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OIL AND NATURAL GAS vs. CA For those who did not take up arbitration: Big commercial contracts, particularly international commercial contracts now usually have a provision to submit all disputes to arbitration. In arbitration, the parties are free to choose who the arbitrators who will render the award. An award in an arbitration proceeding is equivalent to a ruling or decision of a court. After parties present their arguments and evidence, the arbitrators render the award. The winning party goes to court to have the award confirmed by a judge or magistrate. Once confirmed by the court, the party can have it enforced. In this case, the parties agreed on an arbitrator and the arbitration proceedings were held in India. The award of the arbitrator was then confirmed or adopted by a court in India. It was the Indian courts ruling which was being sought to be enforced here in the Philippines. They did this by filing a complaint for the enforcement of a foreign judgment in the RTC of Pasig. FACTS Oil and Natural Gas Commission is a foreign corporation, owned and controlled by the Government of India. Pacific Cement Co is a Philippine corporation. Pacific was supposed to deliver more than 4,000 metric tons of oil well cement to Bombay and Calcutta but because of a dispute with the carrier, the shipment never reached the destination. Despite payment by Oil and Natural, as well as repeated demands, Pacific does not deliver the oil well cement. During negotiations, the parties agreed that the Pacific will replace the oil well cement with Class G cement. Pacific did deliver the Class G cement but they were not according to specifications. Oil and Natural informed Pacific that they will submit the dispute to arbitration as provided for in their contract. The dispute was therefore submitted to arbitration, the arbitrator was Shri Malhotra, an employee of Oil and Natural Gas. The decision of the arbitrator was in favour of Oil and Natural Gas. The arbitral decision was confirmed by an Indian court. Oil and Natural Gas filed a complaint in Pasig RTC for the enforcement of the foreign judgment . This was opposed by Pacific for being bereft of any statement of facts and law upon which the award in favor of the petitioner was based. The

judgment of the Indian court apparently simply adopted the award of the arbitrator without stating anything by way of support for its judgment. The Pasig RTC dismissed the complaint. The RTC said that the contract provided for some disputes to be settled by the regular court and some to be submitted to arbitration . This type, the RTC said, was for the courts. Consequently, the proceedings had before the arbitrator were null and void and the foreign court had therefore, adopted no legal award which could be the source of an enforceable right. The CA affirmed the dismissal by the RTC. Aside from agreeing with the RTC that the arbitral award was void, the CA also said that the full text of the judgment of the foreign court contains the dispositive portion only and indicates no findings of fact and law as basis for the award . Hence, the said judgment cannot be enforced by any Philippine court as it would violate the constitutional provision that no decision shall be rendered by any court without expressing therein clearly and distinctly the facts and the law on which it is based.

ISSUE Whether or not the judgment of the foreign court is enforceable in this jurisdiction in view of the private respondent's allegation that it is bereft of any statement of facts and law upon which the award in favor of the petitioner was based. RULING Yes, it is enforceable in this jurisdiction. The SC said that even in this jurisdiction, incorporation by reference is allowed if only to avoid the cumbersome reproduction of the decision of the lower courts , or portions thereof, in the decision of the higher court. This is particularly true when the decision sought to be incorporated is a lengthy and thorough discussion of the facts and conclusions arrived at, as in this case, where Award Paper No. 3/B-1 consists of eighteen (18) single spaced pages.. In effect, the SC was saying that we also do in this country what the Indian court did and it was okay for as long as the award or decision adopted was complete in terms of the discussion of the facts and conclusions. The 18 pages of single spaced

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award by the arbitrator was, according to the SC, complete enough. The short decision of the Indian court which merely adopted the award was acceptable in our jurisdiction. Furthermore, the recognition to be accorded a foreign judgment is not necessarily affected by the fact that the procedure in the courts of the country in which such judgment was rendered differs from that of the courts of the country in which the judgment is relied on . This Court has held that matters of remedy and procedure are governed by the lex fori or the internal law of the forum. Thus, if under the procedural rules of the Civil Court of Dehra Dun, India, a valid judgment may be rendered by adopting the arbitrators findings, then the same must be accorded respect. In the same vein, if the procedure in the foreign court mandates that an Order of the Court becomes final and executory upon failure to pay the necessary docket fees, then the courts in this jurisdiction cannot invalidate the order of the foreign court simply because our rules provide otherwise. Finally, we reiterate hereunder our pronouncement in the case of Northwest Orient Airlines, Inc. v. Court of Appeals that: "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 (Pacific Cement) had the burden of overcoming the presumption of its validity which it failed to do in the instant case .

The foreign judgment being valid, there is nothing else left to be done than to order its enforcement, despite the fact that Oil and Natural Gas merely prays for, the remand of the case to the RTC for further proceedings. As this Court has ruled on the validity and enforceability of the said foreign judgment in this jurisdiction, further proceedings in the RTC for the reception of evidence to prove otherwise are no longer necessary. ASIAVEST vs. CA *DIGEST FOUND AT THE PREVIOUS COMPILATION MIJARES vs. RANADA *DIGEST FOUND AT THE PREVIOUS COMPILATION KOREA TECHNOLOGIES vs. LERMA FACTS 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 in the Philippines whereby KOGIES would set up an LPG Cylinder Manufacturing Plant in Carmona, Cavite. On April 7, 1997, in Korea, the parties executed Contract No. KLP-970301 dated March 5, 1997 amending the terms of payment. On October 14, 1997, PGSMC entered into a Contract of Lease with Worth Properties, Inc. (Worth) for use of Worths 5,079square meter property with a 4,032-square meter warehouse building to house the LPG manufacturing plant. On January 22, 1998, it was shown in the Certificate that, 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. When KOGIES deposited the checks, these were dishonored for the reason

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"PAYMENT STOPPED." Thus, on May 8, 1998, KOGIES sent a demand letter 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. 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. 9803813 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, against PGSMC before the Muntinlupa City Regional Trial Court (RTC). The RTC granted a temporary restraining order. 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 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. PGSMC filed a Motion for Inspection of Things 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. 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. The trial court granted the motion. On November 11, 1998, the Branch Sheriff filed his Sheriffs Report finding that the enumerated machineries and equipment were not fully and properly installed.

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Court of Appeals affirmed the trial court and declared the arbitration clause against public policy. ISSUE W/N the arbitration clause is against public policy NO. RULING 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.) 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. 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 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. And 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. 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 (2) Foreign arbitral awards must be confirmed by the RTC (3) The RTC has jurisdiction to review foreign arbitral awards (4) Grounds for judicial review different in domestic and foreign arbitral awards (5) RTC decision of assailed foreign arbitral award appealable 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.

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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. RTC has interim jurisdiction to protect the rights of the parties: 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 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. 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 : While PGSMC may have been granted the right to dismantle and transfer the subject equipment and machineries, it does not have the right to convey or dispose of the same considering the pending arbitral proceedings to settle the differences of the parties. PGSMC therefore must preserve and maintain the subject equipment and machineries with the diligence of a good father of a family until final resolution of the arbitral proceedings and enforcement of the award, if any. LOUCKS vs. STANDARD OIL COMPANY NEW YORK *TO FOLLOW GODARD vs. GRAY

RULING "... The plaintiffs, who are Frenchmen, sued the defendants, who are Englishmen, on a charterparty made at Sunderland, which charterparty contained the following clause: "Penalty forr non-performance of this agreement, estimated amount of freight." The French Court below, treating this clause as fixing the amount of liquidated damages, gave judgment against the defendants for the amount of freight on two voyages. On appeal, the superior Court reduced the amount to the estimated freight of one voyage, giving as their reason that the charterparty itself "t'txait'indemnitd a laquelle chacune des parties aurait droit pour inex4cution de la convention par la faute de 1'autre; que moyennant paiement de cette indemnity chacune des parties avait le droit de rompre la convention," and the tribunal proceeds to observe that the amount thus decreed was after all more than sufficient to cover all the plaintiffs' loss. All parties in France seem to have taken it for granted that the words in the charterparty were to be understood in their natural sense; but the English law is accurately expressed in Abbott on Shipping, Pt. 3, c. 1, a. 6, 5th ed., p. 170, and had that passage been brought to the notice of the French tribunal, it would have known that in an English charterparty, as is there stated, "Such a clause is not the absolute limit of damages on either side; the party may, if he thinks fit, ground his action upon the other clauses or covenants, and may, in such action, recover damages beyond the amount of the penalty, if in justice they shall be found to exceed it. On the other hand, if the party sue on such a penal clause, he cannot, in effect, recover more than the damage actually sustained." But it was not brought to the notice of the French tribunal that according to the interpretation put by the English law on such a contract, a penal clause of this sort was in fact idle and inoperative. If it had been, they would, probably, have interpreted the English contract made in England according to the English construction. The question raised by the plea is, whether this is a bar to the action brought in England to enforce that judgment. xxx

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"It is not an admitted principle of the law of nations that a State is bound to enforce within its territories the judgment of a foreign tribunal. Several of the continental nations (including France) do not enforce the judgments of other countries, unless where there are reciprocal treaties to that effect. But in England and in those States which are governed by the common Iaw, such judgments are enforced, not by virtue of any treaty, nor by virtue of any statute, but upon a principle very well stated by Parke, B., in Williams v. Jones (13 M. & W. 628; 14 L.J. Exch. 145): "Where a Court of competent jurisdiction has adjudicated a certain sum to be due from one person to another, a legal obligation aribes to pay the sum, on which an action of debt to enforce the judgment may be maintained. It is in this way that the judgments of foreign and colonial Courts are supported and enforced." And taking this as the principle, it seems to follow that anything which negatives the existence of that legal obligation, or excuses the defendant from the performance of it, must form a good defense to the action. It must be open, therefore, to the defendant to show that the Court which pronounced the judgment had no jurisdiction to pronounce it, either because they exceeded the jurisdiction given to them by the foreign law, or because he, the defendant, was not subject to that jurisdiction; and so far the foreign judgment must be examinable. Probably the defendant may show that the judgment was obtained by the fraud of the plaintiff, for that would show that the defendant was excused from the performance of an obligation thus obtained; and it may be that where the foreign Cc urt has knowingly and perversely disregarded the rights given to an English subject by English law, that forms a valid excuse for disregarding the obligation thus imposed on him; but we prefer to imitate the caution of the present Lord Chancellor, in Castrique v. Imrie [L.ft. 4 H.L., at p. 445 (above)] and to leave those questions to be decided when they arise, only observing that in the present case, as in that, "the whole of the facts appear to have been inquired into by the French Courts, judicially, honestly, and with the intention to arrive at the right conclusion, and having heard the facts as stated before them they came to a conclusion which justified them in France in deciding as they did decide." If, indeed, foreign judgments were enforced by our Courts out of politeness and courtesy to the tribunals of other countries, one could understand its being said that though our Courts would not be so rude as to inquire whether the foreign Court had made a mistake, or to allow the defendant to assert that it had, yet that if the foreign Court itself admitted

its blunder they would not then act: but it is quite contrary to every analogy to suppose that an English Court of law exercises any discretion of this sort. We enforce a legal obligation, and we admit any defense which shows that there is no legal obligation or a legal excuse for not fulfilling it; but in no case that we know of is it ever said that a defence shall be admitted if it is easily proved, and rejected If it would give the Court much trouble to investigate it. Yet on what other principle can we admit as a defence that there is a mistake of English law apparent an the face of the proceedings, and reject a defence that there is a mistake of Spanish or even Scotch law apparent in the proceedings, or that there was a mistake of English law not apparent on the proceedings, but which the defendant avers that he can show did exist." HILTON vs. GUYOT *TO FOLLOW PHILIPPINE ALUMINUM WHEELS INC. vs. FASGI ENTERPRISES FACTS On 01 June 1978, FASGI Enterprises Incorporated ("FASGI"), a corporation organized and existing under and by virtue of the laws of the State of California, United States of America, entered into a distributorship arrangement with Philippine Aluminum Wheels, Incorporated ("PAWI"), a Philippine corporation, and Fratelli Pedrini Sarezzo S.P.A. ("FPS"), an Italian corporation. The agreement provided for the purchase, importation and distributorship in the United States of aluminum wheels manufactured by PAWI. FASGI then paid PAWI the FOB value of the wheels. Unfortunately, FASGI later found the shipment to be defective and in noncompliance with the contract. On 21 September 1979, FASGI instituted an action against PAWI and FPS for breach of contract and recovery of damages in the amount of US$2,316,591.00 before the United States District Court for the Central District of California. In the interim, two agreements were entered by the parties but PAWI kept on failing to discharge its obligations therein. Irked by PAWI's persistent default, FASGI filed with the US District Court of the Central District of California the agreements for judgment against PAWI. On 24 August 1982, FASGI filed a notice of entry of judgment. Unable to obtain satisfaction of the final judgment within the United States, FASGI

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filed a complaint for "enforcement of foreign judgment", before RTC Makati. The Makati court, however, dismissed the case, on the ground that the decree was tainted with collusion, fraud, and clear mistake of law and fact. The lower court ruled that the foreign judgment ignored the reciprocal obligations of the parties. While the assailed foreign judgment ordered the return by PAWI of the purchase amount, no similar order was made requiring FASGI to return to PAWI the third and fourth containers of wheels. This situation, amounted to an unjust enrichment on the part of FASGI. Furthermore, the RTC said, agreements which the California court had based its judgment were a nullity for having been entered into by Mr. Thomas Ready, counsel for PAWI, without the latter's authorization. However, the Court of Appeals reversed this decision. ISSUE Should the Philippine Court enforce the foreign judgment? YES RULING In this jurisdiction, a valid judgment rendered by a foreign tribunal may be recognized insofar as the immediate parties and the underlying cause of action are concerned so long as it is convincingly shown that there has been an opportunity for a full and fair hearing before a court of competent jurisdiction; that trial upon regular proceedings has been conducted, following due citation or voluntary appearance of the defendant and under a system of jurisprudence likely to secure an impartial administration of justice; and that there is nothing to indicate either a prejudice in court and in the system of laws under which it is sitting or fraud in procuring the judgment. PAWI claims that its counsel, Mr. Ready, has acted without its authority. Verily, in this jurisdiction, it is clear that an attorney cannot, without a client's authorization, settle the action or subject matter of the litigation even when he honestly believes that such a settlement will best serve his client's interest. However, PAWI failed to substantiate this complain with sufficient evidence. Hence, the foreign judgment must be enforced. Even if PAWI assailed that fraud tainted the agreements which the US Court based its judgment, this cannot prevent the enforcement of said judgment. PAWI claimed that there was collusion and fraud in the signing of the agreements. Although the US Court already adjudicated on this matter, PAWI insisted on raising it again in this Court. Fraud, to hinder the

enforcement within this jurisdiction of a foreign judgment, must be extrinsic, i.e., fraud based on facts not controverted or resolved in the case where judgment is rendered, or that which would go to the jurisdiction of the court or would deprive the party against whom judgment is rendered a chance to defend the action to which he has a meritorious case or defense. In fine, intrinsic fraud, that is, fraud which goes to the very existence of the cause of action - such as fraud in obtaining the consent to a contract - is deemed already adjudged, and it, therefore, cannot militate against the recognition or enforcement of the foreign judgment. KLAXON CO. vs. STENTOR ELECTRIC MANUFACTURING CO. FACTS In 1918 respondent, a New York corporation, transferred its entire business to petitioner, a Delaware corporation. Petitioner contracted to use its best efforts to further the manufacture and sale of certain patented devices covered by the agreement, and respondent was to have a share of petitioner's profits. The agreement was executed in New York, the assets were transferred there, and petitioner began performance there although later it moved its operations to other states. Respondent was voluntarily dissolved under New York law in 1919. Ten years later it instituted this action in the United States District Court for the District of Delaware, alleging that petitioner had failed to perform its agreement to use its best efforts. Jurisdiction rested on diversity of citizenship. In 1939 respondent recovered a jury verdict of $100,000, upon which judgment was entered. Respondent then moved to correct the judgment by adding interest at the rate of six percent from June 1, 1929, the date the action had been brought. The basis of the motion was the provision in section 480 of the New York Civil Practice Act directing that in contract actions interest be added to the principal sum 'whether theretofore liquidated or unliquidated. The CA said that the New York Law is applicable because the contracts substance of obligation, and that proper construction of the contract in suit was fixed in New York and is the place of performance. ISSUE Whether or not the federal courts must follow conflict of laws rules prevailing in the states in which they sit? Yes, therefore follow the Delaware Law and not New York

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RULING We are of opinion that the prohibition declared in Erie Railroad v. Tompkins, against such independent determinations by the federal courts extends to the field of conflict of laws. The conflict of laws rules to be applied by the federal court in Delaware must conform to those prevailing in Delaware's state courts. 2 Otherwise the accident of diversity of citizenship would constantly disturb equal administration of justice in coordinate state and federal courts sitting side by side. Any other ruling would do violence to the principle of uniformity within a state upon which the Tompkins decision is based. Whatever lack of uniformity this may produce between federal courts in different states is attributable to our federal system, which leaves to a state, within the limits permitted by the Constitution, the right to pursue local policies diverging from those of its neighbors. It is not for the federal courts to thwart such local policies by enforcing an independent 'general law' of conflict of laws. Subject only to review by this Court on any federal question that may arise, Delaware is free to determine whether a given matter is to be governed by the law of the forum or some other lawThis Court's views are not the decisive factor in determining the applicable conflicts rule. And the proper function of the Delaware federal court is to ascertain what the state law is, not what it ought to be. Besides these general considerations, the traditional treatment of interest in diversity cases brought in the federal courts points to the same conclusion. Section 966 of the Revised Statutes, relating to interest on judgments, provides that it be calculated from the date of judgment at such rate as is allowed by law on judgments recovered in the courts of the state in which the court is held. In Massachusetts Benefit Association v. Mile, this Court held that section 966 did not exclude the allowance of interest on verdicts as well as judgments, and the opinion observed that 'the courts of the state and the federal courts sitting within the state should be in harmony upon this point'. Here, however, section 480 of the New York Civil Practice Act is in no way related to the validity of the contract in suit, but merely to an incidental item of damages, interest, with respect to which courts at the forum have commonly been free to apply their own or some other law as they see fit. Nothing in the Constitution ensures unlimited extraterritorial recognition of

all statutes or of any statute under all circumstances. The full faith and credit clause does not go so far as to compel Delaware to apply section 480 if such application would interfere with its local policy. Accordingly, the judgment is reversed and the case remanded to the Circuit Court of Appeals for decision in conformity with the law of Delaware. Reversed and remanded.
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Section 480, New York Civil Practice Act: 'Interest to be included in recovery. Where in any action, except as provided in section four hundred eighty-a, final judgment is rendered for a sum of money awarded by a verdict, report or decision, interest upon the total amount awarded, from the time when the verdict was rendered or the report or decision was made to the time of entering judgment, must be computed by the clerk, added to the total amount awarded, and included in the amount of the judgment. In every action wherein any sum of money shall be awarded by verdict, report or decision upon a cause of action for the enforcement of or based upon breach of performance of a contract, express or implied, interest shall be recovered upon the principal sum whether theretofore liquidated or unliquidated and shall be added to and be a part of the total sum awarded.'
2

An opinion in Sampson v. Channell, 1 Cir., 110 F.2d 754, 759762, 128 A.L.R. 394, reaches the same conclusion, as does an opinion of the Third Circuit handed down subsequent to the case at bar, Waggaman v. General Finance Co., 116 F.2d 254, 257. See, also, Goodrich, Conflict of Laws, 12. BORTHWICK vs. CASTRO BARTOLOME FACTS [Petitioner William Borthwick, an American citizen living in the Philippines, owned real property interests in Hawaii. In his business dealings with private respondent, Joseph Scallon, Borthwick issued the promissory notes

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now sued upon, but failed to pay the sums owing upon maturity and despite demands. The promissory notes provided that upon default, action may be brought for collection in Los Angeles, California, or at Scallon's option, in Manila or Honolulu. Borthwick was served with summons when he was in California, pursuant to Hawaiian law allowing service of process on a person outside the territorial confines of the State. Because Borthwick ignored the summons, a judgment by default was entered against him. However, Scallon's attempt to have the judgment executed in Hawaii and California failed because Borthwick had no assets in those states. Scallon then came to the Philippines and brought suit against Borthwick seeking enforcement of the default judgment of the Hawaii court. Again, after due proceedings, judgment by default was rendered against him, ordering Borthwick to pay Scallon the amount prayed for. The court issued an amendatory order and upon receipt by Borthwick, he moved for a new trial, alleging that the promissory notes did not arise from business dealings in Hawaii, nor did he own real estate therein. He contended that the judgment of the court of Hawaii is unenforceable in the Philippines because it was invalid for want of jurisdiction over the cause of action and over his person. The motion was denied, hence this petition.] RULING "It is true that a foreign judgment against a person is merely "presumptive evidence of a right as between the parties," and rejection thereof may be justified, among others, by "evidence of a want of jurisdiction" of the issuing authority, under Rule 39 of the Rules of Court. In the case at bar, the jurisdiction of the Circuit Court of Hawaii hinged entirely on the existence of either of two facts in accordance with its State laws, i.e., either Borthwick owned real property in Hawaii, or the promissory notes' sued upon resulted from his business transactions therein. Scallon's complaint clearly alleged both facts. Borthwick was accorded opportunity to answer the complaint and impugn those facts, but he failed to appear and was in consequence declared in default. There thus exists no evidence in the record of the Hawaii case upon which to lay a conclusion of lack of jurisdiction, as Borthwick now urges.

The opportunity to negate the foreign court's competence by proving the non-existence of said jurisdictional facts established in the original action, was again afforded to Borthwick in the Court of First Instance of MF kati, where enforcement of the Hawaii judgment was sought. This time it was the summons of the domestic court which Borthwick chose to ignore, but with the same result: he was declared in default. And in the default judgment subsequently promulgated, the Court a quo decreed enforcement of die judgment affirming among others the jurisdictional facts, that Borthwick owned real property in Hawaii and transacted business therein. In the light of these antecedents, it is plain that what Borthwick seeks in essence is one more opportunity, a third, to challenge the jurisdiction of the Hawaii Court and the merits of the cause of action which that Court had adjudged to have been established against him. This he may obtain only if he succeeds in showing that the declaration of his default was incorrect. He has unfortunately not been able to do that; hence, the verdict must go against him." KOSTER vs. AUTOMARK INDUSTRIES INC. FACTS Automark executed a contract to purchase up to 600,000 units of Koster's valve cap gauges in Milan, Italy. They tried to negotiate through mail. Automark, however, never ordered Koster's gauges, and Koster never shipped any gauges. Koster sued Automark in an Amsterdam court for breach of contract. The district court of Illinois recognized the Amsterdam decision and granted enforcement of the default judgment obtained by Koster against Automark. ISSUE Does Automark have sufficient contact with the Netherlands to vest that country's courts with personal jurisdiction over Automark so as to permit enforcement of the default judgment in United States courts? NO RULING Automark did not have the minimum contacts necessary to show that it purposefully utilized the privilege to conduct business activities in the Netherlands sufficient to confer on that country's courts personal jurisdiction over Automark.

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Automark's only contacts with the Netherlands were eight letters, and possibly a telegram and a transatlantic telephone call all preliminary to the meeting in Italy. In Lakeside Bridge & Steel Co. v. Mountain State Construction, the court notes that such contacts cannot be held to satisfy jurisdictional requirements, otherwise "(u)se of the interstate telephone and mail service to communicate with (an out-of-state) plaintiff, if constituting contacts supporting jurisdiction, would give jurisdiction to any state into which communications were directed." Such a result would make virtually every business subject to suit in any state with which it happened to communicate in some manner. That clearly would not satisfy the demands of due process. QUERUBIN vs. QUERUBIN FACTS (In 1934, Silvestre Querubin, a Filipino, married petitioner Margaret Querubin, in Albuquerque, New Mexico. 'They had a daughter, Querubina. Margaret filed for divorce in 1948 alleging "mental cruelty." Silvestre filed a countersuit for divorce alleging Margaret's infidelity. In 1949, the Superior Court of Los Angeles granted the divorce and awarded "joint custody" of the child. Querubina was to be kept in a neutral home subject to reasonable visits by both parties. Both parents were restrained from taking Querubina out of California without the permission of the Court. On March that year, custody was granted to Silvestre under an interlocutory decree (although the child was still kept in the neutral home) because at the time of the trial, Margaret was living w th another man. Upon Margaret's petition, the interlocutory decree was modified. Since she had then married the man she was living with and had a stable home, the Court granted custody to Margaret with reasonable limitations on the part of the father. Silvestre, together with Querubina, left San Francisco on November of the same year, went to the Philippines and stayed in Cagayan, Ilocos Sur, with the intent of protecting the child from the effects of her mother's

scandalous conduct. He wanted the child tc be raised in a better environment. In 1950, Margaret, through counsel, presented to the CFI a petition for habeas corpus for the custody of Querubina urlder the interlocutory decree of the California Court. She claims that under Art. 48 of Rule 39, the decree of the Los Angeles Court, granting her the child's custody, must be complied within the Philippines.] RULING "The decree is by no means final. It is subject to change with the circumstances. The first decree awarded the custody of the child to the father, prohibiting the mother from taking the child to her (Margaret's) home because of her adulterous relationship with another man. The decree was amended when Margaret was not in Los Angeles. Because the decree is interlocutory, it cannot be implemented in the Philippines. Where the judgment is merely interlocutory, the determination of the question by the Court which rendered it did not settle and adjudge finally the rights of the parties. In general, a decree of divorce awarding custody of the child to one of the spouses is respected by the Courts of other states "at the time and under the circumstances of its rendition" but such a decree has no controlling effects in another state as to facts and conditions occurring subsequently to the date of the decree; and the Court of another state may, in proper proceedings, award custody otherwise upon proof of matters subsequent to the decree which justify the decree to the interest of the child. In the case at bar, the circumstances have changed. Querubina is not in Los Angeles, she is in Cagayan, Ilocos Sur, under her father's care. It is a long way from one place to the other. Neither can Margaret prove that she can pay the cost of passage for the minor. She is not a packet of cigarettes one can send by mail. Neither can she answer for Querubina's support, care and education. In comparison, the father has shown both interest in the child and capacity to provide for the needs of the child."

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W/N the US District Court default judgment can be enforced and against the 9 other petitioners? Yes. PHILIPPINE INTERNATIONAL SHIPPING vs. CA FACTS In 1979 to 1981, Philippine International Shipping Corporation (PISC) leased from Interpool Ltd. and its wholly owned subsidiary, the Container Trading Corporation, several containers pursuant to the Membership Agreement and Hiring Conditions and the Master Equipment Leasing Agreement both dated June 8, 1979. The other petitioners Philippine Construction Consortium Corporation, Pacific Mills Inc. and Universal Steel Smelting Company, guaranteed to pay the obligation due and any liability of the PISC arising out of the leasing or purchasing of equipment. In 1979 to 1981, PISC incurred outstanding and unpaid obligations with Interpool, in the amount of $94,456.28, representing unpaid per diems, drop-off charges, interest and other agreed charges, resulting in a case before the US District Court, Southern District of New York wherein a default judgment against petitioners was rendered ordering the corp. to pay in the amount of $80,779.33, as liquidated damages, together with interest in the amount of $13,676.95 and costs in the amount of $80.00. or for a total judgment of $94,456.28. To enforce the default judgment of the US District Court, a complaint was instituted against PISC and other guarantors before the QC RTC. PISC failed to answer the complaint and they were declared in default. The RTC ruled in favor of Interpool and which was affirmed by the CA. In the first instance, petitioners contend that the U.S. District Court never acquired jurisdiction over their persons as they had not been served with summons and a copy of the Complaint in 83 Civil 290 (EW). In the second instance, petitioners contend that such jurisdictional infirmity effectively prevented the Regional Trial Court of Quezon City from taking cognizance of the Complaint in Civil Case No. Q-39927 and from enforcing the U.S. District Court's Default Judgment against them. Petitioners contend, finally, that assuming the validity of the disputed Default Judgment, the same may be enforced only against petitioner PISC the 9 petitioners not having been impleaded originally in the case filed in New York, U.S.A. ISSUE RULING To begin with, the evidence of record clearly shows that the U.S. District Court had validly acquired jurisdiction over PISC under the procedural law applicable in that forum i.e., the U.S. Federal Rules on Civil Procedure. Copies of the Summons and Complaint which were in fact attached to the Petition for Review filed with the SC, were stamped "Received, 18 Jan 1983, PISC Manila." indicating that service thereof had been made upon and acknowledged by the PISC office in Manila on, 18 January 1983 That foreign judgment-which had become final and executory , no appeal having been taken therefrom and perfected by petitioner PISC-is thus "presumptive evidence of a right as between the parties and their successors in interest by a subsequent title." The SC note, further that there has been in this case no showing by petitioners that the Default Judgment rendered by the U.S. District Court was vitiated by "want of notice to the party, collusion, fraud, or clear mistake of law or fact. " In other words, the Default Judgment imposing upon petitioner PISC a liability of U.S.$94,456.28 in favor of respondent Interpool, is valid and may be enforced in this jurisdiction. The existence of liability on the part of petitioner PISC having been duly established in the U.S. case, it was not improper for respondent Interpool, in seeking enforcement in this jurisdiction of the foreign judgment imposing such liability, to have included the other 9 petitioners herein (i.e., George Lim, Marcos Bautista, Carlos Laude,Tan Sing Lim, Antonio Liu Lao, Ong Teh Philippine Consortium Construction Corporation, Pacific Mills, Inc. and Universal Steel Smelting Co., Inc.) as defendants in Civil Case No. Q- 39927, filed with Branch 93 of the Regional Trial Court of Quezon City. The record shows that said 9 petitioners had executed continuing guarantees" to secure performance by petitioner PISC of its contractual obligations. As guarantors, they had held themselves out as liable. "whether jointly, severally, or in the alternative," to respondent Interpool under their separate "continuing guarantees" executed in the Philippines. The New York award of U.S.$94,456.28 is precisely premised upon a breach by PISC of its own obligations under those Agreements. The SC consider the 9 other petitioners as persons against whom [a] right to relief in respect to or arising out of the same transaction or series of

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transactions [has been] alleged to exist" and, consequently, properly impleaded as defendants in Civil Case No. Q-39927. There was, in other words, no need at all, in order that Civil Case No. Q-39927 would prosper, for respondent Interpool to have first impleaded the 9 other petitioners in the New York case and there obtain judgment against all 10 petitioners. SCHERK vs. ALBERTO-CULVER CO. FACTS Respondent, an American manufacturer based in Illinois, in order to expand its overseas operations, purchased from petitioner a German citizen, three enterprises owned by him and organized under the laws of Germany and Liechtenstein, together with all trademark rights of these enterprises. The sales contract, which was negotiated in the United States, England, and Germany, signed in Austria, and closed in Switzerland, contained express warranties by petitioner that the trademarks were unencumbered and a clause providing that "any controversy or claim [that] shall arise out of this agreement or the breach thereof" would be referred to arbitration before the International Chamber of Commerce in Paris, France, and that Illinois laws would govern the agreement and its interpretation and performance. Subsequently, after allegedly discovering that the trademarks were subject to substantial encumbrances, respondent offered to rescind the contract, but when petitioner refused, respondent brought suit in District Court for damages and other relief, contending that petitioner's fraudulent representations concerning the trademark rights violated 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Petitioner moved to dismiss the action or alternatively to stay the action pending arbitration, but the District Court denied the motion to dismiss and, as sought by respondent, preliminarily enjoined petitioner from proceeding with arbitration, holding that an agreement to arbitrate could not preclude a buyer of a security from seeking a judicial remedy under the securities Act of 1933, in reliance on Wilko v. Swan. The Court of Appeals affirmed. ISSUE Whether or not the court should continue hearing the case or dismiss it and refer it to arbitration? RULING

The arbitration clause is to be respected and enforced by federal courts in accord with the explicit provisions of the United States Arbitration Act that an arbitration agreement, such as is here involved, "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. 1, 2. Wilko v. Swan, supra, distinguished. (a) Since uncertainty will almost inevitably exist with respect to any contract, such as the one in question here, with substantial contacts in two or more countries, each with its own substantive laws and conflict of laws rules, a contractual provision specifying in advance the forum for litigating disputes and the law to be applied is an almost indispensable precondition to achieving the orderliness and predictability essential to any international business transaction. Such a provision obviates the danger that a contract dispute might be submitted to a forum hostile to the interests of one of the parties or unfamiliar with the problem area involved. (b) In the context of an international contract, the advantages that a security buyer might possess in having a wide choice of American courts and venue in which to litigate his claims of violations of the securities laws, become chimerical, since an opposing party may by speedy resort to foreign court block or hinder access to the American court of the buyer's choice. (c) An agreement to arbitrate before a specified tribunal is, in effect, a specialized kind of forum selection clause that posits not only the situs of suit, but also the procedure to be used in resolving the dispute, and the invalidation of the arbitration clause in this case would not only allow respondent to repudiate its solemn promise but would, as well, reflect a "parochial concept that all disputes must be resolved under our laws and in our courts." Reversed and Remanded. ASIAVEST MERCHANT BANKERS vs. CA *DIGEST FOUND AT THE PREVIOUS COMPILATION NORTHWEST ORIENT AIRLINES INC. vs. CA

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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 trial 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. It may 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

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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. 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. xxx 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. xxx 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. xxx Inasmuch as SHARP was admittedly doing business in Japan through its four registered branches at the time the collection suit against 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. xxx Wherefore, the instant petition is partly GRANTED, and the challenged decision is AFFIRMED insofar as it denied NORTHWEST's claims for attorney's fees, litigation expenses, and exemplary damages but REVERSED insofar as it sustained the trial court's dismissal of NORTHWEST's complaint in Civil Case No. 83-17637 of Branch 54 of the Regional Trial Court of Manila, and another in its stead is hereby rendered ORDERING private respondent C.F. SHARP & COMPANY, INC. to pay NORTHWEST the amounts adjudged in the foreign judgment subject of said case, with interest thereon at the legal rate from the filing of the complaint therein until the said foreign judgment is fully satisfied." BACHCHAN vs. INDIA ABROAD PUBLICATIONS INC. *TO FOLLOW BRIDGEWAY CORP. vs. CITIBANK *TO FOLLOW

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SIEDLER vs. JACOBSON FACTS While on a week's holiday in Vienna, defendant and his companion purchased an antique porcelain figure from plaintiff dealer, but subsequently refused to honor payment on the ground that plaintiff had misrepresented the article's age and value. Two years later, defendant was served in New York with process (in German) issued out of the Austrian Superior Court, based upon that Nation's counterpart to New York's "longarm" statute (CPLR 302). Upon defendant's default, plaintiff instituted this action pursuant to CPLR article 53 to enforce the foreign judgment. The trial court granted the purchaser's motion for summary judgment and dismissed the complaint. On appeal, the court held that the foreign judgment should not be enforceable in New York for lack of jurisdiction over the purchaser because the foreign long arm statute was overly broad and created an entirely too liberal base of jurisdiction. The order of the trial court that granted the purchaser's motion for summary judgment in a suit by the seller to recover payment was affirmed. RULING We agree with Special Term's conclusion that the judgment should not be enforceable in New York for lack of jurisdiction over the defendant. Analysis of the legislative history of article 53 makes clear that it was not within the intendment of that statute to adopt the broad definition of "transacting any business" applicable under CPLR 302 as the criterion for extending recognition to foreign country judgments themselves bottomed upon correspondingly liberal bases of jurisdiction. While we are cognizant of the desirability of affording recognition to foreign country judgments so that judgments obtained in our own courts will receive reciprocally favorable treatment abroad, the nature of defendant's solitary act in this case was so casual and incidental to the foreign forum that it could not possibly serve as a jurisdictional predicate sufficient to grant conclusive effect to the default judgment sued upon. BOUDARD vs. TAIT FACTS

[Emilie Renee Boudard, as widow of Marie Theodore Jerome Boudard and as guardian of their children, obtained a favorable judgment from the Court of First Instance of Hanoi, French Indo-China, for the sum of 40,000 piastras, against Stewart Eddie Tait who had been declared in default for his failure to appear at the trial. Said judgment was based on the fact that Mr. Boudard, who was an employee of Tait, was killed in Hanoi by coemployees although outside the fulfillment of a duty. Emilie Bouderd filed a petition with the CFI of Manila for the execution of the Hanoi judgment but the court dismissed the complaint on the ground of lack of jurisdiction of the Hanoi Court, Tait not being a resident of that country. RULING ". ..It is said that the French law regarding summons, according to its English translation presented by the appellants, is of the following tenor: "SEC. 69 (par. 8). Those who have no known residence in France, in the place of their present residence; if the place is unknown, the writ shall be posted at the main door of the hall of the court where the Complaint has been filed; a second copy shall be given to the Attorney-General of the Republic who shall visae the origilLal." But then, Exhibits E, E-1, F and F-1 show that the summons alleged to have been addressed to the appellee, was delivered in Manila on September 18, 1933, to J.M. Shotwell, a representative or agent of Churchill & Tait, Inc., which is an entity entirely different from the appellee. Moreover, the evidence of record shows that the appellee was not in Hanoi during the time mentioned in the complaint of the appellants, nor were his employees or representatives. The rule in matters of this nature is that judicial proceedings in a foreign country, regarding payment of money, are only effective against a party if summons is duly served on him within such foreign country before the proceedings. "The fundamental rule is that jurisdiction in personam, over nonresidents, so as to sustain a money judgment, must be based upon personal service within the state which renders the judgment. Xxx

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It can not be said that the decision rendered by the Court of Hanoi should be conclusive to such an extent that it cannot be contested, for it merely constitutes, from the viewpoint of our laws, prima facie evidence of the justness of appellants' claim, and, as such, naturally admits proof to the contrary... In view of the foregoing considerations, our conclusion is that we find no merit in the errors assigned to the lower court and the appealed judgment is in accordance with the law." RAMIREZ vs. GMUR FACTS [Samuel Bischoff Werthmuller, a native of Switzerland, and for many years a resident of the Philippines, died in Iloilo on June 29, 1913, leaving a valuable estate which he disposed by will. The first clause of the will contains a statement to the effect that inasmuch as the testator had no children from his marriage, he had no forced heirs. In making this statement, the testator ignored the possible claims of two sets of children, born to his natural daughter Leona Castro. It was shown that in 1895, Castro was married to Frederick Von Kauffman, a British subject. Three children were born of this marriage, namely, Elena, Federico and Ernesto. In 1904, Kauffman went to Paris, France for the purpose of obtaining a divorce from Castro under French law. On January 5, 1905, a decree of divorce was issued. On May 5, 1905, Castro married Dr. Ernest Emil Mory, in Westminster, England. Two children were born of that marriage, namely Carmen and Esther, and Leontina who was born before they were married. On October 6, 1910, Castro died. Both sets of children claim that Leona Castro was the recognized natural daughter of Bischoff and as such would have been his forced heir had she been alive at the time of her father's death.] RULING xxx "With reference to the rights of the von Kauffman children, it is enough to say that they are legitimate children, born to their parents in lawful

wedlock; and they are therefore entitled to participate in the inheritance which would have devolved upon their mother, if she had survived the testator. As regards the Mor,+ claimants, it is evident that their rights principally depend upon the effect to be given by this court to the decree of divorce granted to Von Kauffman by the Court of First Instance of the City of Paris... xxx We are of the opiniop that the decree of divorce upon which reliance is placed by the representation of the Mory children cannot be recognized as valid in the courts of the Philippine Islands. The French tribunal has no jurisdiction to entertain ail action for the dissolution of a marriage contracted in these Islands by persons domiciled here, such marriage being indissoluble under the laws then prevailing in this country. xxx It is established by the great weight of authority that the court of a country in which neither of the spouses is domiciled and to which one or both of them may resort merely for the purpose of obtaining a divorce has no jurisdiction to determine their matrimonial status; and a divorce granted by such a court is not entitled to recognition elsewhere. (See Note to Succession of Benton, 59 L.R.A. 143.) The voluntary appearance of the defendant before such a tribunal does not invest the court with jurisdiction. xxx As the divorce granted by the French court must be ignored, it results that the marriage of Doctor Mory and Leona Castro, celebrated in London in 1905, could not legalize their relations; and the circumstance that they afterwards passed for husband and wife in Switzerland until her death is wholly without legal significance. The claims of the Mory children to participate in the estate of Samuel Bischoff must therefore be rejected. The right to inherit is limited to legitimate, legitimated, and acknowledged natural children. The children of adulterous relations are wholly excluded.

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The word "descendants" as used in Article 941 of the Civil Code cannot be interpreted to include illegitim4tes born of adulterous relations." For as long as the foreign court acquired jurisdiction, its decisions will not be disturbed whether it was reached through an adversary proceeding or by default. In one case, Somportex v. Philadelphia Chewing Gum Corp.," the court rejected Philadelphia's contention that a default judgment rendered by the English courts should not be extended hospitality by American courts. It ruled that "(i)n the absence of fraud or collusion, a default judgment is as conclusive as adjudication between the parties as when rendered after answer and complete contest in open court.... The polestar is whether a reasonable method of notification is employed and reasonable opportunity to be heard is afforded to the person affected." NOUVION vs. FREEMAN FACTS [Henderson, during his lifetime, purchased certain properties in the district of Seville, Spain from Nouvion. The deeds by which those properties were conveyed contained an obligation to make certain payments, and they were registered in the registry off the district of San Roman. According to the law of Spain, the person who is entitled to payment under such deeds can obtain what is called an "executive" judgment. Nouvion brought this action for the administration of the estate of the deceased Henderson. In order to secure to the administration of said estate, it was necessary for him to show that he was a creditor of the deceased. In the presentation of his case, Nouvion alleged that he obtained a judgment of' , a foreign court upon which he was entitled to sue in that country, and which in that country established the existence of a debt. The question now is whether such judgment or decree can be sustained under the English jurisdiction.] RULING "Now, there can be no doubt that in the Courts of this country effect will be given to a foreign judgment. It is unnecessary to inquire upon what principle the Courts proceed in giving effect to such a judgment and in treating it as sufficient to establish the debt. Reliance was placed upon a

dictum by Mr. Baron Parke and Mr. Baron Alderson in the case of Williams v. Jones (13 M. & W. 628; 14 L.J. Exch. 145) where the law is thus stated: "Where a Court of competent jurisdiction has adjudicated a certain sum to be due from one person to another, a legal obligation arises to pay that sum, on which an action of debt to enforce the judgment may be maintained." But it was conceded, and necessarily conceded, by the learned counsel for the appellant, that a judgment, to come within the terms of the law as properly laid down, muct be a judgment which results from an adjudication of a Court of competent jurisdiction, such judgment being final and conclusive. XXX It is obvious, therefore, that the mere fact that the judgment puts an end to and finally sett'.es the controversy which was in question in the particular proceeding, is not of itself sufficient to make it a final and conclusive judgment upon which an action in the Courts of this country may be maintained, when such judgment has been pronounced by a foreign Court. I think that in order to establish that such a judgment has been pronounced, it must be shown that in the Court by which it was pronounced it conclusively and finally and forever settles the existence of the debt of Whicl-h it is sought to be made conclusive evidence in this country, so as to become res judicata between the parties. If in the same Court which pronounced it it is not conclusive, so that notwithstanding such a judgment the existence of the debt may between the same parties be afterwards contested in the same Court, and upon proper proceedings being taken and such contest being adjudicated upon it may be declared that there existed no obligation to pay the debt at all, then I do not think that a judgment which is of that character can be regarded as finally and conclusively evidencing the debt, and so entitling the person who has obtained the judgment to claim a decree from our Courts for the payment of that debt. The principle upon which I think our enforcement of foreign judgments must proceed is this: that in a Court of competent jurisdiction, where according to its established procedure the whole merits of the case were open at all events to the parties, however much they may have failed to take advantage of them or may have waived any of their rights, a final adjudication has been given that a debt or obligation exists which cannot

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thereafter in that Court be disputed, and can only be questioned in an appeal to a higher tribunal. In such a case it may well be said that, giving credit to the Courts of another country, we are prepared to take the fact that such adjudication has be ,en made as establishing the existence of the debt or obligation. But where, as in the present case, the adjudication is consistent with the nonexistence of the debt or obligation which it is sought to enforce, and it may thereafter be declared by that tribunal that there is no obligation and no debt, it appears to be that the very foundation upon which the Courts of this country would proceed in enforcing a foreign judgment altogether fails." COWANS et. Al. vs. TECONDEROGA PULP & PAPER CO. RULING "(1] The action is brought to recover on a money judgment which thes ~ plaintiffs recovered in the province of Quebec, Canada. The Quebec court had jurisdiction of the action and of the defendant. The case was there tried on the merits, and the judgment is not tainted with fraud, nor with an offense against our public policy. The presumption is that a judgment so rendered determined the rights and liabilities of the defendant according to the law and procedure of the court where it was rendered. The question presented here is whether this Quebec judgment is in our court merely prima facie proof of liability, against which any defense which could have been used at the trial in the Quebec court is available to defeat recovery here, or is it conclusive, subject only to the recognized exceptions. The respondent's proposition is that the judgment is only prima facie evidence, because, under the Quebec law (Code of Civil Procedure of Quebec, 210), "any defense which was or might have been set up in the original action may be pleaded to an action brought upon a judgment rendered out of Canada"; in other words, that the courts of New York state should not recognize the judgments of the province of Quebec as adjudications of the issues, because the courts of Quebec do not reciprocate as to judgments of the state of New York, xxx [3] The general rule in this state as follows: A judgment recovered in a foreign country, when sued upon in the courts of this state, is conclusive,

so far as to preclude a retrial of the merits of the case, subject, however, to certain wellrecognized exceptions, namely, where the judgment is tainted with fraud, or with an offense against the public policy of the state, or the foreign court had not jurisdiction. .. [4] The respondent does not question the general rule as above stated, but urges that the denial of reciprocity in the province of Quebec furnishes a further exception to the general rule. It rests its contention confidently on the decision in Hilton v. Guyot... The prevailing opinion recognized the general rule as above stated, but held that the courts of this country should recognize the judgment of the French court as prima facie evidence only, and not as conclusive on the merits, because such only is the effect which France gives to a judgment of our courto; that is, because of lack of reciprocity between the two countries. In the prevailing opinion, page 228 (16 S.Ct. 168), it is said: "In holding such a judgment, for want of reciprocity, not to be conclusive evidence of the merits of the claim, we do not proceed upon any theory of retaliation upon one person by reason of injustice done to another; but upon the broad ground that international law is founded upon mutuality and reciprocity, and that by the principles of international law, recognized is most civilized nations, and by the comity of our own country, which it is our duty to know and to declare, the judgment is not entitled to be considered conclusive." These quotations express the prevailing and dissenting conclusions in the Hilton Case on the one. question here. The Court of Appeals in its latest utterance has not accepted the decision in the Hilton Case as controlling authority in this state upon this question. In Johnston v. Compagnie GeneraM Transatlantique, 242 N.Y. 381, 152 N.E. 121, the answer set up as a defense a judgment rendered in favor of the defendant in an action in a court of France by this plaintiff to recover for the same cause of action be sued upon here. The trial court and the Appellate Division (214 App. Div. 775, 210 N.Y.S. 868), upon the authority of the Hilton Case, refused to recognize the effect of the foreign judgment, except as prima facie evidence, because of lack of reciprocity on the part of France, and judgment went accordingly. The Court of Appeals reversed this judgment and Judge Pound writing does not follow the prevailing opinion in the Hilton Case, saying that the question is still "an open one in this court."

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Part of the discussion in the opinion is a quotation from the dissenting opinion in the Hilton Case which is approved. The rule controlling in this state is held to be the rule as stated in Dunstan v. Higgins, supra. From this specific enunciation there is no later departure; nowhere is any exception to the rule, other than the well-recognized exceptions mentioned. Among other things it is said that private rights are acquired under the foreign judgment, that "the question here is one private rights rather than public relations," and "our courts will recognize private rights acquired under foreign laws and the sufficiency of the evidence establishing such rights"; the rule, though it had its source in comity, "prevails today by its own strength"; it "rests, not on the basis of reciprocity, but rather upon the persuasiveness of the foreign judgment." It is true Judge Pound suggests that the rule in New York state could upheld in this case without disregarding the prevailing opinion; that much in that opinion is dictum, and that that which was necessarily decided was not in conflict with the general rule in this state; that in any event this plaintiff, who had invoked the powers of a foreign court, could not now be heard to question who t his own choice had brought upon him. But these comments are not the basis of the decision; they are but assurances that the application of the rule is in this case particularly just. The last sentence of the opinion is: "The law of the state of New York remains unchanged and the French judgment should be given full faith and credit." Of course comity adds nothing to the strength, worth, or, as Judge Pound calls it, "persuasiveness" of -the foreign judgment. The same persuasiveness is present with or without comity, or with or without reciprocity, and, without reciprocity the United States Supreme Court still gives the foreign judgment recognition. It is to be received in evidence as prima facie proof of the cause of action. If no defense on the merits is made, it is sufficient proof on which to render judgment. Still, if there is want of reciprocity between the two countries, that court would deny to the foreign judgment the persuasiveness it really possesses. Our Court of Appeals has, we think, definitely refused to accept that holding as the policy of this state, and, without reciprocity, would give to the foreign judgment the full effect to which its persuasiveness entitles it. The decision in the Hilton Case would deprive a party of the private rights he has

acquired by reason of a foreign judgment because the country in whose courts that judgment was rendered has a different rule of evidence than we have and does not give the same effect as this state gives to a foreign judgment. We think the general rule as above stated must be applied to this case, and that the proposition which the respondent would maintain is in conflict with the policy and law of this state. The order appealed from should be reversed, with costs, and the motion for judgmert on the pleadings granted, with costs. Order reversed, with $10 costs and disbursements, and motion for judgment on the pleadings granted, with $10 costs. All concur." INGENOHL vs. OLSEN & CO. FACTS [Petitioner Ingenohl brought a suit against defendant Walter Olsen and Co. in Hongkong for infringement of trademark. The court ruled in the plaintiffs favor declaring him to be the owner of certain trademarks and trade names and entitled to their exclusive use in conn<~ction with his business as a cigar manufacturer. The court also restrained Olsen and Co. from using and selling cigars under these trademarks and ordered it to pay the costs. Petitioner brought this present suit to recover the costs adjudged against Olsen and Co. by the Hongkong court, which the CFI of Manila granted. On appeal, the Supreme Court reversed the decision on ground that by the provision of the Code of Civil Procedure, a judgment against a person may be repelled by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, clear mistake of law or fact, and that the judgment of the Supreme Court of Hongkong showed such a clear mistake. The supposed mistake consisted in denying effect in Hongkong to the sale to Olsen and Co. of business and trademarks seized by the Alien Property Custodian from Ingenohl in 1918. The Supreme Court of the Philippines held that it was plain error by the Supreme Court of Hongkong to hold that this sale did not carry the exclusive right to use the trademarks in Hongkong.

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RULING "A trademark started elsewhere would depend for its protection in Hongkong upon the law prevailing in Hongkong and would confer no rights except by the consent of that law. Hanouer Star Milling Co. v. Metcalf, 240 U.S. 403; United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90. When, then, the judge who, in the absence of an appeal to the Privy Council, is the final exponent of that law, authoritatively declares that the assignment by the Custodian of the assets of the Manila firm cannot and will not be allowed to affect the rights of the party concerned in Hongkong, we do not see how it is possible for a foreign Court to pronounce his decision wrong. It will be acted on and settles the rights of the parties in Hongkong; and in view of the fact it seems somewhat paradoxical to say that it is not the law. If the Alien Property Custodian purported to convey rights in English territory valid as against those whom the English law protects he exceeded the powers that were or could be given to him by the United States. It is not necessary to consider whether the section of the Code of Civil Procedure relied upon was within the power of the Philippine Commission to pass. In any event as interpreted it involved delicate considerations of international relations and therefore we should not hold ourselves bound to that deference that we show to the judgment of the local Court upon matters of only local concern. We are of opinion that whatever scope may be given to the section it is far from warranting the refusal to enforce this English judgment for costs, obtained after a fair trial before a court having jurisdiction of the parties, when the judgment is unquestionably valid and in other respects will be enforced. Of course a foreign state might accept the Custodian's transfer as good within its jurisdiction, if there were no opposing local interest or right, and that may be the fact for China outside of Hongkong as seems to have been held in another case not yet finally disposed of, but no principle requires the transfer to be given effect outside of the United States and when as here it has been decided to have been ineffectual it is unnecessary to inquire whether in the other event the Alien Property Custodian was authorized by the statute to use or did use in fact words purporting to have that effect, or what the effect, if any, would be." REPUBLIC vs. GUINGOYAN

FACTS This case is a motion for reconsideration for a previous decision of the SC. In the assailed decision of the SC, it ruled that PIATCO should be justly compensated before the Government can take over the NAIA Terminal 3. Now, the Government is arguing that PIATCO should not be paid because it has pending obligations with Takenaka Corporation (Takenaka) and Asahikosan (Asahikosan) Corporation for services rendered by the said corporations in building the Terminal. It argues that the said corporations still has pending liens on the Terminal. The situation the Republic now faces is that if any part of its Php3,002,125,000 deposit is released directly to PIATCO, and PIATCO, as in the past, does not wish to settle its obligations directly to Takenaka, Asahikosan and Fraport, the Republic may end up having expropriated a terminal with liens and claims far in excess of its actual value, the liens remain unextinguished, and PIATCO on the other hand, ends up with the Php3,0002,125,000 in its pockets gratuitously. ISSUE Should the Government pay PIATCO just compensation before taking over the Terminal? YES RULING The Court is wont to reverse its previous rulings based on factual premises that are not yet conclusive or judicially established. Certainly, whatever claims or purported liens Takenaka and Asahikosan against PIATCO or over the NAIA 3 have not been judicially established. Neither Takenaka norAsahikosan are parties to the present action, and thus have not presented any claim which could be acted upon by this Court. The earlier adjudications in Aganv. PIATCO made no mention of either Takenaka or Asahikosan, and certainly made no declaration as to their rights to any form of compensation. If there is indeed any right to remuneration due to these two entities arising from NAIA 3, they have not yet been established by the courts of the land. It must be emphasized that the conclusive ruling in the Resolution dated 21 January 2004 in Agan v. PIATCO (Agan 2004) is that PIATCO, as builder of the facilities, must first be justly compensated in accordance with law and equity for the Government to take over the facilities. It is on

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that premise that the Court adjudicated this case in its 19 December 2005 Decision. While the Government refers to a judgment rendered by a London court in favor of Takenaka and Asahikosan against PIATCO in the amount of US$82 Million, it should be noted that this foreign judgment is not yet binding on Philippine courts. It is entrenched in Section 48, Rule 39 of the Rules of Civil Procedure that a foreign judgment on the mere strength of its promulgation is not yet conclusive, as it can be annulled on the grounds of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact. It is likewise recognized in Philippine jurisprudence and international law that a foreign judgment may be barred from recognition if it runs counter to public policy. Assuming that PIATCO indeed has corresponding obligations to other parties relating to NAIA 3, the Court does not see how such obligations, yet unproven, could serve to overturn the Decision mandating that the Government first pay PIATCO the amount of 3.02 Billion Pesos before it may acquire physical possession over the facilities. This directive enjoining payment is in accordance with Republic Act No. 8974, and under the mechanism established by the law the amount to be initially paid is that which is provisionally determined as just compensation. The provisional character of this payment means that it is not yet final, yet sufficient under the law to entitle the Government to the writ of possession over the expropriated property. There are other judicial avenues outside of this Motion for Reconsideration wherein all other claims relating to the airport facilities may be ventilated, proved and determined. Since such claims involve factual issues, they must first be established by the appropriate trier of facts before they can be accorded any respect by or binding force on this Court. VELEZ vs. DE VERA *TO FOLLOW

GONZALES vs. CLIMAX MININGLTD FACTS While a complaint for the nullification of the Addendum Contract was pending before the DENR Panel of Arbitrators, respondent Climax-Arimco filed a petition to compel arbitration before the RTC of Makati City. ClimaxArimco had sent Gonzales a Demand for Arbitration pursuant to Clause 19.1 of the Addendum Contract and also in accordance with Sec. 5 of R.A. No. 876. The petition for arbitration was subsequently filed and ClimaxArimco sought an order to compel the parties to arbitrate pursuant to the said arbitration clause. Gonzales seeks to dismiss because according to him, Sec. 6 of R.A. No. 876 and the Alternative Dispute Resolution Act or R. A. No. 9285 mandate that any issue as to the nullity, inoperativeness, or incapability of performance of the arbitration clause/agreement raised by one of the parties to the alleged arbitration agreement must be determined by the court prior to referring them to arbitration. They require that the trial court first determine or resolve the issue of nullity, and there is no other venue for this determination other than a pre-trial and hearing on the issue by the trial court which has jurisdiction over the case. Gonzales adds that the assailed Trial Court Order also violated his right to procedural due process when the trial court erroneously ruled on the existence of the arbitration agreement despite the absence of a hearing for the presentation of evidence on the nullity of the Addendum Contract. Respondent Climax-Arimco, on the other hand, contends that an application to compel arbitration under Sec. 6 of R.A. No. 876 confers on the trial court only a limited and special jurisdiction, i.e., a jurisdiction solely to determine (a) whether or not the parties have a written contract to arbitrate, and (b) if the defendant has failed to comply with that contract. Climax-Arimco argues that R.A. No. 876 gives no room for any other issue to be dealt with in such a proceeding, and that the court presented with an application to compel arbitration may order arbitration or dismiss the same, depending solely on its finding as to those two limited issues. If either of these matters is disputed, the court is required to conduct a summary hearing on it. Climax-Arimco further notes that Gonzaless attack on or repudiation of the Addendum Contract also is not a ground to deny effect to the arbitration clause in the Contract. The

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arbitration agreement is separate and severable from the contract evidencing the parties commercial or economic transaction, it stresses. Hence, the alleged defect or failure of the main contract is not a ground to deny enforcement of the parties arbitration agreement. TC and SC for Climax. ISSUE Whether it was proper for the RTC, in the proceeding to compel arbitration under R.A. No. 876, to order the parties to arbitrate even though the defendant therein has raised the twin issues of validity and nullity of the Addendum Contract and, consequently, of the arbitration clause therein as well. YES Whether the question of validity of the Addendum Contract bears upon the applicability or enforceability of the arbitration clause contained therein. NO. RULING Arbitration, as an alternative mode of settling disputes, has long been recognized and accepted in our jurisdiction. The Civil Code is explicit on the matter. R.A. No. 876 also expressly authorizes arbitration of domestic disputes. Foreign arbitration, as a system of settling commercial disputes of an international character, was likewise recognized when the Philippines adhered to the United Nations "Convention on the Recognition and the Enforcement of Foreign Arbitral Awards of 1958," under the 10 May 1965 Resolution No. 71 of the Philippine Senate, giving reciprocal recognition and allowing enforcement of international arbitration agreements between parties of different nationalities within a contracting state.The enactment of R.A. No. 9285 on 2 April 2004 further institutionalized the use of alternative dispute resolution systems, including arbitration, in the settlement of disputes. Disputes do not go to arbitration unless and until the parties have agreed to abide by the arbitrators decision. Necessarily, a contract is required for arbitration to take place and to be binding. R.A. No. 876 recognizes the contractual nature of the arbitration agreement, thus: Sec. 2. Persons and matters subject to arbitration.Two or more persons or parties may submit to the arbitration of one or more arbitrators any controversy existing, between them at the time of the submission and which may be

the subject of an action, or the parties to any contract may in such contract agree to settle by arbitration a controversy thereafter arising between them. Such submission or contract shall be valid, enforceable and irrevocable, save upon such grounds as exist at law for the revocation of any contract.Such submission or contract may include question arising out of valuations, appraisals or other controversies which may be collateral, incidental, precedent or subsequent to any issue between the parties.A controversy cannot be arbitrated where one of the parties to the controversy is an infant, or a person judicially declared to be incompetent, unless the appropriate court having jurisdiction approve a petition for permission to submit such controversy to arbitration made by the general guardian or guardian ad litem of the infant or of the incompetent. The special proceeding under Sec. 6 of R.A. No. 876 recognizes the contractual nature of arbitration clauses or agreements. It provides:Sec. 6. Hearing by court.A party aggrieved by the failure, neglect or refusal of another to perform under an agreement in writing providing for arbitration may petition the court for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days notice in writing of the hearing of such application shall be served either personally or by registered mail upon the party in default. The court shall hear the parties, and upon being satisfied that the making of the agreement or such failure to comply therewith is not in issue, shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. If the making of the agreement or default be in issue the court shall proceed to summarily hear such issue. If the finding be that no agreement in writing providing for arbitration was made, or that there is no default in the proceeding thereunder, the proceeding shall be dismissed. If the finding be that a written provision for arbitration was made and there is a default in proceeding thereunder, an order shall be made summarily directing the parties to proceed with the arbitration in accordance with the terms thereof . This special proceeding is the procedural mechanism for the enforcement of the contract to arbitrate. Implicit in the summary nature of the judicial proceedings is the separable or independent character of the arbitration clause or agreement. The doctrine of separability, or severability as other writers call it, enunciates that an arbitration agreement is independent of the main contract. The arbitration agreement is to be treated as a

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separate agreement and the arbitration agreement does not automatically terminate when the contract of which it is part comes to an end.The separability of the arbitration agreement is especially significant to the determination of whether the invalidity of the main contract also nullifies the arbitration clause. Indeed, the doctrine denotes that the invalidity of the main contract, also referred to as the "container" contract, does not affect the validity of the arbitration agreement. Irrespective of the fact that the main contract is invalid, the arbitration clause/agreement still remains valid and enforceable. The separability of the arbitration clause is confirmed in Art. 16(1) of the UNCITRAL Model Law and Art. 21(2) of the UNCITRAL Arbitration Rules. The separability doctrine was dwelt upon at length in the U.S. case of Prima Paint Corp. v. Flood & Conklin Manufacturing Co. There is reason, therefore, to rule against Gonzales when he alleges that Judge Pimentel of the Trial Court acted with grave abuse of discretion in ordering the parties to proceed with arbitration. Gonzaless argument that the Addendum Contract is null and void and, therefore the arbitration clause therein is void as well, is not tenable. First, the proceeding in a petition for arbitration under R.A. No. 876 is limited only to the resolution of the question of whether the arbitration agreement exists. Second, the separability of the arbitration clause from the Addendum Contract means that validity or invalidity of the Addendum Contract will not affect the enforceability of the agreement to arbitrate. Thus, Gonzaless petition for certiorari should be dismissed. EDI-STAFFBUILDERS INTERNATIONAL INC. vs. NATIONAL LABOR COMMISSION *TO FOLLOW VALENZUELA vs. PEOPLE *TO FOLLOW PHILIPPINE EXPORT AND FOREIGN V.P. EUSEBIO CONSTRUCTION INC. *TO FOLLOW LOAN GUARANTEE CORP. vs.

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