in the year 1904, Mr. Kauffman went to the City of Paris,
France, for the purpose of obtaining a divorce from his wife under the French laws; and there is
submitted in evidence in this case a certified copy of an extract from the minutes of the Court of
First Instance of the Department of the Seine, from which it appears that a divorce was there
decreed on January 5, 1905, in favor of Mr. Kauffman and against his wife, Leona, in default.
Though the record recites that Leona was then in fact residing at No. 6, Rue Donizetti, Paris,
there is no evidence that she had acquired a permanent domicile in that city.

The estrangement between the von Kauffman spouses is explained by the fact that Leona
Castro had become attracted to Dr. Ernest Emil Mory, the physician in charge of the sanatorium
in Switzerland where she was originally placed; and soon after the decree of divorce was
entered, as aforesaid, Doctor Mory and Leona Castro repaired to the City of London, England,
and on May 5, 1905, in the registrar's office in the district of Westminster, went through the
forms of a marriage ceremony before an officer duly qualified to celebrate marriage under the
English law. It appears that Doctor Mory himself had been previously married to one Helena
Wolpman, and had been divorced from her; but how or under what circumstances this divorce
had been obtained does not appear.

Prior to the celebration of this ceremony of marriage a daughter, named Leontina Elizabeth, had
been born (July 21, 1900) to Doctor Mory and Leona Castro, in Thun, Switzerland. On July 2,
1906, a second daughter, named Carmen Maria, was born to them in Berne, Switzerland, now
the place of their abode; and on June 10, 1909, a third daughter was born, name Esther. On
October 6, 1910, the mother died.

In the present proceedings Otto Gmur has appeared as the guardian of the three Mory
claimants, while Frederick von Kauffman has appeared as the guardian of his own three
children, Elena, Federico, and Ernesto.

As will be surmised from the foregoing statement, the claims of both sets of children are
founded upon the contention that Leona Castro was the recognized natural daughter of Samuel
Bischoff and that as such she would, if living, at the time of her father's death, have been a
forced heir of his estate and would have been entitled to participate therein to the extend of a
one-third interest. Ana M. Ramirez, as the widow of Samuel Bischoff and residuary legatee
under his will, insists — at least as against the Mory claimants, — that Leona Castro had never
been recognized at all by Samuel Bischoff.
In behalf of Leontina, the oldest of the Mory claimants, it was originally insisted in the court
below, that, having been born while her mother still passed as the wife of Frederick von
Kauffman, she was to be considered as a legitimate daughter of the wedded pair. This
contention has been abandoned on this appeal a untenable; and it is now contended here
merely that, being originally the illegitimate daughter of Doctor Mory and Leona Castro, she was
legitimated by their subsequent marriage.

In behalf of Carmen Maria and Esther Renate, the two younger of the Mory claimants, it is
argued that the bonds of matrimony which united Frederick von Kauffman and Leona Castro
were dissolved by the decree of divorce granted by the Paris court on January 5, 1905; that the
marriage ceremony which was soon thereafter celebrated between Doctor Mory and Leona in
London was in all respects valid; and that therefore these claimants are to be considered the
legitimate offspring of their mother.

In behalf of the children of Frederick von Kauffman it is insisted that the decree of divorce was
wholly invalid, that all three of the Mory children are the offspring of adulterous relations, and
that the von Kauffman children, as the legitimate offspring of Leona Castro, are alone entitled to
participate in the division of such part of the estate of Samuel Bischoff as would have been
inherited by their mother, if living.

We are of the opinion that the status of Leona Castro as recognized natural daughter of Samuel
Bischoff is fully and satisfactorily shown. It is proved that prior to her marriage with Frederick
von Kauffman she was in an uninterrupted enjoyment of the de facto status of a natural child
and was treated as such by Samuel Bischoff and his kindred. The proof of tacit recognition is full
and complete.

From the memorandum made by Padre Ferrero in the record of the birth, as well as from the
testimony of this priest, taken upon the deposition, it also appears that Samuel Bischoff had
executed a document, authenticated by a notarial act, recognizing Leona as his daughter, that
said document was presented to the priest, as custodian of the church records, and upon the
faith of that document the marginal note was added to the baptismal record, showing the fact of
such recognition. The original document itself was not produced in evidence but it is shown that
diligent search was made to discover its whereabouts, without avail. This was sufficient to justify
the introduction of secondary evidence concerning its contents; and the testimony of the priest
show that the fact of recognition was therein stated. Furthermore, the memorandum in the
baptismal record itself constitutes original and substantive proof of the facts therein recited.

It will be observed that the recognition of Leona Castro as the daughter of Samuel Bischoff
occurred prior to the date when the Civil Code was put in force in these Islands; and
consequently her rights as derived from the recognition must be determined under the law as it
then existed, that is, under Law 11 of Toro, which afterwards became Law 1, title 5, book 10, of
the Novisima Recopilacion. (See Capistrano vs. Estate of Gabino, 8 Phil., 135, 139, where this
statute is quoted in the opinion written by Mr. Justice Torres.) Under that law recognition could
be established by proof of acts on the part of the parent unequivocally recognizing the status of
his offspring. (Cosiovs. Pili, 10 Phil., 72, 77.) In other words at tacit recognition was sufficient.
Under article 131 of the present Civil Code, the acknowledgment of a natural child must be
made in the record of birth, by will, or in other public instrument. We are of the opinion that the
recognition of Leona Castro is sufficiently shown whether the case be judged by the one
provision or the other.
But it is contended by counsel for Doña Ana Ramirez that only children born of persons free to
marry may possess the status of recognized natural children, and there is no evidence to show
that Felisa Catro was either a single woman or widow at the time of the conception or birth of
Leona. In the absence of proof to the contrary, however, it must be presumed that she was a
single woman or a widow.

Relative to this presumption of the capacity of the parents to marry, the author Sanchez Roman
makes the following comment:

Furthermore, viewing the conception of natural child in connection with two mutually
interrelated circumstances, to wit, the freedom of the parents to intermarry, with or
without dispensation, at the time of the conception of the offspring stigmatized as
natural, the first of these, or freedom to marry, is a point upon which there is, according
to the jurisprudence of our former law, whose spirit is maintained in the Code, an
affirmative presumption which places the burden of proving the contrary upon those who
are interested in impugning the natural filiation. (Vol. 5, Derecho Civil, pp. 1018-1019.)

The contrary presumption would be that Felisa Castro was guilty of adultery, which cannot be
entertained. If such had in fact been the case, the burden of proving it would have been upon
the persons impugning the recognition of the child by her father. (Sec. 334, par. 1, Code of Civil
Procedure.)

From the fact that Leona Castro was an acknowledged natural daughter of her father, it follows
that had she survived him she would have been his forced heir, he having died after the Civil
Code took effect. (Civil Code, article 807 [3], art. 939; Civil Code, first transitory disposition); and
as such forced heir she would have been entitled to one-third of the inheritance (art. 842, Civil
Code).

With reference to the right of the von Kauffman children, it is enough to say that they are
legitimate children, born to their parents in lawful wedlock; and they are therefore entitled to
participate in the inheritance which would have devolved upon their mother, if he had survived
the testator.

As regards the Mory claimants, it is evident that their rights principally depend upon the effect to
be given by this court to the decree of divorce granted to von Kauffman by the Court of First
Instance of the City of Paris. If this decree is valid, the subsequent marriage of Doctor Mory and
Leona Castro must also be conceded to be valid; and as a consequence the two younger
children, born after said marriage, would be the legitimate offspring of their mother, and would
be entitle to participate in their mother's portion of Mr. Bischoff's estate. With respect to Leontina
Elizabeth, the older one of the Mory claimants, there would in the case still be the insuperable
obstacle which results from the fact that she was the offspring of adulterous intercourse and a
such was incapable of legitimation (art. 119, Civil Code).

We are of the opinion that the decree of divorce upon which reliance is placed by the
representation of the Mory children cannot be recognized as valid in the courts of the Philippine
Islands. The French tribunal has no jurisdiction to entertain an action for the dissolution of a
marriage contracted in these Islands by person domiciled here, such marriage being
indissoluble under the laws then prevailing in this country.
The evidence shows conclusively that Frederick von Kauffman at all times since earliest youth
has been, and is now, domiciled in the city of Iloilo in the Philippine Islands; that he there
married Leona Castro, who was a citizen of the Philippine Islands, and that Iloilo was their
matrimonial domicile; that his departure from iloilo for the purpose of taking his wife to
Switzerland was limited to that purpose alone, without any intent to establish a domicile
elsewhere; and finally that he went to Paris in 1904, for the sole purpose of getting a divorce,
without any intention of establishing a permanent residence in that city. The evidence shows
that the decree was entered against the defendant in default, for failure to answer, and there is
nothing to show that she had acquired, or had attempted to acquire, a permanent domicile in the
City of Paris. It is evident of course that the presence of both the spouses in that city was due
merely to the mutual desire to procure a divorce from each other.

It is established by the great weight of authority that the court of a country in which neither of the
spouses is domiciled and to which one or both of them may resort merely for the purpose of
obtaining a divorce has no jurisdiction to determine their matrimonial status; and a divorce
granted by such a court is not entitled to recognition elsewhere. (See Note to Succession of
Benton, 59 L. R. A., 143.) The voluntary appearance of the defendant before such a tribunal
does not invest the court with jurisdiction. (Andrews vs. Andrews, 188 U. S., 14; 47 L. ed., 366.)

It follows that, to give a court jurisdiction on the ground of the plaintiff's residence in the State or
country of the judicial forum, his residence must be bona fide. If a spouse leaves the family
domicile and goes to another State for the sole purpose of obtaining a divorce, and with no
intention of remaining, his residence there is not sufficient to confer jurisdiction on the courts of
that State. This is especially true where the cause of divorce is one not recognized by the laws
of the State of his own domicile. (14 Cyc., 817, 818.)

As have been well said by the Supreme Court of the United States marriage is an institution in
the maintenance of which in its purity the public is deeply interested, for it is the foundation of
the family and of society, without which there could be neither civilization nor progress.
(Maynard vs. Hill, 125 U. S., 210; 31 L. ed., 659.) Until the adoption of Act No. 2710 by the
Philippine Legislature (March 11, 1917), it had been the law of these Islands that marriage,
validly contracted, could not be dissolved absolutely except by the death of one of the parties;
and such was the law in this jurisdiction at the time when the divorce in question was procured.
The Act to which we have referred permits an absolute divorce to be granted where the wife has
been guilty of adultery or the husband of concubinage. The enactment of this statute
undoubtedly reflect a change in the policy of our laws upon the subject of divorce, the exact
effect and bearing of which need not be here discussed. But inasmuch as the tenets of the
Catholic Church absolutely deny the validity of marriages where one of the parties is divorced, it
is evident that the recognition of a divorce obtained under the conditions revealed in this case
would be as repugnant to the moral sensibilities of our people as it is contrary to the well-
established rules of law.

As the divorce granted by the French court must be ignored, it results that the marriage of
Doctor Mory and Leona Castro, celebrated in London in 1905, could not legalize their relations;
and the circumstance that they afterwards passed for husband and wife in Switzerland until her
death is wholly without legal significance. The claims of the Mory children to participate in the
estate of Samuel Bischoff must therefore be rejected. The right to inherit is limited to legitimate,
legitimated, and acknowledged natural children. The children of adulterous relations are wholly
excluded. The word "descendants," as used in article 941 of the Civil Code cannot be
interpreted to include illegitimates born of adulterous relations.
An important question arises in connection with the time within which the claims of the two sets
of children were presented to the court. In this connection it appears that the will of Samuel
Bischoff was probated in August, 1913. A committee on claims was appointed and it report was
field and accepted February 20, 1914. About the same time Otto Gmur entered an appearance
for the Mory claimants and petitioned the court to enter a decree establishing their right to
participate in the distribution of the estate. The executrix, Doña Ana Ramirez, answered the
petition denying that said minors were the legitimate children of Leona Castro and further
denying that the latter was the recognized natural daughter of Samuel Bischoff. Upon the issues
thus presented a trial was had before the Honorable Fermin Mariano, and on December 29,
1915, he rendered a decision in which he held (1) that Leona Castro was the recognized natural
daughter of Samuel Bischoff; (2) that the minor, Leontina Elizabeth, is a legitimate daughter of
Leona Castro; and (3) that the minors Carmen Maria and Esther Renate are illegitimate children
of Leona Castro.

From these facts the court drew the conclusion that Leontina Elizabeth was entitled to one-third
of the estate of the late Samuel Bischoff, and that his widow, Doña Ana Ramirez, was entitled to
the remaining two-thirds. From this decision both Doña Ana Ramirez and Otto Gmur, as
guardian, appealed.

Shortly after the appeals above-mentioned were taken, Mr. Frederick von Kauffman made
application to the Court of First Instance of Iloilo by petition filed in the proceedings therein
pending upon the estate of the late Samuel Bischoff for appointment as guardian ad litem of his
minor children, the von Kauffman heirs, which petition was granted by order dated March 4,
1916. Thereafter, on April 1, 1916, von Kauffman, on behalf of the said minors, filed in the
cause a petition setting forth their right to share in the estate. This petition was answered by Mr.
Otto Gmur, guardian, on April 26, 1916, the sole contention of said answer being that the matter
to which the petition relates had been disposed of by the decision of the Court of First Instance
rendered in said proceedings by Judge Mariano on December 9, 1915. Doña Ana Ramirez
answered denying all the allegations of von Kauffman's petition.

The trial of the petition of von Kauffman, as guardian, came on for hearing before the Court of
First Instance of Iloilo on the 10th day of August, 1916. Upon the evidence taken at that hearing
the Honorable J. S. Powell, as judge then presiding in the Court of First Instance of Iloilo,
rendered a decision under date of November 14, 1916, in which he found as a fact Leona
Castro was the acknowledged natural daughter of Samuel Bischoff and that the minors, Elena,
Fritz, and Ernesto, are the legitimate children of Frederick von Kauffman and the said Leona
Castro, born in lawful wedlock. Upon the facts so found, Judge Powell based his conclusion that
all that portion of the estate of Samuel Bischoff pertaining to Leona Castro should be equally
divided among the children Federico, Ernesto, and Elena, thereby excluding by inference the
Mory claimants from all participation in the estate.

From this judgments an appeal was taken by Mr. Otto Gmur as guardian, no appeal having
taken by Doña Ama Ramirez.

Though the circumstance is now of no practical importance, it may be stated in passing that the
appeals of Doña Ana Ramirez and of Otto Gmur, guardian, from the decision of Judge Mariano
of December 9, 1915, and the appeal of Otto Gmur, guardian from the decision of Judge Powell,
of November 14, 1916, were brought to this court separately; but the causes were subsequently
consolidated and have been heard together. The parties to the litigation have also stipulated
that all the "evidence, stipulations and admissions in each of the two proceedings above-
mentioned may be considered for all purposes by this court in the other." The case is therefore
considered here as though there had been but one trial below and all the issues of law and fact
arising from the contentions of the oppossing claimants had been heard at the same time.

Upon the facts above stated it is insisted for Ana M. Ramirez that her rights to the estate under
the will of Samuel Bischoff were at the latest determined by the final decree of December 29,
1915; and that it was thereafter incompetent for the court to take cognizance of the application
of the Mory claimants. If this contention is sustainable, the same considerations would operate
to defeat the later application filed on behalf of the von Kauffman children — and indeed with
even greater force, — since this application was not made until the appeals from the decree of
December 9, 1915, had actually been perfected and the cause had been transferred to the
Supreme Court.

Two questions are here involved, one as to the effect of the probate of a will upon the rights of
forced heirs who do not appear to contest the probate, and the other as to the conclusiveness
and finality of an order for the distribution of an estate, as against persons who are not before
the court.

Upon the first of these questions it is enough to say that the rights of forced heirs to their
legitime are not divested by the decree admitting a will to probate, — and this regardless of the
fact that no provision has been made for them in the will, for the decree of probate is conclusive
only a regards the due execution of the will, the question of its intrinsic validity not being
determined by such decree. (Code of Civil Procedure, sec. 625; Castañeda vs.Alemany, 3 Phil.,
426; Sahagun vs. De Gorostiza, 7 Phil., 347; JocSoy vs. Vaño, 8 Phil., 119; Limjuco vs. Ganara,
11 Phil., 393, 395; Austria vs. Ventenilla, 21 Phil., 180.)

Indeed it is evident, under the express terms of the proviso to section 753 of the Code of Civil
Procedure, that the forced heirs cannot be prejudiced by the failure of the testator to provide for
them in his will; and regardless of the intention of the testator to leave all his property, or
practically all of it, to his wife, the will is intrinsically invalid so far a it would operate to cut off
their rights.

The question as to the conclusiveness of the order of distribution can best be considered with
reference to the von Kauffman children, as the solution of the problem as to them necessarily
involves the disposition of the question as to the Mory claimants.

It is evident that the von Kauffman children cannot be considered to have been in any sense
parties to the proceeding at the time Judge Mariano rendered his decision. So far a the record
shows the court was then unaware even of their existence. No notice of any kind was served
upon them; nor was any person then before the court authorized to act in their behalf.
Nevertheless, as we have already shown, upon the death of Samuel Bischoff, the right to
participate in his estate vested immediately in this children, to the extent to which their mother
would have been entitled to participate had she survived her father. If the right vested upon the
death of Samuel Bischoff, how has it been since divested?

The record shows that the decision of December 29, 1915, in which Judge Mariano holds that
the estate should be divided between Leontina Elizabeth and the residuary legatee Doña Ana
Ramirez, was made without publication of notice, or service of any kind upon other persons who
might consider themselves entitled to participate in the estate.
The law in force in the Philippine Islands regarding the distribution of estates of deceased
persons is to be found in section 753 et seq., of the Code of Civil Procedure. In general terms
the law is that after the payment of the debts and expenses of administration the court shall
distribute the residue of the estate among the persons who are entitled to receive it, whether by
the terms of the will or by operation of law. It will be noted that while the law (sec. 754) provides
that the order of distribution may be had upon the application of the executor or administrator, or
of a person interested in the estate, no provision is made for notice, by publication or otherwise,
of such application. The proceeding, therefore, is to all intents and purposes ex parte. A will be
seen our law is very vague and incomplete; and certainly it cannot be held that a purely ex
parte proceeding, had without notice by personal service or by publication, by which the court
undertakes to distribute the property of deceased persons, can be conclusive upon minor heirs
who are not represented therein.

Section 41 of the Code of Civil Procedure provides that ten years actual adverse possession by
"occupancy, grant, descent, or otherwise' shall vest title in the possessor. This would indicate
that a decree of distribution under which one may be placed in possession of land acquired by
descent, is not in itself conclusive, and that, a held in Layre vs. Pasco (5 Rob. [La.], 9), the
action of revindication may be brought by the heir against the persons put in possession by
decree of the probate court at any time within the period allowed by the general statute of
limitations.

Our conclusion is that the application of the von Kauffman children was presented in ample time
and that the judgment entered in their favor by Judge Powell was correct. The Mory claimants,
as already stated, are debarred from participation in the estate on other grounds.

So much of the judgment entered in the Court of First Instance, pursuant to the decision of
Judge Mariano of December 29, 1915, as admits Leontina Elizabeth Mory to participate in the
estate of Samuel Bischoff is reversed; and instead the von Kauffman children will be admitted to
share equally in one-third of the estate as provided in the decision of Judge Powell of November
14, 1916. In other respects the judgment of Judge Mariano is affirmed. The costs of this
instance will be paid out of the estate. So ordered.

Arellano, C.J., Torres, Johnson, Malcolm and Avanceña, JJ., concur.

MANILA SURETY & FIDELITY CO VS TEODORO

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-20530 June 29, 1967

MANILA SURETY and FIDELITY COMPANY, INC., petitioner,

vs.
TRINIDAD TEODORO and THE COURT OF APPEALS, respondents.
De Santos and Delfino for petitioner.
V. J. Francisco and R. F. Francisco for respondents.

MAKALINTAL, J.:

The Manila Surety & Fidelity Company, Inc., filed this petition for review by certiorari of the
decision of the Court of Appeals in its Case No. CA-G.R. 30916. The case relates to the
execution of a joint and several judgment for money obtained by the said company against the
Philippine Ready-Mix Concrete Co., Inc. and Jose Corominas, Jr., in a litigation started in 1952
in the Court of First Instance of Manila (Civil Case No. 17014), whose decision was affirmed by
the Court of Appeals with only a slight modification in respect of the award for attorney's fees.

The proceedings which took place thereafter are narrated in the decision sought to be reviewed
as follows:

When said decision became final, respondent Manila Sure secured on September 20,
1961, from the Court of First Instance of Manila in Civil Case No. 17014 a second alias
writ of execution addressed to respondent provincial sheriff of Rizal whose deputy,
together with counsel for respondent Manila Surety, repaired to the residence of herein
petitioner at No. 794 Harvard Street, Mandaluyong, Rizal, and levied upon a car, some
furniture, appliances and personal properties found therein belonging solely and
exclusively to the petitioner with the exception of sewing machine which belonged to a
maid by the name of Nati Fresco, a G.E. television set which was the property of the
minor Jose Alfonso Corominas, and a baby grand piano as well as a Columbia radio
phonograph which belonged to Jose Corominas, Jr. As the petitioner was then abroad,
her sister Josefina Teodoro, to whom she had entrusted the custody and safekeeping of
the properties, had made representations to the deputy sheriff and to the counsel of
respondent Manila Surety regarding the ownership of the petitioner over certain personal
effects levied upon, but they ignored the same and proceeded with the levy.

Thus, respondents caused the posting at several places notices of sale, preparatory to
disposing petitioner's properties at public auction.

To stay the sale at public auction of petitioner's properties, she filed on November 3,
1961, with the Court of First Instance of Rizal a complaint with injunction, entitled
"Trinidad Teodoro vs Manila Surety & Fidelity Co., Inc. and the Provincial Sheriff of
Rizal," praying among other things, for damages and a writ of preliminary injunction
which was accordingly issued upon petitioner's filing of a bond in the sum of P30,000.00
enjoining the provincial sheriff of Rizal from selling at public auction the properties
claimed by said petitioner.

However, on November 9, 1961, respondent Manila Surety filed an "Omnibus Motion to

Dismiss the Complaint and to Dissolve Injunction" to which an opposition was filed.

After the parties had adduced their evidence in support of their respective claims and
after hearing their arguments, the lower court declared that the properties in question are
community properties of Trinidad Teodoro (herein petitioner) and Jose Corominas, Jr.,
dissolved on May 12, 1962, the writ of preliminary injunction it had issued and dismissed
the complaint (Civil case No. 6865, CFI Rizal).
 Not satisfied, Trinidad Teodoro (as plaintiff in said civil case No. 6865 of Rizal)
interposed an appeal. In the meanwhile, however, the Manila Surety filed on May 29,
1962, in the Court of First Instance of Manila a motion for the issuance of a third alias
writ of execution for the satisfaction of the judgment debt in civil case No. 17014. Acting
upon said motion the Court of First Instance of Manila issued on June 2, 1962, the "Third
Alias Writ of Execution."

Thus, on June 7,1962, deputies of the provincial sheriff of Rizal again repaired to the
residence of herein petitioner at No. 794 Harvard St., Mandaluyong, and levied upon the
same properties, with the exception of the baby grand piano and the "Columbia"
phonograph which were the properties of Jose Corominas, Jr. and which had already
been sold at public auction November 6, 1961 for P3,305.00, the Regal sewing machine
owned by Nati Fresco, the beds found in the boy's and girl's rooms, a marble dining
table and chairs, a stereophonic phonograph and the G.E. television set. And on the
following day, June 8, 1962, respondent provincial sheriff of Rizal advertised the sale at
public auction of the aforementioned properties claimed by herein petitioner, setting the
date thereof for June 16, 1962.

Trinidad Teodoro thereupon filed an original petition for injunction in the Court of Appeals to
stop the scheduled sale. On October 24, 1962 the said Court rendered the decision now under
review, granting the writ prayed for and permanently enjoining respondent provincial sheriff of
Rizal from selling at public auction the properties in question for the satisfaction of the judgment
debt of Jose Corominas, Jr.1äwphï1.ñët

The case for herein petitioner rests on the proposition that the said properties, claimed by
respondent Teodoro to be hers exclusively, pertain to the co-ownership established between
her and Jose Corominas, Jr., pursuant to Article 144 of the Civil Code, and consequently may
be levied upon on execution for the satisfaction of the latter's judgment debt. The facts relied
upon in support of this theory of co-ownership are stated in the decision of the court a quo and
quoted by the Court of Appeals, as follows:

Jose Corominas, Jr. and Sonia Lizares were married in Iloilo on January 5, 1935. On
November 29,1954, a decree of divorce was granted by the Court of the State of Nevada
dissolving the bonds of matrimony between Sonia Lizares and Jose Corominas, Jr. . . .

Trinidad Teodoro met Jose Corominas, Jr. in Hongkong on October 30, 1955. . . . On
March 26,1956, they went through a Buddhist wedding ceremony in Hongkong. Upon
their return to the Philippines they took up residence in a rented house at No. 2305 Agno
Street, . . . Manila. On September 5, 1961, plaintiff and Jose Corominas, Jr. were
married for a second time on Washoe County, Nevada. U.S.A.

Additional Pertinent facts, also mentioned in the decision under review and controverted by the
parties, are that Sonia Lizares is still living and that the conjugal partnership formed by her
marriage to Corominas was dissolved by the Juvenile and Domestic Relations Court of Manila
upon their joint petition, the decree of dissolution having been issued on October 21, 1957.

The principal issue here is the applicability of Article 144 of the Civil Code to the situation thus
created. This Article provides:
 When a man and a woman live together as husband and wife, but they are not married,
or their marriage is void from the beginning, the property acquired by either or both of
them through then work or industry or their wages and salaries shall be governed by the
rules on co-ownership.

There is no doubt that the decree of divorce granted by the Court of Nevada in 1954 is not valid
under Philippine law, which has outlawed divorce altogether; that the matrimonial bonds
between Jose Corominas, Jr. and Sonia Lizares have not been dissolved, although their
conjugal partnership was terminated in 1957; and that the former's subsequent marriage in
Hongkong to Trinidad Teodoro is bigamous and void.

While Article 144 speaks, inter alia, of a void marriage without any qualification, the Court of
Appeals declined to apply it in this case on two grounds: (1) the subsisting marriage of
Corominas to Sonia Lizares constitutes an impediment to a valid marriage between him and
respondent Trinidad Teodoro, which impediment, according to a number of decisions of the
Supreme Court, precludes the establishment of a co-ownership under said article, and (2) the
funds used by said respondent in acquiring the properties in question were "fruits of her
paraphernal investments which accrued before her marriage to Corominas."

The decisions cited under the first ground are Christensen vs. Garcia, 56 O.G. No. 16, p.
3199; Samson vs. Salaysay, 56 O.G. No. 11, p. 2401; and Osmeña vs. Rodriguez, 54 O.G. No.
20, p. 5526. In a proper case, where it may be necessary to do so in order to resolve an
unavoidable issue, the precise scope of the "no impediment to a valid marriage" dictum in said
decisions will undoubtedly deserve closer examination, since it establishes an exception to the
broad terms of Article 144. For one thing, a situation may arise involving a conflict of rights
between a co-ownership under that provision and an existing conjugal partnership formed by a
prior marriage where, for instance, the husband in such marriage lives with another woman and
with his salary or wages acquires properties during the extra-marital cohabitation. A ruling would
then be in order to determine which — as between the co-ownership and the conjugal
partnership — could claim ascendancy insofar as the properties are concerned.

In the present case, however, we find no need to pass on this question. The particular
properties involved here which were admittedly acquired by respondent Teodoro, cannot be
deemed to belong to such co-ownership because, as found by the trial court and confirmed by
the Court of Appeals, the funds used in acquiring said properties were fruits of respondent's
paraphernal investments which accrued before her "marriage" to Corominas. In other words
they were not acquired by either or both of the partners in the void marriage through their work
or industry or their wages and salaries, and hence cannot be the subject of co-ownership under
Article 144. They remain respondent's exclusive properties, beyond the reach of execution to
satisfy the judgment debt of Corominas.

Several procedural questions have been raised by petitioner. First, that the injunction issued by
the Court of Appeals was improper since it was not in aid of its appellate jurisdiction; second,
that respondent Trinidad Teodoro having elected to appeal from the decision of the Court of
First Instance of Rizal, she may not pursue the remedy of injunction as she did in this case;
third, that respondent's petition for injunction in the Court of Appeals failed to state a cause of
action; fourth, that the proper remedy available to respondent was by filing a third-party claim;
and finally, that the trial judge should have been included as party respondent in the petition for
injunction.
As to the first in second points, the fact is that respondent Trinidad Teodoro perfected her
appeal to the Court of Appeals, which found that there were questions of fact involved therein,
one of them being whether the properties in question were acquired before or after her void
marriage to Corominas. In aid of its appellate jurisdiction, therefore, the said Court could issue a
writ of injunction. Of course, what happened here was that before the record on appeal could be
filed (on June 18, 1962) or approved (on September 8, 1962) a third alias writ of execution was
issued by the trial court (on June 2, 1962) and the properties in question were again levied upon
by the sheriff and advertised for sale on June 16, 1962. It was impracticable for respondent to
first wait for the appeal to be elevated to and docketed in the Court of Appeals and there secure
the ancillary remedy of injunction therein. An independent petition for injunction, under the
circumstances, was not unjustified.

Respondent could, indeed, have filed a third party claim instead as indicated in Rule 39, Section
15.* But then her sister Josefina Teodoro did make such a claim in her behalf after the second
alias writ of execution was issued, but it was ignored and the sheriff proceeded with the levy. In
any event, a third party claim is not an exclusive remedy: the same rule provides that nothing
therein contained "shall prevent such third person from vindicating his claim to the property by
any proper action.

We do not deem it to be a reversible error for Trinidad Teodoro not to include the trial Judge as
party-respondent in her petition for injunction in the Court of Appeals. The trial Judge would
have been merely a nominal party anyway, and no substantial rights of petitioner here have
been prejudiced by the omission.

In view of the foregoing, the judgment of the Court of Appeals is affirmed, with costs.

Concepcion, C.J., Reyes, J.B.L., Dizon, Bengzon, J.P., Zaldivar, Sanchez and Castro,
JJ., concur.

Footnotes
*
Editor's Note: Should read "Section 17."

VA DORN VS ROMILLO

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-68470 October 8, 1985

ALICE REYES VAN DORN, petitioner,

vs.
HON. MANUEL V. ROMILLO, JR., as Presiding Judge of Branch CX, Regional Trial Court
of the National Capital Region Pasay City and RICHARD UPTON respondents.
MELENCIO-HERRERA, J.:\

In this Petition for certiorari and Prohibition, petitioner Alice Reyes Van Dorn seeks to set aside
the Orders, dated September 15, 1983 and August 3, 1984, in Civil Case No. 1075-P, issued by
respondent Judge, which denied her Motion to Dismiss said case, and her Motion for
Reconsideration of the Dismissal Order, respectively.

The basic background facts are that petitioner is a citizen of the Philippines while private
respondent is a citizen of the United States; that they were married in Hongkong in 1972; that,
after the marriage, they established their residence in the Philippines; that they begot two
children born on April 4, 1973 and December 18, 1975, respectively; that the parties were
divorced in Nevada, United States, in 1982; and that petitioner has re-married also in Nevada,
this time to Theodore Van Dorn.

Dated June 8, 1983, private respondent filed suit against petitioner in Civil Case No. 1075-P of
the Regional Trial Court, Branch CXV, in Pasay City, stating that petitioner's business in Ermita,
Manila, (the Galleon Shop, for short), is conjugal property of the parties, and asking that
petitioner be ordered to render an accounting of that business, and that private respondent be
declared with right to manage the conjugal property. Petitioner moved to dismiss the case on
the ground that the cause of action is barred by previous judgment in the divorce proceedings
before the Nevada Court wherein respondent had acknowledged that he and petitioner had "no
community property" as of June 11, 1982. The Court below denied the Motion to Dismiss in the
mentioned case on the ground that the property involved is located in the Philippines so that the
Divorce Decree has no bearing in the case. The denial is now the subject of this certiorari
proceeding.

Generally, the denial of a Motion to Dismiss in a civil case is interlocutory and is not subject to
appeal. certiorari and Prohibition are neither the remedies to question the propriety of an
interlocutory order of the trial Court. However, when a grave abuse of discretion was patently
committed, or the lower Court acted capriciously and whimsically, then it devolves upon this
Court in a certiorari proceeding to exercise its supervisory authority and to correct the error
committed which, in such a case, is equivalent to lack of jurisdiction. 1 Prohibition would then lie
since it would be useless and a waste of time to go ahead with the proceedings. 2 Weconsider
the petition filed in this case within the exception, and we have given it due course.

For resolution is the effect of the foreign divorce on the parties and their alleged conjugal
property in the Philippines.

Petitioner contends that respondent is estopped from laying claim on the alleged conjugal
property because of the representation he made in the divorce proceedings before the
American Court that they had no community of property; that the Galleon Shop was not
established through conjugal funds, and that respondent's claim is barred by prior judgment.

For his part, respondent avers that the Divorce Decree issued by the Nevada Court cannot
prevail over the prohibitive laws of the Philippines and its declared national policy; that the acts
and declaration of a foreign Court cannot, especially if the same is contrary to public policy,
divest Philippine Courts of jurisdiction to entertain matters within its jurisdiction.
For the resolution of this case, it is not necessary to determine whether the property relations
between petitioner and private respondent, after their marriage, were upon absolute or relative
community property, upon complete separation of property, or upon any other regime. The
pivotal fact in this case is the Nevada divorce of the parties.

The Nevada District Court, which decreed the divorce, had obtained jurisdiction over petitioner
who appeared in person before the Court during the trial of the case. It also obtained jurisdiction
over private respondent who, giving his address as No. 381 Bush Street, San Francisco,
California, authorized his attorneys in the divorce case, Karp & Gradt Ltd., to agree to the
divorce on the ground of incompatibility in the understanding that there were neither community
property nor community obligations. 3 As explicitly stated in the Power of Attorney he executed
in favor of the law firm of KARP & GRAD LTD., 336 W. Liberty, Reno, Nevada, to represent him
in the divorce proceedings:

xxx xxx xxx

You are hereby authorized to accept service of Summons, to file an Answer,

appear on my behalf and do an things necessary and proper to represent me,
without further contesting, subject to the following:

1. That my spouse seeks a divorce on the ground of incompatibility.

2. That there is no community of property to be adjudicated by the Court.

3. 'I'hat there are no community obligations to be adjudicated by the court.

xxx xxx xxx 4

There can be no question as to the validity of that Nevada divorce in any of the States of the
United States. The decree is binding on private respondent as an American citizen. For
instance, private respondent cannot sue petitioner, as her husband, in any State of the Union.
What he is contending in this case is that the divorce is not valid and binding in this jurisdiction,
the same being contrary to local law and public policy.

It is true that owing to the nationality principle embodied in Article 15 of the Civil Code, 5 only
Philippine nationals are covered by the policy against absolute divorces the same being
considered contrary to our concept of public police and morality. However, aliens may obtain
divorces abroad, which may be recognized in the Philippines, provided they are valid according
to their national law. 6 In this case, the divorce in Nevada released private respondent from the
marriage from the standards of American law, under which divorce dissolves the marriage. As
stated by the Federal Supreme Court of the United States in Atherton vs. Atherton, 45 L. Ed.
794, 799:

The purpose and effect of a decree of divorce from the bond of matrimony by a
court of competent jurisdiction are to change the existing status or domestic
relation of husband and wife, and to free them both from the bond. The marriage
tie when thus severed as to one party, ceases to bind either. A husband without
a wife, or a wife without a husband, is unknown to the law. When the law
provides, in the nature of a penalty. that the guilty party shall not marry again,
 that party, as well as the other, is still absolutely freed from the bond of the
former marriage.

Thus, pursuant to his national law, private respondent is no longer the husband of petitioner. He
would have no standing to sue in the case below as petitioner's husband entitled to exercise
control over conjugal assets. As he is bound by the Decision of his own country's Court, which
validly exercised jurisdiction over him, and whose decision he does not repudiate, he is
estopped by his own representation before said Court from asserting his right over the alleged
conjugal property.

To maintain, as private respondent does, that, under our laws, petitioner has to be considered
still married to private respondent and still subject to a wife's obligations under Article 109, et.
seq. of the Civil Code cannot be just. Petitioner should not be obliged to live together with,
observe respect and fidelity, and render support to private respondent. The latter should not
continue to be one of her heirs with possible rights to conjugal property. She should not be
discriminated against in her own country if the ends of justice are to be served.

WHEREFORE, the Petition is granted, and respondent Judge is hereby ordered to dismiss the
Complaint filed in Civil Case No. 1075-P of his Court.

Without costs.

SO ORDERED.

Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., De la Fuente and Patajo, JJ., concur.

Footnotes

1 Sanchez vs. Zosa, 68 SCRA 171 (1975); Malit vs. People, 114 SCRA 348
(1982).

2 U.S.T. vs. Hon. Villanueva, et al., 106 Phil. 439 (1959).

3 Annex "Y", Petition for Certiorari.

4 p. 98, Rollo.

5 "Art. 15. Laws relating to family rights and duties or to the status, condition and
legal capacity of persons are binding upon citizens of the Philippines, even
though living abroad.

6 cf. Recto vs. Harden, 100 Phil. 427 [1956]; Paras, Civil Code, 1971 ed., Vol. I,
p. 52; Salonga, Private International Law, 1979 ed., p. 231."

PILAPIL VS IBAY-SOMERA
 Republic of the Philippines
SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 80116 June 30, 1989

IMELDA MANALAYSAY PILAPIL, petitioner,

vs.
HON. CORONA IBAY-SOMERA, in her capacity as Presiding Judge of the Regional Trial
Court of Manila, Branch XXVI; HON. LUIS C. VICTOR, in his capacity as the City Fiscal of
Manila; and ERICH EKKEHARD GEILING, respondents.

REGALADO, J.:

An ill-starred marriage of a Filipina and a foreigner which ended in a foreign absolute divorce,
only to be followed by a criminal infidelity suit of the latter against the former, provides Us the
opportunity to lay down a decisional rule on what hitherto appears to be an unresolved
jurisdictional question.

On September 7, 1979, petitioner Imelda Manalaysay Pilapil, a Filipino citizen, and private
respondent Erich Ekkehard Geiling, a German national, were married before the Registrar of
Births, Marriages and Deaths at Friedensweiler in the Federal Republic of Germany. The
marriage started auspiciously enough, and the couple lived together for some time in Malate,
Manila where their only child, Isabella Pilapil Geiling, was born on April 20, 1980. 1

Thereafter, marital discord set in, with mutual recriminations between the spouses, followed by
a separation de facto between them.

After about three and a half years of marriage, such connubial disharmony eventuated in private
respondent initiating a divorce proceeding against petitioner in Germany before the Schoneberg
Local Court in January, 1983. He claimed that there was failure of their marriage and that they
had been living apart since April, 1982. 2

Petitioner, on the other hand, filed an action for legal separation, support and separation of
property before the Regional Trial Court of Manila, Branch XXXII, on January 23, 1983 where
the same is still pending as Civil Case No. 83-15866. 3

On January 15, 1986, Division 20 of the Schoneberg Local Court, Federal Republic of Germany,
promulgated a decree of divorce on the ground of failure of marriage of the spouses. The
custody of the child was granted to petitioner. The records show that under German law said
court was locally and internationally competent for the divorce proceeding and that the
dissolution of said marriage was legally founded on and authorized by the applicable law of that
foreign jurisdiction. 4
On June 27, 1986, or more than five months after the issuance of the divorce decree, private
respondent filed two complaints for adultery before the City Fiscal of Manila alleging that, while
still married to said respondent, petitioner "had an affair with a certain William Chia as early as
1982 and with yet another man named Jesus Chua sometime in 1983". Assistant Fiscal Jacinto
A. de los Reyes, Jr., after the corresponding investigation, recommended the dismissal of the
cases on the ground of insufficiency of evidence. 5 However, upon review, the respondent city
fiscal approved a resolution, dated January 8, 1986, directing the filing of two complaints for
adultery against the petitioner. 6 The complaints were accordingly filed and were eventually
raffled to two branches of the Regional Trial Court of Manila. The case entitled "People of the
Philippines vs. Imelda Pilapil and William Chia", docketed as Criminal Case No. 87-52435, was
assigned to Branch XXVI presided by the respondent judge; while the other case, "People of the
Philippines vs. Imelda Pilapil and James Chua", docketed as Criminal Case No. 87-52434 went
to the sala of Judge Leonardo Cruz, Branch XXV, of the same court. 7

On March 14, 1987, petitioner filed a petition with the Secretary of Justice asking that the
aforesaid resolution of respondent fiscal be set aside and the cases against her be
dismissed. 8 A similar petition was filed by James Chua, her co-accused in Criminal Case No.
87-52434. The Secretary of Justice, through the Chief State Prosecutor, gave due course to
both petitions and directed the respondent city fiscal to inform the Department of Justice "if the
accused have already been arraigned and if not yet arraigned, to move to defer further
proceedings" and to elevate the entire records of both cases to his office for review. 9

Petitioner thereafter filed a motion in both criminal cases to defer her arraignment and to
suspend further proceedings thereon. 10 As a consequence, Judge Leonardo Cruz suspended
proceedings in Criminal Case No. 87-52434. On the other hand, respondent judge merely reset
the date of the arraignment in Criminal Case No. 87-52435 to April 6, 1987. Before such
scheduled date, petitioner moved for the cancellation of the arraignment and for the suspension
of proceedings in said Criminal Case No. 87-52435 until after the resolution of the petition for
review then pending before the Secretary of Justice. 11 A motion to quash was also filed in the
same case on the ground of lack of jurisdiction, 12 which motion was denied by the respondent
judge in an order dated September 8, 1987. The same order also directed the arraignment of
both accused therein, that is, petitioner and William Chia. The latter entered a plea of not guilty
while the petitioner refused to be arraigned. Such refusal of the petitioner being considered by
respondent judge as direct contempt, she and her counsel were fined and the former was
ordered detained until she submitted herself for arraignment. 13 Later, private respondent
entered a plea of not guilty. 14

On October 27, 1987, petitioner filed this special civil action for certiorari and prohibition, with a
prayer for a temporary restraining order, seeking the annulment of the order of the lower court
denying her motion to quash. The petition is anchored on the main ground that the court is
without jurisdiction "to try and decide the charge of adultery, which is a private offense that
cannot be prosecuted de officio (sic), since the purported complainant, a foreigner, does not
qualify as an offended spouse having obtained a final divorce decree under his national law
prior to his filing the criminal complaint." 15

On October 21, 1987, this Court issued a temporary restraining order enjoining the respondents
from implementing the aforesaid order of September 8, 1987 and from further proceeding with
Criminal Case No. 87-52435. Subsequently, on March 23, 1988 Secretary of Justice Sedfrey A.
Ordoñez acted on the aforesaid petitions for review and, upholding petitioner's ratiocinations,
issued a resolution directing the respondent city fiscal to move for the dismissal of the
complaints against the petitioner. 16

We find this petition meritorious. The writs prayed for shall accordingly issue.

Under Article 344 of the Revised Penal Code, 17 the crime of adultery, as well as four other
crimes against chastity, cannot be prosecuted except upon a sworn written complaint filed by
the offended spouse. It has long since been established, with unwavering consistency, that
compliance with this rule is a jurisdictional, and not merely a formal, requirement. 18 While in
point of strict law the jurisdiction of the court over the offense is vested in it by the Judiciary Law,
the requirement for a sworn written complaint is just as jurisdictional a mandate since it is that
complaint which starts the prosecutory proceeding 19 and without which the court cannot
exercise its jurisdiction to try the case.

Now, the law specifically provides that in prosecutions for adultery and concubinage the person
who can legally file the complaint should be the offended spouse, and nobody else. Unlike the
offenses of seduction, abduction, rape and acts of lasciviousness, no provision is made for the
prosecution of the crimes of adultery and concubinage by the parents, grandparents or guardian
of the offended party. The so-called exclusive and successive rule in the prosecution of the first
four offenses above mentioned do not apply to adultery and concubinage. It is significant that
while the State, as parens patriae, was added and vested by the 1985 Rules of Criminal
Procedure with the power to initiate the criminal action for a deceased or incapacitated victim in
the aforesaid offenses of seduction, abduction, rape and acts of lasciviousness, in default of her
parents, grandparents or guardian, such amendment did not include the crimes of adultery and
concubinage. In other words, only the offended spouse, and no other, is authorized by law to
initiate the action therefor.

Corollary to such exclusive grant of power to the offended spouse to institute the action, it
necessarily follows that such initiator must have the status, capacity or legal representation to
do so at the time of the filing of the criminal action. This is a familiar and express rule in civil
actions; in fact, lack of legal capacity to sue, as a ground for a motion to dismiss in civil cases, is
determined as of the filing of the complaint or petition.

The absence of an equivalent explicit rule in the prosecution of criminal cases does not mean
that the same requirement and rationale would not apply. Understandably, it may not have been
found necessary since criminal actions are generally and fundamentally commenced by the
State, through the People of the Philippines, the offended party being merely the complaining
witness therein. However, in the so-called "private crimes" or those which cannot be
prosecuted de oficio, and the present prosecution for adultery is of such genre, the offended
spouse assumes a more predominant role since the right to commence the action, or to refrain
therefrom, is a matter exclusively within his power and option.

This policy was adopted out of consideration for the aggrieved party who might prefer to suffer
the outrage in silence rather than go through the scandal of a public trial. 20 Hence, as cogently
argued by petitioner, Article 344 of the Revised Penal Code thus presupposes that the marital
relationship is still subsisting at the time of the institution of the criminal action for, adultery. This
is a logical consequence since the raison d'etre of said provision of law would be absent where
the supposed offended party had ceased to be the spouse of the alleged offender at the time of
the filing of the criminal case. 21
In these cases, therefore, it is indispensable that the status and capacity of the complainant to
commence the action be definitely established and, as already demonstrated, such status or
capacity must indubitably exist as of the time he initiates the action. It would be absurd if his
capacity to bring the action would be determined by his status before or subsequent to the
commencement thereof, where such capacity or status existed prior to but ceased before, or
was acquired subsequent to but did not exist at the time of, the institution of the case. We would
thereby have the anomalous spectacle of a party bringing suit at the very time when he is
without the legal capacity to do so.

To repeat, there does not appear to be any local precedential jurisprudence on the specific
issue as to when precisely the status of a complainant as an offended spouse must exist where
a criminal prosecution can be commenced only by one who in law can be categorized as
possessed of such status. Stated differently and with reference to the present case, the inquiry
;would be whether it is necessary in the commencement of a criminal action for adultery that the
marital bonds between the complainant and the accused be unsevered and existing at the time
of the institution of the action by the former against the latter.

American jurisprudence, on cases involving statutes in that jurisdiction which are in pari
materia with ours, yields the rule that after a divorce has been decreed, the innocent spouse no
longer has the right to institute proceedings against the offenders where the statute provides
that the innocent spouse shall have the exclusive right to institute a prosecution for adultery.
Where, however, proceedings have been properly commenced, a divorce subsequently granted
can have no legal effect on the prosecution of the criminal proceedings to a conclusion. 22

In the cited Loftus case, the Supreme Court of Iowa held that —

'No prosecution for adultery can be commenced except on the complaint of the
husband or wife.' Section 4932, Code. Though Loftus was husband of defendant
when the offense is said to have been committed, he had ceased to be such
when the prosecution was begun; and appellant insists that his status was not
such as to entitle him to make the complaint. We have repeatedly said that the
offense is against the unoffending spouse, as well as the state, in explaining the
reason for this provision in the statute; and we are of the opinion that the
unoffending spouse must be such when the prosecution is commenced.
(Emphasis supplied.)

We see no reason why the same doctrinal rule should not apply in this case and in our
jurisdiction, considering our statutory law and jural policy on the matter. We are convinced that
in cases of such nature, the status of the complainant vis-a-vis the accused must be determined
as of the time the complaint was filed. Thus, the person who initiates the adultery case must be
an offended spouse, and by this is meant that he is still married to the accused spouse, at the
time of the filing of the complaint.

In the present case, the fact that private respondent obtained a valid divorce in his country, the
Federal Republic of Germany, is admitted. Said divorce and its legal effects may be recognized
in the Philippines insofar as private respondent is concerned 23 in view of the nationality
principle in our civil law on the matter of status of persons.

Thus, in the recent case of Van Dorn vs. Romillo, Jr., et al., 24 after a divorce was granted by a
United States court between Alice Van Dornja Filipina, and her American husband, the latter
filed a civil case in a trial court here alleging that her business concern was conjugal property
and praying that she be ordered to render an accounting and that the plaintiff be granted the
right to manage the business. Rejecting his pretensions, this Court perspicuously demonstrated
the error of such stance, thus:

There can be no question as to the validity of that Nevada divorce in any of the
States of the United States. The decree is binding on private respondent as an
American citizen. For instance, private respondent cannot sue petitioner, as her
husband, in any State of the Union. ...

It is true that owing to the nationality principle embodied in Article 15 of the Civil
Code, only Philippine nationals are covered by the policy against absolute
divorces the same being considered contrary to our concept of public policy and
morality. However, aliens may obtain divorces abroad, which may be recognized
in the Philippines, provided they are valid according to their national law. ...

Thus, pursuant to his national law, private respondent is no longer the husband
of petitioner. He would have no standing to sue in the case below as petitioner's
husband entitled to exercise control over conjugal assets. ... 25

Under the same considerations and rationale, private respondent, being no longer the husband
of petitioner, had no legal standing to commence the adultery case under the imposture that he
was the offended spouse at the time he filed suit.

The allegation of private respondent that he could not have brought this case before the decree
of divorce for lack of knowledge, even if true, is of no legal significance or consequence in this
case. When said respondent initiated the divorce proceeding, he obviously knew that there
would no longer be a family nor marriage vows to protect once a dissolution of the marriage is
decreed. Neither would there be a danger of introducing spurious heirs into the family, which is
said to be one of the reasons for the particular formulation of our law on adultery, 26 since there
would thenceforth be no spousal relationship to speak of. The severance of the marital bond
had the effect of dissociating the former spouses from each other, hence the actuations of one
would not affect or cast obloquy on the other.

The aforecited case of United States vs. Mata cannot be successfully relied upon by private
respondent. In applying Article 433 of the old Penal Code, substantially the same as Article 333
of the Revised Penal Code, which punished adultery "although the marriage be afterwards
declared void", the Court merely stated that "the lawmakers intended to declare adulterous the
infidelity of a married woman to her marital vows, even though it should be made to appear that
she is entitled to have her marriage contract declared null and void, until and unless she actually
secures a formal judicial declaration to that effect". Definitely, it cannot be logically inferred
therefrom that the complaint can still be filed after the declaration of nullity because such
declaration that the marriage is void ab initio is equivalent to stating that it never existed. There
being no marriage from the beginning, any complaint for adultery filed after said declaration of
nullity would no longer have a leg to stand on. Moreover, what was consequently contemplated
and within the purview of the decision in said case is the situation where the criminal action for
adultery was filed before the termination of the marriage by a judicial declaration of its nullity ab
initio. The same rule and requisite would necessarily apply where the termination of the
marriage was effected, as in this case, by a valid foreign divorce.
Private respondent's invocation of Donio-Teves, et al. vs. Vamenta, hereinbefore cited, 27 must
suffer the same fate of inapplicability. A cursory reading of said case reveals that the offended
spouse therein had duly and seasonably filed a complaint for adultery, although an issue was
raised as to its sufficiency but which was resolved in favor of the complainant. Said case did not
involve a factual situation akin to the one at bar or any issue determinative of the controversy
herein.

WHEREFORE, the questioned order denying petitioner's motion to quash is SET ASIDE and
another one enteredDISMISSING the complaint in Criminal Case No. 87-52435 for lack of
jurisdiction. The temporary restraining order issued in this case on October 21, 1987 is hereby
made permanent.

SO ORDERED.

Melencio-Herrera, Padilla and Sarmiento, JJ., concur.

Separate Opinions

PARAS, J., concurring:

It is my considered opinion that regardless of whether We consider the German absolute

divorce as valid also in the Philippines, the fact is that the husband in the instant case, by the
very act of his obtaining an absolute divorce in Germany can no longer be considered as the
offended party in case his former wife actually has carnal knowledge with another, because in
divorcing her, he already implicitly authorized the woman to have sexual relations with others. A
contrary ruling would be less than fair for a man, who is free to have sex will be allowed to
deprive the woman of the same privilege.

In the case of Recto v. Harden (100 Phil. 427 [1956]), the Supreme Court considered the
absolute divorce between the American husband and his American wife as valid and binding in
the Philippines on the theory that their status and capacity are governed by their National law,
namely, American law. There is no decision yet of the Supreme Court regarding the validity of
such a divorce if one of the parties, say an American, is married to a Filipino wife, for then two
(2) different nationalities would be involved.

In the book of Senate President Jovito Salonga entitled Private International Law and precisely
because of theNational law doctrine, he considers the absolute divorce as valid insofar as the
American husband is concerned but void insofar as the Filipino wife is involved. This results in
what he calls a "socially grotesque situation," where a Filipino woman is still married to a man
who is no longer her husband. It is the opinion however, of the undersigned that very likely the
opposite expresses the correct view. While under the national law of the husband the absolute
divorce will be valid, still one of the exceptions to the application of the proper foreign law (one
of the exceptions to comity) is when the foreign law will work an injustice or injury to the people
or residents of the forum. Consequently since to recognize the absolute divorce as valid on the
part of the husband would be injurious or prejudicial to the Filipino wife whose marriage would
be still valid under her national law, it would seem that under our law existing before the new
Family Code (which took effect on August 3, 1988) the divorce should be considered void both
with respect to the American husband and the Filipino wife.

The recent case of Van Dorn v. Romillo, Jr. (139 SCRA [1985]) cannot apply despite the fact
that the husband was an American can with a Filipino wife because in said case the validity of
the divorce insofar as the Filipino wife is concerned was NEVER put in issue.

Separate Opinions

PARAS, J., concurring:

It is my considered opinion that regardless of whether We consider the German absolute

divorce as valid also in the Philippines, the fact is that the husband in the instant case, by the
very act of his obtaining an absolute divorce in Germany can no longer be considered as the
offended party in case his former wife actually has carnal knowledge with another, because in
divorcing her, he already implicitly authorized the woman to have sexual relations with others. A
contrary ruling would be less than fair for a man, who is free to have sex will be allowed to
deprive the woman of the same privilege.

In the case of Recto v. Harden (100 Phil. 427 [1956]), the Supreme Court considered the
absolute divorce between the American husband and his American wife as valid and binding in
the Philippines on the theory that their status and capacity are governed by their National law,
namely, American law. There is no decision yet of the Supreme Court regarding the validity of
such a divorce if one of the parties, say an American, is married to a Filipino wife, for then two
(2) different nationalities would be involved.

In the book of Senate President Jovito Salonga entitled Private International Law and precisely
because of theNational law doctrine, he considers the absolute divorce as valid insofar as the
American husband is concerned but void insofar as the Filipino wife is involved. This results in
what he calls a "socially grotesque situation," where a Filipino woman is still married to a man
who is no longer her husband. It is the opinion however, of the undersigned that very likely the
opposite expresses the correct view. While under the national law of the husband the absolute
divorce will be valid, still one of the exceptions to the application of the proper foreign law (one
of the exceptions to comity) is when the foreign law will work an injustice or injury to the people
or residents of the forum. Consequently since to recognize the absolute divorce as valid on the
part of the husband would be injurious or prejudicial to the Filipino wife whose marriage would
be still valid under her national law, it would seem that under our law existing before the new
Family Code (which took effect on August 3, 1988) the divorce should be considered void both
with respect to the American husband and the Filipino wife.

The recent case of Van Dorn v. Romillo, Jr. (139 SCRA [1985]) cannot apply despite the fact
that the husband was an American can with a Filipino wife because in said case the validity of
the divorce insofar as the Filipino wife is concerned was NEVER put in issue.

Footnotes
1 Rollo, 5, 29.

2 Ibid., 6, 29.

3 Ibid., 7.

4 Ibid., 7, 29-30; Annexes A and A-1, Petition.

5 Ibid., 7, 178.

6 Ibid., 8; Annexes B, B-1 and B-2, id.

7 Ibid., 8-9, 178.

8 Ibid., 9, 178; Annex C, id.

9 Ibid., 9-10, 178; Annex D, id.

10 Ibid., 9; Annexes E and E-1, id.

11 Ibid., 10; Annex F, id.

12 Ibid., 9, 179; Annex G, id.

13 Ibid., 10 Annex H, id.

14 Ibid, 105.

15 Ibid., 11.

16 Ibid., 311-313.

17 Cf. Sec. 5, Rule 110, Rules of Court.

18 People vs. Mandia, 60 Phil. 372, 375 (1934); People vs. Zurbano, 37 SCRA
565, 569 (1971); People vs. Lingayen, G.R. No. 64556, June 10, 1988.

19 Valdepeñas vs. People, 16 SCRA 871 (1966); People vs. Babasa, 97 SCRA
672 (1980).

20 Samilin vs. Court of First Instance of Pangasinan, 57 Phil. 298 (1932); Donio-
Teves, et al. vs. Vamenta, et al., 133 SCRA 616 (1984).

21 Rollo, 289.

22 2 Am. Jur. 2d., 973 citing State vs. Loftus, 104 NW 906, 907; Re Smith, 2
Okla. 153, 37 p. 1099; State vs. Russell, 90 Iowa 569, 58 NW 915.
 23 Recto vs. Harden, 100 Phil. 427 (1956).

24 139 SCRA 139,140 (1985).

25 The said pronouncements foreshadowed and are adopted in the Family Code
of the Philippines (Executive Order No. 209, as amended by Executive Order No.
227, effective on August 3, 1988), Article 26 whereof provides that "(w)here
marriage between a Filipino citizen and a foreigner is validly celebrated and a
divorce is thereafter validly obtained abroad by the alien spouse capacitating him
or her to remarry, the Filipino spouse shall likewise have capacity to re under
Philippine law.

26 U.S. vs. Mata, 18 Phil. 490 (1911).

27 Footnote 20, ante.

LLORENTE VS COURT OF APPEALS

FIRST DIVISION

[G.R. No. 124371. November 23, 2000]

PAULA T. LLORENTE, petitioner, vs. COURT OF APPEALS and ALICIA F.

LLORENTE, respondents.

DECISION
PARDO, J.:

The Case

The case raises a conflict of laws issue.

What is before us is an appeal from the decision of the Court of Appeals [1] modifying that of
the Regional Trial Court, Camarines Sur, Branch 35, Iriga City [2] declaring respondent Alicia F.
Llorente (herinafter referred to as ―Alicia‖), as co-owners of whatever property she and the
deceased Lorenzo N. Llorente (hereinafter referred to as ―Lorenzo‖) may have acquired during
the twenty-five (25) years that they lived together as husband and wife.

The Facts
 The deceased Lorenzo N. Llorente was an enlisted serviceman of the United States Navy
from March 10, 1927 to September 30, 1957. [3]
On February 22, 1937, Lorenzo and petitioner Paula Llorente (hereinafter referred to as
―Paula‖) were married before a parish priest, Roman Catholic Church, in Nabua, Camarines
Sur.[4]
Before the outbreak of the Pacific War, Lorenzo departed for the United States and Paula
stayed in the conjugal home in barrio Antipolo, Nabua, Camarines Sur. [5]
On November 30, 1943, Lorenzo was admitted to United States citizenship and Certificate
of Naturalization No. 5579816 was issued in his favor by the United States District Court,
Southern District of New York.[6]
Upon the liberation of the Philippines by the American Forces in 1945, Lorenzo was
granted an accrued leave by the U. S. Navy, to visit his wife and he visited the Philippines. [7] He
discovered that his wife Paula was pregnant and was ―living in‖ and having an adulterous
relationship with his brother, Ceferino Llorente. [8]
On December 4, 1945, Paula gave birth to a boy registered in the Office of the Registrar of
Nabua as ―Crisologo Llorente,‖ with the certificate stating that the child was not legitimate and
the line for the father‘s name was left blank. [9]
Lorenzo refused to forgive Paula and live with her. In fact, on February 2, 1946, the couple
drew a written agreement to the effect that (1) all the family allowances allotted by the United
States Navy as part of Lorenzo‘s salary and all other obligations for Paula‘s daily maintenance
and support would be suspended; (2) they would dissolve their marital union in accordance with
judicial proceedings; (3) they would make a separate agreement regarding their conjugal
property acquired during their marital life; and (4) Lorenzo would not prosecute Paula for her
adulterous act since she voluntarily admitted her fault and agreed to separate from Lorenzo
peacefully. The agreement was signed by both Lorenzo and Paula and was witnessed by
Paula‘s father and stepmother. The agreement was notarized by Notary Public Pedro
Osabel.[10]
Lorenzo returned to the United States and on November 16, 1951 filed for
divorce with the Superior Court of the State of California in and for the County of San
Diego. Paula was represented by counsel, John Riley, and actively participated in the
proceedings. On November 27, 1951, the Superior Court of the State of California, for the
County of San Diego found all factual allegations to be true and issued an interlocutory
judgment of divorce.[11]
On December 4, 1952, the divorce decree became final. [12]
In the meantime, Lorenzo returned to the Philippines.
On January 16, 1958, Lorenzo married Alicia F. Llorente in Manila. [13] Apparently, Alicia had
no knowledge of the first marriage even if they resided in the same town as Paula, who did not
oppose the marriage or cohabitation. [14]
From 1958 to 1985, Lorenzo and Alicia lived together as husband and wife. [15] Their twenty-
five (25) year union produced three children, Raul, Luz and Beverly, all surnamed Llorente.[16]
On March 13, 1981, Lorenzo executed a Last Will and Testament. The will was notarized
by Notary Public Salvador M. Occiano, duly signed by Lorenzo with attesting witnesses
Francisco Hugo, Francisco Neibres and Tito Trajano. In the will, Lorenzo bequeathed all his
property to Alicia and their three children, to wit:
―(1) I give and bequeath to my wife ALICIA R. FORTUNO exclusively my residential house and
lot, located at San Francisco, Nabua, Camarines Sur, Philippines, including ALL the personal
properties and other movables or belongings that may be found or existing therein;

―(2) I give and bequeath exclusively to my wife Alicia R. Fortuno and to my children, Raul F.
Llorente, Luz F. Llorente and Beverly F. Llorente, in equal shares, all my real properties
whatsoever and wheresoever located, specifically my real properties located at Barangay Aro-
Aldao, Nabua, Camarines Sur; Barangay Paloyon, Nabua, Camarines Sur; Barangay Baras,
Sitio Puga, Nabua, Camarines Sur; and Barangay Paloyon, Sitio Nalilidong, Nabua, Camarines
Sur;

―(3) I likewise give and bequeath exclusively unto my wife Alicia R. Fortuno and unto my
children, Raul F. Llorente, Luz F. Llorente and Beverly F. Llorente, in equal shares, my real
properties located in Quezon City Philippines, and covered by Transfer Certificate of Title No.
188652; and my lands in Antipolo, Rizal, Philippines, covered by Transfer Certificate of Title
Nos. 124196 and 165188, both of the Registry of Deeds of the province of Rizal, Philippines;

―(4) That their respective shares in the above-mentioned properties, whether real or personal
properties, shall not be disposed of, ceded, sold and conveyed to any other persons, but could
only be sold, ceded, conveyed and disposed of by and among themselves;

―(5) I designate my wife ALICIA R. FORTUNO to be the sole executor of this my Last Will and
Testament, and in her default or incapacity of the latter to act, any of my children in the order of
age, if of age;

―(6) I hereby direct that the executor named herein or her lawful substitute should served (sic)
without bond;

―(7) I hereby revoke any and all my other wills, codicils, or testamentary dispositions heretofore
executed, signed, or published, by me;

―(8) It is my final wish and desire that if I die, no relatives of mine in any degree in the Llorente‘s
Side should ever bother and disturb in any manner whatsoever my wife Alicia R. Fortunato and
my children with respect to any real or personal properties I gave and bequeathed respectively
to each one of them by virtue of this Last Will and Testament.‖ [17]

On December 14, 1983, Lorenzo filed with the Regional Trial Court, Iriga, Camarines Sur, a
petition for the probate and allowance of his last will and testament wherein Lorenzo moved that
Alicia be appointed Special Administratrix of his estate. [18]
On January 18, 1984, the trial court denied the motion for the reason that the testator
Lorenzo was still alive.[19]
On January 24, 1984, finding that the will was duly executed, the trial court admitted the will
to probate.[20]
On June 11, 1985, before the proceedings could be terminated, Lorenzo died. [21]
On September 4, 1985, Paula filed with the same court a petition [22] for letters of
administration over Lorenzo‘s estate in her favor. Paula contended (1) that she was Lorenzo‘s
surviving spouse, (2) that the various property were acquired during their marriage, (3) that
Lorenzo‘s will disposed of all his property in favor of Alicia and her children, encroaching on her
legitime and 1/2 share in the conjugal property. [23]
On December 13, 1985, Alicia filed in the testate proceeding (Sp. Proc. No. IR-755), a
petition for the issuance of letters testamentary. [24]
On October 14, 1985, without terminating the testate proceedings, the trial court gave due
course to Paula‘s petition in Sp. Proc. No. IR-888.[25]
On November 6, 13 and 20, 1985, the order was published in the newspaper ―Bicol Star‖. [26]
On May 18, 1987, the Regional Trial Court issued a joint decision, thus:

―Wherefore, considering that this court has so found that the divorce decree granted to the late
Lorenzo Llorente is void and inapplicable in the Philippines, therefore the marriage he
contracted with Alicia Fortunato on January 16, 1958 at Manila is likewise void. This being so
the petition of Alicia F. Llorente for the issuance of letters testamentary is denied. Likewise, she
is not entitled to receive any share from the estate even if the will especially said so her
relationship with Lorenzo having gained the status of paramour which is under Art. 739 (1).

―On the other hand, the court finds the petition of Paula Titular Llorente, meritorious, and so
declares the intrinsic disposition of the will of Lorenzo Llorente dated March 13, 1981 as void
and declares her entitled as conjugal partner and entitled to one-half of their conjugal properties,
and as primary compulsory heir, Paula T. Llorente is also entitled to one-third of the estate and
then one-third should go to the illegitimate children, Raul, Luz and Beverly, all surname (sic)
Llorente, for them to partition in equal shares and also entitled to the remaining free portion in
equal shares.

―Petitioner, Paula Llorente is appointed legal administrator of the estate of the deceased,
Lorenzo Llorente. As such let the corresponding letters of administration issue in her favor upon
her filing a bond in the amount (sic) of P100,000.00 conditioned for her to make a return to the
court within three (3) months a true and complete inventory of all goods, chattels, rights, and
credits, and estate which shall at any time come to her possession or to the possession of any
other person for her, and from the proceeds to pay and discharge all debts, legacies and
charges on the same, or such dividends thereon as shall be decreed or required by this court; to
render a true and just account of her administration to the court within one (1) year, and at any
other time when required by the court and to perform all orders of this court by her to be
performed.

―On the other matters prayed for in respective petitions for want of evidence could not be
granted.

―SO ORDERED.‖[27]

In time, Alicia filed with the trial court a motion for reconsideration of the aforequoted
decision.[28]
On September 14, 1987, the trial court denied Alicia‘s motion for reconsideration but
modified its earlier decision, stating that Raul and Luz Llorente are not children ―legitimate or
otherwise‖ of Lorenzo since they were not legally adopted by him. [29] Amending its decision of
May 18, 1987, the trial court declared Beverly Llorente as the only illegitimate child of Lorenzo,
entitling her to one-third (1/3) of the estate and one-third (1/3) of the free portion of the estate. [30]
 On September 28, 1987, respondent appealed to the Court of Appeals. [31]
On July 31, 1995, the Court of Appeals promulgated its decision, affirming with modification
the decision of the trial court in this wise:

―WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that
Alicia is declared as co-owner of whatever properties she and the deceased may have acquired
during the twenty-five (25) years of cohabitation.

―SO ORDERED.‖[32]

On August 25, 1995, petitioner filed with the Court of Appeals a motion for reconsideration
of the decision.[33]
On March 21, 1996, the Court of Appeals, [34] denied the motion for lack of merit.
Hence, this petition.[35]

The Issue

Stripping the petition of its legalese and sorting through the various arguments
raised,[36] the issue is simple. Who are entitled to inherit from the late Lorenzo N. Llorente?
We do not agree with the decision of the Court of Appeals. We remand the case to the trial
court for ruling on the intrinsic validity of the will of the deceased.

The Applicable Law

The fact that the late Lorenzo N. Llorente became an American citizen long before and at
the time of: (1) his divorce from Paula; (2) marriage to Alicia; (3) execution of his will; and (4)
death, is duly established, admitted and undisputed.
Thus, as a rule, issues arising from these incidents are necessarily governed by foreign
law.
The Civil Code clearly provides:

―Art. 15. Laws relating to family rights and duties, or to the status, condition and legal capacity
of persons are binding upon citizens of the Philippines, even though living abroad.

―Art. 16. Real property as well as personal property is subject to the law of the country where it
is situated.

―However, intestate and testamentary succession, both with respect to the order of succession
and to the amount of successional rights and to the intrinsic validity of testamentary
provisions, shall be regulated by the national law of the person whose succession is
under consideration, whatever may be the nature of the property and regardless of the country
wherein said property may be found.‖ (emphasis ours)
 True, foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them. Like any other fact, they must be alleged and
proved.[37]
While the substance of the foreign law was pleaded, the Court of Appeals did not admit the
foreign law. The Court of Appeals and the trial court called to the fore the renvoi doctrine,
where the case was ―referred back‖ to the law of the decedent‘s domicile, in this case, Philippine
law.
We note that while the trial court stated that the law of New York was not sufficiently
proven, in the same breath it made the categorical, albeit equally unproven statement that
―American law follows the ‗domiciliary theory‘ hence, Philippine law applies when determining
the validity of Lorenzo‘s will.[38]
First, there is no such thing as one American law. The "national law" indicated in Article 16
of the Civil Code cannot possibly apply to general American law. There is no such law
governing the validity of testamentary provisions in the United States. Each State of the union
has its own law applicable to its citizens and in force only within the State. It can therefore refer
to no other than the law of the State of which the decedent was a resident. [39] Second, there is
no showing that the application of the renvoi doctrine is called for or required by New York State
law.
The trial court held that the will was intrinsically invalid since it contained dispositions in
favor of Alice, who in the trial court‘s opinion was a mere paramour. The trial court threw the will
out, leaving Alice, and her two children, Raul and Luz, with nothing.
The Court of Appeals also disregarded the will. It declared Alice entitled to one half (1/2) of
whatever property she and Lorenzo acquired during their cohabitation, applying Article 144 of
the Civil Code of the Philippines.
The hasty application of Philippine law and the complete disregard of the will, already
probated as duly executed in accordance with the formalities of Philippine law, is
fatal, especially in light of the factual and legal circumstances here obtaining.

Validity of the Foreign Divorce

In Van Dorn v. Romillo, Jr.[40] we held that owing to the nationality principle embodied in
Article 15 of the Civil Code, only Philippine nationals are covered by the policy against absolute
divorces, the same being considered contrary to our concept of public policy and morality. In the
same case, the Court ruled that aliens may obtain divorces abroad, provided they are valid
according to their national law.
Citing this landmark case, the Court held in Quita v. Court of Appeals,[41] that once proven
that respondent was no longer a Filipino citizen when he obtained the divorce from petitioner,
the ruling in Van Dorn would become applicable and petitioner could ―very well lose her right to
inherit‖ from him.
In Pilapil v. Ibay-Somera,[42] we recognized the divorce obtained by the respondent in his
country, the Federal Republic of Germany. There, we stated that divorce and its legal effects
may be recognized in the Philippines insofar as respondent is concerned in view of the
nationality principle in our civil law on the status of persons.
 For failing to apply these doctrines, the decision of the Court of Appeals must be
reversed.[43] We hold that the divorce obtained by Lorenzo H. Llorente from his first wife Paula
was valid and recognized in this jurisdiction as a matter of comity. Now, the effects of this
divorce (as to the succession to the estate of the decedent) are matters best left to the
determination of the trial court.

Validity of the Will

The Civil Code provides:

―Art. 17. The forms and solemnities of contracts, wills, and other public instruments shall be
governed by the laws of the country in which they are executed.

―When the acts referred to are executed before the diplomatic or consular officials of the
Republic of the Philippines in a foreign country, the solemnities established by Philippine laws
shall be observed in their execution.‖ (underscoring ours)

The clear intent of Lorenzo to bequeath his property to his second wife and children by her
is glaringly shown in the will he executed. We do not wish to frustrate his wishes, since he was
a foreigner, not covered by our laws on ―family rights and duties, status, condition and legal
capacity.‖[44]
Whether the will is intrinsically valid and who shall inherit from Lorenzo are issues best
proved by foreign law which must be pleaded and proved. Whether the will was executed in
accordance with the formalities required is answered by referring to Philippine law. In fact, the
will was duly probated.
As a guide however, the trial court should note that whatever public policy or good customs
may be involved in our system of legitimes, Congress did not intend to extend the same to the
succession of foreign nationals. Congress specifically left the amount of successional rights to
the decedent's national law.[45]
Having thus ruled, we find it unnecessary to pass upon the other issues raised.

The Fallo

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-G. R.
SP No. 17446 promulgated on July 31, 1995 is SET ASIDE.
In lieu thereof, the Court REVERSES the decision of the Regional Trial Court and
RECOGNIZES as VALID the decree of divorce granted in favor of the deceased Lorenzo N.
Llorente by the Superior Court of the State of California in and for the County of San Diego,
made final on December 4, 1952.
Further, the Court REMANDS the cases to the court of origin for determination of the
intrinsic validity of Lorenzo N. Llorente‘s will and determination of the parties‘ successional
rights allowing proof of foreign law with instructions that the trial court shall proceed with all
deliberate dispatch to settle the estate of the deceased within the framework of the Rules of
Court.
 No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.

[1]
In CA-G. R. SP. No. 17446, promulgated on July 31, 1995, Lipana-Reyes+, J., ponente,
Torres, Jr. and Hofilena, JJ., concurring.
[2]
In Spec. Proc. No. IR-755 (In the Matter of the Probate and Allowance of the Last Will and
Testament of Lorenzo N. Llorente, Lorenzo N. Llorente, Petitioner) and Spec. Proc. No. IR-
888 (Petition for the Grant of Letters of Administration for the Estate of Lorenzo N. Llorente,
Paula T. Llorente, Petitioner), dated May 18, 1987, Judge Esteban B. Abonal, presiding.
[3]
Decision, Court of Appeals, Rollo, p. 51.
[4]
Exh. ―B‖, Trial Court Folder of Exhibits, p. 61.
[5]
Ibid.
[6]
This was issued pursuant to Lorenzo‘s petition, Petition No. 4708849, filed with the U.S.
Court. Exhs. ―H‖ and ―H-3‖ Trial Court Folder of Exhibits, p. 157, 159.
[7]
Decision, Court of Appeals, Rollo, p. 51; Exh. ―B‖, Trial Court Folder of Exhibits, p. 61.
[8]
Ibid.
[9]
Exh. ―A‖, Trial Court Folder of Exhibits, p. 60.
[10]
Exh. ―B-1‖ Trial Court Folder of Exhibits, p. 62.
[11]
Exh. ―D‖, Trial Court Folder of Exhibits, pp. 63-64.
[12]
Exh. ―E‖, Trial Court Folder of Exhibits, p. 69.
[13]
Exh. ―F‖, Trial Court Folder of Exhibits, p. 148.
[14]
Decision, Court of Appeals, Rollo, p. 52.
[15]
Comment, Rollo, p. 147.
[16]
Decision, Court of Appeals, Rollo, p. 52.
[17]
Exh. ―A‖, Trial Court Folder of Exhibits, pp. 3-4; Decision, Court of Appeals, Rollo, p. 52.
[18]
Docketed as Spec. Proc. No. IR-755.
[19]
Decision, RTC, Rollo, p. 37.
[20]
Ibid.
[21]
Ibid.
[22]
Docketed as Spec. Proc. No. IR-888.
[23]
Decision, RTC, Rollo, p. 38.
[24]
Decision, Court of Appeals, Rollo, p. 52.
[25]
Ibid., pp. 52-53.
[26]
Ibid., p. 53.
[27]
RTC Decision, Rollo, p. 37.
[28]
Order, Regional Trial Court in Spec. Proc. Nos. IR-755 and 888, Rollo, p. 46.
[29]
Citing Article 335 of the Civil Code, which states, ―The following cannot adopt: xxx
(3) a married person, without the consent of the other spouse; xxx‖, the trial court reasoned that
since the divorce obtained by Lorenzo did not dissolve his first marriage with Paula, then the
adoption of Raul and Luz was void, as Paula did not give her consent to it.
[30]
Order, Regional Trial Court, Rollo, p. 47.
[31]
Docketed as CA-G. R. SP No. 17446.
[32]
Decision, Court of Appeals, Rollo, p. 56.
[33]
On August 31, 1995, petitioner also filed with this Court a verified complaint against the
members of the Special Thirteenth Division, Court of Appeals, Associate Justices Justo P.
Torres, Jr., Celia Lipana-Reyes + and Hector Hofilena for ―gross ignorance of the
law, manifest incompetence and extreme bias (Rollo, p. 15).‖
[34]
Again with Associate Justice Celia Lipana-Reyes+, ponente, concurred in by Associate
Justices Justo P. Torres, Jr. and Hector Hofilena (Former Special Thirteenth Division).
[35]
Filed on May 10, 1996, Rollo, pp. 9-36.
[36]
Petitioner alleges (1) That the Court of Appeals lost its jurisdiction over the case when it
issued the resolution denying the motion for reconsideration; (2) That Art. 144 of the Civil Case
has been repealed by Arts. 253 and 147 of the Family Code and (3) That Alicia and her children
not are entitled to any share in the estate of the deceased (Rollo, p. 19).
[37]
Collector of Internal Revenue v. Fisher, 110 Phil. 686 (1961).
[38]
Joint Record on Appeal, p. 255; Rollo, p. 40.
[39]
In Re: Estate of Edward Christensen, Aznar v. Helen Garcia, 117 Phil. 96 (1963).
[40]
139 SCRA 139 (1985).
[41]
300 SCRA 406 (1998).
[42]
174 SCRA 653 (1989).
[43]
The ruling in the case of Tenchavez v. Escano (122 Phil. 752 [1965]) that provides that ―a
foreign divorce between Filipino citizens sought and decreed after the effectivity of the present
civil code is not entitled to recognition as valid in this jurisdiction‖ is NOT applicable in the case
at bar as Lorenzo was no longer a Filipino citizen when he obtained the divorce.
[44]
Article 15, Civil Code provides ―Laws relating to family rights and duties, or to the status,
condition and legal capacity of persons are binding upon citizens of the Philippines, even though
living abroad.‖ (Underscoring ours)
[45]
Bellis v. Bellis, 126 Phil. 726 (1967).

GARCIA VS RECIO (2002)  walang 2002, 01 lang.

 (3) Legal Separation
(4) Capacity to Remarry

GARCIA VS RECIO (2001)

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 138322 October 2, 2001

GRACE J. GARCIA, a.k.a. GRACE J. GARCIA-RECIO, petitioner,

vs.
REDERICK A. RECIO, respondents.

PANGANIBAN, J.:

A divorce obtained abroad by an alien may be recognized in our jurisdiction, provided such
decree is valid according to the national law of the foreigner. However, the divorce decree and
the governing personal law of the alien spouse who obtained the divorce must be proven. Our
courts do not take judicial notice of foreign laws and judgment; hence, like any other facts, both
the divorce decree and the national law of the alien must be alleged and proven according to
our law on evidence.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the
January 7, 1999 Decision1 and the March 24, 1999 Order2 of the Regional Trial Court of
Cabanatuan City, Branch 28, in Civil Case No. 3026-AF. The assailed Decision disposed as
follows:

"WHEREFORE, this Court declares the marriage between Grace J. Garcia and Rederick
A. Recio solemnized on January 12, 1994 at Cabanatuan City as dissolved and both
parties can now remarry under existing and applicable laws to any and/or both parties."3

The assailed Order denied reconsideration of the above-quoted Decision.

The Facts

Rederick A. Recio, a Filipino, was married to Editha Samson, an Australian citizen, in Malabon,
Rizal, on March 1, 1987.4 They lived together as husband and wife in Australia. On May 18,
1989,5 a decree of divorce, purportedly dissolving the marriage, was issued by an Australian
family court.
On June 26, 1992, respondent became an Australian citizen, as shown by a "Certificate of
Australian Citizenship" issued by the Australian government. 6 Petitioner – a Filipina – and
respondent were married on January 12, 1994 in Our Lady of Perpetual Help Church in
Cabanatuan City.7 In their application for a marriage license, respondent was declared as
"single" and "Filipino."8

Starting October 22, 1995, petitioner and respondent lived separately without prior judicial
dissolution of their marriage. While the two were still in Australia, their conjugal assets were
divided on May 16, 1996, in accordance with their Statutory Declarations secured in Australia. 9

On March 3, 1998, petitioner filed a Complaint for Declaration of Nullity of Marriage 10 in the
court a quo, on the ground of bigamy – respondent allegedly had a prior subsisting marriage at
the time he married her on January 12, 1994. She claimed that she learned of respondent's
marriage to Editha Samson only in November, 1997.

In his Answer, respondent averred that, as far back as 1993, he had revealed to petitioner his
prior marriage andits subsequent dissolution.11 He contended that his first marriage to an
Australian citizen had been validly dissolved by a divorce decree obtained in Australian in
1989;12 thus, he was legally capacitated to marry petitioner in 1994.1âwphi1.nêt

On July 7, 1998 – or about five years after the couple's wedding and while the suit for the
declaration of nullity was pending – respondent was able to secure a divorce decree from a
family court in Sydney, Australia because the "marriage ha[d] irretrievably broken down." 13

Respondent prayed in his Answer that the Complained be dismissed on the ground that it stated
no cause of action.14 The Office of the Solicitor General agreed with respondent. 15 The court
marked and admitted the documentary evidence of both parties. 16 After they submitted their
respective memoranda, the case was submitted for resolution. 17

Thereafter, the trial court rendered the assailed Decision and Order.

Ruling of the Trial Court

The trial court declared the marriage dissolved on the ground that the divorce issued in Australia
was valid and recognized in the Philippines. It deemed the marriage ended, but not on the basis
of any defect in an essential element of the marriage; that is, respondent's alleged lackbr of
legal capacity to remarry. Rather, it based its Decision on the divorce decree obtained by
respondent. The Australian divorce had ended the marriage; thus, there was no more martial
union to nullify or annual.

Hence, this Petition.18

Issues

Petitioner submits the following issues for our consideration:

"I
 The trial court gravely erred in finding that the divorce decree obtained in Australia by
the respondent ipso facto terminated his first marriage to Editha Samson thereby
capacitating him to contract a second marriage with the petitioner.

"2

The failure of the respondent, who is now a naturalized Australian, to present a

certificate of legal capacity to marry constitutes absence of a substantial requisite
voiding the petitioner' marriage to the respondent.

"3

The trial court seriously erred in the application of Art. 26 of the Family Code in this
case.

"4

The trial court patently and grievously erred in disregarding Arts. 11, 13, 21, 35, 40, 52
and 53 of the Family Code as the applicable provisions in this case.

"5

The trial court gravely erred in pronouncing that the divorce gravely erred in pronouncing
that the divorce decree obtained by the respondent in Australia ipso facto capacitated
the parties to remarry, without first securing a recognition of the judgment granting the
divorce decree before our courts."19

The Petition raises five issues, but for purposes of this Decision, we shall concentrate on two
pivotal ones: (1) whether the divorce between respondent and Editha Samson was proven, and
(2) whether respondent was proven to be legally capacitated to marry petitioner. Because of our
ruling on these two, there is no more necessity to take up the rest.

The Court's Ruling

The Petition is partly meritorious.

First Issue:

Proving the Divorce Between Respondent and Editha Samson

Petitioner assails the trial court's recognition of the divorce between respondent and Editha
Samson. Citing Adong v. Cheong Seng Gee,20 petitioner argues that the divorce decree, like
any other foreign judgment, may be given recognition in this jurisdiction only upon proof of the
existence of (1) the foreign law allowing absolute divorce and (2) the alleged divorce decree
itself. She adds that respondent miserably failed to establish these elements.

Petitioner adds that, based on the first paragraph of Article 26 of the Family Code, marriages
solemnized abroad are governed by the law of the place where they were celebrated (the lex
loci celebrationist). In effect, the Code requires the presentation of the foreign law to show the
conformity of the marriage in question to the legal requirements of the place where the marriage
was performed.

At the outset, we lay the following basic legal principles as the take-off points for our discussion.
Philippine law does not provide for absolute divorce; hence, our courts cannot grant it. 21 A
marriage between two Filipinos cannot be dissolved even by a divorce obtained abroad,
because of Articles 1522 and 1723 of the Civil Code.24 In mixed marriages involving a Filipino and
a foreigner, Article 2625 of the Family Code allows the former to contract a subsequent marriage
in case the divorce is "validly obtained abroad by the alien spouse capacitating him or her to
remarry."26 A divorce obtained abroad by a couple, who are both aliens, may be recognized in
the Philippines, provided it is consistent with their respective national laws.27

A comparison between marriage and divorce, as far as pleading and proof are concerned, can
be made. Van Dorn v. Romillo Jr. decrees that "aliens may obtain divorces abroad, which may
be recognized in the Philippines, provided they are valid according to their national
law."28 Therefore, before a foreign divorce decree can be recognized by our courts, the party
pleading it must prove the divorce as a fact and demonstrate its conformity to the foreign law
allowing it.29 Presentation solely of the divorce decree is insufficient.

Divorce as a Question of Fact

Petitioner insists that before a divorce decree can be admitted in evidence, it must first comply
with the registration requirements under Articles 11, 13 and 52 of the Family Code. These
articles read as follows:

"ART. 11. Where a marriage license is required, each of the contracting parties shall file
separately a sworn application for such license with the proper local civil registrar which
shall specify the following:

xxx xxx xxx

"(5) If previously married, how, when and where the previous marriage was dissolved or
annulled;

xxx xxx xxx

"ART. 13. In case either of the contracting parties has been previously married, the
applicant shall be required to furnish, instead of the birth of baptismal certificate required
in the last preceding article, the death certificate of the deceased spouse or the judicial
decree of annulment or declaration of nullity of his or her previous marriage. x x x.

"ART. 52. The judgment of annulment or of absolute nullity of the marriage, the partition
and distribution of the properties of the spouses, and the delivery of the children's
presumptive legitimes shall be recorded in the appropriate civil registry and registries of
property; otherwise, the same shall not affect their persons."

Respondent, on the other hand, argues that the Australian divorce decree is a public document
– a written official act of an Australian family court. Therefore, it requires no further proof of its
authenticity and due execution.
Respondent is getting ahead of himself. Before a foreign judgment is given presumptive
evidentiary value, the document must first be presented and admitted in evidence. 30 A divorce
obtained abroad is proven by the divorce decree itself. Indeed the best evidence of a judgment
is the judgment itself.31 The decree purports to be a written act or record of an act of an officially
body or tribunal of a foreign country. 32

Under Sections 24 and 25 of Rule 132, on the other hand, a writing or document may be proven
as a public or official record of a foreign country by either (1) an official publication or (2) a copy
thereof attested33 by the officer having legal custody of the document. If the record is not kept in
the Philippines, such copy must be (a) accompanied by a certificate issued by the proper
diplomatic or consular officer in the Philippine foreign service stationed in the foreign country in
which the record is kept and (b) authenticated by the seal of his office.34

The divorce decree between respondent and Editha Samson appears to be an authentic one
issued by an Australian family court. 35 However, appearance is not sufficient; compliance with
the aforemetioned rules on evidence must be demonstrated.

Fortunately for respondent's cause, when the divorce decree of May 18, 1989 was submitted in
evidence, counsel for petitioner objected, not to its admissibility, but only to the fact that it had
not been registered in the Local Civil Registry of Cabanatuan City. 36 The trial court ruled that it
was admissible, subject to petitioner's qualification. 37Hence, it was admitted in evidence and
accorded weight by the judge. Indeed, petitioner's failure to object properly rendered the divorce
decree admissible as a written act of the Family Court of Sydney, Australia. 38

Compliance with the quoted articles (11, 13 and 52) of the Family Code is not necessary;
respondent was no longer bound by Philippine personal laws after he acquired Australian
citizenship in 1992.39 Naturalization is the legal act of adopting an alien and clothing him with
the political and civil rights belonging to a citizen. 40 Naturalized citizens, freed from the
protective cloak of their former states, don the attires of their adoptive countries. By becoming
an Australian, respondent severed his allegiance to the Philippines and the vinculum juris that
had tied him to Philippine personal laws.

Burden of Proving Australian Law

Respondent contends that the burden to prove Australian divorce law falls upon petitioner,
because she is the party challenging the validity of a foreign judgment. He contends that
petitioner was satisfied with the original of the divorce decree and was cognizant of the marital
laws of Australia, because she had lived and worked in that country for quite a long time.
Besides, the Australian divorce law is allegedly known by Philippine courts: thus, judges may
take judicial notice of foreign laws in the exercise of sound discretion.

We are not persuaded. The burden of proof lies with "the party who alleges the existence of a
fact or thing necessary in the prosecution or defense of an action." 41 In civil cases, plaintiffs
have the burden of proving the material allegations of the complaint when those are denied by
the answer; and defendants have the burden of proving the material allegations in their answer
when they introduce new matters. 42 Since the divorce was a defense raised by respondent, the
burden of proving the pertinent Australian law validating it falls squarely upon him.

It is well-settled in our jurisdiction that our courts cannot take judicial notice of foreign
laws.43 Like any other facts, they must be alleged and proved. Australian marital laws are not
among those matters that judges are supposed to know by reason of their judicial
function.44 The power of judicial notice must be exercised with caution, and every reasonable
doubt upon the subject should be resolved in the negative.

Second Issue:

Respondent's Legal Capacity to Remarry

Petitioner contends that, in view of the insufficient proof of the divorce, respondent was legally
incapacitated to marry her in 1994.

Hence, she concludes that their marriage was void ab initio.

Respondent replies that the Australian divorce decree, which was validly admitted in evidence,
adequately established his legal capacity to marry under Australian law.

Respondent's contention is untenable. In its strict legal sense, divorce means the legal
dissolution of a lawful union for a cause arising after marriage. But divorces are of different
types. The two basic ones are (1) absolute divorce or a vinculo matrimonii and (2) limited
divorce or a mensa et thoro. The first kind terminates the marriage, while the second suspends
it and leaves the bond in full force. 45 There is no showing in the case at bar which type of
divorce was procured by respondent.

Respondent presented a decree nisi or an interlocutory decree – a conditional or provisional

judgment of divorce. It is in effect the same as a separation from bed and board, although an
absolute divorce may follow after the lapse of the prescribed period during which no
reconciliation is effected.46

Even after the divorce becomes absolute, the court may under some foreign statutes and
practices, still restrict remarriage. Under some other jurisdictions, remarriage may be limited by
statute; thus, the guilty party in a divorce which was granted on the ground of adultery may be
prohibited from remarrying again. The court may allow a remarriage only after proof of good
behavior.47

On its face, the herein Australian divorce decree contains a restriction that reads:

"1. A party to a marriage who marries again before this decree becomes absolute
(unless the other party has died) commits the offence of bigamy." 48

This quotation bolsters our contention that the divorce obtained by respondent may have been
restricted. It did not absolutely establish his legal capacity to remarry according to his national
law. Hence, we find no basis for the ruling of the trial court, which erroneously assumed that the
Australian divorce ipso facto restored respondent's capacity to remarry despite the paucity of
evidence on this matter.

We also reject the claim of respondent that the divorce decree raises a disputable presumption
or presumptive evidence as to his civil status based on Section 48, Rule 3949 of the Rules of
Court, for the simple reason that no proof has been presented on the legal effects of the divorce
decree obtained under Australian laws.
Significance of the Certificate of Legal Capacity

Petitioner argues that the certificate of legal capacity required by Article 21 of the Family Code
was not submitted together with the application for a marriage license. According to her, its
absence is proof that respondent did not have legal capacity to remarry.

We clarify. To repeat, the legal capacity to contract marriage is determined by the national law
of the party concerned. The certificate mentioned in Article 21 of the Family Code would have
been sufficient to establish the legal capacity of respondent, had he duly presented it in court. A
duly authenticated and admitted certificate is prima facie evidence of legal capacity to marry on
the part of the alien applicant for a marriage license. 50

As it is, however, there is absolutely no evidence that proves respondent's legal capacity to
marry petitioner. A review of the records before this Court shows that only the following exhibits
were presented before the lower court: (1) for petitioner: (a) Exhibit "A" – Complaint;51 (b)
Exhibit "B" – Certificate of Marriage Between Rederick A. Recto (Filipino-Australian) and Grace
J. Garcia (Filipino) on January 12, 1994 in Cabanatuan City, Nueva Ecija; 52(c) Exhibit "C" –
Certificate of Marriage Between Rederick A. Recio (Filipino) and Editha D. Samson (Australian)
on March 1, 1987 in Malabon, Metro Manila;53 (d) Exhibit "D" – Office of the City Registrar of
Cabanatuan City Certification that no information of annulment between Rederick A. Recto and
Editha D. Samson was in its records; 54 and (e) Exhibit "E" – Certificate of Australian Citizenship
of Rederick A. Recto;55 (2) for respondent: (Exhibit "1" – Amended Answer;56 (b) Exhibit "S" –
Family Law Act 1975 Decree Nisi of Dissolution of Marriage in the Family Court of
Australia;57 (c) Exhibit "3" – Certificate of Australian Citizenship of Rederick A. Recto;58 (d)
Exhibit "4" – Decree Nisi of Dissolution of Marriage in the Family Court of Australia
Certificate;59 and Exhibit "5" – Statutory Declaration of the Legal Separation Between Rederick
A. Recto and Grace J. Garcia Recio since October 22, 1995.60

Based on the above records, we cannot conclude that respondent, who was then a naturalized
Australian citizen, was legally capacitated to marry petitioner on January 12, 1994. We agree
with petitioner's contention that the court a quo erred in finding that the divorce decree ipso
facto clothed respondent with the legal capacity to remarry without requiring him to adduce
sufficient evidence to show the Australian personal law governing his status; or at the very least,
to prove his legal capacity to contract the second marriage.

Neither can we grant petitioner's prayer to declare her marriage to respondent null and void on
the ground of bigamy. After all, it may turn out that under Australian law, he was really
capacitated to marry petitioner as a direct result of the divorce decree. Hence, we believe that
the most judicious course is to remand this case to the trial court to receive evidence, if any,
which show petitioner's legal capacity to marry petitioner. Failing in that, then the court a
quo may declare a nullity of the parties' marriage on the ground of bigamy, there being already
in evidence two existing marriage certificates, which were both obtained in the Philippines, one
in Malabon, Metro Manila dated March 1, 1987 and the other, in Cabanatuan City dated January
12, 1994.

WHEREFORE, in the interest of orderly procedure and substantial justice, we REMAND the
case to the court a quo for the purpose of receiving evidence which conclusively show
respondent's legal capacity to marry petitioner; and failing in that, of declaring the parties'
marriage void on the ground of bigamy, as above discussed. No costs.
SO ORDERED.

Melo, Puno, Vitug, and Sandoval-Gutierrez, JJ., concur.

Footnotes
1
Penned by Judge Feliciano V. Buenaventura; rollo, pp. 7-9.
2
Rollo, p. 10.
3
Ibid, p. 9.
4
Rollo, p. 37.
5
Ibid., p. 47.
6
Id., p. 44.
7
Id., p. 36.
8
Annex "I"; temporary rollo, p. 9.
9
The couple secured an Australian "Statutory Declaration" of their legal separation and
division of conjugal assets. See Annexes "3" and "4" of Respondent's Comment; rollo, p.
48.
10
Id., pp. 33-35.
11
Id., p. 39.
12
Amended Answer, p. 2; rollo, p. 39.
13
Id., pp. 77-78.
14
Id., p. 43.
15
Rollo, pp. 48-51.
16
TSN, December 16, 1998, pp. 1-8; records, pp. 172-179.
17
RTC Order of December 16, 1998; ibid., p. 203.
18
The case was deemed submitted for decision on January 11, 2000, upon this Court's
receipt of the Memorandum for petitioner, signed by Atty. Olivia Velasco-Jacoba. The
Memorandum for respondent, signed by Atty. Gloria V. Gomez of Gomez and
Associates, had been filed on December 10, 1999.
19
Petitioner's Memorandum, pp. 8-9; rollo, pp. 242-243.
20
43 Phil. 43, 49, March 3, 1922.
21
Ruben F. Balane, "Family Courts and Significant Jurisprudence in Family
Law," Journal of the Integrated Bar of the Philippines, 1st & 2nd Quarters, 2001, Vol.
XXVII, No. 1, p. 25.
22
"ART. 15. Laws relating to family rights and duties, or to the status, condition and legal
capacity of persons are binding upon citizens of the Philippines, even though living
abroad."
23
"ART. 17. The forms and solemnities of contracts, wills, and other public instruments
shall be governed by the laws of the country in which they are executed.

xxx xxx xxx

"Prohibitive laws concerning persons, their acts or property, and those which
have for their object public order, public policy and good customs shall not be
rendered ineffective by laws or judgments promulgated, or by determinations or
conventions agreed upon in a foreign country."
25
Tenchaves v. Escano 15 SCRA 355, 362, November 29, 1965; Barretto Gonzalez v.
Gonzales, 58 Phil. 67, 71-72, March 7, 1933.

"Art. 26. All marriages solemnized outside the Philippines in accordance with the laws in
force in the country where they were solemnized, and valid there as such, shall also be
valid in this country, except those prohibited under Articles 35(1), (4), (5), and (6), 36,
37, and 38. (71a).

"Where a marriage between a Filipino citizen and a foreigner is validly celebrated and a
divorce is thereafter validly obtained abroad by the alien spouse capacitating him or her
to remarry, the Filipino spouse shall have capacity to remarry under Philippine law." (As
amended by EO 227, prom. July 27, 1987).
26
Cf. Van Dorn v. Romillo Jr., 139 SCRA 139, 143-144, October 8, 1985; and Pilapil v.
Ibay-Somera, 174 SCRA 653, 663, June 30, 1989.1âwphi1.nêt
27
Van Dorn v. Romillo Jr., supra.
28
Ibid., p. 143.
29
For a detailed discussion of Van Dorn, see Salonga, Private International Law, 1995
ed. pp. 295-300.See also Jose C. Vitug, Compendium of Civil Law and Jurisprudence,
1993 ed., p. 16;
30
"SEC. 19. Classes of documents. – For the purpose of their presentation in evidence,
documents are either public or private.

"Public documents are:

"(a) The written official acts, or records of the official acts of the sovereign authority,
official bodies and tribunals, and public officers, whether in the Philippines, or of a
foreign country.

xxx xxx x x x."

31
Burr W. Jones, Commentaries on the Law of Evidence in Civil Cases, Vol. IV, 1926
ed., p. 3511; §3, Rule 130 of the Rules on Evidence provides that "when the subject of
inquiry is the contents of a document, no evidence shall be admissible other than the
original document itself."
32
"SEC. 19. Classes of documents. – For the purpose of their presentation in evidence,
documents are either public or private.

Public documents are:

"(a) The written official acts, or records of the official acts of the sovereign authority,
official bodies and tribunals, and public officers, whether in the Philippines, or of a
foreign country.

xxx xxx x x x."

33
"Sec. 25. What attestation of copy must state. – Whenever a copy of a document or
record is attested for the purpose of evidence, the attestation must state, in substance,
that the copy is a correct copy of the original, or a specific part thereof, as the case may
be. The attestation must be under the official seal of the attesting officer, if there be any,
or if he be the clerk of a court having a seal, under the seal of such court."
34
"Sec. 24. Proof of official record. – The record of public documents referred to in
paragraph (a) of Section 19, when admissible for any purpose, may be evidenced by an
official publication thereof or by a copy attested by the officer having the legal custody of
the record, or by his deputy, and accompanied, if the record is not kept in the
Philippines, with a certificate that such officer has the custody. If the office in which the
record is kept is in a foreign country, the certificate may be made by a secretary of the
embassy or legation, consul general, consul, vice-consul, or consular agent or by any
officer in the foreign service of the Philippines stationed in the foreign country in which
the record is kept, and authenticated by the seal of his office."

See also Asiavest Ltd. v. Court of Appeals, 296 SCRA 539, 550-551, September 25,
1998; Pacific Asia Overseas Shipping Corp. v. National Labor Relations Commission,
161 SCRA 122, 133-134, May 6, 1988.
35
The transcript of stenographic notes states that the original copies of the divorce
decrees were presented in court (TSN, December 16, 1998, p. 5; records, p. 176), but
only photocopies of the same documents were attached to the records (Records, Index
of Exhibit, p. 1.).
36
TSN, December 15, 1998, p. 7; records, p. 178.
37
TSN, December 16, 1998, p. 7; records, p. 178.
38
People v. Yatco, 97 Phil. 941, 945, November 28, 1955; Marella v. Reyes, 12 Phil. 1,
3, November 10, 1908; People v. Diaz, 271 SCRA 504, 516, April 18, 1997; De la Torre
v. Court of Appeals, 294 SCRA 196, 203-204, August 14, 1998, Maunlad Savings &
Loan Asso., Inc. v. Court of Appeals, GR No. 114942, November 27, 2000, pp. 8-9.
39
Art. 15, Civil Code.
40
Joaquin Bernas, The 1987 Constitution of the Republic of the Philippines: A
Commentary, 1996 ed., p. 566.
41
Ricardo J. Francisco, Evidence: Rules of Court in the Philippines, second edition, p.
382.
42
Ibid., p. 384.
43
Wildvalley Shipping Co., Ltd. v. Court of Appeals, GR No. 119602, October 56, 2000,
p. 7.
44
Francisco, p. 29, citing De los Angeles v. Cabahug, 106 839, December 29, 1959.
45
274 CJS, 15-17, §1.
46
Ibid., p. 611-613, §161.
47
27A CJS, 625, §162.
48
Rollo, p. 36.
49
"SEC. 48. Effect of foreign judgments or final orders. – The effect of a judgment or
final order of a tribunal of a foreign country, having jurisdiction to render the judgment or
final order is as follows:

xxx xxx xxx

"(b) In case of a judgment or final order against a person, the judgment or final
order is presumptive evidence of a right as between the parties and their
successors in interest by a subsequent title.

"In either case, the judgment or final order may be repelled by evidence of a want
of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law
or fact."
50
In passing, we note that the absence of the said certificate is merely an irregularity in
complying with the formal requirement for procuring a marriage license. Under Article 4
of the Family Code, an irregularity will not affect the validity of a marriage celebrated on
the basis of a marriage license issued without that certificate. (Vitug, Compendium, pp.
120-126); Sempio-Diy, Handbook on the Family Code of the Philippines, 197 reprint, p.
 17; Rufus Rodriguez, The Family Code of the Philippines Annotated, 1990 ed., p. 42;
Melencio Sta. Maria Jr., Persons and Family Relations Law, 1999 ed., p. 146.).
51
Records, pp. 1-3.
52
Ibid., p. 4.
53
Id., p. 5.
54
Id., p. 180.
55
Id., pp. 170-171.
26
Id., pp. 84-89.
57
Id., pp. 181-182.
58
Id., pp. 40-41.
59
Id., pp. 183.
60
Id., pp. 184-187.

REPUBLIC VS ORBECIDO

FIRST DIVISION

REPUBLIC OF THE PHILIPPINES, G.R. No. 154380

Petitioner,

Present:

Davide, Jr., C.J.,

- versus - (Chairman),
Quisumbing,
Ynares-Santiago,
Carpio, and
Azcuna, JJ.
CIPRIANO ORBECIDO III,
Respondent. Promulgated:

October 5, 2005

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

QUISUMBING, J.:

Given a valid marriage between two Filipino citizens, where one party is later naturalized
as a foreign citizen and obtains a valid divorce decree capacitating him or her to remarry, can
the Filipino spouse likewise remarry under Philippine law?

Before us is a case of first impression that behooves the Court to make a definite ruling
on this apparently novel question, presented as a pure question of law.

In this petition for review, the Solicitor General assails the Decision[1] dated May 15,
2002, of the Regional Trial Court of Molave, Zamboanga del Sur, Branch 23 and
its Resolution[2] dated July 4, 2002 denying the motion for reconsideration. The courta quo had
declared that herein respondent Cipriano Orbecido III is capacitated to remarry. The fallo of the
impugned Decision reads:
WHEREFORE, by virtue of the provision of the second paragraph of Art.
26 of the Family Code and by reason of the divorce decree obtained against him
by his American wife, the petitioner is given the capacity to remarry under the
Philippine Law.

IT IS SO ORDERED.[3]

The factual antecedents, as narrated by the trial court, are as follows.

On May 24, 1981, Cipriano Orbecido III married Lady Myros M. Villanueva at the United
Church of Christ in the Philippines in Lam-an, Ozamis City. Their marriage was blessed with a
son and a daughter, Kristoffer Simbortriz V. Orbecido and Lady Kimberly V. Orbecido.

In 1986, Cipriano‘s wife left for the United States bringing along their son Kristoffer. A
few years later, Cipriano discovered that his wife had been naturalized as an American citizen.

Sometime in 2000, Cipriano learned from his son that his wife had obtained a divorce
decree and then married a certain Innocent Stanley. She, Stanley and her child by him
currently live at 5566 A. Walnut Grove Avenue, San Gabriel, California.

Cipriano thereafter filed with the trial court a petition for authority to remarry invoking
Paragraph 2 of Article 26 of the Family Code. No opposition was filed. Finding merit in the
petition, the court granted the same. The Republic, herein petitioner, through the Office of the
Solicitor General (OSG), sought reconsideration but it was denied.

In this petition, the OSG raises a pure question of law:

WHETHER OR NOT RESPONDENT CAN REMARRY UNDER ARTICLE 26 OF
THE FAMILY CODE[4]

The OSG contends that Paragraph 2 of Article 26 of the Family Code is not applicable to
the instant case because it only applies to a valid mixed marriage; that is, a marriage celebrated
between a Filipino citizen and an alien. The proper remedy, according to the OSG, is to file a
petition for annulment or for legal separation. [5] Furthermore, the OSG argues there is no law
that governs respondent‘s situation. The OSG posits that this is a matter of legislation and not
of judicial determination.[6]

For his part, respondent admits that Article 26 is not directly applicable to his case but
insists that when his naturalized alien wife obtained a divorce decree which capacitated her to
remarry, he is likewise capacitated by operation of law pursuant to Section 12, Article II of the
Constitution.[7]

At the outset, we note that the petition for authority to remarry filed before the trial court
actually constituted a petition for declaratory relief. In this connection, Section 1, Rule 63 of the
Rules of Court provides:
RULE 63
DECLARATORY RELIEF AND SIMILAR REMEDIES

Section 1. Who may file petition—Any person interested under a deed, will,
contract or other written instrument, or whose rights are affected by a statute,
executive order or regulation, ordinance, or other governmental regulation may,
before breach or violation thereof, bring an action in the appropriate Regional
Trial Court to determine any question of construction or validity arising, and for a
declaration of his rights or duties, thereunder.
...

The requisites of a petition for declaratory relief are: (1) there must be a justiciable
controversy; (2) the controversy must be between persons whose interests are adverse; (3) that
the party seeking the relief has a legal interest in the controversy; and (4) that the issue is ripe
for judicial determination.[8]

This case concerns the applicability of Paragraph 2 of Article 26 to a marriage between

two Filipino citizens where one later acquired alien citizenship, obtained a divorce decree, and
remarried while in the U.S.A. The interests of the parties are also adverse, as petitioner
representing the State asserts its duty to protect the institution of marriage while respondent, a
private citizen, insists on a declaration of his capacity to remarry. Respondent, praying for relief,
has legal interest in the controversy. The issue raised is also ripe for judicial determination
inasmuch as when respondent remarries, litigation ensues and puts into question the validity of
his second marriage.

Coming now to the substantive issue, does Paragraph 2 of Article 26 of the Family Code
apply to the case of respondent? Necessarily, we must dwell on how this provision had come
about in the first place, and what was the intent of the legislators in its enactment?

Brief Historical Background

On July 6, 1987, then President Corazon Aquino signed into law Executive Order No.
209, otherwise known as the ―Family Code,‖ which took effect on August 3, 1988. Article 26
thereof states:
All marriages solemnized outside the Philippines in accordance with the
laws in force in the country where they were solemnized, and valid there as such,
shall also be valid in this country, except those prohibited under Articles 35, 37,
and 38.
 On July 17, 1987, shortly after the signing of the original Family Code, Executive Order
No. 227 was likewise signed into law, amending Articles 26, 36, and 39 of the Family Code. A
second paragraph was added to Article 26. As so amended, it now provides:
ART. 26. All marriages solemnized outside the Philippines in accordance
with the laws in force in the country where they were solemnized, and valid there
as such, shall also be valid in this country, except those prohibited under Articles
35(1), (4), (5) and (6), 36, 37 and 38.

Where a marriage between a Filipino citizen and a foreigner is validly

celebrated and a divorce is thereafter validly obtained abroad by the alien spouse
capacitating him or her to remarry, the Filipino spouse shall have capacity to
remarry under Philippine law. (Emphasis supplied)

On its face, the foregoing provision does not appear to govern the situation presented by
the case at hand. It seems to apply only to cases where at the time of the celebration of the
marriage, the parties are a Filipino citizen and a foreigner. The instant case is one where at the
time the marriage was solemnized, the parties were two Filipino citizens, but later on, the wife
was naturalized as an American citizen and subsequently obtained a divorce granting her
capacity to remarry, and indeed she remarried an American citizen while residing in the U.S.A.

Noteworthy, in the Report of the Public Hearings [9] on the Family Code, the Catholic
Bishops‘ Conference of the Philippines (CBCP) registered the following objections to Paragraph
2 of Article 26:
1. The rule is discriminatory. It discriminates against those whose
spouses are Filipinos who divorce them abroad. These spouses who are
divorced will not be able to re-marry, while the spouses of foreigners who
validly divorce them abroad can.
2. This is the beginning of the recognition of the validity of divorce
even for Filipino citizens. For those whose foreign spouses validly
divorce them abroad will also be considered to be validly divorced here
and can re-marry. We propose that this be deleted and made into law
only after more widespread consultation. (Emphasis supplied.)

Legislative Intent
Records of the proceedings of the Family Code deliberations showed that the intent of
Paragraph 2 of Article 26, according to Judge Alicia Sempio-Diy, a member of the Civil Code
Revision Committee, is to avoid the absurd situation where the Filipino spouse remains married
to the alien spouse who, after obtaining a divorce, is no longer married to the Filipino spouse.

Interestingly, Paragraph 2 of Article 26 traces its origin to the 1985 case of Van Dorn v.
Romillo, Jr.[10] The Van Dorn case involved a marriage between a Filipino citizen and a
foreigner. The Court held therein that a divorce decree validly obtained by the alien spouse is
valid in the Philippines, and consequently, the Filipino spouse is capacitated to remarry under
Philippine law.

Does the same principle apply to a case where at the time of the celebration of the
marriage, the parties were Filipino citizens, but later on, one of them obtains a foreign
citizenship by naturalization?
 The jurisprudential answer lies latent in the 1998 case of Quita v. Court of
Appeals.[11] In Quita, the parties were, as in this case, Filipino citizens when they got married.
The wife became a naturalized American citizen in 1954 and obtained a divorce in the same
year. The Court therein hinted, by way of obiter dictum, that a Filipino divorced by his
naturalized foreign spouse is no longer married under Philippine law and can thus remarry.

Thus, taking into consideration the legislative intent and applying the rule of reason, we
hold that Paragraph 2 of Article 26 should be interpreted to include cases involving parties who,
at the time of the celebration of the marriage were Filipino citizens, but later on, one of them
becomes naturalized as a foreign citizen and obtains a divorce decree. The Filipino spouse
should likewise be allowed to remarry as if the other party were a foreigner at the time of the
solemnization of the marriage. To rule otherwise would be to sanction absurdity and injustice.
Where the interpretation of a statute according to its exact and literal import would lead to
mischievous results or contravene the clear purpose of the legislature, it should be construed
according to its spirit and reason, disregarding as far as necessary the letter of the law. A
statute may therefore be extended to cases not within the literal meaning of its terms, so long as
they come within its spirit or intent. [12]

If we are to give meaning to the legislative intent to avoid the absurd situation where the
Filipino spouse remains married to the alien spouse who, after obtaining a divorce is no longer
married to the Filipino spouse, then the instant case must be deemed as coming within the
contemplation of Paragraph 2 of Article 26.

In view of the foregoing, we state the twin elements for the application of Paragraph 2 of
Article 26 as follows:

1. There is a valid marriage that has been celebrated between a

Filipino citizen and a foreigner; and

2. A valid divorce is obtained abroad by the alien spouse capacitating

him or her to remarry.

The reckoning point is not the citizenship of the parties at the time of the celebration of the
marriage, but their citizenship at the time a valid divorce is obtained abroad by the alien spouse
capacitating the latter to remarry.
In this case, when Cipriano‘s wife was naturalized as an American citizen, there was still
a valid marriage that has been celebrated between her and Cipriano. As fate would have it, the
naturalized alien wife subsequently obtained a valid divorce capacitating her to remarry.
Clearly, the twin requisites for the application of Paragraph 2 of Article 26 are both present in
this case. Thus Cipriano, the ―divorced‖ Filipino spouse, should be allowed to remarry.

We are also unable to sustain the OSG‘s theory that the proper remedy of the Filipino
spouse is to file either a petition for annulment or a petition for legal separation. Annulment
would be a long and tedious process, and in this particular case, not even feasible, considering
that the marriage of the parties appears to have all the badges of validity. On the other hand,
legal separation would not be a sufficient remedy for it would not sever the marriage tie; hence,
the legally separated Filipino spouse would still remain married to the naturalized alien spouse.
 However, we note that the records are bereft of competent evidence duly submitted by
respondent concerning the divorce decree and the naturalization of respondent‘s wife. It is
settled rule that one who alleges a fact has the burden of proving it and mere allegation is not
evidence.[13]

Accordingly, for his plea to prosper, respondent herein must prove his allegation that
his wife was naturalized as an American citizen. Likewise, before a foreign divorce decree can
be recognized by our own courts, the party pleading it must prove the divorce as a fact and
demonstrate its conformity to the foreign law allowing it. [14] Such foreign law must also be
proved as our courts cannot take judicial notice of foreign laws. Like any other fact, such laws
must be alleged and proved.[15] Furthermore, respondent must also show that the divorce
decree allows his former wife to remarry as specifically required in Article 26. Otherwise, there
would be no evidence sufficient to declare that he is capacitated to enter into another marriage.

Nevertheless, we are unanimous in our holding that Paragraph 2 of Article 26 of the

Family Code (E.O. No. 209, as amended by E.O. No. 227), should be interpreted to allow a
Filipino citizen, who has been divorced by a spouse who had acquired foreign citizenship and
remarried, also to remarry. However, considering that in the present petition there is no
sufficient evidence submitted and on record, we are unable to declare, based on respondent‘s
bare allegations that his wife, who was naturalized as an American citizen, had obtained a
divorce decree and had remarried an American, that respondent is now capacitated to remarry.
Such declaration could only be made properly upon respondent‘s submission of the aforecited
evidence in his favor.

ACCORDINGLY, the petition by the Republic of the Philippines is GRANTED. The

assailed Decision dated May 15, 2002, and Resolution dated July 4, 2002, of the Regional Trial
Court of Molave, Zamboanga del Sur, Branch 23, are hereby SET ASIDE.

No pronouncement as to costs.

SO ORDERED.

LEONARDO A. QUISUMBING
Associate Justice

WE CONCUR:

HILARIO G. DAVIDE, JR.

Chief Justice
Chairman

CONSUELO YNARES-SANTIAGO ANTONIO T. CARPIO

Associate Justice Associate Justice
 ADOLFO S. AZCUNA
Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision were reached in consultation before the case was assigned
to the writer of the opinion of the Court‘s Division.

HILARIO G. DAVIDE, JR.

Chief Justice

[1]
Rollo, pp. 20-22.
[2]
Id. at 27-29.
[3]
Id. at 21-22.
[4]
Id. at 105.
[5]
Id. at 106-110.
[6]
Id. at 110.
[7]
Sec. 12. The State recognizes the sanctity of family life and shall protect and strengthen
the family as a basic autonomous social institution. It shall equally protect the life of the
mothaer and the life of the unborn from conception. The natural and primary right and duty
of parents in the rearing of the youth for civic efficiency and the development of moral
character shall receive the support of the Government.
[8]
Office of the Ombudsman v. Ibay, G.R. No. 137538, 3 September 2001, 364 SCRA 281,
286, citing Galarosa v. Valencia, G.R. No. 109455, 11 November 1993, 227 SCRA
729, 737.
[9]
Held on January 27 and 28, 1988 and February 3, 1988.
[10]
No. L-68470, 8 October 1985, 139 SCRA 139.
[11]
G.R. No. 124862, 22 December 1998, 300 SCRA 406.
[12]
Lopez & Sons, Inc. v. Court of Tax Appeals, No. L-9274, 1 February 1957, 100 Phil. 850,
855.
[13]
Cortes v. Court of Appeals, G.R. No. 121772, 13 January 2003, 395 SCRA 33, 38.
[14]
Garcia v. Recio, G.R. No. 138322, 2 October 2001, 366 SCRA 437, 447.
[15]
Id. at 451.

V. Parents and Children (Parental Relations)

CHING LENG VS GALANG (can‟t find case online)

This finds no support in the law, for, as observed by this Court in Ching Leng vs. Galang, G.R.
No. L-11931, promulgated on 27 October 1958, the citizenship of the adopter is a matter
political, and not civil, in nature, and the ways in which it should be conferred lay outside the
ambit of the Civil Code. It is not within the province of our civil law to determine how or when
citizenship in a foreign state is to be acquired. The disapproval of the adoption of an alien child
in order to forestall circumvention of our exclusion laws does not warrant, denial of the adoption
of a Filipino minor by qualified alien adopting parents, since it is not shown that our public policy
would be thereby subverted. (G.R. No. L-21951 November 27, 1964)

NG HUI VS COLLECTOR
Republic of the Philippines
SUPREME COURT
Manila

EN BANC

DECISION

March 15, 1916

G.R. No. L-11467

NG HIAN, petitioner-appellee,
vs.
THE INSULAR COLLECTOR OF CUSTOMS, respondent-appellant.

Attorney-General Avanceña for appellant.

Williams, Ferrier and SyCip for appellee.

Johnson, J.:

This action was commenced in the Court of First Instance of the city of Manila on the 26th of
November, 1915, by the presentation of a petition for the writ of habeas corpus.

From an examination of the record the following facts appear to be proved beyond question:

First. That on or about the 30th of October, 1915 on the steamship Tian there arrived at the port
of Manila, a woman, Marcosa S. Dy Jiongco, together with two children, Ng Tio a female of the
age of 9 years, and Ng Hian a boy of 16 years of age (the petitioner herein);

Second. That Marcosa S. Dy Jiongco had been born in the Philippine Islands, of a Filipina
mother and a Chinese father;

Third. That Marcosa S. Dy Jiongco was married to a Chinaman by the name of (Filipino name)
Juan Uy Tue, (Chinese name) Ng Chion Tue:

Fourth. That Juan Uy Tue (Ng Chion Tue), before his marriage with Marcosa S. Dy Jiongco, had
been married to a Chinese woman with whom he had some children, the petitioner herein and
also one called Ng Guan. It appears that Ng Guan was residing in the Philippine Islands at the
time of the presentation of the present petition;
Fifth. That the Chinese wife of Juan Uy Tue died while the petitioner herein, Ng Hian, was a
very small child;

Sixth. That the said Juan Uy Tue, after the death of his Chinese wife, was legally married to the
said Marcosa S. Dy Jiongco;

Seventh. That the said little girl, Ng Tio, of 9 years of age was the daughter of the brother of the
said Juan Uy Tue, born of a Chinese father and mother; that the father of the little girl had given
her to the said Marcosa S. Dy Jiongco;

Eight. That Marcosa S. Dy Jiongco, being the stepmother of the said Ng Hian, adopted him and
was bringing him to the Philippine Islands to study.

After the close of the investigation before the board of special inquiry, during which examination
the foregoing facts were presented, the said board refused the right of each of said children to
enter the Philippine Islands.

Later, on the 17th of November, 1915, a rehearing was granted for the purpose of examining
other witnesses upon the question of the right of said two children, Ng Tio and Ng Hian, to enter
the Philippine Islands. At the close of the second hearing the board of special inquiry admitted
Ng Tio, but denied the right of Ng Hian to enter the Philippine Islands. From that decision an
appeal was taken to the Collector of Customs and by him affirmed on the 23d of November,
1915. The petition for the writ of habeas corpus in the present case was presented on the 26th
of November, 1915.

The petition and answer and the record made in the department of customs were presented to
the Court of First Instance. The court, after an examination of the record, reached the
conclusion that the petition (Ng Hian) was entitled to enter the Philippine Islands. From that
decision the Collector of Customs appealed to this court. The question which the Attorney-
General presents is whether or not the minor children of a deceased resident Chinese merchant
have a right to enter the territory of the Philippine Islands. That question has been answered by
this court in numerous decisions in the negative. (Lee Jua vs. Collector of Customs, 32 Phil.
Rep., 24; Tan Lin Jo vs. Collector of Customs, 32 Phil. Rep., 78; Cang Kai Guan vs. Collector
of Customs, 32 Phil. Rep., 102; Yat Tian Un (Sun) vs. Collector of Customs, 32 Phil. Rep., 487;
De Eng Hoa vs. Collector of Customs, 32 Phil. Rep., 490; Ex parte Chan Fooi, 217 Fed. Rep.,
308.)

It is true that the petitioner, Ng Hian, had never been in the Philippine Islands before. It is also
true that the said Marcosa S. Dy Jingco was his stepmother. She swore positively that she had
adopted him. That fact is not denied of record. Until the fact is denied we must accept it. There
is nothing in the record which shows or tends to show that she had not adopted him in good
faith. The question whether or not Marcosa S. Dy Jiongco could bring Ng Hian into the territory
of the Philippine Islands as her adopted son has been discussed by the Federal Courts of the
United States. In the case of Ex parte Fong Yim (134 Fed. Rep., 938), the court held that:

A Chinese merchant domiciled in the United States has the right to bring into this country with
his wife minor children legally adopted by him in China, where it is shown that the adoption was
bona fide, and that the children have lived as members of his family and have been supported
by him for several years.

The court further said:

Of course, the question whether the adoption is a genuine one is a question of fact, open to
investigation . . . . The evidence shows that the practice of adopting children in China is very
common, that it takes place substantially without legal formalities, but that the rights and
obligations of children adopted and recognized as such are similar to those of natural children.
Under these circumstances I can see no difference between the legal status of adopted children
and of natural children. The Supreme Court (of the United States) having decided that a
Chinese merchant domiciled in this country has the right to bring into it his natural children, I
think that the same decision is authority for the proposition that he has the right to introduce his
adopted children.

Upon the theory, therefore, that Ng Hian had been adopted by his stepmother, and upon the
theory that she has a right to enter territory of the United States, without objection, we are of the
opinion and so hold that Ng Hian has a right to enter the territory of the Philippine Islands as her
adopted son. Therefore the judgment of the lower court is hereby affirmed, with costs. So
ordered.

Torres, Trent, and Araullo, JJ., concur.

Moreland, J., reserves his vote. euNqV10T7b.

ROEHR VS RODRIGUEZ (SUPRA under Dissolution of Marriage)

VI. Adoption

PARDO DE TAVERA VS CACDAC

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 76290 November 23, 1988

MINISTER MAMITA PARDO DE TAVERA of the Ministry of Social Services and

Development (MSSD) and LOURDES BALANON, Officer-in-Charge, SCWU,
MSSD, petitioners,
vs.
HONORABLE BONIFACIO A. CACDAC, JR., of the Regional Trial Court, National Capital
Region, Branch XLVIII Manila, GEORGE BAXTER BROWN GORDON, and GAIL JUDITH
MILBOURN GORDON, respondents.

Rosa Maria Juan Bautista for petitioners.

J. V. Natividad & Associates for respondents.

MELENCIO-HERRERA, J.:
The Resolution of respondent Regional Trial Court, Branch XLVIII, Manila, of 1 October 1986
ordering the Chief of the Special Child and Welfare Unit of the Ministry of Social Services and
Development (MSSD) to issue a travel clearance in favor of the adopted minor, Anthony Gandhi
Gordon, within five (5) days from notice, under pain of contempt, is directly challenged in this
certiorari Petition for having been issued with grave abuse of discretion tantamount to lack of
jurisdiction. At the same time the Petition seeks to annul the Decision dated 5 August 1986 of
the same Court declaring the minor, Anthony Gandhi O. Custodio the truly and lawfully adopted
child of George Baxter Gordon and Gail Judith Milbourn Gordon (the Gordons, for brevity.)

On 6 November 1986, we issued a temporary Restraining Order enjoining Respondent Judge

from enforcing the assailed Decision and Resolution.

Because of the official request of the MSSD addressed to this Court to require all Regional Trial
Court Judges handling adoption cases to adhere strictly to the provisions of the Child and Youth
Welfare Code (P.D. No. 603), the Petition was given due course.

The antecedental facts disclose that, on 19 June 1986, in a verified Petition before the Regional
Trial Court, Branch XLVIII, Manila, the Gordons sought to adopt the minor, Anthony Gandhi O.
Custodio, a natural son of Adoracion Custodia. The Petition was set for hearing on 31 July
1986, with notice published in a newspaper of general circulation in the City of Manila for three
(3) consecutive weeks.

On the date of hearing, nobody appeared to oppose the Petition. The Office of the Solicitor
General, which was notified of the Petition and the hearing, failed to send any representative for
the State. Thus, the Trial Court appointed the Branch Clerk of Court as Commissioner to receive
the additional evidence, the deposition of some witnesses having been taken previously.

The principal evidence disclosed that the Gordons, as British citizens, are allowed by their home
country to adopt foreign babies specifically from the Republic of the Philippines; that the
husband is employed at the Dubai Hilton International Hotel as Building Superintendent; that
they are financially secure and can amply provide for the education and support of the child; that
Anthony's mother, Adoracion Custodia had given her consent to the adoption realizing that her
child would face a brighter future; that the Case Study Report submitted by the Social Worker of
the Trial Court gave a favorable recommendation after observing that there existed a parent-
child relationship between the Gordons and Anthony and that although the natural mother was
having second thoughts and experiencing lonesome feelings, her aspirations for the future
betterment of her one-year-two-month old child prevailed so she agreed to the adoption.

After assessment of the evidence the Trial Court concluded, in its decision of 5 August 1986,
that the Gordons possessed all the qualifications and none of the disqualifications for adoption
and declared Anthony the truly and lawfully adopted child of the Gordons, the Decree of
Adoption to take effect from the filing of the petition on 19 June 1986.

On 11 August 1986, the Gordons wrote MSSD for a travel clearance for Anthony. The next day,
12 August, they also filed an Urgent Ex-parte Motion before the Trial Court stating that the Chief
of the Passport Division of the then Ministry of Foreign Affairs refused to issue a passport to
Anthony without a Case Study of the MSSD and praying that it be required to issue such
passport.
Subpoenaed, the MSSD opposed the grant of a travel clearance on the principal grounds that
the Report of the Court Social Worker and that of the Pastor of the International Christian
Church of Dubai cannot take the place of a report of the MSSD or a duly licensed child
placement agency; that the required six-month trial custody had not been met nor the reasons
therefor given as required by Article 35 of the Child and Youth Welfare Code (P.D. No. 603);
that the Gordons had given P10,000.00 to the natural mother, which is reflective of the
undesirable attitude of the Gordons to shop for children as if they were shopping for
commodities; that under Muslim law, which is the law in Dubai, Anthony cannot inherit from the
adopting parents; that the Gordons had filed another petition for adoption of a baby girl before
the Regional Trial Court, Quezon City, Branch 94, on 24 June 1986 but because she died a
month later they tried to pass off another child to whom they gave the same name and
represented that she was the very same girl they were adopting; and that there being no
Memorandum of Agreement between Dubai and the Philippines there is no guarantee that the
adopted child will not be sold, exchanged, neglected or abused.

Over the MSSD Opposition, the Trial Court, in its Resolution of 1 October 1986 ordered the
MSSD to issue the travel clearance under pain of contempt and the Ministry of Foreign Affairs to
issue the corresponding passport. It reasoned out that the Court Social Worker Report could
take the place of a report from a duly licensed placement agency or of the MSSD; that the Court
had impliedly dispensed with the six-month trial custody considering that the Gordons were
foreigners whose livelihood was earned abroad; that the Decision had become final and
executory and to entertain the MSSD objections at that point would put the MSSD above the
Courts and its refusal to issue a travel clearance a defiance of a lawful Order of the Court.

In so resolving, the Trial Court relied on: (1) the Resolution of this Court in Administrative Matter
No. 85-2-7136-RTC denying the request of the MSSD for a Supreme Court Circular to all
Regional Trial Court Judges to the effect that, with the abolition of the Juvenile and Domestic
Relations Courts, only the MSSD can make the required case study and submit its report and
recommendation to the Courts. That denial was predicated on the following finding:

... The law expressly provides that in a petition for adoption a case study of a
child to be adopted, his natural parents and the prospective adopting parents
may be conducted by the Department of Social Welfare ... or the Social Work
and Counselling Division, in case of Juvenile and Domestic Relations Court, the
functions of which are now exercised by the Regional Trial Courts Staff Assistant
V (Social Worker), Regional Trial Court. (Emphasis supplied)

and 2) this Court's ruling in Bobanovic vs. Hon. Montes (G.R. No. L-71370, July 7, 1986, 142
SCRA 485), reading in part:

By refusing to issue the travel clearance, respondent Minister would in effect

frustrate said judgment of adoption for the adopting parents who reside in a
foreign country would consequently remain separated from their adopted child.
The respondent Minister would in effect take away from the petitioners what
already belongs to them as a vested legal right. The unfairness of such a
situation created by the action of the public respondent is patently a wanton
abuse of her discretion and a neglect of her plain duty to assist in the reasonable
implementation of the final order of a proper court.
 In refusing to grant the travel clearance certificate, respondent MSSD discounts
and negates the effects of a valid and final judgment of the Court regarding which
no appeal had even been taken from (Bobanovic vs. Hon. Montes, G.R. L-71370,
July 7, 1986).

It is true that in resolving a Motion for Reconsideration in that case on 31 January 1987, this
Court deferred the implementation of its judgment directing the issuance of the requisite travel
clearance certificate because of a Memorandum of Agreement between Australia and the
Philippines belatedly brought to its attention which requires that a prospective adopter of a
Filipino child should first undergo a Family Study to be conducted by the adopter's home state.
In the case at bar, however, attention has not been called to any such agreement between
Great Britain and the Philippines.

On the strength of the foregoing Circular and Decision, the challenged Decision and Resolution
of respondent Court have to be upheld. Unequivocally, prior to Executive Order No. 91, issued
on 17 December 1986, the Social Workers in Regional Trial Courts had the authority to conduct
a case study of a child to be adopted. While Juvenile and Domestic Relations Courts have been
abolished by B.P. Blg. 129, their functions have been merged with Regional Trial Courts, which
were then provided with Social Workers to assist the Court in handling juvenile and domestic
relations cases.

It may be that respondent Trial Court had not complied strictly with the provisions of P.D. No.
603 on adoption. As it had reasoned out, however, it was satisfied with the Case Study Report
submitted by the Court Social Worker. Prior to Executive Order No. 91, amending the Child and
Youth Welfare Code, the MSSD did not have the exclusive authority to make a case study in
adoption cases. The Court evaluated the Report of its social Worker and found that it was based
on "very honest insight and opinion based on personal interviews and home study painstakingly
made ..." The objections which the MSSD have (sic) against the petitioners Gordon are all
reflected in "... the case study report and such have been passed upon by the Court in its
decision granting the adoption" (P. 30, Rollo). The MSSD did not allege that the Social Worker
Report was faulty or incorrect. It thus appears that the objective of trial custody had been
substantially achieved, which is, "to assess the adjustment and emotional readiness of the
adopting parents for the legal union" (Article 35, P.D. No. 603). And as far as the delegation of
the reception of evidence to a Commissioner is concerned, that is permissible in the absence of
any opposition.

The MSSD objection that the Gordons were making of the adoption case a commercial venture
does not necessarily follow from the fact that they had given the natural mother the sum of
P10,000.00. As the latter had explained, the amount was handed to her as a gesture of
assistance. By receiving the same, the latter had not thereby made a "hurried decision caused
by strain or anxiety to give up the child," which is sought to be avoided by Article 32, P.D. No.
603. As to the "changeling" referred to by the MSSD, it appears that the Gordons also wanted to
adopt a baby girl in proceedings before the Regional Trial Court, Quezon City, but that was
aborted as the first baby they selected was a "mongoloid" so they decided to surrender her to
the International Alliance for Children where she eventually died. At. any rate, as the Trial Court
had stated, the questionable attitude of the Gordons was belatedly raised and had yet to be
proven and should not be made to prejudice Anthony. Moreover, the Gordons are British
citizens and Muslim law, which is the law in Dubai, has no applicability to them. In the last
analysis, it is not bureaucratic technicalities but the best interests of the child that should be the
principal criterion in adoption cases.
More significantly, as the Trial Court had opined, its judgment had become final and executory
and, therefore, commands obeisance. The MSSD could have appealed through the Solicitor
General when it learned of the Decision, but it did not. Its opposition to the issuance of a travel
clearance cannot be equated with a motion for reconsideration the request for a clearance being
directed towards the implementation of the Trial Court judgment. Its present Petition for
certiorari cannot be a substitute for a lost appeal. And even assuming that the Trial Court
judgment was erroneous, the same would not be correctible by Certiorari. Much less can such
an extraordinary Writ be availed of for the annulment of a final judgment, exclusive appellate
jurisdiction over which appertains to the Court of Appeals (Section 9[3], B.P. Blg. 129).

Since the filing of this case, this Court had issued Circular No. 12 to all Judges of the Regional
Trial Courts hearing adoption cases, dated 2 October 1986, directing them:

(1) to NOTIFY the Ministry of Social Services and Development , thru its local
agency, of the filing of adoption cases or the pendency thereof with respect to
those cases already filed;

(2) to strictly COMPLY with the requirement in Art. 33 of the aforesaid decree
that—

No petition for adoption shall be granted unless the Department of Social Welfare
(now the Ministry of Social Services and Development), or the Social Work and
Counselling Division, in the case of Juvenile and Domestic Relations Courts (now
defunct), has made a case study of the child to be adopted, his natural parents
as well as the prospective adopting parents, and has submitted its report and
recommendations on the matter to the court hearing such petition. The
Department of Social Welfare (now the Ministry of Social Services and
Development) shall intervene on behalf of the child if it finds, after such case
study, that the petition should be denied.

The Staff Assistant V (Social Worker) of the Regional Trial Courts, if any, shall
coordinate with the Ministry of Social Services and Development representatives
in the preparation and submittal of such case study.

(3) To personally HEAR all adoption cases and desist from the practice of
delegating the reception of evidence of the petitioner to the Clerk of Court.

With the foregoing directive, a happy solution has been arrived at. The understandable concern
of the MSSD for Filipino children up for adoption by foreigners is recognized and appreciated;
the prerogative of the Courts to render judgments based upon their assessment of the evidence
inclusive of Case Study Reports that may be submitted is fully upheld; the guidelines for
a modus vivendi in adoption cases between the executive and judicial departments of
government, even with the advent of Executive Order No. 91 dated 17 December 1986, have
been adequately laid down-all in proper fealty to the Constitutional mandate that the protection
of minors is a paramount duty of the State (Section 3[2], Article XV, 1987
Constitution).<äre||anº•1àw>

WHEREFORE, the assailed Decision of 5 August 1986 and Resolution dated 1 October 1986,
both of respondent Regional Trial Court, Branch XLVIII Manila, are hereby AFFIRMED. The
Temporary Restraining Order heretofore issued is hereby lifted. No costs.
SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

REPUBLIC VS COURT OF APPEALS

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 100835 October 26, 1993

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and the SPOUSES JAMES ANTHONY HUGHES
and LENITA MABUNAY HUGHES, respondents.

The Solicitor General for petitioner.

Westremundo y. De Guzman for private respondents.

VITUG, J.:

James Anthony Hughes, a natural born citizen of the United States of America, married Lenita
Mabunay Hughes, a Filipino Citizen, who herself was later naturalized as a citizen of that
country. On 29 June 1990, the spouses jointly filed a petition with the Regional Trial Court of
Angeles City, Branch 60, to adopt Ma. Cecilia, Neil and Maria, all surnamed Mabunay, minor
niece and nephews of Lenita, who had been living with the couple even prior to the filing of the
petition. The minors, as well as their parents, gave consent to the adoption.

On 29 November 1990, the Regional Trial Court rendered a decision granting the petition. a
petition for Review onCertiorari was filed with this Court, assailing the trial court's decision. This
Court referred the case to the Court of Appeals which, on 09 July 1991, affirmed the trial court's
decision.

Hence, the present petition. The petitioner assigned a lone error on the part of the respondent
court, thus —

THE LOWER COURT ERRED IN GRANTING THE PETITION FOR ADOPTION

OF SPOUSES JAMES ANTHONY HUGHES AND LENITA MABUNAY HUGHES
BECAUSE THEY ARE NOT QUALIFIED TO ADOPT UNDER PHILIPPINE LAW.
It is clear that James Anthony Hughes is not qualified to adopt. Executive Order No. 209,
otherwise known as "The Family Code of the Philippines," is explicit.

Art. 184. The following persons may not adopt :

(1) The guardian with respect to the ward prior to the approval of the final
accounts rendered upon the termination of their guardianship relation;

(2) Any person who has been convicted of a crime involving moral turpitude;

(3) An alien, except:

(a) A former Filipino citizen who seeks to adopt a relative by

consanguinity;

(b) One who seeks to adopt the legitimate child of his or her
Filipino spouse; or

(c) One who is married to a Filipino citizen and seeks to adopt

jointly with his or her Filipino spouse a relative by consanguinity of
the latter.

Aliens not included in the foregoing exceptions may adopt Filipino children in
accordance with the rules in inter-country adoption as may be provided by law.

While James Anthony unquestionably is not permitted to adopt under any of the exceptional
cases enumerated in paragraph (3) of the aforequoted article, Lenita, however, can qualify
pursuant to paragraph (3)(a). The problem in her case lies, instead, with Article 185 of Executive
Order No. 209, expressing as follows:

Art. 185. Husband and wife must jointly adopt, except in the following cases:

(1) When one spouse seeks to adopt his own illegitimate child; or

(2) When one spouse seeks to adopt the legitimate child of the other.

Lenita may not thus adopt alone since Article 185 requires a joint adoption by the husband and
the wife, a condition that must be read along together with Article 184.

The old law on adoption, Presidential Decree No. 603 (The Child and Youth Welfare Code),
exactly adopted that found in then Article 336 of the Civil Code. Article 29, Section B, Chapter I,
Title II, of the said decree provided :

Art. 29. Husband and wife may jointly adopt. In such case, parental authority
shall be exercised as if the child were their own by nature.

Observe that the law then in force used the word "may" under which regime, a joint adoption by
the spouses was apparently not made obligatory. The provision was later amended, however by
Executive Order No. 91, dated 17 December 1986, of President Corazon C. Aquino. The new
Article 29 expressed, thus —

Art. 29. Husband and wife may jointly adopt. In such case, parental authority
shall be exercised as if the child were their own by nature.

If one of the spouses is an alien, both husband and wife shall jointly adopt.
Otherwise, the adoption shall not be allowed.

As amended by Executive Order 91, Presidential Decree No. 603, had thus made it mandatory
for both the spouses to jointly adopt when one of them was an alien. The law was silent when
both spouses were of the same nationality.

The Family Code has resolved any possible uncertainty. Article 185 thereof now expresses the
necessity for joint adoption by the spouses except in only two instances —

(1) When one spouse seeks to adopt his own legitimate child; or

(2) When one spouse seeks to adopt the legitimate child of the other.

It is in the foregoing cases when Article 186 of the Code, on the subject of parental authority,
can aptly find governance.

Article 186. In case husband and wife jointly adopt or one spouse adopts the
legitimate child of the other, joint parental authority shall be exercised by the
spouses in accordance with this Code.

The respondent court, in affirming the grant of adoption by the lower court, has theorized that
James Anthony should merely be considered a "nominal or formal party" in the proceedings.
This view of the appellate court cannot be sustained. Adoption creates a status that is closely
assimilated to legitimate paternity and filiation with corresponding rights and duties that
necessarily flow from adoption, such as, but not necessarily confined to, the exercise of parental
authority, use of surname of the adopter by the adopted, as well as support and successional
rights. These are matters that obviously cannot be considered inconsequential to the parties.

We are not unmindful of the possible benefits, particularly in this instance, that an adoption can
bring not so much for the prospective adopting parents as for the adopted children themselves.
We also realize that in proceedings of this nature, paramount consideration is given to the
physical, moral, social and intellectual welfare of the adopted for whom the law on adoption has
in the first place been designed. When, however, the law is clear and no other choice is
given, 1 we must obey its full mandate.

Even then, we find it difficult to conclude this opinion without having to call the attention of the
appropriate agencies concerned to the urgency of addressing the issue on inter-country
adoption, a matter that evidently is likewise espoused by the Family Code (Article 184, last
paragraph, Family Code).

WHEREFORE, the petition is GRANTED and the decision of the respondent court is
REVERSED and SET ASIDE. No costs.
SO ORDERED.

Feliciano, Bidin, Romero and Melo, JJ., concur.

# Footnotes

1 At least until such time as the "rules on inter-country adoption" are provided for
by law pursuant to Article 184 of the Family Code.

REPUBLIC VS TOLEDANO

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 94147 June 8, 1994

REPUBLIC OF THE PHILIPPINES, petitioner,

vs.
HONORABLE RODOLFO TOLEDANO, in his capacity as Presiding Judge of the Regional
Trial Court, Third Judicial Region, Branch 69, Iba, Zambales and SPOUSES ALVIN A.
CLOUSE and EVELYN A. CLOUSE,respondents.

The Solicitor General for petitioner.

R.M. Blanco for private respondents.

PUNO, J.:

Before us is a petition for review on certiorari of the decision 1 of the Regional Trial Court of Iba,
Zambales, Branch 69, in Special Proceeding No. RTC-140-I, entitled, "In the Matter of the
Adoption of the Minor named Solomon Joseph Alcala", raising a pure question of law.

The sole issue for determination concerns the right of private respondents spouses Alvin A.
Clouse and Evelyn A. Clouse who are aliens to adopt under Philippine Law.

There is no controversy as to the facts.

On February 21, 1990, in a verified petition filed before the Regional Trial Court of Iba,
Zambales, private respondents spouses Clouse sought to adopt the minor, Solomon Joseph
Alcala, the younger brother of private respondent Evelyn A. Clouse. In an Order issued on
March 12, 1990, the petition was set for hearing on April 18, 1990. The said Order was
published in a newspaper of general circulation in the province of Zambales and City of
Olongapo for three (3) consecutive weeks.

The principal evidence disclose that private respondent Alvin A. Clouse is a natural born citizen
of the United States of America. He married Evelyn, a Filipino on June 4, 1981 at Olongapo
City. On August 19, 1988, Evelyn became a naturalized citizen of the United States of America
in Guam. They are physically, mentally, morally, and financially capable of adopting Solomon, a
twelve (12) year old minor.

Since 1981 to 1984, then from November 2, 1989 up to the present, Solomon Joseph Alcala
was and has been under the care and custody of private respondents. Solomon gave his
consent to the adoption. His mother, Nery Alcala, a widow, likewise consented to the adoption
due to poverty and inability to support and educate her son.

Mrs. Nila Corazon Pronda, the social worker assigned to conduct the Home and Child Study,
favorably recommended the granting of the petition for adoption.

Finding that private respondents have all the qualifications and none of the disqualifications
provided by law and that the adoption will redound to the best interest and welfare of the minor,
respondent judge rendered a decision on June 20, 1990, disposing as follows:

WHEREFORE, the Court grants the petition for adoption filed by Spouses Alvin
A. Clouse and Evelyn A. Clouse and decrees that the said minor be considered
as their child by adoption. To this effect, the Court gives the minor the rights and
duties as the legitimate child of the petitioners. Henceforth, he shall be known as
SOLOMON ALCALA CLOUSE.

The Court dissolves parental authority bestowed upon his natural parents and
vests parental authority to the herein petitioners and makes him their legal heir.
Pursuant to Article 36 of P.D. 603 as amended, the decree of adoption shall be
effective as of the date when the petition was filed. In accordance with Article 53
of the same decree, let this decree of adoption be recorded in the corresponding
government agency, particularly the Office of the Local Civil Registrar of Merida,
Leyte where the minor was born. The said office of the Local Civil Registrar is
hereby directed to issue an amended certificate of live birth to the minor adopted
by the petitioners.

Let copies of this decision be furnished (sic) the petitioners, DSWD, Zambales
Branch, Office of the Solicitor General and the Office of the Local Civil Registrar
of Merida, Leyte.

SO ORDERED. 2

Petitioner, through the Office of the Solicitor General appealed to us for relief, contending:

THE LOWER COURT ERRED IN GRANTING THE PETITION FOR ADOPTION

OF ALVIN AND EVELYN CLOUSE, BECAUSE THEY ARE NOT QUALIFIED TO
ADOPT UNDER PHILIPPINE LAW.
We rule for petitioner.

Under Articles 184 and 185 of Executive Order (E.O.) No. 209, otherwise known as "The Family
Code of the Philippines", private respondents spouses Clouse are clearly barred from adopting
Solomon Joseph Alcala.

Article 184, paragraph (3) of Executive Order No. 209 expressly enumerates the persons who
are not qualified to adopt, viz.:

(3) An alien, except:

(a) A former Filipino citizen who seeks to adopt a relative by

consanguinity;

(b) One who seeks to adopt the legitimate child of his or her
Filipino spouse; or

(c) One who is married to a Filipino citizen and seeks to adopt

jointly with his or her spouse a relative by consanguinity of the
latter.

Aliens not included in the foregoing exceptions may adopt Filipino

children in accordance with the rules on inter-country adoption as
may be provided by law.

There can be no question that private respondent Alvin A. Clouse is not qualified to adopt
Solomon Joseph Alcala under any of the exceptional cases in the aforequoted provision. In the
first place, he is not a former Filipino citizen but a natural born citizen of the United States of
America. In the second place, Solomon Joseph Alcala is neither his relative by consanguinity
nor the legitimate child of his spouse. In the third place, when private respondents spouses
Clouse jointly filed the petition to adopt Solomon Joseph Alcala on February 21, 1990, private
respondent Evelyn A. Clouse was no longer a Filipino citizen. She lost her Filipino citizenship
when she was naturalized as a citizen of the United States in 1988.

Private respondent Evelyn A. Clouse, on the other hand, may appear to qualify pursuant to
paragraph 3(a) of Article 184 of E.O. 209. She was a former Filipino citizen. She sought to adopt
her younger brother. Unfortunately, the petition for adoption cannot be granted in her favor
alone without violating Article 185 which mandates a joint adoption by the husband and wife. It
reads:

Article 185. Husband and wife must jointly adopt, except in the following cases:

(1) When one spouse seeks to adopt his own illegitimate child; or

(2) When one spouse seeks to adopt the legitimate child of the other.

Article 185 requires a joint adoption by the husband and wife, a condition that must be read
along together with Article 184. 3
The historical evolution of this provision is clear. Presidential Decree 603 (The Child and Youth
Welfare Code), provides that husband and wife "may" jointly adopt. 4 Executive Order No. 91
issued on December 17, 1986 amended said provision of P.D. 603. It demands that both
husband and wife "shall" jointly adopt if one of them is an alien. 5 It was so crafted to protect
Filipino children who are put up for adoption. The Family Code reiterated the rule by requiring
that husband and wife "must" jointly adopt, except in the cases mentioned before. Under the
said new law, joint adoption by husband and wife is mandatory. 6 This is in consonance with the
concept of joint parental authority over the child, which is the ideal situation. 7 As the child to be
adopted is elevated to the level of a legitimate child, it is but natural to require the spouses to
adopt jointly. The rule also insures harmony between the spouses. 8

In a distinctly similar case, we held:

As amended by Executive Order 91, Presidential Decree No. 603, had thus
made it mandatory for both the spouses to jointly adopt when one of them was
an alien. The law was silent when both spouses were of the same nationality.

The Family Code has resolved any possible uncertainty. Article 185 thereof
expresses the necessity for a joint adoption by the spouses except in only two
instances —

(1) When one spouse seeks to adopt his own

illegitimate child; or

(2) When one spouse seeks to adopt the legitimate

child of the other.

It is in the foregoing cases when Article 186 of the Code, on the parental
authority, can aptly find governance.

Article 186. In case husband and wife jointly adopt or one spouse adopts the
legitimate child of the other, jointly parental authority shall be exercised by the
spouses in accordance with this Code. 9

Article 185 is all too clear and categorical and there is no room for its interpretation. There is
only room for application. 10

We are not unaware that the modern trend is to encourage adoption and every reasonable
intendment should be sustained to promote that objective. 11 Adoption is geared more towards
the promotion of the welfare of the child and enhancement of his opportunities for a useful and
happy life. 12 It is not the bureaucratic technicalities but the interest of the child that should be
the principal criterion in adoption cases. 13 Executive Order 209 likewise upholds that the
interest and welfare of the child to be adopted should be the paramount consideration. These
considerations notwithstanding, the records of the case do not evince any fact as would justify
us in allowing the adoption of the minor, Solomon Joseph Alcala, by private respondents who
are aliens.

WHEREFORE, the petition is GRANTED. The decision of the lower court is REVERSED and
SET ASIDE. No costs.
SO ORDERED.

Narvasa, C.J., Padilla and Regalado, JJ., concur.

#Footnotes

1 Honorable Rodolfo V. Toledano, Presiding Judge.

2 Rollo, RTC Decision, pp. 28-29.

3 Republic of the Philippines vs. The Honorable Court of Appeals, et al., G.R. No.
100835, October 26, 1993.

4 P.D. 603, Article 29. Husband and wife may jointly adopt. In such case,
parental authority shall be exercised as if the child were their own by nature.

5 E.O. No. 91, Article 29, Husband and wife may jointly adopt. In such case,
parental authority shall be exercised as if the child were their own by nature.

If one of the spouses is an alien, both husband and wife shall jointly adopt.
Otherwise, the adoption shall not be allowed.

6 Republic vs. Court of Appeals, G.R. No. 92326, 205 SCRA 356, January 24,
1992.

7 Sempio-Dy, Alicia V., Handbook on the Family Code of the Philippines, 1991,
p. 262.

8 Vitug, Jose C., J., Compendium of Civil Law and Jurisprudence, 1993 Edition,
p. 234.

9 Supra., pp. 4-5.

10 Cebu Portland Cement Company vs. Municipality of Naga, Cebu, Nos. 24116-
17, 24 SCRA 708, August 22, 1968.

11 Santos, et al., vs. Aranzanso, et al., No. L-23828, 16 SCRA 344, February 28,
1966.

12 Daoang vs. Municipal Judge of San Nicolas, Ilocos Norte, No. L-34568, 159
SCRA 369, March 28, 1988.

13 De Tavera vs. Cacdac, Jr., No. L-76290, 167 SCRA 636, November 23, 1988.

THERKELSEN VS REPUBLIC
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-21951 November 27, 1964

IN THE MATTER OF THE PETITION OF THE MINOR CHARLES JOSEPH BLANCAFLOR

WEEKS. UGGI LINDAMAND THERKELSEN and ERLINDA G. BLANCAFLOR, petitioners-
appellants,
vs.
REPUBLIC OF THE PHILIPPINES, respondent-appellee.

Campos, Mendoza & Hernandez for petitioners-appellants.

Office of the Solicitor General and J. Domingo de Leon for respondent-appellee.

REYES, J.B.L., J.:

This appeal was taken against a decision of the Manila Juvenile and Domestic Relations Court,
in its special Proceedings, No. D-00007, denying appellants' application for adoption of the
minor Charles Joseph Blancaflor Weeks.

The factual background of the case is stated in the decision appealed from to be as follows:

In this adoption proceeding, the petitioners are husband and wife who were married on
June 2, 1962, or barely a year ago. The minor sought to be adopted, born on February
16, 1960, is the natural child of petitioner wife. His father was Charles Joseph Week,
who abandoned mother and child after the latter's birth. He is said to have gone back to
the United States.

Except for the legal impediment hereinafter to be mentioned, the facts before the Court
may warrant the approval of the adoption sought herein. Petitioner husband is a Danish
subject, who has been granted permanent residence in the Philippines (Exhs. "D" and
"E"). A former employee of Scandinavian Airlines System, he is now Manager of M. Y.
Travel International Hongkong Ltd., with a monthly salary of P1,200.00. plus allowances.
It does not appear that either petitioner has been convicted of a crime involving moral
turpitude. On the other hand, the minor sought to be adopted has been living with them
ever since the marriage of petitioners. Petitioner husband has treated the minor as his
son, and the latter calls him "Daddy." Although the possibility exists that petitioners may
yet have their own children, the adoption at this time, before any such children are
begotten, may strengthen, rather than disrupt, future domestic relations.

The court a quo denied the adoption sought, saying:

In Sp. Proc. No. D-00011, adoption of Benigno Lim, this Court has had occasion to rule
that a Filipino cannot adopt an alien (Chinese) minor about 19 years old. The adoption
would not confer Philippine citizenship on the Chinese, but could definitely legalize his
stay in this country. It was also stated that conversely, an alien cannot adopt a Filipino
unless the adoption would make the Filipino minor a citizen of the alien's country. As
 petitioner husband in this case is a Danish subject, it has to be held that he cannot
legally adopt the minor Charles Joseph Blancaflor Weeks, whose citizenship is of this
country, following that of his natural mother.

If we understand the decision correctly, the adoption was denied solely because the same
would not result in the loss of the minor's Filipino citizenship and the acquisition by him of the
citizenship of his adopter. Unfortunately, the Juvenile and Domestic Relations Court did not
expound the reasons for its opinion; but it is clear that, if pursued to its logical consequences,
the judgment appealed from would operate to impose a further prerequisite on adoptions by
aliens beyond those required by law. As pointed out by the Solicitor General in his brief, the
present Civil Code in force (Article 335) only disqualifies from being adopters those aliens that
are either(a) non-residents or (b) who are residents but the Republic of the Philippines has
broken diplomatic relations with their government. Outside of these two cases, alienage by itself
alone does not disqualify a foreigner from adopting a person under our law. Petitioners
admittedly do not fall in either class.

The criterion adopted by the Court a quo would demand as a condition for the approval of the
adoption that the process should result in the acquisition, by the person adopted, of the alien
citizenship of the adopting parent. This finds no support in the law, for, as observed by this
Court in Ching Leng vs. Galang, G.R. No. L-11931, promulgated on 27 October 1958, the
citizenship of the adopter is a matter political, and not civil, in nature, and the ways in which it
should be conferred lay outside the ambit of the Civil Code. It is not within the province of our
civil law to determine how or when citizenship in a foreign state is to be acquired. The
disapproval of the adoption of an alien child in order to forestall circumvention of our exclusion
laws does not warrant, denial of the adoption of a Filipino minor by qualified alien adopting
parents, since it is not shown that our public policy would be thereby subverted.

IN VIEW OF THE FOREGOING, the decision appealed from is reversed, and the court a quo is
directed to allow the adoption sought. Without costs.

Bengzon, C.J., Bautista Angelo, Concepcion, Barrera, Parades, Dizon, Regala, Makalintal,
Bengzon, J.P., and Zaldivar, JJ., concur.

MALKINSON VS AGRAVA

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-36309 November 26, 1973

IN RE: PETITION FOR ADOPTION OF THE MINOR LUIS ALBERTO MARTIN DE SANTOS,
FREDERICK WILLIAM MALKINSON and ANA MARIE DE SANTOS
MALKINSON, petitioners,
vs.
HON. CORAZON JULIANO AGRAVA, Judge of the JUVENILE and DOMESTIC RELATIONS
COURT OF MANILA, respondent.

De Santos, Balgos and Perez for petitioners.

Office of the Solicitor General Estelito P. Mendoza and Solicitor Alicia V. Sempio-Diy for
respondents.

TEEHANKEE, J.:

In this appeal from the dismissal orders of the Juvenile & Domestic Relations Court of Manila,
the Court, in reversing, reaffirms the established jurisprudence based on the plain language of
the codal provision that alienage by itself does not disqualify a foreigner from adopting a Filipino
child and that our Civil Code "only disqualifies from being adopters those aliens that are either
(a) non-residents or (b) who are residents but the Republic of the Philippines has broken
diplomatic relations with their government." Neither does our Civil Code require that both
adopter and adopted be of the same nationality.

On October 13, 1972, petitioners-spouses filed with respondent court their verified petition to
adopt the minor Luis Alberto Martin de Santos, who was born a Filipino citizen in Madrid, Spain
on August 4, 1969, the acknowledged natural child of petitioner Ana Marie de Santos Malkinson
who alone his parents extended him recognition.

Petitioners-spouses averred that since their marriage on March 6, 1972, the said child who
owns no property has been living with them under their care and custody at their residence at
No. 1443 Jose P. Laurel Street, Manila; that petitioner Frederick William Malkinson is an
American citizen, 1 gainfully employed as a seaman with an average yearly income of US
$7,000-$8,000, while his co-petitioner spouse is a Filipino citizen and a property owner in the
Philippines; and that it is to the best interest of the child that he be adopted by petitioners-
spouses who possess all the qualifications and none of the disqualifications for such legal
adoption.

Judge Vicente M. Santiago, Jr. then on detail with respondent court issued his order of October
18, 1972 giving due course to the petition and setting it for hearing on January 8, 1973 and
directed that appropriate notices be sent to the Solicitor General and the Director, Bureau of
Child and Youth Welfare, Department of Social Welfare and publication of the order be made.

Upon respondent judge's return to her court after her leave of absence, she issued her order of
November 22, 1972, stating that upon a review of the petition wherein "it is alleged that
petitioner husband is an alien while the child sought to be adopted is a citizen of this country"
respondent court was of the opinion that "the petition, for that reason, is not sufficient in
substance, and the same cannot be given course" and ordered that "the petition filed herein will
be ordered dismissed after the lapse of 30 days from petitioners' receipt of notice hereof unless,
within said period, proper proceedings are instituted before the Supreme Court for the purpose
of questioning the correctness of this Order."

Petitioners moved for reconsideration on the ground that no law prohibits a resident alien, who
is not a citizen of a country without diplomatic relations with the Philippines and is not otherwise
legally disqualified, from adopting a Filipino, and respondent court denied the same under its
order of December 18, 1972.

Hence, the present appeal by certiorari from respondent court's dismissal orders.

Respondent judge thus ordered the dismissal of the petition on the basis of her known view that
"a Filipino could not adopt an alien and vice versa;" hence, since petitioner husband is an alien
while the child sought to be adopted is a Filipino, she decreed that the petition cannot be given
due course. While aware of the controlling doctrine enunciated by this Court in
the Therkelsen 2 and Cathey 3 adoption cases that alienage by itself does not disqualify a
foreigner from adopting a Filipino child and that the Philippine Civil Code "only disqualifies from
being adopters those aliens that are either (a) non-residents or (b) who are residents but the
Republic of the Philippines has broken diplomatic relations with their government" 4 respondent
court felt that Justice J.B.L. Reyes' statement in Therkelsen as to its non-exposition of its
reasons for dismissal of the petition therein as set aside by this Court left the way open for a
review and restudy of the controlling precedents.

Respondent court thus once again as in Therkelsen ordered dismissal of the petition solely on
the ground of alienage of the petitioner husband, maintaining inter alia that Article 334 the Civil
Code (which provides that "Every person of age, who is in full possession of his civil rights, may
adopt") "cannot be accepted literally. If Scaevola 5 is correct, it should be construed as not
permitting a citizen to adopt an alien, or vice versa;" "that the prohibitions contained in Article
335 (4) an (5) of the Code should be construed as aimed at the adoption of aliens by other
aliens, and not at the adoption by an alien of a Filipino;" "that an alien who has adopted a
Filipino child cannot be expected, by precept and example, to imbue the adopted with love of
the Philippines and veneration for Filipino national heroes" (under Article 358 of the Civil Code)
and that "solidarity of a family cannot be achieved if we hold the view that a Filipino child can be
adopted by an alien."

Petitioners-spouses therefrom urge that under the clear and plain language of the Civil Code
and the Court's express rulings in Therkelsen and Cathey, petitioner husband as an America
resident not suffering from any legal disqualification may jointly with his
co-petitioner Filipino wife legally adopt the latter's acknowledged natural child.

The Solicitor General in a manifestation in lieu of appellee's brief dated October 26, 1973 stated
that "with all due respect to the opinion and reasons of the respondent judge for wanting the
above ruling to be reexamined and restudied by this Honorable Court, undersigned counsel not
only feel bound by said ruling but also honestly believe that the same, is the correct, proper, and
reasonable interpretation of our law on adoption; as a matter of fact, in said cases of Therkelsen
and Cathey, undersigned counsel were also impelled by reason and the law to place
themselves on the side of appellants in asking for the reversal of the orders of the same
respondent judge in said cases holding that an alien cannot adopt a Filipino," and joined
petitioners in praying for reversal of respondent court's dismissal orders.

Petitioners-spouses' appeal must be sustained on the strength of the controlling doctrine

enunciated in the cited cases.

In Cathey, Justice Jose P. Bengzon ruled for a unanimous Court that "(A)s this Court pointed
out through Mr. J.B.L. Reyes in Uggi Therkelsen v. Republic, L-21951, November 27, 1964: "the
present Civil Code in force (Article 335) only disqualifies from being adopters aliens that are
either (a) non-residents or (b) who are residents but the Republic of the Philippines has broken
diplomatic relations with their government. Outside of these two cases,alienage by itself alone
does not disqualify a foreigner from adopting under our laws." " The Court thus held therein that
"(P)etitioner Robert H. Cathey though an American citizen, is a resident alien entitled to remain
in the Philippines, as his Immigrant Certificate of Residence (Exhibit D) shows. He is legally
married to Helen Olalia and presently is the administrative officer of the U.S. Naval Construction
office at Clark Air Base with an annual compensation of $6,295.00 and has P25,000 worth of
personal properties in the Philippines. As petitioners spouses have no child of their own, they
wish to adopt Bertha Ann Rivera and thus make her their heir. Thewelfare of the child being
the paramount consideration under the law (Art. 363, New Civil Code), the child now sought to
be adopted being virtually unwanted by her own mother, who, by the way, has seven other
children to feed (Tsn of May 2, 1963, p. 11), We see no reason why the adoption should not be
granted."

In Therkelsen, Justice J.B.L. Reyes had occasion to discuss respondent court's contrary view
and to reject for a unanimous Court its imposition of an additional requisite not imposed by the
Civil Code that both adopter and adopted be of the same nationality in this wise:

The court a quo denied the adoption sought, saying:

"In Sp. Proc No. D-00011 adoption of Benigno Lim, this Court has
had occasion rule that a Filipino cannot adopt an alien (Chinese)
minor about 19 years old. The adoption would not confer
Philippine citizenship on the Chinese, but could definitely legalize
his stay in this country. It was also stated that conversely, an alien
cannot adopt a Filipino unless the adoption would make the
Filipino minor a citizen of the alien's country. As petitioner
husband in this case is a Danish subject it has to be held that he
cannot legally adopt the minor Charles Joseph Blancaflor Weeks,
whose citizenship is of this country following that of his natural
mother."

If we understand the decision correctly, the adoption was denied solely because
the same would not result in the loss of the minor's Filipino citizenship and the
acquisition by him of the citizenship of his adopter. Unfortunately, the Juvenile
and Domestic Relations Court did not expound the reasons for its opinion; but it
is clear that, if pursued to its logical consequences, the judgment appealed from
would operate to impose a further prerequisite on adoptions by
aliens beyond those required by law. As pointed out by the Solicitor General in
his brief, the present Civil Code in force (Article 335) only disqualifies from being
adopters those aliens that are either (a) non-residents or (b) who are residents
but the Republic of the Philippines has broken diplomatic relations with their
government. Outside of these two cases, alienage by itself alone
does not disqualify a foreigner from adopting a person under our law. Petitioners
admittedly do not fall in either class.

The criterion adopted by the Court a quo would demand as a condition for the
approval of the adoption that the process should result in the acquisition, by the
person adopted, of the alien citizenship of the adopting parent. This finds no
support in the law, for, as observed by this Court inChing Leng vs. Galang, G.R.
 No. L-11931, promulgated on 27 October 1958, the citizenship of the adopter is a
matter political, and not civil, in nature, and the ways in which it should be
conferred lay outside the ambit of the Civil Code. It is not within the province of
our civil law to determine how or when citizenship in a foreign state is to be
acquired. The disapproval of the adoption of an alien child in order to forestall
circumvention of our exclusion laws does not warrant denial of the adoption of a
Filipino minor by qualified alien adopting parents, since it is not shown that our
public policy would be thereby subverted.

The Court finds no justification for deviating or departing from the established doctrine.
Whatever may be the merit of respondent court's views as above-cited, they go into the wisdom
or policy of the statute which are beyond the Court's domain. 6 The Civil Code provisions on
adoption are quite plain and clear and are free from any ambiguity. Under such circumstances,
there is no room for construction, the law is controlling and the clear task of the judiciary is to
apply the law as it is. 7

If alienage alone of the adopter or of the adopted were to be a disqualification, it is

inconceivable that the lawmakers would not have so explicitly provided, considering that in
Article 335 of the Code non-resident aliens and resident aliens with whose government the
Philippines has broken diplomatic relations are the only two classes of aliens expressly
disqualified and prohibited to adopt while in Article 339 only an alien with whose state our
government has broken diplomatic relations is expressly disqualified and prohibited to be
adopted. Inclusio unius exclusio alterius. This is but in consonance with the liberal concept that
adoption statutes, being humane and salutary, hold the interest and welfare of the child to be of
paramount consideration and are designed to provide homes, parental care and education for
unfortunate, needy or orphaned children and give them the protection of society and family in
the person of the adopter as well as to allow childless couples or persons to experience the joys
of parenthood and give them legally a child in the person of the adopted for the manifestation of
their natural parental instincts. Every reasonable intendment should be sustained to promote
and fulfill these noble and compassionate objectives of the law. 8

Finally, aside from the above decisive consideration that under the plain language of the law
alienage by itself does not disqualify a foreigner such as petitioner-husband from adopting a
Filipino child, the Solicitor General further enumerated correctly various other factors that show
the merit of the petition below, viz, that petitioner wife as the natural mother is expressly
authorized under Article 338, paragraph (1) of the Civil Code to adopt her natural child and raise
its status to that of a legitimate child, 9 that under paragraph (3) of the same article, petitioner-
husband as the step-father is likewise expressly authorized to adopt his stepchild, and that the
adoption sought would strengthen the family solidarity of petitioners-spouses and the child,
because the child after adoption, would have its status of a natural child of petitioner wife and a
step-child of petitioner-husband raised to that of legitimate child of both petitioners with all the
rights an duties appertaining thereto, as provided in Article 341 of the Civil Code.

ACCORDINGLY, the appealed dismissal orders of November 22 and December 18, 1972 are
hereby set aside and respondent court is directed to give due course to the petition in
accordance with the previous order of October 18, 1972 and to reset the hearing thereof at the
earliest practicable date. In view of the established jurisprudence covering the case, this
decision shall be immediately executory upon promulgation.

Makalintal, C.J., Castro, Makasiar, Esguerra and Muñoz Palma, JJ., concur.
Footnotes

1 Petitioners' brief (at page 5) further states that they would establish at the
hearing that petitioner husband "in addition to being a resident of the Philippines,
was born in the City of Manila, grew up in Manila, studied in Manila and married
his co-petitioner in Manila."

2 In re adoption of the minor Joseph Blancaflor Weeks; Therkelsen vs. Republic,

12 SCRA 400 (Nov. 27, 1964).

3 In re adoption of the minor Bertha Ann Rivera; Cathey vs. Republic, 18 SCRA
86 (Sept. 23, 1966).

4 12 SCRA at p. 401.

5 As against Scaevola, petitioners cite Manresa who states the contrary view that
aliens may legally adopt under the laws of Spain which grant them the same civil
rights as Spanish citizens. II Manresa 105.

6 See Veneracion vs. Congson Ice Plant & Cold Storage, Inc., L-31213-14, (July
23, 1973).

7 See Maritime Co. of the Phil. vs. Repacom, 40 SCRA 70 (1971); People vs.
Santos, 104 Phil. 551 (1958); Ysasi vs. Fernandez, 26 SCRA 393 (1968) and
cases cited.

8 Santos vs. Aranzanso, 16 SCRA 344 (1966); Santos vs. Republic, 21 SCRA
378 (1967); Prasnick vs. Republic, 98 Phil. 665 (1956).

9 Prasnick vs. Republic, supra; Jimenez vs. Republic, 101 Phil. 518 (1957).

MCGEE VS REPUBLIC

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

DECISION

April 27, 1954

G.R. No. L-5387

In the matter of the Adoption of the minors MARIA LUALHATI MAGPAYO and AMADA
MAGPAYO. CLYDE E. MCGEE, petitioner-appellee,
vs.
REPUBLIC OF THE PHILIPPINES, oppositor-appellant.

Quijano, Alidio and Azores for appellee.

Assistant Solicitor General Guillermo E. Torres and Solicitor Estrella Abad Santos for appellant.

Montemayor, J.:

MARIA LUALHATI MAGPAYO. CLYDE E MCGEE vs. REPUBLIC OF THE PHILIPPINES

Republic of the PhilippinesSUPREME COURTManila

EN BANC

G.R. No. L-5387 April 27, 1954

In the matter of the Adoption of the minors MARIA LUALHATI MAGPAYO and AMADA
MAGPAYO. CLYDE E. MCGEE, petitioner-appellee,

vs.

REPUBLIC OF THE PHILIPPINES, oppositor-appellant.

Quijano, Alidio and Azores for appellee.

Assistant Solicitor General Guillermo E. Torres and Solicitor Estrella Abad Santos for appellant.

MONTEMAYOR, J.:

Appellee Clyde E. McGee, an American citizen is married to Leonardo S. Crisostomo by whom

he has one child. The minors Maria and Amada, both surnamed Magpayo are Leonarda's
children by her first husband Ernesto Magpayo who was killed by the Japanese during the
occupation. McGee filed a petition in the Court of First Instance of Manila to adopt his two minor
step-children Maria and Amada.

At the hearing, the Government filed its opposition to the petition on the ground that petitioner
has a legitimate child and consequently, is disqualified to adopt under article 335, paragraph 1,
of the new Civil Code which provides:

ART. 335. The following cannot adopt:

(1) Those who have legitimate, legitimated, acknowledged natural children, or natural children
by legal fiction;

ART. 338. The following may be adopted:

xxxxxxxxx

(3) A step-child, by the step-father or step-mother.

The Government is appealing from that decision. Only recently (December 21, 1953), and
during the pendency of the present appeal, we have had occasion to decide a similar case
wherein the same question was involved,1 namely, whether a husband having a legitimate child
may adopt a step-child. Applying the provisions of article 335, we held that it cannot be done for
the reason that although article 338 of the new Civil Code permits the adoption of a step-child
by the step-father or the step-mother, nevertheless, because of the negative provisions of article
335, said permission is confined to those step-fathers and step-mothers who have no children of
their own.

With the doctrine laid down in the Ball vs. Republic case, we could stop right here and sustain
the appeal of the Government in the present case. However, it may not be unprofitable to further
elaborate on the relation between the two articles — 335 and 338, new Civil Code. The
strongest argument of the trial court and of the appellee in support of the decision granting the
adoption is that to hold that a step-father having a legitimate child may not adopt a step-child
would be to render article 338, paragraph 3, meaningless and a surplusage inasmuch as
without said article 338, a husband without a legitimate child may adopt a step-child anyway; or
worse, article 338 contradicts article 335. At first blush, that is a formidable argument because
the Legislature in enacting a law is supposed and presumed not to insert any section or
provision which is unnecessary and a mere surplusage; that all provisions contained in a law
should be given effect, and that contradictions are to be avoided. Futhermore, it is contended by
appellee that article 335 prohibiting adoption by a parent who already has a child of his own
should not be considered exclusively but rather in relation with article 338 so as to regard the
latter as an exception to an exception. To meet and dispose of this argument we have to go into
the philosophy of adoption.

The purpose of adoption is to establish a relationship of paternity and filiation where none
existed before. Where therefore the relationship of parent and child already exists whether by
blood or by affinity as in the case of illegitimate and step-children, it would be unnecessary and
superfluous to establish and superimpose another relationship of parent and child through
adoption. Consequently, an express authorization of law like article 338 is necessary, if not to
render it proper and legal, at least, to remove any and all doubt on the subject-matter. Under
this view, article 338 may not be regarded as a surplusage. That may have been the reason
why in the old Code of Civil Procedure, particularly its provisions regarding adoption, authority to
adopt a step-child by a step-father was provided in section 766 notwithstanding the general
authorization in section 765 extended to any inhabitant of the Philippines to adopt a minor child.
The same argument of surplusage could plausibly have been advanced as regards section 766,
that is to say, section 766 was unnecessary and superfluous because without it a step-father
could adopt a minor step-child anyway. However, the insertion of section 766 was not entirely
without reason. The Code of Civil Procedure was of common law origin. It seems to be an
established principle in American jurisprudence that a person may not adopt his own relative,
the reason being that it is unnecessary to establish a relationship where such already exists (the
same philosophy underlying our codal provisions on adoption). So, some states have special
laws authorizing the adoption of relatives such as a grandfather adopting a grandchild and a
father adopting his illegitimate or natural child.

Another possible reason for the insertion of section 766 in the Code of Civil Procedure and
article 338, paragraph 3, in the new Civil Code, authorizing the adoption of a step-child by the
step-father or step-mother is that without said express legal sanction, there might be some
doubt as to the propriety and advisability of said adoption due to the possibility, if not probability,
of pressure brought to bear upon the adopting step-father or mother by the legitimate and
natural parent.

One additional reason for holding that article 338 of the new Civil Code should be subordinated
and made subject to the provisions of article 335 so as to limit the permission to adopt granted
in article 338, to parents who have no children of their own, is that the terms of article 335 are
phrased in a negative manner — the following cannot be adopted, while the phraseology of
article 338 is only affirmative — the following may be adopted. Under the rule of statutory
construction, negative words and phrases are to be regarded as mandatory while those in the
affirmative are merely directory 7Cqa.

. . . negative (prohibitory and exclusive words or terms are indicative of the legislative intent that
the statute is to be mandatory, . . . (Crawford, Statutory Construction, sec. 263, p. 523.)

Ordinarily ... the word "may" is directory, . . . (Crawford, op. cit., sec. 262, p. 519.)

Prohibitive or negative words can rarely, if ever, be directory, or, as it has been aptly stated,
there is but one way to obey the command "thou shalt not", and that is to completely refrain
from doing the forbidden act. And this is so, even though the statute provides no penalty for
disobedience. (Crawford, op. cit., sec. 263, p. 523.)

The principal reason behind article 335, paragraph 1 denying adoption to those who already
have children is that adoption would not only create conflicts within the family but it would also
materially affect or diminish the successional rights of the child already had. This objection may
not appear as formidable and real when the child had by the adopting parent is by the very
spouse whose child is to be adopted, because in that case, the legitimate child and the adopted
one would be half-brothers or half-sisters, would not be total strangers to each other, and the
blood relationship though half may soften and absorb the loss of successional rights and the
possible diminution of the attention and affection previously enjoyed. But as not infrequently
happens, the step-father or step-mother adopting a child of his or her second wife or husband
already may have a child of his or her own by a previous marriage, in which case, said child and
the adopted one would be complete strangers to each other, with no family ties whatsoever to
bind them, in which event, there would be nothing to soften and reconcile the objection and
resentment, natural to the legitimate child.

In conclusion, we hold that pursuant to the provisions of article 335, paragraph 1, a step-father
who already has a child may not adopt a step-child regardless of the provisions of article 338,
paragraph 3 of the same Code, the latter provisions being confined and applicable to those
step-fathers and step-mothers who have no children of their own. The decision appealed from is
hereby reversed, and the petition for adoption is denied. No pronouncement as to costs
vZ9JHlbF.

Paras, C.J., Pablo, Bengzon, Reyes, Jugo, Bautista Angelo, Labrador, and Concepcion, JJ.,
concur P6vIE1p.

Footnotes

1 In re application of Norman H. Ball to adopt the minor George William York, Jr., Norman H.
Ball vs. Republic of the Philippines, supra, p. 106. .

PRASNIK VS REPUBLIC
[G.R. No. L-8639. March 23, 1956.]
In the Matter of the Adoption of the Minors Pablo Vasquez Ernesto Vasquez, Maria
Lourdes Vasquez and Elizabeth Prasnik. LEOPOLDO PRASNIK, Petitioner-Appellee, vs.
REPUBLIC OF THE PHILIPPINES, Oppositor-Appellant.

DECISION
BAUTISTA ANGELO, J.:
Leopoldo Prasnik filed before the Court of First Instance of Rizal a petition seeking to adopt
Pablo Vasquez, Ernesto Vasquez, Maria Lourdes Vasquez and Elizabeth Prasnik who are the
minor children of Paz Vasquez. He claims that they are also his children but without the benefit
of marriage and he desires to adopt them to promote their best interest and well-being. Since at
the hearing of the petition Petitioner acknowledged that they are his natural children, the
Solicitor General opposed the petition on the plea that he could not legally adopt them for the
reason that Article 338 of the new Civil Code which allows a natural child to be adopted by his
natural father refers only to a child who has not been acknowledged as natural child. At first the
court upheld the opposition but, on a motion for reconsideration, the court reconsidered its
decision and granted the petition. Hence this appeal.
Leopoldo Prasnik was formerly married to one Catherine Prasnik but their marriage was
dissolved by virtue of a decree of divorce issued on December 12, 1947 by the Circuit Court of
Miami, Dade Country, Florida, U.S.A. Thereafter, he and Paz Vasquez lived together as
husband and wife without the benefit of marriage and out of this relation four children were born
who are the minors he is now seeking to adopt. He claims that it is his intention to marry Paz
Vasquez as soon as he is granted Philippine citizenship for which he has already applied and in
the meantime he wants to adopt them in order that no one of his relatives abroad could share in
his inheritance. He averred that he had no child with his former wife and acknowledged said
minors as his natural children.
Article 338 of the new Civil Code provides that a natural child may be adopted by his natural
father or mother. The Solicitor General interprets this provision in the sense that in order that a
natural child may be adopted by his natural father or mother there should not mediate between
them an acknowledgment of the status of natural child by the father or mother as otherwise the
adoption would be repugnant to Article 335 of the same Code which denies adoption to one who
has an acknowledged natural child. And since Petitioner has expressly admitted in open court
that the minors subject of this proceeding are his natural children, he is therefore disqualified to
adopt under the law.
We do not agree to this interpretation. Apparently, Article 338 above adverted to merely refers
to the adoption of a natural child and not to one who has already been recognized, but the re is
nothing therein which would prohibit the adoption of an acknowledged natural child even if the
law does not expressly say so. The reason for the silence of the law is obvious. That law
evidently intends to allow adoption whether the child be recognized or not. If the intention were
to allow adoption only to unrecognized children, as contended, then the provision of Article 338
would be of no useful purpose because such children could have been validly adopted even
without it. And we say so because a natural child not recognized has no right whatever 1 and
being considered legally a total stranger to his parents, he may be adopted under Article 337.
The same cannot be said with regard to an acknowledged natural child because, his filiation
having already been established, his adoption cannot be made under the general principles
governing adoption (2 Manresa 5th ed., 80). There is therefore need of an express provision
allowing the adoption of an acknowledged natural child as an exception to the rule and that is
what is contemplated in the article we are considering.
The Solicitor General, in his opposition to the petition, invokes Article 335 of the new Civil Code
which provides that a person who has an acknowledged natural child cannot adopt and
considering that Petitioner has acknowledged the minors in question as his children, he
contends that he is disqualified from adopting them under that article. We believe that the
Solicitor General has not made a correct interpretation of that article for he is confusing the
children of the person adopting with the minors to be adopted. A cursory reading of said article
would reveal that the prohibition merely refers to the adoption of a minor by a person who has
already an acknowledged natural child and it does not refer to the adoption of his own children
even if he has acknowledged them as his natural children.
It may be contended that the adoption of an acknowledged natural child is unnecessary
because there already exists between the father and the child the relation of paternity and
filiation which is precisely the purpose which adoption seeks to accomplish through legal fiction.
But it should be borne in mind that the rights of an acknowledged natural child are much less
than those of a legitimate child and it is indeed to the great advantage of the latter if he be
given, even through legal fiction, a legitimate status. And this view is in keeping with the modern
trend of adoption statutes which have been adopted precisely to encourage adoption (In re
Havagord‘s Estate, 34 S. D. 131, 147 N. W. 378). Under this modern trend, adoption is deemed
not merely an act to establish the relation of paternity and filiation but one which may give the
child a legitimate status. It is in this sense that adoption is now defined as ―a juridical act which
creates between two persons a relationship similar to that which results from legitimate paternity
and filiation‖ (4 Valverde, 473).
The cases cited by the Solicitor General are not in point. 2 In said cases the Petitioners had
legitimate children of their own and so their petitions were denied. They are indeed disqualified
from adopting under the law. In the present case however, Petitioner does not have any
legitimate children and his main desire is to give a legitimate status to his four natural children.
This attitude, far from being opposed, should be encouraged. This is in keeping with the modern
trend of the law concerning adoption (In re Havagord‘s Estate, supra).
The decision appealed from is affirmed, without pronouncement as to costs.
Paras, C.J., Bengzon, Padilla, Reyes, A., Labrador, Concepcion, Reyes, J. B. L. and
Endencia, JJ., concur.
Endnotes:chanroblesvirtuallawlibrary
1. Buenaventura vs. Urbano, 5 Phil., 1.
2. Ball vs. Republic of the Philippines, 94 Phil., 106; chan roblesvirtualawlibraryMcGee vs.
Republic of the Philippines, 94 Phil., 820; chan roblesvirtualawlibraryand Santos vs. Republic of
the Philippines, 95 Phil., 244.

REPUBLIC VS COURT OF APPEALS (SUPRA)

VII. Contractual Relations

PAKISTAN INTERNATIONAL AIRLINE VS OPLE

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 61594 September 28, 1990

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,

vs
HON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO,
JR., in his capacity as Deputy Minister; ETHELYNNE B. FARRALES and MARIA
MOONYEEN MAMASIG, respondents.

Romulo, Mabanta, Buenaventura, Sayoc & De los Angeles for petitioner.

Ledesma, Saludo & Associates for private respondents.

FELICIANO, J.:

On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign

corporation licensed to do business in the Philippines, executed in Manila two (2) separate
contracts of employment, one with private respondent Ethelynne B. Farrales and the other with
private respondent Ma. M.C. Mamasig. 1 The contracts, which became effective on 9 January
1979, provided in pertinent portion as follows:

5. DURATION OF EMPLOYMENT AND PENALTY

This agreement is for a period of three (3) years, but can be extended by the
mutual consent of the parties.

xxx xxx xxx

 6. TERMINATION

xxx xxx xxx

Notwithstanding anything to contrary as herein provided, PIA reserves the right to

terminate this agreement at any time by giving the EMPLOYEE notice in writing
in advance one month before the intended termination or in lieu thereof, by
paying the EMPLOYEE wages equivalent to one month's salary.

xxx xxx xxx

10. APPLICABLE LAW:

This agreement shall be construed and governed under and by the laws of
Pakistan, and only the Courts of Karachi, Pakistan shall have the jurisdiction to
consider any matter arising out of or under this agreement.

Respondents then commenced training in Pakistan. After their training period, they began
discharging their job functions as flight attendants, with base station in Manila and flying
assignments to different parts of the Middle East and Europe.

On 2 August 1980, roughly one (1) year and four (4) months prior to the expiration of the
contracts of employment, PIA through Mr. Oscar Benares, counsel for and official of the local
branch of PIA, sent separate letters both dated 1 August 1980 to private respondents Farrales
and Mamasig advising both that their services as flight stewardesses would be terminated
"effective 1 September 1980, conformably to clause 6 (b) of the employment agreement [they
had) executed with [PIA]." 2

On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint,
docketed as NCR-STF-95151-80, for illegal dismissal and non-payment of company benefits
and bonuses, against PIA with the then Ministry of Labor and Employment ("MOLE"). After
several unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose M. Pascual
ordered the parties to submit their position papers and evidence supporting their respective
positions. The PIA submitted its position paper, 3 but no evidence, and there claimed that both
private respondents were habitual absentees; that both were in the habit of bringing in from
abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila
International Airport had been discreetly warned by customs officials to advise private
respondents to discontinue that practice. PIA further claimed that the services of both private
respondents were terminated pursuant to the provisions of the employment contract.

In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the
reinstatement of private respondents with full backwages or, in the alternative, the payment to
them of the amounts equivalent to their salaries for the remainder of the fixed three-year period
of their employment contracts; the payment to private respondent Mamasig of an amount
equivalent to the value of a round trip ticket Manila-USA Manila; and payment of a bonus to
each of the private respondents equivalent to their one-month salary. 4 The Order stated that
private respondents had attained the status of regular employees after they had rendered more
than a year of continued service; that the stipulation limiting the period of the employment
contract to three (3) years was null and void as violative of the provisions of the Labor Code and
its implementing rules and regulations on regular and casual employment; and that the
dismissal, having been carried out without the requisite clearance from the MOLE, was illegal
and entitled private respondents to reinstatement with full backwages.

On appeal, in an Order dated 12 August 1982, Hon. Vicente Leogardo, Jr., Deputy Minister,
MOLE, adopted the findings of fact and conclusions of the Regional Director and affirmed the
latter's award save for the portion thereof giving PIA the option, in lieu of reinstatement, "to pay
each of the complainants [private respondents] their salaries corresponding to the unexpired
portion of the contract[s] [of employment] . . .". 5

In the instant Petition for Certiorari, petitioner PIA assails the award of the Regional Director and
the Order of the Deputy Minister as having been rendered without jurisdiction; for having been
rendered without support in the evidence of record since, allegedly, no hearing was conducted
by the hearing officer, Atty. Jose M. Pascual; and for having been issued in disregard and in
violation of petitioner's rights under the employment contracts with private respondents.

1. Petitioner's first contention is that the Regional Director, MOLE, had no jurisdiction over the
subject matter of the complaint initiated by private respondents for illegal dismissal, jurisdiction
over the same being lodged in the Arbitration Branch of the National Labor Relations
Commission ("NLRC") It appears to us beyond dispute, however, that both at the time the
complaint was initiated in September 1980 and at the time the Orders assailed were rendered
on January 1981 (by Regional Director Francisco L. Estrella) and August 1982 (by Deputy
Minister Vicente Leogardo, Jr.), the Regional Director had jurisdiction over termination cases.

Art. 278 of the Labor Code, as it then existed, forbade the termination of the services of
employees with at least one (1) year of service without prior clearance from the Department of
Labor and Employment:

Art. 278. Miscellaneous Provisions — . . .

(b) With or without a collective agreement, no employer may shut down his
establishment or dismiss or terminate the employment of employees with at least
one year of service during the last two (2) years, whether such service is
continuous or broken, without prior written authority issued in accordance with
such rules and regulations as the Secretary may promulgate . . . (emphasis
supplied)

Rule XIV, Book No. 5 of the Rules and Regulations Implementing the Labor Code, made
clear that in case of a termination without the necessary clearance, the Regional Director
was authorized to order the reinstatement of the employee concerned and the payment
of backwages; necessarily, therefore, the Regional Director must have been given
jurisdiction over such termination cases:

Sec. 2. Shutdown or dismissal without clearance. — Any shutdown or dismissal

without prior clearance shall be conclusively presumed to be termination of
employment without a just cause. The Regional Director shall, in such case order
the immediate reinstatement of the employee and the payment of his wages from
the time of the shutdown or dismissal until the time of reinstatement. (emphasis
supplied)
 Policy Instruction No. 14 issued by the Secretary of Labor, dated 23 April 1976, was
similarly very explicit about the jurisdiction of the Regional Director over termination of
employment cases:

Under PD 850, termination cases — with or without CBA — are now placed
under the original jurisdiction of the Regional Director. Preventive suspension
cases, now made cognizable for the first time, are also placed under the
Regional Director. Before PD 850, termination cases where there was a CBA
were under the jurisdiction of the grievance machinery and voluntary arbitration,
while termination cases where there was no CBA were under the jurisdiction of
the Conciliation Section.

In more details, the major innovations introduced by PD 850 and its implementing
rules and regulations with respect to termination and preventive suspension
cases are:

1. The Regional Director is now required to rule on every application for

clearance, whether there is opposition or not, within ten days from receipt
thereof.

xxx xxx xxx

(Emphasis supplied)

2. The second contention of petitioner PIA is that, even if the Regional Director had jurisdiction,
still his order was null and void because it had been issued in violation of petitioner's right to
procedural due process . 6 This claim, however, cannot be given serious consideration.
Petitioner was ordered by the Regional Director to submit not only its position paper but also
such evidence in its favor as it might have. Petitioner opted to rely solely upon its position paper;
we must assume it had no evidence to sustain its assertions. Thus, even if no formal or oral
hearing was conducted, petitioner had ample opportunity to explain its side. Moreover, petitioner
PIA was able to appeal his case to the Ministry of Labor and Employment. 7

There is another reason why petitioner's claim of denial of due process must be rejected. At the
time the complaint was filed by private respondents on 21 September 1980 and at the time the
Regional Director issued his questioned order on 22 January 1981, applicable regulation, as
noted above, specified that a "dismissal without prior clearance shall be conclusively presumed
to be termination of employment without a cause", and the Regional Director was required in
such case to" order the immediate reinstatement of the employee and the payment of his wages
from the time of the shutdown or dismiss until . . . reinstatement." In other words, under the then
applicable rule, the Regional Director did not even have to require submission of position papers
by the parties in view of the conclusive (juris et de jure) character of the presumption created by
such applicable law and regulation. In Cebu Institute of Technology v. Minister of Labor and
Employment, 8 the Court pointed out that "under Rule 14, Section 2, of the Implementing Rules
and Regulations, the termination of [an employee] which was without previous clearance from
the Ministry of Labor is conclusively presumed to be without [just] cause . . . [a presumption
which] cannot be overturned by any contrary proof however strong."

3. In its third contention, petitioner PIA invokes paragraphs 5 and 6 of its contract of
employment with private respondents Farrales and Mamasig, arguing that its relationship with
them was governed by the provisions of its contract rather than by the general provisions of the
Labor Code. 9

Paragraph 5 of that contract set a term of three (3) years for that relationship, extendible by
agreement between the parties; while paragraph 6 provided that, notwithstanding any other
provision in the Contract, PIA had the right to terminate the employment agreement at any time
by giving one-month's notice to the employee or, in lieu of such notice, one-months salary.

A contract freely entered into should, of course, be respected, as PIA argues, since a contract is
the law between the parties. 10 The principle of party autonomy in contracts is not, however, an
absolute principle. The rule in Article 1306, of our Civil Code is that the contracting parties may
establish such stipulations as they may deem convenient, "provided they are not contrary to law,
morals, good customs, public order or public policy." Thus, counter-balancing the principle of
autonomy of contracting parties is the equally general rule that provisions of applicable law,
especially provisions relating to matters affected with public policy, are deemed written into the
contract. 11 Put a little differently, the governing principle is that parties may not contract away
applicable provisions of law especially peremptory provisions dealing with matters heavily
impressed with public interest. The law relating to labor and employment is clearly such an area
and parties are not at liberty to insulate themselves and their relationships from the impact of
labor laws and regulations by simply contracting with each other. It is thus necessary to
appraise the contractual provisions invoked by petitioner PIA in terms of their consistency with
applicable Philippine law and regulations.

As noted earlier, both the Labor Arbiter and the Deputy Minister, MOLE, in effect held that
paragraph 5 of that employment contract was inconsistent with Articles 280 and 281 of the
Labor Code as they existed at the time the contract of employment was entered into, and hence
refused to give effect to said paragraph 5. These Articles read as follows:

Art. 280. Security of Tenure. — In cases of regular employment, the employer

shall not terminate the services of an employee except for a just cause or when
authorized by this Title An employee who is unjustly dismissed from work shall
be entitled to reinstatement without loss of seniority rights and to his backwages
computed from the time his compensation was withheld from him up to the time
his reinstatement.

Art. 281. Regular and Casual Employment. The provisions of written agreement
to the contrary notwithstanding and regardless of the oral agreements of the
parties, an employment shall be deemed to be regular where the employee has
been engaged to perform activities which are usually necessary or desirable in
the usual business or trade of the employer, except where the employment has
been fixed for a specific project or undertaking the completion or termination of
which has been determined at the time of the engagement of the employee or
where the work or services to be performed is seasonal in nature and the
employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding

paragraph: provided, that, any employee who has rendered at least one year of
service, whether such service is continuous or broken, shall be considered as
regular employee with respect to the activity in which he is employed and his
employment shall continue while such actually exists. (Emphasis supplied)
In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al., 12 the Court had occasion to examine
in detail the question of whether employment for a fixed term has been outlawed under the
above quoted provisions of the Labor Code. After an extensive examination of the history and
development of Articles 280 and 281, the Court reached the conclusion that a contract providing
for employment with a fixed period was not necessarily unlawful:

There can of course be no quarrel with the proposition that where from the
circumstances it is apparent that periods have been imposed to preclude
acquisition of tenurial security by the employee, they should be struck down or
disregarded as contrary to public policy, morals, etc. But where no such intent to
circumvent the law is shown, or stated otherwise, where the reason for the law
does not exist e.g. where it is indeed the employee himself who insists upon a
period or where the nature of the engagement is such that, without being
seasonal or for a specific project, a definite date of termination is a sine qua
non would an agreement fixing a period be essentially evil or illicit, therefore
anathema Would such an agreement come within the scope of Article 280 which
admittedly was enacted "to prevent the circumvention of the right of the
employee to be secured in . . . (his) employment?"

As it is evident from even only the three examples already given that Article 280
of the Labor Code, under a narrow and literal interpretation, not only fails to
exhaust the gamut of employment contracts to which the lack of a fixed period
would be an anomaly, but would also appear to restrict, without reasonable
distinctions, the right of an employee to freely stipulate with his employer the
duration of his engagement, it logically follows that such a literal interpretation
should be eschewed or avoided. The law must be given reasonable
interpretation, to preclude absurdity in its application. Outlawing the whole
concept of term employment and subverting to boot the principle of freedom of
contract to remedy the evil of employers" using it as a means to prevent their
employees from obtaining security of tenure is like cutting off the nose to spite
the face or, more relevantly, curing a headache by lopping off the head.

xxx xxx xxx

Accordingly, and since the entire purpose behind the development of legislation
culminating in the present Article 280 of the Labor Code clearly appears to have
been, as already observed, to prevent circumvention of the employee's right to
be secure in his tenure, the clause in said article indiscriminately and completely
ruling out all written or oral agreements conflicting with the concept of regular
employment as defined therein should be construed to refer to the substantive
evil that the Code itself has singled out: agreements entered into precisely to
circumvent security of tenure. It should have no application to instances where a
fixed period of employment was agreed upon knowingly and voluntarily by the
parties, without any force, duress or improper pressure being brought to bear
upon the employee and absent any other circumstances vitiating his consent, or
where it satisfactorily appears that the employer and employee dealt with each
other on more or less equal terms with no moral dominance whatever being
exercised by the former over the latter. Unless thus limited in its purview, the law
would be made to apply to purposes other than those explicitly stated by its
 framers; it thus becomes pointless and arbitrary, unjust in its effects and apt to
lead to absurd and unintended consequences. (emphasis supplied)

It is apparent from Brent School that the critical consideration is the presence or
absence of a substantial indication that the period specified in an employment
agreement was designed to circumvent the security of tenure of regular employees
which is provided for in Articles 280 and 281 of the Labor Code. This indication must
ordinarily rest upon some aspect of the agreement other than the mere specification of a
fixed term of the ernployment agreement, or upon evidence aliunde of the intent to
evade.

Examining the provisions of paragraphs 5 and 6 of the employment agreement between

petitioner PIA and private respondents, we consider that those provisions must be read together
and when so read, the fixed period of three (3) years specified in paragraph 5 will be seen to
have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph
6 in effect took back from the employee the fixed three (3)-year period ostensibly granted by
paragraph 5 by rendering such period in effect a facultative one at the option of the employer
PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and for any
cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a
month's salary. Because the net effect of paragraphs 5 and 6 of the agreement here involved is
to render the employment of private respondents Farrales and Mamasig basically employment
at the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended to
prevent any security of tenure from accruing in favor of private respondents even during the
limited period of three (3) years, 13 and thus to escape completely the thrust of Articles 280 and
281 of the Labor Code.

Petitioner PIA cannot take refuge in paragraph 10 of its employment agreement which specifies,
firstly, the law of Pakistan as the applicable law of the agreement and, secondly, lays the venue
for settlement of any dispute arising out of or in connection with the agreement "only [in] courts
of Karachi Pakistan". The first clause of paragraph 10 cannot be invoked to prevent the
application of Philippine labor laws and regulations to the subject matter of this case, i.e., the
employer-employee relationship between petitioner PIA and private respondents. We have
already pointed out that the relationship is much affected with public interest and that the
otherwise applicable Philippine laws and regulations cannot be rendered illusory by the parties
agreeing upon some other law to govern their relationship. Neither may petitioner invoke the
second clause of paragraph 10, specifying the Karachi courts as the sole venue for the
settlement of dispute; between the contracting parties. Even a cursory scrutiny of the relevant
circumstances of this case will show the multiple and substantive contacts between Philippine
law and Philippine courts, on the one hand, and the relationship between the parties, upon the
other: the contract was not only executed in the Philippines, it was also performed here, at least
partially; private respondents are Philippine citizens and respondents, while petitioner, although
a foreign corporation, is licensed to do business (and actually doing business) and hence
resident in the Philippines; lastly, private respondents were based in the Philippines in between
their assigned flights to the Middle East and Europe. All the above contacts point to the
Philippine courts and administrative agencies as a proper forum for the resolution of contractual
disputes between the parties. Under these circumstances, paragraph 10 of the employment
agreement cannot be given effect so as to oust Philippine agencies and courts of the jurisdiction
vested upon them by Philippine law. Finally, and in any event, the petitioner PIA did not
undertake to plead and prove the contents of Pakistan law on the matter; it must therefore be
presumed that the applicable provisions of the law of Pakistan are the same as the applicable
provisions of Philippine law. 14

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

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

SO ORDERED.

Fernan (C.J., Chairman), Gutierrez, Jr., Bidin and Cortés, JJ., concur.

Footnotes

1 Rollo, pp. 12 and 17.

2 Id., p. 22.

3 Id., pp. 36-41.

4 Id., p. 43.

5 Id., p. 64.

6 Rollo, p. 6.

7 See Llora Motors, Inc., et al. v. Hon. Franklin Drilon, et al., G.R. No. 82895, 7
November 1989.

8 113 SCRA 257 (1982).

9 Rollo, p. 8.
 10 Henson v. Intermediate Appellate Court, 148 SCRA 11 (1987).

11 Commissioner of Internal Revenue v. United Lines Co., 5 SCRA 175 (1962).

12 G.R. No. L-48494, promulgated 5 February 1990.

13 See Biboso v. Victorias Milling Co., Inc., 76 SCRA 250 (1977).

14 Miciano v. Brimo, 50 Phil. 867 (1924); Collector of Internal Revenue v. Fisher,

110 Phil. 686 (1961).

KING MAU WU VS SYCIP

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-5897 April 23, 1954

KING MAU WU, plaintiff-appellee,

vs.
FRANCISCO SYCIP, defendant-appellant.

I.C. Monsod for appellant.

J.A. Wolfson and P. P. Gallardo for appellee.

PADILLA, J.:

This is an action to collect P59,082.92, together with lawful interests from 14 October 1947, the
date of the written demand for payment, and costs. The claim arises out of a shipment of 1,000
tons of coconut oil emulsion sold by the plaintiff, as agent of the defendant, to Jas. Maxwell
Fassett, who in turn assigned it to Fortrade Corporation. Under an agency agreement set forth
in a letter dated 7 November 1946 in New York addressed to the defendant and accepted by the
latter on the 22nd day of the same month, the plaintiff was made the exclusive agent of the
defendant in the sale of coconut oil and its derivatives outside the Philippines and was to be
paid 2 1/2 per cent on the total actual sale price of sales obtained through his efforts in addition
thereto 50 per cent of the difference between the authorized sale price and the actual sale price.

After the trial where the depositions of the plaintiff and of Jas. Maxwell Fassett and several
letters in connection therewith were introduced and the testimony of the defendant was heard,
the Court rendered judgment as prayed for in the complaint. A motion for reconsideration was
denied. A motion for a new trial was filed, supported by the defendant's affidavit, based on
newly discovered evidence which consists of a duplicate original of a letter dated 16 October
1946 covering the sale of 1,000 tons of coconut oil soap emulsion signed by Jas. Maxwell
Fassett assigned by the latter to the defendant; the letter of credit No. 20122 of the Chemical
Bank & Trust Company in favor of Jas. Maxwell Fassett assigned by the latter to the defendant;
and a letter dated 16 December 1946 by the Fortrade Corporation to Jas. Maxwell Fassett
accepted it on 24 December 1946, all of which documents, according to the defendant, could
not be produced at the trial, despite the use of reasonable diligence, and if produced they would
alter the result of the controversy. The motion for new trial was denied. The defendant is
appealing from said judgment.

Both parties agreed that the only transaction or sale made by the plaintiff, as agent of the
defendant, was that of 1,000 metric tons of coconut oil emulsion f.o.b. in Manila, Philippines, to
Jas. Maxwell Fassett, in whose favor letter of credit No. 20112 of the Chemical Bank & Trust
Company for a sum not to exceed $400,000 was established and who assigned to Fortrade
Corporation his fight to the 1,000 metric tons of coconut oil emulsion and in the defendant the
letter of credit referred to for a sum not to exceed $400,000.

The plaintiff claims that for that sale he is entitled under the agency contract dated 7 November
1946 and accepted by the defendant on 22 November of the same year to a commission of 2
1/2 per cent on the total actual sale price of 1,000 tons of coconut oil emulsion, part of which
has been paid by the defendant, there being only a balance of $3,794.94 for commission due
and unpaid on the last shipment of 379.494 tons and 50 per cent of the difference between the
authorized sale price of $350 per ton and the actual selling price of $400 per ton, which
amounts to $25,000 due and unpaid, and $746.52 for interest from 14 October 1947, the date of
the written demand.

The defendant, on the other hand, contends that the transaction for the sale of 1,000 metric tons
of coconut oil emulsion was not covered by the agency contract of 22 November 1946 because
it was agreed upon on 16 October 1946; that it was an independent and separate transaction for
which the plaintiff has been duly compensated. The contention is not borne out by the evidence.
The plaintiff and his witness depose that there were several drafts of documents or letter
prepared by Jas. Maxwell Fassett preparatory or leading to the execution of the agency
agreement of 7 November 1946, which was accepted by the defendant on 22 November 1946,
and that the letter, on which the defendant bases his contention that the transaction on the
1,000 metric tons of coconut oil emulsion was not covered by the agency agreement, was one
of those letters. That is believable. The letter upon which defendant relies for his defense does
not stipulate on the commission to be paid to the plaintiff as agent, and yet if he paid the plaintiff
a 2 1/2 per cent commission on the first three coconut oil emulsion shipments, there is no
reason why he should not pay him the same commission on the last shipment amounting to
$3,794.94. There can be no doubt that the sale of 1,000 metric tons of coconut oil emulsion was
not a separate and independent contract from that of the agency agreement on 7 November
and accepted on 22 November 1946 by the defendant, because in a letter dated 2 January
1947 addressed to the plaintiff, referring to the transaction of 1,000 metric tons of coconut oil
emulsion, the defendant says —

. . . I am doing everything possible to fulfill these 1,000 tons of emulsion, and until such
time that we completed this order I do not feel it very sensible on my part to accept any
more orders. I want to prove to Fortrade, yourself and other people that we deliver our
goods. Regarding your commission, it is understood to be 2 1/2 per cent of all prices
quoted by me plus 50-50 on over price. (Schedule B.)

In another letter dated 16 January 1957 to the plaintiff, speaking of the same transaction, the
defendant says —
 As per our understanding when I was in the States the overprice is subject to any
increase in the cost of production. I am not trying to make things difficult for you and I
shall give you your 2 1/2 per cent commission plus our overprice provided you can give
me substantial order in order for me to amortize my loss on this first deal. Unless such
could be arranged I shall remit to you for the present your commission upon collection
from the bank. (Schedule C.)

In a telegram sent by the defendant to the plaintiff the former says —

. . . Your money pending stop understand you authorized some local attorneys and my
relatives to intervene your behalf. (Schedule D.)

The defendant's claim that the agreement for the sale of the 1,000 metric tons of coconut oil
emulsion was agreed upon in a document, referring to the letter of 16 October 1946, is again
disproved by his letter dated 2 December 1946 to Fortrade Corporation where he says:

The purpose of this letter is to confirm in final form the oral agreement which we have
heretofore reached, as between ourselves, during the course of various conversations
between us and our respective representatives upon the subject matter of this letter.

It is understood that I am to sell to you, and you are to purchase from me, 1,000 tons of
coconut oil soap emulsion at a price of $400. per metric ton, i.e. 2,204.6 pounds, F.O.B.
shipboard, Manila, P.I. (Exhibit S, Special. Emphasis supplied.)

The contention that as the contract was executed in New York, the Court of First Instance of
Manila has no jurisdiction over this case, is without merit, because a non-resident may sue a
resident in the courts of this country1 where the defendant may be summoned and his property
leviable upon execution in the case of a favorable, final and executory judgment. It is a personal
action for the collection of a sum of money which the Courts of First Instance have jurisdiction to
try and decide. There is no conflict of laws involved in the case, because it is only a question of
enforcing an obligation created by or arising from contract; and unless the enforcement of the
contract be against public policy of the forum, it must be enforced.

The plaintiff is entitled to collect P7,589.88 for commission and P50,000 for one-half of the
overprice, or a total of P57,589.88, lawful interests thereon from the date of the filing of the
complaint, and costs in both instances.

As thus modified the judgment appealed from is affirmed, with costs against the appellant.

Paras, C.J., Pablo, Bengzon, Montemayor, Reyes, Jugo, Bautista Angelo, and Concepcion,
JJ., concur.

Footnotes
1
Marshall-Wells Co. vs. Henry W. Elser & Co., 46 Phil., 70; Western Equipment and
Supply Co. vs. Reyes, 51 Phil., 115.
HENSON VS IAC

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 72456 February 19, 1987

LUZ J. HENSON, petitioner,

vs.
THE INTERMEDIATE APPELLATE COURT, ELY FUDERANAN and LUISA
COMMENDADOR, respondents.

GUTIERREZ, JR., J.:

Whether or not the judicial interpretation of the lease contract amounts to the courts' contracting
for the parties is the issue in this petition for review of the decision of the then Intermediate
Appellate Court which upheld the Court of First Instance of Manila dismissing the petitioner's
complaint for recovery of the balance of unpaid rentals due for one year under the lease
contract in question.

The petitioner leases out office spaces in her building at #494 Soldado Street, Ermita, Manila.
The lessee in the disputed lease contract was designated as Sto. Niño Travel and Tour Agency,
a sole proprietorship duly organized and existing under the laws of the Philippines, represented
by private respondent Ely Fuderanan, its President and General Manager.

On May 15, 1980, the petitioner received the sum of P 8,000.00 as "reservation deposit" for
Apartment No. 116 at Luz J. Henson Building for which she issued a receipt to private
respondent Fuderanan as follows:

This reservation is good up to May 15, 1980, at 4:00 P.M.; failure to sign the
Lease Contract, pay the required Three (3) months advance rental and Three (3)
months guarantee deposits, the reservation is forfeited, monthly rental is P
2,000.00-net of W. H. Tax. Lease Contract is for one year.

On the same day, the petitioner and private respondent Fuderanan entered into a lease contract
which in part, provides:

1. That this contract shall have a duration of one year,

commencing from May 15, 1980; Provided that, at the expiration
hereof, the lease shall be deemed renewed on a month to month
basis under the same terms and conditions as this contract,
unless either party, at least one month before this contract
 expires, informs the other in writing of his desire not to be bound
anymore after said period; Provided Further, that should LESSEE
terminate this contract before its termination or be cancelled for
any of the causes enumerated, the LESSEE shall for his breach of
this contract, have his guarantee deposit automatically forfeited
and still be liable to LESSOR as penalty and liquidated damages
for the rentals of the unexpired portion of this lease, irrespective of
whether or not LESSOR subsequently finds another person to
lease the vacated premises for the duration of said unexpired
portion;

2. That LESSEE agrees to pay rentals for the premises leased as

above-described at the rate of TWO THOUSAND PESOS Net of
Withholding Tax (P2,000.00), Philippine Currency, a month, due
and payable without need of further demand and notice on the
due date of the corresponding month, at LESSOR's office or
residence; LESSEE shall pay in advance the amount of SIX
THOUSAND PESOS (P6,000.00), Philippine Currency, as rentals
for the first two (2) months of this contract and one month end of
lease. Rentals are payable monthly in advance. A fraction of a
month is considered one month rental;

Upon execution of this contract, the LESSOR (should be LESSEE) (shall) deposit
with the LESSOR the amount equivalent to SIX THOUSAND PESOS
(P6,000.00), three months rental. This deposit shall answer for any damages,
losses, breakage, utilities destroyed including damages caused by renovation
done on the leased premises and any extensions thereof, and shall be returned
only upon expiration of this Lease Contract; Provided, that all Meralco Bills are
fully paid and that charges for any and all long distance calls are paid duly
certified by the PLDT Co. Nothing herein contained shall be understood as
granting the LESSEE the right to require, before the termination of this lease, that
this deposit shall be applied against over due rentals and other outstanding
accounts owing to LESSOR in order to keep the LESSEE's account current,
deposits bear no interest.

xxx xxx xxx

Pursuant to the lease contract between the petitioner and private respondent Fuderanan, the
latter paid Henson the amount of P6,000.00 in cash as deposit for rentals, water service and
four keys (Exhibit A-1) and P1,660.00 in cash and P4,640.00 in a postdated check as rentals
due from May 15, 1980 to July 14, 1980 (Exhibit A-1 Exhibit D). This postdated check was later
replaced by another postdated check of private respondent Luisa Commendador which was
dishonored due to insufficiency of funds as indicated by the bank's dishonor slip (Exhibit D-1).

On May 30, 1980, the Chief of the Licensing and Inspection Division of the Bureau of Tourism
Services, Ministry of Tourism disapproved the request of the private respondents to transfer
their office to the premises owned by the petitioner on the ground that the place failed to meet
the minimum 50 square meter-space requirement of the Bureau (Exhibit 6).
On June 10, 1980, the private respondents informed the petitioner in writing that they had to
vacate the leased premises in question on or about June 14, 1980 in view of the disapproval of
their request to operate their business in the office space rented from the petitioner (Exhibit B).

On June 16, 1980, the petitioner notified the private respondents in writing of the dishonor of
Commendador's postdated check (Exhibit C).

On July 9, 1980, that petitioner wrote the private respondents demanding that they make good
their dishonored check in compliance with the terms and conditions of their lease contract
(Exhibits F and F-1).

On July 18, 1980, the private respondents replied by stating that they had to rescind the lease
contract and requested the refund of the amounts they paid by way of advance and deposit
rentals less the amount of rental due (Exhibit 5). Their request was not granted by the petitioner
(Exhibits E and E-1).

On January 16, 1981, the petitioner filed an action against the private respondents to recover
the value of the dishonored check worth P4,640.00 plus 12% interest per annum from May 30,
1980 until paid and the amount of P22,000.00 as rental fees corresponding to the unexpired
portion of the term of the lease contract between them.

On March 24, 1982, the private respondents filed their answer, which was later amended on
July 29, 1981, alleging, among others, that private respondent Commendador was wrongly sued
because she was not a party to the lease contract having issued the check merely for
accommodation purposes; that the private respondents did not make good the dishonored
check since the Ministry of Tourism had disapproved their request to transfer their office to the
petitioner's premises; and that under the circumstances the private respondents had no other
alternative but to rescind the lease contract and vacate the premises. A counterclaim was filed
for the refund of P6,200.00 representing the advance rentals paid by the private respondents
and for the award of moral damages, attorney's fees, and expenses of litigation.

After trial, the trial court, on March 18, 1982, rendered judgment in favor of the private
respondents. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered dismissing the complaint of the

plaintiff Luz J. Henson against the defendants Ely Fuderanan and Luisa
Commendador, doing business under the name and style "Sto. Nino Travel and
Tours Agency," and upon the latter's counterclaim against the former, ordering
the plaintiff to refund to the defendants the amount of P5,600.00. Costs against
the plaintiff.

The appellate court affirmed the trial court's judgment. A motion for reconsideration was denied
in a resolution dated October 9, 1985. Hence, this present petition assigning as errors the
following:

The Intermediate Appellate Court erred when its decision' made a new contract'
for the parties.
 II

The Intermediate Appellate Court erred in rendering a decision not sanctioned by

equity.

The Intermediate Appellate Court dismissed the petitioner's complaint thereby giving the private
respondents the right to a refund of the sum they advanced as rental fees when they executed
the contract of lease. The court did not find the private respondents in breach of their obligations
under said contract. In the words of the appellate court:

The reason for the non-compliance of the obligation to occupy the leased
premises came from a third party.

By "third party," it meant the Chief of the Licensing and Inspection Division of the Bureau of
Tourism Services, Ministry of Tourism.

We are constrained under the circumstances of this case to uphold the time-honored principle
that contracts are respected as the law between the contracting parties (Castro v. Court of
Appeals, 99 SCRA 722; Escano v. Court of Appeals, 100 SCRA 197). In the case at bar, the
lease contract executed by the petitioner and the private respondents remains as the law
between them. In litigations involving the adjudication of rights and obligations between the
lessor and the lessee, the lease contract shall govern (Chua Peng Hian v. Court of Appeals, 133
SCRA 572).

The disputed lease contract is plain and unequivocal in its terms. The stipulations are expressed
in clear and explicit language that leaves no doubt as to the intention of the contracting parties.
Nowhere is it provided in the contract that the fulfillment of the terms and conditions of the lease
depend upon an act of a third party, i.e., the final action to be taken by the Chief of the Licensing
and Inspection Division of the Bureau of Tourism. Neither is there any indication from the
evidence presented that would justify either of the contracting parties to impugn the lease
contract they executed.

The facts of the case constrain us to apply the rule that contracts are to be interpreted according
to their literal meaning when the terms and conditions are clear and leave no doubt as to the
intention of the contracting parties (Gonzales v. Court of Appeals, 124 SCRA 630; Matienzo v.
Servidad, 107 SCRA 276; see also Article 1370 of the Civil Code of the Philippines). It was error
on the part of the appellate court to make room for construction of the provisions of the subject
lease contract when the case plainly calls for application thereof. We reiterate our ruling in the
case of San Mauricio Mining Company v. Ancheta (105 SCRA 371, 418) that:

xxx xxx xxx

... The primary and elementary rule of construction of documents is that when the
words or language thereof is clear and plain or readily understandable by any
ordinary reader thereof, there is absolutely no room for interpretation or
construction anymore. ... (See also Pichel v. Alonzo, 111 SCRA 341)

The first stipulation in the disputed lease contract provided for a specific period of one year as
the duration of the lease. This ought to be followed (See Vda. de San Juan v. Tan, 116 SCRA
447). For the respondent court to hold that the private respondents-lessees are justified in
disregarding their obligation to pay for the leased premises throughout the term of the lease due
to the requirement of the Ministry of Tourism that travel agencies must operate their business in
an area mandated by the rules is tantamount to the court's revising the contract for the parties.
The courts, be it the original trial court or the appellate court, have no power to make contracts
for the parties (Top-Weld Manufacturing, Inc. v. ECED, S.A., 138 SCRA 118).

Given the simple and unambiguous document of lease in this case, the lessees, at the most,
would be entitled to a refund of the advance rental fees only if the rule on equity can be applied
under the circumstances. However, there are no circumstances in this case that warrant the
application of equitable considerations.

The predicament in which Sto. Niño Travel and Tour Agency found itself is entirely of its own
making. It should have ascertained all the rules and requirements for the operation of a travel
agency before it even started to look for premises to house its office. The petitioner had
absolutely nothing to do with the private respondents' violating the requirements. Moreover, the
record shows that the petitioner-lessor offered the occupancy of the bigger rooms in her
apartments for lease to the private respondents in order that they could meet the minimum
space requirement of 50 square meters ordered by the Ministry of Tourism. The private
respondents declined the offer because they were not willing to pay for the corresponding
increase in the rental fees.

The appellate court opined that the petitioner, in offering the bigger rooms for lease at a higher
rent value, gave the private respondents no other choice but to stop the operation of their travel
agency business as against renting one of the bigger rooms and operating at a loss in view of
the increased rental fees. The records do not show upon what evidence the respondent court
based this finding. The questioned decision itself shows that the court's conclusion is purely
conjectural and cannot support the application of equity. It states:

However, the record shows that defendants-appellees finally rejected leasing

these larger rooms because the rents were "different." We presume that, by the
word "different," appellees meant the rents were higher which they could not
afford. (Emphasis supplied).

The rule that travel agencies should have at least 50 square meters of office space is a
reasonable regulation intended to dignify the business as a whole and avoid fly-by-night
operators working out of cramped and dingy quarters. If the private respondents did not bother
to look into this requirement before entering into a lease contract, they have no right to visit
upon the petitioner the results of their negligence.

The petitioner contends that under the disputed lease contract, the lessor is not bound to make
sure that her lessee realizes profit out of the latter's travel agency business while occupying the
leased premises in the same way that it is not incumbent upon her to see to it that her lessee
observes the regulatory measures laid down by the Ministry of Tourism for travel agencies. She
states that the only business with which she is concerned is that of leasing office spaces in her
apartment building to those lessees who agree to the terms and conditions of the lease such as
the private respondents. This may be a rigid and hardhearted approach to the problem but it is
correct. The contract of lease was never conditioned on the lessees' ability to comply with
governmental requirements pertaining to their business. We also note that the contract was
executed on May 15, 1980. Part of the consideration was in the form of a postdated check for
P4,600.00. The denial by the Inspection Division of the Bureau of Tourism Services was dated
May 30, 1980. When the postdated check fell due the following day, May 31, the funds to meet
the check were insufficient and the bank had to dishonor the check.

The private respondents argue that their failure to comply with their obligations under the lease
contract may be justified by Stipulation No. 9 in the lease contract which provides that:

Compliance With Law. — The LESSEE shall promptly obey, execute and fulfill
any and all laws, ordinances, rules, regulations and orders of the national or city
government or of any bureau, board or commission for the sanitation and safety
of the leased premises.

The aforequoted stipulation in the lease contract must be read in the context of the petitioner's
business of leasing office spaces, not in that of the private respondents' travel agency business.
The laws, ordinances, rules, regulations, and orders which the lessee ought to obey, execute,
and fulfill pertain to those relating to the business of the petitioner such as the payment of
expenses for the deed of lease, the settlement of electric, water and phone bills or the
installation of safety measures in cases of fire and other similar emergencies.

In view of the foregoing discussion, there is no question that the subject lease contract which is
the law between the parties herein admits of no gap that the rule on equity may rightfully bridge.

WHEREFORE, the petition is hereby GRANTED. The decision appealed from is REVERSED
and SET ASIDE and a new one is rendered:

1. Ordering private respondent Ely Fuderanan to replace or pay the value of the dishonored
check of P4,640.00 with 12% interest per annum from May 30, 1980 until paid;

2. Ordering private respondent Ely Fuderanan to pay the rentals corresponding to the unexpired
portion of the lease provided, however, that the P6,000.00 deposited by the private respondent
which the petitioner is obliged to return may be offset against the unpaid rentals under the lease
contract; and

3. Ordering private respondent Ely Fuderanan to pay P2,000.00 as attorney's fees plus costs of
the suit.

SO ORDERED.

Fernan (Chairman), Alampay, Paras, Padilla and Cortes, JJ., concur.

Bidin J., * took no part.

Footnotes

* Justice Abdulwahid A. Bidin took no part as he was one of the members who
concurred in the decision of the then Intermediate Appellate Court.
ZALAMEA VS COURT OF APPEALS

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 104235 November 18, 1993

SPOUSES CESAR & SUTHIRA ZALAMEA and LIANA ZALAMEA, petitioners,

vs.
HONORABLE COURT OF APPEALS and TRANSWORLD AIRLINES, INC., respondents.

Sycip, Salazar, Hernandez, Gatmaitan for petitioners.

Quisumbing, Torres & Evangelista for private-respondent.

NOCON, J.:

Disgruntled over TransWorld Airlines, Inc.'s refusal to accommodate them in TWA Flight 007
departing from New York to Los Angeles on June 6, 1984 despite possession of confirmed
tickets, petitioners filed an action for damages before the Regional Trial Court of Makati, Metro
Manila, Branch 145. Advocating petitioner's position, the trial court categorically ruled that
respondent TransWorld Airlines (TWA) breached its contract of carriage with petitioners and
that said breach was "characterized by bad faith." On appeal, however, the appellate court
found that while there was a breach of contract on respondent TWA's part, there was neither
fraud nor bad faith because under the Code of Federal Regulations by the Civil Aeronautics
Board of the United States of America it is allowed to overbook flights.

The factual backdrop of the case is as follows:

Petitioners-spouses Cesar C. Zalamea and Suthira Zalamea, and their daughter, Liana
Zalamea, purchased three (3) airline tickets from the Manila agent of respondent TransWorld
Airlines, Inc. for a flight to New York to Los Angeles on June 6, 1984. The tickets of petitioners-
spouses were purchased at a discount of 75% while that of their daughter was a full fare ticket.
All three tickets represented confirmed reservations.

While in New York, on June 4, 1984, petitioners received notice of the reconfirmation of their
reservations for said flight. On the appointed date, however, petitioners checked in at 10:00
a.m., an hour earlier than the scheduled flight at 11:00 a.m. but were placed on the wait-list
because the number of passengers who had checked in before them had already taken all the
seats available on the flight. Liana Zalamea appeared as the No. 13 on the wait-list while the
two other Zalameas were listed as "No. 34, showing a party of two." Out of the 42 names on the
wait list, the first 22 names were eventually allowed to board the flight to Los Angeles, including
petitioner Cesar Zalamea. The two others, on the other hand, at No. 34, being ranked lower
than 22, were not able to fly. As it were, those holding full-fare tickets were given first priority
among the wait-listed passengers. Mr. Zalamea, who was holding the full-fare ticket of his
daughter, was allowed to board the plane; while his wife and daughter, who presented the
discounted tickets were denied boarding. According to Mr. Zalamea, it was only later when he
discovered the he was holding his daughter's full-fare ticket.

Even in the next TWA flight to Los Angeles Mrs. Zalamea and her daughter, could not be
accommodated because it was also fully booked. Thus, they were constrained to book in
another flight and purchased two tickets from American Airlines at a cost of Nine Hundred
Eighteen ($918.00) Dollars.

Upon their arrival in the Philippines, petitioners filed an action for damages based on breach of
contract of air carriage before the Regional Trial Court of Makati, Metro Manila, Branch 145. As
aforesaid, the lower court ruled in favor of petitioners in its decision 1 dated January 9, 1989 the
dispositive portion of which states as follows:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay

plaintiffs the following amounts:

(1) US $918.00, or its peso equivalent at the time of payment representing the
price of the tickets bought by Suthira and Liana Zalamea from American Airlines,
to enable them to fly to Los Angeles from New York City;

(2) US $159.49, or its peso equivalent at the time of payment, representing the
price of Suthira Zalamea's ticket for TWA Flight 007;

(3) Eight Thousand Nine Hundred Thirty-Four Pesos and Fifty Centavos
(P8,934.50, Philippine Currency, representing the price of Liana Zalamea's ticket
for TWA Flight 007,

(4) Two Hundred Fifty Thousand Pesos (P250,000.00), Philippine Currency, as

moral damages for all the plaintiffs'

(5) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as and

for attorney's fees; and

(6) The costs of suit.

SO ORDERED. 2

On appeal, the respondent Court of Appeals held that moral damages are recoverable in a
damage suit predicated upon a breach of contract of carriage only where there is fraud or bad
faith. Since it is a matter of record that overbooking of flights is a common and accepted
practice of airlines in the United States and is specifically allowed under the Code of Federal
Regulations by the Civil Aeronautics Board, no fraud nor bad faith could be imputed on
respondent TransWorld Airlines.
Moreover, while respondent TWA was remiss in not informing petitioners that the flight was
overbooked and that even a person with a confirmed reservation may be denied
accommodation on an overbooked flight, nevertheless it ruled that such omission or negligence
cannot under the circumstances be considered to be so gross as to amount to bad faith.

Finally, it also held that there was no bad faith in placing petitioners in the wait-list along with
forty-eight (48) other passengers where full-fare first class tickets were given priority over
discounted tickets.

The dispositive portion of the decision of respondent Court of Appeals 3 dated October 25, 1991
states as follows:

WHEREFORE, in view of all the foregoing, the decision under review is hereby
MODIFIED in that the award of moral and exemplary damages to the plaintiffs is
eliminated, and the defendant-appellant is hereby ordered to pay the plaintiff the
following amounts:

(1) US$159.49, or its peso equivalent at the time of the payment, representing
the price of Suthira Zalamea's ticket for TWA Flight 007;

(2) US$159.49, or its peso equivalent at the time of the payment, representing
the price of Cesar Zalamea's ticket for TWA Flight 007;

(3) P50,000.00 as and for attorney's fees.

(4) The costs of suit.

SO ORDERED. 4

Not satisfied with the decision, petitioners raised the case on petition for review on certiorari and
alleged the following errors committed by the respondent Court of Appeals, to wit:

I.

. . . IN HOLDING THAT THERE WAS NO FRAUD OR BAD FAITH ON THE

PART OF RESPONDENT TWA BECAUSE IT HAS A RIGHT TO OVERBOOK
FLIGHTS.

II.

. . . IN ELIMINATING THE AWARD OF EXEMPLARY DAMAGES.

III.

. . . IN NOT ORDERING THE REFUND OF LIANA ZALAMEA'S TWA TICKET

AND PAYMENT FOR THE AMERICAN AIRLINES
TICKETS. 5
That there was fraud or bad faith on the part of respondent airline when it did not allow
petitioners to board their flight for Los Angeles in spite of confirmed tickets cannot be disputed.
The U.S. law or regulation allegedly authorizing overbooking has never been proved. Foreign
laws do not prove themselves nor can the courts take judicial notice of them. Like any other fact,
they must be alleged and proved. 6 Written law may be evidenced by an official publication
thereof or by a copy attested by the officer having the legal custody of the record, or by his
deputy, and accompanied with a certificate that such officer has custody. The certificate may be
made by a secretary of an embassy or legation, consul general, consul, vice-consul, or consular
agent or by any officer in the foreign service of the Philippines stationed in the foreign country in
which the record is kept, and authenticated by the seal of his office. 7

Respondent TWA relied solely on the statement of Ms. Gwendolyn Lather, its customer service
agent, in her deposition dated January 27, 1986 that the Code of Federal Regulations of the
Civil Aeronautics Board allows overbooking. Aside from said statement, no official publication of
said code was presented as evidence. Thus, respondent court's finding that overbooking is
specifically allowed by the US Code of Federal Regulations has no basis in fact.

Even if the claimed U.S. Code of Federal Regulations does exist, the same is not applicable to
the case at bar in accordance with the principle of lex loci contractus which require that the law
of the place where the airline ticket was issued should be applied by the court where the
passengers are residents and nationals of the forum and the ticket is issued in such State by the
defendant airline. 8 Since the tickets were sold and issued in the Philippines, the applicable law
in this case would be Philippine law.a

Existing jurisprudence explicitly states that overbooking amounts to bad faith, entitling the
passengers concerned to an award of moral damages. In Alitalia Airways v. Court of
Appeals, 9 where passengers with confirmed bookings were refused carriage on the last minute,
this Court held that when an airline issues a ticket to a passenger confirmed on a particular
flight, on a certain date, a contract of carriage arises, and the passenger has every right to
expect that he would fly on that flight and on that date. If he does not, then the carrier opens
itself to a suit for breach of contract of carriage. Where an airline had deliberately overbooked, it
took the risk of having to deprive some passengers of their seats in case all of them would show
up for the check in. For the indignity and inconvenience of being refused a confirmed seat on
the last minute, said passenger is entitled to an award of moral damages.

Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals, 10 where private respondent was not
allowed to board the plane because her seat had already been given to another passenger even
before the allowable period for passengers to check in had lapsed despite the fact that she had
a confirmed ticket and she had arrived on time, this Court held that petitioner airline acted in bad
faith in violating private respondent's rights under their contract of carriage and is therefore
liable for the injuries she has sustained as a result.

In fact, existing jurisprudence abounds with rulings where the breach of contract of carriage
amounts to bad faith. In Pan American World Airways, Inc. v. Intermediate Appellate
Court, 11 where a would-be passenger had the necessary ticket, baggage claim and clearance
from immigration all clearly and unmistakably showing that she was, in fact, included in the
passenger manifest of said flight, and yet was denied accommodation in said flight, this Court
did not hesitate to affirm the lower court's finding awarding her damages.
A contract to transport passengers is quite different in kind and degree from any other
contractual relation. So ruled this Court in Zulueta v. Pan American World Airways, Inc. 12 This
is so, for a contract of carriage generates a relation attended with public duty — a duty to
provide public service and convenience to its passengers which must be paramount to self-
interest or enrichment. Thus, it was also held that the switch of planes from Lockheed 1011 to a
smaller Boeing 707 because there were only 138 confirmed economy class passengers who
could very well be accommodated in the smaller planes, thereby sacrificing the comfort of its
first class passengers for the sake of economy, amounts to bad faith. Such inattention and lack
of care for the interest of its passengers who are entitled to its utmost consideration entitles the
passenger to an award of moral damages. 13

Even on the assumption that overbooking is allowed, respondent TWA is still guilty of bad faith
in not informing its passengers beforehand that it could breach the contract of carriage even if
they have confirmed tickets if there was overbooking. Respondent TWA should have
incorporated stipulations on overbooking on the tickets issued or to properly inform its
passengers about these policies so that the latter would be prepared for such eventuality or
would have the choice to ride with another airline.

Respondent TWA contends that Exhibit I, the detached flight coupon upon which were written
the name of the passenger and the points of origin and destination, contained such a notice. An
examination of Exhibit I does not bear this out. At any rate, said exhibit was not offered for the
purpose of showing the existence of a notice of overbooking but to show that Exhibit I was used
for flight 007 in first class of June 11, 1984 from New York to Los Angeles.

Moreover, respondent TWA was also guilty of not informing its passengers of its alleged policy
of giving less priority to discounted tickets. While the petitioners had checked in at the same
time, and held confirmed tickets, yet, only one of them was allowed to board the plane ten
minutes before departure time because the full-fare ticket he was holding was given priority over
discounted tickets. The other two petitioners were left behind.

It is respondent TWA's position that the practice of overbooking and the airline system of
boarding priorities are reasonable policies, which when implemented do not amount to bad faith.
But the issue raised in this case is not the reasonableness of said policies but whether or not
said policies were incorporated or deemed written on petitioners' contracts of carriage.
Respondent TWA failed to show that there are provisions to that effect. Neither did it present
any argument of substance to show that petitioners were duly apprised of the overbooked
condition of the flight or that there is a hierarchy of boarding priorities in booking passengers. It
is evident that petitioners had the right to rely upon the assurance of respondent TWA, thru its
agent in Manila, then in New York, that their tickets represented confirmed seats without any
qualification. The failure of respondent TWA to so inform them when it could easily have done
so thereby enabling respondent to hold on to them as passengers up to the last minute amounts
to bad faith. Evidently, respondent TWA placed its self-interest over the rights of petitioners
under their contracts of carriage. Such conscious disregard of petitioners' rights makes
respondent TWA liable for moral damages. To deter breach of contracts by respondent TWA in
similar fashion in the future, we adjudge respondent TWA liable for exemplary damages, as
well.

Petitioners also assail the respondent court's decision not to require the refund of Liana
Zalamea's ticket because the ticket was used by her father. On this score, we uphold the
respondent court. Petitioners had not shown with certainty that the act of respondent TWA in
allowing Mr. Zalamea to use the ticket of her daughter was due to inadvertence or deliberate
act. Petitioners had also failed to establish that they did not accede to said agreement. The
logical conclusion, therefore, is that both petitioners and respondent TWA agreed, albeit
impliedly, to the course of action taken.

The respondent court erred, however, in not ordering the refund of the American Airlines tickets
purchased and used by petitioners Suthira and Liana. The evidence shows that petitioners
Suthira and Liana were constrained to take the American Airlines flight to Los Angeles not
because they "opted not to use their TWA tickets on another TWA flight" but because
respondent TWA could not accommodate them either on the next TWA flight which was also
fully booked. 14 The purchase of the American Airlines tickets by petitioners Suthira and Liana
was the consequence of respondent TWA's unjustifiable breach of its contracts of carriage with
petitioners. In accordance with Article 2201, New Civil Code, respondent TWA should,
therefore, be responsible for all damages which may be reasonably attributed to the non-
performance of its obligation. In the previously cited case of Alitalia Airways v. Court of
Appeals, 15 this Court explicitly held that a passenger is entitled to be reimbursed for the cost of
the tickets he had to buy for a flight to another airline. Thus, instead of simply being refunded for
the cost of the unused TWA tickets, petitioners should be awarded the actual cost of their flight
from New York to Los Angeles. On this score, we differ from the trial court's ruling which
ordered not only the reimbursement of the American Airlines tickets but also the refund of the
unused TWA tickets. To require both prestations would have enabled petitioners to fly from New
York to Los Angeles without any fare being paid.

The award to petitioners of attorney's fees is also justified under Article 2208(2) of the Civil
Code which allows recovery when the defendant's act or omission has compelled plaintiff to
litigate or to incur expenses to protect his interest. However, the award for moral damages and
exemplary damages by the trial court is excessive in the light of the fact that only Suthira and
Liana Zalamea were actually "bumped off." An award of P50,000.00 moral damages and
another P50,000.00 exemplary damages would suffice under the circumstances obtaining in the
instant case.

WHEREFORE, the petition is hereby GRANTED and the decision of the respondent Court of
Appeals is hereby MODIFIED to the extent of adjudging respondent TransWorld Airlines to pay
damages to petitioners in the following amounts, to wit:

(1) US$918.00 or its peso equivalent at the time of payment representing the price of the tickets
bought by Suthira and Liana Zalamea from American Airlines, to enable them to fly to Los
Angeles from New York City;

(2) P50,000.00 as moral damages;

(3) P50,000.00 as exemplary damages;

(4) P50,000.00 as attorney's fees; and

(5) Costs of suit.

SO ORDERED.

Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

# Footnotes

1 Penned by Judge Job B, Madayag.

2 Rollo, pp. 47-48.

3 Penned by Associate Justice Venancio D. Aldecoa, Jr. and concurred in by

Associate Justices Jose C. Camps, Jr. and Filemon H. Mendoza.

4 Rollo, p. 38.

5 Rollo, p. 15.

6 The Collector of Internal Revenue v. Fisher and Fisher v. The Collector of

Internal Revenue, 110 Phil. 686 (1961).

7 Salonga, Private International Law (1979), pp. 82-83.

8 Rollo, p. 300.

9 G.R. No. 77011, 187 SCRA 763 (1990).

10 G.R. No. 61418, 154 SCRA 211 (1987).

11 G.R. No. 74442, 153 SCRA 521 (1987).

12 G.R. No. L-28589, 43 SCRA 397 (1972).

13 TransWorld Airlines v. Court of Appeals, G.R. No. 78656, 165 SCRA 143
(1988).

14 TSN, August 12, 1985, p. 19.

15 Supra.

INSULAR GOVT VS FRANK

EN BANC
[G. R. No. 2935. March 23, 1909.]
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, Plaintiff-Appellee, vs. GEORGE I.
FRANK,Defendant-Appellant.

DECISION
 JOHNSON, J.:
Judgment was rendered in the lower court on the 5th day of September, 1905.
the Defendantappealed. On the 12th day of October, 1905, the Appellant filed his printed bill of
exceptions with the clerk of the Supreme Court. On the 5th day of December, 1905,
the Appellant filed his brief with the clerk of the Supreme Court. On the 19th day of January,
1906, the Attorney-General filed his brief in said cause. Nothing further was done in said cause
until on about the 30th day of January, 1909, when the respective parties were requested by
this court to prosecute the appeal under penalty of having the same dismissed for failure so to
do; whereupon the Appellant, by petition, had the cause placed upon the calendar and the same
was heard on the 2d day of February, 1909.
The facts from the record appear to be as follows: chanrobles virtualawlibrary
First. That on or about the 17th day of April, 1903, in the city of Chicago, in the State of Illinois,
in the United States, the Defendant, through a representative of the Insular Government of the
Philippine Islands, entered into a contract for a period of two years with the Plaintiff, by which
the Defendant was to receive a salary of 1,200 dollars per year as a stenographer in the service
of the said Plaintiff, and in addition thereto was to be paid in advance the expenses incurred in
traveling from the said city of Chicago to Manila, and one-half salary during said period of travel.
Second. Said contract contained a provision that in case of a violation of its terms on the part of
the Defendant, he should become liable to the Plaintiff for the amount expended by the
Government by way of expenses incurred in traveling from Chicago to Manila and the one-half
salary paid during such period.
Third. The Defendant entered upon the performance of his contract upon the 30th day of April,
1903, and was paid half-salary from the date until June 4, 1903, the date of his arrival in the
Philippine Islands.
Fourth. That on the 11th day of February, 1904, the Defendant left the service of the Plaintiffand
refused to make a further compliance with the terms of the contract.
Fifth. On the 3d day of December, 1904, the Plaintiff commenced an action in the Court of First
Instance of the city of Manila to recover from the Defendant the sum of 269. 23 dollars, which
amount the Plaintiff claimed had been paid to the Defendant as expenses incurred in traveling
from Chicago to Manila, and as half-salary for the period consumed in travel.
Sixth. It was expressly agreed between the parties to said contract that Laws No. 80 and No.
224 should constitute a part of said contract.
To the complaint of the Plaintiff the Defendant filed a general denial and a special defense,
alleging in his special defense that the Government of the Philippine Islands had amended Laws
No. 80 and No. 224 and had thereby materially altered the said contract, and also that he was a
minor at the time the contract was entered into and was therefore not responsible under the law.
To the special defense of the Defendant the Plaintiff filed a demurrer, which demurrer the court
sustained.
Upon the issue thus presented, and after hearing the evidence adduced during the trial of the
cause, the lower court rendered a judgment against the Defendant and in favor of the Plaintifffor
the sum of 265. 90 dollars. The lower court found that at the time the Defendant quit the service
of the Plaintiff there was due him from the said Plaintiff the sum of 3. 33 dollars, leaving a
balance due the Plaintiff in the sum of 265. 90 dollars. From this judgment
theDefendant appealed and made the following assignments of error: chanrobles
virtualawlibrary
1. The court erred in sustaining Plaintiff‘s demurrer to Defendant‘s special defenses.
2. The court erred in rendering judgment against the Defendant on the facts.
With reference to the above assignments of error, it may be said that the mere fact that the
legislative department of the Government of the Philippine Islands had amended said Acts No.
80 and No. 224 by Acts No. 643 and No. 1040 did not have the effect of changing the terms of
the contract made between the Plaintiff and the Defendant. The legislative department of the
Government is expressly prohibited by section 5 of the Act of Congress of 1902 from altering or
changing the terms of a contract. The right which the Defendant had acquired by virtue of Acts
No. 80 and No. 224 had not been changed in any respect by the fact that said laws had been
amended. These acts, constituting the terms of the contract, still constituted a part of said
contract and were enforceable in favor of the Defendant.
The Defendant alleged in his special defense that he was a minor and therefore the contract
could not be enforced against him. The record discloses that, at the time the contract was
entered into in the State of Illinois, he was an adult under the laws of that State and had full
authority to contract. The Plaintiff [the Defendant] claims that, by reason of the fact that, under
that laws of the Philippine Islands at the time the contract was made, made persons in said
Islands did not reach their majority until they had attained the age of 23 years, he was not liable
under said contract, contending that the laws of the Philippine Islands governed. It is not
disputed — upon the contrary the fact is admitted — that at the time and place of the making of
the contract in question the Defendant had full capacity to make the same. No rule is better
settled in law than that matters bearing upon the execution, interpretation and validity of a
contract are determined b the law of the place where the contract is made. (Scudder vs. Union
National Bank, 91 U. S., 406.) cralaw Matters connected with its performance are regulated by
the law prevailing at the place of performance. Matters respecting a remedy, such as the
bringing of suit, admissibility of evidence, and statutes of limitations, depend upon the law of the
place where the suit is brought. (Idem.) cralaw
The Defendant‘s claim that he was an adult when he left Chicago but was a minor when he
arrived at Manila; that he was an adult a the time he made the contract but was a minor at the
time the Plaintiff attempted to enforce the contract, more than a year later, is not tenable.
Our conclusions with reference to the first above assignment of error are, therefore.
First. That the amendments to Acts No. 80 and No. 224 in no way affected the terms of the
contract in question; and
Second. The Plaintiff [Defendant] being fully qualified to enter into the contract at the place and
time the contract was made, he cannot plead infancy as a defense at the place where the
contract is being enforced.
We believe that the above conclusions also dispose of the second assignment of error.
For the reasons above stated, the judgment of the lower court is affirmed, with costs.
Arellano, C.J., Torres, Mapa, Carson and Willard, JJ., concur.

MOLINA VS DE LA RIVA
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. 3412 January 19, 1907

RAFAEL MOLINA Y SALVADOR, plaintiff-appellee,

vs.
ANTONIO DE LA RIVA, ET AL., defendants-appellants.

Kinney & Lawrence for appellants.

A. F. Odlin for appellee.

ARELLANO, C.J.:

On the 18th of April, 1905, the Court of First Instance of the city of Manila rendered judgment in
favor of the plaintiff Rafael Molina y Salvador and against the defendant Antonio de la Riva, in
the sum of 33,659.03 pesos, Mexican currency, equivalent to P30,052.70, Philippine currency,
with interest thereon at the rate of 5 per cent per annum from the 27th of July, 1903, and the
costs of proceedings, which judgment was thereafter affirmed by this court, with the modification
that the defendant should pay to the plaintiff the sum of P28,049.19, Philippine currency, with
the interest due and to become due at the rate of 5 per cent per annum from the 27th of July,
1903, until fully paid, without any special provision as to the costs of this instance.

On the 21st of April, 1906, the court below ordered the execution of the said judgment, which
was returned unsatisfied, no property of the defendant subject to execution having been found.
Counsel for plaintiff then asked the court to require the sureties of the defendant, Enrique F.
Somes and Roberto Spalding, to show cause why execution should not issue against them.

The said sureties having appeared and been heard, the court ordered that execution issue
against the said Somes and Spalding as such sureties. From this order of the court the sureties
appealed and have brought the case to this court by bill of exceptions. The case having been
duly argued and submitted to this court, we make the following decision;

The appellant sureties assign as error in the first place, that the order appealed from was issued
against them, not withstanding the fact that they indicated certain property belonging to the
defendant, the principal debtor, and in the second place that the court held that the property so
indicated by them did not belong to Antonio de la Riva because there was a lien upon it created
by law, and the same being in the hands of a receiver could not be used to satisfy the said
judgment. In support of the first assignment, they alleged that under their terms of the bond the
joint liability stipulated therein only extends to the sureties, the defendant, Antonio de la Riva,
continuing to be the principal debtor. Appellants also rely upon the provisions of articles 1830,
1831, and 1832 of the Civil Code in order to show that the sureties can not be compelled to pay
the creditor until application has been previously made of all the property of the debtor.

But appellants' conception as to the joint liability stipulated, in the bond is wholly erroneous, as
the said bond reads as follows: "Know all men by these presents that we, Antonio de la Riva, a
resident of Bato, Catanduanes, as principal, and Roberto Spalding and Enrique Somes, as
sureties, do hereby acknowledge ourselves (all three) to be jointly and severally bond unto the
said Rafael Molina y Salvador in the sum of 17,500 dollars, United States currency for the
payment of which we truly and faithfully bind ourselves, jointly and severally, our heirs, assigns,
and representatives." Therefore, it appearing that the joint liability was equally incurred by the
principal and his two sureties, the court below did not commit the first of the errors assigned.
And, inasmuch as, according to article 1831, "the application (excursion) can not take place
when the surety has jointly bound himself with the debtor," and according to paragraph 2, article
1822, "if the surety binds himself jointly with the principal debtor, the provisions of section fourth,
chapter third, title first of this book," which section fourth refers jointly and several obligation,
article 1114, which provides that a creditor may sue any of the joint therein, it is not necessary
to pass upon the second error assigned by the appellant.

Moreover the nature of the bond is very plain. Its heading reads as follows: "Appellant's bond to
stay execution of judgment." This bond, therefore, a judicial bond, and article 1856 of the Civil
Code provides that a judicial surety can not demand a levy on the property of the principal
debtor.

We accordingly affirm the order of the court below with the costs of this instance. After the
expiration of ten days let judgment be entered in accordance herewith and the case be
remanded to the court below for execution. So ordered.

Torres, Carson, Willard and Tracey, JJ., concur.

The Lawphil Project - Arellano Law Foundation

BRYAN VS EASTERN & AUSTRALIAN SS CO

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

DECISION

November 4, 1914

G.R. No. L-9403

ALLAN A. BRYAN, ET AL., plaintiffs-appellees,
vs.
EASTERN AND AUSTRALIAN S. S. CO., LTD., defendant-appellant.

Haussermann, Cohn & Fisher for appellant.

Southworth, Hargis, Adams & Jordain for appellees.

Moreland, J.:
This is an action to recover P1,915.30 damages alleged to have been caused by the negligence
of the defendant in handling the plaintiffs' baggage, whereby it fell into the sea and was injured
or destroyed.

The plaintiffs were passengers on the steamer St. Albans, which, at the time herein complained
of, was the property of the defendant corporation and was engaged in carrying freight and
passengers between Shanghai, China, and Manila, Philippine Islands. It arrived in Manila on the
morning of the 7th of January, 1913. Shortly after its arrival plaintiffs' baggage was taken out of
hold of the ship for the purpose of being placed on the dock alongside of which the vessel was
berthed. The baggage was placed in a sling, consisting of a single rope wound once around the
trunks, and was swung from the side of the vessel. While still several feet above the wharf, the
employee of the defendant company who was operating the winch, by some act or other,
permitted the baggage to drop with great rapidity. In its passage downward it struck the side of
the ship with such force as to release it from the sling and it dropped into the water alongside of
the ship. The damages are stipulated at P1,188.

The defendant, while admitting the damage caused to plaintiffs' baggage, denied that it was the
result of the company's negligence and set up as a special defense the limitation of liability
established by the contract under which the defendant undertook to transport the plaintiffs from
the city of Hongkong to Manila.

The record shows that on or about the end of December, 1912, the plaintiffs bought of the
defendant's agent in Shanghai two first-class tickets for Manila, which entitled them to travel
from Hongkong to Manila by the defendant's steamship St. Albans. The tickets delivered to
them were in English, which language plaintiffs read with ease and understand perfectly, and
bore on their face, in large print, a statement that they were issued subject to the conditions
printed on the back. One of these conditions, printed in legible type, was as follows:

This ticket is issued by the company and accepted by the passenger subject to the following
conditions:

The company will not hold itself responsible for any loss or damage passengers may sustain
from the following causes: From advance in or delays after advertised date of sailing, either
through the performance of His Majesty's mail service or any other cause, from detention on the
voyage, or at any of the intermediate ports, or through steamers not meeting, or delays from
accident, from perils of the sea, or from machinery, boilers or steam, or from any at, neglect or
default whatsoever of the pilot, masters, or mariners. nor from any consequences arising from
any sanitary regulations or precautions which the company's officers or local government
authorities may deem necessary.

Personal baggage. — In order to insure as far as possible the safe custody of luggage,
passengers should personally see their luggage delivered on board. Each adult saloon
passenger may carry, free of charge, but at his own risk, 20 cubic feet of luggage; and each
steerage passenger 10 cubic feet, under similar conditions (all in excess of these quantities
must be paid for at the current rate of freight); but the company will not hold itself responsible for
any loss, or damage to or detention or overcarriage of luggage, under any circumstances
whatsoever unless it has been booked and paid for as freight.

At the time the tickets were delivered to plaintiffs in Shanghai their attention was not especially
drawn to the provisions on the back of the ticket. The plaintiffs put their baggage on the St.
Albanswithout paying for its transportation as freight and traveled with such baggage to Manila.

The trial court's finding as to the negligence of defendant is based particularly on the testimony
of J. S. Stanley, Deputy Collector of Customs, and I.V. Chapman, chief wharfinger in charge of
per No. 5 lJecYMEqaO.

Mr. Stanley testified: "While standing at the extreme end of Pier No. 5, I witnessed a number of
trunks being lifted from the deck of the steamship St. Albans to an elevation of about 10 per
from the deck and practically the same being above the pier. The winchman was instructed to
let go. The sling dropped suddenly and was not checked at the proper time, and the sling of
trunks strucks the side of the wharf, with the result that the trunks were forced from the sling and
fell into the water. It is customary to use a rope sling or a cargo chute running from the deck to
the pier. The slings vary in size but are sufficiently large to contain a large number of trunks and
are formed of ropes running in opposite directions forming a rope net. If these trunks had been
in rope sling they would not have fallen in the water."

Mr. Chapman testified: "When the steamship St. Albans came alongside the pier I took all her
lines and berthed her in a position for the gangway and hatchways to work. Immediately after
the ship was made fast I requested to be informed from the chief officer where the baggage
would be discharged from; he told me hatch No. 4; I went to No. 4 hatch and asked the second
officer who was there in charge of the hatch where the baggage was to be discharged from; he
said, 'Right here,' indicating No. 4 hatch. I then told him I would have a chute there for him right
away and he answered: 'All right.' I immediately went into the pier and ordered one of the
foremen and the men to take a chute to No. 4 hatch. I was following with the foreman and
behind the chute when Mr. Stanley informed me that the baggage was over the side. The chute
at this time was just through the door about 75 feet from the hatch. On arriving there I saw that
the sling and these trunks were all lying in the water. The stevedore had a lot of his men over
the side picking up the trunks with the men from the pier helping."

It is the contention of the defendant company that it is exempt from liability by virtue of the
contract appearing on the tickets already referred to and quoted; as that contract was valid in
the place where made, namely, the Colony of Hongkong, and that being the case, it will be
enforced according to its terms in the Philippine Islands. It is also urged that it was not
necessary specifically to direct the attention of the passengers to the stipulations on the back of
the ticket introduced in evidence.

The evidence relative to the law governing these contracts in Hongkong consists of the
testimony of a Hongkong barrister, learned in the law of England and her colonies, and is to the
effect that, under the law in force at the place where the contract was made, the contract was
valid and enforceable, and that it is not necessary that the attention of persons purchasing
tickets from common carriers be drawn specially to the terms thereof when printed upon a ticket
which on its face shows that it is issued subject to such conditions. The barrister also testified
that under the law of England and her colonies everything was done which was necessary to
make the terms printed on the back of the tickets a part of the contract between the parties.

It is our conclusion that the judgment must be affirmed.

It is undoubted that the contract found upon the back of the tickets is a contract found upon the
back of the tickets is a contract perfectly valid in England and her colonies and one which would
be enforced according to its terms? It will be remembered that the contract provides "the
company will not hold itself responsible for any loss, or damage to or detention, or overcarriage
of luggage, under any circumstances whatsoever, unless it has been booked and paid for a
freight." Ordinarily this language would seems to be broad enough to cover every possible
contingency, including the negligent act of defendant's servant. To so hold, however, would run
counter to the established law of England and the United States on that subject. In the case
of Prince and Company vs. Union Lighterage Company (King's Bench Division, 1903, Vol. 1, pp.
750, 754), the court said:

An exemption in general words not expressly relating to negligence, even though the words are
wide enough to include loss by negligence or default of carriers' servants, must be construed as
limiting the liability of the carrier as assurer, and not as relieving him from the duty of exercising
reasonable skill and care.

The result of this decision seems to be that unless the contract of exemption specifically refers
to exemption for negligence, it will be construed as simply exempting the carrier from his liability
as insurer, in other words, from his common law liability as carrier. This decision of the King's
Bench Division is supported by many authorities and apparently has never been questioned.
Among other references made in that case is that of Compania de Navegacion La Flecha vs.
Brauer (168 U.S. 104), in which the opinion was rendered by Mr. Justice Gray, who reviews with
great thoroughness, many of which contain exemptions quite as comprehensive as those
contained in the condition under which plaintiffs' baggage was accepted by the defendant in this
case, such as that the baggage "was to be carried at the risk of the owner" and that the "Carrier
is not to be responsible for any loss under any circumstances whatsoever." (See also Wheeler
vs. O. S. N. Co., 125 N. Y., 155; Nicholas vs. N. Y. & H. R. R .R. Co. 89 N. Y., 370.)

The reasonableness of the strict rule of construction that the courts of England and of the State
of New York apply to contracts restricting the liability of carriers with respect to their negligence
is apparent when one considers that such contracts are held to be contrary to public policy and
invalid in the Federal courts and in most of the State courts of the Union. (The Kensington, 183
U. S., 263.)

In this connection, it may not be amiss to state that a critical examination of the deposition of Mr.
Ernet Hamilton Sharpe, Master of Arts and Bachelor of Civil Law of the University of Oxford,
Barrister at Law of London, Shanghai and Hongkong, and King's Counsel at the latter colony,
does not disclose anything contradictory to the rule just stated. Mr. Sharpe's examination was
confined to the question of the validity of the contract indorsed upon plaintiffs' ticket exempting
the defendant company from liability for damage to their baggage. In view of the accurate
answers of the learned witness to the questions put to him as to the validity of the condition in
question under English law, there is no reason to suppose that he would not have stated
correctly the rule as to the construction of the condition had his attention been directed to that
point. In any event, this court is not, by reason of the opinion expressed by an expert witness,
precluded from advising itself as to the common law of England. (Sec. 302, Code of Civil
Procedure.)

The judgment is affirmed, with costs against the appellant.

Arellano, C.J., Torres, Carson and Araullo, JJ., concur. .

Referring Cases
Sorry, no referring cases.
EASTERN SHIPPING LINES VS INTERMEDIATE APPELLATE COURT

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-69044 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
INTERMEDIATE APPELLATE COURT and DEVELOPMENT INSURANCE & SURETY
CORPORATION,respondents.

No. 71478 May 29, 1987

EASTERN SHIPPING LINES, INC., petitioner,

vs.
THE NISSHIN FIRE AND MARINE INSURANCE CO., and DOWA FIRE & MARINE
INSURANCE CO., LTD.,respondents.

MELENCIO-HERRERA, J.:

These two cases, both for the recovery of the value of cargo insurance, arose from the same
incident, the sinking of the M/S ASIATICA when it caught fire, resulting in the total loss of ship
and cargo.

The basic facts are not in controversy:

In G.R. No. 69044, sometime in or prior to June, 1977, the M/S ASIATICA, a vessel operated by
petitioner Eastern Shipping Lines, Inc., (referred to hereinafter as Petitioner Carrier) loaded at
Kobe, Japan for transportation to Manila, 5,000 pieces of calorized lance pipes in 28 packages
valued at P256,039.00 consigned to Philippine Blooming Mills Co., Inc., and 7 cases of spare
parts valued at P92,361.75, consigned to Central Textile Mills, Inc. Both sets of goods were
insured against marine risk for their stated value with respondent Development Insurance and
Surety Corporation.

In G.R. No. 71478, during the same period, the same vessel took on board 128 cartons of
garment fabrics and accessories, in two (2) containers, consigned to Mariveles Apparel
Corporation, and two cases of surveying instruments consigned to Aman Enterprises and
General Merchandise. The 128 cartons were insured for their stated value by respondent
Nisshin Fire & Marine Insurance Co., for US $46,583.00, and the 2 cases by respondent Dowa
Fire & Marine Insurance Co., Ltd., for US $11,385.00.
Enroute for Kobe, Japan, to Manila, the vessel caught fire and sank, resulting in the total loss of
ship and cargo. The respective respondent Insurers paid the corresponding marine insurance
values to the consignees concerned and were thus subrogated unto the rights of the latter as
the insured.

G.R. NO. 69044

On May 11, 1978, respondent Development Insurance & Surety Corporation (Development
Insurance, for short), having been subrogated unto the rights of the two insured companies, filed
suit against petitioner Carrier for the recovery of the amounts it had paid to the insured before
the then Court of First instance of Manila, Branch XXX (Civil Case No. 6087).

Petitioner-Carrier denied liability mainly on the ground that the loss was due to an extraordinary
fortuitous event, hence, it is not liable under the law.

On August 31, 1979, the Trial Court rendered judgment in favor of Development Insurance in
the amounts of P256,039.00 and P92,361.75, respectively, with legal interest, plus P35,000.00
as attorney's fees and costs. Petitioner Carrier took an appeal to the then Court of Appeals
which, on August 14, 1984, affirmed.

Petitioner Carrier is now before us on a Petition for Review on Certiorari.

G.R. NO. 71478

On June 16, 1978, respondents Nisshin Fire & Marine Insurance Co. NISSHIN for short), and
Dowa Fire & Marine Insurance Co., Ltd. (DOWA, for brevity), as subrogees of the insured, filed
suit against Petitioner Carrier for the recovery of the insured value of the cargo lost with the then
Court of First Instance of Manila, Branch 11 (Civil Case No. 116151), imputing unseaworthiness
of the ship and non-observance of extraordinary diligence by petitioner Carrier.

Petitioner Carrier denied liability on the principal grounds that the fire which caused the sinking
of the ship is an exempting circumstance under Section 4(2) (b) of the Carriage of Goods by
Sea Act (COGSA); and that when the loss of fire is established, the burden of proving
negligence of the vessel is shifted to the cargo shipper.

On September 15, 1980, the Trial Court rendered judgment in favor of NISSHIN and DOWA in
the amounts of US $46,583.00 and US $11,385.00, respectively, with legal interest, plus
attorney's fees of P5,000.00 and costs. On appeal by petitioner, the then Court of Appeals on
September 10, 1984, affirmed with modification the Trial Court's judgment by decreasing the
amount recoverable by DOWA to US $1,000.00 because of $500 per package limitation of
liability under the COGSA.

Hence, this Petition for Review on certiorari by Petitioner Carrier.

Both Petitions were initially denied for lack of merit. G.R. No. 69044 on January 16, 1985 by the
First Division, and G. R. No. 71478 on September 25, 1985 by the Second Division. Upon
Petitioner Carrier's Motion for Reconsideration, however, G.R. No. 69044 was given due course
on March 25, 1985, and the parties were required to submit their respective Memoranda, which
they have done.
On the other hand, in G.R. No. 71478, Petitioner Carrier sought reconsideration of the
Resolution denying the Petition for Review and moved for its consolidation with G.R. No. 69044,
the lower-numbered case, which was then pending resolution with the First Division. The same
was granted; the Resolution of the Second Division of September 25, 1985 was set aside and
the Petition was given due course.

At the outset, we reject Petitioner Carrier's claim that it is not the operator of the M/S Asiatica
but merely a charterer thereof. We note that in G.R. No. 69044, Petitioner Carrier stated in its
Petition:

There are about 22 cases of the "ASIATICA" pending in various courts where
various plaintiffs are represented by various counsel representing various
consignees or insurance companies. The common defendant in these cases is
petitioner herein, being the operator of said vessel. ... 1

Petitioner Carrier should be held bound to said admission. As a general rule, the facts alleged in
a party's pleading are deemed admissions of that party and binding upon it. 2 And an admission
in one pleading in one action may be received in evidence against the pleader or his successor-
in-interest on the trial of another action to which he is a party, in favor of a party to the latter
action. 3

The threshold issues in both cases are: (1) which law should govern — the Civil Code
provisions on Common carriers or the Carriage of Goods by Sea Act? and (2) who has the
burden of proof to show negligence of the carrier?

On the Law Applicable

The law of the country to which the goods are to be transported governs the liability of the
common carrier in case of their loss, destruction or deterioration. 4 As the cargoes in question
were transported from Japan to the Philippines, the liability of Petitioner Carrier is governed
primarily by the Civil Code. 5 However, in all matters not regulated by said Code, the rights and
obligations of common carrier shall be governed by the Code of Commerce and by special
laws. 6 Thus, the Carriage of Goods by Sea Act, a special law, is suppletory to the provisions of
the Civil Code. 7

On the Burden of Proof

Under the Civil Code, common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the vigilance over goods,
according to all the circumstances of each case. 8 Common carriers are responsible for the loss,
destruction, or deterioration of the goods unless the same is due to any of the following causes
only:

(1) Flood, storm, earthquake, lightning or other natural disaster or calamity;

xxx xxx xxx 9

Petitioner Carrier claims that the loss of the vessel by fire exempts it from liability under the
phrase "natural disaster or calamity. " However, we are of the opinion that fire may not be
considered a natural disaster or calamity. This must be so as it arises almost invariably from
some act of man or by human means. 10 It does not fall within the category of an act of God
unless caused by lightning 11 or by other natural disaster or calamity. 12 It may even be caused
by the actual fault or privity of the carrier. 13

Article 1680 of the Civil Code, which considers fire as an extraordinary fortuitous event refers to
leases of rural lands where a reduction of the rent is allowed when more than one-half of the
fruits have been lost due to such event, considering that the law adopts a protection policy
towards agriculture. 14

As the peril of the fire is not comprehended within the exception in Article 1734, supra, Article
1735 of the Civil Code provides that all cases than those mention in Article 1734, the common
carrier shall be presumed to have been at fault or to have acted negligently, unless it proves
that it has observed the extraordinary deligence required by law.

In this case, the respective Insurers. as subrogees of the cargo shippers, have proven that the
transported goods have been lost. Petitioner Carrier has also proved that the loss was caused
by fire. The burden then is upon Petitioner Carrier to proved that it has exercised the
extraordinary diligence required by law. In this regard, the Trial Court, concurred in by the
Appellate Court, made the following Finding of fact:

The cargoes in question were, according to the witnesses defendant placed in

hatches No, 2 and 3 cf the vessel, Boatswain Ernesto Pastrana noticed that
smoke was coming out from hatch No. 2 and hatch No. 3; that where the smoke
was noticed, the fire was already big; that the fire must have started twenty-four
24) our the same was noticed; that carbon dioxide was ordered released and the
crew was ordered to open the hatch covers of No, 2 tor commencement of fire
fighting by sea water: that all of these effort were not enough to control the fire.

Pursuant to Article 1733, common carriers are bound to extraordinary diligence in

the vigilance over the goods. The evidence of the defendant did not show that
extraordinary vigilance was observed by the vessel to prevent the occurrence of
fire at hatches numbers 2 and 3. Defendant's evidence did not likewise show he
amount of diligence made by the crew, on orders, in the care of the cargoes.
What appears is that after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage. Consequently, the
crew could not have even explain what could have caused the fire. The
defendant, in the Court's mind, failed to satisfactorily show that extraordinary
vigilance and care had been made by the crew to prevent the occurrence of the
fire. The defendant, as a common carrier, is liable to the consignees for said lack
of deligence required of it under Article 1733 of the Civil Code. 15

Having failed to discharge the burden of proving that it had exercised the extraordinary diligence
required by law, Petitioner Carrier cannot escape liability for the loss of the cargo.

And even if fire were to be considered a "natural disaster" within the meaning of Article 1734 of
the Civil Code, it is required under Article 1739 of the same Code that the "natural disaster"
must have been the "proximate and only cause of the loss," and that the carrier has "exercised
due diligence to prevent or minimize the loss before, during or after the occurrence of the
disaster. " This Petitioner Carrier has also failed to establish satisfactorily.
Nor may Petitioner Carrier seek refuge from liability under the Carriage of Goods by Sea Act, It
is provided therein that:

Sec. 4(2). Neither the carrier nor the ship shall be responsible for loss or damage
arising or resulting from

(b) Fire, unless caused by the actual fault or privity of the carrier.

xxx xxx xxx

In this case, both the Trial Court and the Appellate Court, in effect, found, as a fact, that there
was "actual fault" of the carrier shown by "lack of diligence" in that "when the smoke was
noticed, the fire was already big; that the fire must have started twenty-four (24) hours before
the same was noticed; " and that "after the cargoes were stored in the hatches, no regular
inspection was made as to their condition during the voyage." The foregoing suffices to show
that the circumstances under which the fire originated and spread are such as to show that
Petitioner Carrier or its servants were negligent in connection therewith. Consequently, the
complete defense afforded by the COGSA when loss results from fire is unavailing to Petitioner
Carrier.

On the US $500 Per Package Limitation:

Petitioner Carrier avers that its liability if any, should not exceed US $500 per package as
provided in section 4(5) of the COGSA, which reads:

(5) Neither the carrier nor the ship shall in any event be or become liable for any
loss or damage to or in connection with the transportation of goods in an amount
exceeding $500 per package lawful money of the United States, or in case of
goods not shipped in packages, per customary freight unit, or the equivalent of
that sum in other currency, unless the nature and value of such goods have been
declared by the shipper before shipment and inserted in bill of lading. This
declaration if embodied in the bill of lading shall be prima facie evidence, but all
be conclusive on the carrier.

By agreement between the carrier, master or agent of the carrier, and the shipper
another maximum amount than that mentioned in this paragraph may be fixed:
Provided, That such maximum shall not be less than the figure above named. In
no event shall the carrier be Liable for more than the amount of damage actually
sustained.

xxx xxx xxx

Article 1749 of the New Civil Code also allows the limitations of liability in this wise:

Art. 1749. A stipulation that the common carrier's liability as limited to the value of
the goods appearing in the bill of lading, unless the shipper or owner declares a
greater value, is binding.
It is to be noted that the Civil Code does not of itself limit the liability of the common carrier to a
fixed amount per package although the Code expressly permits a stipulation limiting such
liability. Thus, the COGSA which is suppletory to the provisions of the Civil Code, steps in and
supplements the Code by establishing a statutory provision limiting the carrier's liability in the
absence of a declaration of a higher value of the goods by the shipper in the bill of lading. The
provisions of the Carriage of Goods by.Sea Act on limited liability are as much a part of a bill of
lading as though physically in it and as much a part thereof as though placed therein by
agreement of the parties. 16

In G.R. No. 69044, there is no stipulation in the respective Bills of Lading (Exhibits "C-2" and "I-
3") 1 7 limiting the carrier's liability for the loss or destruction of the goods. Nor is there a
declaration of a higher value of the goods. Hence, Petitioner Carrier's liability should not exceed
US $500 per package, or its peso equivalent, at the time of payment of the value of the goods
lost, but in no case "more than the amount of damage actually sustained."

The actual total loss for the 5,000 pieces of calorized lance pipes was P256,039 (Exhibit "C"),
which was exactly the amount of the insurance coverage by Development Insurance (Exhibit
"A"), and the amount affirmed to be paid by respondent Court. The goods were shipped in 28
packages (Exhibit "C-2") Multiplying 28 packages by $500 would result in a product of $14,000
which, at the current exchange rate of P20.44 to US $1, would be P286,160, or "more than the
amount of damage actually sustained." Consequently, the aforestated amount of P256,039
should be upheld.

With respect to the seven (7) cases of spare parts (Exhibit "I-3"), their actual value was
P92,361.75 (Exhibit "I"), which is likewise the insured value of the cargo (Exhibit "H") and
amount was affirmed to be paid by respondent Court. however, multiplying seven (7) cases by
$500 per package at the present prevailing rate of P20.44 to US $1 (US $3,500 x P20.44) would
yield P71,540 only, which is the amount that should be paid by Petitioner Carrier for those spare
parts, and not P92,361.75.

In G.R. No. 71478, in so far as the two (2) cases of surveying instruments are concerned, the
amount awarded to DOWA which was already reduced to $1,000 by the Appellate Court
following the statutory $500 liability per package, is in order.

In respect of the shipment of 128 cartons of garment fabrics in two (2) containers and insured
with NISSHIN, the Appellate Court also limited Petitioner Carrier's liability to $500 per package
and affirmed the award of $46,583 to NISSHIN. it multiplied 128 cartons (considered as COGSA
packages) by $500 to arrive at the figure of $64,000, and explained that "since this amount is
more than the insured value of the goods, that is $46,583, the Trial Court was correct in
awarding said amount only for the 128 cartons, which amount is less than the maximum
limitation of the carrier's liability."

We find no reversible error. The 128 cartons and not the two (2) containers should be
considered as the shipping unit.

In Mitsui & Co., Ltd. vs. American Export Lines, Inc. 636 F 2d 807 (1981), the consignees of tin
ingots and the shipper of floor covering brought action against the vessel owner and operator to
recover for loss of ingots and floor covering, which had been shipped in vessel — supplied
containers. The U.S. District Court for the Southern District of New York rendered judgment for
the plaintiffs, and the defendant appealed. The United States Court of Appeals, Second
Division, modified and affirmed holding that:

When what would ordinarily be considered packages are shipped in a container

supplied by the carrier and the number of such units is disclosed in the shipping
documents, each of those units and not the container constitutes the "package"
referred to in liability limitation provision of Carriage of Goods by Sea Act.
Carriage of Goods by Sea Act, 4(5), 46 U.S.C.A.& 1304(5).

Even if language and purposes of Carriage of Goods by Sea Act left doubt as to
whether carrier-furnished containers whose contents are disclosed should be
treated as packages, the interest in securing international uniformity would
suggest that they should not be so treated. Carriage of Goods by Sea Act, 4(5),
46 U.S.C.A. 1304(5).

... After quoting the statement in Leather's Best, supra, 451 F 2d at 815, that
treating a container as a package is inconsistent with the congressional purpose
of establishing a reasonable minimum level of liability, Judge Beeks wrote, 414 F.
Supp. at 907 (footnotes omitted):

Although this approach has not completely escaped criticism,

there is, nonetheless, much to commend it. It gives needed
recognition to the responsibility of the courts to construe and apply
the statute as enacted, however great might be the temptation to
"modernize" or reconstitute it by artful judicial gloss. If COGSA's
package limitation scheme suffers from internal illness, Congress
alone must undertake the surgery. There is, in this regard, obvious
wisdom in the Ninth Circuit's conclusion in Hartford that
technological advancements, whether or not forseeable by the
COGSA promulgators, do not warrant a distortion or artificial
construction of the statutory term "package." A ruling that these
large reusable metal pieces of transport equipment qualify as
COGSA packages — at least where, as here, they were carrier
owned and supplied — would amount to just such a distortion.

Certainly, if the individual crates or cartons prepared by the

shipper and containing his goods can rightly be considered
"packages" standing by themselves, they do not suddenly lose
that character upon being stowed in a carrier's container. I would
liken these containers to detachable stowage compartments of the
ship. They simply serve to divide the ship's overall cargo stowage
space into smaller, more serviceable loci. Shippers' packages are
quite literally "stowed" in the containers utilizing stevedoring
practices and materials analogous to those employed in traditional
on board stowage.

In Yeramex International v. S.S. Tando,, 1977 A.M.C. 1807 (E.D. Va.) rev'd on
other grounds, 595 F 2nd 943 (4 Cir. 1979), another district with many maritime
cases followed Judge Beeks' reasoning in Matsushita and similarly rejected the
functional economics test. Judge Kellam held that when rolls of polyester goods
 are packed into cardboard cartons which are then placed in containers, the
cartons and not the containers are the packages.

xxx xxx xxx

The case of Smithgreyhound v. M/V Eurygenes, 18 followed the Mitsui test:

Eurygenes concerned a shipment of stereo equipment packaged by the shipper

into cartons which were then placed by the shipper into a carrier- furnished
container. The number of cartons was disclosed to the carrier in the bill of lading.
Eurygenes followed the Mitsui test and treated the cartons, not the container, as
the COGSA packages. However, Eurygenes indicated that a carrier could limit its
liability to $500 per container if the bill of lading failed to disclose the number of
cartons or units within the container, or if the parties indicated, in clear and
unambiguous language, an agreement to treat the container as the package.

(Admiralty Litigation in Perpetuum: The Continuing Saga of

Package Limitations and Third World Delivery Problems by
Chester D. Hooper & Keith L. Flicker, published in Fordham
International Law Journal, Vol. 6, 1982-83, Number 1) (Emphasis
supplied)

In this case, the Bill of Lading (Exhibit "A") disclosed the following data:

2 Containers

(128) Cartons)

Men's Garments Fabrics and Accessories Freight Prepaid

Say: Two (2) Containers Only.

Considering, therefore, that the Bill of Lading clearly disclosed the contents of the containers,
the number of cartons or units, as well as the nature of the goods, and applying the ruling in
the Mitsui and Eurygenes cases it is clear that the 128 cartons, not the two (2) containers
should be considered as the shipping unit subject to the $500 limitation of liability.

True, the evidence does not disclose whether the containers involved herein were carrier-
furnished or not. Usually, however, containers are provided by the carrier. 19 In this case, the
probability is that they were so furnished for Petitioner Carrier was at liberty to pack and carry
the goods in containers if they were not so packed. Thus, at the dorsal side of the Bill of Lading
(Exhibit "A") appears the following stipulation in fine print:

11. (Use of Container) Where the goods receipt of which is acknowledged on the
face of this Bill of Lading are not already packed into container(s) at the time of
receipt, the Carrier shall be at liberty to pack and carry them in any type of
container(s).
The foregoing would explain the use of the estimate "Say: Two (2) Containers Only" in the Bill of
Lading, meaning that the goods could probably fit in two (2) containers only. It cannot mean that
the shipper had furnished the containers for if so, "Two (2) Containers" appearing as the first
entry would have sufficed. and if there is any ambiguity in the Bill of Lading, it is a cardinal
principle in the construction of contracts that the interpretation of obscure words or stipulations
in a contract shall not favor the party who caused the obscurity. 20 This applies with even greater
force in a contract of adhesion where a contract is already prepared and the other party merely
adheres to it, like the Bill of Lading in this case, which is draw. up by the carrier. 21

On Alleged Denial of Opportunity to Present Deposition of Its Witnesses: (in G.R. No. 69044
only)

Petitioner Carrier claims that the Trial Court did not give it sufficient time to take the depositions
of its witnesses in Japan by written interrogatories.

We do not agree. petitioner Carrier was given- full opportunity to present its evidence but it
failed to do so. On this point, the Trial Court found:

xxx xxx xxx

Indeed, since after November 6, 1978, to August 27, 1979, not to mention the
time from June 27, 1978, when its answer was prepared and filed in Court, until
September 26, 1978, when the pre-trial conference was conducted for the last
time, the defendant had more than nine months to prepare its evidence. Its
belated notice to take deposition on written interrogatories of its witnesses in
Japan, served upon the plaintiff on August 25th, just two days before the hearing
set for August 27th, knowing fully well that it was its undertaking on July 11 the
that the deposition of the witnesses would be dispensed with if by next time it had
not yet been obtained, only proves the lack of merit of the defendant's motion for
postponement, for which reason it deserves no sympathy from the Court in that
regard. The defendant has told the Court since February 16, 1979, that it was
going to take the deposition of its witnesses in Japan. Why did it take until August
25, 1979, or more than six months, to prepare its written interrogatories. Only the
defendant itself is to blame for its failure to adduce evidence in support of its
defenses.

xxx xxx xxx 22

Petitioner Carrier was afforded ample time to present its side of the case. 23 It cannot complain
now that it was denied due process when the Trial Court rendered its Decision on the basis of
the evidence adduced. What due process abhors is absolute lack of opportunity to be heard. 24

On the Award of Attorney's Fees:

Petitioner Carrier questions the award of attorney's fees. In both cases, respondent Court
affirmed the award by the Trial Court of attorney's fees of P35,000.00 in favor of Development
Insurance in G.R. No. 69044, and P5,000.00 in favor of NISSHIN and DOWA in G.R. No.
71478.
Courts being vested with discretion in fixing the amount of attorney's fees, it is believed that the
amount of P5,000.00 would be more reasonable in G.R. No. 69044. The award of P5,000.00 in
G.R. No. 71478 is affirmed.

WHEREFORE, 1) in G.R. No. 69044, the judgment is modified in that petitioner Eastern
Shipping Lines shall pay the Development Insurance and Surety Corporation the amount of
P256,039 for the twenty-eight (28) packages of calorized lance pipes, and P71,540 for the
seven (7) cases of spare parts, with interest at the legal rate from the date of the filing of the
complaint on June 13, 1978, plus P5,000 as attorney's fees, and the costs.

2) In G.R.No.71478,the judgment is hereby affirmed.

SO ORDERED.

Narvasa, Cruz, Feliciano and Gancayco, JJ., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile
materials, and not the two (2) containers, should be considered as the shipping unit for the
purpose of applying the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation
adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs.
American Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes,
666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers whose contents
are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the
present case, for the following reasons: (1) The facts in those cases differ materially from those
obtaining in the present case; and (2) the rule laid down in those two cases is by no means
settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company.
In Mitsui the Court held: "Certainly, if the individual crates or cartons prepared by the shipper
and containing his goods can rightly be considered "packages" standing by themselves, they do
not suddenly lose that character upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship." Cartons or crates placed inside
carrier-furnished containers are deemed stowed in the vessel itself, and do not lose their
character as individual units simply by being placed inside container provided by the carrier,
which are merely "detachable stowage compartments of the ship.
In the case at bar, there is no evidence showing that the two containers in question were carrier-
supplied. This fact cannot be presumed. The facts of the case in fact show that this was the only
shipment placed in containers. The other shipment involved in the case, consisting of surveying
instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which
appear in the bill of lading. Absent any positive evidence on this point, we cannot say that those
words constitute a mere estimate that the shipment could fit in two containers, thereby showing
that when the goods were delivered by the shipper, they were not yet placed inside the
containers and that it was the petitioner carrier which packed the goods into its own containers,
as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such
assumption cannot be made in view of the following words clearly stamped in red ink on the
face of the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates
that it was the shipper which loaded and counted the goods placed inside the container and
sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and
the number of cartons said to be contained inside them was indicated in the bill of lading, on the
mere say-so of the shipper. The freight paid to the carrier on the shipment was based on the
measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must
have saved on the freight charges by using containers for the shipment. Under the
circumstances, it would be unfair to the carrier to have the limitation of its liability under COGSA
fixed on the number of cartons inside the containers, rather than on the containers themselves,
since the freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of
the COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the
troublesome problem of applying the statutory limitation under COGSA to containerized
shipments. The law was adopted before modern technological changes have revolutionized the
shipping industry. There is need for the law itself to be updated to meet the changes brought
about by the container revolution, but this is a task which should be addressed by the legislative
body. Until then, this Court, while mindful of American jurisprudence on the subject, should
make its own interpretation of the COGSA provisions, consistent with what is equitable to the
parties concerned. There is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight
charges based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the
shipment, for that would have entailed higher freight charges; instead of paying higher freight
charges, the shipper protected itself by insuring the shipment. As subrogee, the insurance
company can recover from the carrier only what the shipper itself is entitled to recover, not the
amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or
"package" within the purview of COGSA. However, we realize that this may not be equitable as
far as the shipper is concerned. If the container is not regarded as a "package" within the terms
of COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit."
Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the limit of the
carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's
liability for the shipment in question based on "freight unit" would be $21,950.00 for the
shipment of 43.9 cubic meters.
I concur with the rest of the decision.

Sarmiento, J., concur.

Separate Opinions

YAP, J., concurring and dissenting:

With respect to G.R. No. 71478, the majority opinion holds that the 128 cartons of textile
materials, and not the two (2) containers, should be considered as the shipping unit for the
purpose of applying the $500.00 limitation under the Carriage of Goods by Sea Act (COGSA).

The majority opinion followed and applied the interpretation of the COGSA "package" limitation
adopted by the Second Circuit, United States Court of Appeals, in Mitsui & Co., Ltd. vs.
American Export Lines, Inc., 636 F. 2d 807 (1981) and the Smithgreyhound v. M/V Eurygenes,
666, F 2nd, 746. Both cases adopted the rule that carrier-furnished containers whose contents
are fully disclosed are not "packages" within the meaning of Section 4 (5) of COGSA.

I cannot go along with the majority in applying the Mitsui and Eurygenes decisions to the
present case, for the following reasons: (1) The facts in those cases differ materially from those
obtaining in the present case; and (2) the rule laid down in those two cases is by no means
settled doctrine.

In Mitsui and Eurygenes, the containers were supplied by the carrier or shipping company.
In Mitsui the Court held: "Certainly, if the individual crates or cartons prepared by the shipper
and containing his goods can rightly be considered "packages" standing by themselves, they do
not suddenly lose that character upon being stowed in a carrier's container. I would liken these
containers to detachable stowage compartments of the ship." Cartons or crates placed inside
carrier-furnished containers are deemed stowed in the vessel itself, and do not lose their
character as individual units simply by being placed inside container provided by the carrier,
which are merely "detachable stowage compartments of the ship.

In the case at bar, there is no evidence showing that the two containers in question were carrier-
supplied. This fact cannot be presumed. The facts of the case in fact show that this was the only
shipment placed in containers. The other shipment involved in the case, consisting of surveying
instruments, was packed in two "cases."

We cannot speculate on the meaning of the words "Say: Two (2) Containers Only, " which
appear in the bill of lading. Absent any positive evidence on this point, we cannot say that those
words constitute a mere estimate that the shipment could fit in two containers, thereby showing
that when the goods were delivered by the shipper, they were not yet placed inside the
containers and that it was the petitioner carrier which packed the goods into its own containers,
as authorized under paragraph 11 on the dorsal side of the bill of lading, Exhibit A. Such
assumption cannot be made in view of the following words clearly stamped in red ink on the
face of the bill of lading: "Shipper's Load, Count and Seal Said to Contain." This clearly indicates
that it was the shipper which loaded and counted the goods placed inside the container and
sealed the latter.

The two containers were delivered by the shipper to the carrier already sealed for shipment, and
the number of cartons said to be contained inside them was indicated in the bill of lading, on the
mere say-so of the shipper. The freight paid to the carrier on the shipment was based on the
measurement (by volume) of the two containers at $34.50 per cubic meter. The shipper must
have saved on the freight charges by using containers for the shipment. Under the
circumstances, it would be unfair to the carrier to have the limitation of its liability under COGSA
fixed on the number of cartons inside the containers, rather than on the containers themselves,
since the freight revenue was based on the latter.

The Mitsui and Eurygenes decisions are not the last word on the subject. The interpretation of
the COGSA package limitation is in a state of flux, 1 as the courts continue to wrestle with the
troublesome problem of applying the statutory limitation under COGSA to containerized
shipments. The law was adopted before modern technological changes have revolutionized the
shipping industry. There is need for the law itself to be updated to meet the changes brought
about by the container revolution, but this is a task which should be addressed by the legislative
body. Until then, this Court, while mindful of American jurisprudence on the subject, should
make its own interpretation of the COGSA provisions, consistent with what is equitable to the
parties concerned. There is need to balance the interests of the shipper and those of the carrier.

In the case at bar, the shipper opted to ship the goods in two containers, and paid freight
charges based on the freight unit, i.e., cubic meters. The shipper did not declare the value of the
shipment, for that would have entailed higher freight charges; instead of paying higher freight
charges, the shipper protected itself by insuring the shipment. As subrogee, the insurance
company can recover from the carrier only what the shipper itself is entitled to recover, not the
amount it actually paid the shipper under the insurance policy.

In our view, under the circumstances, the container should be regarded as the shipping unit or
"package" within the purview of COGSA. However, we realize that this may not be equitable as
far as the shipper is concerned. If the container is not regarded as a "package" within the terms
of COGSA, then, the $500.00 liability limitation should be based on "the customary freight unit."
Sec. 4 (5) of COGSA provides that in case of goods not shipped in packages, the limit of the
carrier's liability shall be $500.00 "per customary freight unit." In the case at bar, the petitioner's
liability for the shipment in question based on "freight unit" would be $21,950.00 for the
shipment of 43.9 cubic meters.

I concur with the rest of the decision.

Sarmiento, J., concur.

Footnotes

1 Petition, p. 6, Rollo of G.R. No. 69044, p. 15.

2 Granada vs. PNB, 18 SCRA 1 (1966); Gardner vs. CA, 131 SCRA 85 (1984)

3 p.51, Vol. 5, Rules of Court by Ruperto G. Martin, citing 31 C.J.S. 1075.

4 Article 1753, Civil Code.

5 See Samar Mining Co., Inc. vs. Nordeutscher Lloyd, 132 SCRA 529 (1984).

6 Art. 1766, Civil Code; Samar Mining Co. Inc. vs. Lloyd, supra.

7 See American President Lines vs. Klepper, 110 Phil. 243, 248 (1960).

8 Article 1733, Civil Code.

9 Article 1734, Civil Code.

10 Africa vs. Caltex Phil. 16 SCRA 448, 455 (1966).

11 Lloyd vs. Haugh & K. Storage & Transport Co., 293 Pa. 148, A 516; Forward
v. Pittard, ITR 27, 99 Eng. Reprint, 953.

12 Article 1734, Civil Code.

13 Section 4, Carriage of Goods by Sea Act.

14 Manresa, cited in p. 147, V. Outline of the Civil Law, J.B.L. Reyes and R.C.
Puno.

15 Decision, Court of Appeals in CA-G.R. No. 67848-R, appealed in G.R. No.

71478.

16 Shackman v. Cunard White Star, D.C. N. Y. 1940, 31 F. Supp. 948. 46 USCA

866: cited in Phoenix Assurance Company vs. Macondray 64 SCRA 15 (1975),

17 Folio of Exhibits, pp. 6 and 23.

18 666 F. 2d 746, 1982 A.M.C. 320 (2d Circuits 1981).

19 A container is a permanent reusable article of transport equipment not

packaging of goods durably made of metal, and equipped with doors for easy
access to the goods and for repeated use. It is designed to facilitate the handling,
loading, stowage aboard ship, carriage, discharge from ship, movement, and
transfer of large numbers of packages simultaneously by mechanical means to
minimize the cost and risks of manually processing each package individually, It
 functions primarily as ship's gear for cargo handling, and is usually provided by
the carrier. (Simon, The Law of Shipping Containers) (Emphasis supplied).

20 Article 1377, Civil Code.

21 See Qua Chee Gan vs. Law Union & Rock Ins. Co., Ltd., 98 Phil. 85 (1956).

22 Amended Record on Appeal, Annex "D," p. 62; Rollo in G.R. No. 69044, p.
89.

23 Associated Citizens Bank vs. Ople, 103 SCRA 130 (1981).

24 Tajonera vs. Lamaroza, 110 SCRA 438 (1981).

Yap, J.:

1 See R.M. Sharpe, Jr. and Mark E. Steiner, "The Container as Customary
Freight Unit". Round Two of the Container Debate?", South Texas Law Journal
Vol. 24, No. 2 (1983).

MCMILLAN VS VALDERAMA

Arbitration Clause

WAHL VS DONALDSON
INTERNATIONAL HAVESTER VS HAMBURG-AMERICAN LINE
VEGA VS SAN CARLOS MILLING
NATIONAL UNION FIRE INSURANCE CO VS STOLT-NIELSEN PHILIPPINES INC

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 87958 April 26, 1990

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURG, PA/AMERICAN

INTERNATIONAL UNDERWRITER (PHIL.) INC., petitioners,
vs.
STOLT-NIELSEN PHILIPPINES, INC. and COURT OF APPEALS, respondents.

Fajardo Law Offices for petitioners.

Sycip, Salazar, Hernandez & Gatmaitan for Stolt-Nielsen Phil., Inc.

MELENCIO-HERRERA, J.:

We uphold the ruling of respondent Court of Appeals that the claim or dispute herein is
arbitrable.

On 9 January 1985, United Coconut Chemicals, Inc. (hereinafter referred to as SHIPPER)

shipped 404.774 metric tons of distilled C6-C18 fatty acid on board MT "Stolt Sceptre," a tanker
owned by Stolt-Nielsen Philippines Inc. (hereinafter referred to as CARRIER), from Bauan,
Batangas, Philippines, consigned to "Nieuwe Matex" at Rotterdam, Netherlands, covered by
Tanker Bill of Lading BL No. BAT-1. The shipment was insured under a marine cargo policy with
Petitioner National Union Fire Insurance Company of Pittsburg (hereinafter referred to as
INSURER), a non-life American insurance corporation, through its settling agent in the
Philippines, the American International Underwriters (Philippines), Inc., the other petitioner
herein.

It appears that the Bill of Lading issued by the CARRIER contained a general statement of
incorporation of the terms of a Charter Party between the SHIPPER and Parcel Tankers, Inc.,
entered into in Greenwich, Connecticut, U.S.A.

Upon receipt of the cargo by the CONSIGNEE in the Netherlands, it was found to be discolored
and totally contaminated. The claim filed by the SHIPPER-ASSURED with the CARRIER having
been denied, the INSURER indemnified the SHIPPER pursuant to the stipulation in the marine
cargo policy covering said shipment.

On 21 April 1986, as subrogee of the SHIPPER-ASSURED, the INSURER filed suit against the
CARRIER, before the Regional Trial Court of Makati, Branch 58 (RTC), for recovery of the sum
of P1,619,469.21, with interest, representing the amount the INSURER had paid the SHIPPER-
ASSURED. The CARRIER moved to dismiss/suspend the proceedings on the ground that the
RTC had no jurisdiction over the claim the same being an arbitrable one; that as subrogee of
the SHIPPER-ASSURED, the INSURER is subject to the provisions of the Bill of Lading, which
includes a provision that the shipment is carried under and pursuant to the terms of the Charter
Party, dated 21 December 1984, between the SHIPPER-ASSURED and Parcel Tankers, Inc.
providing for arbitration.

The INSURER opposed the dismissal/suspension of the proceedings on the ground that it was
not legally bound to submit the claim for arbitration inasmuch as the arbitration clause provided
in the Charter Party was not incorporated into the Bill of Lading, and that the arbitration clause is
void for being unreasonable and unjust. On 28 July 1987, the RTC 1 denied the Motion, but
subsequently reconsidered its action on 19 November 1987, and deferred resolution on the
Motion to Dismiss/Suspend Proceedings until trial on the merits "since the ground alleged in
said motion does not appear to be indubitable."

The CARRIER then resorted to a Petition for Certiorari and Prohibition with prayer for
Preliminary Injunction and/or Temporary Restraining Order before the respondent Appellate
Court seeking the annulment of the 19 November 1987 RTC Order. On 12 April 1989, the
respondent Court 2 promulgated the Decision now under review, with the following dispositive
tenor:

WHEREFORE', the order of respondent Judge dated November 19, 1987

deferring resolution on petitioner Stolt-Nielsen's Motion to Dismiss/Suspend
 Proceedings is hereby SET ASIDE; private respondent NUFIC (the INSURER) is
ordered to refer its claims for arbitration; and respondent Judge is directed to
suspend the proceedings in Civil case No. 13498 pending the return of the
corresponding arbitral award.

On 21 August 1989, we resolved to give due course and required the parties to submit their
respective Memoranda, which they have done, the last filed having been Noted on 23 October
1989.

First, herein petitioner-INSURER alleges that the RTC Order deferring resolution of the
CARRIER's Motion to Dismiss constitutes an interlocutory order, which can not be the subject of
a special civil action on certiorari and prohibition.

Generally, this would be true. However, the case before us falls under the exception. While a
Court Order deferring action on a motion to dismiss until the trial is interlocutory and cannot be
challenged until final judgment, still, where it clearly appears that the trial Judge or Court is
proceeding in excess or outside of its jurisdiction, the remedy of prohibition would lie since it
would be useless and a waste of time to go ahead with the proceedings (University of Sto.
Tomas vs. Villanueva, 106 Phil. 439, [1959] citing Philippine International Fair, Inc., et al., vs.
Ibanez, et al., 94 Phil. 424 [1954]; Enrique vs. Macadaeg, et al., 84 Phil. 674 [1949]; San Beda
College vs. CIR, 97 Phil. 787 [1955]). Even a cursory reading of the subject Bill of Lading, in
relation to the Charter Party, reveals the Court's patent lack of jurisdiction to hear and decide
the claim.

We proceed to the second but more crucial issue: Are the terms of the Charter Party,
particularly the provision on arbitration, binding on the INSURER?

The INSURER postulates that it cannot be bound by the Charter Party because, as insurer, it is
subrogee only with respect to the Bill of Lading; that only the Bill of Lading should regulate the
relation among the INSURER, the holder of the Bill of Lading, and the CARRIER; and that in
order to bind it, the arbitral clause in the Charter Party should have been incorporated into the
Bill of Lading.

We rule against that submission.

The pertinent portion of the Bill of Lading in issue provides in part:

This shipment is carried under and pursuant to the terms of the Charter dated
December 21st 1984 at Greenwich, Connecticut, U.S.A. between Parcel
Tankers. Inc. and United Coconut Chemicals, Ind. as Charterer and all the terms
whatsoever of the said Charter except the rate and payment of freight specified
therein apply to and govern the rights of the parties concerned in this shipment.
Copy of the Charter may be obtained from the Shipper or Charterer. (Emphasis
supplied)

While the provision on arbitration in the Charter Party reads:

H. Special Provisions.

xxx xxx xxx

 4. Arbitration. Any dispute arising from the making, performance or termination of
this Charter Party shall be settled in New York, Owner and Charterer each
appointing an arbitrator, who shall be a merchant, broker or individual
experienced in the shipping business; the two thus chosen, if they cannot agree,
shall nominate a third arbitrator who shall be an admiralty lawyer. Such
arbitration shall be conducted in conformity with the provisions and procedure of
the United States arbitration act, and a judgment of the court shall be entered
upon any award made by said arbitrator. Nothing in this clause shall be deemed
to waive Owner's right to lien on the cargo for freight, deed of freight, or
demurrage.

Clearly, the Bill of Lading incorporates by reference the terms of the Charter Party. It is settled
law that the charter may be made part of the contract under which the goods are carried by an
appropriate reference in the Bill of Lading (Wharton Poor, Charter Parties and Ocean Bills of
Lading (5th ed., p. 71). This should include the provision on arbitration even without a specific
stipulation to that effect. The entire contract must be read together and its clauses interpreted in
relation to one another and not by parts. Moreover, in cases where a Bill of Lading has been
issued by a carrier covering goods shipped aboard a vessel under a charter party, and the
charterer is also the holder of the bill of lading, "the bill of lading operates as the receipt for the
goods, and as document of title passing the property of the goods, but not as varying the
contract between the charterer and the shipowner" (In re Marine Sulphur Queen, 460 F 2d 89,
103 [2d Cir. 1972]; Ministry of Commerce vs. Marine Tankers Corp. 194 F. Supp 161, 163
[S.D.N.Y. 1960]; Greenstone Shipping Co., S.A. vs. Transworld Oil, Ltd., 588 F Supp [D.El.
1984]). The Bill of Lading becomes, therefore, only a receipt and not the contract of carriage in a
charter of the entire vessel, for the contract is the Charter Party (Shell Oil Co. vs. M/T Gilda, 790
F 2d 1209, 1212 [5th Cir. 1986]; Home Insurance Co. vs. American Steamship Agencies, Inc.,
G.R. No. L-25599, 4 April 1968, 23 SCRA 24), and is the law between the parties who are
bound by its terms and condition provided that these are not contrary to law, morals, good
customs, public order and public policy (Article 1306, Civil Code).

As the respondent Appellate Court found, the INSURER "cannot feign ignorance of the
arbitration clause since it was already charged with notice of the existence of the charter party
due to an appropriate reference thereof in the bill of lading and, by the exercise of ordinary
diligence, it could have easily obtained a copy thereof either from the shipper or the charterer.

We hold, therefore, that the INSURER cannot avoid the binding effect of the arbitration clause.
By subrogation, it became privy to the Charter Party as fully as the SHIPPER before the latter
was indemnified, because as subrogee it stepped into the shoes of the SHIPPER-ASSURED
and is subrogated merely to the latter's rights. It can recover only the amount that is recoverable
by the assured. And since the right of action of the SHIPPER-ASSURED is governed by the
provisions of the Bill of Lading, which includes by reference the terms of the Charter Party,
necessarily, a suit by the INSURER is subject to the same agreements (see St. Paul Fire and
Marine Insurance Co. vs. Macondray, G.R. No. L-27796, 25 March 1976, 70 SCRA 122).

Stated otherwise, as the subrogee of the SHIPPER, the INSURER is contractually bound by the
terms of the Charter party. Any claim of inconvenience or additional expense on its part should
not render the arbitration clause unenforceable.

Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted
in our jurisdiction (Chapter 2, Title XIV, Book IV, Civil Code). Republic Act No. 876 (The
Arbitration Law) also expressly authorizes arbitration of domestic disputes. Foreign arbitration
as a system of settling commercial disputes of an international character was likewise
recognized when the Philippines adhered to the United Nations "Convention on the Recognition
and the Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965 Resolution
No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of
international arbitration agreements between parties of different nationalities within a contracting
state. Thus, it pertinently provides:

1. Each Contracting State shall recognize an agreement in writing under which

the parties undertake to submit to arbitration all or any differences which have
arisen or which may arise between them in respect of a defined legal
relationship, whether contractual or not, concerning a subject matter capable of
settlement by arbitration.

2. The term "agreement in writing" shall include an arbitral clause in a contract or

an arbitration agreement, signed by the parties or contained in an exchange of
letters or telegrams.

3. The court of a Contracting State, when seized of an action in a matter in

respect of which the parties have made an agreement within the meaning of this
article, shall, at the request of one of the parties, refer the parties to arbitration,
unless it finds that the said agreement is null and void, inoperative or incapable
of being performed.

It has not been shown that the arbitral clause in question is null and void, inoperative, or
incapable of being performed. Nor has any conflict been pointed out between the Charter Party
and the Bill of Lading.

In fine, referral to arbitration in New York pursuant to the arbitration clause, and suspension of
the proceedings in Civil Case No. 13498 below, pending the return of the arbitral award, is,
indeed called for.

WHEREFORE, finding no reversible error in respondent Appellate Court's 12 April 1989

Decision, the instant Petition for Review on certiorari is DENIED and the said judgment is
hereby AFFIRMED. Costs against petitioners.

SO ORDERED.

Padilla, Sarmiento and Regalado JJ., concur. Paras, J., took no part.

Footnotes

1 Judge Zosimo Z. Angeles, Presiding.

2 Penned by Justice Santiago M. Kapunan and concurred in by Justices Ricardo

J. Francisco and Abelardo M. Dayrit.
PUROMINES VS COURT OF APPEALS

Contract of Adhesion
SHEWARAM VS PAL

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-20099 July 7, 1966

PARMANAND SHEWARAM, plaintiff and appellee,

vs.
PHILIPPINE AIR LINES, INC., defendant and appellant.

Ponce Enrile, Siguion Reyna, Montecillo and Belo for defendant and appellant.
Climaco and Associates for plaintiff and appellee.

ZALDIVAR, J.:

Before the municipal court of Zamboanga City, plaintiff-appellee Parmanand Shewaram

instituted an action to recover damages suffered by him due to the alleged failure of defendant-
appellant Philippines Air Lines, Inc. to observe extraordinary diligence in the vigilance and
carriage of his luggage. After trial the municipal court of Zamboanga City rendered judgment
ordering the appellant to pay appellee P373.00 as actual damages, P100.00 as exemplary
damages, P150.00 as attorney's fees, and the costs of the action.

Appellant Philippine Air Lines appealed to the Court of First Instance of Zamboanga City. After
hearing the Court of First Instance of Zamboanga City modified the judgment of the inferior
court by ordering the appellant to pay the appellee only the sum of P373.00 as actual damages,
with legal interest from May 6, 1960 and the sum of P150.00 as attorney's fees, eliminating the
award of exemplary damages.

From the decision of the Court of First Instance of Zamboanga City, appellant appeals to this
Court on a question of law, assigning two errors allegedly committed by the lower court a quo,
to wit:

1. The lower court erred in not holding that plaintiff-appellee was bound by the provisions
of the tariff regulations filed by defendant-appellant with the civil aeronautics board and
the conditions of carriage printed at the back of the plane ticket stub.

2. The lower court erred in not dismissing this case or limiting the liability of the
defendant-appellant to P100.00.

The facts of this case, as found by the trial court, quoted from the decision appealed from, are
as follows:
That Parmanand Shewaram, the plaintiff herein, was on November 23, 1959, a paying
passenger with ticket No. 4-30976, on defendant's aircraft flight No. 976/910 from
Zamboanga City bound for Manila; that defendant is a common carrier engaged in air
line transportation in the Philippines, offering its services to the public to carry and
transport passengers and cargoes from and to different points in the Philippines; that on
the above-mentioned date of November 23, 1959, he checked in three (3) pieces of
baggages — a suitcase and two (2) other pieces; that the suitcase was mistagged by
defendant's personnel in Zamboanga City, as I.G.N. (for Iligan) with claim check No. B-
3883, instead of MNL (for Manila). When plaintiff Parmanand Shewaram arrived in
Manila on the date of November 23, 1959, his suitcase did not arrive with his flight
because it was sent to Iligan. So, he made a claim with defendant's personnel in Manila
airport and another suitcase similar to his own which was the only baggage left for that
flight, the rest having been claimed and released to the other passengers of said flight,
was given to the plaintiff for him to take delivery but he did not and refused to take
delivery of the same on the ground that it was not his, alleging that all his clothes were
white and the National transistor 7 and a Rollflex camera were not found inside the
suitcase, and moreover, it contained a pistol which he did not have nor placed inside his
suitcase; that after inquiries made by defendant's personnel in Manila from different
airports where the suitcase in question must have been sent, it was found to have
reached Iligan and the station agent of the PAL in Iligan caused the same to be sent to
Manila for delivery to Mr. Shewaram and which suitcase belonging to the plaintiff herein
arrived in Manila airport on November 24, 1959; that it was also found out that the
suitcase shown to and given to the plaintiff for delivery which he refused to take delivery
belonged to a certain Del Rosario who was bound for Iligan in the same flight with Mr.
Shewaram; that when the plaintiff's suitcase arrived in Manila as stated above on
November 24, 1959, he was informed by Mr. Tomas Blanco, Jr., the acting station agent
of the Manila airport of the arrival of his suitcase but of course minus his Transistor
Radio 7 and the Rollflex Camera; that Shewaram made demand for these two (2) items
or for the value thereof but the same was not complied with by defendant.

xxx xxx xxx

It is admitted by defendant that there was mistake in tagging the suitcase of plaintiff as
IGN. The tampering of the suitcase is more apparent when on November 24, 1959,
when the suitcase arrived in Manila, defendant's personnel could open the same in spite
of the fact that plaintiff had it under key when he delivered the suitcase to defendant's
personnel in Zamboanga City. Moreover, it was established during the hearing that there
was space in the suitcase where the two items in question could have been placed. It
was also shown that as early as November 24, 1959, when plaintiff was notified by
phone of the arrival of the suitcase, plaintiff asked that check of the things inside his
suitcase be made and defendant admitted that the two items could not be found inside
the suitcase. There was no evidence on record sufficient to show that plaintiff's suitcase
was never opened during the time it was placed in defendant's possession and prior to
its recovery by the plaintiff. However, defendant had presented evidence that it had
authority to open passengers' baggage to verify and find its ownership or identity. Exhibit
"1" of the defendant would show that the baggage that was offered to plaintiff as his own
was opened and the plaintiff denied ownership of the contents of the baggage. This
proven fact that baggage may and could be opened without the necessary authorization
and presence of its owner, applied too, to the suitcase of plaintiff which was mis-sent to
Iligan City because of mistagging. The possibility of what happened in the baggage of
Mr. Del Rosario at the Manila Airport in his absence could have also happened to
 plaintiffs suitcase at Iligan City in the absence of plaintiff. Hence, the Court believes that
these two items were really in plaintiff's suitcase and defendant should be held liable for
the same by virtue of its contract of carriage.

It is clear from the above-quoted portions of the decision of the trial court that said court had
found that the suitcase of the appellee was tampered, and the transistor radio and the camera
contained therein were lost, and that the loss of those articles was due to the negligence of the
employees of the appellant. The evidence shows that the transistor radio cost P197.00 and the
camera cost P176.00, so the total value of the two articles was P373.00.

There is no question that the appellant is a common carrier. 1 As such common carrier the
appellant, from the nature of its business and for reasons of public policy, is bound to observe
extraordinary diligence in the vigilance over the goods and for the safety of the passengers
transported by it according to the circumstances of each case. 2 It having been shown that the
loss of the transistor radio and the camera of the appellee, costing P373.00, was due to the
negligence of the employees of the appellant, it is clear that the appellant should be held liable
for the payment of said loss.3

It is, however, contended by the appellant that its liability should be limited to the amount stated
in the conditions of carriage printed at the back of the plane ticket stub which was issued to the
appellee, which conditions are embodied in Domestic Tariff Regulations No. 2 which was filed
with the Civil Aeronautics Board. One of those conditions, which is pertinent to the issue raised
by the appellant in this case provides as follows:

The liability, if any, for loss or damage to checked baggage or for delay in the delivery
thereof is limited to its value and, unless the passenger declares in advance a higher
valuation and pay an additional charge therefor, the value shall be conclusively deemed
not to exceed P100.00 for each ticket.

The appellant maintains that in view of the failure of the appellee to declare a higher value for
his luggage, and pay the freight on the basis of said declared value when he checked such
luggage at the Zamboanga City airport, pursuant to the abovequoted condition, appellee can not
demand payment from the appellant of an amount in excess of P100.00.

The law that may be invoked, in this connection is Article 1750 of the New Civil Code which
provides as follows:

A contract fixing the sum that may be recovered by the owner or shipper for the loss,
destruction, or deterioration of the goods is valid, if it is reasonable and just under the
circumstances, and has been fairly and freely agreed upon.

In accordance with the above-quoted provision of Article 1750 of the New Civil Code, the
pecuniary liability of a common carrier may, by contract, be limited to a fixed amount. It is
required, however, that the contract must be "reasonable and just under the circumstances and
has been fairly and freely agreed upon."

The requirements provided in Article 1750 of the New Civil Code must be complied with before
a common carrier can claim a limitation of its pecuniary liability in case of loss, destruction or
deterioration of the goods it has undertaken to transport. In the case before us We believe that
the requirements of said article have not been met. It can not be said that the appellee had
actually entered into a contract with the appellant, embodying the conditions as printed at the
back of the ticket stub that was issued by the appellant to the appellee. The fact that those
conditions are printed at the back of the ticket stub in letters so small that they are hard to read
would not warrant the presumption that the appellee was aware of those conditions such that he
had "fairly and freely agreed" to those conditions. The trial court has categorically stated in its
decision that the "Defendant admits that passengers do not sign the ticket, much less did
plaintiff herein sign his ticket when he made the flight on November 23, 1959." We hold,
therefore, that the appellee is not, and can not be, bound by the conditions of carriage found at
the back of the ticket stub issued to him when he made the flight on appellant's plane on
November 23, 1959.

The liability of the appellant in the present case should be governed by the provisions of Articles
1734 and 1735 of the New Civil Code, which We quote as follows:

ART. 1734. Common carries are responsible for the loss, destruction, or deterioration of
the goods, unless the same is due to any of the following causes only:

(1) Flood, storm, earthquake, or other natural disaster or calamity;

(2) Act of the public enemy in war, whether international or civil;

(3) Act or omission of the shipper or owner of the goods;

(4) The character of the goods or defects in the packing or in the containers;

(5) Order or act of competent public authority.1äwphï1.ñët

ART. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4 and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in Article 1733.

It having been clearly found by the trial court that the transistor radio and the camera of the
appellee were lost as a result of the negligence of the appellant as a common carrier, the
liability of the appellant is clear — it must pay the appellee the value of those two articles.

In the case of Ysmael and Co. vs. Barreto, 51 Phil. 90, cited by the trial court in support of its
decision, this Court had laid down the rule that the carrier can not limit its liability for injury to or
loss of goods shipped where such injury or loss was caused by its own negligence.

Corpus Juris, volume 10, p. 154, says:

"Par. 194, 6. Reasonableness of Limitations. — The validity of stipulations limiting the

carrier's liability is to be determined by their reasonableness and their conformity to the
sound public policy, in accordance with which the obligations of the carrier to the public
are settled. It cannot lawfully stipulate for exemption from liability, unless such exemption
is just and reasonable, and unless the contract is freely and fairly made. No contractual
limitation is reasonable which is subversive of public policy.
 "Par. 195. 7. What Limitations of Liability Permissible. — a. Negligence — (1) Rule in
America — (a) In Absence of Organic or Statutory Provisions Regulating Subject — aa.
Majority Rule. — In the absence of statute, it is settled by the weight of authority in the
United States, that whatever limitations against its common-law liability are permissible
to a carrier, it cannot limit its liability for injury to or loss of goods shipped, where such
injury or loss is caused by its own negligence. This is the common law doctrine and it
makes no difference that there is no statutory prohibition against contracts of this
character.

"Par. 196. bb. Considerations on which Rule Based. — The rule, it is said, rests on
considerations of public policy. The undertaking is to carry the goods, and to relieve the
shipper from all liability for loss or damage arising from negligence in performing its
contract is to ignore the contract itself. The natural effect of a limitation of liability against
negligence is to induce want of care on the part of the carrier in the performance of its
duty. The shipper and the common carrier are not on equal terms; the shipper must send
his freight by the common carrier, or not at all; he is therefore entirely at the mercy of the
carrier unless protected by the higher power of the law against being forced into
contracts limiting the carrier's liability. Such contracts are wanting in the element of
voluntary assent.

"Par. 197. cc. Application and Extent of Rule — (aa) Negligence of Servants. — The rule
prohibiting limitation of liability for negligence is often stated as a prohibition of any
contract relieving the carrier from loss or damage caused by its own negligence or
misfeasance, or that of its servants; and it has been specifically decided in many cases
that no contract limitation will relieve the carrier from responsibility for the negligence,
unskillfulness, or carelessness of its employer." (Cited in Ysmael and Co. vs. Barreto, 51
Phil. 90, 98, 99).

In view of the foregoing, the decision appealed from is affirmed, with costs against the appellant.

Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Regala, Makalintal, Bengzon, J.P. and
Sanchez, JJ., concur.

Footnotes
1
Article 1732, New Civil Code.
2
Articles 1733, 1734, 1735 and 1745, New Civil Code.
3
Articles 1734, 1735, 1736 and 1754, New Civil Code.

KLM VS COURT OF APPEALS

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. L-31150 July 22, 1975

KONINKLIJKE LUCHTVAART MAATSHAPPIJ N.V., otherwise known as KLM ROYAL

DUTCH AIRLINES,petitioner,
vs.
THE HONORABLE COURT OF APPEALS, CONSUELO T. MENDOZA and RUFINO T.
MENDOZA, respondents.

Picazo, Agcaoili, Santayana, Reyes and Tayao for petitioner.

Bengzon, Villegas, Zarraga, Narciso and Cudala for respondents.

CASTRO, J.:

In this appeal by way of certiorari the Koninklijke Luchtvaart Maatschappij N.V., otherwise
known as the KLM Royal Dutch Airlines (hereinafter referred to as the KLM) assails the award
of damages made by the Court of Appeals in CA-G.R. 40620 in favor of the spouses Rufino T.
Mendoza and Consuelo T. Mendoza (hereinafter referred to as the respondents).1äwphï1.ñët

Sometime in March 1965 the respondents approached Tirso Reyes, manager of a branch of the
Philippine Travel Bureau, a travel agency, for consultations about a world tour which they were
intending to make with their daughter and a niece. Reyes submitted to them, after preliminary
discussions, a tentative itinerary which prescribed a trip of thirty-five legs; the respondents
would fly on different airlines. Three segments of the trip, the longest, would be via KLM. The
respondents expressed a desire to visit Lourdes, France, and discussed with Reyes two
alternate routes, namely, Paris to Lourdes and Barcelona to Lourdes. The respondents decided
on the Barcelona-Lourdes route with knowledge that only one airline, Aer Lingus, serviced it.

The Philippine Travel Bureau to which Reyes was accredited was an agent for international air
carriers which are members of the International Air Transport Association, popularly known as
the "IATA," of which both the KLM and the Aer Lingus are members.

After about two weeks, the respondents approved the itinerary prepared for them, and asked
Reyes to make the necessary plane reservations. Reyes went to the KLM, for which the
respondents had expressed preference. The KLM thereafter secured seat reservations for the
respondents and their two companions from the carriers which would ferry them throughout their
trip, with the exception of Aer Lingus. When the respondents left the Philippines (without their
young wards who had enplaned much earlier), they were issued KLM tickets for their entire trip.
However, their coupon for the Aer Lingus portion (Flight 861 for June 22, 1965) was marked
"RQ" which meant "on request".

After sightseeing in American and European cities (they were in the meantime joined by their
two young companions), the respondents arrived in Frankfurt, Germany. They went to a KLM
office there and obtained a confirmation from Aer Lingus of seat reservations on flight 861. After
meandering in London, Paris and Lisbon, the foursome finally took wing to Barcelona for their
trip to Lourdes, France.
In the afternoon of June 22, 1965 the respondents with their wards went to the Barcelona airport
to take their plane which arrived at 4:00 o'clock. At the airport, the manager of Aer Lingus
directed the respondents to check in. They did so as instructed and were accepted for passage.
However, although their daughter and niece were allowed to take the plane, the respondents
were off-loaded on orders of the Aer Lingus manager who brusquely shoved them aside with
the aid of a policeman and who shouted at them, "Conos! Ignorantes Filipinos!"

Mrs. Mendoza later called up the manager of Aer Lingus and requested that they provide her
and her husband means to get to Lourdes, but the request was denied. A stranger, however,
advised them to take a train, which the two did; despite the third class accommodations and
lack of food service, they reached Lourdes the following morning. During the train trip the
respondents had to suffer draft winds as they wore only minimum clothing, their luggage having
gone ahead with the Aer Lingus plane. They spent $50 for that train trip; their plane passage
was worth $43.35.

On March 17, 1966 the respondents, referring to KLM as the principal of Aer Lingus, filed a
complaint for damages with the Court of First Instance of Manila arising from breach of contract
of carriage and for the humiliating treatment received by them at the hands of the Aer Lingus
manager in Barcelona. After due hearing, the trial court awarded damages to the respondents
as follows: $43.35 or its peso equivalent as actual damages, P10,000 as moral damages,
P5,000 as exemplary damages, and P5,000 as attorney's fees, and expenses of litigation.

Both parties appealed to the Court of Appeals. The KLM sought complete exoneration; the
respondents prayed for an increase in the award of damages. In its decision of August 14, 1969
the Court of Appeals decreed as follows: "Appellant KLM is condemned to pay unto the plaintiffs
the sum of $43.35 as actual damages; P50,000 as moral damages; and P6,000 as attorney's
fees and costs."

Hence, the present recourse by the KLM.

The KLM prays for exculpation from damages on the strength of the following particulars which
were advanced to but rejected by the Court of Appeals:

(a) The air tickets issued to the respondents stipulate that carriage thereunder is subject to the
"Convention for the Unification of Certain Rules Relating to International Transportation by Air,"
otherwise known as the "Warsaw Convention," to which the Philippine Government is a party by
adherence, and which pertinently provides. 1

ART. 30. (1) In the case of transportation to be performed by various successive

carriers and failing within the definition set out in the third paragraph of Article I,
each carrier who accepts passengers, baggage, or goods shall be subject to the
rules set out in the convention, and shall be deemed to be one of the contracting
parties to the contract of transportation insofar as the contract deals with that part
of transportation which is performed under his supervision. 2

(2) In the case of transportation of this nature, the passenger or his

representative can take action only against the carrier who performed the
transportation during which the accident or the delay occured, save in the case
where, by express agreement, the first carrier has assumed liability for the whole
journey. (emphasis supplied)
(b) On the inside front cover of each ticket the following appears under the heading "Conditions
of Contract":

1 ... (a) Liability of carrier for damages shall be limited to occurrences on its own
line, except in the case of checked baggage as to which the passenger also has
a right of action against the first or last carrier. A carrier issuing a ticket or
checking baggage for carriage over the lines of others does so only as agent..

(c) All that the KLM did after the respondents completed their arrangements with the travel
agency was to request for seat reservations among the airlines called for by the itinerary
submitted to the KLM and to issue tickets for the entire flight as a ticket-issuing agent.

The respondents rebut the foregoing arguments, thus:

(a) Article 30 of the Warsaw Convention has no application in the case at bar which involves,
not an accident or delay, but a willful misconduct on the part of the KLM's agent, the Aer Lingus.
Under article 25 of the same Convention the following is prescribed:

ART. 25. (1) The carrier shall not be entitled to avail himself of the provisions of
this convention which exclude or limit his liability, if the damage is caused by
his willful misconduct or by such default on his part as, in accordance with the
law of the court to which the case is submitted, is considered to be equivalent to
willful misconduct. 3

(2) Similarly, the carrier shall not be entitled to avail himself of the said
provisions, if the damage is caused under the same circumstances by any agent
of the carrier acting within the scope of his employment. (emphasis by
respondents)

(b) The condition in their tickets which purportedly excuse the KLM from liability appears in very
small print, to read which, as found by the Court of Appeals, one has practically to use a
magnifying glass.

(c) The first paragraph of the "Conditions of Contract" appearing identically on the KLM tickets
issued to them idubitably shows that their contract was one of continuous air transportation
around the world:

1 ... "carriage" includes the air carrier issuing this ticket and all carriers that carry
or undertake to carry the passenger or his baggage hereunder or perform any
other service incidental to such air carriage... Carriage to be performed
hereunder by several successive carrier is regarded as a single operation.

(d) The contract of air transportation was exclusively between the respondents and the KLM, the
latter merely endorsing its performance to other carriers, like Aer Lingus, as its subcontractors
or agents, as evidenced by the passage tickets themselves which on their face disclose that
they are KLM tickets. Moreover, the respondents dealt only with KLM through the travel agency.

1. The applicability insisted upon by the KLM of article 30 of the Warsaw Convention cannot be
sustained. That article presupposes the occurrence of either an accident or a delay, neither of
which took place at the Barcelona airport; what is here manifest, instead, is that the Aer Lingus,
through its manager there, refused to transport the respondents to their planned and contracted
destination.

2. The argument that the KLM should not be held accountable for the tortious conduct of Aer
Lingus because of the provision printed on the respondents' tickets expressly limiting the KLM's
liability for damages only to occurrences on its own lines is unacceptable. As noted by the Court
of Appeals that condition was printed in letters so small that one would have to use a magnifying
glass to read the words. Under the circumstances, it would be unfair and inequitable to charge
the respondents with automatic knowledge or notice of the said condition so as to preclude any
doubt that it was fairly and freely agreed upon by the respondents when they accepted the
passage tickets issued to them by the KLM. As the airline which issued those tickets with the
knowledge that the respondents would be flown on the various legs of their journey by different
air carriers, the KLM was chargeable with the duty and responsibility of specifically informing the
respondents of conditions prescribed in their tickets or, in the very least, to ascertain that the
respondents read them before they accepted their passage tickets. A thorough search of the
record, however, inexplicably fails to show that any effort was exerted by the KLM officials or
employees to discharge in a proper manner this responsibility to the respondents.
Consequently, we hold that the respondents cannot be bound by the provision in question by
which KLM unilaterally assumed the role of a mere ticket-issuing agent for other airlines and
limited its liability only to untoward occurrences on its own lines.

3. Moreover, as maintained by the respondents and the Court of Appeals, the passage tickets of
the respondents provide that the carriage to be performed thereunder by several successive
carriers "is to be regarded as a single operation," which is diametrically incompatible with the
theory of the KLM that the respondents entered into a series of independent contracts with the
carriers which took them on the various segments of their trip. This position of KLM we reject.
The respondents dealt exclusively with the KLM which issued them tickets for their entire trip
and which in effect guaranteed to them that they would have sure space in Aer Lingus flight
861. The respondents, under that assurance of the internationally prestigious KLM, naturally
had the right to expect that their tickets would be honored by Aer Lingus to which, in the legal
sense, the KLM had indorsed and in effect guaranteed the performance of its principal
engagement to carry out the respondents' scheduled itinerary previously and mutually agreed
upon between the parties.

4. The breach of that guarantee was aggravated by the discourteous and highly arbitrary
conduct of an official of the Aer Lingus which the KLM had engaged to transport the
respondents on the Barcelona-Lourdes segment of their itinerary. It is but just and in full accord
with the policy expressly embodied in our civil law which enjoins courts to be more vigilant for
the protection of a contracting party who occupies an inferior position with respect to the other
contracting party, that the KLM should be held responsible for the abuse, injury and
embarrassment suffered by the respondents at the hands of a supercilious boor of the Aer
Lingus.

ACCORDINGLY, the judgment of the Court of Appeals dated August 14, 1969 is affirmed, at
KLM's cost.

Makalintal, C.J., Makasiar, Esguerra and Muñoz Palma, JJ., concur.

Footnotes

1 See 51 O.G. 4933 et seq. for text of Presidential Proclamation of adherence

dated September 23, 1955. See 51 O.G. 5084 et seq. for full text of the
Convention.

2 Article I (3) provides: "Transportation to be performed by several successive air

carriers shall be deemed, for the purposes of this Convention, to be one
undivided transportation, if it has been regarded by the parties as a single
operation, whether it has been agreed upon under the form of a single contract or
of a series of contracts, and it shall not lose its international character merely
because one contract or a series of contracts is to be performed entirely within
the territory subject to the sovereignty, suzerainty, mandate, or authority of the
same High Contracting Party."

3 Article 22 of the Convention limits the liability of an air carrier in the

transportation of passengers to 125,000 francs except where both carrier and
passenger "agree to a higher limit of liability."

PANAM VS RAPADAS
SERRA VS CA
SWEET LINES VS TEVES
ONG YUI VS IAC
TELENTAN BROS & SONS VS CA
AYALA CORP VS RAY BURTON DEV COPR

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 126699 August 7, 1998

AYALA CORPORATION, petitioner,

vs.
RAY BURTON DEVELOPMENT CORPORATION, respondent.

MARTINEZ, J.:

Petitioner Ayala Corporation (AYALA) is the owner of the Ayala estate located in Makati City.
The said estate was originally a raw land which was subdivided for sale into different lots
devoted for residential, commercial and industrial purposes. The development of the estate
consisted of road and building construction and installation of a central sewerage treatment
plant and drainage system which services the whole Ayala Commercial Area.

On March 20, 1984, Karamfil Import-Export Company Ltd. (KARAMFIL) bought from AYALA a
piece of land identified as Lot 26, Block 2 consisting of 1,188 square meters, located at what is
now known as H.V. de la Costa Street, Salcedo Village, Makati City. The said land, which is
now the subject of this case, is more particularly described as follows:

A parcel of land (Lot 26, Block 2, of the subdivision plan [LRC] Psd-6086, being a
portion of Block D, described as plan [LRC] Psd-5812 LRC [GLRO] Rec. No.
2029) situated in the Municipality of Makati, Province of Rizal, Is. of Luzon.
Bounded on the NE., points 2 to 3 by Lot 31, Block 2 (Creek 6.00 m. wide) of the
subdivision plan, on the SE., points 3 to 4 by Lot 27, Block 2 of the Subdivision
plan; on the SW, points 4 to 5, by proposed Road, 17.00 m. wide (Block C[LRC]
Psd-5812); points 5 to 1 by Street Lot 2 (17.00 m. wide) of the subdivision plan.
On the NW, points 1 to 2 by Lot 25, Block 2 of the subdivision plan. . . .
beginning, containing an area of ONE THOUSAND ONE HUNDRED EIGHTY
EIGHT (1,188) SQUARE METERS.

The transaction was documented in a Deed of Sale 1 of even date, which provides,
among others, that the vendee would comply with certain special conditions and
restrictions on the use or occupancy of the land, among which
are —
2
Deed Restrictions:

a) The total height of the building to be constructed on the lot shall

not be more than forty-two (42) meters, nor shall it have a total
gross floor area of more than five (5) times the lot area; and

b) The sewage disposal must be by means of connection into the

sewerage system servicing the area.
3
Special Conditions:

a) The vendee must obtain final approval from AYALA of the

building plans and specifications of the proposed structures that
shall be constructed on the land;

b) The lot shall not be sold without the building having been
completed; and

c) Any breach of the stipulations and restrictions entitles AYALA to

rescission of the contract.

As a result of the sale, a Transfer Certificate of Title No. 132086 4 was issued in the name of
KARAMFIL. The said special conditions and restrictions were attached as an annex to the deed
of sale and incorporated in the "Memorandum of Encumbrances" at the reverse side of the title
of the lot as Entry No. 2432/T-131086.
On February 18, 1988, KARAMFIL sold the lot to Palmcrest Development and Realty
Corporation (PALMCREST) under a Deed of Absolute Sale 5 of even date. This deed was
submitted to AYALA for approval in order to obtain the latter's waiver of the special condition
prohibiting the resale of the lot until after KARAMFIL shall have constructed a building thereon.
AYALA gave its written conformity to the sale but reflecting in its approval the same special
conditions/restrictions as in the previous sale. AYALA's conformity was annotated on the deed
of sale. 6 PALMCREST did not object to the stipulated conditions and restrictions. 7

PALMCREST in turn sold the lot to Ray Burton Development Corporation (RBDC), now
respondent, on April 11, 1988, with the agreement that AYALA retains possession of the
Owner's Duplicate copy of the title until a building is erected on said parcel of land in
accordance with the requirements and/or restrictions of AYALA. 8 The Deed of Absolute
Sale 9 executed on the said date was also presented to AYALA for approval since no building
had yet been constructed on the lot at the time of the sale. As in the KARAMFIL-PALMCREST
transaction, AYALA gave its conformity to the sale, subject to RBDC's compliance with the
special conditions/restrictions which were annotated in the deed of sale, thus:

With our conformity, subject to the compliance by the Vendees of the Special
Conditions of Sale on the reverse side of the Deed of Sale dated March 20, 1984
per Doc. No. 140, Page No. 29, Book No. 1, Series of 1984 of the Notary Public
Silverio Aquino. 10

The conditions and restrictions of the sale were likewise entered as encumbrances at
the reverse side of the Transfer Certificate of Title No. 155384 which was later issued in
the name of RBDC. 11 Like PALMCREST, RBDC was not also averse to the aforesaid
conditions and restrictions. 12

Sometime in June of 1989, RBDC submitted to AYALA for approval a set of architectural plans
for the construction of a 5-storey office building on the subject lot, with a height of 25.85 meters
and a total gross floor area of 4,989.402 square meters. 13 The building was to be known as
"Trafalgar Tower" but later renamed "Trafalgar Plaza." Since the building was well within the 42-
meter height restriction, AYALA approved the architectural plans.

Upon written request 14 made by RBDC, AYALA likewise agreed to release the owner's copy of
the title covering the subject lot to the China Banking Corporation as guarantee of the loan
granted to RBDC for the construction of the 5-storey building.

Meanwhile, on November 28, 1989, RBDC, together with the Makati Developers Association,
Inc. (MADAI), of which RBDC is a member, and other lot owners, filed a complaint against
AYALA before the Housing and Land Use Regulatory Board (HLRB), docketed as HLRB Case
No. REM-A-0818 (OAALA-REM-111489-4240). The complaint sought the nullification of the
very same Deed Restrictions incorporated in the deeds of sale of the lots purchased by the
complainants from AYALA and annotated on their certificates of title, on the grounds, inter alia,
that said restrictions purportedly: (a) place unreasonable control over the lots sold by AYALA,
thereby depriving the vendees of the full enjoyment of the lots they bought, in violation of Article
428 of the Civil Code; (b) have been superseded by Presidential Decree No. 1096 (the National
Building Code) and Metro Manila Commission Zoning Ordinance No. 81-01; (c) violate the
constitutional provision on equal protection of the laws, since the restrictions are imposed
without regard to reasonable standards or classifications; and (d) are contracts of
adhesion 15 since AYALA would not sell the lots unless the buyers agree to the deed
restrictions. The complaint also alleged that AYALA is in estoppel from enforcing the restrictions
in question when it allowed the construction of other high-rise buildings in Makati City beyond
the height and floor area limits. AYALA was further charged with unsound business practice.

Early in June of 1990, RBDC made another set of building plans for "Trafalgar Plaza" and
submitted the same for approval, this time to the Building Official of the Makati City Engineer's
Office, 16 not to AYALA. In these plans, the building was to be 26-storey high, or a height of
98.60 meters, with a total gross floor area of 28,600 square meters. After having obtained the
necessary building permits from the City Engineer's Office, RBDC began to construct "Trafalgar
Plaza" in accordance with these new plans.

On July 11, 1990, the majority of the lot owners in the Makati City area, including the Salcedo
and Legaspi Village areas, in a general assembly of the Makati Commercial Estate Association,
Inc. (MACEA), approved the revision of the Deed Restrictions, which revision was embodied in
the "Consolidated and Revised Deed Restrictions" 17 (Revised Deed Restrictions) wherein direct
height restrictions were abolished in favor of floor area limits computed on the basis of "floor
area ratios" (FARs). In the case of buildings devoted solely to office use in Salcedo Village —
such as the "Trafalgar Plaza" — the same could have a maximum gross floor area of only eight
(8) times the lot area. Thus, under the Revised Deed Restrictions, "Trafalgar Plaza" could be
built with a maximum gross floor area of only 9,504 square meters (1,188 sq. m. — the size of
the subject lot — multiplied by 8). Even under the Revised Deed Restrictions, Trafalgar would
still exceed 19,065 square meters of floor area on the basis of a FARs of 8:1. RBDC did not
vote for the approval of the Revised Deed Restrictions and, therefore, it continued to be bound
by the original Deed Restrictions.

In the meantime, on August 22, 1990, the HLRB En Banc rendered a decision 18 (a) upholding
the Deed Restrictions; (b) absolving AYALA from the charge of unsound business practice; and
(c) dismissing HLRB Case No. REM-A-0818. MADAI and RBDC separately appealed the
decision to the Office of the President, which appeal was docketed as O.P. Case No. 4476.

While the appeal was pending before the Office of the President, the September 21, 1990 issue
of the Business Worldmagazine 19 featured the "Trafalgar Plaza" as a modern 27-storey
structure which will soon rise in Salcedo Village, Makati City. Stunned by this information,
AYALA, through counsel, then sent a letter 20 to RBDC demanding the latter to cease the
construction of the building which dimensions do not conform to the previous plans it earlier
approved. RBDC, through counsel, replied with a series of letters 21 requesting for time to
assess the merits of AYALA's demand.

For failing to heed AYALA's bidding, RBDC was sued on January 25, 1991 before the Regional
Trial Court of Makati City (Branch 148). AYALA's complaint for Specific Performance or
Rescission, docketed as Civil Case No. 91-220, prayed inter alia that judgment be rendered —

xxx xxx xxx

b. Ordering the defendant to comply with its contractual obligations and to

remove or demolish the portions or areas of the Trafalgar Tower/Plaza Building
constructed beyond or in excess of the approved height as shown by building
plans approved by the plaintiff, including any other portion of the building
constructed not in accordance with the building plans and specifications
submitted to and approved by plaintiff.
 c. Alternatively, in the event specific performance becomes impossible:

i) Ordering the cancellation and

rescission of the Deed of Sale dated
March 20, 1984 (Annex "A" hereof)
and ordering defendant to return to
plaintiff Lot 26, Block 2 of Salcedo
Village;

ii) Ordering the cancellation of

Transfer Certificate of Title No.
155384 (in the name of defendant)
and directing the Makati Register of
Deeds to issue a new title over the
Lot in the name of plaintiff; and

d. Ordering defendant to pay plaintiff attorney's fees in the amount of

P500,000.00, exemplary damages in the amount of P5,000.00 and the costs of
the instant suit. 22

In its answer (with counterclaim) to the complaint, RBDC denied having "actual or constructive
notice of the Deed Restrictions" imposed by AYALA on the subject lot. RBDC alleged in
essence that even if said deed restrictions exist, the same are not economically viable and
should not be enforced because they constitute unreasonable restrictions on its property rights
and are, therefore, contrary to law, morals, good customs, public order or public policy.
Moreover, RBDC claimed that the enforcement of the deed restrictions has also been arbitrary
or discriminatory since AYALA has not made any action against a number of violators of the
deed restrictions.

Meantime, the appeal of MADAI in O.P. Case No. 44761 was considered resolved when it
entered into a compromise agreement with AYALA wherein the latter adopted and
acknowledged as binding the Revised Deed Restrictions of July 11, 1990. 23 On the other hand,
RBDC's appeal was dismissed in an Order dated February 13, 1992, for the reason that,
"insofar as the disposition of the appealed (HLRB) decision is concerned, there is virtually no
more actual controversy on the subject of the 'Deed Restrictions' because the same has been
overriden by the 'Revised (Deed) Restrictions' which the appellee Ayala Corporation has in fact
acknowledged as binding and in full force and
effect . . . 24 Accordingly, aside from dismissing RBDC's appeal, the Order of February 13, 1992
also "set aside" the appealed HLRB decision. From this order, AYALA sought a reconsideration
or clarification, noting, inter alia, that while the said order has ruled that AYALA can no longer
enforce the Deed Restrictions against RBDC, it does not expressly state that RBDC is bound by
the Revised Deed Restrictions. Clarifying this matter, the Office of the President issued a
Resolution dated April 21,1992, 25 modifying the February 13, 1992 order, ruling: (1) that RBDC
is bound by the original Deed Restrictions, but it has the option to accept and be bound by the
Revised Deed Restrictions in lieu of the former; and (2) that the "HLRB decision dated 22
August 1990, to the extent that it absolved Ayala from the charge of unsound business practice,
subject of the basic complaint, is affirmed." This time RBDC moved for a reconsideration of the
April 21, 1992 Order, but the motion was denied in a Resolution dated October 15,
1993. 26 Another Resolution of March 21, 1994 27 was issued denying with finality RBDC's
second motion for reconsideration.
AYALA then filed a Manifestation 28 in Civil Case No. 91-220, informing the trial court of the
pertinent rulings/resolutions in the proceedings before the HLRB and the Office of the President,
which rulings, AYALA suggested, amount to res judicataon the issue of the validity and
enforceability of the Deed Restrictions involved in the said civil case.

After trial on the merits, the trial court rendered a Decision on April 28, 1994 in favor of RBDC,
the dispositive portion of which reads:

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

defendant and against the plaintiff, and as a consequence:

1. The instant case is hereby dismissed;

2. The motion/application for the annotation of

the lis pendens is hereby DENIED;

3. The motion/application to hold defendant in

continuing contempt is hereby also DENIED;

4. No damages is awarded to any of the parties;

5. Plaintiff is hereby ordered to pay the defendant

P30,000.00 for and as attorney's fees and litigation
expenses;

With costs against plaintiff.

SO ORDERED. 29

The trial court's decision is based on its findings that: (1) RBDC had neither actual nor
constructive notice of the 42-meter height limitation of the building to be constructed on the
subject lot; (2) even if the Deed Restrictions did exist, AYALA is estopped from enforcing the
same against RBDC by reason of the former's failure to enforce said restrictions against other
violators in the same area; (3) the Deed Restrictions partake of the nature of a contract of
adhesion; (4) since the Trafalgar Plaza building is in accord with the minimum requirements of
P.D. No. 1096 (The National Building Code), the Deed Restrictions may not be followed by
RBDC; and (5) the rulings of the HLRB and the Office of the President do not have binding
effect in the instant case.

Dissatisfied, AYALA appealed to the Court of Appeals which affirmed the judgment of the trial
court in a Decision 30 dated February 27, 1996 in CA-G.R. CV No. 46488. AYALA's motion for
reconsideration was likewise denied in the Resolution 31of October 7, 1996.

AYALA now interposes the present petition for review on certiorari, citing several errors in the
decision of the Court of Appeals, some of which involve questions of fact.

The resolution of factual issues raised in the petition would certainly call for a review of the
Court of Appeals' findings of fact. As a rule, the re-examination of the evidence proffered by the
contending parties during the trial of the case is not a function that this Court normally
undertakes inasmuch as the findings of fact of the Court of Appeals are generally binding and
conclusive on the Supreme Court. 32 The jurisdiction of this Court in a petition for review
on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of
law. 33 A reevaluation of factual issues by this Court is justified when the findings of fact
complained of are devoid of support by the evidence on record, or when the assailed judgment
is based on misapprehension of facts. 34

The present petition has shown that certain relevant facts were overlooked by the Court of
Appeals, which facts, if properly appreciated, would justify a different conclusion from the one
reached in the assailed decision.

The principal error raised here by petitioner AYALA pertains to the Court of Appeals' finding that
RBDC did not have actual or constructive notice of the 42-meter height restriction, since what
was annotated on its (RBDC's) title is the erroneous 23-meter height limit which, according to
AYALA's own witness, Jose Cuaresma, was not applicable to RBDC. 35 Thus, the Court of
Appeals concluded, RBDC "has the right to enjoy the subject property as if no restrictions and
conditions were imposed thereon." 36

The above finding and conclusion of the Court of Appeals, AYALA submits, are based on
"surmises and conjectures" which are "contrary to the evidence on record and (RBDC's) own
admissions." 37

There is merit in AYALA's submission.

The erroneous annotation of the 23-meter height restriction in RBDC's title was explained by
Jose Cuaresma, AYALA's Assistant Manager for Marketing and Sales. Cuaresma testified that
when the deed of sale between PALMCREST and RBDC was submitted to the Register of
Deeds of Makati and the corresponding title was issued in the name of RBDC, the Register of
Deeds annotated the wrong height limit in Entry No. 2432 on the said title, but he emphasized
that the incorrect annotation does not apply to RBDC. 38

Jose Cuaresma further clarified that the correct height restriction imposed by AYALA on RBDC
was 42 meters. 39 This height ceiling, he said, is based on the deed of restrictions attached as
annex to the deed of sale, 40 and the same has been uniformly imposed on the transferees
beginning from the original deed of sale between AYALA and KARAMFIL. 41

This clarificatory statement of Jose Cuaresma should have cautioned the Court of Appeals from
making the unfounded and sweeping conclusion that RBDC can do anything it wants on the
subject property "as if no restrictions and conditions were imposed thereon," on the mistaken
premise that RBDC was unaware of the correct 42-meter height limit. It must be stressed that
Cuaresma's testimony is bolstered by documentary evidence and circumstances of the case
which would show that RBDC was put on notice about the 42-meter height restriction.

The record reveals that the subject Lot 26 was first sold by AYALA to KARAMFIL under a deed
of sale (Exhibit "A") dated March 20, 1984 and duly notarized by Notary Public Silverio Aquino.
Attached to the deed of sale is an appendix of special conditions/restrictions (deed restrictions),
which provides, inter alia, that the building to be constructed on the lot must have a total height
of not more than 42 meters, and that any building plans and specifications of the proposed
structures must have the approval of AYALA. The deed restrictions were incorporated in the
memorandum of encumbrances at the reverse side of the title of the lot as Entry No. 2432.
When the lot was sold by KARAMFIL to PALMCREST, the deed of sale (Exhibit "B") on this
transaction bears an annotation of AYALA's conformity to the transfer, with the condition that
the approval was "subject to the compliance by the vendee of the special conditions of sale on
the reverse side of the deed of sale dated March 20, 1984, per Doc. No. 140, Page No. 29,
Book No. 1, Series of 1984 of Notary Public Silverio F. Aquino" (Exhibit "B-1"). PALMCREST
later resold the lot to RBDC by virtue of a deed of sale (Exhibit "C"), to which AYALA's approval
was also annotated therein (Exhibit "C-1"), but with the same explicit inscription that RBDC, as
vendee, must comply with the special deed restrictions appended to the AYALA-KARAMFIL
deed of sale of March 20, 1984. All these three (3) deeds of sale and the accompanying special
deed restrictions imposing a 42-meter height limit, were duly registered with the Register of
Deeds. Thus, RBDC cannot profess ignorance of the 42-meter height restriction and other
special conditions of the sale.

Verily, the deed restrictions are integral parts of the PALMCREST-RBDC deed of sale,
considering that AYALA's required conformity to the transfer, as annotated therein, was
conditioned upon RBDC's compliance of the deed restrictions. Consequently, as a matter of
contractual obligation, RBDC is bound to observe the deed restrictions which impose a building
height of not more than 42 meters.

Moreover, RBDC was fully aware that it was bound by the 42-meter height limit. This is shown
by the fact that, pursuant to the special conditions/restrictions of the sale, it submitted to AYALA,
for approval, building plans for a 5-storey structure with a height of 25.85 meters. Certainly,
RBDC would not have submitted such plans had it truly believed that it was restricted by a lower
23-meter height ceiling, in the same manner that RBDC did not seek AYALA's approval when it
later made another set of building plans for the 26-storey "Trafalgar Plaza," knowing that the
same would be disapproved for exceeding the 42-meter height restriction. The fact that RBDC
was later issued a building permit from the Makati City Engineer's Office for the construction of
the "Trafalgar Plaza" is not a valid justification to disregard the stipulated contractual restriction
of 42 meters.

Another error which AYALA claims to have been committed by the Court of Appeals is the
latter's finding that AYALA, under the principle of estoppel, is now barred from enforcing the
deed restrictions because it had supposedly failed to act against other violators of the said
restrictions. AYALA argues that such finding is baseless and is contrary to the Civil Code
provisions on estoppel and applicable jurisprudence.

We agree with the petitioner.

In support of its finding that estoppel operates against AYALA, the Court of Appeals merely
cited its decision dated November 17, 1993, in CA-G.R. SP No. 29157, entitled Rosa-Diana
Realty and Development Corporation, Petitioner vs. Land Registration Authority and Ayala
Corporation, Respondents, and reiterated its findings therein, to wit:

Also, Ayala is barred from enforcing the deed of restrictions in question, pursuant
to the doctrines of waiver and estoppel. Under the terms of the deed of sale, the
vendee Sy Ka Kieng assumed faithful compliance with the special conditions of
sale and with the Salcedo Village deed of restrictions. One of the conditions was
that a building would be constructed within one year. Ayala did nothing to enforce
the terms of the contract. In fact, it even agreed to the sale of the lot by Sy Ka
Kieng in favor of the petitioner realty in 1989, or thirteen (13) years later. We,
 therefore, see no justifiable reason for Ayala to attempt to enforce the terms of
the conditions of the sale against the petitioner. It should now be estopped from
enforcing the said conditions through any means.

xxx xxx xxx

Even assuming that petitioner RDR violated the floor area and height restrictions,
it is markedly significant that Ayala disregarded the fact that it had previously
allowed and tolerated similar and repeated violations of the same restrictive
covenants by property owners which it now seeks to enforce against the herein
petitioner. Some examples of existing buildings in Salcedo Village that greatly
exceeded the gross floor area (5 times lot area) and height (42 meters)
limitations are (Rollo, p. 32):

(1) Pacific Star (Nauru Center Building — 29 stories and 112.5

meters high)

(2) Sagittarius Building — 16 stories

(3) Shell House Building — 14 stories

(4) Eurovilla Building — 15 stories

(5) LPL Plaza Building — 18 stories

(6) LPL Tower Building — 24 stories. 42

An examination of the decision in the said Rosa Diana case reveals that the sole issue raised
before the appellate court was the propriety of the lis pendens annotation. However, the
appellate court went beyond the sole issue and made factual findings bereft of any basis in the
record to inappropriately rule that AYALA is in estoppel and has waived its right to enforce the
subject restrictions. Such ruling was immaterial to the resolution of the issue of the propriety of
the annotation of the lis pendens. The finding of estoppel was thus improper and made in
excess of jurisdiction.

Moreover, the decision in CA-G.R. SP No. 29157 is not binding on the parties herein, simply
because, except for Ayala, RBDC is not a party in that case. Section 49, Rule 39 of the Revised
Rules of Court (now Sec. 47, Rule 39 of the 1997 Rules of Civil Procedure) provides in part:

Sec. 49. Effect of judgments. The effect of a judgment or final order rendered by
a court or judge of the Philippines, having jurisdiction to pronounce the judgment
or order, may be as follows:

(a) . . .;

(b) In other cases the judgment or order is, with respect to the matter directly
adjudged or as to any other matter that could have been raised in relation
thereto, conclusive between the parties and their successors in interest by title
subsequent to the commencement of action or special proceeding, litigating for
 the same thing and under the same title and in the same capacity; (emphasis
supplied)

(c) . . . .

The clear mandate of the above-quoted rule is that a final judgment or order of a court is
conclusive and binding only upon the parties to a case and their successors in interest. Both the
present case and the Rosa-Diana case, however, involve different parties who are not litigating
"for the same thing" nor "under the same title and in the same capacity." Hence, the Rosa-
Diana decision cannot have binding effect against either party to the instant case.

In any case, AYALA asserts that a few gross violators of the deed restrictions "have been, or
are being, proceeded against."43 AYALA admits, though, that there are other violations of the
restrictions but these are of a minor nature which do not detract from substantial compliance by
the lot owners of the deed restrictions. AYALA submits that minor violations are insufficient to
warrant judicial action, thus:

As a rule, non-objection to trivial breaches of a restrictive covenant does not

result in loss of the right to enforce the covenant by injunction, and acquiescence
in violations of a restrictive covenant which are immaterial and do not affect or
injure one will not preclude him from restraining violations thereof which would so
operate as to cause him to be damaged." (20 Am Jur. 2d Sec. 271, p. 835;
emphasis provided).

Occasional and temporary violations by lot owners of a covenant forbidding the

use of property for mercantile purposes are not sufficient as a matter of law to
warrant a finding of a waiver or abandonment to the right to enforce the
restriction. A waiver in favor of one person and for a limited purpose is not a
waiver as to all persons generally. (id., at 836; emphasis provided). 44

It is the sole prerogative and discretion of AYALA to initiate any action against violators of the
deed restrictions. This Court cannot interfere with the exercise of such prerogative/discretion.

How AYALA could be considered in estoppel as found by both the trial court and the Court of
Appeals, was not duly established. "Under the doctrine of estoppel, an admission or
representation is rendered conclusive upon the person making it, and cannot be denied or
disproved as against the person relying thereon. A party may not go back on his own acts and
representations to the prejudice of the other party who relied upon them." 45 Here, we find no
admission, false representation or concealment that can be attributed to AYALA relied upon by
RBDC.

What is clear from the record, however, is that RBDC was the party guilty of misrepresentation
and/or concealment when it resorted to the fraudulent scheme of submitting two (2) sets of
building plans, one (1) set conformed to the Deed Restrictions, which was submitted to and
approved by AYALA, 46 while another set violated the said restrictions, and which it presented to
the Makati City Building Official in order to secure from the latter the necessary building
permit. 47 It is noteworthy that after the submission of the second set of building plans to the
Building Official, RBDC continued to make representations to AYALA that it would build the five-
storey building in accordance with the first set of plans approved by AYALA, obviously for the
purpose of securing the release of the title of the subject lot to obtain bank funding. AYALA
relied on RBDC's false representations and released the said title. Hence, RBDC was in bad
faith.

AYALA further assigns as error the finding of the respondent court that, "while the Deed of Sale
to Ray Burton (RBDC) did not appear to be a contract of adhesion," however, "the subject Deed
Restrictions annotated therein appeared to be one." 48The only basis for such finding is that the
Deed Restrictions and Special Conditions were "pre-printed" and "prepared" by AYALA, and
that RBDC's participation thereof was "only to sign the Deed of Sale with the said restrictions
and conditions."49

The respondent court erred in ruling that the Deed Restrictions is a contract of adhesion.

A contract of adhesion in itself is not an invalid agreement. This type of contract is as binding as
a mutually executed transaction. We have emphatically ruled in the case of Ong Yiu vs. Court of
Appeals, et. al. 50 that "contracts of adhesion wherein one party imposes a ready-made form of
contract on the other . . . are contracts not entirely prohibited. The one who adheres to the
contract is in reality free to reject it entirely; if he adheres he gives his consent." This ruling was
reiterated inPhilippine American General Insurance Co., Inc. vs. Sweet Lines,
Inc., et. al., 51 wherein we further declared through Justice Florenz Regalado that "not even an
allegation of ignorance of a party excuses non-compliance with the contractual stipulations
since the responsibility for ensuring full comprehension of the provisions of a contract of
carriage (a contract of adhesion) devolves not on the carrier but on the owner, shipper, or
consignee as the case may be."

Contracts of adhesion, however, stand out from other contracts (which are bilaterally drafted by
the parties) in that the former is accorded inordinate vigilance and scrutiny by the courts in order
to shield the unwary from deceptive schemes contained in ready-made covenants. As stated by
this Court, speaking through Justice J.B.L. Reyes, in Qua Chee Gan vs. Law Union and Rock
Insurance Co., Ltd.: 52

The courts cannot ignore that nowadays, monopolies, cartels and concentration
of capital, endowed with overwhelming economic power, manage to impose upon
parties dealing with them cunningly prepared "agreements" that the weaker party
may not change one whit, his participation in the "agreement" being reduced to
the alternative to "take it or leave it" labeled since Raymond Saleilles "contracts
by adherence" (contracts d' adhesion) in contrast to those entered into by parties
bargaining on an equal footing. Such contracts (of which policies of insurance
and international bill of lading are prime examples) obviously call for greater
strictness and vigilance on the part of the courts of justice with a view to
protecting the weaker party from abuses and imposition, and prevent their
becoming traps for the unwary. 53 (Emphasis supplied)

The stringent treatment towards contracts of adhesion which the courts are enjoined to
observe is in pursuance of the mandate in Article 24 of the New Civil Code that "(i)n all
contractual, property or other relations, when one of the parties is at a disadvantage on
account of his moral dependence, ignorance, indigence, mental weakness, tender age
or other handicap, the courts must be vigilant for his protection."

Thus, the validity and/or enforceability of a contract of adhesion will have to be determined by
the peculiar circumstances obtaining in each case and the situation of the parties concerned.
In the instant case, the stipulations in the Deed Restrictions and Special Conditions are plain
and unambiguous which leave no room for interpretation. Moreover, there was even no attempt
on the part of RBDC to prove that, in the execution of the Deed of Sale on the subject lot, it was
a weaker or a disadvantaged party on account of its moral dependence, ignorance, mental
weakness or other handicap. On the contrary, as testified to by Edwin Ngo, President of RBDC,
the latter is a realty firm and has been engaged in realty business, 54 and that he, a
businessman for 30 years, 55 represented RBDC in the negotiations and in the eventual
purchase of the subject lot from
PALMCREST. 56 Edwin Ngo's testimony proves that RBDC was not an unwary party in the
subject transaction. Instead, Edwin Ngo has portrayed RBDC as a knowledgeable realty firm
experienced in real estate business.

In sum, there is more than ample evidence on record pinpointing RBDC's violation of the
applicable FAR restrictions in the Consolidated and Revised Deed Restrictions (CRDRs) when it
constructed the 27-storey Trafalgar Plaza. The prayer of petitioner is that judgment be rendered
as follows:

a. Ordering Ray Burton to comply with its contractual obligations in the

construction of Trafalgar Plaza' by removing or demolishing the portions of areas
thereof constructed beyond or in excess of the approved height, as shown by the
building plans submitted to, and approved by, Ayala, including any other portion
of the building constructed not in accordance with the said building plans;

b. Alternatively, in the event specific performance becomes impossible:

(1) ordering the cancellation and rescission of the March 20, 1984
"Deed of Sale" and all subsequent "Deeds of Sale" executed in
favor of the original vendee's successors-in-interest and ordering
Ray Burton to return to Ayala Lot 26, Lot 2 of Salcedo Village;

(2) ordering the cancellation of Transfer Certificate of Title No.

155384 (in the name of defendant) and directing the Office of the
Register of Deeds of Makati to issue a new title over the lot in the
name of Ayala; and

xxx xxx xxx. 57

However, the record reveals that construction of Trafalgar Plaza began in 1990, and a
certificate of completion thereof was issued by the Makati City Engineer's Office per
ocular inspection on November 7, 1996. 58 Apparently Trafalgar Plaza has been fully
built, and we assume, is now fully tenanted. The alternative prayers of petitioner under
the CRDRs, i.e., the demolition of excessively built space or to permanently restrict the
use thereof, are no longer feasible.

Thus, we perforce instead rule that RBDC may only be held alternatively liable for substitute
performance of its obligations — the payment of damages. In this regard, we note that the
CRDRs impose development charges on constructions which exceed the estimated Gross
Limits permitted under the original Deed Restrictions but which are within the limits of the
CRDRs.
In this regard, we quote hereunder pertinent portions of The Revised Deed Restrictions, to wit:

3. DEVELOPMENT CHARGE

For any building construction within the Gross Floor Area limits defined under
Paragraphs C-2.1 to C-2.4 above, but which will result in a Gross Floor Area
exceeding certain standards defined in Paragraphs C-3.1-C below, the OWNER
shall pay MACEA, prior to the start of construction of any new building or any
expansion of an existing building, a DEVELOPMENT CHARGE as a contribution
to a trust fund to be administered by MACEA. This trust fund shall be used to
improve facilities and utilities in the Makati Central Business District.

3.1 The amount of the development charge that shall be due from the OWNER
shall be computed as follows:

DEVELOPMENT CHARGE = A x (B - C - D)

where:

A — is equal to the Area Assessment which shall be set at Five Hundred Pesos
(P500.00) until December 31, 1990. Each January 1st thereafter, such amount
shall increase by ten percent (10%) over the Area Assessment charged in the
immediately preceding year; provided that, beginning 1995 and at the end of
every successive five-year period thereafter, the increase in the Area
Assessment shall be reviewed and adjusted by the VENDOR to correspond to
the accumulated increase in the construction cost index during the immediately
preceding five years as based on the weighted average of wholesale price and
wage indices of the National Census and Statistics Office and the Bureau of
Labor Statistics.

B — is equal to the total Gross Floor Area of the completed or expanded building
in square meters.

C — is equal to the estimated Gross Floor Area permitted under the original deed
restrictions, derived by multiplying the lot area by the effective original FAR
shown below for each location: 59

Accordingly, in accordance with the unique, peculiar circumstance of the case at hand, we hold
that the said development charges are a fair measure of compensatory damages which RBDC
has caused in terms of creating a disproportionate additional burden on the facilities of the
Makati Central Business District.

As discussed above, Ray Burton Development Corporation acted in bad faith in constructing
Trafalgar Plaza in excess of the applicable restrictions upon a double submission of plans and
exercising deceit upon both AYALA and the Makati Engineer's Office, and thus by way of
example and correction, should be held liable to pay AYALA exemplary damages in the sum of
P2,500,000.00.
Finally, we find the complaint to be well-grounded, thus it is AYALA which is entitled to an award
of attorney's fees, and while it prays for the amount of P500,000.00, we award the amount of
P250,000.00 which we find to be reasonable under the circumstances.

WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated
February 27, 1996, in CA-G.R. CV No. 46488, and its Resolution dated October 7, 1996 are
hereby REVERSED and SET ASIDE, and in lieu thereof, judgment is hereby rendered finding
that:

(1) The Deed Restrictions are valid and petitioner AYALA is not
estopped from enforcing them against lot owners who have not
yet adopted the Consolidated and Revised Deed Restrictions;

(2) Having admitted that the Consolidated and Revised Deed

Restrictions are the applicable Deed Restrictions to Ray Burton
Development Corporation's Trafalgar Plaza, RBDC should be, and
is, bound by the same;

(3) Considering that Ray Burton Development Corporation's

Trafalgar Plaza exceeds the floor area limits of the Deed
Restrictions, RBDC is hereby ordered to pay development
charges as computed under the provisions of the Consolidated
and Revised Deed Restrictions currently in force.

(4) Ray Burton Development Corporation is further ordered to pay

AYALA exemplary damages in the amount of P2,500,000.00,
attorney's fees in the amount of P250,000.00, and the costs of
suit.

SO ORDERED.

Regalado, Melo, Puno and Mendoza, JJ., concur.

Footnotes

1 Exhibit "A," RTC record, pp. 782-784.

2 Exhibit "A-1," ibid., p. 784.

3 Exhibit "A-2," ibid., p. 783.

4 Exhibit "P," ibid., p. 795.

5 Exhibit "B," RTC record, p. 785.

6 Exhibit "B-1," ibid., p. 785.

7 See Transcript of Stenographic Notes, January 18, 1993, pp. 24-27.

8 Exhibit "C-2," RTC record, p. 788.

9 Exhibit "C," ibid., pp. 788-791.

10 Exhibit "C-1," RTC record, p. 791.

11 Exhibit "D," ibid., pp. 792-794.

12 Transcript of Stenographic Notes, January 18, 1993, pp. 28-32; TSN, July 16,
1993, pp. 17-23.

13 Exhibits "8," "E-1" to "E-6;" RTC record, pp. 798-804.

14 Exhibit "R," ibid., p. 908, vis-à-vis Exhibits "EE" & "FF."

15 Petition, par. 15; Rollo, p. 47.

16 Exhibits "Z," "Z-1" to "Z-14."

17 Exhibit "F," RTC record, pp. 805-821.

18 RTC record, pp. 1342-1354.

19 Exhibit "G," RTC record, pp. 822-823.

20 Exhibit "H," ibid., pp. 824-825.

21 Exhibits "I" to "O," ibid., pp. 826-839.

22 RTC record, pp. 17-18.

23 See Resolution, ibid., p. 1356.

24 RTC record, p. 1357.

25 Ibid., pp. 1358-1361.

26 Ibid., pp. 1362-1366.

27 Ibid., pp. 1339-1341.

28 Ibid., pp. 1336-1338.

29 Rollo, pp. 197-232.

30 Ibid., pp. 9-25.

31 Rollo, p. 27.
32 De la Serna vs. Court of Appeals, 233 SCRA 325, 329 [1994]; Net Testament
Church of God vs. Court of Appeals, 246 SCRA 266, 270 [1995].

33 Sec. 1, Rule 45, Revised Rules of Court.

34 New Testament Church of God vs. Court of Appeals, supra.

35 CA Decision, p. 14; Rollo, p. 22.

36 Ibid. (Emphasis supplied).

37 Petition, p. 31; Rollo, p. 64.

38 Transcript of Stenographic Notes, January 18, 1993, pp. 53-54.

39 Ibid., p. 52.

40 Ibid., pp. 53-54.

41 Ibid., pp. 51-54.

42 CA Decision in CA-G.R. SP No. 29157, pp. 6-8; Rollo, p. 21.

43 Petition, p. 29; Rollo, p. 62.

44 Ibid., p. 28; Rollo, p. 61.

45 Laureano Investment & Development Corp. vs. Court of Appeals, 272 SCRA
253, 263 [1997].

46 Exhibits "E", "E-1" to "E-6".

47 Exhibits "Z", "Z-1" to "Z-14".

48 CA Decision, p. 14; Rollo, p. 22.

49 Ibid., p. 15; Rollo, p. 23.

50 91 SCRA 223, 231 [1979].

51 212 SCRA 194, 212-213 [1992].

52 98 Phil. 95 [1955].

53 Cited also in Fieldmen's Insurance Co., Inc. vs. Vda. de Songco, et al., 25
SCRA 70, 75 [1968], and in Sweet Lines, Inc. vs. Teves, et al., 83 SCRA 361,
369 [1978].
 54 TSN, July 16, 1993, p. 24.

55 Ibid., pp. 23-24.

56 Ibid., pp. 6-8.

57 Petition, pp. 59-60; Rollo, pp. 92-93.

58 See p. 299, rollo.

59 Rollo, p. 173.

Overseas Employment Contract:

VIR-JEN SHIPPING AND MARINE SERVICES VS NLRC

SUZARA VS BENIPAYO
PRINCIPE VS PHILIPPINE-SINGAPORE TRANSPORT SERVICES

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 80918 August 16, 1989

JOSEFINA M. PRINCIPE, petitioner

vs.
PHILIPPINE-SINGAPORE TRANSPORT SERVICES, INC. and CHUAN HUP AGENCIES,
PTE. LTD., NATIONAL LABOR RELATIONS COMMISSION AND PHILIPPINE OVERSEAS
EMPLOYEES EMPLOYMENT ADMINISTRATION, respondents.

R. C. Carrera Law Firm for petitioner.

Eladio B. Samson for private respondent.

GANCAYCO, J.:

Once again this Tribunal is faced with the issue of the validity of the quitclaim executed by the
employee's heir in favor of the employer.

Petitioner is the widow of the late Abelardo Principe who was then the Chief Engineer of M/V
OSAM Falcon, a commercial vessel of Singaporean registry owned by Chuan Hup Agencies,
Pte. Ltd. (Chuan Hup for brevity), one of the private respondents herein, who is the principal of
Philippine-Singapore Transport Services, Inc. (PSTSI), also a private respondent herein. The
contract of employment of the deceased with private respondent Chua Hup provides, among
others, that Principe would receive Singapore $2,800.00 a month to commence on September
7, 1982, medical benefits and insurance coverage through group hospitalization and surgical
insurance and group and personal accident insurance for a capital sum of US$75,000.00. It also
provides that the laws of Singapore shall apply in cases of disputes arising out of the said
appointment and that said disputes are to be resolved by the courts of the Republic of
Singapore. 1

On September 15,1982, while Principe was on duty in Malintoc Field, Palawan, Philippines, he
suddenly contracted a serious illness which eventually resulted to his death. 2

On July 5, 1983, petitioner filed a complaint 3 against PSTSI with the Workers Assistance and
Adjudication Office of the Philippine Overseas Employment Administration (POEA), seeking the
payment of death compensation benefits and other benefits accruing to her deceased husband.
While the aforesaid case was pending, the parties entered into a compromise agreement. On
December 22, 1983, petitioner executed a release and quitclaim in favor of PSTSI in
consideration of the sum of Seven Thousand Pesos (P7,000.00) together with hospital, burial
and other incidental expenses previously disbursed by PSTSI in favor of petitioner's deceased
husband. 4Consequently, Atty. Wellington Lachica, counsel for petitioner, with the latter's
conformity, filed a motion to dismiss the case with prejudice against PSTSI and without
prejudice as against Chuan Hup 5

On the basis of the compromise agreement and the motion to dismiss dated November 23,
1983, the POEA issued an order dated December 27, 1983, dismissing petitioner's complaint
with prejudice against PSTSI.

On April 21, 1986, petitioner filed with the POEA another claim for death benefits against
PSTSI, this time including Chuan Hup. The new case was docketed as POEA Case No. (L) 86-
04-328. In the decision dated January 27, 1987, the POEA dismissed the complaint on the
ground that there exist identity of parties, subject matter and cause of action between the
previous case, POEA Case No. L-635-83 and the new case, and that the present case is barred
by prior judgment based on a compromise agreement in the previous case. 6

Petitioner appealed to the National Labor Relations Commission (NLRC).lâwphî1.ñèt In a

resolution dated September 25, 1987, the NLRC dismissed the appeal for lack of merit. 7

Hence, the present petition.

It is the position of the petitioner that the release and quitclaim that she signed in favor of private
respondent PSTSI is null and void on the ground that the consideration given in exchange
thereof in the amount of P7,000.00 is extremely low and unconscionable. Petitioner added that
she was merely misled to sign the quitclaim due to the assurance given by PSTSI that it will
help her recover the death compensation and insurance proceeds due her deceased husband.
She argued that even on the assumption that the quitclaim is valid, the release should benefit
PSTSI alone and should not include Chua Hup as the quitclaim was executed only in favor of
PSTSI. Further she contended that notwithstanding the quitclaim executed in favor of PSTSI,
the latter may still be held liable since it is an agent of Chuan Hup here in the Philippines. 8

The Solicitor General supports petitioner's view stating that the principle of res judicata is
inapplicable to the case at bar since petitioner and PSTSI agreed that the dismissal of the suit
against the latter is without prejudice insofar as the principal Chuan Hup is concerned; that the
quitclaim is null and void as the consideration given is unconscionably low as it is not even
equal to one percent (1%) of petitioner's claim; and that the quitclaim is inequitable and
incongrous to the declared policy of the State to afford protection to labor, citing Section 3,
Article XIII of the 1987 Constitution. 9

We rule for the petitioner.

The release and quitclaim in question reads as follows:

JOSEFINA M. PRINCIPLE, of legal

age,

widow, and resident at 1287-E, G.

Tuazon

St., Sampaloc, Manila

in favor of

PHILIPPINE-SINGAPORE TRANS-

PORT SERVICES, INC., a domestic

corpo-

ration domiciled and having its

principal

place of business at 205 Martinez

Bldg.,

Dasmarinas, Manila.

WITNESSETH, that:

WHEREAS, on July 5, 1983, Josefina M. Principe fled a complaint for death

benefits against Philippine-Singapore Transport Services, Inc. as a shipping
agency of Chuan Hup Agencies Pte. Ltd. of the Republic of Singapore for the
death of her husband, Engr. Abelardo D. Principe, on September 15, 1982 in
Matinloc Field, Offshore Palawan, Philippines while in the course of as
employment as Chief Engineer of OSAM Falcon' in POEA Case No. (L) 635-83
of the Philippine Overseas Employment Administration, entitled Josefina M.
Principe vs. Philippine-Singapore Transport Services, Inc.;'

WHEREAS, the parties have agreed to settle the above- entitled case amicably.

NOW, THEREFORE, for and in consideration of the sum of SEVEN THOUSAND

PESOS (P7,000.00), Philippine currency and of the hospital, burial and other
incidental expenses previously disbursed by Philippine-Singapore Transport
 Services, Inc., receipt of which in full is hereby acknowledged to her full and
complete satisfaction, JOSEFINA M. PRINCIPLE have (sic) released and
discharged, as she hereby releases and discharges, Philippine-Singapore
Transport Services, Inc., its directors, officers, employees, principals and agents
from any and all claims, actions obligations and liabilities which she have or
might have against Philippine-Singapore Transport Services, Inc. in connection
with the death of her husband Abelardo D. Principe on September 15, 1982 in
Matintoc Field, Offshore Palawan under the circumstances narrated in the
aforementioned case.

That she hereby represents and warrants to Philippine-Singapore Transport

Services, Inc. that she is the surviving spouse legally entitled to claim for
damages/support which may arise from the death of said Abelardo D. Principe,
and further, that she hereby manifests that any and all rights or claims which she,
as a surviving forced heir of the late Abelardo D. Principe might have against
Philippine-Singapore Transport Services, Inc., its directors, employees, principals
and agents arising out of or by reason of the death of said Abelardo D. Principe
are hereby deemed waived and discharged and she have (sic) Philippine-
Singapore Transport Services, Inc., its directors, officers, employees, principals
and agents and whoever may be held liable, completely free and harmless from
any claim and/or liabilities that may arise from the death of said Abelardo D.
Principe (sic).

That in the event that any other person/persons, as surviving spouse of the
deceased Abelardo D. Principe should claim against Philippine-Singapore
Transport Services, Inc. for such damages/support arising from the death of
Abelardo D. Principe, and the claim is held valid, then Josefina M. Principe
hereby undertakes and agrees to reimburse to Philippine-Singapore Transport
Services, Inc. the amounts hereunder received, plus legal interest therein.

That she further states that the foregoing consideration is voluntarily accepted by
her as a full and final compromise, adjustment and settlement of any and all
claims that she may have against Philippine-Singapore Transport Services, Inc.,
its directors, officers, employees, principals and agents; and she hereby
irrevocably affirm (sic) that Philippine-Singapore Transport Services, Inc. has
made this settlement solely to buy peace, avoid litigation and on human
consideration, and she acknowledges that the payment of said consideration is
not and shall never be construed as an admission of liability or obligation by
Philippine-Singapore Transport Services, Inc., its officers, directors, employees,
principals and agents. 10

It is true that a compromise agreement once approved by the court has the effect of res
judicata between the parties and should not be disturbed except for vices of consent and
forgery. However, settled is the rule that the NLRC may disregard technical rules of procedure
in order to give life to the constitutional mandate affording protection to labor and to conform to
the need of protecting the working class whose inferiority against the employer has always been
earmarked by disadvantage. 11

The Court finds that the compromise agreement entered into by the petitioner in favor of PSTSI
was not intended to totally foreclose her right over the death benefits of her husband. First, the
motion to dismiss, filed by petitioner through Atty. Lachica before the POEA, which cited the
compromise agreement entered into by the parties, clearly and unequivocally reflects the
undertaking that the release is without prejudice as regards private respondent Chuan Hup. This
fact was acknowledged in the decision of POEA Administrator Tomas D. Achacoso in POEA
Case No. (L) 86-04-328. It is surprising why both the POEA and the NLRC failed to consider this
aspect in the resolution of the second complaint filed by the petitioner against PSTSI and Chuan
Hup.

The second complaint was filed by petitioner to enforce the joint and several liability of PSTSI
and Chuan Hup per joint affidavit of responsibility executed by said parties in entering into a
principal agent relationship after PSTSI failed to live up to its commitment to assist petitioner in
the recovery of death compensation. 12 This observation is supported by the provisions of the
release signed by the petitioner wherein the parties referred to therein were only the petitioner
and PSTSI. The release is from any claim against PSTSI. Chuan Hup is not a party thereto. He
cannot be considered covered by the release.

Moreover, the Court sees no reason why petitioner, with the assistance of a counsel would ever
agree to foreclose her right against Chuan Hup over the death benefits of her husband in
exchange for a very measly sum of Seven Thousand Pesos (P7,000.00). They must have been
aware that should she pursue her case, she was assured of getting at least One Hundred
Thousand Eight Hundred Singapore dollars (US$100,800.00). This Court has laid down the rule
in similar cases that applying the Singapore Maritime Laws in case of a seaman's death, the
heirs of the seaman should receive the equivalent of 36 months wages of the deceased
seaman. 13

The fact that petitioner received the sum of P7,000.00 only should not be taken to mean as a
waiver of her right. The circumstances she was confronted with during that time left her with no
other alternative but to accept the same as she was in dire need of money due to the sudden
death of her husband. PSTSI contends that it was precisely because of her need for cash that
petitioner thereby totally waived her right over the death benefits of her husband. We do not
think so. What is plausible is the protestation of petitioner that PSTSI took advantage of her
financial distress and led her to signing the release and quitclaim without explaining the
consequences to her. While it may be true that her counsel assisted her in the process, said
counsel must have been persuaded by the assurance of PSTSI that it shall help obtain for her
the corresponding benefits from Chuan Hup.

Even assuming for the sake of argument that the quitclaim had foreclosed petitioner's right over
the death benefits of her husband, the fact that the consideration given in exchange thereof was
very much less than the amount petitioner is claiming renders the quitclaim null and void for
being contrary to public policy. 14 The State must be firm in affording protection to labor. The
quitclaim wherein the consideration is scandalously low and inequitable cannot be an obstacle
to petitioner's pursuing her legitimate claim. 15 Equity dictates that the compromise agreement
should be voided in this instance.

Lastly, it must be noted that the first complaint of petitioner was merely an action against PSTSI
whereas in the second complaint Chuan Hup was already included. The POEA ruled that the
second complaint was merely an afterthought, and that it was a product of a pre-conceived mind
considering the interval of time from the issuance of the order of dismissal in the previous case
and the institution of the second complaint. We do not think so. On the contrary, the Court holds
that the delay was due to PSTSI's failure to make good its promise to assist the petitioner in
recovering the death benefits of her husband. We see no other reason thereby. Hence, even if
the second action was filed beyond the three (3) year reglementary period as provided by law
for such claims, We cannot buy PSTSI's argument that the claim is already barred. The blame
for the delay, if any, can only be attributed to PSTSI.

On the other hand, PSTSI argues that it cannot be held responsible on the ground that the
aforesaid affidavit of undertaking with Chua Hup is applicable only to those members of the
crew recruited by PSTSI in the Philippines for and in behalf of its principal Chuan Hup and that
since Principe was directly hired by Chuan Hup, PSTSI cannot be held responsible as it has no
privity of contract with those personnel recruited in Singapore.

The argument is untenable. This is the first time PSTSI raised this defense when it had all the
chance to do so below. Moreover, if PSTSI honestly believed it had no privity of contract with
Principe who was directly recruited by Chuan Hup, then there is no reason why it entered into a
compromise agreement with herein petitioner. From the very start, it should have asked for the
dismissal of the case against it on the ground of lack of cause of action, but it did not do so.
What is obvious is that Principe was actually recruited by PSTSI and that he signed the
employment contract with the principal Chuan Hup. Thus, private respondents stand jointly and
severally liable for the claim of petitioner.

Anent the argument that the Philippine courts are without jurisdiction over the subject matter as
jurisdiction was, by agreement of the parties, vested in the courts of the Republic of Singapore,
it is well-settled that an agreement to deprive a court of jurisdiction conferred on it by law is void
and of no legal effect. 16 In this jurisdiction labor cases, are within the competence of the
National Labor Relations Commission.

With respect to petitioner's monetary claim, since the parties agreed that the laws of Singapore
shall govern their relationship and that any dispute arising from the contract shall be resolved by
the law of that country, then the petitioner is entitled to death benefits equivalent to 36 months
salary of her husband. 17 As the wage of deceased Abelardo Principe was S$2,800.00 a month,
then petitioner is entitled to a total of S$100,800.00.

WHEREFORE, premises considered, the petition is granted. The resolution of the NLRC dated
September 25,1987 is hereby set aside and another decision is hereby rendered ordering
private respondents PSTSI and Chuan Hup Agencies, Pte. Ltd. to jointly and severally pay
petitioner the sum of S$100,800. 00 in its equivalent in Philippine pesos. This decision is
immediately executory.

SO ORDERED.

Narvasa, Actg. C.J., Cruz, Griñ;o-Aquino and Medialdea, JJ., concur.

Footnotes

1 Pages 16-18, Rollo.

2 Pages 19-20, Rollo.

 3 POEA Case No. L-635-83.

4 Pages 21-22, Rollo.

5 Page 25, Rollo.

6 Pages 24-27, Rollo.

7 Pages 29-32, Rollo.

8 Pages 9-12, Rollo.

9 Pages 91-94, Rollo.

10 Pages 21-22, Rollo.

11 Cuales vs. National Labor Relations Commission, 121 SCRA 812 (1983);
Araneta vs. Perez, 7 SCRA 923 (1963); Serrano vs. Miave, 13 SCRA 461 (1965);
Vda. de Corpus vs. Phodaca Ambrocia, 32 SCRA 279 (1970).

12 Pages 67-73, Rollo.

13 Norse Management Co. (Pte.) vs. National Seamen Board, 117 SCRA 486,
491 (1982), citing Vir-Jen Shipping and Marine Services, Inc. vs. National
Seamen Board, L-41297 (1975).

14 Article 6, Civil Code.

15 Cuales vs. National Labor Relations Commission, supra.

16 Molina vs. De la Riva, 6 Phil, 12 (1906).

17 Norse Management Co. (Pte.) vs. National Seamen Board, supra.

CADALIN VS BROWN & ROOT INTERNATIONAL

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-104776 December 5, 1994

BIENVENIDO M. CADALIN, ROLANDO M. AMUL, DONATO B. EVANGELISTA, and the rest
of 1,767 NAMED-COMPLAINANTS, thru and by their Attorney-in-fact, Atty. GERARDO A.
DEL MUNDO, petitioners,
vs.
PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION'S ADMINISTRATOR,
NATIONAL LABOR RELATIONS COMMISSION, BROWN & ROOT INTERNATIONAL, INC.
AND/OR ASIA INTERNATIONAL BUILDERS CORPORATION, respondents.

G.R. Nos. 104911-14 December 5, 1994

BIENVENIDO M. CADALIN, ET AL., petitioners,

vs.
HON. NATIONAL LABOR RELATIONS COMMISSION, BROWN & ROOT INTERNATIONAL,
INC. and/or ASIA INTERNATIONAL BUILDERS CORPORATION, respondents.

G.R. Nos. 105029-32 December 5, 1994

ASIA INTERNATIONAL BUILDER CORPORATION and BROWN & ROOT INTERNATIONAL,

INC., petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, BIENVENIDO M. CADALIN, ROLANDO M.
AMUL, DONATO B. EVANGELISTA, ROMEO PATAG, RIZALINO REYES, IGNACIO DE
VERA, SOLOMON B. REYES, JOSE M. ABAN, EMIGDIO N. ABARQUEZ, ANTONIO
ACUPAN, ROMEO ACUPAN, BENJAMIN ALEJANDRE, WILFREDO D. ALIGADO, MARTIN
AMISTAD, JR., ROLANDO B. AMUL, AMORSOLO ANADING, ANTONIO T. ANGLO,
VICENTE ARLITA, HERBERT AYO, SILVERIO BALATAZO, ALFREDO BALOBO,
FALCONERO BANAAG, RAMON BARBOSA, FELIX BARCENA, FERNANDO BAS, MARIO
BATACLAN, ROBERTO S. BATICA, ENRICO BELEN, ARISTEO BICOL, LARRY C. BICOL,
PETRONILLO BISCOCHO, FELIX M. BOBIER, DIONISIO BOBONGO, BAYANI S.
BRACAMANTE, PABLITO BUSTILLO, GUILLERMO CABEZAS, BIENVENIDO CADALIN,
RODOLFO CAGATAN, AMANTE CAILAO, IRENEO CANDOR, JOSE CASTILLO, MANUEL
CASTILLO, REMAR CASTROJERES, REYNALDO CAYAS, ROMEO CECILIO, TEODULO
CREUS, BAYANI DAYRIT, RICARDO DAYRIT, ERNESTO T. DELA CRUZ, FRANCISCO DE
GUZMAN, ONOFRE DE RAMA, IGNACIO DE VERA, MODESTO DIZON, REYNALDO
DIZON, ANTONIO S. DOMINGUEZ, GILBERT EBRADA, RICARDO EBRADA, ANTONIO
EJERCITO, JR., EDUARTE ERIDAO, ELADIO ESCOTOTO, JOHN ESGUERRA, EDUARDO
ESPIRITU, ERNESTO ESPIRITU, RODOLFO ESPIRITU, NESTOR M. ESTEVA, BENJAMIN
ESTRADA, VALERIO EVANGELISTA, OLIGARIO FRANCISCO, JESUS GABAWAN,
ROLANDO GARCIA, ANGEL GUDA, PACITO HERNANDEZ, ANTONIO HILARIO, HENRY L.
JACOB, HONESTO JARDINIANO, ANTONIO JOCSON, GERARDO LACSAMANA, EFREN
U. LIRIO LORETO LONTOC, ISRAEL LORENZO, ALEJANDRO LORINO, JOSE MABALAY,
HERMIE MARANAN, LEOVIGILDO MARCIAL, NOEL MARTINEZ, DANTE MATREO,
LUCIANO MELENDEZ, RENATO MELO, FRANCIS MEDIODIA, JOSE C. MILANES,
RAYMUNDO C. MILAY, CRESENCIANO MIRANDA, ILDEFONSO C. MOLINA, ARMANDO B.
MONDEJAR RESURRECCION D. NAZARENO, JUAN OLINDO, FRANCISCO R. OLIVARES,
PEDRO ORBISTA, JR., RICARDO ORDONEZ, ERNIE PANCHO, JOSE PANCHO,
GORGONIO P. PARALA, MODESTO PINPIN, JUANITO PAREA, ROMEO I. PATAG,
FRANCISCO PINPIN, LEONARDO POBLETE, JAIME POLLOS, DOMINGO PONDALIS,
EUGENIO RAMIREZ, LUCIEN M. RESPALL, GAUDENCIO RETANAN, JR., TOMAS B.
RETENER, ALVIN C. REYES, RIZALINO REYES, SOLOMON B. REYES, VIRGILIO G.
RICAZA, RODELIO RIETA, JR., BENITO RIVERA, JR., BERNARDO J. ROBILLOS, PABLO
A. ROBLES, JOSE ROBLEZA, QUIRINO RONQUILLO, AVELINO M. ROQUE, MENANDRO
L. SABINO, PEDRO SALGATAR, EDGARDO SALONGA, NUMERIANO SAN MATEO,
FELIZARDO DE LOS SANTOS, JR., GABRIEL SANTOS, JUANITO SANTOS, PAQUITO
SOLANTE, CONRADO A. SOLIS, JR., RODOLFO SULTAN, ISAIAS TALACTAC, WILLIAM
TARUC, MENANDRO TEMPROSA, BIENVENIDO S. TOLENTINO, BENEDICTO TORRES,
MAXIMIANO TORRES, FRANCISCO G. TRIAS, SERGIO A. URSOLINO, ROGELIO VALDEZ,
LEGORIO E. VERGARA, DELFIN VICTORIA, GILBERT VICTORIA, HERNANE
VICTORIANO, FRANCISCO VILLAFLORES, DOMINGO VILLAHERMOSA, ROLANDO
VILLALOBOS, ANTONIO VILLAUZ, DANILO VILLANUEVA, ROGELIO VILLANUEVA,
ANGEL VILLARBA, JUANITO VILLARINO, FRANCISCO ZARA, ROGELIO AALAGOS,
NICANOR B. ABAD, ANDRES ABANES, REYNALDO ABANES, EDUARDO ABANTE, JOSE
ABARRO, JOSEFINO ABARRO, CELSO S. ABELANIO, HERMINIO ABELLA, MIGUEL
ABESTANO, RODRIGO G. ABUBO, JOSE B. ABUSTAN, DANTE ACERES, REYNALDO S.
ACOJIDO, LEOWILIN ACTA, EUGENIO C. ACUEZA, EDUARDO ACUPAN, REYNALDO
ACUPAN, SOLANO ACUPAN, MANUEL P. ADANA, FLORENTINO R. AGNE, QUITERIO R.
AGUDO, MANUEL P. AGUINALDO, DANTE AGUIRRE, HERMINIO AGUIRRE, GONZALO
ALBERTO, JR., CONRADO ALCANTARA, LAMBERTO Q. ALCANTARA, MARIANITO J.
ALCANTARA, BENCIO ALDOVER, EULALIO V. ALEJANDRO, BENJAMIN ALEJANDRO,
EDUARDO L. ALEJANDRO, MAXIMINO ALEJANDRO, ALBERTO ALMENAR, ARNALDO
ALONZO, AMADO ALORIA, CAMILO ALVAREZ, MANUEL C. ALVAREZ, BENJAMIN R.
AMBROCIO, CARLOS AMORES, BERNARD P. ANCHETA, TIMOTEO O. ANCHETA,
JEOFREY ANI, ELINO P. ANTILLON, ARMANDRO B. ANTIPONO, LARRY T. ANTONIO,
ANTONIO APILADO, ARTURO P. APILADO, FRANCISCO APOLINARIO, BARTOLOME M.
AQUINO, ISIDRO AQUINO, PASTOR AQUINO, ROSENDO M. AQUINO, ROBERTO
ARANGORIN, BENJAMIN O. ARATEA, ARTURO V. ARAULLO, PRUDENCIO ARAULLO,
ALEXANDER ARCAIRA, FRANCISCO ARCIAGA, JOSE AREVALO, JUANTO AREVALO,
RAMON AREVALO, RODOLFO AREVALO, EULALIO ARGUELLES, WILFREDO P. ARICA,
JOSE M. ADESILLO, ANTONIO ASUNCION, ARTEMIO M. ASUNCION, EDGARDO
ASUNCION, REXY M. ASUNCION, VICENTE AURELIO, ANGEL AUSTRIA, RICARDO P.
AVERILLA, JR., VIRGILIO AVILA, BARTOLOME AXALAN, ALFREDO BABILONIA,
FELIMON BACAL, JOSE L. BACANI, ROMULO R. BALBIERAN, VICENTE BALBIERAN,
RODOLFO BALITBIT, TEODORO Y. BALOBO, DANILO O. BARBA, BERNARDO BARRO,
JUAN A. BASILAN, CEFERINO BATITIS, VIVENCIO C. BAUAN, GAUDENCIO S.
BAUTISTA, LEONARDO BAUTISTA, JOSE D. BAUTISTA, ROSTICO BAUTISTA, RUPERTO
B. BAUTISTA, TEODORO S. BAUTISTA, VIRGILIO BAUTISTA, JESUS R. BAYA,
WINIEFREDO BAYACAL, WINIEFREDO BEBIT, BEN G. BELIR, ERIC B. BELTRAN,
EMELIANO BENALES, JR., RAUL BENITEZ, PERFECTO BENSAN, IRENEO BERGONIO,
ISABELO BERMUDEZ, ROLANDO I. BERMUDEZ, DANILO BERON, BENJAMIN
BERSAMIN, ANGELITO BICOL, ANSELMO BICOL, CELESTINO BICOL, JR., FRANCISCO
BICOL, ROGELIO BICOL, ROMULO L. BICOL, ROGELIO BILLIONES, TEOFILO N. BITO,
FERNANDO BLANCO, AUGUSTO BONDOC, DOMINGO BONDOC, PEPE S. BOOC, JAMES
R. BORJA, WILFREDO BRACEROS, ANGELES C. BRECINO, EURECLYDON G. BRIONES,
AMADO BRUGE, PABLITO BUDILLO, ARCHIMEDES BUENAVENTURA, BASILIO
BUENAVENTURA, GUILLERMO BUENCONSEJO, ALEXANDER BUSTAMANTE, VIRGILIO
BUTIONG, JR., HONESTO P. CABALLA, DELFIN CABALLERO, BENEDICTO CABANIGAN,
MOISES CABATAY, HERMANELI CABRERA, PEDRO CAGATAN, JOVEN C. CAGAYAT,
ROGELIO L. CALAGOS, REYNALDO V. CALDEJON, OSCAR C. CALDERON, NESTOR D.
CALLEJA, RENATO R. CALMA, NELSON T. CAMACHO, SANTOS T. CAMACHO,
ROBERTO CAMANA, FLORANTE C. CAMANAG EDGARDO M. CANDA, SEVERINO
CANTOS, EPIFANIO A. CAPONPON, ELIAS D. CARILLO, JR., ARMANDO CARREON,
MENANDRO M. CASTAÑEDA, BENIGNO A. CASTILLO, CORNELIO L. CASTILLO, JOSEPH
B. CASTILLO, ANSELMO CASTILLO, JOAQUIN CASTILLO, PABLO L. CASTILLO, ROMEO
P. CASTILLO, SESINANDO CATIBOG, DANILO CASTRO, PRUDENCIO A. CASTRO, RAMO
CASTRO, JR., ROMEO A. DE CASTRO, JAIME B. CATLI, DURANA D. CEFERINO,
RODOLFO B. CELIS, HERMINIGILDO CEREZO, VICTORIANO CELESTINO, BENJAMIN
CHAN, ANTONIO C. CHUA, VIVENCIO B. CIABAL, RODRIGO CLARETE, AUGUSTO
COLOMA, TURIANO CONCEPCION, TERESITO CONSTANTINO, ARMANDO CORALES,
RENATO C. CORCUERA, APOLINAR CORONADO, ABELARDO CORONEL, FELIX
CORONEL, JR., LEONARDO CORPUZ, JESUS M. CORRALES, CESAR CORTEMPRATO,
FRANCISCO O. CORVERA, FRANCISCO COSTALES, SR., CELEDONIO CREDITO,
ALBERTO A. CREUS, ANACLETO V. CRUZ, DOMINGO DELA CRUZ, AMELIANO DELA
CRUZ, JR., PANCHITO CRUZ, REYNALDO B. DELA CRUZ, ROBERTO P. CRUZ,
TEODORO S. CRUZ, ZOSIMO DELA CRUZ, DIONISIO A. CUARESMA, FELIMON CUIZON,
FERMIN DAGONDON, RICHARD DAGUINSIN, CRISANTO A. DATAY, NICASIO
DANTINGUINOO, JOSE DATOON, EDUARDO DAVID, ENRICO T. DAVID, FAVIO DAVID,
VICTORIANO S. DAVID, EDGARDO N. DAYACAP, JOSELITO T. DELOSO, CELERINO DE
GUZMAN, ROMULO DE GUZMAN, LIBERATO DE GUZMAN, JOSE DE LEON, JOSELITO L.
DE LUMBAN, NAPOLEON S. DE LUNA, RICARDO DE RAMA, GENEROSO DEL ROSARIO,
ALBERTO DELA CRUZ, JOSE DELA CRUZ, LEONARDO DELOS REYES, ERNESTO F.
DIATA, EDUARDO A. DIAZ, FELIX DIAZ, MELCHOR DIAZ, NICANOR S. DIAZ, GERARDO
C. DIGA, CLEMENTE DIMATULAC, ROLANDO DIONISIO, PHILIPP G. DISMAYA,
BENJAMIN DOCTOLERO, ALBERTO STO. DOMINGO, BENJAMIN E. DOZA, BENJAMIN
DUPA, DANILO C. DURAN, GREGORIO D. DURAN, RENATO A. EDUARTE, GODOFREDO
E. EISMA, ARDON B. ELLO, UBED B. ELLO, JOSEFINO ENANO, REYNALDO
ENCARNACION, EDGARDO ENGUANCIO, ELIAS EQUIPANO, FELIZARDO ESCARMOSA,
MIGUEL ESCARMOSA, ARMANDO ESCOBAR, ROMEO T. ESCUYOS, ANGELITO
ESPIRITU, EDUARDO S. ESPIRITU, REYNALDO ESPIRITU, ROLANDO ESPIRITU, JULIAN
ESPREGANTE, IGMIDIO ESTANISLAO, ERNESTO M. ESTEBAN, MELANIO R. ESTRO,
ERNESTO M. ESTEVA, CONRADO ESTUAR, CLYDE ESTUYE, ELISEO FAJARDO,
PORFIRIO FALQUEZA, WILFREDO P. FAUSTINO, EMILIO E. FERNANDEZ, ARTEMIO
FERRER, MISAEL M. FIGURACION, ARMANDO F. FLORES, BENJAMIN FLORES,
EDGARDO C. FLORES, BUENAVENTURA FRANCISCO, MANUEL S. FRANCISCO,
ROLANDO FRANCISCO, VALERIANO FRANCISCO, RODOLFO GABAWAN, ESMERALDO
GAHUTAN, CESAR C. GALANG, SANTIAGO N. GALOSO, GABRIEL GAMBOA,
BERNARDO GANDAMON, JUAN GANZON, ANDRES GARCIA, JR., ARMANDO M.
GARCIA, EUGENIO GARCIA, MARCELO L. GARCIA, PATRICIO L. GARCIA, JR.,
PONCIANO G. GARCIA, PONCIANO G. GARCIA, JR., RAFAEL P. GARCIA, ROBERTO S.
GARCIA, OSIAS G. GAROFIL, RAYMUNDO C. GARON, ROLANDO G. GATELA, AVELINO
GAYETA, RAYMUNDO GERON, PLACIDO GONZALES, RUPERTO H. GONZALES,
ROGELIO D. GUANIO, MARTIN V. GUERRERO, JR., ALEXIS GUNO, RICARDO L. GUNO,
FRANCISCO GUPIT, DENNIS J. GUTIERREZ, IGNACIO B. GUTIERREZ, ANGELITO DE
GUZMAN, JR., CESAR H. HABANA, RAUL G. HERNANDEZ, REYNALDO HERNANDEZ,
JOVENIANO D. HILADO, JUSTO HILAPO, ROSTITO HINAHON, FELICISIMO HINGADA,
EDUARDO HIPOLITO, RAUL L. IGNACIO, MANUEL L. ILAGAN, RENATO L. ILAGAN,
CONRADO A. INSIONG, GRACIANO G. ISLA, ARNEL L. JACOB, OSCAR J. JAPITENGA,
CIRILO HICBAN, MAXIMIANO HONRADES, GENEROSO IGNACIO, FELIPE ILAGAN,
EXPEDITO N. JACOB, MARIO JASMIN, BIENVENIDO JAVIER, ROMEO M. JAVIER, PRIMO
DE JESUS, REYNALDO DE JESUS, CARLOS A. JIMENEZ, DANILO E. JIMENEZ, PEDRO
C. JOAQUIN, FELIPE W. JOCSON, FELINO M. JOCSON, PEDRO N. JOCSON, VALENTINO
S. JOCSON, PEDRO B. JOLOYA, ESTEBAN P. JOSE, JR., RAUL JOSE, RICARDO SAN
JOSE, GERTRUDO KABIGTING, EDUARDO S. KOLIMLIM, SR., LAURO J. LABAY,
EMMANUEL C. LABELLA, EDGARDO B. LACERONA, JOSE B. LACSON, MARIO J.
LADINES, RUFINO LAGAC, RODRIGO LAGANAPAN, EFREN M. LAMADRID, GUADENCIO
LATANAN, VIRGILIO LATAYAN, EMILIANO LATOJA, WENCESLAO LAUREL, ALFREDO
LAXAMANA, DANIEL R. LAZARO, ANTONIO C. LEANO, ARTURO S. LEGASPI, BENITO
DE LEMOS, JR., PEDRO G. DE LEON, MANOLITO C. LILOC, GERARDO LIMUACO,
ERNESTO S. LISING, RENATO LISING, WILFREDO S. LISING, CRISPULO LONTOC,
PEDRO M. LOPERA, ROGELIO LOPERA, CARLITO M. LOPEZ, CLODY LOPEZ, GARLITO
LOPEZ, GEORGE F. LOPEZ, VIRGILIO M. LOPEZ, BERNARDITO G. LOREJA, DOMINGO
B. LORICO, DOMINGO LOYOLA, DANTE LUAGE, ANTONIO M. LUALHATI, EMMANUEL
LUALHATI, JR., LEONIDEZ C. LUALHATI, SEBASTIAN LUALHATI, FRANCISCO LUBAT,
ARMANDO LUCERO, JOSELITO L. DE LUMBAN, THOMAS VICENTE O. LUNA, NOLI
MACALADLAD, ALFREDO MACALINO, RICARDO MACALINO, ARTURO V. MACARAIG,
ERNESTO V. MACARAIG, RODOLFO V. MACARAIG, BENJAMIN MACATANGAY,
HERMOGENES MACATANGAY, RODEL MACATANGAY, ROMULO MACATANGAY, OSIAS
Q. MADLANGBAYAN, NICOLAS P. MADRID, EDELBERTO G. MAGAT, EFREN C.
MAGBANUA, BENJAMIN MAGBUHAT, ALFREDO C. MAGCALENG, ANTONIO MAGNAYE,
ALFONSO MAGPANTAY, RICARDO C. MAGPANTAY, SIMEON M. MAGPANTAY,
ARMANDO M. MAGSINO, MACARIO S. MAGSINO, ANTONIO MAGTIBAY, VICTOR V.
MAGTIBAY, GERONIMO MAHILUM, MANUEL MALONZO, RICARDO MAMADIS, RODOLFO
MANA, BERNARDO A. MANALILI, MANUEL MANALILI, ANGELO MANALO, AGUILES L.
MANALO, LEOPOLDO MANGAHAS, BAYANI MANIGBAS, ROLANDO C. MANIMTIM,
DANIEL MANONSON, ERNESTO F. MANUEL, EDUARDO MANZANO, RICARDO N. MAPA,
RAMON MAPILE, ROBERTO C. MARANA, NEMESIO MARASIGAN, WENCESLAO
MARASIGAN, LEONARDO MARCELO, HENRY F. MARIANO, JOEL MARIDABLE, SANTOS
E. MARINO, NARCISO A. MARQUEZ, RICARDO MARTINEZ, DIEGO MASICAMPO,
AURELIO MATABERDE, RENATO MATILLA, VICTORIANO MATILLA, VIRGILIO MEDEL,
LOLITO M. MELECIO, BENIGNO MELENDEZ, RENER J. MEMIJE, REYNALDO F. MEMIJE,
RODEL MEMIJE, AVELINO MENDOZA, JR., CLARO MENDOZA, TIMOTEO MENDOZA,
GREGORIO MERCADO, ERNANI DELA MERCED, RICARDO MERCENA, NEMESIO
METRELLO, RODEL MEMIJE, GASPAR MINIMO, BENJAMIN MIRANDA, FELIXBERTO D.
MISA, CLAUDIO A. MODESTO, JR., OSCAR MONDEDO, GENEROSO MONTON, RENATO
MORADA, RICARDO MORADA, RODOLFO MORADA, ROLANDO M. MORALES,
FEDERICO M. MORENO, VICTORINO A. MORTEL, JR., ESPIRITU A. MUNOZ, IGNACIO
MUNOZ, ILDEFONSO MUNOZ, ROGELIO MUNOZ, ERNESTO NAPALAN, MARCELO A.
NARCIZO, REYNALDO NATALIA, FERNANDO C. NAVARETTE, PACIFICO D. NAVARRO,
FLORANTE NAZARENO, RIZAL B. NAZARIO, JOSUE NEGRITE, ALFREDO
NEPUMUCENO, HERBERT G. NG, FLORENCIO NICOLAS, ERNESTO C. NINON, AVELINO
NUQUI, NEMESIO D. OBA, DANILO OCAMPO, EDGARDO OCAMPO, RODRIGO E.
OCAMPO, ANTONIO B. OCCIANO, REYNALDO P. OCSON, BENJAMIN ODESA, ANGEL
OLASO, FRANCISCO OLIGARIO, ZOSIMO OLIMBO, BENJAMIN V. ORALLO, ROMEO S.
ORIGINES, DANILO R. ORTANEZ, WILFREDO OSIAS, VIRGILIO PA-A, DAVID PAALAN,
JESUS N. PACHECO, ALFONSO L. PADILLA, DANILO PAGSANJAN, NUMERIANO
PAGSISIHAN, RICARDO T. PAGUIO, EMILIO PAKINGAN, LEANDRO PALABRICA,
QUINCIANO PALO, JOSE PAMATIAN, GONZALO PAN, PORFIRIO PAN, BIENVENIDO
PANGAN, ERNESTO PANGAN, FRANCISCO V. PASIA, EDILBERTO PASIMIO, JR., JOSE
V. PASION, ANGELITO M. PENA, DIONISIO PENDRAS, HERMINIO PERALTA, REYNALDO
M. PERALTA, ANTONIO PEREZ, ANTOLIANO E. PEREZ, JUAN PEREZ, LEON PEREZ,
ROMEO E. PEREZ, ROMULO PEREZ, WILLIAM PEREZ, FERNANDO G. PERINO,
FLORENTINO DEL PILAR, DELMAR F. PINEDA, SALVADOR PINEDA, ELIZALDE PINPIN,
WILFREDO PINPIN, ARTURO POBLETE, DOMINADOR R. PRIELA, BUENAVENTURA
PRUDENTE, CARMELITO PRUDENTE, DANTE PUEYO, REYNALDO Q. PUEYO, RODOLFO
O. PULIDO, ALEJANDRO PUNIO, FEDERICO QUIMAN, ALFREDO L. QUINTO, ROMEO
QUINTOS, EDUARDO W. RACABO, RICARDO C. DE RAMA, RICARDO L. DE RAMA,
ROLANDO DE RAMA, FERNANDO A. RAMIREZ, LITO S. RAMIREZ, RICARDO G.
RAMIREZ, RODOLFO V. RAMIREZ, ALBERTO RAMOS, ANSELMO C. RAMOS, TOBIAS
RAMOS, WILLARFREDO RAYMUNDO, REYNALDO RAQUEDAN, MANUEL F. RAVELAS,
WILFREDO D. RAYMUNDO, ERNESTO E. RECOLASO, ALBERTO REDAZA, ARTHUR
REJUSO, TORIBIO M. RELLAMA, JAIME RELLOSA, EUGENIO A. REMOQUILLO,
GERARDO RENTOZA, REDENTOR C. REY, ALFREDO S. REYES, AMABLE S. REYES,
BENEDICTO R. REYES, GREGORIO B. REYES, JOSE A. REYES, JOSE C. REYES,
ROMULO M. REYES, SERGIO REYES, ERNESTO F. RICO, FERNANDO M. RICO,
EMMANUEL RIETA, RICARDO RIETA, LEO B. ROBLES, RUBEN ROBLES, RODOLFO
ROBLEZA, RODRIGO ROBLEZA, EDUARDO ROCABO, ANTONIO R. RODRIGUEZ,
BERNARDO RODRIGUEZ, ELIGIO RODRIGUEZ, ALMONTE ROMEO, ELIAS RONQUILLO,
ELISE RONQUILLO, LUIS VAL B. RONQUILLO, REYNOSO P. RONQUILLO, RODOLFO
RONQUILLO, ANGEL ROSALES, RAMON ROSALES, ALBERTO DEL ROSARIO,
GENEROSO DEL ROSARIO, TEODORICO DEL ROSARIO, VIRGILIO L. ROSARIO,
CARLITO SALVADOR, JOSE SAMPARADA, ERNESTO SAN PEDRO, ADRIANO V.
SANCHA, GERONIMO M. SANCHA, ARTEMIO B. SANCHEZ, NICASIO SANCHEZ,
APOLONIO P. SANTIAGO, JOSELITO S. SANTIAGO, SERGIO SANTIAGO, EDILBERTO C.
SANTOS, EFREN S. SANTOS, RENATO D. SANTOS, MIGUEL SAPUYOT, ALEX S.
SERQUINA, DOMINADOR P. SERRA, ROMEO SIDRO, AMADO M. SILANG, FAUSTINO D.
SILANG, RODOLFO B. DE SILOS, ANICETO G. SILVA, EDGARDO M. SILVA, ROLANDO C.
SILVERTO, ARTHUR B. SIMBAHON, DOMINGO SOLANO, JOSELITO C. SOLANTE,
CARLITO SOLIS, CONRADO SOLIS, III, EDGARDO SOLIS, ERNESTO SOLIS, ISAGANI M.
SOLIS, EDUARDO L. SOTTO, ERNESTO G. STA. MARIA, VICENTE G. STELLA, FELIMON
SUPANG, PETER TANGUINOO, MAXIMINO TALIBSAO, FELICISMO P. TALUSIK, FERMIN
TARUC, JR., LEVY S. TEMPLO, RODOLFO S. TIAMSON, LEONILO TIPOSO, ARNEL
TOLENTINO, MARIO M. TOLENTINO, FELIPE TORRALBA, JOVITO V. TORRES,
LEONARDO DE TORRES, GAVINO U. TUAZON, AUGUSTO B. TUNGUIA, FRANCISCO
UMALI, SIMPLICIO UNIDA, WILFREDO V. UNTALAN, ANTONIO VALDERAMA, RAMON
VALDERAMA, NILO VALENCIANO, EDGARDO C. VASQUEZ, ELPIDIO VELASQUEZ,
NESTOR DE VERA, WILFREDO D. VERA, BIENVENIDO VERGARA, ALFREDO VERGARA,
RAMON R. VERZOSA, FELICITO P. VICMUNDO, ALFREDO VICTORIANO, TEOFILO P.
VIDALLO, SABINO N. VIERNEZ, JESUS J. VILLA, JOVEN VILLABLANCO, EDGARDO G.
VILLAFLORES, CEFERINO VILLAGERA, ALEX VILLAHERMOZA, DANILO A.
VILLANUEVA, ELITO VILLANUEVA, LEONARDO M. VILLANUEVA, MANUEL R.
VILLANUEVA, NEPTHALI VILLAR, JOSE V. VILLAREAL, FELICISIMO VILLARINO,
RAFAEL VILLAROMAN, CARLOS VILLENA, FERDINAND VIVO, ROBERTO YABUT,
VICENTE YNGENTE, AND ORO C. ZUNIGA,respondents.

Gerardo A. Del Mundo and Associates for petitioners.

Romulo, Mabanta, Sayoc, Buenaventura, De los Angeles Law Offices for BRII/AIBC.

Florante M. De Castro for private respondents in 105029-32.

QUIASON, J.:
The petition in G.R. No. 104776, entitled "Bienvenido M. Cadalin, et. al. v. Philippine Overseas
Employment Administration's Administrator, et. al.," was filed under Rule 65 of the Revised
Rules of Court:

(1) to modify the Resolution dated September 2, 1991 of the National Labor
Relations Commission (NLRC) in POEA Cases Nos.
L-84-06-555, L-85-10-777, L-85-10-779 and L-86-05-460; (2) to render a new
decision: (i) declaring private respondents as in default; (ii) declaring the said
labor cases as a class suit; (iii) ordering Asia International Builders Corporation
(AIBC) and Brown and Root International Inc. (BRII) to pay the claims of the
1,767 claimants in said labor cases; (iv) declaring Atty. Florante M. de Castro
guilty of forum-shopping; and (v) dismissing POEA Case No. L-86-05-460; and

(3) to reverse the Resolution dated March 24, 1992 of NLRC, denying the motion
for reconsideration of its Resolution dated September 2, 1991 (Rollo, pp. 8-288).

The petition in G.R. Nos. 104911-14, entitled "Bienvenido M. Cadalin, et. al., v. Hon. National
Labor Relations Commission, et. al.," was filed under Rule 65 of the Revised Rules of Court:

(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA Cases
Nos. L-84-06-555, L-85-10-777, L-85-10-799 and
L-86-05-460 insofar as it: (i) applied the three-year prescriptive period under the
Labor Code of the Philippines instead of the ten-year prescriptive period under
the Civil Code of the Philippines; and (ii) denied the
"three-hour daily average" formula in the computation of petitioners' overtime
pay; and

(2) to reverse the Resolution dated March 24, 1992 of NLRC, denying the motion
for reconsideration of its Resolution dated September 2, 1991 (Rollo, pp. 8-25;
26-220).

The petition in G.R. Nos. 105029-32, entitled "Asia International Builders Corporation, et. al., v.
National Labor Relations Commission, et. al." was filed under Rule 65 of the Revised Rules of
Court:

(1) to reverse the Resolution dated September 2, 1991 of NLRC in POEA Cases
Nos. L-84-06-555, L-85-10-777, L-85-10-779 and
L-86-05-460, insofar as it granted the claims of 149 claimants; and

(2) to reverse the Resolution dated March 21, 1992 of NLRC insofar as it denied
the motions for reconsideration of AIBC and BRII (Rollo, pp. 2-59; 61-230).

The Resolution dated September 2, 1991 of NLRC, which modified the decision of POEA in four
labor cases: (1) awarded monetary benefits only to 149 claimants and (2) directed Labor Arbiter
Fatima J. Franco to conduct hearings and to receive evidence on the claims dismissed by the
POEA for lack of substantial evidence or proof of employment.

Consolidation of Cases
G.R. Nos. 104776 and 105029-32 were originally raffled to the Third Division while G.R. Nos.
104911-14 were raffled to the Second Division. In the Resolution dated July 26, 1993, the
Second Division referred G.R. Nos. 104911-14 to the Third Division (G.R. Nos. 104911-
14, Rollo, p. 895).

In the Resolution dated September 29, 1993, the Third Division granted the motion filed in G.R.
Nos. 104911-14 for the consolidation of said cases with G.R. Nos. 104776 and 105029-32,
which were assigned to the First Division (G.R. Nos. 104911-14, Rollo, pp. 986-1,107; G.R.
Nos. 105029-30, Rollo, pp. 369-377, 426-432). In the Resolution dated October 27, 1993, the
First Division granted the motion to consolidate G.R. Nos. 104911-14 with G.R. No. 104776
(G.R. Nos. 104911-14, Rollo, p. 1109; G.R. Nos. 105029-32, Rollo, p. 1562).

On June 6, 1984, Bienvenido M.. Cadalin, Rolando M. Amul and Donato B. Evangelista, in their
own behalf and on behalf of 728 other overseas contract workers (OCWs) instituted a class suit
by filing an "Amended Complaint" with the Philippine Overseas Employment Administration
(POEA) for money claims arising from their recruitment by AIBC and employment by BRII
(POEA Case No. L-84-06-555). The claimants were represented by Atty. Gerardo del Mundo.

BRII is a foreign corporation with headquarters in Houston, Texas, and is engaged in

construction; while AIBC is a domestic corporation licensed as a service contractor to recruit,
mobilize and deploy Filipino workers for overseas employment on behalf of its foreign principals.

The amended complaint principally sought the payment of the unexpired portion of the
employment contracts, which was terminated prematurely, and secondarily, the payment of the
interest of the earnings of the Travel and Reserved Fund, interest on all the unpaid benefits;
area wage and salary differential pay; fringe benefits; refund of SSS and premium not remitted
to the SSS; refund of withholding tax not remitted to the BIR; penalties for committing prohibited
practices; as well as the suspension of the license of AIBC and the accreditation of BRII (G.R.
No. 104776, Rollo, pp. 13-14).

At the hearing on June 25, 1984, AIBC was furnished a copy of the complaint and was given,
together with BRII, up to July 5, 1984 to file its answer.

On July 3, 1984, POEA Administrator, upon motion of AIBC and BRII, ordered the claimants to
file a bill of particulars within ten days from receipt of the order and the movants to file their
answers within ten days from receipt of the bill of particulars. The POEA Administrator also
scheduled a pre-trial conference on July 25, 1984.

On July 13, 1984, the claimants submitted their "Compliance and Manifestation." On July 23,
1984, AIBC filed a "Motion to Strike Out of the Records", the "Complaint" and the "Compliance
and Manifestation." On July 25, 1984, the claimants filed their "Rejoinder and Comments,"
averring, among other matters, the failure of AIBC and BRII to file their answers and to attend
the pre-trial conference on July 25, 1984. The claimants alleged that AIBC and BRII had waived
their right to present evidence and had defaulted by failing to file their answers and to attend the
pre-trial conference.
On October 2, 1984, the POEA Administrator denied the "Motion to Strike Out of the Records"
filed by AIBC but required the claimants to correct the deficiencies in the complaint pointed out
in the order.

On October 10, 1984, claimants asked for time within which to comply with the Order of October
2, 1984 and filed an "Urgent Manifestation," praying that the POEA Administrator direct the
parties to submit simultaneously their position papers, after which the case should be deemed
submitted for decision. On the same day, Atty. Florante de Castro filed another complaint for the
same money claims and benefits in behalf of several claimants, some of whom were also
claimants in POEA Case No. L-84-06-555 (POEA Case No. 85-10-779).

On October 19, 1984, claimants filed their "Compliance" with the Order dated October 2, 1984
and an "Urgent Manifestation," praying that the POEA direct the parties to submit
simultaneously their position papers after which the case would be deemed submitted for
decision. On the same day, AIBC asked for time to file its comment on the "Compliance" and
"Urgent Manifestation" of claimants. On November 6, 1984, it filed a second motion for
extension of time to file the comment.

On November 8, 1984, the POEA Administrator informed AIBC that its motion for extension of
time was granted.

On November 14, 1984, claimants filed an opposition to the motions for extension of time and
asked that AIBC and BRII be declared in default for failure to file their answers.

On November 20, 1984, AIBC and BRII filed a "Comment" praying, among other reliefs, that
claimants should be ordered to amend their complaint.

On December 27, 1984, the POEA Administrator issued an order directing AIBC and BRII to file
their answers within ten days from receipt of the order.

On February 27, 1985, AIBC and BRII appealed to NLRC seeking the reversal of the said order
of the POEA Administrator. Claimants opposed the appeal, claiming that it was dilatory and
praying that AIBC and BRII be declared in default.

On April 2, 1985, the original claimants filed an "Amended Complaint and/or Position Paper"
dated March 24, 1985, adding new demands: namely, the payment of overtime pay, extra night
work pay, annual leave differential pay, leave indemnity pay, retirement and savings benefits
and their share of forfeitures (G.R. No. 104776, Rollo, pp. 14-16). On April 15, 1985, the POEA
Administrator directed AIBC to file its answer to the amended complaint (G.R. No.
104776, Rollo, p. 20).

On May 28, 1985, claimants filed an "Urgent Motion for Summary Judgment." On the same day,
the POEA issued an order directing AIBC and BRII to file their answers to the "Amended
Complaint," otherwise, they would be deemed to have waived their right to present evidence
and the case would be resolved on the basis of complainant's evidence.

On June 5, 1985, AIBC countered with a "Motion to Dismiss as Improper Class Suit and Motion
for Bill of Particulars Re: Amended Complaint dated March 24, 1985." Claimants opposed the
motions.
On September 4, 1985, the POEA Administrator reiterated his directive to AIBC and BRII to file
their answers in POEA Case No. L-84-06-555.

On September 18, 1985, AIBC filed its second appeal to the NLRC, together with a petition for
the issuance of a writ of injunction. On September 19, 1985, NLRC enjoined the POEA
Administrator from hearing the labor cases and suspended the period for the filing of the
answers of AIBC and BRII.

On September 19, 1985, claimants asked the POEA Administrator to include additional
claimants in the case and to investigate alleged wrongdoings of BRII, AIBC and their respective
lawyers.

On October 10, 1985, Romeo Patag and two co-claimants filed a complaint (POEA Case No. L-
85-10-777) against AIBC and BRII with the POEA, demanding monetary claims similar to those
subject of POEA Case No. L-84-06-555. In the same month, Solomon Reyes also filed his own
complaint (POEA Case No. L-85-10-779) against AIBC and BRII.

On October 17, 1985, the law firm of Florante M. de Castro & Associates asked for the
substitution of the original counsel of record and the cancellation of the special powers of
attorney given the original counsel.

On December 12, 1985, Atty. Del Mundo filed in NLRC a notice of the claim to enforce
attorney's lien.

On May 29, 1986, Atty. De Castro filed a complaint for money claims (POEA Case No. 86-05-
460) in behalf of 11 claimants including Bienvenido Cadalin, a claimant in POEA Case No. 84-
06-555.

On December 12, 1986, the NLRC dismissed the two appeals filed on February 27, 1985 and
September 18, 1985 by AIBC and BRII.

In narrating the proceedings of the labor cases before the POEA Administrator, it is not amiss to
mention that two cases were filed in the Supreme Court by the claimants, namely — G.R. No.
72132 on September 26, 1985 and Administrative Case No. 2858 on March 18, 1986. On May
13, 1987, the Supreme Court issued a resolution in Administrative Case No. 2858 directing the
POEA Administrator to resolve the issues raised in the motions and oppositions filed in POEA
Cases Nos. L-84-06-555 and L-86-05-460 and to decide the labor cases with deliberate
dispatch.

AIBC also filed a petition in the Supreme Court (G.R. No. 78489), questioning the Order dated
September 4, 1985 of the POEA Administrator. Said order required BRII and AIBC to answer
the amended complaint in POEA Case No. L-84-06-555. In a resolution dated November 9,
1987, we dismissed the petition by informing AIBC that all its technical objections may properly
be resolved in the hearings before the POEA.

Complaints were also filed before the Ombudsman. The first was filed on September 22, 1988
by claimant Hermie Arguelles and 18 co-claimants against the POEA Administrator and several
NLRC Commissioners. The Ombudsman merely referred the complaint to the Secretary of
Labor and Employment with a request for the early disposition of POEA Case No. L-84-06-555.
The second was filed on April 28, 1989 by claimants Emigdio P. Bautista and Rolando R.
Lobeta charging AIBC and BRII for violation of labor and social legislations. The third was filed
by Jose R. Santos, Maximino N. Talibsao and Amado B. Bruce denouncing AIBC and BRII of
violations of labor laws.

On January 13, 1987, AIBC filed a motion for reconsideration of the NLRC Resolution dated
December 12, 1986.

On January 14, 1987, AIBC reiterated before the POEA Administrator its motion for suspension
of the period for filing an answer or motion for extension of time to file the same until the
resolution of its motion for reconsideration of the order of the NLRC dismissing the two appeals.
On April 28, 1987, NLRC en banc denied the motion for reconsideration.

At the hearing on June 19, 1987, AIBC submitted its answer to the complaint. At the same
hearing, the parties were given a period of 15 days from said date within which to submit their
respective position papers. On June 24, 1987 claimants filed their "Urgent Motion to Strike Out
Answer," alleging that the answer was filed out of time. On June 29, 1987, claimants filed their
"Supplement to Urgent Manifestational Motion" to comply with the POEA Order of June 19,
1987. On February 24, 1988, AIBC and BRII submitted their position paper. On March 4, 1988,
claimants filed their "Ex-Parte Motion to Expunge from the Records" the position paper of AIBC
and BRII, claiming that it was filed out of time.

On September 1, 1988, the claimants represented by Atty. De Castro filed their memorandum in
POEA Case No. L-86-05-460. On September 6, 1988, AIBC and BRII submitted their
Supplemental Memorandum. On September 12, 1988, BRII filed its "Reply to Complainant's
Memorandum." On October 26, 1988, claimants submitted their "Ex-Parte Manifestational
Motion and Counter-Supplemental Motion," together with 446 individual contracts of
employments and service records. On October 27, 1988, AIBC and BRII filed a "Consolidated
Reply."

On January 30, 1989, the POEA Administrator rendered his decision in POEA Case No. L-84-
06-555 and the other consolidated cases, which awarded the amount of $824,652.44 in favor of
only 324 complainants.

On February 10, 1989, claimants submitted their "Appeal Memorandum For Partial Appeal" from
the decision of the POEA. On the same day, AIBC also filed its motion for reconsideration
and/or appeal in addition to the "Notice of Appeal" filed earlier on February 6, 1989 by another
counsel for AIBC.

On February 17, 1989, claimants filed their "Answer to Appeal," praying for the dismissal of the
appeal of AIBC and BRII.

On March 15, 1989, claimants filed their "Supplement to Complainants' Appeal Memorandum,"
together with their "newly discovered evidence" consisting of payroll records.

On April 5, 1989, AIBC and BRII submitted to NLRC their "Manifestation," stating among other
matters that there were only 728 named claimants. On April 20, 1989, the claimants filed their
"Counter-Manifestation," alleging that there were 1,767 of them.
On July 27, 1989, claimants filed their "Urgent Motion for Execution" of the Decision dated
January 30, 1989 on the grounds that BRII had failed to appeal on time and AIBC had not
posted the supersedeas bond in the amount of $824,652.44.

On December 23, 1989, claimants filed another motion to resolve the labor cases.

On August 21, 1990, claimants filed their "Manifestational Motion," praying that all the 1,767
claimants be awarded their monetary claims for failure of private respondents to file their
answers within the reglamentary period required by law.

On September 2, 1991, NLRC promulgated its Resolution, disposing as follows:

WHEREFORE, premises considered, the Decision of the POEA in these

consolidated cases is modified to the extent and in accordance with the following
dispositions:

1. The claims of the 94 complainants identified and listed in Annex

"A" hereof are dismissed for having prescribed;

2. Respondents AIBC and Brown & Root are hereby ordered,

jointly and severally, to pay the 149 complainants, identified and
listed in Annex "B" hereof, the peso equivalent, at the time of
payment, of the total amount in US dollars indicated opposite their
respective names;

3. The awards given by the POEA to the 19 complainants

classified and listed in Annex "C" hereof, who appear to have
worked elsewhere than in Bahrain are hereby set aside.

4. All claims other than those indicated in Annex "B", including

those for overtime work and favorably granted by the POEA, are
hereby dismissed for lack of substantial evidence in support
thereof or are beyond the competence of this Commission to pass
upon.

In addition, this Commission, in the exercise of its powers and authority under
Article 218(c) of the Labor Code, as amended by R.A. 6715, hereby directs Labor
Arbiter Fatima J. Franco of this Commission to summon parties, conduct
hearings and receive evidence, as expeditiously as possible, and thereafter
submit a written report to this Commission (First Division) of the proceedings
taken, regarding the claims of the following:

(a) complainants identified and listed in Annex "D" attached and

made an integral part of this Resolution, whose claims were
dismissed by the POEA for lack of proof of employment in Bahrain
(these complainants numbering 683, are listed in pages 13 to 23
of the decision of POEA, subject of the appeals) and,

(b) complainants identified and listed in Annex "E" attached and

made an integral part of this Resolution, whose awards decreed
 by the POEA, to Our mind, are not supported by substantial
evidence" (G.R. No. 104776; Rollo, pp. 113-115; G.R. Nos.
104911-14, pp. 85-87; G.R. Nos. 105029-31, pp. 120-122).

On November 27, 1991, claimant Amado S. Tolentino and 12

co-claimants, who were former clients of Atty. Del Mundo, filed a petition for certiorari with the
Supreme Court (G.R. Nos. 120741-44). The petition was dismissed in a resolution dated
January 27, 1992.

Three motions for reconsideration of the September 2, 1991 Resolution of the NLRC were filed.
The first, by the claimants represented by Atty. Del Mundo; the second, by the claimants
represented by Atty. De Castro; and the third, by AIBC and BRII.

In its Resolution dated March 24, 1992, NLRC denied all the motions for reconsideration.

Hence, these petitions filed by the claimants represented by Atty. Del Mundo (G.R. No.
104776), the claimants represented by Atty. De Castro (G.R. Nos. 104911-14) and by AIBC and
BRII (G.R. Nos. 105029-32).

II

Compromise Agreements

Before this Court, the claimants represented by Atty. De Castro and AIBC and BRII have
submitted, from time to time, compromise agreements for our approval and jointly moved for the
dismissal of their respective petitions insofar as the claimants-parties to the compromise
agreements were concerned (See Annex A for list of claimants who signed quitclaims).

Thus the following manifestations that the parties had arrived at a compromise agreement and
the corresponding motions for the approval of the agreements were filed by the parties and
approved by the Court:

1) Joint Manifestation and Motion involving claimant Emigdio Abarquez and 47

co-claimants dated September 2, 1992 (G.R. Nos. 104911-14, Rollo, pp. 263-
406; G.R. Nos. 105029-32, Rollo, pp.
470-615);

2) Joint Manifestation and Motion involving petitioner Bienvenido Cadalin and 82

co-petitioners dated September 3, 1992 (G.R. No. 104776, Rollo, pp. 364-507);

3) Joint Manifestation and Motion involving claimant Jose

M. Aban and 36 co-claimants dated September 17, 1992 (G.R. Nos. 105029-
32, Rollo, pp. 613-722; G.R. No. 104776, Rollo, pp. 518-626; G.R. Nos. 104911-
14, Rollo, pp. 407-516);

4) Joint Manifestation and Motion involving claimant Antonio T. Anglo and 17 co-
claimants dated October 14, 1992 (G.R. Nos.
105029-32, Rollo, pp. 778-843; G.R. No. 104776, Rollo, pp. 650-713; G.R. Nos.
104911-14, Rollo, pp. 530-590);
5) Joint Manifestation and Motion involving claimant Dionisio Bobongo and 6 co-
claimants dated January 15, 1993 (G.R. No. 104776, Rollo, pp. 813-836; G.R.
Nos. 104911-14, Rollo, pp. 629-652);

6) Joint Manifestation and Motion involving claimant Valerio A. Evangelista and 4

co-claimants dated March 10, 1993 (G.R. Nos. 104911-14, Rollo, pp. 731-746;
G.R. No. 104776, Rollo, pp. 1815-1829);

7) Joint Manifestation and Motion involving claimants Palconeri Banaag and 5

co-claimants dated March 17, 1993 (G.R. No. 104776, Rollo, pp. 1657-1703;
G.R. Nos. 104911-14, Rollo, pp. 655-675);

8) Joint Manifestation and Motion involving claimant Benjamin Ambrosio and 15

other co-claimants dated May 4, 1993 (G.R. Nos. 105029-32, Rollo, pp. 906-956;
G.R. Nos. 104911-14, Rollo, pp. 679-729; G.R. No. 104776, Rollo, pp. 1773-
1814);

9) Joint Manifestation and Motion involving Valerio Evangelista and 3 co-

claimants dated May 10, 1993 (G.R. No. 104776, Rollo, pp. 1815-1829);

10) Joint Manifestation and Motion involving petitioner Quiterio R. Agudo and 36
co-claimants dated June 14, 1993 (G.R. Nos. 105029-32, Rollo, pp. 974-1190;
G.R. Nos. 104911-14, Rollo, pp. 748-864; G.R. No. 104776, Rollo, pp. 1066-
1183);

11) Joint Manifestation and Motion involving claimant Arnaldo J. Alonzo and 19
co-claimants dated July 22, 1993 (G.R. No. 104776, Rollo, pp. 1173-1235; G.R.
Nos. 105029-32, Rollo, pp. 1193-1256; G.R. Nos. 104911-14, Rollo, pp. 896-
959);

12) Joint Manifestation and Motion involving claimant Ricardo C. Dayrit and 2 co-
claimants dated September 7, 1993 (G.R. Nos.
105029-32, Rollo, pp. 1266-1278; G.R. No. 104776, Rollo, pp. 1243-1254; G.R.
Nos. 104911-14,Rollo, pp. 972-984);

13) Joint Manifestation and Motion involving claimant Dante C. Aceres and 37
co-claimants dated September 8, 1993 (G.R. No. 104776, Rollo, pp. 1257-1375;
G.R. Nos. 104911-14, Rollo, pp. 987-1105; G.R. Nos. 105029-32, Rollo, pp.
1280-1397);

14) Joint Manifestation and Motion involving Vivencio V. Abella and 27 co-
claimants dated January 10, 1994 (G.R. Nos. 105029-32, Rollo, Vol. II);

15) Joint Manifestation and Motion involving Domingo B. Solano and six co-
claimants dated August 25, 1994 (G.R. Nos. 105029-32; G.R. No. 104776; G.R.
Nos. 104911-14).

III
The facts as found by the NLRC are as follows:

We have taken painstaking efforts to sift over the more than fifty volumes now
comprising the records of these cases. From the records, it appears that the
complainants-appellants allege that they were recruited by respondent-appellant
AIBC for its accredited foreign principal, Brown & Root, on various dates from
1975 to 1983. They were all deployed at various projects undertaken by Brown &
Root in several countries in the Middle East, such as Saudi Arabia, Libya, United
Arab Emirates and Bahrain, as well as in Southeast Asia, in Indonesia and
Malaysia.

Having been officially processed as overseas contract workers by the Philippine

Government, all the individual complainants signed standard overseas
employment contracts (Records, Vols. 25-32. Hereafter, reference to the records
would be sparingly made, considering their chaotic arrangement) with AIBC
before their departure from the Philippines. These overseas employment
contracts invariably contained the following relevant terms and conditions.

PART B —

(1) Employment Position Classification :—————————

(Code) :—————————

(2) Company Employment Status :—————————

(3) Date of Employment to Commence on :—————————
(4) Basic Working Hours Per Week :—————————
(5) Basic Working Hours Per Month :—————————
(6) Basic Hourly Rate :—————————
(7) Overtime Rate Per Hour :—————————
(8) Projected Period of Service
(Subject to C(1) of this [sic]) :—————————
Months and/or
Job Completion

xxx xxx xxx

3. HOURS OF WORK AND COMPENSATION

a) The Employee is employed at the hourly rate and overtime rate as set out in
Part B of this Document.

b) The hours of work shall be those set forth by the Employer, and Employer
may, at his sole option, change or adjust such hours as maybe deemed
necessary from time to time.

4. TERMINATION

a) Notwithstanding any other terms and conditions of this agreement, the

Employer may, at his sole discretion, terminate employee's service with cause,
under this agreement at any time. If the Employer terminates the services of the
Employee under this Agreement because of the completion or termination, or
suspension of the work on which the Employee's services were being utilized, or
because of a reduction in force due to a decrease in scope of such work, or by
change in the type of construction of such work. The Employer will be
responsible for his return transportation to his country of origin. Normally on the
most expeditious air route, economy class accommodation.

xxx xxx xxx

10. VACATION/SICK LEAVE BENEFITS

a) After one (1) year of continuous service and/or satisfactory completion of

contract, employee shall be entitled to 12-days vacation leave with pay. This
shall be computed at the basic wage rate. Fractions of a year's service will be
computed on a pro-rata basis.

b) Sick leave of 15-days shall be granted to the employee for every year of
service for non-work connected injuries or illness. If the employee failed to avail
of such leave benefits, the same shall be forfeited at the end of the year in which
said sick leave is granted.

11. BONUS

A bonus of 20% (for offshore work) of gross income will be accrued and payable
only upon satisfactory completion of this contract.

12. OFFDAY PAY

The seventh day of the week shall be observed as a day of rest with 8 hours
regular pay. If work is performed on this day, all hours work shall be paid at the
premium rate. However, this offday pay provision is applicable only when the
laws of the Host Country require payments for rest day.

In the State of Bahrain, where some of the individual complainants were

deployed, His Majesty Isa Bin Salman Al Kaifa, Amir of Bahrain, issued his Amiri
Decree No. 23 on June 16, 1976, otherwise known as the Labour Law for the
Private Sector (Records, Vol. 18). This decree took effect on August 16, 1976.
Some of the provisions of Amiri Decree No. 23 that are relevant to the claims of
the complainants-appellants are as follows (italics supplied only for emphasis):

Art. 79: . . . A worker shall receive payment for each extra hour
equivalent to his wage entitlement increased by a minimum of
twenty-five per centum thereof for hours worked during the day;
and by a minimum of fifty per centum thereof for hours worked
during the night which shall be deemed to being from seven
o'clock in the evening until seven o'clock in the morning. . . .

Art. 80: Friday shall be deemed to be a weekly day of rest on full

pay.
 . . . an employer may require a worker, with his consent, to work
on his weekly day of rest if circumstances so require and in
respect of which an additional sum equivalent to 150% of his
normal wage shall be paid to him. . . .

Art. 81: . . . When conditions of work require the worker to work on

any official holiday, he shall be paid an additional sum equivalent
to 150% of his normal wage.

Art. 84: Every worker who has completed one year's continuous
service with his employer shall be entitled to leave on full pay for a
period of not less than 21 days for each year increased to a period
not less than 28 days after five continuous years of service.

A worker shall be entitled to such leave upon a quantum meruit in

respect of the proportion of his service in that year.

Art. 107: A contract of employment made for a period of indefinite

duration may be terminated by either party thereto after giving the
other party thirty days' prior notice before such termination, in
writing, in respect of monthly paid workers and fifteen days' notice
in respect of other workers. The party terminating a contract
without giving the required notice shall pay to the other party
compensation equivalent to the amount of wages payable to the
worker for the period of such notice or the unexpired portion
thereof.

Art. 111: . . . the employer concerned shall pay to such worker,

upon termination of employment, a leaving indemnity for the
period of his employment calculated on the basis of fifteen days'
wages for each year of the first three years of service and of one
month's wages for each year of service thereafter. Such worker
shall be entitled to payment of leaving indemnity upon a quantum
meruit in proportion to the period of his service completed within a
year.

All the individual complainants-appellants have already been

repatriated to the Philippines at the time of the filing of these
cases (R.R. No. 104776, Rollo, pp. 59-65).

IV

The issues raised before and resolved by the NLRC were:

First: — Whether or not complainants are entitled to the benefits provided by

Amiri Decree No. 23 of Bahrain;

(a) Whether or not the complainants who have worked in Bahrain

are entitled to the above-mentioned benefits.
 (b) Whether or not Art. 44 of the same Decree (allegedly
prescribing a more favorable treatment of alien employees) bars
complainants from enjoying its benefits.

Second: — Assuming that Amiri Decree No. 23 of Bahrain is applicable in these

cases, whether or not complainants' claim for the benefits provided therein have
prescribed.

Third: — Whether or not the instant cases qualify as a class suit.

Fourth: — Whether or not the proceedings conducted by the POEA, as well as

the decision that is the subject of these appeals, conformed with the
requirements of due process;

(a) Whether or not the respondent-appellant was denied its right to

due process;

(b) Whether or not the admission of evidence by the POEA after

these cases were submitted for decision was valid;

(c) Whether or not the POEA acquired jurisdiction over Brown &
Root International, Inc.;

(d) Whether or not the judgment awards are supported by

substantial evidence;

(e) Whether or not the awards based on the averages and formula
presented by the complainants-appellants are supported by
substantial evidence;

(f) Whether or not the POEA awarded sums beyond what the
complainants-appellants prayed for; and, if so, whether or not
these awards are valid.

Fifth: — Whether or not the POEA erred in holding respondents AIBC and Brown
& Root jointly are severally liable for the judgment awards despite the alleged
finding that the former was the employer of the complainants;

(a) Whether or not the POEA has acquired jurisdiction over Brown
& Root;

(b) Whether or not the undisputed fact that AIBC was a licensed
construction contractor precludes a finding that Brown & Root is
liable for complainants claims.

Sixth: — Whether or not the POEA Administrator's failure to hold respondents in

default constitutes a reversible error.
 Seventh: — Whether or not the POEA Administrator erred in dismissing the
following claims:

a. Unexpired portion of contract;

b. Interest earnings of Travel and Reserve Fund;

c. Retirement and Savings Plan benefits;

d. War Zone bonus or premium pay of at least 100% of basic pay;

e. Area Differential Pay;

f. Accrued interests on all the unpaid benefits;

g. Salary differential pay;

h. Wage differential pay;

i. Refund of SSS premiums not remitted to SSS;

j. Refund of withholding tax not remitted to BIR;

k. Fringe benefits under B & R's "A Summary of Employee

Benefits" (Annex "Q" of Amended Complaint);

l. Moral and exemplary damages;

m. Attorney's fees of at least ten percent of the judgment award;

n. Other reliefs, like suspending and/or cancelling the license to

recruit of AIBC and the accreditation of B & R issued by POEA;

o. Penalty for violations of Article 34 (prohibited practices), not

excluding reportorial requirements thereof.

Eighth: — Whether or not the POEA Administrator erred in not dismissing POEA
Case No. (L) 86-65-460 on the ground of multiplicity of suits (G.R. Nos. 104911-
14, Rollo, pp. 25-29, 51-55).

Anent the first issue, NLRC set aside Section 1, Rule 129 of the 1989 Revised Rules on
Evidence governing the pleading and proof of a foreign law and admitted in evidence a simple
copy of the Bahrain's Amiri Decree No. 23 of 1976 (Labour Law for the Private Sector). NLRC
invoked Article 221 of the Labor Code of the Philippines, vesting on the Commission ample
discretion to use every and all reasonable means to ascertain the facts in each case without
regard to the technicalities of law or procedure. NLRC agreed with the POEA Administrator that
the Amiri Decree No. 23, being more favorable and beneficial to the workers, should form part of
the overseas employment contract of the complainants.
NLRC, however, held that the Amiri Decree No. 23 applied only to the claimants, who worked in
Bahrain, and set aside awards of the POEA Administrator in favor of the claimants, who worked
elsewhere.

On the second issue, NLRC ruled that the prescriptive period for the filing of the claims of the
complainants was three years, as provided in Article 291 of the Labor Code of the Philippines,
and not ten years as provided in Article 1144 of the Civil Code of the Philippines nor one year as
provided in the Amiri Decree No. 23 of 1976.

On the third issue, NLRC agreed with the POEA Administrator that the labor cases cannot be
treated as a class suit for the simple reason that not all the complainants worked in Bahrain and
therefore, the subject matter of the action, the claims arising from the Bahrain law, is not of
common or general interest to all the complainants.

On the fourth issue, NLRC found at least three infractions of the cardinal rules of administrative
due process: namely, (1) the failure of the POEA Administrator to consider the evidence
presented by AIBC and BRII; (2) some findings of fact were not supported by substantial
evidence; and (3) some of the evidence upon which the decision was based were not disclosed
to AIBC and BRII during the hearing.

On the fifth issue, NLRC sustained the ruling of the POEA Administrator that BRII and AIBC are
solidarily liable for the claims of the complainants and held that BRII was the actual employer of
the complainants, or at the very least, the indirect employer, with AIBC as the labor contractor.

NLRC also held that jurisdiction over BRII was acquired by the POEA Administrator through the
summons served on AIBC, its local agent.

On the sixth issue, NLRC held that the POEA Administrator was correct in denying the Motion to
Declare AIBC in default.

On the seventh issue, which involved other money claims not based on the Amiri Decree No.
23, NLRC ruled:

(1) that the POEA Administrator has no jurisdiction over the claims for refund of
the SSS premiums and refund of withholding taxes and the claimants should file
their claims for said refund with the appropriate government agencies;

(2) the claimants failed to establish that they are entitled to the claims which are
not based on the overseas employment contracts nor the Amiri Decree No. 23 of
1976;

(3) that the POEA Administrator has no jurisdiction over claims for moral and
exemplary damages and nonetheless, the basis for granting said damages was
not established;

(4) that the claims for salaries corresponding to the unexpired portion of their
contract may be allowed if filed within the three-year prescriptive period;
 (5) that the allegation that complainants were prematurely repatriated prior to the
expiration of their overseas contract was not established; and

(6) that the POEA Administrator has no jurisdiction over the complaint for the
suspension or cancellation of the AIBC's recruitment license and the cancellation
of the accreditation of BRII.

NLRC passed sub silencio the last issue, the claim that POEA Case No. (L) 86-65-460 should
have been dismissed on the ground that the claimants in said case were also claimants in
POEA Case No. (L) 84-06-555. Instead of dismissing POEA Case No. (L) 86-65-460, the POEA
just resolved the corresponding claims in POEA Case No. (L) 84-06-555. In other words, the
POEA did not pass upon the same claims twice.

G.R. No. 104776

Claimants in G.R. No. 104776 based their petition for certiorari on the following grounds:

(1) that they were deprived by NLRC and the POEA of their right to a speedy
disposition of their cases as guaranteed by Section 16, Article III of the 1987
Constitution. The POEA Administrator allowed private respondents to file their
answers in two years (on June 19, 1987) after the filing of the original complaint
(on April 2, 1985) and NLRC, in total disregard of its own rules, affirmed the
action of the POEA Administrator;

(2) that NLRC and the POEA Administrator should have declared AIBC and BRII
in default and should have rendered summary judgment on the basis of the
pleadings and evidence submitted by claimants;

(3) the NLRC and POEA Administrator erred in not holding that the labor cases
filed by AIBC and BRII cannot be considered a class suit;

(4) that the prescriptive period for the filing of the claims is ten years; and

(5) that NLRC and the POEA Administrator should have dismissed POEA Case
No. L-86-05-460, the case filed by Atty. Florante de Castro (Rollo, pp. 31-40).

AIBC and BRII, commenting on the petition in G.R. No. 104776, argued:

(1) that they were not responsible for the delay in the disposition of the labor
cases, considering the great difficulty of getting all the records of the more than
1,500 claimants, the piece-meal filing of the complaints and the addition of
hundreds of new claimants by petitioners;

(2) that considering the number of complaints and claimants, it was impossible to
prepare the answers within the ten-day period provided in the NLRC Rules, that
when the motion to declare AIBC in default was filed on July 19, 1987, said party
had already filed its answer, and that considering the staggering amount of the
 claims (more than US$50,000,000.00) and the complicated issues raised by the
parties, the ten-day rule to answer was not fair and reasonable;

(3) that the claimants failed to refute NLRC's finding that

there was no common or general interest in the subject matter of the controversy
— which was the applicability of the Amiri Decree No. 23. Likewise, the nature of
the claims varied, some being based on salaries pertaining to the unexpired
portion of the contracts while others being for pure money claims. Each claimant
demanded separate claims peculiar only to himself and depending upon the
particular circumstances obtaining in his case;

(4) that the prescriptive period for filing the claims is that prescribed by Article
291 of the Labor Code of the Philippines (three years) and not the one prescribed
by Article 1144 of the Civil Code of the Philippines (ten years); and

(5) that they are not concerned with the issue of whether POEA Case No. L-86-
05-460 should be dismissed, this being a private quarrel between the two labor
lawyers (Rollo, pp. 292-305).

Attorney's Lien

On November 12, 1992, Atty. Gerardo A. del Mundo moved to strike out the joint manifestations
and motions of AIBC and BRII dated September 2 and 11, 1992, claiming that all the claimants
who entered into the compromise agreements subject of said manifestations and motions were
his clients and that Atty. Florante M. de Castro had no right to represent them in said
agreements. He also claimed that the claimants were paid less than the award given them by
NLRC; that Atty. De Castro collected additional attorney's fees on top of the 25% which he was
entitled to receive; and that the consent of the claimants to the compromise agreements and
quitclaims were procured by fraud (G.R. No. 104776, Rollo, pp. 838-810). In the Resolution
dated November 23, 1992, the Court denied the motion to strike out the Joint Manifestations
and Motions dated September 2 and 11, 1992 (G.R. Nos. 104911-14, Rollo, pp. 608-609).

On December 14, 1992, Atty. Del Mundo filed a "Notice and Claim to Enforce Attorney's Lien,"
alleging that the claimants who entered into compromise agreements with AIBC and BRII with
the assistance of Atty. De Castro, had all signed a retainer agreement with his law firm (G.R.
No. 104776, Rollo, pp. 623-624; 838-1535).

Contempt of Court

On February 18, 1993, an omnibus motion was filed by Atty. Del Mundo to cite Atty. De Castro
and Atty. Katz Tierra for contempt of court and for violation of Canons 1, 15 and 16 of the Code
of Professional Responsibility. The said lawyers allegedly misled this Court, by making it appear
that the claimants who entered into the compromise agreements were represented by Atty. De
Castro, when in fact they were represented by Atty. Del Mundo (G.R. No. 104776, Rollo, pp.
1560-1614).

On September 23, 1994, Atty. Del Mundo reiterated his charges against Atty. De Castro for
unethical practices and moved for the voiding of the quitclaims submitted by some of the
claimants.
 G.R. Nos. 104911-14

The claimants in G.R. Nos. 104911-14 based their petition for certiorari on the grounds that
NLRC gravely abused its discretion when it: (1) applied the three-year prescriptive period under
the Labor Code of the Philippines; and (2) it denied the claimant's formula based on an average
overtime pay of three hours a day (Rollo, pp. 18-22).

The claimants argue that said method was proposed by BRII itself during the negotiation for an
amicable settlement of their money claims in Bahrain as shown in the Memorandum dated April
16, 1983 of the Ministry of Labor of Bahrain (Rollo, pp. 21-22).

BRII and AIBC, in their Comment, reiterated their contention in G.R. No. 104776 that the
prescriptive period in the Labor Code of the Philippines, a special law, prevails over that
provided in the Civil Code of the Philippines, a general law.

As to the memorandum of the Ministry of Labor of Bahrain on the method of computing the
overtime pay, BRII and AIBC claimed that they were not bound by what appeared therein,
because such memorandum was proposed by a subordinate Bahrain official and there was no
showing that it was approved by the Bahrain Minister of Labor. Likewise, they claimed that the
averaging method was discussed in the course of the negotiation for the amicable settlement of
the dispute and any offer made by a party therein could not be used as an admission by him
(Rollo, pp. 228-236).

G.R. Nos. 105029-32

In G.R. Nos. 105029-32, BRII and AIBC claim that NLRC gravely abused its discretion when it:
(1) enforced the provisions of the Amiri Decree No. 23 of 1976 and not the terms of the
employment contracts; (2) granted claims for holiday, overtime and leave indemnity pay and
other benefits, on evidence admitted in contravention of petitioner's constitutional right to due
process; and (3) ordered the POEA Administrator to hold new hearings for the 683 claimants
whose claims had been dismissed for lack of proof by the POEA Administrator or NLRC itself.
Lastly, they allege that assuming that the Amiri Decree No. 23 of 1976 was applicable, NLRC
erred when it did not apply the one-year prescription provided in said law (Rollo, pp. 29-30).

VI

G.R. No. 104776; G.R. Nos. 104911-14; G.R. Nos. 105029-32

All the petitions raise the common issue of prescription although they disagreed as to the time
that should be embraced within the prescriptive period.

To the POEA Administrator, the prescriptive period was ten years, applying Article 1144 of the
Civil Code of the Philippines. NLRC believed otherwise, fixing the prescriptive period at three
years as provided in Article 291 of the Labor Code of the Philippines.

The claimants in G.R. No. 104776 and G.R. Nos. 104911-14, invoking different grounds,
insisted that NLRC erred in ruling that the prescriptive period applicable to the claims was three
years, instead of ten years, as found by the POEA Administrator.
The Solicitor General expressed his personal view that the prescriptive period was one year as
prescribed by the Amiri Decree No. 23 of 1976 but he deferred to the ruling of NLRC that Article
291 of the Labor Code of the Philippines was the operative law.

The POEA Administrator held the view that:

These money claims (under Article 291 of the Labor Code) refer to those arising
from the employer's violation of the employee's right as provided by the Labor
Code.

In the instant case, what the respondents violated are not the rights of the
workers as provided by the Labor Code, but the provisions of the Amiri Decree
No. 23 issued in Bahrain, which ipso factoamended the worker's contracts of
employment. Respondents consciously failed to conform to these provisions
which specifically provide for the increase of the worker's rate. It was only after
June 30, 1983, four months after the brown builders brought a suit against B & R
in Bahrain for this same claim, when respondent AIBC's contracts have
undergone amendments in Bahrain for the new hires/renewals (Respondent's
Exhibit 7).

Hence, premises considered, the applicable law of prescription to this instant

case is Article 1144 of the Civil Code of the Philippines, which provides:

Art. 1144. The following actions may be brought within ten years
from the time the cause of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

Thus, herein money claims of the complainants against the respondents shall
prescribe in ten years from August 16, 1976. Inasmuch as all claims were filed
within the ten-year prescriptive period, no claim suffered the infirmity of being
prescribed (G.R. No. 104776, Rollo, 89-90).

In overruling the POEA Administrator, and holding that the prescriptive period is three years as
provided in Article 291 of the Labor Code of the Philippines, the NLRC argued as follows:

The Labor Code provides that "all money claims arising from employer-employee
relations . . . shall be filed within three years from the time the cause of action
accrued; otherwise they shall be forever barred" (Art. 291, Labor Code, as
amended). This three-year prescriptive period shall be the one applied here and
which should be reckoned from the date of repatriation of each individual
complainant, considering the fact that the case is having (sic) filed in this country.
We do not agree with the POEA Administrator that this three-year prescriptive
period applies only to money claims specifically recoverable under the Philippine
Labor Code. Article 291 gives no such indication. Likewise, We can not consider
complainants' cause/s of action to have accrued from a violation of their
employment contracts. There was no violation; the claims arise from the benefits
 of the law of the country where they worked. (G.R. No. 104776, Rollo, pp.
90-91).

Anent the applicability of the one-year prescriptive period as provided by the Amiri Decree No.
23 of 1976, NLRC opined that the applicability of said law was one of characterization, i.e.,
whether to characterize the foreign law on prescription or statute of limitation as "substantive" or
"procedural." NLRC cited the decision in Bournias v. Atlantic Maritime Company (220 F. 2d.
152, 2d Cir. [1955], where the issue was the applicability of the Panama Labor Code in a case
filed in the State of New York for claims arising from said Code. In said case, the claims would
have prescribed under the Panamanian Law but not under the Statute of Limitations of New
York. The U.S. Circuit Court of Appeals held that the Panamanian Law was procedural as it was
not "specifically intended to be substantive," hence, the prescriptive period provided in the law
of the forum should apply. The Court observed:

. . . And where, as here, we are dealing with a statute of limitations of a foreign

country, and it is not clear on the face of the statute that its purpose was to limit
the enforceability, outside as well as within the foreign country concerned, of the
substantive rights to which the statute pertains, we think that as a yardstick for
determining whether that was the purpose this test is the most satisfactory one. It
does not lead American courts into the necessity of examining into the unfamiliar
peculiarities and refinements of different foreign legal systems. . .

The court further noted:

xxx xxx xxx

Applying that test here it appears to us that the libelant is entitled to succeed, for
the respondents have failed to satisfy us that the Panamanian period of limitation
in question was specifically aimed against the particular rights which the libelant
seeks to enforce. The Panama Labor Code is a statute having broad objectives,
viz: "The present Code regulates the relations between capital and labor, placing
them on a basis of social justice, so that, without injuring any of the parties, there
may be guaranteed for labor the necessary conditions for a normal life and to
capital an equitable return to its investment." In pursuance of these objectives the
Code gives laborers various rights against their employers. Article 623
establishes the period of limitation for all such rights, except certain ones which
are enumerated in Article 621. And there is nothing in the record to indicate that
the Panamanian legislature gave special consideration to the impact of Article
623 upon the particular rights sought to be enforced here, as distinguished from
the other rights to which that Article is also applicable. Were we confronted with
the question of whether the limitation period of Article 621 (which carves out
particular rights to be governed by a shorter limitation period) is to be regarded
as "substantive" or "procedural" under the rule of "specifity" we might have a
different case; but here on the surface of things we appear to be dealing with a
"broad," and not a "specific," statute of limitations (G.R. No. 104776, Rollo, pp.
92-94).

Claimants in G.R. Nos. 104911-14 are of the view that Article 291 of the Labor Code of the
Philippines, which was applied by NLRC, refers only to claims "arising from the employer's
violation of the employee's right as provided by the Labor Code." They assert that their claims
are based on the violation of their employment contracts, as amended by the Amiri Decree No.
23 of 1976 and therefore the claims may be brought within ten years as provided by Article 1144
of the Civil Code of the Philippines (Rollo, G.R. Nos. 104911-14, pp.
18-21). To bolster their contention, they cite PALEA v. Philippine Airlines, Inc., 70 SCRA 244
(1976).

AIBC and BRII, insisting that the actions on the claims have prescribed under the Amiri Decree
No. 23 of 1976, argue that there is in force in the Philippines a "borrowing law," which is Section
48 of the Code of Civil Procedure and that where such kind of law exists, it takes precedence
over the common-law conflicts rule (G.R. No. 104776,Rollo, pp. 45-46).

First to be determined is whether it is the Bahrain law on prescription of action based on the
Amiri Decree No. 23 of 1976 or a Philippine law on prescription that shall be the governing law.

Article 156 of the Amiri Decree No. 23 of 1976 provides:

A claim arising out of a contract of employment shall not be actionable after the
lapse of one year from the date of the expiry of the contract. (G.R. Nos. 105029-
31, Rollo, p. 226).

As a general rule, a foreign procedural law will not be applied in the forum. Procedural matters,
such as service of process, joinder of actions, period and requisites for appeal, and so forth, are
governed by the laws of the forum. This is true even if the action is based upon a foreign
substantive law (Restatement of the Conflict of Laws, Sec. 685; Salonga, Private International
Law, 131 [1979]).

A law on prescription of actions is sui generis in Conflict of Laws in the sense that it may be
viewed either as procedural or substantive, depending on the characterization given such a law.

Thus in Bournias v. Atlantic Maritime Company, supra, the American court applied the statute of
limitations of New York, instead of the Panamanian law, after finding that there was no showing
that the Panamanian law on prescription was intended to be substantive. Being considered
merely a procedural law even in Panama, it has to give way to the law of the forum on
prescription of actions.

However, the characterization of a statute into a procedural or substantive law becomes

irrelevant when the country of the forum has a "borrowing statute." Said statute has the practical
effect of treating the foreign statute of limitation as one of substance (Goodrich, Conflict of Laws
152-153 [1938]). A "borrowing statute" directs the state of the forum to apply the foreign statute
of limitations to the pending claims based on a foreign law (Siegel, Conflicts, 183 [1975]). While
there are several kinds of "borrowing statutes," one form provides that an action barred by the
laws of the place where it accrued, will not be enforced in the forum even though the local
statute has not run against it (Goodrich and Scoles, Conflict of Laws, 152-153 [1938]). Section
48 of our Code of Civil Procedure is of this kind. Said Section provides:

If by the laws of the state or country where the cause of action arose, the action
is barred, it is also barred in the Philippines Islands.

Section 48 has not been repealed or amended by the Civil Code of the Philippines. Article 2270
of said Code repealed only those provisions of the Code of Civil Procedures as to which were
inconsistent with it. There is no provision in the Civil Code of the Philippines, which is
inconsistent with or contradictory to Section 48 of the Code of Civil Procedure (Paras, Philippine
Conflict of Laws 104 [7th ed.]).

In the light of the 1987 Constitution, however, Section 48 cannot be enforced ex proprio
vigore insofar as it ordains the application in this jurisdiction of Section 156 of the Amiri Decree
No. 23 of 1976.

The courts of the forum will not enforce any foreign claim obnoxious to the forum's public policy
(Canadian Northern Railway Co. v. Eggen, 252 U.S. 553, 40 S. Ct. 402, 64 L. ed. 713 [1920]).
To enforce the one-year prescriptive period of the Amiri Decree No. 23 of 1976 as regards the
claims in question would contravene the public policy on the protection to labor.

In the Declaration of Principles and State Policies, the 1987 Constitution emphasized that:

The state shall promote social justice in all phases of national development.
(Sec. 10).

The state affirms labor as a primary social economic force. It shall protect the
rights of workers and promote their welfare (Sec. 18).

In article XIII on Social Justice and Human Rights, the 1987 Constitution provides:

Sec. 3. The State shall afford full protection to labor, local and overseas,
organized and unorganized, and promote full employment and equality of
employment opportunities for all.

Having determined that the applicable law on prescription is the Philippine law, the next
question is whether the prescriptive period governing the filing of the claims is three years, as
provided by the Labor Code or ten years, as provided by the Civil Code of the Philippines.

The claimants are of the view that the applicable provision is Article 1144 of the Civil Code of
the Philippines, which provides:

The following actions must be brought within ten years from the time the right of
action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

NLRC, on the other hand, believes that the applicable provision is Article 291 of the Labor Code
of the Philippines, which in pertinent part provides:

Money claims-all money claims arising from employer-employee relations

accruing during the effectivity of this Code shall be filed within three (3) years
from the time the cause of action accrued, otherwise they shall be forever barred.
 xxx xxx xxx

The case of Philippine Air Lines Employees Association v. Philippine Air Lines, Inc., 70 SCRA
244 (1976) invoked by the claimants in G.R. Nos. 104911-14 is inapplicable to the cases at
bench (Rollo, p. 21). The said case involved the correct computation of overtime pay as
provided in the collective bargaining agreements and not the Eight-Hour Labor Law.

As noted by the Court: "That is precisely why petitioners did not make any reference as to the
computation for overtime work under the Eight-Hour Labor Law (Secs. 3 and 4, CA No. 494)
and instead insisted that work computation provided in the collective bargaining agreements
between the parties be observed. Since the claim for pay differentials is primarily anchored on
the written contracts between the litigants, the ten-year prescriptive period provided by Art.
1144(1) of the New Civil Code should govern."

Section 7-a of the Eight-Hour Labor Law (CA No. 444 as amended by R.A. No. 19933) provides:

Any action to enforce any cause of action under this Act shall be commenced
within three years after the cause of action accrued otherwise such action shall
be forever barred, . . . .

The court further explained:

The three-year prescriptive period fixed in the Eight-Hour Labor Law (CA No. 444
as amended) will apply, if the claim for differentials for overtime work is solely
based on said law, and not on a collective bargaining agreement or any other
contract. In the instant case, the claim for overtime compensation is not so much
because of Commonwealth Act No. 444, as amended but because the claim is
demandable right of the employees, by reason of the above-mentioned collective
bargaining agreement.

Section 7-a of the Eight-Hour Labor Law provides the prescriptive period for filing "actions to
enforce any cause of action under said law." On the other hand, Article 291 of the Labor Code
of the Philippines provides the prescriptive period for filing "money claims arising from employer-
employee relations." The claims in the cases at bench all arose from the employer-employee
relations, which is broader in scope than claims arising from a specific law or from the collective
bargaining agreement.

The contention of the POEA Administrator, that the three-year prescriptive period under Article
291 of the Labor Code of the Philippines applies only to money claims specifically recoverable
under said Code, does not find support in the plain language of the provision. Neither is the
contention of the claimants in G.R. Nos. 104911-14 that said Article refers only to claims "arising
from the employer's violation of the employee's right," as provided by the Labor Code supported
by the facial reading of the provision.

VII

G.R. No. 104776

A. As to the first two grounds for the petition in G.R. No. 104776, claimants aver: (1) that while
their complaints were filed on June 6, 1984 with POEA, the case was decided only on January
30, 1989, a clear denial of their right to a speedy disposition of the case; and (2) that NLRC and
the POEA Administrator should have declared AIBC and BRII in default (Rollo, pp.
31-35).

Claimants invoke a new provision incorporated in the 1987 Constitution, which provides:

Sec. 16. All persons shall have the right to a speedy disposition of their cases
before all judicial, quasi-judicial, or administrative bodies.

It is true that the constitutional right to "a speedy disposition of cases" is not limited to the
accused in criminal proceedings but extends to all parties in all cases, including civil and
administrative cases, and in all proceedings, including judicial and quasi-judicial hearings.
Hence, under the Constitution, any party to a case may demand expeditious action on all
officials who are tasked with the administration of justice.

However, as held in Caballero v. Alfonso, Jr., 153 SCRA 153 (1987), "speedy disposition of
cases" is a relative term. Just like the constitutional guarantee of "speedy trial" accorded to the
accused in all criminal proceedings, "speedy disposition of cases" is a flexible concept. It is
consistent with delays and depends upon the circumstances of each case. What the
Constitution prohibits are unreasonable, arbitrary and oppressive delays which render rights
nugatory.

Caballero laid down the factors that may be taken into consideration in determining whether or
not the right to a "speedy disposition of cases" has been violated, thus:

In the determination of whether or not the right to a "speedy trial" has been
violated, certain factors may be considered and balanced against each other.
These are length of delay, reason for the delay, assertion of the right or failure to
assert it, and prejudice caused by the delay. The same factors may also be
considered in answering judicial inquiry whether or not a person officially charged
with the administration of justice has violated the speedy disposition of cases.

Likewise, in Gonzales v. Sandiganbayan, 199 SCRA 298, (1991), we held:

It must be here emphasized that the right to a speedy disposition of a case, like
the right to speedy trial, is deemed violated only when the proceeding is attended
by vexatious, capricious, and oppressive delays; or when unjustified
postponements of the trial are asked for and secured, or when without cause or
justified motive a long period of time is allowed to elapse without the party having
his case tried.

Since July 25, 1984 or a month after AIBC and BRII were served with a copy of the amended
complaint, claimants had been asking that AIBC and BRII be declared in default for failure to file
their answers within the ten-day period provided in Section 1, Rule III of Book VI of the Rules
and Regulations of the POEA. At that time, there was a pending motion of AIBC and BRII to
strike out of the records the amended complaint and the "Compliance" of claimants to the order
of the POEA, requiring them to submit a bill of particulars.

The cases at bench are not of the run-of-the-mill variety, such that their final disposition in the
administrative level after seven years from their inception, cannot be said to be attended by
unreasonable, arbitrary and oppressive delays as to violate the constitutional rights to a speedy
disposition of the cases of complainants.

The amended complaint filed on June 6, 1984 involved a total of 1,767 claimants. Said
complaint had undergone several amendments, the first being on April 3, 1985.

The claimants were hired on various dates from 1975 to 1983. They were deployed in different
areas, one group in and the other groups outside of, Bahrain. The monetary claims totalling
more than US$65 million according to Atty. Del Mundo, included:

1. Unexpired portion of contract;

2. Interest earnings of Travel and Fund;

3. Retirement and Savings Plan benefit;

4. War Zone bonus or premium pay of at least 100% of basic pay;

5. Area Differential pay;

6. Accrued Interest of all the unpaid benefits;

7. Salary differential pay;

8. Wage Differential pay;

9. Refund of SSS premiums not remitted to Social Security System;

10. Refund of Withholding Tax not remitted to Bureau of Internal Revenue

(B.I.R.);

11. Fringe Benefits under Brown & Root's "A Summary of Employees Benefits
consisting of 43 pages (Annex "Q" of Amended Complaint);

12. Moral and Exemplary Damages;

13. Attorney's fees of at least ten percent of amounts;

14. Other reliefs, like suspending and/or cancelling the license to recruit of AIBC
and issued by the POEA; and

15. Penalty for violation of Article 34 (Prohibited practices) not excluding

reportorial requirements thereof (NLRC Resolution, September 2, 1991, pp. 18-
19; G.R. No. 104776, Rollo, pp. 73-74).

Inasmuch as the complaint did not allege with sufficient definiteness and clarity of some facts,
the claimants were ordered to comply with the motion of AIBC for a bill of particulars. When
claimants filed their "Compliance and Manifestation," AIBC moved to strike out the complaint
from the records for failure of claimants to submit a proper bill of particulars. While the POEA
Administrator denied the motion to strike out the complaint, he ordered the claimants "to correct
the deficiencies" pointed out by AIBC.

Before an intelligent answer could be filed in response to the complaint, the records of
employment of the more than 1,700 claimants had to be retrieved from various countries in the
Middle East. Some of the records dated as far back as 1975.

The hearings on the merits of the claims before the POEA Administrator were interrupted
several times by the various appeals, first to NLRC and then to the Supreme Court.

Aside from the inclusion of additional claimants, two new cases were filed against AIBC and
BRII on October 10, 1985 (POEA Cases Nos.
L-85-10-777 and L-85-10-779). Another complaint was filed on May 29, 1986 (POEA Case No.
L-86-05-460). NLRC, in exasperation, noted that the exact number of claimants had never been
completely established (Resolution, Sept. 2, 1991, G.R. No. 104776, Rollo, p. 57). All the three
new cases were consolidated with POEA Case No. L-84-06-555.

NLRC blamed the parties and their lawyers for the delay in terminating the proceedings, thus:

These cases could have been spared the long and arduous route towards
resolution had the parties and their counsel been more interested in pursuing the
truth and the merits of the claims rather than exhibiting a fanatical reliance on
technicalities. Parties and counsel have made these cases a litigation of emotion.
The intransigence of parties and counsel is remarkable. As late as last month,
this Commission made a last and final attempt to bring the counsel of all the
parties (this Commission issued a special order directing respondent Brown &
Root's resident agent/s to appear) to come to a more conciliatory stance. Even
this failed (Rollo,
p. 58).

The squabble between the lawyers of claimants added to the delay in the disposition of the
cases, to the lament of NLRC, which complained:

It is very evident from the records that the protagonists in these consolidated
cases appear to be not only the individual complainants, on the one hand, and
AIBC and Brown & Root, on the other hand. The two lawyers for the
complainants, Atty. Gerardo Del Mundo and Atty. Florante De Castro, have yet to
settle the right of representation, each one persistently claiming to appear in
behalf of most of the complainants. As a result, there are two appeals by the
complainants. Attempts by this Commission to resolve counsels' conflicting
claims of their respective authority to represent the complainants prove futile.
The bickerings by these two counsels are reflected in their pleadings. In the
charges and countercharges of falsification of documents and signatures, and in
the disbarment proceedings by one against the other. All these have, to a large
extent, abetted in confounding the issues raised in these cases, jumble the
presentation of evidence, and even derailed the prospects of an amicable
settlement. It would not be far-fetched to imagine that both counsel, unwittingly,
perhaps, painted a rainbow for the complainants, with the proverbial pot of gold
at its end containing more than US$100 million, the aggregate of the claims in
these cases. It is, likewise, not improbable that their misplaced zeal and
 exuberance caused them to throw all caution to the wind in the matter of
elementary rules of procedure and evidence (Rollo, pp. 58-59).

Adding to the confusion in the proceedings before NLRC, is the listing of some of the
complainants in both petitions filed by the two lawyers. As noted by NLRC, "the problem created
by this situation is that if one of the two petitions is dismissed, then the parties and the public
respondents would not know which claim of which petitioner was dismissed and which was not."

B. Claimants insist that all their claims could properly be consolidated in a "class suit" because
"all the named complainants have similar money claims and similar rights sought irrespective of
whether they worked in Bahrain, United Arab Emirates or in Abu Dhabi, Libya or in any part of
the Middle East" (Rollo, pp. 35-38).

A class suit is proper where the subject matter of the controversy is one of common or general
interest to many and the parties are so numerous that it is impracticable to bring them all before
the court (Revised Rules of Court, Rule 3, Sec. 12).

While all the claims are for benefits granted under the Bahrain Law, many of the claimants
worked outside Bahrain. Some of the claimants were deployed in Indonesia and Malaysia under
different terms and conditions of employment.

NLRC and the POEA Administrator are correct in their stance that inasmuch as the first
requirement of a class suit is not present (common or general interest based on the Amiri
Decree of the State of Bahrain), it is only logical that only those who worked in Bahrain shall be
entitled to file their claims in a class suit.

While there are common defendants (AIBC and BRII) and the nature of the claims is the same
(for employee's benefits), there is no common question of law or fact. While some claims are
based on the Amiri Law of Bahrain, many of the claimants never worked in that country, but
were deployed elsewhere. Thus, each claimant is interested only in his own demand and not in
the claims of the other employees of defendants. The named claimants have a special or
particular interest in specific benefits completely different from the benefits in which the other
named claimants and those included as members of a "class" are claiming (Berses v.
Villanueva, 25 Phil. 473 [1913]). It appears that each claimant is only interested in collecting his
own claims. A claimants has no concern in protecting the interests of the other claimants as
shown by the fact, that hundreds of them have abandoned their co-claimants and have entered
into separate compromise settlements of their respective claims. A principle basic to the
concept of "class suit" is that plaintiffs brought on the record must fairly represent and protect
the interests of the others (Dimayuga v. Court of Industrial Relations, 101 Phil. 590 [1957]). For
this matter, the claimants who worked in Bahrain can not be allowed to sue in a class suit in a
judicial proceeding. The most that can be accorded to them under the Rules of Court is to be
allowed to join as plaintiffs in one complaint (Revised Rules of Court, Rule 3, Sec. 6).

The Court is extra-cautious in allowing class suits because they are the exceptions to the
condition sine qua non, requiring the joinder of all indispensable parties.

In an improperly instituted class suit, there would be no problem if the decision secured is
favorable to the plaintiffs. The problem arises when the decision is adverse to them, in which
case the others who were impleaded by their self-appointed representatives, would surely claim
denial of due process.
C. The claimants in G.R. No. 104776 also urged that the POEA Administrator and NLRC should
have declared Atty. Florante De Castro guilty of "forum shopping, ambulance chasing activities,
falsification, duplicity and other unprofessional activities" and his appearances as counsel for
some of the claimants as illegal (Rollo, pp. 38-40).

The Anti-Forum Shopping Rule (Revised Circular No. 28-91) is intended to put a stop to the
practice of some parties of filing multiple petitions and complaints involving the same issues,
with the result that the courts or agencies have to resolve the same issues. Said Rule, however,
applies only to petitions filed with the Supreme Court and the Court of Appeals. It is entitled
"Additional Requirements For Petitions Filed with the Supreme Court and the Court of Appeals
To Prevent Forum Shopping or Multiple Filing of Petitioners and Complainants." The first
sentence of the circular expressly states that said circular applies to an governs the filing of
petitions in the Supreme Court and the Court of Appeals.

While Administrative Circular No. 04-94 extended the application of the anti-forum shopping rule
to the lower courts and administrative agencies, said circular took effect only on April 1, 1994.

POEA and NLRC could not have entertained the complaint for unethical conduct against Atty.
De Castro because NLRC and POEA have no jurisdiction to investigate charges of unethical
conduct of lawyers.

Attorney's Lien

The "Notice and Claim to Enforce Attorney's Lien" dated December 14, 1992 was filed by Atty.
Gerardo A. Del Mundo to protect his claim for attorney's fees for legal services rendered in favor
of the claimants (G.R. No. 104776, Rollo, pp. 841-844).

A statement of a claim for a charging lien shall be filed with the court or administrative agency
which renders and executes the money judgment secured by the lawyer for his clients. The
lawyer shall cause written notice thereof to be delivered to his clients and to the adverse party
(Revised Rules of Court, Rule 138, Sec. 37). The statement of the claim for the charging lien of
Atty. Del Mundo should have been filed with the administrative agency that rendered and
executed the judgment.

Contempt of Court

The complaint of Atty. Gerardo A. Del Mundo to cite Atty. Florante De Castro and Atty. Katz
Tierra for violation of the Code of Professional Responsibility should be filed in a separate and
appropriate proceeding.

G.R. No. 104911-14

Claimants charge NLRC with grave abuse of discretion in not accepting their formula of "Three
Hours Average Daily Overtime" in computing the overtime payments. They claim that it was
BRII itself which proposed the formula during the negotiations for the settlement of their claims
in Bahrain and therefore it is in estoppel to disclaim said offer (Rollo, pp. 21-22).

Claimants presented a Memorandum of the Ministry of Labor of Bahrain dated April 16, 1983,
which in pertinent part states:
 After the perusal of the memorandum of the Vice President and the Area
Manager, Middle East, of Brown & Root Co. and the Summary of the
compensation offered by the Company to the employees in respect of the
difference of pay of the wages of the overtime and the difference of vacation
leave and the perusal of the documents attached thereto i.e., minutes of the
meetings between the Representative of the employees and the management of
the Company, the complaint filed by the employees on 14/2/83 where they have
claimed as hereinabove stated, sample of the Service Contract executed
between one of the employees and the company through its agent
in (sic)Philippines, Asia International Builders Corporation where it has been
provided for 48 hours of work per week and an annual leave of 12 days and an
overtime wage of 1 & 1/4 of the normal hourly wage.

xxx xxx xxx

The Company in its computation reached the following averages:

A. 1. The average duration of the actual service of the employee is 35 months for
the Philippino (sic) employees . . . .

2. The average wage per hour for the Philippino (sic) employee is US$2.69 . . . .

3. The average hours for the overtime is 3 hours plus in all public holidays and
weekends.

4. Payment of US$8.72 per months (sic) of service as compensation for the

difference of the wages of the overtime done for each Philippino (sic) employee .
. . (Rollo, p.22).

BRII and AIBC countered: (1) that the Memorandum was not prepared by them but by a
subordinate official in the Bahrain Department of Labor; (2) that there was no showing that the
Bahrain Minister of Labor had approved said memorandum; and (3) that the offer was made in
the course of the negotiation for an amicable settlement of the claims and therefore it was not
admissible in evidence to prove that anything is due to the claimants.

While said document was presented to the POEA without observing the rule on presenting
official documents of a foreign government as provided in Section 24, Rule 132 of the 1989
Revised Rules on Evidence, it can be admitted in evidence in proceedings before an
administrative body. The opposing parties have a copy of the said memorandum, and they
could easily verify its authenticity and accuracy.

The admissibility of the offer of compromise made by BRII as contained in the memorandum is
another matter. Under Section 27, Rule 130 of the 1989 Revised Rules on Evidence, an offer to
settle a claim is not an admission that anything is due.

Said Rule provides:

Offer of compromise not admissible. — In civil cases, an offer of compromise is

not an admission of any liability, and is not admissible in evidence against the
offeror.
This Rule is not only a rule of procedure to avoid the cluttering of the record with unwanted
evidence but a statement of public policy. There is great public interest in having the
protagonists settle their differences amicable before these ripen into litigation. Every effort must
be taken to encourage them to arrive at a settlement. The submission of offers and counter-
offers in the negotiation table is a step in the right direction. But to bind a party to his offers, as
what claimants would make this Court do, would defeat the salutary purpose of the Rule.

G.R. Nos. 105029-32

A. NLRC applied the Amiri Decree No. 23 of 1976, which provides for greater benefits than
those stipulated in the overseas-employment contracts of the claimants. It was of the belief that
"where the laws of the host country are more favorable and beneficial to the workers, then the
laws of the host country shall form part of the overseas employment contract." It quoted with
approval the observation of the POEA Administrator that ". . . in labor proceedings, all doubts in
the implementation of the provisions of the Labor Code and its implementing regulations shall
be resolved in favor of labor" (Rollo, pp. 90-94).

AIBC and BRII claim that NLRC acted capriciously and whimsically when it refused to enforce
the overseas-employment contracts, which became the law of the parties. They contend that the
principle that a law is deemed to be a part of a contract applies only to provisions of Philippine
law in relation to contracts executed in the Philippines.

The overseas-employment contracts, which were prepared by AIBC and BRII themselves,
provided that the laws of the host country became applicable to said contracts if they offer terms
and conditions more favorable that those stipulated therein. It was stipulated in said contracts
that:

The Employee agrees that while in the employ of the Employer, he will not
engage in any other business or occupation, nor seek employment with anyone
other than the Employer; that he shall devote his entire time and attention and his
best energies, and abilities to the performance of such duties as may be
assigned to him by the Employer; that he shall at all times be subject to the
direction and control of the Employer; and that the benefits provided to Employee
hereunder are substituted for and in lieu of all other benefits provided by any
applicable law, provided of course, that total remuneration and benefits do not fall
below that of the host country regulation or custom, it being understood that
should applicable laws establish that fringe benefits, or other such benefits
additional to the compensation herein agreed cannot be waived, Employee
agrees that such compensation will be adjusted downward so that the total
compensation hereunder, plus the non-waivable benefits shall be equivalent to
the compensation herein agreed (Rollo, pp. 352-353).

The overseas-employment contracts could have been drafted more felicitously. While a part
thereof provides that the compensation to the employee may be "adjusted downward so that the
total computation (thereunder) plus the non-waivable benefits shall be equivalent to the
compensation" therein agreed, another part of the same provision categorically states "that total
remuneration and benefits do not fall below that of the host country regulation and custom."
Any ambiguity in the overseas-employment contracts should be interpreted against AIBC and
BRII, the parties that drafted it (Eastern Shipping Lines, Inc. v. Margarine-Verkaufs-Union, 93
SCRA 257 [1979]).

Article 1377 of the Civil Code of the Philippines provides:

The interpretation of obscure words or stipulations in a contract shall not favor

the party who caused the obscurity.

Said rule of interpretation is applicable to contracts of adhesion where there is already a

prepared form containing the stipulations of the employment contract and the employees merely
"take it or leave it." The presumption is that there was an imposition by one party against the
other and that the employees signed the contracts out of necessity that reduced their bargaining
power (Fieldmen's Insurance Co., Inc. v. Songco, 25 SCRA 70 [1968]).

Applying the said legal precepts, we read the overseas-employment contracts in question as
adopting the provisions of the Amiri Decree No. 23 of 1976 as part and parcel thereof.

The parties to a contract may select the law by which it is to be governed (Cheshire, Private
International Law, 187 [7th ed.]). In such a case, the foreign law is adopted as a "system" to
regulate the relations of the parties, including questions of their capacity to enter into the
contract, the formalities to be observed by them, matters of performance, and so forth (16 Am
Jur 2d,
150-161).

Instead of adopting the entire mass of the foreign law, the parties may just agree that specific
provisions of a foreign statute shall be deemed incorporated into their contract "as a set of
terms." By such reference to the provisions of the foreign law, the contract does not become a
foreign contract to be governed by the foreign law. The said law does not operate as a statute
but as a set of contractual terms deemed written in the contract (Anton, Private International
Law, 197 [1967]; Dicey and Morris, The Conflict of Laws, 702-703, [8th ed.]).

A basic policy of contract is to protect the expectation of the parties (Reese, Choice of Law in
Torts and Contracts, 16 Columbia Journal of Transnational Law 1, 21 [1977]). Such party
expectation is protected by giving effect to the parties' own choice of the applicable law (Fricke
v. Isbrandtsen Co., Inc., 151 F. Supp. 465, 467 [1957]). The choice of law must, however, bear
some relationship to the parties or their transaction (Scoles and Hayes, Conflict of Law 644-647
[1982]). There is no question that the contracts sought to be enforced by claimants have a direct
connection with the Bahrain law because the services were rendered in that country.

In Norse Management Co. (PTE) v. National Seamen Board, 117 SCRA 486 (1982), the
"Employment Agreement," between Norse Management Co. and the late husband of the private
respondent, expressly provided that in the event of illness or injury to the employee arising out
of and in the course of his employment and not due to his own misconduct, "compensation shall
be paid to employee in accordance with and subject to the limitation of the Workmen's
Compensation Act of the Republic of the Philippines or the Worker's Insurance Act of registry of
the vessel, whichever is greater." Since the laws of Singapore, the place of registry of the vessel
in which the late husband of private respondent served at the time of his death, granted a better
compensation package, we applied said foreign law in preference to the terms of the contract.
The case of Bagong Filipinas Overseas Corporation v. National Labor Relations Commission,
135 SCRA 278 (1985), relied upon by AIBC and BRII is inapposite to the facts of the cases at
bench. The issue in that case was whether the amount of the death compensation of a Filipino
seaman should be determined under the shipboard employment contract executed in the
Philippines or the Hongkong law. Holding that the shipboard employment contract was
controlling, the court differentiated said case from Norse Management Co. in that in the latter
case there was an express stipulation in the employment contract that the foreign law would be
applicable if it afforded greater compensation.

B. AIBC and BRII claim that they were denied by NLRC of their right to due process when said
administrative agency granted Friday-pay differential, holiday-pay differential, annual-leave
differential and leave indemnity pay to the claimants listed in Annex B of the Resolution. At first,
NLRC reversed the resolution of the POEA Administrator granting these benefits on a finding
that the POEA Administrator failed to consider the evidence presented by AIBC and BRII, that
some findings of fact of the POEA Administrator were not supported by the evidence, and that
some of the evidence were not disclosed to AIBC and BRII (Rollo, pp. 35-36; 106-107). But
instead of remanding the case to the POEA Administrator for a new hearing, which means
further delay in the termination of the case, NLRC decided to pass upon the validity of the
claims itself. It is this procedure that AIBC and BRII complain of as being irregular and a
"reversible error."

They pointed out that NLRC took into consideration evidence submitted on appeal, the same
evidence which NLRC found to have been "unilaterally submitted by the claimants and not
disclosed to the adverse parties" (Rollo, pp. 37-39).

NLRC noted that so many pieces of evidentiary matters were submitted to the POEA
administrator by the claimants after the cases were deemed submitted for resolution and which
were taken cognizance of by the POEA Administrator in resolving the cases. While AIBC and
BRII had no opportunity to refute said evidence of the claimants before the POEA Administrator,
they had all the opportunity to rebut said evidence and to present their
counter-evidence before NLRC. As a matter of fact, AIBC and BRII themselves were able to
present before NLRC additional evidence which they failed to present before the POEA
Administrator.

Under Article 221 of the Labor Code of the Philippines, NLRC is enjoined to "use every and all
reasonable means to ascertain the facts in each case speedily and objectively and without
regard to technicalities of law or procedure, all in the interest of due process."

In deciding to resolve the validity of certain claims on the basis of the evidence of both parties
submitted before the POEA Administrator and NLRC, the latter considered that it was not
expedient to remand the cases to the POEA Administrator for that would only prolong the
already protracted legal controversies.

Even the Supreme Court has decided appealed cases on the merits instead of remanding them
to the trial court for the reception of evidence, where the same can be readily determined from
the uncontroverted facts on record (Development Bank of the Philippines v. Intermediate
Appellate Court, 190 SCRA 653 [1990]; Pagdonsalan v. National Labor Relations Commission,
127 SCRA 463 [1984]).
C. AIBC and BRII charge NLRC with grave abuse of discretion when it ordered the POEA
Administrator to hold new hearings for 683 claimants listed in Annex D of the Resolution dated
September 2, 1991 whose claims had been denied by the POEA Administrator "for lack of
proof" and for 69 claimants listed in Annex E of the same Resolution, whose claims had been
found by NLRC itself as not "supported by evidence" (Rollo, pp. 41-45).

NLRC based its ruling on Article 218(c) of the Labor Code of the Philippines, which empowers it
"[to] conduct investigation for the determination of a question, matter or controversy, within its
jurisdiction, . . . ."

It is the posture of AIBC and BRII that NLRC has no authority under Article 218(c) to remand a
case involving claims which had already been dismissed because such provision contemplates
only situations where there is still a question or controversy to be resolved (Rollo, pp. 41-42).

A principle well embedded in Administrative Law is that the technical rules of procedure and
evidence do not apply to the proceedings conducted by administrative agencies (First Asian
Transport & Shipping Agency, Inc. v. Ople, 142 SCRA 542 [1986]; Asiaworld Publishing House,
Inc. v. Ople, 152 SCRA 219 [1987]). This principle is enshrined in Article 221 of the Labor Code
of the Philippines and is now the bedrock of proceedings before NLRC.

Notwithstanding the non-applicability of technical rules of procedure and evidence in

administrative proceedings, there are cardinal rules which must be observed by the hearing
officers in order to comply with the due process requirements of the Constitution. These cardinal
rules are collated in Ang Tibay v. Court of Industrial Relations, 69 Phil. 635 (1940).

VIII

The three petitions were filed under Rule 65 of the Revised Rules of Court on the grounds that
NLRC had committed grave abuse of discretion amounting to lack of jurisdiction in issuing the
questioned orders. We find no such abuse of discretion.

WHEREFORE, all the three petitions are DISMISSED.

SO ORDERED.

Padilla, Davide, Jr., Bellosillo and Kapunan, JJ., concur.

ANNEX A

LIST OF CLAIMANTS WHO SIGNED QUITCLAIMS

Bienvenido Cadalin Ardon Ello

Antonio Acupan Josefino R. Enano
Benjamin Alejandre Rolando E. Espiritu
Wilfredo Aligada Patricio L. Garcia Jr.
Robert Batica Felino M. Jocson
Enrico Belen Eduardo S. Kolimlim
Guillermo Cabeza Emmanuel C. Labella
Rodolfo Cagatan Ernesto S. Lising
Francisco De Guzman Edilberto G. Magat
Ignacio De Vera Victoriano L. Matilla
Ernesto De la Cruz Renato V. Morada
Reynaldo Dizon Ildefonso C. Muñoz
Ricardo Ebrada Herbert G. Ng
Antonio Ejercito Reynado Oczon
Eduardo Espiritu Romeo Orial
Ernesto Espiritu Ricardo Paguio
Rodolfo Espiritu Emilio Pakingan
Oligario Francisco Ernesto S. Pangan
Antonio Jocson Albert L. Quinto
Alejandro Olorino Romulo M. Reyes
Efren Lirio Leonilo Tiposo
Noel Martinez Manual P. Villanueva
Francis Mediodia Arnaldo J. Alonzo
Luciano Melendez Pastor M. Aquino
Reymundo Milay Ramon Castro
Jose Pancho Graciano Isla
Modesto Pin Pin Renato Matilla
Gaudencio Retana Ricardo B. Morada
Rodelio Rieta, Jr. Pacifico D. Navarro
Jose Robleza Eugenio A. Remonquillo
Nemeriano San Mateo Felix Barcena
Juanito Santos Eliseo Fajardo
Paquito Solanto Sergio S. Santiago
Conrado Solis, Jr. Antonio R. Rodriquez
Menandro Temprosa Luis Val B. Ronquillo
Maximiano Torres Teodorico C. Del Rosario
Francisco Trias Joselito C. Solante
Delfin Victoria Ricardo C. Dayrit
Gilbert Victoria Antonio P. Hilario
Domingo Villahermosa Edgardo O. Salonga
Rogelio Villanueva Dante C. Aceres
Jose M. Aban Reynaldo S. Acojido
Amorsolo S. Anading Esidro M. Aquino
Alfredo S. Balogo Rosendo M. Aquino
Ramon T. Barboza Rodolfo D. Arevalo
Felix M. Bobier Rexy De Leon Ascuncion
Jose H. Castillo Basilio Buenaventura
Emmanuel H. Castillo Alexander Bustamante
Remar R. Castrojerez Virgilio V. Butiong, Jr.
Romeo O. Cecilio Delfin Caballero
Bayani M. Dayrit Danilo M. Castro
Felizardo S. Delos Santos Franscisco O. Corvera
Nestor N. Estava Edgardo N. Dayacap
Rolando M. Garcia Napoleon S. De Luna
Angel D. Guda Benjamin E. Doza
Henry L. Jacob Renato A. Eduarte
Dante A. Matreo Clyde C. Estuye
Renato S. Melo Buenaventura M. Francisco
Resurrecion D. Nazareno Rogelio D. Guanio
Jaime C. Pollos Arnel L. Jacob
Domingo Pondales Renato S. Lising
Eugenio Ramirez Wilfredo S. Lising
Lucien M. Respall Rogelio S. Lopena
Alvin C. Reyes Bernardito G. Loreja
Rizalina R. Reyes Ignacio E. Muñoz
Quirino Ronquillo Romeo C. Quintos
Avelino M. Roque Willafredo Dayrit Raymundo
Pedro L. Salgatar Virgilio L. Rosario
Rodolfo T. Sultan Joselito Santiago
Benedicto E. Torres Ernesto G. Sta. Maria
Sergio A. Ursolino Gavino U. Tuazon
Rogelio R. Valdez Elito S. Villanueva
Dionisio Bobongo Lamberto Q. Alcantara
Crisenciano Miranda Arturo P. Apilado
Ildefonso C. Molina Turiano V. Concepcion
Gorgonio C. Parala Domingo V. Dela Cruz
Virgilio Ricaza Eduardo R. Enguancho
Palconeri D. Banaag Melanio R. Esteron
Bayani S. Bracamante Santiago N. Galoso
Onofre De Rama Joveniano Hilado
Jose C. Melanes Eduardo Hipolito
Romeo I. Patag Romero M. Javier
Valerio A. Evangelista Valentino S. Jocson
Gilbert E. Ebrada Jose B. Lacson
Juanito P. Villarino Armando M. Magsino
Aristeo M. Bicol Avelino O. Nuqui
Quiterio R. Agudo Delmar F. Pineda
Marianito J. Alcantara Federico T. Quiman
Jose Arevalo Alberto M. Redaza
Ramon A. Arevalo Renosa Ronquillo
Jesus Baya Rodolfo Ronquillo
Guillermo Buenconsejo Antonio T. Valderama
Teresito A. Constantino Ramon Valderama
Eduardo A. Diaz Benigno N. Melendez
Emigdio Abarquez Claudio A. Modesto
Herbert Ayo Solomon Reyes
Mario Bataclan Isaias Talactac
Ricardo Ordonez William G. Taruc
Bernardino Robillos Oscar C. Calderon
Francisco Villaflores Pacifico P. Campano
Angel Villarba Eulalio G. Arguelles
Honesto Jardiniano Ben G. Belir
Juan Y. Olindo Cornelio L. Castillo
Hernani T. Victoriano Valeriano B. Francisco
Ubed B. Ello, Sr. Jaime L. Relosa
Ernesto V. Macaraig Alex Q. Villahermosa
Espiritu A. Munoz, Sr. Vivencio V. Abello, Jr.
Rodrigo E. Ocampo Renato C. Corcuera
Rodolfo V. Ramirez Emiliano B. Dela Cruz, Jr.
Ceferino Batitis Esteban B. Jose, Jr.
 Augusto R. Bondoc Ricardo B. Martinez
Jaime C. Catli Bienvenido Vergara
Gerardo B. Limuaco, Jr. Pedro G. Cagatan
Macario S. Magsino Francisco Apolinario
Domingo B. Solano Miguel Abestano
Ricardo De Rama Prudencio Araullo
Arturo V. Araullo

Airlines Cases:

CHINA AIRLINES VS DANIEL CHIOK

KLM VS COURT OF APPEALS
CATHAY PACIFIC AIRWAYS VS COURT OF APPEALS
ALITALIA VS INTERMEDIATE COURT OF APPEALS
KOREAN AIRLINES VS COURT OF APPEALS
CATHAY PACIFIC AIRWAYS VS VASQUEZ
SANTOS VS NORTHWEST ORIENT AIRLINES

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 101538 June 23, 1992

AUGUSTO BENEDICTO SANTOS III, represented by his father and legal guardian,
Augusto Benedicto Santos, petitioner,
vs.
NORTHWEST ORIENT AIRLINES and COURT OF APPEALS, respondents.

CRUZ, J.:

This case involves the Proper interpretation of Article 28(1) of the Warsaw Convention, reading
as follows:

Art. 28. (1) An action for damage must be brought at the option of the plaintiff, in
the territory of one of the High Contracting Parties, either before the court of the
domicile of the carrier or of his principal place of business, or where he has a
place of business through which the contract has been made, or before the court
at the place of destination.
The petitioner is a minor and a resident of the Philippines. Private respondent Northwest Orient
Airlines (NOA) is a foreign corporation with principal office in Minnesota, U.S.A. and licensed to
do business and maintain a branch office in the Philippines.

On October 21, 1986, the petitioner purchased from NOA a round-trip ticket in San Francisco.
U.S.A., for his flight from San Francisco to Manila via Tokyo and back. The scheduled departure
date from Tokyo was December 20, 1986. No date was specified for his return to San
Francisco. 1

On December 19, 1986, the petitioner checked in at the NOA counter in the San Francisco
airport for his scheduled departure to Manila. Despite a previous confirmation and re-
confirmation, he was informed that he had no reservation for his flight from Tokyo to Manila. He
therefore had to be wait-listed.

On March 12, 1987, the petitioner sued NOA for damages in the Regional Trial Court of Makati.
On April 13, 1987, NOA moved to dismiss the complaint on the ground of lack of jurisdiction.
Citing the above-quoted article, it contended that the complaint could be instituted only in the
territory of one of the High Contracting Parties, before:

1. the court of the domicile of the carrier;

2. the court of its principal place of business;

3. the court where it has a place of business through which the contract had been
made;

4. the court of the place of destination.

The private respondent contended that the Philippines was not its domicile nor was this its
principal place of business. Neither was the petitioner's ticket issued in this country nor was his
destination Manila but San Francisco in the United States.

On February 1, 1988, the lower court granted the motion and dismissed the case. 2 The
petitioner appealed to the Court of Appeals, which affirmed the decision of the lower court. 3On
June 26, 1991, the petitioner filed a motion for reconsideration, but the same was denied. 4 The
petitioner then came to this Court, raising substantially the same issues it submitted in the Court
of Appeals.

The assignment of errors may be grouped into two major issues, viz:

(1) the constitutionality of Article 28(1) of the Warsaw Convention; and

(2) the jurisdiction of Philippine courts over the case.

The petitioner also invokes Article 24 of the Civil Code on the protection of minors.

THE ISSUE OF CONSTITUTIONALITY

 A. The petitioner claims that the lower court erred in not ruling that Article 28(1)
of the Warsaw Convention violates the constitutional guarantees of due process
and equal protection.

The Republic of the Philippines is a party to the Convention for the Unification of Certain Rules
Relating to International Transportation by Air, otherwise known as the Warsaw Convention. It
took effect on February 13, 1933. The Convention was concurred in by the Senate, through its
Resolution No. 19, on May 16, 1950. The Philippine instrument of accession was signed by
President Elpidio Quirino on October 13, 1950, and was deposited with the Polish government
on November 9, 1950. The Convention became applicable to the Philippines on February 9,
1951. On September 23, 1955, President Ramon Magsaysay issued Proclamation No. 201,
declaring our formal adherence thereto. "to the end that the same and every article and clause
thereof may be observed and fulfilled in good faith by the Republic of the Philippines and the
citizens thereof." 5

The Convention is thus a treaty commitment voluntarily assumed by the Philippine government
and, as such, has the force and effect of law in this country.

The petitioner contends that Article 28(1) cannot be applied in the present case because it is
unconstitutional. He argues that there is no substantial distinction between a person who
purchases a ticket in Manila and a person who purchases his ticket in San Francisco. The
classification of the places in which actions for damages may be brought is arbitrary and
irrational and thus violates the due process and equal protection clauses.

It is well-settled that courts will assume jurisdiction over a constitutional question only if it is
shown that the essential requisites of a judicial inquiry into such a question are first satisfied.
Thus, there must be an actual case or controversy involving a conflict of legal rights susceptible
of judicial determination; the constitutional question must have been opportunely raised by the
proper party; and the resolution of the question is unavoidably necessary to the decision of the
case itself. 6

Courts generally avoid having to decide a constitutional question. This attitude is based on the
doctrine of separation of powers, which enjoins upon the departments of the government a
becoming respect for each other's acts.

The treaty which is the subject matter of this petition was a joint legislative-executive act. The
presumption is that it was first carefully studied and determined to be constitutional before it was
adopted and given the force of law in this country.

The petitioner's allegations are not convincing enough to overcome this presumption.
Apparently, the Convention considered the four places designated in Article 28 the most
convenient forums for the litigation of any claim that may arise between the airline and its
passenger, as distinguished from all other places. At any rate, we agree with the respondent
court that this case can be decided on other grounds without the necessity of resolving the
constitutional issue.

B. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of
the Warsaw Convention is inapplicable because of a fundamental change in the
circumstances that served as its basis.
The petitioner goes at great lengths to show that the provisions in the Convention were intended
to protect airline companies under "the conditions prevailing then and which have long ceased
to exist." He argues that in view of the significant developments in the airline industry through
the years, the treaty has become irrelevant. Hence, to the extent that it has lost its basis for
approval, it has become unconstitutional.

The petitioner is invoking the doctrine of rebus sic stantibus. According to Jessup, "this doctrine
constitutes an attempt to formulate a legal principle which would justify non-performance of a
treaty obligation if the conditions with relation to which the parties contracted have changed so
materially and so unexpectedly as to create a situation in which the exaction of performance
would be unreasonable." 7 The key element of this doctrine is the vital change in the condition of
the contracting parties that they could not have foreseen at the time the treaty was concluded.

The Court notes in this connection the following observation made in Day v. Trans World
Airlines, Inc.: 8

The Warsaw drafters wished to create a system of liability rules that would cover
all the hazards of air travel . . . The Warsaw delegates knew that, in the years to
come, civil aviation would change in ways that they could not foresee. They
wished to design a system of air law that would be both durable and flexible
enough to keep pace with these changes . . . The ever-changing needs of the
system of civil aviation can be served within the framework they created.

It is true that at the time the Warsaw Convention was drafted, the airline industry was still in its
infancy. However, that circumstance alone is not sufficient justification for the rejection of the
treaty at this time. The changes recited by the petitioner were, realistically, not entirely
unforeseen although they were expected in a general sense only. In fact, the Convention itself,
anticipating such developments, contains the following significant provision:

Article 41. Any High Contracting Party shall be entitled not earlier than two years
after the coming into force of this convention to call for the assembling of a new
international conference in order to consider any improvements which may be
made in this convention. To this end, it will communicate with the Government of
the French Republic which will take the necessary measures to make
preparations for such conference.

But the more important consideration is that the treaty has not been rejected by the Philippine
government. The doctrine of rebus sic stantibus does not operate automatically to render the
treaty inoperative. There is a necessity for a formal act of rejection, usually made by the head of
State, with a statement of the reasons why compliance with the treaty is no longer required.

In lieu thereof, the treaty may be denounced even without an expressed justification for this
action. Such denunciation is authorized under its Article 39, viz:

Article 39. (1) Any one of the High Contracting Parties may denounce this
convention by a notification addressed to the Government of the Republic of
Poland, which shall at once inform the Government of each of the High
Contracting Parties.
 (2) Denunciation shall take effect six months after the notification of denunciation,
and shall operate only as regards the party which shall have proceeded to
denunciation.

Obviously. rejection of the treaty, whether on the ground of rebus sic stantibus or pursuant to
Article 39, is not a function of the courts but of the other branches of government. This is a
political act. The conclusion and renunciation of treaties is the prerogative of the political
departments and may not be usurped by the judiciary. The courts are concerned only with the
interpretation and application of laws and treaties in force and not with their wisdom or efficacy.

C. The petitioner claims that the lower court erred in ruling that the plaintiff must
sue in the United States, because this would deny him the right to access to our
courts.

The petitioner alleges that the expenses and difficulties he will incur in filing a suit in the United
States would constitute a constructive denial of his right to access to our courts for the
protection of his rights. He would consequently be deprived of this vital guaranty as embodied in
the Bill of Rights.

Obviously, the constitutional guaranty of access to courts refers only to courts with appropriate
jurisdiction as defined by law. It does not mean that a person can go to any court for redress of
his grievances regardless of the nature or value of his claim. If the petitioner is barred from filing
his complaint before our courts, it is because they are not vested with the appropriate
jurisdiction under the Warsaw Convention, which is part of the law of our land.

II

THE ISSUE OF JURISDICTION.

A. The petitioner claims that the lower court erred in not ruling that Article 28(1)
of the Warsaw Convention is a rule merely of venue and was waived by
defendant when it did not move to dismiss on the ground of improper venue.

By its own terms, the Convention applies to all international transportation of persons performed
by aircraft for hire.

International transportation is defined in paragraph (2) of Article 1 as follows:

(2) For the purposes of this convention, the expression "international

transportation" shall mean any transportation in which, according to the contract
made by the parties, the place of departure and the place of destination, whether
or not there be a break in the transportation or a transshipment, are situated
[either] within the territories of two High Contracting Parties . . .

Whether the transportation is "international" is determined by the contract of the parties, which
in the case of passengers is the ticket. When the contract of carriage provides for the
transportation of the passenger between certain designated terminals "within the territories of
two High Contracting Parties," the provisions of the Convention automatically apply and
exclusively govern the rights and liabilities of the airline and its passenger.
Since the flight involved in the case at bar is international, the same being from the United
States to the Philippines and back to the United States, it is subject to the provisions of the
Warsaw Convention, including Article 28(1), which enumerates the four places where an action
for damages may be brought.

Whether Article 28(1) refers to jurisdiction or only to venue is a question over which authorities
are sharply divided. While the petitioner cites several cases holding that Article 28(1) refers to
venue rather than jurisdiction, 9 there are later cases cited by the private respondent supporting
the conclusion that the provision is jurisdictional. 10

Venue and jurisdiction are entirely distinct matters. Jurisdiction may not be conferred by consent
or waiver upon d court which otherwise would have no jurisdiction over the subject-matter of an
action; but the venue of an action as fixed by statute may be changed by the consent of the
parties and an objection that the plaintiff brought his suit in the wrong county may be waived by
the failure of the defendant to make a timely objection. In either case, the court may render a
valid judgment. Rules as to jurisdiction can never be left to the consent or agreement of the
parties, whether or not a prohibition exists against their alteration. 11

A number of reasons tends to support the characterization of Article 28(1) as a jurisdiction and
not a venue provision. First, the wording of Article 32, which indicates the places where the
action for damages "must" be brought, underscores the mandatory nature of Article 28(1).
Second, this characterization is consistent with one of the objectives of the Convention, which is
to "regulate in a uniform manner the conditions of international transportation by air." Third, the
Convention does not contain any provision prescribing rules of jurisdiction other than Article
28(1), which means that the phrase "rules as to jurisdiction" used in Article 32 must refer only to
Article 28(1). In fact, the last sentence of Article 32 specifically deals with the exclusive
enumeration in Article 28(1) as "jurisdictions," which, as such, cannot be left to the will of the
parties regardless of the time when the damage occurred.

This issue was analyzed in the leading case of Smith v. Canadian Pacific Airways, Ltd., 12 where
it was held:

. . . Of more, but still incomplete, assistance is the wording of Article 28(2),

especially when considered in the light of Article 32. Article 28(2) provides that
"questions ofprocedure shall be governed by the law of the court to which the
case is submitted" (Emphasis supplied). Section (2) thus may be read to leave
for domestic decision questions regarding the suitability and location of a
particular Warsaw Convention case.

In other words, where the matter is governed by the Warsaw Convention, jurisdiction takes on a
dual concept. Jurisdiction in the international sense must be established in accordance with
Article 28(1) of the Warsaw Convention, following which the jurisdiction of a particular court
must be established pursuant to the applicable domestic law. Only after the question of which
court has jurisdiction is determined will the issue of venue be taken up. This second question
shall be governed by the law of the court to which the case is submitted.

The petitioner submits that since Article 32 states that the parties are precluded "before the
damages occurred" from amending the rules of Article 28(1) as to the place where the action
may be brought, it would follow that the Warsaw Convention was not intended to preclude them
from doing so "after the damages occurred."
Article 32 provides:

Art. 32. Any clause contained in the contract and all special agreements entered
into before the damage occurred by which the parties purport to infringe the rules
laid down by this convention, whether by deciding the law to be applied, or by
altering the rules as to jurisdiction, shall be null and void. Nevertheless for the
transportation of goods, arbitration clauses shall be allowed, subject to this
convention, if the arbitration is to take place within one of the jurisdictions
referred to in the first paragraph of Article 28.

His point is that since the requirements of Article 28(1) can be waived "after the damages (shall
have) occurred," the article should be regarded as possessing the character of a "venue" and
not of a "jurisdiction" provision. Hence, in moving to dismiss on the ground of lack of jurisdiction,
the private respondent has waived improper venue as a ground to dismiss.

The foregoing examination of Article 28(1) in relation to Article 32 does not support this
conclusion. In any event, we agree that even granting arguendo that Article 28(1) is a venue
and not a jurisdictional provision, dismissal of the case was still in order. The respondent court
was correct in affirming the ruling of the trial court on this matter, thus:

Santos' claim that NOA waived venue as a ground of its motion to dismiss is not
correct. True it is that NOA averred in its MOTION TO DISMISS that the ground
thereof is "the Court has no subject matter jurisdiction to entertain the Complaint"
which SANTOS considers as equivalent to "lack of jurisdiction over the subject
matter . . ." However, the gist of NOA's argument in its motion is that the
Philippines is not the proper place where SANTOS could file the action —
meaning that the venue of the action is improperly laid. Even assuming then that
the specified ground of the motion is erroneous, the fact is the proper ground of
the motion — improper venue — has been discussed therein.

Waiver cannot be lightly inferred. In case of doubt, it must be resolved in favor of non-waiver if
there are special circumstances justifying this conclusion, as in the petition at bar. As we
observed in Javier vs. Intermediate Court of Appeals: 13

Legally, of course, the lack of proper venue was deemed waived by the
petitioners when they failed to invoke it in their original motion to dismiss. Even
so, the motivation of the private respondent should have been taken into account
by both the trial judge and the respondent court in arriving at their decisions.

The petitioner also invokes KLM Royal Dutch Airlines v. RTC, 14 a decision of our Court of
Appeals, where it was held that Article 28(1) is a venue provision. However, the private
respondent avers that this was in effect reversed by the case of Aranas v. United
Airlines, 15 where the same court held that Article 28(1) is a jurisdictional provision. Neither of
these cases is binding on this Court, of course, nor was either of them appealed to us.
Nevertheless, we here express our own preference for the later case of Aranas insofar as its
pronouncements on jurisdiction conform to the judgment we now make in this petition.

B. The petitioner claims that the lower court erred in not ruling that under Article
28(1) of the Warsaw Convention, this case was properly filed in the Philippines,
because Manila was the destination of the plaintiff.
The Petitioner contends that the facts of this case are analogous to those in Aanestad v. Air
Canada. 16 In that case, Mrs. Silverberg purchased a round-trip ticket from Montreal to Los
Angeles and back to Montreal. The date and time of departure were specified but not of the
return flight. The plane crashed while on route from Montreal to Los Angeles, killing Mrs.
Silverberg. Her administratrix filed an action for damages against Air Canada in the U.S. District
Court of California. The defendant moved to dismiss for lack of jurisdiction but the motion was
denied thus:

. . . It is evident that the contract entered into between Air Canada and Mrs.
Silverberg as evidenced by the ticket booklets and the Flight Coupon No. 1, was
a contract for Air Canada to carry Mrs. Silverberg to Los Angeles on a certain
flight, a certain time and a certain class, but that the time for her to return
remained completely in her power. Coupon No. 2 was only a continuing offer by
Air Canada to give her a ticket to return to Montreal between certain dates. . . .

The only conclusion that can be reached then, is that "the place of destination"
as used in the Warsaw Convention is considered by both the Canadian C.T.C.
and the United States C.A.B. to describe at least two "places of destination," viz.,
the "place of destination" of a particular flight either an "outward destination" from
the "point of origin" or from the "outward point of destination" to any place in
Canada.

Thus the place of destination under Art. 28 and Art. 1 of the Warsaw Convention
of the flight on which Mrs. Silverberg was killed, was Los Angeles according to
the ticket, which was the contract between the parties and the suit is properly
filed in this Court which has jurisdiction.

The Petitioner avers that the present case falls squarely under the above ruling because the
date and time of his return flight to San Francisco were, as in the Aanestad case, also left open.
Consequently, Manila and not San Francisco should be considered the petitioner's destination.

The private respondent for its part invokes the ruling in Butz v. British Airways, 17 where the
United States District Court (Eastern District of Pennsylvania) said:

. . . Although the authorities which addressed this precise issue are not
extensive, both the cases and the commentators are almost unanimous in
concluding that the "place of destination" referred to in the Warsaw Convention
"in a trip consisting of several parts . . . is the ultimate destination that is
accorded treaty jurisdiction." . . .

But apart from that distinguishing feature, I cannot agree with the Court's analysis
in Aanestad; whether the return portion of the ticket is characterized as an option
or a contract, the carrier was legally bound to transport the passenger back to the
place of origin within the prescribed time and. the passenger for her part agreed
to pay the fare and, in fact, did pay the fare. Thus there was mutuality of
obligation and a binding contract of carriage, The fact that the passenger could
forego her rights under the contract does not make it any less a binding contract.
Certainly, if the parties did not contemplate the return leg of the journey, the
passenger would not have paid for it and the carrier would not have issued a
round trip ticket.
We agree with the latter case. The place of destination, within the meaning of the Warsaw
Convention, is determined by the terms of the contract of carriage or, specifically in this case,
the ticket between the passenger and the carrier. Examination of the petitioner's ticket shows
that his ultimate destination is San Francisco. Although the date of the return flight was left
open, the contract of carriage between the parties indicates that NOA was bound to transport
the petitioner to San Francisco from Manila. Manila should therefore be considered merely an
agreed stopping place and not the destination.

The petitioner submits that the Butz case could not have overruled the Aanestad case because
these decisions are from different jurisdictions. But that is neither here nor there. In fact, neither
of these cases is controlling on this Court. If we have preferred the Butz case, it is because,
exercising our own freedom of choice, we have decided that it represents the better, and
correct, interpretation of Article 28(1).

Article 1(2) also draws a distinction between a "destination" and an "agreed stopping place." It is
the "destination" and not an "agreed stopping place" that controls for purposes of ascertaining
jurisdiction under the Convention.

The contract is a single undivided operation, beginning with the place of departure and ending
with the ultimate destination. The use of the singular in this expression indicates the
understanding of the parties to the Convention that every contract of carriage has one place of
departure and one place of destination. An intermediate place where the carriage may be
broken is not regarded as a "place of destination."

C. The petitioner claims that the lower court erred in not ruling that under Art.
28(1) of the Warsaw Convention, this case was properly filed in the Philippines
because the defendant has its domicile in the Philippines.

The petitioner argues that the Warsaw Convention was originally written in French and that in
interpreting its provisions, American courts have taken the broad view that the French legal
meaning must govern. 18 In French, he says, the "domicile" of the carrier means every place
where it has a branch office.

The private respondent notes, however, that in Compagnie Nationale Air France vs.
Giliberto, 19 it was held:

The plaintiffs' first contention is that Air France is domiciled in the United States.
They say that the domicile of a corporation includes any country where the airline
carries on its business on "a regular and substantial basis," and that the United
States qualifies under such definition. The meaning of domicile cannot, however,
be so extended. The domicile of a corporation is customarily regarded as the
place where it is incorporated, and the courts have given the meaning to the term
as it is used in article 28(1) of the Convention. (See Smith v. Canadian Pacific
Airways, Ltd. (2d Cir. 1971), 452 F2d 798, 802; Nudo v. Societe Anonyme Belge
d' Exploitation de la Navigation Aerienne Sabena Belgian World Airlines (E.D. pa.
1962). 207 F. Supp, 191; Karfunkel v. Compagnie Nationale Air France (S.D.N.Y.
1977), 427 F. Suppl. 971, 974). Moreover, the structure of article 28(1), viewed
as a whole, is also incompatible with the plaintiffs' claim. The article, in stating
that places of business are among the bases of the jurisdiction, sets out two
places where an action for damages may be brought; the country where the
 carrier's principal place of business is located, and the country in which it has a
place of business through which the particular contract in question was made,
that is, where the ticket was bought, Adopting the plaintiffs' theory would at a
minimum blur these carefully drawn distinctions by creating a third intermediate
category. It would obviously introduce uncertainty into litigation under the article
because of the necessity of having to determine, and without standards or
criteria, whether the amount of business done by a carrier in a particular country
was "regular" and "substantial." The plaintiff's request to adopt this basis of
jurisdiction is in effect a request to create a new jurisdictional standard for the
Convention.
20
Furthermore, it was argued in another case that:

. . . In arriving at an interpretation of a treaty whose sole official language is

French, are we bound to apply French law? . . . We think this question and the
underlying choice of law issue warrant some discussion
. . . We do not think this statement can be regarded as a conclusion that internal
French law is to be "applied" in the choice of law sense, to determine the
meaning and scope of the Convention's terms. Of course, French legal usage
must be considered in arriving at an accurate English translation of the French.
But when an accurate English translation is made and agreed upon, as here, the
inquiry into meaning does not then revert to a quest for a past or present French
law to be "applied" for revelation of the proper scope of the terms. It does not
follow from the fact that the treaty is written in French that in interpreting it, we
are forever chained to French law, either as it existed when the treaty was written
or in its present state of development. There is no suggestion in the treaty that
French law was intended to govern the meaning of Warsaw's terms, nor have we
found any indication to this effect in its legislative history or from our study of its
application and interpretation by other courts. Indeed, analysis of the cases
indicates that the courts, in interpreting and applying the Warsaw Convention,
have, not considered themselves bound to apply French law simply because the
Convention is written in French. . . .

We agree with these rulings.

Notably, the domicile of the carrier is only one of the places where the complaint is allowed to
be filed under Article 28(1). By specifying the three other places, to wit, the principal place of
business of the carrier, its place of business where the contract was made, and the place of
destination, the article clearly meant that these three other places were not comprehended in
the term "domicile."

D. The petitioner claims that the lower court erred in not ruling that Art. 28(1) of
the Warsaw Convention does not apply to actions based on tort.

The petitioner alleges that the gravamen of the complaint is that private respondent acted
arbitrarily and in bad faith, discriminated against the petitioner, and committed a willful
misconduct because it canceled his confirmed reservation and gave his reserved seat to
someone who had no better right to it. In short. the private respondent committed a tort.
Such allegation, he submits, removes the present case from the coverage of the Warsaw
Convention. He argues that in at least two American cases, 21 it was held that Article 28(1) of
the Warsaw Convention does not apply if the action is based on tort.

This position is negated by Husserl v. Swiss Air Transport Company, 22 where the article in
question was interpreted thus:

. . . Assuming for the present that plaintiff's claim is "covered" by Article 17,
Article 24 clearly excludes any relief not provided for in the Convention as
modified by the Montreal Agreement. It does not, however, limit the kind of cause
of action on which the relief may be founded; rather it provides that any action
based on the injuries specified in Article 17 "however founded," i.e., regardless of
the type of action on which relief is founded, can only be brought subject to the
conditions and limitations established by the Warsaw System. Presumably, the
reason for the use of the phrase "however founded," in two-fold: to accommodate
all of the multifarious bases on which a claim might be founded in different
countries, whether under code law or common law, whether under contract or
tort, etc.; and to include all bases on which a claim seeking relief for an injury
might be founded in any one country. In other words, if the injury occurs as
described in Article 17, any relief available is subject to the conditions and
limitations established by the Warsaw System, regardless of the particular cause
of action which forms the basis on which a plaintiff could seek
relief . . .

The private respondent correctly contends that the allegation of willful misconduct resulting in a
tort is insufficient to exclude the case from the comprehension of the Warsaw Convention. The
petitioner has apparently misconstrued the import of Article 25(l) of the Convention, which reads
as follows:

Art. 25 (1). The carrier shall not be entitled to avail himself of the provisions of
this Convention which exclude or limit his liability. if the damage is caused by his
willful misconduct or by such default on his part as, in accordance with the law of
the court to which the case is submitted, is considered to be equivalent to willful
misconduct.

It is understood under this article that the court called upon to determine the applicability of the
limitation provision must first be vested with the appropriate jurisdiction. Article 28(1) is the
provision in the Convention which defines that jurisdiction. Article 22 23 merely fixes the
monetary ceiling for the liability of the carrier in cases covered by the Convention. If the carrier
is indeed guilty of willful misconduct, it can avail itself of the limitations set forth in this article.
But this can be done only if the action has first been commenced properly under the rules on
jurisdiction set forth in Article 28(1).

III

THE ISSUE OF PROTECTION TO MINORS

The petitioner calls our attention to Article 24 of the Civil Code, which states:
 Art. 24. In all contractual property or other relations, when one of the parties is at
a disadvantage on account of his moral dependence, ignorance, indigence,
mental weakness, tender age or other handicap, the courts must be vigilant for
his protection.

Application of this article to the present case is misplaced. The above provision assumes that
the court is vested with jurisdiction to rule in favor of the disadvantaged minor, As already
explained, such jurisdiction is absent in the case at bar.

CONCLUSION

A number of countries have signified their concern over the problem of citizens being denied
access to their own courts because of the restrictive provision of Article 28(1) of the Warsaw
Convention. Among these is the United States, which has proposed an amendment that would
enable the passenger to sue in his own domicile if the carrier does business in that jurisdiction.
The reason for this proposal is explained thus:

In the event a US citizen temporarily residing abroad purchases a Rome to New

York to Rome ticket on a foreign air carrier which is generally subject to the
jurisdiction of the US, Article 28 would prevent that person from suing the carrier
in the US in a "Warsaw Case" even though such a suit could be brought in the
absence of the Convention.

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

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

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

WHEREFORE, the petition is DENIED, with costs against the petitioner. It is so ordered.

Narvasa, C.J., Gutierrez, Jr., Paras, Feliciano, Padilla, Bidin, Griño-Aquino, Medialdea,
Regalado, Davide, Jr., Romero, Nocon and Bellosillo, JJ., concur.

Footnotes
1 Annex "A," Orig. Records, pp. 4-5.ist

2 Ibid., pp. 205-207; penned by Judge Pedro N. Laggui.

3 Rollo, p. 60; penned by Buena, J., with Gonzaga-Reyes and Abad Santos,
Jr., JJ., concurring.

4 Ibid., p. 79.

5 51 O.G. 4933-4934.

6 Association of Small Landowners in the Philippines, Inc. v. Secretary of

Agrarian Reform, 175 SCRA 343; Dumlao v. Comelec, 95 SCRA 392.

7 A Modern Law of Nations (1950), p. 150.

8 528 F. 2d 31.

9 Berner v. United Airlines, Inc., 149 NYS 2d, 335, 343, 1956; Doering v.
Scandinavian Airlines System, 329 F Supp 1081, 1082, 1971; Spencer v.
Northwest Orient Airlines, 201 F. Supp. 504, 506, 1962.

10 Smith v. Canadian Pacific Airways Ltd., 452 F. 2d 798 1971; Campagnie

Nationale Air France v. Giliberto, 1838 N.E., 2d 977, 1978; MacCarthy v. East
African Airways Corp., 13 Av 17, 385, Records, p. 113, 1974; Sabharwal v.
Kuwait Airways Corp., 18 Av 8, 380; Records, p. 115, 1984: Duff v. Varig Airlines,
Inc., S.A., 22 Avi, Rollo, p. 186, 1989.

11 Francisco, Rules of Court, Vol. I, 1973, p. 331.

12 452 F. 2d 798.

13 171 SCRA 605.

14 CA G.R.-SP No. 09259, January 22, 1987.

15 CA G.R.-CV No. 19974, April 8, 1991.

16 390 F. Supp. 1165, 1975.

17 421 F. Suppl. 127.

18 Block v. Compagnie, 386 F. 2d 232.

19 838 N.E. 2d 977, 1978.

 20 Rosman v. TWA, 1974; 34 NY 2d 385; 358 NYS 2d 97; 314 N.E. 2d 848; 72
A.L.R. 3d 1282.

21 Eck v. United Arab, S.A.A., 241 F. Supp. 804-807; Spencer v. Northwest

Orient Airlines, 201 F. Supp. 504-507.

22 Rollo, pp. 189-199; 388 F. Supp. 1238.

23 Article 22. (1) In the transportation of passengers, the liability of the carrier for
each passenger shall be limited to the sum of 125,000 francs. Where in
accordance with the law of the court to which the case is submitted, damages
may be awarded in the form of periodical payments, the equivalent capital value
of the said payments shall not exceed 125,000 francs. Nevertheless, by special
contract, the carrier and the passenger may agree to a higher limit of liability.

(2) In the transportation of checked baggage and of goods, the liability of the
carrier shall be limited to a sum of 250 francs per kilogram, unless the consignor
has made, at the time when the package was handed over to the carrier, a
special declaration of the value of delivery and has paid a supplementary sum if
the case so requires. In that case the carrier will be liable to pay a sum not
exceeding the declared sum, unless he proves that the sum is greater than the
actual value to the consignor at delivery.

(3) As regards objects of which the passenger takes charge himself, the liability
of the carrier shall be limited to 5,000 francs per passenger.

(4) The sums mentioned above shall be deemed to refer to the French franc
consisting of 65-1/2 milligrams of gold at the standard of fineness of nine
hundred thousandths. These sums may be converted into any national currency
in round figures.

24 Varkonyi v. S.A. Impress De Viacao Airea Rio Grandense (Varig) 1972; 336
NYS 2d 1973.

VIII. Torts and Crimes

SAUDI ARABIAN AIRLINES VS COURT OF APPEALS

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 122191 October 8, 1998

SAUDI ARABIAN AIRLINES, petitioner,

vs.
COURT OF APPEALS, MILAGROS P. MORADA and HON. RODOLFO A. ORTIZ, in his
capacity as Presiding Judge of Branch 89, Regional Trial Court of Quezon
City, respondents.

QUISUMBING, J.:

This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and set aside
the Resolution 1dated September 27, 1995 and the Decision 2 dated April 10, 1996 of the Court
of Appeals 3 in CA-G.R. SP No. 36533, 4 and the Orders 5 dated August 29, 1994 6 and February
2, 1995 7 that were issued by the trial court in Civil Case No. Q-93-18394. 8

The pertinent antecedent facts which gave rise to the instant petition, as stated in the
questioned Decision 9, are as follows:

On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight Attendant for
its airlines based in Jeddah, Saudi Arabia. . . .

On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went to a

disco dance with fellow crew members Thamer Al-Gazzawi and Allah Al-
Gazzawi, both Saudi nationals. Because it was almost morning when they
returned to their hotels, they agreed to have breakfast together at the room of
Thamer. When they were in te (sic) room, Allah left on some pretext. Shortly after
he did, Thamer attempted to rape plaintiff. Fortunately, a roomboy and several
security personnel heard her cries for help and rescued her. Later, the
Indonesian police came and arrested Thamer and Allah Al-Gazzawi, the latter as
an accomplice.

When plaintiff returned to Jeddah a few days later, several SAUDIA officials
interrogated her about the Jakarta incident. They then requested her to go back
to Jakarta to help arrange the release of Thamer and Allah. In Jakarta, SAUDIA
Legal Officer Sirah Akkad and base manager Baharini negotiated with the police
for the immediate release of the detained crew members but did not succeed
because plaintiff refused to cooperate. She was afraid that she might be tricked
into something she did not want because of her inability to understand the local
dialect. She also declined to sign a blank paper and a document written in the
local dialect. Eventually, SAUDIA allowed plaintiff to return to Jeddah but barred
her from the Jakarta flights.

Plaintiff learned that, through the intercession of the Saudi Arabian government,
the Indonesian authorities agreed to deport Thamer and Allah after two weeks of
detention. Eventually, they were again put in service by defendant SAUDI (sic).
In September 1990, defendant SAUDIA transferred plaintiff to Manila.
 On January 14, 1992, just when plaintiff thought that the Jakarta incident was
already behind her, her superiors requested her to see Mr. Ali Meniewy, Chief
Legal Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he
brought her to the police station where the police took her passport and
questioned her about the Jakarta incident. Miniewy simply stood by as the police
put pressure on her to make a statement dropping the case against Thamer and
Allah. Not until she agreed to do so did the police return her passport and
allowed her to catch the afternoon flight out of Jeddah.

One year and a half later or on lune 16, 1993, in Riyadh, Saudi Arabia, a few
minutes before the departure of her flight to Manila, plaintiff was not allowed to
board the plane and instead ordered to take a later flight to Jeddah to see Mr.
Miniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of
the SAUDIA office brought her to a Saudi court where she was asked to sign a
document written in Arabic. They told her that this was necessary to close the
case against Thamer and Allah. As it turned out, plaintiff signed a notice to her to
appear before the court on June 27, 1993. Plaintiff then returned to Manila.

Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah

once again and see Miniewy on June 27, 1993 for further investigation. Plaintiff
did so after receiving assurance from SAUDIA's Manila manager, Aslam
Saleemi, that the investigation was routinary and that it posed no danger to her.

In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on
June 27, 1993. Nothing happened then but on June 28, 1993, a Saudi judge
interrogated plaintiff through an interpreter about the Jakarta incident. After one
hour of interrogation, they let her go. At the airport, however, just as her plane
was about to take off, a SAUDIA officer told her that the airline had forbidden her
to take flight. At the Inflight Service Office where she was told to go, the secretary
of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah,
at the crew quarters, until further orders.

On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court
where the judge, to her astonishment and shock, rendered a decision, translated
to her in English, sentencing her to five months imprisonment and to 286 lashes.
Only then did she realize that the Saudi court had tried her, together with Thamer
and Allah, for what happened in Jakarta. The court found plaintiff guilty of (1)
adultery; (2) going to a disco, dancing and listening to the music in violation of
Islamic laws; and (3) socializing with the male crew, in contravention of Islamic
tradition. 10

Facing conviction, private respondent sought the help of her employer, petitioner SAUDIA.
Unfortunately, she was denied any assistance. She then asked the Philippine Embassy in
Jeddah to help her while her case is on appeal. Meanwhile, to pay for her upkeep, she worked
on the domestic flight of SAUDIA, while Thamer and Allah continued to serve in the international
flights. 11

Because she was wrongfully convicted, the Prince of Makkah dismissed the case against her
and allowed her to leave Saudi Arabia. Shortly before her return to Manila, 12 she was
terminated from the service by SAUDIA, without her being informed of the cause.
On November 23, 1993, Morada filed a Complaint 13 for damages against SAUDIA, and Khaled
Al-Balawi ("Al-Balawi"), its country manager.

On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss 14 which raised the
following grounds, to wit: (1) that the Complaint states no cause of action against Saudia; (2)
that defendant Al-Balawi is not a real party in interest; (3) that the claim or demand set forth in
the Complaint has been waived, abandoned or otherwise extinguished; and (4) that the trial
court has no jurisdiction to try the case.
15
On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss) . Saudia filed a
reply 16 thereto on March 3, 1994.

On June 23, 1994, Morada filed an Amended Complaint 17 wherein Al-Balawi was dropped as
party defendant. On August 11, 1994, Saudia filed its Manifestation and Motion to Dismiss
Amended Complaint 18.

The trial court issued an Order 19 dated August 29, 1994 denying the Motion to Dismiss
Amended Complaint filed by Saudia.

From the Order of respondent Judge 20 denying the Motion to Dismiss, SAUDIA filed on
September 20, 1994, its Motion for Reconsideration 21 of the Order dated August 29, 1994. It
alleged that the trial court has no jurisdiction to hear and try the case on the basis of Article 21
of the Civil Code, since the proper law applicable is the law of the Kingdom of Saudi Arabia. On
October 14, 1994, Morada filed her Opposition 22 (To Defendant's Motion for Reconsideration).

In the Reply 23 filed with the trial court on October 24, 1994, SAUDIA alleged that since its
Motion for Reconsideration raised lack of jurisdiction as its cause of action, the Omnibus Motion
Rule does not apply, even if that ground is raised for the first time on appeal. Additionally,
SAUDIA alleged that the Philippines does not have any substantial interest in the prosecution of
the instant case, and hence, without jurisdiction to adjudicate the same.

Respondent Judge subsequently issued another Order 24 dated February 2, 1995, denying
SAUDIA's Motion for Reconsideration. The pertinent portion of the assailed Order reads as
follows:

Acting on the Motion for Reconsideration of defendant Saudi Arabian Airlines

filed, thru counsel, on September 20, 1994, and the Opposition thereto of the
plaintiff filed, thru counsel, on October 14, 1994, as well as the Reply therewith of
defendant Saudi Arabian Airlines filed, thru counsel, on October 24, 1994,
considering that a perusal of the plaintiffs Amended Complaint, which is one for
the recovery of actual, moral and exemplary damages plus attorney's fees, upon
the basis of the applicable Philippine law, Article 21 of the New Civil Code of the
Philippines, is, clearly, within the jurisdiction of this Court as regards the subject
matter, and there being nothing new of substance which might cause the reversal
or modification of the order sought to be reconsidered, the motion for
reconsideration of the defendant, is DENIED.

SO ORDERED. 25
Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and Prohibition with
Prayer for Issuance of Writ of Preliminary Injunction and/or Temporary Restraining Order 26 with
the Court of Appeals.

Respondent Court of Appeals promulgated a Resolution with Temporary Restraining

Order 27 dated February 23, 1995, prohibiting the respondent Judge from further conducting any
proceeding, unless otherwise directed, in the interim.

In another Resolution 28 promulgated on September 27, 1995, now assailed, the appellate court
denied SAUDIA's Petition for the Issuance of a Writ of Preliminary Injunction dated February 18,
1995, to wit:

The Petition for the Issuance of a Writ of Preliminary Injunction is hereby

DENIED, after considering the Answer, with Prayer to Deny Writ of Preliminary
Injunction (Rollo, p. 135) the Reply and Rejoinder, it appearing that herein
petitioner is not clearly entitled thereto (Unciano Paramedical College, et. Al.,v.
Court of Appeals, et. Al., 100335, April 7, 1993, Second Division).

SO ORDERED.

On October 20, 1995, SAUDIA filed with this Honorable Court the instant Petition 29 for Review
with Prayer for Temporary Restraining Order dated October 13, 1995.

However, during the pendency of the instant Petition, respondent Court of Appeals rendered the
Decision 30dated April 10, 1996, now also assailed. It ruled that the Philippines is an appropriate
forum considering that the Amended Complaint's basis for recovery of damages is Article 21 of
the Civil Code, and thus, clearly within the jurisdiction of respondent Court. It further held
that certiorari is not the proper remedy in a denial of a Motion to Dismiss, inasmuch as the
petitioner should have proceeded to trial, and in case of an adverse ruling, find recourse in an
appeal.

On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for Temporary
Restraining Order 31dated April 30, 1996, given due course by this Court. After both parties
submitted their Memoranda, 32 the instant case is now deemed submitted for decision.

Petitioner SAUDIA raised the following issues:

The trial court has no jurisdiction to hear and try Civil Case No. Q-93-18394
based on Article 21 of the New Civil Code since the proper law applicable is the
law of the Kingdom of Saudi Arabia inasmuch as this case involves what is
known in private international law as a "conflicts problem". Otherwise, the
Republic of the Philippines will sit in judgment of the acts done by another
sovereign state which is abhorred.

II
 Leave of court before filing a supplemental pleading is not a jurisdictional
requirement. Besides, the matter as to absence of leave of court is now moot and
academic when this Honorable Court required the respondents to comment on
petitioner's April 30, 1996 Supplemental Petition For Review With Prayer For A
Temporary Restraining Order Within Ten (10) Days From Notice Thereof.
Further, the Revised Rules of Court should be construed with liberality pursuant
to Section 2, Rule 1 thereof.

III

Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-G.R. SP
NO. 36533 entitled "Saudi Arabian Airlines v. Hon. Rodolfo A. Ortiz, et al." and
filed its April 30, 1996 Supplemental Petition For Review With Prayer For A
Temporary Restraining Order on May 7, 1996 at 10:29 a.m. or within the 15-day
reglementary period as provided for under Section 1, Rule 45 of the Revised
Rules of Court. Therefore, the decision in CA-G.R. SP NO. 36533 has not yet
become final and executory and this Honorable Court can take cognizance of this
case. 33

From the foregoing factual and procedural antecedents, the following issues emerge for our
resolution:

I.

WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT

THE REGIONAL TRIAL COURT OF QUEZON CITY HAS JURISDICTION TO
HEAR AND TRY CIVIL CASE NO. Q-93-18394 ENTITLED "MILAGROS P.
MORADA V. SAUDI ARABIAN AIRLINES".

II.

WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING THAT IN

THIS CASE PHILIPPINE LAW SHOULD GOVERN.

Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at the outset. It
maintains that private respondent's claim for alleged abuse of rights occurred in the Kingdom of
Saudi Arabia. It alleges that the existence of a foreign element qualifies the instant case for the
application of the law of the Kingdom of Saudi Arabia, by virtue of the lex loci delicti
commissi rule. 34

On the other hand, private respondent contends that since her Amended Complaint is based on
Articles 19 35 and 21 36 of the Civil Code, then the instant case is properly a matter of domestic
law. 37

Under the factual antecedents obtaining in this case, there is no dispute that the interplay of
events occurred in two states, the Philippines and Saudi Arabia.

As stated by private respondent in her Amended Complaint 38 dated June 23, 1994:
2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines
corporation doing business in the Philippines. It may be served with summons
and other court processes at Travel Wide Associated Sales (Phils.). Inc., 3rd
Floor, Cougar Building, 114 Valero St., Salcedo Village, Makati, Metro Manila.

xxx xxx xxx

6. Plaintiff learned that, through the intercession of the Saudi Arabian

government, the Indonesian authorities agreed to deport Thamer and Allah after
two weeks of detention. Eventually, they were again put in service by defendant
SAUDIA. In September 1990, defendant SAUDIA transferred plaintiff to Manila.

7. On January 14, 1992, just when plaintiff thought that the Jakarta incident was
already behind her, her superiors reauested her to see MR. Ali Meniewy, Chief
Legal Officer of SAUDIA in Jeddah, Saudi Arabia. When she saw him, he
brought her to the police station where the police took her passport and
questioned her about the Jakarta incident. Miniewy simply stood by as the police
put pressure on her to make a statement dropping the case against Thamer and
Allah. Not until she agreed to do so did the police return her passport and
allowed her to catch the afternoon flight out of Jeddah.

8. One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few
minutes before the departure of her flight to Manila, plaintiff was not allowed to
board the plane and instead ordered to take a later flight to Jeddah to see Mr.
Meniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of
the SAUDIA office brought her to a Saudi court where she was asked to sigh a
document written in Arabic. They told her that this was necessary to close the
case against Thamer and Allah. As it turned out, plaintiff signed a notice to her to
appear before the court on June 27, 1993. Plaintiff then returned to Manila.

9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah

once again and see Miniewy on June 27, 1993 for further investigation. Plaintiff
did so after receiving assurance from SAUDIA's Manila manger, Aslam Saleemi,
that the investigation was routinary and that it posed no danger to her.

10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on
June 27, 1993. Nothing happened then but on June 28, 1993, a Saudi judge
interrogated plaintiff through an interpreter about the Jakarta incident. After one
hour of interrogation, they let her go. At the airport, however, just as her plane
was about to take off, a SAUDIA officer told her that the airline had forbidden her
to take that flight. At the Inflight Service Office where she was told to go, the
secretary of Mr. Yahya Saddick took away her passport and told her to remain in
Jeddah, at the crew quarters, until further orders.

11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same
court where the judge, to her astonishment and shock, rendered a decision,
translated to her in English, sentencing her to five months imprisonment and to
286 lashes. Only then did she realize that the Saudi court had tried her, together
with Thamer and Allah, for what happened in Jakarta. The court found plaintiff
guilty of (1) adultery; (2) going to a disco, dancing, and listening to the music in
 violation of Islamic laws; (3) socializing with the male crew, in contravention of
Islamic tradition.

12. Because SAUDIA refused to lend her a hand in the case, plaintiff sought the
help of the Philippines Embassy in Jeddah. The latter helped her pursue an
appeal from the decision of the court. To pay for her upkeep, she worked on the
domestic flights of defendant SAUDIA while, ironically, Thamer and Allah freely
served the international flights. 39

Where the factual antecedents satisfactorily establish the existence of a foreign element, we
agree with petitioner that the problem herein could present a "conflicts" case.

A factual situation that cuts across territorial lines and is affected by the diverse laws of two or
more states is said to contain a "foreign element". The presence of a foreign element is
inevitable since social and economic affairs of individuals and associations are rarely confined
to the geographic limits of their birth or conception. 40

The forms in which this foreign element may appear are many. 41 The foreign element may
simply consist in the fact that one of the parties to a contract is an alien or has a foreign
domicile, or that a contract between nationals of one State involves properties situated in
another State. In other cases, the foreign element may assume a complex form. 42

In the instant case, the foreign element consisted in the fact that private respondent Morada is a
resident Philippine national, and that petitioner SAUDIA is a resident foreign corporation. Also,
by virtue of the employment of Morada with the petitioner Saudia as a flight stewardess, events
did transpire during her many occasions of travel across national borders, particularly from
Manila, Philippines to Jeddah, Saudi Arabia, and vice versa, that caused a "conflicts" situation
to arise.

We thus find private respondent's assertion that the case is purely domestic, imprecise.
A conflicts problem presents itself here, and the question of jurisdiction 43 confronts the court a
quo.

After a careful study of the private respondent's Amended Complaint, 44 and the Comment
thereon, we note that she aptly predicated her cause of action on Articles 19 and 21 of the New
Civil Code.

On one hand, Article 19 of the New Civil Code provides:

Art. 19. Every person must, in the exercise of his rights and in the performance of
his duties, act with justice give everyone his due and observe honesty and good
faith.

On the other hand, Article 21 of the New Civil Code provides:

Art. 21. Any person who willfully causes loss or injury to another in a manner that
is contrary to morals, good customs or public policy shall compensate the latter
for damages.
Thus, in Philippine National Bank (PNB) vs. Court of Appeals, 45 this Court held that:

The aforecited provisions on human relations were intended to expand the

concept of torts in this jurisdiction by granting adequate legal remedy for the
untold number of moral wrongs which is impossible for human foresight to
specifically provide in the statutes.

Although Article 19 merely declares a principle of law, Article 21 gives flesh to its provisions.
Thus, we agree with private respondent's assertion that violations of Articles 19 and 21 are
actionable, with judicially enforceable remedies in the municipal forum.

Based on the allegations 46 in the Amended Complaint, read in the light of the Rules of Court on
jurisdiction 47 we find that the Regional Trial Court (RTC) of Quezon City possesses jurisdiction
over the subject matter of the suit.48 Its authority to try and hear the case is provided for under
Section 1 of Republic Act No. 7691, to wit:

Sec. 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the

"Judiciary Reorganization Act of 1980", is hereby amended to read as follows:

Sec. 19. Jurisdiction in Civil Cases. — Regional Trial Courts shall exercise
exclusive jurisdiction:

xxx xxx xxx

(8) In all other cases in which demand, exclusive of interest,

damages of whatever kind, attorney's fees, litigation expenses,
and cots or the value of the property in controversy exceeds One
hundred thousand pesos (P100,000.00) or, in such other cases in
Metro Manila, where the demand, exclusive of the above-
mentioned items exceeds Two hundred Thousand pesos
(P200,000.00). (Emphasis ours)

xxx xxx xxx

And following Section 2 (b), Rule 4 of the Revised Rules of Court — the venue, Quezon City, is
appropriate:

Sec. 2 Venue in Courts of First Instance. — [Now Regional Trial Court]

(a) xxx xxx xxx

(b) Personal actions. — All other actions may be commenced and tried where the
defendant or any of the defendants resides or may be found, or where the
plaintiff or any of the plaintiff resides, at the election of the plaintiff.

Pragmatic considerations, including the convenience of the parties, also weigh heavily in favor
of the RTC Quezon City assuming jurisdiction. Paramount is the private interest of the litigant.
Enforceability of a judgment if one is obtained is quite obvious. Relative advantages and
obstacles to a fair trial are equally important. Plaintiff may not, by choice of an inconvenient
forum, "vex", "harass", or "oppress" the defendant, e.g. by inflicting upon him needless expense
or disturbance. But unless the balance is strongly in favor of the defendant, the plaintiffs choice
of forum should rarely be disturbed. 49

Weighing the relative claims of the parties, the court a quo found it best to hear the case in the
Philippines. Had it refused to take cognizance of the case, it would be forcing plaintiff (private
respondent now) to seek remedial action elsewhere, i.e. in the Kingdom of Saudi Arabia where
she no longer maintains substantial connections. That would have caused a fundamental
unfairness to her.

Moreover, by hearing the case in the Philippines no unnecessary difficulties and inconvenience
have been shown by either of the parties. The choice of forum of the plaintiff (now private
respondent) should be upheld.

Similarly, the trial court also possesses jurisdiction over the persons of the parties herein. By
filing her Complaint and Amended Complaint with the trial court, private respondent has
voluntary submitted herself to the jurisdiction of the court.

The records show that petitioner SAUDIA has filed several motions 50 praying for the dismissal
of Morada's Amended Complaint. SAUDIA also filed an Answer In Ex Abundante
Cautelam dated February 20, 1995. What is very patent and explicit from the motions filed, is
that SAUDIA prayed for other reliefs under the premises. Undeniably, petitioner SAUDIA has
effectively submitted to the trial court's jurisdiction by praying for the dismissal of the Amended
Complaint on grounds other than lack of jurisdiction.

As held by this Court in Republic vs. Ker and Company, Ltd.: 51

We observe that the motion to dismiss filed on April 14, 1962, aside from
disputing the lower court's jurisdiction over defendant's person, prayed for
dismissal of the complaint on the ground that plaintiff's cause of action has
prescribed. By interposing such second ground in its motion to dismiss, Ker and
Co., Ltd. availed of an affirmative defense on the basis of which it prayed the
court to resolve controversy in its favor. For the court to validly decide the said
plea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon
the latter's person, who, being the proponent of the affirmative defense, should
be deemed to have abandoned its special appearance and voluntarily submitted
itself to the jurisdiction of the court.

Similarly, the case of De Midgely vs. Ferandos, held that;

When the appearance is by motion for the purpose of objecting to the jurisdiction
of the court over the person, it must be for the sole and separate purpose of
objecting to the jurisdiction of the court. If his motion is for any other purpose
than to object to the jurisdiction of the court over his person, he thereby submits
himself to the jurisdiction of the court. A special appearance by motion made for
the purpose of objecting to the jurisdiction of the court over the person will be
held to be a general appearance, if the party in said motion should, for example,
ask for a dismissal of the action upon the further ground that the court had no
jurisdiction over the subject matter. 52
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of Quezon City.
Thus, we find that the trial court has jurisdiction over the case and that its exercise thereof,
justified.

As to the choice of applicable law, we note that choice-of-law problems seek to answer two
important questions: (1) What legal system should control a given situation where some of the
significant facts occurred in two or more states; and (2) to what extent should the chosen legal
system regulate the situation. 53

Several theories have been propounded in order to identify the legal system that should
ultimately control. Although ideally, all choice-of-law theories should intrinsically advance both
notions of justice and predictability, they do not always do so. The forum is then faced with the
problem of deciding which of these two important values should be stressed. 54

Before a choice can be made, it is necessary for us to determine under what category a certain
set of facts or rules fall. This process is known as "characterization", or the "doctrine of
qualification". It is the "process of deciding whether or not the facts relate to the kind of question
specified in a conflicts rule." 55 The purpose of "characterization" is to enable the forum to select
the proper law. 56

Our starting point of analysis here is not a legal relation, but a factual situation, event, or
operative fact. 57 An essential element of conflict rules is the indication of a "test" or "connecting
factor" or "point of contact". Choice-of-law rules invariably consist of a factual relationship (such
as property right, contract claim) and a connecting factor or point of contact, such as the situs of
the res, the place of celebration, the place of performance, or the place of wrongdoing. 58

Note that one or more circumstances may be present to serve as the possible test for the
determination of the applicable law. 59 These "test factors" or "points of contact" or "connecting
factors" could be any of the following:

(1) The nationality of a person, his domicile, his residence, his place of sojourn,
or his origin;

(2) the seat of a legal or juridical person, such as a corporation;

(3) the situs of a thing, that is, the place where a thing is, or is deemed to be
situated. In particular, the lex situs is decisive when real rights are involved;

(4) the place where an act has been done, the locus actus, such as the place
where a contract has been made, a marriage celebrated, a will signed or a tort
committed. The lex loci actus is particularly important in contracts and torts;

(5) the place where an act is intended to come into effect, e.g., the place of
performance of contractual duties, or the place where a power of attorney is to be
exercised;

(6) the intention of the contracting parties as to the law that should govern their
agreement, the lex loci intentionis;
 (7) the place where judicial or administrative proceedings are instituted or done.
The lex fori — the law of the forum — is particularly important because, as we
have seen earlier, matters of "procedure" not going to the substance of the claim
involved are governed by it; and because the lex fori applies whenever the
content of the otherwise applicable foreign law is excluded from application in a
given case for the reason that it falls under one of the exceptions to the
applications of foreign law; and

(8) the flag of a ship, which in many cases is decisive of practically all legal
relationships of the ship and of its master or owner as such. It also covers
contractual relationships particularly contracts of affreightment. 60(Emphasis
ours.)

After a careful study of the pleadings on record, including allegations in the Amended Complaint
deemed admitted for purposes of the motion to dismiss, we are convinced that there is
reasonable basis for private respondent's assertion that although she was already working in
Manila, petitioner brought her to Jeddah on the pretense that she would merely testify in an
investigation of the charges she made against the two SAUDIA crew members for the attack on
her person while they were in Jakarta. As it turned out, she was the one made to face trial for
very serious charges, including adultery and violation of Islamic laws and tradition.

There is likewise logical basis on record for the claim that the "handing over" or "turning over" of
the person of private respondent to Jeddah officials, petitioner may have acted beyond its duties
as employer. Petitioner's purported act contributed to and amplified or even proximately caused
additional humiliation, misery and suffering of private respondent. Petitioner thereby allegedly
facilitated the arrest, detention and prosecution of private respondent under the guise of
petitioner's authority as employer, taking advantage of the trust, confidence and faith she
reposed upon it. As purportedly found by the Prince of Makkah, the alleged conviction and
imprisonment of private respondent was wrongful. But these capped the injury or harm allegedly
inflicted upon her person and reputation, for which petitioner could be liable as claimed, to
provide compensation or redress for the wrongs done, once duly proven.

Considering that the complaint in the court a quo is one involving torts, the "connecting factor"
or "point of contact" could be the place or places where the tortious conduct or lex loci
actus occurred. And applying the torts principle in a conflicts case, we find that the Philippines
could be said as a situs of the tort (the place where the alleged tortious conduct took place).
This is because it is in the Philippines where petitioner allegedly deceived private respondent, a
Filipina residing and working here. According to her, she had honestly believed that petitioner
would, in the exercise of its rights and in the performance of its duties, "act with justice, give her
due and observe honesty and good faith." Instead, petitioner failed to protect her, she claimed.
That certain acts or parts of the injury allegedly occurred in another country is of no moment.
For in our view what is important here is the place where the over-all harm or the totality of the
alleged injury to the person, reputation, social standing and human rights of complainant, had
lodged, according to the plaintiff below (herein private respondent). All told, it is not without
basis to identify the Philippines as the situs of the alleged tort.

Moreover, with the widespread criticism of the traditional rule of lex loci delicti commissi, modern
theories and rules on tort liability 61 have been advanced to offer fresh judicial approaches to
arrive at just results. In keeping abreast with the modern theories on tort liability, we find here an
occasion to apply the "State of the most significant relationship" rule, which in our view should
be appropriate to apply now, given the factual context of this case.

In applying said principle to determine the State which has the most significant relationship, the
following contacts are to be taken into account and evaluated according to their relative
importance with respect to the particular issue: (a) the place where the injury occurred; (b) the
place where the conduct causing the injury occurred; (c) the domicile, residence, nationality,
place of incorporation and place of business of the parties, and (d) the place where the
relationship, if any, between the parties is centered. 62

As already discussed, there is basis for the claim that over-all injury occurred and lodged in the
Philippines. There is likewise no question that private respondent is a resident Filipina national,
working with petitioner, a resident foreign corporation engaged here in the business of
international air carriage. Thus, the "relationship" between the parties was centered here,
although it should be stressed that this suit is not based on mere labor law violations. From the
record, the claim that the Philippines has the most significant contact with the matter in this
dispute, 63 raised by private respondent as plaintiff below against defendant (herein petitioner),
in our view, has been properly established.

Prescinding from this premise that the Philippines is the situs of the tort complained of and the
place "having the most interest in the problem", we find, by way of recapitulation, that the
Philippine law on tort liability should have paramount application to and control in the resolution
of the legal issues arising out of this case. Further, we hold that the respondent Regional Trial
Court has jurisdiction over the parties and the subject matter of the complaint; the appropriate
venue is in Quezon City, which could properly apply Philippine law. Moreover, we find untenable
petitioner's insistence that "[s]ince private respondent instituted this suit, she has the burden of
pleading and proving the applicable Saudi law on the matter." 64 As aptly said by private
respondent, she has "no obligation to plead and prove the law of the Kingdom of Saudi Arabia
since her cause of action is based on Articles 19 and 21" of the Civil Code of the Philippines. In
her Amended Complaint and subsequent pleadings, she never alleged that Saudi law should
govern this case. 65 And as correctly held by the respondent appellate court, "considering that it
was the petitioner who was invoking the applicability of the law of Saudi Arabia, then the burden
was on it [petitioner] to plead and to establish what the law of Saudi Arabia is". 66

Lastly, no error could be imputed to the respondent appellate court in upholding the trial court's
denial of defendant's (herein petitioner's) motion to dismiss the case. Not only was jurisdiction in
order and venue properly laid, but appeal after trial was obviously available, and expeditious
trial itself indicated by the nature of the case at hand. Indubitably, the Philippines is the state
intimately concerned with the ultimate outcome of the case below, not just for the benefit of all
the litigants, but also for the vindication of the country's system of law and justice in a
transnational setting. With these guidelines in mind, the trial court must proceed to try and
adjudge the case in the light of relevant Philippine law, with due consideration of the foreign
element or elements involved. Nothing said herein, of course, should be construed as
prejudging the results of the case in any manner whatsoever.

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

SO ORDERED.
Davide, Jr., Bellosillo, Vitug and Panganiban, JJ., concur.

Footnotes

1 Annex "A", PETITION, October 13, 1995; rollo, p. 36.

2 Annex "A", SUPPLEMENTAL PETITION, April 30, 1996; rollo, pp. 88-102.

3 Penned by Associate Justice Bernardo Ll. Salas, and concurred in by

Associate Justice Jorge S. Imperial and Associate Justice Pacita Cañizares-Nye.

4 Entitled "Saudi Arabian Airlines vs. Hon. Judge Rodolfo A. Ortiz, in his capacity
as Presiding Judge of Branch 89 of the Regional Trial Court of Quezon City and
Milagros P. Morada".

5 Issued by respondent Judge Hon. Rodolfo A. Ortiz of Branch 89, Regional Trial
Court of Quezon City.

6 Annex "B", PETITION, October 13, 1995; rollo, pp. 37-39.

7 Annex "B", PETITION, October 13, 1995; rollo, p. 40.

8 Entitled "Milagros P. Morada vs. Saudi Arabian Airlines".

9 Supra, note 2.

10 Decision, pp. 2-4; see rollo, pp. 89-91.

11 Private respondent's Comment; rollo, p. 50.

12 Ibid., pp. 50-51.

13 Dated November 19, 1993, and docketed as Civil Case No. Q-93-18394,
Branch 89, Regional Trial Court of Quezon City.

14 Dated January 14, 1994.

15 Dated February 4, 1994.

16 Reply dated March 1, 1994.

17 Records, pp. 65-84.

18 Rollo, p. 65.

19 Supra, note 6.

20 Hon. Rodolfo A. Ortiz.

21 Dated September 19, 1994.

22 Records, pp. 108-116.

23 Records, pp. 117-128.

24 Supra, note 7.

25 Ibid.

26 Dated February 18, 1995; see supra, note 4.

27 Supra, note 7.

28 Records, p. 180.

29 Rollo, pp. 1-44.

30 Supra, note 2.

31 Rollo, pp. 80-86.

32 Memorandum for Petitioner dated October 9, 1996, rollo, pp. 149-180; and
Memorandum for Private Respondent, October 30, 1996, rollo, pp. 182-210.

33 Rollo, pp. 157-159. All caps in the original.

34 Memorandum for Petitioner, p. 14, rollo, p. 162.

35 Art. 19. Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.

36 Art 21. Any person who wilfully causes loss or injury to another in a manner
that is contrary to morals, good customs or public policy shall compensate the
latter for the damages.

37 Memorandum for Private Respondent, p. 9, rollo, p. 190.

38 Records, pp. 65-71.

39 Supra, note 17, pp. 65-68.

40 Salonga, Private International Law, 1995 edition, p. 3.

41 Ibid., citing Cheshire and North, Private International Law, p. 5 by P.M. North
and J.J. Faucett (Butterworths; London, 1992).
42 Ibid.

43 Paras, Philippine Conflict of Laws, sixth edition (1984), p. 24, citing Leflar, The
Law of Conflict of Laws, pp. 5-6.

44 Supra, note 17.

45 83 SCRA 237, 247.

46 Supra, note at 17, at p. 6. Morada prays that judgment be rendered against

Saudia, ordering it to pay: (1) not less than P250,000.00 as actual damages; (2)
P4 million in moral damages; (3) P500,000.00 in exemplary damages, and (4)
P500,000.00 in attorney's fees.

47 Baguioro v. Barrios, 77 Phil. 120.

48 Jurisdiction over the subject matter is conferred by law and is defined as the
authority of a court to hear and decide cases of the general class to which the
proceedings in question belong. (Reyes v. Diaz, 73 Phil. 484, 487)

49 Supra, note 37, p. 58, citing Gulf Oil Corporation v. Gilbert, 350 U.S. 501, 67
Sup. Ct. 839 (1947).

50 Omnibus Motion to Dismiss dated January 14, 1994; Reply (to Plaintiff's
Opposition) dated February 19, 1994; Comment (to Plaintiffs Motion to Admit
Amended Complaint dated June 23, 1994) dated July 20, 1993; Manifestation
and Motion to Dismiss Amended Complaint dated June 23, 1994 under date
August 11, 1994; and Motion for Reconsideration dated September 19, 1994.

51 18 SCRA 207, 213-214.

52 64 SCRA 23, 31.

53 Coquia and Pangalangan. Conflict of Laws, 1995 edition p. 65, citing Von
Mehren, Recent Trends in Choice-of-Law Methodology, 60 Cornell L. Rev. 927
(1975).

54 Ibid.

55 Supra, note 40 at p. 94, citing Falconbridge, Essays on the Conflict of Laws,

p. 50.

56 Ibid.

57 Supra, note 37, at p. 136; cf. Mussbaum, Principle of Private International

Law, p. 173; and Rabel,The Conflict of Laws: A Comparative Study, pp. 51-52.

58 Supra, note 37, p. 137.

 59 Ibid.

60 Supra, note 37, at pp. 138-139.

61 Includes the (1) German rule of elective concurrence; (2) "State of the most
significant relationship" rule (the Second Restatement of 1969); (3) State —
interest analysis; and (4) Caver's Principle of Preference.

62 Supra, note 37, p. 396.

63 Supra, note 59, p. 79, citing Ruben v. Irving Trust Co., 305 N.Y. 288, 305, 113
N.E. 2d 424, 431.

64 Memorandum for Petitioner, p. 22; rollo, p. 170.

65 Memorandum for Private Respondent, pp. 21-22; rollo, pp. 202-203.

66 CA Decision, p. 10; rollo, p. 97.

PERKINS VS DIZON

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. 46631 November 16, 1939

IDONAH SLADE PERKINS, petitioner,

vs.
ARSENIO P. DIZON, Judge of First Instance of Manila, EUGENE ARTHUR PERKINS, and
BENGUET CONSOLIDATED MINING COMPANY, respondents.

Alva J. Hill for petitioner.

Ross, Lawrence, Selph & Carrascoso for respondent Judge and Benguet Consolidated Mining
Company.
DeWitt, Perkins & Ponce Enrile for respondent Perkins.

MORAN, J.:

On July 6, 1938, respondent, Eugene Arthur Perkins, instituted an action in the Court of
First Instance of Manila against the Benguet Consolidated Mining Company for dividends
amounting to P71,379.90 on 52,874 shares of stock registered in his name, payment of which
was being withheld by the company; and, for the recognition of his right to the control and
disposal of said shares, to the exclusion of all others. To the complaint, the company filed its
answer alleging, by way of defense, that the withholding of such dividends and the non-
recognition of plaintiff's right to the disposal and control of the shares were due to certain
demands made with respect to said shares by the petitioner herein, Idonah Slade Perkins, and
by one George H. Engelhard. The answer prays that the adverse claimants be made parties to
the action and served with notice thereof by publication, and that thereafter all such parties be
required to interplead and settle the rights among themselves. On September 5, 1938, the trial
court ordered respondent Eugene Arthur Perkins to include in his complaint as parties
defendant petitioner, Idonah Slade Perkins, and George H. Engelhard. The complaint was
accordingly amended and in addition to the relief prayed for in the original complaint,
respondent Perkins prayed that petitioner Idonah Slade Perkins and George Engelhard be
adjudged without interest in the shares of stock in question and excluded from any claim they
assert thereon. Thereafter, summons by publication were served upon the non-resident
defendants, Idonah Slade Perkins and George H. Engelhard, pursuant to the order of the trial
court. On December 9, 1938, Engelhard filed his answer to the amended complaint, and on
December 10, 1938, petitioner Idonah Slade Perkins, through counsel, filed her pleading
entitled "objection to venue, motion to quash, and demurrer to jurisdiction" wherein she
challenged the jurisdiction of the lower court over her person. Petitioner's objection, motion and
demurrer having been overruled as well as her motion for reconsideration of the order of denial,
she now brought the present petition for certiorari, praying that the summons by publication
issued against her be declared null and void, and that, with respect to her, respondent Judge be
permanently prohibited from taking any action on the case.

The controlling issue here involved is whether or not the Court of First Instance of Manila
has acquired jurisdiction over the person of the present petitioner as a non-resident defendant,
or, notwithstanding the want of such jurisdiction, whether or not said court may validly try the
case. The parties have filed lengthy memorandums relying on numerous authorities, but the
principles governing the question are well settled in this jurisdiction.

Section 398 of our Code of Civil Procedure provides that when a non-resident defendant
is sued in the Philippine courts and it appears, by the complaint or by affidavits, that the action
relates to real or personal property within the Philippines in which said defendant has or claims
a lien or interest, actual or contingent, or in which the relief demanded consists, wholly or in
part, in excluding such person from any interest therein, service of summons maybe made by
publication.

We have fully explained the meaning of this provision in El Banco Español Filipino vs.
Palanca, 37 Phil., 921, wherein we laid down the following rules:

(1) In order that the court may validly try a case, it must have jurisdiction over the
subject-matter and over the persons of the parties. Jurisdiction over the subject-matter is
acquired by concession of the sovereign authority which organizes a court and
determines the nature and extent of its powers in general and thus fixes its jurisdiction
with reference to actions which it may entertain and the relief it may grant. Jurisdiction
over the persons of the parties is acquired by their voluntary appearance in court and
their submission to its authority, or by the coercive power of legal process exerted over
their persons.

(2) When the defendant is a non-resident and refuses to appear voluntary, the court
cannot acquire jurisdiction over his person even if the summons be served by
publication, for he is beyond the reach of judicial process. No tribunal established by one
State can extend its process beyond its territory so as to subject to its decisions either
persons or property located in another State. "There are many expressions in the
American reports from which it might be inferred that the court acquires personal
jurisdiction over the person of the defendant by publication and notice; but such is not
the case. In truth, the proposition that jurisdiction over the person of a non-resident
cannot be acquired by publication and notice was never clearly understood even in the
American courts until after the decision had been rendered by the Supreme Court of the
United States in the leading case of Pennoyer v. Neff (95 U.S., 714; 24 Law. ed., 565).
In the light of that decisions which have subsequently been rendered in that and other
courts, the proposition that jurisdiction over the person cannot be thus acquired by
publication and notice is no longer open to question; and it is now fully established that a
personal judgment upon constructive or substituted service against a non-resident who
does not appear is wholly invalid. This doctrine applies to all kinds of constructive or
substituted process, including service by publication and personal service outside of the
jurisdiction in which the judgment is rendered; and the only exception seems to be found
in the case where the non-resident defendant has expressly or impliedly consented to
the mode of service. (Note to Raher vs. Raher, 35 L. R. A. [N. S.], 292; see also L.R.A.
585; 35 L.R.A. [N.S.], 312.)

(3) The general rule, therefore, is that a suit against a non-resident cannot be
entertained by a Philippine court. Where, however, the action is in rem or quasi in rem in
connection with property located in the Philippines, the court acquires jurisdiction over
the res, and its jurisdiction over the person of the non-resident is non-essential. In order
that the court may exercise power over the res, it is not necessary that the court should
take actual custody of the property, potential custody thereof being sufficient. There is
potential custody when, from the nature of the action brought, the power of the court
over the property is impliedly recognized by law. "An illustration of what we term
potential jurisdiction over the res, is found in the proceeding to register the title of land
under our system for the registration of land. Here the court, without taking actual
physical control over the property , assumes, at the instance of some person claiming to
be owner, to exercise a jurisdiction in rem over the property and to adjudicate the title in
favor of the petitioner against all the world."

(4) As before stated, in an action in rem or quasi in rem against a non-resident

defendant, jurisdiction over his person is non-essential, and if the law requires in such
case that the summons upon the defendant be served by publication, it is merely to
satisfy the constitutional requirement of due process. If any be said, in this connection,
that "may reported cases can be cited in which it is assumed that the question of the
sufficiency of publication or notice in the case of this kind is a question affecting the
jurisdiction of the court, and the court is sometimes said to acquire jurisdiction by virtue
of the publication. This phraseology was undoubtedly originally adopted by the court
because of the analogy between service by publication and personal service of process
upon the defendant; and, as has already been suggested, prior to the decision
of Pennoyer v. Neff (supra), the difference between the legal effects of the two forms of
service was obscure. It is accordingly not surprising that the modes of expression which
had already been moulded into legal tradition before that case was decided have been
brought down to the present day. But it is clear that the legal principle here involved is
not affected by the peculiar languages in which the courts have expounded their
ideas."lawphi1.net
 The reason for the rule that Philippine courts cannot acquire jurisdiction over the person
of a non-resident, as laid down by the Supreme Court of the United States in Pennoyer v. Neff,
supra, may be found in a recognized principle of public law to the effect that "no State can
exercise direct jurisdiction and authority over persons or property without its territory. Story,
Confl. L., ch. 2; Wheat, Int. L., pt. 2, ch. 2. The several States are of equal dignity and authority,
and the independence of one implies the exclusion of power from all others. And so it is laid
down by jurists, as an elementary principle, that the laws of one State have no operation outside
of its territory, except so far as is allowed by comity; and that no tribunal established by it can
extend its process beyond that territory so as to subject either persons or property to its
decisions. "Any exertion of authority of this sort beyond this limit," says Story, "is a mere nullity,
and incapable of binding such persons or property in any other tribunals." Story, Confl. L., sec.
539." (Pennoyer v. Neff, 95 U.S., 714; 24 Law. ed., 565, 568-569.).

When, however, the action relates to property located in the Philippines, the Philippine
courts may validly try the case, upon the principle that a "State, through its tribunals, may
subject property situated within its limits owned by non-residents to the payment of the demand
of its own citizens against them; and the exercise of this jurisdiction in no respect infringes upon
the sovereignty of the State where the owners are domiciled. Every State owes protection to its
citizens; and, when non-residents deal with them, it is a legitimate and just exercise of authority
to hold and appropriate any property owned by such non-residents to satisfy the claims of its
citizens. It is in virtue of the State's jurisdiction over the property of the non-resident situated
within its limits that its tribunals can inquire into the non-resident's obligations to its own citizens,
and the inquiry can then be carried only to the extent necessary to control the disposition of the
property. If the non-resident has no property in the State, there is nothing upon which the
tribunals can adjudicate." (Pennoyer v. Neff, supra.)

In the instant case, there can be no question that the action brought by Eugene Arthur
Perkins in his amended complaint against the petitioner, Idonah Slade Perkins, seeks to
exclude her from any interest in a property located in the Philippines. That property consists in
certain shares of stocks of the Benguet Consolidated Mining Company, a sociedad anonima,
organized in the Philippines under the provisions of the Spanish Code of Commerce, with its
principal office in the City of Manila and which conducts its mining activities therein. The situs of
the shares is in the jurisdiction where the corporation is created, whether the certificated
evidencing the ownership of those shares are within or without that jurisdiction. (Fletcher
Cyclopedia Corporations, Permanent ed. Vol. 11, p. 95). Under these circumstances, we hold
that the action thus brought is quasi in rem, for while the judgement that may be rendered
therein is not strictly a judgment in rem, "it fixes and settles the title to the property in
controversy and to that extent partakes of the nature of the judgment in rem." (50 C.J., p 503).
As held by the Supreme Court of the United States in Pennoyer v. Neff (supra);

It is true that, in a strict sense, a proceeding in rem is one taken directly against
property, and has for its object the disposition of the property, without reference to the
title of individual claimants; but , in a large and more general sense, the terms are
applied to actions between parties, where the direct object is to reach and dispose of
property owned by them, or of some interest therein.

The action being in quasi in rem, The Court of First Instance of Manila has jurisdiction
over the person of the non-resident. In order to satisfy the constitutional requirement of due
process, summons has been served upon her by publication. There is no question as to the
adequacy of publication made nor as to the mailing of the order of publication to the petitioner's
last known place of residence in the United States. But, of course, the action being quasi in
rem and notice having be made by publication, the relief that may be granted by the Philippine
court must be confined to the res, it having no jurisdiction to render a personal judgment against
the non-resident. In the amended complaint filed by Eugene Arthur Perkins, no money judgment
or other relief in personam is prayed for against the petitioner. The only relief sought therein is
that she be declared to be without any interest in the shares in controversy and that she be
excluded from any claim thereto.

Petitioner contends that the proceeding instituted against her is one of interpleading and
is therefore an action in personam. Section 120 of our Code of Civil Procedure provides that
whenever conflicting claims are or may be made upon a person for or relating to personal
property, or the performance of an obligation or any portion thereof, so that he may be made
subject to several actions by different persons, such person may bring an action against the
conflicting claimants, disclaiming personal interest in the controversy, and the court may order
them to interplead with one another and litigate their several claims among themselves, there
upon proceed to determine their several claims. Here, The Benguet Consolidated Mining
Company, in its answer to the complaint filed by Eugene Arthur Perkins, averred that in
connection with the shares of stock in question, conflicting claims were being made upon it by
said plaintiff, Eugene Arthur Perkins, his wife Idonah Slade Perkins, and one named George H.
Engelhard, and prayed that these last two be made parties to the action and served with
summons by publication, so that the three claimants may litigate their conflicting claims and
settle their rights among themselves. The court has not issued an order compelling the
conflicting claimants to interplead with one another and litigate their several claims among
themselves, but instead ordered the plaintiff to amend his complaint including the other two
claimants as parties defendant. The plaintiff did so, praying that the new defendants thus joined
be excluded fro any interest in the shares in question, and it is upon this amended complaint
that the court ordered the service of the summons by publication. It is therefore, clear that the
publication of the summons was ordered not in virtue of an interpleading, but upon the filing of
the amended complaint wherein an action quasi in rem is alleged.

Had not the complaint been amended, including the herein petitioner as an additional
defendant, and had the court, upon the filing of the answer of the Benguet Consolidated Mining
Company, issued an order under section 120 of the Code of Civil Procedure, calling the
conflicting claimants into court and compelling them to interplead with one another, such order
could not perhaps have validly been served by publication or otherwise, upon the non-resident
Idonah Slade Perkins, for then the proceeding would be purely one of interpleading. Such
proceeding is a personal action, for it merely seeks to call conflicting claimants into court so that
they may interplead and litigate their several claims among themselves, and no specific relief is
prayed for against them, as the interpleader have appeared in court, one of them pleads
ownership of the personal property located in the Philippines and seeks to exclude a non-
resident claimant from any interest therein, is a question which we do not decide not. Suffice it
to say that here the service of the summons by publication was ordered by the lower court by
virtue of an action quasi in rem against the non-resident defendant.

Respondents contend that, as the petitioner in the lower court has pleaded over the
subject-matter, she has submitted herself to its jurisdiction. We have noticed, however, that
these pleas have been made not as independent grounds for relief, but merely as additional
arguments in support of her contention that the lower court had no jurisdiction over the person.
In other words, she claimed that the lower court had no jurisdiction over her person not only
because she is a non-resident, but also because the court had no jurisdiction over the subject-
matter of the action and that the issues therein involved have already been decided by the New
York court and are being relitigated in the California court. Although this argument is obviously
erroneous, as neither jurisdiction over the subject-matter nor res adjudicata nor lis pendens has
anything to do with the question of jurisdiction over her person, we believe and so hold that the
petitioner has not, by such erroneous argument, submitted herself to the jurisdiction of the court.
Voluntary appearance cannot be implied from either a mistaken or superflous reasoning but
from the nature of the relief prayed for.

For all the foregoing, petition is hereby denied, with costs against petitioner.

Avanceña, C.J., Villa-Real, Imperial, Diaz and Concepcion, JJ., concur.

US VS FOWLER
THE UNITED STATES, complainant-appellant,
vs.
WILLIAM FOWLER, ET AL., defendants-appellees.

Republic of the Philippines

Supreme Court
Manila
En Banc

G.R. No. L-496

31 December 1902
Assistant Attorney-General Constantino, for appellant.
William Lane O‘Neill, for appellees.

TORRES, J.:

The two defendants have been accused of the theft of sixteen bottles of champagne of the
value of $20, on the 12 th August, 1901, while on board the transport Lawton, then navigating the
high seas, which said bottles of champagne formed part of the cargo of the said vessel and
were the property of Julian Lindsay, and which were taken lucri causa, and with the intent to
appropriate the same, without violence or intimidation, and without the consent of the owner,
against the statute in the case made and provided.

The accused having been brought before the court, the prosecuting attorney being present on
behalf of the Government, counsel for the defendants presented a demurrer, alleging that the
Court of First Instance was without jurisdiction to try the crime charged, inasmuch as it
appeared from the information that the crime was committed on the high seas, and not in the
city of Manila, or within the territory comprising the Bay of Manila, or upon the seas within the 3-
mile limit to which the jurisdiction of the court extends, and asked, upon these grounds, that the
case be dismissed.

This contention was opposed by the prosecuting attorney, who alleged that the court has
original jurisdiction in all criminal cases in which the penalty exceeds six month‘s imprisonment,
or a fine of over $100; that, in accordance with the orders of the Military Governor and the Civil
Commission admiralty jurisdiction over all crimes committed on board vessel flying the flag of
the United States has been vested in the Court of First Instance of the city of Manila. Among
other laws and orders he cited the order of August 14, 1898, and Acts Nos. 76 and 186 of the
United States Civil Commission. He argued that the President of the United States had
unquestionable authority to authorize the commanding general and the Civil Commission to
establish a judicial system with authority to take cognizance of maritime and admiralty causes,
citing a decision of the Supreme Court of the United States in support of this doctrine, which
was applicable to this Archipelago, which is now analogous to the status of some of the States
of the Union during the Mexican war and the war of secession.

The judge, however, by an order of the 14 th of September, 1901, held that the court was
without jurisdiction to try the accused for the theft alleged to have been committed on the high
seas, sustained the demurrer, and ordered the discharge of the defendants, with the costs to
the Government. Against this order the prosecuting attorney appealed, and the case was
brought before this court.

This case deals with a theft committed on board a transport while navigating the high seas.
Act No. 136 of the organic law, as well as Act No. 186 passed by the Civil Commission, and
which repealed the former law, Act No. 76, do not expressly confer jurisdiction or authority upon
this court to take cognizance of all crimes committed on board vessels on the high seas. While
the provisions of the law are clear and precise with respect to civil admiralty or maritime cases,
this is not true with respect to criminal cases. If any doubt could arise concerning the true
meaning of the law applicable to the case, Act No. 400 effectively dissipates such doubts.

This law, which is an addition to Act No. 136, by which the courts of justice of the Philippine
Islands were organized, in article 1 adds to article 56, consisting of seven paragraphs, another
paragraph numbered 8, which reads as follows: ―Of all crimes and offenses committed on the
high seas or beyond the jurisdiction of any country, or within any of the navigable waters of the
Philippine Archipelago, on board a ship or water craft of any kind registered or licensed in the
Philippine Islands in accordance with the laws thereof.‖ The purpose of this law was to define
the jurisdiction of the courts of First Instance in criminal cases for crimes committed on board
vessels registered or licensed in the Philippine Islands. The transport Lawton not being a vessel
of this class, our courts are without jurisdiction to take cognizance of a crime committed on
board the same.

Upon these grounds we consider that the order appealed should be affirmed, with the
costs de oficio. So ordered.

Arellano, C.J., Cooper, Smith, Willard, Mapa, and Ladd, JJ., concur.

Written by Torres, J..

PEOPLE VS WONG CHENG

Republic of the Philippines

SUPREME COURT
Manila

EN BANC
G.R. No. L-18924 October 19, 1922

THE PEOPLE OF THE PHILIPPINE ISLANDS, plaintiff-appellant,

vs.
WONG CHENG (alias WONG CHUN), defendant-appellee.

Attorney-General Villa-Real for appellant.

Eduardo Gutierrez Repide for appellee.

ROMUALDEZ, J.:

In this appeal the Attorney-General urges the revocation of the order of the Court of First
Instance of Manila, sustaining the demurrer presented by the defendant to the information that
initiated this case and in which the appellee is accused of having illegally smoked opium,
aboard the merchant vessel Changsa of English nationality while said vessel was anchored in
Manila Bay two and a half miles from the shores of the city.

The demurrer alleged lack of jurisdiction on the part of the lower court, which so held and
dismissed the case.

The question that presents itself for our consideration is whether such ruling is erroneous
or not; and it will or will not be erroneous according as said court has or has no jurisdiction over
said offense.

The point at issue is whether the courts of the Philippines have jurisdiction over crime, like
the one herein involved, committed aboard merchant vessels anchored in our jurisdiction
waters. 1awph!l.net

There are two fundamental rules on this particular matter in connection with International
Law; to wit, the French rule, according to which crimes committed aboard a foreign merchant
vessels should not be prosecuted in the courts of the country within whose territorial jurisdiction
they were committed, unless their commission affects the peace and security of the territory;
and the English rule, based on the territorial principle and followed in the United States,
according to which, crimes perpetrated under such circumstances are in general triable in the
courts of the country within territory they were committed. Of this two rules, it is the last one that
obtains in this jurisdiction, because at present the theories and jurisprudence prevailing in the
United States on this matter are authority in the Philippines which is now a territory of the United
States.

In the cases of The Schooner Exchange vs. M'Faddon and Others (7 Cranch [U. S.],
116), Chief Justice Marshall said:

. . . When merchant vessels enter for the purposes of trade, it would be obviously
inconvenient and dangerous to society, and would subject the laws to continual
infraction, and the government to degradation, if such individuals or merchants did not
owe temporary and local allegiance, and were not amenable to the jurisdiction of the
country. . . .

In United States vs. Bull (15 Phil., 7), this court held:
 . . . No court of the Philippine Islands had jurisdiction over an offense or crime
committed on the high seas or within the territorial waters of any other country, but when
she came within three miles of a line drawn from the headlands, which embrace the
entrance to Manila Bay, she was within territorial waters, and a new set of principles
became applicable. (Wheaton, International Law [Dana ed.], p. 255, note 105; Bonfils,
Le Droit Int., secs. 490 et seq.; Latour, La Mer Ter., ch. 1.) The ship and her crew were
then subject to the jurisdiction of the territorial sovereign subject to such limitations as
have been conceded by that sovereignty through the proper political agency. . . .

It is true that in certain cases the comity of nations is observed, as in Mali and Wildenhus
vs. Keeper of the Common Jail (120 U.., 1), wherein it was said that:

. . . The principle which governs the whole matter is this: Disorder which disturb
only the peace of the ship or those on board are to be dealt with exclusively by the
sovereignty of the home of the ship, but those which disturb the public peace may be
suppressed, and, if need be, the offenders punished by the proper authorities of the local
jurisdiction. It may not be easy at all times to determine which of the two jurisdictions a
particular act of disorder belongs. Much will undoubtedly depend on the attending
circumstances of the particular case, but all must concede that felonious homicide is a
subject for the local jurisdiction, and that if the proper authorities are proceeding with the
case in the regular way the consul has no right to interfere to prevent it.

Hence in United States vs. Look Chaw (18 Phil., 573), this court held that:

Although the mere possession of an article of prohibited use in the Philippine

Islands, aboard a foreign vessel in transit in any local port, does not, as a general rule,
constitute a crime triable by the courts of the Islands, such vessels being considered as
an extension of its own nationality, the same rule does not apply when the article, the
use of which is prohibited in the Islands, is landed from the vessels upon Philippine soil;
in such a case an open violation of the laws of the land is committed with respect to
which, as it is a violation of the penal law in force at the place of the commission of the
crime, no court other than that established in the said place has jurisdiction of the
offense, in the absence of an agreement under an international treaty.

As to whether the United States has ever consented by treaty or otherwise to renouncing
such jurisdiction or a part thereof, we find nothing to this effect so far as England is concerned,
to which nation the ship where the crime in question was committed belongs. Besides, in his
work "Treaties, Conventions, etc.," volume 1, page 625, Malloy says the following:

There shall be between the territories of the United States of America, and all the
territories of His Britanic Majesty in Europe, a reciprocal liberty of commerce. The
inhabitants of the two countries, respectively, shall have liberty freely and securely to
come with their ships and cargoes to all such places, ports and rivers, in the territories
aforesaid, to which other foreigners are permitted to come, to enter into the same, and to
remain and reside in any parts of the said territories, respectively; also to hire and
occupy houses and warehouses for the purposes of their commerce; and, generally, the
merchants and traders of each nation respectively shall enjoy the most complete
protection and security for their commerce, but subject always to the laws and statutes
of the two countries, respectively. (Art. 1, Commerce and Navigation Convention.)
 We have seen that the mere possession of opium aboard a foreign vessel in transit was
held by this court not triable by or courts, because it being the primary object of our Opium Law
to protect the inhabitants of the Philippines against the disastrous effects entailed by the use of
this drug, its mere possession in such a ship, without being used in our territory, does not being
about in the said territory those effects that our statute contemplates avoiding. Hence such a
mere possession is not considered a disturbance of the public order.

But to smoke opium within our territorial limits, even though aboard a foreign merchant
ship, is certainly a breach of the public order here established, because it causes such drug to
produce its pernicious effects within our territory. It seriously contravenes the purpose that our
Legislature has in mind in enacting the aforesaid repressive statute. Moreover, as the Attorney-
General aptly observes:

. . . The idea of a person smoking opium securely on board a foreign vessel at

anchor in the port of Manila in open defiance of the local authorities, who are impotent to
lay hands on him, is simply subversive of public order. It requires no unusual stretch of
the imagination to conceive that a foreign ship may come into the port of Manila and
allow or solicit Chinese residents to smoke opium on board.

The order appealed from is revoked and the cause ordered remanded to the court of
origin for further proceedings in accordance with law, without special findings as to costs. So
ordered.

Araullo, C.J., Street, Malcolm, Avanceña, Villamor, Ostrand and Johns, JJ., concur.

ASAALI VS COMMISSION

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-24170 December 16, 1968

ILLUH ASAALI, HATIB ABDURASID, INGKOH BANTALA, BASOK INGKIN, and

MOHAMMAD BANTALLA,petitioners,
vs.
THE COMMISSIONER OF CUSTOMS, respondent.

FERNANDO, J.:

The policy relentlessly adhered to and unhesitatingly pursued to minimize, if not to do away
entirely, with the evil and corruption that smuggling brings in its wake would be frustrated and
set at naught if the action taken by respondent Commissioner of Customs in this case, as
affirmed by the Court of Tax Appeals, were to be set aside and this appeal from the decision of
the latter were to succeed. Fortunately, the controlling principles of law do not call for a contrary
conclusion. It cannot be otherwise if the legitimate authority vested in the government were not
to be reduced to futility and impotence in the face of an admittedly serious malady, that at times
has assumed epidemic proportions.

The principal question raised by petitioners, owners of five sailing vessels and the cargo loaded
therein declared forfeited by respondent Commissioner of Customs for smuggling, is the validity
of their interception and seizure by customs officials on the high seas, the contention being
raised that importation had not yet begun and that the seizure was effected outside our territorial
waters..

Why such a plea could not be given the least credence without doing violence to common sense
and placing the law in disrepute would be apparent from a statement of the case and the
findings of facts as set forth in the decision now under review, of the Court of Tax Appeals,
dated November 19, 1964, the opinion being penned by the late Associate Judge Augusto M.
Luciano.

His opinion starts thus: "This is an appeal from the decision of the Acting Commissioner of
Customs in Customs Case No. 113, dated September 26, 1961, (Jolo Seizure Identification
Cases Nos. 38, 39, 40, 41 & 42) decreeing the forfeiture of five (5) sailing vessels (kumpits)
named 'Iroc-Iroc,' 'Lahat-lahat,' 'Liberal Wing III,' 'Sulu Area Command,' and 'Business,' with
their respective cargoes of blue seal cigarettes and rattan chairs for violation of Section 1363(a)
of the Revised Administrative Code and Section 20 of Republic Act No. 426 in relation with
Section 1363(f) of the Revised Administrative Code."1

The facts according to the above opinion "are not controverted." Thus: "It appears that on
September 10, 1950, at about noon time, a customs patrol team on board Patrol Boat ST-23
intercepted the five (5) sailing vessels in question on the high seas, between British North
Borneo and Sulu while they were heading towards Tawi-tawi, Sulu. After ordering the vessels to
stop, the customs officers boarded and found on board, 181 cases of 'Herald' cigarettes, 9
cases of 'Camel' cigarettes, and some pieces of rattan chairs. The sailing vessels are all of
Philippine registry, owned and manned by Filipino residents of Sulu, and of less than thirty (30)
tons burden. They came from Sandakan, British North Borneo, but did not possess any permit
from the Commissioner of Customs to engage in the importation of merchandise into any port of
the Sulu sea, as required by Section 1363(a) of the Revised Administrative Code. Their cargoes
were not covered by the required import license under Republic Act No. 426, otherwise known
as the Import Control Law."2

Respondent Commissioner of Customs, as noted at the outset, affirmed the decision rendered
by the Collector of Customs of Jolo, who found cause for forfeiture under the law of the vessels
and the cargo contained therein. He was, as also already made known, sustained by the Court
of Tax Appeals. Hence this petition for review.

The first two errors assigned by petitioners would impugn the jurisdiction of the Bureau of
Customs to institute seizure proceedings and thereafter to declare the forfeiture of the vessels in
question and their cargo. They would justify their stand thus: "In the light of the fact that the
vessels involved with the articles laden therein were apprehended and seized on the high seas,
beyond the territorial waters of the Philippines, the said vessels could not have touched any
place or port in the Philippines, whether a port or place of entry or not, consequently, the said
vessels could not have been engaged in the importation of the articles laden therein into any
Philippine port or place, whether a port or place of entry or not, to have incurred the liability of
forfeiture under Section 1363(a) of the Revised Administrative Code." 3
Such a contention was advanced by petitioners before the Court of Tax Appeals. It met the
repudiation that it deserved. Thus: "We perfectly see the point of the petitioners but considering
the circumstances surrounding the apprehension of the vessels in question, we believe that
Section 1363(a) of the Revised Administrative Code should be applied to the case at bar. It has
been established that the five vessels came from Sandakan, British North Borneo, a foreign
port, and when intercepted, all of them were heading towards Tawi-tawi, a domestic port within
the Sulu sea. Laden with foreign manufactured cigarettes, they did not possess the import
license required by Republic Act No. 426, nor did they carry a permit from the Commissioner of
Customs to engage in importation into any port in the Sulu sea. Their course announced loudly
their intention not merely to skirt along the territorial boundary of the Philippines but to come
within our limits and land somewhere in Tawi-tawi towards which their prows were pointed. As a
matter of fact, they were about to cross our aquatic boundary but for the intervention of a
customs patrol which, from all appearances, was more than eager to accomplish its mission." 4

The sense of realism and the vigorous language employed by the late Judge Luciano in
rejecting such a plea deserve to be quoted. Thus: "To entertain even for a moment the thought
that these vessels were probably not bound for a Philippine port would be too much a
concession even for a simpleton or a perennial optimist. It is quite irrational for Filipino sailors
manning five Philippine vessels to sneak out of the Philippines and go to British North Borneo,
and come a long way back laden with highly taxable goods only to turn about upon reaching the
brink of our territorial waters and head for another foreign port." 5

1. We find no plausible reason not to accept in its entirety such a conclusion reached by the
Court of Tax Appeals. Nor, even if the persuasive element in the above view were not so
overwhelming, could we alter the decisive facts as found by it. For it is now beyond question
that its finding, if supported by substantial evidence, binds us, only questions of law being for us
to resolve. Where the issue raised belongs to the former category, we lack the power of review. 6

Moreover, for understandable reasons, we feel extreme reluctance to substitute our own
discretion for that of the Court of Tax Appeals in its appreciation of the relevant facts and its
appraisal of their significance. As we had occasion to state in a relatively recent decision: "Nor
as a matter of principle is it advisable for this Court to set aside the conclusion reached by an
agency such as the Court of Tax Appeals which is, by the very nature of its function, dedicated
exclusively to the study and consideration of tax problems and has necessarily developed an
expertise on the subject, ..., there has been an abuse or improvident exercise of its authority." 7

2. We thus could rest our decision affirming that of the Court of Tax Appeals on the above
consideration.

It might not be amiss however to devote some degree of attention to the legal points raised in
the above two assignment of errors, discussed jointly by petitioners-appellants, alleging the
absence of jurisdiction, the deprivation of property without due process of law and the
abatement of liability consequent upon the repeal of Republic Act No. 426. Not one of the
principles of law relied upon suffices to call for reversal of the action taken by the respondent
Commissioner of Customs, even if the facts presented a situation less conclusive against the
pretension of petitioners-appellants.

From the apprehension and seizure of the vessels in question on the high seas beyond the
territorial waters of the Philippines, the absence of jurisdiction of Commissioner of Customs is
predicated. Such contention of petitioners-appellants is without merit.
It is unquestioned that all vessels seized are of Philippine registry. The Revised Penal Code
leaves no doubt as to its applicability and enforceability not only within the Philippines, its
interior waters and maritime zone, but also outside of its jurisdiction against those committing
offense while on a Philippine ship ... 8 The principle of law that sustains the validity of such a
provision equally supplies a firm foundation for the seizure of the five sailing vessels found
thereafter to have violated the applicable provisions of the Revised Administrative Code. 9

Moreover, it is a well settled doctrine of International Law that goes back to Chief Justice
Marshall's opinion in Church v. Hubbart, 10 an 1804 decision, that a state has the right to protect
itself and its revenues, a right not limited to its own territory but extending to the high seas. In
the language of Chief Justice Marshall: "The authority of a nation within its own territory is
absolute and exclusive. The seizure of a vessel within the range of its cannon by a foreign force
is an invasion of that territory, and is a hostile act which it is its duty to repel. But its power to
secure itself from injury may certainly be exercised beyond the limits of its territory."

The question asked in the brief of petitioners-appellants as to whether the seizure of the vessels
in question and the cargoes on the high seas and thus beyond the territorial waters of the
Philippines was legal must be answered in the affirmative.

4. The next question raised is the alleged denial of due process arising from such forfeiture and
seizure. The argument on the alleged lack of validity of the action taken by the Commissioner of
Customs is made to rest on the fact that the alleged offense imputed to petitioners-appellants is
a violation of Section 1363(a) and not Section 1363(f). The title of Section 1363 is clear,
"Property subject to forfeiture under customs laws." The first subsection thereof, (a) cover any
vessel including cargo unlawfully engaged in the importation of merchandise except a port of
entry. Subsection (f) speaks of any merchandise of any prohibited importation, the importation
of which is effected or attempted contrary to law and all other merchandise which in the opinion
of the Collector of Customs have been used are or were intended to be used as instrument in
the importation or exportation of the former.

From the above recital of the legal provisions relied upon, it would appear most clearly that the
due process question raised is insubstantial. Certainly, the facts on which the seizure was
based were not unknown to petitioners-appellants. On those facts the liability of the vessels and
merchandise under the above terms of the statute would appear to be undeniable. The action
taken then by the Commissioner of Customs was in accordance with law.

How could there be a denial of due process? There was nothing arbitrary about the manner in
which such seizure and forfeiture were effected. The right to a hearing of petitioners-appellants
was respected. They could not have been unaware of what they were doing. It would be an
affront to reason if under the above circumstances they could be allowed to raise in all
seriousness a due process question. Such a constitutional guaranty, basic and fundamental,
certainly should not be allowed to lend itself as an instrument for escaping a liability arising from
one's own nefarious acts.

5. Petitioners-appellants would further assail the validity of the action taken by the respondent
Commissioner of Customs by the plea that the repeal of Republic Act No. 426 abated whatever
liability could have been incurred thereunder. This argument raised before the Court of Tax
Appeals was correctly held devoid of any persuasive force. The decision under review cited our
opinion in Golay-Buchel & Cie v. Commissioner of Customs11 to the effect that the expiration of
the Import Control Law "did not produce the effect of declaring legal the importation of goods
which were illegally imported and the seizure and forfeiture thereof as ordered by the Collector
of Customs illegal or null and void."

Roxas v. Sayoc 12 announced that principle earlier. Thus: "Herein, we are concerned with the
effect of the expiration of a law, not with the abrogation of a law, and we hold the view that once
the Commissioner of Customs has acquired jurisdiction over the case, the mere expiration of
Republic Act No. 650 will not divest him of his jurisdiction thereon duly acquired while said law
was still in force. In other words, we believe that despite the expiration of Republic Act No. 650
the Commissioner of Customs retained his jurisdiction over the case and could continue to take
cognizance thereof until its final determination, for the main question brought in by the appeal
from the decision of the Collector of Customs was the legality or illegality of the decision of the
Collector of Customs, and that question could not have been abated by the mere expiration of
Republic Act No. 650. We firmly believe that the expiration of Republic Act No. 650 could not
have produced the effect (1) of declaring legal the importation of the cotton counterpanes which
were illegally imported, and (2) of declaring the seizure and forfeiture ordered by the Collector of
Customs illegal or null and void; in other words it could not have the effect of annulling or setting
aside the decision of the Collector of Customs which was rendered while the law was in force
and which should stand until it is revoked by the appellate tribunal."

As late as 1965, in Bombay Dept. Store v. Commissioner of Customs, 13 we had occasion to

reaffirm the doctrine in the above two decisions, the present Chief Justice, speaking for the
Court, stating that such expiration of the period of effectivity of Republic Act No. 650 "did not
have the effect of depriving the Commissioner of Customs of the jurisdiction, acquired by him
prior thereto, to act on cases of forfeiture pending before him, which are in the nature of
proceeding in rem...."

It is thus most evident that the Court of Tax Appeals had not in any wise refused to adhere
faithfully to controlling legal principles when it sustained the action taken by respondent
Commissioner of Customs. It would be a reproach and a reflection on the law if on the facts as
they had been shown to exist, the seizure and forfeiture of the vessels and cargo in question
were to be characterized as outside the legal competence of our government and violative of
the constitutional rights of petitioners-appellants. Fortunately, as had been made clear above,
that would be an undeserved reflection and an unwarranted reproach. The vigor of the war
against smuggling must not be hampered by a misreading of international law concepts and a
misplaced reliance on a constitutional guaranty that has not in any wise been infringed.

WHEREFORE, the decision of respondent Court of Tax Appeals of November 19, 1964, is
affirmed. With costs against petitioners-appellants.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Capistrano,
JJ., concur.

Footnotes
1
Decision of the Court of Tax Appeals, Brief for Petitioners-Appellants, pp. I-II.
2
Ibid, p. II.
 3
Brief for Petitioners-Appellants, pp. 9-10.
4
Decision of the Court of Tax Appeals, Brief for Petitioners-Appellants, pp. VIII-IX.
5
Ibid, p. IX.
6
Cf. Sanchez v. Commissioner of Customs, 102 Phil. 37 (1957); Castro v. Collector of
Internal Revenue, L-12174, April 26, 1962; Yupangco & Sons. Inc. v. Commissioner of
Customs, L-22259, Jan. 19, 1966; Commissioner of Internal Revenue v. Priscilla Estate,
L-18282, May 29, 1964; Phil. Guaranty Co. v. Commissioner of Internal Revenue, L-
22074, Sept. 6, 1965; Republic v. Razon, L-17462, May 24, 1967; Balbas v. Domingo, L-
19804, Oct. 23, 1967.
7
Alhambra Cigar v. Commissioner of Internal Revenue, L-23226, Nov. 28, 1967.
8
Article 2, Revised Penal Code (Act No. 3815).
9
Section 1363 (a) and (f).
10
2 Cranch 187, 234.
11
106 Phil. 777, 783 (1959).
12
100 Phil. 448. 452-453 (1956).
13
L-20460, September 30.

TIME INC VS REYES

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-28882 May 31, 1971

TIME, INC., petitioner,

vs.
HON. ANDRES REYES, as Judge of the Court of First Instance of Rizal, ELISEO S. ZARI,
as Deputy Clerk of Court, Branch VI, Court of First Instance of Rizal, ANTONIO J.
VILLEGAS and JUAN PONCE ENRILE,respondents.

Sycip, Salazar, Luna, Manalo & Feliciano for petitioner.

Angel C. Cruz Law Office for respondents.

REYES, J.B.L., J.:

Petition for certiorari and prohibition, with preliminary injunction, to annul certain orders of the
respondent Court of First Instance of Rizal, issued in its Civil Case No. 10403, entitled "Antonio
J. Villegas and Juan Ponce Enrile vs. Time, Inc., and Time-Life International, Publisher of 'Time'
Magazine (Asia Edition)", and to prohibit the said court from further proceeding with the said civil
case.

Upon petitioner's posting a bond of P1,000.00, this Court, as prayed for, ordered, on 15 April
1968, the issuance of a writ of preliminary injunction.

The petition alleges that petitioner Time, Inc., 1 is an American corporation with principal offices
at Rocketfeller Center, New York City, N. Y., and is the publisher of "Time", a weekly news
magazine; the petition, however, does not allege the petitioner's legal capacity to sue in the
courts of the Philippine. 2

In the aforesaid Civil Case No. 10403, therein plaintiffs (herein respondents) Antonio J. Villegas
and Juan Ponce Enrile seek to recover from the herein petitioner damages upon an alleged libel
arising from a publication of Time (Asia Edition) magazine, in its issue of 18 August 1967, of an
essay, entitled "Corruption in Asia", which, in part, reads, as follows:

The problem of Manila's mayor, ANTONIO VILLEGAS, is a case in point. When it

was discovered last year that the mayor's coffers contained far more pesos than
seemed reasonable in the light of his income, an investigation was launched.
Witnesses who had helped him out under curious circumstance were asked to
explain in court. One government official admitted lending Villegas P30,000
pesos ($7,700) without interest because he was the mayor's compadre. An
assistant declared he had given Villegas loans without collateral because he
regarded the boss as my own son. A wealthy Manila businessman testified that
he had lent Villegas' wife 15,000 pesos because the mayor was like a brother to
me. With that, Villegas denounced the investigation as an invasion of his family's
privacy. The case was dismissed on a technicality, and Villegas is still mayor. 3

More specifically, the plaintiffs' complaint alleges, inter alia that:

(4) Defendants, conspiring and confederating, published a libelous article,

publicly, falsely and maliciously imputing to Plaintiffs the commission of the
crimes of graft, corruption and nepotism; that said publication particularly referred
to Plaintiff Mayor Antonio J. Villegas as a case in point in connection with graft,
corruption and nepotism in Asia; that said publication without any doubt referred
to co-plaintiff Juan Ponce Enrile as the high government official who helped
under curious circumstances Plaintiff Mayor Antonio J. Villegas in lending the
latter approximately P30,000.00 ($7,700.00) without interest because he was the
Mayor's compadre; that the purpose of said Publications is to cause the dishonor,
discredit and put in public contempt the Plaintiffs, particularly Plaintiff Mayor
Antonio J. Villegas.
On motion of the respondents-plaintiffs, the respondent judge, on 25 November 1967, granted
them leave to take the depositions "of Mr. Anthony Gonzales, Time-Life international", and "Mr.
Cesar B. Enriquez, Muller & Phipps (Manila) Ltd.", in connection with the activities and
operations in the Philippines of the petitioner, and, on 27 November 1967, issued a writ of
attachment on the real and personal estate of Time, Inc.

Petitioner received the summons and a copy of the complaint at its offices in New York on 13
December 1967 and, on 27 December 1967, it filed a motion to dismiss the complaint for lack of
jurisdiction and improper venue, relying upon the provisions of Republic Act 4363. Private
respondents opposed the motion.

In an order dated 26 February 1968, respondent court deferred the determination of the motion
to dismiss until after trial of the case on the merits, the court having considered that the grounds
relied upon in the motion do not appear to be indubitable.

Petitioner moved for reconsideration of the deferment private respondents again opposed.

On 30 March 1968, respondent judge issued an order re-affirming the previous order of
deferment for the reason that "the rule laid down under Republic Act. No. 4363, amending
Article 360 of the Revised Penal Code, is not applicable to actions against non-resident
defendants, and because questions involving harassment and inconvenience, as well as
disruption of public service do not appear indubitable. ..."

Failing in its efforts to discontinue the taking of the depositions, previously adverted to, and to
have action taken, before trial, on its motion to dismiss, petitioner filed the instant petition for
certiorari and prohibition.

The orders for the taking of the said depositions, for deferring determination of the motion to
dismiss, and for reaffirming the deferment, and the writ of attachment are sought to be annulled
in the petition..

There is no dispute that at the time of the publication of the allegedly offending essay, private
respondents Antonio Villegas and Juan Ponce Enrile were the Mayor Of the City of Manila and
Undersecretary of Finance and concurrently Acting Commissioner of Customs, respectively,
with offices in the City of Manila. The issues in this case are:

1. Whether or not, under the provisions of Republic Act No. 4363 the respondent Court of First
Instance of Rizal has jurisdiction to take cognizance of the civil suit for damages arising from an
allegedly libelous publication, considering that the action was instituted by public officers whose
offices were in the City of Manila at the time of the publication; if it has no jurisdiction, whether
or not its erroneous assumption of jurisdiction may be challenged by a foreign corporation by
writ of certiorari or prohibition; and

2. Whether or not Republic Act 4363 is applicable to action against a foreign corporation or non-
resident defendant.

Provisions of Republic Act No. 4363, which are relevant to the resolution of the foregoing
issues, read, as follows:
Section 1. Article three hundred sixty of the Revised Penal Code, as amended by
Republic Act Numbered Twelve hundred and eighty-nine, is further amended to
read as follows:

'ART. 360. Persons responsible. — Any person who shall publish,

exhibit, or cause the publication or exhibition of any defamation in
writing or by similar means, shall be responsible for the same.

The author or editor of a book or pamphlet, or the editor or business manager of

a daily newspaper, magazine or serial publication, shall be responsible for the
defamations contained therein to the extent as if he were the author thereof.

The criminal and civil action for damages in cases of written defamations as
provided for in this chapter, shall be filed simultaneously or separately with the
court of first instance of the province or city where the libelous article is printed
and first published or where any of the offended parties actually resides at the
time of the commission of the offense; Provided, however, That where one of the
offended parties is a public officer whose office is in the City of Manila at the time
of the commission of the offense, the action shall be filed in the Court of First
Instance of the City of Manila or of the city or province where the libelous article
is printed and first published, and in case such public officer does not hold office
in the City of Manila, the action shall be filed in the Court of First Instance of the
province or city where he held office at the time of the commission of the offense
or where the libelous article is printed and first published and in case one of the
offended parties is a private individual, the action shall be filed in the Court of
First Instance of the province or city where he actually resides at the time of the
commission of the offense or where the libelous matter is printed and first
published; Provided, further, That the civil action shall be filed in the same court
where the criminal action is filed and vice versa; Provided, furthermore, That the
court where the criminal action or civil action for damages is first filed, shall
acquire jurisdiction to the exclusion of other courts; And provided finally, That this
amendment shall not apply to cases of written defamations, the civil and/or
criminal actions which have been filed in court at the time of the effectivity of the
law

xxx xxx xxx

xxx xxx xxx

Sec. 3. This Act shall take effect only if and when, within thirty days from its
approval, the newspapermen in the Philippines shall organize, and elect the
members of, a Philippine Press Council, a private agency of the said
newspapermen, whose function shall be to promulgate a Code of Ethics for them
and the Philippine press investigate violations thereof, and censure any
newspaperman or newspaper guilty of any violation of the said Code, and the
fact that such Philippine Press Council has been organized and its members
have been duly elected in accordance herewith shall be ascertained and
proclaimed by the President of the Philippines.
Under the first proviso in section 1, the venue of a civil action for damages in cases of written
defamations is localized upon the basis of, first, whether the offended party or plaintiff is a public
officer or a private individual; and second, if he is a public officer, whether his office is in Manila
or not in Manila, at the time of the commission of the offense. If the offended party is a public
officer in the office in the City of Manila, the proviso limits him to two (2) choices of venue,
namely, in the Court of First instance of the City of Manila or in the city or province where the
libelous article is printed and first published ..."

The complaint lodged in the court of Rizal by respondents does not allege that the libelous
article was printed and first published in the province of Rizal and, since the respondents-
plaintiffs are public officers with offices in Manila at the time of the commission of the alleged
offense, it is clear that the only place left for them wherein to file their action, is the Court of First
Instance of Manila.

The limitation of the choices of venue, as introduced into the Penal Code through its
amendments by Republic Act 4363, was intended "to minimize or limit the filing of out-of-town
libel suits" to protect an alleged offender from "hardships, inconveniences and harassments"
and, furthermore, to protect "the interest of the public service" where one of the offended parties
is a public officer." 4 The intent, of the law is clear: a libeled public official might sue in the court
of the locality where he holds office, in order that the prosecution of the action should interfere
as little as possible with the discharge of his official duties and labors. The only alternative
allowed him by law is to prosecute those responsible for the libel in the place where the
offending article was printed and first published. Here, the law tolerates the interference with the
libeled officer's duties only for the sake of avoiding unnecessary harassment of the accused.
Since the offending publication was not printed in the Philippines, the alternative venue was not
open to respondent Mayor Villegas of Manila and Undersecretary of Finance Enrile, who were
the offended parties.

But respondents-plaintiffs argue that Republic Act No. 4363 is not applicable where the action is
against non-existent defendant, as petitioner Time, Inc., for several reasons. They urge that, in
enacting Republic Act No. 4363, Congress did not intend to protect non-resident defendants as
shown by Section 3, which provides for the effectivity of the statute only if and when the
"newspapermen in the Philippines" have organized a "Philippine Press Council" whose function
shall be to promulgate a Code of Ethics for "them" and "the Philippine press"; and since a non-
resident defendant is not in a position to comply with the conditions imposed for the effectivity of
the statute, such defendant may not invoke its provisions; that a foreign corporation is not
inconvenienced by an out-of-town libel suit; that it would be absurd and incongruous, in the
absence of an extradition treaty, for the law to give to public officers with office in Manila the
second option of filing a criminal case in the court of the place where the libelous article is
printed and first published if the defendant is a foreign corporation and that, under the "single
publication" rule which originated in the United States and imported into the Philippines, the rule
was understood to mean that publications in another state are not covered by venue statutes of
the forum.

The implication of respondents' argument is that the law would not take effect as to non-resident
defendants or accused. We see nothing in the text of the law that would sustain such unequal
protection to some of those who may be charged with libel. The official proclamation that a
Philippine Press Council has been organized is made a pre-condition to the effectivity of the
entire Republic Act No. 4363, and no terms are employed therein to indicate that the law can or
will be effective only as to some, but not all, of those that may be charged with libeling our public
officers.

The assertion that a foreign corporation or a non-resident defendant is not inconvenienced by

an out-of-town suit is irrelevant and untenable, for venue and jurisdiction are not dependent
upon convenience or inconvenience to a party; and moreover, venue was fixed under Republic
Act No. 4363, pursuant to the basic policy of the law that is, as previously stated, to protect the
interest of the public service when the offended party is a public officer, by minimizing as much
as possible any interference with the discharge of his duties.

That respondents-plaintiffs could not file a criminal case for libel against a non-resident
defendant does not make Republic Act No. 4363 incongruous of absurd, for such inability to file
a criminal case against a non-resident natural person equally exists in crimes other than libel. It
is a fundamental rule of international jurisdiction that no state can by its laws, and no court
which is only a creature of the state, can by its judgments or decrees, directly bind or affect
property or persons beyond the limits of the state. 5 Not only this, but if the accused is a
corporation, no criminal action can lie against it, 6 whether such corporation or resident or non-
resident. At any rate, the case filed by respondents-plaintiffs is case for damages.

50 Am. Jur. 2d 659 differentiates the "multiple publication" and "single publication" rules
(invoked by private respondents) to be as follows:

The common law as to causes of action for tort arising out of a single publication
was to the effect that each communication of written or printed matter was a
distinct and separate publication of a libel contained therein, giving rise to a
separate cause of action. This rule ('multiple publication' rule) is still followed in
several American jurisdictions, and seems to be favored by the American Law
Institute. Other jurisdictions have adopted the 'single publication' rule which
originated in New York, under which any single integrated publication, such as
one edition of a newspaper, book, or magazine, or one broadcast, is treated as a
unit, giving rise to only one cause of action, regardless of the number of times it
is exposed to different people. ...

These rules are not pertinent in the present scheme because the number of causes of action
that may be available to the respondents-plaintiffs is not here in issue. We are here confronted
by a specific venue statute, conferring jurisdiction in cases of libel against Public officials to
specified courts, and no other. The rule is that where a statute creates a right and provides a
remedy for its enforcement, the remedy is exclusive; and where it confers jurisdiction upon a
particular court, that jurisdiction is likewise exclusive, unless otherwise provided. Hence, the
venue provisions of Republic Act No. 4363 should be deemed mandatory for the party bringing
the action, unless the question of venue should be waived by the defendant, which was not the
case here. Only thus can the policy of the Act be upheld and maintained. Nor is there any
reason why the inapplicability of one alternative venue should result in rendering the other
alternative, also inapplicable.

The dismissal of the present petition is asked on the ground that the petitioner foreign
corporation failed to allege its capacity to sue in the courts of the Philippines. Respondents rely
on section 69 of the Corporation law, which provides:
 SEC. 69. No foreign corporation or corporations formed, organized, or existing
under any laws other than those of the Philippines shall be permitted to ...
maintain by itself or assignee any suit for the recovery of any debt, claim, or
demand whatever, unless it shall have the license prescribed in the section
immediately preceding. ..." ...;

They also invoke the ruling in Marshall-Wells Co. vs. Elser & Co., Inc. 7 that no foreign
corporation may be permitted to maintain any suit in the local courts unless it shall have the
license required by the law, and the ruling in Atlantic Mutual Ins. Co., Inc. vs. Cebu Stevedoring
Co., Inc. 8 that "where ... the law denies to a foreign corporation the right to maintain suit unless
it has previously complied with a certain requirement, then such compliance or the fact that the
suing corporation is exempt therefrom, becomes a necessary averment in the complaint." We
fail to see how these doctrines can be a propos in the case at bar, since the petitioner is not
"maintaining any suit" but is merely defending one against itself; it did not file any complaint but
only a corollary defensive petition to prohibit the lower court from further proceeding with a suit
that it had no jurisdiction to entertain.

Petitioner's failure to aver its legal capacity to institute the present petition is not fatal, for ...

A foreign corporation may, by writ of prohibition, seek relief against the wrongful
assumption of jurisdiction. And a foreign corporation seeking a writ of prohibition
against further maintenance of a suit, on the ground of want of jurisdiction in
which jurisdiction is not bound by the ruling of the court in which the suit was
brought, on a motion to quash service of summons, that it has jurisdiction. 9

It is also advanced that the present petition is premature, since respondent court has not
definitely ruled on the motion to dismiss, nor held that it has jurisdiction, but only argument is
untenable. The motion to dismiss was predicated on the respondent court's lack of jurisdiction to
entertain the action; and the rulings of this Court are that writs of certiorari or prohibition, or
both, may issue in case of a denial or deferment of action on such a motion to dismiss for lack
of jurisdiction.

If the question of jurisdiction were not the main ground for this petition for review
by certiorari, it would be premature because it seeks to have a review of an
interlocutory order. But as it would be useless and futile to go ahead with the
proceedings if the court below had no jurisdiction this petition was given due
course.' (San Beda vs. CIR, 51 O.G. 5636, 5638).

'While it is true that action on a motion to dismiss may be deferred until the trial
and an order to that effect is interlocutory, still where it clearly appears that the
trial judge or court is proceeding in excess or outside of its jurisdiction, the
remedy of prohibition would lie since it would be useless and a waste of time to
go ahead with the proceedings. (Philippine International Fair, Inc., et al. vs.
Ibañez, et al., 50 Off. Gaz. 1036; Enrique v. Macadaeg, et al., 47 Off. Gaz. 1207;
see also San Beda College vs. CIR, 51 Off. Gaz. 5636.)' (University of Sto.
Tomas v. Villanueva, L-13748, 30 October 1959.).

Similarly, in Edward J. Nell Co. vs. Cubacub, L-20843, 23 June 1965, 14 SCRA 419, this Court
held:
 '.......................................................... It is a settledrule that the jurisdiction of a
court over the subject-matter is determined by the allegations in the complaint;
and when a motion to dismiss is filed for lack of jurisdiction those allegations are
deemed admitted for purposes of such motion, so that it may be resolved without
waiting for the trial. Thus it has been held that the consideration thereof may not
be postponed in the hope that the evidence may yield other qualifying or
concurring data which would bring the case under the court's jurisdiction.'

To the same effect are the rulings in: Ruperto vs. Fernando, 83 Phil. 943; Administrator of
Hacienda Luisita Estate vs. Alberto, L-12133, 21 October 1958.

Summing up, We hold:

(1) The under Article 360 of the Revised Penal Code, as amended by Republic Act No. 4363,
actions for damages by public officials for libelous publications against them can only be filed in
the courts of first instance ofthe city or province where the offended functionary held office at the
time ofthe commission of the offense, in case the libelous article was first printed or published
outside the Philippines.

(2) That the action of a court in refusing to rule, or deferring its ruling, on a motion to dismiss for
lack of jurisdiction over the subject matter, or for improper venue, is in excess of jurisdiction and
correctable by writ of prohibition or certiorari sued out in the appellate Court, even before trial on
the merits is had.

WHEREFORE, the writs applied for are granted: the respondent Court of First Instance of Rizal
is declared without jurisdiction to take cognizance of its Civil Case No. 10403; and its orders
issued in connection therewith are hereby annulled and set aside,. Respondent court is further
commanded to desist from further proceedings in Civil case No. 10403 aforesaid. Costs against
private respondents, Antonio J. Villegas and Juan Ponce Enrile.

The writ of preliminary injunction heretofore issued by this Supreme Court is made permanent.

Concepcion, C.J., Dizon, Makalintal, Fernando, Teehankee, Barredo, Villamor and concur.

Castro, J., took no part.

Footnotes

1 It informs that Time-Life International is not made a co-petitioner for the reason
that it is not a juridical person but a mere division of Time, Inc. (Petition, footnote
at page 6).

2 Petitioner alleged that it had offered to stipulate in the court below that its
"activities in the Philippines could be considered doing business" but
respondents refused to stipulate (Petition, page 61', although it stated in its
memorandum in lieu of oral argument, that it is "a corporation not doing business
in the Philippines." (Memorandum, dated 31 July 1968, Page 1).
 3 Rollo, page 26.

4 Explanatory Note to H.B 17057 which became Republic Act 4363.

5 Perkins v. Dizon, 72 Phil. 579; 14 Am. Jur. 418.

6 West Coast Life Ins. Co. v. Hurd 27 Phil. 401.

7 46 Phil. 70, 76.

8 L-18961, 31 August 1966, 17 SCRA 1037.

9 36 Am. Jur. 2d 520.

IX. Property

WESTERN EQUIPMENT VS REYES

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-27897 December 2, 1927

WESTERN EQUIPMENT AND SUPPLY COMPANY, WESTERN ELECTRIC COMPANY, INC.,

W. Z. SMITH and FELIX C. REYES, plaintiffs-appellees,
vs.
FIDEL A. REYES, as Director of the Bureau of Commerce and Industry, HENRY HERMAN,
PETER O'BRIEN, MANUEL B. DIAZ, FELIPE MAPOY and ARTEMIO ZAMORA, defendants-
appellants.

J. W. Ferrier for appellants.

DeWitt, Perkins and Bradly for appellees.

STATEMENT

October 23, 1926, in the Court of First Instance of Manila, plaintiffs filed the following complaint
against the defendants:

Now come the plaintiffs in the above entitled case, by the undersigned their attorneys,
and to this Honorable Court respectfully show:

I. That the Western Equipment and Supply Company is a foreign corporation organized
under the laws of the State of Nevada, United States of America; that the Western
Electric Company, Inc., is likewise a foreign corporation organized under the laws of the
State of New York, United States of America; and that the plaintiffs W. Z. Smith and
Felix C. Reyes are both of lawful age and residents of the City of Manila, Philippine
Islands.

II. That the defendant Fidel A. Reyes is the duly appointed and qualified Director of the
Bureau of Commerce and Industry and as such Director is charged with the duty of
issuing and denying the issuance of certificates of incorporation to persons filing articles
of incorporation with the Bureau of Commerce and Industry.

III. That the defendants Henry Herman, Peter O' Brien, Manuel B. Diaz, Felipe Mapoy
and Artemio Zamora are all of lawful age and are residents of the City of Manila,
Philippines Islands.

IV. That on or about May 4, 1925, the plaintiff the Western Equipment and Supply
Company applied to the defendant Director of the Bureau of Commerce and Industry for
the issuance of a license to engage in business in the Philippine Islands and,
accordingly, on May 20, 1926, a provisional license was by said defendant issued in its
favor, which license was made permanent on August 23, 1926.

V. That from and since the issuance of said provisional license of May 20,. 1926, said
plaintiff Western Equipment and Supply Company has been and still is engaged in
importing and selling in the Philippine Islands the electrical and telephone apparatus and
supplies manufactured by the plaintiff Western Electric Company, Inc., its offices in the
City of Manila being at No. 600 Rizal Avenue, in the charge and management of the
plaintiff Felix C. Reyes, its resident agent in the Philippine Islands.

VI. That the electric and telephone apparatus and supplies manufactured by the plaintiff
Western Electric Company, Inc., have been sold in foreign and interstate commerce and
have become well and thoroughly known to the trade in all countries of the world for the
past fifty years; that at present time the greater part of all telephone equipment used in
Manila and elsewhere in the Philippine Islands was manufactured by the said Western
Electric Company, Inc., and sold by it in commerce between the United States and the
Philippine Islands; that about three fourths of such equipment in use throughout the
world are of the manufacture of said "Western Electric Company, Inc.," and bear its
corporate name; and that these facts are well known to the defendant Henry Herman
who for many years up to May 20, 1926, has himself been buying said products from the
plaintiff Western Electric Company, Inc., and selling them in the Philippine Islands.

VII. That the name `Western Electric Company, Inc., has been registered as a trade-
mark under the provisions of the Act of Congress of February 20, 1905, in the office of
the Commissioner of Patents, at Washington, District of Columbia, and said trade-mark
remains in force to this date.

VIII. That on or about . . ., the defendants Henry Herman, Peter O' Brien, Manuel B.
Diaz, Felipe Mapoy and Artemio Zamora filed articles of incorporation with the defendant
Director of the Bureau of Commerce and Industry with the intention of organizing a
domestic corporation to be known as the "Western Electric Company, Inc.," for the
purpose principally of manufacturing, buying, selling and generally dealing in electrical
and telephone apparatus and supplies.
 IX. That the purpose of said defendant in attempting to incorporate under the corporate
name of plaintiff Western Electric Company, Inc., is to profit and trade upon the plaintiff's
business and reputation, by misleading and deceiving the public into purchasing the
goods manufactured or sold by them as those of plaintiff Western Electric Company,
Inc., in violation of the provisions of Act No. 666 of the Philippine Commission,
particularly section 4 thereof.

X. That on October 20, 1926, plaintiff W. Z. Smith was authorized by the Board of
Directors of the Western Electric Company, Inc., to take all necessary steps for the
issuance of a license to said company to engage in business in the Philippine Islands
and to accept service of summons and process in all legal proceedings against said
company, and on October 21, 1926, said plaintiff W. Z. Smith filed a written application
for the issuance of such license with the defendant Director of Bureau of Commerce and
Industry, which application, however, has not yet been acted upon by said defendant.

XI. That on October 18, 1926, the plaintiff W. Z. Smith formally lodged with the
defendant Director of the Bureau of Commerce and Industry his protest, and opposed
said attempted incorporation, by the defendants Henry Herman, Peter O'Brien, Manuel
B. Diaz, Felipe Mapoy and Artemio Zamora, of the `Western Electric Company, Inc.,' as
a domestic corporation, upon the ground among others, that the corporate name by
which said defendants desire to be known, being identical with that of the plaintiff
Western Equipment and Supply Company, will deceive and mislead the public
purchasing electrical and telephone apparatus and supplies. A copy of said protest is
hereunto annexed, and hereby made a part hereof, marked Exhibit A.

XII. That the defendant Fidel A. Reyes, Director of the Bureau of Commerce and
Industry has announced to these plaintiffs his intention to overrule the protest of
plaintiffs, and to issue to the other defendants a certificate of incorporation constituting
said defendants a body politic and corporate under the name "Western Electric
Company, Inc.," unless restrained by this Honorable Court.

XIII. That the issuance of a certificate of incorporation in favor of said defendants under
said name of "Western Electric Company, Inc.," would, under the circumstances
hereinbefore stated, constitute a gross abuse of the discretionary powers conferred by
law upon the defendant Director of the Bureau of Commerce and Industry.

XIV. That the issuance of said certificate of incorporation would, if carried out, be in
violation of plaintiff's rights and would cause them irreparable injury which could not be
compensated in damages, and from which petitioner would have no appeal or any plain,
speedy and adequate remedy at law, other than that herein prayed for.

They prayed for a temporary injunction, pending the final decision of the court when it should be
made permanent, restraining the issuance of the certificate of incorporation in favor of the
defendants under the name of Western Electric Company, Inc., or the use of that name for any
purpose in the exploitation and sale of electric apparatus and supplies. The preliminary writ was
issued.

For answer the defendant Fidel A. Reyes, as Director of the Bureau of Commerce and Industry,
admits the allegations of paragraphs 1, 2, 3 and 4 of the complaint, and as to paragraphs 5, 6
and 7, he alleges that he has no information upon which to form a belief, and therefore denies
them. He admits the allegations of paragraph 8, and denies paragraph 9. He denies the first part
of paragraph 10, but admits that an application for a license to do business was filed by the
Western Electric Company, Inc., as alleged. He admits paragraphs 11 and 12, and denies
paragraphs 13 and 14, and further alleges that the present action is prematurely brought, in that
it is an attempt to coerce his discretion, and that the mere registration of the articles of
incorporation of the locally organized Western Electric Company, Inc., cannot in any way injure
the plaintiffs, and prays that the complaint be dismissed.

For answer the defendants Herman, O' Brien, Diaz, Mapoy and Zamora admit the allegations of
paragraphs 1, 2, 3, 4 and 5 of the complaint, and deny paragraph 7, but allege that on October
15, 1926, the articles of incorporation in question were presented to the Director of the Bureau
of Commerce and Industry for registration. They deny paragraphs 9 and 10, except as to the
filing of the application. They admit the allegations made in paragraph 11, but alleged that W. Z.
Smith was without any right or authority. Admit the allegations of paragraph 12, but deny the
allegations of paragraphs 13 and 14, and allege that the Western Electric Company, Inc., has
never transacted business in the Philippine Islands; that its foreign business has been turned
over to the International Standard Electric Corporation; that the action is prematurely brought;
and that the registration of the articles of incorporation in question cannot in any way injure
plaintiffs.

Wherefore, such defendants pray that the preliminary injunction be dissolved, and plaintiffs'
cause of action be dismissed, with costs.

The case was tried and submitted upon the following stipulated facts:

Now come the parties plaintiff and defendants in the above entitled cause, by their
respective undersigned attorneys, and for the purpose of this action, agree that the
following facts are true:

I. That the Western Equipment and Supply Company is a foreign corporation, organized
under the laws of the State of Nevada, United States of America; that the Western
Electric Company, Inc., is likewise a foreign corporation organized under the laws of the
State of New York, United States of America; and that the plaintiff W. Z. Smith and Felix
C. Reyes, are both of lawful age and residents of the City of Manila, Philippine Islands.

II. That the defendant Fidel A. Reyes is the duly appointed and qualified Director of the
Bureau of Commerce and Industry and as such Director is charge with the duty of
issuing and/or denying the issuance of certificates of incorporation to persons filing
articles of incorporation with the Bureau of Commerce and Industry.

III. That the defendants, Henry Herman, Peter O' Brien, Manuel B. Diaz, Felipe Mapoy
and Artemio Zamora are all of lawful age and all residents of the City of Manila,
Philippine Islands.

IV. That on or about May 4, 1925, the plaintiff, the Western Equipment and Supply
Company, through its duly authorized agent, the plaintiff, Felix C. Reyes, applied to the
defendant Director of the Bureau of Commerce and Industry for the issuance of a license
to engage in business in the Philippine Islands and on May 20, 1926, said defendant
issued in favor of said plaintiff a provisional license for that purpose which was
permanent on August 23, 1926.
V. That the plaintiff, Western Electric Company, Inc., has ever been licensed to engage
in business in the Philippine Islands, and has never engaged in business therein.

VI. That from and since the issuance of said provisional license of May 20, 1926, to the
plaintiff, Western Equipment and Supply Company, said plaintiff has been and still is
engaged in importing and selling in the Philippine Islands electrical and telephone
apparatus and supplies manufactured by the plaintiff Western Electric Company, Inc. (as
well as those manufactured by other factories), said Western Equipment and Supply
Company's offices in the City of Manila being at No. 600 Rizal Avenue, and at the time of
the filing of the complaint herein was under the charge and management of the plaintiff,
Felix C. Reyes, its then resident agent in the Philippine Islands.

VII. That the electrical and telephone apparatus and supplies manufactured by the
plaintiff, Western Electric Company, Inc., have been sold in foreign and interstate
commerce for the past fifty years, and have acquired high trade reputation throughout
the world; that at the present time the greater part of all telephone equipment used in
Manila, and elsewhere in the Philippine Islands, was manufactured by the said plaintiff,
Western Electric Company, Inc., and sold by it for exportation to the Philippine Islands;
that such equipment, manufactured by the said Western Electric Company, Inc., and
bearing its trade-mark "Western Electric" or its corporate name is generally sold and
used throughout the world; that a Philippine Corporation known as the `Electric Supply
Company, Inc.,' has been importing the manufactures of the plaintiff, Western Electric
Company, Inc., into the Philippine Islands for the purpose of selling the same therein,
and that the defendant Henry Herman, is the President and General Manager of said
corporation.

VIII. That the words `Western Electric' have been registered by the plaintiff, Electric
Company, Inc., as a trade-mark under the provisions of the Act of Congress of February
20, 1905, in the office of the Commissioner of the Patents at Washington, District of
Columbia, and said trade-mark remains in force as the property of said plaintiff to this
date.

IX. That the plaintiff, Western Electric Company, Inc., is advertising its manufacturers in
its own name by means of advertising its manufactures in its own name by means of
advertisements inserted in periodicals which circulate generally throughout the English
and Spanish speaking portions of the world, and has never abandoned its corporate
name or trade-mark, but, on the contrary, all of its output bears said corporate name and
trade-mark, either directly upon the manufactured article or upon its container, including
that sold and used in the Philippine Islands.

X. That on October 15, 1926, the defendants Henry Herman, Peter O'Brien, Manuel B.
Diaz, Felipe Mapoy and Artemio Zamora signed and filed articles of incorporation with
the defendant, Fidel A. Reyes, as Director of the Bureau of Commerce and Industry, with
the intention of organizing a domestic corporation under the Philippine Corporation Law
to be known as the "Western Electric Company, Inc.," for the purpose, among other
things or manufacturing, buying, selling and dealing generally in electrical and telephone
apparatus and supplies; that said defendants Peter O'Brien, Felipe Mapoy and Artemio
Zamora are employees of the said Electrical Supply Company, of which said defendant,
Henry Herman, is and has been, during the period covered by this stipulation, the
president and principal stockholder; and that they, together with the said defendant
 Herman, signed said articles of incorporation for the incorporation of a domestic
company to be known and the "Western Electric Company, Inc.," with full knowledge of
the existence of the plaintiff Western Electric Company, Inc., of its corporate name, of its
trade-mark, "Western Electric," and of the fact that the manufactures of said plaintiff
bearing its trade-mark or corporate name are in general use in the Philippine Islands and
in the United States.

XI. That on October 20, 1926, the plaintiff, W. Z. Smith, was authorized by the Board of
Directors of the plaintiff, Western Electric Company, Inc., to take all necessary steps for
the issuance of a license to said company to engage in business in the Philippine
Islands, and to accept service of summons and process in all legal proceedings against
said company, and on October 21, 1926, said plaintiff, W. Z. Smith, filed a written
application for the issuance of such license with the defendant Director of the Bureau of
Commerce and Industry, which application, however, has not yet been acted upon by
said defendant.

XII. That on October 18, 1926, the Philippine Telephone and Telegraph Co., by its
general manager, the plaintiff W. Z. Smith. lodged with the defendant Director of the
registration of the proposed corporation by the defendants Henry Herman, Peter O'Brien,
Manuel B. Diaz, Felipe Mapoy and Artemio Zamora, to be known as the Western Electric
Company, Inc., as a domestic corporation under the Philippine Corporation Law. A copy
of said protest, marked Exhibit A, hereunto attached and is hereby made a part of this
stipulation.

XIII. That the defendant, Fidel A. Reyes, Director of the Bureau of Commerce and
Industry, announced his intention of overrule said protest and will, unless judicially
restrained therefrom, issue to the other defendants herein a certificate of incorporation,
constituting said defendants a Philippine body politic and corporate under the name of
"Western Electric Company, Inc."

XIV. That the defendant, Henry Herman, acting in behalf of said corporation, Electrical
Supply Company, Inc., has written letters to Messrs. Fisher, DeWitt, Perkins & Brady,
acting as attorneys for plaintiff, Western Electric Company, Inc., copies of which are
hereunto annexed and hereby made a part hereof, marked Exhibits B, C and D.

XV. That the defendants, while admitting the facts set out in paragraph VII and IX
regarding the business done, merchandise sold and advertisements made throughout
the world by the plaintiff Western Electric Company, Inc., insist and maintain that said
allegations of fact are immaterial and irrelevant to the issues in the present case,
contending that such issued should be determined upon the facts as they exist in the
Philippine Islands alone.

To which were attached Exhibits A, B, C and D.

The lower court rendered judgment for the plaintiffs as prayed for in their complaint, and made
the temporary injunction permanent, from which the defendants appeal and assign the following
errors:

The lower court erred:

 (1) When it granted the writ of preliminary injunction (pages 9 and 10, record; 12 to 14,
B. of E.).

(2) When it held that the Western Electric Co., Inc., a foreign corporation, had a right to
bring the present suit in courts of the Philippine Islands, wherein it is unregistered and
unlicensed, as was done in the decision upon the petition for a preliminary injunction
(pages 97 to 115 record), and in repeating such holding in the final decision herein
(pages 51 and 52, B. of E.), as well as in basing such holding upon the decision of this
Honorable Supreme Court in Marshall-Wells Co. vs. Henry W. Elser & Co. (46 Phil., 70.)

(3) When it found that the plaintiff, the Western Electric Co., Inc., has any such standing
in the Philippine Islands or before the courts thereof as to authorize it to maintain an
action therein under the present case.

(4) When it found that the other plaintiffs herein have any rights in the present
controversy or any legal standing therein.lawphi1.net

(5) In ordering the issuance of a permanent injunction restraining the defendant Fidel A.
Reyes, as Director of the Bureau of Commerce and Industry, from issuing a certificate of
incorporation in favor of the other defendants under the name of "Western Electric Co.,
Inc.," or any similar name, and restraining the other defendants from using the name
"Western Electric Co., Inc.," or any like name, in the manufacture of sale of electrical and
telephone apparatus and supplies or as a business name or style in the Philippine
Islands.

(6) In finding that the purpose of the defendants, other than the defendant Fidel A.
Reyes, in seeking to secure the registration of a local corporation under the name of
"Western Electric Co., Inc.," was "certainly not an innocent one," thereby imputing to said
defendants a fraudulent and wrongful intent.

(7) In failing to dismiss plaintiffs' complaint with costs against the plaintiffs.

(8) In overruling and denying defendants' motion for a new trial.

JOHNS, J.:

The appellants say that the two questions presented are:

Has a foreign corporation, which has never done business in the Philippine Islands, and
which is unlicensed and unregistered therein, any right to maintain an action to restrain
residents and inhabitants of the Philippine Islands from organizing a corporation therein
bearing the same name as such foreign corporation?

Has such foreign corporation a legal right to restrain an officer of the Government of the
Philippine Islands, i. e., the Director of the Bureau of Commerce and Industry from
exercising his discretion, and from registering a corporation so organized by residents
and inhabitants of the Philippine Islands?
As to the first question, the appellees say that it should be revised, so as to read as follows:

Has a foreign corporation which has never done business in the Philippine Islands, and
which is unlicensed and unregistered therein, any right to maintain an action to restrain
residents and inhabitants of the Philippine Islands from organizing a corporation therein
bearing the same name as such foreign corporation, when said residents and
inhabitants have knowledge of the existence of such foreign corporation, having dealt
with it, and sold its manufactures, and when said foreign corporation is widely and
favorably known in the Philippine Islands through the use therein of its products bearing
its corporate and trade name, and when the purpose of the proposed domestic
corporation is to deal in precisely the same goods as those of the foreign corporation?

As to the second, the appellees say that the question as propounded by the appellants is not
fully and fairly stated, in that it overlooks and disregards paragraphs 12 and 13 of the stipulation
of facts, and that the second question should be revised to read as follows:

Has an unregistered corporation which has not transacted business in the Philippine
Islands, but which has acquired a valuable goodwill and high reputation therein, through
the sale, by importers, and the extensive use within the Islands of products bearing
either its corporate name, or trade-mark consisting of its corporate name, a legal right to
restrain an officer of the Commerce and Industry, with knowledge of those facts, from
issuing a certificate of incorporation to residents of the Philippine Islands who attempt to
organize a corporation for the purpose of pirating the corporate name of such foreign
corporation, of engaging in the same business as such foreign corporation, and of
defrauding the public into thinking that its goods are those of such foreign corporation,
and of defrauding such foreign corporation and its local dealers of their legitimate trade?

We agree with the revisions of both questions as made by the appellees, for the reason that
they are more in accord with the stipulated facts. First, it is stipulated that the Western Electric
Company, Inc., "has never engaged in business in the Philippine Islands."

In the case of Marshall-Wells Co. vs. Henry W. Elser & Co. (46 Phil., 70, 76), this court held:

The noncompliance of a foreign corporation with the statute may be pleaded as an

affirmative defense. Thereafter, it must appear from the evidence, first, that the plaintiff is
a foreign corporation, second, that it is doing business in the Philippines, and third, that it
has not obtained the proper license as provided by the statute.

If it had been stipulated that the plaintiff, Western Electric Company, Inc., had been doing
business in the Philippine Islands without first obtaining a license, another and a very different
question would be presented. That company is not here seeking to enforce any legal or contract
rights arising from, or growing out of, any business which it has transacted in the Philippine
Islands. The sole purpose of the action:

"Is to protect its reputation, its corporate name, its goodwill, whenever that reputation, corporate
name or goodwill have, through the natural development of its trade, established themselves."
And it contends that its rights to the use of its corporate and trade name:

Is a property right, a right in rem, which may assert and protect against all the world, in any of
the courts of the world — even in jurisdictions where it does not transact business — just the
same as it may protect its tangible property, real or personal, against trespass, or conversion.
Citing sec. 10, Nims on Unfair Competition and Trade-Marks and cases cited; secs. 21-22,
Hopkins on Trade-Marks, Trade Names and Unfair Competition and cases cited." That point is
sustained by the authorities, and is well stated in Hanover Star Milling Co. vs. Allen and
Wheeler Co. (208 Fed., 513), in which they syllabus says:

Since it is the trade and not the mark that is to be protect, a trade-mark acknowledges
no territorial boundaries of municipalities or states or nations, but extends to every
market where the trader's goods have become known and identified by the use of the
mark.

In Walter E. Olsen & Co. vs. Lambert (42 Phil., 633, 640), this court said:

In order that competition in business should be unfair in the sense necessary to justify
the granting of an injunction to restrain such competition it must appear that there has
been, or is likely to be, a diversion of trade from the business of the complainant to that
of the wrongdoer, or methods generally recognized as unfair; . . . In most, if not all, of the
cases in which relief has hitherto been granted against unfair competition the means and
methods adopted by the wrongdoer in order to divert the coveted trade from his rival
have been such as were calculated to deceive and mislead the public into thinking that
the goods or business of the wrongdoer are the goods or business of the rival. Diversion
of trade is really the fundamental thing here, and if diversion of trade be accomplished
by any means which according to accepted legal canons are unfair, the aggrieved party
is entitled to relief.

In Shaver vs. Heller & Merz Co. (48 C.C. A., 48; 108 Fed., 821; 65 L. R. A., 878,. 881), it is said:

The contention of counsel for the appellants here is a confusion of the bases of two
classes of suits, — those for infringements of trade-marks, and those for unfair
competition in trade. . . . In the former, title to the trade-marks is indispensable to a good
cause of action; in the latter, no proprietary interest in the words, names, or means by
which the fraud is perpetrated is requisite to maintain a suit to enjoin it. It is sufficient that
the complainant is entitled to the custom — the goodwill — of a business, and that this
goodwill is injured, or is about to be injured, by the palming off of the goods of another as
his.

The remaining question as to the jurisdiction of the courts over the defendant Reyes, as Director
of the Bureau of Commerce and Industry, has been adversely decided to his contention in the
case of Asuncion vs. De Yriarte (28 Phil., 67), in which, among other things, it is said:

If, therefore, the defendant erred in determining the question presented when the articles
were offered for registration, then that error will be corrected by this court in this action
and he will be compelled to register the articles as offered. If, however, he did not
commit an error, but decided that question correctly, then, of course, his action will be
affirmed to the extent that we will deny the relief prayed for.

It is very apparent that the purpose and intent of Herman and his associates in seeking to
incorporate under the name of Western Electric Company, Inc., was to unfairly and unjustly
compete in the Philippine Islands with the Western Electric Company, Inc., in articles which are
manufactured by, and bear the name of, that company, all of which is prohibited by Act No. 666,
and was made known to the defendant Reyes by the letter known in the record to the defendant
Reyes by the letter known in the record as Exhibit A.

As appellees say:

These defendant, Herman and his associates, are actually asking the Government of the
Philippine Island to permit them to pirate the name of the Western Electric Company,
Inc., by incorporating thereunder, so that they may deceive the people of the Philippine
Islands into thinking that the goods they propose to sell are goods of the manufacture of
the real Western Electric Company. It would be a gross prostitution of the powers of
government to utilize those powers in such a way as to authorize such a fraud upon the
people governed. It would be the grossest abuse of discretion to permit these
defendants to usurp the corporate mane of the plaintiff, and to trade thereupon in these
Islands, in fraud of the Philippine public and of the true owners of the name and the
goodwill incidental thereto.

The plaintiff, Western Electric Company, Inc., has been in existence as a corporation for over
fifty years, during which time it has established a reputation all over the world including the
Philippine Islands, for the kind and quality of its manufactured articles, and it is very apparent
that the whole purpose and intent of Herman and his associates in seeking to incorporate
another corporation under the identical name of Western Electric Company, Inc., and for the
same identical purpose as that of the plaintiff, is to trespass upon and profit by its good name
and business reputation. The very fact that Herman and his associates have sought the use of
that particular name for that identical purpose is conclusive evidence of the fraudulent intent
with which it is done.

The judgment of the lower court is affirmed, with costs. So ordered.

Avanceña, C.J., Johnson, Street, Malcolm, Villamor, Ostrand and Villa-Real, JJ., concur.

STERLING PRODUCTS VS BAYER

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-19906 April 30, 1969

STERLING PRODUCTS INTERNATIONAL, INCORPORATED, plaintiff-appellant,

vs.
FARBENFABRIKEN BAYER AKTIENGESELLSCHAFT, and ALLIED MANUFACTURING
AND TRADING CO., INC., defendant-appellants.

SANCHEZ, J.:
 In this, a case for trademark infringement and unfair competition, each of the principal
suitors, namely, plaintiff Sterling Products International, Inc., 1 and defendant Farbenfabriken
Bayer Aktiengesellschaft,2 seeks to exclude the other from use in the Philippines of the
trademarks BAYER and BAYER CROSS IN CIRCLE. SPI asks this Court to strike down FBA's
registration of BAYER CROSS IN CIRCLE covering industrial and agricultural products —
insecticides and other chemicals, not medicines — from the supplemental register. FBA, for its
part, prays for the cancellation from the principal register of SPI's certificates of registration of
the trademarks aforesaid for medicines.

Contending parties are doing business in the Philippines. SPI markets Bayer Aspirin,
Aspirin for Children and Cafiaspirina. The BAYER and BAYER CROSS IN CIRCLE are being
used by SPI in the Philippines only for said products — Bayer Aspirin, Cafiaspirina and Bayer
Aspirin for Children. On the containers (bottles or printed celophane strips, which, in turn, are
placed in cardboard boxes) of Bayer Aspirin, Aspirin for Children and Cafiaspirina, SPI features
the trademarks BAYER and BAYER CROSS IN CIRCLE. FBA thru Allied Manufacturing &
Trading Co., Inc.3 distributes "Folidol" and other industrial and agricultural chemicals. FBA's
"Folidol" (in steel or fiber drums or aluminum containers) displays a replica of SPI's trademark
BAYER CROSS IN CIRCLE; on the tin cap and label of the container.

The conflict apparent, suit followed.

The trial court declared itself "in favor of the solution that favors division of the market
rather than monopoly." But to avoid confusion, it directed defendants "to add a distinctive word,
or words in their mark to indicate that their products come from Germany." The judgment below
reads:

IN VIEW WHEREOF, both complaint and counterclaim are dismissed without costs; the
Court sustains plaintiff's right to use the Bayer trademark for its medicines, and defendants' right
to use it for chemicals, insecticides, and other products not medicines, but the Court orders
defendants to add a distinctive word or words in their mark to indicate that their products come
from Germany.4

Both parties appealed: Plaintiff, insofar as the judgment "dismisses plaintiff's complaint
and sustains defendants' right to use the BAYER trademark for their chemicals, insecticides,
and other products not medicines"; 5 and defendants, from the portions of the aforementioned
decision particularly those which dismiss the counterclaim of the defendants for the cancellation
of the registrations by the plaintiff of the trademarks Bayer and Bayer Cross and which allow the
plaintiff "to continue using the Bayer trademarks for medicines." 6

And now to the facts.

The word BAYER was the surname of Friedrich Bayer, a German, who, on August 1,
1868, organized a drug company bearing his name — Friedr Bayer et comp. — at Barmen,
Germany. The company was at first engaged in the manufacture and sale of chemicals. At
about the year 1888 it started to manufacture pharmaceutical preparations also. A change of
name from Friedr Bayer to Farbenfabriken vorm. Friedr. Bayer & Co. (FFB, for short) effective
July 1, 1881 was followed in 1912 by a change of principal place of business from Elberfeld to
Luverkusen, Germany.7 Its products came to be known outside Germany. With the discovery in
1899 of the Bayer Aspirin, the mark BAYER acquired prestige. The time was ripe to register the
trademarks. The record, however, does not clearly show when the word BAYER was registered
as a trademark in Germany. The BAYER CROSS IN CIRCLE trademark was registered in
Germany on January 6, 1904 — No. 65777.8 It was intended to be used on "medicines for
human beings and animals, disinfectants preservatives, tar dyestuffs and chemical preparations
for dyes and for photographic purposes."9 This registered trademark consists of the BAYER
CROSS encircled by the company's name Farbenfabriken vorm. Friedr. Bayer & Co. Elberfeld.

When the company was merged with other German companies in 1925 to form the I.G.
Farbenindustrie, the name of the former company was deleted from the trademark and what
remained was the present BAYER CROSS IN CIRCLE. A new registration was effected on June
17, 1929 in Germany and for which it was issued a certificate with serial no. 404341. The
trademark BAYER CROSS IN CIRCLE was registered by FFB and its subsidiaries in other parts
of the world, viz, in Norway, England, Denmark, and Argentina in 1904; in Japan and the United
States in 1908; in Spain in 1911; in Peru in 1913.

Sometime in 1895, FFB established a subsidiary in New York, United States. It was
named Farbenfabriken of Elberfeld Co. Its purpose was to sell FFB's products in the United
States and Canada. It was this subsidiary that registered the trademarks BAYER and BAYER
CROSS IN CIRCLE in the United States between the years 1907-1908.

Sometime in 1913, FFB organized another subsidiary — The Bayer Co., Inc. of New
York. This new subsidiary was authorized by FFB to negotiate for and acquire the trademarks,
goodwill, assets and property of Farbenfabriken of Elberfeld Co. By an agreement dated June
12, 1913 (Exh. 106) Bayer of New York purchased for the sum of US $750,000.00
Farbenfabriken of Elberfeld Co.'s "right for the sale in the United States and Canada of the
drugs, chemicals, pharmaceuticals and any and all other products and articles manufactured
and (or) controlled by Leverkusen" (FFB) and its "trademarks, good will and other assets and
property."

On April 6, 1917,10 the United States declared war on Germany. Pursuant to the
provisions of the Trading with the Enemy Act, the Alien Property Custodian classified The Bayer
Co., Inc. of New York as an enemy-controlled corporation. Hence, the Alien Property Custodian
seized its assets about the early part of 1918. Between December 1918 and January 1919, all
the assets of The Bayer Co., Inc. of New York were sold by the Alien Property Custodian to
Sterling Drug, Inc. for the sum of US $5,310,000.00. The Bayer Co., Inc. of New York then
became a subsidiary of Sterling Drug, Inc. Winthrop Chemical Co., Inc. was later organized as a
new subsidiary of Sterling Drug, Inc. to manufacture and sell the physicians' drugs which had
been acquired" by the purchase of the Bayer Co., Inc. Winthrop's operation was evidently
hampered because 'the Germans had kept manufacturing processes secret, so that the
manufacture of physicians' drugs on a commercial scale became an almost insoluble problem. 11

Sterling Drug, Inc. secured registrations of the BAYER trademarks in different countries of
the world.12

It would appear that the trademark BAYER for medicines was known in the Philippines
about the close of the 19th century. This appears on page 88 of the Revista Farmaceutica de
Filipinos Año I, Numero 7, 3 de Julio de 1893. Before World War I, BAYER products entering
the Philippines came from Germany.
 In 1922, a worldwide conflict of interests occurred between Farbenfabriken vorm.
Friedrich Bayer & Co. and The Bayer Co., Inc. of New York, in reference to the trademarks
BAYER and BAYER CROSS IN CIRCLE as they were applied to various products.

Two agreements resolved this conflict, both executed on April 9, 1923 in London,
England: one, between FFB and Winthrop Chemical Co., Inc. (Exh. 66), and the other between
FFB and Bayer New York (Exh. WWW). Under the terms of the agreement with Winthrop
Chemical Co., Inc., FFB stipulated, amongst others: (1) not to contest anymore Winthrop's right
over the trademarks BAYER and BAYER CROSS IN CIRCLE; (2) to discontinue the use of said
trademarks in the United States which was understood to include the Philippines under par. 16
of said agreement; and (3) to disclose all secrets of other processes relating to the manufacture
of pharmaceuticals.

Paragraph 26 of the FFB — Bayer New York agreement reads —

26. NEW YORK (The Bayer Company, Inc. of New York) agree that they will not sell or
offer for sale any goods other than hereunder or those they may market for Winthrop as
hereinbefore provided and other than Aspirin and compounds of Aspirin which New York shall
continue to market for their own account in the United States of America, Puerto Rico, the
Philippines and Hawaiian Islands and the Panama Zone. 13

In 1925, Farbenfabriken vorm. Friedrich Bayer & Co. became I.G. Farbenindustrie, AG.
This necessitated a new agreement incorporating Exh. 66 with modifications. Said new
agreement was signed on November 15, 1926 between I.G. Farbenindustrie and Winthrop.

On September 5, 1941, in the anti-trust suits against Sterling Drug, Inc., Winthrop
Chemicals Co. and The Bayer Co., of New York, two consent decrees [Exh. 68 (No. 15-363)
and Exh. 69: (No. 15-364)] were promulgated by the U.S. District Court for Southern New York.
Said consent decrees declared the April 9 1923, cartel agreements violative of the U.S. anti-
trust laws. One reason given is that the German company, FFB (later I.G. Farbenindustrie) —
FBA's predecessors — was excluded from the U.S. pharmaceutical market. The sentence,
however, contains a saving clause, thus —

The Bayer contract of 1923, the Bayer contract of 1926, and any and all amendments or
supplements thereto are declared and adjudged to be unlawful under the Anti-Trust Laws of the
United States, and the defendants Bayer and Sterling, and their respective successors an
subsidiaries, or any of them, be and they are hereby enjoined and restrained from carrying out
or enforcing any of the aforesaid contracts, or any supplements, amendments or modifications
thereof, or from paying to I.G. Farben, its subsidiaries, successors, or assigns, any royalties or
share of profits pursuant to said contracts with respect to sales following the effective date of
this decree.

Provided, however, that nothing herein contained in this Sec. III shall:lawphi1.nêt

xxx xxx xxx

Affect in any way the rights or title of the defendant Bayer, its successors, subsidiaries or
assigns, in or to the name "Bayer" and the "Bayer Cross" mark or registrations thereof, or
 Affect or diminish any right, title or interest of said defendants, their successor
subsidiaries or assigns, in or to or under any heretofore acquired and presently existing patents,
patent applications, patent licenses, trade-marks, trade-names (such as the name "Bayer" and
the "Bayer Cross" mark and registrations thereof), processes or formulae relating to the
manufacturing, processing, use or sale of aspirin, aspirin compounds, pharmaceutical or other
drug or chemical products, or impair any rights or remedies of said defendants, their
successors, subsidiaries or assigns, provided by statute or convention, and by suits for
damages, injunction or other remedy with respect to any such patents, patent applications,
patent licenses or trademarks....14

Meanwhile, in 1935, plaintiff Sterling Products International, Inc. (SPI) a Delaware

corporation, a subsidiary of Sterling Drug, Inc. of New York, was issued a license to do business
in the Philippines.15 The trademarks BAYER and BAYER CROSS IN CIRCLE were then
registered in the Philippines under the old Trademark Law (Act 666) by The Bayer Co., Inc.; the
BAYER CROSS IN CIRCLE trademark on April 18, 1939 for which it was issued Certificate of
Registration No. 13081; the BAYER trademark on April 22, 1939 for which it was issued
Registration Certificate No. 13089. These trademark rights were assigned to SPI on December
30, 1942 and the assignment was recorded in the Philippines Patent Office on March 5, 1947.
With the passage of Republic Act 166 repealing the old Trademark Law (Act 666), SPI was
issued by the Philippines Patent Office on June 18, 1948 two new certificates of registration: No.
1260-S for BAYER CROSS IN CIRCLE; No. 1262-S for BAYER. The registration of these
trademarks was only for "Medicines".

Came World War II. I.G. Farbenindustrie AG. was seized by the allied powers. In 1945,
after World War II, I.G. Farbenindustrie AG. was decartelized by the Allied High Commission.
The unit known as Farbenfabriken Bayer was transferred in 1953 to Farbenfabriken Bayer
Aktiengesellschaft (FBA), one of the defendants in this case, which was organized in 1951.

Sometime in 1958, defendant Allied Manufacturing & Trading Co., Inc. (AMATCO) started
selling FBA's products especially "Folidol" a chemical insecticide which bears the BAYER
CROSS IN CIRCLE trademark.16

On November 18, 1959, FBA applied for the registration of the BAYER CROSS IN
CIRCLE trademark with the Philippines Patent Office for animal and plant destroying agents.
The examiner's report dated December 17, 1959 stated that the subject mark appears to be
similar to SPI's registered BAYER trademarks as covered by Certificates of Registration Nos.
1260-S and 1262-S. He concluded that "[r]egistration of applicant's mark is proscribed by
Section 4-d of the Statute because it would cause confusion or mistake or [to] deceive
purchasers."17 This action of the Philippines Patent Office drew a reply from FBA. In its letter
dated February 1, 1960 applicant FBA, thru counsel, said that it "offers no question or objection
to the assertion of the Examiner that the registrant's mark and that of the applicant are similar to
each other. It emphasized the fact that it was seeking registration in the Supplemental Register.
Its concluding statement runs thus:.

Being aware of the duties and obligations of a trademark user in the Philippines and the
penalties provided for in the pertinent law on tradermarks and being aware also that
Supplemental Registration is not a prima facie evidence of ownership of mark but merely a
recordation of the use as in fact the mark is actually being used by the applicant in the
Philippines, it is respectfully urged that this [application] be given due course. 18
 On February 25, 1960, FBA was issued a certificate of registration in the Supplemental
Register, SR-304.

We now grapple with the problems raised in the separate appeals.

1. A rule widely accepted and firmly entrenched because it has come down through the
years is that actual use in commerce or business is a prerequisite to the acquisition of the right
of ownership over a trademark. This rule is spelled out in our. Trademark Law thus:

SEC. 2-A. Ownership of trade-marks, trademark names and service-mark; how acquired.
— Anyone who lawfully produces or deals in merchandise of any kind or who engages in any
lawful business, or who renders any lawful service in commerce, by actual use thereof in
manufacture or trade, in business, and in the service rendered, may appropriate to his,
exclusive use a trademark, a trade-name, or a service-mark not so appropriated by another, to
distinguish his merchandise, business, or service from the merchandise, business or service of
others. The ownership or possession of a trademark, trade-name, service mark, heretofore or
hereafter appropriated, as in this section provided, shall be recognized and protected in the
same manner and to the same extent as are other property rights known to the law. (As inserted
by Section 1 of Republic Act 638)

It would seem quite clear that adoption alone of a trademark would not give exclusive
right thereto. Such right grows out of their actual use." 19 Adoption is not use. One may make
advertisements, issue circulars, give out price lists on certain goods; but these alone would not
give exclusive right of use. For trademark is a creation of use. The underlying reason for all
these is that Purchasers have come to understand the mark as indicating the origin of the
wares.20 Flowing from this is the trader's right to protection in the trade he has built up and the
goodwill he has accumulated from use of the trademark. Registration of a trademark, of course,
has value: it is an administrative act declaratory of a pre-existing right. Registration does not,
however, perfect a trademark right.

The BAYER trademarks registered in the Philippines to which plaintiff SPI may lay claim,
as correctly stated in the decision below, are those which cover medicines only. For, it was on
said goods that the BAYER trademarks were actually used by it in the Philippines. Therefore,
the certificates of registration for medicines issued by the Director of Patents upon which the
protection is enjoyed are only for medicines. Nothing in those certificates recited would include
chemical or insecticides.

But plaintiff insists that the statement of the applicant (The Bayer Co., Inc.) in its
registrations of the BAYER marks states that "the merchandise for which the trademark is
appropriated is d. — Chemicals, Medicines and Pharmaceutical Preparations." Plaintiff's
position is that such statement determines the goods for which said marks had been registered.
Validity does not attach to this proposition. First, the statement itself admits that "the particular
description of the articles comprised in said class (d) on which the trademark is used is
Medicines."21 It is not used for chemicals.

Then, Section 11 of the Trademark Law requires that the certificate of registration state
"the particular goods . . . for which it is registered." This is controlling. Under Section 11
aforesaid, likewise to be entered in the certificate of registration is "the date of the first use in
commerce or business. SPI may not claim "first use" of the trademarks prior to the registrations
thereof on any product other than medicines.
 Besides, Section 7 of the same Trademark Act directs that upon the filing of the
application and the payment of the required fee, the "Director [of Patents] shall cause an
examination of the application" — for registration of the trademark — "to be made, and, if on
such examination it shall appear that the applicant is entitled to registration, the Director . . .
shall cause the mark . . . to be published in the Official Gazette." This examination, it would
seem to us, is necessary in order that the Director of Patents may be satisfied that the
application conforms to the requirement of actual use in commerce of the trademark in Section
2 and 2-A of the Trademark Law; and that the statement in said application — as to the "first
use" thereof and "the goods . . . in connection with which the mark . . . is used" (Section 5) — is
true.

Really, if the certificate of registration were to be deemed as including goods not specified
therein, then a situation may arise whereby an applicant may be tempted to register a trademark
on any and all goods which his mind may conceive even if he had never intended to use the
trademark for the said goods. We believe that such omnibus registration is not contemplated by
our Trademark Law.

Because of this and of the fact that the Bayer trademarks were never used in the
Philippines by plaintiff except for medicines — Aspirin, Aspirin for Children and Cafiaspirina —
we find ourselves unwilling to draw a hard and fast rule which would absolutely and under all
circumstances give unqualified protection to plaintiff against the use of said trademarks by all
others on goods other than medicines.

2. Neither will the 1927 registration in the United States of the BAYER trademark for
insecticides serve plaintiff any. The United States is not the Philippines. Registration in the
United States is not registration in the Philippines. At the time of the United States registration in
1927, we had our own Trademark Law, Act No. 666 aforesaid of the Philippine Commission,
which provided for registration here of trademarks owned by persons domiciled in the United
States.

What is to be secured from unfair competition in a given territory is the trade which one
has in that particular territory. There is where his business is carried on; where the goodwill
symbolized by the trademark has immediate value; where the infringer may profit by
infringement.

There is nothing new in what we now say. Plaintiff itself concedes22 that the principle of
territoriality of the Trademark Law has been recognized in the Philippines, citing Ingenohl vs.
Walter E. Olsen, 71 L. ed. 762. As Callmann puts it, the law of trademarks "rests upon the
doctrine of nationality or territoriality."23

Accordingly, the 1927 registration in the United States of the BAYER trademark would not
of itself afford plaintiff protection for the use by defendants in the Philippines of the same
trademark for the same or different products.

3. A question basic in the field of trademarks and unfair competition is the extent to which
a registrant of a trademark covering one product may invoke the right to protection against the
use by other(s) of the same trademark to identify merchandise different from those for which the
trademark has been appropriated.
 Plaintiff's trenchant claim is that it should not be turned away because its case comes
within the protection of the confusion of origin rule. Callmann notes two types of confusion. The
first is the confusion of goods "in which event the ordinarily prudent purchaser would be induced
to purchase one product in the belief that he was purchasing the other." In which case,
"defendant's goods are then bought as the plaintiff's, and the poorer quality of the former
reflects adversely on the plaintiff's reputation." The other is the confusion of business: "Here
though the goods of the parties are different, the defendant's product is such as might
reasonably be assumed to originate with the plaintiff, and the public would then be deceived
either into that belief or into the belief that there is some connection between the plaintiff and
defendant which, in fact, does not exist."24

A judicial test giving the scope of the rule of confusion of origin is Ang vs.
Teodoro (December 14, 1942), 74 Phil. 50. Briefly, the facts of the just cited case are as follows:
Toribio Teodoro, at first in partnership with Juan Katindig and later as sole proprietor, had
continuously used "Ang Tibay" both as trademark and as tradename in the manufacture and
sale of slippers, shoes and indoor baseballs since 1910. He formally registered it as a
trademark on September 29, 1915 and as a tradename on January 3, 1933. Ana L. Ang
registered the same trademark "Ang Tibay" for pants and shirts on April 11, 1932 and
established a factory for the manufacture of said articles in 1937. Suit was lodged by Teodoro
against Ang to cancel the latter's registration of the trademark "Ang Tibay" and to perpetually
enjoin her from using the said trademark on goods manufactured and sold by her. The judgment
of the trial court absolved defendant (Ana L. Ang) from the complaint with costs against the
plaintiff. The Court of Appeals reversed. On appeal by certiorari, we affirmed the judgment of
the Court of Appeals. We there said:

"In the present state of development of the law on Trade-Marks, Unfair Competition, and
Unfair Trading, the test employed by the courts to determine whether noncompeting goods are
or are not of the same class is confusion as to the origin of the goods of the second
user. Although two noncompeting articles may be classified under two different classes by the
Patent Office because they are deemed not to possess the same descriptive properties, they
would, nevertheless, be held by the courts to belong to the same class if the simultaneous use
on them of identical or closely similar trademarks would be likely to cause confusion as to the
origin, or personal source, of the second user's goods. They would be considered as not falling
under the same class only if they are so dissimilar or so foreign to each other as to make it
unlikely that the purchaser would think the first user made the second user's goods.

Such construction of the law is induced by cogent reasons of equity and fair dealing. The
courts have come to realize that there can be unfair competition or unfair trading even if the
goods are noncompeting, and that such unfair trading can cause injury or damage to the first
user of a given trademark, first, by prevention of the natural expansion of his business and,
second, by having his business reputation confused with and put at the mercy of the second
user. When noncompetitive products are sold under the mark, the gradual whittling away or
dispersion of the identity and hold upon the public mind of the mark created by its first user,
inevitably results. The original owner is entitled to the preservation of the vauable link between
him and the public that has been created by his ingenuity and the merit of his wares or services.
Experience has demonstrated that when a well-known trademark is adopted by another even for
a totally different class of goods, it is done to get the benefit of the reputation and
advertisements of the originator of said mark, to convey to the public a false impression of some
supposed connection between the manufacturer of the article sold under the original mark and
the new articles being tendered to the public under the same or similar mark. As trade has
developed and commercial changes have come about, the law of unfair competition has
expanded to keep pace with the times and the element of strict competition in itself has ceased
to be the determining factor. The owner of a trademark or trade-name has a property right in
which he is entitled to protection, since there is damage to him from confusion of reputation or
goodwill in the mind of the public as well as from confusion of goods. The modern trend is to
give emphasis to the unfairness of the acts and to classify and treat the issue as a fraud. 25

The thoughts expressed in Ang Tibay command respect Conduct of business should
conform to ethical business standards. Unfairness is proscribed. The invocation of equity is
bottomed upon the injunction that no one should "reap where he has not sown." 26

Nonetheless, "[i]t has been emphasized that each case presents a unique problem which
must be answered by weighing the conflicting interests of the litigants." 27 With this in mind, we
are convinced that the case before us is not to be analogized with Ang Tibay. The factual setting
is different. His Honor, Judge Magno S. Gatmaitan (now Associate Justice of the Court of
Appeals), the trial judge, so found. He reached a conclusion likewise different. And the reasons,
so well stated by His Honor, are these:

1st). — It was not plaintiff's predecessor but defendant's namely Farbenfabriken or

Bayer Germany that first introduced the medical products into the Philippine market and
household with the Bayer mark half a century ago; this is what the Court gathers from
the testimony of Frederick Umbreit and this is the implication even of Exhs. 48, 49, 66
and as already shown a few pages back; 28

2nd). — There is thus reason plausible enough for defendant' plea that as Sterling was
not the "originator" of the Bayer mark, the rule in Ang vs. Teodoro, supra, is not
applicable; and this is correct notwithstanding Exhs. 106 and 63 and even giving unto
these documents full force and virtue, because purchase of the assets of Elberfeld,
defendants' previous affiliate in New York, by Bayer of New York, even if that were to be
held to include purchase of the Bayer mark, did not make the purchaser Bayer of New
York the originator of the mark; especially since Bayer of New York was only another
subsidiary of Bayer Germany or Farbenfabriken which was the real originator;

3rd). — The Court is also impelled to believe that the evidence establishes that among
the common people of the Philippines the "Bayer" medicines come from Germany; this
the Court deduces from the testimony of witness Florisa Pestano who only reproduced
the belief of her grandmother; the Court might as well say that plaintiff itself has not
discouraged that belief because the drug and its literature that came from the plaintiff
and its affiliate would show that it represented its medicines to have come from
defendant29 and were manufactured in Germany with that Bayer mark; thus Exh.
7030 which is the price list of 1928 of Botica de Sta. Cruz on page 6 indicates that
Winthrop Chemical Company of New York, — plaintiff's subsidiary — was a distributor of
I.G. Farbenindustrie, A.G. Leverkusen Germany; Exh. 80 31 which is a medical diary
published by Winthrop for 1934 on page 148 manifested that the journal, "Practical
Therapeutics" was published by I.G. Farbenindustrie Aktiengesellachaft for Winthrop
Chemical Company, Inc.; "with particular reference to the pharmacological products,
sera and vaccines originated and prepared in the laboratories of the I.G. Farbenindustrie
A.G."; and Exh. 79 a, b, c, d and e which are prospectuses for the medicines, Mitigal,
Afridol, Aspirins, Novalgina and My-Salvarsan32 showed that these products were
manufactured for Winthrop by I.G. Farbenindustrie; and then Exh. 81 the Revista Boie of
 1928 would show that Winthrop represented itself as the distributor of the products of
Bayer of Germany otherwise known as I.G. Farbenindustrie, "segun la alta calidad de la
marca original";33 the Court being also impelled to add in this connection that it has to
take judicial notice of a belief of long standing common among the people in the
Philippines that German products are of very high quality and it is only natural for a
distributor or a retailer to take advantage of that, and as it is not debated that "Bayer" is
a German surname, (see plaintiff's rebuttal Exh. QQQQ, see also p. 7 plaintiff's reply
memorandum wherein it is said that this surname is a "pretty common one among
members of the Germany race") it is all so very easy to associate the Bayer trademark
with products that come from Germany and to believe that they are of high quality;

4th). — The rationale of the doctrine in Ang vs. Teodoro, supra being that:

The Courts have come to realize that there can be unfair competition or unfair trading
even if the goods are non-competing, and that such unfair trading can cause injury or damage
to the first user of a given trade mark, first, by prevention of the natural expansion of his
business, and second, by having his business reputation confused with and put at the mercy of
the second user. 74 Phil. 55-56;

and the Court having found out that the 'first user' was Bayer Germany and it was this that
had built up the Bayer mark and plaintiff apparently having itself encouraged that belief even
after it had acquired the Bayer mark in America, thru forced sale, of defendant's subsidiary there
in 1918, Exhs. 79, 80, 81, to apply the Ang Tibay rule in the manner advocated by Sterling
would, the Court fears, produce the reverse result and the consequence would be not equity but
injustice.34

It would seem to us that the fact that plaintiff rode on the German reputation in the Bayer
trademark has diluted the rationally of its exclusionary claim. Not that the free ride in the name
of defendant's German predecessor was sporadic. It is continuing. Proof of this is the label on
the box used by plaintiff (Exhibit U) in the distribution of Bayer Aspirin. This box bears
prominently on the front part the legend "Genuine" in red color and two arrows: the first pointing
to BAYER CROSS IN CIRCLE, and the second, to BAYER Aspirin. At the back thereof in big
letters are the words "BAYER ASPIRIN", followed in small letters "Used since 1900" and down
below the small words "Mfd. in the Phil. by Winthrop Stearns, Inc. for STERLING PRODUCTS
INTERNATIONAL, INCORPORATED." In plaintiff's prospectus (Exhibit 1) found in the box of
Bayer Aspirin tablets, children's size, there is the significant statement: "GENUINE BAYER —
Each Children's Size Bayer Aspirin tablet is stamped with the Bayer Cross, the trademark of the
genuine Bayer product. This means that your child is getting the same gentle-to-the-system
Bayer Aspirin that has been used for over 50 years by millions of normal people without ill
effect."

With the background of prior use in the Philippines of the word BAYER by FBA's German
predecessor and the prior representations that plaintiff's medicines sold in the Philippines were
manufactured in Germany, the facts just recited hammer on the mind of the public that the
Aspirin. Cafiaspirina and Aspirin for Children being marketed for plaintiff in the Philippines come
from the same source — the German source — and in use since 1900. That this view is far from
far-fetched, is illustrated by the testimony of plaintiff's own witness, Dr. Antonio Vasquez, viz:

Q. Have you ever heard of a pharmaceutical company of Bayer of Germany, or a

company in Germany named Bayer?
 A. Yes, sir.

Q. Since when have you heard of this pharmaceutical company in Germany with the
name Bayer, since when have you heard of that?

A. I have always taken the name Bayer as associated with Winthrop & Stearns.

Q. But, you said a while ago....

Witness.

.... Yes .....

xxx xxx xxx

Q. ... that you have heard of a pharmaceutical company with the name of Bayer in
Germany?

A. Yes, sir.

Q. Do you know if this Winthrop & Stearns you mentioned has ever been connected with
Bayer Company of Germany?

A. I have always understood that they were distributing drugs of Bayer & Company.35

4. The Ang Tibay doctrine, we believe, is not to be read as shunting aside the time-
honored teaching that he who comes into equity must do so with clean hands. 36 Plaintiff cannot
now say that the present worth of its BAYER trademarks it owes solely to its own efforts; it is not
insulated from the charge that as it marketed its medicines it did so with an eye to the goodwill
as to quality that defendants' predecessor had established.

There is no whittling away of the identity of plaintiff's trademarks. Plaintiff is not the first
user thereof in the Philippines. The trademarks do not necessarily link plaintiff with the public.
Plaintiff must show injury; it has not. On the contrary, representations as to the place of
manufacture of plaintiff's medicines were untrue, misleading. Plaintiff could still be tagged with
the same deception "which (it) complains of in the defendant(s)." 37 Appropriate it is to recall here
our observation in the Ang Tibay opinion, viz: "On our part may we add, without meaning to be
harsh, that a self-respecting person does not remain in the shelter of another but builds one of
his own."38

Plaintiff, the owner in this country of the trademarks BAYER for medicines, has thus
forfeited its right to protection from the use of the same trademarks by defendants for products
different therefrom — insecticides and other chemicals.

5. But defendants ask us to delist plaintiff's BAYER trademarks for medicines from the
Principal Register, claiming right thereto for said use. Said trademarks had been registered
since 1939 by plaintiff's predecessor. The Bayer Co., Inc.
 Defendants' claim is stale; it suffers from the defect of non-use.39 While it is conceded that
FBA's predecessors first introduced medical products with the BAYER trademarks in the
Philippine market, it is equally true that, after World War I, no definite evidence there is that
defendants or their professors traded in the Philippines in medicines with the BAYER
trademarks thereafter. FBA did not seasonably voice its objection. Lack of protest thereto
connoted acquiescence. And this; notwithstanding the fact that the 1923 and 1926 agreements
were set aside in the anti-trust suits. Defendants did use the marks; but it was much later, i.e., in
1958 — and on chemicals and insecticides — not on medicines. FBA only bestirred itself and
challenged plaintiff's right to the trademarks on medicines when this suit was filed. Vigilantibus
non dormientibus equitas subvenit. 40

The net result is that, as the trial court aptly observed, plaintiff may hold on to its BAYER
trademarks for medicines. And defendants may continue using the same trademarks for
insecticides and other chemicals, not medicines.

6. Defendants balk at the ruling below which directs them "to add a distinctive word or
words in their mark to indicate that their products come from Germany." 41

We are left under no doubt as to the reasonableness of the formula thus fashioned. It
avoids the mischief of confusion of origin — defendant FBA's product would not be mistaken for
those of plaintiff. It reduces friction. We perceive of no prejudice to defendants. The order does
not visit defendant FBA with reprobation or condemnation. Rather, said defendant would be
enhancing the value of and would be sponsoring its own products. Anyway, a statement that its
products come from Germany is but a statement of fact.

FOR THE REASONS GIVEN, the judgment under review is hereby affirmed. No costs. So
ordered.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Capistrano, Teehankee
and Barredo, JJ., concur.
Castro, J., is on leave.

Footnotes
1
Hereinafter referred to as SPI.
2
Hereinafter referred to as FBA.
3
Hereinafter referred to as AMATCO.
4
Record on Appeal, p. 93.
5
Record on Appeal p. 94.
6
Record on Appeal, pp. 95-96.
7
The former places of Elberfeld and Barmen and other places together now form the
town of Wuppertal.
8
No longer valid in the Federal Republic of Germany as its protection expired on January
5, 1933.
9
Exhs. 26 and 26-A.
10
Encyclopedia of American History, ed. by Richard B. Morris (1953), p. 309.
11
Exhibit 63-A, p. 99.
12
See: Exhibits DDDD to YYYYYY-3.
13
Emphasis supplied.
14
Exhibit 69.
15
Exhibit A-2.
16
FBA's predecessors have been using elsewhere this mark for chemicals since 1910
(Exhibits 99 to 99-C) and plant destroying agents since 1924 (Exhibits 100 and 100-A).
17
Exhibit II-1.
18
Exhibit JJ-1.
19
Esso, Inc. vs. Standard Oil Co., 98 P. 2d 1, 6, citing, Han over Star Milling Co. vs.
Metcalf, 240 U.S. 403, 36 S Ct. 367, 60 L. ed. 713; United Drug Co. vs. Theodore
Rectanus Co., 248 U.S. 90, 39 S. Ct. 48, 63 L. ed. 141. See also: Oakford Company vs.
Kroger Company, 157 P. Supp. 453, 458-460; Mason Au 8 Magenheimer Confectionery
Co. vs. Loose-Wiles Biscuit Co., 1 F. Supp. 755, 756; Try vs. Leyne-Western Company,
282 F. 2d 97, 104; J. A. Doughtery's Sons, Inc., vs. Kasko Distillers Products Co., 35 P.
Supp. 561, 564; Compania Gral, de Tabacos vs. Alhambra Cigar & Cigarrette Mfg. Co.,
33 Phil. 485, where we held that in order that a name may be considered a tradename
with exclusive rights which attach to the use thereof, it is necessary that it be used with
the intent of appropriating it as a trade name.
20
I Tolentino, Commentaries and Jurisprudence on the Commercial Law of the
Philippines, 8th ed., p. 531, citing United Drug Co. vs. Theodore Rectanus Co., 248 U.S.
90, 63 L. ed. 141.
21
Medicines (class d) in the 1939 registrations; medicines (class 6) in the 1949
registrations.
22
Brief for Plaintiff-Appellant, p. 88.
23
2 Callmann, Unfair Competition and Trademarks, 1946 ed., p. 1006.
24
2 Callmann, op. cit., pp. 1323-1324.
25
Ang vs. Teodoro, supra, at pp. 54-55; emphasis supplied. See also: Sta. Ana vs.
Maliwat (August 31, 1968), 24 SCRA 1018, 1025-1026. Cf.: The George W. Luft Co.,
Inc. vs. Ngo Guan (December 17, 1966), 18 SCRA 944, 946.
26
52 Am. Jur., P. 581.
27
Id., p. 577; emphasis supplied.
28
The lower court, in its decision (Rec. on Appeal, p. 65), said that there are indications
that Bayer Germany's manufactures came to be known outside Germany even before
the turn of the century, viz, according to Exh. 12, Catalogue of Exhibits at the Glasgow
Exhibition, 1888; according to Exh. 47, thru drug literature in the Philippines in 1893. Dr.
Agerico Sison, plaintiff's witness, testified: .

"Q. When you were still in college, still a student, you studied inventions -famous
medicines such as acetyl salicylic acid, is that right?

xxx xxx xxx

A. Yes, sir.

Q. And you remember that acetyl salicylic acid was invented by chemist in the
employ of the Bayer Company of Germany?

A. Yes, sir.

Q. And that this discovery was made about the end of the nineteenth century?

A. Yes, sir.

Q. And that you came to know afterwards when you are already practising
medicine that one of the renowned manufacturers of pharmaceutical products is
that Bayer Company of Germany?

xxx xxx xxx

A. Yes, sir.

Q. And before World War II, in your practice of medicine had come across
pharmaceutical products manufactured by that Bayer Company of Germany
being used here in the Philippines?

xxx xxx xxx

A. Yes, sir. (t.s.n., pp. 15-18, March 3, 1961)." (See: Brief of Defendants-
Appellants', pp. 32-34)
29
"Defendant" should read defendant's predecessor.
30
On pages 2 and 3 of price list of Botica de Sta. Cruz del Dr. Carlos Jaehrling (Exh. 70)
printed by Binipayo Press & Photo Engraving, Manila, there are some photographs with
the heading "Works of I.G. Farbenindustrie A.G., Germany, Parmaceutical Department,
'Bayer-Meister Lucius', Leverkusen and Hoechst A.M." At bottom of page 3, particularly,
are the words:

"The I.G. Farbenindustrie A.G., Germany, is the largest chemical manufacturing

concern in the world combining the most reputable German manufacturing of chemicals,
dyes and pharmaceutical products. The principal works in different parts of Germany are
shown here."

Page 5 thereof bears the heading "The BAYER COMPANY, INC. New York"
followed by a specification of its "Aspirin Preparations," namely: ASPIRIN, BAYASPIRIN,
CAFIASPIRIN and FENASPIRIN and the corresponding prices thereof.

On page 6 is the heading "Winthrop Chemical Co., Inc., New York, H.A. Metz
Laboratories, Inc., New York, Distributors of the I.G. Farbenindustrie A.G., Leverkusen
Germany, in the Philippine Islands.
31
On pages 7 and 8 of this diary, reference is made to the late Dr. Eliodoro Mercado,
formerly of the San Lazaro Hospital. Particularly on page 8 thereof, we find the following
statement: "In collaboration with the Bayer Company of Leverkusen, Germany — now
part of the I.G. Farbenindustrie A.G. — he improved his original formula and
experiments ... in the successful treatment of a number of lepers...." On the opposite
side a photographic picture of "The Works at Leverkusen is shown (Exhs. 80-a, 80-b,
and 80-c).
32
Exh. 79-a, a MITIGAL prospectus showing the photograph of a bottle and a package
with the Bayer Cross. The words "Fabricado por: I.G. Farbenindustrie Aktiengesellschaft
Leverkusen b. Koln para: Winthrop Chemical Company Inc., New York, N.Y.," appear on
the lower left part of the prospectus.

Exh. 79-b, an AFRIDOL prospectus showing the photograph of a package with the
Bayer Cross and the same words Fabricado por I.G. Farbenindustrie Aktiengesellschaft
Leverkusen b. Koln para: Winthrop Chemical Company, Inc., New York, N.Y." appearing
also on the lower left part of the prospectus.

Exh. 79-c, an ASPIRINA prospectus in which reference is made to the discovery

of aspirin in 1899 by "la gigantesca fabrica de Elberfeld de la razon social
Farbenfabriken vorm. Friedrich Bayer & Co."

Exh. 79-d, a prospectus on NOVALGINA, which displays clearly the Bayer Cross
beneath the word NOVALGINA; aa manufacturer is indicated "I.G. FARBENINDUSTRIE
AKTIENGESELLSCHAFT, Seccion Farmaceutica, Bayer-Meister Lucius". On top of this
particular prostectus is a rubber stamp, "Dr. G. SCHWAB P.O.B. 1162, MANILA."
 Exh. 79-e, a prospectus on MYO-SALVARSAN, which mentions as manufacture
manufacturer of this product "I.G. FARBENINDUSTRIE ARTIENGESELLSCHAFT,
Pharmaceutical Dept. Bayer-Meister Lucius."
33
At the foot of page 38 of the Revista Boie, May 1928, Exh. 81-c, the following appears:
'Winthrop Chemical Co., Inc., New York, Distributor of the 'BAYER' products in the
Philippines. Manila Office: Dr. G, Schwab, P.O. Box 1162, Escolta 619."
34
Record on Appeal, pp. 87-91; emphasis supplied.
35
Tr., February 28, 1961, pp. 61-62; emphasis ours.
36
87 C.J.S., p. 310, citing cases at footnote 53; 52 Am. Jur., p. 626, citing cases at
footnote 18.
37
52 Am. Jur., p. 631, citing cases at footnote 20.
38
At p. 56.
39
See: Section 9-A, Trademark Law (R.A. 166, as amended by R.A. 638).
40
Buenaventura vs. David, 37 Phil. 435, 441.
41
Record on Appeal, p. 93.

LA CHEMISE LACOSTE VS FERNANDEZ

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. L-63796-97 May 2, 1984

LA CHEMISE LACOSTE, S. A., petitioner,

vs.
HON. OSCAR C. FERNANDEZ, Presiding Judge of Branch XLIX, Regional Trial Court,
National Capital Judicial Region, Manila and GOBINDRAM HEMANDAS, respondents.

G.R. No. L-65659 May 2l, 1984

GOBINDRAM HEMANDAS SUJANANI, petitioner,

vs.
HON. ROBERTO V. ONGPIN, in his capacity as Minister of Trade and Industry, and HON.
CESAR SAN DIEGO, in his capacity as Director of Patents, respondents.
Castillo, Laman, Tan & Pantaleon for petitioners in 63796-97.

Ramon C. Fernandez for private respondent in 63796-97 and petitioner in 65659.

GUTIERREZ, JR., J.:

It is among this Court's concerns that the Philippines should not acquire an unbecoming
reputation among the manufacturing and trading centers of the world as a haven for intellectual
pirates imitating and illegally profiting from trademarks and tradenames which have established
themselves in international or foreign trade.

Before this Court is a petition for certiorari with preliminary injunction filed by La Chemise
Lacoste, S.A., a well known European manufacturer of clothings and sporting apparels sold in
the international market and bearing the trademarks "LACOSTE" "CHEMISE LACOSTE",
"CROCODILE DEVICE" and a composite mark consisting of the word "LACOSTE" and a
representation of a crocodile/alligator. The petitioner asks us to set aside as null and void, the
order of judge Oscar C. Fernandez, of Branch XLIX, Regional Trial Court, National Capital
Judicial Region, granting the motion to quash the search warrants previously issued by him and
ordering the return of the seized items.

The facts are not seriously disputed. The petitioner is a foreign corporation, organized and
existing under the laws of France and not doing business in the Philippines, It is undeniable
from the records that it is the actual owner of the abovementioned trademarks used on clothings
and other goods specifically sporting apparels sold in many parts of the world and which have
been marketed in the Philippines since 1964, The main basis of the private respondent's case
is its claim of alleged prior registration.

In 1975, Hemandas & Co., a duly licensed domestic firm applied for and was issued Reg. No.
SR-2225 (SR stands for Supplemental Register) for the trademark "CHEMISE LACOSTE &
CROCODILE DEVICE" by the Philippine Patent Office for use on T-shirts, sportswear and other
garment products of the company. Two years later, it applied for the registration of the same
trademark under the Principal Register. The Patent Office eventually issued an order dated
March 3, 1977 which states that:

xxx xxx xxx

... Considering that the mark was already registered in the Supplemental
Register in favor of herein applicant, the Office has no other recourse but to allow
the application, however, Reg. No. SR-2225 is now being contested in a Petition
for Cancellation docketed as IPC No. 1046, still registrant is presumed to be the
owner of the mark until after the registration is declared cancelled.

Thereafter, Hemandas & Co. assigned to respondent Gobindram Hemandas all rights, title, and
interest in the trademark "CHEMISE LACOSTE & DEVICE".

On November 21, 1980, the petitioner filed its application for registration of the trademark
"Crocodile Device" (Application Serial No. 43242) and "Lacoste" (Application Serial No.
43241).The former was approved for publication while the latter was opposed by Games and
Garments in Inter Partes Case No. 1658. In 1982, the petitioner filed a Petition for the
Cancellation of Reg. No. SR-2225 docketed as Inter Partes Case No. 1689. Both cases have
now been considered by this Court in Hemandas v. Hon. Roberto Ongpin (G.R. No. 65659).

On March 21, 1983, the petitioner filed with the National Bureau of Investigation (NBI) a letter-
complaint alleging therein the acts of unfair competition being committed by Hemandas and
requesting their assistance in his apprehension and prosecution. The NBI conducted an
investigation and subsequently filed with the respondent court two applications for the issuance
of search warrants which would authorize the search of the premises used and occupied by the
Lacoste Sports Center and Games and Garments both owned and operated by Hemandas.

The respondent court issued Search Warrant Nos. 83-128 and 83-129 for violation of Article 189
of the Revised Penal Code, "it appearing to the satisfaction of the judge after examining under
oath applicant and his witnesses that there are good and sufficient reasons to believe that
Gobindram Hemandas ... has in his control and possession in his premises the ... properties
subject of the offense," (Rollo, pp. 67 and 69) The NBI agents executed the two search warrants
and as a result of the search found and seized various goods and articles described in the
warrants.

Hemandas filed a motion to quash the search warrants alleging that the trademark used by him
was different from petitioner's trademark and that pending the resolution of IPC No. 1658 before
the Patent Office, any criminal or civil action on the same subject matter and between the same
parties would be premature.

The petitioner filed its opposition to the motion arguing that the motion to quash was fatally
defective as it cited no valid ground for the quashal of the search warrants and that the grounds
alleged in the motion were absolutely without merit. The State Prosecutor likewise filed his
opposition on the grounds that the goods seized were instrument of a crime and necessary for
the resolution of the case on preliminary investigation and that the release of the said goods
would be fatal to the case of the People should prosecution follow in court.

The respondent court was, however, convinced that there was no probable cause to justify the
issuance of the search warrants. Thus, in its order dated March 22, 1983, the search warrants
were recalled and set aside and the NBI agents or officers in custody of the seized items were
ordered to return the same to Hemandas. (Rollo, p. 25)

The petitioner anchors the present petition on the following issues:

Did respondent judge act with grave abuse of discretion amounting to lack of
jurisdiction,

(i) in reversing the finding of probable cause which he himself had made in
issuing the search warrants, upon allegations which are matters of defense and
as such can be raised and resolved only upon trial on the merits; and

(ii) in finding that the issuance of the search warrants is premature in the face of
the fact that (a) Lacoste's registration of the subject trademarks is still pending
with the Patent Office with opposition from Hemandas; and (b) the subject
trademarks had been earlier registered by Hemandas in his name in the
Supplemental Register of the Philippine Patent Office?
Respondent, on the other hand, centers his arguments on the following issues:

THE PETITIONER HAS NO CAPACITY TO SUE BEFORE PHILIPPINE COURTS.

II

THE RESPONDENT JUDGE DID NOT COMMIT A GRAVE ABUSE OF DISCRETION

TANTAMOUNT TO LACK OF JURISDICTION IN ISSUING THE ORDER DATED APRIL 22,
1983.

Hemandas argues in his comment on the petition for certiorari that the petitioner being a foreign
corporation failed to allege essential facts bearing upon its capacity to sue before Philippine
courts. He states that not only is the petitioner not doing business in the Philippines but it also is
not licensed to do business in the Philippines. He also cites the case of Leviton Industries v.
Salvador (114 SCRA 420) to support his contention The Leviton case, however, involved a
complaint for unfair competition under Section 21-A of Republic Act No. 166 which provides:

Sec. 21 — A. Any foreign corporation or juristic person to which a mark or

tradename has been registered or assigned under this Act may bring an action
hereunder for infringement, for unfair competition, or false designation of origin
and false description, whether or not it has been licensed to do business in the
Philippines under Act numbered Fourteen Hundred and Fifty-Nine, as amended,
otherwise known as the Corporation Law, at the time it brings the
complaint; Provided, That the country of which the said foreign corporation or
juristic person is a citizen, or in which it is domiciled, by treaty, convention or law,
grants a similar privilege to corporate or juristic persons of the Philippines.

We held that it was not enough for Leviton, a foreign corporation organized and existing under
the laws of the State of New York, United States of America, to merely allege that it is a foreign
corporation. It averred in Paragraph 2 of its complaint that its action was being filed under the
provisions of Section 21-A of Republic Act No. 166, as amended. Compliance with the
requirements imposed by the abovecited provision was necessary because Section 21-A of
Republic Act No. 166 having explicitly laid down certain conditions in a specific proviso, the
same must be expressly averred before a successful prosecution may ensue. It is therefore,
necessary for the foreign corporation to comply with these requirements or aver why it should
be exempted from them, if such was the case. The foreign corporation may have the right to sue
before Philippine courts, but our rules on pleadings require that the qualifying circumstances
necessary for the assertion of such right should first be affirmatively pleaded.

In contradistinction, the present case involves a complaint for violation of Article 189 of the
Revised Penal Code. The Leviton case is not applicable.

Asserting a distinctly different position from the Leviton argument, Hemandas argued in his brief
that the petitioner was doing business in the Philippines but was not licensed to do so. To
support this argument, he states that the applicable ruling is the case of Mentholatum Co., Inc.
v. Mangaliman: (72 Phil. 524) where Mentholatum Co. Inc., a foreign corporation and Philippine-
American Drug Co., the former's exclusive distributing agent in the Philippines filed a complaint
for infringement of trademark and unfair competition against the Mangalimans.
The argument has no merit. The Mentholatum case is distinct from and inapplicable to the case
at bar. Philippine American Drug Co., Inc., was admittedly selling products of its principal
Mentholatum Co., Inc., in the latter's name or for the latter's account. Thus, this Court held that
"whatever transactions the Philippine-American Drug Co., Inc. had executed in view of the law,
the Mentholatum Co., Inc., did it itself. And, the Mentholatum Co., Inc., being a foreign doing
business in the Philippines without the license required by Section 68 of the Corporation Law, it
may not prosecute this action for violation of trademark and unfair competition."

In the present case, however, the petitioner is a foreign corporation not doing business in the
Philippines. The marketing of its products in the Philippines is done through an exclusive
distributor, Rustan Commercial Corporation The latter is an independent entity which buys and
then markets not only products of the petitioner but also many other products bearing equally
well-known and established trademarks and tradenames. in other words, Rustan is not a mere
agent or conduit of the petitioner.

The rules and regulations promulgated by the Board of Investments pursuant to its rule-making
power under Presidential Decree No. 1789, otherwise known as the Omnibus Investment Code,
support a finding that the petitioner is not doing business in the Philippines. Rule I, Sec. 1 (g) of
said rules and regulations defines "doing business" as one" which includes, inter alia:

(1) ... A foreign firm which does business through middlemen acting on their own
names, such as indentors, commercial brokers or commission merchants, shall
not be deemed doing business in the Philippines. But such indentors, commercial
brokers or commission merchants shall be the ones deemed to be doing
business in the Philippines.

(2) Appointing a representative or distributor who is domiciled in the Philippines,

unless said representative or distributor has an independent status, i.e., it
transacts business in its name and for its account, and not in the name or for the
account of a principal Thus, where a foreign firm is represented by a person or
local company which does not act in its name but in the name of the foreign firm
the latter is doing business in the Philippines.

xxx xxx xxx

Applying the above provisions to the facts of this case, we find and conclude that the petitioner
is not doing business in the Philippines. Rustan is actually a middleman acting and transacting
business in its own name and or its own account and not in the name or for the account of the
petitioner.

But even assuming the truth of the private respondent's allegation that the petitioner failed to
allege material facts in its petition relative to capacity to sue, the petitioner may still maintain the
present suit against respondent Hemandas. As early as 1927, this Court was, and it still is, of
the view that a foreign corporation not doing business in the Philippines needs no license to sue
before Philippine courts for infringement of trademark and unfair competition. Thus, in Western
Equipment and Supply Co. v. Reyes (51 Phil. 115), this Court held that a foreign corporation
which has never done any business in the Philippines and which is unlicensed and unregistered
to do business here, but is widely and favorably known in the Philippines through the use
therein of its products bearing its corporate and tradename, has a legal right to maintain an
action in the Philippines to restrain the residents and inhabitants thereof from organizing a
corporation therein bearing the same name as the foreign corporation, when it appears that they
have personal knowledge of the existence of such a foreign corporation, and it is apparent that
the purpose of the proposed domestic corporation is to deal and trade in the same goods as
those of the foreign corporation.

We further held:

xxx xxx xxx

... That company is not here seeking to enforce any legal or control rights arising
from, or growing out of, any business which it has transacted in the Philippine
Islands. The sole purpose of the action:

Is to protect its reputation, its corporate name, its goodwill, whenever that
reputation, corporate name or goodwill have, through the natural development of
its trade, established themselves.' And it contends that its rights to the use of its
corporate and trade name:

Is a property right, a right in rem, which it may assert and protect against all the
world, in any of the courts of the world-even in jurisdictions where it does not
transact business-just the same as it may protect its tangible property, real or
personal, against trespass, or conversion. Citing sec. 10, Nims on Unfair
Competition and TradeMarks and cases cited; secs. 21-22, Hopkins on
TradeMarks, Trade Names and Unfair Competition and cases cited.' That point is
sustained by the authorities, and is well stated in Hanover Star Mining Co. v.
Allen and Wheeler Co. (208 Fed., 513). in which the syllabus says:

Since it is the trade and not the mark that is to be protected, a trade-mark
acknowledges no territorial boundaries of municipalities or states or nations, but
extends to every market where the trader's goods have become known and
Identified by the use of the mark.

Our recognizing the capacity of the petitioner to sue is not by any means novel or precedent
setting. Our jurisprudence is replete with cases illustrating instances when foreign corporations
not doing business in the Philippines may nonetheless sue in our courts. In East Board
Navigation Ltd, v. Ysmael and Co., Inc. (102 Phil. 1), we recognized a right of foreign
corporation to sue on isolated transactions. In General Garments Corp. v. Director of
Patents (41 SCRA 50), we sustained the right of Puritan Sportswear Corp., a foreign corporation
not licensed to do and not doing business in the Philippines, to file a petition for cancellation of a
trademark before the Patent Office.

More important is the nature of the case which led to this petition. What preceded this petition
for certiorari was a letter complaint filed before the NBI charging Hemandas with a criminal
offense, i.e., violation of Article 189 of the Revised Penal Code. If prosecution follows after the
completion of the preliminary investigation being conducted by the Special Prosecutor the
information shall be in the name of the People of the Philippines and no longer the petitioner
which is only an aggrieved party since a criminal offense is essentially an act against the State.
It is the latter which is principally the injured party although there is a private right violated.
Petitioner's capacity to sue would become, therefore, of not much significance in the main case.
We cannot snow a possible violator of our criminal statutes to escape prosecution upon a far-
fetched contention that the aggrieved party or victim of a crime has no standing to sue.

In upholding the right of the petitioner to maintain the present suit before our courts for unfair
competition or infringement of trademarks of a foreign corporation, we are moreover recognizing
our duties and the rights of foreign states under the Paris Convention for the Protection of
Industrial Property to which the Philippines and France are parties. We are simply interpreting
and enforcing a solemn international commitment of the Philippines embodied in a multilateral
treaty to which we are a party and which we entered into because it is in our national interest to
do so.

The Paris Convention provides in part that:

ARTICLE 1

(1) The countries to which the present Convention applies constitute themselves
into a Union for the protection of industrial property.

(2) The protection of industrial property is concerned with patents, utility models,
industrial designs, trademarks service marks, trade names, and indications of
source or appellations of origin, and the repression of unfair competition.

xxx xxx xxx

ARTICLE 2

(2) Nationals of each of the countries of the Union shall as regards the protection
of industrial property, enjoy in all the other countries of the Union the advantages
that their respective laws now grant, or may hereafter grant, to nationals, without
prejudice to the rights specially provided by the present Convention.
Consequently, they shall have the same protection as the latter, and the same
legal remedy against any infringement of their rights, provided they observe the
conditions and formalities imposed upon nationals.

xxx xxx xxx

ARTICLE 6

(1) The countries of the Union undertake, either administratively if their legislation
so permits, or at the request of an interested party, to refuse or to cancel the
registration and to prohibit the use of a trademark which constitutes a
reproduction, imitation or translation, liable to create confusion, of a mark
considered by the competent authority of the country of registration or use to be
well-known in that country as being already the mark of a person entitled to the
benefits of the present Convention and used for Identical or similar goods. These
provisions shall also apply when the essential part of the mark constitutes a
reproduction of any such well-known mark or an imitation liable to create
confusion therewith.
 xxx xxx xxx

ARTICLE 8

A trade name shall be protected in all the countries of the Union without the
obligation of filing or registration, whether or not it forms part of a trademark.

xxx xxx xxx

ARTICLE 10bis

(1) The countries of the Union are bound to assure to persons entitled to the
benefits of the Union effective protection against unfair competition.

xxx xxx xxx

ARTICLE 10ter

(1) The countries of the Union undertake to assure to nationals of the other
countries of the Union appropriate legal remedies to repress effectively all the
acts referred to in Articles 9, 10 and l0bis.

(2) They undertake, further, to provide measures to permit syndicates and

associations which represent the industrialists, producers or traders concerned
and the existence of which is not contrary to the laws of their countries, to take
action in the Courts or before the administrative authorities, with a view to the
repression of the acts referred to in Articles 9, 10 and 10bis, in so far as the law
of the country in which protection is claimed allows such action by the syndicates
and associations of that country.

xxx xxx xxx

ARTICLE 17

Every country party to this Convention undertakes to adopt, in accordance with

its constitution, the measures necessary to ensure the application of this
Convention.

It is understood that at the time an instrument of ratification or accession is

deposited on behalf of a country; such country will be in a position under its
domestic law to give effect to the provisions of this Convention. (61 O.G. 8010)

xxx xxx xxx

In Vanity Fair Mills, Inc. v. T Eaton Co. (234 F. 2d 633) the United States Circuit Court of
Appeals had occasion to comment on the extraterritorial application of the Paris Convention It
said that:
 [11] The International Convention is essentially a compact between the various
member countries to accord in their own countries to citizens of the other
contracting parties trademark and other rights comparable to those accorded
their own citizens by their domestic law. The underlying principle is that foreign
nationals should be given the same treatment in each of the member countries
as that country makes available to its own citizens. In addition, the Convention
sought to create uniformity in certain respects by obligating each member nation
'to assure to nationals of countries of the Union an effective protection against
unfair competition.'

[12] The Convention is not premised upon the Idea that the trade-mark and
related laws of each member nation shall be given extra-territorial application, but
on exactly the converse principle that each nation's law shall have only territorial
application. Thus a foreign national of a member nation using his trademark in
commerce in the United States is accorded extensive protection here against
infringement and other types of unfair competition by virtue of United States
membership in the Convention. But that protection has its source in, and is
subject to the limitations of, American law, not the law of the foreign national's
own country. ...

By the same token, the petitioner should be given the same treatment in the Philippines as we
make available to our own citizens. We are obligated to assure to nationals of "countries of the
Union" an effective protection against unfair competition in the same way that they are obligated
to similarly protect Filipino citizens and firms.

Pursuant to this obligation, the Ministry of Trade on November 20, 1980 issued a memorandum
addressed to the Director of the Patents Office directing the latter:

xxx xxx xxx

... to reject all pending applications for Philippine registration of signature and
other world famous trademarks by applicants other than its original owners or
users.

The conflicting claims over internationally known trademarks involve such name
brands as Lacoste, Jordache, Gloria Vanderbilt, Sasson, Fila, Pierre Cardin,
Gucci, Christian Dior, Oscar de la Renta, Calvin Klein, Givenchy, Ralph Lauren,
Geoffrey Beene, Lanvin and Ted Lapidus.

It is further directed that, in cases where warranted, Philippine registrants of such

trademarks should be asked to surrender their certificates of registration, if any,
to avoid suits for damages and other legal action by the trademarks' foreign or
local owners or original users.

The memorandum is a clear manifestation of our avowed adherence to a policy of cooperation

and amity with all nations. It is not, as wrongly alleged by the private respondent, a personal
policy of Minister Luis Villafuerte which expires once he leaves the Ministry of Trade. For a
treaty or convention is not a mere moral obligation to be enforced or not at the whims of an
incumbent head of a Ministry. It creates a legally binding obligation on the parties founded on
the generally accepted principle of international law of pacta sunt servanda which has been
adopted as part of the law of our land. (Constitution, Art. II, Sec. 3). The memorandum reminds
the Director of Patents of his legal duty to obey both law and treaty. It must also be obeyed.

Hemandas further contends that the respondent court did not commit grave abuse of discretion
in issuing the questioned order of April 22, 1983.

A review of the grounds invoked by Hemandas in his motion to quash the search warrants
reveals the fact that they are not appropriate for quashing a warrant. They are matters of
defense which should be ventilated during the trial on the merits of the case. For instance, on
the basis of the facts before the Judge, we fail to understand how he could treat a bare
allegation that the respondent's trademark is different from the petitioner's trademark as a
sufficient basis to grant the motion to quash. We will treat the issue of prejudicial question later.
Granting that respondent Hemandas was only trying to show the absence of probable cause,
we, nonetheless, hold the arguments to be untenable.

As a mandatory requirement for the issuance of a valid search warrant, the Constitution requires
in no uncertain terms the determination of probable cause by the judge after examination under
oath or affirmation of the complainant and the witnesses he may produce (Constitution, Art. IV,
Sec. 3). Probable cause has traditionally meant such facts and circumstances antecedent to the
issuance of the warrant that are in themselves sufficient to induce a cautious man to rely upon
them and act in pursuance thereof (People v. Sy Juco, 64 Phil. 667).

This concept of probable cause was amplified and modified by our ruling in Stonehill v.
Diokno, (20 SCRA 383) that probable cause "presupposes the introduction of competent proof
that the party against whom it is sought has performed particular acts, or committed specific
omissions, violating a given provision of our criminal laws."

The question of whether or not probable cause exists is one which must be decided in the light
of the conditions obtaining in given situations (Central Bank v. Morfe, 20 SCRA 507). We agree
that there is no general formula or fixed rule for the determination of the existence of probable
cause since, as we have recognized in Luna v. Plaza(26 SCRA 310), the existence depends to
a large degree upon the finding or opinion of the judge conducting the examination. However,
the findings of the judge should not disregard the facts before him nor run counter to the clear
dictates of reason. More so it is plain that our country's ability to abide by international
commitments is at stake.

The records show that the NBI agents at the hearing of the application for the warrants before
respondent court presented three witnesses under oath, sworn statements, and various exhibits
in the form of clothing apparels manufactured by Hemandas but carrying the trademark Lacoste.
The respondent court personally interrogated Ramon Esguerra, Samuel Fiji, and Mamerto
Espatero by means of searching questions. After hearing the testimonies and examining the
documentary evidence, the respondent court was convinced that there were good and sufficient
reasons for the issuance of the warrant. And it then issued the warrant.

The respondent court, therefore, complied with the constitutional and statutory requirements for
the issuance of a valid search warrant. At that point in time, it was fully convinced that there
existed probable cause. But after hearing the motion to quash and the oppositions thereto, the
respondent court executed a complete turnabout and declared that there was no probable
cause to justify its earlier issuance of the warrants.
True, the lower court should be given the opportunity to correct its errors, if there be any, but the
rectification must, as earlier stated be based on sound and valid grounds. In this case, there
was no compelling justification for the about face. The allegation that vital facts were
deliberately suppressed or concealed by the petitioner should have been assessed more
carefully because the object of the quashal was the return of items already seized and easily
examined by the court. The items were alleged to be fake and quite obviously would be needed
as evidence in the criminal prosecution. Moreover, an application for a search warrant is
heard ex parte. It is neither a trial nor a part of the trial. Action on these applications must be
expedited for time is of the essence. Great reliance has to be accorded by the judge to the
testimonies under oath of the complainant and the witnesses. The allegation of Hemandas that
the applicant withheld information from the respondent court was clearly no basis to order the
return of the seized items.

Hemandas relied heavily below and before us on the argument that it is the holder of a
certificate of registration of the trademark "CHEMISE LACOSTE & CROCODILE DEVICE".
Significantly, such registration is only in the Supplemental Register.

A certificate of registration in the Supplemental Register is not prima facie evidence of the
validity of registration, of the registrant's exclusive right to use the same in connection with the
goods, business, or services specified in the certificate. Such a certificate of registration cannot
be filed, with effect, with the Bureau of Customs in order to exclude from the Philippines, foreign
goods bearing infringement marks or trade names (Rule 124, Revised Rules of Practice Before
the Phil. Pat. Off. in Trademark Cases; Martin, Philippine Commercial Laws, 1981, Vol. 2,
pp.513-515).

Section 19-A of Republic Act 166 as amended not only provides for the keeping of the
supplemental register in addition to the principal register but specifically directs that:

xxx xxx xxx

The certificates of registration for marks and trade names registered on the
supplemental register shall be conspicuously different from certificates issued for
marks and trade names on the principal register.

xxx xxx xxx

The reason is explained by a leading commentator on Philippine Commercial Laws:

The registration of a mark upon the supplemental register is not, as in the case of
the principal register, prima facie evidence of (1) the validity of registration; (2)
registrant's ownership of the mark; and (3) registrant's exclusive right to use the
mark. It is not subject to opposition, although it may be cancelled after its
issuance. Neither may it be the subject of interference proceedings. Registration
on the supplemental register is not constructive notice of registrant's claim of
ownership. A supplemental register is provided for the registration of marks
which are not registrable on the principal register because of some defects
(conversely, defects which make a mark unregistrable on the principal register,
yet do not bar them from the supplemental register.) (Agbayani, II Commercial
Laws of the Philippines, 1978, p. 514, citing Uy Hong Mo v. Titay & Co., et al.,
Dec. No. 254 of Director of Patents, Apr. 30, 1963);
Registration in the Supplemental Register, therefore, serves as notice that the registrant is using
or has appropriated the trademark. By the very fact that the trademark cannot as yet be entered
in the Principal Register, all who deal with it should be on guard that there are certain defects,
some obstacles which the user must Still overcome before he can claim legal ownership of the
mark or ask the courts to vindicate his claims of an exclusive right to the use of the same. It
would be deceptive for a party with nothing more than a registration in the Supplemental
Register to posture before courts of justice as if the registration is in the Principal Register.

The reliance of the private respondent on the last sentence of the Patent office action on
application Serial No. 30954 that "registrant is presumed to be the owner of the mark until after
the registration is declared cancelled" is, therefore, misplaced and grounded on shaky
foundation, The supposed presumption not only runs counter to the precept embodied in Rule
124 of the Revised Rules of Practice before the Philippine Patent Office in Trademark Cases
but considering all the facts ventilated before us in the four interrelated petitions involving the
petitioner and the respondent, it is devoid of factual basis. And even in cases where
presumption and precept may factually be reconciled, we have held that the presumption is
rebuttable, not conclusive, (People v. Lim Hoa, G.R. No. L10612, May 30, 1958, Unreported).
One may be declared an unfair competitor even if his competing trademark is registered (Parke,
Davis & Co. v. Kiu Foo & Co., et al., 60 Phil. 928; La Yebana Co. v. Chua Seco & Co., 14 Phil.
534).

By the same token, the argument that the application was premature in view of the pending
case before the Patent Office is likewise without legal basis.

The proceedings pending before the Patent Office involving IPC Co. 1658 do not partake of the
nature of a prejudicial question which must first be definitely resolved.

Section 5 of Rule 111 of the Rules of Court provides that:

A petition for the suspension of the criminal action based upon the pendency of a
pre-judicial question in a civil case, may only be presented by any party before or
during the trial of the criminal action.

The case which suspends the criminal prosecution must be a civil case which is determinative
of the innocence or, subject to the availability of other defenses, the guilt of the accused. The
pending case before the Patent Office is an administrative proceeding and not a civil case. The
decision of the Patent Office cannot be finally determinative of the private respondent's
innocence of the charges against him.

In Flordelis v. Castillo (58 SCRA 301), we held that:

As clearly delineated in the aforecited provisions of the new Civil Code and the
Rules of Court, and as uniformly applied in numerous decisions of this Court,
(Berbari v. Concepcion, 40 Phil. 837 (1920); Aleria v. Mendoza, 83 Phil. 427
(1949); People v. Aragon, 94 Phil. 357 (1954); Brito-Sy v. Malate Taxicab &
Garage, Inc., 102 Phil 482 (1957); Mendiola v. Macadael, 1 SCRA 593; Benitez
v. Concepcion, 2 SCRA 178; Zapante v. Montesa, 4 SCRA 510; Jimenez v.
Averia, 22 SCRA 1380.) In Buenaventura v. Ocampo (55 SCRA 271) the doctrine
of prejudicial question was held inapplicable because no criminal case but merely
an administrative case and a civil suit were involved. The Court, however, held
 that, in view of the peculiar circumstances of that case, the respondents' suit for
damages in the lower court was premature as it was filed during the pendency of
an administrative case against the respondents before the POLCOM. 'The
possibility cannot be overlooked,' said the Court, 'that the POLCOM may hand
down a decision adverse to the respondents, in which case the damage suit will
become unfounded and baseless for wanting in cause of action.') the doctrine of
pre-judicial question comes into play generally in a situation where a civil action
and a criminal action both penned and there exists in the former an issue which
must be preemptively resolved before the criminal action may proceed, because
howsoever the issue raised in the civil action is resolved would be
determinative juris et de jure of the guilt or innocence of the accused in the
criminal case.

In the present case, no civil action pends nor has any been instituted. What was pending was
an administrative case before the Patent Office.

Even assuming that there could be an administrative proceeding with exceptional or special
circumstances which render a criminal prosecution premature pending the promulgation of the
administrative decision, no such peculiar circumstances are present in this case.

Moreover, we take note of the action taken by the Patents Office and the Minister of Trade and
affirmed by the Intermediate Appellate Court in the case of La Chemise Lacoste S. A. v. Ram
Sadhwani (AC-G.R. No. SP-13356, June 17, 1983).

The same November 20, 1980 memorandum of the Minister of Trade discussed in this decision
was involved in the appellate court's decision. The Minister as the "implementing authority"
under Article 6bis of the Paris Convention for the protection of Industrial Property instructed the
Director of Patents to reject applications for Philippine registration of signature and other world
famous trademarks by applicants other than its original owners or users. The brand "Lacoste"
was specifically cited together with Jordache, Gloria Vanderbilt, Sasson, Fila, Pierre Cardin,
Gucci, Christian Dior, Oscar dela Renta, Calvin Klein, Givenchy, Ralph Laurence, Geoffrey
Beene, Lanvin, and Ted Lapidus. The Director of Patents was likewise ordered to require
Philippine registrants of such trademarks to surrender their certificates of registration.
Compliance by the Director of Patents was challenged.

The Intermediate Appellate Court, in the La Chemise Lacoste S.A. v. Sadhwani decision which
we cite with approval sustained the power of the Minister of Trade to issue the implementing
memorandum and, after going over the evidence in the records, affirmed the decision of the
Director of Patents declaring La Chemise Lacoste &A. the owner of the disputed trademark
and crocodile or alligator device. The Intermediate Appellate Court speaking through Mr. Justice
Vicente V. Mendoza stated:

In the case at bar, the Minister of Trade, as 'the competent authority of the
country of registration,' has found that among other well-known trademarks
'Lacoste' is the subject of conflicting claims. For this reason, applications for its
registration must be rejected or refused, pursuant to the treaty obligation of the
Philippines.

Apart from this finding, the annexes to the opposition, which La Chemise Lacoste
S.A. filed in the Patent Office, show that it is the owner of the trademark 'Lacoste'
 and the device consisting of a representation of a crocodile or alligator by the
prior adoption and use of such mark and device on clothing, sports apparel and
the like. La Chemise Lacoste S.A, obtained registration of these mark and device
and was in fact issued renewal certificates by the French National Industry
Property Office.

xxx xxx xxx

Indeed, due process is a rule of reason. In the case at bar the order of the Patent
Office is based not only on the undisputed fact of ownership of the trademark by
the appellee but on a prior determination by the Minister of Trade, as the
competent authority under the Paris Convention, that the trademark and device
sought to be registered by the appellant are well-known marks which the
Philippines, as party to the Convention, is bound to protect in favor of its owners.
it would be to exalt form over substance to say that under the circumstances, due
process requires that a hearing should be held before the application is acted
upon.

The appellant cites section 9 of Republic Act No. 166, which requires notice and
hearing whenever an opposition to the registration of a trademark is made. This
provision does not apply, however, to situations covered by the Paris
Convention, where the appropriate authorities have determined that a well-known
trademark is already that of another person. In such cases, the countries
signatories to the Convention are obliged to refuse or to cancel the registration of
the mark by any other person or authority. In this case, it is not disputed that the
trademark Lacoste is such a well-known mark that a hearing, such as that
provided in Republic Act No. 166, would be superfluous.

The issue of due process was raised and fully discussed in the appellate court's decision. The
court ruled that due process was not violated.

In the light of the foregoing it is quite plain that the prejudicial question argument is without
merit.

We have carefully gone over the records of all the cases filed in this Court and find more than
enough evidence to sustain a finding that the petitioner is the owner of the trademarks
"LACOSTE", "CHEMISE LACOSTE", the crocodile or alligator device, and the composite mark
of LACOSTE and the representation of the crocodile or alligator. Any pretensions of the private
respondent that he is the owner are absolutely without basis. Any further ventilation of the issue
of ownership before the Patent Office will be a superfluity and a dilatory tactic.

The issue of whether or not the trademark used by the private respondent is different from the
petitioner's trade mark is a matter of defense and will be better resolved in the criminal
proceedings before a court of justice instead of raising it as a preliminary matter in an
administrative proceeding.

The purpose of the law protecting a trademark cannot be overemphasized. They are to point out
distinctly the origin or ownership of the article to which it is affixed, to secure to him, who has
been instrumental in bringing into market a superior article of merchandise, the fruit of his
industry and skill, and to prevent fraud and imposition (Etepha v. Director of Patents, 16 SCRA
495).

The legislature has enacted laws to regulate the use of trademarks and provide for the
protection thereof. Modern trade and commerce demands that depredations on legitimate trade
marks of non-nationals including those who have not shown prior registration thereof should not
be countenanced. The law against such depredations is not only for the protection of the owner
of the trademark but also, and more importantly, for the protection of purchasers from confusion,
mistake, or deception as to the goods they are buying. (Asari Yoko Co., Ltd. v. Kee Boc, 1
SCRA 1; General Garments Corporation v. Director of Patents, 41 SCRA 50).

The law on trademarks and tradenames is based on the principle of business integrity and
common justice' This law, both in letter and spirit, is laid upon the premise that, while it
encourages fair trade in every way and aims to foster, and not to hamper, competition, no one,
especially a trader, is justified in damaging or jeopardizing another's business by fraud, deceipt,
trickery or unfair methods of any sort. This necessarily precludes the trading by one dealer upon
the good name and reputation built up by another (Baltimore v. Moses, 182 Md 229, 34 A (2d)
338).

The records show that the goodwill and reputation of the petitioner's products bearing the
trademark LACOSTE date back even before 1964 when LACOSTE clothing apparels were first
marketed in the Philippines. To allow Hemandas to continue using the trademark Lacoste for
the simple reason that he was the first registrant in the Supplemental Register of a trademark
used in international commerce and not belonging to him is to render nugatory the very essence
of the law on trademarks and tradenames.

We now proceed to the consideration of the petition in Gobindram Hemandas Suianani u. Hon.
Roberto V Ongpin,et al. (G.R. No. 65659).

Actually, three other petitions involving the same trademark and device have been filed with this
Court.

In Hemandas & Co. v. Intermediate Appellate Court, et al. (G.R. No. 63504) the petitioner asked
for the following relief:

IN VIEW OF ALL THE FOREGOING, it is respectfully prayed (a) that the

Resolutions of the respondent Court of January 3, 1983 and February 24, 1983
be nullified; and that the Decision of the same respondent Court of June 30, 1983
be declared to be the law on the matter; (b) that the Director of Patents be
directed to issue the corresponding registration certificate in the Principal
Register; and (c) granting upon the petitioner such other legal and equitable
remedies as are justified by the premises.

On December 5, 1983, we issued the following resolution:

Considering the allegations contained, issues raised and the arguments adduced
in the petition for review, the respondent's comment thereon, and petitioner's
reply to said comment, the Court Resolved to DENY the petition for lack of merit.
 The Court further Resolved to CALL the attention of the Philippine Patent Office
to the pendency in this Court of G.R. No. 563796-97 entitled 'La Chemise
Lacoste, S.A. v. Hon. Oscar C. Fernandez and Gobindram Hemandas' which
was given due course on June 14, 1983 and to the fact that G.R. No. 63928-29
entitled 'Gobindram Hemandas v. La Chemise Lacoste, S.A., et al.' filed on May
9, 1983 was dismissed for lack of merit on September 12, 1983. Both petitions
involve the same dispute over the use of the trademark 'Chemise Lacoste'.

The second case of Gobindram Hemandas vs. La Chemise Lacoste, S.A., et al. (G.R. No.
63928-29) prayed for the following:

I. On the petition for issuance of writ of preliminary injunction, an order be issued

after due hearing:

l. Enjoining and restraining respondents Company, attorneys-in-fact, and

Estanislao Granados from further proceedings in the unfair competition charges
pending with the Ministry of Justice filed against petitioner;

2. Enjoining and restraining respondents Company and its attorneys-in-fact from

causing undue publication in newspapers of general circulation on their
unwarranted claim that petitioner's products are FAKE pending proceedings
hereof; and

3. Enjoining and restraining respondents Company and its attorneys-in-fact from

sending further threatening letters to petitioner's customers unjustly stating that
petitioner's products they are dealing in are FAKE and threatening them with
confiscation and seizure thereof.

II. On the main petition, judgment be rendered:

l. Awarding and granting the issuance of the Writ of Prohibition, prohibiting,

stopping, and restraining respondents from further committing the acts
complained of;

2. Awarding and granting the issuance of the Writ of Mandamus, ordering and
compelling respondents National Bureau of Investigation, its aforenamed agents,
and State Prosecutor Estanislao Granados to immediately comply with the Order
of the Regional Trial Court, National Capital Judicial Region, Branch XLIX,
Manila, dated April 22, 1983, which directs the immediate return of the seized
items under Search Warrants Nos. 83-128 and 83-129;

3. Making permanent any writ of injunction that may have been previously issued
by this Honorable Court in the petition at bar: and

4. Awarding such other and further relief as may be just and equitable in the
premises.

As earlier stated, this petition was dismissed for lack of merit on September 12, 1983. Acting on
a motion for reconsideration, the Court on November 23, 1983 resolved to deny the motion for
lack of merit and declared the denial to be final.
Hemandas v. Hon. Roberto Ongpin (G.R. No. 65659) is the third petition.

In this last petition, the petitioner prays for the setting aside as null and void and for the
prohibiting of the enforcement of the following memorandum of respondent Minister Roberto
Ongpin:

MEMORANDUM:

FOR: THE DIRECTOR OF PATENTS

Philippine Patent Office

xxx xxx xxx

Pursuant to Executive Order No. 913 dated 7 October 1983 which strengthens the rule-making
and adjudicatory powers of the Minister of Trade and Industry and provides inter alia, that 'such
rule-making and adjudicatory powers should be revitalized in order that the Minister of Trade
and Industry can ...apply more swift and effective solutions and remedies to old and new
problems ... such as the infringement of internationally-known tradenames and trademarks
...'and in view of the decision of the Intermediate Appellate Court in the case of LA CHEMISE
LACOSTE, S.A., versus RAM SADWHANI [AC-G.R. Sp. No. 13359 (17) June 1983] which
affirms the validity of the MEMORANDUM of then Minister Luis R. Villafuerte dated 20
November 1980 confirming our obligations under the PARIS CONVENTION FOR THE
PROTECTION OF INDUSTRIAL PROPERTY to which the Republic of the Philippines is a
signatory, you are hereby directed to implement measures necessary to effect compliance with
our obligations under said convention in general, and, more specifically, to honor our
commitment under Section 6 bisthereof, as follows:

1. Whether the trademark under consideration is well-known in the Philippines or

is a mark already belonging to a person entitled to the benefits of the
CONVENTION, this should be established, pursuant to Philippine Patent Office
procedures in inter partes and ex parte cases, according to any of the following
criteria or any combination thereof:

(a) a declaration by the Minister of Trade and Industry that' the trademark being
considered is already well-known in the Philippines such that permission for its
use by other than its original owner will constitute a reproduction, imitation,
translation or other infringement;

(b) that the trademark is used in commerce internationally, supported by proof

that goods bearing the trademark are sold on an international scale,
advertisements, the establishment of factories, sales offices, distributorships, and
the like, in different countries, including volume or other measure of international
trade and commerce;

(c) that the trademark is duly registered in the industrial property office(s) of
another country or countries, taking into consideration the dates of such
registration;
 (d) that the trademark has been long established and obtained goodwill and
general international consumer recognition as belonging to one owner or source;

(e) that the trademark actually belongs to a party claiming ownership and has the
right to registration under the provisions of the aforestated PARIS
CONVENTION.

2. The word trademark, as used in this MEMORANDUM, shall include

tradenames, service marks, logos, signs, emblems, insignia or other similar
devices used for Identification and recognition by consumers.

3. The Philippine Patent Office shall refuse all applications for, or cancel the
registration of, trademarks which constitute a reproduction, translation or
imitation of a trademark owned by a person, natural or corporate, who is a citizen
of a country signatory to the PARIS CONVENTION FOR THE PROTECTION OF
INDUSTRIAL PROPERTY.

4. The Philippine Patent Office shall give due course to the Opposition in cases
already or hereafter filed against the registration of trademarks entitled to
protection of Section 6 bis of said PARIS CONVENTION as outlined above, by
remanding applications filed by one not entitled to such protection for final
disallowance by the Examination Division.

5. All pending applications for Philippine registration of signature and other world
famous trademarks filed by applicants other than their original owners or users
shall be rejected forthwith. Where such applicants have already obtained
registration contrary to the abovementioned PARIS CONVENTION and/or
Philippine Law, they shall be directed to surrender their Certificates of
Registration to the Philippine Patent Office for immediate cancellation
proceedings.

6. Consistent with the foregoing, you are hereby directed to expedite the hearing
and to decide without delay the following cases pending before your Office:

1. INTER PARTES CASE NO. 1689-Petition filed by La Chemise Lacoste, S.A.

for the cancellation of Certificate of Registration No. SR-2225 issued to
Gobindram Hemandas, assignee of Hemandas and Company;

2. INTER PARTES CASE NO. 1658-Opposition filed by Games and Garments

Co. against the registration of the trademark Lacoste sought by La Chemise
Lacoste, S.A.;

3. INTER PARTES CASE NO. 1786-Opposition filed by La Chemise Lacoste,

S.A. against the registration of trademark Crocodile Device and Skiva sought by
one Wilson Chua.

Considering our discussions in G.R. Nos. 63796-97, we find the petition in G.R. No. 65659 to be
patently without merit and accordingly deny it due course.
In complying with the order to decide without delay the cases specified in the memorandum, the
Director of Patents shall limit himself to the ascertainment of facts in issues not resolved by this
decision and apply the law as expounded by this Court to those facts.

One final point. It is essential that we stress our concern at the seeming inability of law
enforcement officials to stem the tide of fake and counterfeit consumer items flooding the
Philippine market or exported abroad from our country. The greater victim is not so much the
manufacturer whose product is being faked but the Filipino consuming public and in the case of
exportations, our image abroad. No less than the President, in issuing Executive Order No. 913
dated October 7, 1983 to strengthen the powers of the Minister of Trade and Industry for the
protection of consumers, stated that, among other acts, the dumping of substandard, imitated,
hazardous, and cheap goods, the infringement of internationally known tradenames and
trademarks, and the unfair trade practices of business firms has reached such proportions as to
constitute economic sabotage. We buy a kitchen appliance, a household tool, perfume, face
powder, other toilet articles, watches, brandy or whisky, and items of clothing like jeans, T-
shirts, neck, ties, etc. — the list is quite length — and pay good money relying on the brand
name as guarantee of its quality and genuine nature only to explode in bitter frustration and
genuine nature on helpless anger because the purchased item turns out to be a shoddy
imitation, albeit a clever looking counterfeit, of the quality product. Judges all over the country
are well advised to remember that court processes should not be used as instruments to,
unwittingly or otherwise, aid counterfeiters and intellectual pirates, tie the hands of the law as it
seeks to protect the Filipino consuming public and frustrate executive and administrative
implementation of solemn commitments pursuant to international conventions and treaties.

WHEREFORE, the petition in G.R. NOS. 63797-97 is hereby GRANTED. The order dated April
22, 1983 of the respondent regional trial court is REVERSED and SET ASIDE. Our Temporary
Restraining Order dated April 29, 1983 is ma(i.e. PERMANENT. The petition in G.R. NO. 65659
is DENIED due course for lack of merit. Our Temporary Restraining Order dated December 5,
1983 is LIFTED and SET ASIDE, effective immediately.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Relova and De la Fuente, JJ., concur.

WELLS FARGO BANK VS COLLECTOR

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-46720 June 28, 1940

WELLS FARGO BANK & UNION TRUST COMPANY, petitioner-appellant,

vs.
THE COLLECTOR OF INTERNAL REVENUE, respondent-appellee.
De Witt, Perkins and Ponce Enrile for appellant.
Office of the Solicitor-General Ozaeta and Assistant Solicitor-General Concepcion for appellee.
Ross, Lawrence, Selph and Carrascoso, James Madison Ross and Federico Agrava as amici
curiæ.

MORAN, J.:

An appeal from a declaratory judgment rendered by the Court of First Instance of Manila.

Birdie Lillian Eye, wife of Clyde Milton Eye, died on September 16, 1932, at Los Angeles,
California, the place of her alleged last residence and domicile. Among the properties she left
her one-half conjugal share in 70,000 shares of stock in the Benguet Consolidated Mining
Company, an anonymous partnership (sociedad anonima), organized and existing under the
laws of the Philippines, with is principal office in the City of Manila. She left a will which was duly
admitted to probate in California where her estate was administered and settled. Petitioner-
appellant, Wells Fargo Bank & Union Trust Company, was duly appointed trustee of the created
by the said will. The Federal and State of California's inheritance taxes due on said shares have
been duly paid. Respondent Collector of Internal Revenue sought to subject anew the aforesaid
shares of stock to the Philippine inheritance tax, to which petitioner-appellant objected.
Wherefore, a petition for a declaratory judgment was filed in the lower court, with the statement
that, "if it should be held by a final declaratory judgment that the transfer of the aforesaid shares
of stock is legally subject to the Philippine inheritance tax, the petitioner will pay such tax,
interest and penalties (saving error in computation) without protest and will not file to recover the
same; and the petitioner believes and t herefore alleges that it should be held that such transfer
is not subject to said tax, the respondent will not proceed to assess and collect the same." The
Court of First Instance of Manila rendered judgment, holding that the transmission by will of the
said 35,000 shares of stock is subject to Philippine inheritance tax. Hence, this appeal by the
petitioner.

Petitioner concedes (1) that the Philippine inheritance tax is not a tax property, but upon
transmission by inheritance (Lorenzo vs. Posadas, 35 Off. Gaz., 2393, 2395), and (2) that as to
real and tangible personal property of a non-resident decedent, located in the Philippines, the
Philippine inheritance tax may be imposed upon their transmission by death, for the self-evident
reason that, being a property situated in this country, its transfer is, in some way, defendant, for
its effectiveness, upon Philippine laws. It is contended, however, that, as to intangibles, like the
shares of stock in question, their situs is in the domicile of the owner thereof, and, therefore,
their transmission by death necessarily takes place under his domiciliary laws.

Section 1536 of the Administrative Code, as amended, provides that every transmission by
virtue of inheritance of any share issued by any corporation of sociedad anonima organized or
constituted in the Philippines, is subject to the tax therein provided. This provision has already
been applied to shares of stock in a domestic corporation which were owned by a British subject
residing and domiciled in Great Britain. (Knowles vs. Yatco, G. R. No. 42967. See
also Gibbs vs. Government of P. I., G. R. No. 35694.) Petitioner, however, invokes the rule laid
down by the United States Supreme Court in four cases (Farmers Loan & Trust
Company vs. Minnesota, 280 U.S. 204; 74 Law. ed., 371; Baldwin vs. Missouri, 281 U.S., 586;
74 Law. ed., 1056, Beidler vs. South Carolina Tax Commission 282 U. S., 1; 75 Law. ed., 131;
First National Bank of Boston vs. Maine, 284 U. S., 312; 52 S. Ct., 174, 76 Law. ed., 313; 77 A.
L. R., 1401), to the effect that an inheritance tax can be imposed with respect to intangibles only
by the State where the decedent was domiciled at the time of his death, and that, under the
due-process clause, the State in which a corporation has been incorporated has no power to
impose such tax if the shares of stock in such corporation are owned by a non-resident
decedent. It is to be observed, however, that in a later case (Burnet vs. Brooks, 288 U. S., 378;
77 Law. ed., 844), the United States Supreme Court upheld the authority of the Federal
Government to impose an inheritance tax on the transmission, by death of a non-resident, of
stock in a domestic (America) corporation, irrespective of the situs of the corresponding
certificates of stock. But it is contended that the doctrine in the foregoing case is not applicable,
because the due-process clause is directed at the State and not at the Federal Government,
and that the federal or national power of the United States is to be determined in relation to
other countries and their subjects by applying the principles of jurisdiction recognized in
international relations. Be that as it may, the truth is that the due-process clause is "directed at
the protection of the individual and he is entitled to its immunity as much against the state as
against the national government." (Curry vs. McCanless, 307 U. S., 357, 370; 83 Law. ed.,
1339, 1349.) Indeed, the rule laid down in the four cases relied upon by the appellant was
predicated on a proper regard for the relation of the states of the American Union, which
requires that property should be taxed in only one state and that jurisdiction to tax is restricted
accordingly. In other words, the application to the states of the due-process rule springs from a
proper distribution of their powers and spheres of activity as ordained by the United States
Constitution, and such distribution is enforced and protected by not allowing one state to reach
out and tax property in another. And these considerations do not apply to the Philippines. Our
status rests upon a wholly distinct basis and no analogy, however remote, cam be suggested in
the relation of one state of the Union with another or with the United States. The status of the
Philippines has been aptly defined as one which, though a part of the United States in the
international sense, is, nevertheless, foreign thereto in a domestic sense. (Downes vs. Bidwell,
182 U. S., 244, 341.)

At any rate, we see nothing of consequence in drawing any distinct between the operation and
effect of the due-process clause as it applies to the individual states and to the national
government of the United States. The question here involved is essentially not one of due-
process, but of the power of the Philippine Government to tax. If that power be conceded, the
guaranty of due process cannot certainly be invoked to frustrate it, unless the law involved is
challenged, which is not, on considerations repugnant to such guaranty of due process of that of
the equal protection of the laws, as, when the law is alleged to be arbitrary, oppressive or
discriminatory.

Originally, the settled law in the United States is that intangibles have only one situs for the
purpose of inheritance tax, and that such situs is in the domicile of the decedent at the time of
his death. But this rule has, of late, been relaxed. The maxim mobilia sequuntur personam,
upon which the rule rests, has been described as a mere "fiction of law having its origin in
consideration of general convenience and public policy, and cannot be applied to limit or control
the right of the state to tax property within its jurisdiction" (State Board of
Assessors vs. Comptoir National D'Escompte, 191 U. S., 388, 403, 404), and must "yield to
established fact of legal ownership, actual presence and control elsewhere, and cannot be
applied if to do so result in inescapable and patent injustice." (Safe Deposit & Trust
Co. vs. Virginia, 280 U. S., 83, 91-92) There is thus a marked shift from artificial postulates of
law, formulated for reasons of convenience, to the actualities of each case.

An examination of the adjudged cases will disclose that the relaxation of the original rule rests
on either of two fundamental considerations: (1) upon the recognition of the inherent power of
each government to tax persons, properties and rights within its jurisdiction and enjoying, thus,
the protection of its laws; and (2) upon the principle that as o intangibles, a single location in
space is hardly possible, considering the multiple, distinct relationships which may be entered
into with respect thereto. It is on the basis of the first consideration that the case of
Burnetvs. Brooks, supra, was decided by the Federal Supreme Court, sustaining the power of
the Government to impose an inheritance tax upon transmission, by death of a non-resident, of
shares of stock in a domestic (America) corporation, regardless of the situs of their
corresponding certificates; and on the basis of the second consideration, the case of
Cury vs. McCanless, supra.

In Burnet vs. Brooks, the court, in disposing of the argument that the imposition of the federal
estate tax is precluded by the due-process clause of the Fifth Amendment, held:

The point, being solely one of jurisdiction to tax, involves none of the other consideration
raised by confiscatory or arbitrary legislation inconsistent with the fundamental
conceptions of justice which are embodied in the due-process clause for the protection
of life, liberty, and property of all persons — citizens and friendly aliens alike. Russian
Volunteer Fleet vs. United States, 282 U. S., 481, 489; 75 Law ed., 473, 476; 41 S. Ct.,
229; Nicholas vs. Coolidge, 274 U. S., 531; 542, 71 Law ed., 1184, 1192; 47 S. Ct., 710;
52 A. L. R., 1081; Heiner vs. Donnon, 285 U.S., 312, 326; 76 Law ed., 772, 779; 52 S.
Ct., 358. If in the instant case the Federal Government had jurisdiction to impose the tax,
there is manifestly no ground for assailing it. Knowlton vs. Moore, 178 U.S., 41, 109; 44
Law. ed., 969, 996; 20 S. Ct., 747; MaGray vs. United States, 195 U.S., 27, 61; 49 Law.
ed., 78; 97; 24 S. Ct., 769; 1 Ann. Cas., 561; Flint vs. Stone Tracy Co., 220 U.S., 107,
153, 154; 55 Law. ed., 389, 414, 415; 31 S. Ct., 342; Ann. Cas., 1912B, 1312;
Brushaber vs. Union p. R. Co., 240 U.S., 1, 24; 60 Law. ed., 493, 504; 36 S. Ct., 236; L.
R. A., 1917 D; 414, Ann. Cas, 1917B, 713; United States vs. Doremus, 249 U. S., 86,
93; 63 Law. ed., 439, 496; 39 S. Ct., 214. (Emphasis ours.)

And, in sustaining the power of the Federal Government to tax properties within its borders,
wherever its owner may have been domiciled at the time of his death, the court ruled:

. . . There does not appear, a priori, to be anything contrary to the principles of

international law, or hurtful to the polity of nations, in a State's taxing property physically
situated within its borders, wherever its owner may have been domiciled at the time of
his death. . . .

As jurisdiction may exist in more than one government, that is, jurisdiction based on
distinct grounds — the citizenship of the owner, his domicile, the source of income, the
situs of the property — efforts have been made to preclude multiple taxation through the
negotiation of appropriate international conventions. These endeavors, however, have
proceeded upon express or implied recognition, and not in denial, of the sovereign
taxing power as exerted by governments in the exercise of jurisdiction upon any one of
these grounds. . . . (See pages 396-397; 399.)

In Curry vs. McCanless, supra, the court, in deciding the question of whether the States of
Alabama and Tennessee may each constitutionally impose death taxes upon the transfer of an
interest in intangibles held in trust by an Alabama trustee but passing under the will of a
beneficiary decedent domiciles in Tennessee, sustained the power of each State to impose the
tax. In arriving at this conclusion, the court made the following observations:
 In cases where the owner of intangibles confines his activity to the place of his domicile
it has been found convenient to substitute a rule for a reason, cf. New York ex rel.,
Cohn vs. Graves, 300 U.S., 308, 313; 81 Law. ed., 666, 670; 57 S. Ct., 466; 108 A. L.
R., 721; First Bank Stock Corp. vs. Minnesota, 301 U. S., 234, 241; 81 Law. ed., 1061,
1065; 57 S. Ct., 677; 113 A. L. R., 228, by saying that his intangibles are taxed at their
situs and not elsewhere, or perhaps less artificially, by invoking the maxim mobilia
sequuntur personam. Blodgett vs. Silberman, 277 U.S., 1; 72 Law. ed., 749; S. Ct., 410,
supra; Baldwin vs. Missouri, 281 U. S., 568; 74 Law. ed., 1056; 50 S. Ct., 436; 72 A. L.
R., 1303, supra, which means only that it is the identify owner at his domicile which gives
jurisdiction to tax. But when the taxpayer extends his activities with respect to his
intangibles, so as to avail himself of the protection and benefit of the laws of another
state, in such a way as to bring his person or properly within the reach of the tax
gatherer there, the reason for a single place of taxation no longer obtains, and the rule
even workable substitute for the reasons may exist in any particular case to support the
constitutional power of each state concerned to tax. Whether we regard the right of a
state to tax as founded on power over the object taxed, as declared by Chief Justice
Marshall in McCulloch vs. Maryland, 4 Wheat., 316; 4 Law. ed., 579, supra, through
dominion over tangibles or over persons whose relationships are source of intangibles
rights, or on the benefit and protection conferred by the taxing sovereignty, or both, it is
undeniable that the state of domicile is not deprived, by the taxpayer's activities
elsewhere, of its constitutional jurisdiction to tax, and consequently that there are many
circumstances in which more than one state may have jurisdiction to impose a tax and
measure it by some or all of the taxpayer's intangibles. Shares or corporate stock be
taxed at the domicile of the shareholder and also at that of the corporation which the
taxing state has created and controls; and income may be taxed both by the state where
it is earned and by the state of the recipient's domicile. protection, benefit, and power
over the subject matter are not confined to either state. . . .(p. 1347-1349.)

. . . We find it impossible to say that taxation of intangibles can be reduced in every case
to the mere mechanical operation of locating at a single place, and there taxing, every
legal interest growing out of all the complex legal relationships which may be entered
into between persons. This is the case because in point of actuality those interests may
be too diverse in their relationships to various taxing jurisdictions to admit of unitary
treatment without discarding modes of taxation long accepted and applied before the
Fourteen Amendment was adopted, and still recognized by this Court as valid. (P. 1351.)

We need not belabor the doctrines of the foregoing cases. We believe, and so hold, that the
issue here involved is controlled by those doctrines. In the instant case, the actual situs of the
shares of stock is in the Philippines, the corporation being domiciled therein. And besides, the
certificates of stock have remained in this country up to the time when the deceased died in
California, and they were in possession of one Syrena McKee, secretary of the Benguet
Consolidated Mining Company, to whom they have been delivered and indorsed in blank. This
indorsement gave Syrena McKee the right to vote the certificates at the general meetings of the
stockholders, to collect dividends, and dispose of the shares in the manner she may deem fit,
without prejudice to her liability to the owner for violation of instructions. For all practical
purposes, then, Syrena McKee had the legal title to the certificates of stock held in trust for the
true owner thereof. In other words, the owner residing in California has extended here her
activities with respect to her intangibles so as to avail herself of the protection and benefit of the
Philippine laws. Accordingly, the jurisdiction of the Philippine Government to tax must be
upheld.
Judgment is affirmed, with costs against petitioner-appellant.

Avanceña, C.J., Imperial, Diaz and Concepcion, JJ., concur.

PHILIP MORRIS VS COURT OF APPEALS

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 91332 July 16, 1993

PHILIP MORRIS, INC., BENSON & HEDGES (CANADA), INC., AND FABRIQUES OF
TABAC REUNIES, S.A.,petitioners
vs.
THE COURT OF APPEALS AND FORTUNE TOBACCO CORPORATION, respondents.

Quasha, Asperilla, Ancheta, Peña & Nolasco Law Office for petitioners.

Teresita Gandionco-Oledan for private respondent.

MELO, J.:

In the petition before us, petitioners Philip Morris, Inc., Benson and Hedges (Canada), Inc., and
Fabriques of Tabac Reunies, S.A., are ascribing whimsical exercise of the faculty conferred
upon magistrates by Section 6, Rule 58 of the Revised Rules of Court when respondent Court
of Appeals lifted the writ of preliminary injunction it earlier had issued against Fortune Tobacco
Corporation, herein private respondent, from manufacturing and selling "MARK" cigarettes in
the local market.

Banking on the thesis that petitioners' respective symbols "MARK VII", "MARK TEN", and
"LARK", also for cigarettes, must be protected against unauthorized appropriation, petitioners
twice solicited the ancillary writ in the course the main suit for infringement but the court of origin
was unpersuaded.

Before we proceed to the generative facts of the case at bar, it must be emphasized that
resolution of the issue on the propriety of lifting the writ of preliminary injunction should not be
construed as a prejudgment of the suit below. Aware of the fact that the discussion we are
about to enter into involves a mere interlocutory order, a discourse on the aspect infringement
must thus be avoided. With these caveat, we shall now shift our attention to the events which
spawned the controversy.
As averred in the initial pleading, Philip Morris, Incorporated is a corporation organized under
the laws of the State of Virginia, United States of America, and does business at 100 Park
Avenue, New York, New York, United States of America. The two other plaintiff foreign
corporations, which are wholly-owned subsidiaries of Philip Morris, Inc., are similarly not doing
business in the Philippines but are suing on an isolated transaction. As registered owners
"MARK VII", "MARK TEN", and "LARK" per certificates of registration issued by the Philippine
Patent Office on April 26, 1973, May 28, 1964, and March 25, 1964, plaintiffs-petitioners
asserted that defendant Fortune Tobacco Corporation has no right to manufacture and sell
cigarettes bearing the allegedly identical or confusingly similar trademark "MARK" in
contravention of Section 22 of the Trademark Law, and should, therefore, be precluded during
the pendency of the case from performing the acts complained of via a preliminary injunction (p.
75, Court of Appeals Rollo in AC-G.R. SP No. 13132).

For its part, Fortune Tobacco Corporation admitted petitioners' certificates of registration with
the Philippine Patent Office subject to the affirmative and special defense on misjoinder of party
plaintiffs. Private respondent alleged further that it has been authorized by the Bureau of
Internal Revenue to manufacture and sell cigarettes bearing the trademark "MARK", and that
"MARK" is a common word which cannot be exclusively appropriated (p.158, Court of
Appeals Rollo in A.C.-G.R. SP No. 13132). On March 28, 1983, petitioners' prayer for
preliminary injunction was denied by the Presiding Judge of Branch 166 of the Regional Trial
Court of the National Capital Judicial Region stationed at Pasig, premised upon the following
propositions:

Plaintiffs admit in paragraph 2 of the complaint that ". . . they are

not doing business in the Philippines and are suing on an isolated transaction . .
.". This simply means that they are not engaged in the sale, manufacture,
importation, expor[t]ation and advertisement of their cigarette products in the
Philippines. With this admission, defendant asks: ". . . how could defendant's
"MARK" cigarettes cause the former "irreparable damage" within the territorial
limits of the Philippines?" Plaintiffs maintain that since their trademarks are
entitled to protection by treaty obligation under Article 2 of the Paris Convention
of which the Philippines is a member and ratified by Resolution No. 69 of the
Senate of the Philippines and as such, have the force and effect of law under
Section 12, Article XVII of our Constitution and since this is an action for a
violation or infringement of a trademark or trade name by defendant, such mere
allegation is sufficient even in the absence of proof to support it. To the mind of
the Court, precisely, this is the issue in the main case to determine whether or
not there has been an invasion of plaintiffs' right of property to such trademark or
trade name. This claim of plaintiffs is disputed by defendant in paragraphs 6 and
7 of the Answer; hence, this cannot be made a basis for the issuance of a writ of
preliminary injunction.

There is no dispute that the First Plaintiff is the registered owner of trademar[k]
"MARK VII" with Certificate of Registration No. 18723, dated April 26,1973 while
the Second Plaintiff is likewise the registered owner of trademark "MARK TEN"
under Certificate of Registration No. 11147, dated May 28, 1963 and the Third
Plaintiff is a registrant of trademark "LARK" as shown by Certificate of
Registration No. 10953 dated March 23, 1964, in addition to a pending
application for registration of trademark "MARK VII" filed on November 21, 1980
under Application Serial No. 43243, all in the Philippine Patent Office. In same
the manner, defendant has a pending application for registration of the trademark
"LARK" cigarettes with the Philippine Patent Office under Application Serial No.
44008. Defendant contends that since plaintiffs are "not doing business in the
Philippines" coupled the fact that the Director of Patents has not denied their
pending application for registration of its trademark "MARK", the grant of a writ of
preliminary injunction is premature. Plaintiffs contend that this act(s) of defendant
is but a subterfuge to give semblance of good faith intended to deceive the public
and patronizers into buying the products and create the impression that
defendant's goods are identical with or come from the same source as plaintiffs'
products or that the defendant is a licensee of plaintiffs when in truth and in fact
the former is not. But the fact remains that with its pending application, defendant
has embarked in the manufacturing, selling, distributing and advertising of
"MARK" cigarettes. The question of good faith or bad faith on the part of
defendant are matters which are evidentiary in character which have to be
proven during the hearing on the merits; hence, until and unless the Director of
Patents has denied defendant's application, the Court is of the opinion and so
holds that issuance a writ of preliminary injunction would not lie.

There is no question that defendant has been authorized by the Bureau of

Internal Revenue to manufacture cigarettes bearing the trademark "MARK"
(Letter of Ruben B. Ancheta, Acting Commissioner addressed to Fortune
Tobacco Corporation dated April 3, 1981, marked as Annex "A", defendant's
"OPPOSITION, etc." dated September 24, 1982). However, this authority is
qualified . . . that the said brands have been accepted and registered by the
Patent Office not later than six (6) months after you have been manufacturing the
cigarettes and placed the same in the market." However, this grant ". . . does not
give you protection against any person or entity whose rights may be prejudiced
by infringement or unfair competition in relation to your indicated
trademarks/brands". As aforestated, the registration of defendant's application is
still pending in the Philippine Patent Office.

It has been repeatedly held in this jurisdiction as well as in the United States that
the right or title of the applicant for injunction remedy must be clear and free from
doubt. Because of the disastrous and painful effects of an injunction, Courts
should be extremely careful, cautious and conscionable in the exercise of its
discretion consistent with justice, equity and fair play.

There is no power the exercise of which is more delicate which

requires greater caution, deliberation, and sound discretion, or
(which is) more dangerous in a doubtful case than the issuing of
an injunction; it is the strong arm of equity that never ought to be
extended unless to cases of great injury, where courts of law
cannot afford an adequate or commensurate remedy in damages.
The right must be clear, the injury impending or threatened, so as
to be averted only by the protecting preventive process of
injunction. (Bonaparte v. Camden, etc. N. Co., 3 F. Cas. No. 1,
617, Baldw. 205, 217.)

Courts of equity constantly decline to lay down any rule which

injunction shall be granted or withheld. There is wisdom in this
 course, for it is impossible to foresee all exigencies of society
which may require their aid to protect rights and restrain wrongs.
(Merced M. Go v. Freemont, 7 Gal. 317, 321; 68 Am. Dec. 262.)

It is the strong arm of the court; and to render its operation begin
and useful, it must be exercised with great discretion, and when
necessary requires it. (Attorney-General v. Utica Inc. Co., P. John
Ch. (N.Y.) 371.)

Having taken a panoramic view of the position[s] of both parties as viewed from
their pleadings, the picture reduced to its minimum size would be this: At the
crossroads are the two (2) contending parties, plaintiffs vigorously asserting the
rights granted by law, treaty and jurisprudence to restrain defendant in its
activities of manufacturing, selling, distributing and advertising its "MARK"
cigarettes and now comes defendant who countered and refused to be restrained
claiming that it has been authorized temporarily by the Bureau of Internal
Revenue under certain conditions to do so as aforestated coupled by its pending
application for registration of trademark "MARK" in the Philippine Patent Office.
This circumstance in itself has created a dispute between the parties which to the
mind of the Court does not warrant the issuance of a writ of preliminary
injunction.

It is well-settled principle that courts of equity will refuse an

application for the injunctive remedy where the principle of law on
which the right to preliminary injunction rests is disputed and will
admit of doubt, without a decision of the court of law establishing
such principle although satisfied as to what is a correct conclusion
of law upon the facts. The fact, however, that there is no such
dispute or conflict does not in itself constitute a justifiable ground
for the court to refuse an application for the injunctive relief.
(Hackensack Impr. Commn. v. New Jersey Midland P. Co., 22
N.J. Eg. 94.)

Hence, the status quo existing between the parties prior to the filing of this case
should be maintained. For after all, an injunction, without reference to the parties,
should be violent, vicious nor even vindictive. (pp. 338-341, Rollo in G.R. No.
91332.)

In the process of denying petitioners' subsequent motion for reconsideration of the order
denying issuance of the requested writ, the court of origin took cognizance of the certification
executed on January 30, 1984 by the Philippine Patent Office attesting to the fact that private
respondent's application for registration is still pending appropriate action. Apart from this
communication, what prompted the trial court judge to entertain the idea of prematurity and
untimeliness of petitioners' application for a writ of preliminary injunction was the letter from the
Bureau of Internal Revenue date February 2, 1984 which reads:

MRS. TERESITA GANDIONGCO OLEDAN

Legal Counsel
Fortune Tobacco Corporation
 Madam:

In connection with your letter dated January 25, 1984, reiterating your query as to
whether your label approval automatically expires or becomes null and void after
six (6) months if the brand is not accepted and by the patent office, please be
informed that no provision in the Tax Code or revenue regulation that requires an
applicant to comply with the aforementioned condition order that his label
approved will remain valid and existing.

Based on the document you presented, it shows that registration of this particular
label still pending resolution by the Patent Office. These being so , you may
therefore continue with the production said brand of cigarette until this Office is
officially notified that the question of ownership of "MARK" brand is finally
resolved.

(p. 348, Rollo.)

It appears from the testimony of Atty. Enrique Madarang, Chief of the Trademark Division of the
then Philippine Patent Office that Fortune's application for its trademark is still pending before
said office (p. 311, Rollo).

Petitioners thereafter cited supervening events which supposedly transpired since March 28,
1983, when the trial court first declined issuing a writ of preliminary injunction, that could alter
the results of the case in that Fortune's application had been rejected, nay, barred by the
Philippine Patent Office, and that the application had been forfeited by abandonment, but the
trial court nonetheless denied the second motion for issuance of the injunctive writ on April 22,
1987, thus:

For all the prolixity of their pleadings and testimonial evidence, the plaintiffs-
movants have fallen far short of the legal requisites that would justify the grant of
the writ of preliminary injunction prayed for. For one, they did not even bother to
establish by competent evidence that the products supposedly affected adversely
by defendant's trademark now subject of an application for registration with the
Philippine Patents Office, are in actual use in the Philippines. For another, they
concentrated their fire on the alleged abandonment and forfeiture by defendant of
said application for registration.

The Court cannot help but take note of the fact that in their complaint plaintiffs
included a prayer for issuance preliminary injunction. The petition was duly
heard, and thereafter matter was assiduously discussed lengthily and resolved
against plaintiffs in a 15-page Order issued by the undersigned's predecessor on
March 28, 1983. Plaintiffs' motion for reconsideration was denied in another well-
argued 8 page Order issued on April 5, 1984,, and the matter was made to rest.

However, on the strength of supposed changes in the material facts of this case,
plaintiffs came up with the present motion citing therein the said changes which
are: that defendant's application had been rejected and barred by the Philippine
Patents Office, and that said application has been deemed abandoned and
forfeited. But defendant has refiled the same.
 Plaintiffs' arguments in support of the present motion appear to be a mere rehash
of their stand in the first above-mentioned petition which has already been ruled
upon adversely against them. Granting that the alleged changes in the material
facts are sufficient grounds for a motion seeking a favorable grant of what has
already been denied, this motion just the same cannot prosper.

In the first place there is no proof whatsoever that any of plaintiffs' products which
they seek to protect from any adverse effect of the trademark applied for by
defendant, is in actual use and available for commercial purposes anywhere in
the Philippines. Secondly as shown by plaintiffs' own evidence furnished by no
less than the chief of Trademarks Division of the Philippine Patent Office, Atty.
Enrique Madarang, the abandonment of an application is of no moment, for the
same can always be refiled. He said there is no specific provision in the rules
prohibiting such refiling (TSN, November 21, 1986, pp. 60 & 64, Raviera). In fact,
according to Madarang, the refiled application of defendant is now pending
before the Patents Office. Hence, it appears that the motion has no leg to stand
on. (pp. 350-351, Rollo in G. R. No. 91332.)

Confronted with this rebuff, petitioners filed a previous petition for certiorari before the Court,
docketed as G.R. No. 78141, but the petition was referred to the Court of Appeals.

The Court of Appeals initially issued a resolution which set aside the court of origin's order
dated April 22, 1987, and granted the issuance of a writ of preliminary injunction enjoining
Fortune, its agents, employees, and representatives, from manufacturing, selling, and
advertising "MARK" cigarettes. The late Justice Cacdac, speaking for the First Division of the
Court of Appeals in CA-G.R. SP No. 13132, remarked:

There is no dispute that petitioners are the registered owners of the trademarks
for cigarettes "MARK VII", "MARK TEN", and "LARK".(Annexes B, C and D,
petition). As found and reiterated by the Philippine Patent Office in two (2) official
communications dated April 6, 1983 and January 24, 1984, the trademark
"MARK" is "confusingly similar" to the trademarks of petitioners, hence
registration was barred under Sec. 4 (d) of Rep. Act. No. 166, as amended (pp.
106, 139, SCA rollo). In a third official communication dated April 8, 1986, the
trademark application of private respondent for the "MARK" under Serial No.
44008 filed on February 13, 1981 which was declared abandoned as of February
16, 1986, is now deemed forfeited, there being no revival made pursuant to Rule
98 of the Revised Rules of Practitioners in Trademark Cases." (p. 107, CA rollo).
The foregoing documents or communications mentioned by petitioners as "the
changes in material facts which occurred after March 28, 1983", are not also
questioned by respondents.

Pitted against the petitioners' documentary evidence, respondents pointed to (1)

the letter dated January 30, 1979 (p. 137, CA rollo) of Conrado P. Diaz, then
Acting Commissioner of Internal Revenue, temporarily granting the request of
private respondent for a permit to manufacture two (2) new brands of cigarettes
one of which is brand "MARK" filter-type blend, and (2) the certification dated
September 26, 1986 of Cesar G. Sandico, Director of Patents (p. 138, CA rollo)
issued upon the written request of private respondents' counsel dated September
17, 1986 attesting that the records of his office would show that the "trademark
MARK" for cigarettes is now the subject of a pending application under Serial No.
59872 filed on September 16, 1986.

Private respondent's documentary evidence provides the reasons neutralizing or

weakening their probative values. The penultimate paragraph of Commissioner
Diaz' letter of authority reads:

Please be informed further that the authority herein granted does

not give you protection against any person or entity whose rights
may be prejudiced by infringement or unfair competition in relation
to your above-named brands/trademark.

while Director Sandico's certification contained similar conditions as follows:

This Certification, however, does not give protection as against

any person or entity whose right may be prejudiced by
infringement or unfair competition in relation to the aforesaid
trademark nor the right to register if contrary to the provisions of
the Trademark Law, Rep. Act No. 166 as amended and the
Revised Rules of Practice in Trademark Cases.

The temporary permit to manufacture under the trademark "MARK" for cigarettes
and the acceptance of the second application filed by private respondent in the
height of their dispute in the main case were evidently made subject to the
outcome of the said main case or Civil Case No. 47374 of the respondent Court.
Thus, the Court has not missed to note the absence of a mention in the Sandico
letter of September 26, 1986 of any reference to the pendency of the instant
action filed on August 18, 1982. We believe and hold that petitioners have shown
a prima facie case for the issuance of the writ of prohibitory injunction for the
purposes stated in their complaint and subsequent motions for the issuance of
the prohibitory writ. (Buayan Cattle Co. vs. Quintillan, 125 SCRA 276)

The requisites for the granting of preliminary injunction are the existence of the
right protected and the facts against which the injunction is to be directed as
violative of said right. (Buayan Cattle Co. vs. Quintillan, supra; Ortigas & Co. vs.
Ruiz, 148 SCRA 326). It is a writ framed according to the circumstances of the
case commanding an act which the Court regards as essential to justice and
restraining an act it deems contrary to equity and good conscience (Rosauro vs.
Cuneta, 151 SCRA 570). If it is not issued, the defendant may, before final
judgment, do or continue the doing of the act which the plaintiff asks the court to
restrain, and thus make ineffectual the final judgment rendered afterwards
granting the relief sought by the plaintiff (Calo vs. Roldan, 76 Phil. 445).
Generally, its grant or denial rests upon the sound discretion of the Court except
on a clear case of abuse (Belish Investment & Finance Co. vs. State House, 151
SCRA 636). Petitioners' right of exclusivity to their registered trademarks being
clear and beyond question, the respondent court's denial of the prohibitive writ
constituted excess of jurisdiction and grave abuse discretion. If the lower court
does not grant preliminary injunction, the appellate court may grant the same.
(Service Specialists, Inc. vs. Sheriff of Manila, 145 SCRA 139). (pp. 165-
167, Rollo in G.R. No. 91332.)
After private respondent Fortune's motion for reconsideration was rejected, a motion to dissolve
the disputed writ of preliminary injunction with offer to post a counterbond was submitted which
was favorably acted upon by the Court of Appeals, premised on the filing of a sufficient
counterbond to answer for whatever perjuicio petitioners may suffer as a result thereof, to wit:

The private respondent seeks to dissolve the preliminary injunction previously

granted by this Court with an offer to file a counterbond. It was pointed out in its
supplemental motion that lots of workers employed will be laid off as a
consequence of the injunction and that the government will stand to lose the
amount of specific taxes being paid by the
private respondent. The specific taxes being paid is the sum total of P120,120,
295.98 from January to July 1989.

The petitioners argued in their comment that the damages caused by the
infringement of their trademark as well as the goodwill it generates are incapable
of pecuniary estimation and monetary evaluation and not even the counterbond
could adequately compensate for the damages it will incur as a result of the
dissolution of the bond. In addition, the petitioner further argued that doing
business in the Philippines is not relevant as the injunction pertains to an
infringement of a trademark right.

After a thorough re-examination of the issues involved and the arguments

advanced by both parties in the offer to file a counterbond and the opposition
thereto, WE believe that there are sound and cogent reasons for US to grant the
dissolution of the writ of preliminary injunction by the offer of the private
respondent to put up a counterbond to answer for whatever damages the
petitioner may suffer as a consequence of the dissolution of the preliminary
injunction.

The petitioner will not be prejudiced nor stand to suffer irreparably as a

consequence of the lifting of the preliminary injunction considering that they are
not actually engaged in the manufacture of the cigarettes with the trademark in
question and the filing of the counterbond will amply answer for such damages.

While the rule is that an offer of a counterbond does not operate to dissolve an
injunction previously granted, nevertheless, it is equally true that an injunction
could be dissolved only upon good and valid grounds subject to the sound
discretion of the court. As WE have maintained the view that there are sound and
good reasons to lift the preliminary injunction, the motion to file a counterbond is
granted. (pp. 53-54, Rollo in G.R. No. 91332.)

Petitioners, in turn, filed their own motion for re-examination geared towards reimposition of the
writ of preliminary injunction but to no avail (p. 55, Rollo in G.R. No. 91332).

Hence, the instant petition casting three aspersions that respondent court gravely abused its
discretion tantamount to excess of jurisdiction when:

I. . . . it required, contrary to law and jurisprudence, that in order that petitioners

may suffer irreparable injury due to the lifting of the injunction, petitioners should
be using actually their registered trademarks in commerce in the Philippines;
 II. . . . it lifted the injunction in violation of section 6 of Rule 58 of the Rules of
Court; and

III. . . . after having found that the trial court had committed grave abuse of
discretion and exceeded its jurisdiction for having refused to issue the writ of
injunction to restrain private respondent's acts that are contrary to equity and
good conscience, it made a complete about face for legally insufficient grounds
and authorized the private respondent to continue performing the very same acts
that it had considered contrary to equity and good conscience, thereby ignoring
not only the mandates of the Trademark Law, the international commitments of
the Philippines, the judicial admission of private respondent that it will have no
more right to use the trademark "MARK" after the Director of Patents shall have
rejected the application to register it, and the admonitions of the Supreme Court.
(pp. 24-25, Petition; pp. 25-26, Rollo.)

To sustain a successful prosecution of their suit for infringement, petitioners, as foreign

corporations not engaged in local commerce, rely on section 21-A of the Trademark Law
reading as follows:

Sec. 21-A. Any foreign corporation or juristic person to which a mark or trade-
name has been registered or assigned under this act may bring an action
hereunder for infringement, for unfair competition, or false designation of origin
and false description, whether or not it has been licensed to do business in the
Philippines under Act Numbered Fourteen hundred and fifty-nine, as amended,
otherwise known as the Corporation Law, at the time it brings complaint:
Provided, That the country of which the said foreign corporation or juristic person
is a citizen or in which it is domiciled, by treaty, convention or law, grants a
similar privilege to corporate or juristic persons of the Philippines. (As inserted by
Sec. 7 of Republic Act No. 638.)

to drive home the point that they are not precluded from initiating a cause of
action in the Philippines on account of the principal perception that another entity
is pirating their symbol without any lawful authority to do so. Judging from a
perusal of the aforequoted Section 21-A, the conclusion reached by petitioners is
certainly correct for the proposition in support thereof is embedded in the
Philippine legal jurisprudence.

Indeed, it was stressed in General Garments Corporation vs. Director of Patents (41 SCRA 50
[1971]) by then Justice (later Chief Justice) Makalintal that:

Parenthetically, it may be stated that the ruling in the Mentholatum case was
subsequently derogated when Congress, purposely to "counteract the effects" of
said case, enacted Republic Act No. 638, inserting Section 21-A in the
Trademark Law, which allows a foreign corporation or juristic person to bring an
action in Philippine courts for infringement of a mark or tradename, for unfair
competition, or false designation of origin and false description, "whether or not it
has been licensed to do business in the Philippines under Act Numbered
Fourteen hundred and fifty-nine, as amended, otherwise known as the
Corporation Law, at the time it brings complaint."
 Petitioner argues that Section 21-A militates against respondent's capacity to
maintain a suit for cancellation, since it requires, before a foreign corporation
may bring an action, that its trademark or tradename has been registered under
the Trademark Law. The argument misses the essential point in the said
provision, which is that the foreign corporation is allowed thereunder to sue
"whether or not it has been licensed to do business in the Philippines" pursuant
to the Corporation Law (precisely to counteract the effects of the decision in the
Mentholatum case). (at p. 57.)

However, on May, 21, 1984, Section 21-A, the provision under consideration, was qualified by
this Court in La Chemise Lacoste S.A. vs. Fernandez (129 SCRA 373 [1984]), to the effect that
a foreign corporation not doing business in the Philippines may have the right to sue before
Philippine Courts, but existing adjective axioms require that qualifying circumstances necessary
for the assertion of such right should first be affirmatively pleaded (2 Agbayani Commercial
Laws of the Philippines, 1991 Ed., p. 598; 4 Martin, Philippine Commercial Laws, Rev. Ed.,
1986, p. 381). Indeed, it is not sufficient for a foreign corporation suing under Section 21-A to
simply allege its alien origin. Rather, it must additionally allege its personality to sue. Relative to
this condition precedent, it may be observed that petitioners were not remiss in averring their
personality to lodge a complaint for infringement (p. 75,Rollo in AC-G.R. SP No. 13132)
especially so when they asserted that the main action for infringement is anchored on an
isolated transaction (p. 75, Rollo in AC-G.R. SP No. 13132; Atlantic Mutual Ins. Co. vs. Cebu
Stevedoring Co., Inc., 17 SCRA 1037 (1966), 1 Regalado, Remedial Law Compendium, Fifth
Rev. Ed., 1988, p. 103).

Another point which petitioners considered to be of significant interest, and which they desire to
impress upon us is the protection they enjoy under the Paris Convention of 1965 to which the
Philippines is a signatory. Yet, insofar as this discourse is concerned, there is no necessity to
treat the matter with an extensive response because adherence of the Philippines to the 1965
international covenant due to pact sunt servanda had been acknowledged in La
Chemise (supra at page 390).

Given these confluence of existing laws amidst the cases involving trademarks, there can be no
disagreement to the guiding principle in commercial law that foreign corporations not engaged in
business in the Philippines may maintain a cause of action for infringement primarily because of
Section 21-A of the Trademark Law when the legal standing to sue is alleged, which petitioners
have done in the case at hand.

In assailing the justification arrived at by respondent court when it recalled the writ of preliminary
injunction, petitioners are of the impression that actual use of their trademarks in Philippine
commercial dealings is not an indispensable element under Article 2 of the Paris Convention in
that:

(2) . . . . no condition as to the possession of a domicile or establishment in the

country where protection is claimed may be required of persons entitled to the
benefits of the Union for the enjoyment of any industrial property of any industrial
property rights. (p. 28, Petition; p. 29, Rollo in G.R. No. 91332.)

Yet petitioners' perception along this line is nonetheless resolved by Sections 2 and 2-A of the
Trademark Law which speak loudly, about necessity of actual commercial use of the trademark
in the local forum:
 Sec. 2. What are registrable. — Trademarks, tradenames and service marks
owned by persons, corporations, partnerships or associations domiciled in the
Philippines and by persons, corporations, partnerships or associations domiciled
in any foreign country may be registered in accordance with the provisions of this
Act; Provided, That said trademarks, tradenames, or service marks are actually
in use in commerce and services not less than two months in the
Philippines before the time the applications for registration are filed; And
provided, further, That the country of which the applicant for registration is a
citizen grants by law substantially similar privileges to citizens of the Philippines,
and such fact is officially certified, with a certified true copy of the foreign law
translated into the English language, by the government of the foreign country to
the Government of the Republic of the Philippines. (As amended by R.A. No.
865).

Sec. 2-A. Ownership of trademarks, tradenames and service marks; how

acquired. — Anyone who lawfully produces or deals in merchandise of any kind
or who engages in any lawful business, or who renders any lawful service in
commerce, by actual use thereof in manufacture or trade, in business,and in the
service rendered, may appropriate to his exclusive use a trademark, a
tradename, or a service mark not so appropriated by another, to distinguish his
merchandise, business or service from the merchandise, business or service of
others. The ownership or possession of a trademark, tradename, service mark,
heretofore or hereafter appropriated, as in this section provided, shall be
recognized and protected in the same manner and to the same extent as are
other property rights known to the law. (As amended by R.A. No. 638). (Kabushi
Kaisha Isetan vs. Intermediate Appellate Court, 203 SCRA 583 [1991], at pp.
589-590; emphasis supplied.)

Following universal acquiescence and comity, our municipal law on trademarks regarding the
requirement of actual use in the Philippines must subordinate an international agreement
inasmuch as the apparent clash is being decided by a municipal tribunal (Mortensen vs. Peters,
Great Britain, High Court of Judiciary of Scotland, 1906, 8 Sessions 93; Paras, International Law
and World Organization, 1971 Ed., p. 20). Withal, the fact that international law has been made
part of the law of the land does not by any means imply the primacy of international law over
national law in the municipal sphere. Under the doctrine of incorporation as applied in most
countries, rules of international law are given a standing equal, not superior, to national
legislative enactments (Salonga and Yap, Public International Law, Fourth ed., 1974, p. 16).

The aforequoted basic provisions of our Trademark Law, according to Justice Gutierrez, Jr.,
in Kabushi Kaisha Isetan vs. Intermediate Appellate Court (203 SCRA 583 [1991]), have been
construed in this manner:

A fundamental principle of Philippine Trademark Law is that actual use in

commerce in the Philippines is a pre-requisite to the acquisition of ownership
over a trademark or a tradename.

xxx xxx xxx

These provisions have been interpreted in Sterling Products International, Inc. v.

Farbenfabriken Bayer Actiengesellschaft (27 SCRA 1214 [1969]) in this way:
 A rule widely accepted and firmly entrenched because it has come
down through the years is that actual use in commerce or
business is a prerequisite to the acquisition of the right of
ownership over a trademark.

xxx xxx xxx

. . . Adoption alone of a trademark would not give exclusive right

thereto. Such right grows out of their actual use. Adoption is not
use. One may make advertisements, issue circulars, give out price
lists on certain goods; but these alone would not give exclusive
right of use. For trademark is a creation of use. The underlying
reason for all these is that purchasers have come to understand
the mark as indicating the origin of the wares. Flowing from this is
the trader's right to protection in the trade he has built up and the
goodwill he has accumulated from use of the trademark. . . .

In fact, a prior registrant cannot claim exclusive use of the trademark unless it
uses it in commerce.

We rule[d] in Pagasa Industrial Corporation v. Court of Appeals (118 SCRA 526

[1982]):

3. The Trademark law is very clear. It requires actual commercial use of the mark
prior to its registration. There is no dispute that respondent corporation was the
first registrant, yet it failed to fully substantiate its claim that it used in trade or
business in the Philippines the subject mark; it did not present proof to invest it
with exclusive, continuous adoption of the trademark which should consist
among others, of considerable sales since its first use. The invoices (Exhibits 7,
7-a, and 8-b) submitted by respondent which were dated way back in 1957 show
that the zippers sent to the Philippines were to be used as "samples" and "of no
commercial value". The evidence for respondent must be clear, definite and free
from inconsistencies. (Sy Ching v. Gaw Lui, 44 SCRA 148-149) "Samples" are
not for sale and therefore, the fact of exporting them to the Philippines cannot be
considered to be equivalent to the "use" contemplated by the law. Respondent
did not expect income from such "samples". There were no receipts to establish
sale, and no proof were presented to show that they were subsequently sold in
the Philippines. (Pagasa Industrial Corp. v. Court of Appeals, 118 SCRA 526
[1982]; Emphasis Supplied)

The records show that the petitioner has never conducted any business in the
Philippines. It has never promoted its tradename or trademark in the Philippines.
It is unknown to Filipino except the very few who may have noticed it while
travelling abroad. It has never paid a single centavo of tax to the Philippine
government. Under the law, it has no right to the remedy it seeks. (at pp. 589-
591.)

In other words, petitioners may have the capacity to sue for infringement irrespective of lack of
business activity in the Philippines on account of Section 21-A of the Trademark Law but the
question whether they have an exclusive right over their symbol as to justify issuance of the
controversial writ will depend on actual use of their trademarks in the Philippines in line with
Sections 2 and 2-A of the same law. It is thus incongruous for petitioners to claim that when a
foreign corporation not licensed to do business in Philippines files a complaint for infringement,
the entity need not be actually using its trademark in commerce in the Philippines. Such a
foreign corporation may have the personality to file a suit for infringement but it may not
necessarily be entitled to protection due to absence of actual use of the emblem in the local
market.

Going back to the first assigned error, we can not help but notice the manner the ascription was
framed which carries with it the implied but unwarranted assumption of the existence of
petitioners' right to relief. It must be emphasized that this aspect of exclusive dominion to the
trademarks, together with the corollary allegation of irreparable injury, has yet to be established
by petitioners by the requisite quantum of evidence in civil cases. It cannot be denied that our
reluctance to issue a writ of preliminary injunction is due to judicial deference to the lower
courts, involved as there is mere interlocutory order (Villarosa vs. Teodoro, Sr., 100 Phil. 25
[1956]). In point of adjective law, the petition has its roots on a remedial measure which is but
ancillary to the main action for infringement still pending factual determination before the court
of origin. It is virtually needless to stress the obvious reality that critical facts in an infringement
case are not before us more so when even Justice Feliciano's opinion observes that "the
evidence is scanty" and that petitioners "have yet to submit copies or photographs of their
registered marks as used in cigarettes" while private respondent has not, for its part, "submitted
the actual labels or packaging materials used in selling its "Mark" cigarettes." Petitioners
therefore, may not be permitted to presume a given state of facts on their so called right to the
trademarks which could be subjected to irreparable injury and in the process, suggest the fact of
infringement. Such a ploy would practically place the cart ahead of the horse. To our mind, what
appears to be the insurmountable barrier to petitioners' portrayal of whimsical exercise of
discretion by the Court of Appeals is the well-taken remark of said court that:

The petitioner[s] will not be prejudiced nor stand to suffer irreparably as a

consequence of the lifting of the preliminary injunction considering that they are
not actually engaged in the manufacture of the cigarettes with the trademark in
question and the filing of the counterbond will amply answer for such damages.
(p. 54. Rollo in G.R. No. 91332.)

More telling are the allegations of petitioners in their complaint (p. 319, Rollo G.R. No. 91332)
as well as in the very petition filed with this Court (p. 2, Rollo in G.R. No. 91332) indicating that
they are not doing business in the Philippines, for these frank representations are inconsistent
and incongruent with any pretense of a right which can breached (Article 1431, New Civil Code;
Section 4, Rule 129; Section 3, Rule 58, Revised Rules of Court). Indeed, to be entitled to an
injunctive writ, petitioner must show that there exists a right to be protected and that the facts
against which injunction is directed are violative of said right (Searth Commodities Corporation
vs. Court of Appeals, 207 SCRA 622 [1992]). It may be added in this connection that albeit
petitioners are holders of certificate of registration in the Philippines of their symbols as admitted
by private respondent, the fact of exclusive ownership cannot be made to rest solely on these
documents since dominion over trademarks is not acquired by the mere fact of registration
alone and does not perfect a trademark right (Unno Commercial Enterprises, Inc. vs. General
Milling Corporation, 120 SCRA 804 [1983]).

Even if we disregard the candid statements of petitioners anent the absence of business activity
here and rely on the remaining statements of the complaint below, still, when these averments
are juxtaposed with the denials and propositions of the answer submitted by private respondent,
the supposed right of petitioners to the symbol have thereby been controverted. This is not to
say, however, that the manner the complaint was traversed by the answer is sufficient to tilt the
scales of justice in favor of private respondent. Far from it. What we are simply conveying is
another basic tenet in remedial law that before injunctive relief may properly issue,
complainant's right or title must be undisputed and demonstrated on the strength of one's own
title to such a degree as to unquestionably exclude dark clouds of doubt, rather than on the
weakness of the adversary's evidence, inasmuch as the possibility of irreparable damage,
without prior proof of transgression of an actual existing right, is no ground for injunction being
mere damnum absque injuria (Talisay-Silay Milling Co., Inc. vs. CFI of Negros Occidental, 42
SCRA 577 [1971]; Francisco, Rules of Court, Second ed., 1985, p. 225; 3 Martin, Rules of
Court, 1986 ed., p. 82).

On the economic repercussion of this case, we are extremely bothered by the thought of having
to participate in throwing into the streets Filipino workers engaged in the manufacture and sale
of private respondent's "MARK" cigarettes who might be retrenched and forced to join the ranks
of the many unemployed and unproductive as a result of the issuance of a simple writ of
preliminary injunction and this, during the pendency of the case before the trial court, not to
mention the diminution of tax revenues represented to be close to a quarter million pesos
annually. On the other hand, if the status quo is maintained, there will be no damage that would
be suffered by petitioners inasmuch as they are not doing business in the Philippines.

With reference to the second and third issues raised by petitioners on the lifting of the writ of
preliminary injunction, it cannot be gainsaid that respondent court acted well within its
prerogatives under Section 6, Rule 58 of the Revised Rules of Court:

Sec. 6. Grounds for objection to, or for motion of dissolution of injunction. — The
injunction may be refused or, if granted ex parte, may be dissolved, upon the
insufficiency of the complaint as shown by the complaint itself, with or without
notice to the adverse party. It may also be refused or dissolved on other grounds
upon affidavits on the part of the defendants which may be opposed by the
plaintiff also by affidavits. It may further be refused or, if granted, may be
dissolved, if it appears after hearing that although the plaintiff is entitled to the
injunction, the issuance or continuance thereof, as the case may be, would cause
great damage to the defendant while the plaintiff can be fully compensated for
such damages as he may suffer, and the defendant files a bond in an amount
fixed by the judge conditioned that he will pay all damages which the plaintiff may
suffer by the refusal or the dissolution of the injunction. If it appears that the
extent of the preliminary injunction granted is too great, it must be modified.

Under the foregoing rule, injunction may be refused, or, if granted, may be dissolved, on the
following instances:

(1) If there is insufficiency of the complaint as shown by the allegations

therein. Refusal or dissolution may be granted in this case with or without notice
to the adverse party.

(2) If it appears after hearing that although the plaintiff is entitled to the injunction,
the issuance or continuance thereof would cause great damage to the defendant,
while the plaintiff can be fully compensated for such damages as he may suffer.
 The defendant, in this case, must file a bond in an amount fixed by the judge
conditioned that he will pay all damages which plaintiff may suffer by the refusal
or the dissolution of the injunction.

(3) On the other grounds upon affidavits on the part of the defendant which may
be opposed by the plaintiff also affidavits.

Modification of the injunction may also be ordered by the court if it appears that
the extent of the preliminary injunction granted is too great. (3 Martin, Rules of
Court, 1986 ed., p. 99; Francisco,supra, at p. 268.)

In view of the explicit representation of petitioners in the complaint that they are not engaged in
business in the Philippines, it inevitably follows that no conceivable damage can be suffered by
them not to mention the foremost consideration heretofore discussed on the absence of their
"right" to be protected. At any rate, and assuming in gratia argumenti that respondent court
erroneously lifted the writ it previously issued, the same may be cured by appeal and not in the
form of a petition for certiorari (Clark vs. Philippine Ready Mix Concrete Co., 88 Phil. 460
[1951]). Verily, and mindful of the rule that a writ of preliminary injunction is an interlocutory
order which is always under the control of the court before final judgment, petitioners' criticism
must fall flat on the ground, so to speak, more so when extinction of the previously issued writ
can even be made without previous notice to the adverse party and without a hearing (Caluya
vs. Ramos, 79 Phil. 640 [1974]; 3 Moran, Rules of Court, 1970 ed., p. 81).

WHEREFORE, the petition is hereby DISMISSED and the Resolutions of the Court of Appeals
dated September 14, 1989 and November 29, 1989 are hereby AFFIRMED.

SO ORDERED.

Bidin, J., concurs.

Davide, Jr., concurs in the result.

Romero, J. took no part.

Separate Opinions

FELICIANO, J., dissenting:

I find myself unable to join in the opinion prepared by my distinguished brother, Melo, J.
It seems to me that the issues involved in this case are rather more complex than what has
been assumed to be the case by the majority opinion. For this and related reasons, there is set
out below a statement of the relevant facts (as I see them) that is more extensive than what is
ordinarily found in dissenting opinions.

Petitioner Philip Morris, Inc. is a corporation organized and existing under the law of Virginia,
U.S.A. Petitioners Benson & Hedges (Canada), Inc. and Fabriques de Tabac Reunies, S.A.,
both wholly owned subsidiaries of Philip Morris, Inc., are organized and existing under the law of
Canada and Switzerland, respectively.

Philip Morris, Inc. is registered owner of the trademark "MARK VII" for cigarettes. Its ownership
thereof is evidenced by Philippine Patent Office Trademark Certificate of Registration No.
18723, dated 26 April 1973. The statement attached to the Certificate of Registration states that
the trademark "MARK VII" had been registered in the United States Patent Office, on the
Principal Register, under Certificate of Registration No. 888,931 issued on 7 April 1970. The
statement also requested that the trademark be registered in the Philippine Patent Office on the
Principal Register in accordance with Section 37 of R.A. No. 166, as amended.

Benson & Hedges (Canada), Inc. is the registered owner of the trademark "MARK TEN" also for
cigarettes, as evidenced by Philippine Patent Office Trademark Certificate of Registration No.
11147, dated 28 May 1964, on the Principal Register. This Trademark Certificate of Registration
was originally issued in the name of Canadian Tabacofina Ltd. and later assigned to Benson &
Hedges (Canada), Inc. Petitioners alleged that the name Canadian Tabacofina Ltd. was later
changed to Benson & Hedges (Canada) Ltd. This trademark Certificate of Registration was
renewed on 28 May 1984. The statement attached thereto stated that the "date of first use of
the trademark 'MARK TEN' in trade in or with the Philippines is April 15, 1963," and that
trademark had "been in actual use in commerce over the Philippines continuously for two
months."

Fabriques de Tabac Reunies, S.A. is registered owner of the trademark "LARK" also for
cigarettes, as evidenced by Philippine Patent Office Trademark Certificate of Registration No.
10953, dated 25 March 1964. This Trademark Certificate of Registration was originally issued in
the name of Ligget and Myres Tobacco Company was later assigned to Fabriques de Tabac
Reunies, S.A. Petitioners alleged that the name of Liggett and Myres Tobacco Company was
changed later to Fabriques de Tabac Reunies, S.A. The statement attached to this Certificate of
Registration states that the trademark "LARK" was first used by Ligget and Myres Tobacco
Company on 31 May 1920, and first used by it "in commerce in or with the Philippines on
February 6, 1963" and has been continuously used by it "in trade in or with the Philippines since
February 6, 1963."

Sometime before 17 October 1981, private respondent Fortune Tobacco Corporation

("Fortune") commenced manufacturing and selling in the Philippines cigarettes under the
brandname "MARK." Fortune also filed on 13 February 1981 with the Philippine Patent Office an
application for registration of "MARK" as a trademark for cigarettes.

By a letter dated 17 October 1981, petitioner through their lawyers wrote to Fortune stating that
the manufacturing, selling and advertising of "MARK" cigarettes by Fortune constituted an
"infringement or an act of unfair competition with" petitioners' "well-known international
trademarks used on cigarettes and tobacco products which were registered worldwide and with
the Philippine Patent Office." Petitioners listed their Philippine Certificates of Registration for the
trademarks "MARK VII," "MARK TEN," and "LARK." Petitioners then asked Fortune "to cease
and desist from further manufacturing; selling or advertising 'MARK' cigarettes," otherwise
appropriate court actions would be filed without further notice.

On 18 August 1982, petitioners commenced action before the Court of First Instance of Pasig,
Metro Manila (Civil Case No. 47374). In their complaint, petitioners alleged that they were not
doing business in the Philippines but had nonetheless the right and the capacity to bring the
instant suit; that they were owners of Philippine Patent Office Trademark Certificates of
Registration which were in full force and effect, covering "MARK VII," "MARK TEN," and
"LARK," all for cigarettes (except the last which also covered chewing and smoking tobacco);
that they had registered those trademarks in their respective countries of origin and in other
countries the world and that by virtue of their "long and extensive use [had] gained international
fame and acceptance;" that they had their respective real and effective industrial or commercial
establishments in the United States, Canada and Switzerland, which countries were, like the
Philippines, members of the Convention of Paris for the Protection of Industrial Property; that
under that Convention each member-country undertakes to prohibit the use of a trademark
which constitutes a reproduction, imitation or translation of a mark already belonging to a person
entitled to the benefits of the Convention and use for identical or similar goods; that petitioner
Fabriques de Tabac Reunies, S.A. had long been using trademark "LARK" throughout the
world, including the Philippines where its products bearing the trademark "LARK" had been sold
in the duty-free market, and advertised and marketted in the Philippines at least since 1964 and
have continued to be so to present; that Fortune had without previous consent, authority or
license from petitioners, with knowledge of the popularity of petitioners' marks and their
Philippine registrations, manufactured, advertised and sold cigarettes bearing the identical or
confusingly similar trademark "MARK" which unauthorized use constituted an act of
infringement under Section 22 of R.A. No. 166, as amended; that thereby the public and the
patronizers of petitioners' products were being deceived into buying Fortune's cigarettes under
the impression and mistaken belief that Fortune's cigarettes were identical with, or came from
the same source as, petitioners' products or that Fortune was licensee of petitioners, which it
was not; that the infringement by Fortune of petitioners' trademarks have inflicted damages
upon petitioners; that the continued unauthorized and unlicensed manufacture and sale by
Fortune of its infringing products during the litigation would work injustice and cause irreparable
injury to petitioners in violation of their property rights and moreover tend to render the judgment
which the court might render ineffectual. Petitioners accordingly asked for a writ of preliminary
injunction to restrain Fortune from manufacturing or selling "MARK" cigarettes, and after trial, to
make such preliminary injunction permanent and to order Fortune's infringing materials to be
destroyed, and for damages.

Fortune filed an Opposition to petitioners' prayer for preliminary injunction. On 28 March 1983,
the trial court 1issued an Order denying petitioners' motion for preliminary injunction. In
rendering that order, the trial court, while noting that petitioners were holders of Philippine
Certificates of Trademark Registration, relied heavily on three (3) factors:

Firstly, that petitioners were foreign corporations not doing business in the
Philippines;

Secondly, that Fortune's application for a registration as trademark of the word

"MARK" for cigarettes was then pending before the Philippine Patent Office; and
 Thirdly, that Fortune was the "only party authorized" by the Bureau of Internal
Revenue ("BIR") to manufacture cigarettes bearing the mark "MARK" in the
Philippines.

In respect of the first point, the trial court was obviously heavily influenced by Fortune's
argument that because petitioners were not doing business in the Philippines, which
meant that "they [were] not engaged in the sale, manufacture, importation, exportation
and advertisement of their cigarette products in the Philippines," Fortune's manufacture
and sale of its "MARK" cigarettes could not be said to be causing petitioners "irreparable
damage" within the Philippines. In respect to the second point, the trial judge felt that
because the Director of Patents had not, at that point, denied Fortune's pending
application for registration of its trademark "MARK," the grant of a preliminary injunction
was premature. With regard to the third point, the judge noted a letter dated 30 January
1979 2 of the then Acting Commissioner of Internal Revenue Mr. Conrado P. Diaz,
temporarily granting the request of Fortune for a permit to manufacture two (2) new
brands of cigarettes, one of which was "MARK." The trial judge also noted that the BIR
letter contained the following paragraph:

Please be informed further that this authority herein granted does not give you
protection against any person or entity whose rights may be prejudiced by
infringement or unfair competition in relation to your above named
brands/trademarks. 3

The trial judge, however, apparently gave no weight at all to this caveat.

Petitioners sought, on 15 April 1983, reconsideration of Judge Reyes' Order denying preliminary
injunction. After Fortune had filed an Opposition to petitioners' Motion for Reconsideration, and
petitioners had filed their Reply and Fortune a Rejoinder, and after an offer of exhibits by the
parties respectively, Judge Reyes issued on 5 April 1984 another Order denying the Motion for
Reconsideration. In his second order, the trial judge laid great stress on the fact that Fortune's
application for registration of its trademark "MARK" for cigarettes remained subsisting. On the
basis, Judge Reyes denied petitioners' motion for reconsideration.

More than two (2) years later, petitioners filed a "Second Motion for Issuance of Preliminary
Injunction" dated 1 September 1986. In their Second Motion, petitioners invited attention to
Paper No. 3, dated 6 April 1983, relating to Fortune's application for registration of its
brandname "MARK." This Paper No. 3 reproduced a letter to Fortune's counsel by Bienvenido
A. Palisoc, Senior Trademark Examiner, and Wilfredo T. Jaramillo, Trademark Examiner, stating
that:

This application [for registration of "Mark"] has been examined.

Caption mark of the application must tally with the drawing on file.

Subject mark is confusingly similar with the following marks on file:

a. "Mark" with Reg. No. SR-2659 for cigarettes.

b. "Mark VII" with Reg. No. 18723 for cigarettes.

 c. "Mark Ten" with Reg. No. 11147 for cigarettes.

d. "Lark" with Reg. No. 10953 for cigarettes.

Hence, registration is barred under Sec. 4 (d) of Rep. Act No. 166 as amended.

Subject mark has no trademark significance and can not serve its purpose as to
indicate the source and origin of goods.

Furthermore, the word "Mark" is generic and therefore incapable of exclusive

appropriation.

Makati, Metro Manila, April 6, 1983. 4 (Emphasis supplied)

Petitioners also invited attention to a certification dated 8 August 1986 issued by Mr. Luis
M. Daca, Jr., Assistant Director, Philippine Patent Office, to the effect that Fortune's
application for the mark "MARK" for cigarettes was declared abandoned as of 16
February 1986 and was now deemed forfeited. In addition, petitioners explained in some
detail how Fortune's use of its mark "MARK" was "destructive of [petitioners'] property
right to [their] registered trademarks." 5 Further, petitioners assailed Fortune's argument
that issuance of preliminary injunction would cause "loss of revenue and taxes to the
Government" and that more damages would be sustained by Fortune than by petitioners
since the petitioners do not market their cigarettes in the Philippines.

After Fortune had filed an Opposition to petitioners' Second Motion, the trial court, this time
presided over by Judge Nicolas Galing, issued an Order dated 22 April 1987 denying once more
the motion for issuance of a writ of preliminary injunction. In this order, Judge Galing relied on
two (2) points: firstly, according to the trial judge, petitioners had not shown that the products
they sought to protect from Fortune's "MARK" cigarettes were "in actual use and available for
commercial purposes anywhere in the Philippines;" and secondly, it appeared that while
Fortune's original application had been abandoned, it could be refiled and was in fact re-filed.
Thus, Judge Galing in effect reiterated Judge Reyes's position that until the Director of Patents
had definitely acted upon Fortune's application for registration of "MARK," petitioners' prayer for
preliminary injunction could not be granted.

Petitioners then filed a Petition for Review with the Supreme Court, which Petition was docketed
as G.R. No. 78141. The Court ordered respondents to file their Comments on the Petition and
on 30 September 1987, the Court referred the Petition to the Court of Appeals.

In due course of time, the Court of Appeals, through Cacdac, Jr., J., 6 rendered a decision on 5
May 1989 setting aside the 22 April 1987 order of the trial court and ordering issuance of a writ
of preliminary injunction upon filing of a bond by petitioners in the sum of P200,000.00 to be
approved by the appellate court, "enjoining the private respondents, its agents, employees and
representatives from manufacturing, selling and/or advertising "MARK" cigarettes until further
orders." The Court of Appeals said in pertinent part:

There is no dispute that petitioners are the registered owners of the trademarks
for cigarettes "MARK VII," "MARK TEN," and "LARK". (Annexes B, C and D,
Petition). As found and reiterated by the Philippine Patent Office in two (2) official
communications dated April 6, 1983 and January 24, 1984, the trademark
 "MARK" is "confusingly similar" to the trademarks of petitioners, hence,
registration was barred under Sec. 4(d) of Rep. Act No. 166, as amended (pp.
106, 139 SCA rollo). In a third official communication dated April 8, 1986, the
trademark application of private respondent for the mark "MARK" under Serial
No. 44008 filed on February 13, 1981 which was declared abandoned as of
February 16, 1986, is now deemed forfeited, there being no revival made
pursuant to Rule 98 of the Revised Rules of Practitioners in Trademark Cases.'
(p. 107, CA rollo). The foregoing documents or communications mentioned by
petitioners as "the changes in material facts which occurred after March 28,
1983", are not also questioned by respondents. 7 (Emphasis supplied)

The Court of Appeals also noted the BIR letter of 30 January 1979 temporarily granting
Fortune's request for a permit to manufacture two (2) new brands of cigarettes, including one
branded "MARK," and the caveat (earlier noted) 8 that the BIR's authorization would not give
Fortune any protection against any person or entity whose rights may be prejudiced by
infringement or unfair competition on the part of Fortune. The Court of Appeals also referred to
the certificate dated 26 September 1986 of Mr. Cesar G. Sandico, then Director of Patents,
issued upon request of Fortune's counsel stating that there was a pending application for
registration of the trademark "MARK" for cigarettes under Serial No. 59872, filed on 16
September 1986, noting at the same time, that Director Sandico's certification contained the
following caveat or qualification:

This certification, however, does not give protection as against any person or
entity whose right may be prejudiced by infringement or unfair competition in
relation to the aforesaid trademark nor the right to register as contrary to the
provisions of the Trademark Law, Republic Act No. 166 as amended and the
Revised Rules of Practice in Trademark Cases. (Emphasis supplied)

The Court of Appeals then went on to say that:

[We] believe and hold that petitioners have shown a prima facie case for the
issuance of the writ of prohibitory injunction for the purposes stated in their
complaint and subsequent motions for the issuance of the prohibitory writ.
(Buayan Cattle Co. v. Quintillan, 125 SCRA 276).

The requisites for the granting of preliminary injunction are the existence of the
right protected and the facts against which the injunction is to be directed as
violative of said right. (Buayan Cattle Co. v. Quintillan, supra; Ortigas & Co. vs.
Ruiz, 148 SCRA 326). It is a writ framed according to the circumstances of the
case commanding an act which the Court regards as essential to justice and
restraining an act it deems contrary to equity and good conscience (Rosauro vs.
Cuneta, 151 SCRA 570). If it is not issued, the defendant may, before final
judgment, do or continue the doing of the act which the plaintiff asks the court to
restrain, and thus make ineffectual the final judgment rendered afterwards
granting the relief sought by the plaintiff (Calo vs. Roldan, 76 Phil. 445).
Generally, its grant or denial rests upon the sound discretion of the Court except
on a clear case of abuse (Belish Investment & Finance Co. vs. Statement House,
151 SCRA 636). Petitioners' right of exclusivity to their registered trademarks
being clear and beyond question, the respondent court's denial of the prohibitive
writ constituted excess of jurisdiction and grave abuse of discretion. If the lower
 court does not grant preliminary injunction, the appellate court may grant the
same (Service Specialists, Inc. v. Sheriff of Manila. 145 SCRA 139). 9 (Emphasis
supplied)

Fortune moved for reconsideration of the Decision of the Court of Appeals insisting that
petitioners must first prove their "clear, unmistakable and unquestioned right to the writ, coupled
with the possible damages it would suffer;" that petitioners had not suffered any "great and
irreparable injury to speak of" because "petitioners have never done business in this country in
the past nor in the future;" that, on the other hand, Fortune had been authorized by the BIR to
manufacture "MARK" cigarettes, "thereby generating much needed funds for the Government;"
that Fortune's application for registration of its brandname "MARK" with the Philippine Patent
Office "still pending" and not "finally rejected" by the Director of Patents. On 12 July 1989, the
Court of Appeals issued a Minute Resolution stating that the issues and arguments in Fortune's
motion for reconsideration had been "fully discussed" in the Decision sought to be reconsidered,
that no new arguments were raised, and accordingly denied the Motion for Reconsideration.

Fortune then filed a "Motion to Dissolve Writ of Preliminary Injunction with Offer to File
Counterbond" date 25 July 1989, where it reiterated the basic arguments it previously made.

A "Supplemental Motion to Lift Writ of Preliminary Injunction with Offer of Counterbond" dated
17 August 1989 was next filed by Fortune. In this "Supplemental Motion," Fortune averred that it
had paid to the BIR for 1988 the amount of P181,940,177.38 for specific taxes; while for
January to July 1989, it had paid the amount of P120,120,735.28. Fortune also referred to its
employees assigned to the manufacture of "MARK" cigarettes who were apparently
apprehensive that their services would eventually be terminated and that they would join the
ranks of the unemployed.

Petitioners filed an Opposition to the "Motion to Dissolve" and a Comment on the "Supplemental
Motion" of Fortune.

On 14 September 1989, the Court of Appeals once more through Cacdac, Jr., J. issued a
Resolution lifting the preliminary injunction it had earlier granted upon the filing of counterbond
by private respondent in the amount of P400,000.00 to answer for any damages petitioners may
suffer as a consequence of such lifting. In its Resolution, the Court of Appeals referred to the
"lots of workers employed [who] will be laid off as a consequence of the injunction" and that
Government "will stand to lose the amount of specific taxes being paid by" Fortune. It when
went on to say:

After a thorough re-examination of the issues involved and the arguments

advanced by both parties in the offer to file a counterbond and the opposition
thereto, WE believe that there are sound and cogent reasons for Us to grant the
dissolution of the writ of preliminary injunction by the offer of the private
respondent to put up a counterbond to answer for whatever damages the
petitioner may suffer as a consequence of the dissolution of the preliminary
injunction.

The petitioner will not be prejudiced nor stand to suffer irreparably as a

consequence of the lifting of the preliminary injunction considering that they are
not actually engaged in the manufacture of the cigarettes with the trademarks in
question and the filing of the counterbond will amply answer for such damages.
 While the rule is that an offer of a counterbond does not operate to dissolve an
injunction previously granted, nevertheless, it is equally true that an injunction
could be dissolved only upon good and valid grounds subject to the sound
discretion of the court. As WE have maintained the view that there are sound and
good reasons to lift the preliminary injunction the motion to file a counterbond is
granted. 10 (Emphasis supplied)

Petitioners filed a Motion for Reconsideration, without success.

In the instant Petition, petitioners make the following basic submissions:

1. that the Court of Appeals gravely abused its discretion amounting to excess of
jurisdiction when it required, contrary to law and jurisprudence that in order that
petitioners may suffer irreparable injury due to the lifting of the injunction,
petitioners should be using actually their registered trademarks in commerce in
the Philippines;

2. that the Court of Appeals gravely abused its discretion amounting to excess of
jurisdiction when it lifted the injunction in violation of Section 6 of Rule 58 of the
rules of Court;

3. that the Court of Appeals gravely abused its discretion amounting to excess of
jurisdiction when, after having found that the trial court had committed grave
abuse of discretion and exceeded its jurisdiction for having refused to issue the
writ of injunction to restrain respondent's acts that are contrary to equity and
good conscience, it made a complete about face for legally insufficient grounds
and authorized private respondent to continue performing the very same acts
that it had considered contrary to equity and good conscience, thereby ignoring
not only the mandates of the trademark law, the international commitments of the
Philippines, the judicial admission of private respondent that it will have no more
right to use the trademark "MARK" after the Director of Patents shall have
rejected the application to register it, and the admonitions of the Supreme
Court.11

The Court required private respondent to file a comment. The comment reiterated the basic
arguments made by private respondent before the Court of Appeals:

a. the petitioners are not suffering any irreparable damage by the lifting of the
preliminary injunction by the Court of appeals. Whatever damages they might
suffer are "based purely on speculation, since by judicial admission, petitioners
are not doing business in the Philippines. Private respondent stressed
that petitioners "are not manufacturing, importing or selling "MARK TEN," "MARK
VII" or "LARK" in this country," notwithstanding "false allegation" that petitioners
have been "using" the said trademarks "in commerce and trade" in the
Philippines since 1963 up to the present.

b. that whatever damage petitioners may be suffering is negligible when

compared to the taxes that would have to be foregone by the
Government considering that private respondent "paid an annual specific tax of
P240 Million only on the manufacture and sale of "MARK cigarettes." Private
 respondent claims that, in contrast, petitioners which are foreign corporations
"based in three different countries" have not contributed anything to Government
tax revenues.

c. that the Court of Appeals lifted the writ of preliminary injunction it had earlier
issued upon the submission of a counter bond in double the amount of the bond
submitted by petitioners, under Section 6, Rule 58 of the Rules of Court, which
act was within the sound discretion of the Court of Appeals. Private respondent
also stresses that the right of petitioners to the injunction was still being litigated
before the trial court.

Reformulating the issues raised by the petitioners here, we think the principal issues may be
reduced to the following: firstly, is there a clear legal right to the relief asked by petitioners in the
form of a preliminary injunction to restrain private respondent from manufacturing, selling and
distributing cigarettes under the trademark "MARK"? The second question is: are private
respondent's acts complained of by petitioners causing irreparable injury to petitioners' rights in
the premises? These two (2) basic issues are obviously related and need to be addressed
together.

The first point that needs to be stressed is that petitioners have Philippine Certificates of
Registration for their trademarks "MARK TEN", "MARK VII," and "LARK" in the Principal
Register.

Upon the other hand, private respondent's trademark "MARK" is not registered in the Principal
Register in the Office of the Director of Patents; private respondents is simply an applicant for
registration of a mark, the status of which application may be noted later.

It is important to stress the legal effects of registration of a trademark in the Principal Register in
the Office of the Director of Patents. Section 20 of R.A. No. 166, as amended, sets out the
principal legal effects of such registration:

Sec. 20. Certificate of registration prima facie evidence of validity. — A certificate

of registration, of a mark or a trade name shall be prima facie evidence of the
validity of the registration, the registrant's ownership of the mark or trade name,
and of the registrant's exclusive right to use the same in connection with the
goods, business or services specified in the certificate, subject to any conditions
and limitations stated therein. (Emphasis supplied)

In Lorenzana v. Macagba, 12 the Court distinguished between the effects of registration in the
Principal Register and registration in the Supplemental Register in the following manner:

(1) Registration in the Principal Register gives rise to a presumption of the

validity of the registration, the registrant's ownership of the mark, and his right to
the exclusive use thereof. There is no such presumption in registrations in the
Supplemental Register.

(2) Registration in the Principal Register is limited to the actual owner of the
trademark (Unno Commercial Enterprises v. Gen. Milling Corp., 120 SCRA 804
 [1983]) and proceedings therein pass on the issue of ownership, which may be
contested through opposition or interference proceedings, or after registration, in
a petition for cancellation.

Registration in the Principal Register is constructive notice of the registrant's

claims of ownership, while registration in the Supplemental Register is merely
proof of actual use of the trademark and notice that the registrant has used or
appropriated it. (Le Chemise Lacoste, S.A. v. Fernandez, 129 SCRA 373 [1984]:
"Registration in the Supplemental Register . . . serves as notice that the
registrant is using or has appropriated the trademark.") It is not subject to
opposition although it may be cancelled after its issuance.
Corollarilly, registration in the Principal Register is a basis for an action for
infringement, while registration in the Supplemental Register is not.

(3) In application for registration in the Principal Register, publication of the

application is necessary. This is not so in applications for registration in the
Supplemental Register. Certificates of registration under both Registers are also
different from each other.

(4) Proof of registration in the Principal Register may be filed with the Bureau of
Customs to exclude foreign goods bearing infringing marks while it does not hold
true for registrations in the Supplemental Register. 13(Emphasis supplied)

When taken with the companion presumption of regularity of performance of official duty, it will
be seen that issuance of a Certificate of Registration of a trademark in the Principal Register
also gives rise to the presumption that
all requirements of Philippine law necessary for a valid registration (including prior use in
commerce in the Philippines for at least two [2] months) were complied with and satisfied.

In contrast, private respondent filed an application for registration of its mark "MARK" for
cigarettes with the Director of Patents soon after it commenced manufacturing and selling
cigarettes trademark with "MARK." This application was abandoned or "forfeited", 14 for failure of
private respondent to file a necessary Paper with the Director of Patent. It also appears,
however, that private respondent later re-filed or reinstated its application for registration of
"MARK" 15 and that, so far as the record here before us is concerned, this application remains
merely an application and has not been granted and a Certificate of Registration in the Principal
Register issued.16 While final action does not appear as yet to have been taken by the Director
of Patents on private respondent's application, there was at least a preliminary determination of
the trademark examiners that the trademark "MARK" was "confusingly similar" with petitioners'
marks "MARK VII," "MARK TEN" and "LARK" and that accordingly, registration was
barred under Section 4 (d) of R.A. No. 166, as amended. 17

In the trial court, both Judge Reyes and Judge Galing took the position that until the Director of
Patents shall have finally acted on private respondent's application for registration of "MARK,"
petitioners cannot be granted the relief of preliminary injunction. It is respectfully submitted that
this position is both erroneous and unfortunate. In reliance upon that position, private
respondent has kept its application for registration alive and pending. The Director of Patents in
turn may well have refrained from taking final action on that application, even in the absence of
a restraining order from the courts, out of deference to the courts. The pendency of the
application before the Director of Patents is not in itself a reason for denying preliminary
injunction. Our courts have jurisdiction and authority to determine whether or not "MARK" is an
infringement on petitioners' registered trademarks. Under our case law, the issuance of a
Certificate of Registration of a trademark in the Principal Register by the Director of Patents
would not prevent a court from ruling on whether or not the trademark so granted registration is
confusingly similar with a previously registered trademark, where such issue is essential for
resolution of a case properly before the court. A fortiori, a mere application for registration
cannot be a sufficient reason for denying injunctive relief, whether preliminary or definitive. In
the case at bar, petitioners' suit for injunction and for damages for infringement, and their
application for a preliminary injunction against private respondent, cannot be resolved without
resolving the issue of claimed confusing similarity.

In the case at bar, the evidence of record is scanty. Petitioners have not submitted actual copies
or photographs of their registered marks as used in cigarettes. Private respondent has not, for
its part, submitted the actual labels or packaging material used in selling its "MARK" cigarettes.
Petitioners have appended to their Petition a photocopy of an advertisement of "MARK"
cigarettes. Private respondent has not included in the record a copy of its application for
registration of "MARK" for cigarettes, which would include a facsimile of the trademark being
applied for. It should be noted that "MARK" and "LARK," when read or pronounced orally,
constitute idem sonansin striking degree. Further, "MARK" has taken over the dominant word in
"MARK VII" and "MARK TEN." These circumstances, coupled with private respondent's failure
to explain how or why it chose, out of all the words in the English language, the word "mark" to
refer to its cigarettes, lead me to the submission that there is a prima faciebasis for holding, as
the Patent Office has held and as the Court of Appeals did hold originally, that private
respondent's "MARK" infringes upon petitioners' registered trademarks.

II

There is thus no question as to the legal rights of petitioners as holders of trademarks registered
in the Philippines. Private respondent, however, resists and assails petitioners' effort to enforce
their legal rights by heavily underscoring the fact that petitioners are not registered to do
business in the Philippines and are not in fact doing business in the Philippines. It is thus
necessary to determine what consequences, if any, flow from this circumstance so far as
enforcement of petitioners' rights as holders of registered Philippine trademarks is concerned.

It should be stressed at the outset that circumstance has no legal impact upon the right of
petitioners to own and register their trademarks in the Philippines. Section 2 of R.A. No. 166 as
amended expressly recognizes as registrable, under this statute, marks which are owned by
corporations domiciled in any foreign country:

Sec. 2. What are registrable. — Trademarks, trade names and service

marks owned by persons, corporations, partnerships or associations domiciled in
the Philippines and by persons, corporations, partnerships or associations
domiciled in any foreign country may be registered in accordance with the
provisions of this Act; Provided, That said trade marks, trade names or service
marks are actually in use in commerce and services not less than two months in
the Philippines before the time the applications for registration are filed:
And provided further, That the country of which the applicant for registration is a
citizen grants by law substantially similar privileges to citizens of the Philippines,
and such fact is officially certified, with a certified true copy of the foreign law
 translated into the English language, by the government of the foreign country to
the Government of the Republic of the Philippines. (Emphasis suppplied)

It is also entirely clear that foreign corporations and corporations domiciled in a foreign country
are not disabled from bringing suit in Philippine courts to protect their rights as holders of
trademarks registered in the Philippines. Under Section 21-A of R.A. No. 166, as amended, any
foreign corporation which is a holder of a trademark registered under Philippine law may bring
an action for infringement of such mark or for unfair competition or false designation of origin
and false description "whether or not it has been licensed to do business in the Philippines
under the [Corporation Law] at the time it brings complaint, subject to the proviso that:

. . . that the country of which the said foreign corporation or juristic person is a
citizen or in which it is domiciled by treaty, convention or law, grants similar
privilege to corporate or juristic persons of the Philippines. (Emphasis supplied)

The rule thus embodied in Section 21-A of R.A. No. 166 as amended is also set out in Article 2
of the Paris Convention for the Protection of Industrial Property ("Paris Convention"), to which
the Philippines, the United States, Canada and Switzerland are all parties. 18 Article 2 of the
Paris Convention provides in relevant part:

Article 2

(1) Nationals of any country of the Union shall, as regards the protection of
industrial property, enjoy in all the other countries of the Union the advantages
that their respective laws now grant, or may hereafter grant, to nationals; all
without prejudice to the rights specially provided for by this Convention.
Consequently, they shall have the same protection as the latter, and the same
legal remedy against any infringement of their rights, provided that the conditions
and formalities imposed upon national are complied with.

(2) However, no requirement as to domicile or establishment in the country

where protection is claimed may be imposed upon nationals of countries of the
Union for the enjoyment of any industrial property rights.

xxx xxx xxx

(Emphasis supplied)

Article 2, paragraph 1 of the Paris Convention embodies the principle of "national treatment" or
"assimilation with nationals," one of the basic rules of the Convention. 19 Under Article 2,
paragraph 1 of the Paris Convention, nationals of Canada, Switzerland and the United States
who are all countries of the Paris Union are entitled to enjoy in the Philippines, also a country of
the Union, the advantages and protections which Philippine law grants to Philippine nationals.
Article 2 paragraph 2 of the Paris Convention restrains the Philippines from imposing a
requirement of local incorporation or establishment of a local domicile as a pre-requisite for
granting to foreign nationals the protection which nationals of the Philippines are entitled to
under Philippine law in respect of their industrial property rights. It should be noted that Article 2,
paragraph 2 also constitutes proof of compliance with the requirement of reciprocity between,
on the one hand, the Philippines and, on the other hand, Canada, Switzerland and the United
States required under Section 21-A of R.A. No. 166 as amended.
The net effect of the statutory and treaty provisions above referred to is that a corporate national
of a member country of the Paris Union is entitled to bring in Philippine courts an action for
infringement of trademarks, or for unfair competition, without necessity for obtaining registration
or a license to do business in the Philippines. Article 2 as quoted above is in effect with respect
to all four (4) countries.

Such has been the rule in our jurisdiction even before the enactment of R.A. No. 166 and before
the Philippines became a party to the Paris Convention. In Western Equipment and Supplies
Company, et al. v. Reyes, etc., et al.,20 petitioner Western Electrical Company, a U.S.
manufacturer of electrical and telephone equipment and suppliesnot doing business in the
Philippines, commenced action in a Philippine court to protect its corporate name from
unauthorized use thereof by certain Philippine residents. The Philippine residents sought to
organize a Philippine corporation to be known as "Western Electrical Company" for the purpose
of manufacturing and selling electrical and telephone equipment in the Philippines. The local
residents resisted the suit by contending, inter alia, that the petitioner Western Electrical
Company had never transacted business in the Philippines and that registration of private
respondent's articles of incorporation could not in any way injure petitioner. The Supreme Court,
in rejecting this argument, stated that:

. . . a foreign corporation which has never done business in the Philippines — but
is widely and favorably known in the Philippines through the use therein of its
products bearing its corporate name and tradename hasa legal right to maintain
an action in the [Philippines]. The purpose of such a suit is to protect its
reputation, corporate name and goodwill which has been established through the
natural development of its trade for a long period of years in the doing of which it
does not seek to enforce any legal or contract rights arising from or closing out of
any business which it has transacted in the Philippines. . . . 21 (Emphasis
supplied)

Similarly, in Asari Yoko v. Kee Boc, 22 a Japanese corporation, also not engaged in any
business in the Philippines, successfully opposed an application for registration of its trademark
"Race Brand" on shirts and undershirts by a local businessman, even though the Japanese
company had not previously registered its own mark "Race Brand" in the Philippines.

Again, in General Garments Corporation v. Director of Patents and Puritan Sportswear

Corporation, 23 Puritan Sportswear Corporation, an entity organized in Pennsylvania U.S.A. and
not doing business in the Philippines, filed a petition for cancellation of the mark "Puritan" which
was registered in the name of petitioner General Garments Corporation for assorted men's
wear, undershirts, briefs, shirts, sweaters and jackets. Puritan Sportswear alleged ownership
and prior use of the trademark "Puritan" in the Philippines. Petitioner General Garments, on the
other hand, contended that Puritan Sportswear, being a foreign corporation not licensed to do,
and not doing, business in the Philippines, could not maintain an action for cancellation of a
trademark. The Court, in upholding the Director of Patents' cancellation of the registration of the
mark "Puritan" in the name of General Garments, said:

. . . .such mark should not have been registered in the first place (and
consequently may be cancelled if so required) if it consists of
or comprises a mark or tradename which so resembles a mark or tradename . . .
. previously used in the Philippines by another and not abandoned, as to be
likely, when applied to or used in connection with goods, business or services of
 the applicant, to cause confusion or mistake or to deceive
purchasers. 24 (Emphasis supplied)

In Converse Rubber Corporation v. Universal Rubber Products, Inc., 25 petitioner Converse

Rubber Corporation was an American manufacturer of rubber shoes, not doing business on its
own in the Philippines and not licensed to do business in the Philippines, opposed the
application for registration of the trademark "Universal Converse and Device" to be used also in
rubber shoes and rubber slippers by private respondent Universal Rubber Products, Inc.
("Universal"). In reversing the Director of Patents and holding that Universal's application must
be rejected, the Supreme Court said:

The sales of 12 to 20 pairs a month of petitioner's rubber shoes cannot be

considered insignificant, considering that they appear to be of high expensive
quality, which not too many basketball players can afford to buy. Any sale made
by a legitimate trader from his store is a commercial act establishing trademark
rights since such sales are made in due course of business to the general public,
not only to limited individuals. It is a matter of public knowledge that all brands of
goods filter into the market, indiscriminately sold by jobbers, dealers and
merchants not necessarily with the knowledge or consent of the
manufacturer. Such actual sale of goods in the local market establishes
trademark use which serves as the basis for any action aimed at trademark pre-
emption. It is a corollary logical deduction that while Converse Rubber
Corporation is not licensed to do business in the country and is not actually doing
business here, it does not mean that its goods are not being sold here or that it
has not earned a reputation or goodwill as regards its products. The Director of
Patents was, therefore, remiss in ruling that the proofs sales presented "was
made by a single witness who had never dealt with nor had never known
opposer {petitioner} . . . without Opposer having a direct or indirect hand in the
transaction to be the basis of trademark pre-exemption. 26 (Emphasis supplied)

Three (3) other cases may be noted. The first is La Chemise Lacoste, S.A. v. Fernandez 27 La
Chemise Lacoste, S.A. although a foreign corporation not engaged in and not licensed to do
business in the Philippines, was accorded protection for its trademarks "Lacoste", "Chemise
Lacoste," and "Crocodile Device" for clothing and sporting apparel. The Court recognized that
those marks were "world famous trademarks which the Philippines, as a party to the Paris
Union, is bound to protect." Similarly, in Del Monte Corporation, et al. v. Court of Appeals, et
al., 28 petitioner Del Monte Corporation was a company organized under the laws of the United
States and not engaged in business in the Philippines. Because both the Philippines and the
United States are signatories to the Convention of Paris, which grants to nationals of the parties
the rights and advantages which their own nationals enjoy for the repression of acts of
infringement and unfair competition, the Court, having found that private respondent's label was
an infringement of Del Monte's trademark, held Del Monte entitled to recover damages.

In Puma Sportschuhfabriken Rudolf Dassler, K.G. v. Intermediate appellate Court, et

al, 29 petitioner Puma was a foreign corporation existing under the laws of the Federal Republic
of Germany not registered to do business and not doing business in the Philippines, filed a
complaint for infringement of trademark and for issuance of a writ of preliminary injunction
against a local manufacturing company. Reversing the Court of Appeals, this Court held that
Puma had legal capacity to bring the suit in the Philippines under Section 21-A of R.A. No. 166
as amended and under the provisions of the Paris Convention to which both the Philippines and
the Federal Republic of Germany are parties. The Court also noted that "Puma" is an
internationally known brandname.

The relevancy of the doctrines set out in the cases above cited are conceded by my
distinguished brother Melo, J. in the majority opinion. The majority opinion, however, goes on to
say:

In other words, petitioners may have the capacity to sue for infringement
irrespective of lack of business activity in the Philippines on account of Section
21-A of the Trademark Law but the question of whether they have an exclusive
right over their symbols as to justify issuance of the controversial writ will depend
on actual use of their trademarks in the Philippines in line with Sections 2 and 2-
A of the same law. It is thus incongruous for petitioners to claim that when a
foreign corporation not licensed to do business in the Philippines files a complaint
for infringement, the entity need not be actually using its trademark in commerce
in the Philippines. Such a foreign corporation may have the personality to file a
suit for infringement but it may not necessarily be entitled to protection due to
absence of actual use of the emblem in the local market.

With great respect, certain essential qualifications must be made respecting the above
paragraph. Firstly, of the petitioners' three (3) marks here involved, two (2) of them — i.e.,
"MARK TEN" and "LARK" — were registered in the Philippines on the basis of actual use in the
Philippines, precisely in accordance with the requirements of Section 2-A and Section 5 (A) of
R.A. No. 166 as amended. The pre-registration use in commerce and trade in the Philippines for
at least two (2) months as required by the statute, is explicitly stated in the Certificates of
Registration. The very fact that the appropriate Philippine Government office issued the
Certificates of Registration necessarily gave rise to the presumption that such pre-registration
use had in fact been shown to the satisfaction of the Philippine Patent Office (now the Bureau of
Patents, Trademark and Technology Transfer ["BPTTT"]). It is important to note that respondent
Fortune has not purported to attack the validity of the trademarks "Mark Ten" and "Lark" by
pretending that no pre-registration use in commerce in the Philippines had been shown. 30

The third mark of petitioners — "MARK VII" — was registered in the Philippines on the basis of
Section 37 of R.A. No. 166 as amended, i.e., on the basis of registration in the country of origin
and under the Paris Convention. In such registration, by the express provisions of Section 37 (b)
of R.A. No. 166 as amended, prior (pre-registration) use in commerce in the Philippines
need not be alleged.

Whether the Philippine trademark was based on actual use in the Philippines (under Section 2-
A) or on registration in a foreign country of origin (under Section 37), the statute appears to
require that trademarks (at least trademarks not shown to be internationally "well-known") must
continue to be used in trade and commerce in the Philippines. It is, however, essential to point
out that such continued use, as a requirement for the continued right to the exclusive use of the
registered trademark, is presumed so long as the Certificate of Registration remains outstanding
and so long as the registered trademark owner complies with the requirements of Section 12 of
R.A. No. 166 as amended of filing affidavits with the BPTTT on the 5th, 10th and 15th
anniversaries of the date of issuance of the Certificate of Registration, showing that the
trademark is still in use or showing that its non-use is not due to any intention to abandon the
same. In the case at bar, again, respondent Fortune has not explicitly pretended that the
petitioners' trademarks have been abandoned by non-use in trade and commerce in the
Philippines although it appears to insinuate such non-use and abandonment by stressing that
petitioners are not doing business in the Philippines.

That petitioners are not doing business and are not licensed to do business in the Philippines,
does not by any means mean either that petitioners have not complied with the requirements of
Section 12 of R.A. No. 166 relating to affidavits of continued use, or that petitioners' trademarks
are not in fact used in trade and commerce in the Philippines. In the Converse case, as earlier
noted, the Court held that the circumstance that the foreign owner of a Philippine trademark is
not licensed to do business and is not doing business in the Philippines, does not mean that
petitioner's goods (that is, goods bearing petitioner's trademark) are not sold in the Philippines.
For cigarettes bearing petitioners' trademarks may in fact be imported into and be available for
sale in the Philippines through the acts of importers or distributors. Petitioners have stated that
their "Mark VII," "Mark Ten" and "Lark" cigarettes are in fact brought into the country and
available for sale here in, e.g., duty-free shops, though not imported into or sold in the
Philippines by petitioners themselves. There is no legal requirement that the foreign registrant
itself manufacture and sell its products here. All the statute requires is the use in trade and
commerce in the Philippines, and that can be carried out by third party manufacturers operating
under license granted by the foreign registrant or by the importation and distribution of finished
products by independent importers or traders. The "use" of the trademark in such instances by
the independent third parties constitutes use of the foreign registrant's trademarks to the benefit
of the foreign registrant. 31

III

We turn to petitioners' claim that they are suffering irreparable damage by reason of the
manufacture and sale of cigarettes under the trademark "MARK." Here again, a basic argument
of private respondent was that petitioners had not shown any damages because they are not
doing business in the Philippines. I respectfully maintain that this argument is specious and
without merit.

That petitioners are not doing business and are not licensed to do business in the Philippines,
does notnecessarily mean that petitioners are not in a position to sustain, and do not in fact
sustain, damage through trademark infringement on the part of a local enterprise. 32 Such
trademark infringement by a local company may, for one thing, affect the volume of importation
into the Philippines of cigarettes bearing petitioners' trademarks by independent or third party
traders.

The damage which the petitioners claim they are sustaining by reason of the acts of private
respondents, are not limited to impact upon the volume of actual imports into the Philippines of
petitioners' cigarettes. Petitioners urge that private respondent's use of its confusingly similar
trademark "MARK" is invasive and destructive of petitioners property right in their registered
trademarks because.

a) Plaintiffs' undeniable right to the exclusive use of their registered trademarks is

effectively effaced by defendant's use of a confusingly similar trademark;

b) Plaintiffs would lose control of the reputation of their products as their

reputation will depend on defendant's commercial activities and the quality of
defendant's products;
 c) The market in the Philippines for plaintiffs' products will be pre-empted;

d) Purchasers will think that defendant's goods are approved or sponsored by

plaintiff;

e) Defendant will be allowed to benefit from the reputation of the plaintiffs' goods
and trademarks;

f) Defendant will be effectively authorized to continually invade plaintiffs' property

rights, for which invasion no fair and reasonable redness can be had in a court of
law; and

g) Plaintiffs will lose their goodwill and trade and the value of their registered
trademarks will irreparably diluted and the damages to be suffered by plaintiffs
cannot be redressed fairly in terms of money. 33

Modern authorities on trademark law view trademarks as symbols which perform three (3)
distinct functions: first, they indicate origin or ownership of the articles to which they are
attached; second, they guarantee that those articles come up to a certain standard of quality;
third, they advertise the articles they symbolize. 34

The first two (2) functions have long been recognized in trademark law which characterizes the
goodwill or business reputation symbolized by a trademark as a property right protected by law.
Thus, the owner of a trademark is held entitled to exclude others from the use of the same, or of
a confusingly similar, mark where confusion results in diversion of trade or financial injury. At the
same time, trademarks warn against the imitation or faking of products and prevent the
imposition of fraud upon the public. The first two (2) functions of trademarks were aptly stressed
in e.g., the La Chemise Lacoste case where the objectives of trademark protection were
described in the following terms:

. . . to stem the tide of fake and counterfeit consumer items flooding the
Philippine market or exported abroad from our country. The greater victim is not
so much the manufacturer whose product is being faked but
the Filipino consuming public and in the case of exportations, our image abroad .
. . . We buy a kitchen appliance, a household tool, perfume, a face powder, other
toilet articles, watches, brandy or whisky, and items of clothing like jeans, T-
shirts, neckties, etc. — the list is quite lengthy — and pay good money relying on
the brand name as guarantee of its quality and genuine nature only to explode in
bitter frustration and helpless anger because the purchased item turns out to be
a shoddy imitation, albeit a clever looking counterfeit, of the quality product . . .
. 35

The third or advertisement function of trademark has become of especial importance given the
modern technology of communication and transportation and the growth of international
trade. 36 Through advertisement in the broadcast and print media, the owner of the trademark is
able to establish a nexus between its trademark products and the public in regions where the
owner does not itself manufacture or sell its own products. 37 Through advertisement, a well-
established and well-earned reputation may be gained in countries where the trademark owner
has itself no established business connection. 38 Goodwill may thus be seen to be much less
closely confined territorially than, say, a hundred or fifty years ago. 39 It is no longer true that "a
trademark of itself cannot travel to markets where there is no article to wear the badge and no
trader to offer the article." 40 Advertisement of trademarks is geared towards the promotion of
use of the marked article and the attraction of potential buyers and users; 41 by fixing the identity
of the marked article in the public mind, it prepares the way for growth in such
commerce whether the commerce be handled by the trademark owner itself or by its licensees
or independent traders.

That a registered trademark has value in itself apart from the trade physically accompanying its
use, has been recognized by our Court. In Ang v. Teodoro, 42 the Court was called upon the
determine whether there was infringement in the use of the same trademark on articles which
do not belong to the same class of goods which the lawful trademark owner manufactures and
sells. In holding that there was infringing use in such case, the Court said:

. . . . such unfair trading can cause injury or damage to the first user of a given
trade-mark, first, by prevention of the natural expansion of his business and,
second, by having his business reputation confused with and put at the mercy of
the second user. When noncompetitive products are sold under the same
mark, the gradual whittling away or dispersion of the identity and hold upon the
public mind of the mark created by its first user, inevitably result. The original
owner is entitled to the preservation of the valuable link between him and the
public that has been created by his ingenuity and the merit of his wares or
services. Experience has demonstrated that when a well-known trade-mark is
adopted by another even for a totally different class of goods, it is done to get the
benefit of the reputation and advertisements of the originator of said mark, to
convey to the public a false impression of some supposed connection between
the manufacturer of the article sold under the original mark and the new articles
being tendered to the public under the same or similar mark . . . The owner of a
trademark or tradename has a property right in which he is entitled to protection,
since there is damage to him in the form of confusion of reputation or goodwill in
the mind of the public as well as from confusion of goods. (Emphasis supplied)

In Sta. Ana v. Maliwat, 43 the Court, through J.B.L. Reyes, J., in holding that the use of
the name "Flormen" with respect to shoes was infringement of the mark "Flormann" used
in the men's wear such as shirts, polo shirts and pants, said:

Modern law recognizes that the protection to which the owner of a trade-mark is
entitled is not limited to guarding his goods or business from actual market
competition with identical or similar products of the parties, but extends to all
cases in which the use by a junior appropriator of a trade-mark or trade-name is
likely to lead to a confusing of source, as where prospective purchasers would be
misled into thinking that the complaining party has extended his business into the
field (see 148 ALR 56 et seq; 52 Am. Jur. 576) or is in any way connected with
the activities of the infringer; or when it forestalls the normal potential expansion
of his business (v. 148 ALR, 77, 84; 52 Am. Jur. 576, 577). . . . . 44 (Emphasis
supplied)

Petitioners did not try to put a peso figure on their claimed damage arising from the erosion and
possible eventual destruction of the symbolic value of their trademark. Such damage, while not
easily quantifiable, is nonetheless real and effective. I submit, with respect, that such continuing
damage falls clearly within the concept of irreparable damage or injury described in Social
Security Commission v. Bayona 45 in the following terms:

Damages are irreparable within the meaning of the rule relative to the issuance
of injunction where there is no standard by which their amount can be measured
with reasonable accuracy (Crouc v. Central Labor Council, 83 ALR, 193). "An
irreparable injury which a court of equity will enjoin includes that degree of wrong
of a repeated and continuing kind which produce hurt, inconvenience, or damage
that can be estimated only by conjecture, and not by any accurate standard of
measurement" (Phipps v. Rogue River Valley Canal Co., 7 ALR, 741). An
irreparable injury to authorize an injunction consists of a serious charge of, or is
destructive to, the property if affects, either physically or in the character in which
it has been held and enjoined, or when the property has some peculiar quality or
use, so that its pecuniary value will not fairly recompense the owner of the loss
thereof' (Dunker v. Field and Tub Club, 92 P., 502).

Respondent corporations made a lengthy discourse on the matter of irreparable

injury they may suffer if the injunction were not issued, but the array of figures
they have laid out merely succeeded in proving that the damage, if any they may
suffer, is susceptible of mathematical computation. It is not then irreparable. As
already stated, this term has a definite meaning in law. It does not have
reference to the amount of damages that may be caused but rather to the
difficulty of measuring the damages inflicted. If full compensation can be obtained
by way of damages, equity will not apply the remedy of injunction (28 Am. Jur.,
244; 43 C.J.S., 427, 446). 46

I next turn to private respondent's claim that issuance of an injunction would impose heavy
damage upon itself and upon Government. As noted, private respondent stated that it had paid
many millions of pesos as ad valorem and VAT taxes to the Government in 1988 and 1989 in
connection with its "MARK" cigarettes. 47 Presumably, the total volume of its business
associated with the manufacture and sale of cigarettes trademarked "MARK" would be even
larger. In addition, private respondent suggests, albeit indirectly only, that hundreds if not
thousands of its employees would find themselves unemployed if it were restrained from the
manufacture and sale of "MARK" cigarettes.

Private respondent's claims concerning alleged damages both to itself and to the Government,
which obviously loomed very large in the mind of the majority here, and of the Court of Appeals
when it lifted the injunction it had issued, appear to me to be extravagant indeed. Petitioners
cannot claim to be entitled to an injunction which could restrain private respondent from
manufacturing and selling cigarettes completely; petitioner do not pretend to be so entitled to
such a comprehensive injunction. Petitioners seek only the reinstatement of the original
injunction issued by the Court of Appeals, i.e., one that restrains private respondent from using
the trademark "MARK" on its cigarettes. There is nothing to prevent private respondent from
continuing to manufacture and sell cigarettes under any of its already existing and registered
trademarks, of which it has several, or under some new and specially created trademark(s).
Realistically, private respondent, if enjoined, would lose only the value of the packaging material
imprinted with the same trademark (which cigarettes and material may well be amenable to re-
cycling) and the cost of past advertisements of "MARK" in media, if any. Thus, the apprehension
on the part of the majority which private respondent tried diligently to foment — that the
Government would lose many millions of pesos in tax revenues and that many employees
would lose their jobs, if an injunction is issued — is more apparent than real. The damages
private respondent would sustain from reinstatement of the preliminary injunction are clearly
quantifiable in pesos.

Besides, as pointed out by petitioners, to pay heed to private respondent's creative economic
argument would ultimately mean that the greater the volume of sales and the profits of the
infringer, the greater would be the infringer's claim to be entitled to continue infringement. I
respectfully submit that the law should not countenance such a cynical result.

My conclusion is that private respondent's claims concerning damage which it would sustain if
the petitioners were granted the injunction they seek, did not constitute a sufficient basis for
overturning the original decision of the Court of Appeals. The Resolution of the Court of Appeals
granting private respondent's Motion to Dissolve, in effect disregarded everything that Court had
set out in its original Decision. The mere offer and filing of a counterbond does not, by itself,
provide a sufficient basis for lifting the preliminary injunction earlier granted. For all the elements
which supported the original issuance of a preliminary injunction continued to exist. Private
respondent's hyperbolic claims concerning the damages that it and the Government would
sustain by reason of an injunction, had been made earlier both before the trial court and the
Court of Appeals. Finally, it is not enough to say as private respondent says, that the Court of
Appeals in granting its Motion to Dissolve the preliminary injunction was merely exercising its
discretion; for the Court of Appeals obviously was also exercising its discretion when it rendered
its original Decision granting the preliminary injunction.

I vote to grant due course to the petition for Certiorari, to set aside the Resolution of the
respondent Court of Appeals dated 14 September 1989 in C.A.-G.R. SP No. 13132 and to
reinstate the Decision of that same Court dated 5 May 1989.

# Separate Opinions

FELICIANO, J., dissenting:

I find myself unable to join in the opinion prepared by my distinguished brother, Melo, J.

It seems to me that the issues involved in this case are rather more complex than what has
been assumed to be the case by the majority opinion. For this and related reasons, there is set
out below a statement of the relevant facts (as I see them) that is more extensive than what is
ordinarily found in dissenting opinions.

Petitioner Philip Morris, Inc. is a corporation organized and existing under the law of Virginia,
U.S.A. Petitioners Benson & Hedges (Canada), Inc. and Fabriques de Tabac Reunies, S.A.,
both wholly owned subsidiaries of Philip Morris, Inc., are organized and existing under the law of
Canada and Switzerland, respectively.

Philip Morris, Inc. is registered owner of the trademark "MARK VII" for cigarettes. Its ownership
thereof is evidenced by Philippine Patent Office Trademark Certificate of Registration No.
18723, dated 26 April 1973. The statement attached to the Certificate of Registration states that
the trademark "MARK VII" had been registered in the United States Patent Office, on the
Principal Register, under Certificate of Registration No. 888,931 issued on 7 April 1970. The
statement also requested that the trademark be registered in the Philippine Patent Office on the
Principal Register in accordance with Section 37 of R.A. No. 166, as amended.

Benson & Hedges (Canada), Inc. is the registered owner of the trademark "MARK TEN" also for
cigarettes, as evidenced by Philippine Patent Office Trademark Certificate of Registration No.
11147, dated 28 May 1964, on the Principal Register. This Trademark Certificate of Registration
was originally issued in the name of Canadian Tabacofina Ltd. and later assigned to Benson &
Hedges (Canada), Inc. Petitioners alleged that the name Canadian Tabacofina Ltd. was later
changed to Benson & Hedges (Canada) Ltd. This trademark Certificate of Registration was
renewed on 28 May 1984. The statement attached thereto stated that the "date of first use of
the trademark 'MARK TEN' in trade in or with the Philippines is April 15, 1963," and that
trademark had "been in actual use in commerce over the Philippines continuously for two
months."

Fabriques de Tabac Reunies, S.A. is registered owner of the trademark "LARK" also for
cigarettes, as evidenced by Philippine Patent Office Trademark Certificate of Registration No.
10953, dated 25 March 1964. This Trademark Certificate of Registration was originally issued in
the name of Ligget and Myres Tobacco Company was later assigned to Fabriques de Tabac
Reunies, S.A. Petitioners alleged that the name of Liggett and Myres Tobacco Company was
changed later to Fabriques de Tabac Reunies, S.A. The statement attached to this Certificate of
Registration states that the trademark "LARK" was first used by Ligget and Myres Tobacco
Company on 31 May 1920, and first used by it "in commerce in or with the Philippines on
February 6, 1963" and has been continuously used by it "in trade in or with the Philippines since
February 6, 1963."

Sometime before 17 October 1981, private respondent Fortune Tobacco Corporation

("Fortune") commenced manufacturing and selling in the Philippines cigarettes under the
brandname "MARK." Fortune also filed on 13 February 1981 with the Philippine Patent Office an
application for registration of "MARK" as a trademark for cigarettes.

By a letter dated 17 October 1981, petitioner through their lawyers wrote to Fortune stating that
the manufacturing, selling and advertising of "MARK" cigarettes by Fortune constituted an
"infringement or an act of unfair competition with" petitioners' "well-known international
trademarks used on cigarettes and tobacco products which were registered worldwide and with
the Philippine Patent Office." Petitioners listed their Philippine Certificates of Registration for the
trademarks "MARK VII," "MARK TEN," and "LARK." Petitioners then asked Fortune "to cease
and desist from further manufacturing; selling or advertising 'MARK' cigarettes," otherwise
appropriate court actions would be filed without further notice.

On 18 August 1982, petitioners commenced action before the Court of First Instance of Pasig,
Metro Manila (Civil Case No. 47374). In their complaint, petitioners alleged that they were not
doing business in the Philippines but had nonetheless the right and the capacity to bring the
instant suit; that they were owners of Philippine Patent Office Trademark Certificates of
Registration which were in full force and effect, covering "MARK VII," "MARK TEN," and
"LARK," all for cigarettes (except the last which also covered chewing and smoking tobacco);
that they had registered those trademarks in their respective countries of origin and in other
countries the world and that by virtue of their "long and extensive use [had] gained international
fame and acceptance;" that they had their respective real and effective industrial or commercial
establishments in the United States, Canada and Switzerland, which countries were, like the
Philippines, members of the Convention of Paris for the Protection of Industrial Property; that
under that Convention each member-country undertakes to prohibit the use of a trademark
which constitutes a reproduction, imitation or translation of a mark already belonging to a person
entitled to the benefits of the Convention and use for identical or similar goods; that petitioner
Fabriques de Tabac Reunies, S.A. had long been using trademark "LARK" throughout the
world, including the Philippines where its products bearing the trademark "LARK" had been sold
in the duty-free market, and advertised and marketted in the Philippines at least since 1964 and
have continued to be so to present; that Fortune had without previous consent, authority or
license from petitioners, with knowledge of the popularity of petitioners' marks and their
Philippine registrations, manufactured, advertised and sold cigarettes bearing the identical or
confusingly similar trademark "MARK" which unauthorized use constituted an act of
infringement under Section 22 of R.A. No. 166, as amended; that thereby the public and the
patronizers of petitioners' products were being deceived into buying Fortune's cigarettes under
the impression and mistaken belief that Fortune's cigarettes were identical with, or came from
the same source as, petitioners' products or that Fortune was licensee of petitioners, which it
was not; that the infringement by Fortune of petitioners' trademarks have inflicted damages
upon petitioners; that the continued unauthorized and unlicensed manufacture and sale by
Fortune of its infringing products during the litigation would work injustice and cause irreparable
injury to petitioners in violation of their property rights and moreover tend to render the judgment
which the court might render ineffectual. Petitioners accordingly asked for a writ of preliminary
injunction to restrain Fortune from manufacturing or selling "MARK" cigarettes, and after trial, to
make such preliminary injunction permanent and to order Fortune's infringing materials to be
destroyed, and for damages.

Fortune filed an Opposition to petitioners' prayer for preliminary injunction. On 28 March 1983,
the trial court 1issued an Order denying petitioners' motion for preliminary injunction. In
rendering that order, the trial court, while noting that petitioners were holders of Philippine
Certificates of Trademark Registration, relied heavily on three (3) factors:

Firstly, that petitioners were foreign corporations not doing business in the
Philippines;

Secondly, that Fortune's application for a registration as trademark of the word

"MARK" for cigarettes was then pending before the Philippine Patent Office; and

Thirdly, that Fortune was the "only party authorized" by the Bureau of Internal
Revenue ("BIR") to manufacture cigarettes bearing the mark "MARK" in the
Philippines.

In respect of the first point, the trial court was obviously heavily influenced by Fortune's
argument that because petitioners were not doing business in the Philippines, which
meant that "they [were] not engaged in the sale, manufacture, importation, exportation
and advertisement of their cigarette products in the Philippines," Fortune's manufacture
and sale of its "MARK" cigarettes could not be said to be causing petitioners "irreparable
damage" within the Philippines. In respect to the second point, the trial judge felt that
because the Director of Patents had not, at that point, denied Fortune's pending
application for registration of its trademark "MARK," the grant of a preliminary injunction
was premature. With regard to the third point, the judge noted a letter dated 30 January
1979 2 of the then Acting Commissioner of Internal Revenue Mr. Conrado P. Diaz,
temporarily granting the request of Fortune for a permit to manufacture two (2) new
 brands of cigarettes, one of which was "MARK." The trial judge also noted that the BIR
letter contained the following paragraph:

Please be informed further that this authority herein granted does not give you
protection against any person or entity whose rights may be prejudiced by
infringement or unfair competition in relation to your above named
brands/trademarks. 3

The trial judge, however, apparently gave no weight at all to this caveat.

Petitioners sought, on 15 April 1983, reconsideration of Judge Reyes' Order denying preliminary
injunction. After Fortune had filed an Opposition to petitioners' Motion for Reconsideration, and
petitioners had filed their Reply and Fortune a Rejoinder, and after an offer of exhibits by the
parties respectively, Judge Reyes issued on 5 April 1984 another Order denying the Motion for
Reconsideration. In his second order, the trial judge laid great stress on the fact that Fortune's
application for registration of its trademark "MARK" for cigarettes remained subsisting. On the
basis, Judge Reyes denied petitioners' motion for reconsideration.

More than two (2) years later, petitioners filed a "Second Motion for Issuance of Preliminary
Injunction" dated 1 September 1986. In their Second Motion, petitioners invited attention to
Paper No. 3, dated 6 April 1983, relating to Fortune's application for registration of its
brandname "MARK." This Paper No. 3 reproduced a letter to Fortune's counsel by Bienvenido
A. Palisoc, Senior Trademark Examiner, and Wilfredo T. Jaramillo, Trademark Examiner, stating
that:

This application [for registration of "Mark"] has been examined.

Caption mark of the application must tally with the drawing on file.

Subject mark is confusingly similar with the following marks on file:

a. "Mark" with Reg. No. SR-2659 for cigarettes.

b. "Mark VII" with Reg. No. 18723 for cigarettes.

c. "Mark Ten" with Reg. No. 11147 for cigarettes.

d. "Lark" with Reg. No. 10953 for cigarettes.

Hence, registration is barred under Sec. 4 (d) of Rep. Act No. 166 as amended.

Subject mark has no trademark significance and can not serve its purpose as to
indicate the source and origin of goods.

Furthermore, the word "Mark" is generic and therefore incapable of exclusive

appropriation.

Makati, Metro Manila, April 6, 1983." 4 (Emphasis supplied)

 Petitioners also invited attention to a certification dated 8 August 1986 issued by Mr. Luis
M. Daca, Jr., Assistant Director, Philippine Patent Office, to the effect that Fortune's
application for the mark "MARK" for cigarettes was declared abandoned as of 16
February 1986 and was now deemed forfeited. In addition, petitioners explained in some
detail how Fortune's use of its mark "MARK" was "destructive of [petitioners'] property
right to [their] registered trademarks." 5 Further, petitioners assailed Fortune's argument
that issuance of preliminary injunction would cause "loss of revenue and taxes to the
Government" and that more damages would be sustained by Fortune than by petitioners
since the petitioners do not market their cigarettes in the Philippines.

After Fortune had filed an Opposition to petitioners' Second Motion, the trial court, this time
presided over by Judge Nicolas Galing, issued an Order dated 22 April 1987 denying once more
the motion for issuance of a writ of preliminary injunction. In this order, Judge Galing relied on
two (2) points: firstly, according to the trial judge, petitioners had not shown that the products
they sought to protect from Fortune's "MARK" cigarettes were "in actual use and available for
commercial purposes anywhere in the Philippines;" and secondly, it appeared that while
Fortune's original application had been abandoned, it could be refiled and was in fact re-filed.
Thus, Judge Galing in effect reiterated Judge Reyes's position that until the Director of Patents
had definitely acted upon Fortune's application for registration of "MARK," petitioners' prayer for
preliminary injunction could not be granted.

Petitioners then filed a Petition for Review with the Supreme Court, which Petition was docketed
as G.R. No. 78141. The Court ordered respondents to file their Comments on the Petition and
on 30 September 1987, the Court referred the Petition to the Court of Appeals.

In due course of time, the Court of Appeals, through Cacdac, Jr., J., 6 rendered a decision on 5
May 1989 setting aside the 22 April 1987 order of the trial court and ordering issuance of a writ
of preliminary injunction upon filing of a bond by petitioners in the sum of P200,000.00 to be
approved by the appellate court, "enjoining the private respondents, its agents, employees and
representatives from manufacturing, selling and/or advertising "MARK" cigarettes until further
orders." The Court of Appeals said in pertinent part:

There is no dispute that petitioners are the registered owners of the trademarks
for cigarettes "MARK VII," "MARK TEN," and "LARK". (Annexes B, C and D,
Petition). As found and reiterated by the Philippine Patent Office in two (2) official
communications dated April 6, 1983 and January 24, 1984, the trademark
"MARK" is "confusingly similar" to the trademarks of petitioners, hence,
registration was barred under Sec. 4(d) of Rep. Act No. 166, as amended (pp.
106, 139 SCA rollo). In a third official communication dated April 8, 1986, the
trademark application of private respondent for the mark "MARK" under Serial
No. 44008 filed on February 13, 1981 which was declared abandoned as of
February 16, 1986, is now deemed forfeited, there being no revival made
pursuant to Rule 98 of the Revised Rules of Practitioners in Trademark Cases.
(p. 107, CA rollo). The foregoing documents or communications mentioned by
petitioners as "the changes in material facts which occurred after March 28,
1983", are not also questioned by respondents. 7 (Emphasis supplied)

The Court of Appeals also noted the BIR letter of 30 January 1979 temporarily granting
Fortune's request for a permit to manufacture two (2) new brands of cigarettes, including one
branded "MARK," and the caveat (earlier noted) 8 that the BIR's authorization would not give
Fortune any protection against any person or entity whose rights may be prejudiced by
infringement or unfair competition on the part of Fortune. The Court of Appeals also referred to
the certificate dated 26 September 1986 of Mr. Cesar G. Sandico, then Director of Patents,
issued upon request of Fortune's counsel stating that there was a pending application for
registration of the trademark "MARK" for cigarettes under Serial No. 59872, filed on 16
September 1986, noting at the same time, that Director Sandico's certification contained the
following caveat or qualification:

This certification, however, does not give protection as against any person or
entity whose right may be prejudiced by infringement or unfair competition in
relation to the aforesaid trademark nor the right to register as contrary to the
provisions of the Trademark Law, Republic Act No. 166 as amended and the
Revised Rules of Practice in Trademark Cases. (Emphasis supplied)

The Court of Appeals then went on to say that:

[We] believe and hold that petitioners have shown a prima facie case for the
issuance of the writ of prohibitory injunction for the purposes stated in their
complaint and subsequent motions for the issuance of the prohibitory writ.
(Buayan Cattle Co. v. Quintillan, 125 SCRA 276).

The requisites for the granting of preliminary injunction are the existence of the
right protected and the facts against which the injunction is to be directed as
violative of said right. (Buayan Cattle Co. v. Quintillan, supra; Ortigas & Co. vs.
Ruiz, 148 SCRA 326). It is a writ framed according to the circumstances of the
case commanding an act which the Court regards as essential to justice and
restraining an act it deems contrary to equity and good conscience (Rosauro vs.
Cuneta, 151 SCRA 570). If it is not issued, the defendant may, before final
judgment, do or continue the doing of the act which the plaintiff asks the court to
restrain, and thus make ineffectual the final judgment rendered afterwards
granting the relief sought by the plaintiff (Calo vs. Roldan, 76 Phil. 445).
Generally, its grant or denial rests upon the sound discretion of the Court except
on a clear case of abuse (Belish Investment & Finance Co. vs. Statement House,
151 SCRA 636). Petitioners' right of exclusivity to their registered trademarks
being clear and beyond question, the respondent court's denial of the prohibitive
writ constituted excess of jurisdiction and grave abuse of discretion. If the lower
court does not grant preliminary injunction, the appellate court may grant the
same (Service Specialists, Inc. v. Sheriff of Manila. 145 SCRA 139). 9 (Emphasis
supplied)

Fortune moved for reconsideration of the Decision of the Court of Appeals insisting that
petitioners must first prove their "clear, unmistakable and unquestioned right to the writ, coupled
with the possible damages it would suffer;" that petitioners had not suffered any "great and
irreparable injury to speak of" because "petitioners have never done business in this country in
the past nor in the future;" that, on the other hand, Fortune had been authorized by the BIR to
manufacture "MARK" cigarettes, "thereby generating much needed funds for the Government;"
that Fortune's application for registration of its brandname "MARK" with the Philippine Patent
Office "still pending" and not "finally rejected" by the Director of Patents. On 12 July 1989, the
Court of Appeals issued a Minute Resolution stating that the issues and arguments in Fortune's
motion for reconsideration had been "fully discussed" in the Decision sought to be reconsidered,
that no new arguments were raised, and accordingly denied the Motion for Reconsideration.

Fortune then filed a "Motion to Dissolve Writ of Preliminary Injunction with Offer to File
Counterbond" date 25 July 1989, where it reiterated the basic arguments it previously made.

A "Supplemental Motion to Lift Writ of Preliminary Injunction with Offer of Counterbond" dated
17 August 1989 was next filed by Fortune. In this "Supplemental Motion," Fortune averred that it
had paid to the BIR for 1988 the amount of P181,940,177.38 for specific taxes; while for
January to July 1989, it had paid the amount of P120,120,735.28. Fortune also referred to its
employees assigned to the manufacture of "MARK" cigarettes who were apparently
apprehensive that their services would eventually be terminated and that they would join the
ranks of the unemployed.

Petitioners filed an Opposition to the "Motion to Dissolve" and a Comment on the "Supplemental
Motion" of Fortune.

On 14 September 1989, the Court of Appeals once more through Cacdac, Jr., J. issued a
Resolution lifting the preliminary injunction it had earlier granted upon the filing of counterbond
by private respondent in the amount of P400,000.00 to answer for any damages petitioners may
suffer as a consequence of such lifting. In its Resolution, the Court of Appeals referred to the
"lots of workers employed [who] will be laid off as a consequence of the injunction" and that
Government "will stand to lose the amount of specific taxes being paid by" Fortune. It when
went on to say:

After a thorough re-examination of the issues involved and the arguments

advanced by both parties in the offer to file a counterbond and the opposition
thereto, WE believe that there are sound and cogent reasons for Us to grant the
dissolution of the writ of preliminary injunction by the offer of the private
respondent to put up a counterbond to answer for whatever damages the
petitioner may suffer as a consequence of the dissolution of the preliminary
injunction.

The petitioner will not be prejudiced nor stand to suffer irreparably as a

consequence of the lifting of the preliminary injunction considering that they are
not actually engaged in the manufacture of the cigarettes with the trademarks in
question and the filing of the counterbond will amply answer for such damages.

While the rule is that an offer of a counterbond does not operate to dissolve an
injunction previously granted, nevertheless, it is equally true that an injunction
could be dissolved only upon good and valid grounds subject to the sound
discretion of the court. As WE have maintained the view that there are sound and
good reasons to lift the preliminary injunction the motion to file a counterbond is
granted. 10 (Emphasis supplied)

Petitioners filed a Motion for Reconsideration, without success.

In the instant Petition, petitioners make the following basic submissions:

 1. that the Court of Appeals gravely abused its discretion amounting to excess of
jurisdiction when it required, contrary to law and jurisprudence that in order that
petitioners may suffer irreparable injury due to the lifting of the injunction,
petitioners should be using actually their registered trademarks in commerce in
the Philippines;

2. that the Court of Appeals gravely abused its discretion amounting to excess of
jurisdiction when it lifted the injunction in violation of Section 6 of Rule 58 of the
rules of Court;

3. that the Court of Appeals gravely abused its discretion amounting to excess of
jurisdiction when, after having found that the trial court had committed grave
abuse of discretion and exceeded its jurisdiction for having refused to issue the
writ of injunction to restrain respondent's acts that are contrary to equity and
good conscience, it made a complete about face for legally insufficient grounds
and authorized private respondent to continue performing the very same acts
that it had considered contrary to equity and good conscience, thereby ignoring
not only the mandates of the trademark law, the international commitments of the
Philippines, the judicial admission of private respondent that it will have no more
right to use the trademark "MARK" after the Director of Patents shall have
rejected the application to register it, and the admonitions of the Supreme
Court.11

The Court required private respondent to file a comment. The comment reiterated the basic
arguments made by private respondent before the Court of Appeals:

a. the petitioners are not suffering any irreparable damage by the lifting of the
preliminary injunction by the Court of appeals. Whatever damages they might
suffer are "based purely on speculation, since by judicial admission, petitioners
are not doing business in the Philippines. Private respondent stressed
that petitioners "are not manufacturing, importing or selling "MARK TEN," "MARK
VII" or "LARK" in this country," notwithstanding "false allegation" that petitioners
have been "using" the said trademarks "in commerce and trade" in the
Philippines since 1963 up to the present.

b. that whatever damage petitioners may be suffering is negligible when

compared to the taxes that would have to be foregone by the
Government considering that private respondent "paid an annual specific tax of
P240 Million only on the manufacture and sale of "MARK cigarettes." Private
respondent claims that, in contrast, petitioners which are foreign corporations
"based in three different countries" have not contributed anything to Government
tax revenues.

c. that the Court of Appeals lifted the writ of preliminary injunction it had earlier
issued upon the submission of a counter bond in double the amount of the bond
submitted by petitioners, under Section 6, Rule 58 of the Rules of Court, which
act was within the sound discretion of the Court of Appeals. Private respondent
also stresses that the right of petitioners to the injunction was still being litigated
before the trial court.
Reformulating the issues raised by the petitioners here, we think the principal issues may be
reduced to the following: firstly, is there a clear legal right to the relief asked by petitioners in the
form of a preliminary injunction to restrain private respondent from manufacturing, selling and
distributing cigarettes under the trademark "MARK"? The second question is: are private
respondent's acts complained of by petitioners causing irreparable injury to petitioners' rights in
the premises? These two (2) basic issues are obviously related and need to be addressed
together.

The first point that needs to be stressed is that petitioners have Philippine Certificates of
Registration for their trademarks "MARK TEN", "MARK VII," and "LARK" in the Principal
Register.

Upon the other hand, private respondent's trademark "MARK" is not registered in the Principal
Register in the Office of the Director of Patents; private respondents is simply an applicant for
registration of a mark, the status of which application may be noted later.

It is important to stress the legal effects of registration of a trademark in the Principal Register in
the Office of the Director of Patents. Section 20 of R.A. No. 166, as amended, sets out the
principal legal effects of such registration:

Sec. 20. Certificate of registration prima facie evidence of validity. — A certificate

of registration, of a mark or a trade name shall be prima facie evidence of the
validity of the registration, the registrant's ownership of the mark or trade name,
and of the registrant's exclusive right to use the same in connection with the
goods, business or services specified in the certificate, subject to any conditions
and limitations stated therein. (Emphasis supplied)

In Lorenzana v. Macagba, 12 the Court distinguished between the effects of registration in the
Principal Register and registration in the Supplemental Register in the following manner:

(1) Registration in the Principal Register gives rise to a presumption of the

validity of the registration, the registrant's ownership of the mark, and his right to
the exclusive use thereof. There is no such presumption in registrations in the
Supplemental Register.

(2) Registration in the Principal Register is limited to the actual owner of the
trademark (Unno Commercial Enterprises v. Gen. Milling Corp., 120 SCRA 804
[1983]) and proceedings therein pass on the issue of ownership, which may be
contested through opposition or interference proceedings, or after registration, in
a petition for cancellation.

Registration in the Principal Register is constructive notice of the registrant's

claims of ownership, while registration in the Supplemental Register is merely
proof of actual use of the trademark and notice that the registrant has used or
appropriated it. (Le Chemise Lacoste, S.A. v. Fernandez, 129 SCRA 373 [1984]:
"Registration in the Supplemental Register . . . serves as notice that the
registrant is using or has appropriated the trademark.") It is not subject to
opposition although it may be cancelled after its issuance.
 Corollarilly, registration in the Principal Register is a basis for an action for
infringement, while registration in the Supplemental Register is not.

(3) In application for registration in the Principal Register, publication of the

application is necessary. This is not so in applications for registration in the
Supplemental Register. Certificates of registration under both Registers are also
different from each other.

(4) Proof of registration in the Principal Register may be filed with the Bureau of
Customs to exclude foreign goods bearing infringing marks while it does not hold
true for registrations in the Supplemental Register. 13(Emphasis supplied)

When taken with the companion presumption of regularity of performance of official duty, it will
be seen that issuance of a Certificate of Registration of a trademark in the Principal Register
also gives rise to the presumption that
all requirements of Philippine law necessary for a valid registration (including prior use in
commerce in the Philippines for at least two [2] months) were complied with and satisfied.

In contrast, private respondent filed an application for registration of its mark "MARK" for
cigarettes with the Director of Patents soon after it commenced manufacturing and selling
cigarettes trademark with "MARK." This application was abandoned or "forfeited", 14 for failure of
private respondent to file a necessary Paper with the Director of Patent. It also appears,
however, that private respondent later re-filed or reinstated its application for registration of
"MARK" 15 and that, so far as the record here before us is concerned, this application remains
merely an application and has not been granted and a Certificate of Registration in the Principal
Register issued.16 While final action does not appear as yet to have been taken by the Director
of Patents on private respondent's application, there was at least a preliminary determination of
the trademark examiners that the trademark "MARK" was "confusingly similar" with petitioners'
marks "MARK VII," "MARK TEN" and "LARK" and that accordingly, registration was
barred under Section 4 (d) of R.A. No. 166, as amended. 17

In the trial court, both Judge Reyes and Judge Galing took the position that until the Director of
Patents shall have finally acted on private respondent's application for registration of "MARK,"
petitioners cannot be granted the relief of preliminary injunction. It is respectfully submitted that
this position is both erroneous and unfortunate. In reliance upon that position, private
respondent has kept its application for registration alive and pending. The Director of Patents in
turn may well have refrained from taking final action on that application, even in the absence of
a restraining order from the courts, out of deference to the courts. The pendency of the
application before the Director of Patents is not in itself a reason for denying preliminary
injunction. Our courts have jurisdiction and authority to determine whether or not "MARK" is an
infringement on petitioners' registered trademarks. Under our case law, the issuance of a
Certificate of Registration of a trademark in the Principal Register by the Director of Patents
would not prevent a court from ruling on whether or not the trademark so granted registration is
confusingly similar with a previously registered trademark, where such issue is essential for
resolution of a case properly before the court. A fortiori, a mere application for registration
cannot be a sufficient reason for denying injunctive relief, whether preliminary or definitive. In
the case at bar, petitioners' suit for injunction and for damages for infringement, and their
application for a preliminary injunction against private respondent, cannot be resolved without
resolving the issue of claimed confusing similarity.
In the case at bar, the evidence of record is scanty. Petitioners have not submitted actual copies
or photographs of their registered marks as used in cigarettes. Private respondent has not, for
its part, submitted the actual labels or packaging material used in selling its "MARK" cigarettes.
Petitioners have appended to their Petition a photocopy of an advertisement of "MARK"
cigarettes. Private respondent has not included in the record a copy of its application for
registration of "MARK" for cigarettes, which would include a facsimile of the trademark being
applied for. It should be noted that "MARK" and "LARK," when read or pronounced orally,
constitute idem sonansin striking degree. Further, "MARK" has taken over the dominant word in
"MARK VII" and "MARK TEN." These circumstances, coupled with private respondent's failure
to explain how or why it chose, out of all the words in the English language, the word "mark" to
refer to its cigarettes, lead me to the submission that there is a prima faciebasis for holding, as
the Patent Office has held and as the Court of Appeals did hold originally, that private
respondent's "MARK" infringes upon petitioners' registered trademarks.

II

There is thus no question as to the legal rights of petitioners as holders of trademarks registered
in the Philippines. Private respondent, however, resists and assails petitioners' effort to enforce
their legal rights by heavily underscoring the fact that petitioners are not registered to do
business in the Philippines and are not in fact doing business in the Philippines. It is thus
necessary to determine what consequences, if any, flow from this circumstance so far as
enforcement of petitioners' rights as holders of registered Philippine trademarks is concerned.

It should be stressed at the outset that circumstance has no legal impact upon the right of
petitioners to own and register their trademarks in the Philippines. Section 2 of R.A. No. 166 as
amended expressly recognizes as registrable, under this statute, marks which are owned by
corporations domiciled in any foreign country:

Sec. 2. What are registrable. — Trademarks, trade names and service

marks owned by persons, corporations, partnerships or associations domiciled in
the Philippines and by persons, corporations, partnerships or associations
domiciled in any foreign country may be registered in accordance with the
provisions of this Act; Provided, That said trade marks, trade names or service
marks are actually in use in commerce and services not less than two months in
the Philippines before the time the applications for registration are filed: And
provided further, That the country of which the applicant for registration is a
citizen grants by law substantially similar privileges to citizens of the Philippines,
and such fact is officially certified, with a certified true copy of the foreign law
translated into the English language, by the government of the foreign country to
the Government of the Republic of the Philippines. (Emphasis in the original)

It is also entirely clear that foreign corporations and corporations domiciled in a foreign country
are not disabled from bringing suit in Philippine courts to protect their rights as holders of
trademarks registered in the Philippines. Under Section 21-A of R.A. No. 166, as amended, any
foreign corporation which is a holder of a trademark registered under Philippine law may bring
an action for infringement of such mark or for unfair competition or false designation of origin
and false description "whether or not it has been licensed to do business in the Philippines
under the [Corporation Law] at the time it brings complaint, subject to the proviso that:
 . . . that the country of which the said foreign corporation or juristic person is a
citizen or in which it is domiciled by treaty, convention or law, grants similar
privilege to corporate or juristic persons of the Philippines. (Emphasis supplied)

The rule thus embodied in Section 21-A of R.A. No. 166 as amended is also set out in Article 2
of the Paris Convention for the Protection of Industrial Property ("Paris Convention"), to which
the Philippines, the United States, Canada and Switzerland are all parties. 18 Article 2 of the
Paris Convention provides in relevant part:

Article 2

(1) Nationals of any country of the Union shall, as regards the protection of
industrial property, enjoy in all the other countries of the Union the advantages
that their respective laws now grant, or may hereafter grant, to nationals; all
without prejudice to the rights specially provided for by this Convention.
Consequently, they shall have the same protection as the latter, and the same
legal remedy against any infringement of their rights, provided that the conditions
and formalities imposed upon national are complied with.

(2) However, no requirement as to domicile or establishment in the country

where protection is claimed may be imposed upon nationals of countries of the
Union for the enjoyment of any industrial property rights.

xxx xxx xxx

(Emphasis supplied)

Article 2, paragraph 1 of the Paris Convention embodies the principle of "national treatment" or
"assimilation with nationals," one of the basic rules of the Convention. 19 Under Article 2,
paragraph 1 of the Paris Convention, nationals of Canada, Switzerland and the United States
who are all countries of the Paris Union are entitled to enjoy in the Philippines, also a country of
the Union, the advantages and protections which Philippine law grants to Philippine nationals.
Article 2 paragraph 2 of the Paris Convention restrains the Philippines from imposing a
requirement of local incorporation or establishment of a local domicile as a pre-requisite for
granting to foreign nationals the protection which nationals of the Philippines are entitled to
under Philippine law in respect of their industrial property rights. It should be noted that Article 2,
paragraph 2 also constitutes proof of compliance with the requirement of reciprocity between,
on the one hand, the Philippines and, on the other hand, Canada, Switzerland and the United
States required under Section 21-A of R.A. No. 166 as amended.

The net effect of the statutory and treaty provisions above referred to is that a corporate national
of a member country of the Paris Union is entitled to bring in Philippine courts an action for
infringement of trademarks, or for unfair competition, without necessity for obtaining registration
or a license to do business in the Philippines. Article 2 as quoted above is in effect with respect
to all four (4) countries.

Such has been the rule in our jurisdiction even before the enactment of R.A. No. 166 and before
the Philippines became a party to the Paris Convention. In Western Equipment and Supplies
Company, et al. v. Reyes, etc., et al.,20 petitioner Western Electrical Company, a U.S.
manufacturer of electrical and telephone equipment and suppliesnot doing business in the
Philippines, commenced action in a Philippine court to protect its corporate name from
unauthorized use thereof by certain Philippine residents. The Philippine residents sought to
organize a Philippine corporation to be known as "Western Electrical Company" for the purpose
of manufacturing and selling electrical and telephone equipment in the Philippines. The local
residents resisted the suit by contending, inter alia, that the petitioner Western Electrical
Company had never transacted business in the Philippines and that registration of private
respondent's articles of incorporation could not in any way injure petitioner. The Supreme Court,
in rejecting this argument, stated that:

. . . a foreign corporation which has never done business in the Philippines — but
is widely and favorably known in the Philippines through the use therein of its
products bearing its corporate name and tradename hasa legal right to maintain
an action in the [Philippines]. The purpose of such a suit is to protect its
reputation, corporate name and goodwill which has been established through the
natural development of its trade for a long period of years in the doing of which it
does not seek to enforce any legal or contract rights arising from or closing out of
any business which it has transacted in the Philippines. . . . 21 (Emphasis
supplied)

Similarly, in Asari Yoko v. Kee Boc, 22 a Japanese corporation, also not engaged in any
business in the Philippines, successfully opposed an application for registration of its trademark
"Race Brand" on shirts and undershirts by a local businessman, even though the Japanese
company had not previously registered its own mark "Race Brand" in the Philippines.

Again, in General Garments Corporation v. Director of Patents and Puritan Sportswear

Corporation, 23 Puritan Sportswear Corporation, an entity organized in Pennsylvania U.S.A. and
not doing business in the Philippines, filed a petition for cancellation of the mark "Puritan" which
was registered in the name of petitioner General Garments Corporation for assorted men's
wear, undershirts, briefs, shirts, sweaters and jackets. Puritan Sportswear alleged ownership
and prior use of the trademark "Puritan" in the Philippines. Petitioner General Garments, on the
other hand, contended that Puritan Sportswear, being a foreign corporation not licensed to do,
and not doing, business in the Philippines, could not maintain an action for cancellation of a
trademark. The Court, in upholding the Director of Patents' cancellation of the registration of the
mark "Puritan" in the name of General Garments, said:

. . . .such mark should not have been registered in the first place (and
consequently may be cancelled if so required) if it consists of
or comprises a mark or tradename which so resembles a mark or tradename . . .
. previously used in the Philippines by another and not abandoned, as to be
likely, when applied to or used in connection with goods, business or services of
the applicant, to cause confusion or mistake or to deceive
purchasers. 24 (Emphasis supplied)

In Converse Rubber Corporation v. Universal Rubber Products, Inc., 25 petitioner Converse

Rubber Corporation was an American manufacturer of rubber shoes, not doing business on its
own in the Philippines and not licensed to do business in the Philippines, opposed the
application for registration of the trademark "Universal Converse and Device" to be used also in
rubber shoes and rubber slippers by private respondent Universal Rubber Products, Inc.
("Universal"). In reversing the Director of Patents and holding that Universal's application must
be rejected, the Supreme Court said:
 The sales of 12 to 20 pairs a month of petitioner's rubber shoes cannot be
considered insignificant, considering that they appear to be of high expensive
quality, which not too many basketball players can afford to buy. Any sale made
by a legitimate trader from his store is a commercial act establishing trademark
rights since such sales are made in due course of business to the general public,
not only to limited individuals. It is a matter of public knowledge that all brands of
goods filter into the market, indiscriminately sold by jobbers, dealers and
merchants not necessarily with the knowledge or consent of the
manufacturer. Such actual sale of goods in the local market establishes
trademark use which serves as the basis for any action aimed at trademark pre-
emption. It is a corollary logical deduction that while Converse Rubber
Corporation is not licensed to do business in the country and is not actually doing
business here, it does not mean that its goods are not being sold here or that it
has not earned a reputation or goodwill as regards its products. The Director of
Patents was, therefore, remiss in ruling that the proofs sales presented "was
made by a single witness who had never dealt with nor had never known
opposer (petitioner) . . . without Opposer having a direct or indirect hand in the
transaction to be the basis of trademark pre-exemption. 26 (Emphasis supplied)

Three (3) other cases may be noted. The first is La Chemise Lacoste, S.A. v. Fernandez 27 La
Chemise Lacoste, S.A. although a foreign corporation not engaged in and not licensed to do
business in the Philippines, was accorded protection for its trademarks "Lacoste", "Chemise
Lacoste," and "Crocodile Device" for clothing and sporting apparel. The Court recognized that
those marks were "world famous trademarks which the Philippines, as a party to the Paris
Union, is bound to protect." Similarly, in Del Monte Corporation, et al. v. Court of Appeals, et
al., 28 petitioner Del Monte Corporation was a company organized under the laws of the United
States and not engaged in business in the Philippines. Because both the Philippines and the
United States are signatories to the Convention of Paris, which grants to nationals of the parties
the rights and advantages which their own nationals enjoy for the repression of acts of
infringement and unfair competition, the Court, having found that private respondent's label was
an infringement of Del Monte's trademark, held Del Monte entitled to recover damages.

In Puma Sportschuhfabriken Rudolf Dassler, K.G. v. Intermediate appellate Court, et

al, 29 petitioner Puma was a foreign corporation existing under the laws of the Federal Republic
of Germany not registered to do business and not doing business in the Philippines, filed a
complaint for infringement of trademark and for issuance of a writ of preliminary injunction
against a local manufacturing company. Reversing the Court of Appeals, this Court held that
Puma had legal capacity to bring the suit in the Philippines under Section 21-A of R.A. No. 166
as amended and under the provisions of the Paris Convention to which both the Philippines and
the Federal Republic of Germany are parties. The Court also noted that "Puma" is an
internationally known brandname.

The relevancy of the doctrines set out in the cases above cited are conceded by my
distinguished brother Melo, J. in the majority opinion. The majority opinion, however, goes on to
say:

In other words, petitioners may have the capacity to sue for infringement
irrespective of lack of business activity in the Philippines on account of Section
21-A of the Trademark Law but the question of whether they have an exclusive
right over their symbols as to justify issuance of the controversial writ will depend
 on actual use of their trademarks in the Philippines in line with Sections 2 and 2-
A of the same law. It is thus incongruous for petitioners to claim that when a
foreign corporation not licensed to do business in the Philippines files a complaint
for infringement, the entity need not be actually using its trademark in commerce
in the Philippines. Such a foreign corporation may have the personality to file a
suit for infringement but it may not necessarily be entitled to protection due to
absence of actual use of the emblem in the local market.

With great respect, certain essential qualifications must be made respecting the above
paragraph. Firstly, of the petitioners' three (3) marks here involved, two (2) of them — i.e.,
"MARK TEN" and "LARK" — were registered in the Philippines on the basis of actual use in the
Philippines, precisely in accordance with the requirements of Section 2-A and Section 5 (A) of
R.A. No. 166 as amended. The pre-registration use in commerce and trade in the Philippines for
at least two (2) months as required by the statute, is explicitly stated in the Certificates of
Registration. The very fact that the appropriate Philippine Government office issued the
Certificates of Registration necessarily gave rise to the presumption that such pre-registration
use had in fact been shown to the satisfaction of the Philippine Patent Office (now the Bureau of
Patents, Trademark and Technology Transfer ["BPTTT"]). It is important to note that respondent
Fortune has not purported to attack the validity of the trademarks "Mark Ten" and "Lark" by
pretending that no pre-registration use in commerce in the Philippines had been shown. 30

The third mark of petitioners — "MARK VII" — was registered in the Philippines on the basis of
Section 37 of R.A. No. 166 as amended, i.e., on the basis of registration in the country of origin
and under the Paris Convention. In such registration, by the express provisions of Section 37 (b)
of R.A. No. 166 as amended, prior (pre-registration) use in commerce in the Philippines
need not be alleged.

Whether the Philippine trademark was based on actual use in the Philippines (under Section 2-
A) or on registration in a foreign country of origin (under Section 37), the statute appears to
require that trademarks (at least trademarks not shown to be internationally "well-known") must
continue to be used in trade and commerce in the Philippines. It is, however, essential to point
out that such continued use, as a requirement for the continued right to the exclusive use of the
registered trademark, is presumed so long as the Certificate of Registration remains outstanding
and so long as the registered trademark owner complies with the requirements of Section 12 of
R.A. No. 166 as amended of filing affidavits with the BPTTT on the 5th, 10th and 15th
anniversaries of the date of issuance of the Certificate of Registration, showing that the
trademark is still in use or showing that its non-use is not due to any intention to abandon the
same. In the case at bar, again, respondent Fortune has not explicitly pretended that the
petitioners' trademarks have been abandoned by non-use in trade and commerce in the
Philippines although it appears to insinuate such non-use and abandonment by stressing that
petitioners are not doing business in the Philippines.

That petitioners are not doing business and are not licensed to do business in the Philippines,
does not by any means mean either that petitioners have not complied with the requirements of
Section 12 of R.A. No. 166 relating to affidavits of continued use, or that petitioners' trademarks
are not in fact used in trade and commerce in the Philippines. In the Converse case, as earlier
noted, the Court held that the circumstance that the foreign owner of a Philippine trademark is
not licensed to do business and is not doing business in the Philippines, does not mean that
petitioner's goods (that is, goods bearing petitioner's trademark) are not sold in the Philippines.
For cigarettes bearing petitioners' trademarks may in fact be imported into and be available for
sale in the Philippines through the acts of importers or distributors. Petitioners have stated that
their "Mark VII," "Mark Ten" and "Lark" cigarettes are in fact brought into the country and
available for sale here in, e.g., duty-free shops, though not imported into or sold in the
Philippines by petitioners themselves. There is no legal requirement that the foreign registrant
itself manufacture and sell its products here. All the statute requires is the use in trade and
commerce in the Philippines, and that can be carried out by third party manufacturers operating
under license granted by the foreign registrant or by the importation and distribution of finished
products by independent importers or traders. The "use" of the trademark in such instances by
the independent third parties constitutes use of the foreign registrant's trademarks to the benefit
of the foreign registrant. 31

III

We turn to petitioners' claim that they are suffering irreparable damage by reason of the
manufacture and sale of cigarettes under the trademark "MARK." Here again, a basic argument
of private respondent was that petitioners had not shown any damages because they are not
doing business in the Philippines. I respectfully maintain that this argument is specious and
without merit.

That petitioners are not doing business and are not licensed to do business in the Philippines,
does notnecessarily mean that petitioners are not in a position to sustain, and do not in fact
sustain, damage through trademark infringement on the part of a local enterprise. 32 Such
trademark infringement by a local company may, for one thing, affect the volume of importation
into the Philippines of cigarettes bearing petitioners' trademarks by independent or third party
traders.

The damage which the petitioners claim they are sustaining by reason of the acts of private
respondents, are not limited to impact upon the volume of actual imports into the Philippines of
petitioners' cigarettes. Petitioners urge that private respondent's use of its confusingly similar
trademark "MARK" is invasive and destructive of petitioners property right in their registered
trademarks because.

a) Plaintiffs' undeniable right to the exclusive use of their registered trademarks is

effectively effaced by defendant's use of a confusingly similar trademark;

b) Plaintiffs would lose control of the reputation of their products as their

reputation will depend on defendant's commercial activities and the quality of
defendant's products;

c) The market in the Philippines for plaintiffs' products will be pre-empted;

d) Purchasers will think that defendant's goods are approved or sponsored by

plaintiff;

e) Defendant will be allowed to benefit from the reputation of the plaintiffs' goods
and trademarks;

f) Defendant will be effectively authorized to continually invade plaintiffs' property

rights, for which invasion no fair and reasonable redness can be had in a court of
law; and
 g) Plaintiffs will lose their goodwill and trade and the value of their registered
trademarks will irreparably diluted and the damages to be suffered by plaintiffs
cannot be redressed fairly in terms of money. 33

Modern authorities on trademark law view trademarks as symbols which perform three (3)
distinct functions: first, they indicate origin or ownership of the articles to which they are
attached; second, they guarantee that those articles come up to a certain standard of quality;
third, they advertise the articles they symbolize. 34

The first two (2) functions have long been recognized in trademark law which characterizes the
goodwill or business reputation symbolized by a trademark as a property right protected by law.
Thus, the owner of a trademark is held entitled to exclude others from the use of the same, or of
a confusingly similar, mark where confusion results in diversion of trade or financial injury. At the
same time, trademarks warn against the imitation or faking of products and prevent the
imposition of fraud upon the public. The first two (2) functions of trademarks were aptly stressed
in e.g., the La Chemise Lacoste case where the objectives of trademark protection were
described in the following terms:

. . . to stem the tide of fake and counterfeit consumer items flooding the
Philippine market or exported abroad from our country. The greater victim is not
so much the manufacturer whose product is being faked but
the Filipino consuming public and in the case of exportations, our image abroad .
. . . We buy a kitchen appliance, a household tool, perfume, a face powder, other
toilet articles, watches, brandy or whisky, and items of clothing like jeans, T-
shirts, neckties, etc. — the list is quite lengthy — and pay good money relying on
the brand name as guarantee of its quality and genuine nature only to explode in
bitter frustration and helpless anger because the purchased item turns out to be
a shoddy imitation, albeit a clever looking counterfeit, of the quality product . . .
. 35

The third or advertisement function of trademark has become of especial importance given the
modern technology of communication and transportation and the growth of international
trade. 36 Through advertisement in the broadcast and print media, the owner of the trademark is
able to establish a nexus between its trademark products and the public in regions where the
owner does not itself manufacture or sell its own products. 37 Through advertisement, a well-
established and well-earned reputation may be gained in countries where the trademark owner
has itself no established business connection. 38 Goodwill may thus be seen to be much less
closely confined territorially than, say, a hundred or fifty years ago. 39 It is no longer true that "a
trademark of itself cannot travel to markets where there is no article to wear the badge and no
trader to offer the article." 40 Advertisement of trademarks is geared towards the promotion of
use of the marked article and the attraction of potential buyers and users; 41 by fixing the identity
of the marked article in the public mind, it prepares the way for growth in such
commerce whether the commerce be handled by the trademark owner itself or by its licensees
or independent traders.

That a registered trademark has value in itself apart from the trade physically accompanying its
use, has been recognized by our Court. In Ang v. Teodoro, 42 the Court was called upon the
determine whether there was infringement in the use of the same trademark on articles which
do not belong to the same class of goods which the lawful trademark owner manufactures and
sells. In holding that there was infringing use in such case, the Court said:
 . . . . such unfair trading can cause injury or damage to the first user of a given
trade-mark, first, by prevention of the natural expansion of his business and,
second, by having his business reputation confused with and put at the mercy of
the second user. When noncompetitive products are sold under the same
mark, the gradual whittling away or dispersion of the identity and hold upon the
public mind of the mark created by its first user, inevitably result. The original
owner is entitled to the preservation of the valuable link between him and the
public that has been created by his ingenuity and the merit of his wares or
services. Experience has demonstrated that when a well-known trade-mark is
adopted by another even for a totally different class of goods, it is done to get the
benefit of the reputation and advertisements of the originator of said mark, to
convey to the public a false impression of some supposed connection between
the manufacturer of the article sold under the original mark and the new articles
being tendered to the public under the same or similar mark . . . The owner of a
trademark or tradename has a property right in which he is entitled to protection,
since there is damage to him in the form of confusion of reputation or goodwill in
the mind of the public as well as from confusion of goods. (Emphasis supplied)

In Sta. Ana v. Maliwat, 43 the Court, through J.B.L. Reyes, J., in holding that the use of
the name "Flormen" with respect to shoes was infringement of the mark "Flormann" used
in the men's wear such as shirts, polo shirts and pants, said:

Modern law recognizes that the protection to which the owner of a trade-mark is
entitled is not limited to guarding his goods or business from actual market
competition with identical or similar products of the parties, but extends to all
cases in which the use by a junior appropriator of a trade-mark or trade-name is
likely to lead to a confusing of source, as where prospective purchasers would be
misled into thinking that the complaining party has extended his business into the
field (see 148 ALR 56 et seq; 52 Am. Jur. 576) or is in any way connected with
the activities of the infringer; or when it forestalls the normal potential expansion
of his business (v. 148 ALR, 77, 84; 52 Am. Jur. 576, 577). . . .. 44 (Emphasis
supplied)

Petitioners did not try to put a peso figure on their claimed damage arising from the erosion and
possible eventual destruction of the symbolic value of their trademark. Such damage, while not
easily quantifiable, is nonetheless real and effective. I submit, with respect, that such continuing
damage falls clearly within the concept of irreparable damage or injury described in Social
Security Commission v. Bayona 45 in the following terms:

Damages are irreparable within the meaning of the rule relative to the issuance
of injunction where there is no standard by which their amount can be measured
with reasonable accuracy (Crouc v. Central Labor Council, 83 ALR, 193). "An
irreparable injury which a court of equity will enjoin includes that degree of wrong
of a repeated and continuing kind which produce hurt, inconvenience, or damage
that can be estimated only by conjecture, and not by any accurate standard of
measurement" (Phipps v. Rogue River Valley Canal Co., 7 ALR, 741). An
irreparable injury to authorize an injunction consists of a serious charge of, or is
destructive to, the property if affects, either physically or in the character in which
it has been held and enjoined, or when the property has some peculiar quality or
 use, so that its pecuniary value will not fairly recompense the owner of the loss
thereof' (Dunker v. Field and Tub Club, 92 P., 502).

Respondent corporations made a lengthy discourse on the matter of irreparable

injury they may suffer if the injunction were not issued, but the array of figures
they have laid out merely succeeded in proving that the damage, if any they may
suffer, is susceptible of mathematical computation. It is not then irreparable. As
already stated, this term has a definite meaning in law. It does not have
reference to the amount of damages that may be caused but rather to the
difficulty of measuring the damages inflicted. If full compensation can be obtained
by way of damages, equity will not apply the remedy of injunction (28 Am. Jur.,
244; 43 C.J.S., 427, 446). 46

I next turn to private respondent's claim that issuance of an injunction would impose heavy
damage upon itself and upon Government. As noted, private respondent stated that it had paid
many millions of pesos as ad valorem and VAT taxes to the Government in 1988 and 1989 in
connection with its "MARK" cigarettes. 47 Presumably, the total volume of its business
associated with the manufacture and sale of cigarettes trademarked "MARK" would be even
larger. In addition, private respondent suggests, albeit indirectly only, that hundreds if not
thousands of its employees would find themselves unemployed if it were restrained from the
manufacture and sale of "MARK" cigarettes.

Private respondent's claims concerning alleged damages both to itself and to the Government,
which obviously loomed very large in the mind of the majority here, and of the Court of Appeals
when it lifted the injunction it had issued, appear to me to be extravagant indeed. Petitioners
cannot claim to be entitled to an injunction which could restrain private respondent from
manufacturing and selling cigarettes completely; petitioner do not pretend to be so entitled to
such a comprehensive injunction. Petitioners seek only the reinstatement of the original
injunction issued by the Court of Appeals, i.e., one that restrains private respondent from using
the trademark "MARK" on its cigarettes. There is nothing to prevent private respondent from
continuing to manufacture and sell cigarettes under any of its already existing and registered
trademarks, of which it has several, or under some new and specially created trademark(s).
Realistically, private respondent, if enjoined, would lose only the value of the packaging material
imprinted with the same trademark (which cigarettes and material may well be amenable to re-
cycling) and the cost of past advertisements of "MARK" in media, if any. Thus, the apprehension
on the part of the majority which private respondent tried diligently to foment — that the
Government would lose many millions of pesos in tax revenues and that many employees
would lose their jobs, if an injunction is issued — is more apparent than real. The damages
private respondent would sustain from reinstatement of the preliminary injunction are clearly
quantifiable in pesos.

Besides, as pointed out by petitioners, to pay heed to private respondent's creative economic
argument would ultimately mean that the greater the volume of sales and the profits of the
infringer, the greater would be the infringer's claim to be entitled to continue infringement. I
respectfully submit that the law should not countenance such a cynical result.

My conclusion is that private respondent's claims concerning damage which it would sustain if
the petitioners were granted the injunction they seek, did not constitute a sufficient basis for
overturning the original decision of the Court of Appeals. The Resolution of the Court of Appeals
granting private respondent's Motion to Dissolve, in effect disregarded everything that Court had
set out in its original Decision. The mere offer and filing of a counterbond does not, by itself,
provide a sufficient basis for lifting the preliminary injunction earlier granted. For all the elements
which supported the original issuance of a preliminary injunction continued to exist. Private
respondent's hyperbolic claims concerning the damages that it and the Government would
sustain by reason of an injunction, had been made earlier both before the trial court and the
Court of Appeals. Finally, it is not enough to say as private respondent says, that the Court of
Appeals in granting its Motion to Dissolve the preliminary injunction was merely exercising its
discretion; for the Court of Appeals obviously was also exercising its discretion when it rendered
its original Decision granting the preliminary injunction.

I vote to grant due course to the petition for Certiorari, to set aside the Resolution of the
respondent Court of Appeals dated 14 September 1989 in C.A.-G.R. SP No. 13132 and to
reinstate the Decision of that same Court dated 5 May 1989.

# Footnotes

1 Then presided over by Judge Pastor P. Reyes.

2 Court of Appeals Decision, Rollo, p. 137.

3 Rollo, p. 339.

4 Id., p. 73.

5 Id., p. 88.

6 With the concurrence of Nocon and G.C. Paras, JJ.

7 Rollo, p. 165.

8 Note 3.

9 Rollo, pp. 166-167.

10 Rollo, pp. 53-54.

11 Id. pp. 25-26.

12 154 SCRA 723 (1987).

13 154 SCRA at 728-729.

14 Certification, dated 8 August 1986, Annex "I" of the Petition, Rollo, p. 74.

15 Certification dated 30 January 1984, issued by Cesar C. San Diego, Director

of Patents, certifying that as of that date, private respondent's "Application Serial
No. 44008 for the registration of trademark "MARK" and design filed on 13
February 1981 was still pending appropriate action." (Rollo, p.—).
16 This certification is quoted in the order dated 5 April 1984 of Judge
Reyes; Rollo, p. 348.

17 Section 4 (d) of R.A. No. 166, as amended, specifies the kinds of trademarks,
tradenames or service marks which cannot be registered on the Principal
Register:

(d) consists of or comprises a mark or tradename which so resembles mark or

tradename registered in the Philippines or a mark or tradename previously used
in the Philippines by another and not abandoned, as to be likely, when applied to
or used in connection with the goods or services of the applicant to cause
confusion or mistake or to deceive purchasers; . . . .

18 The Paris Convention was concurred in by the Senate by S.R. No. 69, May
10, 1965 and the Instrument of Ratification was signed by the President on
October 11, 1965; List of Treaties and Other International Agreements of the
Republic of the Philippines, p. 1 (1966; U.P. Law Center). The adhesion of the
Philippines to the Convention became effective as of 27 September 1965;
Canada on 12 June 1925; Switzerland on 7 July 1884; and the United States on
30 May 1887.

The text of the Paris Convention and of the List of "Members-States of the
International Union for the Protection of Industrial Property (Paris Union) as in
April 1968" may be found in G.H.C. Bodenhausen, Guide to the Application of the
Paris Convention for the Protection of Industrial Property (1968).

19 G.H.C. Bodenhausen, supra, p. 27.

20 51 Phil., 115 (1927).

21 51 Phil., at.

22 1 SCRA 1 (1961).

23 41 SCRA 50 (1971).

24 41 SCRA at.

25 147 SCRA 154 (1987).

26 147 SCRA at 162.

27 129 SCRA 373 (1984).

28 181 SCRA 410 (1990).

29 158 SCRA 233 (1988).

30 Such an attack was apparently made in Pag-Asa Industrial Corporation v.
Court of Appeals, 118 SCRA 526(1982) which the majority opinion cites.

31 Accordingly, the importer or distributor does not acquire ownership of the

trademark on the goods imported or distributed; e.g., Gabriel v. Perez, 55 SCRA
406 (1974); Unno Commercial Enterprises v. General Milling Corporation, 120
SCRA 804 (1983); Marvex Commercial Co., Inc. v. Petra Hawpia and Co., 18
SCRA 1178 (1966); Operators, Inc. v. Director of Patents, 15 SCRA 147 (1965).

32 See generally, Western Equipment and Supply Co. v. Reyes, 51 SCRA 115
(1927); Asari Yoko Co. v. Kee Boc, 1 S 1 a(1961); General Garments v. Director
of Patents, 41 SCRA 50 (1971); La Chemise Lacoste, S.A. v. Fernandez, 129
SCRA 373 (1984); Converse Rubber Corporation v. Universal Rubber Products,
147 SCRA 154 (1987).

33 Petitioners' Second Motion for Issuance of Preliminary Injunction, filed with

the trial court; Rollo, p. 88. See also the Petition for Certiorari filed with the
Supreme Court, Rollo, p. 16.

34 See 2 Callman, Unfair Competition and Trade Marks (1945), p. 804. See also
Grass, "Territorial Scope of Trademark Rights," 44 U Miami L. Rev. 1075 (1990).

35 La Chemise Lacoste, 129 SCRA at 403.

36 See Schechter, "The Rational Basis of Trademark Protection," 40 Harv. L.

Rev. 813 (1927); 2 Callman, supra at 810.

37 2 Callman, supra at 811, citing Coca-Cola Company v. Brown, 60 T 2d 319.

38 See generally, 1 Nims, "Unfair Competition and Trademark, S. 35A (1947), p.

149.

39 See also 1 Nims, supra at 150.

40 See Hanover Star Milling Co. v. Metcalf, 240 U.S. 403 (1916); see
also Territorial Scope of Trademark Rights, supra at 1086.

In Hanover Star Milling Company v. Metcalf, the United States Supreme Court
realized that advertising had the potential for spreading business goodwill
beyond the areas of actual market sales. The Court alluded to the possibility that,
in certain instances, the protection of trademarks could extend beyond the zone
of actual market penetration: "Into whatever markets the use of a trademark has
extended, or its meaning has become known, there will the manufacturer or
trader whose trade is pirated by an infringing use be entitled to protection and
redress."

41 See 2 Callman, supra at 811.

42 74 Phil. 50 (1942).
 43 24 SCRA 1018 (1968).

44 24 SCRA at 1025. In Faberge, Inc. v. Intermediate Appellate Court (G.R. No.

71189, 4 November 1992), a Third Division Decision, the Court held that the use
of the trademark "Brute" for men's briefs, was not an infringement of the mark
"Brut 33 and Device" for anti-perpirants, personal deodorant, shaving cream,
after shave-shower lotion, hair spray and hair shampoo. This case turned on
interpretation of Section 20 R.A. No. 166 as amended, which appeared to limit
the exclusive right of the senior user to the goods specified in its Certificate of
Registration. Faberge does not, as I read it, deny the existence of categories or
damage or injury in trademark cases which transcend the quantifiable loss of
volume of commercial sales. Moreover, the case at bar involves competing
goods of one and the same class, i.e. cigarettes.

45 5 SCRA 126 (1962). See further Phil. Virginia Tobacco Adm. v. De los
Angeles, 164 SCRA 543 (1988); Yu v. Court of Appeals, G.R. No. 86683, 21
January 1993; Golding v. Balatbat, 36 Phil. 941 (1917); Liongson v. Martinez, 36
Phil. 948 (1917).

46 5 SCRA at 130-131.

47 See Certification, dated 11 August 1989, issued by Mr. Melchor Banares,

Assistant BIR Commissioner, being Annex "A" to private respondent's
"Supplemental Motion to Lift Writ of Preliminary Injunction with Offer of
Counterbond" filed with the Court of Appeals; Rollo p. 221.

MIGHTY CORPORATION VS GALLO WINERY

THIRD DIVISION

[G.R. No. 154342. July 14, 2004]

MIGHTY CORPORATION and LA CAMPANA FABRICA DE TABACO, INC. petitioners,

vs. E. & J. GALLO WINERY and THE ANDRESONS GROUP, INC. respondents.

DECISION
CORONA, J.:

In this petition for review on certiorari under Rule 45, petitioners Mighty Corporation and La
Campana Fabrica de Tabaco, Inc. (La Campana) seek to annul, reverse and set aside: (a) the
November 15, 2001 decision[1] of the Court of Appeals (CA) in CA-G.R. CV No. 65175 affirming
the November 26, 1998 decision, [2] as modified by the June 24, 1999 order, [3] of the Regional
Trial Court of Makati City, Branch 57 (Makati RTC) in Civil Case No. 93-850, which held
petitioners liable for, and permanently enjoined them from, committing trademark infringement
and unfair competition, and which ordered them to pay damages to respondents E. & J. Gallo
Winery (Gallo Winery) and The Andresons Group, Inc. (Andresons); (b) the July 11, 2002 CA
resolution denying their motion for reconsideration [4] and (c) the aforesaid Makati RTC decision
itself.
I.

The Factual Background

Respondent Gallo Winery is a foreign corporation not doing business in the Philippines but
organized and existing under the laws of the State of California, United States of America
(U.S.), where all its wineries are located. Gallo Winery produces different kinds of wines and
brandy products and sells them in many countries under different registered trademarks,
including the GALLO and ERNEST & JULIO GALLO wine trademarks.
Respondent domestic corporation, Andresons, has been Gallo Winery‘s exclusive wine
importer and distributor in the Philippines since 1991, selling these products in its own name
and for its own account.[5]
Gallo Winery‘s GALLO wine trademark was registered in the principal register of the
Philippine Patent Office (now Intellectual Property Office) on November 16, 1971 under
Certificate of Registration No. 17021 which was renewed on November 16, 1991 for another 20
years.[6]Gallo Winery also applied for registration of its ERNEST & JULIO GALLO wine
trademark on October 11, 1990 under Application Serial No. 901011-00073599-PN but the
records do not disclose if it was ever approved by the Director of Patents. [7]
On the other hand, petitioners Mighty Corporation and La Campana and their sister
company, Tobacco Industries of the Philippines (Tobacco Industries), are engaged in the
cultivation, manufacture, distribution and sale of tobacco products for which they have been
using the GALLO cigarette trademark since 1973. [8]
The Bureau of Internal Revenue (BIR) approved Tobacco Industries‘ use of GALLO 100‘s
cigarette mark on September 14, 1973 and GALLO filter cigarette mark on March 26, 1976, both
for the manufacture and sale of its cigarette products. In 1976, Tobacco Industries filed its
manufacturer‘s sworn statement as basis for BIR‘s collection of specific tax on GALLO
cigarettes.[9]
On February 5, 1974, Tobacco Industries applied for, but eventually did not pursue, the
registration of the GALLO cigarette trademark in the principal register of the then Philippine
Patent Office.[10]
In May 1984, Tobacco Industries assigned the GALLO cigarette trademark to La Campana
which, on July 16, 1985, applied for trademark registration in the Philippine Patent Office.[11] On
July 17, 1985, the National Library issued Certificate of Copyright Registration No. 5834 for La
Campana‘s lifetime copyright claim over GALLO cigarette labels. [12]
Subsequently, La Campana authorized Mighty Corporation to manufacture and sell
cigarettes bearing the GALLO trademark. [13] BIR approved Mighty Corporation‘s use of GALLO
100‘s cigarette brand, under licensing agreement with Tobacco Industries, on May 18, 1988,
and GALLO SPECIAL MENTHOL 100‘s cigarette brand on April 3, 1989. [14]
Petitioners claim that GALLO cigarettes have been sold in the Philippines since 1973,
initially by Tobacco Industries, then by La Campana and finally by Mighty Corporation. [15]
 On the other hand, although the GALLO wine trademark was registered in the Philippines in
1971, respondents claim that they first introduced and sold the GALLO and ERNEST & JULIO
GALLO wines in the Philippines circa 1974 within the then U.S. military facilities only. By 1979,
they had expanded their Philippine market through authorized distributors and independent
outlets.[16]
Respondents claim that they first learned about the existence of GALLO cigarettes in the
latter part of 1992 when an Andresons employee saw such cigarettes on display with GALLO
wines in a Davao supermarket wine cellar section. [17] Forthwith, respondents sent a demand
letter to petitioners asking them to stop using the GALLO trademark, to no avail.
II.

The Legal Dispute

On March 12, 1993, respondents sued petitioners in the Makati RTC for trademark and
tradename infringement and unfair competition, with a prayer for damages and preliminary
injunction.
Respondents charged petitioners with violating Article 6 bis of the Paris Convention for the
Protection of Industrial Property (Paris Convention) [18] and RA 166 (Trademark
Law),[19] specifically, Sections 22 and 23 (for trademark infringement), [20] 29 and 30[21] (for unfair
competition and false designation of origin) and 37 (for tradename infringement). [22] They
claimed that petitioners adopted the GALLO trademark to ride on Gallo Winery‘s GALLO and
ERNEST & JULIO GALLO trademarks‘ established reputation and popularity, thus causing
confusion, deception and mistake on the part of the purchasing public who had always
associated GALLO and ERNEST & JULIO GALLO trademarks with Gallo Winery‘s
wines. Respondents prayed for the issuance of a writ of preliminary injunction and ex
parte restraining order, plus P2 million as actual and compensatory damages, at least P500,000
as exemplary and moral damages, and at least P500,000 as attorney‘s fees and litigation
expenses.[23]
In their answer, petitioners alleged, among other affirmative defenses, that: petitioner‘s
GALLO cigarettes and Gallo Winery‘s wines were totally unrelated products; Gallo Winery‘s
GALLO trademark registration certificate covered wines only, not cigarettes; GALLO cigarettes
and GALLO wines were sold through different channels of trade; GALLO cigarettes, sold
at P4.60 for GALLO filters and P3 for GALLO menthols, were low-cost items compared to Gallo
Winery‘s high-priced luxury wines which cost between P98 to P242.50; the target market of
Gallo Winery‘s wines was the middle or high-income bracket with at least P10,000 monthly
income while GALLO cigarette buyers were farmers, fishermen, laborers and other low-income
workers; the dominant feature of the GALLO cigarette mark was the rooster device with the
manufacturer‘s name clearly indicated as MIGHTY CORPORATION while, in the case of Gallo
Winery‘s wines, it was the full names of the founders-owners ERNEST & JULIO GALLO or just
their surname GALLO; by their inaction and conduct, respondents were guilty of laches and
estoppel; and petitioners acted with honesty, justice and good faith in the exercise of their right
to manufacture and sell GALLO cigarettes.
In an order dated April 21, 1993, [24] the Makati RTC denied, for lack of merit, respondent‘s
prayer for the issuance of a writ of preliminary injunction, [25] holding that respondent‘s GALLO
trademark registration certificate covered wines only, that respondents‘ wines and petitioners‘
cigarettes were not related goods and respondents failed to prove material damage or great
irreparable injury as required by Section 5, Rule 58 of the Rules of Court.[26]
On August 19, 1993, the Makati RTC denied, for lack of merit, respondents‘ motion for
reconsideration. The court reiterated that respondents‘ wines and petitioners‘ cigarettes were
not related goods since the likelihood of deception and confusion on the part of the consuming
public was very remote. The trial court emphasized that it could not rely on foreign rulings cited
by respondents ―because the[se] cases were decided by foreign courts on the basis of unknown
facts peculiar to each case or upon factual surroundings which may exist only within their
jurisdiction. Moreover, there [was] no showing that [these cases had] been tested or found
applicable in our jurisdiction.‖[27]
On February 20, 1995, the CA likewise dismissed respondents‘ petition for review on
certiorari, docketed as CA-G.R. No. 32626, thereby affirming the Makati RTC‘s denial of the
application for issuance of a writ of preliminary injunction against petitioners. [28]
After trial on the merits, however, the Makati RTC, on November 26, 1998, held petitioners
liable for, and permanently enjoined them from, committing trademark infringement and unfair
competition with respect to the GALLO trademark:

WHEREFORE, judgment is rendered in favor of the plaintiff (sic) and against the defendant
(sic), to wit:

a. permanently restraining and enjoining defendants, their distributors, trade outlets, and all
persons acting for them or under their instructions, from (i) using E & J‘s registered trademark
GALLO or any other reproduction, counterfeit, copy or colorable imitation of said trademark,
either singly or in conjunction with other words, designs or emblems and other acts of similar
nature, and (ii) committing other acts of unfair competition against plaintiffs by manufacturing
and selling their cigarettes in the domestic or export markets under the GALLO trademark.

b. ordering defendants to pay plaintiffs –

(i) actual and compensatory damages for the injury and prejudice and impairment of plaintiffs‘
business and goodwill as a result of the acts and conduct pleaded as basis for this suit, in an
amount equal to 10% of FOURTEEN MILLION TWO HUNDRED THIRTY FIVE THOUSAND
PESOS (PHP14,235,000.00) from the filing of the complaint until fully paid;

(ii) exemplary damages in the amount of PHP100,000.00;

(iii) attorney‘s fees and expenses of litigation in the amount of PHP1,130,068.91;

(iv) the cost of suit.

SO ORDERED.‖[29]

On June 24, 1999, the Makati RTC granted respondent‘s motion for partial reconsideration
and increased the award of actual and compensatory damages to 10% of P199,290,000
or P19,929,000.[30]
On appeal, the CA affirmed the Makati RTC decision and subsequently denied petitioner‘s
motion for reconsideration.
 III.

The Issues

Petitioners now seek relief from this Court contending that the CA did not follow prevailing
laws and jurisprudence when it held that: [a] RA 8293 (Intellectual Property Code of the
Philippines [IP Code]) was applicable in this case; [b] GALLO cigarettes and GALLO wines were
identical, similar or related goods for the reason alone that they were purportedly forms of vice;
[c] both goods passed through the same channels of trade and [d] petitioners were liable for
trademark infringement, unfair competition and damages. [31]
Respondents, on the other hand, assert that this petition which invokes Rule 45 does not
involve pure questions of law, and hence, must be dismissed outright.
IV.

Discussion

THE EXCEPTIONAL CIRCUMSTANCES

IN THIS CASE OBLIGE THE COURT TO REVIEW
THE CA‟S FACTUAL FINDINGS

As a general rule, a petition for review on certiorari under Rule 45 must raise only
―questions of law‖[32] (that is, the doubt pertains to the application and interpretation of law to a
certain set of facts) and not ―questions of fact‖ (where the doubt concerns the truth or falsehood
of alleged facts),[33] otherwise, the petition will be denied. We are not a trier of facts and the
Court of Appeals‘ factual findings are generally conclusive upon us. [34]
This case involves questions of fact which are directly related and intertwined with
questions of law. The resolution of the factual issues concerning the goods‘ similarity, identity,
relation, channels of trade, and acts of trademark infringement and unfair competition is greatly
dependent on the interpretation of applicable laws. The controversy here is not simply the
identity or similarity of both parties‘ trademarks but whether or not infringement or unfair
competition was committed, a conclusion based on statutory interpretation. Furthermore, one or
more of the following exceptional circumstances oblige us to review the evidence on record: [35]
(1) the conclusion is grounded entirely on speculation, surmises, and conjectures;
(2) the inference of the Court of Appeals from its findings of fact is manifestly mistaken,
absurd and impossible;
(3) there is grave abuse of discretion;
(4) the judgment is based on a misapprehension of facts;
(5) the appellate court, in making its findings, went beyond the issues of the case, and
the same are contrary to the admissions of both the appellant and the appellee;
(6) the findings are without citation of specific evidence on which they are based;
 (7) the facts set forth in the petition as well as in the petitioner's main and reply briefs
are not disputed by the respondents; and
(8) the findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted [by the evidence] on record. [36]
In this light, after thoroughly examining the evidence on record, weighing, analyzing and
balancing all factors to determine whether trademark infringement and/or unfair competition has
been committed, we conclude that both the Court of Appeals and the trial court veered away
from the law and well-settled jurisprudence.
Thus, we give due course to the petition.
THE TRADEMARK LAW AND THE PARIS
CONVENTION ARE THE APPLICABLE LAWS,
NOT THE INTELLECTUAL PROPERTY CODE

We note that respondents sued petitioners on March 12, 1993 for trademark infringement
and unfair competition committed during the effectivity of the Paris Convention and the
Trademark Law.
Yet, in the Makati RTC decision of November 26, 1998, petitioners were held liable not only
under the aforesaid governing laws but also under the IP Code which took effect only on
January 1, 1998,[37] or about five years after the filing of the complaint:

Defendants‘ unauthorized use of the GALLO trademark constitutes trademark infringement

pursuant to Section 22 of Republic Act No. 166, Section 155 of the IP Code, Article 6bis of the
Paris Convention, and Article 16 (1) of the TRIPS Agreement as it causes confusion, deception
and mistake on the part of the purchasing public.[38] (Emphasis and underscoring supplied)

The CA apparently did not notice the error and affirmed the Makati RTC decision:

In the light of its finding that appellants‘ use of the GALLO trademark on its cigarettes is likely to
create confusion with the GALLO trademark on wines previously registered and used in the
Philippines by appellee E & J Gallo Winery, the trial court thus did not err in holding that
appellants‟ acts not only violated the provisions of the our trademark laws (R.A. No. 166
and R.A. Nos. (sic) 8293) but also Article 6bis of the Paris Convention.[39] (Emphasis and
underscoring supplied)

We therefore hold that the courts a quo erred in retroactively applying the IP Code in this
case.
It is a fundamental principle that the validity and obligatory force of a law proceed from the
fact that it has first been promulgated. A law that is not yet effective cannot be considered as
conclusively known by the populace. To make a law binding even before it takes effect may
lead to the arbitrary exercise of the legislative power. [40] Nova constitutio futuris formam
imponere debet non praeteritis. A new state of the law ought to affect the future, not the past.
Any doubt must generally be resolved against the retroactive operation of laws, whether these
are original enactments, amendments or repeals. [41] There are only a few instances when laws
may be given retroactive effect,[42] none of which is present in this case.
The IP Code, repealing the Trademark Law, [43] was approved on June 6, 1997. Section
241 thereof expressly decreed that it was to take effect only on January 1, 1998, without any
provision for retroactive application. Thus, the Makati RTC and the CA should have limited the
consideration of the present case within the parameters of the Trademark Law and the Paris
Convention, the laws in force at the time of the filing of the complaint.
DISTINCTIONS BETWEEN
TRADEMARK INFRINGEMENT
AND UNFAIR COMPETITION

Although the laws on trademark infringement and unfair competition have a common
conception at their root, that is, a person shall not be permitted to misrepresent his goods or his
business as the goods or business of another, the law on unfair competition is broader and
more inclusive than the law on trademark infringement. The latter is more limited but it
recognizes a more exclusive right derived from the trademark adoption and registration by the
person whose goods or business is first associated with it. The law on trademarks is thus a
specialized subject distinct from the law on unfair competition, although the two subjects are
entwined with each other and are dealt with together in the Trademark Law (now, both are
covered by the IP Code). Hence, even if one fails to establish his exclusive property right to a
trademark, he may still obtain relief on the ground of his competitor‘s unfairness or
fraud. Conduct constitutes unfair competition if the effect is to pass off on the public the goods
of one man as the goods of another. It is not necessary that any particular means should be
used to this end.[44]
In Del Monte Corporation vs. Court of Appeals, [45] we distinguished trademark infringement
from unfair competition:
(1) Infringement of trademark is the unauthorized use of a trademark, whereas
unfair competition is the passing off of one's goods as those of another.
(2) In infringement of trademark fraudulent intent is unnecessary, whereas in
unfair competition fraudulent intent is essential.
(3) In infringement of trademark the prior registration of the trademark is a
prerequisite to the action, whereas in unfair competition registration is not
necessary.
Pertinent Provisions on Trademark
Infringement under the Paris
Convention and the Trademark Law

Article 6bis of the Paris Convention,[46] an international agreement binding on the Philippines
and the United States (Gallo Winery‘s country of domicile and origin) prohibits ―the [registration]
or use of a trademark which constitutes a reproduction, imitation or translation, liable to create
confusion, of a mark considered by the competent authority of the country of registration or use
to be well-known in that country as being already the mark of a person entitled to the benefits of
the [Paris] Convention and used for identical or similar goods. [This rule also applies] when the
essential part of the mark constitutes a reproduction of any such well-known mark or an
imitation liable to create confusion therewith.‖ There is no time limit for seeking the prohibition of
the use of marks used in bad faith. [47]
Thus, under Article 6bis of the Paris Convention, the following are the elements of trademark
infringement:
(a) registration or use by another person of a trademark which is a reproduction,
imitation or translation liable to create confusion,
 (b) of a mark considered by the competent authority of the country of registration or
use[48] to be well-known in that country and is already the mark of a person entitled to
the benefits of the Paris Convention, and
(c) such trademark is used for identical or similar goods.
On the other hand, Section 22 of the Trademark Law holds a person liable for infringement
when, among others, he ―uses without the consent of the registrant, any reproduction,
counterfeit, copy or colorable imitation of any registered mark or tradename in connection with
the sale, offering for sale, or advertising of any goods, business or services or in connection with
which such use is likely to cause confusion or mistake or to deceive purchasers or others as to
the source or origin of such goods or services, or identity of such business; or reproduce,
counterfeit, copy or colorably imitate any such mark or tradename and apply such reproduction,
counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers, receptacles
or advertisements intended to be used upon or in connection with such goods, business or
services.‖[49]Trademark registration and actual use are material to the complaining party‘s cause
of action.
Corollary to this, Section 20 of the Trademark Law [50] considers the trademark registration
certificate as prima facie evidence of the validity of the registration, the registrant‘s ownership
and exclusive right to use the trademark in connection with the goods, business or services as
classified by the Director of Patents[51] and as specified in the certificate, subject to the
conditions and limitations stated therein. Sections 2 and 2-A[52] of the Trademark Law
emphasize the importance of the trademark‘s actual use in commerce in the Philippines prior to
its registration. In the adjudication of trademark rights between contending parties, equitable
principles of laches, estoppel, and acquiescence may be considered and applied. [53]
Under Sections 2, 2-A, 9-A, 20 and 22 of the Trademark Law therefore, the following
constitute the elements of trademark infringement:
(a) a trademark actually used in commerce in the Philippines and registered in the principal
register of the Philippine Patent Office
(b) is used by another person in connection with the sale, offering for sale, or advertising of
any goods, business or services or in connection with which such use is likely to cause
confusion or mistake or to deceive purchasers or others as to the source or origin of
such goods or services, or identity of such business; or such trademark is reproduced,
counterfeited, copied or colorably imitated by another person and such reproduction,
counterfeit, copy or colorable imitation is applied to labels, signs, prints, packages,
wrappers, receptacles or advertisements intended to be used upon or in connection
with such goods, business or services as to likely cause confusion or mistake or to
deceive purchasers,
(c) the trademark is used for identical or similar goods, and
(d) such act is done without the consent of the trademark registrant or assignee.
In summary, the Paris Convention protects well-known trademarks only (to be determined
by domestic authorities), while the Trademark Law protects all trademarks, whether well-known
or not, provided that they have been registered and are in actual commercial use in the
Philippines. Following universal acquiescence and comity, in case of domestic legal disputes on
any conflicting provisions between the Paris Convention (which is an international agreement)
and the Trademark law (which is a municipal law) the latter will prevail. [54]
Under both the Paris Convention and the Trademark Law, the protection of a registered
trademark is limited only to goods identical or similar to those in respect of which such
trademark is registered and only when there is likelihood of confusion. Under both laws, the time
element in commencing infringement cases is material in ascertaining the registrant‘s express
or implied consent to another‘s use of its trademark or a colorable imitation thereof. This is why
acquiescence, estoppel or laches may defeat the registrant‘s otherwise valid cause of action.
Hence, proof of all the elements of trademark infringement is a condition precedent to any
finding of liability.
THE ACTUAL COMMERCIAL USE IN THE
PHILIPPINES OF GALLO CIGARETTE
TRADEMARK PRECEDED THAT OF
GALLO WINE TRADEMARK.

By respondents‘ own judicial admission, the GALLO wine trademark was registered in the
Philippines in November 1971 but the wine itself was first marketed and sold in the country only
in 1974 and only within the former U.S. military facilities, and outside thereof, only in 1979. To
prove commercial use of the GALLO wine trademark in the Philippines, respondents presented
sales invoice no. 29991 dated July 9, 1981 addressed to Conrad Company Inc., Makati,
Philippines and sales invoice no. 85926 dated March 22, 1996 addressed to Andresons Global,
Inc., Quezon City, Philippines. Both invoices were for the sale and shipment of GALLO wines to
the Philippines during that period. [55] Nothing at all, however, was presented to evidence the
alleged sales of GALLO wines in the Philippines in 1974 or, for that matter, prior to July 9, 1981.
On the other hand, by testimonial evidence supported by the BIR authorization letters,
forms and manufacturer‘s sworn statement, it appears that petitioners and its predecessor-in-
interest, Tobacco Industries, have indeed been using and selling GALLO cigarettes in the
Philippines since 1973 or before July 9, 1981. [56]
In Emerald Garment Manufacturing Corporation vs. Court of Appeals, [57] we reiterated our
rulings in Pagasa Industrial Corporation vs. Court of Appeals, [58] Converse Rubber Corporation
vs. Universal Rubber Products, Inc., [59] Sterling Products International, Inc. vs. Farbenfabriken
Bayer Aktiengesellschaft,[60] Kabushi Kaisha Isetan vs. Intermediate Appellate
Court, and Philip Morris vs. Court of Appeals,[62] giving utmost importance to the actual
[61]

commercial use of a trademark in the Philippines prior to its registration, notwithstanding the
provisions of the Paris Convention:

xxx xxx xxx

In addition to the foregoing, we are constrained to agree with petitioner's contention that private
respondent failed to prove prior actual commercial use of its “LEE” trademark in the
Philippines before filing its application for registration with the BPTTT and hence, has
not acquired ownership over said mark.

Actual use in commerce in the Philippines is an essential prerequisite for the acquisition
of ownership over a trademark pursuant to Sec. 2 and 2-A of the Philippine Trademark Law
(R.A. No. 166) x x x

xxx xxx xxx

The provisions of the 1965 Paris Convention for the Protection of Industrial Property relied
upon by private respondent and Sec. 21-A of the Trademark Law (R.A. No. 166) were
sufficiently expounded upon and qualified in the recent case of Philip Morris, Inc. v. Court
of Appeals (224 SCRA 576 [1993]):

xxx xxx xxx

Following universal acquiescence and comity, our municipal law on trademarks regarding
the requirement of actual use in the Philippines must subordinate an international
agreement inasmuch as the apparent clash is being decided by a municipal
tribunal (Mortisen vs. Peters, Great Britain, High Court of Judiciary of Scotland, 1906, 8
Sessions, 93; Paras, International Law and World Organization, 1971 Ed., p. 20). Withal, the
fact that international law has been made part of the law of the land does not by any means
imply the primacy of international law over national law in the municipal sphere. Under the
doctrine of incorporation as applied in most countries, rules of international law are given a
standing equal, not superior, to national legislative enactments.

xxx xxx xxx

In other words, (a foreign corporation) may have the capacity to sue for infringement
irrespective of lack of business activity in the Philippines on account of Section 21-A of
the Trademark Law but the question of whether they have an exclusive right over their
symbol as to justify issuance of the controversial writ will depend on actual use of their
trademarks in the Philippines in line with Sections 2 and 2-A of the same law. It is thus
incongruous for petitioners to claim that when a foreign corporation not licensed to do business
in the Philippines files a complaint for infringement, the entity need not be actually using the
trademark in commerce in the Philippines. Such a foreign corporation may have the personality
to file a suit for infringement but it may not necessarily be entitled to protection due to absence
of actual use of the emblem in the local market.

xxx xxx xxx

Undisputably, private respondent is the senior registrant, having obtained several

registration certificates for its various trademarks ―LEE,‖ ―LEE RIDERS,‖ and ―LEESURES‖ in
both the supplemental and principal registers, as early as 1969 to 1973. However, registration
alone will not suffice. In Sterling Products International, Inc. v. Farbenfabriken Bayer
Aktiengesellschaft (27 SCRA 1214 [1969]; Reiterated in Kabushi Isetan vs. Intermediate
Appellate Court (203 SCRA 583 [1991]) we declared:

xxx xxx xxx

A rule widely accepted and firmly entrenched because it has come down through the years is
that actual use in commerce or business is a prerequisite in the acquisition of the right of
ownership over a trademark.

xxx xxx xxx

The credibility placed on a certificate of registration of one's trademark, or its weight as evidence
of validity, ownership and exclusive use, is qualified. A registration certificate serves merely
as prima facie evidence. It is not conclusive but can and may be rebutted by
controverting evidence.
 xxx xxx xxx

In the case at bench, however, we reverse the findings of the Director of Patents and the Court
of Appeals. After a meticulous study of the records, we observe that the Director of
Patents and the Court of Appeals relied mainly on the registration certificates as proof of
use by private respondent of the trademark “LEE” which, as we have previously
discussed are not sufficient. We cannot give credence to private respondent's claim that
its “LEE” mark first reached the Philippines in the 1960's through local sales by the Post
Exchanges of the U.S. Military Bases in the Philippines (Rollo, p. 177) based as it was
solely on the self-serving statements of Mr. Edward Poste, General Manager of Lee
(Phils.), Inc., a wholly owned subsidiary of the H.D. Lee, Co., Inc., U.S.A., herein private
respondent. (Original Records, p. 52) Similarly, we give little weight to the numerous
vouchers representing various advertising expenses in the Philippines for “LEE”
products. It is well to note that these expenses were incurred only in 1981 and 1982 by
LEE (Phils.), Inc. after it entered into a licensing agreement with private respondent on 11
May 1981. (Exhibit E)

On the other hand, petitioner has sufficiently shown that it has been in the business of
selling jeans and other garments adopting its “STYLISTIC MR. LEE” trademark since
1975 as evidenced by appropriate sales invoices to various stores and retailers. (Exhibit 1-e to
1-o)

Our rulings in Pagasa Industrial Corp. v. Court of Appeals (118 SCRA 526
[1982]) and Converse Rubber Corp. v. Universal Rubber Products, Inc., (147 SCRA 154
[1987]), respectively, are instructive:

The Trademark Law is very clear. It requires actual commercial use of the mark prior to its
registration. There is no dispute that respondent corporation was the first registrant, yet it
failed to fully substantiate its claim that it used in trade or business in the Philippines the
subject mark; it did not present proof to invest it with exclusive, continuous adoption of
the trademark which should consist among others, of considerable sales since its first
use. The invoices submitted by respondent which were dated way back in 1957 show that
the zippers sent to the Philippines were to be used as “samples” and “of no commercial
value.” The evidence for respondent must be clear, definite and free from
inconsistencies. ―Samples‖ are not for sale and therefore, the fact of exporting them to the
Philippines cannot be considered to be equivalent to the ―use‖ contemplated by
law. Respondent did not expect income from such ―samples.‖ There were no receipts to
establish sale, and no proof were presented to show that they were subsequently sold in the
Philippines.

xxx xxx xxx

For lack of adequate proof of actual use of its trademark in the Philippines prior to
petitioner's use of its own mark and for failure to establish confusing similarity between
said trademarks, private respondent's action for infringement must necessarily
fail. (Emphasis supplied.)

In view of the foregoing jurisprudence and respondents‘ judicial admission that the actual
commercial use of the GALLO wine trademark was subsequent to its registration in 1971 and to
Tobacco Industries‘ commercial use of the GALLO cigarette trademark in 1973, we rule that, on
this account, respondents never enjoyed the exclusive right to use the GALLO wine trademark
to the prejudice of Tobacco Industries and its successors-in-interest, herein petitioners, either
under the Trademark Law or the Paris Convention.
Respondents‟ GALLO trademark
registration is limited to
wines only

We also note that the GALLO trademark registration certificates in the Philippines and in
other countries expressly state that they coverwines only, without any evidence or indication
that registrant Gallo Winery expanded or intended to expand its business to cigarettes.[63]
Thus, by strict application of Section 20 of the Trademark Law, Gallo Winery‘s exclusive
right to use the GALLO trademark should be limited to wines, the only product indicated in its
registration certificates. This strict statutory limitation on the exclusive right to use trademarks
was amply clarified in our ruling in Faberge, Inc. vs. Intermediate Appellate Court:[64]

Having thus reviewed the laws applicable to the case before Us, it is not difficult to discern from
the foregoing statutory enactments that private respondent may be permitted to register the
trademark ―BRUTE‖ for briefs produced by it notwithstanding petitioner's vehement protestations
of unfair dealings in marketing its own set of items which are limited to: after-shave lotion,
shaving cream, deodorant, talcum powder and toilet soap. Inasmuch as petitioner has not
ventured in the production of briefs, an item which is not listed in its certificate of
registration, petitioner cannot and should not be allowed to feign that private respondent
had invaded petitioner's exclusive domain. To be sure, it is significant that petitioner failed
to annex in its Brief the so-called ―eloquent proof that petitioner indeed intended to expand its
mark ‗BRUT‘ to other goods‖ (Page 27, Brief for the Petitioner; page 202, Rollo). Even then, a
mere application by petitioner in this aspect does not suffice and may not vest an exclusive right
in its favor that can ordinarily be protected by the Trademark Law. In short,paraphrasing
Section 20 of the Trademark Law as applied to the documentary evidence adduced by
petitioner, the certificate of registration issued by the Director of Patents can confer
upon petitioner the exclusive right to use its own symbol only to those goods specified
in the certificate, subject to any conditions and limitations stated therein. This basic point is
perhaps the unwritten rationale of Justice Escolin in Philippine Refining Co., Inc. vs. Ng
Sam(115 SCRA 472 [1982]), when he stressed the principle enunciated by the United States
Supreme Court in American Foundries vs. Robertson (269 U.S. 372, 381, 70 L ed 317, 46 Sct.
160) that one who has adopted and used a trademark on his goods does not prevent the
adoption and use of the same trademark by others for products which are of a different
description. Verily, this Court had the occasion to observe in the 1966 case of George W. Luft
Co., Inc. vs. Ngo Guan (18 SCRA 944 [1966]) that no serious objection was posed by the
petitioner therein since the applicant utilized the emblem ―Tango‖ for no other product than hair
pomade in which petitioner does not deal.

This brings Us back to the incidental issue raised by petitioner which private respondent sought
to belie as regards petitioner's alleged expansion of its business. It may be recalled that
petitioner claimed that it has a pending application for registration of the emblem ―BRUT 33‖ for
briefs (page 25, Brief for the Petitioner; page 202, Rollo) to impress upon Us the Solomonic
wisdom imparted by Justice JBL Reyes in Sta. Ana vs. Maliwat (24 SCRA 1018 [1968]), to the
effect that dissimilarity of goods will not preclude relief if the junior user's goods are not
remote from any other product which the first user would be likely to make or
sell (vide, at page 1025). Commenting on the former provision of the Trademark Law now
embodied substantially under Section 4(d) of Republic Act No. 166, as amended, the erudite
jurist opined that the law in point ―does not require that the articles of manufacture of the
previous user and late user of the mark should possess the same descriptive properties or
should fall into the same categories as to bar the latter from registering his mark in the principal
register.‖ (supra at page 1026).

Yet, it is equally true that as aforesaid, the protective mantle of the Trademark Law
extends only to the goods used by the first user as specified in the certificate of
registration following the clear message conveyed by Section 20.

How do We now reconcile the apparent conflict between Section 4(d) which was relied
upon by Justice JBL Reyes in the Sta. Ana case and Section 20? It would seem that
Section 4(d) does not require that the goods manufactured by the second user be related
to the goods produced by the senior user while Section 20 limits the exclusive right of
the senior user only to those goods specified in the certificate of registration. But the rule
has been laid down that the clause which comes later shall be given paramount significance
over an anterior proviso upon the presumption that it expresses the latest and dominant
purpose. (Graham Paper Co. vs. National Newspapers Asso. (Mo. App.) 193 S.W.
1003; Barnett vs. Merchant's L. Ins. Co., 87 Okl. 42; State ex nel Atty. Gen. vs. Toledo, 26 N.E.,
p. 1061; cited by Martin, Statutory Construction Sixth ed., 1980 Reprinted, p. 144). It ineluctably
follows that Section 20 is controlling and, therefore, private respondent can appropriate
its symbol for the briefs it manufactures because as aptly remarked by Justice Sanchez
in Sterling Products International Inc. vs. Farbenfabriken Bayer (27 SCRA 1214 [1969]):

“Really, if the certificate of registration were to be deemed as including goods not

specified therein, then a situation may arise whereby an applicant may be tempted to
register a trademark on any and all goods which his mind may conceive even if he had
never intended to use the trademark for the said goods. We believe that such omnibus
registration is not contemplated by our Trademark Law.‖ (1226).

NO LIKELIHOOD OF CONFUSION, MISTAKE

OR DECEIT AS TO THE IDENTITY OR SOURCE
OF PETITIONERS‟ AND RESPONDENTS‟
GOODS OR BUSINESS

A crucial issue in any trademark infringement case is the likelihood of confusion, mistake or
deceit as to the identity, source or origin of the goods or identity of the business as a
consequence of using a certain mark. Likelihood of confusion is admittedly a relative term, to
be determined rigidly according to the particular (and sometimes peculiar) circumstances of
each case. Thus, in trademark cases, more than in other kinds of litigation, precedents must be
studied in the light of each particular case. [65]
There are two types of confusion in trademark infringement. The first is ―confusion of
goods‖ when an otherwise prudent purchaser is induced to purchase one product in the belief
that he is purchasing another, in which case defendant‘s goods are then bought as the plaintiff‘s
and its poor quality reflects badly on the plaintiff‘s reputation. The other is ―confusion of
business‖ wherein the goods of the parties are different but the defendant‘s product can
reasonably (though mistakenly) be assumed to originate from the plaintiff, thus deceiving the
public into believing that there is some connection between the plaintiff and defendant which, in
fact, does not exist.[66]
 In determining the likelihood of confusion, the Court must consider: [a] the resemblance
between the trademarks; [b] the similarity of the goods to which the trademarks are attached; [c]
the likely effect on the purchaser and [d] the registrant‘s express or implied consent and other
fair and equitable considerations.
Petitioners and respondents both use ―GALLO‖ in the labels of their respective cigarette
and wine products. But, as held in the following cases, the use of an identical mark does not, by
itself, lead to a legal conclusion that there is trademark infringement:

(a) in Acoje Mining Co., Inc. vs. Director of Patent,[67] we ordered the approval of Acoje
Mining‘s application for registration of the trademark LOTUS for its soy sauce even
though Philippine Refining Company had prior registration and use of such identical
mark for its edible oil which, like soy sauce, also belonged to Class 47;

(b) in Philippine Refining Co., Inc. vs. Ng Sam and Director of Patents, [68] we upheld the
Patent Director‘s registration of the same trademark CAMIA for Ng Sam‘s ham under
Class 47, despite Philippine Refining Company‘s prior trademark registration and
actual use of such mark on its lard, butter, cooking oil (all of which belonged to Class
47), abrasive detergents, polishing materials and soaps;

(c) in Hickok Manufacturing Co., Inc. vs. Court of Appeals and Santos Lim Bun
Liong,[69] we dismissed Hickok‘s petition to cancel private respondent‘s HICKOK
trademark registration for its Marikina shoes as against petitioner‘s earlier
registration of the same trademark for handkerchiefs, briefs, belts and wallets;

(d) in Shell Company of the Philippines vs. Court of Appeals, [70] in a minute resolution,
we dismissed the petition for review for lack of merit and affirmed the Patent Office‘s
registration of the trademark SHELL used in the cigarettes manufactured by
respondent Fortune Tobacco Corporation, notwithstanding Shell Company‘s
opposition as the prior registrant of the same trademark for its gasoline and other
petroleum products;

(e) in Esso Standard Eastern, Inc. vs. Court of Appeals, [71] we dismissed ESSO‘s
complaint for trademark infringement against United Cigarette Corporation and
allowed the latter to use the trademark ESSO for its cigarettes, the same trademark
used by ESSO for its petroleum products, and

(f) in Canon Kabushiki Kaisha vs. Court of Appeals and NSR Rubber
Corporation,[72] we affirmed the rulings of the Patent Office and the CA that NSR
Rubber Corporation could use the trademark CANON for its sandals (Class 25)
despite Canon Kabushiki Kaisha‘s prior registration and use of the same trademark
for its paints, chemical products, toner and dyestuff (Class 2).

Whether a trademark causes confusion and is likely to deceive the public hinges on
―colorable imitation‖[73] which has been defined as ―such similarity in form, content, words,
sound, meaning, special arrangement or general appearance of the trademark or tradename in
their overall presentation or in their essential and substantive and distinctive parts as would
likely mislead or confuse persons in the ordinary course of purchasing the genuine article.‖[74]
Jurisprudence has developed two tests in determining similarity and likelihood of confusion
in trademark resemblance:[75]
 (a) the Dominancy Test applied in Asia Brewery, Inc. vs. Court of Appeals [76] and other
cases,[77] and

(b) the Holistic or Totality Test used in Del Monte Corporation vs. Court of Appeals [78] and
its preceding cases.[79]

The Dominancy Test focuses on the similarity of the prevalent features of the competing
trademarks which might cause confusion or deception, and thus infringement. If the competing
trademark contains the main, essential or dominant features of another, and confusion or
deception is likely to result, infringement takes place. Duplication or imitation is not necessary;
nor is it necessary that the infringing label should suggest an effort to imitate. The question is
whether the use of the marks involved is likely to cause confusion or mistake in the mind of the
public or deceive purchasers.[80]
On the other hand, the Holistic Test requires that the entirety of the marks in question be
considered in resolving confusing similarity. Comparison of words is not the only determining
factor. The trademarks in their entirety as they appear in their respective labels or hang tags
must also be considered in relation to the goods to which they are attached. The discerning eye
of the observer must focus not only on the predominant words but also on the other features
appearing in both labels in order that he may draw his conclusion whether one is confusingly
similar to the other.[81]
In comparing the resemblance or colorable imitation of marks, various factors have been
considered, such as the dominant color, style, size, form, meaning of letters, words, designs
and emblems used, the likelihood of deception of the mark or name's tendency to
confuse[82] and the commercial impression likely to be conveyed by the trademarks if used in
conjunction with the respective goods of the parties. [83]
Applying the Dominancy and Holistic Tests, we find that the dominant feature of the GALLO
cigarette trademark is the device of a large rooster facing left, outlined in black against a gold
background. The rooster‘s color is either green or red – green for GALLO menthols and red for
GALLO filters. Directly below the large rooster device is the word GALLO. The rooster device is
given prominence in the GALLO cigarette packs in terms of size and location on the labels. [84]
The GALLO mark appears to be a fanciful and arbitrary mark for the cigarettes as it has no
relation at all to the product but was chosen merely as a trademark due to the fondness for
fighting cocks of the son of petitioners‘ president. Furthermore, petitioners adopted GALLO, the
Spanish word for rooster, as a cigarette trademark to appeal to one of their target markets,
the sabungeros (cockfight aficionados).[85]
Also, as admitted by respondents themselves, [86] on the side of the GALLO cigarette packs
are the words ―MADE BY MIGHTY CORPORATION,‖ thus clearly informing the public as to the
identity of the manufacturer of the cigarettes.
On the other hand, GALLO Winery‘s wine and brandy labels are diverse. In many of them,
the labels are embellished with sketches of buildings and trees, vineyards or a bunch of grapes
while in a few, one or two small roosters facing right or facing each other (atop the EJG crest,
surrounded by leaves or ribbons), with additional designs in green, red and yellow colors,
appear as minor features thereof. [87] Directly below or above these sketches is the entire printed
name of the founder-owners, ―ERNEST & JULIO GALLO‖ or just their surname
―GALLO,‖[88] which appears in different fonts, sizes, styles and labels, unlike
petitioners‘ uniform casque-font bold-lettered GALLO mark.
 Moreover, on the labels of Gallo Winery‘s wines are printed the words ―VINTED AND
BOTTLED BY ERNEST & JULIO GALLO, MODESTO, CALIFORNIA.‖[89]
The many different features like color schemes, art works and other markings of both
products drown out the similarity between them – the use of the word ―GALLO‖ ― a family
surname for the Gallo Winery‘s wines and a Spanish word for rooster for petitioners‘ cigarettes.
WINES AND CIGARETTES ARE NOT
IDENTICAL, SIMILAR, COMPETING OR
RELATED GOODS

Confusion of goods is evident where the litigants are actually in competition; but confusion
of business may arise between non-competing interests as well.[90]
Thus, apart from the strict application of Section 20 of the Trademark Law and Article 6 bis of
the Paris Convention which proscribe trademark infringement not only of goods specified in the
certificate of registration but also of identical or similar goods, we have also uniformly
recognized and applied the modern concept of ―related goods.‖[91] Simply stated, when goods
are so related that the public may be, or is actually, deceived and misled that they come from
the same maker or manufacturer, trademark infringement occurs. [92]
Non-competing goods may be those which, though they are not in actual competition, are
so related to each other that it can reasonably be assumed that they originate from one
manufacturer, in which case, confusion of business can arise out of the use of similar
marks.[93] They may also be those which, being entirely unrelated, cannot be assumed to have a
common source; hence, there is no confusion of business, even though similar marks are
used.[94] Thus, there is no trademark infringement if the public does not expect the plaintiff to
make or sell the same class of goods as those made or sold by the defendant. [95]
In resolving whether goods are related, [96] several factors come into play:

(a) the business (and its location) to which the goods belong

(b) the class of product to which the goods belong

(c) the product's quality, quantity, or size, including the nature of the package, wrapper
or container [97]

(d) the nature and cost of the articles[98]

(e) the descriptive properties, physical attributes or essential characteristics with

reference to their form, composition, texture or quality

(f) the purpose of the goods[99]

(g) whether the article is bought for immediate consumption, [100] that is, day-to-day
household items[101]

(h) the fields of manufacture[102]

(i) the conditions under which the article is usually purchased [103] and
 (j) the channels of trade through which the goods flow, [104] how they are distributed,
marketed, displayed and sold.[105]

The wisdom of this approach is its recognition that each trademark infringement case
presents its own unique set of facts. No single factor is preeminent, nor can the presence or
absence of one determine, without analysis of the others, the outcome of an infringement suit.
Rather, the court is required to sift the evidence relevant to each of the criteria. This requires
that the entire panoply of elements constituting the relevant factual landscape be
comprehensively examined.[106] It is a weighing and balancing process. With reference to this
ultimate question, and from a balancing of the determinations reached on all of the factors, a
conclusion is reached whether the parties have a right to the relief sought. [107]
A very important circumstance though is whether there exists a likelihood that an
appreciable number of ordinarily prudent purchasers will be misled, or simply confused, as to
the source of the goods in question. [108] The ―purchaser‖ is not the ―completely unwary
consumer‖ but is the ―ordinarily intelligent buyer‖ considering the type of product involved. [109] He
is ―accustomed to buy, and therefore to some extent familiar with, the goods in question. The
test of fraudulent simulation is to be found in the likelihood of the deception of some persons in
some measure acquainted with an established design and desirous of purchasing the
commodity with which that design has been associated. The test is not found in the deception,
or the possibility of deception, of the person who knows nothing about the design which has
been counterfeited, and who must be indifferent between that and the other. The simulation, in
order to be objectionable, must be such as appears likely to mislead the ordinary intelligent
buyer who has a need to supply and is familiar with the article that he seeks to purchase.‖ [110]
Hence, in the adjudication of trademark infringement, we give due regard to the goods‘
usual purchaser‘s character, attitude, habits, age, training and education. [111]
Applying these legal precepts to the present case, petitioner‘s use of the GALLO cigarette
trademark is not likely to cause confusion or mistake, or to deceive the ―ordinarily intelligent
buyer‖ of either wines or cigarettes or both as to the identity of the goods, their source and
origin, or identity of the business of petitioners and respondents.
Obviously, wines and cigarettes are not identical or competing products. Neither do they
belong to the same class of goods. Respondents‘ GALLO wines belong to Class 33 under Rule
84[a] Chapter III, Part II of the Rules of Practice in Trademark Cases while petitioners‘ GALLO
cigarettes fall under Class 34.
We are mindful that product classification alone cannot serve as the decisive factor in the
resolution of whether or not wines and cigarettes are related goods. Emphasis should be on the
similarity of the products involved and not on the arbitrary classification or general description of
their properties or characteristics. But the mere fact that one person has adopted and used a
particular trademark for his goods does not prevent the adoption and use of the same trademark
by others on articles of a different description. [112]
Both the Makati RTC and the CA held that wines and cigarettes are related products
because: (1) ―they are related forms of vice, harmful when taken in excess, and used for
pleasure and relaxation‖ and (2) ―they are grouped or classified in the same section of
supermarkets and groceries.‖
We find these premises patently insufficient and too arbitrary to support the legal conclusion
that wines and cigarettes are related products within the contemplation of the Trademark Law
and the Paris Convention.
 First, anything –- not only wines and cigarettes ― can be used for pleasure and relaxation
and can be harmful when taken in excess. Indeed, it would be a grave abuse of discretion to
treat wines and cigarettes as similar or related products likely to cause confusion just because
they are pleasure-giving, relaxing or potentially harmful. Such reasoning makes no sense.
Second, it is common knowledge that supermarkets sell an infinite variety of wholly
unrelated products and the goods here involved, wines and cigarettes, have nothing whatsoever
in common with respect to their essential characteristics, quality, quantity, size, including the
nature of their packages, wrappers or containers. [113]
Accordingly, the U.S. patent office and courts have consistently held that the mere fact that
goods are sold in one store under the same roof does not automatically mean that buyers are
likely to be confused as to the goods‘ respective sources, connections or sponsorships. The
fact that different products are available in the same store is an insufficient standard, in and of
itself, to warrant a finding of likelihood of confusion. [114]
In this regard, we adopted the Director of Patents‘ finding in Philippine Refining Co., Inc. vs.
Ng Sam and the Director of Patents:[115]

In his decision, the Director of Patents enumerated the factors that set respondent‘s products
apart from the goods of petitioner. He opined and we quote:

―I have taken into account such factors as probable purchaser attitude and habits, marketing
activities, retail outlets, and commercial impression likely to be conveyed by the trademarks if
used in conjunction with the respective goods of the parties, I believe that ham on one hand,
and lard, butter, oil, and soap on the other are products that would not move in the same
manner through the same channels of trade. They pertain to unrelated fields of
manufacture, might be distributed and marketed under dissimilar conditions, and are
displayed separately even though they frequently may be sold through the same retail
food establishments. Opposer‘s products are ordinary day-to-day household items whereas
ham is not necessarily so. Thus, the goods of the parties are not of a character which
purchasers would likely attribute to a common origin.

The observations and conclusion of the Director of Patents are correct. The particular goods of
the parties are so unrelated that consumers, would not, in any probability mistake one as the
source of origin of the product of the other. (Emphasis supplied).

The same is true in the present case. Wines and cigarettes are non-competing and are
totally unrelated products not likely to cause confusion vis-à-vis the goods or the business of the
petitioners and respondents.
Wines are bottled and consumed by drinking while cigarettes are packed in cartons or
packages and smoked. There is a whale of a difference between their descriptive properties,
physical attributes or essential characteristics like form, composition, texture and quality.
GALLO cigarettes are inexpensive items while GALLO wines are not. GALLO wines are
patronized by middle-to-high-income earners while GALLO cigarettes appeal only to simple
folks like farmers, fishermen, laborers and other low-income workers.[116] Indeed, the big price
difference of these two products is an important factor in proving that they are in fact unrelated
and that they travel in different channels of trade. There is a distinct price segmentation based
on vastly different social classes of purchasers. [117]
 GALLO cigarettes and GALLO wines are not sold through the same channels of
trade. GALLO cigarettes are Philippine-made and petitioners neither claim nor pass off their
goods as imported or emanating from Gallo Winery. GALLO cigarettes are distributed, marketed
and sold through ambulant and sidewalk vendors, small local sari-sari stores and grocery stores
in Philippine rural areas, mainly in Misamis Oriental, Pangasinan, Bohol, and Cebu. [118] On the
other hand, GALLO wines are imported, distributed and sold in the Philippines through Gallo
Winery‘s exclusive contracts with a domestic entity, which is currently Andresons. By
respondents‘ own testimonial evidence, GALLO wines are sold in hotels, expensive bars and
restaurants, and high-end grocery stores and supermarkets, not through sari-sari stores or
ambulant vendors.[119]
Furthermore, the Makati RTC and the CA erred in relying on Carling Brewing Company vs.
Philip Morris, Inc.[120] to support its finding that GALLO wines and GALLO cigarettes are related
goods. The courts a quo should have taken into consideration the subsequent case of IDV
North America, Inc. and R & A Bailey Co. Limited vs. S & M Brands, Inc.: [121]

IDV correctly acknowledges, however, that there is no per se rule that the use of the same mark
on alcohol and tobacco products always will result in a likelihood of confusion. Nonetheless,
IDV relies heavily on the decision in John Walker & Sons, Ltd. vs. Tampa Cigar Co., 124 F.
Supp. 254, 256 (S.D. Fla. 1954), aff‘d,222 F. 2d 460 (5th Cir. 1955), wherein the court enjoined
the use of the mark ―JOHNNIE WALKER‖ on cigars because the fame of the plaintiff‘s mark for
scotch whiskey and because the plaintiff advertised its scotch whiskey on, or in connection with
tobacco products. The court, in John Walker & Sons, placed great significance on the
finding that the infringers use was a deliberate attempt to capitalize on the senior marks‟
fame. Id. At 256. IDV also relies onCarling Brewing Co. v. Philip Morris, Inc., 297 F. Supp.
1330, 1338 (N.D. Ga. 1968), in which the court enjoined the defendant‟s use of the mark
“BLACK LABEL” for cigarettes because it was likely to cause confusion with the
plaintiff‟s well-known mark “BLACK LABEL” for beer.

xxx xxx xxx

Those decisions, however, must be considered in perspective of the principle that

tobacco products and alcohol products should be considered related only in cases
involving special circumstances. Schenley Distillers, Inc. v. General Cigar
Co., 57C.C.P.A. 1213, 427 F. 2d 783, 785 (1970). The presence of special circumstances
has been found to exist where there is a finding of unfair competition or where a „famous‟
or „well-known mark‟ is involved and there is a demonstrated intent to capitalize on that
mark. For example, in John Walker & Sons, the court was persuaded to find a relationship
between products, and hence a likelihood of confusion, because of the plaintiff‘s long use and
extensive advertising of its mark and placed great emphasis on the fact that the defendant used
the trademark ‗Johnnie Walker with full knowledge of its fame and reputation and with the
intention of taking advantage thereof.‘ John Walker & Sons, 124 F. Supp. At 256; see Mckesson
& Robbins, Inc. v. P. Lorillard Co., 1959 WL 5894, 120 U.S.P.Q. 306, 307 (1959) (holding that
the decision in John Walker & Sons was ‗merely the law on the particular case based upon its
own peculiar facts‘); see also Alfred Dunhill, 350 F. Supp. At 1363 (defendant‘s adoption of
‗Dunhill‘ mark was not innocent). However, in Schenley, the court noted that the relation
between tobacco and whiskey products is significant where a widely known arbitrary mark has
long been used for diversified products emanating from a single source and a newcomer seeks
to use the same mark on unrelated goods. Schenley, 427 F.2d. at 785. Significantly,
in Schenley, the court looked at the industry practice and the facts of the case in order to
determine the nature and extent of the relationship between the mark on the tobacco product
and the mark on the alcohol product.

The record here establishes conclusively that IDV has never advertised BAILEYS liqueurs in
conjunction with tobacco or tobacco accessory products and that IDV has no intent to do
so. And, unlike the defendant in Dunhill, S & M Brands does not market bar accessories, or
liqueur related products, with its cigarettes. The advertising and promotional materials
presented a trial in this action demonstrate a complete lack of affiliation between the tobacco
and liqueur products bearing the marks here at issue.

xxx xxx xxx

Of equal significance, it is undisputed that S & M Brands had no intent, by adopting the family
name ‗Bailey‘s‘ as the mark for its cigarettes, to capitalize upon the fame of the ‗BAILEYS‘ mark
for liqueurs. See Schenley, 427 F. 2d at 785. Moreover, as will be discussed below, and as
found in Mckesson & Robbins,the survey evidence refutes the contention that cigarettes
and alcoholic beverages are so intimately associated in the public mind that they cannot
under any circumstances be sold under the same mark without causing confusion. See
Mckesson & Robbins, 120 U.S.P.Q. at 308.

Taken as a whole, the evidence here demonstrates the absence of the ‗special circumstances‘
in which courts have found a relationship between tobacco and alcohol products sufficient to tip
the similarity of goods analysis in favor of the protected mark and against the allegedly infringing
mark. It is true that BAILEYS liqueur, the world‟s best selling liqueur and the second best
selling in the United States, is a well-known product. That fact alone, however, is
insufficient to invoke the special circumstances connection here where so much other
evidence and so many other factors disprove a likelihood of confusion. The similarity of
products analysis, therefore, augers against finding that there is a likelihood of
confusion. (Emphasis supplied).

In short, tobacco and alcohol products may be considered related only in cases
involving special circumstances which exist only if a famous mark is involved and there is a
demonstrated intent to capitalize on it. Both of these are absent in the present case.
THE GALLO WINE TRADEMARK IS NOT A
WELL-KNOWN MARK IN THE CONTEXT
OF THE PARIS CONVENTION IN THIS CASE
SINCE WINES AND CIGARETTES ARE NOT
IDENTICAL OR SIMILAR GOODS

First, the records bear out that most of the trademark registrations took place in the late
1980s and the 1990s, that is, after Tobacco Industries‘ use of the GALLO cigarette trademark in
1973 and petitioners‘ use of the same mark in 1984.
GALLO wines and GALLO cigarettes are neither the same, identical, similar nor related
goods, a requisite element under both the Trademark Law and the Paris Convention.
Second, the GALLO trademark cannot be considered a strong and distinct mark in the
Philippines. Respondents do not dispute the documentary evidence that aside from Gallo
Winery‘s GALLO trademark registration, the Bureau of Patents, Trademarks and Technology
Transfer also issued on September 4, 1992 Certificate of Registration No. 53356 under the
Principal Register approving Productos Alimenticios Gallo, S.A‘s April 19, 1990 application for
GALLO trademark registration and use for its ―noodles, prepared food or canned noodles, ready
or canned sauces for noodles, semolina, wheat flour and bread crumbs, pastry, confectionery,
ice cream, honey, molasses syrup, yeast, baking powder, salt, mustard, vinegar, species and
ice.‖[122]
Third and most important, pursuant to our ruling in Canon Kabushiki Kaisha vs. Court of
Appeals and NSR Rubber Corporation,[123]―GALLO‖ cannot be considered a ―well-known‖ mark
within the contemplation and protection of the Paris Convention in this case since wines and
cigarettes are not identical or similar goods:

We agree with public respondents that the controlling doctrine with respect to the applicability of
Article 8 of the Paris Convention is that established in Kabushi Kaisha Isetan vs. Intermediate
Appellate Court (203 SCRA 59 [1991]). As pointed out by the BPTTT:

“Regarding the applicability of Article 8 of the Paris Convention, this Office believes that
there is no automatic protection afforded an entity whose tradename is alleged to have
been infringed through the use of that name as a trademark by a local entity.

In Kabushiki Kaisha Isetan vs. The Intermediate Appellate Court, et. al., G.R. No. 75420, 15
November 1991, the Honorable Supreme Court held that:

„The Paris Convention for the Protection of Industrial Property does not automatically
exclude all countries of the world which have signed it from using a tradename which
happens to be used in one country. To illustrate — if a taxicab or bus company in a town
in the United Kingdom or India happens to use the tradename „Rapid Transportation,‟ it
does not necessarily follow that „Rapid‟ can no longer be registered in Uganda, Fiji, or
the Philippines.

This office is not unmindful that in (sic) the Treaty of Paris for the Protection of Intellectual
Property regarding well-known marks and possible application thereof in this case. Petitioner, as
this office sees it, is trying to seek refuge under its protective mantle, claiming that the subject
mark is well known in this country at the time the then application of NSR Rubber was filed.

However, the then Minister of Trade and Industry, the Hon. Roberto V. Ongpin, issued a
memorandum dated 25 October 1983 to the Director of Patents, a set of guidelines in the
implementation of Article 6bis of the Treaty of Paris. These conditions are:

a) the mark must be internationally known;

b) the subject of the right must be a trademark, not a patent or copyright or
anything else;
c) the mark must be for use in the same or similar kinds of goods; and
d) the person claiming must be the owner of the mark (The Parties
Convention Commentary on the Paris Convention. Article by Dr.
Bogsch, Director General of the World Intellectual Property
Organization, Geneva, Switzerland, 1985)‘

From the set of facts found in the records, it is ruled that the Petitioner failed to comply with
the third requirement of the said memorandum that is the mark must be for use in the
same or similar kinds of goods. The Petitioner is using the mark “CANON” for products
belonging to class 2 (paints, chemical products) while the Respondent is using the same
mark for sandals (class 25).

Hence, Petitioner's contention that its mark is well-known at the time the Respondent
filed its application for the same mark should fail.” (Emphasis supplied.)

Consent of the Registrant and

Other air, Just and Equitable
Considerations

Each trademark infringement case presents a unique problem which must be answered by
weighing the conflicting interests of the litigants. [124]
Respondents claim that GALLO wines and GALLO cigarettes flow through the same
channels of trade, that is, retail trade. If respondents‘ assertion is true, then both goods co-
existed peacefully for a considerable period of time. It took respondents almost 20 years to
know about the existence of GALLO cigarettes and sue petitioners for trademark
infringement. Given, on one hand, the long period of time that petitioners were engaged in the
manufacture, marketing, distribution and sale of GALLO cigarettes and, on the other,
respondents‘ delay in enforcing their rights (not to mention implied consent, acquiescence or
negligence) we hold that equity, justice and fairness require us to rule in favor of petitioners. The
scales of conscience and reason tip far more readily in favor of petitioners than respondents.
Moreover, there exists no evidence that petitioners employed malice, bad faith or fraud, or
that they intended to capitalize on respondents‘ goodwill in adopting the GALLO mark for their
cigarettes which are totally unrelated to respondents‘ GALLO wines. Thus, we rule out
trademark infringement on the part of petitioners.
PETITIONERS ARE ALSO NOT LIABLE
FOR UNFAIR COMPETITION

Under Section 29 of the Trademark Law, any person who employs deception or any other
means contrary to good faith by which he passes off the goods manufactured by him or in which
he deals, or his business, or services for those of the one having established such goodwill, or
who commits any acts calculated to produce said result, is guilty of unfair competition. It
includes the following acts:

(a) Any person, who in selling his goods shall give them the general appearance of goods of
another manufacturer or dealer, either as to the goods themselves or in the wrapping of the
packages in which they are contained, or the devices or words thereon, or in any other feature
of their appearance, which would be likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer other than the actual manufacturer or dealer, or
who otherwise clothes the goods with such appearance as shall deceive the public and defraud
another of his legitimate trade, or any subsequent vendor of such goods or any agent of any
vendor engaged in selling such goods with a like purpose;

(b) Any person who by any artifice, or device, or who employs any other means calculated to
induce the false belief that such person is offering the services of another who has identified
such services in the mind of the public;
(c) Any person who shall make any false statement in the course of trade or who shall commit
any other act contrary to good faith of a nature calculated to discredit the goods, business or
services of another.

The universal test question is whether the public is likely to be deceived. Nothing less than
conduct tending to pass off one man‘s goods or business as that of another constitutes unfair
competition. Actual or probable deception and confusion on the part of customers by reason of
defendant‘s practices must always appear. [125] On this score, we find that petitioners never
attempted to pass off their cigarettes as those of respondents. There is no evidence of bad faith
or fraud imputable to petitioners in using their GALLO cigarette mark.
All told, after applying all the tests provided by the governing laws as well as those
recognized by jurisprudence, we conclude that petitioners are not liable for trademark
infringement, unfair competition or damages.
WHEREFORE, finding the petition for review meritorious, the same is hereby
GRANTED. The questioned decision and resolution of the Court of Appeals in CA-G.R. CV No.
65175 and the November 26, 1998 decision and the June 24, 1999 order of the Regional Trial
Court of Makati, Branch 57 in Civil Case No. 93-850 are hereby REVERSED and SET ASIDE
and the complaint against petitioners DISMISSED.
Costs against respondents.
SO ORDERED.
Vitug, (Chairman), and Sandoval-Gutierrez, JJ., concur.
Carpio-Morales, J., no part.

[1]
Penned by Associate Justice Martin S. Villarama, Jr. and concurred in by Associate Justices
Conchita Carpio Morales (now Associate Justice of the Supreme Court) and Sergio L. Pestano
of the Ninth Division.
[2]
Penned by Acting Presiding Judge Bonifacio Sanz Maceda.
[3]
Penned by Judge Reinato O. Quilala.
[4]
Penned by Associate Justice Martin S. Villarama, Jr. and concurred in by Associate Justices
Conchita Carpio Morales (now Associate Justice of the Supreme Court) and Sergio L. Pestano
of the former Ninth Division.
[5]
Complaint, Exhibits ―D‖ to ―D-1,‖ Records, pp. 1-2; TSN, June 9, 1997, Records, pp. 951-956.
[6]
Exhibits ―B‖ to ―B-6,‖ Records, pp. 80-86.
[7]
Records, pp. 29-31.
[8]
Answer, Records, pp. 255 and 264-266; TSN, April 13, 1993, Records, pp. 767, 780-796;
TSN, October 27, 1997, Records, pp. 993-1000.
[9]
Exhibits 9 to 12, Records, pp. 89-95, 267-268; TSN, October 27, 1997, Records, pp. 1005-
1007.
[10]
Records, pp. 255-256, 269 and 271.
[11]
Records, pp. 256, 270.
[12]
Exhibit 15, Records, pp. 104, 256, 272.
[13]
Records, p. 256.
[14]
Exhibits 13 and 14, Records, pp. 96-98.
[15]
TSN, April 13, 1993, Records, pp. 780-796; TSN, December 14, 1993, Records, pp. 420-
422; TSN, October 27, 1997, Records, pp. 993-1000.
[16]
Complaint, Exhibit ―D-2,‖ Records, pp. 3, 110 and 328.
[17]
Exhibit ―A,‖ Complainants‘ Memorandum, Records, p. 127; TSN, December 14, 1993,
Records, pp. 326, 432-433.
[18]
CONVENTION OF PARIS FOR THE PROTECTION OF INDUSTRIAL PROPERTY of 20th
March, 1883 revised at BRUSSELS on 14th December, 1900, atWASHINGTON on 2nd June,
1911, at THE HAGUE on 6th November, 1925, at LONDON on 2nd June, 1934, and at Lisbon
on 31st October, 1958
xxx xxx xxx
bis
ARTICLE 6
(1) The countries of the Union undertake, either administratively if their legislation so permits, or
at the request of an interested party, to refuse or to cancel the registration and to prohibit the
use of a trademark which constitutes a reproduction, imitation or translation, liable to create
confusion, of a mark considered by the competent authority of the country of registration or use
to be well-known in that country as being already the mark of a person entitled to the benefits of
the present Convention and used for identical or similar goods. These provisions shall also
apply when the essential part of the mark constitutes a reproduction of any such well-known
mark or an imitation liable to create confusion therewith.
(2) A period of at least five years from the date of registration shall be allowed for seeking the
cancellation of such a mark. The countries of the Union may provide for a period within which
the prohibition of use must be sought.
(3) No time limit shall be fixed for seeking the cancellation or the prohibition of the use of marks
registered or used in bad faith.
[19]
Republic Act No. 166 is entitled ―An Act To Provide For The Registration And Protection Of
Trademarks, Trade Names And Servicemarks, Defining Unfair Competition And False Marking
And Providing Remedies Against The Same, And For Other Purposes‖.
[20]
SEC. 22. Infringement, what constitutes. — Any person who shall use, without the consent
of the registrant, any reproduction, counterfeit, copy or colorable imitation of any registered
mark or tradename in connection with the sale, offering for sale, or advertising of any goods,
business or services on or in connection with which such use is likely to cause confusion or
mistake or to deceive purchasers or others as to the source or origin of such goods or services,
or identity of such business; or reproduce, counterfeit, copy or colorably imitate any such mark
or tradename and apply such reproduction, counterfeit, copy, or colorable imitation to labels,
signs, prints, packages, wrappers, receptacles or advertisements intended to be used upon or in
connection with such goods, business or services, shall be liable to a civil action by the
registrant for any or all of the remedies herein provided.
SEC. 23. Actions, and damages and injunction for infringement. — Any person entitled to the
exclusive use of a registered mark or tradename may recover damages in a civil action from any
person who infringes his rights, and the measure of the damages suffered shall be either the
reasonable profit which the complaining party would have made, had the defendant not
infringed his said rights, or the profit which the defendant actually made out of the infringement,
or in the event such measure of damages cannot be readily ascertained with reasonable
certainty, then the court may award as damages a reasonable percentage based upon the
amount of gross sales of the defendant of the value of the services in connection with which the
mark or tradename was used in the infringement of the rights of the complaining party. In cases
where actual intent to mislead the public or to defraud the complaining party shall be shown, in
the discretion of the court, the damages may be doubled.
The complaining party, upon proper showing, may also be granted injunction.
[21]
SEC. 29. Unfair competition, rights and remedies. — A person who has identified in the
mind of the public the goods he manufactures or deals in, his business or services from those of
others, whether or not a mark or tradename is employed, has a property right in the goodwill of
the said goods, business or services so identified, which will be protected in the same manner
as other property rights. Such a person shall have the remedies provided in section twenty-
three, Chapter V hereof.
Any person who shall employ deception or any other means contrary to good faith by which he
shall pass off the goods manufactured by him or in which he deals, or his business, or services
for those of the one having established such goodwill, or who shall commit any acts calculated
to produce said result, shall be guilty of unfair competition, and shall be subject to an action
therefor.
In particular, and without in any way limiting the scope of unfair competition, the following shall
be deemed guilty of unfair competition:
(a) Any person, who in selling his goods shall give them the general appearance of goods of
another manufacturer or dealer, either as to the goods themselves or in the wrapping of the
packages in which they are contained, or the devices or words thereon, or in any other feature
of their appearance, which would be likely to influence purchasers to believe that the goods
offered are those of a manufacturer or dealer other than the actual manufacturer or dealer, or
who otherwise clothes the goods with such appearance as shall deceive the public and defraud
another of his legitimate trade, or any subsequent vendor of such goods or any agent of any
vendor engaged in selling such goods with a like purpose;
(b) Any person who by any artifice, or device, or who employs any other means calculated to
induce the false belief that such person is offering the services of another who has identified
such services in the mind of the public; or
(c) Any person who shall make any false statement in the course of trade or who shall commit
any other act contrary to good faith of a nature calculated to discredit the goods, business or
services of another.
Chapter VII
FALSE DESIGNATION OF ORIGIN AND FALSE
DESCRIPTION
SEC. 30. False designation of origin and false description forbidden. — Any person who shall
affix, apply, annex or use in connection with any goods or services, or any container or
containers for goods, a false designation of origin, or any false description or representation,
including words or other symbols tending falsely to describe or represent the same, and shall
cause such goods or services to enter into commerce, and any person who shall with
knowledge of the falsity of such designation of origin or description or representation cause or
procure the same to enter into commerce, shall be liable to a civil action for damages and
injunction provided in section twenty-three, Chapter V hereof, by any person doing business in
the locality falsely indicated as that of origin or in the region in which said locality is situated, or
by any person who believes that he is or is likely to be damaged by the use of any such false
description or representation.
[22]
Chapter XI
PROVISIONS IN REFERENCE TO FOREIGN INDUSTRIAL PROPERTY
SEC. 37. Rights of foreign registrants. — Persons who are nationals of, domiciled in, or have
a bona fide or effective business or commercial establishment in any foreign country, which is a
party to any international convention or treaty relating to marks or tradenames, or the repression
of unfair competition to which the Philippines may be a party, shall be entitled to the benefits
and subject to the provisions of this Act to the extent and under the conditions essential to give
effect to any such convention and treaties so long as the Philippines shall continue to be a party
thereto, except as provided in the following paragraphs of this section.
No registration of a mark or tradename in the Philippines by a person described in the preceding
paragraph of this section shall be granted until such mark or tradename has been registered in
the country of origin of the applicant, unless the applicant alleges use in commerce.
For the purposes of this section, the country of origin of the applicant is the country in which he
has bona fide and effective industrial or commercial establishment, or if he has no such an
establishment in the country in which he is domiciled, or if he has not a domicile in any of the
countries described in the first paragraph of this section, the country of which he is a national.
An application for registration of a mark or tradename under the provisions of this Act filed by a
person described in the first paragraph of this section who has previously duly filed an
application for registration of the same mark or tradename in one of the countries described in
said paragraph shall be accorded the same force and effect as would be accorded to the same
application if filed in the Philippines on the same date on which the application was first filed in
such foreign country: Provided, That —
(a) The application in the Philippines is filed within six months from the date on which the
application was first filed in the foreign country; and within three months from the date of filing or
within such time as the Director shall in his discretion grant, the applicant shall furnish a certified
copy of the application for or registration in the country of origin of the applicant, together with a
translation thereof into English, if not in the English language;
(b) The application conforms as nearly as practicable to the requirements of this Act, but use in
commerce need not be alleged;
(c) The rights acquired by third parties before the date of the filing of the first application in the
foreign country shall in no way be affected by a registration obtained on an application filed
under this paragraph;
(d) Nothing in this paragraph shall entitle the owner of a registration granted under this section
to sue for acts committed prior to the date on which his mark or tradename was registered in
this country unless the registration is based on use in commerce; and
(e) A mark duly registered in the country of origin of the foreign applicant may be registered on
the principal register if eligible, otherwise, on the supplemental register herein provided. The
application thereof shall be accompanied by a certified copy of the application for or registration
in the country of origin of the applicant. (As added by R.A. No. 638.)
The registration of a mark under the provisions of this section shall be independent of the
registration in the country of origin and the duration, validity or transfer in the Philippines of such
registration shall be governed by the provisions of this Act.
Tradenames of persons described in the first paragraph of this section shall be protected
without the obligation of filing or registration whether or not they form parts of marks.
Any person designated in the first paragraph of this section as entitled to the benefits and
subject to the provisions of this Act shall be entitled to effective protection against unfair
competition, and the remedies provided herein for infringement of marks and tradenames shall
be available so far as they may be appropriate in repressing acts of unfair competition.
Citizens or residents of the Philippines shall have the same benefits as are granted by this
section to persons described in the first paragraph hereof.
[23]
Complaint, Exhibits ―D-1‖ to ―D-9,‖ Record, pp. 1-10.
[24]
Penned by Judge Francisco X. Velez.
[25]
Records, pp. 159-160.
[26]
Sec. 5. Preliminary injunction not granted without notice; issuance of restraining order. – No
preliminary injunction shall be granted without notice to the defendant. If it shall appear from the
facts shown by affidavits or by the verified complaint that great or irreparable injury would result
to the applicant before the matter can be heard on notice, the judge to whom the application for
preliminary injunction was made, may issue a restraining order to be effective only for a period
of twenty days from the date of its issuance. Within the said twenty-day period, the judge must
cause an order to be served on the defendant, requiring him to show cause, at a specified time
and place, why the injunction should not be granted, and determine within the same period
whether or not the preliminary injunction shall be granted, and shall accordingly issue the
corresponding order. In the event that the application for preliminary injunction is denied, the
restraining order is deemed automatically vacated.
Nothing herein contained shall be construed to impair, affect or modify in any way any rights
granted by, or rules pertaining to injunctions contained in, existing agrarian, labor or social
legislation. (As amended by B.P. Blg. 224, approved April 16, 1982).
[27]
Penned by Judge Velez; Records, pp. 302-304.
[28]
Penned by Associate Justice Ramon Mabutas, Jr. and concurred in by Associate Justices
Nathanael P. De Pano, Jr. and Artemon D. Luna of the Special First Division; Records, pp. 449-
465.
[29]
Penned by Judge Maceda; Records, pp. 651-652.
[30]
Penned by Judge Quilala; Records, pp. 727-728.
[31]
Petition; Rollo, pp. 18-19.
[32]
Rule 45, Section 2.
[33]
Ramos vs. Pepsi-Cola Bottling Co. of the P.I., 19 SCRA 289, 292 [1967]; Medina vs. Asistio,
Jr., 191 SCRA 218, 223 [1990]; Caiña vs. People, 213 SCRA 309, 313 [1992].
[34]
Moomba Mining Exploration Company vs. Court of Appeals, 317 SCRA 338 [1999].
[35]
Roman Catholic Bishop of Malolos, Inc. vs. IAC, 191 SCRA 411, 420 [1990].
[36]
Asia Brewery, Inc. vs. Court of Appeals, 224 SCRA 437, 443 [1993]; Philippine Nut Industry
Inc. vs. Standard Brands, Inc., 224 SCRA 437, 443 [1993]; Reynolds Philippine Corporation vs.
Court of Appeals, 169 SCRA 220, 223 [1989] citing Mendoza vs. Court of Appeals, 156 SCRA
597 [1987]; Manlapaz vs. Court of Appeals, 147 SCRA 238 [1987]; Sacay vs. Sandiganbayan,
142 SCRA 593, 609 [1986]; Guita vs. Court of Appeals, 139 SCRA 576 [1985]; Casanayan vs.
Court of Appeals, 198 SCRA 333, 336 [1991]; also Apex Investment and Financing Corp. vs.
IAC, 166 SCRA 458 [1988] citing Tolentino vs. De Jesus, 56 SCRA 167 [1974]; Carolina
Industries, Inc. vs. CMS Stock Brokerage, Inc., 97 SCRA 734 [1980]; Manero vs. Court of
Appeals, 102 SCRA 817 [1981]; and Moran, Jr. vs. Court of Appeals, 133 SCRA 88 [1984].
[37]
Sec. 241, Intellectual Property Code of the Philippines.
[38]
Rollo, p. 191.
[39]
Rollo, p. 71.
[40]
Tolentino, CIVIL CODE OF THE PHILIPPINES COMMENTARIES AND JURISPRUDENCE,
Volume I, p. 19; See Articles 2 to 4 of the Civil Code of the Philippines.
[41]
Ibid.
[42]
Laws may be given retroactive effect only if they are:
(a) procedural statutes which prescribe rules and forms of procedures of enforcing rights or
obtaining redress for their invasion (Subido vs. Sandiganbayan, 266 SCRA 379 [1997];
Primicias vs. Ocampo, 93 Phil. 446 [1953]; Bustos vs. Lucero, 81 Phil. 640 [1948]; Lopez vs.
Gloria, 40 Phil. 26 [1919]; People vs. Sumilang, 77 Phil. 764 [1946])
(b) remedial or curative statutes which cure errors and irregularities and validate judicial or
administrative proceedings, acts of public officers, or private deeds and contracts that otherwise
would not produce their intended consequences due to some statutory disability or failure to
comply with technical rules (Government vs. Municipality of Binalonan, 32 Phil. 634 [1915];
Subido vs. Sandiganbayan, supra; Del Castillo vs. Securities and Exchange Commission, 96
Phil. 119 [1954]; Santos vs. Duata, 14 SCRA 1041 [1965]; Development Bank of the
Philippines vs. Court of Appeals, 96 SCRA 342 [1980]; Alunan III vs. Mirasol, 276 SCRA 501
[1997])
(c) laws interpreting others
(d) laws creating new rights (Bona vs. Briones, 38 Phil. 276 [1918]; Intestate Estate of
Bustamante vs. Cayas, 98 Phil. 107 [1955])
(e) penal statutes insofar as they favor the accused who is not a habitual criminal (Article 22,
Revised Penal Code) or
(f) by express provision of the law, (Art. 4, Civil Code of the Philippines; Alba Vda. De Raz vs.
Court of Appeals, 314 SCRA 36 [1999]), except in cases of ex post facto laws (U.S. vs. Diaz
Conde, 42 Phil. 766 [1922]; U.S. vs. Gomez, 12 Phil. 279 [1908]) or impairment of obligation of
contract. (Asiatic Petroleum vs. Llanes, 49 Phil. 466 [1926]).
[43]
Sec. 239, Intellectual Property Code of the Philippines.
[44]
E. Spinner & Co. vs. Neuss Hesslein Corporation, 54 Phil. 225, 231-232 [1930].
[45]
181 SCRA 410, 415 [1990].
[46]
The Paris Convention is a compact among various member countries to accord in their own
countries to citizens of the other contracting parties‘ trademarks and other rights comparable to
those accorded their own citizens by their domestic laws. The underlying principle is that
foreign nationals should be given the same treatment in each of the member countries as that
country makes available to its citizen. (Emerald Garden Manufacturing Corp. vs. Court of
Appeals, 251 SCRA 600 [1995]).
[47]
See footnote 18 for full text.
[48]
―conditions for the filing and registration of trademarks shall be determined in each country of
the Union by its domestic law.‖ (Art. 6[1], Paris Convention).
[49]
See footnote 20 for full text.
[50]
SEC 20. Certificate of registration prima facie evidence of validity. — A certificate of
registration of a mark or trade-name shall be prima facie evidence of the validity of the
registration, the registrant's ownership of the mark or tradename, and of the registrant's
exclusive right to use the same in connection with the goods, business or services specified in
the certificate, subject to any conditions and limitations stated therein.
[51]
SEC. 6. Classification of goods and services. – The Director shall establish a classification
of goods and services, for the convenience of the Patent Office administration, but not to limit or
extend the applicant‘s rights. The applicant may register his mark or tradename in one
application for any or all of the goods or services included in one class, upon or in connection
with which he is actually using the mark or tradename. The Director may issue a single
certificate for one mark or tradename registered in a plurality of classes upon payment of a fee
equaling the sum of the fees for each registration in each class.
[52]
SEC. 2. What are registrable. – Trademarks, tradenames, and servicemarks owned by
persons, corporations, partnerships or associations domiciled in the Philippines and by persons,
corporations, partnerships or associations domiciled in any foreign country may be registered in
accordance with the provisions of this Act; Provided, That said trademarks, tradenames, or
servicemarks are actually in use in commerce and services not less than two months in the
Philippines before the time the applications for registration are filed. And provided, further, That
the country of which the applicant for registration is a citizen grants by law substantially similar
privileges to citizens of the Philippines, and such fact is officially certified, with a certified true
copy of the foreign law translated into the English language, by the government of the foreign
country to the Government of the Republic of the Philippines. (As amended by R.A. 865).
SEC. 2-A. Ownership of trademarks, tradenames and servicemarks; how acquired. – Anyone
who lawfully produces or deals in merchandise of any kind or engages in any lawful business, or
who renders any lawful service in commerce, by actual use thereof in manufacture or trade, in
business, and in the service rendered, may appropriate to his exclusive use a trademark, a
tradename, or a servicemark not so appropriated by another, to distinguish his merchandise,
business or service from the merchandise, business or service of others. The ownership or
possession of a trademark, tradename, servicemark heretofore or hereafter appropriated, as in
this section provided, shall be recognized and protected in the same manner and to the same
extent as are other property rights known to the law. (As amended by R.A. 638).
[53]
SEC. 9-A. Equitable principles to govern proceedings. – In opposition proceedings and in all
other inter partes proceedings in the Patent Office under this Act, equitable principles of laches,
estoppel, and acquiescence where applicable, may be considered and applied. (As added by
R.A. No. 638).
[54]
Philip Morris, Inc. vs. Court of Appeals, 224 SCRA 576 [1993].
[55]
Exhibits ―Q‖ to ―R-2,‖ Records, pp. 2075-2078.
[56]
Exhibits ―9‖ to ―14,‖ Records, pp. 90-98.
[57]
251 SCRA 600, 619 [1995].
[58]
118 SCRA 526 [1982].
[59]
147 SCRA 154 [1987].
[60]
27 SCRA 1214 [1969].
[61]
203 SCRA 583 [1991].
[62]
224 SCRA 576 [1993].
[63]
TSN, April 13, 1993, Records, p. 783; TSN, June 9, 1997, Records, p. 959.
[64]
215 SCRA 316, 325 [1992].
[65]
Esso Standard Eastern, Inc. vs. Court of Appeals, 116 SCRA 336, 341 [1982].
[66]
Sterling Products, International, Inc. vs. Farbenfabriken Bayer Aktiengesellschaft, 27 SCRA
1214, 1227 [1969] citing 2 Callman, Unfair Competition and Trademarks, 1945 ed., p. 1006.
[67]
38 SCRA 480 [1971].
[68]
115 SCRA 472 [1982].
[69]
116 SCRA 388 [1982].
[70]
G.R. No. L-49145, May 21, 1979.
[71]
116 SCRA 336 [1982].
[72]
336 SCRA 266 [2000].
[73]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600 [1995].
[74]
Ruben Agpalo, TRADEMARK LAW AND PRACTICE IN THE PHILIPPINES [1990], p.41.
[75]
Ibid.
[76]
224 SCRA 437 [1993].
[77]
Co Tiong vs. Director of Patents, 95 Phil. 1 [1954]; Lim Hoa vs. Director of Patents, 100 Phil.
214 [1956]; American Wire & Cable Co. vs. Director of Patents, 31 SCRA 544 [1970]; Phil. Nut
Industry, Inc. vs. Standard Brands, Inc., 65 SCRA 575 [1975]; Converse Rubber Corp. vs.
Universal Rubber Products, Inc., 147 SCRA 154 [1987].
[78]
181 SCRA 410 [1990].
[79]
Mead Johnson & Co. vs. N.V.J. Van Dorp, Ltd., 7 SCRA 771 [1963]; Bristol Myers Co. vs.
Director of Patents, 17 SCRA 128 [1966]; Fruit of the Loom, Inc. vs. Court of Appeals, 133
SCRA 405 [1984].
[80]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600 [1995].
[81]
Ibid.
[82]
Ibid.
[83]
Philippine Refining Co., Inc. vs. Ng Sam and the Director of Patents, 115 SCRA 472 [1982].
[84]
Exhibits ―1‖ to ―4‖; Records 2095-2097.
[85]
TSN, October 27, 1997, Records, pp. 995-1000.
[86]
Reply, Records, p. 293.
[87]
Exhibits ―N to Q‖.
[88]
TSN, December 14, 1993, Records, pp. 414, 421 and 442.
[89]
Exhibits ―1‖ to ―4.‖
[90]
Esso Standard Eastern, Inc. vs. Court of Appeals, 116 SCRA 336,341 [1982].
[91]
Esso Standard Eastern, Inc. vs. Court of Appeals, 116 SCRA 336 [1982]; Arce vs. Selecta, 1
SCRA 253 [1961]; Chua Che vs. Phil. Patents Office, 13 SCRA 67 [1965]; Ang vs. Teodoro, 74
Phil. 50 [1942]; Khe vs. Lever Bros. Co., 49 O.G. 3891 [1941]; Ang Si Heng & Dee vs.
Wellington Dept. Store, 92 Phil. 448 [1953]; Acoje Mining Co., Inc. vs. Director of Patents, 38
SCRA 480 [1971].
[92]
Esso Standard Eastern, Inc. vs. Court of Appeals, 116 SCRA 336 [1982].
[93]
Ibid.
[94]
Ibid.
[95]
I CALLMAN 1121 cited in Philippine Refining Co., Inc. vs. Ng Sam and the Director of
Patents, 115 SCRA 472 [1982].
[96]
It has been held that where the products are different, the prior owner‘s chance of success is
a function of many variables, such as the:
(a) strength of his mark
(b) degree of similarity between the two marks
(c) reciprocal of defendant‘s good faith in adopting its own mark
(d) quality of defendant‘s product
(e) proximity of the products
(f) likelihood that the prior owner will bridge the gap
(g) actual confusion, and
(h) sophistication of the buyers. (Polaroid Corp. vs. Polaroid Elecs. Corp., 287 F. 2d 492,
495 (2d Cir.), cert. denied, 368 U.S. 820, 82 s. Ct. 36, 7 L. Ed. 2d 25 [1961]).
[97]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600 [1995];
Del Monte Corporation, vs. Court of Appeals, 181 SCRA 410 [1990]; Asia Brewery, Inc. vs.
Court of Appeals, 224 SCRA 437 [1993].
[98]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600 [1995].
[99]
Esso Standard Eastern, Inc. vs. Court of Appeals, 116 SCRA 336 [1982].
[100]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600 [1995].
[101]
Philippine Refining Co., Inc. vs. Ng Sam and the Director of Patents, 115 SCRA 472 [1982].
[102]
Ibid.
[103]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600 [1995].
[104]
Esso Standard Eastern, Inc. vs. Court of Appeals, 116 SCRA 336 [1982].
[105]
Philippine Refining Co., Inc. vs. Ng Sam and the Director of Patents, 115 SCRA 472 [1982].
[106]
Thompson Medical Co. vs. Pfizer, Inc. 753 F. 2d 208, 225 USPQ 124 (2d Cir.) 1985.
[107]
Kiki Undies Corp. vs. Promenade Hosiery Mills, Inc., 411 F. 2d 1097, 1099 (2d Cir. 1969),
cert. denied, 396 U.S. 1094, 90 S. Ct. 707, 24 L. Ed. 698 [1970]; Lever Bros. Co. vs. American
Bakeries Co., 693 F. 2d 251, C.A. N.Y., November 3, 1982.
[108]
Mushroom Makers, Inc. vs. R.G. Barry Corp., 580 F. 2d 44, 47 (2d Cir. 1978), cert. denied,
439 U.S. 1116, 99 s. Ct. 1022, 59 L. Ed. 2d 75 [1979].
[109]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600 [1995].
[110]
Dy Buncio vs. Tan Tiao Bok, 42 Phil. 190 [1921].
[111]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600
[1995]; Del Monte Corporation, et al. vs. Court of Appeals, 181 SCRA 410 [1990]; Asia Brewery,
Inc. vs. Court of Appeals, et al., 224 SCRA 437 [1993]; Philippine Refining Co., Inc. vs. Ng Sam
and the Director of Patents, 115 SCRA 472 [1982].
[112]
Philippine Refining Co., Inc. vs. Ng Sam and Director of Patents, 115 SCRA 472 [1982].
[113]
Emerald Garment Manufacturing Corporation vs. Court of Appeals, 251 SCRA 600
[1995]; Del Monte Corporation, vs. Court of Appeals, 181 SCRA 410 [1990]; Asia Brewery,
Inc. vs. Court of Appeals, 224 SCRA 437 [1993].
[114]
California Fruit Growers Exchange vs. Sunkist Baking Co., 166 F. 2d 971, 76 U.S.P.Q. 85
(7th Cir. 1947); Hot Shot Quality Products, Inc. vs. Sifer‘s Chemicals, Inc. 452 F.2d 1080, 172
U.S.P.Q. 350 (10th Cir. 1971); Federated Foods, Inc. vs. Ft. Howard Paper Co., 544 F.2d 1098,
192 U.S.P.Q. 24; Faultless Starch Co. vs. Sales Producers Associates, Inc., 530 F. 2d 1400,
189 U.S.P.Q. (C.C.P.A. 1976); Lever Bros. Co. vs. American Bakeries Co., 693 F. 2d 251, 216
U.S.P.Q. 177 (2d Cir. 1982); Nestle Co. vs. Nash-Finch Co., 4 U.S.P.Q. 2d 1085 (T.T.A.B.).
[115]
115 SCRA 472, 478 [1982].
[116]
Answer, Records, p. 258; TSN, December 14, 1993, Records, p. 420; TSN, June 9, 1997,
Records, p. 958; TSN, September 8, 1997, Records, p. 965-967.
[117]
Emerald Manufacturing, 251 SCRA 600 [1995]; Acoje Mining Co., Inc. vs. Director of
Patents, 38 SCRA 480 [1981]; Field Enterprises Educational Corp. vs. Grosset & Dunlap, Inc.
256 F. Supp. 382, 150 U.S.P.Q. 517 (S.D.N.Y. 1966); Haviland & Co. vs. Johann Haviland
China Corp., 269 F. Supp. 928, 154 U.S.P.Q. 287 (S.D.N.Y. 1967); Estee Lauder, Inc. vs. The
Gap, Inc., 108 F. 3d. 1503, 42 U.S.P.Q. 2d 1228(2nd Cir. 1997).
[118]
Answer, Records, p. 257; TSN, April 13, 1993, Records, pp. 783; TSN, December 14, 1993,
Records, p. 420; TSN, September 8, 1997, Records, pp. 966, 971-972.
[119]
TSN, June 9, 1997, Record, pp. 952-958; TSN, December 14, 1993, Records, p. 432.
[120]
297 F. Supp. 1330, 160 USPQ 303.
[121]
26 F. Supp. 2d 815 (E.D. Va. 1998).
[122]
Exhibit 18, Records, pp. 107-108.
[123]
366 SCRA 266 [2000].
[124]
52 Am. Jur. 577.
[125]
Shell Co. of the Philippines, Ltd. vs. Insular Petroleum Refining Co. Ltd., 120 Phil. 434, 439
[1964].