CORPORATION CODE OF THE PHILIPPINES

Sec. 123. Definition and rights of foreign corporations. - For the purposes of
this Code, a foreign corporation is one formed, organized or existing under any
laws other than those of the Philippines and whose laws allow Filipino citizens and
corporations to do business in its own country or state. It shall have the right to
transact business in the Philippines after it shall have obtained a license to transact
business in this country in accordance with this Code and a certificate of authority
from the appropriate government agency.
Sec. 127. Who may be a resident agent. - A resident agent may be either an
individual residing in the Philippines or a domestic corporation lawfully
transacting business in the Philippines: Provided, That in the case of an individual,
he must be of good moral character and of sound financial standing.
Sec. 128. Resident agent; service of process. - The Securities and Exchange
Commission shall require as a condition precedent to the issuance of the license to
transact business in the Philippines by any foreign corporation that such
corporation file with the Securities and Exchange Commission a written power of
attorney designating some person who must be a resident of the Philippines, on
whom any summons and other legal processes may be served in all actions or other
legal proceedings against such corporation, and consenting that service upon such
resident agent shall be admitted and held as valid as if served upon the duly
authorized officers of the foreign corporation at its home office. Any such foreign
corporation shall likewise execute and file with the Securities and Exchange
Commission an agreement or stipulation, executed by the proper authorities of said
corporation, in form and substance as follows:
"The (name of foreign corporation) does hereby stipulate and agree, in
consideration of its being granted by the Securities and Exchange Commission a
license to transact business in the Philippines, that if at any time said corporation
shall cease to transact business in the Philippines, or shall be without any resident
agent in the Philippines on whom any summons or other legal processes may be
served, then in any action or proceeding arising out of any business or transaction
which occurred in the Philippines, service of any summons or other legal process
may be made upon the Securities and Exchange Commission and that such service

shall have the same force and effect as if made upon the duly-authorized officers of
the corporation at its home office."
Whenever such service of summons or other process shall be made upon the
Securities and Exchange Commission, the Commission shall, within ten (10) days
thereafter, transmit by mail a copy of such summons or other legal process to the
corporation at its home or principal office. The sending of such copy by the
Commission shall be necessary part of and shall complete such service. All
expenses incurred by the Commission for such service shall be paid in advance by
the party at whose instance the service is made.
In case of a change of address of the resident agent, it shall be his or its duty
to immediately notify in writing the Securities and Exchange Commission of the
new address.
Sec. 133. Doing business without a license. - No foreign corporation
transacting business in the Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency of the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine
laws.

IMPLEMENTING RULES OF THE FOREIGN INVESTMENTS ACT

OF THE PHILIPPINES

RULE I
DEFINITIONS
SECTION 1. Definition of Terms. - For the purpose of these Rules and
Regulations:
a. "Act" shall refer to Republic Act 7042 entitled "An Act to Promote
Foreign Investments, Prescribe the Procedures for Registering Enterprises Doing
Business in the Philippines, and for Other Purposes", also known as the Foreign
Investments Act of 1991, as amended.cralaw
b. "Philippine national" shall mean a citizen of the Philippines or a domestic
partnership or association wholly owned by the citizens of the Philippines; or a
corporation organized under the laws of the Philippines of which at least sixty
percent [60%] of the capital stock outstanding and entitled to vote is owned and
held by citizens of the Philippines; or a trustee of funds for pension or other
employee retirement or separation benefits, where the trustee is a Philippine
national and at least sixty percent [60%] of the fund will accrue to the benefit of
the Philippine nationals; Provided, that where a corporation its non-Filipino
stockholders own stocks in a Securities and Exchange Commission [SEC]
registered enterprise, at least sixty percent [60%] of the capital stock outstanding
and entitled to vote of both corporations must be owned and held by citizens of the
Philippines and at least sixty percent [60%] of the members of the Board of
Directors of each of both corporation must be citizens of the Philippines, in order
that the corporation shall be considered a Philippine national. The control test shall
be applied for this purpose.cralaw
Compliance with the required Filipino ownership of a corporation shall be
determined on the basis of outstanding capital stock whether fully paid or not, but
only such stocks which are generally entitled to vote are considered.cralaw

For stocks to be deemed owned and held by Philippine citizens or Philippine

nationals, mere legal title is not enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled with appropriate voting rights is
essential. Thus, stocks, the voting rights of which have been assigned or transferred
to aliens cannot be considered held by Philippine citizens or Philippine
nationals.cralaw
Individuals or juridical entities not meeting the aforementioned
qualifications are considered as non-Philippine nationals.cralaw
c. "Foreign corporation" shall mean one which is formed, organized or
existing under laws other than those of the Philippines.cralaw
Branch office of a foreign company carries out the business activities of the
head office and derives income from the host country.cralaw
Representative or liaison office deals directly, with the clients of the parent
company but does not derive income from the host country and is fully subsidized
by its head office. It undertakes activities such as but not limited to information
dissemination and promotion of the company's products as well as quality control
of products.cralaw
d. Investment shall mean equity participation in any enterprise organized or
existing under the laws of the Philippines. It includes both original and additional
investments, whether made directly as in stock subscription, or indirectly through
the transfer of equity from one investor to another as in stock purchase. Ownership
of bonds [including income bonds], debentures, notes or other evidences of
indebtedness does not qualify as investments.cralaw
The purchase of stock options or stock warrants is not an investment until
the holder thereof exercises his option and actually acquires stock from the
corporation.cralaw
e. "Foreign investment" shall mean an equity investment made by a nonPhilippine national; Provided, however, That for purposes of determining foreign
ownership, peso investments made by non-Philippine nationals shall be
considered; Provided, further, That only foreign investments in the form of foreign
exchange and/or other assets actually transferred to the Philippines and duly

registered with the Central Bank (CB) and profits derived therefrom can be
repatriated; and Provided, finally, That, for purposes of Section 8 of the Act, and
Rule VIII, Section 6 of these Rules and Regulations, "Existing Foreign
Investments" shall mean an equity investments made by a non-Philippine national
duly registered with the SEC or the Bureau of Trade Regulation and Consumer
Protection (BTRCP) in the form of foreign exchange and/or other assets transferred
to the Philippines.cralaw
f. "Doing business" shall include soliciting orders, service contracts,
opening offices, whether liaison offices or branches; appointing representatives or
distributors, operating under full control of the foreign corporation, domiciled in
the Philippines or who in any calendar year stay in the country for a period totaling
one hundred eighty [180] days or more; participating in the management,
supervision or control of any domestic business, firm, entity or corporation in the
Philippines; and any other act or acts that imply a continuity of commercial
dealings or arrangements, and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally incident to and in
progressive prosecution of commercial gain or of the purpose and object of the
business organization.cralaw
The following acts shall not be deemed "doing business" in the Philippines:
1. Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as such
investor;
2. Having a nominee director or officer to represent its interest in such
corporation;
3. Appointing a representative or distributor domiciled in the Philippines
which transacts business in the representative's or distributor's own name and
account;
4. The publication of a general advertisement through any print or broadcast
media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;

6. Consignment by a foreign entity of equipment with a local company to be

used in the processing of products for export;
7. Collecting information in the Philippines; and
8. Performing services auxiliary to an existing isolated contract of sale
which are not on a continuing basis, such as installing in the Philippines machinery
it has manufactured or exported to the Philippines, servicing the same, training
domestic workers to operate it, and similar incidental services.
g. "Export enterprise" shall mean an enterprise wherein a manufacturer,
processor or service [including tourism] enterprise exports sixty percent [60%] or
more of its output, or wherein a trader purchases products domestically and exports
sixty percent [60%] or more of such purchases.
h. "Exports" shall mean the volume of the Philippine port F. O. B. peso
value, determined from invoices, bills of lading, inward letters of credit, loading
certificates, and other commercial documents, of products exported directly by an
export enterprise or the value of services including tourism sold by serviceoriented enterprises to non-resident foreigners or the net selling price of export
products sold by an export enterprise to another export enterprise that subsequently
exports the same; Provided, That sales of export products to another export
enterprise shall only be deemed exports when actually exported by the latter, as
evidenced by loading certificates or similar commercial documents; and Provided,
finally, That without actual exportation, the following shall be considered
constructively exported for purposes of the Act: [1] sales of products to bonded
manufacturing warehouses of export enterprises; [2] sales of products to export
processing zone enterprises; [3] sales of products to export enterprises operating
bonded trading warehouses supplying raw materials used in the manufacture of
export products; and [4] sales of products to foreign military bases, diplomatic
missions and other agencies and/or instrumentalities granted tax immunities of
locally manufactured, assembled or repacked products whether paid for in foreign
currency or pesos funded from inwardly remitted foreign currency.cralaw
Sales of locally manufactured or assembled goods for household and
personal use to Filipinos abroad and other non-residents of the Philippines as well
as returning overseas Filipinos under the Internal Export Program of the

Government and paid for in convertible foreign currency inwardly remitted

through the Philippine banking system shall also be considered exports.cralaw
i. "Output" shall refer to the export enterprise's total sales in a taxable year.
The term sales shall refer to the value in case of heterogeneous products and
volume in case of homogeneous products.cralaw
Heterogeneous products shall refer to products of different kinds and
characteristics as well as to those of the same kind but with various categories
using different units of measurement.cralaw
Homogeneous products shall refer to products of the same kind or category
using a common unit of measurement.cralaw
j. "Export ratio" shall refer to:
1. the percentage share of the volume or peso value of goods exported to the
total volume or value of goods sold in any taxable year if the export enterprise is
engaged in manufacturing or processing;
2. the percentage share of the peso value of services sold to foreigners to
total earnings or receipts from the sale of its services from all sources in any
taxable year if the export enterprise is service-oriented; Value of services sold shall
refer to the peso value of all services rendered by an export enterprise to foreigners
that are paid for in foreign currency and/or pesos funded from inwardly remitted
foreign currency as properly documented by the export enterprise; or
3. the percentage share of the volume or peso value of goods exported to the
total volume or value of goods purchased domestically in any taxable year if the
export enterprise is engaged in merchandise trading.
k. "Domestic market enterprise" shall mean an enterprise which produces
goods for sale, or renders service or otherwise engages in any business in the
Philippines.
l. "Joint venture" shall mean two or more entities, whether natural or
juridical, one of which must be a Philippine national, combining their property,
money, efforts, skills or knowledge to carry out a single business enterprise for
profit, which is duly registered with the SEC as a corporation or partnership.cralaw

m. "Substantial partner" shall mean an individual or a firm who owns

enough shares to be entitled to at least one [1] seat on the Board of Directors of a
corporation, or in the case of a partnership, any partner.cralaw
n. "Dangerous drug" as defined under Republic Act 6425 or the Dangerous
Drugs Act, as amended, refers to either:
1. "Prohibited drug" which includes opium and its active components and
derivatives, such as heroin and morphine; coca leaf and its derivatives, principally
cocaine; alpha and bet eucaine; hallucinogenic drugs, such as mescaline, lysergic
and dicthlylamide [LSD] and other substances producing similar effects; Indian
hemp and its derivatives; all preparations made from any of the foregoing; and
other drugs and chemical preparations whether natural or synthetic, with the
physiological effects of a narcotic or hallucinogenic drug; or
2. "Regulated drug" which includes, unless authorized by the Department of
Health [DOH] and in accordance with the Dangerous Drugs Board, self-inducing
sedatives, such as secobarbital, phenobarbital, pentobarbital, barbital, amobarbital
or any other drug which contains a salt or a derivative of salt of barbituric acid; any
salt, isomer, or salt of an isomer, of amphetamine such as benzedrine or dexedrine,
or any drug which produces a physiological action similar to amphetamine; and
hypnotic drugs, such as methaqualone, nitrazepam or any other compound
producing similar physiological effects.
o. "Advanced technology" refers to a higher degree or form of technology
than what is domestically available and needed for the development of certain
industries as subject to guidelines of the Department of Science and Technology
[DOST]. Its introduction into the country through foreign investments under the
terms and conditions of the Act must be linked to its appropriateness and
adaptability to local conditions with a view towards eventual transfer and
applicability including the upgrading of the indigenous technology available.
p. "Paid-in equity capital" shall mean the total investment in a business that
has been paid-in in a corporation or partnership or invested in a single
proprietorship, which may be in cash or in property. It shall also refer to inward
remittance or assigned capital in the case of foreign corporations.cralaw

q. "Foreign Investment Negative List [FINL]" or "Negative List" shall mean

a list of areas of economic activity whose foreign ownership is limited to a
maximum of forty percent [40%] of the outstanding capital stock in the case of a
corporation, or capital in the case of a partnership.cralaw
r. "NEDA Board" shall refer to the body constituted as such under
Executive Order No. 230 entitled "Reorganizing the National Economic and
Development Authority" and in which reside the powers and functions of the
Authority.cralaw
s. "NEDA" shall refer to the NEDA Secretariat, which is the body
constituted as such under Executive Order No. 230 and which serves as the
research and technical support arm and the Secretariat of the NEDA Board.cralaw
t. "SEC" shall refer to the Securities and Exchange Commission.cralaw
u. "BTRCP" shall refer to the Bureau of Trade Regulation and Consumer
Protection as represented by the provincial offices of the Department of Trade and
Industry [DTI].cralaw
v. "BOI" shall refer to the Board of Investments.cralaw
w. "Technology Transfer Board" shall refer to the Bureau of Patents,
Trademarks and Technology Transfer (BPTTT).cralaw
x. "Former natural born Filipino" shall mean those who have lost Philippine
citizenship but were previously citizens of the Philippines falling in either of the
following categories: [a] from birth without having to perform any act to acquire or
perfect their Philippine citizenship; or [b] by having elected Philippine citizenship
upon reaching the age of majority, if born before January 17, 1973, of Filipino
mothers.cralaw
y. "Transferee of private land" shall mean a person to whom the ownership
rights of private land is transferred through either voluntary or involuntary sale,
devise or donation or involuntary executions of judgment.cralaw
z. "Direct employees" shall mean Filipino personnel hired and engaged
under the control and supervision of the applicant investor/employer in the
production of goods or performance of services. Excluded from this definition are

personnel hired as casual, seasonal, learner, apprentice or any employee of

subcontractor or those under fixed term employment.cralaw
aa. "Start of commercial operation" shall mean the date when a particular
enterprise actually begins production of the product for commercial purposes or
commercial harvest in the case of agricultural activities. In the case of export
traders and service exporters, the date when the initial export shipment in
commercial quantity has been made or initial performance of service as borne out
by the appropriate supporting documents.

Section 12 of Rule 14 of the Rules of Court reads:

SEC. 12. Service upon foreign private juridical entity. When the defendant
is a foreign private juridical entity which has transacted business in the Philippines,
service may be made on its resident agent designated in accordance with law for
that purpose, or, if there be no such agent, on the government official designated by
law to that effect, or on any of its officers or agents within the Philippines.

AM No. 11-3-6-SC; new rule on service of summons on

foreign juridical entities.
AM. No. 11-3-6-SC
AMENDMENT OF SECTION 12, RULE 14
OF THE RULES OF COURT ON SERVICE UPON
FOREIGN PRIVATE JURIDICAL ENTITY
Section 12, Rule 14 of the Rules of Court is hereby amended to read
as follows:

"SEC. 12. Service upon foreign private juridical entity.

When the defendant is a foreign private juridical entity which
has transacted business in the Philippines, service may be made
on its resident agent designated in accordance with law for that
purpose, or, i f there be no such agent, on the government
official designated by law to that effect, or on any of its officers
or agents within the Philippines.

If the foreign private juridical entity is not registered in

the Philippines or has no resident agent, service may, with leave
of court, be effected out of the Philippines through any of the
following means:

a) B y personal service coursed through the

appropriate court in the foreign country with the
assistance of the Department of Foreign Affairs;

b) B y publication once in a newspaper of general

circulation in the country where the defendant may be
found and by serving a copy of the summons and the
court order by-registered mail at the last known address
of the defendant;

c) B y facsimile or any recognized electronic

means that could generate proof of service; or

d) B y such other means as the court may in its

discretion direct."

This rule shall take effect fifteen (15) days after publication in a
newspaper of general circulation in the Philippines.

March 15, 2011

PATRICIA S. VILLAREAL, for herself and as guardian of her minor
children, CLAIRE HOPE and TRICIA, both surnamed VILLAREAL,
petitioner, vs. THE COURT OF APPEALS, ELISEO SEVILLA, and ERNA
SEVILLA, respondents.
DECISION
MENDOZA, J.:

The complaint in this case was filed by petitioner Patricia Villareal to

recover damages in the total amount of P1,944,000.00 from private respondents
Eliseo and Erna Sevilla and certain John Does for the killing on June 6, 1986 of
petitioners husband Jose Villareal. The complaint, was filed with the Regional
Trial Court of Makati, Metro Manila. It was found that prior to the filing of the
complaint on March 2, 1987, the Sevillas had abruptly left the country (at least
two months after the murder) and had started disposing of their properties in the
Philippines.

On March 11, 1987, after a hearing, during which witness Deborah Alamares
gave private respondents address in the United States as allegedly divulged to her
by private respondent Erna Sevilla herself, the trial court ordered the Sevillas
properties in the Philippines attached, upon the posting of a bond in the amount of
P500,000.00. Pursuant to this, Deputy Sheriff Eulalio C. Juanson attached private
respondents personal and real properties on March 17, 18, and 19, 1987.

On July 21, 1987, petitioners filed a Motion for Leave for Extraterritorial
Service pursuant to Rule 14, 17 alleging that private respondents were nonresidents. The judge granted the motion and authorized the service of summons by
registered mail at private respondents address in California, U.S.A. This mail was
received on August 17, 1987 by a certain D. Pyle, whose signature appears on
the registry return card.
Petitioners then moved to declare private respondents in default for failure to
answer notwithstanding service of summons. However, petitioners motion was
denied on October 12, 1987 by the judge for the reason that perhaps the address
given by the plaintiff (petitioners herein) is not the correct address of the
defendants (private respondents herein) or that they have already moved out.
On October 13, 1987, the trial court motu proprio set aside its order of
March 11, 1987 on the ground that the attachment of property was improper
because petitioners claims were unliquidated. Accordingly, all properties
garnished and attached pursuant to the writ of attachment were ordered released.
Petitioners moved for reconsideration of the courts order. On December 21, 1987,
the trial court modified its order by allowing attachment in the amount of
P30,000.00 to answer for actual damages for the death of Jose Villareal. The
amount represents the value of human life as then fixed by this Court.
Accordingly, copies of the order, summons, complaint, and the affidavit of
merit were published in the Manila Times on November 29, December 6, and 13,
1988. In addition, copies of the aforesaid order, summons, complaint, and affidavit
of merit were sent by registered mail to the last known address of private

respondents in the United States. On January 17, 1989, the mail matter were
returned to the Branch Clerk of Court with a notation which said, Moved, left no
address.
After presenting their evidence, petitioners amended their complaint to make
it conform to the evidence. On the supposition that they had proven damages in a
much bigger amount than that prayed for in the original complaint, they increased
the amount of damages prayed for to P13,082,888.00 plus 50% of this amount as
attorneys fees. In addition, Patricia Villareals children were included as plaintiffs.

On August 29, 1989, the trial court admitted the Amended Complaint and
granted petitioners Motion for Extra-territorial Service of Summons. The
summons and the accompanying papers mailed were returned to the court with the
notation MOVED for the letter addressed to the Paraaque residence, and
REFUSED TO RECEIVE for the letter addressed to the United States residence.

On December 27, 1989, Attorney Teresita Marbibi filed a formal request in

court seeking photocopies of all the pleadings and orders pertinent to the case,
including the summons and the Amended Complaint. In her letter, she stated that
she was making the request for the purpose of protecting the interest of the
defendants whose sister contracted our services.

On January 24, 1990, upon motion of the petitioners, the trial court declared
the private respondents in default for the second time for having failed to file
their Answer to the Amended Complaint within 60 days after publication of the
summons
On February 7, 1990, counsel for private respondents, Teresita Marbibi,
filed a Notice of Appearance on their behalf.

On February 14, 1990, again through counsel, private respondents filed a

verified Motion to Lift Order of Default with Motion for Reconsideration claiming
that they were totally unaware of the existence of the case at bar; that their inability
to come forth promptly with responsive pleading was due to accident, mistake, or
excusable neglect; and, that the allegation of petitioners that they were the killers
of Jose Villareal was not true. Petitioners filed an Opposition to the Motion, to
which private respondents filed a Reply.
On April 2, 1990, the trial court rendered a decision finding private
respondents liable for the killing of Jose Villareal and ordering them jointly
and severally to pay petitioners more than P10 million in damages. The trial
court found that private respondent Erna Sevilla and the victim Jose Villareal were
lovers; that private respondent Eliseo Sevilla, Ernas husband, is a very jealous
husband who inflicts physical injuries upon his wife; that apparently, private
respondent Eliseo discovered his wifes infidelity; and, that in conspiracy with
several other persons, including his wife Erna whom he seemed to have threatened,
private respondent Eliseo hatched a plan whereby Erna was to lure Jose Villareal to
a carpark near the latters office where Eliseo and his companions were to attack
and kill Jose. The trial court found that after the killing, private respondents lost
no time in disposing of their properties in the Philippines, pulling out their children
from school, and escaping to the United States.

On September 11, 1991, private respondents filed in the Court of Appeals

Private respondents contended (1) that the trial court never acquired
jurisdiction over them since they are non-resident defendants and petitioners
action is purely in personam and (2) that they were denied due process of law.
The Court of Appeals granted the petition,
First. The Court of Appeals nullified the several orders and the decision
rendered by the trial court against private respondents on the ground that the
trial court did not acquire jurisdiction over them. It ruled that the
extraterritorial service of summons did not confer on the trial court
jurisdiction to render and enforce a money judgment against the private
respondents who are non-residents. On the authority of Banco Espaol-

Filipino v. Palanca, it held that the only effect of the conversion of an action in
personam filed against non-resident defendants into one quasi-in rem by
virtue of the attachment of their properties in the country was to subject such
properties to the payment of the demand which the court might find to be due
petitioners, the plaintiffs below. Otherwise, the trial court could not render a
personal judgment against the private respondents, as it did in this case, and
enforce it against them. The Court of Appeals concluded that in doing so, the
trial court committed grave abuse of discretion.

It is true that where the defendant in an action in personam is a nonresident, as in this case, and refuses to appear and submit to the jurisdiction of
the court, the jurisdiction of the latter is limited to the property within the
country which the court may have ordered attached. In such a case, the
property itself is the sole thing which is impleaded and is the responsible
object which is the subject of the judicial power. Accordingly, the relief
must be confined to the res, and the court cannot lawfully render a personal
judgment against him.

But this Court also acknowledged in Banco Espaol-Filipino that if

property is attached and later the defendant appears, the cause becomes
mainly a suit in personam, with the added incident that the property attached
remains liable, under the control of the court, to answer to any demand which
may be established against the defendant by the final judgment of the court.
This rule was affirmed in Mabanag v. Gallemore in which it was held:

The main action in an attachment or garnishment suit is in rem until

jurisdiction of the defendant is secured. Thereafter, it is in personam and also
in rem, unless jurisdiction of the res is lost as by dissolution of the attachment.
If jurisdiction of the defendant is acquired but jurisdiction of the res is lost, it
is then purely in personam. . . . a proceeding against property without jurisdiction
of the person of the defendant is in substance a proceeding in rem; and where there

is jurisdiction of the defendant, but the proceeding against the property continues,
that proceeding is none the less necessarily in rem, although in form there is but a
single proceeding. (4 Am. Jur., 556-557.)

As the remedy is administered in some states, the theory of an attachment,

whether it is by process against or to subject the property or effects of a
resident or non-resident of the state, is that it partakes essentially of the
nature and character of a proceeding in personam and not a proceeding in
rem. And if the defendant appears the action proceeds in accordance with the
practice governing proceedings in personam. But where the defendant fails to
appear in the action, the proceeding is to be considered as one in the nature of a
proceeding in rem. And where the court acts directly on the property, the title
thereof being charged by the court without the intervention of the party, the
proceeding unquestionably is one in rem in the fullest meaning of the term.

In attachment proceedings against a non-resident defendant where

personal service on him is lacking, it is elementary that the court must obtain
jurisdiction of the property of the defendant. If no steps have been taken to
acquire jurisdiction of the defendants person, and he has not appeared and
answered or otherwise submitted himself to the jurisdiction of the court, the
court is without jurisdiction to render judgment until there has been a lawful
seizure of property owned by him within the jurisdiction of the court. (2 R. C.
L., 800-804.)[56]

In this case, not only was property in the Philippines of private

respondents attached, but, what is more, private respondents subsequently
appeared in the trial court and submitted to its jurisdiction. Consequently,
the jurisdiction of the trial court to render a judgment in personam against
them is undoubted.

Private respondents contend that the claims for which their property was
attached are unliquidated and, therefore, the attachment is totally invalid. While
below they conceded that the attachment was valid at least to the extent of
P30,000.00 (then considered the value of human life), they now contend that even
this amount is unliquidated.

Not only did private respondents voluntarily submit themselves to the

jurisdiction of the trial court, they never questioned the validity of the mode of
service of summons, that is, by extraterritorial service upon them.

In Flores v. Zurbito, it was held:[60]

He may appear by presenting a motion, for example, and unless by such

appearance he specifically objects to the jurisdiction of the court, he thereby
gives his assent to the jurisdiction of the court over his person. When the
appearance is by motion objecting to the jurisdiction of the court over his
person, it must be for the sole and separate purpose of objecting to the
jurisdiction of the court. If his motion is for any other purpose than to object
to the jurisdiction of the court over his person, he thereby submits himself to
the jurisdiction of the court. An appearance in court, either in person or by
counsel, for any purpose other than to expressly object to the jurisdiction of the
court over the person, waives want of process and service of notice. Such an
appearance gives the court jurisdiction over the person. . . His appearance without
objecting to the jurisdiction of the court waives all objections to the form and
manner of service of notice.

In La Naval Drug Corp. v. Court of Appeals,[61] it was held:

Jurisdiction over the person must be seasonably raised, i.e., that it is pleaded
in a motion to dismiss or by way of an affirmative defense in an answer. Voluntary
appearance shall be deemed a waiver of this defense.

In Boticano v. Chu, Jr.,[62] it was stated:

. . . one of the circumstances considered by the Court as indicative of waiver

by the defendant-appellant of any alleged defect of jurisdiction over his person
arising from defective or even want of process, is his failure to raise the question of
jurisdiction in the Court of First Instance and at the first opportunity. It has been
held that upon general principles, defects in jurisdiction arising from irregularities
in the commencement of the proceedings, defective process or even absence of
process may be waived by a failure to make seasonable objections.
Private respondents thus waived any defect in service of summons or even
want of process because for the court to validly decide their plea, it necessarily had
to acquire jurisdiction upon their persons.[63]

Private respondents have thus failed to show good faith which is central
to the concept of excusable neglect justifying failure to answer.

[W]hat must be shown is that the failure to respond was attributable to

mishap and not indifference or deliberate disregard of the notice. In the case of
ordinary individuals, the test is in essence one of good faith.[71]

In our opinion, the trial court correctly slammed the blatant attempt of
private respondents to foist a falsehood upon it.

Petitioners contend, however, that private respondents petition for certiorari

in the Court of Appeals was not filed within a reasonable time and therefore should
have been denied. They claim that private respondents received the trial courts
order denying their motion for a reconsideration of the courts refusal to give due
course to the first Notice of Appeal on January 16, 1991 and that from such date
until September 11, 1991 when the petition for certiorari was filed, almost eight
months had already elapsed, clearly exceeding the benchmark of 90 days
considered as reasonable time for filing petitions of this nature.

To recapitulate, we hold: (1) that the trial court acquired jurisdiction over
the persons of private respondents; (2) that it validly declared them in default; (3)
that consequently, its decision is valid and private respondents remedy was to
appeal from the decision; (4) that private respondents appeal was timely and
therefore it was grave abuse of discretion for the trial court to hold that private
respondents notice of appeal was filed late and for that reason deny due course to
it.

WHEREFORE, the decision of the Court of Appeals is REVERSED insofar

as it nullified and set aside the orders of default, the hearing ex-parte, the default
judgment, the execution pending appeal, and all other orders related thereto issued
prior to the order refusing to give due course to the appeal of private respondents
of the Regional Trial Court of Makati, Branch 132, and AFFIRMED insofar as it
set aside the orders refusing to give due course to private respondents appeal and
ordering the entry of the judgment by default and insofar as it ordered that the
attachment on the properties of private respondents be maintained. The Regional
Trial Court of Makati, Branch 132, is hereby ORDERED to give due course to the
appeal of private respondents.

SO ORDERED.

Pennoyer v. Neff, 95 U.S. 714, 24 L. Ed. 565 (1878).

Facts
Mitchell brought suit against Neff to recover unpaid legal fees. Mitchell
published notice of the lawsuit in an Oregon newspaper but did not serve Neff
personally. Neff failed to appear and a default judgment was entered against him.
To satisfy the judgment Mitchell seized land owned by Neff so that it could be sold
at a Sheriffs auction. When the auction was held Mitchell purchased it and later
assigned it to Pennoyer.

Neff sued Pennoyer in federal district court in Oregon to recover possession

of the property, claiming that the original judgment against him was invalid for
lack of personal jurisdiction over both him and the land. The court found that the
judgment in the lawsuit between Mitchell and Pennoyer was invalid and that Neff
still owned the land. Pennoyer lost on appeal and the Supreme Court granted
certiorari.

Issue
Can a state court exercise personal jurisdiction over a non-resident who has
not been personally served while within the state and whose property within the
state was not attached before the onset of litigation?
Holding and Rule (Field)
No. A court may enter a judgment against a non-resident only if the party 1)
is personally served with process while within the state, or 2) has property within
the state, and that property is attached before litigation begins (i.e. quasi in rem
jurisdiction).
Since the adoption of the Fourteenth Amendment, the validity of judgments
may be directly questioned on the ground that proceedings in a court of justice to
determine the personal rights and obligations of parties over whom that court has

no jurisdiction do not constitute due process of law. Due process demands that
legal proceedings be conducted according to those rules and principles which have
been established in our systems of jurisprudence for the protection and
enforcement of private rights.

To give legal proceedings any validity, there must be a tribunal with legal
authority to pass judgment, and a defendant must be brought within its jurisdiction
by service of process within the state, or by his voluntary appearance.

The substituted service of process by publication in actions brought against

non-residents is valid only where property in the state is brought under the control
of the court, and subjected to its disposition by process adapted to that purpose, or
where the judgment is sought as a means of reaching such property or affecting
some interest therein; in other words, where the action is in the nature of a
proceeding in rem.

The Oregon court did not have personal jurisdiction over Neff because he
was not served in Oregon. The courts judgment would have been valid if Mitchell
had attached Neffs land at the beginning of the suit. Mitchell could not have done
this because Neff did not own the land at the time Mitchell initiated the suit. The
default judgment was declared invalid. Therefore, the sheriff had no power to
auction the real estate and title never passed to Mitchell. Neff was the legal owner.

Disposition
Judgment for Neff affirmed

Facts

International Shoe Co. (D, appellant) was a Delaware corporation with its
principle place of business in St. Louis, Missouri. It had no offices in the state of
Washington and made no contracts for sale there. International Shoe did not keep
merchandise in Washington and did not make deliveries of goods in intrastate
commerce originating from the state.

International Shoe employed 11-13 salesmen for three years who resided in
Washington. Their commissions each year totaled more than $31,000 and
International Shoe reimbursed them for expenses. Prices, terms, and acceptance or
rejection of footwear orders were established through St. Louis. Salesmen did not
have authority to make contracts or collections.

The state of Washington brought suit against International Shoe in

Washington State court to recover unpaid contributions to the unemployment
compensation fund. Notice was served personally on an agent of the defendant
within the state and by registered mail to corporate headquarters. The Supreme
Court of Washington held that the state had jurisdiction to hear the case and
International Shoe appealed.

Issue
Did International Shoes activities in Washington make it subject to personal
jurisdiction in Washington courts?
Holding and Rule (Stone)
Yes. Minimum contacts with the forum state can enable a court in that state
to exert personal jurisdiction over a party consistent with the Due Process clause.
A casual presence of a corporation or its agent in a state in single or isolated
incidents is not enough to establish jurisdiction. Acts of agents of the corporation,
because of the nature, quality, and circumstances of their commission, may be

deemed sufficient. Consent may be implied from the corporations presence and
activities in the state through the acts of authorized agents.

The activities carried on by defendant corporation in Washington were

systematic and continuous rather than irregular or casual. The defendant received
the benefits and protection of the laws of the state and is subject to jurisdiction
there.

Relevant factors

International Shoe had conducted systematic and continuous business

operations in Washington. A large volume of interstate business for the defendant
was created through its agents within the state and the corporation received the
benefits and protection of Washingtons laws. International Shoe had established
agents in the state permanently.

Disposition
Affirmed judgment for the plaintiff.
G.R. No. 112573 February 9, 1995

NORTHWEST ORIENT AIRLINES, INC. petitioner,

vs.
COURT OF APPEALS and C.F. SHARP & COMPANY INC., respondents.

PADILLA, JR., J.:

This petition for review on certiorari seeks to set aside the decision of the
Court of Appeals affirming the dismissal of the petitioner's complaint to enforce
the judgment of a Japanese court. The principal issue here is whether a Japanese
court can acquire jurisdiction over a Philippine corporation doing business in Japan
by serving summons through diplomatic channels on the Philippine corporation at
its principal office in Manila after prior attempts to serve summons in Japan had
failed.

Petitioner Northwest Orient Airlines, Inc. (hereinafter NORTHWEST), a

corporation organized under the laws of the State of Minnesota, U.S.A., sought to
enforce in Civil Case No. 83-17637 of the Regional Trial Court (RTC), Branch 54,
Manila, a judgment rendered in its favor by a Japanese court against private
respondent C.F. Sharp & Company, Inc., (hereinafter SHARP), a corporation
incorporated under Philippine laws.

As found by the Court of Appeals in the challenged decision of 10

November 1993, 1 the following are the factual and procedural antecedents of this
controversy:

On May 9, 1974, plaintiff Northwest Airlines and defendant C.F. Sharp &
Company, through its Japan branch, entered into an International Passenger Sales
Agency Agreement, whereby the former authorized the latter to sell its air
transportation tickets. Unable to remit the proceeds of the ticket sales made by
defendant on behalf of the plaintiff under the said agreement, plaintiff on March
25, 1980 sued defendant in Tokyo, Japan, for collection of the unremitted proceeds
of the ticket sales, with claim for damages.

On April 11, 1980, a writ of summons was issued by the 36th Civil
Department, Tokyo District Court of Japan against defendant at its office at the
Taiheiyo Building, 3rd floor, 132, Yamashita-cho, Naka-ku, Yokohoma, Kanagawa
Prefecture. The attempt to serve the summons was unsuccessful because the bailiff
was advised by a person in the office that Mr. Dinozo, the person believed to be
authorized to receive court processes was in Manila and would be back on April
24, 1980.

On April 24, 1980, bailiff returned to the defendant's office to serve the
summons. Mr. Dinozo refused to accept the same claiming that he was no longer
an employee of the defendant.

After the two attempts of service were unsuccessful, the judge of the Tokyo
District Court decided to have the complaint and the writs of summons served at
the head office of the defendant in Manila. On July 11, 1980, the Director of the
Tokyo District Court requested the Supreme Court of Japan to serve the summons
through diplomatic channels upon the defendant's head office in Manila.

On August 28, 1980, defendant received from Deputy Sheriff Rolando

Balingit the writ of summons (p. 276, Records). Despite receipt of the same,
defendant failed to appear at the scheduled hearing. Thus, the Tokyo Court
proceeded to hear the plaintiff's complaint and on [January 29, 1981], rendered
judgment ordering the defendant to pay the plaintiff the sum of 83,158,195 Yen and
damages for delay at the rate of 6% per annum from August 28, 1980 up to and
until payment is completed (pp. 12-14, Records).

On March 24, 1981, defendant received from Deputy Sheriff Balingit copy
of the judgment. Defendant not having appealed the judgment, the same became
final and executory.

Plaintiff was unable to execute the decision in Japan, hence, on May 20,
1983, a suit for enforcement of the judgment was filed by plaintiff before the
Regional Trial Court of Manila Branch 54. 2

On July 16, 1983, defendant filed its answer averring that the judgment of
the Japanese Court sought to be enforced is null and void and unenforceable in this
jurisdiction having been rendered without due and proper notice to the defendant
and/or with collusion or fraud and/or upon a clear mistake of law and fact (pp. 4145, Rec.).

Unable to settle the case amicably, the case was tried on the merits. After the
plaintiff rested its case, defendant on April 21, 1989, filed a Motion for Judgment
on a Demurrer to Evidence based on two grounds:
(1) the foreign judgment sought to be enforced is null and void for want of
jurisdiction and (2) the said judgment is contrary to Philippine law and public
policy and rendered without due process of law. Plaintiff filed its opposition after
which the court a quo rendered the now assailed decision dated June 21, 1989
granting the demurrer motion and dismissing the complaint (Decision, pp. 376378, Records). In granting the demurrer motion, the trial court held that:

The foreign judgment in the Japanese Court sought in this action is null and
void for want of jurisdiction over the person of the defendant considering that this
is an action in personam; the Japanese Court did not acquire jurisdiction over the
person of the defendant because jurisprudence requires that the defendant be
served with summons in Japan in order for the Japanese Court to acquire
jurisdiction over it, the process of the Court in Japan sent to the Philippines which
is outside Japanese jurisdiction cannot confer jurisdiction over the defendant in the
case before the Japanese Court of the case at bar. Boudard versus Tait 67 Phil. 170.
The plaintiff contends that the Japanese Court acquired jurisdiction because the
defendant is a resident of Japan, having four (4) branches doing business therein
and in fact had a permit from the Japanese government to conduct business in

Japan (citing the exhibits presented by the plaintiff); if this is so then service of
summons should have been made upon the defendant in Japan in any of these
alleged four branches; as admitted by the plaintiff the service of the summons
issued by the Japanese Court was made in the Philippines thru a Philippine Sheriff.
This Court agrees that if the defendant in a foreign court is a resident in the court
of that foreign court such court could acquire jurisdiction over the person of the
defendant but it must be served upon the defendant in the territorial jurisdiction of
the foreign court. Such is not the case here because the defendant was served with
summons in the Philippines and not in Japan.

Unable to accept the said decision, plaintiff on July 11, 1989 moved for
reconsideration of the decision, filing at the same time a conditional Notice of
Appeal, asking the court to treat the said notice of appeal "as in effect after and
upon issuance of the court's denial of the motion for reconsideration."

Defendant opposed the motion for reconsideration to which a Reply dated

August 28, 1989 was filed by the plaintiff.

On October 16, 1989, the lower court disregarded the Motion for
Reconsideration and gave due course to the plaintiff's Notice of Appeal. 3

In its decision, the Court of Appeals sustained the trial court. It agreed with
the latter in its reliance upon Boudard vs. Tait 4 wherein it was held that "the
process of the court has no extraterritorial effect and no jurisdiction is acquired
over the person of the defendant by serving him beyond the boundaries of the
state." To support its position, the Court of Appeals further stated:

In an action strictly in personam, such as the instant case, personal service of

summons within the forum is required for the court to acquire jurisdiction over the

defendant (Magdalena Estate Inc. vs. Nieto, 125 SCRA 230). To confer jurisdiction
on the court, personal or substituted service of summons on the defendant not
extraterritorial service is necessary (Dial Corp vs. Soriano, 161 SCRA 739).

But while plaintiff-appellant concedes that the collection suit filed is an

action in personam, it is its theory that a distinction must be made between an
action in personam against a resident defendant and an action in personam against
a non-resident defendant. Jurisdiction is acquired over a non-resident defendant
only if he is served personally within the jurisdiction of the court and over a
resident defendant if by personal, substituted or constructive service conformably
to statutory authorization. Plaintiff-appellant argues that since the defendantappellee maintains branches in Japan it is considered a resident defendant.
Corollarily, personal, substituted or constructive service of summons when made in
compliance with the procedural rules is sufficient to give the court jurisdiction to
render judgment in personam.

Such an argument does not persuade.

It is a general rule that processes of the court cannot lawfully be served

outside the territorial limits of the jurisdiction of the court from which it issues
(Carter vs. Carter; 41 S.E. 2d 532, 201) and this is regardless of the residence or
citizenship of the party thus served (Iowa-Rahr vs. Rahr, 129 NW 494, 150 Iowa
511, 35 LRC, NS, 292, Am. Case 1912 D680). There must be actual service within
the proper territorial limits on defendant or someone authorized to accept service
for him. Thus, a defendant, whether a resident or not in the forum where the action
is filed, must be served with summons within that forum.

But even assuming a distinction between a resident defendant and nonresident defendant were to be adopted, such distinction applies only to natural
persons and not in the corporations. This finds support in the concept that "a

corporation has no home or residence in the sense in which those terms are applied
to natural persons" (Claude Neon Lights vs. Phil. Advertising Corp., 57 Phil. 607).
Thus, as cited by the defendant-appellee in its brief:

Residence is said to be an attribute of a natural person, and can be predicated

on an artificial being only by more or less imperfect analogy. Strictly speaking,
therefore, a corporation can have no local residence or habitation. It has been said
that a corporation is a mere ideal existence, subsisting only in contemplation of law
an invisible being which can have, in fact, no locality and can occupy no space,
and therefore cannot have a dwelling place. (18 Am. Jur. 2d, p. 693 citing
Kimmerle v. Topeka, 88 370, 128 p. 367; Wood v. Hartfold F. Ins. Co., 13 Conn
202)

Jurisprudence so holds that the foreign or domestic character of a

corporation is to be determined by the place of its origin where its charter was
granted and not by the location of its business activities (Jennings v. Idaho Rail
Light & P. Co., 26 Idaho 703, 146 p. 101), A corporation is a "resident" and an
inhabitant of the state in which it is incorporated and no other (36 Am. Jur. 2d, p.
49).

Defendant-appellee is a Philippine Corporation duly organized under the

Philippine laws. Clearly, its residence is the Philippines, the place of its
incorporation, and not Japan. While defendant-appellee maintains branches in
Japan, this will not make it a resident of Japan. A corporation does not become a
resident of another by engaging in business there even though licensed by that state
and in terms given all the rights and privileges of a domestic corporation
(Galveston H. & S.A.R. Co. vs. Gonzales, 151 US 496, 38 L ed. 248, 4 S Ct. 401).

On this premise, defendant appellee is a non-resident corporation. As such,

court processes must be served upon it at a place within the state in which the

action is brought and not elsewhere (St. Clair vs. Cox, 106 US 350, 27 L ed. 222, 1
S. Ct. 354). 5

It then concluded that the service of summons effected in Manila or beyond

the territorial boundaries of Japan was null and did not confer jurisdiction upon the
Tokyo District Court over the person of SHARP; hence, its decision was void.

Unable to obtain a reconsideration of the decision, NORTHWEST elevated

the case to this Court contending that the respondent court erred in holding that
SHARP was not a resident of Japan and that summons on SHARP could only be
validly served within that country.

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. 6

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. 7 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 at 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. 8 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.
9 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 that 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
presumption 10 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 in the Philippines. Section 14, Rule 14 of the
Rules of Court provides that if the defendant is a foreign corporation doing
business in the Philippines, service may be made: (1) on its resident agent
designated in accordance with law for that purpose, or, (2) if there is no such
resident agent, on the government official designated by law to that effect; or (3)
on any of its officers or agents within the Philippines.

If the foreign corporation has designated an agent to receive summons, the

designation is exclusive, and service of summons is without force and gives the
court no jurisdiction unless made upon him. 11

Where the corporation has no such 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
proccess to the corporation at its home or principal office. The sending of such
copy is a necessary part of the service. 12

SHARP contends that the laws authorizing service of process upon the
Securities and Exchange Commission, the Superintendent of Banks, and the
Insurance Commissioner, as the case may be, presuppose a situation wherein the
foreign corporation doing business in the country no longer has any branches or
offices within the Philippines. Such contention is belied by the pertinent provisions
of the said laws. Thus, Section 128 of the Corporation Code 13 and Section 190 of
the Insurance Code 14 clearly contemplate two situations: (1) if the corporation
had left the Philippines or had ceased to transact business therein, and (2) if the
corporation has no designated agent. Section 17 of the General Banking Act 15
does not even speak a corporation which had ceased to transact business in the
Philippines.

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
least create an impression, that it had none. Hence, service on the designated
government official or on any of SHARP's officers or agents in Japan could be
availed of. The respondent, however, insists that only service of any of its officers

or employees in its branches in Japan could be resorted to. We do not agree. As

found by the respondent court, two attempts at service were made at SHARP's
Yokohama branch. Both were unsuccessful. On the first attempt, Mr. Dinozo, who
was believed to be the person authorized to accept court process, was in Manila.
On the second, Mr. Dinozo was present, but to accept the summons because,
according to him, he was no longer an employee of SHARP. While it may be true
that service could have been made upon any of the officers or agents of SHARP at
its three other branches in Japan, the availability of such a recourse would not
preclude service upon the proper government official, as stated above.

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 Philippine's
after the two attempts of service had failed. 16 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 laws holds no water. 17

In deciding against the petitioner, the respondent court sustained the trial
court's reliance on Boudard vs. Tait 18 where this Court held:

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

xxx

xxx

The process of a court, has no extraterritorial effect, and no jurisdiction is

acquired over the person of the defendant by serving him beyond the boundaries of
the state. Nor has a judgment of a court of a foreign country against a resident of
this country having no property in such foreign country based on process served
here, any effect here against either the defendant personally or his property situated
here.

Process issuing from the courts of one state or country cannot run into
another, and although a nonresident defendant may have been personally served
with such process in the state or country of his domicile, it will not give such
jurisdiction as to authorize a personal judgment against him.

It further availed of the ruling in Magdalena Estate, Inc. vs. Nieto 19 and
Dial Corp. vs. Soriano, 20 as well as the principle laid down by the Iowa Supreme
Court in the 1911 case of Raher vs. Raher. 21

The first three cases are, however, inapplicable. Boudard involved the
enforcement of a judgment of the civil division of the Court of First Instance of
Hanoi, French Indo-China. The trial court dismissed the case because the Hanoi
court never acquired jurisdiction over the person of the defendant considering that
"[t]he, evidence adduced at the trial conclusively proves that neither the appellee
[the defendant] nor his agent or employees were ever in Hanoi, French Indo-China;
and that the deceased Marie Theodore Jerome Boudard had never, at any time,

been his employee." In Magdalena Estate, what was declared invalid resulting in
the failure of the court to acquire jurisdiction over the person of the defendants in
an action in personam was the service of summons through publication against
non-appearing resident defendants. It was claimed that the latter concealed
themselves to avoid personal service of summons upon them. In Dial, the
defendants were foreign corporations which were not, domiciled and licensed to
engage in business in the Philippines and which did not have officers or agents,
places of business, or properties here. On the other hand, in the instant case,
SHARP was doing business in Japan and was maintaining four branches therein.

Insofar as to the Philippines is concerned, Raher is a thing of the past. In that

case, a divided Supreme Court of Iowa declared that the principle that there can be
no jurisdiction in a court of a territory to render a personal judgment against
anyone upon service made outside its limits was applicable alike to cases of
residents and non-residents. The principle was put at rest by the United States
Supreme Court when it ruled in the 1940 case of Milliken vs. Meyer 22 that
domicile in the state is alone sufficient to bring an absent defendant within the
reach of the state's jurisdiction for purposes of a personal judgment by means of
appropriate substituted service or personal service without the state. This principle
is embodied in section 18, Rule 14 of the Rules of Court which allows service of
summons on residents temporarily out of the Philippines to be made out of the
country. The rationale for this rule was explained in Milliken as follows:

[T]he authority of a state over one of its citizens is not terminated by the
mere fact of his absence from the state. The state which accords him privileges and
affords protection to him and his property by virtue of his domicile may also exact
reciprocal duties. "Enjoyment of the privileges of residence within the state, and
the attendant right to invoke the protection of its laws, are inseparable" from the
various incidences of state citizenship. The responsibilities of that citizenship arise
out of the relationship to the state which domicile creates. That relationship is not
dissolved by mere absence from the state. The attendant duties, like the rights and
privileges incident to domicile, are not dependent on continuous presence in the

state. One such incident of domicile is amenability to suit within the state even
during sojourns without the state, where the state has provided and employed a
reasonable method for apprising such an absent party of the proceedings against
him. 23

The domicile of a corporation belongs to the state where it was incorporated.

24 In a strict technical sense, such domicile as a corporation may have is single in
its essence and a corporation can have only one domicile which is the state of its
creation. 25

Nonetheless, a corporation formed in one-state may, for certain purposes, be

regarded a resident in another state in which it has offices and transacts business.
This is the rule in our jurisdiction and apropos thereto, it may be necessery to quote
what we stated in State Investment House, Inc, vs. Citibank, N.A., 26 to wit:

The issue is whether these Philippine branches or units may be considered

"residents of the Philippine Islands" as that term is used in Section 20 of the
Insolvency Law . . . or residents of the state under the laws of which they were
respectively incorporated. The answer cannot be found in the Insolvency Law
itself, which contains no definition of the term, resident, or any clear indication of
its meaning. There are however other statutes, albeit of subsequent enactment and
effectivity, from which enlightening notions of the term may be derived.

The National Internal Revenue Code declares that the term "'resident foreign
corporation' applies to a foreign corporation engaged in trade or business within
the Philippines," as distinguished from a "'non-resident foreign corporation' . . .
(which is one) not engaged in trade or bussiness within the Philippines." [Sec. 20,
pars. (h) and (i)].

The Offshore Banking Law, Presidential Decree No. 1034, states "that
branches, subsidiaries, affiliation, extension offices or any other units of
corporation or juridical person organized under the laws of any foreign country
operating in the Philippines shall be considered residents of the Philippines. [Sec.
1(e)].

The General Banking Act, Republic Act No. 337, places "branches and
agencies in the Philippines of foreign banks . . . (which are) called Philippine
branches," in the same category as "commercial banks, savings associations,
mortgage banks, development banks, rural banks, stock savings and loan
associations" (which have been formed and organized under Philippine laws),
making no distinction between the former and the latter in so far as the terms
"banking institutions" and "bank" are used in the Act [Sec. 2], declaring on the
contrary that in "all matters not specifically covered by special provisions
applicable only to foreign banks, or their branches and agencies in the Philippines,
said foreign banks or their branches and agencies lawfully doing business in the
Philippines "shall be bound by all laws, rules, and regulations applicable to
domestic banking corporations of the same class, except such laws, rules and
regulations as provided for the creation, formation, organization, or dissolution of
corporations or as fix the relation, liabilities, responsibilities, or duties of members,
stockholders or officers of corporation. [Sec. 18].

This court itself has already had occasion to hold [Claude Neon Lights, Fed.
Inc. vs. Philippine Advertising Corp., 57 Phil. 607] that a foreign corporation licitly
doing business in the Philippines, which is a defendant in a civil suit, may not be
considered a non-resident within the scope of the legal provision authorizing
attachment against a defendant not residing in the Philippine Islands; [Sec. 424, in
relation to Sec. 412 of Act No. 190, the Code of Civil Procedure; Sec. 1(f), Rule 59
of the Rules of 1940, Sec. 1(f), Rule 57, Rules of 1964] in other words, a
preliminary attachment may not be applied for and granted solely on the asserted
fact that the defendant is a foreign corporation authorized to do business in the
Philippines and is consequently and necessarily, "a party who resides out of the

Philippines." Parenthetically, if it may not be considered as a party not residing in

the Philippines, or as a party who resides out of the country, then, logically, it must
be considered a party who does reside in the Philippines, who is a resident of the
country. Be this as it may, this Court pointed out that:

. . . Our laws and jurisprudence indicate a purpose to assimilate foreign

corporations, duly licensed to do business here, to the status of domestic
corporations. (Cf. Section 73, Act No. 1459, and Marshall Wells Co. vs. Henry W.
Elser & Co., 46 Phil. 70, 76; Yu Cong Eng vs. Trinidad, 47 Phil. 385, 411) We
think it would be entirely out of line with this policy should we make a
discrimination against a foreign corporation, like the petitioner, and subject its
property to the harsh writ of seizure by attachment when it has complied not only
with every requirement of law made specially of foreign corporations, but in
addition with every requirement of law made of domestic corporations. . . .

Obviously, the assimilation of foreign corporations authorized to do business

in the Philippines "to the status of domestic corporations, subsumes their being
found and operating as corporations, hence, residing, in the country.

The same principle is recognized in American law: that the residence of a

corporation, if it can be said to have a residence, is necessarily where it exercises
corporate functions . . .;" that it is considered as dwelling "in the place where its
business is done . . .," as being "located where its franchises are exercised . . .," and
as being "present where it is engaged in the prosecution of the corporate
enterprise;" that a "foreign corporation licensed to do business in a state is a
resident of any country where it maintains an office or agent for transaction of its
usual and customary business for venue purposes;" and that the "necessary element
in its signification is locality of existence." [Words and Phrases, Permanent Ed.,
vol. 37, pp. 394, 412, 493].

In as much as SHARP was admittedly doing business in Japan through its

four duly 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. 27

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.

We find NORTHWEST's claim for attorney's fees, litigation expenses, and

exemplary damages to be without merit. We find no evidence that would justify an
award for attorney's fees and litigation expenses under Article 2208 of the Civil
Code of the Philippines. Nor is an award for exemplary damages warranted. Under
Article 2234 of the Civil Code, before the court may consider the question of
whether or not exemplary damages should be awarded, the plaintiff must show that
he is entitled to moral, temperate, or compensatory damaged. There being no such
proof presented by NORTHWEST, no exemplary damages may be adjudged in its
favor.

WHEREFORE, the instant petition is partly GRANTED, and the challenged

decision is AFFIRMED insofar as it denied NORTHWEST's claims for attorneys
fees, litigation expenses, and exemplary damages but REVERSED insofar as in
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 L
COMPANY, INC. to pay to 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.

Costs against the private respondent.

SO ORDERED.

G.R. No. L-34382 July 20, 1983

THE HOME INSURANCE COMPANY, petitioner,

vs.
EASTERN SHIPPING LINES and/or ANGEL JOSE TRANSPORTATION,
INC. and HON. A. MELENCIO-HERRERA, Presiding Judge of the Manila Court
of First Instance, Branch XVII, respondents.

G.R. No. L-34383 July 20, 1983

THE HOME INSURANCE COMPANY, petitioner,

vs.
N. V. NEDLLOYD LIJNEN; COLUMBIAN PHILIPPINES, INC., and/or
GUACODS, INC., and HON. A. MELENCIO-HERRERA, Presiding Judge of the
Manila Court of First Instance, Branch XVII, respondents.

No. L-34382.

Zapa Law Office for petitioner.

Bito, Misa & Lozada Law Office for respondents.

No. L-34383.

Zapa Law Office for petitioner.

Ross, Salcedo, Del Rosario, Bito & Misa Law office for respondents.

GUTIERREZ, JR., J.:

Questioned in these consolidated petitions for review on certiorari are the

decisions of the Court of First Instance of Manila, Branch XVII, dismissing the
complaints in Civil Case No. 71923 and in Civil Case No. 71694, on the ground
that plaintiff therein, now appellant, had failed to prove its capacity to sue.

There is no dispute over the facts of these cases for recovery of maritime
damages. In L-34382, the facts are found in the decision of the respondent court
which stated:

On or about January 13, 1967, S. Kajita & Co., on behalf of Atlas

Consolidated Mining & Development Corporation, shipped on board the SS
"Eastern Jupiter' from Osaka, Japan, 2,361 coils of "Black Hot Rolled Copper Wire
Rods." The said VESSEL is owned and operated by defendant Eastern Shipping
Lines (CARRIER). The shipment was covered by Bill of Lading No. O-MA-9,
with arrival notice to Phelps Dodge Copper Products Corporation of the
Philippines (CONSIGNEE) at Manila. The shipment was insured with plaintiff
against all risks in the amount of P1,580,105.06 under its Insurance Policy No. AS73633.

xxx xxx xxx

The coils discharged from the VESSEL numbered 2,361, of which 53 were
in bad order. What the CONSIGNEE ultimately received at its warehouse was the
same number of 2,361 coils with 73 coils loose and partly cut, and 28 coils
entangled, partly cut, and which had to be considered as scrap. Upon weighing at
CONSIGNEE's warehouse, the 2,361 coils were found to weight 263,940.85 kilos
as against its invoiced weight of 264,534.00 kilos or a net loss/shortage of 593.15
kilos, according to Exhibit "A", or 1,209,56 lbs., according to the claims presented
by the consignee against the plaintiff (Exhibit "D-1"), the CARRIER (Exhibit "J1"), and the TRANSPORTATION COMPANY (Exhibit "K- l").

For the loss/damage suffered by the cargo, plaintiff paid the consignee under
its insurance policy the amount of P3,260.44, by virtue of which plaintiff became
subrogated to the rights and actions of the CONSIGNEE. Plaintiff made demands
for payment against the CARRIER and the TRANSPORTATION COMPANY for
reimbursement of the aforesaid amount but each refused to pay the same. ...

The facts of L-34383 are found in the decision of the lower court as follows:

On or about December 22, 1966, the Hansa Transport Kontor shipped from
Bremen, Germany, 30 packages of Service Parts of Farm Equipment and
Implements on board the VESSEL, SS "NEDER RIJN" owned by the defendant,
N. V. Nedlloyd Lijnen, and represented in the Philippines by its local agent, the
defendant Columbian Philippines, Inc. (CARRIER). The shipment was covered by
Bill of Lading No. 22 for transportation to, and delivery at, Manila, in favor of the
consignee, international Harvester Macleod, Inc. (CONSIGNEE). The shipment
was insured with plaintiff company under its Cargo Policy No. AS-73735 "with
average terms" for P98,567.79.

xxx

xxx

xxx

The packages discharged from the VESSEL numbered 29, of which seven
packages were found to be in bad order. What the CONSIGNEE ultimately
received at its warehouse was the same number of 29 packages with 9 packages in
bad order. Out of these 9 packages, 1 package was accepted by the CONSIGNEE
in good order due to the negligible damages sustained. Upon inspection at the
consignee's warehouse, the contents of 3 out of the 8 cases were also found to be
complete and intact, leaving 5 cases in bad order. The contents of these 5 packages
showed several items missing in the total amount of $131.14; while the contents of
the undelivered 1 package were valued at $394.66, or a total of $525.80 or
P2,426.98.

For the short-delivery of 1 package and the missing items in 5 other

packages, plaintiff paid the CONSIGNEE under its Insurance Cargo Policy the
amount of P2,426.98, by virtue of which plaintiff became subrogated to the rights
and actions of the CONSIGNEE. Demands were made on defendants CARRIER
and CONSIGNEE for reimbursement thereof but they failed and refused to pay the
same.

In both cases, the petitioner-appellant made the following averment

regarding its capacity to sue:

The plaintiff is a foreign insurance company duly authorized to do business

in the Philippines through its agent, Mr. VICTOR H. BELLO, of legal age and with
office address at Oledan Building, Ayala Avenue, Makati, Rizal.

In L-34382, the respondent-appellee Eastern Shipping Lines, Inc., filed its

answer and alleged that it:

Denies the allegations of Paragraph I which refer to plaintiff's capacity to

sue for lack of knowledge or information sufficient to form a belief as to the truth
thereof.

Respondent-appellee, Angel Jose Transportation, Inc., in turn filed its

answer admitting the allegations of the complaint, regarding the capacity of
plaintiff-appellant. The pertinent paragraph of this answer reads as follows:

Angel Jose Admits the jurisdictional averments in paragraphs 1, 2, and 3 of

the heading Parties.

In L-34383, the respondents-appellees N. V. Nedlloyd Lijhen, Columbian

Philippines, Inc. and Guacods, Inc., filed their answers. They denied the petitionerappellant's capacity to sue for lack of knowledge or information sufficient to form
a belief as to the truth thereof.

As earlier stated, the respondent court dismissed the complaints in the two
cases on the same ground, that the plaintiff failed to prove its capacity to sue. The
court reasoned as follows:

In the opinion of the Court, if plaintiff had the capacity to sue, the Court
should hold that a) defendant Eastern Shipping Lines should pay plaintiff the sum
of P1,630.22 with interest at the legal rate from January 5, 1968, the date of the
institution of the Complaint, until fully paid; b) defendant Angel Jose
Transportation, Inc. should pay plaintiff the sum of P1,630.22 also with interest at
the legal rate from January 5, 1968 until fully paid; c) the counterclaim of
defendant Angel Jose transportation, Inc. should be ordered dismissed; and d) each
defendant to pay one-half of the costs.

The Court is of the opinion that Section 68 of the Corporation Law reflects a
policy designed to protect the public interest. Hence, although defendants have not
raised the question of plaintiff's compliance with that provision of law, the Court
has resolved to take the matter into account.

A suing foreign corporation, like plaintiff, has to plead affirmatively and

prove either that the transaction upon which it bases its complaint is an isolated
one, or that it is licensed to transact business in this country, failing which, it will
be deemed that it has no valid cause of action (Atlantic Mutual Ins. Co. vs. Cebu
Stevedoring Co., Inc., 17 SCRA 1037). In view of the number of cases filed by
plaintiff before this Court, of which judicial cognizance can be taken, and under
the ruling in Far East International Import and Export Corporation vs. Hankai
Koayo Co., 6 SCRA 725, it has to be held that plaintiff is doing business in the
Philippines. Consequently, it must have a license under Section 68 of the
Corporation Law before it can be allowed to sue.

The situation of plaintiff under said Section 68 has been described as follows
in Civil Case No. 71923 of this Court, entitled 'Home Insurance Co. vs. N. V.
Nedlloyd Lijnen, of which judicial cognizance can also be taken:

Exhibit "R",presented by plaintiff is a certified copy of a license, dated July

1, 1967, issued by the Office of the Insurance Commissioner authorizing plaintiff
to transact insurance business in this country. By virtue of Section 176 of the
Insurance Law, it has to be presumed that a license to transact business under
Section 68 of the Corporation Law had previously been issued to plaintiff. No copy
thereof, however, was submitted for a reason unknown. The date of that license
must not have been much anterior to July 1, 1967. The preponderance of the
evidence would therefore call for the finding that the insurance contract involved
in this case, which was executed at Makati, Rizal, on February 8, 1967, was
contracted before plaintiff was licensed to transact business in the Philippines.

This Court views Section 68 of the Corporation Law as reflective of a basic

public policy. Hence, it is of the opinion that, in the eyes of Philippine law, the
insurance contract involved in this case must be held void under the provisions of
Article 1409 (1) of the Civil Code, and could not be validated by subsequent
procurement of the license. That view of the Court finds support in the following
citation:

According to many authorities, a constitutional or statutory prohibition

against a foreign corporation doing business in the state, unless such corporation
has complied with conditions prescribed, is effective to make the contracts of such
corporation void, or at least unenforceable, and prevents the maintenance by the
corporation of any action on such contracts. Although the usual construction is to
the contrary, and to the effect that only the remedy for enforcement is affected
thereby, a statute prohibiting a non-complying corporation from suing in the state
courts on any contract has been held by some courts to render the contract void and

unenforceable by the corporation, even after its has complied with the statute." (36
Am. Jur. 2d 299-300).

xxx xxx xxx

The said Civil Case No. 71923 was dismissed by this Court. As the
insurance contract involved herein was executed on January 20, 1967, the instant
case should also be dismissed.

We resolved to consolidate the two cases when we gave due course to the
petition.

The petitioner raised the following assignments of errors:

First Assignment of Error

THE HONORABLE TRIAL COURT ERRED IN CONSIDERING AS AN

ISSUE THE LEGAL EXISTENCE OR CAPACITY OF PLAINTIFFAPPELLANT.

Second Assignment of Error

THE HONORABLE TRIAL COURT ERRED IN DISMISSING THE

COMPLAINT ON THE FINDING THAT PLAINTIFF-APPELLANT HAS NO
CAPACITY TO SUE.

On the basis of factual and equitable considerations, there is no question that

the private respondents should pay the obligations found by the trial court as owing
to the petitioner. Only the question of validity of the contracts in relation to lack of
capacity to sue stands in the way of the petitioner being given the affirmative relief
it seeks. Whether or not the petitioner was engaged in single acts or solitary
transactions and not engaged in business is likewise not in issue. The petitioner
was engaged in business without a license. The private respondents' obligation to
pay under the terms of the contracts has been proved.

When the complaints in these two cases were filed, the petitioner had
already secured the necessary license to conduct its insurance business in the
Philippines. It could already filed suits.

Petitioner was, therefore, telling the truth when it averred in its complaints
that it was a foreign insurance company duly authorized to do business in the
Philippines through its agent Mr. Victor H. Bello. However, when the insurance
contracts which formed the basis of these cases were executed, the petitioner had
not yet secured the necessary licenses and authority. The lower court, therefore,
declared that pursuant to the basic public policy reflected in the Corporation Law,
the insurance contracts executed before a license was secured must be held null
and void. The court ruled that the contracts could not be validated by the
subsequent procurement of the license.

The applicable provisions of the old Corporation Law, Act 1459, as amended
are:

Sec. 68. No foreign corporation or corporations formed, organized, or

existing under any laws other than those of the Philippine Islands shall be
permitted to transact business in the Philippine Islands until after it shall have

obtained a license for that purpose from the chief of the Mercantile Register of the
Bureau of Commerce and Industry, (Now Securities and Exchange Commission.
See RA 5455) upon order of the Secretary of Finance (Now Monetary Board) in
case of banks, savings, and loan banks, trust corporations, and banking institutions
of all kinds, and upon order of the Secretary of Commerce and Communications
(Now Secretary of Trade. See 5455, section 4 for other requirements) in case of all
other foreign corporations. ...

xxx xxx xxx

Sec. 69. No foreign corporation or corporation formed, organized, or

existing under any laws other than those of the Philippine Islands shall be
permitted to transact business in the Philippine Islands or maintain by itself or
assignee any suit for the recovery of any debt, claim, or demand whatever, unless it
shall have the license prescribed in the section immediately preceding. Any officer,
director, or agent of the corporation or any person transacting business for any
foreign corporation not having the license prescribed shag be punished by
imprisonment for not less than six months nor more than two years or by a fine of
not less than two hundred pesos nor more than one thousand pesos, or by both such
imprisonment and fine, in the discretion of the court.

As early as 1924, this Court ruled in the leading case of Marshall Wells Co.
v. Henry W. Elser & Co. (46 Phil. 70) that the object of Sections 68 and 69 of the
Corporation Law was to subject the foreign corporation doing business in the
Philippines to the jurisdiction of our courts. The Marshall Wells Co. decision
referred to a litigation over an isolated act for the unpaid balance on a bill of goods
but the philosophy behind the law applies to the factual circumstances of these
cases. The Court stated:

xxx xxx xxx

Defendant isolates a portion of one sentence of section 69 of the Corporation

Law and asks the court to give it a literal meaning Counsel would have the law
read thus: "No foreign corporation shall be permitted to maintain by itself or
assignee any suit for the recovery of any debt, claim, or demand whatever, unless it
shall have the license prescribed in section 68 of the law." Plaintiff, on the contrary,
desires for the court to consider the particular point under discussion with
reference to all the law, and thereafter to give the law a common sense
interpretation.

The object of the statute was to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts. The object of the statute
was not to prevent the foreign corporation from performing single acts, but to
prevent it from acquiring a domicile for the purpose of business without taking the
steps necessary to render it amenable to suit in the local courts. The implication of
the law is that it was never the purpose of the Legislature to exclude a foreign
corporation which happens to obtain an isolated order for business from the
Philippines, from securing redress in the Philippine courts, and thus, in effect, to
permit persons to avoid their contracts made with such foreign corporations. The
effect of the statute preventing foreign corporations from doing business and from
bringing actions in the local courts, except on compliance with elaborate
requirements, must not be unduly extended or improperly applied. It should not be
construed to extend beyond the plain meaning of its terms, considered in
connection with its object, and in connection with the spirit of the entire law. (State
vs. American Book Co. [1904], 69 Kan, 1; American De Forest Wireless Telegraph
Co. vs. Superior Court of City & Country of San Francisco and Hebbard [1908],
153 Cal., 533; 5 Thompson on Corporations, 2d ed., chap. 184.)

Confronted with the option of giving to the Corporation Law a harsh

interpretation, which would disastrously embarrass trade, or of giving to the law a
reasonable interpretation, which would markedly help in the development of trade;
confronted with the option of barring from the courts foreign litigants with good

causes of action or of assuming jurisdiction of their cases; confronted with the

option of construing the law to mean that any corporation in the United States,
which might want to sell to a person in the Philippines must send some
representative to the Islands before the sale, and go through the complicated
formulae provided by the Corporation Law with regard to the obtaining of the
license, before the sale was made, in order to avoid being swindled by Philippine
citizens, or of construing the law to mean that no foreign corporation doing
business in the Philippines can maintain any suit until it shall possess the necessary
license;-confronted with these options, can anyone doubt what our decision will
be? The law simply means that no foreign corporation shall be permitted "to
transact business in the Philippine Islands," as this phrase is known in corporation
law, unless it shall have the license required by law, and, until it complies with the
law, shall not be permitted to maintain any suit in the local courts. A contrary
holding would bring the law to the verge of unconstitutionality, a result which
should be and can be easily avoided. (Sioux Remedy Co. vs. Cope and Cope,
supra; Perkins, Philippine Business Law, p. 264.)

To repeat, the objective of the law was to subject the foreign corporation to
the jurisdiction of our courts. The Corporation Law must be given a reasonable, not
an unduly harsh, interpretation which does not hamper the development of trade
relations and which fosters friendly commercial intercourse among countries.

The objectives enunciated in the 1924 decision are even more relevant today
when we view commercial relations in terms of a world economy, when the
tendency is to re-examine the political boundaries separating one nation from
another insofar as they define business requirements or restrict marketing
conditions.

We distinguish between the denial of a right to take remedial action and the
penal sanction for non-registration.

Insofar as transacting business without a license is concerned, Section 69 of

the Corporation Law imposed a penal sanction-imprisonment for not less than six
months nor more than two years or payment of a fine not less than P200.00 nor
more than P1,000.00 or both in the discretion of the court. There is a penalty for
transacting business without registration.

And insofar as litigation is concerned, the foreign corporation or its assignee

may not maintain any suit for the recovery of any debt, claim, or demand whatever.
The Corporation Law is silent on whether or not the contract executed by a foreign
corporation with no capacity to sue is null and void ab initio.

We are not unaware of the conflicting schools of thought both here and
abroad which are divided on whether such contracts are void or merely voidable.
Professor Sulpicio Guevarra in his book Corporation Law (Philippine
Jurisprudence Series, U.P. Law Center, pp. 233-234) cites an Illinois decision
which holds the contracts void and a Michigan statute and decision declaring them
merely voidable:

xxx xxx xxx

Where a contract which is entered into by a foreign corporation without

complying with the local requirements of doing business is rendered void either by
the express terms of a statute or by statutory construction, a subsequent compliance
with the statute by the corporation will not enable it to maintain an action on the
contract. (Perkins Mfg. Co. v. Clinton Const. Co., 295 P. 1 [1930]. See also
Diamond Glue Co. v. U.S. Glue Co., supra see note 18.) But where the statute
merely prohibits the maintenance of a suit on such contract (without expressly
declaring the contract "void"), it was held that a failure to comply with the statute
rendered the contract voidable and not void, and compliance at any time before suit
was sufficient. (Perkins Mfg. Co. v. Clinton Const. Co., supra.) Notwithstanding

the above decision, the Illinois statute provides, among other things that a foreign
corporation that fails to comply with the conditions of doing business in that state
cannot maintain a suit or action, etc. The court said: 'The contract upon which this
suit was brought, having been entered into in this state when appellant was not
permitted to transact business in this state, is in violation of the plain provisions of
the statute, and is therefore null and void, and no action can be maintained thereon
at any time, even if the corporation shall, at some time after the making of the
contract, qualify itself to transact business in this state by a compliance with our
laws in reference to foreign corporations that desire to engage in business here.
(United Lead Co. v. J.M. Ready Elevator Mfg. Co., 222 Ill. 199, 73 N.N. 567
[1906].)

A Michigan statute provides: "No foreign corporation subject to the

provisions of this Act, shall maintain any action in this state upon any contract
made by it in this state after the taking effect of this Act, until it shall have fully
complied with the requirement of this Act, and procured a certificate to that effect
from the Secretary of State," It was held that the above statute does not render
contracts of a foreign corporation that fails to comply with the statute void, but
they may be enforced only after compliance therewith. (Hastings Industrial Co. v.
Moral, 143 Mich. 679,107 N.E. 706 [1906]; Kuennan v. U.S. Fidelity & G. Co.,
Mich. 122; 123 N.W. 799 [1909]; Despres, Bridges & Noel v. Zierleyn, 163 Mich.
399, 128 N.W. 769 [1910]).

It has also been held that where the law provided that a corporation which
has not complied with the statutory requirements "shall not maintain an action until
such compliance". "At the commencement of this action the plaintiff had not filed
the certified copy with the country clerk of Madera County, but it did file with the
officer several months before the defendant filed his amended answer, setting up
this defense, as that at the time this defense was pleaded by the defendant the
plaintiff had complied with the statute. The defense pleaded by the defendant was
therefore unavailable to him to prevent the plaintiff from thereafter maintaining the
action. Section 299 does not declare that the plaintiff shall not commence an action

in any county unless it has filed a certified copy in the office of the county clerk,
but merely declares that it shall not maintain an action until it has filled it. To
maintain an action is not the same as to commence an action, but implies that the
action has already been commenced." (See also Kendrick & Roberts Inc. v. Warren
Bros. Co., 110 Md. 47, 72 A. 461 [1909]).

In another case, the court said: "The very fact that the prohibition against
maintaining an action in the courts of the state was inserted in the statute ought to
be conclusive proof that the legislature did not intend or understand that contracts
made without compliance with the law were void. The statute does not fix any time
within which foreign corporations shall comply with the Act. If such contracts
were void, no suits could be prosecuted on them in any court. ... The primary
purpose of our statute is to compel a foreign corporation desiring to do business
within the state to submit itself to the jurisdiction of the courts of this state. The
statute was not intended to exclude foreign corporations from the state. It does not,
in terms, render invalid contracts made in this state by non-complying
corporations. The better reason, the wiser and fairer policy, and the greater weight
lie with those decisions which hold that where, as here, there is a prohibition with a
penalty, with no express or implied declarations respecting the validity of
enforceability of contracts made by qualified foreign corporations, the contracts ...
are enforceable ... upon compliance with the law." (Peter & Burghard Stone Co. v.
Carper, 172 N.E. 319 [1930].)

Our jurisprudence leans towards the later view. Apart from the objectives
earlier cited from Marshall Wells Co. v. Henry W. Elser & Co (supra), it has long
been the rule that a foreign corporation actually doing business in the Philippines
without license to do so may be sued in our courts. The defendant American
corporation in General Corporation of the Philippines v. Union Insurance Society
of Canton Ltd et al. (87 Phil. 313) entered into insurance contracts without the
necessary license or authority. When summons was served on the agent, the
defendant had not yet been registered and authorized to do business. The
registration and authority came a little less than two months later. This Court ruled:

Counsel for appellant contends that at the time of the service of summons,
the appellant had not yet been authorized to do business. But, as already stated,
section 14, Rule 7 of the Rules of Court makes no distinction as to corporations
with or without authority to do business in the Philippines. The test is whether a
foreign corporation was actually doing business here. Otherwise, a foreign
corporation illegally doing business here because of its refusal or neglect to obtain
the corresponding license and authority to do business may successfully though
unfairly plead such neglect or illegal act so as to avoid service and thereby impugn
the jurisdiction of the local courts. It would indeed be anomalous and quite
prejudicial, even disastrous, to the citizens in this jurisdiction who in all good faith
and in the regular course of business accept and pay for shipments of goods from
America, relying for their protection on duly executed foreign marine insurance
policies made payable in Manila and duly endorsed and delivered to them, that
when they go to court to enforce said policies, the insurer who all along has been
engaging in this business of issuing similar marine policies, serenely pleads
immunity to local jurisdiction because of its refusal or neglect to obtain the
corresponding license to do business here thereby compelling the consignees or
purchasers of the goods insured to go to America and sue in its courts for redress.

There is no question that the contracts are enforceable. The requirement of

registration affects only the remedy.

Significantly, Batas Pambansa Blg. 68, the Corporation Code of the

Philippines has corrected the ambiguity caused by the wording of Section 69 of the
old Corporation Law.

Section 133 of the present Corporation Code provides:

SEC. 133. Doing business without a license.-No foreign corporation

transacting business in the Philippines without a license, or its successors or
assigns, shag be permitted to maintain or intervene in any action, suit or
proceeding in any court or administrative agency in the Philippines; but such
corporation may be sued or proceeded against before Philippine courts or
administrative tribunals on any valid cause of action recognized under Philippine
laws.

The old Section 69 has been reworded in terms of non-access to courts and
administrative agencies in order to maintain or intervene in any action or
proceeding.

The prohibition against doing business without first securing a license is

now given penal sanction which is also applicable to other violations of the
Corporation Code under the general provisions of Section 144 of the Code.

It is, therefore, not necessary to declare the contract nun and void even as
against the erring foreign corporation. The penal sanction for the violation and the
denial of access to our courts and administrative bodies are sufficient from the
viewpoint of legislative policy.

Our ruling that the lack of capacity at the time of the execution of the
contracts was cured by the subsequent registration is also strengthened by the
procedural aspects of these cases.

The petitioner averred in its complaints that it is a foreign insurance

company, that it is authorized to do business in the Philippines, that its agent is Mr.
Victor H. Bello, and that its office address is the Oledan Building at Ayala Avenue,
Makati. These are all the averments required by Section 4, Rule 8 of the Rules of

Court. The petitioner sufficiently alleged its capacity to sue. The private
respondents countered either with an admission of the plaintiff's jurisdictional
averments or with a general denial based on lack of knowledge or information
sufficient to form a belief as to the truth of the averments.

We find the general denials inadequate to attack the foreign corporations

lack of capacity to sue in the light of its positive averment that it is authorized to do
so. Section 4, Rule 8 requires that "a party desiring to raise an issue as to the legal
existence of any party or the capacity of any party to sue or be sued in a
representative capacity shall do so by specific denial, which shag include such
supporting particulars as are particularly within the pleader's knowledge. At the
very least, the private respondents should have stated particulars in their answers
upon which a specific denial of the petitioner's capacity to sue could have been
based or which could have supported its denial for lack of knowledge. And yet,
even if the plaintiff's lack of capacity to sue was not properly raised as an issue by
the answers, the petitioner introduced documentary evidence that it had the
authority to engage in the insurance business at the time it filed the complaints.

WHEREFORE, the petitions are hereby granted. The decisions of the

respondent court are reversed and set aside.

In L-34382, respondent Eastern Shipping Lines is ordered to pay the

petitioner the sum of P1,630.22 with interest at the legal rate from January 5, 1968
until fully paid and respondent Angel Jose Transportation Inc. is ordered to pay the
petitioner the sum of P1,630.22 also with interest at the legal rate from January 5,
1968 until fully paid. Each respondent shall pay one-half of the costs. The
counterclaim of Angel Jose Transportation Inc. is dismissed.

In L-34383, respondent N. V. Nedlloyd Lijnen, or its agent Columbian Phil.

Inc. is ordered to pay the petitioner the sum of P2,426.98 with interest at the legal

rate from February 1, 1968 until fully paid, the sum of P500.00 attorney's fees, and
costs, The complaint against Guacods, Inc. is dismissed.

SO ORDERED.

AGILENT TECHNOLOGIES SINGAPORE (PTE) LTD., petitioner, vs.

INTEGRATED SILICON TECHNOLOGY PHILIPPINES CORPORATION,
TEOH KIANG HONG, TEOH KIANG SENG, ANTHONY CHOO, JOANNE
KATE M. DELA CRUZ, JEAN KAY M. DELA CRUZ and ROLANDO T.
NACILLA, respondents.
DECISION
YNARES-SANTIAGO, J.:

This petition for review assails the Decision dated August 12, 2002 of the
Court of Appeals in CA-G.R. SP No. 66574, which dismissed Civil Case No. 31232001-C and annulled and set aside the Order dated September 4, 2001 issued by
the Regional Trial Court of Calamba, Laguna, Branch 92.

Petitioner Agilent Technologies Singapore (Pte.), Ltd. (Agilent) is a

foreign corporation, which, by its own admission, is not licensed to do business in
the Philippines.[1] Respondent Integrated Silicon Technology Philippines
Corporation (Integrated Silicon) is a private domestic corporation, 100% foreign
owned, which is engaged in the business of manufacturing and assembling
electronics components.[2] Respondents Teoh Kiang Hong, Teoh Kiang Seng and
Anthony Choo, Malaysian nationals, are current members of Integrated Silicons
board of directors, while Joanne Kate M. dela Cruz, Jean Kay M. dela Cruz, and
Rolando T. Nacilla are its former members.[3]

The juridical relation among the various parties in this case can be traced to
a 5-year Value Added Assembly Services Agreement (VAASA), entered into on
April 2, 1996 between Integrated Silicon and the Hewlett-Packard Singapore (Pte.)
Ltd., Singapore Components Operation (HP-Singapore).[4] Under the terms of
the VAASA, Integrated Silicon was to locally manufacture and assemble fiber
optics for export to HP-Singapore. HP-Singapore, for its part, was to consign raw
materials to Integrated Silicon; transport machinery to the plant of Integrated
Silicon; and pay Integrated Silicon the purchase price of the finished products.[5]
The VAASA had a five-year term, beginning on April 2, 1996, with a provision for
annual renewal by mutual written consent.[6] On September 19, 1999, with the
consent of Integrated Silicon,[7] HP-Singapore assigned all its rights and
obligations in the VAASA to Agilent.[8]

On May 25, 2001, Integrated Silicon filed a complaint for Specific

Performance and Damages against Agilent and its officers Tan Bian Ee, Lim Chin
Hong, Tey Boon Teck and Francis Khor, docketed as Civil Case No. 3110-01-C. It
alleged that Agilent breached the parties oral agreement to extend the VAASA.
Integrated Silicon thus prayed that defendant be ordered to execute a written
extension of the VAASA for a period of five years as earlier assured and promised;
to comply with the extended VAASA; and to pay actual, moral, exemplary
damages and attorneys fees.[9]

On June 1, 2001, summons and a copy of the complaint were served on Atty.
Ramon Quisumbing, who returned these processes on the claim that he was not the
registered agent of Agilent. Later, he entered a special appearance to assail the
courts jurisdiction over the person of Agilent.

On July 2, 2001, Agilent filed a separate complaint against Integrated

Silicon, Teoh Kang Seng, Teoh Kiang Gong, Anthony Choo, Joanne Kate M. dela
Cruz, Jean Kay M. dela Cruz and Rolando T. Nacilla,[10] for Specific
Performance, Recovery of Possession, and Sum of Money with Replevin,

Preliminary Mandatory Injunction, and Damages, before the Regional Trial Court,
Calamba, Laguna, Branch 92, docketed as Civil Case No. 3123-2001-C. Agilent
prayed that a writ of replevin or, in the alternative, a writ of preliminary mandatory
injunction, be issued ordering defendants to immediately return and deliver to
plaintiff its equipment, machineries and the materials to be used for fiber-optic
components which were left in the plant of Integrated Silicon. It further prayed
that defendants be ordered to pay actual and exemplary damages and attorneys
fees.[11]

Respondents filed a Motion to Dismiss in Civil Case No. 3123-2001-C,[12]

on the grounds of lack of Agilents legal capacity to sue;[13] litis pendentia;[14]
forum shopping;[15] and failure to state a cause of action.[16]

On September 4, 2001, the trial court denied the Motion to Dismiss and
granted petitioner Agilents application for a writ of replevin.[17]

Without filing a motion for reconsideration, respondents filed a petition for

certiorari with the Court of Appeals.[18]

In the meantime, upon motion filed by respondents, Judge Antonio S. Pozas

of Branch 92 voluntarily inhibited himself in Civil Case No. 3123-2001-C. The
case was re-raffled and assigned to Branch 35, the same branch where Civil Case
No. 3110-2001-C is pending.

On August 12, 2002, the Court of Appeals granted respondents petition for
certiorari, set aside the assailed Order of the trial court dated September 4, 2001,
and ordered the dismissal of Civil Case No. 3123-2001-C.

Hence, the instant petition raising the following errors:

I.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN

NOT DISMISSING RESPONDENTS PETITION FOR CERTIORARI FOR
RESPONDENTS FAILURE TO FILE A MOTION FOR RECONSIDERATION
BEFORE RESORTING TO THE REMEDY OF CERTIORARI.

II.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN

ANNULLING AND SETTING ASIDE THE TRIAL COURTS ORDER DATED
4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF CIVIL CASE NO.
3123-2001-C BELOW ON THE GROUND OF LITIS PENDENTIA, ON
ACCOUNT OF THE PENDENCY OF CIVIL CASE NO. 3110-2001-C.

III.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN

ANNULLING AND SETTING ASIDE THE TRIAL COURTS ORDER DATED
4 SEPTEMBER 2001 AND ORDERING THE DISMISSAL OF CIVIL CASE NO.
3123-2001-C BELOW ON THE GROUND OF FORUM SHOPPING, ON
ACCOUNT OF THE PENDENCY OF CIVIL CASE NO. 3110-2001-C.

IV.

THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN

ORDERING THE DISMISSAL OF CIVIL CASE NO. 323-2001-C BELOW
INSTEAD OF ORDERING IT CONSOLIDATED WITH CIVIL CASE NO. 31102001-C.[19]

The two primary issues raised in this petition: (1) whether or not the Court
of Appeals committed reversible error in giving due course to respondents
petition, notwithstanding the failure to file a Motion for Reconsideration of the
September 4, 2001 Order; and (2) whether or not the Court of Appeals committed
reversible error in dismissing Civil Case No. 3123-2001-C.

We find merit in the petition.

G.R. No. 159586

July 26, 2004

EUROPEAN RESOURCES AND TECHNOLOGIES, INC. and DELFIN J.

WENCESLAO, petitioners,
vs.
INGENIEUBURO BIRKHAHN + NOLTE, Ingeniurgesellschaft mbh and
HEERS & BROCKSTEDT GMBH & CO., respondents.

DECISION

YNARES-SANTIAGO, J.:

Assailed in this Petition for Review under Rule 45 of the Rules of Court is
the Decision1 of the Court of Appeals dated May 15, 2003, which sustained the
Order of the Regional Trial Court of Angeles City, Branch 61, dated June 28, 2001,
and its subsequent Resolution dated August 3, 2003 denying petitioners motion for
reconsideration.

European Resources and Technologies Inc. (hereinafter "ERTI"), a

corporation organized and existing under the laws of the Republic of the
Philippines, is joined by Delfin J. Wenceslao as petitioner in this case.
Ingenieuburo Birkhan + Nolte Ingiurgesellschaft mbh and Heers & Brockstedt
Gmbh & Co. are German corporations who are respondents in this case and shall
be collectively referred to as the "German Consortium".

The German Consortium tendered and submitted its bid to the Clark
Development Corporation ("CDC") to construct, operate and manage the
Integrated Waste Management Center at the Clark Special Economic Zone
("CSEZ"). CDC accepted the German Consortiums bid and awarded the contract
to it. On October 6, 1999, CDC and the German Consortium executed the Contract
for Services2 which embodies the terms and conditions of their agreement.

The Contract for Services provides that the German Consortium shall be
empowered to enter into a contract or agreement for the use of the integrated waste
management center by corporations, local government units, entities, and persons
not only within the CSEZ but also outside. For waste collected within the CSEZ,
the German Consortium may impose a "tipping fee" per ton of waste collected
from locators and residents of the CSEZ, which fees shall be subject to the
schedule agreed upon by the parties and specified in the Contract for Services. For
its operations outside of the CSEZ, the German Consortium shall pay CDC

US$1.50 per ton of non-hazardous solid waste collected.3 The CDC shall
guarantee that nineteen thousand eighteen hundred (19,800) tons per year of solid
waste volume shall be collected from inside and outside the CSEZ.4 The contract
has a term of twenty-five (25) years,5 during which time the German Consortium
shall operate the waste management center on a day-to-day basis.6

Article VIII, Section 7 of the Contract for Services provides that the German
Consortium shall undertake to organize a local corporation as its representative for
this project. On April 18, 2000, the German Consortium entered into a Joint
Venture with D.M. Wenceslao and Associates, Inc. ("DMWAI") and Ma. Elena B.
Villarama (doing business as LBV and Associates), embodied in a Memorandum of
Understanding7 ("MOU") signed by the parties. Under the MOU, the parties
agreed to jointly form a local corporation to which the German Consortium shall
assign its rights under the Contract for Services. Pursuant to this agreement,
petitioner European Resources and Technologies, Inc. was incorporated. The
parties likewise agreed to prepare and finalize a Shareholders Agreement within
one (1) month from the execution of the MOU, which shall provide that the
German Consortium shall own fifteen percent (15%) of the equity in the joint
venture corporation, DMWAI shall own seventy percent (70%) and LBV&A shall
own fifteen percent (15%). In the event that the parties fail to execute the
Shareholders Agreement, the MOU shall be considered null and void.8

On August 1, 2000, without the Shareholders Agreement having been

executed, the German Consortium and petitioner ERTI entered into a
Memorandum of Agreement (MOA)9 whereby the German Consortium ceded its
rights and obligations under the Contract for Services in favor of ERTI and
assigned unto ERTI, among others, "its license from CDC to engage in the
business of providing environmental services needed in the CSEZ in connection
with the waste management within the CSEZ and other areas."10 Likewise, the
parties agreed that should there be a disagreement between or among them relative
to the interpretation or implementation of the MOA and the collateral documents

including but not limited to the Contract for Services between the German
Consortium and CDC, the dispute shall be referred to a panel of arbitrators.11

On December 11, 2000, ERTI received a letter from BN Consultants

Philippines, Inc., signed by Mr. Holger Holst for and on behalf of the German
Consortium,12 stating that the German Consortiums contract with DMWAI,
LBV&A and ERTI has been terminated or extinguished on the following grounds:
(a) the CDC did not give its approval to the Consortiums request for the approval
of the assignment or transfer by the German Consortium in favor of ERTI of its
rights and interests under the Contract for Services; (b) the parties failed to prepare
and finalize the Shareholders Agreement pursuant to the provision of the MOU;
(c) there is no more factual or legal basis for the joint venture to continue; and (d)
with the termination of the MOU, the MOA is also deemed terminated or
extinguished.

Attached to the letter was a copy of the letter of the CDC,13 stating that the
German Consortiums assignment of an eighty-five percent (85%) majority interest
to another party violated its representation to undertake both the financial and
technical aspects of the project. The dilution of the Consortiums interest in ERTI
is a substantial modification of the Consortiums representations which were used
as bases for the award of the project to it.

On February 20, 2001, petitioner ERTI, through counsel, sent a letter to

CDC requesting for the reconsideration of its disapproval of the agreement
between ERTI and the German Consortium.

Before CDC could act upon petitioner ERTIs letter, the German Consortium
filed a complaint for injunction against herein petitioners before the Regional Trial
Court of Angeles City, Branch 61, docketed as Civil Case No. 10049. The German
Consortium claimed that petitioner ERTIs continued misrepresentation as to their

right to accept solid wastes from third parties for processing at the waste
management center will cause irreparable damage to the Consortium and its
exclusive right to operate the waste management center at the CSEZ. Moreover,
petitioner ERTIs acts destroy the Consortiums credibility and undermine
customer confidence in it. Hence, the German Consortium prayed that a writ of
temporary restraining order be issued against petitioner ERTI and, after hearing, a
writ of preliminary injunction be likewise issued ordering petitioner ERTI to cease
and desist from misrepresenting to third parties or the public that it has any right or
interest in the waste management center at CSEZ.14

Petitioners filed their Opposition to the application for preliminary

injunction on February 7, 2001. The following day, February 8, 2001, petitioners
sent respondents, through Mr. Holger Holst, a letter demanding that the parties
proceed to arbitration in accordance with Section 17 of the MOA. At the hearings
on the application for injunction, petitioners objected to the presentation of
evidence on the ground that the trial court had no jurisdiction over the case since
the German Consortium was composed of foreign corporations doing business in
the country without a license. Moreover, the MOA between the parties provides
that the dispute should be referred to arbitration.

The trial court overruled the objection and proceeded with the hearing. On
June 28, 2001, the trial court issued an Order granting the writ of preliminary
injunction.15 Petitioners filed a motion for reconsideration, which was denied in a
Resolution dated November 21, 2001.

On January 17, 2002, petitioners filed a petition for certiorari and prohibition
under Rule 65 of the Rules of Court before the Court of Appeals, assailing the trial
courts Orders dated June 28, 2001 and November 21, 2001.

Meanwhile, on February 11, 2002, the temporary restraining order issued

was lifted in view of respondents failure to file sufficient bond.16 On September
6, 2002, all proceedings in Civil Case No. 10049 were suspended until the petition
for certiorari pending before the Court of Appeals shall have been resolved.17

On May 15, 2003, the Court of Appeals dismissed the petition for certiorari.
Petitioners Motion for Reconsideration was denied in a Resolution dated August
25, 2003.

Hence, this petition arguing that the Court of Appeals committed reversible
error in:

(a) Ruling that petitioners are estopped from assailing the capacity of the
respondents to institute the suit for injunction

(b) Ruling that respondents are entitled to an injunctive writ.

(c) Not holding that the dispute is covered by the arbitration clause in the
memorandum of agreement.

(d) Issuing the writ of preliminary injunction that is tantamount to a decision

of the case on the merits.18

The petition is partly meritorious.

There is no general rule or governing principle laid down as to what

constitutes "doing" or "engaging in" or "transacting" business in the Philippines.
Thus, it has often been held that a single act or transaction may be considered as
"doing business" when a corporation performs acts for which it was created or
exercises some of the functions for which it was organized.19 We have held that
the act of participating in a bidding process constitutes "doing business" because it
shows the foreign corporations intention to engage in business in the Philippines.
In this regard, it is the performance by a foreign corporation of the acts for which it
was created, regardless of volume of business, that determines whether a foreign
corporation needs a license or not.20

Consequently, the German Consortium is doing business in the Philippines

without the appropriate license as required by our laws. By participating in the
bidding conducted by the CDC for the operation of the waste management center,
the German Consortium exhibited its intent to transact business in the Philippines.
Although the Contract for Services provided for the establishment of a local
corporation to serve as respondents representative, it is clear from the other
provisions of the Contract for Services as well as the letter by the CDC containing
the disapproval that it will be the German Consortium which shall manage and
conduct the operations of the waste management center for at least twenty-five
years. Moreover, the German Consortium was allowed to transact with other
entities outside the CSEZ for solid waste collection. Thus, it is clear that the local
corporation to be established will merely act as a conduit or extension of the
German Consortium.

As a general rule, unlicensed foreign non-resident corporations cannot file

suits in the Philippines. Section 133 of the Corporation Code specifically provides:

SECTION 133. No foreign corporation transacting business in the

Philippines without a license, or its successors or assigns, shall be permitted to
maintain or intervene in any action, suit or proceeding in any court or

administrative agency of the Philippines, but such corporation may be sued or

proceeded against before Philippine courts or administrative tribunals on any valid
cause of action recognized under Philippine laws.

A corporation has legal status only within the state or territory in which it
was organized. For this reason, a corporation organized in another country has no
personality to file suits in the Philippines. In order to subject a foreign corporation
doing business in the country to the jurisdiction of our courts, it must acquire a
license from the Securities and Exchange Commission (SEC) and appoint an agent
for service of process. Without such license, it cannot institute a suit in the
Philippines.21

However, there are exceptions to this rule. In a number of cases,22 we have

declared a party estopped from challenging or questioning the capacity of an
unlicensed foreign corporation from initiating a suit in our courts. In the case of
Communication Materials and Design, Inc. v. Court of Appeals,23 a foreign
corporation instituted an action before our courts seeking to enjoin a local
corporation, with whom it had a "Representative Agreement", from using its
corporate name, letter heads, envelopes, sign boards and business dealings as well
as the foreign corporations trademark. The case arose when the foreign
corporation discovered that the local corporation has violated certain contractual
commitments as stipulated in their agreement. In said case, we held that a foreign
corporation doing business in the Philippines without license may sue in Philippine
Courts a Philippine citizen or entity that had contracted with and benefited from it.

Hence, the party is estopped from questioning the capacity of a foreign

corporation to institute an action in our courts where it had obtained benefits from
its dealings with such foreign corporation and thereafter committed a breach of or
sought to renege on its obligations. The rule relating to estoppel is deeply rooted in
the axiom of commodum ex injuria sua non habere debetno person ought to
derive any advantage from his own wrong.

In the case at bar, petitioners have clearly not received any benefit from its
transactions with the German Consortium. In fact, there is no question that
petitioners were the ones who have expended a considerable amount of money and
effort preparatory to the implementation of the MOA. Neither do petitioners seek
to back out from their obligations under both the MOU and the MOA by
challenging respondents capacity to sue. The reverse could not be any more
accurate. Petitioners are insisting on the full validity and implementation of their
agreements with the German Consortium.

To rule that the German Consortium has the capacity to institute an action
against petitioners even when the latter have not committed any breach of its
obligation would be tantamount to an unlicensed foreign corporation gaining
access to our courts for protection and redress. We cannot allow this without
violating the very rationale for the law prohibiting a foreign corporation not
licensed to do business in the Philippines from suing or maintaining an action in
Philippine courts. The object of requiring a license is not to prevent the foreign
corporation from performing single acts, but to prevent it from acquiring domicile
for the purpose of business without taking the steps necessary to render it amenable
to suits in the local courts.24 In other words, the foreign corporation is merely
prevented from being in a position where it takes the good without accepting the
bad.

On the issue of whether the respondents were entitled to the injunctive writ,
the petitioners claim that respondents right is not in esse but is rather a future right
which is contingent upon a judicial declaration that the MOA has been validly
rescinded. The Court of Appeals, in its decision, held that the MOA should be
deemed subject to a suspensive condition, that is, that CDCs prior written consent
must be obtained for the validity of the assignment.

This issue must be resolved in a separate proceeding. It must be noted that

the hearing conducted in the trial court was merely a preliminary hearing relating
to the issuance of the injunctive writ. In order to fully appreciate the facts of this
case and the surrounding circumstances relating to the agreements and contract
involved, further proof should be presented for consideration of the court.
Likewise, corollary matters, such as whether either of the parties is liable for
damages and to what extent, cannot be resolved with absolute certainty, thus
rendering any decision we might make incomplete as to fully dispose of this case.

More importantly, it is evident that CDC must be made a proper party in any
case which seeks to resolve the effectivity or ineffectivity of its disapproval of the
assignment made between petitioners and respondent German Consortium. Where,
as in the instant case, CDC is not impleaded as a party, any decision of the court
which will inevitably affect or involve CDC cannot be deemed binding on it.

For the same reason, petitioners assertion that the instant case should be
referred to arbitration pursuant to the provision of the MOA is untenable.

We have ruled in several cases that arbitration agreements are valid, binding,
enforceable and not contrary to public policy such that when there obtains a written
provision for arbitration which is not complied with, the trial court should suspend
the proceedings and order the parties to proceed to arbitration in accordance with
the terms of their agreement.25 In the case at bar, the MOA between petitioner
ERTI and respondent German Consortium provided:

17. Should there be a disagreement between or among the Parties relative to

the interpretation or implementation of this Agreement and the collateral
documents including but not limited to the Contract for Services between
GERMAN CONSORTIUM and CDC and the Parties cannot resolve the same by
themselves, the same shall be endorsed to a panel of arbitrators which shall be

convened in accordance with the process ordained under the Arbitration Law of the
Republic of the Philippines.26

Indeed, to brush aside a contractual agreement calling for arbitration in case

of disagreement between parties would be a step backward.27 But there are
exceptions to this rule. Even if there is an arbitration clause, there are instances
when referral to arbitration does not appear to be the most prudent action. The
object of arbitration is to allow the expeditious determination of a dispute. Clearly,
the issue before us could not be speedily and efficiently resolved in its entirety if
we allow simultaneous arbitration proceedings and trial, or suspension of trial
pending arbitration.28

As discussed earlier, the dispute between respondent German Consortium

and petitioners involves the disapproval by the CDC of the assignment by the
German Consortium of its rights under the Contract for Services to petitioner
ERTI. Admittedly, the arbitration clause is contained in the MOA to which only the
German Consortium and petitioner ERTI were parties. Even if the case is brought
before an arbitration panel, the decision will not be binding upon CDC who is a
non-party to the arbitration agreement. What is more, the arbitration panel will not
be able to completely dispose of all the issues of this case without including CDC
in its proceedings. Accordingly, the interest of justice would only be served if the
trial court hears and adjudicates the case in a single and complete proceeding.

Lastly, petitioners question the propriety of the issuance of writ of

preliminary injunction claiming that such is already tantamount to granting the
main prayer of respondents complaint without the benefit of a trial. Petitioners
point out that the purpose of a preliminary injunction is to prevent threatened or
continuous irremediable injury to some of the parties before their claims can be
thoroughly studied and decided. It cannot be used to railroad the main case and
seek a judgment without a full-blown trial as in the instant case.

The Court of Appeals ruled that since petitioners did not raise this issue
during the hearing on the application for preliminary injunction before the trial
court, the same cannot be raised for the first time on appeal and even in special
civil actions for certiorari as in this case.

At the outset, it must be noted that with the finding that the German
Consortium is without any personality to file the petition with the trial court, the
propriety of the injunction writ issued is already moot and academic. Even
assuming for the sake of argument that respondents have the capacity to file the
petition, we find merit in the issue raised by petitioners against the injunction writ
issued.

Before an injunctive writ can be issued, it is essential that the following

requisites are present: (1) there must be a right in esse or the existence of a right to
be protected; and (2) the act against which injunction to be directed is a violation
of such right.29 The onus probandi is on movant to show that there exists a right to
be protected, which is directly threatened by the act sought to be enjoined. Further,
there must be a showing that the invasion of the right is material and substantial
and that there is an urgent and paramount necessity for the writ to prevent a serious
damage.30

Thus, it is clear that for the issuance of the writ of preliminary injunction to
be proper, it must be shown that the invasion of the right sought to be protected is
material and substantial, that the right of complainant is clear and unmistakable
and that there is an urgent and paramount necessity for the writ to prevent serious
damage.31 At the time of its application for an injunctive writ, respondents right
to operate and manage the waste management center, to the exclusion of or without
any participation by petitioner ERTI, cannot be said to be clear and unmistakable.
The MOA executed between respondents and petitioner ERTI has not yet been
judicially declared as rescinded when the complaint was lodged in court.32 Hence,

a cloud of doubt exists over respondent German Consortiums exclusive right

relating to the waste management center.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. SP No.

68923 dated May 15, 2003 is REVERSED and SET ASIDE. The Orders of the trial
court dated June 28, 2001 and November 21, 2001 are ANNULLED and SET
ASIDE and Civil Case No. 10049 is DISMISSED for lack of legal capacity of
respondents to institute the action. Costs against respondents.

SO ORDERED.

National Equipment Rental, Ltd. V. Szukhent

Brief Fact Summary. Petitioner, a New York corporation, sued Respondents,

residents of Michigan in New York federal court for failure to make payments on
equipment Respondents leased from Petitioner. The lease designated one Florence
Weinberg to be Respondents agent to accept service of process on their behalf.
Petitioner delivered the complaint and summons to Weinberg, who promptly
mailed the documents to Respondents.

Synopsis of Rule of Law. In order to have an agent authorized by

appointment for purposes of service of process, an individual can contractually
designate an agent to accept service of process within a certain state. If said agent
promptly delivers the papers served to said individual, then service is effective. It
does not matter if the clause requires the agent to deliver the papers or that the

agent may have a potential conflict of interest, or that the individual was not
acquainted with the particular agent.

Facts. Respondents, the Szukhents, were residents of Michigan. They rented

equipment from National Equipment Rental, Ltd., Petitioner, pursuant to a lease.
The lease specified that Florence Weinberg, located in Long Island, New York,
would be the designated agent of Respondents for purposes of accepting service of
process. The lease was signed by Petitioner and Respondents. Petitioner filed suit
against Respondents for failure to make payments under the lease. The complaint
and summons were served on Weinberg and Petitioner notified Respondents via
certified mail of said service. Weinberg promptly forwarded the complaint and
summons to Respondents. Respondents moved to quash service of the summons
and complaint on the grounds that service was ineffective. The trial court granted
the motion to quash. The Circuit Court upheld, reasoning that the lease term did
not create an agency relationship between Respondents and Weinberg. Petitioner
appealed and the Supreme Court granted certiorari.

Issue. Did the term in the lease between Petitioner and Respondent create an
agency relationship between Respondents and the alleged agent such that the agent
could validly accept service of process on behalf of Respondents?
Held. Yes. Reversed and remanded. Both parties acknowledge that the term
of the lease was agreed to by Petitioner and Respondents. Respondents received
notice in a complete and timely fashion, so they cannot argue that there has been a
due process violation. Parties can agree to designate an agent to accept service of
process or to even waive service. The prompt acceptance and delivery of the
complaint and summons to Respondents was enough to create an agency
relationship.

Dissent. Justice Black: The boilerplate language designating an agent in the

lease raises due process questions. Justice Brennan: The agent authorized by
appointment should not be someone that may have a conflict of interest with the
principal. In addition, the agent should be explicitly required to deliver the
complaint and summons in order for the agency to be effective. Finally, an
individuals signature should not be sufficient proof that he/she consented to be
served in a state outside of his/her residence when that signature appears on a
printed form contract prepared by a corporation.

Perkins v. Benguiet Consolidated Mining Co.

Brief Fact Summary. A Philippine Island mining companys production is

halted due to occupation of the islands by the Japanese. The President conducts
business from his home in Ohio.

Synopsis of Rule of Law. Federal due process is not violated in either taking
or declining jurisdiction of a foreign corporation when the foreign corporations
supervision of a business is carried on continuously and systematically within a
state.

Facts. The companys mining properties were in the Philippine Islands.

During the occupation of the Islands by the Japanese operations were halted and
the president returned to his home in Ohio. He maintained an office where he
conducted his affairs and conducted business of the company and its employees
(drew salary checks, maintaining bank accounts, hosting Directors meetings,
supervising policies to rehabilitate the properties in the Philippines etc.).

Issue. At the constitutional level, the fairness to the corporation, and

whether as a matter of federal due process, the business done in Ohio by the
respondent mining company was sufficiently substantial and of such a nature as to
permit Ohio to entertain a cause of action against a foreign corporation, where the
cause of action arose from activities entirely distinct from its activities in Ohio.

Held. Under these particular circumstances it would not violate federal due
process for Ohio to either take or decline jurisdiction of the corporation. Vacated
and remanded.

Dissent. Justice Minton and The Chief Justice dissented on the grounds that
the U.S. Supreme Court was essentially issuing an advisory opinion to the Ohio
Supreme Court.

Concurrence

Discussion. Although no mining properties were located in Ohio, the

operations and supervision of the company and wartime activities being directed
by the president in the State of Ohio are enough not to violate federal due process.

McGee v. International Life Insurance Co

Brief Fact Summary. A California resident and the beneficiary of a life
insurance policy, sued an insurance company when the company failed to pay
following the death of the insured.

Synopsis of Rule of Law. A state courts jurisdiction satisfies due process

when it is based on a contract with substantial connection with that state.

Facts. In 1944, Lowell Franklin, a resident of California, purchased a life

insurance policy form an insurer subsequently bought by Defendant International
Life Insurance Co., who then mailed a reinsurance certificate to Franklin in
California offering to insure him. Franklin accepted the offer and paid premiums
by mail from his California home to Defendants office in Texas until his death in
1950. When the beneficiary, Plaintiff McGee, notified Defendant of Franklins
death, they refused to pay. Neither the original insurer nor respondent ever had any
office or agent in California.

Issue. Whether a non-resident corporation is subject to jurisdiction in a state

in which it never had any agent or office, merely because it was a party to a
contract with a resident of the state.

Held. No. The Supreme Court of the United States ruled that the Due
Process clause did not preclude the California court from entering a judgment
binding on Defendant. The Supreme Court found that it is sufficient for purposes
of due process that the suit was based on a contract that had substantial connection
with California. A state has a manifest interest in providing effective means of
redress for its residents when their insurers refuse to pay claims.

Discussion. The Supreme Court, in considering fact the contract was

delivered in California, the premiums were mailed from there and the insured was
a resident of California when he died, combined with the recognition that modern
transportation and communication have made it much less burdensome for a party
sued to defend themselves in a state where they conduct business, found that it did
not violate just and fair play for the California court to enter a binding agreement

on International Life. Moreover, the Court reasoned that California residents would
be at a severe disadvantage if they had to leave their own state to obtain payment
from their insurance company.

PHILSEC INVESTMENT CORPORATION, BPI-INTERNATIONAL

FINANCE LIMITED, and ATHONA HOLDINGS, N.V., petitioners, vs. THE
HONORABLE COURT OF APPEALS, 1488, INC., DRAGO DAIC,
VENTURA O. DUCAT, PRECIOSO R. PERLAS, and WILLIAM H. CRAIG,
respondents.
DECISION
MENDOZA, J.:

This case presents for determination the conclusiveness of a foreign

judgment upon the rights of the parties under the same cause of action asserted in a

case in our local court. Petitioners brought this case in the Regional Trial Court of
Makati, Branch 56, which, in view of the pendency at the time of the foreign
action, dismissed Civil Case No. 16563 on the ground of litis pendentia, in addition
to forum non conveniens. On appeal, the Court of Appeals affirmed. Hence this
petition for review on certiorari.

The facts are as follows:

On January 15, 1983, private respondent Ventura O. Ducat obtained separate

loans from petitioners Ayala International Finance Limited (hereafter called
AYALA)[1] and Philsec Investment Corporation (hereafter called PHILSEC) in the
sum of US$2,500,000.00, secured by shares of stock owned by Ducat with a
market value of P14,088,995.00. In order to facilitate the payment of the loans,
private respondent 1488, Inc., through its president, private respondent Drago
Daic, assumed Ducats obligation under an Agreement, dated January 27, 1983,
whereby 1488, Inc. executed a Warranty Deed with Vendors Lien by which it sold
to petitioner Athona Holdings, N.V. (hereafter called ATHONA) a parcel of land in
Harris County, Texas, U.S.A., for US$2,807,209.02, while PHILSEC and AYALA
extended a loan to ATHONA in the amount of US$2,500,000.00 as initial payment
of the purchase price. The balance of US$307,209.02 was to be paid by means of a
promissory note executed by ATHONA in favor of 1488, Inc. Subsequently, upon
their receipt of the US$2,500,000.00 from 1488, Inc., PHILSEC and AYALA
released Ducat from his indebtedness and delivered to 1488, Inc. all the shares of
stock in their possession belonging to Ducat.

As ATHONA failed to pay the interest on the balance of US$307,209.02,

the entire amount covered by the note became due and demandable. Accordingly,
on October 17, 1985, private respondent 1488, Inc. sued petitioners PHILSEC,
AYALA, and ATHONA in the United States for payment of the balance of
US$307,209.02 and for damages for breach of contract and for fraud allegedly
perpetrated by petitioners in misrepresenting the marketability of the shares of

stock delivered to 1488, Inc. under the Agreement. Originally instituted in the
United States District Court of Texas, 165th Judicial District, where it was
docketed as Case No. 85-57746, the venue of the action was later transferred to the
United States District Court for the Southern District of Texas, where 1488, Inc.
filed an amended complaint, reiterating its allegations in the original complaint.
ATHONA filed an answer with counterclaim, impleading private respondents
herein as counterdefendants, for allegedly conspiring in selling the property at a
price over its market value. Private respondent Perlas, who had allegedly
appraised the property, was later dropped as counterdefendant. ATHONA sought
the recovery of damages and excess payment allegedly made to 1488, Inc. and, in
the alternative, the rescission of sale of the property. For their part, PHILSEC and
AYALA filed a motion to dismiss on the ground of lack of jurisdiction over their
person, but, as their motion was denied, they later filed a joint answer with
counterclaim against private respondents and Edgardo V. Guevarra, PHILSECs
own former president, for the rescission of the sale on the ground that the property
had been overvalued. On March 13, 1990, the United States District Court for the
Southern District of Texas dismissed the counterclaim against Edgardo V. Guevarra
on the ground that it was frivolous and [was] brought against him simply to
humiliate and embarrass him. For this reason, the U.S. court imposed so-called
Rule 11 sanctions on PHILSEC and AYALA and ordered them to pay damages to
Guevarra.

On April 10, 1987, while Civil Case No. H-86-440 was pending in the
United States, petitioners filed a complaint For Sum of Money with Damages and
Writ of Preliminary Attachment against private respondents in the Regional Trial
Court of Makati, where it was docketed as Civil Case No. 16563. The complaint
reiterated the allegation of petitioners in their respective counterclaims in Civil
Action No. H-86-440 of the United States District Court of Southern Texas that
private respondents committed fraud by selling the property at a price 400 percent
more than its true value of US$800,000.00. Petitioners claimed that, as a result of
private respondents fraudulent misrepresentations, ATHONA, PHILSEC, and
AYALA were induced to enter into the Agreement and to purchase the Houston
property. Petitioners prayed that private respondents be ordered to return to
ATHONA the excess payment of US$1,700,000.00 and to pay damages. On April

20, 1987, the trial court issued a writ of preliminary attachment against the real and
personal properties of private respondents.[2]

Private respondent Ducat moved to dismiss Civil Case No. 16563 on the
grounds of (1) litis pendentia, vis-a-vis Civil Action No. H-86-440 filed by 1488,
Inc. and Daic in the U.S., (2) forum non conveniens, and (3) failure of petitioners
PHILSEC and BPI-IFL to state a cause of action. Ducat contended that the alleged
overpricing of the property prejudiced only petitioner ATHONA, as buyer, but not
PHILSEC and BPI-IFL which were not parties to the sale and whose only
participation was to extend financial accommodation to ATHONA under a separate
loan agreement. On the other hand, private respondents 1488, Inc. and its
president Daic filed a joint Special Appearance and Qualified Motion to Dismiss,
contending that the action being in personam, extraterritorial service of summons
by publication was ineffectual and did not vest the court with jurisdiction over
1488, Inc., which is a non-resident foreign corporation, and Daic, who is a nonresident alien.

On January 26, 1988, the trial court granted Ducats motion to dismiss,
stating that the evidentiary requirements of the controversy may be more suitably
tried before the forum of the litis pendentia in the U.S., under the principle in
private international law of forum non conveniens, even as it noted that Ducat
was not a party in the U.S. case.

A separate hearing was held with regard to 1488, Inc. and Daics motion to
dismiss. On March 9, 1988, the trial court[3] granted the motion to dismiss filed
by 1488, Inc. and Daic on the ground of litis pendentia considering that

the main factual element of the cause of action in this case which is the
validity of the sale of real property in the United States between defendant 1488
and plaintiff ATHONA is the subject matter of the pending case in the United

States District Court which, under the doctrine of forum non conveniens, is the
better (if not exclusive) forum to litigate matters needed to determine the
assessment and/or fluctuations of the fair market value of real estate situated in
Houston, Texas, U.S.A. from the date of the transaction in 1983 up to the present
and verily, . . . (emphasis by trial court)

The trial court also held itself without jurisdiction over 1488, Inc. and Daic
because they were non-residents and the action was not an action in rem or quasi in
rem, so that extraterritorial service of summons was ineffective. The trial court
subsequently lifted the writ of attachment it had earlier issued against the shares of
stocks of 1488, Inc. and Daic.

Petitioners appealed to the Court of Appeals, arguing that the trial court
erred in applying the principle of litis pendentia and forum non conveniens and in
ruling that it had no jurisdiction over the defendants, despite the previous
attachment of shares of stocks belonging to 1488, Inc. and Daic.

On January 6, 1992, the Court of Appeals[4] affirmed the dismissal of Civil

Case No. 16563 against Ducat, 1488, Inc., and Daic on the ground of litis
pendentia, thus:

The plaintiffs in the U.S. court are 1488 Inc. and/or Drago Daic, while the
defendants are Philsec, the Ayala International Finance Ltd. (BPI-IFLs former
name) and the Athona Holdings, NV. The case at bar involves the same parties.
The transaction sued upon by the parties, in both cases is the Warranty Deed
executed by and between Athona Holdings and 1488 Inc. In the U.S. case, breach
of contract and the promissory note are sued upon by 1488 Inc., which likewise
alleges fraud employed by herein appellants, on the marketability of Ducats
securities given in exchange for the Texas property. The recovery of a sum of
money and damages, for fraud purportedly committed by appellees, in overpricing

the Texas land, constitute the action before the Philippine court, which likewise
stems from the same Warranty Deed.

The Court of Appeals also held that Civil Case No. 16563 was an action in
personam for the recovery of a sum of money for alleged tortious acts, so that
service of summons by publication did not vest the trial court with jurisdiction over
1488, Inc. and Drago Daic. The dismissal of Civil Case No. 16563 on the ground
of forum non conveniens was likewise affirmed by the Court of Appeals on the
ground that the case can be better tried and decided by the U.S. court:

The U.S. case and the case at bar arose from only one main transaction, and
involve foreign elements, to wit: 1) the property subject matter of the sale is
situated in Texas, U.S.A.; 2) the seller, 1488 Inc. is a non-resident foreign
corporation; 3) although the buyer, Athona Holdings, a foreign corporation which
does not claim to be doing business in the Philippines, is wholly owned by Philsec,
a domestic corporation, Athona Holdings is also owned by BPI-IFL, also a foreign
corporation; 4) the Warranty Deed was executed in Texas, U.S.A.

In their present appeal, petitioners contend that:

1. THE DOCTRINE OF PENDENCY OF ANOTHER ACTION BETWEEN

THE SAME PARTIES FOR THE SAME CAUSE (LITIS PENDENTIA) RELIED
UPON BY THE COURT OF APPEALS IN AFFIRMING THE TRIAL COURTS
DISMISSAL OF THE CIVIL ACTION IS NOT APPLICABLE.

2. THE PRINCIPLE OF FORUM NON CONVENIENS ALSO RELIED

UPON BY THE COURT OF APPEALS IN AFFIRMING THE DISMISSAL BY
THE TRIAL COURT OF THE CIVIL ACTION IS LIKEWISE NOT
APPLICABLE.

3. AS A COROLLARY TO THE FIRST TWO GROUNDS, THE COURT

OF APPEALS ERRED IN NOT HOLDING THAT PHILIPPINE PUBLIC
POLICY REQUIRED THE ASSUMPTION, NOT THE RELINQUISHMENT, BY
THE TRIAL COURT OF ITS RIGHTFUL JURISDICTION IN THE CIVIL
ACTION FOR THERE IS EVERY REASON TO PROTECT AND VINDICATE
PETITIONERS RIGHTS FOR TORTIOUS OR WRONGFUL ACTS OR
CONDUCT PRIVATE RESPONDENTS (WHO ARE MOSTLY NON-RESIDENT
ALIENS) INFLICTED UPON THEM HERE IN THE PHILIPPINES.

We will deal with these contentions in the order in which they are made.

First. It is important to note in connection with the first point that while the
present case was pending in the Court of Appeals, the United States District Court
for the Southern District of Texas rendered judgment[5] in the case before it. The
judgment, which was in favor of private respondents, was affirmed on appeal by
the Circuit Court of Appeals.[6] Thus, the principal issue to be resolved in this case
is whether Civil Case No. 16536 is barred by the judgment of the U.S. court.

Private respondents contend that for a foreign judgment to be pleaded as res

judicata, a judgment admitting the foreign decision is not necessary. On the other
hand, petitioners argue that the foreign judgment cannot be given the effect of res
judicata without giving them an opportunity to impeach it on grounds stated in
Rule 39, 50 of the Rules of Court, to wit: want of jurisdiction, want of notice to
the party, collusion, fraud, or clear mistake of law or fact.

Petitioners contention is meritorious. While this Court has given the effect
of res judicata to foreign judgments in several cases,[7] it was after the parties
opposed to the judgment had been given ample opportunity to repel them on
grounds allowed under the law.[8] It is not necessary for this purpose to initiate a

separate action or proceeding for enforcement of the foreign judgment. What is

essential is that there is opportunity to challenge the foreign judgment, in order for
the court to properly determine its efficacy. This is because in this jurisdiction,
with respect to actions in personam, as distinguished from actions in rem, a foreign
judgment merely constitutes prima facie evidence of the justness of the claim of a
party and, as such, is subject to proof to the contrary.[9] Rule 39, 50 provides:

SEC. 50. Effect of foreign judgments. - The effect of a judgment of a

tribunal of a foreign country, having jurisdiction to pronounce the judgment is as
follows:

(a) In case of a judgment upon a specific thing, the judgment is conclusive

upon the title to the thing;

(b) In case of a judgment against a person, the judgment is presumptive

evidence of a right as between the parties and their successors in interest by a
subsequent title; but the judgment may be repelled by evidence of a want of
jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or
fact.

Thus, in the case of General Corporation of the Philippines v. Union

Insurance Society of Canton, Ltd.,[10] which private respondents invoke for
claiming conclusive effect for the foreign judgment in their favor, the foreign
judgment was considered res judicata because this Court found from the evidence
as well as from appellants own pleadings[11] that the foreign court did not make
a clear mistake of law or fact or that its judgment was void for want of
jurisdiction or because of fraud or collusion by the defendants. Trial had been
previously held in the lower court and only afterward was a decision rendered,
declaring the judgment of the Supreme Court of the State of Washington to have
the effect of res judicata in the case before the lower court. In the same vein, in

Philippine International Shipping Corp. v. Court of Appeals,[12] this Court held

that the foreign judgment was valid and enforceable in the Philippines there being
no showing that it was vitiated by want of notice to the party, collusion, fraud or
clear mistake of law or fact. The prima facie presumption under the Rule had not
been rebutted.

In the case at bar, it cannot be said that petitioners were given the
opportunity to challenge the judgment of the U.S. court as basis for declaring it res
judicata or conclusive of the rights of private respondents. The proceedings in the
trial court were summary. Neither the trial court nor the appellate court was even
furnished copies of the pleadings in the U.S. court or apprised of the evidence
presented thereat, to assure a proper determination of whether the issues then being
litigated in the U.S. court were exactly the issues raised in this case such that the
judgment that might be rendered would constitute res judicata. As the trial court
stated in its disputed order dated March 9, 1988:

On the plaintiffs claim in its Opposition that the causes of action of this
case and the pending case in the United States are not identical, precisely the Order
of January 26, 1988 never found that the causes of action of this case and the case
pending before the USA Court, were identical. (emphasis added)

It was error therefore for the Court of Appeals to summarily rule that
petitioners action is barred by the principle of res judicata. Petitioners in fact
questioned the jurisdiction of the U.S. court over their persons, but their claim was
brushed aside by both the trial court and the Court of Appeals.[13]

Moreover, the Court notes that on April 22, 1992, 1488, Inc. and Daic filed a
petition for the enforcement of judgment in the Regional Trial Court of Makati,
where it was docketed as Civil Case No. 92-1070 and assigned to Branch 134,
although the proceedings were suspended because of the pendency of this case. To

sustain the appellate courts ruling that the foreign judgment constitutes res
judicata and is a bar to the claim of petitioners would effectively preclude
petitioners from repelling the judgment in the case for enforcement. An absurdity
could then arise: a foreign judgment is not subject to challenge by the plaintiff
against whom it is invoked, if it is pleaded to resist a claim as in this case, but it
may be opposed by the defendant if the foreign judgment is sought to be enforced
against him in a separate proceeding. This is plainly untenable. It has been held
therefore that:

[A] foreign judgment may not be enforced if it is not recognized in the

jurisdiction where affirmative relief is being sought. Hence, in the interest of
justice, the complaint should be considered as a petition for the recognition of the
Hongkong judgment under Section 50 (b), Rule 39 of the Rules of Court in order
that the defendant, private respondent herein, may present evidence of lack of
jurisdiction, notice, collusion, fraud or clear mistake of fact and law, if applicable.
[14]

Accordingly, to insure the orderly administration of justice, this case and

Civil Case No. 92-1070 should be consolidated.[15] After all, the two have been
filed in the Regional Trial Court of Makati, albeit in different salas, this case being
assigned to Branch 56 (Judge Fernando V. Gorospe), while Civil Case No. 92-1070
is pending in Branch 134 of Judge Ignacio Capulong. In such proceedings,
petitioners should have the burden of impeaching the foreign judgment and only in
the event they succeed in doing so may they proceed with their action against
private respondents.

Second. Nor is the trial courts refusal to take cognizance of the case
justifiable under the principle of forum non conveniens. First, a motion to dismiss
is limited to the grounds under Rule 16, 1, which does not include forum non
conveniens.[16] The propriety of dismissing a case based on this principle requires
a factual determination, hence, it is more properly considered a matter of defense.

Second, while it is within the discretion of the trial court to abstain from assuming
jurisdiction on this ground, it should do so only after vital facts are established, to
determine whether special circumstances require the courts desistance.[17]

In this case, the trial court abstained from taking jurisdiction solely on the
basis of the pleadings filed by private respondents in connection with the motion to
dismiss. It failed to consider that one of the plaintiffs (PHILSEC) is a domestic
corporation and one of the defendants (Ventura Ducat) is a Filipino, and that it was
the extinguishment of the latters debt which was the object of the transaction
under litigation. The trial court arbitrarily dismissed the case even after finding
that Ducat was not a party in the U.S. case.

Third. It was error we think for the Court of Appeals and the trial court to
hold that jurisdiction over 1488, Inc. and Daic could not be obtained because this is
an action in personam and summons were served by extraterritorial service. Rule
14, 17 on extraterritorial service provides that service of summons on a nonresident defendant may be effected out of the Philippines by leave of Court where,
among others, the property of the defendant has been attached within the
Philippines.[18] It is not disputed that the properties, real and personal, of the
private respondents had been attached prior to service of summons under the Order
of the trial court dated April 20, 1987.[19]

Fourth. As for the temporary restraining order issued by the Court on June
29, 1994, to suspend the proceedings in Civil Case No. 92-1445 filed by Edgardo
V. Guevarra to enforce so-called Rule 11 sanctions imposed on the petitioners by
the U.S. court, the Court finds that the judgment sought to be enforced is severable
from the main judgment under consideration in Civil Case No. 16563. The
separability of Guevarras claim is not only admitted by petitioners,[20] it appears
from the pleadings that petitioners only belatedly impleaded Guevarra as defendant
in Civil Case No. 16563.[21] Hence, the TRO should be lifted and Civil Case No.
92-1445 allowed to proceed.

WHEREFORE, the decision of the Court of Appeals is REVERSED and

Civil Case No. 16563 is REMANDED to the Regional Trial Court of Makati for
consolidation with Civil Case No. 92-1070 and for further proceedings in
accordance with this decision. The temporary restraining order issued on June 29,
1994 is hereby LIFTED.

SO ORDERED.

World Wide Volkswagen Corp v. Woodson

Brief Fact Summary. A family that purchased a car in New York sued the
auto manufacturer and retailer after they became involved in an accident in
Oklahoma while driving to Arizona.
Synopsis of Rule of Law. A consumers unilateral act of bringing the
defendants product into the forum state is not a sufficient basis for exercising
personal jurisdiction over the defendant.
Facts. Harry and Kay Robinson purchased an Audi automobile from Seaway
Volkswagen, Inc. in New York State in 1976. The following year they left New
York to move to Arizona. While they were driving through Oklahoma, another car
struck them, causing a fire which burned Kay Robinson and two of her children.
The Robinsons brought a products liability suit in Oklahoma claiming that their

injuries resulted from defective design and placement for the Audis gas tank and
fuel system. The Robinsons joined as defendants the auto manufacturer, Audi, its
importer, Volkswagen of America, Inc., its regional distributor, World Wide
Volkswagen Corporation, and its retail dealer, Seaway. The court found that World
Wide was incorporated and had its business office in New York. It distributed
Vehicles, under Contract with Volkswagen, to retail dealers in New York,
Connecticut, and New Jersey. Seaway is a retail dealer whose place of business is
in New York. There was no evidence that either World-Wide or Seaway did any
business in Oklahoma, shipped or sold any products in that state, had an agent to
receive process there, or advertised in Oklahoma. Seaway and World-Wide made
special apperances for the purpose of opposing jurisdiction in Oklahoma. The
Oklahoma court denied their motion and this appeal followed, whereby the
Supreme Court of the United States granted Seaway and World-Wide a writ of
certiorari.

Issue. Whether an Oklahoma court may exercise in personam jurisdiction

over a non- resident automobile retailer and its wholesale distributor in a products
liability suit, when the defendants only connection with Oklahoma is the fact that
an auto sold in New York to New York residents became involved in an accident in
Oklahoma?

Held. No. The Supreme Court reversed the Oklahoma courts ruling.
Forseeability of being asked to defend a suit in a particular forum is not a sufficient
benchmark for personal jurisdiction under the Due Process Clause. Instead, it is the
defendants conduct and connection with the forum state that determines whether it
is reasonable for a defendant to be haled into court. Because Seaway and WorldWide had no contacts, ties or relations with the state of Oklahoma, jurisdiction
would violate the Due Process Clause.

Dissent. Justice Brennan dissented. He found that the courts over-reliance

on contacts between the defendant and the state obscures whether being subject to

a suit there would actually cause any inconvenience to the defendant. Additionally,
he found that because the interest in having the suit in Oklahoma was strong, given
that the plaintiffs were hospitalized there and key witnesses resided there,
jurisdiction should have been granted. A dissenting opinion by Justice Marshal,
joined by Justice Blackmun, was omitted by the casebook editors.

Discussion. The courts reasoning for not extending jurisdiction is that the
two purposes of the minimum contacts requirement, i.e. protecting defendants
against the burden of litigating in a distant forum and ensuring that State courts do
not reach beyond the limits established by the federal system, would not be served
if jurisdiction were granted. Specifically, the court relied on the fact that Seaway
and World-Wide carry on no activity whatsoever in Oklahoma, perform no services
there, and avail themselves of none of the privileges and benefits of Oklahoma law.
The court will look not to whether it was foreseeable to the defendant that he could
be sued in a given state, but whether a suit there is reasonable given the
defendants ties and relations with the state. Calder v. Jones

Brief Fact Summary. Respondent, Shirley Jones, brought a libel suit in a California
state court against Petitioners, Calder et al. Petitioners South and Calder are
Florida residents who argue that California courts lack personal jurisdiction over
them.
Synopsis of Rule of Law. A state has personal jurisdiction over any party whose
actions intentionally reach another party in the state and are the basis for the cause
of action.
Facts. Petitioners South is a reporter, and Petitioner Calder is president and an
editor, of Petitioner National Enquirer. South wrote an article that accused
Respondent of a drinking problem that was so severe that it affected her acting
career. Calder reviewed the article and edited it to its final form for publication.
Respondent brought a suit for libel, and South and Calder challenged Californias
personal jurisdiction since neither had any physical contacts with California,
particularly as it pertained to this article. South did rely on sources from California,
and Respondents life and career were centered in California. The district court
cited Petitioners rights under the First Amendment to the United States
Constitution as trumpeting Due Process Clause concerns. The appellate court
reversed because First Amendment arguments are irrelevant to jurisdictional
analysis.

Issue. The issue is whether California has personal jurisdiction over South and
Calder through their targeting of Respondent with this article.

Held. The United States Supreme Court held that California had personal
jurisdiction over Petitioners. The first step in the analysis is to determine the focal
point of the harm suffered, and that was in California. The Court then determined
that Petitioners actions intentionally aimed at a California resident, and the injuries
suffered would be in that state.
Discussion. Petitioners argued that, because they were merely employees of the
libelous newspaper, their case was analogous to a welder who works on a boiler in
Florida that subsequently explodes in California. The Court distinguishes this by
noting that unlike the welder they intentionally targeted the California contact.

Keeton v. Hustler Magazine

Keeton v. Hustler Magazine, Inc., 465 U.S. 770 (1984), is a civil procedure case in
which the Supreme Court held that a state has an interest in exercising personal
jurisdiction over those who commit torts within its territory, and also extends to
actions brought by non-residents.

FACTS:
As a New York resident, Keeton's (plaintiff) only connection to New
Hampshire was through the circulation of copies of a magazine she assisted in
producing. Hustler Magazine, Inc., (Defendant) an Ohio corporation with its
principal place of business in California, has a connection to New Hampshire only
through the sale of ten to fifteen thousand copies of its magazine each month.
Plaintiff claims to have been libeled in five separate issues of defendants
magazine. Plaintiff brought suit against the defendant in Ohio, which was
dismissed because the statute of limitations expired. New Hampshire is the only
state in which the statute of limitations for libel actions had not expired. Plaintiff
then brought suit in U.S. District Court for the District of New Hampshire. The

District court dismissed the case because the Due Process Clause forbade the
application of New Hampshires long-arm statute in order to acquire personal
jurisdiction over defendant. Plaintiff appealed to the Court of Appeals, which
affirmed.
ISSUE:
Whether New Hampshire has personal jurisdiction over non-resident
plaintiff and non-resident defendant, where defendants only connection to New
Hampshire is the sale of its magazine?
Holding and Law
Yes. The defendants regular circulation of magazines in the forum state
(New Hampshire) coupled with New Hampshires interest in redressing injuries
that occur within the state established jurisdiction. Victims of libel may bring suit
in any forum where the defendant has minimum contacts. By circulating
magazines purposefully throughout New Hampshire, it unavoidably affected
persons in the state. Therefore, New Hampshire jurisdiction over a defendant based
on those contacts would satisfy the requirement of the Due Process Clause of
"minimum contacts" between the defendant and state.

Asahi Metal Industry Co. v. Superior Court

Brief Fact Summary.
A person injured in a motorcycle accident sued the manufacturer of the
motorcycles tire, who then filed a cross-complaint against the manufacturer of one
part of the tire.
Synopsis of Rule of Law.
The substantial connection between the Defendant and the forum state
necessary for a finding of minimum contacts must come about by an action of the
Defendant purposefully directed toward the forum state.

Facts.
Gary Zurcher was severely injured and his wife was killed after he lost
control of his Honda motorcycle and collided with a tractor in Solano County,
California. Zurcher filed a products liability in California state court, alleging that
the motorcycle tire, tube and sealant were defective. Zuchers complaint named
Cheng Shin Rubber Industrial, Co., Ltd., the Taiwanese manufacturer of the tube.
Cheng Shin then filed a cross- complaint against Asahi Metal Industry Co., Ltd.,
the manufacturer of the tubes valve assembly. Asahi is a Japanese corporation that
manufactures tire valve assemblies in Japan and sells them to Cheng Shin and
others for use as components in finished tire tubes. Approximately 20 percent of
Cheng Shins sales in the United States are in California. A manager of Cheng Shin
submitted an affidavit alleging that Asahi was aware that parts were sold in the
U.S. The president of Asahi submitted an affidavit alleging that Asahi never
contemplated that they could be subject to suit in California through its sales of tire
valves to Cheng Shin in Taiwan. Asahi moved to dismiss the suit against it for want
of jurisdiction. California court denied the motion and the Supreme Court of the
United States granted a writ of certiorari.

Issue.
Whether the mere awareness of the part of a foreign Defendant that the
components it manufactured, sold, and delivered outside the United States would
reach the forum state in the stream of commerce constitutes sufficient minimum
contacts rendering jurisdiction appropriate.
Held.
No. The Supreme Court of the United States reversed the Supreme Court of
Californias ruling upholding jurisdiction. Due Process requires more than that the
Defendant was aware of its products entry into the forum state through the stream
of commerce in order for the state to exercise jurisdiction over the Defendant. The
substantial connection between the Defendant and the forum state necessary for a
finding of minimum contacts must come about by an action of the Defendant

purposefully directed toward the forum state. The placement of a product in the
stream of commerce, without more, is not an act of the Defendant purposefully
directed toward the forum state.
Discussion.

In analyzing whether jurisdiction would offend traditional notions of fair

play and substantial justice, the court noted that the burden on the Defendant to
defend the suit would be severe. Moreover, the court noticed that Californias
interest in the suit is slight, since the Plaintiff is not a California resident. Rush v.
Savchuk
Facts:
While a resident of Indiana, appellee was injured in an accident in Indiana
while riding as a passenger in a car driven by appellant Rush, also an Indiana
resident. After moving to Minnesota, appellee commenced this action against Rush
in a Minnesota state court, alleging negligence and seeking damages. As Rush had
no contacts with Minnesota that would support in personam jurisdiction, appellee
attempted to obtain quasi in rem jurisdiction by garnishing the contractual
obligation of State Farm Mutual Automobile Insurance Co. (State Farm) to defend
and indemnify Rush in connection with such a suit. State Farm, which does
business in Minnesota, had insured the car, owned by Rush's father, under a
liability insurance policy issued in Indiana. Rush was personally served in Indiana,
and after State Farm's response to the garnishment summons asserted that it owed
the defendant nothing, appellee moved the trial court for permission to file a
supplemental complaint making the garnishee, State Farm, a party to the action.
Rush and State Farm moved to dismiss the complaint for lack of jurisdiction over
the defendant. The trial court denied the motion to dismiss and granted the motion
for leave to file the supplemental complaint. The Minnesota Supreme Court
affirmed, ultimately holding that the assertion of quasi in rem jurisdiction under the
Minnesota garnishment statute complied with the due process standards enunciated
in Shaffer v. Heitner,433 U. S. 186.

Held:
A State may not constitutionally exercise quasi in rem jurisdiction over a
defendant who has no forum contacts by attaching the contractual obligation of an
insurer licensed to do business in the State to defend and indemnify him in
connection with the suit. Pp. 444 U. S. 327-333.

(a) A State may exercise jurisdiction over an absent defendant only if the
defendant has certain minimum contacts with the forum such that the maintenance
of the suit does not offend traditional notions of fair play and substantial justice.
International Shoe Co. v. Washington,326 U. S. 310. In determining whether a
particular exercise of state court jurisdiction is consistent with due process, the
inquiry must focus on "the relationship among the defendant, the forum, and the
litigation." Shaffer v. Heitner, supra at 433 U. S. 204. P. 327.

(b) Here, the only affiliating circumstance offered to show a relationship

among Rush, Minnesota, and this lawsuit is that Rush's insurance company does
business in the State. However, the fictional presence in Minnesota of State Farm's
policy obligation to defend and indemnify Rush -- derived from combining the
legal fiction that assigns a situs to a debt, for garnishment purposes, wherever the
debtor is found with the legal fiction that a corporation is "present," for
jurisdictional purposes, wherever it does business -- cannot be deemed to give the
State the power to determine Rush's liability for the out-of-state accident. The mere
presence of property in a State does not establish a sufficient relationship between
the owner of the property and the State to support the exercise of jurisdiction over
an unrelated cause of action, and it cannot be said that the defendant engaged in
any purposeful activity related to the forum that would make the exercise of
jurisdiction fair, just, or reasonable merely because his insurer does business there.
Nor does the policy provide significant contacts between the litigation and the
forum, for the policy obligations pertain only to the conduct, not the substance, of
the litigation. Pp. 444 U. S. 327-330.

(c) Moreover, the requisite minimum contacts with the forum cannot be
established under an alternative approach attributing the insurer's forum contacts to
the defendant by treating the attachment procedure as the functional equivalent of a
direct action against the insurer, and considering the insured a "nominal defendant"
in order to obtain jurisdiction over the insurer. The State's ability to exert its power
over the "nominal defendant" is analytically prerequisite to the insurer's entry into

the case as a garnishee, and if the Constitution forbids the assertion of jurisdiction
over the insured based on the policy, then there is no conceptual basis for bringing
the "garnishee" into the action. Nor may the Minnesota court attribute State Farm's
contacts to Rush by considering the "defending parties" together and aggregating
their forum contacts in determining whether it has jurisdiction. The parties'
relationships with each other may be significant in evaluating their ties to the
forum, but the requirements of International Shoe must be met as to each defendant
over whom a state court exercises jurisdiction. Pp. 444 U. S. 330-332.