cases conflict

8/11/2019 Cases Conflict

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Saturday, November 12, 2011

Detailed Digest of Gamboa vs. Finance Secretary, G.R. No. 176579, June 28,2011

WILSON P. GAMBOA vs. FINANCE SECRETARY TEVES

G.R. No. 176579, promulgated June 28, 2011X-----------------------------------------------------------------------------X

D E C I S I O N

CARPIO, J .:

I. THE FACTS

This is a petition to nullify the sale of shares of stock of Philippine Telecommunications Investment

Corporation (PTIC) by the government of the Republic of the Philippines, acting through the Inter-AgencyPrivatization Council (IPC), to Metro Pacific Assets Holdings, Inc. (MPAH), an affiliate of First Pacific CompanyLimited (First Pacific), a Hong Kong-based investment management and holding company and a shareholder ofthe Philippine Long Distance Telephone Company (PLDT).

The petitioner questioned the sale on the ground that it also involved an indirect sale of 12 million shares(or about 6.3 percent of the outstanding common shares) of PLDT owned by PTIC to First Pacific. With the thissale, First Pacifics common shareholdings in PLDT increased from 30.7 percent to 37 percent, therebyincreasing the total common shareholdings of foreigners in PLDT to about 81.47%. This, according to thepetitioner, violates Section 11, Article XII of the 1987 Philippine Constitution which limits foreign ownership of thecapital of a public utility to not more than 40%.

II. THE ISSUE

Does the term capital in Section 11, Article XII of the Constitution refer to the total common sharesonly, or to the total outstanding capital stock (combined total of common and non-voting preferred shares) ofPLDT, a public utility?

III. THE RULING

[The Court partly granted the petition and held that the term capital in Section 11, Article XII of theConstitution refers only to shares of stock entitled to vote in the election of directors of a public utility, or in theinstant case, to the total common shares of PLDT.]

Section 11, Article XII (National Economy and Patrimony) of the 1987 Constitution mandates the

Filipinization of public utilities, to wit:

Section 11. No franchise, certificate, or any other form of authorization for the operation of a publicutility shall be granted except to citizens of the Philippines or to corporations or associations organizedunder the laws of the Philippines, at least sixty per centum of whose capital is owned by such citizens ; norshall such franchise, certificate, or authorization be exclusive in character or for a longer period than fifty years.Neither shall any such franchise or right be granted except under the condition that it shall be subject to amendment,alteration, or repeal by the Congress when the common good so requires. The State shall encourage equityparticipation in public utilities by the general public. The participation of foreign investors in the governing body of anypublic utility enterprise shall be limited to their proportionate share in its capital, and all the executive and managingofficers of such corporation or association must be citizens of the Philippines. (Emphasis supplied)

The term capital in Section 11, Article XII of the Constitution refers only to shares of stock entitled to

vote in the election of directors, and thus in the present case only to common shares, and not to the totaloutstanding capital stock comprising both common and non-voting preferred shares [of PLDT].

xxx xxx xxx


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Indisputably, one of the rights of a stockholder is the right to participate in the control or management ofthe corporation. This is exercised through his vote in the election of directors because it is the board of directorsthat controls or manages the corporation. In the absence of provisions in the articles of incorporation denyingvoting rights to preferred shares, preferred shares have the same voting rights as common shares. However,preferred shareholders are often excluded from any control, that is, deprived of the right to vote in the election ofdirectors and on other matters, on the theory that the preferred shareholders are merely investors in thecorporation for income in the same manner as bondholders. xxx.

Considering that common shares have voting rights which translate to control, as opposed to preferred

shares which usually have no voting rights, the term capital in Section 11, Article XII of the Constitution refersonly to common shares. However, if the preferred shares also have the right to vote in the election of directors,then the term capital shall include such preferred shares because the right to participate in the control ormanagement of the corporation is exercised through the right to vote in the election of directors. In short, theterm capital in Section 11, Article XII of the Constitution refers only to shares of stock that can vote in theelection of directors.

xxx xxx xxx

Mere legal title is insufficient to meet the 60 percent Filipino-owned capital required in the Constitution.Full beneficial ownership of 60 percent of the outstanding capital stock, coupled with 60 percent of the votingrights, is required. The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in

the hands of Filipino nationals in accordance with the constitutional mandate. Otherwise, the corporation isconsidered as non-Philippine national[s].

xxx xxx xxx

To construe broadly the term capital as the total outstanding capital stock, including both commonand non-votingpreferred shares, grossly contravenes the intent and letter of the Constitution that the State shalldevelop a self-reliant and independent national economy effectively controlledby Filipinos. A broad definitionunjustifiably disregards who owns the all-important voting stock, which necessarily equates to control of thepublic utility.

We shall illustrate the glaring anomaly in giving a broad definition to the term capital. Let us assume

that a corporation has 100 common shares owned by foreigners and 1,000,000 non-voting preferred sharesowned by Filipinos, with both classes of share having a par value of one peso (P1.00) per share. Under thebroad definition of the term capital, such corporation would be considered compliant with the 40 percentconstitutional limit on foreign equity of public utilities since the overwhelming majority, or more than 99.999percent, of the total outstanding capital stock is Filipino owned. This is obviously absurd.

In the example given, only the foreigners holding the common shares have voting rights in the election ofdirectors, even if they hold only 100 shares. The foreigners, with a minuscule equity of less than 0.001 percent,exercise control over the public utility. On the other hand, the Filipinos, holding more than 99.999 percent of theequity, cannot vote in the election of directors and hence, have no control over the public utility. This starklycircumvents the intent of the framers of the Constitution, as well as the clear language of the Constitution, toplace the control of public utilities in the hands of Filipinos. It also renders illusory the State policy of anindependent national economy effectively controlledby Filipinos.

The example given is not theoretical but can be found in the real world, and in fact exists in the presentcase.

xxx xxx xxx

[O]nly holders of common shares can vote in the election of directors [of PLDT], meaning only commonshareholders exercise control over PLDT. Conversely, holders of preferred shares, who have no voting rights inthe election of directors, do not have any control over PLDT. In fact, under PLDTs Articles of Incorporation,holders of common shares have voting rights for all purposes, while holders of preferred shares have no votingright for any purpose whatsoever.

It must be stressed, and respondents do not dispute, that foreigners hold a majority of the commonshares of PLDT. In fact, based on PLDTs 2010 General Information Sheet (GIS),which is a document requiredto be submitted annually to the Securities and Exchange Commission, foreigners hold 120,046,690 commonshares of PLDT whereas Filipinos hold only 66,750,622 common shares. In other words, foreigners hold 64.27%of the total number of PLDTs common shares, while Filipinos hold only 35.73%. Since holding a majority o f the


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common shares equates to control, it is clear that foreigners exercise control over PLDT. Such amount of controlunmistakably exceeds the allowable 40 percent limit on foreign ownership of public utilities expressly mandatedin Section 11, Article XII of the Constitution.

As shown in PLDTs 2010 GIS,as submitted to the SEC, the par value of PLDT common shares is P5.00per share, whereas the par value of preferred shares is P10.00 per share. In other words, preferred shares havetwice the par value of common shares but cannot elect directors and have only 1/70 of the dividends of commonshares. Moreover, 99.44% of the preferred shares are owned by Filipinos while foreigners own only a minuscule0.56% of the preferred shares. Worse, preferred shares constitute 77.85% of the authorized capital stock of

PLDT while common shares constitute only 22.15%. This undeniably shows that beneficial interest in PLDT isnot with the non-voting preferred shares but with the common shares, blatantly violating the constitutionalrequirement of 60 percent Filipino control and Filipino beneficial ownership in a public utility.

The legal and beneficial ownership of 60 percent of the outstanding capital stock must rest in the handsof Filipinos in accordance with the constitutional mandate. Full beneficial ownership of 60 percent of theoutstanding capital stock, coupled with 60 percent of the voting rights, is constitutionally required for the Statesgrant of authority to operate a public utility. The undisputed fact that the PLDT preferred shares, 99.44% ownedby Filipinos, are non-voting and earn only 1/70 of the dividends that PLDT common shares earn, grossly violatesthe constitutional requirement of 60 percent Filipino control and Filipino beneficial ownership of a public utility.

In short, Filipinos hold less than 60 percent of the voting stock, and earn less than 60 percent of the

dividends, of PLDT. This directly contravenes the express command in Section 11, Article XII of the Constitutionthat [n]o franchise, certificate, or any other form of authorization for the operation of a public utility shall begranted except to x x x corporations x x x organized under the laws of the Philippines, at least sixty per centumof whose capital is owned by such citizens x x x.

To repeat, (1) foreigners own 64.27% of the common shares of PLDT, which class of shares exercisesthe sole right to vote in the election of directors, and thus exercise control over PLDT; (2) Filipinos own only35.73% of PLDTs common shares, constituting a minority of the voting stock, and thus do not exercise controlover PLDT; (3) preferred shares, 99.44% owned by Filipinos, have no voting rights; (4) preferred shares earnonly 1/70 of the dividends that common shares earn; (5) preferred shares have twice the par value of commonshares; and (6) preferred shares constitute 77.85% of the authorized capital stock of PLDT and common sharesonly 22.15%. This kind of ownership and control of a public utility is a mockery of the Constitution.

Incidentally, the fact that PLDT common shares with a par value of P5.00 have a current stock marketvalue of P2,328.00 per share, while PLDT preferred shares with a par value of P10.00 per share have a currentstock market value ranging from only P10.92 to P11.06 per share, is a glaring confirmation by the market thatcontrol and beneficial ownership of PLDT rest with the common shares, not with the preferred shares.

xxx xxx xxx

WHEREFORE, we PARTLY GRANTthe petition and rule that the term capital in Section 11, Article XIIof the 1987 Constitution refers only to shares of stock entitled to vote in the election of directors, and thus in thepresent case only to common shares, and not to the total outstanding capital stock (common and non-votingpreferred shares). Respondent Chairperson of the Securities and Exchange Commission is DIRECTEDto applythis definition of the term capital in determining the extent of allowable foreign ownership in respondent

Philippine Long Distance Telephone Company, and if there is a violation of Section 11, Article XII of theConstitution, to impose the appropriate sanctions under the law.


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Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. Nos. 89095 & 89555 November 6, 1989

SIXTO P. CRISOSTOMO,petitioner,

vs.

SECURITIES AND EXCHANGE COMMISSION, SPOUSES SHOJI YAMADA and MICHIYO YAMADA and

SPOUSES TOMOTADA ENATSU and EDITA ENATSU, respondents.

The antecedent facts, culled from the decision of the Court of Appeals, are as follows:

Sixto Crisostomo, Felipe Crisostomo (deceased), Veronica Palanca, Juanito Crisostomo, Carlos Crisostomo,

Ricardo Alfonso, Regino Crisostomo and Ernesto Crisostomo (known as the Crisostomo group) were the original

stockholders of the United Doctors Medical Center (UDMC) which was organized in 1968 with an authorized

capital stock of P1,000,000 (later increased to P15,000,000 in 1972). They owned approximately 40% of

UDMCs outstanding capital stock, while the 60% majority belonged to the members of the United Medical Staff

Association (UMSA), numbering approximately 150 doctors and medical personnel of UDMC.

Despite their minority status, the Crisostomo group has managed UDMC from its inception, with Juanito

Crisostomo as president, Ricardo Alfonso, Sr. as chairman of the board, Carlos Crisostomo as corporate

secretary and Sixto Crisostomo as director and legal counsel.

In 1988, UDMC defaulted in paying its loan obligation of approximately P55 million to the DBP. In the last quarter

of 1987, UDMCs assets (principally its hospital) and those of the Crisostomos which had been given as

collateral to the DBP, faced foreclosure by the Asset Privatization Trust (APT), which had taken over UDMCs

loan obligation to the DBP.

To stave off the threatened foreclosure, UDMC, through its principal officers, Ricardo Alfonso and Juanito

Crisostomo, persuaded the Yamadas and Enatsu (Shoji Yamada and Tomotada Enatsu are Japanese doctors)to invest fresh capital in UDMC. The wife of Tomotada Enatsu, Edita Enatsu, is a Filipina. They invested

approximately P57 million in UDMC.

The investment was effected by means of: (1) a Stock Purchase Agreement; and (2) an Amended Memorandum

of Agreement whereby the group subscribed to 82.09% of the outstanding shares of UDMC.

Both transactions were duly authorized by the board of directors and stockholders of UDMC. They were

submitted to, scrutinized by, and, finally, approved by the Board of Investments, the Central Bank of the

Philippines, and the Securities and Exchange Commission. The elaborate governmental approval process was

done openly and with full knowledge of all concerned, including Sixto Crisostomo, the corporate legal counsel.

Upon the completion of the governmental approval process, shares of stock, duly signed by UDMCs authorizedofficers, were issued to the Yamadas and Enatsus.

This capital infusion not only saved the assets of the UDMC (especially the hospital) from foreclosure but also

freed the Crisostomos from their individual and solidary liabilities as sureties for the DBP loan.

As it had been agreed in the Amended Memorandum of Agreement between UDMC and the Japanese group

that upon the latters acquisition of the controlling interest in UDMC, the corporation would be reorganized, a

special stockholders meeting and board of directors meeting were scheduled to be held on August 20, 1988.

However, on the eve of the meetings, i.e., on August 19, 1988, Sixto Crisostomo, supposedly acting for himself,

filed SEC Case No. 3420 against Juanito Crisostomo, Ricardo Alfonso, Shoji Yamada, Michiyo Yamada,

Tomotada Enatsu and Edita Enatsu, praying, among other things, (1) to stop the holding of the stockholders andboard of directors meetings; (2) to disqualify the Japanese investors from holding a controlling interest in UDMC

and from being elected directors or officers of UDMC; and (3) to annul the Memorandum of Agreement and

Stock Purchase Agreement because they allegedly did not express the true agreement of the parties (pp. 194-

203, Rollo).


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Two weeks later, on September 2, 1988, Crisostomo filed Civil Case No. 88-1823 in the Regional Trial Court of

Makati, Metro Manila, where he also sought a preliminary injunction and the identical reliefs prayed for by him in

SEC Case No. 3420 (pp. 317-335, Rollo). It was dismissed by the trial court for lack of jurisdiction and is pending

appeal in the Court of Appeals where it is docketed as CA-G.R No. 20285-CV.

On September 13, 1988, the hearing officer, Antonio Esteves, granted the application for a writ of preliminary

injunction enjoining the respondents

. . . from holding the special meeting of the stockholders and of the Board of Directors of United DoctorsMedical Center, [Inc.] (UDMC) scheduled on August 20, 1988 or any subsequent meetings; from adopting

resolutions to elect new directors and appoint new officers; from approving resolutions directly or indirectly

affecting the operations, organizational structure, and financial condition of the corporation, . . . and from

disbursing funds of the said corporation except those ordinary day-to-day expenses pending the final termination

of this case. (p. 30, Rollo.)

The private respondents motion for reconsideration of this order was denied by the hearing officer on November

16, 1988. In the same order, he created a management committee to administer UDMC (pp. 32-35, Rollo).

The respondents appealed by certiorari to the SEC en banc. On February 14, 1989, Commissioner Jose C.

Laureta, with whom Commissioners Rosario N. Lopez and Gonzalo T. Santos separately concurred, set aside

the preliminary injunction issued by Esteves and the management committee which he created. The dispositivepart of the decision reads:

Wherefore, premises considered, the instant petition for certiorari is GRANTED and the Commission en banc

ORDERS:

1.That the questioned orders of the hearing officer in SEC Case No. 3420 of September 13, 1988 and

November 16, 1988, be immediately vacated;

2. That a special stockholders meeting of UDMC be held for the purpose of allowing the stockholders of record

of the corporation to elect a new board of directors, which special meeting is hereby directed to be scheduled

within 10 days from receipt of a copy of this resolution by the incumbent corporate secretary or acting corporate

secretary of UDMC, and to this end, that such officer be, as he hereby is, directed: (a) to issue a call for suchspecial meeting and serve notice thereof on all stockholders of record of the corporation, in accordance with

Section 6 of article VII of UDMCs by-laws; and (b) to submit to the Commission, through the Commission

Secretary, a written report of his compliance with this particular order of the Commission, not later than 5 days

prior to the scheduled date of the proposed UDMC special stockholders meeting;

3. That upon the election of a new board of directors of UDMC, that such board be, as it hereby is, enjoined to

meet as promptly as possible for the purpose of electing a new set of officers of the corporation in order to

ensure its proper management;

4. That the hearing officer be, as he hereby is, directed to continue with the proceedings of SEC Case No.

3420, and to do so with all deliberate speed, for the purpose of resolving the alleged violation of certain rights of

Sixto Crisostomo, as a stockholder of UDMC, particularly, his right to inspect the corporate books and records of

UDMC, his preemptive right to subscribe to the P60 million increase in the authorized capital of UDMC, and hisappraisal rights; and

5.That the board of directors and officers of UDMC be, as they hereby are, ordered to submit to the

Commission, through the Chairman, a written report as to its plans as regards its nursing school, such report to

be submitted at least one month prior to the commencement of the school year 1989-1990.

SO ORDERED. (pp. 49-50, Rollo.)

Sixto Crisostomo sought a review of the SECs en banc resolution in the Court of Appeals (CA-G.R. SP No.

17435).

On June 8, 1989, the Court of Appeals dismissed his petition and lifted the temporary restraining order that ithad issued against the SECs resolution (Annex K, pp. 65-81, Rollo). Petitioner filed a motion for reconsideration

(pp. 418-434, Rollo). The Court of Appeals required the private respondents to comment but it denied the

petitioners motion to reinstate the writ of preliminary injunction (Annex L, p. 82, Rollo).


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On motion of the private respondents (Annex K, p. 413, Rollo), the SEC en banc issued an order on June 27,

1989 directing the secretary of UDMC to call a special stockholders meeting to elect a new board of directors

and officers of the corporation (Annex F). Petitioner asked the SEC to recall that order on account of his pending

motion for reconsideration in the Court of Appeals. The motion was opposed by the private respondents. On July

21, 1989, the SEC denied petitioners motion (p. 86, Rollo). Whereupon, he filed this petition for certiorari and

prohibition with a prayer for preliminary injunction alleging that the SEC en banc abused its discretion:

1. in setting aside Esteves orders;

2. in allowing the Japanese group to have control of UDMC for it will result in culpable violation of Section 7,Article XII of the 1987 Constitution which provides that no private lands shall be transferred or conveyed except

to individuals or corporations qualified to acquire or hold land of the public domain, meaning corporations at least

sixty per centum of whose capital is owned by Filipino citizens (Sec. 2, Article XII, 1987 Constitution); and

3. in allowing the Japanese investors to own more than 40% of the capital stock of UDMC (which operates a

nursing and midwifery school) in violation of Section 4 (2) Article XIV of the 1987 Constitution which provides

that educational institutions . . . shall be owned solely by citizens of the Philippines or corporations or

associations at least sixty per centum of the capital of which is owned by such citizens.

The public and private respondents, in their comments on the petition, asked that the petition be dismissed and

that the petitioner be cited for contempt for forum-shopping.

We find no merit in the petition. The first allegation that the SEC en banc erred in reversing the orders of the

hearing officer, Esteves, is the same ground raised by the petitioner in CA-G.R. No. SP 17435. The issue is

frivolous for the authority of the SEC en banc to review, revise, reverse, or affirm orders of its hearing officers is

too elementary to warrant any debate.

Equally unmeritorious are the second and third grounds of the petition - that the P57 million investment of the

Japanese group in UDMC violates the constitutional provisions restricting the transfer or conveyance of private

lands (Art. XIII, Sec. 7, 1987 Constitution) and the ownership of educational institutions (Art. XVI, Sec. 14[a],

1987 Constitution), to citizens of the Philippines or corporations at least 60% of the capital of which is owned by

Filipino citizens. While 82% of UDMCs capital stock is indeed subscribed by the Japanese group, only 30%

(equivalent to 171,721 shares or P17,172.00) is owned by the Japanese citizens, namely, the Yamada spousesand Tomotada Enatsu. 52% is owned by Edita Enatsu, who is a Filipino. Accordingly, in its application for

approval/registration of the foreign equity investments of these investors, UDMC declared that 70% of its capital

stock is owned by Filipino citizens, including Edita Enatsu. That application was approved by the Central Bank

on August 3, 1988 (p. 249, Rollo).

The investments in UDMC of Doctors Yamada and Enatsu do not violate the Constitutional prohibition against

foreigners practicing a profession in the Philippines (Section 14, Article XII, 1987 Constitution) for they do not

practice their profession (medicine) in the Philippines, neither have they applied for a license to do so. They only

own shares of stock in a corporation that operates a hospital. No law limits the sale of hospital shares of stock to

doctors only. The ownership of such shares does not amount to engaging (illegally) in the practice of medicine,

or, nursing. If it were otherwise, the petitioners stockholding in UDMC would also be illegal.

The SECs orders dated June 27, 1989 and July 21, 1989 (directing the secretary of UDMC to call a

stockholders meeting, etc.) are not premature, despite the petitioners then pending motion for reconsideration

of the decision of the Court of Appeals. The lifting by the Court of Appeals of its writ of preliminary injunction in

CA-G.R. SP No. 17435 cleared the way for the implementation by the SECs en banc resolution in SEC EB

Case No. 191. The SEC need not wait for the Court of Appeals to resolve the petitioners motion for

reconsideration for a judgment decreeing the dissolution of a preliminary injunction is immediately executory. It

shall not be stayed after its rendition and before an appeal is taken or daring the pendency of an appeal. (Sec.

4, Rule 39, Rules of Court; Marcelo Steel Corp. vs. Court of Appeals, 54 SCRA 89 [1973]; Aguilar vs. Tan, 31

SCRA 205 [1970]; Sitia Teco vs. Ventura, 1 Phil. 497 [1902]; Watson & Co., Ltd. vs. M. Enriquez, 1 Phil. 480

[1902]).

We now address the public and private respondents separate motions to dismiss the petition and to cite

Crisostomo and his counsel for contempt of court for forum-shopping. The records show that Crisostomo had

two actions pending in the Court of Appeals (CA-G.R. No. SP 17435 and CA-G.R. No. 20285 CV) when he filed


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the petition for certiorari (G.R. No. 89095) in this Court on July 27, 1989. The case docketed as CA-G.R. No.

20285-CV, is his appeal from the decision of the Regional Trial Court of Makati, dismissing his complaint for

annulment of the Memorandum of Agreement and the Stock Purchase Agreement between UDMC and the

Japanese investors. CA-G.R. No. SP 17435 is his petition for certiorari to review the SECs en banc resolution

upholding those transactions and ordering the holding of a stockholders meeting to elect the directors of the

UDMC, and of a board of directors meeting to elect the officers.

Notwithstanding the pendency of those two cases in the Court of Appeals, Crisostomo filed this petition for

certiorari and prohibition on July 27, 1989 where he raises the same issues that he raised in the Court of

Appeals.The prayer of his petition in CA-G.R. No. SP 17435 reads thus:

3) After hearing on the merits, judgment be rendered:

a) Annulling and setting aside the questioned rulings of the respondent COMMISSION 2for having been issued

with grave abuse of discretion tantamount to lack or excess of jurisdiction; and

b) Making permanent the preliminary injunction issued in this case against the respondents. (p. 241, Rollo.)

In his petition for certiorari (G.R. No. 89095), he also prays that

1. Upon the filing of this petition, a temporary restraining order issue enjoining respondents, their

representatives or agents from implementing or executing the SEC opinions (Annexes F, G and H) and its

June 27 and July 21, 1989 orders (Annexes M and O) until further orders from the Honorable Court.

xxx xxx xxx

3. After notice, this petition be given due course and a writ of preliminary injunction be issued for the samepurpose and effect upon such terms and conditions the Honorable Court may impose; and thereafter, judgment

be rendered granting the writ prayed for and annulling and setting aside the said opinions rendered by the SEC

in their stead, affirming the orders of the Hearing Officer (Annexes A and B). (pp. 27-28, Rollo.)

Additionally, in his petition for review (G.R. No. 89555) he prays this Court to grant all the reliefs prayed for by

him in CA-G.R. SP No. 17435.

Here is a clear case of forum-shopping.

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

opinion (other than by appeal or certiorari) in another. The principle applies not only with respect to suits filed in

the courts but also in connection with litigations commenced in the courts while an administrative proceeding is

pending, as in this case, in order to defeat administrative processes and in anticipation of an unfavorable

administrative ruling and a favorable court ruling. This is specially so, as in this case, where the court in whichthe second suit was brought, has no jurisdiction. (Villanueva vs. Adre, G.R. No. 80863, April 27, 1989.) (p. 303,

Rollo.)

Forum-shopping is prohibited by the Interim Rules of Court for it trifles with the courts and abuses their

processes (E. Razon, Inc. vs. Phil. Port Authority, 101 SCRA 450). Section 17 of the Interim Rules of Courts

provides:

17. Petitions for writs of certiorari, etc., - No petition for certiorari, mandamus, prohibition, habeas corpus or

quo warranto may be filed in the Intermediate Appellate Court if another similar petition has been filed or is still

pending in the Supreme Court. Nor may such petition be filed in the Supreme Court if a similar petition has been

filed or is still pending in the Intermediate Appellate Court, unless it be to review the action taken by the

Intermediate Appellate Court on the petition filed with it. A violation of this rule shall constitute contempt of court

and shall be a cause for the summary dismissal of both petitions, without prejudice to the taking of appropriateaction against the counsel or party concerned. (Interim Rules of Court.)

Forum-shopping makes the petitioner subject to disciplinary action and renders his petitions in this Court and in

the Court of Appeals dismissible (E. Razon, Inc. vs. Philippine Port Authority, et al., G.R. No. 75197, Resolution

dated July 31, 1986; Buan vs. Lopez, Jr., 145 SCRA 34, 38-39; Collado vs. Hernando, L-43886, May 30, 1988).

For this reason, if not for their lack of merit, the petitions should be, as they are hereby, dismissed.

WHEREFORE, these petitions are dismissed for lack of merit. The temporary restraining order which this Court

issued on August 7, 1989 in G.R. No. 89095 is hereby lifted. The Court of Appeals is ordered to immediately

dismiss CA-G.R. CV No. 20285. The petitioner and his counsel are censured for engaging in forum-shopping.

The petitioner is further ordered to pay double costs in this instance.

SO ORDERED.Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.


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G.R. No. L-22238 February 18, 1967

CLAVECILLIA RADIO SYSTEM,petitioner-appellant,vs.HON. AGUSTIN ANTILLON, as City Judge of the Municipal Court of Cagayan de Oro Cityand NEW CAGAYAN GROCERY,respondents-appellees.

REGALA, J .:

This is an appeal from an order of the Court of First Instance of Misamis Oriental dismissing the petition of the Clavecilla RadioSystem to prohibit the City Judge of Cagayan de Oro from taking cognizance of Civil Case No. 1048 for damages.

It appears that on June 22, 1963, the New Cagayan Grocery filed a complaint against the Clavecilla Radio System alleging, ineffect, that on March 12, 1963, the following message, addressed to the former, was filed at the latter's Bacolod Branch Office fortransmittal thru its branch office at Cagayan de Oro:

NECAGRO CAGAYAN DE ORO (CLAVECILLA)

REURTEL WASHED NOT AVAILABLE REFINED TWENTY FIFTY IF AGREEABLE SHALL SHIP LATER REPLYPOHANG

The Cagayan de Oro branch office having received the said message omitted, in delivering the same to the New Cagayan

Grocery, the word "NOT" between the words "WASHED" and "AVAILABLE," thus changing entirely the contents andpurport of the same and causing the said addressee to suffer damages. After service of summons, the Clavecilla RadioSystem filed a motion to dismiss the complaint on the grounds that it states no cause of action and that the venue isimproperly laid. The New Cagayan Grocery interposed an opposition to which the Clavecilla Radio System filed itsrejoinder. Thereafter, the City Judge, on September 18, 1963, denied the motion to dismiss for lack of merit and set thecase for hearing.1wph1.t

Hence, the Clavecilla Radio System filed a petition for prohibition with preliminary injunction with the Court of First Instance prayingthat the City Judge, Honorable Agustin Antillon, be enjoined from further proceeding with the case on the ground of impropervenue. The respondents filed a motion to dismiss the petition but this was opposed by the petitioner. Later, the motion wassubmitted for resolution on the pleadings.

In dismissing the case, the lower court held that the Clavecilla Radio System may be sued either in Manila where it has its principaloffice or in Cagayan de Oro City where it may be served, as in fact it was served, with summons through the Manager of its branch

office in said city. In other words, the court upheld the authority of the city court to take cognizance of the case. 1wph1.t

In appealing, the Clavecilla Radio System contends that the suit against it should be filed in Manila where it holds its principaloffice.

It is clear that the case for damages filed with the city court is based upon tort and not upon a written contract. Section 1 of Rule 4of the New Rules of Court, governing venue of actions in inferior courts, provides in its paragraph (b) (3) that when "the action is notupon a written contract, then in the municipality where the defendant or any of the defendants resides or may be served withsummons." (Emphasis supplied)

Settled is the principle in corporation law that the residence of a corporation is the place where its principal office is established.Since it is not disputed that the Clavecilla Radio System has its principal office in Manila, it follows that the suit against it mayproperly be filed in the City of Manila.

The appellee maintain, however, that with the filing of the action in Cagayan de Oro City, venue was properly laid on the principlethat the appellant may also be served with summons in that city where it maintains a branch office. This Court has already held inthe case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil. 526; that the term "may be served with summons" does not applywhen the defendant resides in the Philippines for, in such case, he may be sued only in the municipality of his residence,regardless of the place where he may be found and served with summons. As any other corporation, the Clavecilla Radio Systemmaintains a residence which is Manila in this case, and a person can have only one residence at a time (See Alcantara vs.Secretary of the Interior, 61 Phil. 459; Evangelists vs. Santos, 86 Phil. 387). The fact that it maintains branch offices in some partsof the country does not mean that it can be sued in any of these places. To allow an action to be instituted in any place where acorporate entity has its branch offices would create confusion and work untold inconvenience to the corporation.

It is important to remember, as was stated by this Court in Evangelista vs. Santos, et al., supra, that the laying of the venue of anaction is not left to plaintiff's caprice because the matter is regulated by the Rules of Court. Applying the provision of the Rules ofCourt, the venue in this case was improperly laid.

The order appealed from is therefore reversed, but without prejudice to the filing of the action in Which the venue shall be laidproperly. With costs against the respondents-appellees.

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


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Northwest Orient Airlines v. CA 241 SCRA 192 [1995]

FACTS

[In 1974, an International Passenger Sales Agency Agreement was entered into by plaintiff Northwest Orient Airlines (Northwest)

and defendant C.F. Sharp & Co. (Sharp), through its Japan branch, whereby Northwest authorized Sharp to sell the former's

airlines tickets.

Sharp failed to remit the proceeds of the ticket sales it made on behalf of Northwest under the agreement which led the latter to sue

in Tokyo for collection of the unremitted amount, with claim for damages.

The Tokyo District Court of Japan issued a writ of summons against Sharp at its office in Yokohama, Japan but the bailiff failed

twice to serve the writs. Finally, the Tokyo District Court decided to have the writs of summons served at Sharp's head office in

Manila. Sharp accepted the writs but despite such receipt, it failed to appear at the hearings. The District Court proceeded to hear

the complaint and rendered judgment ordering Sharp to pay Northwest the sum of 83,158,195 Yen plus damages. Sharp failed to

appeal and the judgment became final and executory.

Northwest failed to execute the decision in Japan, hence, it filed a suit for enforcement of the judgment before the Regional Trial

Court of Manila. Sharp filed its answer averring that the judgment of the Japanese court is null and void and unenforceable in this

jurisdiction having been rendered without due and proper notice to Sharp.

The case for enforcement of judgment was tried on the merits. Sharp filed a Motion for Judgment on a Demurrer to Evidence. The

trial court granted the demurrer motion, holding that the foreign judgment in the Japanese court sought to be enforced is null and

void for want of jurisdiction over the person of the defendant. Northwest appealed but the Court of Appeals sustained the tri al court,

holding that the process of the court has no extraterritorial effect and no jurisdiction was acquired over the person of the defendant

by serving him beyond the boundaries of the state. Hence, this appeal by Northwest.]

RULING

"A foreign judgment is presumed to be valid and binding in the country from which it comes, until the contrary is shown. It is also

proper to presume the regularity of the proceedings and the giving of due notice therein.

Under Section 50, Rule 39 of the Rules of Court, a judgment in an action in personam of a tribunal of a foreign country having

jurisdiction to pronounce the same is presumptive evidence of a right as between the parties and their successors-in-interest by a

subsequent title. The judgment may, however, be assailed by evidence of want of jurisdiction, want of notice to the party, collusion,

fraud, or clear mistake of law or fact. Also, under Section 3 of Rule 131, a court, whether of the Philippines or elsewhere, enjoys the

presumption that it was acting in the lawful exercise of jurisdiction and has regularly performed its official duty.

Consequently, the party attacking a foreign judgment has the burden of overcoming the presumption of its validity. Being the party

challenging the judgment rendered by the Japanese court, SHARP had the duty to demonstrate the invalidity of such judgment. In

an attempt to discharge that burden, it contends that the extraterritorial service of summons effected as its home office in the

Philippines was not only ineffectual but also void, and the Japanese Court did not, therefore, acquire jurisdiction over it.

It is settled that matters of remedy and procedure such as those relating to the service of process upon a defendant are governed

by the lex fori or the internal law of the forum. In this case, it is the procedural law of Japan where the judgment was rendered that

determines the validity of the extraterritorial service'of process on SHARP. As to what this law is is a question of fact, not of law. Itmay not be taken judicial notice of and must be pleaded and proved like any other fact. Sections 24 and 25, Rule 132 of the Rules

of Court provide that it may be evidenced by an official publication or by a duly attested or authenticated copy thereof. It was then

incumbent upon SHARP to present evidence as to what that Japanese procedural law is and to show taat under it, the assailed

extraterritorial service is invalid. It did not. Accordingly, the presumption of validity and regularity of the service of summons and the

decision thereafter rendered by the Japanese court must stand.

Alternatively, in the light of the absence of proof regarding Japanese law, the presumption of identity or similarity or the so-called

processual presumpcion may be invoked. Applying it, the Japanese law on the matter is presumed to be similar with the Philippine

law on service of summons on a private foreign corporation doing business ir, the Philippines. Section 14 of the Rules of Court

provides that if the defendant is a foreign corporation doing business in the Philippines, service may be made: 1) on its resident

agent designated in accordance with law for that purpose, or 2) if there is no such resident agent, on the government official

designated by law to that effect, or 3) on any of its officers or agents within the Philippines.

If the foreign corporation has designated an agent to receive summons, the designation is exclusive, and service of summons is

without force and gives the court no jurisdiction unless made upon him.


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Where the corporation has no such great agent, service shall be made on the government official designated by law, to wit: (a) the

Insurance Commissioner, in the case of a foreign insurance company; (b) the Superintendent of Banks, in the case of a foreign

banking corporation; and (c) the Securities and Exchange Commission, in the case of other foreign corporations duly licensed to do

business in the Philippines. Whenever service of process is so made, the government office or official served shall transmit by mail

a copy of the summons or other legal process to the corporation at its home or principal office. The sending of such copy is a

necessary part of the service.

Nowhere in its pleadings did SHARP profess to having had a resident agent authorized to receive court processes in Japan. This

silence could only mean, or at least create an impression, that it had none. Hence, service on the designated government official or

any of its officers or agents in Japan could be availed of.

As found by the Court of Appeals, it was the Tokyo District Court which ordered that summons for SHARP be served at its head

office in the Philippines after the two attempts of service had failed. The Tokyo District Court requested the Supreme Court of

Japan to cause the delivery of the summons and other legal documents to the Philippines. Acting on that request, the Supreme

Court of Japan sent the summons together with the other legal documents to the Ministry of Foreign Affairs of Japan, which in turn,

forwarded the same to the Japanese Embassy in Manila. Thereafter, the court processes were delivered to the Ministry (now

Department) of Foreign Affairs of the Philippines then to the Executive Judge of the Court of First Instance (now Regional Trial

Court) of Manila, who forthwith ordered Deputy Sheriff Rolando Balingit to serve the same on SHARP at its principal office in

Manila. This service is equivalent to service on the proper government official under Section 14, Rule 14 of the Rules of Court, in

relation to Section 128 of the Corporation Code. Hence, SHARP's contention that such manner of service is not valid under

Philippine law holds no water.

Inasmuch as SHARP was admittedly doing business in Japan through its four registered branches at the time the collection suitagainst it was filed, then in the light of the processual presumption, SHARP may be deemed a resident of JAPAN, and, as such,

was amenable to the jurisdiction of the courts therein and may be deemed to have assented to the said courts' lawful methods of

serving process.

Accordingly, the extraterritorial service of summons on it by the Japanese Court was valid not only under the processual

presumption but also because of the presumption of regularity of performance of official duty.

State Investment House, Inc. vs. Citibank, et al, G.R. No. 79926-27, Oct. 17, 1991

FACTS:

Consolidated Mines, Inc. (CMI) obtained loans from Citibank, Bank of America and HSBC, all foreign corporations but with

branches in the Philippines. Meanwhile, State Investment House, Inc. (SIHI) and State Financing Center, Inc. (SFCI), also creditors

of CMI, filed collection suits against the latter with writs of preliminary attachment. Subsequently, the three banks jointly filed with

the court a petition for involuntary insolvency of CMI. SHI and SFCI opposed the petition on the ground that the petitioners are not

resident creditors in contemplation of the Insolvency Law.

ISSUE: Whether or not a foreign corporation with a branch in the Philippines and doing business therein can be considered a

resident

HELD:

Foreign corporations duly licensed to do business in the Philippines are considered residents of the Philippines, as the word isunderstood in Sec. 20 of the Insolvency Law, authorizing at least three resident creditors of the Philippines to file a petition to

declare a corporation insolvent. The Tax Code declares that the term resident foreign corporation applies to foreign corporation

engaged in trade or business within the Philippines as distinguished from a non -resident foreign corporation which is not

engaged in trade or business within the Philippines. The Offshore Banking Law sates that: Branches, subsidiaries, affiliates,

extension offices or any other units of corporation or juridical person organized under the laws of any foreign country operating in

the Philippines shall be considered residents of the Philippines. The General Banking Act places branches and agencies in the

Philippines of foreign banks in the category as commercial banks, rural banks, stock savings and loan association making no

distinction between the former ad the latter in so far as the terms banking institutions and banks are used in said Act.


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EN BANC

[G. R. No. 2935. March 23, 1909.]

THE GOVERNMENT OF THE PHILIPPINE ISLANDS, Plaintiff-Appellee, vs. GEORGE I. FRANK,Defendant-Appellant.

D E C I S I O N

JOHNSON,J.:

Judgment was rendered in the lower court on the 5th day of September, 1905. the Defendantappealed. On the 12th

day of October, 1905, the Appellantfiled his printed bill of exceptions with the clerk of the Supreme Court. On the

5th day of December, 1905, the Appellant filed his brief with the clerk of the Supreme Court. On the 19th day of

January, 1906, the Attorney-General filed his brief in said cause. Nothing further was done in said cause until on

about the 30th day of January, 1909, when the respective parties were requested by this court to prosecute the

appeal under penalty of having the same dismissed for failure so to do; whereupon the Appellant, by petition, had

the cause placed upon the calendar and the same was heard on the 2d day of February, 1909.

The facts from the record appear to be as follows: chanroblesvirtualawlibrary

First. That on or about the 17th day of April, 1903, in the city of Chicago, in the State of Illinois, in the United States,

the Defendant, through a representative of the Insular Government of the Philippine Islands, entered into a contractfor a period of two years with the Plaintiff, by which the Defendantwas to receive a salary of 1,200 dollars per year

as a stenographer in the service of the said Plaintiff, and in addition thereto was to be paid in advance the expenses

incurred in traveling from the said city of Chicago to Manila, and one-half salary during said period of travel.

Second. Said contract contained a provision that in case of a violation of its terms on the part of the Defendant, he

should become liable to the Plaintifffor the amount expended by the Government by way of expenses incurred in

traveling from Chicago to Manila and the one-half salary paid during such period.

Third. The Defendantentered upon the performance of his contract upon the 30th day of April, 1903, and was paid

half-salary from the date until June 4, 1903, the date of his arrival in the Philippine Islands.

Fourth. That on the 11th day of February, 1904, the Defendantleft the service of the Plaintiffand refused to make a

further compliance with the terms of the contract.

Fifth. On the 3d day of December, 1904, the Plaintiffcommenced an action in the Court of First Instance of the city

of Manila to recover from the Defendantthe sum of 269. 23 dollars, which amount the Plaintiffclaimed had been

paid to the Defendantas expenses incurred in traveling from Chicago to Manila, and as half-salary for the period

consumed in travel.

Sixth. It was expressly agreed between the parties to said contract that Laws No. 80 and No. 224 should constitute a

part of said contract.

To the complaint of the Plaintiffthe Defendant filed a general denial and a special defense, alleging in his special

defense that the Government of the Philippine Islands had amended Laws No. 80 and No. 224 and had thereby

materially altered the said contract, and also that he was a minor at the time the contract was entered into and was

therefore not responsible under the law.

To the special defense of the Defendantthe Plaintifffiled a demurrer, which demurrer the court sustained.

Upon the issue thus presented, and after hearing the evidence adduced during the trial of the cause, the lower court

rendered a judgment against the Defendantand in favor of the Plaintiff for the sum of 265. 90 dollars. The lower

court found that at the time the Defendantquit the service of the Plaintiffthere was due him from the

said Plaintiff the sum of 3. 33 dollars, leaving a balance due the Plaintiff in the sum of 265. 90 dollars. From this

judgment the Defendantappealed and made the following assignments of error: chanroblesvirtualawlibrary

1. The court erred in sustaining Plaintiffs demurrer toDefendants special defenses.

2. The court erred in rendering judgment against the Defendanton the facts.

With reference to the above assignments of error, it may be said that the mere fact that the legislative department

of the Government of the Philippine Islands had amended said Acts No. 80 and No. 224 by Acts No. 643 and No.

1040 did not have the effect of changing the terms of the contract made between the Plaintiffand the Defendant.

The legislative department of the Government is expressly prohibited by section 5 of the Act of Congress of 1902


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from altering or changing the terms of a contract. The right which the Defendanthad acquired by virtue of Acts No.

80 and No. 224 had not been changed in any respect by the fact that said laws had been amended. These acts,

constituting the terms of the contract, still constituted a part of said contract and were enforceable in favor of

the Defendant.

The Defendantalleged in his special defense that he was a minor and therefore the contract could not be enforced

against him. The record discloses that, at the time the contract was entered into in the State of Illinois, he was an

adult under the laws of that State and had full authority to contract. The Plaintiff[the Defendant] claims that, by

reason of the fact that, under that laws of the Philippine Islands at the time the contract was made, made persons in

said Islands did not reach their majority until they had attained the age of 23 years, he was not liable under said

contract, contending that the laws of the Philippine Islands governed. It is not disputed upon the contrary the fact

is admitted that at the time and place of the making of the contract in question the Defendanthad full capacity to

make the same. No rule is better settled in law than that matters bearing upon the execution, interpretation and

validity of a contract are determined b the law of the place where the contract is made. (Scudder vs. Union National

Bank, 91 U. S., 406.) cralawMatters connected with its performance are regulated by the law prevailing at the place of

performance. Matters respecting a remedy, such as the bringing of suit, admissibility of evidence, and statutes of

limitations, depend upon the law of the place where the suit is brought. (Idem.) cralaw

The Defendants claim that he was an adult when he left Chicago but was a minor when he arrived at Manila; that he

was an adult a the time he made the contract but was a minor at the time the Plaintiffattempted to enforce the

contract, more than a year later, is not tenable.

Our conclusions with reference to the first above assignment of error are, therefore.

First. That the amendments to Acts No. 80 and No. 224 in no way affected the terms of the contract in question; and

Second. The Plaintiff[Defendant] being fully qualified to enter into the contract at the place and time the contract

was made, he cannot plead infancy as a defense at the place where the contract is being enforced.

We believe that the above conclusions also dispose of the second assignment of error.

For the reasons above stated, the judgment of the lower court is affirmed, with costs.

Arellano, C.J.,Torres, Mapa, Carson and Willard, JJ.,concur.

TOLENTINO VS. THE SECRETARY OF FINANCE Case Digest

ARTURO M. TOLENTINO VS. THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL REVENUE

1994 Aug 25

G.R. No. 115455

235 SCRA 630

FACTS:The valued-added tax (VAT) is levied on the sale, barter or exchange of goods and properties as well as on the sale or

exchange of services. It is equivalent to 10% of the gross selling price or gross value in money of goods or properties sold, bartered

or exchanged or of the gross receipts from the sale or exchange of services. Republic Act No. 7716 seeks to widen the tax base of

the existing VAT system and enhance its administration by amending the National Internal Revenue Code.

The Chamber of Real Estate and Builders Association (CREBA) contends that the imposition of VAT on sales and leases by virtueof contracts entered into prior to the effectivity of the law would violate the constitutional provision of non -impairment of contracts.

ISSUE: Whether R.A. No. 7716 is unconstitutional on ground that it violates the contract clause under Art. III, sec 10 of the Bill of

Rights.

RULING: No. The Supreme Court the contention of CREBA, that the imposition of the VAT on the sales and leases of real estate

by virtue of contracts entered into prior to the effectivity of the law would violate the constitutional provision of non-impairment of

contracts, is only slightly less abstract but nonetheless hypothetical. It is enough to say that the parties to a contract cannot,

through the exercise of prophetic discernment, fetter the exercise of the taxing power of the State. For not only are existing laws

read into contracts in order to fix obligations as between parties, but the reservation of essential attributes of sovereign power is

also read into contracts as a basic postulate of the legal order. The policy of protecting contracts against impairment presupposes

the maintenance of a government which retains adequate authority to secure the peace and good order of society. In truth, the

Contract Clause has never been thought as a limitation on the exercise of the State's power of taxation save only where a taxexemption has been granted for a valid consideration.

Such is not the case of PAL in G.R. No. 115852, and the Court does not understand it to make this claim. Rather, its position , as

discussed above, is that the removal of its tax exemption cannot be made by a general, but only by a specific, law.


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Further, the Supreme Court held the validity of Republic Act No. 7716 in its formal and substantive aspects as this has been raised

in the various cases before it. To sum up, the Court holds:

(1) That the procedural requirements of the Constitution have been complied with by Congress in the enactment of the statute;

(2) That judicial inquiry whether the formal requirements for the enactment of statutes - beyond those prescribed by the Constitution

- have been observed is precluded by the principle of separation of powers;

(3) That the law does not abridge freedom of speech, expression or the press, nor interfere with the free exercise of religion, nor

deny to any of the parties the right to an education; and

(4) That, in view of the absence of a factual foundation of record, claims that the law is regressive, oppressive and confiscatory and

that it violates vested rights protected under the Contract Clause are prematurely raised and do not justify the grant of prospective

relief by writ of prohibition.

WHEREFORE, the petitions are DISMISSED.

G.R. No. L-66006 February 28, 1985

BAGONG FILIPINAS OVERSEAS CORPORATION and GOLDEN STAR SHIPPING, LTD., petitioners,vs.NATIONAL LABOR RELATIONS COMMISSION, PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION, DIRECTOR

PATRICIA SANTO TOMAS and PROSERFINA PANCHO respondents.

Elizer A. Odulios for petitioners.

Pedro L. Linsangan for respondent P. Pancho.

AQUINO, J .:

The issue in this case is whether the shipboard employment contract or Hongkong law should govern the amount of deathcompensation due to the wife of Guillermo Pancho who was employed by Golden Star Shipping, Ltd., a Hongkong based firm.

The shipboard employment contract dated June 1, 1978 was executed in this country between Pancho and Bagong FilipinasOverseas Corporation, the local agent of Golden Star Shipping. It was approved by the defunct National Seamen Board. Panchowas hired as an oiler in the M/V Olivinefor 12 months with a gross monthly wage of US $195.

In October, 1978, he had a cerebral stroke. He was rushed to the hospital while the vessel was docked at Gothenberg, Sweden. Hewas repatriated to the Philippines and confined at the San Juan de Dios Hospital. He died on December 13, 1979.

The National Seamen Board awarded his widow, Proserfina, P20,000 as disability compensation benefits pursuant to the above-mentioned employment contract plus P2,000 as attorney's fees. Proserfina appealed to the National Labor Relations Commissionwhich awarded her $621 times 36 months or its equivalent in Philippine currency plus 10% of the benefits as attorney's fees.Golden Star Shipping assailed that decision by certiorari.

We hold that the shipboard employment contract is controlling in this case. The contract provides that the beneficiaries of theseaman are entitled to P20,000 "over and above the benefits" for which the Philippine Government is liable under Philippine law.

Hongkong law on workmen's compensation is not the applicable law. The case of Norse Management Co. vs. National SeamenBoard, G. R. No. 54204, September 30, 1982, 117 SCRA 486 cannot be a precedent because it was expressly stipulated in theemployment contract in that case that the workmen's compensation payable to the employee should be in accordance withPhilippine Law or the Workmen's Insurance Law of the country where the vessel is registered "whichever is greater".

The Solicitor General opines that the employment contract should be applied. For that reason, he refused to uphold the decision ofthe NLRC.

WHEREFORE, the judgment of the National Labor Relations Commission is reversed and set aside. The decision of the NationalSeamen Board dated February 26, 1981 is affirmed. No costs.

SO ORDERED.


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G.R. No. 61594 September 28, 1990

PAKISTAN INTERNATIONAL AIRLINES CORPORATION, petitioner,vsHON. BLAS F. OPLE, in his capacity as Minister of Labor; HON. VICENTE LEOGARDO, JR., in his capacity as DeputyMinister; ETHELYNNE B. FARRALES and MARIA MOONYEEN MAMASIG, respondents.

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

Ledesma, Saludo & Associates for private respondents.

FELICIANO, J .:

On 2 December 1978, petitioner Pakistan International Airlines Corporation ("PIA"), a foreign corporation licensed to do business inthe Philippines, executed in Manila two (2) separate contracts of employment, one with private respondent Ethelynne B. Farralesand the other with private respondent Ma. M.C. Mamasig.

1The contracts, which became effective on 9 January 1979, provided in

pertinent portion as follows:

5. DURATION OF EMPLOYMENT AND PENALTY

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

xxx xxx xxx

6. TERMINATION

xxx xxx xxx

Notwithstanding anything to contrary as herein provided, PIA reserves the right to terminate this agreement atany time by giving the EMPLOYEE notice in writing in advance one month before the intended termination or inlieu thereof, by paying the EMPLOYEE wages equivalent to one month's salary.

xxx xxx xxx

10. APPLICABLE LAW:

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

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

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

2

On 9 September 1980, private respondents Farrales and Mamasig jointly instituted a complaint, docketed as NCR-STF-95151-80,for illegal dismissal and non-payment of company benefits and bonuses, against PIA with the then Ministry of Labor andEmployment ("MOLE"). After several unfruitful attempts at conciliation, the MOLE hearing officer Atty. Jose M. Pascual ordered theparties to submit their position papers and evidence supporting their respective positions. The PIA submitted its positionpaper,

3but no evidence, and there claimed that both private respondents were habitual absentees; that both were in the habit of

bringing in from abroad sizeable quantities of "personal effects"; and that PIA personnel at the Manila International Airport had beendiscreetly warned by customs officials to advise private respondents to discontinue that practice. PIA further claimed that theservices of both private respondents were terminated pursuant to the provisions of the employment contract.

In his Order dated 22 January 1981, Regional Director Francisco L. Estrella ordered the reinstatement of private respondents withfull backwages or, in the alternative, the payment to them of the amounts equivalent to their salaries for the remainder of the fixedthree-year period of their employment contracts; the payment to private respondent Mamasig of an amount equivalent to the value

of a round trip ticket Manila-USA Manila; and payment of a bonus to each of the private respondents equivalent to their one-monthsalary.

4The Order stated that private respondents had attained the status of regular employees after they had rendered more than

a year of continued service; that the stipulation limiting the period of the employment contract to three (3) years was null and voidas violative of the provisions of the Labor Code and its implementing rules and regulations on regular and casual employment; andthat the dismissal, having been carried out without the requisite clearance from the MOLE, was illegal and entitled privaterespondents to reinstatement with full backwages.


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In Cebu Institute of Technology v. Minister of Labor and Employment,8the Court pointed out that "under Rule 14, Section 2, of the

Implementing Rules and Regulations, the termination of [an employee] which was without previous clearance from the Ministry ofLabor is conclusively presumed to be without [just] cause . . . [a presumption which] cannot be overturned by any contrary proofhowever strong."

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

9

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

A contract freely entered into should, of course, be respected, as PIA argues, since a contract is the law between theparties.

10The principle of party autonomy in contracts is not, however, an absolute principle. The rule in Article 1306, of our Civil

Code is that the contracting parties may establish such stipulations as they may deem convenient, "providedthey are not contraryto law, morals, good customs, public order or public policy." Thus, counter-balancing the principle of autonomy of contractingparties is the equally general rule that provisions of applicable law, especially provisions relating to matters affected with publicpolicy, are deemed written into the contract.

11Put a little differently, the governing principle is that parties may not contract away

applicable provisions of law especially peremptory provisions dealing with matters heavily impressed with public interest. The lawrelating to labor and employment is clearly such an area and parties are not at liberty to insulate themselves and their relationshipsfrom the impact of labor laws and regulations by simply contracting with each other. It is thus necessary to appraise the contractualprovisions invoked by petitioner PIA in terms of their consistency with applicable Philippine law and regulations.

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

Art. 280. Security of Tenure. In cases of regular employment, the employer shall not terminate the services ofan employee except for a just cause or when authorized by this Title An employee who is unjustly dismissed fromwork shall be entitled to reinstatement without loss of seniority rights and to his backwages computed from thetime his compensation was withheld from him up to the time his reinstatement.

Art. 281. Regular and Casual Employment. The provisions of written agreement to the contrary notwithstandingand regardless of the oral agreements of the parties, an employment shall be deemed to be regular where theemployee has been engaged to perform activities which are usually necessary or desirable in the usual businessor trade of the employer, except where the employment has been fixed for a specific project or undertaking the

completion or termination of which has been determined at the time of the engagement of the employee or wherethe work or services to be performed is seasonal in nature and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: provided, that, anyemployee who has rendered at least one year of service, whether such service is continuous or broken, shall beconsidered as regular employeewith respect to the activity in which he is employed and his employment shallcontinue while such actually exists. (Emphasis supplied)

In Brent School, Inc., et al. v. Ronaldo Zamora, etc., et al.,12

the Court had occasion to examine in detail the question of whetheremployment for a fixed term has been outlawed under the above quoted provisions of the Labor Code. After an extensiveexamination of the history and development of Articles 280 and 281, the Court reached the conclusion that a contract providing foremployment with a fixed period was not necessarily unlawful:

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

As it is evident from even only the three examples already given thatArticle 280 of the Labor Code, under anarrow and literal interpretation, not only fails to exhaust the gamut of employment contracts to which the lack ofa fixed period would be an anomaly, but would also appear to restrict, without reasonable distinctions, the right ofan employee to freely stipulate with his employer the duration of his engagement, it logically follows that such a

literal interpretation should be eschewed or avoided. The law must be given reasonable interpretation, topreclude absurdity in its application. Outlawing the whole concept of term employment and subverting to boot theprinciple of freedom of contract to remedy the evil of employers" using it as a means to prevent their employeesfrom obtaining security of tenure is like cutting off the nose to spite the face or, more relevantly, curing aheadache by lopping off the head.


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xxx xxx xxx

Accordingly, and since the entire purpose behind the development of legislation culminating in the present Article280 of the Labor Code clearly appears to have been, as already observed, to prevent circumvention of theemployee's right to be secure in his tenure, the clause in said article indiscriminately and completely ruling out allwritten or oral agreements conflicting with the concept of regular employment as defined therein should beconstrued to refer to the substantive evil that the Code itself has singled out: agreements entered into precisely tocircumvent security of tenure. It should have no application to instances where a fixed period of employment wasagreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure beingbrought to bear upon the employee and absent any other circumstances vitiating his consent, or where it

satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with nomoral dominance whatever being exercised by the former over the latter. Unless thus limited in its purview, thelaw would be made to apply to purposes other than those explicitly stated by its framers; it thus becomes

pointless and arbitrary, unjust in its effects and apt to lead to absurd and unintended consequences. (emphasissupplied)

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

Examining the provisions of paragraphs 5 and 6 of the employment agreement between petitioner PIA and private respondents, weconsider that those provisions must be read together and when so read, the fixed period of three (3) years specified in paragraph 5will be seen to have been effectively neutralized by the provisions of paragraph 6 of that agreement. Paragraph 6 in effect tookback from the employee the fixed three (3)-year period ostensibly granted by paragraph 5 by rendering such period in effect afacultative one at the option of the employer PIA. For petitioner PIA claims to be authorized to shorten that term, at any time and forany cause satisfactory to itself, to a one-month period, or even less by simply paying the employee a month's salary. Because thenet effect of paragraphs 5 and 6 of the agreement here involved is to render the employment of private respondents Farrales andMamasig basically employment at the pleasure of petitioner PIA, the Court considers that paragraphs 5 and 6 were intended toprevent any security of tenure from accruing in favor of private respondents even during the limited period of three (3) years,

13and

thus to escape completely the thrust of Articles 280 and 281 of the Labor Code.

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

14

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

ACCORDINGLY, the Petition for certiorari is hereby DISMISSED for lack of merit, and the Order dated 12 August 1982 of publicrespondent is hereby AFFIRMED, except that (1) private respondents are entitled to three (3) years backwages, without deductionor qualification; and (2) should reinstatement of private respondents to their former positions or to substantially equivalent positionsnot be feasible, then petitioner shall, in lieu thereof, pay to private respondents separation pay amounting to one (1)-month's salaryfor every year of service actually rendered by them and for the three (3) years putative service by private respondents. TheTemporary Restraining Order issued on 13 September 1982 is hereby LIFTED. Costs against petitioner.

SO ORDERED.

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


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Triple Eight Integrated Services, Inc. vs. NLRC

G.R. No. 129584, December 3, 1998

LABOR LAW: Disease as Ground for Dismissal, requisites: (1) the disease must be such that employees continued employment is

prohibited by law or prejudicial to his health as well as to the health of his co-employees; and (2) there must be a certification by

competent public authority that the disease is of such nature or at such a stage that it cannot be cured within a period of 6 months

with proper medical treatment.

LABOR LAW: same; The requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with;

otherwise, it would sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the

employeesillness and thus defeat the public policy on the protection of labor.

PRIVATE INTERNATIONAL LAW: Lex Loci Contractus: Established is the rule that lex loci contractus (the law of the place where

the contract is made) governs in this jurisdiction. There is no question that the contract of employment in this case was perfected

here in the Philippines.

PRIVATE INTERNATIONAL LAW: Law of the Forum vis-a-vis Public Policy: Settled is the rule that the courts of the forum will not

enforce any foreign claim obnoxious to the forums public policy. Here in the Philippines, employment agreements are more than

contractual in nature. The Constitution itself, in Article XIII Section 3, guarantees the special protection of workers.

FACTS:

Osdana, a Filipino citizen, was recruited by Triple Eight for employment with the latters principal, Gulf Catering Company (GCC), a

firm based in the Kingdom of Saudi Arabia. The employment contract (originally as food server but later changed to waitress)

was executed in the Philippines but was to be performed in Riyadh. Once in Riyadh, however, Osdana was made to perform

strenuous tasks (washing dishes, janitorial work), which were not included in her designation as a waitress. Because of the long

hours and strenuous nature of her work, she suffered from Carpal Tunnel Syndrome, for which she had to undergo surgery. But

during her weeks of confinement at the hospital for her recovery, she was not given any salary. And after she was discharged from

the hospital, GCC suddenly dismissed her from work, allegedly on the ground of illness. She was not given any separation pay nor

was she paid her salaries for the periods when she was not allowed to work. Thus, upon her return to the Philippines, she filed a

complaint against Triple Eight, praying for unpaid and underpaid salaries, among others.

The LA ruled in her favour, which ruling NLRC affirmed. Hence, this petition for certiorari.

ISSUE:

Whether or not Osdana was illegally dismissed

If so, whether or not she is entitled to award for salaries for the unexpired portion of the contract

HELD:

The petition must fail.

Disease as a Ground for Dismissal

Under Article 284 of the Labor Code and the Omnibus Rules Implementing the Labor Code, for disease to be a valid ground for

termination, the following requisites must be present:

The disease must be such that employees continued employment is prohibited by law or prejudic ial to his health as well as to the

health of his co-employees

There must be a certification by competent public authority that the disease is of such nature or at such a stage that it cannot be

cured within a period of 6 months with proper medical treatment

In the first place, Osdanas continued employment despite herillness was not prohibited by law nor was it prejudicial to her

health, as well as that of her co-employees. In fact, the medical report issued after her second operation stated that she had very
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good improvement of the symptoms. Besides, Carpal Tunnel Syndrome is not a contagious disease.

On the medical certificate requirement, petitioner erroneously argues that private respondent was employed in Saudi Arabia and

not here in the Philippines. Hence, there was a physical impossibility to secure from a Philippine public healthauthority the

alluded medical certificate that public respondentsillness will not be cured within a period of six months.

Petitioner entirely misses the point, as counsel for private respondent states in the Comment. The rule simply prescribes a

certification by a competentpublic health authority and not a Philippinepublic health authority.

If, indeed, Osdana was physically unfit to continue her employment, her employer could have easily obtained a certification to thateffect from a competent public health authority in Saudi Arabia, thereby heading off any complaint for illegal dismissal.

The requirement for a medical certificate under Article 284 of the Labor Code cannot be dispensed with; otherwise, it

would sanction the unilateral and arbitrary determination by the employer of the gravity or extent of the employeesillness and thus

defeat the public policy on the protection of labor. As the Court observed in Prieto v. NLRC, The Court is not unaware of the many

abuses suffered by our overseas workers in the foreign land where they have ventured, usually with heavy hearts, in pursuit of a

more fulfilling future. Breach of contract, maltreatment, rape, insufficient nourishment, sub-human lodgings, insults and other forms

of debasement, are only a few of the inhumane acts to which they are subjected by their foreign employers, who probably feel they

can do as they please in their country. While these workers may indeed have relatively little defense against exploitation while they

are abroad, that disadvantage must not continue to burden them when they return to their own territory to voice their muted

complaint. There is no reason why, in their own land, the protection of our own laws cannot be extended to them in full measure for

the redress of their grievances.

Which law should apply: Lex Loci Contractus

Petitioner likewise attempts to sidestep the medical certificate requirement by contending that since Osdana was working in Saudi

Arabia, her employment was subject to the laws of the host country. Apparently, petitioner hopes to make it appear that the labor

laws of Saudi Arabia do not require any certification by a competent public healthauthority in the dismissal of employees due

to illness.

Again, petitioners argument is without merit.

First, established is the rule that lex loci contractus (the law of the place where the contract is made) governs in this

jurisdiction. There is no question that the contract of employment in this case was perfected here in the Philippines. Therefore, the

Labor Code, its implementing rules and regulations, and other laws affecting labor apply in this case. Furthermore, settled is therule that the courts of the forum will not enforce any foreign claim obnoxious to the forums public policy. Here in the Philippines,

employment agreements are more than contractual in nature. The Constitutionitself, in Article XIII Section 3, guarantees the

special protection of workers.

This public policy should be borne in mind in this case because to allow foreign employers to determine for and by themselves

whether an overseas contract worker may be dismissed on the ground of illness would encourage illegal or arbitrary pre-termination

of employment contracts.

Award of Salaries granted but reduced

In the case at bar, while it would appear that the employment contract approved by the POEA was only for a period of twelve

months, Osdanas actual stint with the foreign principal lasted for one year and seven-and-a-half months. It may be inferred,

therefore, that the employer renewed her employment contract for another year. Thus, the award for the unexpired portion of

the contract should have been US$1,260 (US$280 x 4 months) or its equivalent in Philippine pesos, not US$2,499 as adjudged

by the labor arbiter and affirmed by the NLRC.

As for the award for unpaid salaries and differential amounting to US$1,076 representing seven months unpaid salaries and one

month underpaid salary, the same is proper because, as correctly pointed out by Osdana, the no work, no pay rule relied upon by

petitioner does not apply in this case. In the first place, the fact that she had not worked from June 18 to August 22, 1993 and then

from January 24 to April 29, 1994, was due to her illness which was clearly work-related. Second, from August 23 to October 5,

1993, Osdana actually worked as food server and cook for seven days

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