EN BANC

[G.R. No. 108292. September 10, 1993.]

REPUBLIC OF THE PHILIPPINES (Presidential Commission on

Good Government [PCGG]) petitioner, vs. SANDIGANBAYAN,
JOSE L. AFRICA, MANUEL H. NIETO, JR., FERDINAND E.
MARCOS, IMELDA R. MARCOS, FERDINAND R. MARCOS, JR.,
ROBERTO S. BENEDICTO, JUAN PONCE ENRILE, and
POTENCIANO ILUSORIO, respondents.

[G.R. No. 108368. September 10, 1993.]

REPUBLIC OF THE PHILIPPINES, petitioner, vs.

SANDIGANBAYAN, ROBERTO S. BENEDICTO, ET. AL.,
respondents.

[G.R. No. 108548. September 10, 1993.]

JOSE MA. B. MONTINOLA, ROMEO G. GUANZON,

HORTENSIA STARKE, VICENTE LOPEZ, JR., MANUEL
ESCALANTE, ROMAN M. MIRASOL, JESUS T. TALEON, JESUS
S. MONTERO, RODOLFO T. TIONGSON, JR., PABLO G. LIM,
JULIO LEDESMA, CENTRAL AZUCARERA DON PEDRO, SAN
CARLOS MILLING, CO., INC., petitioners, vs. SANDIGANBAYAN
and ROBERTO S. BENEDICTO, respondents.

[G.R. No. 108550. September 10, 1993.]

JOSE MA. B. MONTINOLA, ROMEO G. GUANZON,

HORTENSIA STARKE, VICENTE LOPEZ, JR., MANUEL
ESCALANTE, ROMAN M. MIRASOL, JESUS T. TALEON, JESUS
S. MONTERO, RODOLFO T. TIONGSON, JR., PABLO G. LIM,
JULIO LEDESMA, CENTRAL AZUCARERA DON PEDRO, SAN
CARLOS MILLING, CO., INC., petitioners, vs. THE
SANDIGANBAYAN and ROBERTO S. BENEDICTO, respondents.

Custodio O. Parlade & Emerito G. Bagabaldo for petitioners in G.R. No. 108368.
Alampay, del Castillo & Maranilla Law Office for P. Sabido, et al. in G.R. Nos. 108548-
49 & 108550

DECISION

MELO, J : p

The four (4) herein consolidated petitions have as their common prayer the nullification
of the already approved and partially implemented compromise agreement dated
November 3, 1990 executed between Roberto S. Benedicto and the Presidential
Commission on Good Government (PCGG) represented by its then Chairman, David M.
Castro, and the setting aside of the Sandiganbayan decision dated October 2,1992
approving the compromise agreement and rendering judgment in accordance with its
terms. G.R. No. 108548-49 and 108550 were filed by eleven (11) sugar cane planters and
two (2) corporations engaged in the milling of sugar cane who additionally ask for
permission to intervene and to be admitted as parties to Civil Cases No. 0024 and No.
0028 before the Sandiganbayan.

The subject matters of the disputed compromise agreement are Sandiganbayan Civil Case
No. 0009, Civil Case No. 00234, Civil Case No. 0034, the Phil-Asia case before the
Tanodbayan and PCGG I.S. No. 1. The cases arose from complaints for reconveyance,
reversion, accounting, restitution, and damages against former President Ferdinand E.
Marcos, members of his family, and alleged cronies, one of whom is said to be
respondent Roberto S. Benedicto. cdphil

The compromise agreement involved in these petitions is the third one in a series of
global settlements effected between the Republic and respondent Benedicto. In March,
1990 the cases brought by the Republic against Benedicto in the United States were
settled through a plea bargaining agreement approved by the New York Court and a
"Settlement and Partial Release of Claims" approved by the California Court of Los
Angeles. On July 20 and 23, 1990, the cases in Switzerland involving Benedicto's bank
deposits in that country were settled by another agreement between the Republic and
Benedicto. In fact, as early as December, 1986, the PCGG and Benedicto had already
entered into temporary arrangements covering the management and operations of
Benedicto's media business - BBC Channel 2,IBC Channel 13, Sining Makulay (CATV),
and the Daily Express. No questions have been raised against the first two settlements.
The management issue at Broadcast City was decided by this Court in Benedicto vs.
Board of Administrators of Television Stations RPN, BBC and IBC (207 SCRA 659
[1992]).
Under the compromise agreement, Benedicto and his group-controlled corporations
ceded to the government certain pieces of property listed in Annex A of the agreement
and assigned or transferred whatever rights he may have, if any, to the government over
all corporate assets listed in Annex B of the agreement (pp. 115-125, Rollo in G.R. No.
108292).

The PCGG in turn, lifted the sequestrations over the property listed in Annex C (p. 125,
Rollo) as well as other assets mentioned in the agreement. The Government also extended
absolute immunity to Benedicto, members of his family, and officers and employees of
the listed corporations such that there would be no criminal investigation or prosecution
for acts or omissions prior to February 25, 1986 that may be alleged to have violated
penal laws, including Republic Act No. 3019, in relation to the acquisition of the assets
under the agreement.

The government agreed to recognize the constitutional right to travel of Mr. and Mrs.
Benedicto and to interpose no objections to the issuance or restoration of their passports
by the government office concerned.

According to the PCGG in G.R. No. 108292 and G.R. No. 108368, respondent court
committed grave abuse of discretion in approving an agreement containing provisions
contrary to law, morals, good customs, public policy, and public order. The PCGG
contends that its consent was obtained through fraud and misrepresentation; that it is not
in estoppel to question the validity of the agreement; and that the respondent court was
wrong in passing upon the PCGG's inability to return what was ceded to it should the
agreement be disapproved.

The authority of the PCGG to enter into compromise agreements in civil cases and to
grant immunity, under certain circumstances, in criminal cases is now settled and
established. In Republic of the Philippines and Jose O. Campos, Jr. vs. Sandiganbayan,
et al. (173 SCRA 72, [1989]), this Court categorically stated that amicable settlements
and compromises are not only allowed but actually encouraged in civil cases. A specific
grant of immunity from criminal prosecutions was also sustained. In Benedicto vs. Board
of Administrators of Television Stations RPN, BBC, and IBC (207 SCRA 659 [1992]), the
Court ruled that the authority of the PCGG to validly enter into compromise agreements
for the purpose of avoiding litigation or putting an end to one already commenced was
indisputable. The Court took cognizance of the fact that the compromise agreement
which is now the subject of the present petitions was pending before the Sandiganbayan
for determination and approval and, therefore, dismissed the petition directed against the
agreement's implementation and enforcement.

Since this Court specifically ordered the Sandiganbayan to act on the compromise
agreement between the PCGG and Benedicto, what remains to be done is to ascertain the
propriety of the action of the Sandiganbayan in approving the agreement, and the validity
of the agreement itself.

The Sandiganbayan stated in its decision that the contract on its face does not appear to
be contrary to law, morals, or public policy and that it was entered into freely and
voluntarily by the parties (p. 79, Rollo in G.R. No. 108292). There is no intimation of
vitiated consent on the part of the PCGG. On its finding that the compromise agreement
was entered into by the parties freely, voluntarily, and with full understanding of its
consequences, respondent court stated that the agreement is conclusive and binding upon
it.

We agree with the following observations of the Sandiganbayan:

A party that availed himself of and complied with the provisions of a judicial
compromise is under estoppel to question its validity. (Serrano vs. Miave, 13
SCRA 461). In a regime of law and order, repudiation of an agreement validly
entered into cannot be made without any ground or reason in law or in fact for
such repudiation. (Rodriguez vs. Alikpala, 57 SCRA 455).

It is in consequences of this that the Supreme Court in Mayuga vs. Court of

Appeals, 154 SCRA 309, held that a compromise upon its perfection became
binding upon the parties and has the effect and authority of res judicata even if
not judicially approved. (Italics supplied).

In this connection, therefore, We hold that plaintiff is in estoppel to question the

validity of the herein Compromise Agreement since it had already received
benefits thereunder, such as:

"1. Full take over and control of Oriental Petroleum shares of

stocks owned by Piedras Mining and the exercise by the latter company
of the pre-emptive rights granted by Oriental Petroleum. Said shares
have a total value now of P1,094,816,379.00 (P.0675 and P.0775/per A
and B shares, respectively.

2. Full take over, control and management of Broadcast City

(Channel 13) inspite of Supreme Court decision in G.A. No. L-87710
that the Board of Administration, created under Executive Order No. 11,
continued management is no longer legally possible, upon formal
representation and that Benedicto will comply fully with the terms and
conditions of the Compromise Agreement. Said assets have a total
estimated value of P450 million.

3. Complete turnover of California Overseas Bank, with capital

account of US$18 Million (P406 million), to the Philippine Government
which was in turn sold by the Philippine Government to the PNB.
 4. Receipt of US$16.271 million (P386.0 million —
P23.71/$1.00). The total value of the aforesaid assets transferred to the
Philippine Government amount to P2.336 Billion."

In Katipunan Labor Union vs. Caltex, 101 Phils. 1224, the Supreme Court,
through Justice J. B. L. Reyes, stated in effect that a compromise is governed by
the basic principle that the obligations arising therefrom have the force of law
between the parties (citing Article 1159, New Civil Code), which means that
neither party may unilaterally and upon his own exclusive volition escape his
obligation under the contract.

xxx xxx xxx

Since a compromise has, upon the parties and their successors-in-interest, the
effect of res judicata, it can only be rescinded on the ground of vitiated consent,
and, this is true even if the compromise turns out to be unsatisfactory to either
of the parties (Castro vs. Castro, 97 Phils. 705). By merely asking for a
renegotiation of the agreement, the PCGG herein has impliedly admitted that
the agreement is not contrary to law, public policy or morals nor was there any
circumstance which had vitiated or does now vitiate consent."

(Decision, pp. 26-27; pp. 104-105, Rollo in G.R. No. 108292).

In fact, the Court has consistently ruled that a party to a compromise cannot ask for a
rescission after it has enjoyed its benefits. Thus in Barairo vs. Mendoza (G.R. No. 82545,
May 15, 1989 Resolution), re-echoing 5 Ruling Case Law, 883 (1914) it was held:

Compromises are to be favored, without regard to the nature of the controversy

compromised. They cannot be set aside because the event shows all the gain to
have been on one side, and all the sacrifice on the other, if the parties have acted
in good faith and with a belief of the actual existence of a settlement be made,
free from fraud or mistake, whereby there is a surrender or satisfaction, in whole
or in part, of a claim upon one side in exchange for or in consideration of a
surrender of value, upon the other, however baseless may be the claim upon
either side or harsh the terms as to either of the parties, the other cannot
successfully impeach the agreement in a court of justice which re-echoed 5
Ruling Case Laws 883 (914).

And in Pasay City Government vs. CFI of Manila (132 SCRA 156 [1984]), was most
emphatic in ruling that a party to a compromise agreement cannot ask for its rescission
after it has enjoyed its benefits. Then Justice, later Chief Justice Makasiar had this to say:
—
 [I]t is obvious that the respondent-appellee did not only succeed in enforcing the
compromise but said plaintiff-appellee likewise wants to rescind the said
compromise. It is clear from the language of the law, specifically Article 2041
of the New Civil Code that one of the parties to a compromise has two options:
1) to enforce the compromise; or 2) to rescind the same and insist upon his
original demand. The respondent-appellee in the case herein before Us wants to
avail of both of these options. This can not be done. The respondent-appellee
cannot ask for rescission of the compromise agreement after it has already
enjoyed the first option of enforcing the compromise by asking for a writ of
execution resulting thereby in the garnishment of the Pasay City funds deposited
with the Philippine National Bank which eventually was delivered to the
respondent-appellee. (at p. 168).

It is equally puerile for the PCGG to contend that the agreement is congenitally defective
from the mere happenstance that the agreement was not authenticated before the consular
officials abroad and without the participation of witnesses and of the Solicitor General.
While the rule of lex loci celeborationis generally governs forms and solemnities of
contracts under Article 17 of the Civil Code (Vitug, Compendium of Civil Law and
Jurisprudence, 1986 First ed., p. 11), the principle of lex rei sitae generally applies with
respect to formalities for the acquisition, encumbrance, and alienation of real and
personal property (1 Paras, Civil Code of the Philippines annotated, 1989 12th ed., p.
107). And relative to this precept on lex situs, Philippine substantive law is certainly clear
on the matter that contracts are obligatory, in whatever form they may have been entered
into, subject to the existence of all the essential requisites for their validity (Article 1356,
New Civil Code). The fact that the compromise agreement was not authenticated before
the consular officers abroad, as well as the absence of witnesses, cannot be of much legal
significance under Philippine law inasmuch as the requirement under Article 1358(a) of
the Civil Code, that a contract intended to extinguish or transmit real rights over the
immovables must be in a public document is merely designed for greater efficacy or
convenience (4 Tolentino, Commentaries and Jurisprudence on the Civil Code of the
Philippines, 1991 ed., p. 546).

Neither does the absence of the Solicitor General's participation render the agreement
invalid since under both Executive Order No. 2 and Executive Order No. 14-A, it is the
PCGG which has been "primarily charged" with the responsibility of recovering illegally
acquired or misappropriated assets. It should perhaps be recalled at this juncture that it
was during this period that the OSG withdrew as counsel in PCGG cases, compelling the
latter to hire high-priced and supposedly competent lawyers of its own. Indeed, these
events were the backdrop of the widely acclaimed and erudite decision penned by Justice
Flerida Ruth P. Romero wherein the OSG was advised of its duties, the scope of its
authority, the mandate of its office, and thence ordered to re-enter its appearance in
PCGG cases. In fine, the OSG is the least qualified agency to raise the argument that it
had no participation in the agreement. LibLex
The PCGG submits the notion that Benedicto can renege on his undertaking because the
compromise does not have a clause for breach of warranty. Again, we must point out that
the insinuation (p. 30, Petition; p. 35, Rollo in G.R. No. 108292) along this line is
uncalled for due to the language of Paragraph 4:

IV. Cooperation in Preservation/Recovery Efforts.

The parties herein hereby undertake to cooperate with each other in the
preservation or recovery of sequestered properties and business, including joint
action or defense in the enforcement or resistance as the case may be, or claims
affecting the sequestered properties and businesses involved in this Agreement.
prLL

as well of Paragraph 6 of the Compromise Agreement:

VI. Further Acts/Documents.

Each party to this Agreement agrees to perform such other and further acts and
authorizations, including the execution and delivery of such other and further
documents as may be reasonably necessary to carry out the provisions of this
Agreement.

which serve as built-in safeguards against amnesia, so to speak, and possible

repudiation. At any rate, and assuming in gratia argumenti that a breach occurs, the
remedy of the PCGG is clearly set forth in Article 2041 of the Civil Code:

Art. 2041. If one of the parties fails or refuses to abide by the compromise, the
other party may either enforce the compromise or regard it as rescinded and
insist upon his original demand.

It is advocated by the PCGG that respondent Benedicto retaining a portion of the assets is
anathema to, and incongruous with, the zero-retention policy of the government in the
pursuit for recovery of all ill-gotten wealth pursuant to Section 2(a) of Executive Order
No. 1. While full recovery is ideal, the PCGG is not precluded from entering into a
compromise agreement which entails reciprocal concessions if only to expedite recovery
so that the remaining "funds, assets and other properties may be used to hasten national
economic recovery" (3rd WHEREAS clause, Executive Order No. 14-A). To be sure, the
so-called zero retention mentioned in Section 2(a) of Executive Order No. 1 had been
modified to read:

WHEREAS, the Presidential Commission on Good Government was created on

February 28, 1986 by Executive Order No. 1 to assist the President in the
recovery of ill-gotten wealth accumulated by former President Ferdinand E.
Marcos, his immediate family, relatives, subordinates and close associates;
 which undoubtedly suggests a departure from the former goal of total restitution.

Contrary to the PCGG's observation that the value of the assets ceded by Benedicto
should have been reflected in the contract, Section 5 of Executive Order No. 14-A does
not seem to impose such an element as a condition sine qua non to the validity of a
projected settlement. Information as to net worth of Benedicto's assets need not be stated
in the four corners of the agreement since his duty to disclose all his property is supposed
to be made before the PCGG or to the Sandiganbayan when called upon to testify as a
vital witness on other ill-gotten wealth cases under Section 5 of EO 14-A. It is needless to
stress that the series of negotiations which culminated in the signing of the agreement on
November 3, 1990 afforded every opportunity for Benedicto to reveal his assets for the
PCGG's evaluation in conjunction with its general function to collate evidence relative to
ill-gotten wealth (Bataan Shipyard and Engineering Co., Inc. vs. PCGG (150 SCRA 181
[1987]).

The fact that certain details peculiar in other compromise agreements, such as those
found in the Fonacier, Razon and Floirendo deals, are not reflected in the Benedicto
agreement does not mean that the settlement is susceptible to challenge, especially so
when the PCGG itself concedes that any future agreement need not follow the pattern
fixed in previous contracts (p. 33, Petition; p. 38, Rollo in G.R. No. 108292).

To support the thesis that the agreement per se is contrary to law, the PCGG shifts
discussion to the salient portions of Republic Act No. 3019, the Anti-Graft and Corrupt
Practices Act, particularly those with respect to acts allegedly causing undue injury to the
government, resulting into a manifestly disadvantageous contract and leading to
unwarranted privileges (p. 35, Petition; p. 40, Rollo in G.R. No. 108292). But these
assumptions remain mere verisimilitudes, unsupported by evidence that indeed the
contract was entered into under circumstances which would invite reasonable suspicion
of bad faith on the part of those privy thereto.
Cdpr

To backtrack from the effects of the settlement, the PCGG relies on the principle that the
State is never estopped by acts of its agents, as applied in cases which require no citation,
and as affirmed by Section 15, Article 11 of the 1987 Constitution:

The right of the State to recover properties unlawfully acquired by public

officials or employees, from them or from their nominees or transferees, shall
not be barred by prescription, laches, or estoppel.

We agree with the statement that the State is immune from estoppel but this concept is
understood to refer to acts and mistakes of its officials especially those which are
irregular (Sharp International Marketing vs. Court of Appeals, 201 SCRA 299; 306
[1991]; Republic vs. Aquino, 120 SCRA 186 [1983], which peculiar circumstances are
absent in the case at bar. Although the State's right of action to recover ill-gotten wealth
is not vulnerable to estoppel, it is non-sequitur to suggest that a contract, freely and in
good faith executed between the parties thereto is susceptible to disturbance ad infinitum.
A different interpretation will lead to the absurd scenario of permitting a party to
unilaterally jettison a compromise agreement which is supposed to have the authority of
res judicata (Article 2037, New Civil Code), and like any other contract, has the force of
law between privies thereto (Article 1159, New Civil Code; Hernaez vs. Kao, 17 SCRA
296 [966]; 6 Padilla, Civil Code annotated, 7th ed., 1987, p. 711; 3 Aquino, Civil Code,
1990 ed., p. 463). Thus, as emphasized by Justice Escareal in Civil Case No. 0034:

Viewed against the backdrop of the foregoing factual antecedents and legal
principles, We are of the considered opinion that new PCGG Chairman
Magtanggol C. Gunigundo lacks the legal and moral authority to overturn and
set aside a previous valid and authorized contract/transaction entered into by his
predecessor in behalf of the Republic. To rule otherwise is to sanction an
unlawful betrayal by one party of the trust and confidence reposed by the other.
It must be noted that the parties to the Agreement are plaintiff Republic of the
Philippines, as represented by the PCGG, and defendant Roberto S. Benedicto,
not anybody else. With this basic premise, it logically follows that after the due
execution of the Agreement by and between PCGG, as representative of
plaintiff Republic of the Philippines, and defendant Benedicto, the same has
acquired a binding and res judicata effect as against the parties thereto. Perforce,
any change in the administrative structure and/or personalities within the PCGG
cannot defeat the validity and binding effect thereof between the parties. A
ruling to the contrary is not only illogical and irrational, but inequitable and
pernicious as well, for it may open the door for capricious adventurism on the
part of the policy-makers of the land, and disregard for the majesty of the law,
which could ultimately bring about the citizenry's loss of faith and confidence in
the sincerity of the government in its dealings with the governed.

(p. 115-116, G.R. No. 108368).

Within the context of the Civil Code, the principle of estoppel under Article 1431 is only
of suppletory application insofar as they are not in direct friction with other provisions of
the Code, such as the binding effect of a compromise agreement under Article 2037, the
Code of Commerce, the Rules of Court and special laws (Article 1432, New Civil Code;
4 Paras, Civil Code Annotated, 12th ed., 1989, p. 172). The real office of the equitable
norm of estoppel is limited to supply deficiency in the law but it should not supplant
positive law.LexLib

Furthermore, this Court will reject a settlement only if it contravenes Article 2035 of the
Civil Code (prohibiting compromises on the civil status of persons, the validity of
marriage or a legal separation, or any ground for such separation, future support, the
jurisdiction of courts, and future legitime) or if the stipulations thereof are repugnant to
law, morals, good customs, public order, or public policy (First Philippine Holdings
Corp. vs. Sandiganbayan, 202 SCRA 212 [1991]).

The Sandiganbayan stated in its questioned decision that "the essence of compromise
being mutual concessions by the parties to avoid or end litigation, it is to be expected that
neither will be able to maintain his initial demands wholly unaltered" (Periquet vs. Reyes,
21 SCRA 1503 [1967]). As succinctly stated by Justice Cipriano A. del Rosario in his
concurring opinion, any compromise has at its very essence reciprocal concessions; that
"One must give if one must take. If only one takes all, then one must first win. But in a
compromise, all win by taking some and giving some" (p. 108, Rollo in G.R. No.
108292). cdphil

The arguments that the compromise is too one-sided in favor of Benedicto and that undue
injury has been caused to the Government while unwarranted benefits and advantages
have been given to Mr. Benedicto, his family, and employees contrary to Republic Act
No. 3019, have no merit.

The compromise agreement was the result of a long drawnout process of negotiations
with each party trying to come out as best as it could. There can be no question of its
being freely and voluntarily entered into by the then PCGG Chairman with full authority
from the Commission itself.

The Sandiganbayan had ample opportunity to examine the validity of the compromise
agreement and to look into any iniquitous or illegal features, express, implied, or hidden.
Two years elapsed from the time the agreement was executed up to the time it was
judicially approved. The joint motion to approve the compromise agreement filed by the
PCGG and Benedicto dated November 22, 1990 was followed seven days later by an
opposition from Solicitor General Frank Chavez. Comments, replies, various motions, a
temporary restraining order of the Court in Guingona vs. PCGG and our decision in that
case - 207 SCRA 659 (1992), memoranda, hearings set for August 11, 1992, September
1, 1992, and September 17, 1992, oppositions, manifestations, and the September 17,
1992 resolution of the Sandiganbayan preceded its now questioned October 2,1992
decision. Every question regarding the legality and propriety of the compromise
agreement was fully threshed out before the Sandiganbayan by the parties. We are not
dealing with the usual compromise agreement perfunctorily submitted to a court and
approved as a matter of course. The PCGG-Benedicto agreement was thoroughly and, at
times, disputatiously discussed before the respondent court. There could be no deception
or misrepresentation foisted on either the PCGG or the Sandiganbayan.

In Araneta vs. Perez(7 SCRA 923 [1963]), we ruled that a compromise once approved by
final orders of the court has the force of res judicata between the parties and should not
be disturbed except for vices of consent or forgery. It is a long established doctrine that
the law does not relieve a party from the effects of an unwise, foolish, or disastrous
contract, entered into with all the required formalities and with full awareness of what he
was doing (Tanda vs. Aldaya, 89 Phil. 497 [1951]). Courts have no power to relieve
parties from obligations voluntarily assumed, simply because their contracts turned out to
be disastrous deals or unwise investments (Villacorte vs. Mariano, 89 Phil. 341 [1951]).

In the case at bar, the compromise agreement, as stated by Sandiganbayan, was signed
and executed by the parties "with their eyes wide open" (Decision, p. 23; p. 101, Rollo in
G.R. No. 108292). The PCGG knew the strength of the evidence in its hands, the
advantages of immediate recovery, the projected income if forthwith privatized, and other
benefits to the Government. The Sandiganbayan itself in two years of proceedings and
deliberations rejected the allegations of fraud, deception, illegality, and contrariness to
morals, good customs, public policy and public order now raised again before us.

There is another aspect of these petitions presented by petitioners which appears

inconsistent and infeasible. The original prayer of the new PCGG Chairman was to
"renegotiate a more just, fair and equitable agreement" (Annex G of Petition in G.R. No.
108292, p. 191, Rollo). At the risk of being redundant, we once again must emphasize
that the government has already taken over everything ceded to it by Benedicto. In fact, it
is already selling if it has not yet sold various ceded property under the privatization
program. In other words, the agreement has not only been executed, it has been
implemented. Even as the PCGG seeks to nullify and declare void the compromise
agreement, it has no intention of returning any of the pieces of property which it received
under the agreement. It states that the rules on the question of "restitution" are not those
on rescissible contracts but those on void and inexistent contracts in the Civil Code.

The PCGG seemingly forgets that the ownership of the ceded property has been vested in
the government not because it won its cases in the courts and the true ownership or illegal
acquisition has been definitively established. It cannot assume that its allegations have
been sustained by the Sandiganbayan. Ownership has been transferred because of the
compromise agreement, not because of any evidence presented in court by either side on
the merits or demerits of the reconveyance and reversion cases. LexLib

The Compromise Agreement itself declares:

WHEREAS, following the termination of the United States and Swiss cases,
and also without admitting the merits of their respective claims and
counterclaims presently involved in uncertain, protracted, and expensive
litigation, the Republic of the Philippines, solely motivated by the desire for
immediate accomplishment of its recovery mission and Mr. Benedicto, being
interested to lead a peaceful and normal pursuit of his endeavors, the parties
have decided to withdraw and/or dismiss their mutual claims and counterclaims
under the cases pending in the Philippines earlier referred to;
In other words, the Government wanted to recover as much as it could and as fast as
possible while Benedicto wanted to buy peace without admitting guilt. If the PCGG
wants to nullify the agreement it entered into freely and voluntarily, it must be willing to
return all the property ceded to it because of the Agreement and recover them by proving
its cases in the course of judicial proceedings. This is an essential first step. It cannot
renege on the agreement while holding on to property which it received as a result of said
agreement. Cdpr

More than any person or institution, the government should honor its solemn
commitments. It would set a bad precedent and result in public disenchantment with
government if every new head of a government agency is allowed to freely disown the
legitimate agreements of his predecessors, especially those bearing court approval and,
even as everything is already final and implemented, insist on further rounds of
negotiations. Under the PCGG's theory, there would be nothing to prevent any of its
future Chairman from repudiating and revoking acts of his predecessors. The vital
element of trust, honor, and stability in dealing with the government would be lost.

The petitioners in G.R. Nos. 108548-49 and 108550 filed their petitions to set aside the
denial of their motion to intervene. They raise essentially the same grounds as the PCGG
in the two other cases in their bid to set aside the compromise agreement. According to
said petitioners, they are intervening because Benedicto should compensate them and the
sugar industry for the systematic plunder of the industry. We agree with the
Sandiganbayan that their rights can be fully protected in a separate proceeding.

There is no doubt that interested parties who claim ownership of some assets embraced in
the settlement can participate in pending litigations involving ill-gotten wealth before the
Sandiganbayan as held in Republic vs. Sandiganbayan (184 SCRA 382 [1990]) with
reference to incidents arising from, incidental to, or interwoven with, cases falling within
respondent court's exclusive and original jurisdiction (PCGG vs. Peña, 159 SCRA 556
[1988]). But inasmuch as the petitioners in G.R. No. 108548-50 filed their motion for
leave to intervene and to admit memorandum in intervention on November 13, 1992 (p.
7, Petition; p. 8, Rollo in G.R. No. 108548-49; p. 7, Petition; p. 7, Rollo in G.R. No.
108550) or after promulgation of the impugned decision on October 2,1992, it cannot be
gainsaid that the intended intrusion was not seasonably raised before or during the trial
spoken of by Section 2,Rule 12 of the Revised Rules of Court, to wit:

Sec. 2 — Intervention — A person may, before or during a trial, be permitted

by the court, in its discretion to intervene in an action, if he has legal interest in
the matter in litigation, or in the success of either of the parties, or an interest
against both, or when he is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the court or of an
officer thereof.
 At any rate, availability of a separate proceeding for petitioners as third persons to the
compromise agreement before the Sandiganbayan, in accordance with the ruling of
this Court in Republic vs. Sandiganbayan (184 SCRA 382 [1990]) and in PCGG vs.
Peña (159 SCRA 556 [1988]), proscribes intervention under Section 2(b), Rule 12 of
the Revised Rules of Court:

Sec. 2(b) — Discretion of court — In allowing or disallowing a motion for

intervention, the court, in the exercise of discretion, shall consider whether or
not the intervention will unduly delay or prejudice the adjudication of the rights
of the original parties and whether or not the intervenor's rights may be fully
protected in a separate proceeding.cdphil

WHEREFORE, the petitions in G.R. No. 108292, 108368, 108548-49, and 108550 are
hereby dismissed. The restraining orders issued in the respective cases dated March 10,
1993, March 23, 1993, and March 24, 1993, are hereby lifted and the parties to the
compromise agreement are ordered to comply strictly with the terms thereof.

SO ORDERED.

Narvasa, C .J ., Cruz, Padilla, Bidin, Griño-Aquino, Regalado, Davide, Jr., Romero,

Nocon, Bellosillo, Puno and Vitug, JJ ., concur.

Feliciano, J ., is on leave.

EN BANC

[G.R. No. 92013. July 25, 1990.]

SALVADOR H. LAUREL, petitioner, vs. RAMON GARCIA, as head of

the Asset Privatization Trust, RAUL MANGLAPUS, as Secretary of
Foreign Affairs, and CATALINO MACARAIG, as Executive Secretary,
respondents.

[G.R. No. 92047. July 25, 1990.]

DIONISIO S. OJEDA, petitioner, vs. EXECUTIVE SECRETARY

MACARAIG, JR., ASSETS PRIVATIZATION TRUST CHAIRMAN
RAMON T. GARCIA, AMBASSADOR RAMON DEL ROSARIO, et al.,
as members of the PRINCIPAL AND BIDDING COMMITTEES ON
THE UTILIZATION/DISPOSITION OF PHILIPPINE GOVERNMENT
PROPERTIES IN JAPAN, respondents.
Arturo M. Tolentino for petitioner in 92013.

DECISION

GUTIERREZ, JR., J : p

These are two petitions for prohibition seeking to enjoin respondents, their
representatives and agents from proceeding with the bidding for the sale of the 3,179
square meters of land at 306 Ropponggi, 5-Chome Minato-ku, Tokyo, Japan scheduled
on February 21, 1990. We granted the prayer for a temporary restraining order effective
February 20, 1990. One of the petitioners (in G.R. No. 92047) likewise prayer for a writ
of mandamus to compel the respondents to fully disclose to the public the basis of their
decision to push through with the sale of the Roppongi property inspite of strong public
opposition and to explain the proceedings which effectively prevent the participation of
Filipino citizens and entities in the bidding process.

The oral arguments in G.R. No. 92013, Laurel v. Garcia, et al. were heard by the Court
on March 13, 1990. After G.R. No. 92047, Ojeda v. Secretary Macaraig, et al. was filed,
the respondents were required to file a comment by the Court's resolution dated February
22, 1990. The two petitions were consolidated on March 27, 1990 when the memoranda
of the parties in the Laurel case were deliberated upon.

The Court could not act on these cases immediately because the respondents filed a
motion for an extension of thirty (30) days to file comment in G.R. No. 92047, followed
by a second motion for an extension of another thirty (30) days which we granted on May
8, 1990, a third motion for extension of time granted on May 24, 1990 and a fourth
motion for extension of time which we granted on June 5, 1990 but calling the attention
of the respondents to the length of time the petitions have been pending. After the
comment was filed, the petitioner in G.R. No. 92047 asked for thirty (30) days to file a
reply. We noted his motion and resolved to decide the two (2) cases. LexLib

The subject property in this case is one of the four (4) properties in Japan acquired by the
Philippine government under the Reparations Agreement entered into with Japan on May
9, 1956, the other lots being:

(1) The Nampeidai Property at 11-24 Nampeidai-machi, Shibuya-ku,

Tokyo which has an area of approximately 2,489.96 square meters,
and is at present the site of the Philippine Embassy Chancery;
 (2) The Kobe Commercial Property at 63 Naniwa-cho, Kobe, with an area
of around 764.72 square meters and categorized as a commercial
lot now being used as a warehouse and parking lot for the
consulate staff; and

(3) The Kobe Residential Property at 1-980-2 Obanoyamacho, Shinohara,

Nada-ku, Kobe, a residential lot which is now vacant.

The properties and the capital goods and services procured from the Japanese government
for national development projects are part of the indemnification to the Filipino people
for their losses in life and property and their suffering during World War II.

The Reparations Agreement provides that reparations valued at $550 million would be
payable in twenty (20) years in accordance with annual schedules of procurements to be
fixed by the Philippine and Japanese governments (Article 2, Reparations Agreement).
Rep. Act. No. 1789, the Reparations Law, prescribes the national policy on procurement
and utilization of reparations and development loans. The procurements are divided into
those for use by the government sector and those for private parties in projects as the
then National Economic Council shall determine. Those intended for the private sector
shall be made available by sale to Filipino citizens or to one hundred (100%) percent
Filipino-owned entities in national development projects.

The Roppongi property was acquired from the Japanese government under the Second
Year Schedule and listed under the heading "Government Sector", through Reparations
Contract No. 300 dated June 27, 1958. The Roponggi property consists of the land and
building "for the Chancery of the Philippine Embassy" (Annex M-D to Memorandum for
Petitioner, p. 503). As intended, it became the site of the Philippine Embassy until the
latter was transferred to Nampeidai on July 22, 1976 when the Roppongi building needed
major repairs. Due to the failure of our government to provide necessary funds, the
Roppongi property has remained undeveloped since that time.

A proposal was presented to President Corazon C. Aquino by former Philippine

Ambassador to Japan, Carlos J. Valdez, to make the property the subject of a lease
agreement with a Japanese firm — Kajima Corporation — which shall construct two (2)
buildings in Roppongi and one (1) building in Nampeidai and renovate the present
Philippine Chancery in Nampeidai. The consideration of the construction would be the
lease to the foreign corporation of one (1) of the buildings to be constructed in Roppongi
and the two (2) buildings in Nampeidai. The other building in Roppongi shall then be
used as the Philippine Embassy Chancery. At the end of the lease period, all the three
leased buildings shall be occupied and used by the Philippine government. No change of
ownership or title shall occur. (See Annex "B" to Reply to Comment) The Philippine
government retains the title all throughout the lease period and thereafter. However, the
government has not acted favorably on this proposal which is pending approval and
ratification between the parties. Indeed, on August 11, 1986, President Aquino created a
committee to study the disposition/utilization of Philippine government properties in
Tokyo and Kobe, Japan through Administrative Order No. 3, followed by Administrative
Orders Numbered 3-A, B, C and D.

On July 25, 1987, the President issued Executive Order No. 296 entitling non-Filipino
citizens or entities to avail of reparations' capital goods and services in the event of sale,
lease or disposition. The four properties in Japan including the Roppongi were
specifically mentioned in the first "Whereas" clause.

Amidst opposition by various sectors, the Executive branch of the government has been
pushing, with great vigor, its decision to sell the reparations properties starting with the
Roppongi lot. The property has twice been set for bidding at a minimum floor price at
$225 million. The first bidding was a failure since only one bidder qualified. The second
one, after postponements, has not yet materialized. The last scheduled bidding on
February 21, 1990 was restrained by his Court. Later, the rules on bidding were changed
such that the $225 million floor price became merely a suggested floor price. cdrep

The Court finds that each of the herein petitions raises distinct issues. The petitioner in
G.R. No. 92013 objects to the alienation of the Roppongi property to anyone while the
petitioner in G.R. No. 92047 adds as a principal objection the alleged unjustified bias of
the Philippine government in favor of selling the property to non-Filipino citizens and
entities. These petitions have been consolidated and are resolved at the same time for the
objective is the same — to stop the sale of the Roppongi property.

The petitioner in G.R. No. 92013 raises the following issues:

(1) Can the Roppongi property and others of its kind be alienated by the
Philippine Government?; and

(2) Does the Chief Executive, her officers and agents, have the authority
and jurisdiction, to sell the Roppongi property?

Petitioner Dionisio Ojeda in G.R. NO. 92047, apart from questioning the authority of the
government to alienate the Roppongi property assails the constitutionality of Executive
Order No. 296 in making the property available for the sale to non-Filipino citizens and
entities. He also questions the bidding procedures of the Committee on the Utilization or
Disposition of Philippine Government Properties in Japan for being discriminatory
against Filipino citizens and Filipino-owned entities by denying them the right to be
informed about the bidding requirements.

II
In G.R. No. 92013, petitioner Laurel asserts that the Roppongi property and the related
lots were acquired as part of the reparations from the Japanese government for diplomatic
and consular use by the Philippine government. Vice-President Laurel states that the
Roppongi property is classified as one of public dominion, and not of private ownership
under Article 420 of the Civil Code (See infra).

The petitioner submits that the Roppongi property comes under "property intended for
public service" in paragraph 2 of the above provision. He states that being one of public
dominion, no ownership by any one can attach to it, not even by the State. The Roppongi
and related properties were acquired for "sites for chancery, diplomatic, and consular
quarters, buildings and other improvements" (Second Year Reparations Schedule). The
petitioner states that they continue to be intended for a necessary service. They are held
by the State in anticipation of an opportune use. (Citing 3 Manresa 65-66). Hence, it
cannot be appropriated, is outside the commerce of man, or to put it in more simple
terms, it cannot be alienated nor be the subject matter of contracts (Citing Municipality of
Cavite v. Rojas, 30 Phil. 20 [1915]). Noting the non-use of the Roppongi property at the
moment, the petitioner avers that the same remains property of public dominion so long
as the government has not used it for other purposes nor adopted any measure
constituting a removal of its original purpose or use.

The respondents, for their part, refute the petitioner's contention by saying that the subject
property is not governed by our Civil Code but by the laws of Japan where the property is
located. They rely upon the rule of lex situs which is used in determining the applicable
law regarding the acquisition, transfer and devolution of the title to a property. They also
invoke Opinion No. 21, Series of 1988, dated January 27, 1988 of the Secretary of Justice
which used the lex situs in explaining the inapplicability of Philippine law regarding a
property situated in Japan.

The respondents add that even assuming for the sake of argument that the Civil Code is
applicable, the Roppongi property has ceased to become property of public dominion. It
has become patrimonial property because it has not been used for public service or for
diplomatic purposes for over thirteen (13) years now (Citing Article 422, Civil Code) and
because the intention by the Executive Department and the Congress to convert it to
private use has been manifested by overt acts, such as, among others; (1) the transfer of
the Philippine Embassy to Nampeidai; (2) the issuance of administrative orders for the
possibility of alienating the four government properties in Japan; (3) the issuance of
Executive Order No. 296; (4) the enactment by the Congress of Rep. Act No. 6657 [the
Comprehensive Agrarian Reform Law] on June 10, 1988 which contains a provision
stating that funds may be taken from the sale of Philippine properties in foreign countries;
(5) the holding of the public bidding of the Roppongi property but which failed; (6) the
deferment by the Senate in Resolution No. 55 of the bidding to a future date; thus an
acknowledgment by the Senate of the government's intention to remove the Roppongi
property from the public service purpose; and (7) the resolution of this Court dismissing
the petition in Ojeda v. Bidding Committee, et al., G.R. No. 87478 which sought to enjoin
the second bidding of the Roppongi property scheduled on March 30, 1989.

III

In G.R. No. 94047, petitioner Ojeda once more asks this Court to rule on the
constitutionality of Executive Order No. 296. He had earlier filed a petition in G.R. No.
87478 which the Court dismissed on August 1, 1989. He now avers that the executive
order contravenes the constitutional mandate to conserve and develop the national
patrimony stated in the Preamble of the 1987 Constitution. It also allegedly violates:

(1) The reservation of the ownership and acquisition of alienable lands of

the public domain to Filipino citizens. (Sections 2 and 3, Article
XII, Constitution; Section 22 and 23 of Commonwealth Act 141).

(2) The preference for Filipino citizens in the grant of rights, privileges
and concessions covering the national economy and patrimony
(Section 10, Article VI, Constitution);

(3) The protection given to Filipino enterprises against unfair competition

and trade practices;

(4) The guarantee of the right of the people to information on all matters
of public concern (Section 7, Article III, Constitution);

(5) The prohibition against the sale to non-Filipino citizens or entities not
wholly owned by Filipino citizens of capital goods received by the
Philippines under the Reparations Act (Sections 2 and 12 of Rep.
Act No. 1789); and

(6) The declaration of the state policy of full public disclosure of all
transactions involving public interest (Sections 28, Article II,
Constitution).

Petitioner Ojeda warns that the use of public funds in the execution of an unconstitutional
executive order is a misapplication of public funds. He states that since the details of the
bidding for the Roppongi property were never publicly disclosed until February 15, 1990
(or a few days before the scheduled bidding), the bidding guidelines are available only in
Tokyo, and the accomplishment of requirements and the selection of qualified bidders
should be done in Tokyo, interested Filipino citizens or entities owned by them did not
have the chance to comply with Purchase Offer Requirements on the Roppongi. Worse,
the Roppongi shall be sold for a minimum price of $225 million from which price capital
gains tax under Japanese law of about 50 to 70% of the floor price would still be
deducted. cdll

IV

The petitioners and respondents in both cases do not dispute the fact that the Roppongi
site and the three related properties were acquired through reparations agreements, that
these were assigned to the government sector and that the Roppongi property itself was
specifically designated under the Reparations Agreement to house the Philippine
Embassy.

The nature of the Roppongi lot as property for public service is expressly spelled out. It is
dictated by the terms of the Reparations Agreement and the corresponding contract of
procurement which bind both the Philippine government and the Japanese government.

There can be no doubt that it is of public dominion unless it is convincingly shown that
the property has become patrimonial. This, the respondents have failed to do.

As property of public dominion, the Roppongi lot is outside the commerce of man. It
cannot be alienated. Its ownership is a special collective ownership for general use and
enjoyment, an application to the satisfaction of collective needs, and resides in the social
group. The purpose is not to serve the State as a juridical person, but the citizens; it is
intended for the common and public welfare and cannot be the object of appropriation.
(Taken from 3 Manresa, 66-69; cited in Tolentino, Commentaries on the Civil Code of
the Philippines, 1963 Edition, Vol. II, p. 26).

The applicable provisions of the Civil Code are:

"ART. 419. Property is either of public dominion or of private ownership.

"ART. 420. The following things are property of public dominion:

"(1) Those intended for public use, such as roads, canals, rivers, torrents, ports
and bridges constructed by the State, banks, shores, roadsteads, and others of
similar character;

(2) Those which belong to the State, without being for public use, and are
intended for some public service or for the development of the national wealth.

"ART. 421. All other property of the State, which is not of the character stated
in the preceding article, is patrimonial property."
The Roppongi property is correctly classified under paragraph 2 of Article 420 of the
Civil Code as property belonging to the State and intended for some public service.

Has the intention of the government regarding the use of the property been changed
because the lot has been idle for some years? Has it become patrimonial?

The fact that the Roppongi site has not been used for a long time for actual Embassy
service does not automatically convert it to patrimonial property. Any such conversion
happens only if the property is withdrawn from public use (Cebu Oxygen and Acetylene
Co. v. Bercilles, 66 SCRA 481 [1975]). A property continues to be part of the public
domain, not available for private appropriation or ownership "until there is a formal
declaration on the part of the government to withdraw it from being such (Ignacio v.
Director of Lands, 108 Phil. 335 [1960]).

The respondents enumerate various pronouncements by concerned public officials

insinuating a change of intention. We emphasize, however, that an abandonment of the
intention to use the Roppongi property for public service and to make it patrimonial
property under Article 422 of the Civil Code must be definite. Abandonment cannot be
inferred from the non-use alone specially if the non-use was attributable not to the
government's own deliberate and indubitable will but to a lack of financial support to
repair and improve the property (See Heirs of Felino Santiago v. Lazarao, 166 SCRA
368 [1988]). Abandonment must be a certain and positive act based on correct legal
premises. LexLib

A mere transfer of the Philippine Embassy to Nampeidai in 1976 is not relinquishment of

the Roppongi property's original purpose. Even the failure by the government to repair
the building in Roppongi is not abandonment since as earlier stated, there simply was a
shortage of government funds. The recent Administrative Orders authorizing a study of
the status and conditions of government properties in Japan were merely directives for
investigation but did not in any way signify a clear intention to dispose of the properties.

Executive Order No. 296, though its title declares an "authority to sell", does not have a
provision in this text expressly authorizing the sale of the four properties procured from
Japan for the government sector. The executive order does not declare that the properties
lost their public character. It merely intends to make the properties available to foreigners
and not to Filipinos alone in case of a sale, lease or other disposition. It merely eliminates
the restriction under Rep. Act. 1789 that reparations goods may be sold only to Filipino
citizens and one hundred (100%) percent Filipino-owned entities. The text of Executive
Order No. 296 provides:

"Section 1. The provisions of Republic Act No. 1789, as amended, and of other
laws to the contrary notwithstanding, the abovementioned properties can be
made available for sale, lease or any other manner of disposition to non-Filipino
citizens or to entities owned by non-Filipino citizens."
Executive Order No. 296 is based on the wrong premise or assumption that the Roppongi
and the three other properties were earlier converted into alienable real properties. As
earlier stated, Rep. Act No. 1789 differentiates the procurements for the government
sector and the private sector (Sections 2 and 12, Rep. Act No. 1789). Only the private
sector properties can be sold to end-users who must be Filipinos or entities owned by
Filipinos. It is this nationality provision which was amended by Executive Order No. 296.

Section 63 (c) of Rep. Act No. 6657 (the CARP Law) which provides as one of the
sources of funds for its implementation, the proceeds of the disposition of the properties
of the Government in foreign countries, did not withdraw the Roppongi property from
being classified as one of public dominion when it mentions Philippine properties abroad.
Section 63 (c) refers to properties which are alienable and not to those reserved for public
use or service. Rep Act No. 6657, therefore, does not authorize the Executive Department
to sell the Roppongi property. It merely enumerates possible sources of future funding to
augment (as and when needed) the Agrarian Reform Fund created under Executive Order
No. 299. Obviously any property outside of the commerce of man cannot be tapped as a
source of funds.

The respondents try to get around the public dominion character of the Roppongi
property by insisting that Japanese law and not our Civil Code should apply.

It is exceedingly strange why our top government officials, of all people, should be the
ones to insist that in the sale of extremely valuable government property, Japanese law
and not Philippine law should prevail. The Japanese law — its coverage and effects,
when enacted, and exceptions to its provisions — is not presented to the Court. It is
simply asserted that the lex loci rei sitae or Japanese law should apply without stating
what that law provides. It is assumed on faith that Japanese law would allow the sale.

We see no reason why a conflict of law rule should apply when no conflict of law
situation exists. A conflict of law situation arises only when: (1) There is a dispute over
the title or ownership of an immovable, such that the capacity to take and transfer
immovables, the formalities of conveyance, the essential validity and effect of the
transfer, or the interpretation and effect of a conveyance, are to be determined (See
Salonga, Private International Law, 1981 ed., pp. 377-383); and (2) A foreign law on
land ownership and its conveyance is asserted to conflict with a domestic law on the
same matters. Hence, the need to determine which law should apply.

In the instant case, none of the above elements exists.

The issues are not concerned with validity of ownership or title. There is no question that
the property belongs to the Philippines. The issue is the authority of the respondent
officials to validly dispose of property belonging to the State. And the validity of the
procedures adopted to effect its sale. This is governed by Philippine Law. The rule of lex
situs does not apply.

The assertion that the opinion of the Secretary of Justice sheds light on the relevance of
the lex situs rule is misplaced. The opinion does not tackle the alienability of the real
properties procured through reparations nor the existence in what body of the authority to
sell them. In discussing who are capable of acquiring the lots, the Secretary merely
explains that it is the foreign law which should determine who can acquire the properties
so that the constitutional limitation on acquisition of lands of the public domain to
Filipino citizens and entities wholly owned by Filipinos is inapplicable. We see no point
in belaboring whether or not this opinion is correct. Why should we discuss who can
acquire the Roppongi lot when there is no showing that it can be sold?

The subsequent approval on October 4, 1988 by President Aquino of the recommendation

by the investigating committee to sell the Roppongi property was premature or, at the
very least, conditioned on a valid change in the public character of the Roppongi
property. Moreover, the approval does not have the force and effect of law since the
President already lost her legislative powers. The Congress had already convened for
more than a year.

Assuming for the sale of argument, however, that the Roppongi property is no longer of
public dominion, there is another obstacle to its sale by the respondents.

There is no law authorizing its conveyance.

Section 79 (f) of the Revised Administrative Code of 1917 provides:

"Section 79 (f). Conveyances and contracts to which the Government is a party.

— In cases in which the Government of the Republic of the Philippines is a
party to any deed or other instrument conveying the title to real estate or to any
other property the value of which is in excess of one hundred thousand pesos,
the respective Department Secretary shall prepare the necessary papers which,
together with the proper recommendations, shall be submitted to the Congress
of the Philippines for approval by the same. Such deed, instrument, or contract
shall be executed and signed by the President of the Philippines on behalf of the
Government of the Philippines unless the Government of the Philippines unless
the authority therefor be expressly vested by law in another officer." (Emphasis
supplied)

The requirement has been retained in Section 48, Book I of the Administrative Code of
1987 (Executive Order No. 292).
 "SEC. 48. Official Authorized to Convey Real Property. — Whenever real
property of the Government is authorized by law to be conveyed, the deed of
conveyance shall be executed in behalf of the government by the following:

"(1) For property belonging to and titled in the name of the Republic of the
Philippines, by the President, unless the authority therefor is expressly vested by
law in another officer.

"(2) For property belonging to the Republic of the Philippines but titled in the
name of any political subdivision or of any corporate agency or instrumentality,
by the executive head of the agency or instrumentality." (Emphasis supplied).

It is not for the President to convey valuable real property of the government on his or her
own sole will. Any such conveyance must be authorized and approved by a law enacted
by the Congress. It requires executive and legislative concurrence.

Resolution No. 55 of the Senate dated June 8, 1989, asking for the deferment of the sale
of the Roppongi property does not withdraw the property from public domain much less
authorize its sale. It is a mere resolution; it is not a formal declaration abandoning the
public character of the Roppongi property. In fact, the Senate Committee on Foreign
Relations is conducting hearings on Senate Resolution No. 734 which raises serious
policy considerations and calls for a fact-finding investigation of the circumstances
behind the decision to sell the Philippine government properties in Japan. LexLib

The resolution of this Court in Ojeda v. Bidding Committee, et al., supra, did not pass
upon the constitutionality of Executive Order No. 296. Contrary to respondents' assertion,
we did not uphold the authority of the President to sell the Roppongi property. The Court
stated that the constitutionality of the executive order was not the real issue and that
resolving the constitutional question was "neither necessary nor finally determinative of
the case." The Court noted that "[W]hat petitioner ultimately questions is the use of the
proceeds of the disposition of the Roppongi property." In emphasizing that "the decision
of the Executive to dispose of the Roppongi property to finance the CARP . . . cannot be
questioned" in view of Section 63 (c) of Rep. Act. No. 6657, the Court did not
acknowledge the fact that the property became alienable nor did it indicate that the
President was authorized to dispose of the Roppongi property. The resolution should be
read to mean that in case the Roppongi property is re-classified to be patrimonial and
alienable by authority of law, the proceeds of a sale may be used for national economic
development projects including the CARP.

Moreover, the sale in 1989 did not materialize. The petitions before us question the
proposed 1990 sale of the Roppongi property. We are resolving the issues raised in these
petitions, not the issues raised in 1989.
Having declared a need for a law or formal declaration to withdraw the Roppongi
property from public domain to make it alienable and a need for legislative authority to
allow the sale of the property, we see no compelling reason to tackle the constitutional
issue raised by petitioner Ojeda.

The Court does not ordinarily pass upon constitutional questions unless these questions
are properly raised in appropriate cases and their resolution is necessary for the
determination of the case (People v. Vera, 65 Phil. 56 [1937]). The Court will not pass
upon a constitutional question although property presented by the record if the case can
be disposed of on some other ground such as the application of a statute or general law
(Siler v. Louisville and Nashville R. Co., 213 U.S. 175, [1909], Railroad Commission v.
Pullman Co., 312 U.S. 496 [1941]).

The petitioner in G.R. No. 92013 states why the Roppongi property should not be sold:

The Roppongi property is not just like any piece of property. It was given to the
Filipino people in reparation for the lives and blood of Filipinos who died and
suffered during the Japanese military occupation, for the suffering of widows
and orphans who lost their loved ones and kindred, for the homes and other
properties lost by countless Filipinos during the war. The Tokyo properties are a
monument to the bravery and sacrifice of the Filipino people in the face of an
invader; like the monuments of Rizal, Quezon, and other Filipino heroes, we do
not expect economic or financial benefits from them. But who would think of
selling these monuments? Filipino honor and national dignity dictate that we
keep our properties in Japan as memorials to the countless Filipinos who died
and suffered. Even if we should become paupers we should not think of selling
them. For it would be as if we sold the lives and blood and tears of our
countrymen." (Rollo-G.R. No. 92013, p. 147).

The petitioner in G.R. No. 92047 also states:

"Roppongi is no ordinary property. It is one ceded by the Japanese government

in atonement for its past belligerence, for the valiant sacrifice of life and limb
and for deaths, physical dislocation and economic devastation the whole
Filipino people endured in World War II.

"It is for what it stands for, and for what it could never bring back to life, that its
significance today remains undimmed, inspite of the lapse of 45 years since the
war ended, inspite of the passage of 32 years since the property passed on to the
Philippine government.

"Roppongi is a reminder that cannot — should not — be dissipated. . . ." (Rollo-

92047, p. 9)
It is indeed true that the Roppongi property is valuable not so much because of the
inflated prices fetched by real property in Tokyo but more so because of its symbolic
value to all Filipinos — veterans and civilians alike. Whether or not the Roppongi and
related properties will eventually be sold is a policy determination where both the
President and congress must concur. Considering the properties' importance and value,
the laws on conversion and disposition of property of public dominion must be faithfully
followed.

WHEREFORE, IN VIEW OF THE FOREGOING, the petitions are GRANTED. A writ

of prohibition is issued enjoining the respondents from proceeding with the sale of the
Roppongi property in Tokyo, Japan. The February 20, 1990 Temporary Restraining
Order is made PERMANENT.

SO ORDERED.

Melencio-Herrera, Paras, Bidin, Griño-Aquino and Regalado, JJ., concur.

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.

SYLLABUS

1. REMEDIAL LAW; EVIDENCE; FOREIGN LAWS, HOW PROVED. — 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. 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.

2. ID.; ID.; ID.; U.S. LAW OR REGULATION AUTHORIZING OVERBOOKING,

NOT PROVED BY MERE TESTIMONY OF RESPONDENT'S AIRLINE CUSTOMER
SERVICE AGENT. — 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.

3. CIVIL LAW; APPLICATION OF LAWS; CONTRACT GOVERNED BY LAWS OF

PLACE WHERE EXECUTED; CASE AT BAR. — 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 requires 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.
Since the tickets were sold and issued in the Philippines, the applicable law in this case
would be Philippine law.

4. ID.; DAMAGES; OVERBOOKING AMOUNTS TO BAD FAITH ENTITLING

PASSENGERS TO AWARD OF MORAL DAMAGES. — Existing jurisprudence
explicitly states that overbooking amounts to bad faith, entitling the passengers concerned
to an award of moral damages. (Alitalia Airways v. Court of Appeals, G.R. No. 77011,
187 SCRA 763 [1990]; Korean Airlines Co., Ltd. v. Court of Appeals, G.R. No. 61418,
154 SCRA 211 [1987])

5. ID.; ID.; BREACH OF CONTRACT OF CARRIAGE AMOUNTS TO BAD FAITH.

— In fact, existing jurisprudence abounds with rulings where the breach of contract of
carriage amounts to bad faith. (Pan American World Airways, Inc. v. Intermediate
Appellate Court, G.R. No. 74442, 153 SCRA 521 [1987]) A contract to transport
passengers is quite different in kind and degree from any other contractual relation.
(Zulueta v. Pan American World Airways, Inc., G.R. No. L-28589, 43 SCRA 397 [1972]

6. ID.; ID.; NON-INCORPORATION OF STIPULATIONS ON OVERBOOKING AND

IN NOT INFORMING PASSENGERS OF ITS POLICY GIVING LESS PRIORITY TO
DISCOUNTED TICKET, CONSTITUTE BAD FAITH; PASSENGERS ENTITLED TO
BOTH MORAL AND EXEMPLARY DAMAGES; CASE AT BAR. — 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. Moreover, respondent TWA was
also guilty of not informing its passengers of its alleged policy of giving less priority to
discounted tickets. 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. However, the award for moral 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.

7. ID.; ID.; PASSENGER ENTITLED TO REIMBURSEMENT FOR COST OF

TICKETS BOUGHT FOR ANOTHER FLIGHT ON ANOTHER AIRLINE; CASE AT
BAR. — The respondent court erred, however, in not ordering the refund of the cost 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. 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, 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 on 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.
8. ID.; ID.; ATTORNEY'S FEES; RECOVERABLE WHERE A PARTY WAS
COMPELLED TO LITIGATE TO PROTECT HIS RIGHTS. — 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.

DECISION

NOCON, J : p

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 petitioners' 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.LLpr

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 from 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 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 that he was
holding his daughter's full-fare ticket.
LLphil

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; Cdpr

"(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 (250,000.00), 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. cdphil

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
plaintiffs the following amounts:

"(1) US$159.49, or its peso equivalent at the time of 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 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:cdrep

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. Cdpr

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
requires 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.

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 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. cdll

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
indeed a confirmed passenger and 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 plane,
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. LibLex

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. LexLib

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
arrangement. 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 cost 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 on 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. LLjur

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 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. LLjur

SO ORDERED.

FIRST DIVISION

[G.R. No. 124110. April 20, 2001.]

UNITED AIRLINES, INC., petitioner, vs. COURT OF APPEALS,

ANICETO FONTANILLA in his personal capacity and in behalf of
his minor son MYCHAL ANDREW FONTANILLA, respondents.

DECISION

KAPUNAN, J : p
On March 1, 1989, private respondent Aniceto Fontanilla purchased from petitioner
United Airlines, through the Philippine Travel Bureau in Manila, three (3) "Visit the
U.S.A." tickets for himself, his wife and his minor son Mychal for the following routes:

(a) San Francisco to Washington (15 April 1989);

(b) Washington to Chicago (25 April 1989);

(c) Chicago to Los Angeles (29 April 1989);

(d) Los Angeles to San Francisco (01 May 1989 for petitioner's wife and 05
May 1989 for petitioner and his son). 1

All flights had been confirmed previously by United Airlines. 2

The Fontanillas proceeded to the United States as planned, where they used the first
coupon from San Francisco to Washington. On April 24, 1989, Aniceto Fontanilla bought
two (2) additional coupons each for himself, his wife and his son from petitioner at its
office in Washington Dulles Airport. After paying the penalty for rewriting their tickets,
the Fontanillas were issued tickets with corresponding boarding passes with the words
"CHECK-IN REQUIRED," for United Airlines Flight No. 1108, set to leave from Los
Angeles to San Francisco at 10:30 a m. on May 5, 1989. 3

The cause of the non-boarding of the Fontanillas on United Airlines Flight No. 1108
makes up the bone of contention of this controversy.

Private respondents' version is as follows:

Aniceto Fontanilla and his son Mychal claim that on May 5, 1989, upon their arrival at
the Los Angeles Airport for their flight, they proceeded to United Airlines counter where
they were attended by an employee wearing a nameplate bearing the name "LINDA."
Linda examined their tickets, punched something into her computer and then told them
that boarding would be in fifteen minutes. 4

When the flight was called, the Fontanillas proceeded to the plane. To their surprise, the
stewardess at the gate did not allow them to board the plane, as they had no assigned seat
numbers. They were then directed to go back to the "check-in" counter where Linda
subsequently informed them that the flight had been overbooked and asked them to wait.
5

The Fontanillas tried to explain to Linda the special circumstances of their visit.
However, Linda told them in arrogant manner, "So what, I can not do anything about it."
6
Subsequently, three other passengers with Caucasian features were graciously allowed to
board, after the Fontanillas were told that the flight had been overbooked. 7

The plane then took off with the Fontanillas' baggage in tow, leaving them behind. 8

The Fontanillas then complained to Linda, who in turn gave them an ugly stare and
rudely uttered, "It's not my fault. It's the fault of the company. Just sit down and wait." 9
When Mr. Fontanilla reminded Linda of the inconvenience being caused to them, she
bluntly retorted, "Who do you think you are? You lousy Flips are good for nothing
beggars. You always ask for American aid." After which she remarked "Don' t worry
about your baggage. Anyway there is nothing in there. What are you doing here anyway?
I will report you to immigration. You Filipinos should go home." 10 Such rude statements
were made in front of other people in the airport causing the Fontanillas to suffer shame,
humiliation and embarrassment. The chastening situation even caused the younger
Fontanilla to break into tears. 11

After some time, Linda, without any explanation, offered the Fontanillas $50.00 each.
She simply said "Take it or leave it." This, the Fontanillas declined. 12

The Fontanillas then proceeded to the United Airlines customer service counter to plead
their case. The male employee at the counter reacted by shouting that he was ready for it
and left without saying anything. 13

The Fontanillas were not booked on the next flight, which departed for San Francisco at
11:00 am It was only at 12:00 noon that they were able to leave Los Angeles on United
Airlines Flight No. 803.

Petitioner United Airlines has a different version of what occurred at the Los Angeles
Airport on May 5, 1989.

According to United Airlines, the Fontanillas did not initially go to the check-in counter
to get their seat assignments for UA Flight 1108. They instead proceeded to join the
queue boarding the aircraft without first securing their seat assignments as required in
their ticket and boarding passes. Having no seat assignments, the stewardess at the door
of the plane instructed them to go to the check-in counter. When the Fontanillas
proceeded to the check-in counter, Linda Allen, the United Airlines Customer
Representative at the counter informed them that the flight was overbooked. She booked
them on the next available flight and offered them denied boarding compensation. Allen
vehemently denies uttering the derogatory and racist words attributed to her by the
Fontanillas. 14
The incident prompted the Fontanillas to file Civil Case No. 89-4268 for damages before
the Regional Trial Court of Makati. After trial on the merits, the trial court rendered a
decision, the dispositive portion of which reads as follows: TAaHIE

WHEREFORE, judgment is rendered dismissing the complaint. The

counterclaim is likewise dismissed as it appears that plaintiffs were not actuated
by legal malice when they filed the instant complaint. 15

On appeal, the Court of Appeals ruled in favor of the Fontanillas. The appellate court
found that there was an admission on the part of United Airlines that the Fontanillas did
in fact observe the check-in requirement. It ruled further that even assuming there was a
failure to observe the check-in requirement, United Airlines failed to comply with the
procedure laid down in cases where a passenger is denied boarding. The appellate court
likewise gave credence to the claim of Aniceto Fontanilla that the employees of United
Airlines were discourteous and arbitrary and, worse, discriminatory. In light of such
treatment, the Fontanillas were entitled to moral damages. The dispositive portion of the
decision of the respondent Court of Appeals dated 29 September 1995, states as follows:

WHEREFORE; in view of the foregoing, judgment appealed herefrom is hereby

REVERSED and SET ASIDE, and a new judgment is entered ordering
defendant-appellee to pay plaintiff-appellant the following:

a) P200,000.00 as moral damages;

b) P200,000.00 as exemplary damages;

c) P50, 000.00 as attorney's fees.

No pronouncement as to costs.

SO ORDERED. 16

Petitioner United Airlines now comes to this Court raising the following assignment of
errors:

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT THE TRIAL COURT WAS WRONG IN FAILING TO CONSIDER
THE ALLEGED ADMISSION THAT PRIVATE RESPONDENT
OBSERVED THE CHECK-IN REQUIREMENT.

II
 RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING
THAT PRIVATE RESPONDENT'S FAILURE TO CHECK-IN WILL NOT
DEFEAT HIS CLAIMS BECAUSE THE DENIED BOARDING RULES
WERE NOT COMPLIED WITH

III

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PRIVATE RESPONDENT IS ENTITLED TO MORAL DAMAGES
OF P200, 000.

IV

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PRIVATE RESPONDENT IS ENTITLED TO EXEMPLARY
DAMAGES OF P200, 000.

RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING

THAT PRIVATE RESPONDENT IS ENTITLED TO ATTORNEY'S FEES OF
P50, 000. 17

On the first issue raised by the petitioner, the respondent Court of Appeals ruled that
when Rule 9, Section 1 of the Rules of Court, 18 there was an implied admission in
petitioner's answer in the allegations in the complaint that private respondent and his son
observed the "check-in requirement at the Los Angeles Airport." Thus:

A perusal of the above pleadings filed before the trial court disclosed that there
exists a blatant admission on the part of the defendant-appellee that the
plaintiffs-appellants indeed observed the "check-in" requirement at the Los
Angeles Airport on May 5, 1989. In view of defendant-appellee's admission of
plaintiffs-appellants' material averment in the complaint, We find no reason
why the trial court should rule against such admission. 19

We disagree with the above conclusion reached by respondent Court of Appeals.

Paragraph 7 of private respondents' complaint states:

7. On May 5, 1989 at 9:45 am., plaintiff and his son checked in at defendant's
designated counter at the airport in Los Angeles for their scheduled flight to San
Francisco on defendant's Flight No. 1108. 20

Responding to the above allegations, petitioner averred in paragraph 4 of its answer, thus:
ScAIaT
 4. Admits the allegation set forth in paragraph 7 of the complaint except to deny
that plaintiff and his son checked in at 9:45 am., for lack of knowledge or
information at this point in time as to the truth thereof. 21

The rule authorizing an answer that the defendant has no knowledge or information
sufficient to form a belief as to the truth of an averment and giving such answer the effect
of a denial, does not apply where the fact as to which want of knowledge is asserted is so
plainly and necessarily within the defendant's knowledge that his averment of ignorance
must be palpably untrue. 22 Whether or not private respondents checked in at petitioner's
designated counter at the airport at 9:45 a.m. on May 5, 1989 must necessarily be within
petitioner's knowledge.

While there was no specific denial as to the fact of compliance with the "check-in"
requirement by private respondents, petitioner presented evidence to support its
contention that there indeed was no compliance.

Private respondents then are said to have waived the rule on admission. It not only
presented evidence to support its contention that there was compliance with the check-in
requirement even allowed petitioner to present rebuttal evidence. In the case of Yu Chuck
vs. "Kong Li Po," we ruled that:

The object of the rule is to relieve a party of the trouble and expense in proving
in the first instance an alleged fact, the existence or non-existence of which is
necessarily within the knowledge of the adverse party, and of the necessity (to
his opponent's case) of establishing which such adverse party is notified by his
opponent's pleadings.

The plaintiff may, of course, waive the rule and that is what must be considered
to have done (sic) by introducing evidence as to the execution of the document
and failing to object to the defendant's evidence in refutation; all this evidence is
now competent and the case must be decided thereupon. 23

The determination of the other issues raised is dependent on whether or not there was a
breach of contract in bad faith on the part of the petitioner in not allowing the Fontanillas
to board United Airlines Flight 1108.

It must be remembered that the general rule in civil cases is that the party having the
burden of proof of an essential fact must produce a preponderance of evidence thereon. 24
Although the evidence adduced by the plaintiff is stronger than that presented by the
defendant, a judgment cannot be entered in favor of the former, if his evidence is not
sufficient to sustain his cause of action. The plaintiff must rely on the strength of his own
evidence and not upon the weakness of the defendant's. 25 Proceeding from this, and
considering the contradictory findings of facts by the Regional Trial Court and the Court
of Appeals, the question before this Court is whether or not private respondents were able
to prove with adequate evidence his allegations of breach of contract in bad faith.

We rule in the negative.

Time and again, the Court has pronounced that appellate courts should not, unless for
strong and cogent reasons, reverse the findings of facts of trial courts. This is so because
trial judges are in a better position to examine real evidence and at a vantage point to
observe the actuation and the demeanor of the witnesses. 26 While not the sole indicator of
the credibility of a witness, it is of such weight that it has been said to be the touchstone
of credibility. 27

Aniceto Fontanilla's assertion that upon arrival at the airport at 9:45 a.m., he immediately
proceeded to the check-in counter, and that Linda Allen punched in something into the
computer is specious and not supported by the evidence on record. In support of their
allegations, private respondents submitted a copy of the boarding pass. Explicitly printed
on the boarding pass are the words "Check-In Required." Curiously, the said pass did not
indicate any seat number. If indeed the Fontanillas checked in at the designated time as
they claimed, why then were they not assigned seat numbers? Absent any showing that
Linda was so motivated, we do not buy into private respondents' claim that Linda
intentionally deceived him, and made him the laughing stock among the passengers. 28
Hence, as correctly observed by the trial court:

Plaintiffs fail to realize that their failure to check in, as expressly required in
their boarding passes, is the very reason why they were not given their
respective seat numbers, which resulted in their being denied boarding. 29

Neither do we agree with the conclusion reached by the appellate court that private
respondents' failure to comply with the check-in requirement will not defeat his claim as
the denied boarding rules were not complied with. Notably, the appellate court relied on
the Code of Federal Regulation Part on Oversales, which states:

250.6 Exceptions to eligibility for denied boarding compensation.

A passenger denied board involuntarily from an oversold flight shall not be

eligible for denied board compensation if:

(a) The passenger does not comply with the carrier's contract of carriage or tariff
provisions regarding ticketing, reconfirmation, check-in, and acceptability for
transformation.

The appellate court, however, erred in applying the laws of the United States as, in the
case at bar, Philippine law is the applicable law. Although, the contract of carriage was to
be performed in the United States, the tickets were purchased through petitioner's agent
in Manila. It is true that the tickets were "rewritten" in Washington, D.C. However, such
fact did not change the nature of the original contract of carriage entered into by the
parties in Manila.

In the case of Zalamea vs. Court of Appeals, 30 this Court applied the doctrine of lex loci
contractus. According to the doctrine, as a general rule, the law of the place where a
contract is made or entered into governs with respect to its nature and validity, obligation
and interpretation. This has been said to be the rule even though the place where the
contract was made is different from the place where it is to be performed, and particularly
so, if the place of the making and the place of performance are the same. Hence, the court
should apply the law of the place where the airline ticket was issued, when the passengers
are residents and nationals of the forum and the ticket is issued in such State by the
defendant airline.

The law of the forum on the subject matter is Economic Regulations No. 7 as amended
by Boarding Priority and Denied Boarding Compensation of the Civil Aeronautics Board,
which provides that the check-in requirement be complied with before a passenger may
claim against a carrier for being denied boarding:

SECTION 5. Amount of Denied Boarding Compensation — Subject to the

exceptions provided hereinafter under Section 6, carriers shall pay to passengers
holding confirmed reserved space and who have presented themselves at the
proper place and time and fully complied with the carrier's check-in and
reconfirmation procedures and who are acceptable for carriage under the
Carrier's tariffs but who have been denied boarding for lack of space, a
compensation at the rate of: . .

Private respondents' narration that they were subjected to harsh and derogatory remarks
seems incredulous. However, this Court will not attempt to surmise what really
happened. Suffice to say, private respondent was not able to prove his cause of action, for
as the trial court correctly observed:

. . . plaintiffs claim to have been discriminated against and insulted in the

presence of several people. Unfortunately plaintiffs limited their evidence to the
testimony [of] Aniceto Fontanilla, without any corroboration by the people who
saw or heard the discriminatory remarks and insults; while such limited
testimony could possibly be true, it does not enable the Court to reach the
conclusion that plaintiffs have, by a preponderance of evidence, proven that
they are entitled to P1,650,000.00 damages from defendant. 31

As to the award of moral and exemplary damages, we find error in the award of such by
the Court of Appeals. For the plaintiff to be entitled to an award of moral damages arising
from a breach of contract of carriage, the carrier must have acted with fraud or bad faith.
The appellate court predicated its award on our pronouncement in the case of Zalamea vs.
Court of Appeals, supra, where we stated:

Existing jurisprudence explicitly states that overbooking amounts to bad faith,

entitling passengers concerned to an award of moral damages. In Alitalia
Airways v. Court of Appeals, where passengers with confirmed booking 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 check in. For the indignity
and inconvenience of being refused a confirmed seat on the last minute, said
passenger is entitled to moral damages. (Emphasis supplied.)

However, the Court's ruling in said case should be read in consonance with existing laws,
particularly, Economic Regulations No. 7, as amended, of the Civil Aeronautics Board:

SECTION 3. Scope. — This regulation shall apply to every Philippine and

foreign air carrier with respect to its operation of flights or portions of flights
originating from or terminating at, or serving a point within the territory of the
Republic of the Philippines insofar as it denies boarding to a passenger on a
flight, or portion of a flight inside or outside the Philippines, for which he holds
confirmed reserved space. Furthermore, this Regulation is designed to cover
only honest mistakes on the part of the carriers and excludes deliberate and
willful acts of non-accommodation. Provided, however, that overbooking not
exceeding 10% of the seating capacity of the aircraft shall not be considered as
a deliberate and willful act of non-accommodation. LLpr

What this Court considers as bad faith is the willful and deliberate overbooking on the
part of the airline carrier. The above-mentioned law clearly states that when the
overbooking does not exceed ten percent (10%), it is not considered as deliberate and
therefore does not amount to bad faith. While there may have been overbooking in this
case, private respondents were not able to prove that the overbooking on United Airlines
Flight 1108 exceeded ten percent.

As earlier stated, the Court is of the opinion that the private respondents were not able to
prove that they were subjected to coarse and harsh treatment by the ground crew of
United Airlines. Neither were they able to show that there was bad faith on part of the
carrier airline. Hence, the award of moral and exemplary damages by the Court of
Appeals is improper. Corollarily, the award of attorney's fees is, likewise, denied for lack
of any legal and factual basis.
WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals in CA-
G.R. CV No. 37044 is hereby REVERSED and SET ASIDE. The decision of the
Regional Trial Court of Makati City in Civil Case No. 89-4268 dated April 8, 1991 is
hereby REINSTATED.

SO ORDERED.

SECOND DIVISION

[G.R. No. 143581. January 7, 2008.]

KOREA TECHNOLOGIES CO., LTD., petitioner, vs. HON.

ALBERTO A. LERMA, in his capacity as Presiding Judge of Branch
256 of Regional Trial Court of Muntinlupa City, and PACIFIC
GENERAL STEEL MANUFACTURING CORPORATION,
respondents.

DECISION

VELASCO, JR., J : p

In our jurisdiction, the policy is to favor alternative methods of resolving disputes,

particularly in civil and commercial disputes. Arbitration along with mediation,
conciliation, and negotiation, being inexpensive, speedy and less hostile methods have
long been favored by this Court. The petition before us puts at issue an arbitration clause
in a contract mutually agreed upon by the parties stipulating that they would submit
themselves to arbitration in a foreign country. Regrettably, instead of hastening the
resolution of their dispute, the parties wittingly or unwittingly prolonged the controversy.

Petitioner Korea Technologies Co., Ltd. (KOGIES) is a Korean corporation which is

engaged in the supply and installation of Liquefied Petroleum Gas (LPG) Cylinder
manufacturing plants, while private respondent Pacific General Steel Manufacturing
Corp. (PGSMC) is a domestic corporation.

On March 5, 1997, PGSMC and KOGIES executed a Contract 1 whereby KOGIES

would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. The contract
was executed in the Philippines. On April 7, 1997, the parties executed, in Korea, an
Amendment for Contract No. KLP-970301 dated March 5, 1997 2 amending the terms of
payment. The contract and its amendment stipulated that KOGIES will ship the
machinery and facilities necessary for manufacturing LPG cylinders for which PGSMC
would pay USD 1,224,000. KOGIES would install and initiate the operation of the plant
for which PGSMC bound itself to pay USD 306,000 upon the plant's production of the
11-kg. LPG cylinder samples. Thus, the total contract price amounted to USD 1,530,000.

On October 14, 1997, PGSMC entered into a Contract of Lease 3 with Worth Properties,
Inc. (Worth) for use of Worth's 5,079-square meter property with a 4,032-square meter
warehouse building to house the LPG manufacturing plant. The monthly rental was
PhP322,560 commencing on January 1, 1998 with a 10% annual increment clause.
Subsequently, the machineries, equipment, and facilities for the manufacture of LPG
cylinders were shipped, delivered, and installed in the Carmona plant. PGSMC paid
KOGIES USD 1,224,000.

However, gleaned from the Certificate 4 executed by the parties on January 22, 1998,
after the installation of the plant, the initial operation could not be conducted as PGSMC
encountered financial difficulties affecting the supply of materials, thus forcing the
parties to agree that KOGIES would be deemed to have completely complied with the
terms and conditions of the March 5, 1997 contract. SDHacT

For the remaining balance of USD306,000 for the installation and initial operation of the
plant, PGSMC issued two postdated checks: (1) BPI Check No. 0316412 dated January
30, 1998 for PhP4,500,000; and (2) BPI Check No. 0316413 dated March 30, 1998 for
PhP4,500,000. 5

When KOGIES deposited the checks, these were dishonored for the reason "PAYMENT
STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter 6 to PGSMC
threatening criminal action for violation of Batas Pambansa Blg. 22 in case of
nonpayment. On the same date, the wife of PGSMC's President faxed a letter dated May
7, 1998 to KOGIES' President who was then staying at a Makati City hotel. She
complained that not only did KOGIES deliver a different brand of hydraulic press from
that agreed upon but it had not delivered several equipment parts already paid for.

On May 14, 1998, PGSMC replied that the two checks it issued KOGIES were fully
funded but the payments were stopped for reasons previously made known to KOGIES. 7

On June 1, 1998, PGSMC informed KOGIES that PGSMC was canceling their Contract
dated March 5, 1997 on the ground that KOGIES had altered the quantity and lowered
the quality of the machineries and equipment it delivered to PGSMC, and that PGSMC
would dismantle and transfer the machineries, equipment, and facilities installed in the
Carmona plant. Five days later, PGSMC filed before the Office of the Public Prosecutor
an Affidavit-Complaint for Estafa docketed as I.S. No. 98-03813 against Mr. Dae Hyun
Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote PGSMC informing the latter that PGSMC could not
unilaterally rescind their contract nor dismantle and transfer the machineries and
equipment on mere imagined violations by KOGIES. It also insisted that their disputes
should be settled by arbitration as agreed upon in Article 15, the arbitration clause of their
contract.

On June 23, 1998, PGSMC again wrote KOGIES reiterating the contents of its June 1,
1998 letter threatening that the machineries, equipment, and facilities installed in the
plant would be dismantled and transferred on July 4, 1998. Thus, on July 1, 1998,
KOGIES instituted an Application for Arbitration before the Korean Commercial
Arbitration Board (KCAB) in Seoul, Korea pursuant to Art. 15 of the Contract as
amended.

On July 3, 1998, KOGIES filed a Complaint for Specific Performance, docketed as Civil
Case No. 98-117 8 against PGSMC before the Muntinlupa City Regional Trial Court
(RTC). The RTC granted a temporary restraining order (TRO) on July 4, 1998, which
was subsequently extended until July 22, 1998. In its complaint, KOGIES alleged that
PGSMC had initially admitted that the checks that were stopped were not funded but later
on claimed that it stopped payment of the checks for the reason that "their value was not
received" as the former allegedly breached their contract by "altering the quantity and
lowering the quality of the machinery and equipment" installed in the plant and failed to
make the plant operational although it earlier certified to the contrary as shown in a
January 22, 1998 Certificate. Likewise, KOGIES averred that PGSMC violated Art. 15 of
their Contract, as amended, by unilaterally rescinding the contract without resorting to
arbitration. KOGIES also asked that PGSMC be restrained from dismantling and
transferring the machinery and equipment installed in the plant which the latter
threatened to do on July 4, 1998.

On July 9, 1998, PGSMC filed an opposition to the TRO arguing that KOGIES was not
entitled to the TRO since Art. 15, the arbitration clause, was null and void for being
against public policy as it ousts the local courts of jurisdiction over the instant
controversy.

On July 17, 1998, PGSMC filed its Answer with Compulsory Counterclaim 9 asserting
that it had the full right to dismantle and transfer the machineries and equipment because
it had paid for them in full as stipulated in the contract; that KOGIES was not entitled to
the PhP9,000,000 covered by the checks for failing to completely install and make the
plant operational; and that KOGIES was liable for damages amounting to PhP4,500,000
for altering the quantity and lowering the quality of the machineries and equipment.
Moreover, PGSMC averred that it has already paid PhP2,257,920 in rent (covering
January to July 1998) to Worth and it was not willing to further shoulder the cost of
renting the premises of the plant considering that the LPG cylinder manufacturing plant
never became operational. EcaDCI
After the parties submitted their Memoranda, on July 23, 1998, the RTC issued an Order
denying the application for a writ of preliminary injunction, reasoning that PGSMC had
paid KOGIES USD 1,224,000, the value of the machineries and equipment as shown in
the contract such that KOGIES no longer had proprietary rights over them. And finally,
the RTC held that Art. 15 of the Contract as amended was invalid as it tended to oust the
trial court or any other court jurisdiction over any dispute that may arise between the
parties. KOGIES' prayer for an injunctive writ was denied. 10 The dispositive portion of
the Order stated:

WHEREFORE, in view of the foregoing consideration, this Court believes and

so holds that no cogent reason exists for this Court to grant the writ of
preliminary injunction to restrain and refrain defendant from dismantling the
machineries and facilities at the lot and building of Worth Properties,
Incorporated at Carmona, Cavite and transfer the same to another site: and
therefore denies plaintiff's application for a writ of preliminary injunction.

On July 29, 1998, KOGIES filed its Reply to Answer and Answer to Counterclaim. 11
KOGIES denied it had altered the quantity and lowered the quality of the machinery,
equipment, and facilities it delivered to the plant. It claimed that it had performed all the
undertakings under the contract and had already produced certified samples of LPG
cylinders. It averred that whatever was unfinished was PGSMC's fault since it failed to
procure raw materials due to lack of funds. KOGIES, relying on Chung Fu Industries
(Phils.), Inc. v. Court of Appeals, 12 insisted that the arbitration clause was without
question valid.

After KOGIES filed a Supplemental Memorandum with Motion to Dismiss 13 answering

PGSMC's memorandum of July 22, 1998 and seeking dismissal of PGSMC's
counterclaims, KOGIES, on August 4, 1998, filed its Motion for Reconsideration 14 of
the July 23, 1998 Order denying its application for an injunctive writ claiming that the
contract was not merely for machinery and facilities worth USD 1,224,000 but was for
the sale of an "LPG manufacturing plant" consisting of "supply of all the machinery and
facilities" and "transfer of technology" for a total contract price of USD 1,530,000 such
that the dismantling and transfer of the machinery and facilities would result in the
dismantling and transfer of the very plant itself to the great prejudice of KOGIES as the
still unpaid owner/seller of the plant. Moreover, KOGIES points out that the arbitration
clause under Art. 15 of the Contract as amended was a valid arbitration stipulation under
Art. 2044 of the Civil Code and as held by this Court in Chung Fu Industries (Phils.),
Inc. 15

In the meantime, PGSMC filed a Motion for Inspection of Things 16 to determine whether
there was indeed alteration of the quantity and lowering of quality of the machineries and
equipment, and whether these were properly installed. KOGIES opposed the motion
positing that the queries and issues raised in the motion for inspection fell under the
coverage of the arbitration clause in their contract.

On September 21, 1998, the trial court issued an Order (1) granting PGSMC's motion for
inspection; (2) denying KOGIES' motion for reconsideration of the July 23, 1998 RTC
Order; and (3) denying KOGIES' motion to dismiss PGSMC's compulsory counterclaims
as these counterclaims fell within the requisites of compulsory counterclaims.

On October 2, 1998, KOGIES filed an Urgent Motion for Reconsideration 17 of the

September 21, 1998 RTC Order granting inspection of the plant and denying dismissal of
PGSMC's compulsory counterclaims.

Ten days after, on October 12, 1998, without waiting for the resolution of its October 2,
1998 urgent motion for reconsideration, KOGIES filed before the Court of Appeals (CA)
a petition for certiorari 18 docketed as CA-G.R. SP No. 49249, seeking annulment of the
July 23, 1998 and September 21, 1998 RTC Orders and praying for the issuance of writs
of prohibition, mandamus, and preliminary injunction to enjoin the RTC and PGSMC
from inspecting, dismantling, and transferring the machineries and equipment in the
Carmona plant, and to direct the RTC to enforce the specific agreement on arbitration to
resolve the dispute.

In the meantime, on October 19, 1998, the RTC denied KOGIES' urgent motion for
reconsideration and directed the Branch Sheriff to proceed with the inspection of the
machineries and equipment in the plant on October 28, 1998. 19

Thereafter, KOGIES filed a Supplement to the Petition 20 in CA-G.R. SP No. 49249

informing the CA about the October 19, 1998 RTC Order. It also reiterated its prayer for
the issuance of the writs of prohibition, mandamus and preliminary injunction which was
not acted upon by the CA. KOGIES asserted that the Branch Sheriff did not have the
technical expertise to ascertain whether or not the machineries and equipment conformed
to the specifications in the contract and were properly installed.TaISDA

On November 11, 1998, the Branch Sheriff filed his Sheriff's Report 21 finding that the
enumerated machineries and equipment were not fully and properly installed.

The Court of Appeals affirmed the trial court and declared

the arbitration clause against public policy

On May 30, 2000, the CA rendered the assailed Decision 22 affirming the RTC Orders
and dismissing the petition for certiorari filed by KOGIES. The CA found that the RTC
did not gravely abuse its discretion in issuing the assailed July 23, 1998 and September
21, 1998 Orders. Moreover, the CA reasoned that KOGIES' contention that the total
contract price for USD 1,530,000 was for the whole plant and had not been fully paid was
contrary to the finding of the RTC that PGSMC fully paid the price of USD 1,224,000,
which was for all the machineries and equipment. According to the CA, this
determination by the RTC was a factual finding beyond the ambit of a petition for
certiorari.

On the issue of the validity of the arbitration clause, the CA agreed with the lower court
that an arbitration clause which provided for a final determination of the legal rights of
the parties to the contract by arbitration was against public policy.

On the issue of nonpayment of docket fees and non-attachment of a certificate of non-

forum shopping by PGSMC, the CA held that the counterclaims of PGSMC were
compulsory ones and payment of docket fees was not required since the Answer with
counterclaim was not an initiatory pleading. For the same reason, the CA said a
certificate of non-forum shopping was also not required.

Furthermore, the CA held that the petition for certiorari had been filed prematurely since
KOGIES did not wait for the resolution of its urgent motion for reconsideration of the
September 21, 1998 RTC Order which was the plain, speedy, and adequate remedy
available. According to the CA, the RTC must be given the opportunity to correct any
alleged error it has committed, and that since the assailed orders were interlocutory, these
cannot be the subject of a petition for certiorari.

Hence, we have this Petition for Review on Certiorari under Rule 45.

The Issues

Petitioner posits that the appellate court committed the following errors:

a. PRONOUNCING THE QUESTION OF OWNERSHIP OVER THE

MACHINERY AND FACILITIES AS "A QUESTION OF FACT" "BEYOND
THE AMBIT OF A PETITION FOR CERTIORARI" INTENDED ONLY FOR
CORRECTION OF ERRORS OF JURISDICTION OR GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF (SIC) EXCESS OF
JURISDICTION, AND CONCLUDING THAT THE TRIAL COURT'S
FINDING ON THE SAME QUESTION WAS IMPROPERLY RAISED IN
THE PETITION BELOW;

b. DECLARING AS NULL AND VOID THE ARBITRATION CLAUSE IN

ARTICLE 15 OF THE CONTRACT BETWEEN THE PARTIES FOR BEING
"CONTRARY TO PUBLIC POLICY" AND FOR OUSTING THE COURTS
OF JURISDICTION;

c. DECREEING PRIVATE RESPONDENT'S COUNTERCLAIMS TO BE

ALL COMPULSORY NOT NECESSITATING PAYMENT OF DOCKET
FEES AND CERTIFICATION OF NON-FORUM SHOPPING;
 d. RULING THAT THE PETITION WAS FILED PREMATURELY
WITHOUT WAITING FOR THE RESOLUTION OF THE MOTION FOR
RECONSIDERATION OF THE ORDER DATED SEPTEMBER 21, 1998 OR
WITHOUT GIVING THE TRIAL COURT AN OPPORTUNITY TO
CORRECT ITSELF; aHIEcS

e. PROCLAIMING THE TWO ORDERS DATED JULY 23 AND

SEPTEMBER 21, 1998 NOT TO BE PROPER SUBJECTS OF CERTIORARI
AND PROHIBITION FOR BEING "INTERLOCUTORY IN NATURE;"

f. NOT GRANTING THE RELIEFS AND REMEDIES PRAYED FOR IN HE

(SIC) PETITION AND, INSTEAD, DISMISSING THE SAME FOR
ALLEGEDLY "WITHOUT MERIT." 23

The Court's Ruling

The petition is partly meritorious.

Before we delve into the substantive issues, we shall first tackle the procedural issues.

The rules on the payment of docket fees for counterclaims and cross claims
were amended effective August 16, 2004

KOGIES strongly argues that when PGSMC filed the counterclaims, it should have paid
docket fees and filed a certificate of non-forum shopping, and that its failure to do so was
a fatal defect.

We disagree with KOGIES.

As aptly ruled by the CA, the counterclaims of PGSMC were incorporated in its Answer
with Compulsory Counterclaim dated July 17, 1998 in accordance with Section 8 of Rule
11, 1997 Revised Rules of Civil Procedure, the rule that was effective at the time the
Answer with Counterclaim was filed. Sec. 8 on existing counterclaim or cross-claim
states, "A compulsory counterclaim or a cross-claim that a defending party has at the time
he files his answer shall be contained therein."

On July 17, 1998, at the time PGSMC filed its Answer incorporating its counterclaims
against KOGIES, it was not liable to pay filing fees for said counterclaims being
compulsory in nature. We stress, however, that effective August 16, 2004 under Sec. 7,
Rule 141, as amended by A.M. No. 04-2-04-SC, docket fees are now required to be paid
in compulsory counterclaim or cross-claims.

As to the failure to submit a certificate of forum shopping, PGSMC's Answer is not an

initiatory pleading which requires a certification against forum shopping under Sec. 5 24
of Rule 7, 1997 Revised Rules of Civil Procedure. It is a responsive pleading, hence, the
courts a quo did not commit reversible error in denying KOGIES' motion to dismiss
PGSMC's compulsory counterclaims.

Interlocutory orders proper subject of certiorari

Citing Gamboa v. Cruz, 25 the CA also pronounced that "certiorari and Prohibition are
neither the remedies to question the propriety of an interlocutory order of the trial court."
26 The CA erred on its reliance on Gamboa. Gamboa involved the denial of a motion to
acquit in a criminal case which was not assailable in an action for certiorari since the
denial of a motion to quash required the accused to plead and to continue with the trial,
and whatever objections the accused had in his motion to quash can then be used as part
of his defense and subsequently can be raised as errors on his appeal if the judgment of
the trial court is adverse to him. The general rule is that interlocutory orders cannot be
challenged by an appeal. 27 Thus, in Yamaoka v. Pescarich Manufacturing Corporation,
we held:

The proper remedy in such cases is an ordinary appeal from an adverse

judgment on the merits, incorporating in said appeal the grounds for assailing
the interlocutory orders. Allowing appeals from interlocutory orders would
result in the 'sorry spectacle' of a case being subject of a counterproductive
ping-pong to and from the appellate court as often as a trial court is perceived to
have made an error in any of its interlocutory rulings. However, where the
assailed interlocutory order was issued with grave abuse of discretion or
patently erroneous and the remedy of appeal would not afford adequate and
expeditious relief, the Court allows certiorari as a mode of redress. 28

Also, appeals from interlocutory orders would open the floodgates to endless occasions
for dilatory motions. Thus, where the interlocutory order was issued without or in excess
of jurisdiction or with grave abuse of discretion, the remedy is certiorari. 29 HDcaAI

The alleged grave abuse of discretion of the respondent court equivalent to lack of
jurisdiction in the issuance of the two assailed orders coupled with the fact that there is no
plain, speedy, and adequate remedy in the ordinary course of law amply provides the
basis for allowing the resort to a petition for certiorari under Rule 65.

Prematurity of the petition before the CA

Neither do we think that KOGIES was guilty of forum shopping in filing the petition for
certiorari. Note that KOGIES' motion for reconsideration of the July 23, 1998 RTC
Order which denied the issuance of the injunctive writ had already been denied. Thus,
KOGIES' only remedy was to assail the RTC's interlocutory order via a petition for
certiorari under Rule 65.
While the October 2, 1998 motion for reconsideration of KOGIES of the September 21,
1998 RTC Order relating to the inspection of things, and the allowance of the compulsory
counterclaims has not yet been resolved, the circumstances in this case would allow an
exception to the rule that before certiorari may be availed of, the petitioner must have
filed a motion for reconsideration and said motion should have been first resolved by the
court a quo. The reason behind the rule is "to enable the lower court, in the first instance,
to pass upon and correct its mistakes without the intervention of the higher court." 30

The September 21, 1998 RTC Order directing the branch sheriff to inspect the plant,
equipment, and facilities when he is not competent and knowledgeable on said matters is
evidently flawed and devoid of any legal support. Moreover, there is an urgent necessity
to resolve the issue on the dismantling of the facilities and any further delay would
prejudice the interests of KOGIES. Indeed, there is real and imminent threat of
irreparable destruction or substantial damage to KOGIES' equipment and machineries.
We find the resort to certiorari based on the gravely abusive orders of the trial court sans
the ruling on the October 2, 1998 motion for reconsideration to be proper.

The Core Issue: Article 15 of the Contract

We now go to the core issue of the validity of Art. 15 of the Contract, the arbitration
clause. It provides:

Article 15. Arbitration. — All disputes, controversies, or differences which may

arise between the parties, out of or in relation to or in connection with this
Contract or for the breach thereof, shall finally be settled by arbitration in Seoul,
Korea in accordance with the Commercial Arbitration Rules of the Korean
Commercial Arbitration Board. The award rendered by the arbitration(s)
shall be final and binding upon both parties concerned. (Emphasis supplied.)

Petitioner claims the RTC and the CA erred in ruling that the arbitration clause is null and
void.

Petitioner is correct.

Established in this jurisdiction is the rule that the law of the place where the contract is
made governs. Lex loci contractus. The contract in this case was perfected here in the
Philippines. Therefore, our laws ought to govern. Nonetheless, Art. 2044 of the Civil
Code sanctions the validity of mutually agreed arbitral clause or the finality and binding
effect of an arbitral award. Art. 2044 provides, "Any stipulation that the arbitrators'
award or decision shall be final, is valid, without prejudice to Articles 2038, 2039 and
2040." (Emphasis supplied.)
Arts. 2038, 31 2039, 32 and 2040 33 abovecited refer to instances where a compromise or
an arbitral award, as applied to Art. 2044 pursuant to Art. 2043, 34 may be voided,
rescinded, or annulled, but these would not denigrate the finality of the arbitral award.

The arbitration clause was mutually and voluntarily agreed upon by the parties. It has not
been shown to be contrary to any law, or against morals, good customs, public order, or
public policy. There has been no showing that the parties have not dealt with each other
on equal footing. We find no reason why the arbitration clause should not be respected
and complied with by both parties. In Gonzales v. Climax Mining Ltd., 35 we held that
submission to arbitration is a contract and that a clause in a contract providing that all
matters in dispute between the parties shall be referred to arbitration is a contract. 36
Again in Del Monte Corporation-USA v. Court of Appeals, we likewise ruled that "[t]he
provision to submit to arbitration any dispute arising therefrom and the relationship of the
parties is part of that contract and is itself a contract." 37
CAacTH

Arbitration clause not contrary to public policy

The arbitration clause which stipulates that the arbitration must be done in Seoul, Korea
in accordance with the Commercial Arbitration Rules of the KCAB, and that the arbitral
award is final and binding, is not contrary to public policy. This Court has sanctioned the
validity of arbitration clauses in a catena of cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co., Inc., 38 this Court had occasion to rule that an
arbitration clause to resolve differences and breaches of mutually agreed contractual
terms is valid. In BF Corporation v. Court of Appeals, we held that "[i]n this jurisdiction,
arbitration has been held valid and constitutional. Even before the approval on June 19,
1953 of Republic Act No. 876, this Court has countenanced the settlement of disputes
through arbitration. Republic Act No. 876 was adopted to supplement the New Civil
Code's provisions on arbitration." 39 And in LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc., we declared that:

Being an inexpensive, speedy and amicable method of settling disputes,

arbitration — along with mediation, conciliation and negotiation — is
encouraged by the Supreme Court. Aside from unclogging judicial dockets,
arbitration also hastens the resolution of disputes, especially of the commercial
kind. It is thus regarded as the "wave of the future" in international civil and
commercial disputes. Brushing aside a contractual agreement calling for
arbitration between the parties would be a step backward.

Consistent with the above-mentioned policy of encouraging alternative dispute

resolution methods, courts should liberally construe arbitration clauses.
Provided such clause is susceptible of an interpretation that covers the asserted
dispute, an order to arbitrate should be granted. Any doubt should be resolved in
favor of arbitration. 40
Having said that the instant arbitration clause is not against public policy, we come to the
question on what governs an arbitration clause specifying that in case of any dispute
arising from the contract, an arbitral panel will be constituted in a foreign country and the
arbitration rules of the foreign country would govern and its award shall be final and
binding.

RA 9285 incorporated the UNCITRAL Model law

to which we are a signatory

For domestic arbitration proceedings, we have particular agencies to arbitrate disputes

arising from contractual relations. In case a foreign arbitral body is chosen by the parties,
the arbitration rules of our domestic arbitration bodies would not be applied. As signatory
to the Arbitration Rules of the UNCITRAL Model Law on International Commercial
Arbitration 41 of the United Nations Commission on International Trade Law
(UNCITRAL) in the New York Convention on June 21, 1985, the Philippines committed
itself to be bound by the Model Law. We have even incorporated the Model Law in
Republic Act No. (RA) 9285, otherwise known as the Alternative Dispute Resolution Act
of 2004 entitled An Act to Institutionalize the Use of an Alternative Dispute Resolution
System in the Philippines and to Establish the Office for Alternative Dispute Resolution,
and for Other Purposes, promulgated on April 2, 2004. Secs. 19 and 20 of Chapter 4 of
the Model Law are the pertinent provisions:

CHAPTER 4 — INTERNATIONAL COMMERCIAL ARBITRATION

SEC. 19. Adoption of the Model Law on International Commercial Arbitration.

— International commercial arbitration shall be governed by the Model Law on
International Commercial Arbitration (the "Model Law") adopted by the United
Nations Commission on International Trade Law on June 21, 1985 (United
Nations Document A/40/17) and recommended for enactment by the General
Assembly in Resolution No. 40/72 approved on December 11, 1985, copy of
which is hereto attached as Appendix "A". cEATSI

SEC. 20. Interpretation of Model Law. — In interpreting the Model Law, regard
shall be had to its international origin and to the need for uniformity in its
interpretation and resort may be made to the travaux preparatories and the
report of the Secretary General of the United Nations Commission on
International Trade Law dated March 25, 1985 entitled, "International
Commercial Arbitration: Analytical Commentary on Draft Trade identified by
reference number A/CN. 9/264."

While RA 9285 was passed only in 2004, it nonetheless applies in the instant case since it
is a procedural law which has a retroactive effect. Likewise, KOGIES filed its application
for arbitration before the KCAB on July 1, 1998 and it is still pending because no arbitral
award has yet been rendered. Thus, RA 9285 is applicable to the instant case. Well-
settled is the rule that procedural laws are construed to be applicable to actions pending
and undetermined at the time of their passage, and are deemed retroactive in that sense
and to that extent. As a general rule, the retroactive application of procedural laws does
not violate any personal rights because no vested right has yet attached nor arisen from
them. 42

Among the pertinent features of RA 9285 applying and incorporating the UNCITRAL
Model Law are the following:

(1) The RTC must refer to arbitration in proper cases

Under Sec. 24, the RTC does not have jurisdiction over disputes that are properly the
subject of arbitration pursuant to an arbitration clause, and mandates the referral to
arbitration in such cases, thus:

SEC. 24. Referral to Arbitration. — A court before which an action is brought

in a matter which is the subject matter of an arbitration agreement shall, if at
least one party so requests not later than the pre-trial conference, or upon the
request of both parties thereafter, refer the parties to arbitration unless it finds
that the arbitration agreement is null and void, inoperative or incapable of being
performed.

(2) Foreign arbitral awards must be confirmed by the RTC

Foreign arbitral awards while mutually stipulated by the parties in the arbitration clause
to be final and binding are not immediately enforceable or cannot be implemented
immediately. Sec. 35 43 of the UNCITRAL Model Law stipulates the requirement for the
arbitral award to be recognized by a competent court for enforcement, which court under
Sec. 36 of the UNCITRAL Model Law may refuse recognition or enforcement on the
grounds provided for. RA 9285 incorporated these provisos to Secs. 42, 43, and 44
relative to Secs. 47 and 48, thus:

SEC. 42. Application of the New York Convention. — The New York
Convention shall govern the recognition and enforcement of arbitral awards
covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the
Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement shall file with the
court the original or authenticated copy of the award and the arbitration
agreement. If the award or agreement is not made in any of the official
 languages, the party shall supply a duly certified translation thereof into any of
such languages.

The applicant shall establish that the country in which foreign arbitration award
was made in party to the New York Convention.

xxx xxx xxx

SEC. 43. Recognition and Enforcement of Foreign Arbitral Awards Not

Covered by the New York Convention. — The recognition and enforcement of
foreign arbitral awards not covered by the New York Convention shall be done
in accordance with procedural rules to be promulgated by the Supreme Court.
The Court may, on grounds of comity and reciprocity, recognize and enforce a
non-convention award as a convention award. IEHaSc

SEC. 44. Foreign Arbitral Award Not Foreign Judgment. — A foreign arbitral
award when confirmed by a court of a foreign country, shall be recognized and
enforced as a foreign arbitral award and not as a judgment of a foreign court.

A foreign arbitral award, when confirmed by the Regional Trial Court, shall be
enforced in the same manner as final and executory decisions of courts of law of
the Philippines.

xxx xxx xxx

SEC. 47. Venue and Jurisdiction. — Proceedings for recognition and

enforcement of an arbitration agreement or for vacations, setting aside,
correction or modification of an arbitral award, and any application with a court
for arbitration assistance and supervision shall be deemed as special
proceedings and shall be filed with the Regional Trial Court (i) where
arbitration proceedings are conducted; (ii) where the asset to be attached or
levied upon, or the act to be enjoined is located; (iii) where any of the parties to
the dispute resides or has his place of business; or (iv) in the National Judicial
Capital Region, at the option of the applicant.

SEC. 48. Notice of Proceeding to Parties. — In a special proceeding for

recognition and enforcement of an arbitral award, the Court shall send notice to
the parties at their address of record in the arbitration, or if any part cannot be
served notice at such address, at such party's last known address. The notice
shall be sent al least fifteen (15) days before the date set for the initial hearing of
the application.

It is now clear that foreign arbitral awards when confirmed by the RTC are deemed not as
a judgment of a foreign court but as a foreign arbitral award, and when confirmed, are
enforced as final and executory decisions of our courts of law.
Thus, it can be gleaned that the concept of a final and binding arbitral award is similar to
judgments or awards given by some of our quasi-judicial bodies, like the National Labor
Relations Commission and Mines Adjudication Board, whose final judgments are
stipulated to be final and binding, but not immediately executory in the sense that they
may still be judicially reviewed, upon the instance of any party. Therefore, the final
foreign arbitral awards are similarly situated in that they need first to be confirmed by the
RTC.

(3) The RTC has jurisdiction to review foreign arbitral awards

Sec. 42 in relation to Sec. 45 of RA 9285 designated and vested the RTC with specific
authority and jurisdiction to set aside, reject, or vacate a foreign arbitral award on
grounds provided under Art. 34 (2) of the UNCITRAL Model Law. Secs. 42 and 45
provide:

SEC. 42. Application of the New York Convention. — The New York
Convention shall govern the recognition and enforcement of arbitral awards
covered by said Convention.

The recognition and enforcement of such arbitral awards shall be filed with the
Regional Trial Court in accordance with the rules of procedure to be
promulgated by the Supreme Court. Said procedural rules shall provide that the
party relying on the award or applying for its enforcement shall file with the
court the original or authenticated copy of the award and the arbitration
agreement. If the award or agreement is not made in any of the official
languages, the party shall supply a duly certified translation thereof into any of
such languages.

The applicant shall establish that the country in which foreign arbitration award
was made is party to the New York Convention.

If the application for rejection or suspension of enforcement of an award has

been made, the Regional Trial Court may, if it considers it proper, vacate its
decision and may also, on the application of the party claiming recognition or
enforcement of the award, order the party to provide appropriate security. ADHcTE

xxx xxx xxx

SEC. 45. Rejection of a Foreign Arbitral Award. — A party to a foreign

arbitration proceeding may oppose an application for recognition and
enforcement of the arbitral award in accordance with the procedures and rules to
be promulgated by the Supreme Court only on those grounds enumerated under
Article V of the New York Convention. Any other ground raised shall be
disregarded by the Regional Trial Court.
Thus, while the RTC does not have jurisdiction over disputes governed by arbitration
mutually agreed upon by the parties, still the foreign arbitral award is subject to judicial
review by the RTC which can set aside, reject, or vacate it. In this sense, what this Court
held in Chung Fu Industries (Phils.), Inc. relied upon by KOGIES is applicable insofar as
the foreign arbitral awards, while final and binding, do not oust courts of jurisdiction
since these arbitral awards are not absolute and without exceptions as they are still
judicially reviewable. Chapter 7 of RA 9285 has made it clear that all arbitral awards,
whether domestic or foreign, are subject to judicial review on specific grounds provided
for.

(4) Grounds for judicial review different in domestic and foreign arbitral awards

The differences between a final arbitral award from an international or foreign arbitral
tribunal and an award given by a local arbitral tribunal are the specific grounds or
conditions that vest jurisdiction over our courts to review the awards.

For foreign or international arbitral awards which must first be confirmed by the RTC,
the grounds for setting aside, rejecting or vacating the award by the RTC are provided
under Art. 34 (2) of the UNCITRAL Model Law.

For final domestic arbitral awards, which also need confirmation by the RTC pursuant to
Sec. 23 of RA 876 44 and shall be recognized as final and executory decisions of the
RTC, 45 they may only be assailed before the RTC and vacated on the grounds provided
under Sec. 25 of RA 876. 46

(5) RTC decision of assailed foreign arbitral award appealable

Sec. 46 of RA 9285 provides for an appeal before the CA as the remedy of an aggrieved
party in cases where the RTC sets aside, rejects, vacates, modifies, or corrects an arbitral
award, thus:

SEC. 46. Appeal from Court Decision or Arbitral Awards. — A decision of the
Regional Trial Court confirming, vacating, setting aside, modifying or
correcting an arbitral award may be appealed to the Court of Appeals in
accordance with the rules and procedure to be promulgated by the Supreme
Court.

The losing party who appeals from the judgment of the court confirming an
arbitral award shall be required by the appellate court to post a counterbond
executed in favor of the prevailing party equal to the amount of the award in
accordance with the rules to be promulgated by the Supreme Court.

Thereafter, the CA decision may further be appealed or reviewed before this Court
through a petition for review under Rule 45 of the Rules of Court.
 PGSMC has remedies to protect its interests

Thus, based on the foregoing features of RA 9285, PGSMC must submit to the foreign
arbitration as it bound itself through the subject contract. While it may have misgivings
on the foreign arbitration done in Korea by the KCAB, it has available remedies under
RA 9285. Its interests are duly protected by the law which requires that the arbitral award
that may be rendered by KCAB must be confirmed here by the RTC before it can be
enforced.

With our disquisition above, petitioner is correct in its contention that an arbitration
clause, stipulating that the arbitral award is final and binding, does not oust our courts of
jurisdiction as the international arbitral award, the award of which is not absolute and
without exceptions, is still judicially reviewable under certain conditions provided for by
the UNCITRAL Model Law on ICA as applied and incorporated in RA 9285. aHSCcE

Finally, it must be noted that there is nothing in the subject Contract which provides that
the parties may dispense with the arbitration clause.

Unilateral rescission improper and illegal

Having ruled that the arbitration clause of the subject contract is valid and binding on the
parties, and not contrary to public policy; consequently, being bound to the contract of
arbitration, a party may not unilaterally rescind or terminate the contract for whatever
cause without first resorting to arbitration.

What this Court held in University of the Philippines v. de Los Angeles 47 and reiterated
in succeeding cases, 48 that the act of treating a contract as rescinded on account of
infractions by the other contracting party is valid albeit provisional as it can be judicially
assailed, is not applicable to the instant case on account of a valid stipulation on
arbitration. Where an arbitration clause in a contract is availing, neither of the parties can
unilaterally treat the contract as rescinded since whatever infractions or breaches by a
party or differences arising from the contract must be brought first and resolved by
arbitration, and not through an extrajudicial rescission or judicial action.

The issues arising from the contract between PGSMC and KOGIES on whether the
equipment and machineries delivered and installed were properly installed and
operational in the plant in Carmona, Cavite; the ownership of equipment and payment of
the contract price; and whether there was substantial compliance by KOGIES in the
production of the samples, given the alleged fact that PGSMC could not supply the raw
materials required to produce the sample LPG cylinders, are matters proper for
arbitration. Indeed, we note that on July 1, 1998, KOGIES instituted an Application for
Arbitration before the KCAB in Seoul, Korea pursuant to Art. 15 of the Contract as
amended. Thus, it is incumbent upon PGSMC to abide by its commitment to arbitrate.

Corollarily, the trial court gravely abused its discretion in granting PGSMC's Motion for
Inspection of Things on September 21, 1998, as the subject matter of the motion is under
the primary jurisdiction of the mutually agreed arbitral body, the KCAB in Korea.

In addition, whatever findings and conclusions made by the RTC Branch Sheriff from the
inspection made on October 28, 1998, as ordered by the trial court on October 19, 1998,
is of no worth as said Sheriff is not technically competent to ascertain the actual status of
the equipment and machineries as installed in the plant.

For these reasons, the September 21, 1998 and October 19, 1998 RTC Orders pertaining
to the grant of the inspection of the equipment and machineries have to be recalled and
nullified.

Issue on ownership of plant proper for arbitration

Petitioner assails the CA ruling that the issue petitioner raised on whether the total
contract price of USD 1,530,000 was for the whole plant and its installation is beyond the
ambit of a Petition for Certiorari.

Petitioner's position is untenable.

It is settled that questions of fact cannot be raised in an original action for certiorari. 49
Whether or not there was full payment for the machineries and equipment and installation
is indeed a factual issue prohibited by Rule 65.

However, what appears to constitute a grave abuse of discretion is the order of the RTC
in resolving the issue on the ownership of the plant when it is the arbitral body (KCAB)
and not the RTC which has jurisdiction and authority over the said issue. The RTC's
determination of such factual issue constitutes grave abuse of discretion and must be
reversed and set aside.

RTC has interim jurisdiction to protect the rights of the parties

Anent the July 23, 1998 Order denying the issuance of the injunctive writ paving the way
for PGSMC to dismantle and transfer the equipment and machineries, we find it to be in
order considering the factual milieu of the instant case. AcDaEH

Firstly, while the issue of the proper installation of the equipment and machineries might
well be under the primary jurisdiction of the arbitral body to decide, yet the RTC under
Sec. 28 of RA 9285 has jurisdiction to hear and grant interim measures to protect vested
rights of the parties. Sec. 28 pertinently provides:
SEC. 28. Grant of interim Measure of Protection. — (a) It is not incompatible
with an arbitration agreement for a party to request, before constitution of
the tribunal, from a Court to grant such measure. After constitution of the
arbitral tribunal and during arbitral proceedings, a request for an interim
measure of protection, or modification thereof, may be made with the arbitral or
to the extent that the arbitral tribunal has no power to act or is unable to
act effectivity, the request may be made with the Court. The arbitral tribunal
is deemed constituted when the sole arbitrator or the third arbitrator, who has
been nominated, has accepted the nomination and written communication of
said nomination and acceptance has been received by the party making the
request.

(b) The following rules on interim or provisional relief shall be observed:

Any party may request that provisional relief be granted against the adverse
party.

Such relief may be granted:

(i) to prevent irreparable loss or injury;

(ii) to provide security for the performance of any obligation;

(iii) to produce or preserve any evidence; or

(iv) to compel any other appropriate act or omission.

(c) The order granting provisional relief may be conditioned upon the provision
of security or any act or omission specified in the order.

(d) Interim or provisional relief is requested by written application transmitted

by reasonable means to the Court or arbitral tribunal as the case may be and the
party against whom the relief is sought, describing in appropriate detail the
precise relief, the party against whom the relief is requested, the grounds for the
relief, and the evidence supporting the request.

(e) The order shall be binding upon the parties.

(f) Either party may apply with the Court for assistance in implementing or
enforcing an interim measure ordered by an arbitral tribunal.

(g) A party who does not comply with the order shall be liable for all damages
resulting from noncompliance, including all expenses, and reasonable attorney's
fees, paid in obtaining the order's judicial enforcement. (Emphasis ours.)
Art. 17 (2) of the UNCITRAL Model Law on ICA defines an "interim measure" of
protection as:

Article 17. Power of arbitral tribunal to order interim measures

xxx xxx xxx

(2) An interim measure is any temporary measure, whether in the form of an

award or in another form, by which, at any time prior to the issuance of the
award by which the dispute is finally decided, the arbitral tribunal orders a party
to:

(a) Maintain or restore the status quo pending determination of the dispute;

(b) Take action that would prevent, or refrain from taking action that is likely to
cause, current or imminent harm or prejudice to the arbitral process itself; DTISaH

(c) Provide a means of preserving assets out of which a subsequent award may
be satisfied; or

(d) Preserve evidence that may be relevant and material to the resolution of the
dispute.

Art. 17 J of UNCITRAL Model Law on ICA also grants courts power and jurisdiction to
issue interim measures:

Article 17 J. Court-ordered interim measures

A court shall have the same power of issuing an interim measure in relation to
arbitration proceedings, irrespective of whether their place is in the territory of
this State, as it has in relation to proceedings in courts. The court shall exercise
such power in accordance with its own procedures in consideration of the
specific features of international arbitration.

In the recent 2006 case of Transfield Philippines, Inc. v. Luzon Hydro Corporation, we
were explicit that even "the pendency of an arbitral proceeding does not foreclose resort
to the courts for provisional reliefs." We explicated this way:

As a fundamental point, the pendency of arbitral proceedings does not foreclose

resort to the courts for provisional reliefs. The Rules of the ICC, which governs
the parties' arbitral dispute, allows the application of a party to a judicial
authority for interim or conservatory measures. Likewise, Section 14 of
Republic Act (R.A.) No. 876 (The Arbitration Law) recognizes the rights of any
party to petition the court to take measures to safeguard and/or conserve any
matter which is the subject of the dispute in arbitration. In addition, R.A. 9285,
otherwise known as the "Alternative Dispute Resolution Act of 2004," allows
 the filing of provisional or interim measures with the regular courts whenever
the arbitral tribunal has no power to act or to act effectively. 50
AacCIT

It is thus beyond cavil that the RTC has authority and jurisdiction to grant interim
measures of protection.

Secondly, considering that the equipment and machineries are in the possession of
PGSMC, it has the right to protect and preserve the equipment and machineries in the
best way it can. Considering that the LPG plant was non-operational, PGSMC has the
right to dismantle and transfer the equipment and machineries either for their protection
and preservation or for the better way to make good use of them which is ineluctably
within the management discretion of PGSMC.

Thirdly, and of greater import is the reason that maintaining the equipment and
machineries in Worth's property is not to the best interest of PGSMC due to the
prohibitive rent while the LPG plant as set-up is not operational. PGSMC was losing
PhP322,560 as monthly rentals or PhP3.87M for 1998 alone without considering the 10%
annual rent increment in maintaining the plant.

Fourthly, and corollarily, while the KCAB can rule on motions or petitions relating to the
preservation or transfer of the equipment and machineries as an interim measure, yet on
hindsight, the July 23, 1998 Order of the RTC allowing the transfer of the equipment and
machineries given the non-recognition by the lower courts of the arbitral clause, has
accorded an interim measure of protection to PGSMC which would otherwise been
irreparably damaged.

Fifth, KOGIES is not unjustly prejudiced as it has already been paid a substantial amount
based on the contract. Moreover, KOGIES is amply protected by the arbitral action it has
instituted before the KCAB, the award of which can be enforced in our jurisdiction
through the RTC. Besides, by our decision, PGSMC is compelled to submit to arbitration
pursuant to the valid arbitration clause of its contract with KOGIES.

PGSMC to preserve the subject equipment and machineries

Finally, while PGSMC may have been granted the right to dismantle and transfer the
subject equipment and machineries, it does not have the right to convey or dispose of the
same considering the pending arbitral proceedings to settle the differences of the parties.
PGSMC therefore must preserve and maintain the subject equipment and machineries
with the diligence of a good father of a family 51 until final resolution of the arbitral
proceedings and enforcement of the award, if any.

WHEREFORE, this petition is PARTLY GRANTED, in that:

(1) The May 30, 2000 CA Decision in CA-G.R. SP No. 49249 is REVERSED and SET
ASIDE;

(2) The September 21, 1998 and October 19, 1998 RTC Orders in Civil Case No. 98-117
are REVERSED and SET ASIDE;

(3) The parties are hereby ORDERED to submit themselves to the arbitration of their
dispute and differences arising from the subject Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to dismantle and transfer the equipment and
machineries, if it had not done so, and ORDERED to preserve and maintain them until
the finality of whatever arbitral award is given in the arbitration proceedings.

No pronouncement as to costs. IEAHca

SO ORDERED.

Quisumbing, Carpio, Carpio-Morales and Tinga, JJ., concur.

SECOND DIVISION

[G.R. No. 168785. February 5, 2010.]

HERALD BLACK DACASIN, petitioner,vs.SHARON DEL MUNDO

DACASIN, respondent.

DECISION

CARPIO, J : p

The Case
For review 1 is a dismissal 2 of a suit to enforce a post-foreign divorce child
custody agreement for lack of jurisdiction.
The Facts
Petitioner Herald Dacasin (petitioner), American, and respondent Sharon Del
Mundo Dacasin (respondent), Filipino, were married in Manila in April 1994. They
have one daughter, Stephanie, born on 21 September 1995. In June 1999, respondent
sought and obtained from the Circuit Court, 19th Judicial Circuit, Lake County,
Illinois (Illinois court) a divorce decree against petitioner. 3 In its ruling, the Illinois
court dissolved the marriage of petitioner and respondent, awarded to respondent sole
custody of Stephanie and retained jurisdiction over the case for enforcement purposes.
On 28 January 2002, petitioner and respondent executed in Manila a contract
(Agreement4 ) for the joint custody of Stephanie. The parties chose Philippine courts
as exclusive forum to adjudicate disputes arising from the Agreement. Respondent
undertook to obtain from the Illinois court an order "relinquishing" jurisdiction to
Philippine courts. HTDCAS

In 2004, petitioner sued respondent in the Regional Trial Court of Makati City,
Branch 60 (trial court) to enforce the Agreement. Petitioner alleged that in violation of
the Agreement, respondent exercised sole custody over Stephanie.
Respondent sought the dismissal of the complaint for, among others, lack of
jurisdiction because of the Illinois court's retention of jurisdiction to enforce the
divorce decree.
The Ruling of the Trial Court
In its Order dated 1 March 2005, the trial court sustained respondent's motion
and dismissed the case for lack of jurisdiction. The trial court held that: (1) it is
precluded from taking cognizance over the suit considering the Illinois court's
retention of jurisdiction to enforce its divorce decree, including its order awarding
sole custody of Stephanie to respondent; (2) the divorce decree is binding on
petitioner following the "nationality rule" prevailing in this jurisdiction; 5 and (3) the
Agreement is void for contravening Article 2035, paragraph 5 of the Civil Code 6
prohibiting compromise agreements on jurisdiction. 7
Petitioner sought reconsideration, raising the new argument that the divorce
decree obtained by respondent is void. Thus, the divorce decree is no bar to the trial
court's exercise of jurisdiction over the case.
In its Order dated 23 June 2005, the trial court denied reconsideration, holding
that unlike in the case of respondent, the divorce decree is binding on petitioner under
the laws of his nationality.
Hence, this petition.
Petitioner submits the following alternative theories for the validity of the
Agreement to justify its enforcement by the trial court: (1) the Agreement novated the
valid divorce decree, modifying the terms of child custody from sole (maternal) to
joint; 8 or (2) the Agreement is independent of the divorce decree obtained by
respondent.
The Issue
 The question is whether the trial court has jurisdiction to take cognizance of
petitioner's suit and enforce the Agreement on the joint custody of the parties' child.
IaAScD

The Ruling of the Court

The trial court has jurisdiction to entertain petitioner's suit but not to enforce
the Agreement which is void. However, factual and equity considerations militate
against the dismissal of petitioner's suit and call for the remand of the case to settle the
question of Stephanie's custody.
Regional Trial Courts Vested with Jurisdiction
to Enforce Contracts
Subject matter jurisdiction is conferred by law. At the time petitioner filed his
suit in the trial court, statutory law vests on Regional Trial Courts exclusive original
jurisdiction over civil actions incapable of pecuniary estimation. 9 An action for
specific performance, such as petitioner's suit to enforce the Agreement on joint child
custody, belongs to this species of actions. 10 Thus, jurisdiction-wise, petitioner went
to the right court.
Indeed, the trial court's refusal to entertain petitioner's suit was grounded not
on its lack of power to do so but on its thinking that the Illinois court's divorce decree
stripped it of jurisdiction. This conclusion is unfounded. What the Illinois court
retained was "jurisdiction ...for the purpose of enforcing all and sundry the various
provisions of [its] Judgment for Dissolution." 11 Petitioner's suit seeks the
enforcement not of the "various provisions" of the divorce decree but of the post-
divorce Agreement on joint child custody. Thus, the action lies beyond the zone of the
Illinois court's so-called "retained jurisdiction."
Petitioner's Suit Lacks Cause of Action
The foregoing notwithstanding, the trial court cannot enforce the Agreement
which is contrary to law. cSATEH

In this jurisdiction, parties to a contract are free to stipulate the terms of

agreement subject to the minimum ban on stipulations contrary to law, morals, good
customs, public order, or public policy. 12 Otherwise, the contract is denied legal
existence, deemed "inexistent and void from the beginning." 13 For lack of relevant
stipulation in the Agreement, these and other ancillary Philippine substantive law
serve as default parameters to test the validity of the Agreement's joint child custody
stipulations. 14
At the time the parties executed the Agreement on 28 January 2002, two facts
are undisputed: (1) Stephanie was under seven years old (having been born on 21
September 1995); and (2) petitioner and respondent were no longer married under the
laws of the United States because of the divorce decree. The relevant Philippine law
on child custody for spouses separated in fact or in law 15 (under the second
paragraph of Article 213 of the Family Code) is also undisputed: "no child under
seven years of age shall be separated from the mother . . . ." 16 (This statutory
awarding of sole parental custody 17 to the mother is mandatory, 18 grounded on
sound policy consideration, 19 subject only to a narrow exception not alleged to
obtain here.20 ) Clearly then, the Agreement's object to establish a post-divorce joint
custody regime between respondent and petitioner over their child under seven years
old contravenes Philippine law.
The Agreement is not only void ab initio for being contrary to law, it has also
been repudiated by the mother when she refused to allow joint custody by the father.
The Agreement would be valid if the spouses have not divorced or separated because
the law provides for joint parental authority when spouses live together. 21 However,
upon separation of the spouses, the mother takes sole custody under the law if the
child is below seven years old and any agreement to the contrary is void. Thus, the
law suspends the joint custody regime for (1) children under seven of (2) separated or
divorced spouses. Simply put, for a child within this age bracket (and for
commonsensical reasons), the law decides for the separated or divorced parents how
best to take care of the child and that is to give custody to the separated mother.
Indeed, the separated parents cannot contract away the provision in the Family Code
on the maternal custody of children below seven years anymore than they can
privately agree that a mother who is unemployed, immoral, habitually drunk, drug
addict, insane or afflicted with a communicable disease will have sole custody of a
child under seven as these are reasons deemed compelling to preclude the application
of the exclusive maternal custody regime under the second paragraph of Article 213.
22 ITADaE

It will not do to argue that the second paragraph of Article 213 of the Family
Code applies only to judicial custodial agreements based on its text that "No child
under seven years of age shall be separated from the mother, unless the court finds
compelling reasons to order otherwise." To limit this provision's enforceability to
court sanctioned agreements while placing private agreements beyond its reach is to
sanction a double standard in custody regulation of children under seven years old of
separated parents. This effectively empowers separated parents, by the simple
expedient of avoiding the courts, to subvert a legislative policy vesting to the
separated mother sole custody of her children under seven years of age "to avoid a
tragedy where a mother has seen her baby torn away from her." 23 This ignores the
legislative basis that "[n]o man can sound the deep sorrows of a mother who is
deprived of her child of tender age." 24
It could very well be that Article 213's bias favoring one separated parent
(mother) over the other (father) encourages paternal neglect, presumes incapacity for
joint parental custody, robs the parents of custodial options, or hijacks decision-
making between the separated parents. 25 However, these are objections which
question the law's wisdom not its validity or uniform enforceability. The forum to air
and remedy these grievances is the legislature, not this Court. At any rate, the rule's
seeming harshness or undesirability is tempered by ancillary agreements the separated
parents may wish to enter such as granting the father visitation and other privileges.
These arrangements are not inconsistent with the regime of sole maternal custody
under the second paragraph of Article 213 which merely grants to the mother final
authority on the care and custody of the minor under seven years of age, in case of
disagreements.
Further, the imposed custodial regime under the second paragraph of Article
213 is limited in duration, lasting only until the child's seventh year. From the eighth
year until the child's emancipation, the law gives the separated parents freedom,
subject to the usual contractual limitations, to agree on custody regimes they see fit to
adopt. Lastly, even supposing that petitioner and respondent are not barred from
entering into the Agreement for the joint custody of Stephanie, respondent repudiated
the Agreement by asserting sole custody over Stephanie. Respondent's act effectively
brought the parties back to ambit of the default custodial regime in the second
paragraph of Article 213 of the Family Code vesting on respondent sole custody of
Stephanie.
Nor can petitioner rely on the divorce decree's alleged invalidity — not
because the Illinois court lacked jurisdiction or that the divorce decree violated
Illinois law, but because the divorce was obtained by his Filipino spouse 26 — to
support the Agreement's enforceability. The argument that foreigners in this
jurisdiction are not bound by foreign divorce decrees is hardly novel. Van Dorn v.
Romillo 27 settled the matter by holding that an alien spouse of a Filipino is bound by
a divorce decree obtained abroad. 28 There, we dismissed the alien divorcee's
Philippine suit for accounting of alleged post-divorce conjugal property and rejected
his submission that the foreign divorce (obtained by the Filipino spouse) is not valid
in this jurisdiction in this wise:

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, 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. 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.

xxx xxx xxx

 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. (Emphasis supplied)

We reiterated Van Dorn in Pilapil v. Ibay-Somera 29 to dismiss criminal

complaints for adultery filed by the alien divorcee (who obtained the foreign divorce
decree) against his former Filipino spouse because he no longer qualified as "offended
spouse" entitled to file the complaints under Philippine procedural rules. Thus, it
should be clear by now that a foreign divorce decree carries as much validity against
the alien divorcee in this jurisdiction as it does in the jurisdiction of the alien's
nationality, irrespective of who obtained the divorce. TcSAaH

The Facts of the Case and Nature of Proceeding Justify Remand

Instead of ordering the dismissal of petitioner's suit, the logical end to its lack
of cause of action, we remand the case for the trial court to settle the question of
Stephanie's custody. Stephanie is now nearly 15 years old, thus removing the case
outside of the ambit of the mandatory maternal custody regime under Article 213 and
bringing it within coverage of the default standard on child custody proceedings —
the best interest of the child. 30 As the question of custody is already before the trial
court and the child's parents, by executing the Agreement, initially showed inclination
to share custody, it is in the interest of swift and efficient rendition of justice to allow
the parties to take advantage of the court's jurisdiction, submit evidence on the
custodial arrangement best serving Stephanie's interest, and let the trial court render
judgment. This disposition is consistent with the settled doctrine that in child custody
proceedings, equity may be invoked to serve the child's best interest. 31
WHEREFORE,we REVERSE the Orders dated 1 March 2005 and 23 June
2005 of the Regional Trial Court of Makati City, Branch 60. The case is
REMANDED for further proceedings consistent with this ruling.
SO ORDERED.
Brion, Del Castillo and Perez, JJ., concur.
Abad, J., see separate opinion.

FIRST DIVISION

[G.R. No. 140047. July 13, 2004.]

 PHILIPPINE EXPORT AND FOREIGN LOAN GUARANTEE
CORPORATION, petitioner, vs. V.P. EUSEBIO CONSTRUCTION,
INC.; 3-PLEX INTERNATIONAL, INC.; VICENTE P. EUSEBIO;
SOLEDAD C. EUSEBIO; EDUARDO E. SANTOS; ILUMINADA
SANTOS; AND FIRST INTEGRATED BONDING AND
INSURANCE COMPANY, INC., respondents.

DECISION

DAVIDE, JR., C.J : p

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

In a complaint filed with the Regional Trial Court of Makati City, docketed as Civil Case
No. 91-1906 and assigned to Branch 58, petitioner Philippine Export and Foreign Loan
Guarantee Corporation 1 (hereinafter Philguarantee) sought reimbursement from the
respondents of the sum of money it paid to Al Ahli Bank of Kuwait pursuant to a
guarantee it issued for respondent V.P. Eusebio Construction, Inc. (VPECI).

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

On 8 November 1980, the State Organization of Buildings (SOB), Ministry of Housing

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

On 7 March 1981, respondent spouses Eduardo and Iluminada Santos, in behalf of

respondent 3-Plex International, Inc. (hereinafter 3-Plex), a local contractor engaged in
construction business, entered into a joint venture agreement with Ajyal wherein the
former undertook the execution of the entire Project, while the latter would be entitled to
a commission of 4% of the contract price. 3 Later, or on 8 April 1981, respondent 3-Plex,
not being accredited by or registered with the Philippine Overseas Construction Board
(POCB), assigned and transferred all its rights and interests under the joint venture
agreement to VPECI, a construction and engineering firm duly registered with the POCB.
4 However, on 2 May 1981, 3-Plex and VPECI entered into an agreement that the
execution of the Project would be under their joint management. 5
The SOB required the contractors to submit (1) a performance bond of ID271,808/610
representing 5% of the total contract price and (2) an advance payment bond of
ID541,608/901 representing 10% of the advance payment to be released upon signing of
the contract. 6 To comply with these requirements, respondents 3-Plex and VPECI
applied for the issuance of a guarantee with petitioner Philguarantee, a government
financial institution empowered to issue guarantees for qualified Filipino contractors to
secure the performance of approved service contracts abroad. 7

Petitioner Philguarantee approved respondents' application. Subsequently, letters of

guarantee 8 were issued by Philguarantee to the Rafidain Bank of Baghdad covering
100% of the performance and advance payment bonds, but they were not accepted by
SOB. What SOB required was a letter-guarantee from Rafidain Bank, the government
bank of Iraq. Rafidain Bank then issued a performance bond in favor of SOB on the
condition that another foreign bank, not Philguarantee, would issue a counter-guarantee
to cover its exposure. Al Ahli Bank of Kuwait was, therefore, engaged to provide a
counter-guarantee to Rafidain Bank, but it required a similar counter-guarantee in its
favor from the petitioner. Thus, three layers of guarantees had to be arranged. 9

Upon the application of respondents 3-Plex and VPECI, petitioner Philguarantee issued
in favor of Al Ahli Bank of Kuwait Letter of Guarantee No. 81-194-F 10 (Performance
Bond Guarantee) in the amount of ID271,808/610 and Letter of Guarantee No. 81-195-F
11 (Advance Payment Guarantee) in the amount of ID541,608/901, both for a term of
eighteen months from 25 May 1981. These letters of guarantee were secured by (1) a
Deed of Undertaking 12 executed by respondents VPECI, Spouses Vicente P. Eusebio
and Soledad C. Eusebio, 3-Plex, and Spouses Eduardo E. Santos and Iluminada Santos;
and (2) a surety bond 13 issued by respondent First Integrated Bonding and Insurance
Company, Inc. (FIBICI). The Surety Bond was later amended on 23 June 1981 to
increase the amount of coverage from P6.4 million to P6.967 million and to change the
bank in whose favor the petitioner's guarantee was issued, from Rafidain Bank to Al Ahli
Bank of Kuwait. 14

On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed the service
contract 15 for the construction of the Institute of Physical Therapy — Medical
Rehabilitation Center, Phase II, in Baghdad, Iraq, wherein the joint venture contractor
undertook to complete the Project within a period of 547 days or 18 months. Under the
Contract, the Joint Venture would supply manpower and materials, and SOB would
refund to the former 25% of the project cost in Iraqi Dinar and the 75% in US dollars at
the exchange rate of 1 Dinar to 3.37777 US Dollars. 16

The construction, which was supposed to start on 2 June 1981, commenced only on the
last week of August 1981. Because of this delay and the slow progress of the construction
work due to some setbacks and difficulties, the Project was not completed on 15
November 1982 as scheduled. But in October 1982, upon foreseeing the impossibility of
meeting the deadline and upon the request of Al Ahli Bank, the joint venture contractor
worked for the renewal or extension of the Performance Bond and Advance Payment
Guarantee. Petitioner's Letters of Guarantee Nos. 81-194-F (Performance Bond) and 81-
195-F (Advance Payment Bond) with expiry date of 25 November 1982 were then
renewed or extended to 9 February 1983 and 9 March 1983, respectively. 17 The surety
bond was also extended for another period of one year, from 12 May 1982 to 12 May
1983. 18 The Performance Bond was further extended twelve times with validity of up to
8 December 1986, 19 while the Advance Payment Guarantee was extended three times
more up to 24 May 1984 when the latter was cancelled after full refund or reimbursement
by the joint venture contractor. 20 The surety bond was likewise extended to 8 May 1987.
21

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

On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the petitioner
demanding full payment of its performance bond counter-guarantee.

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

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

Both petitioner Philguarantee and respondent VPECI sought the assistance of some
government agencies of the Philippines. On 10 August 1987, VPECI requested the
Central Bank to hold in abeyance the payment by the petitioner "to allow the diplomatic
machinery to take its course, for otherwise, the Philippine government, through the
Philguarantee and the Central Bank, would become instruments of the Iraqi Government
in consummating a clear act of injustice and inequity committed against a Filipino
contractor." 27

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

On 6 November 1987, Philguarantee informed VPECI that it would remit US$876,564 to

Al Ahli Bank, and reiterated the joint and solidary obligation of the respondents to
reimburse the petitioner for the advances made on its counter-guarantee. 29

The petitioner thus paid the amount of US$876,564 to Al Ahli Bank of Kuwait on 21
January 1988. 30 Then, on 6 May 1988, the petitioner paid to Al Ahli Bank of Kuwait
US$59,129.83 representing interest and penalty charges demanded by the latter bank. 31

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

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

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

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

xxx xxx xxx

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

xxx xxx xxx

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

xxx xxx xxx

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

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

. . . RESPONDENTS ARE NOT LIABLE UNDER THE DEED OF

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

II

. . . PETITIONER CANNOT CLAIM SUBROGATION.

 III

. . . IT IS INIQUITOUS AND UNJUST FOR PETITIONER TO HOLD

RESPONDENTS LIABLE UNDER THEIR DEED OF UNDERTAKING. 36

The main issue in this case is whether the petitioner is entitled to reimbursement of what
it paid under Letter of Guarantee No. 81-194-F it issued to Al Ahli Bank of Kuwait based
on the deed of undertaking and surety bond from the respondents.

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

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

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

1. A surety is usually bound with his principal by the same instrument

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

2. A surety assumes liability as a regular party to the undertaking; while

the liability of a guarantor is conditional depending on the failure
of the primary debtor to pay the obligation.

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

secondary.

4. A surety is an original promissor and debtor from the beginning, while

a guarantor is charged on his own undertaking.

5. A surety is, ordinarily, held to know every default of his principal;

whereas a guarantor is not bound to take notice of the non-
performance of his principal.
 6. Usually, a surety will not be discharged either by the mere indulgence
of the creditor to the principal or by want of notice of the default of
the principal, no matter how much he may be injured thereby. A
guarantor is often discharged by the mere indulgence of the
creditor to the principal, and is usually not liable unless notified of
the default of the principal. 38

In determining petitioner's status, it is necessary to read Letter of Guarantee No. 81-194-

F, which provides in part as follows:

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

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

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

Guided by the abovementioned distinctions between a surety and a guaranty, as well as

the factual milieu of this case, we find that the Court of Appeals and the trial court were
correct in ruling that the petitioner is a guarantor and not a surety. That the guarantee
issued by the petitioner is unconditional and irrevocable does not make the petitioner a
surety. As a guaranty, it is still characterized by its subsidiary and conditional quality
because it does not take effect until the fulfillment of the condition, namely, that the
principal obligor should fail in his obligation at the time and in the form he bound
himself. 40 In other words, an unconditional guarantee is still subject to the condition that
the principal debtor should default in his obligation first before resort to the guarantor
could be had. A conditional guaranty, as opposed to an unconditional guaranty, is one
which depends upon some extraneous event, beyond the mere default of the principal,
and generally upon notice of the principal's default and reasonable diligence in
exhausting proper remedies against the principal. 41

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

Having determined petitioner's liability as guarantor, the next question we have to

grapple with is whether the respondent contractor has defaulted in its obligations that
would justify resort to the guaranty. This is a mixed question of fact and law that is better
addressed by the lower courts, since this Court is not a trier of facts.

It is a fundamental and settled rule that the findings of fact of the trial court and the Court
of Appeals are binding or conclusive upon this Court unless they are not supported by the
evidence or unless strong and cogent reasons dictate otherwise. 43 The factual findings of
the Court of Appeals are normally not reviewable by us under Rule 45 of the Rules of
Court except when they are at variance with those of the trial court. 44 The trial court and
the Court of Appeals were in unison that the respondent contractor cannot be considered
to have defaulted in its obligations because the cause of the delay was not primarily
attributable to it.

A corollary issue is what law should be applied in determining whether the respondent
contractor has defaulted in the performance of its obligations under the service contract.
The question of whether there is a breach of an agreement, which includes default or
mora, 45 pertains to the essential or intrinsic validity of a contract. 46

No conflicts rule on essential validity of contracts is expressly provided for in our laws.
The rule followed by most legal systems, however, is that the intrinsic validity of a
contract must be governed by the lex contractus or "proper law of the contract." This is
the law voluntarily agreed upon by the parties (the lex loci voluntatis) or the law intended
by them either expressly or implicitly (the lex loci intentionis). The law selected may be
implied from such factors as substantial connection with the transaction, or the
nationality or domicile of the parties. 47 Philippine courts would do well to adopt the first
and most basic rule in most legal systems, namely, to allow the parties to select the law
applicable to their contract, subject to the limitation that it is not against the law, morals,
or public policy of the forum and that the chosen law must bear a substantive
relationship to the transaction. 48

It must be noted that the service contract between SOB and VPECI contains no express
choice of the law that would govern it. In the United States and Europe, the two rules that
now seem to have emerged as "kings of the hill" are (1) the parties may choose the
governing law; and (2) in the absence of such a choice, the applicable law is that of the
State that "has the most significant relationship to the transaction and the parties." 49
Another authority proposed that all matters relating to the time, place, and manner of
performance and valid excuses for non-performance are determined by the law of the
place of performance or lex loci solutionis, which is useful because it is undoubtedly
always connected to the contract in a significant way. 50

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

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

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

It is undisputed that only 51.7% of the total work had been accomplished. The 48.3%
unfinished portion consisted in the purchase and installation of electro-mechanical
equipment and materials, which were available from foreign suppliers, thus requiring US
Dollars for their importation. The monthly billings and payments made by SOB 54 reveal
that the agreement between the parties was a periodic payment by the Project owner to
the contractor depending on the percentage of accomplishment within the period. 55 The
payments were, in turn, to be used by the contractor to finance the subsequent phase of
the work. 56 However, as explained by VPECI in its letter to the Department of Foreign
Affairs (DFA), the payment by SOB purely in Dinars adversely affected the completion
of the project; thus:
IaEHSD

4. Despite protests from the plaintiff, SOB continued paying the

accomplishment billings of the Contractor purely in Iraqi Dinars and which
payment came only after some delays.

5. SOB is fully aware of the following:

xxx xxx xxx

5.2 That Plaintiff is a foreign contractor in Iraq and as such, would need foreign
currency (US$), to finance the purchase of various equipment, materials,
supplies, tools and to pay for the cost of project management, supervision and
skilled labor not available in Iraq and therefore have to be imported and or
obtained from the Philippines and other sources outside Iraq.
5.3 That the Ministry of Labor and Employment of the Philippines requires the
remittance into the Philippines of 70% of the salaries of Filipino workers
working abroad in US Dollars;

xxx xxx xxx

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

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

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

xxx xxx xxx

8. Following the approved construction program of the CONTRACT, upon

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

xxx xxx xxx

10. Due to the lack of Foreign currency in Iraq for this purpose, and if only to
assist the Iraqi government in completing the PROJECT, the Contractor without
any obligation on its part to do so but with the knowledge and consent of SOB
and the Ministry of Housing & Construction of Iraq, offered to arrange on
behalf of SOB, a foreign currency loan, through the facilities of Circle
International S.A., the Contractor's Sub-contractor and SACE MEDIO
CREDITO which will act as the guarantor for this foreign currency loan.

Arrangements were first made with Banco di Roma. Negotiation started in June
1985. SOB is informed of the developments of this negotiation, attached is a
copy of the draft of the loan Agreement between SOB as the Borrower and
Agent. The Several Banks, as Lender, and counter-guaranteed by Istituto
Centrale Per II Credito A Medio Termine (Mediocredito) Sezione Speciale Per
L'Assicurazione Del Credito All' Exportazione (Sace). Negotiations went on and
continued until it suddenly collapsed due to the reported default by Iraq in the
payment of its obligations with Italian government, copy of the news clipping
dated June 18, 1986 is hereto attached as Annex "D" to form an integral part
hereof;
 15. On September 15, 1986, Contractor received information from Circle
International S.A. that because of the news report that Iraq defaulted in its
obligations with European banks, the approval by Banco di Roma of the loan to
SOB shall be deferred indefinitely, a copy of the letter of Circle International
together with the news clippings are hereto attached as Annexes "F" and "F-1",
respectively. 57

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

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

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

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

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

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

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

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

6.1 Present the following arguments in cancelling the counterguarantee:

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

xxx xxx xxx

• It could also be argued that the amount of ID281,414/066 retained by

SOB from the proposed project is more than the amount of the
outstanding counterguarantee. 65

In a nutshell, since the petitioner was aware of the contractor's outstanding receivables
from SOB, it should have set up compensation as was proposed in its project situationer.
IHTASa
Moreover, the petitioner was very much aware of the predicament of the respondents. In
fact, in its 13 May 1987 letter to the OMEAA, DFA, Manila, it stated:

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

While PHILGUARANTEE is prepared to honor its commitment under the

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

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

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

As a rule, a guarantor who pays for a debtor should be indemnified by the latter 67 and
would be legally subrogated to the rights which the creditor has against the debtor. 68
However, a person who makes payment without the knowledge or against the will of the
debtor has the right to recover only insofar as the payment has been beneficial to the
debtor. 69 If the obligation was subject to defenses on the part of the debtor, the same
defenses which could have been set up against the creditor can be set up against the
paying guarantor. 70

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

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

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

WHEREFORE, the petition for review on certiorari is hereby DENIED for lack of merit,
and the decision of the Court of appeals in CA-G.R. CV No. 39302 is AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Panganiban, Ynares-Santiago, Carpio and Azcuna, JJ ., concur.

FIRST DIVISION

[G.R. No. 139868. June 8, 2006.]

ALONZO Q. ANCHETA, petitioner, vs. CANDELARIA GUERSEY-

DALAYGON, respondent.

DECISION

AUSTRIA-MARTINEZ, J : p
Spouses Audrey O'Neill (Audrey) and W. Richard Guersey (Richard) were American
citizens who have resided in the Philippines for 30 years. They have an adopted daughter,
Kyle Guersey Hill (Kyle). On July 29, 1979, Audrey died, leaving a will. In it, she
bequeathed her entire estate to Richard, who was also designated as executor. 1 The will
was admitted to probate before the Orphan's Court of Baltimore, Maryland, U.S.A, which
named James N. Phillips as executor due to Richard's renunciation of his appointment. 2
The court also named Atty. Alonzo Q. Ancheta (petitioner) of the Quasha Asperilla
Ancheta Pena & Nolasco Law Offices as ancillary administrator. 3

In 1981, Richard married Candelaria Guersey-Dalaygon (respondent) with whom he has

two children, namely, Kimberly and Kevin.

On October 12, 1982, Audrey's will was also admitted to probate by the then Court of
First Instance of Rizal, Branch 25, Seventh Judicial District, Pasig, in Special Proceeding
No. 9625. 4 As administrator of Audrey's estate in the Philippines, petitioner filed an
inventory and appraisal of the following properties: (1) Audrey's conjugal share in real
estate with improvements located at 28 Pili Avenue, Forbes Park, Makati, Metro Manila,
valued at P764,865.00 (Makati property); (2) a current account in Audrey's name with a
cash balance of P12,417.97; and (3) 64,444 shares of stock in A/G Interiors, Inc. worth
P64,444.00. 5

On July 20, 1984, Richard died, leaving a will, wherein he bequeathed his entire estate to
respondent, save for his rights and interests over the A/G Interiors, Inc. shares, which he
left to Kyle. 6 The will was also admitted to probate by the Orphan's Court of Ann
Arundel, Maryland, U.S.A, and James N. Phillips was likewise appointed as executor,
who in turn, designated Atty. William Quasha or any member of the Quasha Asperilla
Ancheta Pena & Nolasco Law Offices, as ancillary administrator. HScCEa

Richard's will was then submitted for probate before the Regional Trial Court of Makati,
Branch 138, docketed as Special Proceeding No. M-888. 7 Atty. Quasha was appointed
as ancillary administrator on July 24, 1986. 8

On October 19, 1987, petitioner filed in Special Proceeding No. 9625, a motion to declare
Richard and Kyle as heirs of Audrey. 9 Petitioner also filed on October 23, 1987, a
project of partition of Audrey's estate, with Richard being apportioned the 3/4 undivided
interest in the Makati property, 48.333 shares in A/G Interiors, Inc., and P9,313.48 from
the Citibank current account; and Kyle, the 1/4 undivided interest in the Makati property,
16,111 shares in A/G Interiors, Inc., and P3,104.49 in cash. 10

The motion and project of partition was granted and approved by the trial court in its
Order dated February 12, 1988. 11 The trial court also issued an Order on April 7, 1988,
directing the Register of Deeds of Makati to cancel TCT No. 69792 in the name of
Richard and to issue a new title in the joint names of the Estate of W. Richard Guersey
(3/4 undivided interest) and Kyle (1/4 undivided interest); directing the Secretary of A/G
Interiors, Inc. to transfer 48.333 shares to the Estate of W. Richard Guersey and 16.111
shares to Kyle; and directing the Citibank to release the amount of P12,417.97 to the
ancillary administrator for distribution to the heirs. 12

Consequently, the Register of Deeds of Makati issued on June 23, 1988, TCT No. 155823
in the names of the Estate of W. Richard Guersey and Kyle. 13

Meanwhile, the ancillary administrator in Special Proceeding No. M-888 also filed a
project of partition wherein 2/5 of Richard's 3/4 undivided interest in the Makati property
was allocated to respondent, while 3/5 thereof were allocated to Richard's three children.
This was opposed by respondent on the ground that under the law of the State of
Maryland, "a legacy passes to the legatee the entire interest of the testator in the
property subject of the legacy." 14 Since Richard left his entire estate to respondent,
except for his rights and interests over the A/G Interiors, Inc, shares, then his entire 3/4
undivided interest in the Makati property should be given to respondent.

The trial court found merit in respondent's opposition, and in its Order dated December 6,
1991, disapproved the project of partition insofar as it affects the Makati property. The
trial court also adjudicated Richard's entire 3/4 undivided interest in the Makati property
to respondent. 15

On October 20, 1993, respondent filed with the Court of Appeals (CA) an amended
complaint for the annulment of the trial court's Orders dated February 12, 1988 and April
7, 1988, issued in Special Proceeding No. 9625. 16 Respondent contended that petitioner
willfully breached his fiduciary duty when he disregarded the laws of the State of
Maryland on the distribution of Audrey's estate in accordance with her will. Respondent
argued that since Audrey devised her entire estate to Richard, then the Makati property
should be wholly adjudicated to him, and not merely 3/4 thereof, and since Richard left
his entire estate, except for his rights and interests over the A/G Interiors, Inc., to
respondent, then the entire Makati property should now pertain to respondent.

Petitioner filed his Answer denying respondent's allegations. Petitioner contended that he
acted in good faith in submitting the project of partition before the trial court in Special
Proceeding No. 9625, as he had no knowledge of the State of Maryland's laws on testate
and intestate succession. Petitioner alleged that he believed that it is to the "best interests
of the surviving children that Philippine law be applied as they would receive their just
shares." Petitioner also alleged that the orders sought to be annulled are already final and
executory, and cannot be set aside.

On March 18, 1999, the CA rendered the assailed Decision annulling the trial court's
Orders dated February 12, 1988 and April 7, 1988, in Special Proceeding No. 9625. 17
The dispositive portion of the assailed Decision provides:
 WHEREFORE, the assailed Orders of February 12, 1998 and April 7, 1988 are
hereby ANNULLED and, in lieu thereof, a new one is entered ordering:

(a) The adjudication of the entire estate of Audrey O'Neill Guersey in favor of
the estate of W. Richard Guersey; and

(b) The cancellation of Transfer Certificate of Title No. 15583 of the Makati
City Registry and the issuance of a new title in the name of the estate of W.
Richard Guersey. DAHEaT

SO ORDERED. 18

Petitioner filed a motion for reconsideration, but this was denied by the CA per
Resolution dated August 27, 1999. 19

Hence, the herein petition for review on certiorari under Rule 45 of the Rules of Court
alleging that the CA gravely erred in not holding that:

A) THE ORDERS OF 12 FEBRUARY 1988 AND 07 APRIL 1988 IN

SPECIAL PROCEEDINGS NO. 9625 "IN THE MATTER OF THE PETITION
FOR PROBATE OF THE WILL OF THE DECEASED AUDREY GUERSEY,
ALONZO Q. ANCHETA, ANCILLARY ADMINISTRATOR", ARE VALID
AND BINDING AND HAVE LONG BECOME FINAL AND HAVE BEEN
FULLY IMPLEMENTED AND EXECUTED AND CAN NO LONGER BE
ANNULLED.

B) THE ANCILLARY ADMINISTRATOR HAVING ACTED IN GOOD

FAITH, DID NOT COMMIT FRAUD, EITHER EXTRINSIC OR INTRINSIC,
IN THE PERFORMANCE OF HIS DUTIES AS ANCILLARY
ADMINISTRATOR OF AUDREY O'NEIL GUERSEY'S ESTATE IN THE
PHILIPPINES, AND THAT NO FRAUD, EITHER EXTRINSIC OR
INTRINSIC, WAS EMPLOYED BY [HIM] IN PROCURING SAID ORDERS.
20

Petitioner reiterates his arguments before the CA that the Orders dated February 12, 1988
and April 7, 1988 can no longer be annulled because it is a final judgment, which is
"conclusive upon the administration as to all matters involved in such judgment or order,
and will determine for all time and in all courts, as far as the parties to the proceedings
are concerned, all matters therein determined," and the same has already been executed.
21

Petitioner also contends that that he acted in good faith in performing his duties as an
ancillary administrator. He maintains that at the time of the filing of the project of
partition, he was not aware of the relevant laws of the State of Maryland, such that the
partition was made in accordance with Philippine laws. Petitioner also imputes
knowledge on the part of respondent with regard to the terms of Aubrey's will, stating
that as early as 1984, he already apprised respondent of the contents of the will and how
the estate will be divided. 22

Respondent argues that petitioner's breach of his fiduciary duty as ancillary administrator
of Aubrey's estate amounted to extrinsic fraud. According to respondent, petitioner was
duty-bound to follow the express terms of Aubrey's will, and his denial of knowledge of
the laws of Maryland cannot stand because petitioner is a senior partner in a prestigious
law firm and it was his duty to know the relevant laws.

Respondent also states that she was not able to file any opposition to the project of
partition because she was not a party thereto and she learned of the provision of Aubrey's
will bequeathing entirely her estate to Richard only after Atty. Ancheta filed a project of
partition in Special Proceeding No. M-888 for the settlement of Richard's estate.

A decree of distribution of the estate of a deceased person vests the title to the land of the
estate in the distributees, which, if erroneous may be corrected by a timely appeal. Once
it becomes final, its binding effect is like any other judgment in rem. 23 However, in
exceptional cases, a final decree of distribution of the estate may be set aside for lack of
jurisdiction or fraud. 24 Further, in Ramon v. Ortuzar, 25 the Court ruled that a party
interested in a probate proceeding may have a final liquidation set aside when he is left
out by reason of circumstances beyond his control or through mistake or inadvertence not
imputable to negligence. 26

The petition for annulment was filed before the CA on October 20, 1993, before the
issuance of the 1997 Rules of Civil Procedure; hence, the applicable law is Batas
Pambansa Blg. 129 (B.P. 129) or the Judiciary Reorganization Act of 1980. An
annulment of judgment filed under B.P. 129 may be based on the ground that a judgment
is void for want of jurisdiction or that the judgment was obtained by extrinsic fraud. 27
For fraud to become a basis for annulment of judgment, it has to be extrinsic or actual, 28
and must be brought within four years from the discovery of the fraud. 29

In the present case, respondent alleged extrinsic fraud as basis for the annulment of the
RTC Orders dated February 12, 1988 and April 7, 1988. The CA found merit in
respondent's cause and found that petitioner's failure to follow the terms of Audrey's will,
despite the latter's declaration of good faith, amounted to extrinsic fraud. The CA ruled
that under Article 16 of the Civil Code, it is the national law of the decedent that is
applicable, hence, petitioner should have distributed Aubrey's estate in accordance with
the terms of her will. The CA also found that petitioner was prompted to distribute
Audrey's estate in accordance with Philippine laws in order to equally benefit Audrey and
Richard Guersey's adopted daughter, Kyle Guersey Hill. STcEaI
Petitioner contends that respondent's cause of action had already prescribed because as
early as 1984, respondent was already well aware of the terms of Audrey's will, 30 and
the complaint was filed only in 1993. Respondent, on the other hand, justified her lack of
immediate action by saying that she had no opportunity to question petitioner's acts since
she was not a party to Special Proceeding No. 9625, and it was only after Atty. Ancheta
filed the project of partition in Special Proceeding No. M-888, reducing her inheritance in
the estate of Richard that she was prompted to seek another counsel to protect her
interest. 31

It should be pointed out that the prescriptive period for annulment of judgment based on
extrinsic fraud commences to run from the discovery of the fraud or fraudulent act/s.
Respondent's knowledge of the terms of Audrey's will is immaterial in this case since it is
not the fraud complained of. Rather, it is petitioner's failure to introduce in evidence the
pertinent law of the State of Maryland that is the fraudulent act, or in this case, omission,
alleged to have been committed against respondent, and therefore, the four-year period
should be counted from the time of respondent's discovery thereof.

Records bear the fact that the filing of the project of partition of Richard's estate, the
opposition thereto, and the order of the trial court disallowing the project of partition in
Special Proceeding No. M-888 were all done in 1991. 32 Respondent cannot be faulted
for letting the assailed orders to lapse into finality since it was only through Special
Proceeding No. M-888 that she came to comprehend the ramifications of petitioner's acts.
Obviously, respondent had no other recourse under the circumstances but to file the
annulment case. Since the action for annulment was filed in 1993, clearly, the same has
not yet prescribed.

Fraud takes on different shapes and faces. In Cosmic Lumber Corporation v. Court of
Appeals, 33 the Court stated that "man in his ingenuity and fertile imagination will
always contrive new schemes to fool the unwary."

There is extrinsic fraud within the meaning of Sec. 9 par. (2), of B.P. Blg. 129,
where it is one the effect of which prevents a party from hearing a trial, or real
contest, or from presenting all of his case to the court, or where it operates upon
matters, not pertaining to the judgment itself, but to the manner in which it was
procured so that there is not a fair submission of the controversy. In other
words, extrinsic fraud refers to any fraudulent act of the prevailing party in the
litigation which is committed outside of the trial of the case, whereby the
defeated party has been prevented from exhibiting fully his side of the case by
fraud or deception practiced on him by his opponent. Fraud is extrinsic where
the unsuccessful party has been prevented from exhibiting fully his case, by
fraud or deception practiced on him by his opponent, as by keeping him away
from court, a false promise of a compromise; or where the defendant never had
any knowledge of the suit, being kept in ignorance by the acts of the plaintiff; or
where an attorney fraudulently or without authority connives at his defeat; these
 and similar cases which show that there has never been a real contest in the trial
or hearing of the case are reasons for which a new suit may be sustained to set
aside and annul the former judgment and open the case for a new and fair
hearing. 34

The overriding consideration when extrinsic fraud is alleged is that the fraudulent scheme
of the prevailing litigant prevented a party from having his day in court. 35

Petitioner is the ancillary administrator of Audrey's estate. As such, he occupies a

position of the highest trust and confidence, and he is required to exercise reasonable
diligence and act in entire good faith in the performance of that trust. Although he is not a
guarantor or insurer of the safety of the estate nor is he expected to be infallible, yet the
same degree of prudence, care and judgment which a person of a fair average capacity
and ability exercises in similar transactions of his own, serves as the standard by which
his conduct is to be judged. 36

Petitioner's failure to proficiently manage the distribution of Audrey's estate according to

the terms of her will and as dictated by the applicable law amounted to extrinsic fraud.
Hence the CA Decision annulling the RTC Orders dated February 12, 1988 and April 7,
1988, must be upheld. ACDIcS

It is undisputed that Audrey Guersey was an American citizen domiciled in Maryland,

U.S.A. During the reprobate of her will in Special Proceeding No. 9625, it was shown,
among others, that at the time of Audrey's death, she was residing in the Philippines but
is domiciled in Maryland, U.S.A.; her Last Will and Testament dated August 18, 1972
was executed and probated before the Orphan's Court in Baltimore, Maryland, U.S.A.,
which was duly authenticated and certified by the Register of Wills of Baltimore City and
attested by the Chief Judge of said court; the will was admitted by the Orphan's Court of
Baltimore City on September 7, 1979; and the will was authenticated by the Secretary of
State of Maryland and the Vice Consul of the Philippine Embassy.

Being a foreign national, the intrinsic validity of Audrey's will, especially with regard as
to who are her heirs, is governed by her national law, i.e., the law of the State of
Maryland, as provided in Article 16 of the Civil Code, to wit:

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 supplied)
Article 1039 of the Civil Code further provides that "capacity to succeed is governed by
the law of the nation of the decedent."

As a corollary rule, Section 4, Rule 77 of the Rules of Court on Allowance of Will

Proved Outside the Philippines and Administration of Estate Thereunder, states:

SEC. 4. Estate, how administered. — When a will is thus allowed, the court
shall grant letters testamentary, or letters of administration with the will
annexed, and such letters testamentary or of administration, shall extend to all
the estate of the testator in the Philippines. Such estate, after the payment of
just debts and expenses of administration, shall be disposed of according to
such will, so far as such will may operate upon it; and the residue, if any,
shall be disposed of as is provided by law in cases of estates in the Philippines
belonging to persons who are inhabitants of another state or country. (Emphasis
supplied)

While foreign laws do not prove themselves in our jurisdiction and our courts are not
authorized to take judicial notice of them; 37 however, petitioner, as ancillary
administrator of Audrey's estate, was duty-bound to introduce in evidence the pertinent
law of the State of Maryland. 38

Petitioner admitted that he failed to introduce in evidence the law of the State of
Maryland on Estates and Trusts, and merely relied on the presumption that such law is
the same as the Philippine law on wills and succession. Thus, the trial court peremptorily
applied Philippine laws and totally disregarded the terms of Audrey's will. The obvious
result was that there was no fair submission of the case before the trial court or a
judicious appreciation of the evidence presented. ISTDAH

Petitioner insists that his application of Philippine laws was made in good faith. The
Court cannot accept petitioner's protestation. How can petitioner honestly presume that
Philippine laws apply when as early as the reprobate of Audrey's will before the trial
court in 1982, it was already brought to fore that Audrey was a U.S. citizen, domiciled in
the State of Maryland. As asserted by respondent, petitioner is a senior partner in a
prestigious law firm, with a "big legal staff and a large library." 39 He had all the legal
resources to determine the applicable law. It was incumbent upon him to exercise his
functions as ancillary administrator with reasonable diligence, and to discharge the trust
reposed on him faithfully. Unfortunately, petitioner failed to perform his fiduciary duties.

Moreover, whether his omission was intentional or not, the fact remains that the trial
court failed to consider said law when it issued the assailed RTC Orders dated February
12, 1988 and April 7, 1988, declaring Richard and Kyle as Audrey's heirs, and
distributing Audrey's estate according to the project of partition submitted by petitioner.
This eventually prejudiced respondent and deprived her of her full successional right to
the Makati property.

In GSIS v. Bengson Commercial Bldgs., Inc., 40 the Court held that when the rule that the
negligence or mistake of counsel binds the client deserts its proper office as an aid to
justice and becomes a great hindrance and chief enemy, its rigors must be relaxed to
admit exceptions thereto and to prevent a miscarriage of justice, and the court has the
power to except a particular case from the operation of the rule whenever the purposes of
justice require it.

The CA aptly noted that petitioner was remiss in his responsibilities as ancillary
administrator of Audrey's estate. The CA likewise observed that the distribution made by
petitioner was prompted by his concern over Kyle, whom petitioner believed should
equally benefit from the Makati property. The CA correctly stated, which the Court
adopts, thus:

In claiming good faith in the performance of his duties and responsibilities,

defendant Alonzo H. Ancheta invokes the principle which presumes the law of
the forum to be the same as the foreign law (Beam vs. Yatco, 82 Phil. 30, 38) in
the absence of evidence adduced to prove the latter law (Slade Perkins vs.
Perkins, 57 Phil. 205, 210). In defending his actions in the light of the foregoing
principle, however, it appears that the defendant lost sight of the fact that his
primary responsibility as ancillary administrator was to distribute the subject
estate in accordance with the will of Audrey O'Neill Guersey. Considering the
principle established under Article 16 of the Civil Code of the Philippines, as
well as the citizenship and the avowed domicile of the decedent, it goes without
saying that the defendant was also duty-bound to prove the pertinent laws of
Maryland on the matter.

The record reveals, however, that no clear effort was made to prove the national
law of Audrey O'Neill Guersey during the proceedings before the court a quo.
While there is claim of good faith in distributing the subject estate in accordance
with the Philippine laws, the defendant appears to put his actuations in a
different light as indicated in a portion of his direct examination, to wit:

xxx xxx xxx

It would seem, therefore, that the eventual distribution of the estate of Audrey
O'Neill Guersey was prompted by defendant Alonzo H. Ancheta's concern that
the subject realty equally benefit the plaintiff's adopted daughter Kyle Guersey.

Well-intentioned though it may be, defendant Alonzo H. Ancheta's action

appears to have breached his duties and responsibilities as ancillary
administrator of the subject estate. While such breach of duty admittedly
cannot be considered extrinsic fraud under ordinary circumstances, the
 fiduciary nature of the said defendant's position, as well as the resultant
frustration of the decedent's last will, combine to create a circumstance
that is tantamount to extrinsic fraud. Defendant Alonzo H. Ancheta's
omission to prove the national laws of the decedent and to follow the latter's last
will, in sum, resulted in the procurement of the subject orders without a fair
submission of the real issues involved in the case. 41 (Emphasis supplied) AHCaED

This is not a simple case of error of judgment or grave abuse of discretion, but a total
disregard of the law as a result of petitioner's abject failure to discharge his fiduciary
duties. It does not rest upon petitioner's pleasure as to which law should be made
applicable under the circumstances. His onus is clear. Respondent was thus excluded
from enjoying full rights to the Makati property through no fault or negligence of her
own, as petitioner's omission was beyond her control. She was in no position to analyze
the legal implications of petitioner's omission and it was belatedly that she realized the
adverse consequence of the same. The end result was a miscarriage of justice. In cases
like this, the courts have the legal and moral duty to provide judicial aid to parties who
are deprived of their rights. 42

The trial court in its Order dated December 6, 1991 in Special Proceeding No. M-888
noted the law of the State of Maryland on Estates and Trusts, as follows:

Under Section 1-301, Title 3, Sub-Title 3 of the Annotated Code of the Public
General Laws of Maryland on Estates and Trusts, "all property of a decedent
shall be subject to the estate of decedents law, and upon his death shall pass
directly to the personal representative, who shall hold the legal title for
administration and distribution," while Section 4-408 expressly provides that
"unless a contrary intent is expressly indicated in the will, a legacy passes to the
legatee the entire interest of the testator in the property which is the subject of
the legacy". Section 7-101, Title 7, Sub-Title 1, on the other hand, declares that
"a personal representative is a fiduciary" and as such he is "under the general
duty to settle and distribute the estate of the decedent in accordance with the
terms of the will and the estate of decedents law as expeditiously and with as
little sacrifice of value as is reasonable under the circumstances". 43

In her will, Audrey devised to Richard her entire estate, consisting of the following: (1)
Audrey's conjugal share in the Makati property; (2) the cash amount of P12,417.97; and
(3) 64,444 shares of stock in A/G Interiors, Inc. worth P64,444.00. All these properties
passed on to Richard upon Audrey's death. Meanwhile, Richard, in his will, bequeathed
his entire estate to respondent, except for his rights and interests over the A/G Interiors,
Inc. shares, which he left to Kyle. When Richard subsequently died, the entire Makati
property should have then passed on to respondent. This, of course, assumes the
proposition that the law of the State of Maryland which allows "a legacy to pass to the
legatee the entire estate of the testator in the property which is the subject of the legacy,"
was sufficiently proven in Special Proceeding No. 9625. Nevertheless, the Court may
take judicial notice thereof in view of the ruling in Bohanan v. Bohanan. 44 Therein, the
Court took judicial notice of the law of Nevada despite failure to prove the same. The
Court held, viz.:

We have, however, consulted the records of the case in the court below and we
have found that during the hearing on October 4, 1954 of the motion of
Magdalena C. Bohanan for withdrawal of P20,000 as her share, the foreign law,
especially Section 9905, Compiled Nevada Laws, was introduced in evidence
by appellants' (herein) counsel as Exhibit "2" (See pp. 77-79, Vol. II, and t.s.n.
pp. 24-44, Records, Court of First Instance). Again said law was presented by
the counsel for the executor and admitted by the Court as Exhibit "B" during the
hearing of the case on January 23, 1950 before Judge Rafael Amparo (see
Records, Court of First Instance, Vol. 1).

In addition, the other appellants, children of the testator, do not dispute the
above-quoted provision of the laws of the State of Nevada. Under all the above
circumstances, we are constrained to hold that the pertinent law of Nevada,
especially Section 9905 of the Compiled Nevada Laws of 1925, can be taken
judicial notice of by us, without proof of such law having been offered at the
hearing of the project of partition.

In this case, given that the pertinent law of the State of Maryland has been brought to
record before the CA, and the trial court in Special Proceeding No. M-888 appropriately
took note of the same in disapproving the proposed project of partition of Richard's
estate, not to mention that petitioner or any other interested person for that matter, does
not dispute the existence or validity of said law, then Audrey's and Richard's estate
should be distributed according to their respective wills, and not according to the project
of partition submitted by petitioner. Consequently, the entire Makati property belongs to
respondent.

Decades ago, Justice Moreland, in his dissenting opinion in Santos v. Manarang, 45

wrote:

A will is the testator speaking after death. Its provisions have substantially the
same force and effect in the probate court as if the testator stood before the court
in full life making the declarations by word of mouth as they appear in the will.
That was the special purpose of the law in the creation of the instrument known
as the last will and testament. Men wished to speak after they were dead and the
law, by the creation of that instrument, permitted them to do so . . . All doubts
must be resolved in favor of the testator's having meant just what he said. ADEaHT

Honorable as it seems, petitioner's motive in equitably distributing Audrey's estate cannot

prevail over Audrey's and Richard's wishes. As stated in Bellis v. Bellis: 46
 . . . whatever public policy or good customs may be involved in our system of
legitimes, Congress has not intended to extend the same to the succession of
foreign nationals. For it has specifically chosen to leave, inter alia, the amount
of successional rights, to the decedent's national Law. Specific provisions must
prevail over general ones. 47

Before concluding, the Court notes the fact that Audrey and Richard Guersey were
American citizens who owned real property in the Philippines, although records do not
show when and how the Guerseys acquired the Makati property.

Under Article XIII, Sections 1 and 4 of the 1935 Constitution, the privilege to acquire
and exploit lands of the public domain, and other natural resources of the Philippines, and
to operate public utilities, were reserved to Filipinos and entities owned or controlled by
them. In Republic v. Quasha, 48 the Court clarified that the Parity Rights Amendment of
1946, which re-opened to American citizens and business enterprises the right in the
acquisition of lands of the public domain, the disposition, exploitation, development and
utilization of natural resources of the Philippines, does not include the acquisition or
exploitation of private agricultural lands. The prohibition against acquisition of private
lands by aliens was carried on to the 1973 Constitution under Article XIV, Section 14,
with the exception of private lands acquired by hereditary succession and when the
transfer was made to a former natural-born citizen, as provided in Section 15, Article
XIV. As it now stands, Article XII, Sections 7 and 8 of the 1986 Constitution explicitly
prohibits non-Filipinos from acquiring or holding title to private lands or to lands of the
public domain, except only by way of legal succession or if the acquisition was made by
a former natural-born citizen.

In any case, the Court has also ruled that if land is invalidly transferred to an alien who
subsequently becomes a citizen or transfers it to a citizen, the flaw in the original
transaction is considered cured and the title of the transferee is rendered valid. 49 In this
case, since the Makati property had already passed on to respondent who is a Filipino,
then whatever flaw, if any, that attended the acquisition by the Guerseys of the Makati
property is now inconsequential, as the objective of the constitutional provision to keep
our lands in Filipino hands has been achieved.

WHEREFORE, the petition is denied. The Decision dated March 18, 1999 and the
Resolution dated August 27, 1999 of the Court of Appeals are AFFIRMED.

Petitioner is ADMONISHED to be more circumspect in the performance of his duties as

an official of the court.

No pronouncement as to costs.
SO ORDERED.

SECOND DIVISION

[G.R. No. 169144. January 26, 2011.]

IN RE: IN THE MATTER OF THE PETITION TO APPROVE THE

WILL OF RUPERTA PALAGANAS WITH PRAYER FOR THE
APPOINTMENT OF SPECIAL ADMINISTRATOR,

MANUEL MIGUEL PALAGANAS and BENJAMIN GREGORIO

PALAGANAS, petitioners, vs. ERNESTO PALAGANAS, respondent.

DECISION

ABAD, J :p

This case is about the probate before Philippine court of a will executed abroad
by a foreigner although it has not been probated in its place of execution. AIcaDC

The Facts and the Case

On November 8, 2001 Ruperta C. Palaganas (Ruperta), a Filipino who became
a naturalized United States (U.S.) citizen, died single and childless. In the last will and
testament she executed in California, she designated her brother, Sergio C. Palaganas
(Sergio), as the executor of her will for she had left properties in the Philippines and
in the U.S.
On May 19, 2003 respondent Ernesto C. Palaganas (Ernesto), another brother
of Ruperta, filed with the Regional Trial Court (RTC) of Malolos, Bulacan, a petition
for the probate of Ruperta's will and for his appointment as special administrator of
her estate. 1 On October 15, 2003, however, petitioners Manuel Miguel Palaganas
(Manuel) and Benjamin Gregorio Palaganas (Benjamin), nephews of Ruperta,
opposed the petition on the ground that Ruperta's will should not be probated in the
Philippines but in the U.S. where she executed it. Manuel and Benjamin added that,
assuming Ruperta's will could be probated in the Philippines, it is invalid nonetheless
for having been executed under duress and without the testator's full understanding of
the consequences of such act. Ernesto, they claimed, is also not qualified to act as
administrator of the estate.
Meantime, since Ruperta's foreign-based siblings, Gloria Villaluz and Sergio,
were on separate occasions in the Philippines for a short visit, respondent Ernesto
filed a motion with the RTC for leave to take their deposition, which it granted. On
April 13, 2004 the RTC directed the parties to submit their memorandum on the issue
of whether or not Ruperta's U.S. will may be probated in and allowed by a court in the
Philippines.
On June 17, 2004 the RTC issued an order: 2 (a) admitting to probate Ruperta's
last will; (b) appointing respondent Ernesto as special administrator at the request of
Sergio, the U.S.-based executor designated in the will; and (c) issuing the Letters of
Special Administration to Ernesto.
Aggrieved by the RTC's order, petitioner nephews Manuel and Benjamin
appealed to the Court of Appeals (CA), 3 arguing that an unprobated will executed by
an American citizen in the U.S. cannot be probated for the first time in the
Philippines.
On July 29, 2005 the CA rendered a decision, 4 affirming the assailed order of
the RTC, 5 holding that the RTC properly allowed the probate of the will, subject to
respondent Ernesto's submission of the authenticated copies of the documents
specified in the order and his posting of required bond. The CA pointed out that
Section 2, Rule 76 of the Rules of Court does not require prior probate and allowance
of the will in the country of its execution, before it can be probated in the Philippines.
The present case, said the CA, is different from reprobate, which refers to a will
already probated and allowed abroad. Reprobate is governed by different rules or
procedures. Unsatisfied with the decision, Manuel and Benjamin came to this Court.
TCDHIc

The Issue Presented

The key issue presented in this case is whether or not a will executed by a
foreigner abroad may be probated in the Philippines although it has not been
previously probated and allowed in the country where it was executed.
The Court's Ruling
Petitioners Manuel and Benjamin maintain that wills executed by foreigners
abroad must first be probated and allowed in the country of its execution before it can
be probated here. This, they claim, ensures prior compliance with the legal formalities
of the country of its execution. They insist that local courts can only allow probate of
such wills if the proponent proves that: (a) the testator has been admitted for probate
in such foreign country, (b) the will has been admitted to probate there under its laws,
(c) the probate court has jurisdiction over the proceedings, (d) the law on probate
procedure in that foreign country and proof of compliance with the same, and (e) the
legal requirements for the valid execution of a will.
But our laws do not prohibit the probate of wills executed by foreigners abroad
although the same have not as yet been probated and allowed in the countries of their
execution. A foreign will can be given legal effects in our jurisdiction. Article 816 of
the Civil Code states that the will of an alien who is abroad produces effect in the
Philippines if made in accordance with the formalities prescribed by the law of the
place where he resides, or according to the formalities observed in his country. 6
In this connection, Section 1, Rule 73 of the 1997 Rules of Civil Procedure
provides that if the decedent is an inhabitant of a foreign country, the RTC of the
province where he has an estate may take cognizance of the settlement of such estate.
Sections 1 and 2 of Rule 76 further state that the executor, devisee, or legatee named
in the will, or any other person interested in the estate, may, at any time after the death
of the testator, petition the court having jurisdiction to have the will allowed, whether
the same be in his possession or not, or is lost or destroyed.
Our rules require merely that the petition for the allowance of a will must
show, so far as known to the petitioner: (a) the jurisdictional facts; (b) the names,
ages, and residences of the heirs, legatees, and devisees of the testator or decedent; (c)
the probable value and character of the property of the estate; (d) the name of the
person for whom letters are prayed; and (e) if the will has not been delivered to the
court, the name of the person having custody of it. Jurisdictional facts refer to the fact
of death of the decedent, his residence at the time of his death in the province where
the probate court is sitting, or if he is an inhabitant of a foreign country, the estate he
left in such province. 7 The rules do not require proof that the foreign will has already
been allowed and probated in the country of its execution.
In insisting that Ruperta's will should have been first probated and allowed by
the court of California, petitioners Manuel and Benjamin obviously have in mind the
procedure for the reprobate of will before admitting it here. But, reprobate or re-
authentication of a will already probated and allowed in a foreign country is different
from that probate where the will is presented for the first time before a competent
court. Reprobate is specifically governed by Rule 77 of the Rules of Court. Contrary
to petitioners' stance, since this latter rule applies only to reprobate of a will, it cannot
be made to apply to the present case. In reprobate, the local court acknowledges as
binding the findings of the foreign probate court provided its jurisdiction over the
matter can be established. caTIDE

Besides, petitioners' stand is fraught with impractically. If the instituted heirs

do not have the means to go abroad for the probate of the will, it is as good as
depriving them outright of their inheritance, since our law requires that no will shall
pass either real or personal property unless the will has been proved and allowed by
the proper court. 8
Notably, the assailed RTC order of June 17, 2004 is nothing more than an
initial ruling that the court can take cognizance of the petition for probate of Ruperta's
will and that, in the meantime, it was designating Ernesto as special administrator of
the estate. The parties have yet to present evidence of the due execution of the will,
i.e., the testator's state of mind at the time of the execution and compliance with the
formalities required of wills by the laws of California. This explains the trial court's
 directive for Ernesto to submit the duly authenticated copy of Ruperta's will and the
certified copies of the Laws of Succession and Probate of Will of California.
WHEREFORE, the Court DENIES the petition and AFFIRMSthe Court of
Appeals decision in CA-G.R. CV 83564 dated July 29, 2005.

SO ORDERED.

Carpio, Nachura, Mendoza and Sereno, * JJ., concur.

FIRST DIVISION

[G.R. No. 162580. January 27, 2006.]

ELMAR O. PEREZ, petitioner, vs. COURT OF APPEALS, Fifth

Division, TRISTAN A. CATINDIG and LILY GOMEZ-CATINDIG,
respondents.

DECISION

YNARES-SANTIAGO, J : p

This petition for certiorari and prohibition under Rule 65 of the Rules of Court assails the
July 25, 2003 Decision 1 of the Court of Appeals in CA-G.R. SP No. 74456 which set
aside and declared as null and void the September 30, 2002 Order 2 of the Regional Trial
Court of Quezon City, Branch 84, granting petitioner's motion for leave to file
intervention and admitting the Complaint-in-Intervention 3 in Civil Case No. Q-01-
44847; and its January 23, 2004 Resolution 4 denying the motion for reconsideration.

Private respondent Tristan A. Catindig married Lily Gomez Catindig 5 twice on May 16,
1968. The first marriage ceremony was celebrated at the Central Methodist Church at
T.M. Kalaw Street, Ermita, Manila while the second took place at the Lourdes Catholic
Church in La Loma, Quezon City. The marriage produced four children.

Several years later, the couple encountered marital problems that they decided to separate
from each other. Upon advice of a mutual friend, they decided to obtain a divorce from
the Dominican Republic. Thus, on April 27, 1984, Tristan and Lily executed a Special
Power of Attorney addressed to the Judge of the First Civil Court of San Cristobal,
Dominican Republic, appointing an attorney-in-fact to institute a divorce action under its
laws. 6
Thereafter, on April 30, 1984, the private respondents filed a joint petition for dissolution
of conjugal partnership with the Regional Trial Court of Makati. On June 12, 1984, the
civil court in the Dominican Republic ratified the divorce by mutual consent of Tristan
and Lily. Subsequently, on June 23, 1984, the Regional Trial Court of Makati City,
Branch 133, ordered the complete separation of properties between Tristan and Lily.

On July 14, 1984, Tristan married petitioner Elmar O. Perez in the State of Virginia in the
United States 7 and both lived as husband and wife until October 2001. Their union
produced one offspring. 8

During their cohabitation, petitioner learned that the divorce decree issued by the court in
the Dominican Republic which "dissolved" the marriage between Tristan and Lily was
not recognized in the Philippines and that her marriage to Tristan was deemed void under
Philippine law. When she confronted Tristan about this, the latter assured her that he
would legalize their union after he obtains an annulment of his marriage with Lily.
Tristan further promised the petitioner that he would adopt their son so that he would be
entitled to an equal share in his estate as that of each of his children with Lily. 9

On August 13, 2001, Tristan filed a petition for the declaration of nullity of his marriage
to Lily with the Regional Trial Court of Quezon City, docketed as Case No. Q-01-44847.
CTSHDI

Subsequently, petitioner filed a Motion for Leave to File Intervention 10 claiming that
she has a legal interest in the matter in litigation because she knows certain information
which might aid the trial court at a truthful, fair and just adjudication of the annulment
case, which the trial court granted on September 30, 2002. Petitioner's complaint-in-
intervention was also ordered admitted.

Tristan filed a petition for certiorari and prohibition with the Court of Appeals seeking to
annul the order dated September 30, 2002 of the trial court. The Court of Appeals granted
the petition and declared as null and void the September 30, 2002 Order of the trial court
granting the motion for leave to file intervention and admitting the complaint-in-
intervention.

Petitioner's motion for reconsideration was denied, hence this petition for certiorari and
prohibition filed under Rule 65 of the Rules of Court. Petitioner contends that the Court
of Appeals gravely abused its discretion in disregarding her legal interest in the
annulment case between Tristan and Lily.

The petition lacks merit.

Ordinarily, the proper recourse of an aggrieved party from a decision of the Court of
Appeals is a petition for review on certiorari under Rule 45 of the Rules of Court.
However, if the error subject of the recourse is one of jurisdiction, or the act complained
of was granted by a court with grave abuse of discretion amounting to lack or excess of
jurisdiction, as alleged in this case, the proper remedy is a petition for certiorari under
Rule 65 of the said Rules. 11 This is based on the premise that in issuing the assailed
decision and resolution, the Court of Appeals acted with grave abuse of discretion,
amounting to excess of lack of jurisdiction and there is no plain, speedy and adequate
remedy in the ordinary course of law. A remedy is considered plain, speedy, and
adequate if it will promptly relieve the petitioner from the injurious effect of the
judgment and the acts of the lower court. 12

It is therefore incumbent upon the petitioner to establish that the Court of Appeals acted
with grave abuse of discretion amounting to excess or lack of jurisdiction when it
promulgated the assailed decision and resolution.

We have previously ruled that grave abuse of discretion may arise when a lower court or
tribunal violates or contravenes the Constitution, the law or existing jurisprudence. By
grave abuse of discretion is meant, such capricious and whimsical exercise of judgment
as is equivalent to lack of jurisdiction. The abuse of discretion must be grave as where the
power is exercised in an arbitrary or despotic manner by reason of passion or personal
hostility and must be so patent and gross as to amount to an evasion of positive duty or to
a virtual refusal to perform the duty enjoined by or to act at all in contemplation of law.
13 The word "capricious," usually used in tandem with the term "arbitrary," conveys the
notion of willful and unreasoning action. Thus, when seeking the corrective hand of
certiorari, a clear showing of caprice and arbitrariness in the exercise of discretion is
imperative. 14

The Rules of Court laid down the parameters before a person, not a party to a case can
intervene, thus:

Who may intervene. — A person who has a legal interest in the matter in
litigation, or in the success of either of the parties, or an interest against both, or
is so situated as to be adversely affected by a distribution or other disposition of
property in the custody of the court or of an officer thereof may, with leave of
court, be allowed to intervene in the action. The court shall consider whether or
not the intervention will unduly delay or prejudice the adjudication of the rights
of the original parties, and whether or not the intervenor's rights may be fully
protected in a separate proceeding. 15

The requirements for intervention are: [a] legal interest in the matter in litigation; and [b]
consideration must be given as to whether the adjudication of the original parties may be
delayed or prejudiced, or whether the intervenor's rights may be protected in a separate
proceeding or not. 16

Legal interest, which entitles a person to intervene, must be in the matter in litigation and
of such direct and immediate character that the intervenor will either gain or lose by
direct legal operation and effect of the judgment. 17 Such interest must be actual, direct
and material, and not simply contingent and expectant. 18

Petitioner claims that her status as the wife and companion of Tristan for 17 years vests
her with the requisite legal interest required of a would-be intervenor under the Rules of
Court. ICAcaH

Petitioner's claim lacks merit. Under the law, petitioner was never the legal wife of
Tristan, hence her claim of legal interest has no basis.

When petitioner and Tristan married on July 14, 1984, Tristan was still lawfully married
to Lily. The divorce decree that Tristan and Lily obtained from the Dominican Republic
never dissolved the marriage bond between them. It is basic that 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. 19 Regardless of where a
citizen of the Philippines might be, he or she will be governed by Philippine laws with
respect to his or her family rights and duties, or to his or her status, condition and legal
capacity. Hence, if a Filipino regardless of whether he or she was married here or abroad,
initiates a petition abroad to obtain an absolute divorce from spouse and eventually
becomes successful in getting an absolute divorce decree, the Philippines will not
recognize such absolute divorce. 20

When Tristan and Lily married on May 18, 1968, their marriage was governed by the
provisions of the Civil Code 21 which took effect on August 30, 1950. In the case of
Tenchavez v. Escano 22 we held:

(1) That a foreign divorce between Filipino citizens, sought and decreed after
the effectivity of the present Civil Code (Rep. Act No. 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. (Emphasis
added)

Thus, petitioner's claim that she is the wife of Tristan even if their marriage was
celebrated abroad lacks merit. Thus, petitioner never acquired the legal interest as a wife
upon which her motion for intervention is based.

Since petitioner's motion for leave to file intervention was bereft of the indispensable
requirement of legal interest, the issuance by the trial court of the order granting the same
and admitting the complaint-in-intervention was attended with grave abuse of discretion.
Consequently, the Court of Appeals correctly set aside and declared as null and void the
said order.
WHEREFORE, the petition is DISMISSED. The assailed Decision dated July 25, 2003
and Resolution dated January 23, 2004 of the Court of Appeals in CA-G.R. SP No. 74456
are AFFIRMED.

No pronouncement as to costs.

SO ORDERED.

Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Panganiban, C.J., in the result.

FIRST DIVISION

[G.R. No. 153031. December 14, 2006.]

PCL SHIPPING PHILIPPINES, INC. and U-MING MARINE

TRANSPORT CORPORATION, petitioners, vs. NATIONAL
LABOR RELATIONS COMMISSION and STEVE RUSEL,
respondents.

DECISION

AUSTRIA-MARTINEZ, J : p

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of
Court assailing the Decision 1 of the Court of Appeals (CA) dated December 18, 2001 in
CA-G.R. SP No. 59976, which affirmed the Decision of the National Labor Relations
Commission (NLRC) dated March 22, 2000 in NLRC NCR CA No. 018120-99; and the
Resolution of the CA dated April 10, 2002, denying petitioners' motion for
reconsideration. 2

The facts of the case, as found by the CA, are as follows:

In April 1996, Rusel was employed as GP/AB seaman by manning agency, PCL
Shipping Philippines, Inc. (PCL Shipping) for and in behalf of its foreign
principal, U-Ming Marine Transport Corporation (U-Ming Marine). Rusel
thereby joined the vessel MV Cemtex General (MV Cemtex) for the contract
period of twelve (12) months with a basic monthly salary of US$400.00, living
allowance of US$140.00, fixed overtime rate of US$120.00 per month, vacation
leave with pay of US$40.00 per month and special allowance of US$175.00.
On July 16, 1996, while Rusel was cleaning the vessel's kitchen, he slipped, and
as a consequence thereof, he suffered a broken and/or sprained ankle on his left
foot. A request for medical examination was flatly denied by the captain of the
vessel. On August 13, 1996, feeling an unbearable pain in his ankle, Rusel
jumped off the vessel using a life jacket and swam to shore. He was brought to a
hospital where he was confined for eight (8) days.

On August 22, 1996, a vessel's agent fetched Rusel from the hospital and was
required to board a plane bound for the Philippines.

On September 26, 1996, Rusel filed a complaint for illegal dismissal, non-
payment of wages, overtime pay, claim for medical benefits, sick leave pay and
damages against PCL Shipping and U-Ming Marine before the arbitration
branch of the NLRC. In their answer, the latter alleged that Rusel deserted his
employment by jumping off the vessel.

On July 21, 1998, the labor arbiter rendered his decision, the dispositive portion
of which reads as follows:

Wherefore, above premises duly considered we find the respondent

liable for unjust repatriation of the complainant.

Accordingly, the following award is hereby adjudged against the

respondent:

1. The amount of $2,625.00 or its peso equivalent at the time of payment

representing three (3) months salary of the complainant due to his illegal
dismissal.

2. The amount of $1,600.00 or its peso equivalent, representing sick

wage benefits. ICTHDE

3. The amount of $550.00 or its peso equivalent, representing living

allowance, overtime pay and special allowance for two (2) months.

4. The amount of $641.66 or its peso equivalent, representing unpaid

wages from August 11 to 22, 1996.

5. Attorney's fees equivalent to 10% of the total monetary award.

The rest of the claims are dismissed for lack of merit.

SO ORDERED. 3
Aggrieved by the Decision of the Labor Arbiter, herein petitioners appealed to the
NLRC. In its Decision dated March 22, 2000, the NLRC affirmed the findings of the
Labor Arbiter but modified the appealed Decision, disposing as follows:

WHEREFORE, premises considered, the assailed decision is as it is hereby

ordered MODIFIED in that the amount representing three months salary of the
complainant due to his illegal dismissal is reduced to US$1,620.00. Further the
award of sick wage benefit is deleted.

All other dispositions are AFFIRMED.

SO ORDERED. 4

Petitioners filed a Motion for Reconsideration but the NLRC denied the same in its
Decision of May 3, 2000. 5

Petitioners filed a petition for certiorari with the CA. 6 In its Decision dated December
18, 2001, the CA dismissed the petition and affirmed the NLRC Decision. 7

Petitioners filed a Motion for Reconsideration but it was denied by the CA in its
Resolution dated April 10, 2002. 8

Hence, the instant petition with the following assignment of errors:

I. The Court of Appeals erred in ruling that private respondent was illegally
dismissed from employment.

xxx xxx xxx

II. Likewise, the Court of Appeals erred in not upholding petitioners' right to
pre-terminate private respondent's employment.

xxx xxx xxx

III. The private respondent is not entitled to other money claims, particularly as
to the award of attorney's fees. 9

As to their first assigned error, petitioners contend that the CA erred in affirming the
findings of the NLRC that Rusel's act of jumping ship does not establish any intent on his
part to abandon his job and never return. Petitioners argue that Rusel's very act of
jumping from the vessel and swimming to shore is evidence of highest degree that he has
no intention of returning to his job. Petitioners further contend that if Rusel was indeed
suffering from unbearable and unmitigated pain, it is unlikely that he is able to swim two
(2) nautical miles, which is the distance between their ship and the shore, considering that
he needed to use his limbs in swimming. Petitioners further assert that it is error on the
part of the CA to disregard the entries contained in the logbook and in the Marine Note
Protest evidencing Rusels' offense of desertion because while these pieces of evidence
were belatedly presented, the settled rule is that additional evidence may be admitted on
appeal in labor cases. Petitioners also contend that Rusel's act of desertion is a grave and
serious offense and considering the nature and situs of employment as well as the
nationality of the employer, the twin requirements of notice and hearing before an
employee can be validly terminated may be dispensed with.

As to their second assigned error, petitioners contend that assuming, for the sake of
argument, that Rusel is not guilty of desertion, they invoked the alternative defense that
the termination of his employment was validly made pursuant to petitioners' right to
exercise their prerogative to pre-terminate such employment in accordance with Section
19(C) of the Standard Terms and Conditions Governing the Employment of Filipino
Seafarers On-Board Ocean-Going Vessels, which provision was incorporated in Rusel's
Contract of Employment with petitioners. Petitioners assert that despite the fact that this
issue was raised before the CA, the appellate court failed to resolve the same. aCcEHS

Anent the last assigned error, petitioners argue that it is error on the part of the CA to
affirm the award of living allowance, overtime pay, vacation pay and special allowance
for two months because Rusel failed to submit substantial evidence to prove that he is
entitled to these awards. Petitioners further argue that these money claims, particularly
the claim for living allowance, should not be granted because they partake of the nature
of earned benefits for services rendered by a seafarer. Petitioners also contend that the
balance of Rusel's wages from August 11-22, 1996 should be applied for the payment of
the costs of his repatriation, considering that under Section 19(E) of the Standard Terms
and Conditions Governing the Employment of Filipino Seafarers On-Board Ocean-Going
Vessels, when a seafarer is discharged for any just cause, the employer shall have the
right to recover the costs of his replacement and repatriation from the seafarer's wages
and other earnings. Lastly, petitioners argue that the award of attorney's fees should be
deleted because there is nothing in the decision of the Labor Arbiter or the NLRC which
states the reason why attorney's fees are being awarded.

In his Comment, private respondent contends that petitioners are raising issues of fact
which have already been resolved by the Labor Arbiter, NLRC and the CA. Private
respondent argues that, aside from the fact that the issues raised were already decided by
three tribunals against petitioners' favor, it is a settled rule that only questions of law may
be raised in a petition for review on certiorari under Rule 45 of the Rules of Court. While
there are exceptions to this rule, private respondent contends that the instant case does not
fall under any of these exceptions. Private respondent asserts that petitioners failed to
substantiate their claim that the former is guilty of desertion. Private respondent further
contends that the right to due process is available to local and overseas workers alike,
pursuant to the provisions of the Constitution on labor and equal protection as well as the
declared policy contained in the Labor Code. Private respondent argues that petitioners'
act of invoking the provisions of Section 19(C) of the POEA Contract as an alternative
defense is misplaced and is inconsistent with their primary defense that private
respondent was dismissed on the ground of desertion. As to the award of attorney's fees,
private respondent contends that since petitioners' act compelled the former to incur
expenses to protect his interest and enforce his lawful claims, and because petitioners
acted in gross and evident bad faith in refusing to satisfy private respondent's lawful
claims, it is only proper that attorney's fees be awarded in favor of the latter. Anent the
other monetary awards, private respondent argues that these awards are all premised on
the findings of the Labor Arbiter, NLRC and the CA that private respondent's dismissal
was improper and illegal.

The Court finds the petition without merit.

Anent the first assigned error, it is a settled rule that under Rule 45 of the Rules of Court,
only questions of law may be raised in this Court. 10 Judicial review by this Court does
not extend to a re-evaluation of the sufficiency of the evidence upon which the proper
labor tribunal has based its determination. 11 Firm is the doctrine that this Court is not a
trier of facts, and this applies with greater force in labor cases. 12 Factual issues may be
considered and resolved only when the findings of facts and conclusions of law of the
Labor Arbiter are inconsistent with those of the NLRC and the CA. 13 The reason for this
is that the quasi-judicial agencies, like the Arbitration Board and the NLRC, have
acquired a unique expertise because their jurisdiction are confined to specific matters. 14
In the present case, the question of whether private respondent is guilty of desertion is
factual. The Labor Arbiter, NLRC and the CA are unanimous in their findings that
private respondent is not guilty of desertion and that he has been illegally terminated
from his employment. After a review of the records of the instant case, this Court finds
no cogent reason to depart from the findings of these tribunals.

Petitioners assert that the entries in the logbook of MV Cemtex General 15 and in the
Marine Note Protest 16 which they submitted to the NLRC confirm the fact that private
respondent abandoned the vessel in which he was assigned. However, the genuineness of
the Marine Note Protest as well as the entries in the logbook are put in doubt because
aside from the fact that they were presented only during petitioners' Motion for
Reconsideration filed with the NLRC, both the Marine Note Protest and the entry in the
logbook which were prepared by the officers of the vessel were neither notarized nor
authenticated by the proper authorities. Moreover, a reading of these entries simply
shows that private respondent was presumed to have deserted his post on the sole basis
that he was found missing while the MV Cemtex General was anchored at the port of
Takehara, Japan. Hence, without any corroborative evidence, these documents cannot be
used as bases for concluding that private respondent was guilty of desertion. aDATHC
Petitioners also question the findings and conclusion of the Labor Arbiter and the NLRC
that what caused private respondent in jumping overboard was the unmitigated pain he
was suffering which was compounded by the inattention of the vessel's captain to provide
him with the necessary treatment inspite of the fact that the ship was moored for about
two weeks at the anchorage of Takehara, Japan; and, that private respondent's act was a
desperate move to protect himself and to seek relief for his physical suffering. Petitioners
contend that the findings and conclusions of the Labor Arbiter and the NLRC which were
affirmed by the CA are based on conjecture because there is no evidence to prove that, at
the time he jumped ship, private respondent was really suffering from an ankle injury.

It is true that no substantial evidence was presented to prove that the cause of private
respondent's confinement in a hospital in Takehara, Japan was his ankle injury. The Court
may not rely on the letter marked as Annex "B" and attached to private respondent's
Position Paper because it was unsigned and it was not established who executed the
same. 17 However, the result of the x-ray examination conducted by the LLN Medical
Services, Inc. on August 26, 1996, right after private respondent was repatriated to the
Philippines, clearly showed that there is a soft-tissue swelling around his ankle joint. 18
This evidence is consistent with private respondent's claim that he was then suffering
from an ankle injury which caused him to jump off the ship.

As to petitioners' contention that private respondent could not have traversed the distance
between the ship and the shore if he was indeed suffering from unbearable pain by reason
of his ankle injury, suffice it to say that private respondent is an able-bodied seaman and
that with the full use of both his arms and the help of a life jacket, was able to reach the
shore.

As correctly defined by petitioners, desertion, in maritime law is:

The act by which a seaman deserts and abandons a ship or vessel, in which he
had engaged to perform a voyage, before the expiration of his time, and without
leave. By desertion, in maritime law, is meant, not a mere unauthorized absence
from the ship, without leave, but an unauthorized absence from the ship with an
intention not to return to her service; or as it is often expressed, animo non
revertendi, that is, with an intention to desert. 19 (emphasis supplied)

Hence, for a seaman to be considered as guilty of desertion, it is essential that there be

evidence to prove that if he leaves the ship or vessel in which he had engaged to
perform a voyage, he has the clear intention of abandoning his duty and of not
returning to the ship or vessel. In the present case, however, petitioners failed to
present clear and convincing proof to show that when private respondent jumped ship,
he no longer had the intention of returning. The fact alone that he jumped off the ship
where he was stationed, swam to shore and sought medical assistance for the injury he
sustained is not a sufficient basis for petitioners to conclude that he had the intention
of deserting his post. Settled is the rule that in termination cases, the burden of proof
 rests upon the employer to show that the dismissal is for a just and valid cause. 20 The
case of the employer must stand or fall on its own merits and not on the weakness of
the employee's defense. 21 In the present case, since petitioners failed to discharge
their burden of proving that private respondent is guilty of desertion, the Court finds
no reason to depart from the conclusion of the Labor Arbiter, NLRC and the CA that
private respondent's dismissal is illegal.

In their second assigned error, petitioners cite Section 19(C) of POEA Memorandum
Circular No. 055-96 22 known as the Revised Standard Employment Terms and
Conditions Governing the Employment of Filipino Seafarers On Board Ocean-Going
Vessels as their alternative basis in terminating the employment of private respondent.
Said Section provides as follows:

Section 19. REPATRIATION

xxx xxx xxx

C. If the vessel arrives at a convenient port within a period of three

months before the expiration of his contract, the master/employer
may repatriate the seafarer from such port provided that the
seafarer shall be paid all his earned wages. In addition, the
seafarer shall also be paid his leave pay for the entire contract
period plus a termination pay equivalent to one (1) month of his
basic pay, provided, however, that this mode of termination may
only be exercised by the master/employer if the original contract
period of the seafarer is at least ten (10) months; provided,
further, that the conditions for this mode of termination shall not
apply to dismissal for cause.CaTcSA

The Court is not persuaded. POEA Memorandum Circular No. 055-96 took effect on
January 1, 1997 while the contract of employment entered into by and between private
respondent and petitioners was executed on April 10, 1996. Hence, it is wrong for
petitioners to cite this particular Memorandum because at the time of petitioners' and
private respondent's execution of their contract of employment Memorandum Circular
No. 055-96 was not yet effective.

What was in effect at the time private respondent's Contract of Employment was
executed was POEA Memorandum Circular No. 41, Series of 1989. It is clearly provided
under the second paragraph of private respondent's Contract of Employment that the
terms and conditions provided under Memorandum Circular No. 41, Series of 1989 shall
be strictly and faithfully observed. Hence, it is Memorandum Circular No. 41, Series of
1989 which governs private respondent's contract of employment.
Section H (6), Part I of Memorandum Circular No. 41, which has almost identical
provisions with Section 19 (C) of Memorandum Circular No. 055-96, provides as
follows:

SECTION H. TERMINATION OF EMPLOYMENT

xxx xxx xxx

6. If the vessel arrives at a convenient port within a period of three (3) months
before the expiration of the Contract, the master/employer may repatriate the
seaman from such port provided that the seaman shall be paid all his earned
wages. In addition, the seaman shall also be paid his leave pay for the entire
contract period plus a termination pay equivalent to one (1) month of his basic
pay, provided, however, that this mode of termination may only be exercised by
the master/employer if the original contact period of the seaman is at least ten
(10) months; provided, further, that the conditions for this mode of termination
shall not apply to dismissal for cause.

The Court agrees with private respondent's contention that petitioners' arguments are
misplaced. Petitioners may not use the above-quoted provision as basis for terminating
private respondent's employment because it is incongruent with their primary defense that
the latter's dismissal from employment was for cause. Petitioners may not claim that they
ended private respondent's services because he is guilty of desertion and at the same time
argue that they exercised their option to prematurely terminate his employment, even
without cause, simply because they have the right to do so under their contract. These
grounds for termination are inconsistent with each other such that the use of one
necessarily negates resort to the other. Besides, it appears from the records that
petitioners' alternative defense was pleaded merely as an afterthought because it was only
in their appeal with the NLRC that they raised this defense. The only defense raised by
petitioners in their Answer with Counterclaim filed with the office of the Labor Arbiter is
that private respondent was dismissed from employment by reason of desertion. 23 Under
the Rules of Court, 24 which is applicable in a suppletory character in labor cases before
the Labor Arbiter or the NLRC pursuant to Section 3, Rule I of the New Rules of
Procedure of the NLRC 25 , defenses which are not raised either in a motion to dismiss or
in the answer are deemed waived. 26

Granting, for the sake of argument, that petitioners may use Section H (6), Part I of
Memorandum Circular No. 41 or Section 19(C) of Memorandum Circular No. 055-96 as
basis for terminating private respondent's employment, it is clear that one of the
conditions before any of these provisions becomes applicable is when the vessel arrives
at a convenient port within a period of three (3) months before the expiration of the
contract of employment. In the present case, private respondent's contract was executed
on April 10, 1996 for a duration of twelve months. He was deployed aboard MV Cemtex
General on June 25, 1996 and repatriated to the Philippines on August 22, 1996. Hence,
it is clear that petitioners did not meet this condition because private respondent's
termination was not within a period of three months before the expiration of his contract
of employment. ICTHDE

Moreover, the Court finds nothing in the records to show that petitioners complied with
the other conditions enumerated therein, such as the payment of all of private
respondent's earned wages together with his leave pay for the entire contract period as
well as termination pay equivalent to his one month salary.

Petitioners admit that they did not inform private respondent in writing of the charges
against him and that they failed to conduct a formal investigation to give him opportunity
to air his side. However, petitioners contend that the twin requirements of notice and
hearing applies strictly only when the employment is within the Philippines and that these
need not be strictly observed in cases of international maritime or overseas employment.

The Court does not agree. The provisions of the Constitution as well as the Labor Code
which afford protection to labor apply to Filipino employees whether working within the
Philippines or abroad. Moreover, the principle of lex loci contractus (the law of the place
where the contract is made) governs in this jurisdiction. 27 In the present case, it is not
disputed that the Contract of Employment entered into by and between petitioners and
private respondent was executed here in the Philippines with the approval of the
Philippine Overseas Employment Administration (POEA). Hence, the Labor Code
together with its implementing rules and regulations and other laws affecting labor apply
in this case. 28 Accordingly, as to the requirement of notice and hearing in the case of a
seafarer, the Court has already ruled in a number of cases that before a seaman can be
dismissed and discharged from the vessel, it is required that he be given a written notice
regarding the charges against him and that he be afforded a formal investigation where he
could defend himself personally or through a representative. 29 Hence, the employer
should strictly comply with the twin requirements of notice and hearing without regard to
the nature and situs of employment or the nationality of the employer. Petitioners failed
to comply with these twin requirements. aAEHCI

Petitioners also contend that the wages of private respondent from August 11-22, 1996
were applied to the costs of his repatriation. Petitioners argue that the off-setting of the
costs of his repatriation against his wages for the aforementioned period is allowed under
the provisions of Section 19(E) of Memorandum Circular No. 055-96 which provides that
when the seafarer is discharged for any just cause, the employer shall have the right to
recover the costs of his replacement and repatriation from the seafarer's wages and other
earnings.
The Court does not agree. Section 19(E) of Memorandum Circular No. 055-96 has its
counterpart provision under Section H (2), Part II of Memorandum Circular No. 41, to
wit:

SECTION H. REPATRIATION

xxx xxx xxx

2. When the seaman is discharged for disciplinary reasons, the employer shall
have the right to recover the costs of maintenance and repatriation from the
seaman's balance of wages and other earnings.

xxx xxx xxx

It is clear under the above-quoted provision that the employer shall have the right to
recover the cost of repatriation from the seaman's wages and other earnings only if the
concerned seaman is validly discharged for disciplinary measures. In the present case,
since petitioners failed to prove that private respondent was validly terminated from
employment on the ground of desertion, it only follows that they do not have the right
to deduct the costs of private respondent's repatriation from his wages and other
earnings.

Lastly, the Court is not persuaded by petitioners' contention that the private respondent is
not entitled to his money claims representing his living allowance, overtime pay, vacation
pay and special allowance as well as attorney's fees because he failed to present any proof
to show that he is entitled to these awards.

However, the Court finds that the monetary award representing private respondent's three
months salary as well as the award representing his living allowance, overtime pay,
vacation pay and special allowance should be modified.

The Court finds no basis in the NLRC's act of including private respondent's living
allowance as part of the three months salary to which he is entitled under Section 10 of
Republic Act (RA) No. 8042, otherwise known as the "Migrant Workers and Overseas
Filipinos Act of 1995." The pertinent provisions of the said Act provides:

Sec. 10. Money Claims —

xxx xxx xxx

In case of termination of overseas employment without just, valid or authorized

cause as defined by law or contract, the worker shall be entitled to the full
reimbursement of his placement fee with interest at twelve percent (12%) per
annum, plus his salaries for the unexpired portion of his employment contract or
for three (3) months for every year of the unexpired term, whichever is less.
 xxx xxx xxx

It is clear from the above-quoted provision that what is included in the computation of
the amount due to the overseas worker are only his salaries. Allowances are excluded.
In the present case, since private respondent received a basic monthly salary of
US$400.00, he is, therefore, entitled to receive a sum of US$1200.00, representing
three months of said salary. HETDAC

As to the awards of living allowance, overtime pay, vacation pay and special allowance,
it is clearly provided under private respondent's Contract of Employment that he is
entitled to these benefits as follows: living allowance of US$140.00/month; vacation
leave with pay equivalent to US$40.00/month; overtime rate of US$120.00/month; and,
special allowance of US$175.00/month. 30

With respect, however, to the award of overtime pay, the correct criterion in determining
whether or not sailors are entitled to overtime pay is not whether they were on board and
can not leave ship beyond the regular eight working hours a day, but whether they
actually rendered service in excess of said number of hours. 31 In the present case, the
Court finds that private respondent is not entitled to overtime pay because he failed to
present any evidence to prove that he rendered service in excess of the regular eight
working hours a day.

On the basis of the foregoing, the remaining benefits to which the private respondent is
entitled is the living allowance of US$140.00/month, which was removed in the
computation of private respondent's salary, special allowance of US$175.00/month and
vacation leave with pay amounting to US$40.00/month. Since private respondent
rendered service for two months these benefits should be doubled, giving a total of
US$710.00.

As to the award of attorney's fees, this Court ruled in Reyes v. Court of Appeals, 32 as
follows:

. . . [T]here are two commonly accepted concepts of attorney's fees, the so-
called ordinary and extraordinary. In its ordinary concept, an attorney's fee is
the reasonable compensation paid to a lawyer by his client for the legal services
he has rendered to the latter. The basis of this compensation is the fact of his
employment by and his agreement with the client. In its extraordinary concept,
attorney's fees are deemed indemnity for damages ordered by the court to be
paid by the losing party in a litigation. The instances where these may be
awarded are those enumerated in Article 2208 of the Civil Code, specifically
par. 7 thereof which pertains to actions for recovery of wages, and is payable
not to the lawyer but to the client, unless they have agreed that the award shall
pertain to the lawyer as additional compensation or as part thereof. The
 extraordinary concept of attorney's fees is the one contemplated in Article 111
of the Labor Code, which provides:

Art. 111. Attorney's fees. — (a) In cases of unlawful withholding of

wages, the culpable party may be assessed attorney's fees equivalent to
ten percent of the amount of wages recovered . . .

The afore-quoted Article 111 is an exception to the declared policy of strict

construction in the awarding of attorney's fees. Although an express
finding of facts and law is still necessary to prove the merit of the award,
there need not be any showing that the employer acted maliciously or in
bad faith when it withheld the wages. There need only be a showing that
the lawful wages were not paid accordingly, as in this case.

In carrying out and interpreting the Labor Code's provisions and its
implementing regulations, the employee's welfare should be the primordial and
paramount consideration. This kind of interpretation gives meaning and
substance to the liberal and compassionate spirit of the law as provided in
Article 4 of the Labor Code which states that "[a]ll doubts in the
implementation and interpretation of the provisions of [the Labor] Code
including its implementing rules and regulations, shall be resolved in favor of
labor", and Article 1702 of the Civil Code which provides that "[i]n case of
doubt, all labor legislation and all labor contracts shall be construed in favor of
the safety and decent living for the laborer." 33 (Emphasis supplied)

In the present case, it is true that the Labor Arbiter and the NLRC failed to state the
reasons why attorney's fees are being awarded. However, it is clear that private
respondent was illegally terminated from his employment and that his wages and
other benefits were withheld from him without any valid and legal basis. As a
consequence, he is compelled to file an action for the recovery of his lawful wages
and other benefits and, in the process, incurred expenses. On these bases, the Court
finds that he is entitled to attorney's fees.

WHEREFORE, the petition is PARTLY GRANTED. The Court of Appeals' Decision

dated December 18, 2001 and Resolution dated April 10, 2002 are AFFIRMED with
MODIFICATION to the effect that the award of US$1620.00 representing private
respondent's three months salary is reduced to US$1200.00. The award of US$550.00
representing private respondent's living allowance, overtime pay, vacation pay and
special allowance for two months is deleted and in lieu thereof, an award of US$710.00 is
granted representing private respondent's living allowance, special allowance and
vacation leave with pay for the same period. cECTaD

No costs.
Ynares-Santiago, Callejo, Sr. and Chico-Nazario, JJ., concur.

Panganiban, C.J., retired as of December 7, 2006.

FIRST DIVISION

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

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

ALICIA F. LLORENTE, respondents.

E.A. Dacanay for petitioner.

Pardalis, Navarro & Sales for private respondents.

SYNOPSIS

The deceased Lorenzo N. Llorente was an enlisted serviceman of the United States Navy
from 1927 to 1957 and a naturalized American citizen. On February 22, 1937, Lorenzo
married petitioner Paula Llorente. 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. When Lorenzo returned to the Philippines to visit his wife in
1945, he discovered that his wife Paula was pregnant and was "living in" and having an
adulterous relationship with his brother, Ceferino Llorente. Lorenzo refused to forgive
Paula and live with her. Lorenzo returned to the United States and 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. 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. The divorce decree
became final in 1952. On January 16, 1958, Lorenzo married Alicia F. Llorente in
Manila. 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. From 1958 to
1985, Lorenzo and Alicia lived together as husband and wife and produced three
children, Raul, Luz and Beverly, all surnamed Llorente. On March 13, 1981, Lorenzo
executed a Last Will and Testament. In the will, Lorenzo bequeathed all his property to
Alicia and their three children. 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. The trial court admitted the will to probate. On June 11, 1985, before the
proceedings could be terminated, Lorenzo died. Paula filed with the same court a petition
for letters of administration over Lorenzo's estate in her favor. Alicia also filed in the
testate proceeding a petition for the issuance of letters testamentary. The trial court
denied Alicia's petition and ruled that the divorce decree granted to the late Lorenzo
Llorente was void and inapplicable in the Philippines, therefore, her marriage to Lorenzo
was likewise void. The trial court appointed Paula Llorente as legal administrator of the
estate of the deceased, Lorenzo Llorente. Respondent Alicia filed with the trial court a
motion for reconsideration, but was denied. Alicia appealed to the Court of Appeals. The
appellate court promulgated its decision, affirming with modification the decision of the
trial court. The trial court declared Alicia as co-owner of whatever properties she and the
deceased Lorenzo may have acquired during the twenty-five (25) years of cohabitation.
Petitioner Paula moved for reconsideration, but was denied for lack of merit. Hence, the
present petition.

The Supreme Court reversed and set aside the ruling of the trial court and recognized as
valid and as a matter of comity 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. According to the Court, the
"national law" indicated in Article 16 of the Civil Code cannot possibly apply to the
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 and there was also no showing that the
application of the renvoi doctrine was called for or required by New York State law. The
Court also said that the clear intent of Lorenzo to bequeath his property to his second
wife and children by her was glaringly shown in the will he executed and the Court did
not wish to frustrate Lorenzo's wishes, since he was a foreigner, not covered by
Philippine laws on family rights and duties, status, condition and legal capacity. The
Court remanded 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.

SYLLABUS

1. CIVIL LAW; PRIVATE INTERNATIONAL LAW; RENVOI DOCTRINE; NOT

APPLICABLE IN CASE AT BAR. — 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. 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. 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. 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 (½) 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.

2. ID.; ID.; VALIDITY OF FOREIGN DIVORCE; DIVORCE OBTAINED BY

PETITIONER'S HUSBAND ABROAD VALID AND RECOGNIZED BY PHILIPPINE
LAWS AS A MATTER OF COMITY; SETTLED DOCTRINES. — In Van Dorn v.
Romillo, Jr., 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, 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, 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. 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.

3. ID.; ID.; FORMALITIES OF WILL EXECUTED BY FOREIGN NATIONALS

SHALL BE GOVERNED BY PHILIPPINE LAW; DETERMINATION OF
SUCCESSIONAL RIGHTS BEST PROVED BY FOREIGN LAW WHICH MUST BE
DULY PLEADED AND PROVED; CASE AT BAR. — 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."
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.

DECISION

PARDO, J : p

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 (hereinafter 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. CADHcI

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: ISaCTE

"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:

"ARTICLE 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. SCcHIE

"ARTICLE 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."
(italics 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:

"ARTICLE 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." (italics
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. HAICcD

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., Puno, Kapunan, and Ynares-Santiago, JJ., concur.

THIRD DIVISION

[G.R. No. 186571. August 11, 2010.]

GERBERT R. CORPUZ, petitioner, vs. DAISYLYN TIROL STO.

TOMAS and The SOLICITOR GENERAL, respondents.

DECISION

BRION, J : p

Before the Court is a direct appeal from the decision 1 of the Regional Trial
Court (RTC) of Laoag City, Branch 11, elevated via a petition for review on certiorari
2 under Rule 45 of the Rules of Court (present petition).
Petitioner Gerbert R. Corpuz was a former Filipino citizen who acquired
Canadian citizenship through naturalization on November 29, 2000. 3 On January 18,
2005, Gerbert married respondent Daisylyn T. Sto. Tomas, a Filipina, in Pasig City. 4
Due to work and other professional commitments, Gerbert left for Canada soon after
the wedding. He returned to the Philippines sometime in April 2005 to surprise
Daisylyn, but was shocked to discover that his wife was having an affair with another
man. Hurt and disappointed, Gerbert returned to Canada and filed a petition for
divorce. The Superior Court of Justice, Windsor, Ontario, Canada granted Gerbert's
petition for divorce on December 8, 2005. The divorce decree took effect a month
later, on January 8, 2006. 5
Two years after the divorce, Gerbert has moved on and has found another
Filipina to love. Desirous of marrying his new Filipina fiancée in the Philippines,
Gerbert went to the Pasig City Civil Registry Office and registered the Canadian
 divorce decree on his and Daisylyn's marriage certificate. Despite the registration of
the divorce decree, an official of the National Statistics Office (NSO) informed
Gerbert that the marriage between him and Daisylyn still subsists under Philippine
law; to be enforceable, the foreign divorce decree must first be judicially recognized
by a competent Philippine court, pursuant to NSO Circular No. 4, series of 1982. 6 IHDCcT

Accordingly, Gerbert filed a petition for judicial recognition of foreign

divorce and/or declaration of marriage as dissolved (petition) with the RTC.
Although summoned, Daisylyn did not file any responsive pleading but submitted
instead a notarized letter/manifestation to the trial court. She offered no opposition to
Gerbert's petition and, in fact, alleged her desire to file a similar case herself but was
prevented by financial and personal circumstances. She, thus, requested that she be
considered as a party-in-interest with a similar prayer to Gerbert's.
In its October 30, 2008 decision, 7 the RTC denied Gerbert's petition. The
RTC concluded that Gerbert was not the proper party to institute the action for
judicial recognition of the foreign divorce decree as he is a naturalized Canadian
citizen. It ruled that only the Filipino spouse can avail of the remedy, under the
second paragraph of Article 26 of the Family Code, 8 in order for him or her to be
able to remarry under Philippine law. 9 Article 26 of the Family Code reads:

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.

This conclusion, the RTC stated, is consistent with the legislative intent behind the
enactment of the second paragraph of Article 26 of the Family Code, as determined
by the Court in Republic v. Orbecido III; 10 the provision was enacted 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." 11
THE PETITION

From the RTC's ruling, 12 Gerbert filed the present petition. 13

Gerbert asserts that his petition before the RTC is essentially for declaratory
relief, similar to that filed in Orbecido; he, thus, similarly asks for a determination of
his rights under the second paragraph of Article 26 of the Family Code. Taking into
account the rationale behind the second paragraph of Article 26 of the Family Code,
he contends that the provision applies as well to the benefit of the alien spouse. He
 claims that the RTC ruling unduly stretched the doctrine in Orbecido by limiting the
standing to file the petition only to the Filipino spouse — an interpretation he claims
to be contrary to the essence of the second paragraph of Article 26 of the Family
Code. He considers himself as a proper party, vested with sufficient legal interest, to
institute the case, as there is a possibility that he might be prosecuted for bigamy if he
marries his Filipina fiancée in the Philippines since two marriage certificates,
involving him, would be on file with the Civil Registry Office. The Office of the
Solicitor General and Daisylyn, in their respective Comments, 14 both support
Gerbert's position. SAcaDE

Essentially, the petition raises the issue of whether the second paragraph of Article 26 of
the Family Code extends to aliens the right to petition a court of this jurisdiction for
the recognition of a foreign divorce decree.

THE COURT'S RULING

The alien spouse can claim no right
under the second paragraph of
Article 26 of the Family Code as the
substantive right it establishes is in
favor of the Filipino spouse
The resolution of the issue requires a review of the legislative history and
intent behind the second paragraph of Article 26 of the Family Code.
The Family Code recognizes only two types of defective marriages — void 15
and voidable 16 marriages. In both cases, the basis for the judicial declaration of
absolute nullity or annulment of the marriage exists before or at the time of the
marriage. Divorce, on the other hand, contemplates the dissolution of the lawful union
for cause arising after the marriage. 17 Our family laws do not recognize absolute
divorce between Filipino citizens. 18
Recognizing the reality that divorce is a possibility in marriages between a
Filipino and an alien, President Corazon C. Aquino, in the exercise of her legislative
powers under the Freedom Constitution, 19 enacted Executive Order No. (EO) 227,
amending Article 26 of the Family Code to its present wording, as follows:

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.
Through the second paragraph of Article 26 of the Family Code, EO 227 effectively
incorporated into the law this Court's holding in Van Dorn v. Romillo, Jr. 20 and
Pilapil v. Ibay-Somera. 21 In both cases, the Court refused to acknowledge the alien
spouse's assertion of marital rights after a foreign court's divorce decree between the
alien and the Filipino. The Court, thus, recognized that the foreign divorce had
already severed the marital bond between the spouses. The Court reasoned in Van
Dorn v. Romillo that:

To maintain . . . that, under our laws, [the Filipino spouse] has to be

considered still married to [the alien spouse] and still subject to a wife's
obligations . . . cannot be just. [The Filipino spouse] should not be obliged to
live together with, observe respect and fidelity, and render support to [the alien
spouse]. 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. 22 aCHDST

As the RTC correctly stated, the provision was included in the law "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." 23 The
legislative intent is for the benefit of the Filipino spouse, by clarifying his or her
marital status, settling the doubts created by the divorce decree. Essentially, the
second paragraph of Article 26 of the Family Code provided the Filipino spouse
a substantive right to have his or her marriage to the alien spouse considered as
dissolved, capacitating him or her to remarry. 24 Without the second paragraph of
Article 26 of the Family Code, the judicial recognition of the foreign decree of
divorce, whether in a proceeding instituted precisely for that purpose or as a related
issue in another proceeding, would be of no significance to the Filipino spouse since
our laws do not recognize divorce as a mode of severing the marital bond; 25 Article
17 of the Civil Code provides that the policy against absolute divorces cannot be
subverted by judgments promulgated in a foreign country. The inclusion of the second
paragraph in Article 26 of the Family Code provides the direct exception to this rule
and serves as basis for recognizing the dissolution of the marriage between the
Filipino spouse and his or her alien spouse.
Additionally, an action based on the second paragraph of Article 26 of the
Family Code is not limited to the recognition of the foreign divorce decree. If the
court finds that the decree capacitated the alien spouse to remarry, the courts can
declare that the Filipino spouse is likewise capacitated to contract another marriage.
No court in this jurisdiction, however, can make a similar declaration for the alien
spouse (other than that already established by the decree), whose status and legal
capacity are generally governed by his national law. 26
Given the rationale and intent behind the enactment, and the purpose of the
second paragraph of Article 26 of the Family Code, the RTC was correct in limiting
the applicability of the provision for the benefit of the Filipino spouse. In other words,
only the Filipino spouse can invoke the second paragraph of Article 26 of the Family
Code; the alien spouse can claim no right under this provision.
The foreign divorce decree is
presumptive evidence of a right that
clothes the party with legal interest to
petition for its recognition in this
jurisdiction
We qualify our above conclusion — i.e., that the second paragraph of Article
26 of the Family Code bestows no rights in favor of aliens — with the complementary
statement that this conclusion is not sufficient basis to dismiss Gerbert's petition
before the RTC. In other words, the unavailability of the second paragraph of Article
26 of the Family Code to aliens does not necessarily strip Gerbert of legal interest to
petition the RTC for the recognition of his foreign divorce decree. The foreign divorce
decree itself, after its authenticity and conformity with the alien's national law have
been duly proven according to our rules of evidence, serves as a presumptive evidence
of right in favor of Gerbert, pursuant to Section 48, Rule 39 of the Rules of Court
which provides for the effect of foreign judgments. This Section states: aTEScI

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:

(a) In case of a judgment or final order upon a specific thing, the

judgment or final order is conclusive upon the title of the thing;
and

(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.

To our mind, direct involvement or being the subject of the foreign judgment is
sufficient to clothe a party with the requisite interest to institute an action before our
courts for the recognition of the foreign judgment. In a divorce situation, we have
declared, no less, that the divorce obtained by an alien abroad may be recognized in
the Philippines, provided the divorce is valid according to his or her national law. 27
The starting point in any recognition of a foreign divorce judgment is the
acknowledgment that our courts do not take judicial notice of foreign judgments and
laws. Justice Herrera explained that, as a rule, "no sovereign is bound to give effect
within its dominion to a judgment rendered by a tribunal of another country." 28 This
means that the foreign judgment and its authenticity must be proven as facts under our
rules on evidence, together with the alien's applicable national law to show the effect
of the judgment on the alien himself or herself. 29 The recognition may be made in an
action instituted specifically for the purpose or in another action where a party
invokes the foreign decree as an integral aspect of his claim or defense.
In Gerbert's case, since both the foreign divorce decree and the national law of
the alien, recognizing his or her capacity to obtain a divorce, purport to be official acts
of a sovereign authority, Section 24, Rule 132 of the Rules of Court comes into play.
This Section requires proof, either by (1) official publications or (2) copies attested by
the officer having legal custody of the documents. If the copies of official records are
not kept in the Philippines, these 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.
The records show that Gerbert attached to his petition a copy of the divorce
decree, as well as the required certificates proving its authenticity, 30 but failed to
include a copy of the Canadian law on divorce. 31 Under this situation, we can, at this
point, simply dismiss the petition for insufficiency of supporting evidence, unless we
deem it more appropriate to remand the case to the RTC to determine whether the
divorce decree is consistent with the Canadian divorce law. DCASIT

We deem it more appropriate to take this latter course of action, given the
Article 26 interests that will be served and the Filipina wife's (Daisylyn's) obvious
conformity with the petition. A remand, at the same time, will allow other interested
parties to oppose the foreign judgment and overcome a petitioner's presumptive
evidence of a right by proving want of jurisdiction, want of notice to a party,
collusion, fraud, or clear mistake of law or fact. Needless to state, every precaution
must be taken to ensure conformity with our laws before a recognition is made, as the
foreign judgment, once recognized, shall have the effect of res judicata 32 between
the parties, as provided in Section 48, Rule 39 of the Rules of Court. 33
In fact, more than the principle of comity that is served by the practice of
reciprocal recognition of foreign judgments between nations, the res judicata effect of
the foreign judgments of divorce serves as the deeper basis for extending judicial
recognition and for considering the alien spouse bound by its terms. This same effect,
as discussed above, will not obtain for the Filipino spouse were it not for the
substantive rule that the second paragraph of Article 26 of the Family Code provides.
Considerations beyond the
recognition of the foreign divorce
decree
 As a matter of "housekeeping" concern, we note that the Pasig City Civil
Registry Office has already recorded the divorce decree on Gerbert and
Daisylyn's marriage certificate based on the mere presentation of the decree. 34
We consider the recording to be legally improper; hence, the need to draw attention of
the bench and the bar to what had been done.
Article 407 of the Civil Code states that "[a]cts, events and judicial decrees
concerning the civil status of persons shall be recorded in the civil register." The law
requires the entry in the civil registry of judicial decrees that produce legal
consequences touching upon a person's legal capacity and status, i.e., those affecting
"all his personal qualities and relations, more or less permanent in nature, not
ordinarily terminable at his own will, such as his being legitimate or illegitimate, or
his being married or not." 35
A judgment of divorce is a judicial decree, although a foreign one, affecting a
person's legal capacity and status that must be recorded. In fact, Act No. 3753 or the
Law on Registry of Civil Status specifically requires the registration of divorce
decrees in the civil registry:

Sec. 1. Civil Register. — A civil register is established for recording the civil
status of persons, in which shall be entered:

(a) births;

(b) deaths;

(c) marriages;

(d) annulments of marriages;

(e) divorces; EHDCAI

(f) legitimations;

(g) adoptions;

(h) acknowledgment of natural children;

(i) naturalization; and

(j) changes of name.

xxx xxx xxx

 Sec. 4. Civil Register Books. — The local registrars shall keep and preserve in
their offices the following books, in which they shall, respectively make the
proper entries concerning the civil status of persons:

(1) Birth and death register.

(2) Marriage register, in which shall be entered not only the

marriages solemnized but also divorces and dissolved
marriages.

(3) Legitimation, acknowledgment, adoption, change of name and

naturalization register.

But while the law requires the entry of the divorce decree in the civil registry, the law
and the submission of the decree by themselves do not ipso facto authorize the
decree's registration. The law should be read in relation with the requirement of a
judicial recognition of the foreign judgment before it can be given res judicata effect.
In the context of the present case, no judicial order as yet exists recognizing the
foreign divorce decree. Thus, the Pasig City Civil Registry Office acted totally out of
turn and without authority of law when it annotated the Canadian divorce decree on
Gerbert and Daisylyn's marriage certificate, on the strength alone of the foreign
decree presented by Gerbert.
Evidently, the Pasig City Civil Registry Office was aware of the requirement
of a court recognition, as it cited NSO Circular No. 4, series of 1982, 36 and
Department of Justice Opinion No. 181, series of 1982 37 — both of which required a
final order from a competent Philippine court before a foreign judgment, dissolving a
marriage, can be registered in the civil registry, but it, nonetheless, allowed the
registration of the decree. For being contrary to law, the registration of the foreign
divorce decree without the requisite judicial recognition is patently void and cannot
produce any legal effect.
Another point we wish to draw attention to is that the recognition that the RTC
may extend to the Canadian divorce decree does not, by itself, authorize the
cancellation of the entry in the civil registry. A petition for recognition of a foreign
judgment is not the proper proceeding, contemplated under the Rules of Court, for the
cancellation of entries in the civil registry.STHDAc

Article 412 of the Civil Code declares that "no entry in a civil register shall be
changed or corrected, without judicial order." The Rules of Court supplements Article
412 of the Civil Code by specifically providing for a special remedial proceeding by
which entries in the civil registry may be judicially cancelled or corrected. Rule 108
of the Rules of Court sets in detail the jurisdictional and procedural requirements that
must be complied with before a judgment, authorizing the cancellation or correction,
may be annotated in the civil registry. It also requires, among others, that the verified
petition must be filed with the RTC of the province where the corresponding civil
 registry is located; 38 that the civil registrar and all persons who have or claim any
interest must be made parties to the proceedings; 39 and that the time and place for
hearing must be published in a newspaper of general circulation. 40 As these basic
jurisdictional requirements have not been met in the present case, we cannot consider
the petition Gerbert filed with the RTC as one filed under Rule 108 of the Rules of
Court.
We hasten to point out, however, that this ruling should not be construed as
requiring two separate proceedings for the registration of a foreign divorce decree in
the civil registry — one for recognition of the foreign decree and another specifically
for cancellation of the entry under Rule 108 of the Rules of Court. The recognition of
the foreign divorce decree may be made in a Rule 108 proceeding itself, as the object
of special proceedings (such as that in Rule 108 of the Rules of Court) is precisely to
establish the status or right of a party or a particular fact. Moreover, Rule 108 of the
Rules of Court can serve as the appropriate adversarial proceeding 41 by which the
applicability of the foreign judgment can be measured and tested in terms of
jurisdictional infirmities, want of notice to the party, collusion, fraud, or clear mistake
of law or fact.
WHEREFORE, we GRANT the petition for review on certiorari, and
REVERSE the October 30, 2008 decision of the Regional Trial Court of Laoag City,
Branch 11, as well as its February 17, 2009 order. We order the REMAND of the
case to the trial court for further proceedings in accordance with our ruling above. Let
a copy of this Decision be furnished the Civil Registrar General. No costs.

SO ORDERED.

Carpio Morales, Bersamin, Abad * and Villarama Jr., JJ., concur.

THIRD DIVISION

[G.R. No. 186571. August 11, 2010.]

GERBERT R. CORPUZ, petitioner, vs. DAISYLYN TIROL STO.

TOMAS and The SOLICITOR GENERAL, respondents.

DECISION

BRION, J :p
 Before the Court is a direct appeal from the decision 1 of the Regional Trial
Court (RTC) of Laoag City, Branch 11, elevated via a petition for review on certiorari
2 under Rule 45 of the Rules of Court (present petition).
Petitioner Gerbert R. Corpuz was a former Filipino citizen who acquired
Canadian citizenship through naturalization on November 29, 2000. 3 On January 18,
2005, Gerbert married respondent Daisylyn T. Sto. Tomas, a Filipina, in Pasig City. 4
Due to work and other professional commitments, Gerbert left for Canada soon after
the wedding. He returned to the Philippines sometime in April 2005 to surprise
Daisylyn, but was shocked to discover that his wife was having an affair with another
man. Hurt and disappointed, Gerbert returned to Canada and filed a petition for
divorce. The Superior Court of Justice, Windsor, Ontario, Canada granted Gerbert's
petition for divorce on December 8, 2005. The divorce decree took effect a month
later, on January 8, 2006. 5
Two years after the divorce, Gerbert has moved on and has found another
Filipina to love. Desirous of marrying his new Filipina fiancée in the Philippines,
Gerbert went to the Pasig City Civil Registry Office and registered the Canadian
divorce decree on his and Daisylyn's marriage certificate. Despite the registration of
the divorce decree, an official of the National Statistics Office (NSO) informed
Gerbert that the marriage between him and Daisylyn still subsists under Philippine
law; to be enforceable, the foreign divorce decree must first be judicially recognized
by a competent Philippine court, pursuant to NSO Circular No. 4, series of 1982. 6 IHDCcT

Accordingly, Gerbert filed a petition for judicial recognition of foreign

divorce and/or declaration of marriage as dissolved (petition) with the RTC.
Although summoned, Daisylyn did not file any responsive pleading but submitted
instead a notarized letter/manifestation to the trial court. She offered no opposition to
Gerbert's petition and, in fact, alleged her desire to file a similar case herself but was
prevented by financial and personal circumstances. She, thus, requested that she be
considered as a party-in-interest with a similar prayer to Gerbert's.
In its October 30, 2008 decision, 7 the RTC denied Gerbert's petition. The
RTC concluded that Gerbert was not the proper party to institute the action for
judicial recognition of the foreign divorce decree as he is a naturalized Canadian
citizen. It ruled that only the Filipino spouse can avail of the remedy, under the
second paragraph of Article 26 of the Family Code, 8 in order for him or her to be
able to remarry under Philippine law. 9 Article 26 of the Family Code reads:

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.

This conclusion, the RTC stated, is consistent with the legislative intent behind the
enactment of the second paragraph of Article 26 of the Family Code, as determined
by the Court in Republic v. Orbecido III; 10 the provision was enacted 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." 11
THE PETITION

From the RTC's ruling, 12 Gerbert filed the present petition. 13

Gerbert asserts that his petition before the RTC is essentially for declaratory
relief, similar to that filed in Orbecido; he, thus, similarly asks for a determination of
his rights under the second paragraph of Article 26 of the Family Code. Taking into
account the rationale behind the second paragraph of Article 26 of the Family Code,
he contends that the provision applies as well to the benefit of the alien spouse. He
claims that the RTC ruling unduly stretched the doctrine in Orbecido by limiting the
standing to file the petition only to the Filipino spouse — an interpretation he claims
to be contrary to the essence of the second paragraph of Article 26 of the Family
Code. He considers himself as a proper party, vested with sufficient legal interest, to
institute the case, as there is a possibility that he might be prosecuted for bigamy if he
marries his Filipina fiancée in the Philippines since two marriage certificates,
involving him, would be on file with the Civil Registry Office. The Office of the
Solicitor General and Daisylyn, in their respective Comments, 14 both support
Gerbert's position.SAcaDE

Essentially, the petition raises the issue of whether the second paragraph of Article 26 of
the Family Code extends to aliens the right to petition a court of this jurisdiction for
the recognition of a foreign divorce decree.

THE COURT'S RULING

The alien spouse can claim no right
under the second paragraph of
Article 26 of the Family Code as the
substantive right it establishes is in
favor of the Filipino spouse
The resolution of the issue requires a review of the legislative history and
intent behind the second paragraph of Article 26 of the Family Code.
The Family Code recognizes only two types of defective marriages — void 15
and voidable 16 marriages. In both cases, the basis for the judicial declaration of
absolute nullity or annulment of the marriage exists before or at the time of the
marriage. Divorce, on the other hand, contemplates the dissolution of the lawful union
for cause arising after the marriage. 17 Our family laws do not recognize absolute
divorce between Filipino citizens. 18
Recognizing the reality that divorce is a possibility in marriages between a
Filipino and an alien, President Corazon C. Aquino, in the exercise of her legislative
powers under the Freedom Constitution, 19 enacted Executive Order No. (EO) 227,
amending Article 26 of the Family Code to its present wording, as follows:

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.

Through the second paragraph of Article 26 of the Family Code, EO 227 effectively
incorporated into the law this Court's holding in Van Dorn v. Romillo, Jr. 20 and
Pilapil v. Ibay-Somera. 21 In both cases, the Court refused to acknowledge the alien
spouse's assertion of marital rights after a foreign court's divorce decree between the
alien and the Filipino. The Court, thus, recognized that the foreign divorce had
already severed the marital bond between the spouses. The Court reasoned in Van
Dorn v. Romillo that:

To maintain . . . that, under our laws, [the Filipino spouse] has to be

considered still married to [the alien spouse] and still subject to a wife's
obligations . . . cannot be just. [The Filipino spouse] should not be obliged to
live together with, observe respect and fidelity, and render support to [the alien
spouse]. 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. 22 aCHDST

As the RTC correctly stated, the provision was included in the law "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." 23 The
legislative intent is for the benefit of the Filipino spouse, by clarifying his or her
marital status, settling the doubts created by the divorce decree. Essentially, the
second paragraph of Article 26 of the Family Code provided the Filipino spouse
a substantive right to have his or her marriage to the alien spouse considered as
dissolved, capacitating him or her to remarry. 24 Without the second paragraph of
Article 26 of the Family Code, the judicial recognition of the foreign decree of
divorce, whether in a proceeding instituted precisely for that purpose or as a related
issue in another proceeding, would be of no significance to the Filipino spouse since
our laws do not recognize divorce as a mode of severing the marital bond; 25 Article
17 of the Civil Code provides that the policy against absolute divorces cannot be
subverted by judgments promulgated in a foreign country. The inclusion of the second
paragraph in Article 26 of the Family Code provides the direct exception to this rule
and serves as basis for recognizing the dissolution of the marriage between the
Filipino spouse and his or her alien spouse.
Additionally, an action based on the second paragraph of Article 26 of the
Family Code is not limited to the recognition of the foreign divorce decree. If the
court finds that the decree capacitated the alien spouse to remarry, the courts can
declare that the Filipino spouse is likewise capacitated to contract another marriage.
No court in this jurisdiction, however, can make a similar declaration for the alien
spouse (other than that already established by the decree), whose status and legal
capacity are generally governed by his national law. 26
Given the rationale and intent behind the enactment, and the purpose of the
second paragraph of Article 26 of the Family Code, the RTC was correct in limiting
the applicability of the provision for the benefit of the Filipino spouse. In other words,
only the Filipino spouse can invoke the second paragraph of Article 26 of the Family
Code; the alien spouse can claim no right under this provision.
The foreign divorce decree is
presumptive evidence of a right that
clothes the party with legal interest to
petition for its recognition in this
jurisdiction
We qualify our above conclusion — i.e., that the second paragraph of Article
26 of the Family Code bestows no rights in favor of aliens — with the complementary
statement that this conclusion is not sufficient basis to dismiss Gerbert's petition
before the RTC. In other words, the unavailability of the second paragraph of Article
26 of the Family Code to aliens does not necessarily strip Gerbert of legal interest to
petition the RTC for the recognition of his foreign divorce decree. The foreign divorce
decree itself, after its authenticity and conformity with the alien's national law have
been duly proven according to our rules of evidence, serves as a presumptive evidence
of right in favor of Gerbert, pursuant to Section 48, Rule 39 of the Rules of Court
which provides for the effect of foreign judgments. This Section states: aTEScI

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:

(a) In case of a judgment or final order upon a specific thing, the

judgment or final order is conclusive upon the title of the thing;
and
 (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.

To our mind, direct involvement or being the subject of the foreign judgment is
sufficient to clothe a party with the requisite interest to institute an action before our
courts for the recognition of the foreign judgment. In a divorce situation, we have
declared, no less, that the divorce obtained by an alien abroad may be recognized in
the Philippines, provided the divorce is valid according to his or her national law. 27
The starting point in any recognition of a foreign divorce judgment is the
acknowledgment that our courts do not take judicial notice of foreign judgments and
laws. Justice Herrera explained that, as a rule, "no sovereign is bound to give effect
within its dominion to a judgment rendered by a tribunal of another country." 28 This
means that the foreign judgment and its authenticity must be proven as facts under our
rules on evidence, together with the alien's applicable national law to show the effect
of the judgment on the alien himself or herself. 29 The recognition may be made in an
action instituted specifically for the purpose or in another action where a party
invokes the foreign decree as an integral aspect of his claim or defense.
In Gerbert's case, since both the foreign divorce decree and the national law of
the alien, recognizing his or her capacity to obtain a divorce, purport to be official acts
of a sovereign authority, Section 24, Rule 132 of the Rules of Court comes into play.
This Section requires proof, either by (1) official publications or (2) copies attested by
the officer having legal custody of the documents. If the copies of official records are
not kept in the Philippines, these 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.
The records show that Gerbert attached to his petition a copy of the divorce
decree, as well as the required certificates proving its authenticity, 30 but failed to
include a copy of the Canadian law on divorce. 31 Under this situation, we can, at this
point, simply dismiss the petition for insufficiency of supporting evidence, unless we
deem it more appropriate to remand the case to the RTC to determine whether the
divorce decree is consistent with the Canadian divorce law. DCASIT

We deem it more appropriate to take this latter course of action, given the
Article 26 interests that will be served and the Filipina wife's (Daisylyn's) obvious
conformity with the petition. A remand, at the same time, will allow other interested
parties to oppose the foreign judgment and overcome a petitioner's presumptive
evidence of a right by proving want of jurisdiction, want of notice to a party,
collusion, fraud, or clear mistake of law or fact. Needless to state, every precaution
must be taken to ensure conformity with our laws before a recognition is made, as the
foreign judgment, once recognized, shall have the effect of res judicata 32 between
the parties, as provided in Section 48, Rule 39 of the Rules of Court. 33
In fact, more than the principle of comity that is served by the practice of
reciprocal recognition of foreign judgments between nations, the res judicata effect of
the foreign judgments of divorce serves as the deeper basis for extending judicial
recognition and for considering the alien spouse bound by its terms. This same effect,
as discussed above, will not obtain for the Filipino spouse were it not for the
substantive rule that the second paragraph of Article 26 of the Family Code provides.
Considerations beyond the
recognition of the foreign divorce
decree
As a matter of "housekeeping" concern, we note that the Pasig City Civil
Registry Office has already recorded the divorce decree on Gerbert and
Daisylyn's marriage certificate based on the mere presentation of the decree. 34
We consider the recording to be legally improper; hence, the need to draw attention of
the bench and the bar to what had been done.
Article 407 of the Civil Code states that "[a]cts, events and judicial decrees
concerning the civil status of persons shall be recorded in the civil register." The law
requires the entry in the civil registry of judicial decrees that produce legal
consequences touching upon a person's legal capacity and status, i.e., those affecting
"all his personal qualities and relations, more or less permanent in nature, not
ordinarily terminable at his own will, such as his being legitimate or illegitimate, or
his being married or not." 35
A judgment of divorce is a judicial decree, although a foreign one, affecting a
person's legal capacity and status that must be recorded. In fact, Act No. 3753 or the
Law on Registry of Civil Status specifically requires the registration of divorce
decrees in the civil registry:

Sec. 1. Civil Register. — A civil register is established for recording the civil
status of persons, in which shall be entered:

(a) births;

(b) deaths;

(c) marriages;

(d) annulments of marriages;

 (e) divorces; EHDCAI

(f) legitimations;

(g) adoptions;

(h) acknowledgment of natural children;

(i) naturalization; and

(j) changes of name.

xxx xxx xxx

Sec. 4. Civil Register Books. — The local registrars shall keep and preserve in
their offices the following books, in which they shall, respectively make the
proper entries concerning the civil status of persons:

(1) Birth and death register.

(2) Marriage register, in which shall be entered not only the

marriages solemnized but also divorces and dissolved
marriages.

(3) Legitimation, acknowledgment, adoption, change of name and

naturalization register.

But while the law requires the entry of the divorce decree in the civil registry, the law
and the submission of the decree by themselves do not ipso facto authorize the
decree's registration. The law should be read in relation with the requirement of a
judicial recognition of the foreign judgment before it can be given res judicata effect.
In the context of the present case, no judicial order as yet exists recognizing the
foreign divorce decree. Thus, the Pasig City Civil Registry Office acted totally out of
turn and without authority of law when it annotated the Canadian divorce decree on
Gerbert and Daisylyn's marriage certificate, on the strength alone of the foreign
decree presented by Gerbert.
Evidently, the Pasig City Civil Registry Office was aware of the requirement
of a court recognition, as it cited NSO Circular No. 4, series of 1982, 36 and
Department of Justice Opinion No. 181, series of 1982 37 — both of which required a
final order from a competent Philippine court before a foreign judgment, dissolving a
marriage, can be registered in the civil registry, but it, nonetheless, allowed the
registration of the decree. For being contrary to law, the registration of the foreign
divorce decree without the requisite judicial recognition is patently void and cannot
produce any legal effect.
 Another point we wish to draw attention to is that the recognition that the RTC
may extend to the Canadian divorce decree does not, by itself, authorize the
cancellation of the entry in the civil registry. A petition for recognition of a foreign
judgment is not the proper proceeding, contemplated under the Rules of Court, for the
cancellation of entries in the civil registry.
STHDAc

Article 412 of the Civil Code declares that "no entry in a civil register shall be
changed or corrected, without judicial order." The Rules of Court supplements Article
412 of the Civil Code by specifically providing for a special remedial proceeding by
which entries in the civil registry may be judicially cancelled or corrected. Rule 108
of the Rules of Court sets in detail the jurisdictional and procedural requirements that
must be complied with before a judgment, authorizing the cancellation or correction,
may be annotated in the civil registry. It also requires, among others, that the verified
petition must be filed with the RTC of the province where the corresponding civil
registry is located; 38 that the civil registrar and all persons who have or claim any
interest must be made parties to the proceedings; 39 and that the time and place for
hearing must be published in a newspaper of general circulation. 40 As these basic
jurisdictional requirements have not been met in the present case, we cannot consider
the petition Gerbert filed with the RTC as one filed under Rule 108 of the Rules of
Court.
We hasten to point out, however, that this ruling should not be construed as
requiring two separate proceedings for the registration of a foreign divorce decree in
the civil registry — one for recognition of the foreign decree and another specifically
for cancellation of the entry under Rule 108 of the Rules of Court. The recognition of
the foreign divorce decree may be made in a Rule 108 proceeding itself, as the object
of special proceedings (such as that in Rule 108 of the Rules of Court) is precisely to
establish the status or right of a party or a particular fact. Moreover, Rule 108 of the
Rules of Court can serve as the appropriate adversarial proceeding 41 by which the
applicability of the foreign judgment can be measured and tested in terms of
jurisdictional infirmities, want of notice to the party, collusion, fraud, or clear mistake
of law or fact.
WHEREFORE, we GRANT the petition for review on certiorari, and
REVERSE the October 30, 2008 decision of the Regional Trial Court of Laoag City,
Branch 11, as well as its February 17, 2009 order. We order the REMAND of the
case to the trial court for further proceedings in accordance with our ruling above. Let
a copy of this Decision be furnished the Civil Registrar General. No costs.

SO ORDERED.

Carpio Morales, Bersamin, Abad * and Villarama Jr., JJ., concur.