Air Express International (Hong Kong) vs. Air Express International (Phils.)

[SEC-AC NO. 204. February 13, 1990.] AIR EXPRESS INTERNATIONAL (HONG KONG), LIMITED , petitioner , vs . AIR EXPRESS INTERNATIONAL (PHILS.), INC. , respondent . DECISION This is an appeal from the ORDERS of the hearing officer dated May 15, 1987 and June 25, 1987 resolving the respondents special and affirmative defenses by dismissing the petition a quo on the ground of lack of jurisdiction. Petitioner alleges in its memorandum on appeal that the hearing officer erred in ruling that this Commission has no jurisdiction over the nature of the petition, because the subject matter involves as it does a controversy cognizable by the Commission under P.D. 902-A, and that it is only this agency and not any other court or tribunal, that has the legal competence and jurisdiction to direct a domestic corporation to change its corporate name; and that the enforcement of such right by the petitioner cannot be barred by an arbitration clause. LLphil By way of background, Petitioner AIR EXPRESS INTERNATIONAL (HONG KONG), LIMITED (AEI for brevity) is a foreign corporation not doing business in the Philippines with business office at Hong Kong. Respondent AIR EXPRESS INTERNATIONAL (PHILIPPINES), INC. is a duly organized domestic corporation with business address at MIA Road corner Domestic Road, Pasay City. The petition a quo alleged that on January 25, 1977, petitioner and one VICTOR GUTIERREZ entered into an agreement whereby they agreed, among others, to cause to be incorporated in the Philippines a private company to be called AIR EXPRESS INTERNATIONAL (PHILIPPINES), INC. which subsequently came into being; that it was the understanding between petitioner Victor Gutierrez and the other incorporators of respondent domestic corporation that the words "AIR EXPRESS INTERNATIONAL used in the corporate name of the respondent shall remain in use only for so long as petitioner/and or its own nominees continue to own shares of stock in respondent corporation; that by having used the words AIR EXPRESS INTERNATIONAL" in its corporate name from incorporation, respondent was able to avail itself of benefits resulting from the aforesaid agreement; that in July 1984, petitioner sold and conveyed unto a third person all of its shareholdings in respondent corporation. Petitioner on the basis of the above seeks to compel respondent to change its name and to drop the words "AIR EXPRESS INTERNATIONAL" therefrom pursuant to the terms and conditions of the agreement. Respondent in a motion to dismiss filed on Nov. 8, 1984, moved for the dismissal of the petition on the following grounds: 1. This honorable Commission has no jurisdiction over the nature of the action or suit. 2. The petitioner has no legal capacity to bring the suit. 3. The petition states no cause of action. In an order dated September 23, 1985, the hearing officer deferred the resolution of the same. Consequently, the respondents in an answer filed on Oct. 25, 1985, incorporated the following by way of special and affirmative defenses: 1. That this Commission has no jurisdiction over the present action in that only corporation duly licensed to operate in the Philippines are under its absolute jurisdiction. 2. Petitioner has no legal capacity to bring the present action in that it is not an incorporator or shareholder of respondent corporation nor the grantee of a primary franchise or license by the government to operate in the Philippines. 3. Petitioner has no cause of action in that no other domestic corporation using the name as respondents would be prejudiced. 4. That the present action is not intra-corporate. The Hearing Officer a quo, heard the special and affirmative defenses averred by the respondent in its motion, and dismissed the petition for lack of jurisdiction; hence this appeal. The mentioned agreement marked as Exhibit A-10, particularly Article XI and XII provides: "ARTICLE XI. Any dispute, difference or question which may arise at anytime between the parties touching on the true construction of this Agreement or the rights and liabilities hereunder shall be referred to arbitration in accordance with the laws for the time being in force in Hong Kong." "ARTICLE XII. It is hereby declared that this Agreement shall be governed by and determined according to the laws of Hong Kong." As may be gleaned from the records of this case, the present action is intrinsically connected with the terms of the aforesaid agreement. Based on the foregoing, to our mind the terms of the agreement cannot be enforced before this Commission through the present action. The agreement clearly provides for enforcement not in the Philippines but in Hong Kong. Moreover, pertinent provisions of the Civil Code of the Philippines, provide: "ARTICLE 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." "ARTICLE 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy." LexLib The proper law of a contract, therefore, is the law by which the contracting parties intended it to be governed. This law governs the essential or intrinsic validity of a contract. It is a well known doctrine in international law that contracting parties have the right to determine by agreement the law applicable to their relationship, just as they have the capacity to create rights and duties between themselves, and thus made law for themselves. "In keeping with these basic policy considerations, Philippine courts; would do well to adopt the prevailing view in most legal systems, namely to allow the parties to select the law applicable to their contract, subject to a few limitations." (Citing Salonga, p. 288 Private International Law, 1979 Ed.) Likewise in the Philippines, the provisions of the Civil Code on Arbitration (Art. 2042 to 2046) embodies a clear legislative policy in favor of settling controversies by a method considered more expeditious, less expensive and with greater chance in some cases for substantial justice. Thus in a divided case in International Law it was held that: "In line with the implied intention of the parties to effectuate their contracts, many courts today apply to arbitration agreements the law of whatever place the parties have designated as governing, thus sustaining their agreement to arbitrate." (Salonga, on Private International Law, 1979 Ed. p. 296 citing the case of Nippon Ki-Ito Kaisha, Ltd. vs. Ewing-Thomas Corp. 313 Pa. 442, 170 A 286 A. L. R 1067). Considering that the parties to the agreement, have agreed on the specific law applicable to their relationship, which in the instant case is that of Hongkong, and further agreed to submit to arbitration under the same laws clearly then, this Commission has no jurisdiction over the subject matter of the controversy. WHEREFORE, in view of the foregoing, the order of the hearing officer is hereby AFFIRMED and the instant appeal DENIED. SO ORDERED. (SGD.) ROSARIO N. LOPEZ Chairman (SGD.) GONZALO T. SANTOS, JR. (SGD.) RODOLFO L. SAMARISTA Associate Commissioner Associate Commissioner (SGD.) ARMANDO Z. GONZALES (SGD.) MERLE O. MANUEL Associate Commissioner Associate Commissioner