Case Summary (G.R. No. 162894)
Distributorship Agreement and Defective Shipment
On June 1, 1978, FASGI entered into a distributorship agreement with PAWI and FPS for the purchase, importation, and U.S. distribution of aluminum wheels. PAWI shipped 8,594 wheels (FOB US$216,444.30), which FASGI paid in full. Upon receipt, FASGI discovered multiple defects: absence of country‐of‐origin markings, missing load‐limit stamps, incompatible fitments, and false SEMA approval labels, exposing consumers to safety risks.
Original Lawsuit and First Settlement (“Transaction”)
On September 21, 1979, FASGI sued PAWI and FPS in California for breach of contract and damages totaling US$2,316,591. In January 1980, the parties executed a “Transaction” settlement: PAWI and FPS would accept return of at least 8,100 wheels and restore US$268,750 via four irrevocable letters of credit (LCs), with rescission of the distributorship by April 1980.
PAWI’s Inability to Comply and Revised Schedule
By telex of March 2, 1980, PAWI’s president cited Philippine currency restrictions and proposed postponing the issuance of the four LCs to April, June, August, and November 1980, offering to cover FASGI’s warehousing costs. PAWI reiterated in April its intention to comply but again failed to open the first LC by April 30, 1980, prompting FASGI to resume its California suit.
Supplemental Settlement Agreement
After a November 24, 1980 pre‐trial conference, the parties signed a “Supplemental Settlement Agreement” on November 26, 1980. PAWI and FPS agreed to deliver four confirmed LCs totaling US$268,750 plus stipulated interest and storage costs, tied to successive shipments of one container of wheels per LC. FASGI’s storage liability would cease after February 28, 1981 or upon LC default.
Stipulation for Judgment in California Court
Concurrently, the parties filed a Stipulation for Judgment in California, allowing FASGI to obtain immediate judgment for US$283,480.01 plus costs and attorneys’ fees upon Sellers’ breach, with PAWI and FPS waiving defenses and consenting to foreign enforcement. The stipulation was lodged on November 26, 1980.
PAWI’s Continued Defaults and U.S. Judgment
PAWI opened the first LC on June 19, 1980 but paid only on March 20, 1981. Despite delays, FASGI shipped the first two containers. PAWI wholly defaulted on the third and fourth LCs. FASGI moved for entry of judgment on May 17, 1982, under Federal Rule 54, obtaining a final judgment on September 7, 1982, after PAWI was over twenty months in arrears.
Enforcement Proceeding in the Philippines
In February 1983, FASGI filed for enforcement of the U.S. judgment in the Makati Regional Trial Court. On September 11, 1990, the RTC dismissed the case, finding the foreign judgment tainted by collusion, fraud, and a clear mistake of law and fact, and that it produced unjust enrichment because it required PAWI to refund purchase monies without requiring FASGI to return all containers.
Court of Appeals Reversal
On July 30, 1997, the Court of Appeals reversed the RTC and ordered full enforcement of the California judgment, finding no compelling grounds to deny recognition under Philippine law.
Legal Framework for Recognition of Foreign Judgments
Under Philippine Rule 39, Section 48, a foreign judgment by a competent tribunal is presumptive evidence of the parties’ rights and binding unless repelled by proof of:
• lack of jurisdiction
• absence of notice
• collusion or fraud
• clear mistake of law or fact
International comity, utility, and reciprocity principles support enforcement, provided the foreign forum afforded a full and fair hearing under impartial proceedings.
Authority of Counsel and Ratification by PAWI
PAWI alleged that its counsel, Thomas Ready, lacked authority to sign the supplemental settlement and stipulation for judgment. However, PAWI never promptly repudiated those instruments. Over one year after execution, PAWI’s president Rojas confirmed the agreement’s terms and requested delayed performance—thus ratifying Ready’s acts. Under Philippine law, failure to timely disavow an attorney’s compromise binds the client.
Fraud, Collusion, and Prejudic
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Facts of the Distributorship Agreement
- On June 1, 1978, FASGI Enterprises, Inc. (“FASGI”), a California corporation, entered into an agreement with Philippine Aluminum Wheels, Inc. (“PAWI”), a Philippine corporation, and Fratelli Pedrini Sarezzo S.P.A. (“FPS”), an Italian corporation.
- The contract provided for the purchase, importation, and exclusive distributorship in the United States of aluminum wheels manufactured by PAWI.
- PAWI shipped 8,594 wheels with an aggregate FOB value of US$216,444.30 in two batches (two containers then three containers).
- FASGI paid the FOB value but later discovered numerous defects and non‐compliance with U.S. requirements:
• Country of origin not stamped on wheels, violating agreement and U.S. law
• No weight load limits marked, risking overloading and injury
• Lack of model‐fit indications on many wheels
• Wheels that did not fit their purported automobile models or any U.S. model
• False SEMA approval markings on most boxes, potentially defrauding retail customers
Initial Litigation in the United States
- On September 21, 1979, FASGI sued PAWI and FPS in the U.S. District Court, Central District of California, for breach of contract and sought US$2,316,591 in damages.
- During the suit, the parties negotiated a settlement entitled “Transaction” (Convenzione Transsativa) in January 1980.
The “Transaction” Settlement (January–April 1980)
- Under the Transaction, FPS and PAWI agreed to accept return of at least 8,100 wheels and to refund FASGI US$268,750 via four irrevocable letters of credit (“LCs”).
- Withdrawal of returned goods was scheduled from January through April 1980, with a US$6,000 storage charge if PAWI opted for staggered returns.
- Each LC was to cover the purchase price plus retroactive interest at U.S. prime rate plus two points, confirmed by Crocker Bank, Fresno.
- Parties agreed to abandon the California proceedings upon compliance and to execute documents effecting mutual releases.
Telex Negotiations and Payment Delays
- March 2, 1980 telex from PAWI’s president, Romeo Rojas, cited Philippine foreign‐currency restrictions and requested a revised LC schedule:
• First LC in April 1980 payable 90 days thereafter
• Second in June 1980, third in August 1980, fourth in November 1980, each payable 90 days after issuance - PAWI offered to defray FASGI’s extra storage charges or permit warehouse transfer.
- April 21, 1980 telex reiterated difficulty opening April LC but promised effort.
- April 29, 1980 telex from FASGI insisted on April 30 deadline and threatened legal action if unmet.
Supplemental Settlement Agreement (November 26, 1980)
- At a November 24 pretrial conference, parties agreed to a new arrangement:
• PAWI/FPS to pay US$268,750 plus interest and storage via four confirmed, irrevocable LCs, scheduled:- On or before June 30, 1980: US$65,369 plus interest and US$2,940 storage
- On or before September 1, 1980: US$67,793.67 plus US$2,940 plus prime‐plu