G.R. No.

108292 September 10, 1993

REPUBLIC OF THE PHILIPPINES (Presidential Commission on
Government
[PCGG]), petitioner,

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.
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, 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 ommissions prior to
February 25, 1986 that may be alleged to have violated penal laws, including 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.

Good
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. Nos. 108548-49 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 & Maronilla Law Office for P. Sabido, et al. in G.R.
Nos. 108548-49 & 108550.
MELO, J.:
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 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 agreement 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 intimidation 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 the 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. (Emphasis 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 excercise by the latter company of the preemptive 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.R.
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-ininterest, 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 5Ruling 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 reechoed 5 Ruling Case Laws 883 (1914).
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
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
celebrationis 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.
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.
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 it 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 to be stated in the four corners of the agreement since
his duty to disclose all his property is supposed to be madebefore the PCGG or to
the Sandiganbayan when called upon to testify as a vital witness on other illgotten 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 priveleges (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.
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 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 [1966]; 6 Padilla, Civil Code annotated, 7th ed., 1987. p. 711;
3 Aquino, Civil Code, 1990 ed., p. 463) Thus, as emphazised 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 it should not supplant positive
law.
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).
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 drawn out 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 inGuingona 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
throughly 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 nor relieve a party from the
effects of an unwise, foolish, or disastrous constract, 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 definitely 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.
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.
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. Pea, 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. Pea (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 excercise 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.
WHEREFORE, the petitions in G.R. Nos. 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.

UTILIZATION/DISPOSITION PETITION OF PHILIPPINE

PROPERTIES IN JAPAN,respondents.
Arturo M. Tolentino for petitioner in 92013.

GOVERNMENT

GUTIERREZ, JR., J.:

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 Roppongi, 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 prayes 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 inspire 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.
I
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 Obanoyama-cho,
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.

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

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
Roppongi 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. Instead, 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 separations' 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 of $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.
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
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. VicePresident 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 oflex

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; Sections 22 and 23 of Commonwealth Act 141).itc-asl
(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 (Section 28, Article III, 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.
IV
The petitioners and respondents in both cases do not dispute the fact
that the Roppongi site and the three related properties were 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 appropration. (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
definiteAbandonment 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. Lazaro, 166 SCRA 368 [1988]). Abandonment must be
a certain and positive act based on correct legal premises.
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 its 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 No. 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 above-mentioned properties can
be made available for sale, lease or any other manner of disposition to nonFilipino 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 endusers 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 provision 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 a ed 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 sake 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.

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 reclassified 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 issues 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 properly
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)

10

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, inspire of the lapse of 45 years
since the war ended, inspire 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, Grio-Aquino and Regalado, JJ., concur.

Separate Opinions
CRUZ, J., concurring:
I concur completely with the excellent ponencia of Mr. Justice Gutierrez
and will add the following observations only for emphasis.
It is clear that the respondents have failed to show the President's legal
authority to sell the Roppongi property. When asked to do so at the hearing on
these petitions, the Solicitor General was at best ambiguous, although I must add
in fairness that this was not his fault. The fact is that there is -no such authority.
Legal expertise alone cannot conjure that statutory permission out of thin air.
Exec. Order No. 296, which reads like so much legislative, double talk,
does not contain such authority. Neither does Rep. Act No. 6657, which simply
allows the proceeds of the sale of our properties abroad to be used for the
comprehensive agrarian reform program. Senate Res. No. 55 was a mere request
for the deferment of the scheduled sale of tile Roppongi property, possibly to
stop the transaction altogether; and ill any case it is not a law. The sale of the
said property may be authorized only by Congress through a duly enacted
statute, and there is no such law.
Once again, we have affirmed the principle that ours is a government of
laws and not of men, where every public official, from the lowest to the highest,

can act only by virtue of a valid authorization. I am happy to note that in the
several cases where this Court has ruled against her, the President of the
Philippines has submitted to this principle with becoming grace.
PADILLA, J., concurring:
I concur in the decision penned by Mr. Justice Gutierrez, Jr., I only wish to
make a few observations which could help in further clarifying the issues.
Under our tripartite system of government ordained by the Constitution,
it is Congress that lays down or determines policies. The President executes such
policies. The policies determined by Congress are embodied in legislative
enactments that have to be approved by the President to become law. The
President, of course, recommends to Congress the approval of policies but, in the
final analysis, it is Congress that is the policy - determining branch of
government.
The judiciary interprets the laws and, in appropriate cases, determines
whether the laws enacted by Congress and approved by the President, and
presidential acts implementing such laws, are in accordance with the
Constitution.
The Roppongi property was acquired by the Philippine government
pursuant to the reparations agreement between the Philippine and Japanese
governments. Under such agreement, this property was acquired by the
Philippine government for a specific purpose, namely, to serve as the site of the
Philippine Embassy in Tokyo, Japan. Consequently, Roppongi is a property of
public dominion and intended for public service, squarely falling within that class
of property under Art. 420 of the Civil Code, which provides:
Art. 420. The following things are property of public dominion :
(1) ...
(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. (339a)
Public dominion property intended for public service cannot be alienated
unless the property is first transformed into private property of the state
otherwise known as patrimonial property of the state. 1 The transformation of
public dominion property to state patrimonial property involves, to my mind,
a policy decision. It is a policy decision because the treatment of the property
varies according to its classification. Consequently, it is Congress which can
decide and declare the conversion of Roppongi from a public dominion property
to a state patrimonial property. Congress has made no such decision or
declaration.
Moreover, the sale of public property (once converted from public
dominion to state patrimonial property) must be approved by Congress, for this
again is a matter of policy (i.e. to keep or dispose of the property). Sec. 48, Book
1 of the Administrative Code of 1987 provides:
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:

11

(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)
But the record is bare of any congressional decision or approval to sell
Roppongi. The record is likewise bare of any congressional authority extended to
the President to sell Roppongi thru public bidding or otherwise.
It is therefore, clear that the President cannot sell or order the sale of
Roppongi thru public bidding or otherwise without a prior congressional approval,
first, converting Roppongi from a public dominion property to a state patrimonial
property, and, second, authorizing the President to sell the same.
ACCORDINGLY, my vote is to GRANT the petition and to make
PERMANENT the temporary restraining order earlier issued by this Court.
SARMIENTO, J., concurring:
The central question, as I see it, is whether or not the so-called
"Roppongi property' has lost its nature as property of public dominion, and
hence, has become patrimonial property of the State. I understand that the
parties are agreed that it was property intended for "public service" within the
contemplation of paragraph (2), of Article 430, of the Civil Code, and accordingly,
land of State dominion, and beyond human commerce. The lone issue is, in the
light of supervening developments, that is non-user thereof by the National
Government (for diplomatic purposes) for the last thirteen years; the issuance of
Executive Order No. 296 making it available for sale to any interested buyer; the
promulgation of Republic Act No. 6657, the Comprehensive Agrarian Reform Law,
making available for the program's financing, State assets sold; the approval by
the President of the recommendation of the investigating committee formed to
study the property's utilization; and the issuance of Resolution No. 55 of the
Philippine Senate requesting for the deferment of its disposition it, "Roppongi", is
still property of the public dominion, and if it is not, how it lost that character.
When land of the public dominion ceases to be one, or when the change
takes place, is a question our courts have debated early. In a 1906 decision, 1 it
was held that property of the public dominion, a public plaza in this instance,
becomes patrimonial upon use thereof for purposes other than a plaza. In a later
case, 2 this ruling was reiterated. Likewise, it has been held that land, originally
private property, has become of public dominion upon its donation to the town
and its conversion and use as a public plaza. 3 It is notable that under these three
cases, the character of the property, and any change occurring therein, depends
on the actual use to which it is dedicated. 4
Much later, however, the Court held that "until a formal declaration on
the part of the Government, through the executive department or the Legislative,
to the effect that the land . . . is no longer needed for [public] service- for public
use or for special industries, [it] continue[s] to be part of the public [dominion],

not available for private expropriation or ownership." 5 So also, it was ruled that a
political subdivision (the City of Cebu in this case) alone may declare (under its
charter) a city road abandoned and thereafter, to dispose of it. 6
In holding that there is "a need for a law or formal declaration to
withdraw the Roppongi property from public domain to make it alienable and a
land for legislative authority to allow the sale of the property" 7 the majority lays
stress to the fact that: (1) An affirmative act executive or legislative is
necessary to reclassify property of the public dominion, and (2) a legislative
decree is required to make it alienable. It also clears the uncertainties brought
about by earlier interpretations that the nature of property-whether public or
patrimonial is predicated on the manner it is actually used, or not used, and in
the same breath, repudiates the Government's position that the continuous nonuse of "Roppongi", among other arguments, for "diplomatic purposes", has
turned it into State patrimonial property.
I feel that this view corresponds to existing pronouncements of this
Court, among other things, that: (1) Property is presumed to be State property in
the absence of any showing to the contrary; 8 (2) With respect to forest lands, the
same continue to be lands of the public dominion unless and until reclassified by
the Executive Branch of the Government; 9 and (3) All natural resources, under
the Constitution, and subject to exceptional cases, belong to the State. 10
I am elated that the Court has banished previous uncertainties.
FELICIANO, J., dissenting
With regret, I find myself unable to share the conclusions reached by Mr.
Justice Hugo E. Gutierrez, Jr.
For purposes of this separate opinion, I assume that the piece of land
located in 306 Roppongi, 5-Chome, Minato-ku Tokyo, Japan (hereinafter referred
to as the "Roppongi property") may be characterized as property of public
dominion, within the meaning of Article 420 (2) of the Civil Code:
[Property] which belong[s] to the State, without being for public use,
and are intended for some public service -.
It might not be amiss however, to note that the appropriateness of
trying to bring within the confines of the simple threefold classification found in
Article 420 of the Civil Code ("property for public use property "intended for
some public service" and property intended "for the development of the national
wealth") all property owned by the Republic of the Philippines whether found
within the territorial boundaries of the Republic or located within the territory of
another sovereign State, is not self-evident. The first item of the classification
property intended for public use can scarcely be properly applied to property
belonging to the Republic but found within the territory of another State. The
third item of the classification property intended for the development of the
national wealth is illustrated, in Article 339 of the Spanish Civil Code of 1889, by
mines or mineral properties. Again, mineral lands owned by a sovereign State are
rarely, if ever, found within the territorial base of another sovereign State. The
task of examining in detail the applicability of the classification set out in Article

12

420 of our Civil Code to property that the Philippines happens to own outside its
own boundaries must, however, be left to academicians.
For present purposes, too, I agree that there is no question of conflict of
laws that is, at the present time, before this Court. The issues before us relate
essentially to authority to sell the Roppongi property so far as Philippine law is
concerned.
The majority opinion raises two (2) issues: (a) whether or not the
Roppongi property has been converted into patrimonial property or property of
the private domain of the State; and (b) assuming an affirmative answer to (a),
whether or not there is legal authority to dispose of the Roppongi property.
I
Addressing the first issue of conversion of property of public dominion
intended for some public service, into property of the private domain of the
Republic, it should be noted that the Civil Code does not address the question
of who has authority to effect such conversion. Neither does the Civil Code set
out or refer to anyprocedure for such conversion.
Our case law, however, contains some fairly explicit pronouncements on
this point, as Justice Sarmiento has pointed out in his concurring opinion.
In Ignacio v. Director of Lands (108 Phils. 335 [1960]), petitioner Ignacio argued
that if the land in question formed part of the public domain, the trial court
should have declared the same no longer necessary for public use or public
purposes and which would, therefore, have become disposable and available for
private ownership. Mr. Justice Montemayor, speaking for the Court, said:
Article 4 of the Law of Waters of 1866 provides that when a portion of
the shore is no longer washed by the waters of the sea and is not necessary for
purposes of public utility, or for the establishment of special industries, or for
coast-guard service, the government shall declare it to be the property of the
owners of the estates adjacent thereto and as an increment thereof. We believe
that only the executive and possibly the legislative departments have the
authority and the power to make the declaration that any land so gained by the
sea, is not necessary for purposes of public utility, or for the establishment of
special industries, or for coast-guard service. If no such declaration has been
made by said departments, the lot in question forms part of the public domain.
(Natividad v. Director of Lands, supra.)
The reason for this pronouncement, according to this Tribunal in the
case of Vicente Joven y Monteverde v. Director of Lands, 93 Phil., 134 (cited in
Velayo's Digest, Vol. 1, p. 52).
... is undoubtedly that the courts are neither primarily called upon, nor
indeed in a position to determine whether any public land are to be used for the
purposes specified in Article 4 of the Law of Waters. Consequently, until a formal
declaration on the part of the Government, through the executive department or
the Legislature, to the effect that the land in question is no longer needed for
coast-guard service, for public use or for special industries, they continue to be
part of the public domain not available for private appropriation or
ownership. (108 Phil. at 338-339; emphasis supplied)

Thus, under Ignacio, either the Executive Department or the Legislative

Department may convert property of the State of public dominion into
patrimonial property of the State. No particular formula or procedure of
conversion is specified either in statute law or in case law. Article 422 of the Civil
Code simply states that: "Property of public dominion, when no longer intended
for public use or for public service, shall form part of the patrimonial property of
the State". I respectfully submit, therefore, that the only requirement which is
legitimately imposable is that the intent to convert must be reasonably clear
from a consideration of the acts or acts of the Executive Department or of the
Legislative Department which are said to have effected such conversion.
The same legal situation exists in respect of conversion of property of
public dominion belonging to municipal corporations, i.e., local governmental
units, into patrimonial property of such entities. In CebuOxygen Acetylene v.
Bercilles (66 SCRA 481 [1975]), the City Council of Cebu by resolution declared a
certain portion of an existing street as an abandoned road, "the same not being
included in the city development plan". Subsequently, by another resolution, the
City Council of Cebu authorized the acting City Mayor to sell the land through
public bidding. Although there was no formal and explicit declaration of
conversion of property for public use into patrimonial property, the Supreme
Court said:
xxx xxx xxx
(2) Since that portion of the city street subject of petitioner's application
for registration of title was withdrawn from public use, it follows that such
withdrawn portion becomes patrimonial property which can be the object of an
ordinary contract.
Article 422 of the Civil Code expressly provides that "Property of public
dominion, when no longer intended for public use of for public service, shall form
part of the patrimonial property of the State."
Besides, the Revised Charter of the City of Cebu heretofore quoted, in
very clear and unequivocal terms, states that "Property thus withdrawn from
public servitude may be used or conveyed for any purpose for which other real
property belonging to the City may be lawfully used or conveyed."
Accordingly, the withdrawal of the property in question from public use
and its subsequent sale to the petitioner is valid. Hence, the petitioner has a
registrable title over the lot in question. (66 SCRA at 484-; emphasis supplied)
Thus, again as pointed out by Sarmiento J., in his separate opinion, in
the case of property owned by municipal corporations simple non-use or the
actual dedication of public property to some use other than "public use" or some
"public service", was sufficient legally to convert such property into patrimonial
property (Municipality of Oas v. Roa, 7 Phil. 20 [1906]- Municipality of
Hinunganan v. Director of Lands 24 Phil. 124 [1913]; Province of Zamboanga del
Norte v. City of Zamboanga, 22 SCRA 1334 (1968).
I would also add that such was the case not only in respect of' property
of municipal corporations but also in respect of property of the State itself.
Manresa in commenting on Article 341 of the 1889 Spanish Civil Code which has
been carried over verbatim into our Civil Code by Article 422 thereof, wrote:

13

La dificultad mayor en todo esto estriba, naturalmente, en fijar el

momento en que los bienes de dominio publico dejan de serlo. Si la
Administracion o la autoridad competente legislative realizan qun acto en virtud
del cual cesa el destino o uso publico de los bienes de que se trata naturalmente
la dificultad queda desde el primer momento resuelta. Hay un punto de partida
cierto para iniciar las relaciones juridicas a que pudiera haber lugar Pero puede
ocurrir que no haya taldeclaracion expresa, legislativa or administrativa, y, sin
embargo, cesar de hecho el destino publico de los bienes; ahora bien, en este
caso, y para los efectos juridicos que resultan de entrar la cosa en el comercio de
los hombres,' se entedera que se ha verificado la conversion de los bienes
patrimoniales?
El citado tratadista Ricci opina, respecto del antiguo Codigo italiano, por
la afirmativa, y por nuestra parte creemos que tal debe ser la soluciion. El
destino de las cosas no depende tanto de una declaracion expresa como del uso
publico de las mismas, y cuanda el uso publico cese con respecto de
determinados bienes, cesa tambien su situacion en el dominio publico. Si una
fortaleza en ruina se abandona y no se repara, si un trozo de la via publica se
abandona tambien por constituir otro nuevo an mejores condiciones....ambos
bienes cesan de estar Codigo, y leyes especiales mas o memos administrativas.
(3 Manresa, Comentarios al Codigo Civil Espanol, p. 128 [7a ed.; 1952) (Emphasis
supplied)
The majority opinion says that none of the executive acts pointed to by
the Government purported, expressly or definitely, to convert the Roppongi
property into patrimonial property of the Republic. Assuming that to be the
case, it is respectfully submitted that cumulative effect of the executive acts
here involved was to convert property originally intended for and devoted to
public service into patrimonial property of the State, that is, property susceptible
of disposition to and appropration by private persons. These executive acts, in
their totality if not each individual act, make crystal clear the intent of the
Executive Department to effect such conversion. These executive acts include:
(a) Administrative Order No. 3 dated 11 August 1985, which created a
Committee to study the disposition/utilization of the Government's property in
Japan, The Committee was composed of officials of the Executive Department:
the Executive Secretary; the Philippine Ambassador to Japan; and representatives
of the Department of Foreign Affairs and the Asset Privatization Trust. On 19
September 1988, the Committee recommended to the President the sale of one
of the lots (the lot specifically in Roppongi) through public bidding. On 4 October
1988, the President approved the recommendation of the Committee.
On 14 December 1988, the Philippine Government by diplomatic note
informed the Japanese Ministry of Foreign Affairs of the Republic's intention to
dispose of the property in Roppongi. The Japanese Government through its
Ministry of Foreign Affairs replied that it interposed no objection to such
disposition by the Republic. Subsequently, the President and the Committee
informed the leaders of the House of Representatives and of the Senate of the
Philippines of the proposed disposition of the Roppongi property.

(b) Executive Order No. 296, which was issued by the President on 25
July 1987. Assuming that the majority opinion is right in saying that Executive
Order No. 296 is insufficient to authorize the sale of the Roppongi property, it is
here submitted with respect that Executive Order No. 296 is more than sufficient
to indicate anintention to convert the property previously devoted to public
service into patrimonial property that is capable of being sold or otherwise
disposed of
(c) Non-use of the Roppongi lot for fourteen (14) years for diplomatic or
for any other public purposes. Assuming (but only arguendo) that non-use does
not, by itself, automatically convert the property into patrimonial property. I
respectfully urge that prolonged non-use, conjoined with the other factors here
listed, was legally effective to convert the lot in Roppongi into patrimonial
property of the State. Actually, as already pointed out, case law involving
property of municipal corporations is to the effect that simple non-use or the
actual dedication of public property to some use other than public use or public
service, was sufficient to convert such property into patrimonial property of the
local governmental entity concerned. Also as pointed out above, Manresa
reached the same conclusion in respect of conversion of property of the public
domain of the State into property of the private domain of the State.
The majority opinion states that "abandonment cannot be inferred from
the non-use alone especially if the non-use was attributable not to the
Government's own deliberate and indubitable will but to lack of financial support
to repair and improve the property" (Majority Opinion, p. 13). With respect, it
may be stressed that there is no abandonment involved here, certainly no
abandonment of property or of property rights. What is involved is the charge of
the classification of the property from property of the public domain into property
of the private domain of the State. Moreover, if for fourteen (14) years, the
Government did not see fit to appropriate whatever funds were necessary to
maintain the property in Roppongi in a condition suitable for diplomatic
representation purposes, such circumstance may, with equal logic, be construed
as a manifestation of the crystalizing intent to change the character of the
property.
(d) On 30 March 1989, a public bidding was in fact held by the Executive
Department for the sale of the lot in Roppongi. The circumstance that this
bidding was not successful certainly does not argue against an intent to convert
the property involved into property that is disposable by bidding.
The above set of events and circumstances makes no sense at all if it
does not, as a whole, show at least the intent on the part of the Executive
Department (with the knowledge of the Legislative Department) to convert the
property involved into patrimonial property that is susceptible of being sold.
II
Having reached an affirmative answer in respect of the first issue, it is
necessary to address the second issue of whether or not there exists legal
authority for the sale or disposition of the Roppongi property.
The majority opinion refers to Section 79(f) of the Revised
Administrative Code of 1917 which reads as follows:

14

SEC. 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 instrumentconveying 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 authority therefor be expressly vested
by law in another officer. (Emphasis supplied)
The majority opinion then goes on to state that: "[T]he requirement has
been retained in Section 4, Book I of the Administrative Code of 1987 (Executive
Order No. 292)" which reads:
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)
Two points need to be made in this connection. Firstly, the requirement
of obtaining specific approval of Congress when the price of the real
property being disposed of is in excess of One Hundred Thousand Pesos
(P100,000.00) under the Revised Administrative Code of 1917, has been deleted
from Section 48 of the 1987 Administrative Code. What Section 48 of the present
Administrative Code refers to is authorization by law for the conveyance. Section
48 does not purport to be itself a source of legal authority for conveyance of real
property of the Government. For Section 48 merely specifies the official
authorized to execute and sign on behalf of the Government the deed of
conveyance in case of such a conveyance.
Secondly, examination of our statute books shows that authorization by
law for disposition of real property of the private domain of the Government, has
been granted by Congress both in the form of (a) a general, standing
authorization for disposition of patrimonial property of the Government; and (b)
specific legislation authorizing the disposition of particular pieces of the
Government's patrimonial property.
Standing legislative authority for the disposition of land of the private
domain of the Philippines is provided by Act No. 3038, entitled "An Act
Authorizing the Secretary of Agriculture and Natural Resources to Sell or
Lease Land of the Private Domain of the Government of the Philippine
Islands (now Republic of the Philippines)", enacted on 9 March 1922. The full text
of this statute is as follows:

Be it enacted by the Senate and House of Representatives of the

Philippines in Legislature assembled and by the authority of the same:
SECTION 1. The Secretary of Agriculture and Natural Resources (now
Secretary of the Environment and Natural Resources) is hereby authorized to sell
or lease land of the private domain of the Government of the Philippine Islands,
or any part thereof, to such persons, corporations or associations as are, under
the provisions of Act Numbered Twenty-eight hundred and seventy-four, (now
Commonwealth Act No. 141, as amended) known as the Public Land Act, entitled
to apply for the purchase or lease or agricultural public land.
SECTION 2. The sale of the land referred to in the preceding
section shall, if such land is agricultural, be made in the manner and subject to
the limitations prescribed in chapters five and six, respectively, of said Public
Land Act, and if it be classified differently, in conformity with the provisions of
chapter nine of said Act: Provided, however, That the land necessary for the
public service shall be exempt from the provisions of this Act.
SECTION 3. This Act shall take effect on its approval.
Approved, March 9, 1922. (Emphasis supplied)
Lest it be assumed that Act No. 3038 refers only to agricultural lands of
the private domain of the State, it must be noted that Chapter 9 of the old Public
Land Act (Act No. 2874) is now Chapter 9 of the present Public Land Act
(Commonwealth Act No. 141, as amended) and that both statutes refer to: "any
tract of land of the public domain which being neither timber nor mineral land, is
intended to be used for residential purposes or for commercial or industrial
purposes other than agricultural" (Emphasis supplied).itc-asl In other words,
the statute covers the sale or lease or residential, commercial or industrial land
of the private domain of the State.
Implementing regulations have been issued for the carrying out of the
provisions of Act No. 3038. On 21 December 1954, the then Secretary of
Agriculture and Natural Resources promulgated Lands Administrative Orders Nos.
7-6 and 7-7 which were entitled, respectively: "Supplementary Regulations
Governing the Sale of the Lands of the Private Domain of the Republic of the
Philippines"; and "Supplementary Regulations Governing the Lease of Lands of
Private Domain of the Republic of the Philippines" (text in 51 O.G. 28-29 [1955]).
It is perhaps well to add that Act No. 3038, although now sixty-eight (68)
years old, is still in effect and has not been repealed. 1
Specific legislative authorization for disposition of particular patrimonial
properties of the State is illustrated by certain earlier statutes. The first of these
was Act No. 1120, enacted on 26 April 1904, which provided for the disposition of
the friar lands, purchased by the Government from the Roman Catholic Church,
to bona fide settlers and occupants thereof or to other persons. In Jacinto v.
Director of Lands (49 Phil. 853 [1926]), these friar lands were held to be private
and patrimonial properties of the State. Act No. 2360, enacted on -28 February
1914, authorized the sale of the San Lazaro Estate located in the City of Manila,
which had also been purchased by the Government from the Roman Catholic
Church. In January 1916, Act No. 2555 amended Act No. 2360 by including
therein all lands and buildings owned by the Hospital and the Foundation of San

15

Lazaro theretofor leased by private persons, and which were also acquired by the
Philippine Government.
After the enactment in 1922 of Act No. 3038, there appears, to my
knowledge, to be only one statute authorizing the President to dispose of a
specific piece of property. This statute is Republic Act No. 905, enacted on 20
June 1953, which authorized the
President to sell an Identified parcel of land of the private domain of the
National Government to the National Press Club of the Philippines, and to other
recognized national associations of professionals with academic standing, for the
nominal price of P1.00. It appears relevant to note that Republic Act No. 905 was
not an outright disposition in perpetuity of the property involved- it provided for
reversion of the property to the National Government in case the National Press
Club stopped using it for its headquarters. What Republic Act No. 905 authorized
was really a donation, and not a sale.
The basic submission here made is that Act No. 3038 provides standing
legislative authorization for disposition of the Roppongi property which, in my
view, has been converted into patrimonial property of the Republic. 2
To some, the submission that Act No. 3038 applies not only to lands of
the private domain of the State located in the Philippines but also to patrimonial
property found outside the Philippines, may appear strange or unusual. I
respectfully submit that such position is not any more unusual or strange than
the assumption that Article 420 of the Civil Code applies not only to property of
the Republic located within Philippine territory but also to property found outside
the boundaries of the Republic.
It remains to note that under the well-settled doctrine that heads of
Executive Departments are alter egos of the President (Villena v. Secretary of the
Interior, 67 Phil. 451 [1939]), and in view of the constitutional power of control
exercised by the President over department heads (Article VII, Section 17,1987
Constitution), the President herself may carry out the function or duty that is
specifically lodged in the Secretary of the Department of Environment and
Natural Resources (Araneta v. Gatmaitan 101 Phil. 328 [1957]). At the very least,
the President retains the power to approve or disapprove the exercise of that
function or duty when done by the Secretary of Environment and Natural
Resources.
It is hardly necessary to add that the foregoing analyses and
submissions relate only to the austere question of existence of legal power or
authority. They have nothing to do with much debated questions of wisdom or
propriety or relative desirability either of the proposed disposition itself or of the
proposed utilization of the anticipated proceeds of the property involved. These
latter types of considerations He within the sphere of responsibility of the
political departments of government the Executive and the Legislative
authorities.
For all the foregoing, I vote to dismiss the Petitions for Prohibition in
both G.R. Nos. 92013 and 92047.
Fernan, C.J., Narvasa, Gancayco, Cortes and Medialdea, JJ., concurring.

.
G.R. No. 104235 November 18, 1993
SPOUSES
CESAR
&
SUTHIRA
ZALAMEA
and
LIANA
ZALAMEA, petitioners,
vs.
HONORABLE COURT OF APPEALS and TRANSWORLD AIRLINES,
INC., respondents.
Sycip, Salazar, Hernandez, Gatmaitan for petitioners.
Quisumbing, Torres & Evangelista for private-respondent.
NOCON, J.:
Disgruntled over TransWorld Airlines, Inc.'s refusal to accommodate
them in TWA Flight 007 departing from New York to Los Angeles on June 6, 1984
despite possession of confirmed tickets, petitioners filed an action for damages
before the Regional Trial Court of Makati, Metro Manila, Branch 145. Advocating
petitioner's position, the trial court categorically ruled that respondent
TransWorld Airlines (TWA) breached its contract of carriage with petitioners and
that said breach was "characterized by bad faith." On appeal, however, the
appellate court found that while there was a breach of contract on respondent
TWA's part, there was neither fraud nor bad faith because under the Code of
Federal Regulations by the Civil Aeronautics Board of the United States of
America it is allowed to overbook flights.
The factual backdrop of the case is as follows:
Petitioners-spouses Cesar C. Zalamea and Suthira Zalamea, and their
daughter, Liana Zalamea, purchased three (3) airline tickets from the Manila
agent of respondent TransWorld Airlines, Inc. for a flight to New York to Los
Angeles on June 6, 1984. The tickets of petitioners-spouses were purchased at a
discount of 75% while that of their daughter was a full fare ticket. All three tickets
represented confirmed reservations.
While in New York, on June 4, 1984, petitioners received notice of the
reconfirmation of their reservations for said flight. On the appointed date,
however, petitioners checked in at 10:00 a.m., an hour earlier than the
scheduled flight at 11:00 a.m. but were placed on the wait-list because the
number of passengers who had checked in before them had already taken all the
seats available on the flight. Liana Zalamea appeared as the No. 13 on the waitlist while the two other Zalameas were listed as "No. 34, showing a party of two."
Out of the 42 names on the wait list, the first 22 names were eventually allowed
to board the flight to Los Angeles, including petitioner Cesar Zalamea. The two
others, on the other hand, at No. 34, being ranked lower than 22, were not able
to fly. As it were, those holding full-fare tickets were given first priority among the
wait-listed passengers. Mr. Zalamea, who was holding the full-fare ticket of his
daughter, was allowed to board the plane; while his wife and daughter, who
presented the discounted tickets were denied boarding. According to Mr.
Zalamea, it was only later when he discovered the he was holding his daughter's
full-fare ticket.

16

Even in the next TWA flight to Los Angeles Mrs. Zalamea and her
daughter, could not be accommodated because it was also fully booked. Thus,
they were constrained to book in another flight and purchased two tickets from
American Airlines at a cost of Nine Hundred Eighteen ($918.00) Dollars.
Upon their arrival in the Philippines, petitioners filed an action for
damages based on breach of contract of air carriage before the Regional Trial
Court of Makati, Metro Manila, Branch 145. As aforesaid, the lower court ruled in
favor of petitioners in its decision 1 dated January 9, 1989 the dispositive portion
of which states as follows:
WHEREFORE, judgment is hereby rendered ordering the defendant to
pay plaintiffs the following amounts:
(1) US $918.00, or its peso equivalent at the time of payment
representing the price of the tickets bought by Suthira and Liana Zalamea from
American Airlines, to enable them to fly to Los Angeles from New York City;
(2) US $159.49, or its peso equivalent at the time of payment,
representing the price of Suthira Zalamea's ticket for TWA Flight 007;
(3) Eight Thousand Nine Hundred Thirty-Four Pesos and Fifty Centavos
(P8,934.50, Philippine Currency, representing the price of Liana Zalamea's ticket
for TWA Flight 007,
(4) Two Hundred Fifty Thousand Pesos (P250,000.00), Philippine
Currency, as moral damages for all the plaintiffs'
(5) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as
and for attorney's fees; and
(6) The costs of suit.
SO ORDERED. 2
On appeal, the respondent Court of Appeals held that moral damages
are recoverable in a damage suit predicated upon a breach of contract of
carriage only where there is fraud or bad faith. Since it is a matter of record that
overbooking of flights is a common and accepted practice of airlines in the
United States and is specifically allowed under the Code of Federal Regulations
by the Civil Aeronautics Board, no fraud nor bad faith could be imputed on
respondent TransWorld Airlines.
Moreover, while respondent TWA was remiss in not informing petitioners
that the flight was overbooked and that even a person with a confirmed
reservation may be denied accommodation on an overbooked flight,
nevertheless it ruled that such omission or negligence cannot under the
circumstances be considered to be so gross as to amount to bad faith.
Finally, it also held that there was no bad faith in placing petitioners in
the wait-list along with forty-eight (48) other passengers where full-fare first class
tickets were given priority over discounted tickets.
The dispositive portion of the decision of respondent Court of
Appeals 3 dated October 25, 1991 states as follows:
WHEREFORE, in view of all the foregoing, the decision under review is
hereby MODIFIED in that the award of moral and exemplary damages to the
plaintiffs is eliminated, and the defendant-appellant is hereby ordered to pay the
plaintiff the following amounts:

(1) US$159.49, or its peso equivalent at the time of the payment,

representing the price of Suthira Zalamea's ticket for TWA Flight 007;
(2) US$159.49, or its peso equivalent at the time of the payment,
representing the price of Cesar Zalamea's ticket for TWA Flight 007;
(3) P50,000.00 as and for attorney's fees.
(4) The costs of suit.
SO ORDERED. 4
Not satisfied with the decision, petitioners raised the case on petition for
review on certiorari and alleged the following errors committed by the
respondent Court of Appeals, to wit:
I.
. . . IN HOLDING THAT THERE WAS NO FRAUD OR BAD FAITH ON THE
PART OF RESPONDENT TWA BECAUSE IT HAS A RIGHT TO OVERBOOK FLIGHTS.
II.
. . . IN ELIMINATING THE AWARD OF EXEMPLARY DAMAGES.
III.
. . . IN NOT ORDERING THE REFUND OF LIANA ZALAMEA'S TWA TICKET
AND
PAYMENT
FOR
THE
AMERICAN
AIRLINES
TICKETS. 5
That there was fraud or bad faith on the part of respondent airline when
it did not allow petitioners to board their flight for Los Angeles in spite of
confirmed tickets cannot be disputed. The U.S. law or regulation allegedly
authorizing overbooking has never been proved. Foreign laws do not prove
themselves nor can the courts take judicial notice of them. Like any other fact,
they must be alleged and proved. 6 Written law may be evidenced by an official
publication thereof or by a copy attested by the officer having the legal custody
of the record, or by his deputy, and accompanied with a certificate that such
officer has custody. The certificate may be made by a secretary of an embassy or
legation, consul general, consul, vice-consul, or consular agent or by any officer
in the foreign service of the Philippines stationed in the foreign country in which
the record is kept, and authenticated by the seal of his office. 7
Respondent TWA relied solely on the statement of Ms. Gwendolyn
Lather, its customer service agent, in her deposition dated January 27, 1986 that
the Code of Federal Regulations of the Civil Aeronautics Board allows
overbooking. Aside from said statement, no official publication of said code was
presented as evidence. Thus, respondent court's finding that overbooking is
specifically allowed by the US Code of Federal Regulations has no basis in fact.
Even if the claimed U.S. Code of Federal Regulations does exist, the
same is not applicable to the case at bar in accordance with the principle of lex
loci contractus which require that the law of the place where the airline ticket
was issued should be applied by the court where the passengers are residents
and nationals of the forum and the ticket is issued in such State by the defendant
airline. 8 Since the tickets were sold and issued in the Philippines, the applicable
law in this case would be Philippine law.
Existing jurisprudence explicitly states that overbooking amounts to bad
faith, entitling the passengers concerned to an award of moral damages.

17

In Alitalia Airways v. Court of Appeals, 9 where passengers with confirmed

bookings were refused carriage on the last minute, this Court held that when an
airline issues a ticket to a passenger confirmed on a particular flight, on a certain
date, a contract of carriage arises, and the passenger has every right to expect
that he would fly on that flight and on that date. If he does not, then the carrier
opens itself to a suit for breach of contract of carriage. Where an airline had
deliberately overbooked, it took the risk of having to deprive some passengers of
their seats in case all of them would show up for the check in. For the indignity
and inconvenience of being refused a confirmed seat on the last minute, said
passenger is entitled to an award of moral damages.
Similarly, in Korean Airlines Co., Ltd. v. Court of Appeals, 10 where
private respondent was not allowed to board the plane because her seat had
already been given to another passenger even before the allowable period for
passengers to check in had lapsed despite the fact that she had a confirmed
ticket and she had arrived on time, this Court held that petitioner airline acted in
bad faith in violating private respondent's rights under their contract of carriage
and is therefore liable for the injuries she has sustained as a result.
In fact, existing jurisprudence abounds with rulings where the breach of
contract of carriage amounts to bad faith. In Pan American World Airways, Inc. v.
Intermediate Appellate Court, 11 where a would-be passenger had the necessary
ticket, baggage claim and clearance from immigration all clearly and
unmistakably showing that she was, in fact, included in the passenger manifest
of said flight, and yet was denied accommodation in said flight, this Court did not
hesitate to affirm the lower court's finding awarding her damages.
A contract to transport passengers is quite different in kind and degree
from any other contractual relation. So ruled this Court in Zulueta v. Pan
American World Airways, Inc. 12 This is so, for a contract of carriage generates a
relation attended with public duty a duty to provide public service and
convenience to its passengers which must be paramount to self-interest or
enrichment. Thus, it was also held that the switch of planes from Lockheed 1011
to a smaller Boeing 707 because there were only 138 confirmed economy class
passengers who could very well be accommodated in the smaller planes, thereby
sacrificing the comfort of its first class passengers for the sake of economy,
amounts to bad faith. Such inattention and lack of care for the interest of its
passengers who are entitled to its utmost consideration entitles the passenger to
an award of moral damages. 13
Even on the assumption that overbooking is allowed, respondent TWA is
still guilty of bad faith in not informing its passengers beforehand that it could
breach the contract of carriage even if they have confirmed tickets if there was
overbooking. Respondent TWA should have incorporated stipulations on
overbooking on the tickets issued or to properly inform its passengers about
these policies so that the latter would be prepared for such eventuality or would
have the choice to ride with another airline.
Respondent TWA contends that Exhibit I, the detached flight coupon
upon which were written the name of the passenger and the points of origin and
destination, contained such a notice. An examination of Exhibit I does not bear

this out. At any rate, said exhibit was not offered for the purpose of showing the
existence of a notice of overbooking but to show that Exhibit I was used for flight
007 in first class of June 11, 1984 from New York to Los Angeles.
Moreover, respondent TWA was also guilty of not informing its
passengers of its alleged policy of giving less priority to discounted tickets. While
the petitioners had checked in at the same time, and held confirmed tickets, yet,
only one of them was allowed to board the plane ten minutes before departure
time because the full-fare ticket he was holding was given priority over
discounted tickets. The other two petitioners were left behind.
It is respondent TWA's position that the practice of overbooking and the
airline system of boarding priorities are reasonable policies, which when
implemented do not amount to bad faith. But the issue raised in this case is not
the reasonableness of said policies but whether or not said policies were
incorporated or deemed written on petitioners' contracts of carriage. Respondent
TWA failed to show that there are provisions to that effect. Neither did it present
any argument of substance to show that petitioners were duly apprised of the
overbooked condition of the flight or that there is a hierarchy of boarding
priorities in booking passengers. It is evident that petitioners had the right to rely
upon the assurance of respondent TWA, thru its agent in Manila, then in New
York, that their tickets represented confirmed seats without any qualification. The
failure of respondent TWA to so inform them when it could easily have done so
thereby enabling respondent to hold on to them as passengers up to the last
minute amounts to bad faith. Evidently, respondent TWA placed its self-interest
over the rights of petitioners under their contracts of carriage. Such conscious
disregard of petitioners' rights makes respondent TWA liable for moral damages.
To deter breach of contracts by respondent TWA in similar fashion in the future,
we adjudge respondent TWA liable for exemplary damages, as well.
Petitioners also assail the respondent court's decision not to require the
refund of Liana Zalamea's ticket because the ticket was used by her father. On
this score, we uphold the respondent court. Petitioners had not shown with
certainty that the act of respondent TWA in allowing Mr. Zalamea to use the
ticket of her daughter was due to inadvertence or deliberate act. Petitioners had
also failed to establish that they did not accede to said agreement. The logical
conclusion, therefore, is that both petitioners and respondent TWA agreed, albeit
impliedly, to the course of action taken.
The respondent court erred, however, in not ordering the refund of the
American Airlines tickets purchased and used by petitioners Suthira and Liana.
The evidence shows that petitioners Suthira and Liana were constrained to take
the American Airlines flight to Los Angeles not because they "opted not to use
their TWA tickets on another TWA flight" but because respondent TWA could not
accommodate them either on the next TWA flight which was also fully
booked. 14 The purchase of the American Airlines tickets by petitioners Suthira
and Liana was the consequence of respondent TWA's unjustifiable breach of its
contracts of carriage with petitioners. In accordance with Article 2201, New Civil
Code, respondent TWA should, therefore, be responsible for all damages which
may be reasonably attributed to the non-performance of its obligation. In the

18

previously cited case of Alitalia Airways v. Court of Appeals, 15 this Court explicitly
held that a passenger is entitled to be reimbursed for the cost of the tickets he
had to buy for a flight to another airline. Thus, instead of simply being refunded
for the cost of the unused TWA tickets, petitioners should be awarded the actual
cost of their flight from New York to Los Angeles. On this score, we differ from the
trial court's ruling which ordered not only the reimbursement of the American
Airlines tickets but also the refund of the unused TWA tickets. To require both
prestations would have enabled petitioners to fly from New York to Los Angeles
without any fare being paid.
The award to petitioners of attorney's fees is also justified under Article
2208(2) of the Civil Code which allows recovery when the defendant's act or
omission has compelled plaintiff to litigate or to incur expenses to protect his
interest. However, the award for moral damages and exemplary damages by the
trial court is excessive in the light of the fact that only Suthira and Liana Zalamea
were actually "bumped off." An award of P50,000.00 moral damages and another
P50,000.00 exemplary damages would suffice under the circumstances obtaining
in the instant case.
WHEREFORE, the petition is hereby GRANTED and the decision of the
respondent Court of Appeals is hereby MODIFIED to the extent of adjudging
respondent TransWorld Airlines to pay damages to petitioners in the following
amounts, to wit:
(1) US$918.00 or its peso equivalent at the time of payment
representing the price of the tickets bought by Suthira and Liana Zalamea from
American Airlines, to enable them to fly to Los Angeles from New York City;
(2) P50,000.00 as moral damages;
(3) P50,000.00 as exemplary damages;
(4) P50,000.00 as attorney's fees; and
(5) Costs of suit.
SO ORDERED.
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.
KAPUNAN, J.:
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 Washinton (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 petitioners 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.1wphi1.nt
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 baord, 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, "its not my fault. Its 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 "Dont 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

19

The Fontanillas were not booked on the next flight, which departed for
San Francisco at 11:00 a.m. 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:
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.
b.
c.

P200,000.00 as moral damages;

P200,000.00 as exemplary damages;
P50,000.00 as attorneys fees;
No pronouncement as to costs.
SO ORDERED.16
Petitioner United Airlines now comes to this Court raising the following
assignments of errors;
I

RESPONDENT COURT OF APPEALS GRVAELY 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 RESPONDENTS FAILURE TO CHECK-IN WILL NOT DEFEAT HIS CLAIMS
BECAUSE THE DENIED BOARDING RULES WERE NOT COMPLIED WITH.
III
RESPONDENT COURT OF
PRIVATE RESPONDENT IS ENTITLED
IV
RESPONDENT COURT OF
PRIVATE RESPONDENT IS ENTITLED
V
RESPONDENT COURT OF
PRIVATE RESPONDENT IS ENTITLED

APPEALS GRAVELY ERRED IN RULING THAT

TO MORAL DAMAGES OF P200,000.
APPEALS GRAVELY ERRED IN RULING THAT
TO EXEMPLARY DAMAGES OF P200,000.
APPEALS GRAVELY ERRED IN RULING THAT
TO ATTORNEYS 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 petitioners 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 exist 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-appellees 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 a.m., plaintiff and his son checked in at
defendants designated counter at the airport in Los Angeles for their scheduled
flight to San Francisco on defendants Flight No. 1108. 20
Responding to the above allegations, petitioner averred in paragraph 4
of its answer, thus:
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 a.m., 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 giving such
answer is asserted is so plainly and necessarily within the defendants knowledge
that his averment of ignorance must be palpably untrue. 22 Whether or not private
respondents checked in at petitioners designated counter at the airport at 9:45
a.m. on May 5, 1989 must necessarily be within petitioners knowledge.

20

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, it even allowed petitioner to present
rebutal 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 opponents case) of establishing which such adverse party is
notified by his opponents 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 defendants 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 defendants. 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 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 Fontanillas 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

a.

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 they 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:
The passenger does not comply with the carriers 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 petitioners 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 Zalanea 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 Board 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:
Sec. 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 carriers check-in and
reconfirmation procedures and who are acceptable for carriage under the
Carriers tariff but who have been denied boarding for lack of space, a
compensation at the rate of: xxx
Private respondents narration that they were subjected to harsh and
derogatory remarks seems incredulous. However, this Court will not attempt to

21

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:
xxx 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 Zalanea 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 vs. 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 except 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 Courts ruling in said case should be read in consonance
with existing laws, particularly, Economic Regulations No. 7, as amended, of the
Civil Aeronautics Board:
Sec. 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.
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 attorneys 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 herebyREVERSED 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.
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.:
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,
19972 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 plants 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 Worths 5,079-square meter property
with a 4,032-square meter warehouse building to house the LPG manufacturing
plant. The monthly rental was PhP 322,560 commencing on January 1, 1998 with

22

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 Certificate4 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.
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 PhP 4,500,000; and (2) BPI Check No.
0316413 dated March 30, 1998 for PhP 4,500,000.5
When KOGIES deposited the checks, these were dishonored for the
reason "PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand
letter6 to PGSMC threatening criminal action for violation of Batas Pambansa
Blg.22 in case of nonpayment. On the same date, the wife of PGSMCs 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
Counterclaim9 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 PhP 9,000,000 covered by the
checks for failing to completely install and make the plant operational; and that
KOGIES was liable for damages amounting to PhP 4,500,000 for altering the
quantity and lowering the quality of the machineries and equipment. Moreover,
PGSMC averred that it has already paid PhP 2,257,920 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.
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 plaintiffs 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

23

already produced certified samples of LPG cylinders. It averred that whatever

was unfinished was PGSMCs 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
Dismiss13 answering PGSMCs memorandum of July 22, 1998 and seeking
dismissal of PGSMCs counterclaims, KOGIES, on August 4, 1998, filed its Motion
for Reconsideration14 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
PGSMCs motion for inspection; (2) denying KOGIES motion for reconsideration of
the July 23, 1998 RTC Order; and (3) denying KOGIES motion to dismiss PGSMCs
compulsory counterclaims as these counterclaims fell within the requisites of
compulsory counterclaims.
On October 2, 1998, KOGIES filed an Urgent Motion for
Reconsideration17 of the September 21, 1998 RTC Order granting inspection of
the plant and denying dismissal of PGSMCs 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.
On November 11, 1998, the Branch Sheriff filed his Sheriffs
Report21 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 COURTS 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;

24

c. DECREEING PRIVATE RESPONDENTS 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;
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 Courts 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 crossclaims.
As to the failure to submit a certificate of forum shopping, PGSMCs
Answer is not an initiatory pleading which requires a certification against forum
shopping under Sec. 524 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 PGSMCs 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 pingpong 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
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 RTCs 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

25

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 204033 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
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 ofEastboard 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
Codes 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, arbitrationalong with mediation, conciliation and negotiationis
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

26

Assembly in Resolution No. 40/72 approved on December 11, 1985, copy of

which is hereto attached as Appendix "A".
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 preparatoriesand 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. 3543 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.
xxxx
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 nonconvention award as a convention award.
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
xxxx
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 partys 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.

27

(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.
xxxx
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.
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
Angeles47 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

28

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
PGSMCs 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.
Petitioners 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 RTCs 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.
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 orders 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;

29

(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;
(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
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 nonoperational, 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 Worths 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 family51 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.
SO ORDERED.

G.R. No. 168785

HERALD

February 5, 2010
BLACK

DACASIN, Petitioner,
vs.
SHARON DEL MUNDO DACASIN, Respondent.
DECISION
CARPIO, J.:
The Case
For review1 is a dismissal2 of a suit to enforce a post-foreign divorce
child custody agreement for lack of jurisdiction.
The Facts

30

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.
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 courts 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 respondents
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
courts 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 Code6 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 courts 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 petitioners suit and enforce the Agreement on the joint custody of
the parties child.
The Ruling of the Court

The trial court has jurisdiction to entertain petitioners suit but not to
enforce the Agreement which is void. However, factual and equity considerations
militate against the dismissal of petitioners suit and call for the remand of the
case to settle the question of Stephanies 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 petitioners 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 courts refusal to entertain petitioners suit was
grounded not on its lack of power to do so but on its thinking that the Illinois
courts divorce decree stripped it of jurisdiction. This conclusion is unfounded.
What the Illinois court retained was "jurisdiction x x x for the purpose of
enforcing all and sundry the various provisions of [its] Judgment for
Dissolution."11 Petitioners 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 courts so-called
"retained jurisdiction."
Petitioners Suit Lacks Cause of Action
The foregoing notwithstanding, the trial court cannot enforce the
Agreement which is contrary to law.
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
Agreements 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
law15 (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 x x x."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 Agreements
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

31

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
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 provisions
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 213s 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 laws 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 rules 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.1avvphi1
Further, the imposed custodial regime under the second paragraph of
Article 213 is limited in duration, lasting only until the childs seventh year. From
the eighth year until the childs 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. Respondents 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 decrees 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 Agreements enforceability. The argument that foreigners in this
jurisdiction are not bound by foreign divorce decrees is hardly novel. Van Dorn v.
Romillo27 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 divorcees
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.
xxxx
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
petitioners husband entitled to exercise control over conjugal assets. As he is
bound by the Decision of his own countrys 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-Somera29 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 aliens nationality, irrespective of who obtained the divorce.
The
Facts
of
the
Case
and
Nature
of
Proceeding
Justify Remand
Instead of ordering the dismissal of petitioners suit, the logical end to
its lack of cause of action, we remand the case for the trial court to settle the

32

question of Stephanies 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 childs 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 courts jurisdiction, submit evidence on the custodial arrangement best
serving Stephanies 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 childs 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.

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.:

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 Corporation1 (hereinafter Philguarantee) sought
reimbursement from the respondents of the sum of money it paid to Al Ahli Bank
of Kuwait pursuant to a guarantee it issued for respondent V.P. Eusebio
Construction, Inc. (VPECI).
The factual and procedural antecedents in this case are as follows:
On 8 November 1980, the State Organization of Buildings (SOB),
Ministry of Housing and Construction, Baghdad, Iraq, awarded the construction of
the Institute of Physical TherapyMedical 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 guarantee8 were issued by Philguarantee to the Rafidain
Bank of Baghdad covering 100% of the performance and advance payment
bonds, but they were not accepted by SOB. What SOB required was a letterguarantee 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

33

Letter of Guarantee No. 81-195-F11 (Advance Payment Guarantee) in the amount

of ID541,608/901, both for a term of eighteen months from 25 May 1981. These
letters of guarantee were secured by (1) a Deed of 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
bond13 issued by respondent First Integrated Bonding and Insurance Company,
Inc. (FIBICI). The Surety Bond was later amended on 23 June 1981 to increase the
amount of coverage from P6.4 million to P6.967 million and to change the bank
in whose favor the petitioner's guarantee was issued, from Rafidain Bank to Al
Ahli Bank of Kuwait.14
On 11 June 1981, SOB and the joint venture VPECI and Ajyal executed
the service contract15 for the construction of the Institute of Physical Therapy
Medical Rehabilitation Center, Phase II, in Baghdad, Iraq, wherein the joint
venture contractor undertook to complete the Project within a period of 547 days
or 18 months. Under the Contract, the Joint Venture would supply manpower and
materials, and SOB would refund to the former 25% of the project cost in Iraqi
Dinar and the 75% in US dollars at the exchange rate of 1 Dinar to 3.37777 US
Dollars.16
The construction, which was supposed to start on 2 June 1981,
commenced only on the last week of August 1981. Because of this delay and the
slow progress of the construction work due to some setbacks and difficulties, the
Project was not completed on 15 November 1982 as scheduled. But in October
1982, upon foreseeing the impossibility of meeting the deadline and upon the
request of Al Ahli Bank, the joint venture contractor worked for the renewal or
extension of the Performance Bond and Advance Payment Guarantee. Petitioner's
Letters of Guarantee Nos. 81-194-F (Performance Bond) and 81-195-F (Advance
Payment Bond) with expiry date of 25 November 1982 were then renewed or
extended to 9 February 1983 and 9 March 1983, respectively. 17 The surety bond
was also extended for another period of one year, from 12 May 1982 to 12 May
1983.18 The Performance Bond was further extended twelve times with validity of
up to 8 December 1986, 19 while the Advance Payment Guarantee was extended
three times more up to 24 May 1984 when the latter was cancelled after full
refund or reimbursement by the joint venture contractor. 20 The surety bond was
likewise extended to 8 May 1987.21
As of March 1986, the status of the Project was 51% accomplished,
meaning the structures were already finished. The remaining 47% consisted in
electro-mechanical works and the 2%, sanitary works, which both required
importation of equipment and materials.22
On 26 October 1986, Al Ahli Bank of Kuwait sent a telex call to the
petitioner demanding full payment of its performance bond counter-guarantee.
Upon receiving a copy of that telex message on 27 October 1986,
respondent VPECI requested Iraq Trade and Economic Development Minister
Mohammad Fadhi Hussein to recall the telex call on the performance guarantee
for being a drastic action in contravention of its mutual agreement with the latter
that (1) the imposition of penalty would be held in abeyance until the completion
of the project; and (2) the time extension would be open, depending on the

developments on the negotiations for a foreign loan to finance the completion of

the project.23 It also wrote SOB protesting the call for lack of factual or legal
basis, since the failure to complete the Project was due to (1) the Iraqi
government's lack of foreign exchange with which to pay its (VPECI's)
accomplishments and (2) SOB's noncompliance for the past several years with
the provision in the contract that 75% of the billings would be paid in US
dollars.24 Subsequently, or on 19 November 1986, respondent VPECI advised the
petitioner not to pay yet Al Ahli Bank because efforts were being exerted for the
amicable settlement of the Project.25
On 14 April 1987, the petitioner received another telex message from Al
Ahli Bank stating that it had already paid to Rafidain Bank the sum of
US$876,564 under its letter of guarantee, and demanding reimbursement by the
petitioner of what it paid to the latter bank plus interest thereon and related
expenses.26
Both petitioner Philguarantee and respondent VPECI sought the
assistance of some government agencies of the Philippines. On 10 August 1987,
VPECI requested the Central Bank to hold in abeyance the payment by the
petitioner "to allow the diplomatic machinery to take its course, for otherwise,
the Philippine government , through the Philguarantee and the Central Bank,
would become instruments of the Iraqi Government in consummating a clear act
of injustice and inequity committed against a Filipino contractor." 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 counterguarantee.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 ofP47,872,373.98 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

34

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
ofP100,000 to respondents VPECI and Eusebio Spouses and P100,000 to 3-Plex
and the Santos Spouses, plus costs. 33
In its 14 June 1999 Decision, 34 the Court of Appeals affirmed the trial
court's decision, ratiocinating as follows:
First, appellant cannot deny the fact that it was fully aware of the status
of project implementation as well as the problems besetting the contractors,
between 1982 to 1985, having sent some of its people to Baghdad during that
period. The successive renewals/extensions of the guarantees in fact, was
prompted by delays, not solely attributable to the contractors, and such
extension understandably allowed by the SOB (project owner) which had not
anyway complied with its contractual commitment to tender 75% of payment in
US Dollars, and which still retained overdue amounts collectible by VPECI.

Second, appellant was very much aware of the violations committed by

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

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

Fourth, well-apprised of the above conditions obtaining at the Project

site and cognizant of the war situation at the time in Iraq, appellant, though
earlier has made representations with the SOB regarding a possible amicable
termination of the Project as suggested by VPECI, made a complete turn-around
and insisted on acting in favor of the unjustified "call" by the foreign banks. 35
The petitioner then came to this Court via Rule 45 of the Rules of Court
claiming that the Court of Appeals erred in affirming the trial court's ruling that
I
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 COUNTERGUARANTEE.
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

35

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 nonfulfillment 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

36

monthly billings and payments made by SOB54 reveal that the agreement
between the parties was a periodic payment by the Project owner to the
contractor depending on the percentage of accomplishment within the
period. 55 The payments were, in turn, to be used by the contractor to finance the
subsequent phase of the work. 56 However, as explained by VPECI in its letter to
the Department of Foreign Affairs (DFA), the payment by SOB purely in Dinars
adversely affected the completion of the project; thus:
4. Despite protests from the plaintiff, SOB continued paying the
accomplishment billings of the Contractor purely in Iraqi Dinars and which
payment came only after some delays.
5. SOB is fully aware of the following:

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

5.5 That the Iraqi Dinar is not a freely convertible currency such that the
same cannot be used to purchase equipment, materials, supplies, etc. outside of
Iraq;
5.6 That most of the materials specified by SOB in the CONTRACT are
not available in Iraq and therefore have to be imported;
5.7 That the government of Iraq prohibits the bringing of local currency
(Iraqui Dinars) out of Iraq and hence, imported materials, equipment, etc.,
cannot be purchased or obtained using Iraqui Dinars as medium of acquisition.

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

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

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

Arrangements were first made with Banco di Roma. Negotiation started

in June 1985. SOB is informed of the developments of this negotiation, attached
is a copy of the draft of the loan Agreement between SOB as the Borrower and
Agent. The Several Banks, as Lender, and counter-guaranteed by Istituto
Centrale Per II Credito A Medio Termine (Mediocredito) Sezione Speciale Per
L'Assicurazione Del Credito All'Exportazione (Sace). Negotiations went on and
continued until it suddenly collapsed due to the reported default by Iraq in the
payment of its obligations with Italian government, copy of the news clipping
dated June 18, 1986 is hereto attached as Annex "D" to form an integral part
hereof;
15. On September 15, 1986, Contractor received information from Circle
International S.A. that because of the news report that Iraq defaulted in its
obligations with European banks, the approval by Banco di Roma of the loan to
SOB shall be deferred indefinitely, a copy of the letter of Circle International
together with the news clippings are hereto attached as Annexes "F" and "F-1",
respectively.57
As found by both the Court of Appeals and the trial court, the delay or
the non-completion of the Project was caused by factors not imputable to the
respondent contractor. It was rather due mainly to the persistent violations by
SOB of the terms and conditions of the contract, particularly its failure to pay
75% of the accomplished work in US Dollars. Indeed, where one of the parties
to a contract does not perform in a proper manner the prestation which he is
bound to perform under the contract, he is not entitled to demand the
performance of the other party. A party does not incur in delay if the other party
fails to perform the obligation incumbent upon him.
The petitioner, however, maintains that the payments by SOB of the
monthly billings in purely Iraqi Dinars did not render impossible the performance
of the Project by VPECI. Such posture is quite contrary to its previous
representations. In his 26 March 1987 letter to the Office of the Middle Eastern
and African Affairs (OMEAA), DFA, Manila, petitioner's Executive Vice-President
Jesus M. Taedo 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

37

As stated earlier, SOB cannot yet demand complete performance from

VPECI because it has not yet itself performed its obligation in a proper manner,
particularly the payment of the 75% of the cost of the Project in US Dollars. The
VPECI cannot yet be said to have incurred in delay. Even assuming that there was
delay and that the delay was attributable to VPECI, still the effects of that delay
ceased upon the renunciation by the creditor, SOB, which could be implied when
the latter granted several extensions of time to the former. 60 Besides, no
demand has yet been made by SOB against the respondent contractor. Demand
is generally necessary even if a period has been fixed in the obligation. And
default generally begins from the moment the creditor demands judicially or
extra-judicially the performance of the obligation. Without such demand, the
effects of default will not arise.61
Moreover, the petitioner as a guarantor is entitled to the benefit of
excussion, that is, it cannot be compelled to pay the creditor SOB unless the
property of the debtor VPECI has been exhausted and all legal remedies against
the said debtor have been resorted to by the creditor.62 It could also set up
compensation as regards what the creditor SOB may owe the principal debtor
VPECI.63 In this case, however, the petitioner has clearly waived these rights and
remedies by making the payment of an obligation that was yet to be shown to be
rightfully due the creditor and demandable of the principal debtor.
As found by the Court of Appeals, the petitioner fully knew that the joint
venture contractor had collectibles from SOB which could be set off with the
amount covered by the performance guarantee. In February 1987, the OMEAA
transmitted to the petitioner a copy of a telex dated 10 February 1987 of the
Philippine Ambassador in Baghdad, Iraq, informing it of the note verbale sent by
the Iraqi Ministry of Foreign Affairs stating that the past due obligations of the
joint venture contractor from the petitioner would "be deducted from the dues of
the two contractors."64
Also, in the project situationer attached to the letter to the OMEAA
dated 26 March 1987, the petitioner raised as among the arguments to be
presented in support of the cancellation of the counter-guarantee the fact that
the amount of ID281,414/066 retained by SOB from the Project was more than
enough to cover the counter-guarantee of ID271,808/610; thus:
6.1 Present the following arguments in cancelling the counterguarantee:
The Iraqi Government does not have the foreign exchange to fulfill its
contractual obligations of paying 75% of progress billings in US dollars.

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

SOB from the proposed project is more than the amount of the outstanding
counterguarantee.65
In a nutshell, since the petitioner was aware of the contractor's
outstanding receivables from SOB, it should have set up compensation as was
proposed in its project situationer.
Moreover, the petitioner was very much aware of the predicament of the
respondents. In fact, in its 13 May 1987 letter to the OMEAA, DFA, Manila, it
stated:

VPECI also maintains that the delay in the completion of the project was
mainly due to SOB's violation of contract terms and as such, call on the
guarantee has no basis.
While PHILGUARANTEE is prepared to honor its commitment under the
guarantee, PHILGUARANTEE does not want to be an instrument in any case of
inequity committed against a Filipino contractor. It is for this reason that we are
constrained to seek your assistance not only in ascertaining the veracity of Al
Ahli Bank's claim that it has paid Rafidain Bank but possibly averting such an
event. As any payment effected by the banks will complicate matters, we cannot
help underscore the urgency of VPECI's bid for government intervention for the
amicable termination of the contract and release of the performance
guarantee. 66
But surprisingly, though fully cognizant of SOB's violations of the service
contract and VPECI's outstanding receivables from SOB, as well as the situation
obtaining in the Project site compounded by the Iran-Iraq war, the petitioner
opted to pay the second layer guarantor not only the full amount of the
performance bond counter-guarantee but also interests and penalty charges.
This brings us to the next question: May the petitioner as a guarantor
secure reimbursement from the respondents for what it has paid under Letter of
Guarantee No. 81-194-F?
As a rule, a guarantor who pays for a debtor should be indemnified by
the latter67 and would be legally subrogated to the rights which the creditor has
against the debtor.68 However, a person who makes payment without the
knowledge or against the will of the debtor has the right to recover only insofar
as the payment has been beneficial to the debtor. 69 If the obligation was subject
to defenses on the part of the debtor, the same defenses which could have been
set up against the creditor can be set up against the paying guarantor. 70
From the findings of the Court of Appeals and the trial court, it is clear
that the payment made by the petitioner guarantor did not in any way benefit
the principal debtor, given the project status and the conditions obtaining at the
Project site at that time. Moreover, the respondent contractor was found to have
valid defenses against SOB, which are fully supported by evidence and which
have been meritoriously set up against the paying guarantor, the petitioner in
this case. And even if the deed of undertaking and the surety bond secured
petitioner's guaranty, the petitioner is precluded from enforcing the same by
reason of the petitioner's undue payment on the guaranty. Rights under the deed
of undertaking and the surety bond do not arise because these contracts depend
on the validity of the enforcement of the guaranty.
The petitioner guarantor should have waited for the natural course of
guaranty: the debtor VPECI should have, in the first place, defaulted in its
obligation and that the creditor SOB should have first made a demand from the
principal debtor. It is only when the debtor does not or cannot pay, in whole or in
part, that the guarantor should pay.71 When the petitioner guarantor in this case
paid against the will of the debtor VPECI, the debtor VPECI may set up against it
defenses available against the creditor SOB at the time of payment. This is the
hard lesson that the petitioner must learn.

38

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.

G.R. No. 139868

ALONZO

June 8, 2006
Q.

ANCHETA, Petitioner,
vs.
CANDELARIA GUERSEY-DALAYGON, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Spouses Audrey ONeill (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 Orphans
Court of Baltimore, Maryland, U.S.A, which named James N. Phillips as executor
due to Richards 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, Audreys 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 Audreys estate in the
Philippines, petitioner filed an inventory and appraisal of the following properties:
(1) Audreys conjugal share in real estate with improvements located at 28 Pili
Avenue, Forbes Park, Makati, Metro Manila, valued atP764,865.00 (Makati
property); (2) a current account in Audreys 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 Orphans 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.
Richards 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 Audreys estate, with Richard being
apportioned the undivided interest in the Makati property, 48.333 shares in
A/G Interiors, Inc., andP9,313.48 from the Citibank current account; and Kyle, the
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 ( undivided interest) and Kyle ( 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 2/5of Richards undivided interest in the
Makati property was allocated to respondent, while 3/5 thereof were allocated to
Richards 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 undivided
interest in the Makati property should be given to respondent.
The trial court found merit in respondents 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 Richards entire 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 courts Orders dated February
12, 1988 and April 7, 1988, issued in Special Proceeding No. 9625. 16Respondent
contended that petitioner willfully breached his fiduciary duty when he
disregarded the laws of the State of Maryland on the distribution of Audreys
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 thereof, and since Richard left his entire

39

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 respondents 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 Marylands 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 courts 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 ONeill 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.
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 ONEIL GUERSEYS
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 Aubreys 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 petitioners breach of his fiduciary duty as
ancillary administrator of Aubreys estate amounted to extrinsic fraud. According
to respondent, petitioner was duty-bound to follow the express terms of Aubreys
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 Aubreys 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 Richards 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 respondents cause and found that petitioners failure to follow the
terms of Audreys will, despite the latters 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 Aubreys estate in accordance with the terms of her will. The CA also
found that petitioner was prompted to distribute Audreys estate in accordance
with Philippine laws in order to equally benefit Audrey and Richard Guerseys
adopted daughter, Kyle Guersey Hill.
Petitioner contends that respondents cause of action had already
prescribed because as early as 1984, respondent was already well aware of the
terms of Audreys 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 petitioners acts since she was not a party to Special

40

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. Respondents knowledge of the terms of Audreys
will is immaterial in this case since it is not the fraud complained of. Rather, it is
petitioners 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 respondents discovery thereof.
Records bear the fact that the filing of the project of partition of
Richards 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 1991.32Respondent 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 petitioners 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 Audreys 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
Petitioners failure to proficiently manage the distribution of Audreys
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.
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 Audreys 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
Orphans 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 Orphans 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 Audreys 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

41

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 Audreys 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 Audreys 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.
Petitioner insists that his application of Philippine laws was made in
good faith. The Court cannot accept petitioners protestation. How can petitioner
honestly presume that Philippine laws apply when as early as the reprobate of
Audreys 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
Audreys heirs, and distributing Audreys 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 Audreys 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 ONeill 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 ONeill 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
It would seem, therefore, that the eventual distribution of the estate of
Audrey ONeill Guersey was prompted by defendant Alonzo H. Anchetas concern
that the subject realty equally benefit the plaintiffs adopted daughter Kyle
Guersey.
Well-intentioned though it may be, defendant Alonzo H. Anchetas 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 defendants position, as well as the
resultant frustration of the decedents last will, combine to create a
circumstance that is tantamount to extrinsic fraud. Defendant Alonzo H.
Anchetas omission to prove the national laws of the decedent and to follow the
latters 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)
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 petitioners abject failure
to discharge his fiduciary duties. It does not rest upon petitioners 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 petitioners omission was beyond
her control. She was in no position to analyze the legal implications of
petitioners 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

42

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) Audreys 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.
worthP64,444.00. All these properties passed on to Richard upon Audreys 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 Richards 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 Audreys and Richards 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 x x x All doubts must be resolved in favor of the testator's having meant
just what he said.
Honorable as it seems, petitioners motive in equitably distributing
Audreys estate cannot prevail over Audreys and Richards wishes. As stated in
Bellis v. Bellis:46
x x x 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.

43

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.

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.:
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.
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 Rupertas 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 Rupertas will
should not be probated in the Philippines but in the U.S. where she executed it.
Manuel and Benjamin added that, assuming Rupertas will could be probated in
the Philippines, it is invalid nonetheless for having been executed under duress
and without the testators full understanding of the consequences of such act.
Ernesto, they claimed, is also not qualified to act as administrator of the estate.
Meantime, since Rupertas 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 Rupertas 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
Rupertas 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 RTCs order, petitioner nephews Manuel and Benjamin
appealed to the Court of Appeals (CA),3arguing 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 Ernestos 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.
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 Courts 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;

44

(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. 7The rules do
not require proof that the foreign will has already been allowed and probated in
the country of its execution.
In insisting that Rupertas 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.
Besides, petitioners stand is fraught with impractically.1wphi1 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
Rupertas 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 testators 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 courts directive for Ernesto to submit the duly
authenticated copy of Rupertas will and the certified copies of the Laws of
Succession and Probate of Will of California.
WHEREFORE, the Court DENIES the petition and AFFIRMS the Court of
Appeals decision in CA-G.R. CV 83564 dated July 29, 2005.
SO ORDERED.

G.R. No. 162580

ELMAR

January 27, 2006

O.

PEREZ, Petitioner,
vs.
COURT OF APPEALS, Fifth Division, TRISTAN A. CATINDIG and LILY
GOMEZ-CATINDIG, Respondents.
DECISION
YNARES-SANTIAGO, J.:
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

Order2 of the Regional Trial Court of Quezon City, Branch 84, granting petitioners
motion for leave to file intervention and admitting the Complaint-inIntervention3 in Civil Case No. Q-01-44847; and its January 23, 2004
Resolution4 denying the motion for reconsideration.
Private respondent Tristan A. Catindig married Lily Gomez
Catindig5 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.
Subsequently, petitioner filed a Motion for Leave to File
Intervention10 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. Petitioners 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.

45

Petitioners 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. 11This 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 intervenors 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 intervenors
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.
Petitioners 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 21which took effect on August 30,
1950. In the case of Tenchavez v. Escano22 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, petitioners 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 petitioners 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 CAG.R. SP No. 74456 are AFFIRMED.
No pronouncement as to costs.
SO ORDERED.

46

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

47

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 OceanGoing 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.
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 OceanGoing 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
General15 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.
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

48

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. 055-9622 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
xxxx
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.
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
xxxx
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

49

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.
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.
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
xxxx
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.
xxxx
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

50

"Migrant Workers and Overseas Filipinos Act of 1995." The pertinent provisions of
the said Act provides:
Sec. 10. Money Claims
xxxx
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.
xxxx
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.
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:
x x x [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 x x x
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.
No costs.
SO ORDERED.
G.R. No. 124371
November 23, 2000
PAULA
T.
LLORENTE, petitioner,
vs.
COURT OF APPEALS and ALICIA F. LLORENTE, respondents.

51

DECISION
PARDO, J.:
The Case
The case raises a conflict of laws issue.
What is before us is an appeal from the decision of the Court of
Appeals1 modifying that of the Regional Trial Court, Camarines Sur, Branch 35,
Iriga City2 declaring respondent Alicia F. Llorente (herinafter referred to as
"Alicia"), as co-owners of whatever property she and the deceased Lorenzo N.
Llorente (hereinafter referred to as "Lorenzo") may have acquired during the
twenty-five (25) years that they lived together as husband and wife.
The Facts
The deceased Lorenzo N. Llorente was an enlisted serviceman of the
United States Navy from March 10, 1927 to September 30, 1957. 3
On February 22, 1937, Lorenzo and petitioner Paula Llorente (hereinafter
referred to as "Paula") were married before a parish priest, Roman Catholic
Church, in Nabua, Camarines Sur.4
Before the outbreak of the Pacific War, Lorenzo departed for the United
States and Paula stayed in the conjugal home in barrio Antipolo, Nabua,
Camarines Sur.5
On November 30, 1943, Lorenzo was admitted to United States
citizenship and Certificate of Naturalization No. 5579816 was issued in his favor
by the United States District Court, Southern District of New York. 6
Upon the liberation of the Philippines by the American Forces in 1945,
Lorenzo was granted an accrued leave by the U. S. Navy, to visit his wife and he
visited the Philippines.7 He discovered that his wife Paula was pregnant and was
"living in" and having an adulterous relationship with his brother, Ceferino
Llorente.8
On December 4, 1945, Paula gave birth to a boy registered in the Office
of the Registrar of Nabua as "Crisologo Llorente," with the certificate stating that
the child was not legitimate and the line for the fathers 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 Lorenzos salary and all
other obligations for Paulas 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 Paulas father and stepmother. The agreement
was notarized by Notary Public Pedro Osabel. 10
Lorenzo returned to the United States and on November 16, 1951 filed
for divorce with the Superior Court of the State of California in and for the County
of San Diego. Paula was represented by counsel, John Riley, and actively
participated in the proceedings. On November 27, 1951, the Superior Court of

the State of California, for the County of San Diego found all factual allegations to
be true and issued an interlocutory judgment of divorce. 11
On December 4, 1952, the divorce decree became final. 12
In the meantime, Lorenzo returned to the Philippines.
On January 16, 1958, Lorenzo married Alicia F. Llorente in
Manila.13 Apparently, Alicia had no knowledge of the first marriage even if they
resided in the same town as Paula, who did not oppose the marriage or
cohabitation.14
From 1958 to 1985, Lorenzo and Alicia lived together as husband and
wife.15 Their twenty-five (25) year union produced three children, Raul, Luz and
Beverly, all surnamed Llorente.16
On March 13, 1981, Lorenzo executed a Last Will and Testament. The
will was notarized by Notary Public Salvador M. Occiano, duly signed by Lorenzo
with attesting witnesses Francisco Hugo, Francisco Neibres and Tito Trajano. In
the will, Lorenzo bequeathed all his property to Alicia and their three children, to
wit:
"(1) I give and bequeath to my wife ALICIA R. FORTUNO exclusively my
residential house and lot, located at San Francisco, Nabua, Camarines Sur,
Philippines, including ALL the personal properties and other movables or
belongings that may be found or existing therein;
"(2) I give and bequeath exclusively to my wife Alicia R. Fortuno and to
my children, Raul F. Llorente, Luz F. Llorente and Beverly F. Llorente, in equal
shares, all my real properties whatsoever and wheresoever located, specifically
my real properties located at Barangay Aro-Aldao, Nabua, Camarines Sur;
Barangay Paloyon, Nabua, Camarines Sur; Barangay Baras, Sitio Puga, Nabua,
Camarines Sur; and Barangay Paloyon, Sitio Nalilidong, Nabua, Camarines Sur;
"(3) I likewise give and bequeath exclusively unto my wife Alicia R.
Fortuno and unto my children, Raul F. Llorente, Luz F. Llorente and Beverly F.
Llorente, in equal shares, my real properties located in Quezon City Philippines,
and covered by Transfer Certificate of Title No. 188652; and my lands in Antipolo,
Rizal, Philippines, covered by Transfer Certificate of Title Nos. 124196 and
165188, both of the Registry of Deeds of the province of Rizal, Philippines;
"(4) That their respective shares in the above-mentioned properties,
whether real or personal properties, shall not be disposed of, ceded, sold and
conveyed to any other persons, but could only be sold, ceded, conveyed and
disposed of by and among themselves;
"(5) I designate my wife ALICIA R. FORTUNO to be the sole executor of
this my Last Will and Testament, and in her default or incapacity of the latter to
act, any of my children in the order of age, if of age;
"(6) I hereby direct that the executor named herein or her lawful
substitute should served (sic) without bond;
"(7) I hereby revoke any and all my other wills, codicils, or testamentary
dispositions heretofore executed, signed, or published, by me;
"(8) It is my final wish and desire that if I die, no relatives of mine in any
degree in the Llorentes Side should ever bother and disturb in any manner
whatsoever my wife Alicia R. Fortunato and my children with respect to any real

52

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 Lorenzos estate in her favor. Paula contended (1)
that she was Lorenzos surviving spouse, (2) that the various property were
acquired during their marriage, (3) that Lorenzos 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 Paulas petition in Sp. Proc. No. IR-888. 25
On November 6, 13 and 20, 1985, the order was published in the
newspaper "Bicol Star".26
On May 18, 1987, the Regional Trial Court issued a joint decision, thus:
"Wherefore, considering that this court has so found that the divorce
decree granted to the late Lorenzo Llorente is void and inapplicable in the
Philippines, therefore the marriage he contracted with Alicia Fortunato on January
16, 1958 at Manila is likewise void. This being so the petition of Alicia F. Llorente
for the issuance of letters testamentary is denied. Likewise, she is not entitled to
receive any share from the estate even if the will especially said so her
relationship with Lorenzo having gained the status of paramour which is under
Art. 739 (1).
"On the other hand, the court finds the petition of Paula Titular Llorente,
meritorious, and so declares the intrinsic disposition of the will of Lorenzo
Llorente dated March 13, 1981 as void and declares her entitled as conjugal
partner and entitled to one-half of their conjugal properties, and as primary
compulsory heir, Paula T. Llorente is also entitled to one-third of the estate and
then one-third should go to the illegitimate children, Raul, Luz and Beverly, all
surname (sic) Llorente, for them to partition in equal shares and also entitled to
the remaining free portion in equal shares.
"Petitioner, Paula Llorente is appointed legal administrator of the estate
of the deceased, Lorenzo Llorente. As such let the corresponding letters of
administration issue in her favor upon her filing a bond in the amount (sic) of
P100,000.00 conditioned for her to make a return to the court within three (3)
months a true and complete inventory of all goods, chattels, rights, and credits,

and estate which shall at any time come to her possession or to the possession
of any other person for her, and from the proceeds to pay and discharge all
debts, legacies and charges on the same, or such dividends thereon as shall be
decreed or required by this court; to render a true and just account of her
administration to the court within one (1) year, and at any other time when
required by the court and to perform all orders of this court by her to be
performed.
"On the other matters prayed for in respective petitions for want of
evidence could not be granted.
"SO ORDERED."27
In time, Alicia filed with the trial court a motion for reconsideration of
the aforequoted decision.28
On September 14, 1987, the trial court denied Alicias 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:

53

"Art. 15. Laws relating to family rights and duties, or to the status,
condition and legal capacity of persons arebinding upon citizens of the
Philippines, even though living abroad.
"Art. 16. Real property as well as personal property is subject to the law
of the country where it is situated.
"However, intestate and testamentary succession, both with respect to
the order of succession and to the amount of successional rights and to the
intrinsic validity of testamentary provisions, shall be regulated by the
national law of the person whose succession is under consideration,
whatever may be the nature of the property and regardless of the country
wherein said property may be found." (emphasis ours)
True, foreign laws do not prove themselves in our jurisdiction and our
courts are not authorized to take judicial notice of them. Like any other fact, they
must be alleged and proved.37
While the substance of the foreign law was pleaded, the Court of
Appeals did not admit the foreign law. The Court of Appeals and the trial court
called to the fore the renvoi doctrine, where the case was "referred back" to the
law of the decedents 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 Lorenzos will.38
First, there is no such thing as one American law.1wph!1 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.39Second, 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 courts opinion was a
mere paramour. The trial court threw the will out, leaving Alice, and her two
children, Raul and Luz, with nothing.
The Court of Appeals also disregarded the will. It declared Alice entitled
to one half (1/2) of whatever property she and Lorenzo acquired during their
cohabitation, applying Article 144 of the Civil Code of the Philippines.
The hasty application of Philippine law and the complete disregard of
the will, already probated as duly executed in accordance with the formalities of
Philippine law, is fatal, especially in light of the factual and legal
circumstances here obtaining.
Validity of the Foreign Divorce
In Van Dorn v. Romillo, Jr.40 we held that owing to the nationality
principle embodied in Article 15 of the Civil Code, only Philippine nationals are
covered by the policy against absolute divorces, the same being considered
contrary to our concept of public policy and morality. In the same case, the Court

ruled that aliens may obtain divorces abroad, provided they are valid according
to their national law.
Citing this landmark case, the Court held in Quita v. Court of
Appeals,41 that once proven that respondent was no longer a Filipino citizen when
he obtained the divorce from petitioner, the ruling in Van Dorn would become
applicable and petitioner could "very well lose her right to inherit" from him.
In Pilapil v. Ibay-Somera,42 we recognized the divorce obtained by the
respondent in his country, the Federal Republic of Germany. There, we stated
that divorce and its legal effects may be recognized in the Philippines insofar as
respondent is concerned in view of the nationality principle in our civil law on the
status of persons.
For failing to apply these doctrines, the decision of the Court of Appeals
must be reversed.43 We hold that the divorce obtained by Lorenzo H. Llorente
from his first wife Paula was valid and recognized in this jurisdiction as a matter
of comity. Now, the effects of this divorce (as to the succession to the estate of
the decedent) are matters best left to the determination of the trial court.
Validity of the Will
The Civil Code provides:
"Art. 17. The forms and solemnities of contracts, wills, and other
public instruments shall be governed by the laws of the country in which they
are executed.
"When the acts referred to are executed before the diplomatic or
consular officials of the Republic of the Philippines in a foreign country, the
solemnities established by Philippine laws shall be observed in their execution."
(underscoring ours)
The clear intent of Lorenzo to bequeath his property to his second wife
and children by her is glaringly shown in the will he executed. We do not wish to
frustrate his wishes, since he was a foreigner, not covered by our laws on "family
rights and duties, status, condition and legal capacity." 44
Whether the will is intrinsically valid and who shall inherit from Lorenzo
are issues best proved by foreign law which must be pleaded and proved.
Whether the will was executed in accordance with the formalities required is
answered by referring to Philippine law. In fact, the will was duly probated.
As a guide however, the trial court should note that whatever public
policy or good customs may be involved in our system of legitimes, Congress did
not intend to extend the same to the succession of foreign nationals. Congress
specifically left the amount of successional rights to the decedent's national
law.45
Having thus ruled, we find it unnecessary to pass upon the other issues
raised.
The Fallo
WHEREFORE, the petition is GRANTED. The decision of the Court of
Appeals in CA-G. R. SP No. 17446 promulgated on July 31, 1995 is SET ASIDE.
In lieu thereof, the Court REVERSES the decision of the Regional Trial
Court and RECOGNIZES as VALID the decree of divorce granted in favor of the

54

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. Llorentes 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.
G.R. No. 186571
August 11, 2010
GERBERT
R.
CORPUZ, Petitioner,
vs.
DAISYLYN TIROL STO. TOMAS and The SOLICITOR GENERAL, Respondents.
DECISION
BRION, J.:
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
certiorari2 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 Gerberts 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 fiance in the
Philippines, Gerbert went to the Pasig City Civil Registry Office and registered the
Canadian divorce decree on his and Daisylyns 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
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 Gerberts 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 Gerberts.

In its October 30, 2008 decision,7 the RTC denied Gerberts 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 RTCs 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
fiance 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 Gerberts position.
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 COURTS 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.

55

The Family Code recognizes only two types of defective marriages

void15 and voidable16 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 Courts holding in Van Dorn v. Romillo,
Jr.20 and Pilapil v. Ibay-Somera. 21 In both cases, the Court refused to acknowledge
the alien spouses assertion of marital rights after a foreign courts 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 x x x 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 x x x 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
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
Gerberts 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 aliens 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:
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

56

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 aliens 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 Gerberts 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.
We deem it more appropriate to take this latter course of action, given
the Article 26 interests that will be served and the Filipina wifes (Daisylyns)
obvious conformity with the petition. A remand, at the same time, will allow other
interested parties to oppose the foreign judgment and overcome a petitioners
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
judicata32 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
Daisylyns marriage certificate based on the mere presentation of the
decree.34We 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 persons 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 persons 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;
(f) legitimations;
(g) adoptions;
(h) acknowledgment of natural children;
(i) naturalization; and
(j) changes of name.
xxxx
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 decrees 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

57

annotated the Canadian divorce decree on Gerbert and Daisylyns 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.1avvphi1
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.
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;38that the civil registrar and all persons who have or claim any interest
must be made parties to the proceedings;39and 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.
G.R. No. 171914
July 23, 2014
SOLEDAD
L.
LAVADIA, Petitioner,
vs.
HEIRS OF JUAN LUCES LUNA, represented by GREGORIO Z. LUNA and
EUGENIA ZABALLERO-LUNA,Respondents.
DECISION
BERSAMIN, J.:
Divorce between Filipinos is void and ineffectual under the nationality
rule adopted by Philippine law. Hence, any settlement of property between the
parties of the first marriage involving Filipinos submitted as an incident of a
divorce obtained in a foreign country lacks competent judicial approval, and
cannot be enforceable against the assets of the husband who contracts a
subsequent marriage.
The Case
The petitioner, the second wife of the late Atty. Juan Luces Luna, appeals
the adverse decision promulgated on November 11, 2005, 1 whereby the Court of
Appeals (CA) affirmed with modification the decision rendered on August 27,
2001 by the Regional Trial Court (RTC), Branch 138, in Makati City. 2 The CA
thereby denied her right in the 25/100 pro indiviso share of the husband in a
condominium unit, and in the law books of the husband acquired during the
second marriage.
Antecedents
The antecedent facts were summarized by the CA as follows:
ATTY. LUNA, a practicing lawyer, was at first a name partner in the
prestigious law firm Sycip, Salazar, Luna, Manalo, Hernandez & Feliciano Law
Offices at that time when he was living with his first wife, herein intervenorappellant Eugenia Zaballero-Luna (EUGENIA), whom he initially married ina civil
ceremony conducted by the Justice of the Peace of Paraaque, Rizal on
September 10, 1947 and later solemnized in a church ceremony at the ProCathedral in San Miguel, Bulacan on September 12, 1948. In ATTY. LUNAs
marriage to EUGENIA, they begot seven (7) children, namely: Regina Maria L.
Nadal, Juan Luis Luna, Araceli Victoria L. Arellano, Ana Maria L. Tabunda, Gregorio
Macario Luna, Carolina Linda L. Tapia, and Cesar Antonio Luna. After almost two
(2) decades of marriage, ATTY. LUNA and EUGENIA eventually agreed to live apart
from each other in February 1966 and agreed to separation of property, to which
end, they entered into a written agreement entitled "AGREEMENT FOR
SEPARATION AND PROPERTY SETTLEMENT" dated November 12, 1975, whereby
they agreed to live separately and to dissolve and liquidate their conjugal
partnership of property.
On January 12, 1976, ATTY. LUNA obtained a divorce decree of his
marriage with EUGENIA from the Civil and Commercial Chamber of the First
Circumscription of the Court of First Instance of Sto. Domingo, Dominican
Republic. Also in Sto.Domingo, Dominican Republic, on the same date, ATTY.

58

LUNA contracted another marriage, this time with SOLEDAD. Thereafter, ATTY.
LUNA and SOLEDAD returned to the Philippines and lived together as husband
and wife until 1987.
Sometime in 1977, ATTY. LUNA organized a new law firm named: Luna,
Puruganan, Sison and Ongkiko (LUPSICON) where ATTY. LUNA was the managing
partner.
On February 14, 1978, LUPSICON through ATTY. LUNA purchased from
Tandang Sora Development Corporation the 6th Floor of Kalaw-Ledesma
Condominium Project(condominium unit) at Gamboa St., Makati City, consisting
of 517.52 square meters, for P1,449,056.00, to be paid on installment basis for
36months starting on April 15, 1978. Said condominium unit was to be usedas
law office of LUPSICON. After full payment, the Deed of Absolute Sale over the
condominium unit was executed on July 15, 1983, and CCT No. 4779 was issued
on August 10, 1983, which was registered bearing the following names:
"JUAN LUCES LUNA, married to Soledad L. Luna (46/100); MARIO E.
ONGKIKO, married to Sonia P.G. Ongkiko (25/100); GREGORIO R. PURUGANAN,
married to Paz A. Puruganan (17/100); and TERESITA CRUZ SISON, married to
Antonio J.M. Sison (12/100) x x x" Subsequently, 8/100 share of ATTY. LUNA and
17/100 share of Atty. Gregorio R. Puruganan in the condominium unit was sold to
Atty. Mario E. Ongkiko, for which a new CCT No. 21761 was issued on February 7,
1992 in the following names:
"JUAN LUCES LUNA, married to Soledad L. Luna (38/100); MARIO E.
ONGKIKO, married to Sonia P.G. Ongkiko (50/100); TERESITA CRUZ SISON,
married to Antonio J.M. Sison (12/100) x x x"
Sometime in 1992, LUPSICON was dissolved and the condominium unit
was partitioned by the partners but the same was still registered in common
under CCT No. 21716. The parties stipulated that the interest of ATTY. LUNA over
the condominium unit would be 25/100 share. ATTY. LUNA thereafter established
and headed another law firm with Atty. Renato G. Dela Cruzand used a portion of
the office condominium unit as their office. The said law firm lasted until the
death of ATTY. JUAN on July 12, 1997.
After the death of ATTY. JUAN, his share in the condominium unit
including the lawbooks, office furniture and equipment found therein were taken
over by Gregorio Z. Luna, ATTY. LUNAs son of the first marriage. Gregorio Z. Luna
thenleased out the 25/100 portion of the condominium unit belonging to his
father to Atty. Renato G. De la Cruz who established his own law firm named
Renato G. De la Cruz & Associates.
The 25/100 pro-indiviso share of ATTY. Luna in the condominium unit as
well as the law books, office furniture and equipment became the subject of the
complaint filed by SOLEDAD against the heirs of ATTY. JUAN with the RTC of
Makati City, Branch 138, on September 10, 1999, docketed as Civil Case No. 991644. The complaint alleged that the subject properties were acquired during the
existence of the marriage between ATTY. LUNA and SOLEDAD through their joint
efforts that since they had no children, SOLEDAD became co-owner of the said
properties upon the death of ATTY. LUNA to the extent of pro-indiviso share
consisting of her share in the said properties plus her share in the net estate

of ATTY. LUNA which was bequeathed to her in the latters last will and
testament; and thatthe heirs of ATTY. LUNA through Gregorio Z. Luna excluded
SOLEDAD from her share in the subject properties. The complaint prayed that
SOLEDAD be declared the owner of the portion of the subject properties;that
the same be partitioned; that an accounting of the rentals on the condominium
unit pertaining to the share of SOLEDAD be conducted; that a receiver be
appointed to preserve ad administer the subject properties;and that the heirs of
ATTY. LUNA be ordered to pay attorneys feesand costs of the suit to SOLEDAD. 3
Ruling of the RTC
On August 27, 2001, the RTC rendered its decision after trial upon the
aforementioned facts,4 disposing thusly:
WHEREFORE, judgment is rendered as follows:
(a) The 24/100 pro-indiviso share in the condominium unit located at the
SIXTH FLOOR of the KALAW LEDESMA CONDOMINIUM PROJECT covered by
Condominium Certificate of Title No. 21761 consisting of FIVE HUNDRED
SEVENTEEN (517/100) SQUARE METERS is adjudged to have been acquired by
Juan Lucas Luna through his sole industry;
(b) Plaintiff has no right as owner or under any other concept over the
condominium unit, hence the entry in Condominium Certificate of Title No. 21761
of the Registry of Deeds of Makati with respect to the civil status of Juan Luces
Luna should be changed from "JUAN LUCES LUNA married to Soledad L. Luna" to
"JUAN LUCES LUNA married to Eugenia Zaballero Luna";
(c) Plaintiff is declared to be the owner of the books Corpus Juris,
Fletcher on Corporation, American Jurisprudence and Federal Supreme Court
Reports found in the condominium unit and defendants are ordered to deliver
them to the plaintiff as soon as appropriate arrangements have been madefor
transport and storage.
No pronouncement as to costs.
SO ORDERED.5
Decision of the CA
Both parties appealed to the CA.6
On her part, the petitioner assigned the following errors to the RTC,
namely:
I. THE LOWER COURT ERRED IN RULING THAT THE CONDOMINIUM UNIT
WAS ACQUIRED THRU THE SOLE INDUSTRY OF ATTY. JUAN LUCES LUNA;
II. THE LOWER COURT ERRED IN RULING THAT PLAINTIFFAPPELLANT DID
NOT CONTRIBUTE MONEY FOR THE ACQUISITION OF THE CONDOMINIUM UNIT;
III. THE LOWER COURT ERRED IN GIVING CREDENCE TO PORTIONS OF
THE TESTIMONY OF GREGORIO LUNA, WHO HAS NO ACTUAL KNOWLEDGE OF THE
ACQUISITION OF THE UNIT, BUT IGNORED OTHER PORTIONS OF HIS TESTIMONY
FAVORABLE TO THE PLAINTIFF-APPELLANT;
IV. THE LOWER COURT ERRED IN NOT GIVING SIGNIFICANCE TO THE
FACT THAT THE CONJUGAL PARTNERSHIP BETWEEN LUNA AND INTERVENORAPPELLANT WAS ALREADY DISSOLVED AND LIQUIDATED PRIOR TO THE UNION OF
PLAINTIFF-APPELLANT AND LUNA;

59

V. THE LOWER COURT ERRED IN GIVING UNDUE SIGNIFICANCE TO THE

ABSENCE OF THE DISPOSITION OF THE CONDOMINIUM UNIT IN THE
HOLOGRAPHIC WILL OF THE PLAINTIFF-APPELLANT;
VI. THE LOWER COURT ERRED IN GIVING UNDUE SIGNIFICANCE TO THE
FACTTHAT THE NAME OF PLAINTIFF-APPELLANT DID NOT APPEAR IN THE DEED OF
ABSOLUTE SALE EXECUTED BY TANDANG SORA DEVELOPMENT CORPORATION
OVER THE CONDOMINIUM UNIT;
VII. THE LOWER COURT ERRED IN RULING THAT NEITHER ARTICLE 148
OF THE FAMILYCODE NOR ARTICLE 144 OF THE CIVIL CODE OF THE PHILIPPINES
ARE APPLICABLE;
VIII. THE LOWER COURT ERRED IN NOT RULING THAT THE CAUSE OF
ACTION OF THE INTERVENOR-APPELLANT HAS BEEN BARRED BY PESCRIPTION
AND LACHES; and
IX. THE LOWER COURT ERRED IN NOT EXPUNGING/DISMISSING THE
INTERVENTION FOR FAILURE OF INTERVENOR-APPELLANT TO PAY FILING FEE.7
In contrast, the respondents attributedthe following errors to the trial
court, to wit:
I. THE LOWER COURT ERRED IN HOLDING THAT CERTAIN FOREIGN LAW
BOOKS IN THE LAW OFFICE OF ATTY. LUNA WERE BOUGHT WITH THE USE OF
PLAINTIFFS MONEY;
II. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFF PROVED BY
PREPONDERANCE OF EVIDENCE (HER CLAIM OVER) THE SPECIFIED FOREIGN LAW
BOOKS FOUND IN ATTY. LUNAS LAW OFFICE; and
III. THE LOWER COURT ERRED IN NOT HOLDING THAT, ASSUMING
PLAINTIFF PAID FOR THE SAID FOREIGN LAW BOOKS, THE RIGHT TO RECOVER
THEM HAD PRESCRIBED AND BARRED BY LACHES AND ESTOPPEL.8
On November 11, 2005, the CA promulgated its assailed modified
decision,9 holding and ruling:
EUGENIA, the first wife, was the legitimate wife of ATTY. LUNA until the
latters death on July 12, 1997. The absolute divorce decree obtained by ATTY.
LUNA inthe Dominican Republic did not terminate his prior marriage with
EUGENIA because foreign divorce between Filipino citizens is not recognized in
our jurisdiction. x x x10
xxxx
WHEREFORE, premises considered, the assailed August 27, 2001
Decision of the RTC of MakatiCity, Branch 138, is hereby MODIFIEDas follows:
(a) The 25/100 pro-indiviso share in the condominium unit at the SIXTH
FLOOR of the KALAW LEDESMA CONDOMINIUM PROJECT covered by
Condominium Certificate of Title No. 21761 consisting of FIVE HUNDRED
SEVENTEEN (517/100) (sic) SQUARE METERS is hereby adjudged to defendantsappellants, the heirs of Juan Luces Luna and Eugenia Zaballero-Luna (first
marriage), having been acquired from the sole funds and sole industry of Juan
Luces Luna while marriage of Juan Luces Luna and Eugenia Zaballero-Luna (first
marriage) was still subsisting and valid;
(b) Plaintiff-appellant Soledad Lavadia has no right as owner or under
any other concept over the condominium unit, hence the entry in Condominium

Certificate of Title No. 21761 of the Registry of Deeds ofMakati with respect to
the civil status of Juan Luces Luna should be changed from "JUAN LUCES LUNA
married to Soledad L. Luna" to "JUAN LUCES LUNA married to Eugenia Zaballero
Luna";
(c) Defendants-appellants, the heirs of Juan Luces Luna and Eugenia
Zaballero-Luna(first marriage) are hereby declared to be the owner of the books
Corpus Juris, Fletcher on Corporation, American Jurisprudence and Federal
Supreme Court Reports found in the condominium unit.
No pronouncement as to costs.
SO ORDERED.11
On March 13, 2006,12 the CA denied the petitioners motion for
reconsideration.13
Issues
In this appeal, the petitioner avers in her petition for review on
certiorarithat:
A. The Honorable Court of Appeals erred in ruling that the Agreement for
Separation and Property Settlement executed by Luna and Respondent Eugenia
was unenforceable; hence, their conjugal partnership was not dissolved and
liquidated;
B. The Honorable Court of Appeals erred in not recognizing the
Dominican Republic courts approval of the Agreement;
C. The Honorable Court of Appeals erred in ruling that Petitioner failed to
adduce sufficient proof of actual contribution to the acquisition of purchase of the
subjectcondominium unit; and
D. The Honorable Court of Appeals erred in ruling that Petitioner was not
entitled to the subject law books.14
The decisive question to be resolved is who among the contending
parties should be entitled to the 25/100 pro indivisoshare in the condominium
unit; and to the law books (i.e., Corpus Juris, Fletcher on Corporation, American
Jurisprudence and Federal Supreme Court Reports).
The resolution of the decisive question requires the Court to ascertain
the law that should determine, firstly, whether the divorce between Atty. Luna
and Eugenia Zaballero-Luna (Eugenia) had validly dissolved the first marriage;
and, secondly, whether the second marriage entered into by the late Atty. Luna
and the petitioner entitled the latter to any rights in property. Ruling of the Court
We affirm the modified decision of the CA.
1.
Atty.
Lunas
first
marriage
with
Eugenia
subsisted up to the time of his death
The first marriage between Atty. Luna and Eugenia, both Filipinos, was
solemnized in the Philippines on September 10, 1947. The law in force at the
time of the solemnization was the Spanish Civil Code, which adopted the
nationality rule. The Civil Codecontinued to follow the nationality rule, to the
effect that Philippine laws relating to family rights and duties, or to the status,
condition and legal capacity of persons were binding upon citizens of the
Philippines, although living abroad. 15 Pursuant to the nationality rule, Philippine

60

laws governed thiscase by virtue of bothAtty. Luna and Eugenio having remained
Filipinos until the death of Atty. Luna on July 12, 1997 terminated their marriage.
From the time of the celebration ofthe first marriage on September 10,
1947 until the present, absolute divorce between Filipino spouses has not been
recognized in the Philippines. The non-recognition of absolute divorce between
Filipinos has remained even under the Family Code, 16 even if either or both of the
spouses are residing abroad.17 Indeed, the only two types of defective marital
unions under our laws have beenthe void and the voidable marriages. As such,
the remedies against such defective marriages have been limited to the
declaration of nullity ofthe marriage and the annulment of the marriage.
It is true that on January 12, 1976, the Court of First Instance (CFI) of
Sto. Domingo in the Dominican Republic issued the Divorce Decree dissolving the
first marriage of Atty. Luna and Eugenia. 18 Conformably with the nationality rule,
however, the divorce, even if voluntarily obtained abroad, did not dissolve the
marriage between Atty. Luna and Eugenia, which subsisted up to the time of his
death on July 12, 1997. This finding conforms to the Constitution, which
characterizes marriage as an inviolable social institution, 19 and regards it as a
special contract of permanent union between a man and a woman for the
establishment of a conjugal and family life. 20 The non-recognition of absolute
divorce in the Philippines is a manifestation of the respect for the sanctity of the
marital union especially among Filipino citizens. It affirms that the
extinguishment of a valid marriage must be grounded only upon the death of
either spouse, or upon a ground expressly provided bylaw. For as long as this
public policy on marriage between Filipinos exists, no divorce decree dissolving
the marriage between them can ever be given legal or judicial recognition and
enforcement in this jurisdiction.
2. The Agreement for Separation and Property Settlement
was void for lack of court approval
The petitioner insists that the Agreement for Separation and Property
Settlement (Agreement) that the late Atty. Luna and Eugenia had entered into
and executed in connection with the divorce proceedings before the CFI of Sto.
Domingo in the Dominican Republic to dissolve and liquidate their conjugal
partnership was enforceable against Eugenia. Hence, the CA committed
reversible error in decreeing otherwise.
The insistence of the petitioner was unwarranted.
Considering that Atty. Luna and Eugenia had not entered into any
marriage settlement prior to their marriage on September 10, 1947, the system
of relative community or conjugal partnership of gains governed their property
relations. This is because the Spanish Civil Code, the law then in force at the time
of their marriage, did not specify the property regime of the spouses in the event
that they had not entered into any marriage settlement before or at the time of
the marriage. Article 119 of the Civil Codeclearly so provides, to wit:
Article 119. The future spouses may in the marriage settlements agree
upon absolute or relative community of property, or upon complete separation of
property, or upon any other regime. In the absence of marriage settlements, or
when the same are void, the system of relative community or conjugal

partnership of gains as established in this Code, shall govern the property

relations between husband and wife.
Article 142 of the Civil Codehas defined a conjugal partnership of gains
thusly:
Article 142. By means of the conjugal partnership of gains the husband
and wife place in a common fund the fruits of their separate property and the
income from their work or industry, and divide equally, upon the dissolution of
the marriage or of the partnership, the net gains or benefits obtained
indiscriminately by either spouse during the marriage.
The conjugal partnership of gains subsists until terminated for any of
various causes of termination enumerated in Article 175 of the Civil Code, viz:
Article 175. The conjugal partnership of gains terminates:
(1) Upon the death of either spouse;
(2) When there is a decree of legal separation;
(3) When the marriage is annulled;
(4) In case of judicial separation of property under Article 191.
The mere execution of the Agreement by Atty. Luna and Eugenia did not
per sedissolve and liquidate their conjugal partnership of gains. The approval of
the Agreement by a competent court was still required under Article 190 and
Article 191 of the Civil Code, as follows:
Article 190. In the absence of an express declaration in the marriage
settlements, the separation of property between spouses during the marriage
shall not take place save in virtue of a judicial order. (1432a)
Article 191. The husband or the wife may ask for the separation of
property, and it shall be decreed when the spouse of the petitioner has been
sentenced to a penalty which carries with it civil interdiction, or has been
declared absent, or when legal separation has been granted.
xxxx
The husband and the wife may agree upon the dissolution of the
conjugal partnership during the marriage, subject to judicial approval. All the
creditors of the husband and of the wife, as well as of the conjugal partnership
shall be notified of any petition for judicialapproval or the voluntary dissolution of
the conjugal partnership, so that any such creditors may appear atthe hearing to
safeguard his interests. Upon approval of the petition for dissolution of the
conjugal partnership, the court shall take such measures as may protect the
creditors and other third persons.
After dissolution of the conjugal partnership, the provisions of articles
214 and 215 shall apply. The provisions of this Code concerning the effect of
partition stated in articles 498 to 501 shall be applicable. (1433a)
But was not the approval of the Agreement by the CFI of Sto. Domingo
in the Dominican Republic sufficient in dissolving and liquidating the conjugal
partnership of gains between the late Atty. Luna and Eugenia?
The query is answered in the negative. There is no question that the
approval took place only as an incident ofthe action for divorce instituted by Atty.
Luna and Eugenia, for, indeed, the justifications for their execution of the
Agreement were identical to the grounds raised in the action for divorce. 21 With

61

the divorce not being itself valid and enforceable under Philippine law for being
contrary to Philippine public policy and public law, the approval of the Agreement
was not also legally valid and enforceable under Philippine law. Consequently,
the conjugal partnership of gains of Atty. Luna and Eugenia subsisted in the
lifetime of their marriage.
3.
Atty.
Lunas
marriage
with
Soledad,
being
bigamous,
was
void;
properties
acquired
during
their
marriage
were governed by the rules on co-ownership
What law governed the property relations of the second marriage
between Atty. Luna and Soledad?
The CA expressly declared that Atty. Lunas subsequent marriage to
Soledad on January 12, 1976 was void for being bigamous, 22 on the ground that
the marriage between Atty. Luna and Eugenia had not been dissolved by the
Divorce Decree rendered by the CFI of Sto. Domingo in the Dominican Republic
but had subsisted until the death of Atty. Luna on July 12, 1997.
The Court concurs with the CA.
In the Philippines, marriages that are bigamous, polygamous, or
incestuous are void. Article 71 of the Civil Codeclearly states:
Article 71. All marriages performed outside the Philippines in
accordance with the laws in force in the country where they were performed, and
valid there as such, shall also be valid in this country, except bigamous,
polygamous, or incestuous marriages as determined by Philippine law.
Bigamy is an illegal marriage committed by contracting a second or
subsequent marriage before the first marriage has been legally dissolved, or
before the absent spouse has been declared presumptively dead by means of a
judgment rendered in the proper proceedings.23 A bigamous marriage is
considered void ab initio.24
Due to the second marriage between Atty. Luna and the petitioner being
void ab initioby virtue of its being bigamous, the properties acquired during the
bigamous marriage were governed by the rules on co-ownership, conformably
with Article 144 of the Civil Code, viz:
Article 144. When a man and a woman live together as husband and
wife, but they are not married, ortheir marriage is void from the beginning, the
property acquired by eitheror both of them through their work or industry or their
wages and salaries shall be governed by the rules on co-ownership.(n)
In such a situation, whoever alleges co-ownership carried the burden of
proof to confirm such fact.1wphi1 To establish co-ownership, therefore, it
became imperative for the petitioner to offer proof of her actual contributions in
the acquisition of property. Her mere allegation of co-ownership, without
sufficient and competent evidence, would warrant no relief in her favor. As the
Court explained in Saguid v. Court of Appeals:25
In the cases of Agapay v. Palang, and Tumlos v. Fernandez, which
involved the issue of co-ownership ofproperties acquired by the parties to a
bigamous marriage and an adulterous relationship, respectively, we ruled that
proof of actual contribution in the acquisition of the property is essential. The
claim of co-ownership of the petitioners therein who were parties to the

bigamous and adulterousunion is without basis because they failed to

substantiate their allegation that they contributed money in the purchase of the
disputed properties. Also in Adriano v. Court of Appeals, we ruled that the fact
that the controverted property was titled in the name of the parties to an
adulterous relationship is not sufficient proof of coownership absent evidence of
actual contribution in the acquisition of the property.
As in other civil cases, the burden of proof rests upon the party who, as
determined by the pleadings or the nature of the case, asserts an affirmative
issue. Contentions must be proved by competent evidence and reliance must be
had on the strength of the partys own evidence and not upon the weakness of
the opponents defense. This applies with more vigor where, as in the instant
case, the plaintiff was allowed to present evidence ex parte.1wphi1 The plaintiff
is not automatically entitled to the relief prayed for. The law gives the
defendantsome measure of protection as the plaintiff must still prove the
allegations in the complaint. Favorable relief can be granted only after the court
isconvinced that the facts proven by the plaintiff warrant such relief. Indeed, the
party alleging a fact has the burden of proving it and a mereallegation is not
evidence.26
The petitioner asserts herein that she sufficiently proved her actual
contributions in the purchase of the condominium unit in the aggregate amount
of at least P306,572.00, consisting in direct contributions ofP159,072.00, and in
repaying the loans Atty. Luna had obtained from Premex Financing and Banco
Filipino
totaling P146,825.30;27 and
that
such
aggregate
contributions
of P306,572.00 corresponded to almost the entire share of Atty. Luna in the
purchase of the condominium unit amounting to P362,264.00 of the units
purchase price of P1,449,056.00.28 The petitioner further asserts that the
lawbooks were paid for solely out of her personal funds, proof of which Atty. Luna
had even sent her a "thank you" note; 29 that she had the financial capacity to
make the contributions and purchases; and that Atty. Luna could not acquire the
properties on his own due to the meagerness of the income derived from his law
practice.
Did the petitioner discharge her burden of proof on the co-ownership?
In resolving the question, the CA entirely debunked the petitioners
assertions on her actual contributions through the following findings and
conclusions, namely:
SOLEDAD was not able to prove by preponderance of evidence that her
own independent funds were used to buy the law office condominium and the
law books subject matter in contentionin this case proof that was required for
Article 144 of the New Civil Code and Article 148 of the Family Code to apply as
to cases where properties were acquired by a man and a woman living together
as husband and wife but not married, or under a marriage which was void ab
initio. Under Article 144 of the New Civil Code, the rules on co-ownership would
govern. But this was not readily applicable to many situations and thus it created
a void at first because it applied only if the parties were not in any way
incapacitated or were without impediment to marry each other (for it would be
absurd to create a co-ownership where there still exists a prior conjugal

62

partnership or absolute community between the man and his lawful wife). This
void was filled upon adoption of the Family Code. Article 148 provided that: only
the property acquired by both of the parties through their actual joint
contribution of money, property or industry shall be owned in common and in
proportion to their respective contributions. Such contributions and
corresponding shares were prima faciepresumed to be equal. However, for this
presumption to arise, proof of actual contribution was required. The same rule
and presumption was to apply to joint deposits of money and evidence of credit.
If one of the parties was validly married to another, his or her share in the coownership accrued to the absolute community or conjugal partnership existing in
such valid marriage. If the party who acted in bad faith was not validly married to
another, his or her share shall be forfeited in the manner provided in the last
paragraph of the Article 147. The rules on forfeiture applied even if both parties
were in bad faith. Co-ownership was the exception while conjugal partnership of
gains was the strict rule whereby marriage was an inviolable social institution
and divorce decrees are not recognized in the Philippines, as was held by the
Supreme Court in the case of Tenchavez vs. Escao, G.R. No. L-19671, November
29, 1965, 15 SCRA 355, thus:
xxxx
As to the 25/100pro-indivisoshare of ATTY. LUNA in the condominium
unit, SOLEDAD failed to prove that she made an actual contribution to purchase
the said property. She failed to establish that the four (4) checks that she
presented were indeed used for the acquisition of the share of ATTY. LUNA in the
condominium unit. This was aptly explained in the Decision of the trial court, viz.:
"x x x The first check, Exhibit "M" for P55,000.00 payable to Atty.
Teresita Cruz Sison was issued on January 27, 1977, which was thirteen (13)
months before the Memorandum of Agreement, Exhibit "7" was signed. Another
check issued on April 29, 1978 in the amount of P97,588.89, Exhibit "P" was
payable to Banco Filipino. According to the plaintiff, thiswas in payment of the
loan of Atty. Luna. The third check which was for P49,236.00 payable to PREMEX
was dated May 19, 1979, also for payment of the loan of Atty. Luna. The fourth
check, Exhibit "M", forP4,072.00 was dated December 17, 1980. None of the
foregoing prove that the amounts delivered by plaintiff to the payees were for
the acquisition of the subject condominium unit. The connection was simply not
established. x x x"
SOLEDADs claim that she made a cash contribution of P100,000.00 is
unsubstantiated. Clearly, there is no basis for SOLEDADs claim of co-ownership
over the 25/100 portion of the condominium unit and the trial court correctly
found that the same was acquired through the sole industry of ATTY. LUNA, thus:

"The Deed of Absolute Sale, Exhibit "9", covering the condominium unit
was in the name of Atty. Luna, together with his partners in the law firm. The
name of the plaintiff does not appear as vendee or as the spouse of Atty. Luna.
The same was acquired for the use of the Law firm of Atty. Luna. The loans from
Allied Banking Corporation and Far East Bank and Trust Company were loans of
Atty. Luna and his partners and plaintiff does not have evidence to show that she
paid for them fully or partially. x x x"
The fact that CCT No. 4779 and subsequently, CCT No. 21761 were in
the name of "JUAN LUCES LUNA, married to Soledad L. Luna" was no proof that
SOLEDAD was a co-owner of the condominium unit. Acquisition of title and
registration thereof are two different acts. It is well settled that registration does
not confer title but merely confirms one already existing. The phrase "married to"
preceding "Soledad L. Luna" is merely descriptive of the civil status of ATTY.
LUNA.
SOLEDAD, the second wife, was not even a lawyer. So it is but logical
that SOLEDAD had no participation in the law firm or in the purchase of books for
the law firm. SOLEDAD failed to prove that she had anything to contribute and
that she actually purchased or paid for the law office amortization and for the law
books. It is more logical to presume that it was ATTY. LUNA who bought the law
office space and the law books from his earnings from his practice of law rather
than embarrassingly beg or ask from SOLEDAD money for use of the law firm
that he headed.30
The Court upholds the foregoing findings and conclusions by the CA
both because they were substantiated by the records and because we have not
been shown any reason to revisit and undo them. Indeed, the petitioner, as the
party claiming the co-ownership, did not discharge her burden of proof. Her mere
allegations on her contributions, not being evidence, 31 did not serve the purpose.
In contrast, given the subsistence of the first marriage between Atty. Luna and
Eugenia, the presumption that Atty. Luna acquired the properties out of his own
personal funds and effort remained. It should then be justly concluded that the
properties in litislegally pertained to their conjugal partnership of gains as of the
time of his death. Consequently, the sole ownership of the 25/100 pro
indivisoshare of Atty. Luna in the condominium unit, and of the lawbooks
pertained to the respondents as the lawful heirs of Atty. Luna.
WHEREFORE, the Court AFFIRMS the decision promulgated on
November 11, 2005; and ORDERS the petitioner to pay the costs of suit.
SO ORDERED.
LUCAS P. BERSAMIN

63